AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BRAKE HEADQUARTERS U.S.A., INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 5012 22-3048534
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Identification
Classification Code Number)
Number)
</TABLE>
33-16 WOODSIDE AVENUE
LONG ISLAND CITY, NY 11101
(718) 779-4800
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
JOSEPH ENDE, PRESIDENT
BRAKE HEADQUARTERS U.S.A., INC.
33-16 WOODSIDE AVENUE
LONG ISLAND CITY, NY 11101
(718) 779-4800
(Name, Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent For Service)
COPY TO:
ELLIOT H. LUTZKER, ESQ.
SNOW BECKER KRAUSS P.C.
605 THIRD AVENUE
NEW YORK, NEW YORK 10158
TELEPHONE: 212 687-3860
FAX: (212) 949-7052
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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, 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
[CAPTION]
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER- REGISTRATION
BE REGISTERED REGISTERED PER SHARE (1) ING PRICE (1) FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value......... 450,000 Shs. (2) $ 2.50(3) $ 1,125,000 $ 387.93
Common Stock Purchase Warrants........ 900,000 Wts. $ 3.80 $ 3,420,000 $1,179.31
Common Stock, $.001 par value......... 900,000 Shs. (4) (5) (6) (6) (6)
Common Stock $.001 par value.......... 40,000 Shs. (7) $ 2.50 $ 100,000 $ 34.48
Common Stock Purchase Warrants........ 80,000 Wts. (8) $ 3.80 $ 304,000 $ 104.83
Common Stock $.001 par value.......... 80,000 Shs. (6) (6) (6) (6)
Common Stock $.001 par value.......... 174,633 Shs. $ 6.25(3) $1,091,456.25 $ 376.36
Total: $6,040,456.25 $2,082.91
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) These shares were issued as part of units in an August 1996 private
placement (the "Private Placement"), with each unit consisting of one share
of Common Stock and two Common Stock Purchase Warrants.
(3) The average of the bid and asked prices of the Common Stock of the
Registrant on September 30, 1996, as reported by Nasdaq, was $6.25 per
share.
(4) Issuable upon exercise of the 900,000 Common Stock Purchase Warrants issued
in the Placement.
(5) Pursuant to Rule 416, this Registration Statement also covers such
indeterminable additional shares as may become issuable as a result of
anti-dilution adjustment in accordance with the terms of the Common Stock
Purchase Warrants.
(6) Pursuant to Rule 457(g), no additional registration fee is required for
these shares.
(7) Issuable upon exercise of the Placement Agent's Warrants which are each
exercisable for one share of Common Stock and two Common Stock Purchase
Warrants.
(8) Issuable upon exercise of the Placement Agent's Common Stock Purchase
Warrants.
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>
BRAKE HEADQUARTERS U.S.A., INC.
CROSS REFERENCE SHEET
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<CAPTION>
ITEM
NO. CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......... Outside Front Cover Page.
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover Pages.
3. Summary Information, Risk Factors and Ratio of
Earnings To Fixed Charges....................... Prospectus Summary; Risk Factors.
4. Use of Proceeds................................. Use of Proceeds.
5. Determination of Offering Price................. Plan of Distribution
6. Dilution........................................ Dilution.
7. Selling Security Holders........................ Selling Securityholders
8. Plan of Distribution............................ Plan of Distribution
9. Description of Securities to be Registered...... Description of Securities.
10. Interest of Named Experts and Counsel........... Legal Matters; Experts.
11. Information with Respect to the Registrant...... Business; Business -- Properties; Business -- Legal
Proceedings; Financial Statements; Selected Financial
Data; Management's Discussion and Analysis of Financial
Condition and Results of Operation; Management;
Management -- Executive Compensation; Principal
Stockholders; Certain Transactions.
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Management -- Indemnification.
</TABLE>
* Not Applicable
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER , 1996
1,644,633 SHARES OF COMMON STOCK
980,000 CLASS A COMMON STOCK PURCHASE WARRANTS
BRAKE HEADQUARTERS U.S.A., INC.
This Prospectus pertains to 1,644,633 shares (the "Shares") of
Common Stock, $.001 par value per share, of Brake Headquarters U.S.A.,
Inc. (the "Company"), as well as 980,000 redeemable Class A Common
Stock Purchase Warrants (the "Warrants") that may be sold by the
selling securityholders named herein (the "Selling Securityholders").
The Shares offered hereby were issued by the Company to: certain
investors in a private placement (the "Private Placement") of 450,000
units (the "Units"), at a purchase price of $2.50 per Unit, each Unit
consisting of one share of Common Stock and two Warrants each to
purchase one share of Common Stock at $3.80 per share until August 13,
1999; G-V Capital Corp., the placement agent of the Private Placement
(the "Placement Agent") in the form of 40,000 Units (the "Placement
Agent's Warrants"), each consisting of one share of Common Stock and
two Warrants; and four private investors who hold "piggyback"
registration rights, concerning an aggregate of 174,633 shares of
Common Stock. See "Selling Securityholders."
The Company will not directly receive any proceeds from the sale
of the Shares by the Selling Shareholders, but will receive the
exercise price of all Warrants exercised. See "Use of Proceeds." On
September 27, 1996, the closing sale price for the Common Stock on the
Nasdaq SmallCap Market ("Nasdaq") was $6.00 per share. See "Price
Range of Common Stock."
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.
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY, SEE "RISK FACTORS" COMMENCING ON PAGE 5.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
The registration of the Shares offered hereby is being effected in
connection with registration rights granted by the Company pursuant to the terms
of the Private Placement, the Placement Agent's Warrants and the other Selling
Securityholders' Subscription Agreements. In accordance with the terms of such
rights, the Company will bear the expenses of such registration, which are
estimated, except that the Selling Securityholders will bear the cost of all
brokerage commissions and discounts incurred in connection with the sale of
their portion of the Shares and their respective legal expenses.
Commencing on the effective date of this Prospectus, the Shares may be
sold, from time to time, by the Selling Securityholders directly to purchasers
or, alternatively, may be offered through agents, brokers, dealers or
underwriters, who may receive compensation in the form of commissions or
discounts from the Selling Securityholders or purchasers of the Shares. Sales of
the Shares may be made on Nasdaq, in privately negotiated transactions or
otherwise, and such sales may be made at the market price prevailing at the time
of sale, a price related to such prevailing market price or at a negotiated
price.
Any brokers, dealers or agents that participate in the distribution of the
Shares may be deemed to be underwriters under Section 2(11) of the Securities
Act of 1933, as amended (the "Securities Act"), and any commissions or discounts
received by them on the resale of such Shares may be deemed to be underwriting
compensation under the Securities Act. The sale of the Shares by the Selling
Securityholders is subject to the prospectus delivery and other requirements of
the Securities Act. See "Plan of Distribution."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Seven World Trade
Center, New York, New York 10048, and at Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material may be
obtained, at prescribed rates, by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that
file electronically. The Company intends to furnish its stockholders with
annual reports containing audited financial statements and such other reports
as the Company deems appropriate or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS, IN ADDITION TO
HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
Brake Headquarters U.S.A., Inc. (the "Company") is a specialized
distributor in the automotive aftermarket of a complete line of brake system
products including brake drums and rotors, brake master cylinders, wheel
cylinders, brake pads, brake shoes and brake hoses for virtually all makes and
models of domestic and foreign passenger cars and light trucks from model year
1976 to the present. The Company also sells a variety of other "undercar" parts
including ride control products, steering/suspension parts, drive shafts, shock
absorbers and clutches. The brake line products are sold primarily under the
name "Brake Headquarters," as well as under the name "Sanyo Automotive" and
other private labels.
The Company was incorporated in the State of Delaware on July 13, 1988 as a
blind pool which did not conduct business operations until July 1992 when it
acquired, in a reverse acquisition (the "Reverse Merger"), all of the
outstanding capital stock of Sanyo Automotive Parts, Ltd. ("Sanyo Automotive").
In connection with the Reverse Merger, the Company amended its Certificate of
Incorporation to change its name to Sanyo Industries, Inc. On August 8, 1995,
the Company changed its name to Brake Headquarters U.S.A., Inc.. The Company is
a publicly-owned holding company that conducts substantially all of its current
business operations through its wholly-owned subsidiary Sanyo Automotive, a New
York corporation formed in 1976, which is currently doing business under the
name Brake Headquarters.
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<S> <C>
Common Stock Outstanding as of September 27,
1996 (1)............................................ 3,868,730
Common Stock to be Outstanding Upon Full Exercise of
Warrants and Conversion of Promissory Note (2)...... 4,980,030
Warrants Offered...................................... The Warrants are exercisable until August 13, 1999 at an
exercise price of $3.80 per share, subject to adjustment
and to redemption by the Company in intervals during the
period following their registration hereby, as described
under "Description of Securities -- Warrants."
Use of Proceeds....................................... The Company will not receive any proceeds from the sale
of shares of Common Stock offered hereby by the Selling
Shareholders but will receive gross proceeds of
$3,824,000 from the full exercise of all warrants offered
by the Selling Stockholders.
Risk Factors.......................................... Prospective investors should carefully consider the
matters set forth under the captions "Risk Factors." An
investment in the shares of Common Stock offered hereby
involves a high degree of risk.
Nasdaq Common Stock Symbol............................ BHQU
</TABLE>
(1) Excludes an aggregate of 349,000 shares of Common Stock reserved for future
issuance upon exercise of options currently outstanding and 131,000 and
120,000 shares reserved for issuance upon options available for issuance
under the Company's 1994 and 1995 Employee Stock Option Plans, respectively
(the "Plans"),
3
<PAGE>
and 100,000 shares of Common Stock reserved for issuance under the Company's
Employee Stock Bonus Plan. See "Shares Eligible for Future Sale."
(2) Gives effect to the exercise of 900,000 Warrants offered hereby; the
Placement Agent's Warrants to purchase up to 120,000 shares of Common Stock
and the conversion of a promissory note for 91,300 shares of Common Stock,
all of which shares of Common Stock which are issuable are included in this
Prospectus.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $17,717,023 $25,094,473 $30,463,730 $15,617,040 $16,614,411
Income (loss) from operations..... 370,009 (1,041,037)(1) 566,874 1,192,111 557,899
Interest expense.................. (314,796) (520,602) (774,762) (305,429) (478,108)
Net income (loss)................. 41,187 (1,968,909)(1) (179,072) 546,659 54,791
Net income (loss) per common and
common equivalent share (2)..... $ .00 $ (.92) $ (.06) $ .18 $ .02
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1996
1993 1994 1995 ACTUAL AS ADJUSTED(3)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................. $ 1,823,459 $ 3,706,239 $ 3,288,863 $ 8,050,180 $ 13,082,180(4)
Total assets..................... 10,189,885 11,937,143 15,496,294 17,843,732 22,617,732
Long-term obligations............ 133,927 216,469 630,494 5,230,850 5,230,850
Total stockholders' equity....... 2,176,102 4,124,961 3,855,804 3,966,647 8,998,647(4)
</TABLE>
(1) After a non-cash compensatory charge of $2,314,000 resulting from the
release of escrow shares, the exercisability of warrants and the conversion
of preferred stock, upon the Company's attainment of the specified 1994
pre-tax income level under the Company's July 1992 Reverse Acquisition and
certain cumulative levels for the three-year period ended December 31, 1994.
See "Certain Relationships and Related Transactions" and Note 4
of Notes to the 1995 Consolidated Financial Statements.
(2) Net income (loss) per share is computed on the basis described in Note 1 of
Notes to Consolidated Financial Statements including, but not limited to,
the adjustment for dividends on preferred stock.
(3) As adjusted to reflect the Company's receipt of proceeds of $4,774,000
consisting of (i) $1,000,000 of net proceeds from the Private Placement in
August 1996; (ii) $3,420,000 from the exercise of all Warrants; and (iii)
$404,000 from full exercise of the Placement Agent's Warrants and after
deducting $50,000 of offering expenses
(4) Includes $258,000 from the conversion of a Selling Securityholder's
promissory note.
4
<PAGE>
RISK FACTORS
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY, AMONG OTHER THINGS, THE FOLLOWING RISK
FACTORS, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.
HIGHLY COMPETITIVE INDUSTRY. The automotive aftermarket industry in
general, and the brake parts market in particular, is highly competitive. The
direct competitors to the Company's distribution activities include
manufacturers such as Brake Parts, Inc., Wagner Brakes, a subsidiary of Cooper
Industries, Inc., EIS Brake Plants Division of Standard Motor Products, Inc. and
the ITT Automotive Aftermarket Division of ITT/AIMCO. Many of the Company's
competitors are larger and have substantially greater financial resources than
the Company and may be able to sell merchandise at lower prices than the
Company. In addition, manufacturers who compete with the Company are not
dependent on relationships with suppliers as is the Company. See "Business --
Competition."
DEPENDENCE ON AUTOMOTIVE INDUSTRY. The Company's business is dependent upon
the automotive industry which is cyclical and has historically experienced
periodic downturns. These downturns are difficult to predict and have often had
a severe adverse effect on the undercar parts industry. While the Company
believes that it operates in a recession resistant segment of the automotive
industry, its future performance may nevertheless be adversely affected by
automotive industry downturns. See "Business -- Industry Overview."
ANTICIPATED DECREASE IN GROWTH RATES. The Company's sales increased by 30%,
42% and 21% in 1993, 1994 and 1995, respectively, as compared to the applicable
prior year as the Company added new large customers. However, unless the Company
is able to continue to add new large customers at an increasing rate, or new
product lines it is unlikely that it will continue to grow at comparable rates
to the last several years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
MANAGEMENT OF GROWTH. The Company will attempt to expand current levels of
operations which depends on, among other things, its ability to service its
customers, retain skilled management and other personnel, secure adequate
sources of supply on commercially reasonable terms and successfully manage
growth. To manage growth effectively, the Company will need to implement and
maintain more sophisticated operational, financial and management information
systems, procedures and controls than it has to date. There can be no assurance
that the Company will be able to manage its growth effectively, and the
Company's failure to do so would likely have a material adverse effect on the
Company and its operations. See "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business."
RISK OF LOSS OF PRINCIPAL CUSTOMER. During 1995 and the six months ended
June 30, 1996, net sales to the Company's largest customer, Autozone, Inc., a
retail auto chain which became a customer in late 1993, accounted for
approximately 17% and 26% of the Company's total net sales, respectively. There
can be no assurance that such customer will continue to purchase products from
the Company at current levels, or at all. The loss of this customer's business
or a decline in the economic prospects of this customer would, in all
likelihood, have a material adverse effect on the Company and its operations.
See "Business."
DEPENDENCE ON SUPPLIERS. The Company depends upon close relationships with
its suppliers of automotive parts and equipment and its ability to purchase
products from these manufacturers at favorable prices and on favorable terms.
The Company does not maintain supply contracts with any of its suppliers.
Alternative sources exist for most of the products it purchases, and the loss of
any significant supplier, is not expected to have a material adverse effect on
the Company. However, if a new supplier is not obtained in a timely manner and
upon acceptable terms, then the Company may be adversely affected. See
"Business -- Suppliers."
REGULATORY CONSIDERATIONS. The Company is subject to various federal, state
and local laws and regulations concerning workplace safety, zoning and other
matters relating to its business. In addition, the Company's warehouse employees
in New York and Illinois are subject to collective bargaining agreements. From
time to time the Company has been and may continue to be subject to disputes
with its union, none of which has had to date a material adverse effect on the
Company's operations. Although to date, the costs and expenses of complying with
government regulations have not had a material effect on the Company, a material
increase in the cost of such compliance could have a material adverse effect on
the Company and its operations. See "Business -- Government Regulation."
5
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POSSIBLE NEED FOR ADDITIONAL FINANCING. To date, the Company's capital
requirements have been significant. The Company anticipates, based on the
Company's currently proposed plans and assumptions relating to its operations,
that the proceeds of the August 1996 Private Placement Offering, together with
cash flow from operations and currently available financing arrangements, will
be sufficient to satisfy its anticipated cash requirements for the next 12
months. Thereafter, the Company anticipates that it will require the proceeds
from the exercise of the currently outstanding Warrants and Placement Agent's
Warrants in order to continue to expand its operations, although the exercise of
such warrants cannot be assured. In the event that the Company's plans or
assumptions change or prove to be inaccurate, there can be no assurance that
additional financing will not be required. See "Use of Proceeds."
The Company's business strategy includes the pursuit of acquisitions, which
may also require additional financing or the issuance of additional equity
securities that could result in further dilution to the public stockholders. To
the extent the Company incurs indebtedness in connection with an acquisition,
the Company will be subject to risks associated therewith, including the risks
of interest rate fluctuations and insufficiency of cash flow to pay interest and
principal. There can be no assurance that additional funds, whether in the form
of debt or equity, will be available to the Company on commercially reasonable
terms or at all.
DEPENDENCE ON PRESIDENT. The Company's success is dependent upon the
efforts of Joseph Ende, the Company's President and Chief Executive Officer. In
July 1995, the Company entered into a three-year employment agreement with Mr.
Ende, which automatically renews for consecutive one-year periods unless
terminated on thirty days' prior written notice. The loss of Mr. Ende's services
would have a material adverse effect on the Company and its operations. See
"Management."
CONTROL BY PRESIDENT AND PRINCIPAL STOCKHOLDER AND EFFECTS OF CERTAIN
ANTI-TAKEOVER PROVISIONS. Joseph Ende beneficially owns approximately 68% of the
Company's outstanding Common Stock. In addition, as the sole stockholder of the
Company's Series B Preferred Stock, $.001 par value per share (the "Preferred
Stock"), which votes as a separate class, Mr. Ende has the exclusive right to
elect a majority of the Company's Board of Directors until the earlier of the
redemption date of March 31, 2001 or the reporting by the Company of at least
$75 million in revenues for any year through December 31, 2000. THIS THRESHOLD
HAS BEEN ARBITRARILY SELECTED BY THE COMPANY AND IS NOT TO BE CONSTRUED AS
PROJECTIONS OF FUTURE COMPANY OPERATIONS. In the event of any liquidation,
dissolution or winding-up, the holder of shares of the Preferred Stock will be
entitled to an aggregate preference of $50,000, his basis in the stock; any
remaining proceeds of liquidation will be distributed pro rata to holders of the
Common Stock. The above-stated $75 million revenue level shall be determined by
the Company and reported on its audited financial statements. The Preferred
Stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. See
"Description of Securities -- Series B Preferred Stock."
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware ("Delaware GCL"). In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which such person becomes an interested stockholder, unless
(i) the business combination is approved in a prescribed manner or (ii) such
interested stockholder owns at least 85% of the corporation's voting stock
(excluding shares held by certain designated stockholders) upon completion of
the transaction in which such stockholder becomes an interested stockholder.
This provision of the Delaware GCL could delay and make more difficult a
business combination even if the business combination could be beneficial to the
interests of the stockholders. This provision of the Delaware GCL also could
limit the price certain investors might be willing to pay in the future for
shares of the Common Stock. Consequently, Mr. Ende has the ability to direct
substantially all of the Company's affairs. See "Principal and Selling
Stockholders" and "Description of Securities -- Delaware Anti-Takeover Law; and
Series B Preferred Stock."
NO ASSURANCE OF PUBLIC MARKET; VOLATILITY OF STOCK PRICE. Prior to the date
hereof, there has been a limited public trading market for the Common Stock and
no market for the Warrants. There can be no assurance that an active trading
market for such securities will develop or be sustained. Factors such as the
Company's operating results, the proposed expansion of the Company's operations
and various factors affecting the automotive industry generally, may
significantly impact the market price of the Company's securities. In addition,
in recent years, prior to its June 1996 listing on Nasdaq, the Common Stock had
experienced a high level of price
6
<PAGE>
and volume volatility, not necessarily related to its operating performance. The
market price of the Common Stock may continue to be highly volatile. See "Price
Range of Common Stock."
PAYMENT OF DIVIDENDS. No cash dividends have been paid on the Common Stock
since the Company's inception. On April 30, 1995, a cash dividend in the amount
of $112,730 was declared but not paid to Joseph Ende, President of the Company,
on the Preferred Stock which was issued to him in connection with the Reverse
Merger. No cash dividends are contemplated in the foreseeable future, and the
Company presently intends to retain all of its earnings for the future
operations and growth of its business. In addition, the Company's loan agreement
with one of its lenders prohibits the payment of dividends if such payment would
result in a breach of such loan agreement. See "Dividend Policy," Certain
Relationships and Related Transactions" and "Description of Securities."
EFFECT OF OUTSTANDING WARRANTS AND OPTIONS. An aggregate of 900,000
Warrants each to purchase one share of Common Stock held by certain of the
Selling Securityholders are registered for sale hereby. In addition, the
Company's Placement Agent holds the Placement Agent's Warrants to purchase
40,000 Units, each Unit consisting of one share of Common Stock and two
Warrants. There are also additional outstanding options to purchase 349,000
shares of Common Stock which are or will become exercisable on various dates
through May 2002. The exercise of a significant number of such Warrants and
options at prices substantially below the then current market price of Common
Stock may adversely affect the prevailing market price for the Common Stock at
the time of exercise and will dilute the interests of then existing
stockholders. Moreover, the terms upon which the Company will be able to obtain
additional equity capital, if required, may be adversely affected by the
existence of such outstanding options and warrants, because the holders of such
outstanding securities can be expected to exercise them at a time when the
Company would, in all likelihood, want to obtain any needed capital on terms
more favorable to the Company than those provided in such warrants and options.
See "Plan of Distribution," "Management" and "Executive Compensation."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS. Of the 3,868,730
shares of Common Stock currently issued and outstanding, approximately 3,217,424
shares of Common Stock (including 525,000 shares registered hereby) are
"restricted securities," as that term is defined under Rule 144 promulgated
under the Securities Act ("Rule 144"), and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption provided by Rule 144.
Notwithstanding the foregoing, Joseph Ende, the Company's President and
principal stockholder, has entered into a lock-up agreement with the Placement
Agent wherein he agreed not to sell or otherwise dispose of his 2,609,333
restricted shares of the Company's Common Stock for a one-year period ending
August 13, 1997, without the prior written consent of the Placement Agent,
subject to Mr. Ende's ability to sell shares pursuant to Rule 144 through or at
the direction of the Placement Agent. William Orzolek, a non-affiliated Selling
Securityholder entered into a lock-up agreement with the Placement Agent not to
sell his 75,000 restricted shares prior to August 13, 1997, except pursuant to
the terms of this Registration Statement. See "Shares Eligible for Future Sale"
and "Plan of Distribution."
The Company has granted one demand and "piggyback" registration rights
through January 2000 to an existing stockholder with respect to 131,320 shares
of Common Stock which shares are not part of this Registration Statement. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock pursuant to this Registration Statement, or otherwise, or even the
availability of such shares for sale will have on the market price of the Common
Stock prevailing from time to time. The possibility that substantial amounts of
Common Stock may be sold in the public market may adversely affect the
prevailing market price for the Common Stock and could impair the Company's
ability in the future to raise capital through the sale of its equity
securities.
During the respective terms of the Company's outstanding options and
Warrants, the holders thereof may be able to purchase Common Stock at prices
substantially below the then current market price of the Company's Common Stock
with a resultant dilution in the interests of the existing shareholders. The
holders of the Company's options and Warrants may be expected to exercise their
rights to acquire Common Stock at times when the Company would, in all
likelihood, be able to obtain needed capital through a new offering of
securities on terms more favorable than those provided by these outstanding
securities or through other channels, such as traditional
7
<PAGE>
bank financing. Thus, the terms upon which the Company may obtain additional
financing during the next several years may be adversely affected. In addition,
the exercise of outstanding options and Warrants and the subsequent public sales
of Common Stock by holders of such securities pursuant to a registration
statement effected at their demand, under Rule 144 or otherwise, could have an
adverse effect upon the market for and price of the Company's securities.
"Management -- Executive Compensation -- Stock Options" and "Shares Eligible for
Future Sale."
SECURITIES MARKET FACTORS. In recent years, the securities markets have
experienced a high level of volume volatility and market prices for many
companies, and particularly small and emerging growth companies have been
subject to wide fluctuations in response to quarterly variations in operating
results. The securities of many of these companies which trade in the
over-the-counter market, have experienced wide price fluctuations, which in many
cases were unrelated to the operating performance of, or announcements
concerning, the issuers of the affected stock. Factors such as announcements by
the Company or its competitors concerning proprietary innovations, new products,
government regulations and developments or disputes relating to proprietary
rights and factors affecting the automobile industry generally may have a
significant impact on the market for the Company's securities. General market
price declines or market volatility in the future could adversely affect the
future price of the Company's securities. See "Price Range of Common Stock."
POSSIBLE DELISTING OF SECURITIES FROM THE NASDAQ STOCK MARKET; RISKS
ASSOCIATED WITH LOW-PRICED STOCK. The Company's Common Stock became listed on
Nasdaq SmallCap Market on June 6, 1996. No assurance can be given that the
shares of Common Stock will remain qualified for listing on NASDAQ. In order to
continue to be listed on NASDAQ, the Company must maintain $2,000,000 in total
assets, a $200,000 market value of the public float and $1,000,000 in total
capital and surplus. In addition, continued inclusion requires two market makers
and a minimum bid price of $1.00 per share; provided, however, that if a company
falls below such minimum bid price, it will remain eligible for continued
listing on NASDAQ if the market value of the public float is at least $1,000,000
and the Company has $2,000,000 in capital and surplus. The failure to meet these
maintenance criteria may result in the delisting of the Common Stock from
NASDAQ, and the trading of the Common Stock, if any, would be conducted in the
over-the-counter market through the OTC Electronic Bulletin Board. As a result
of such delisting, an investor may find it more difficult to dispose of, or
obtain accurate quotations as to the market value of, the Company's Common
Stock.
Furthermore, if the Common Stock is not listed on NASDAQ or were to become
delisted from trading on NASDAQ and the trading price of the Common Stock
remains below $5.00 per share, trading in the Common Stock would also be subject
to the requirements of certain rules promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various restrictions on sales practices by broker-dealers
who sell penny stocks to persons other than established customers and accredited
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and receive the purchaser's
written consent to the transaction prior to sale. The additional burdens imposed
upon broker-dealers by such requirements may discourage them from effecting
transactions in the Common Stock, which could severely limit the liquidity of
the Common Stock and the ability of the Selling Securityholders to sell the
Common Stock in the secondary market. See "Plan of Distribution."
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE PURCHASE
OF THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY PERSON
CONSIDERING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF
THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR
INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR INVESTMENT.
8
<PAGE>
USE OF PROCEEDS
The Shares offered hereby were issued by the Company to: certain investors
in the Private Placement consisting of 450,000 shares of Common Stock and
900,000 redeemable Warrants each to purchase one share of Common Stock, at $3.80
per share; the Placement Agent of the Private Placement in the form of Placement
Agent's Warrants to purchase 40,000 Units consisting of an aggregate of 40,000
shares of Common Stock and Warrants to purchase 80,000 shares of Common Stock;
and four Selling Securityholders in private placements concerning an aggregate
of 174,633 shares of Common Stock.
The Company will not receive the proceeds of sales of the Shares by the
Selling Securityholders. However, upon the full exercise of the Warrants and the
Placement Agent's Warrants, the Company will receive aggregate cash of
$3,420,000, and $404,000, respectively. The Company will use the approximately
$3,774,000 of net proceeds (after deducting $50,000 of offering expenses) from
the payment of the respective exercise prices for working capital and general
corporate purposes.
The Company may also use a portion of the exercise price of the Warrants
and the Placement Agent's Warrants allocated to working capital to expand its
operations by acquiring companies or parts of companies which the Company
believes are compatible with its business. The Company has no plans, agreements,
understandings or arrangements with respect to any such acquisition. There can
be no assurance that the Company will be able to make any such acquisition.
Pending utilization of the net proceeds from the exercise prices of the
Warrants and the Placement Agent's Warrants, the Company may use funds to
temporarily reduce its credit facilities and otherwise invest in interest-
bearing investments.
PRICE RANGE OF COMMON STOCK
The Common Stock has traded on the Nasdaq SmallCap Market since June 6,
1996 under the symbol BHQU. Until then, the Common Stock traded on the
Electronic Bulletin Board maintained by the National Association of Securities
Dealers, Inc. Prior to August 8, 1995, the Common Stock was traded under the
symbol SNYO.
The following table sets forth the high and low bid quotations for the
Common Stock for each quarter of 1994 and 1995 and through June 5, 1996, as
reported by the National Quotation Bureau, Inc. and thereafter as reported by
Nasdaq. Such quotations represent prices in dollars between dealers, do not
include retail mark-ups, mark-downs or commissions, and do not necessarily
represent actual transactions.
BID PRICES
HIGH LOW
1994
First Quarter.................................... $2.00 $1.00
Second Quarter................................... $3.00 $2.00
Third Quarter.................................... $2.00 $1.25
Fourth Quarter................................... $ .375 $ .750
1995
First Quarter.................................... $ .813 $ .156
Second Quarter................................... $ .750 $ .250
Third Quarter (through August 7, 1995)........... $ .350 $ .250
Third Quarter (From August 8, 1995)(1)........... $3.50 $2.50
Fourth Quarter................................... $5.25 $2.75
1996
First Quarter.................................... $3.50 $2.75
Second Quarter................................... $5.44 $3.00
Third Quarter (through September 27, 1996)....... $6.625 $5.375
(1) The prices from this date forward reflect the Company's August 8, 1995
one-for-ten reverse stock split.
9
<PAGE>
As of September 27, 1996, the closing bid and asked prices of the Common
Stock were $6.125 and $6.50 per share, respectively.
As of September 27, 1996, there were 527 holders of record of the Common
Stock and one holder of Series B Preferred Stock. The Company reasonably
believes that there are in excess of 5,000 beneficial owners, including the
beneficial owners of Common Stock currently held in the name of depository
institutions.
On December 21, 1992, the United States Securities and Exchange Commission
(the "Commission") suspended trading in the Company's securities from December
21, 1992 through January 5, 1993. The Commission advised the Company that it
initiated this suspension because it appeared to the Commission that there was a
lack of current and accurate information concerning the identity of (i) persons
who may have acquired undisclosed control of the Company and (ii) persons having
beneficial ownership of the Company's securities. The Company was advised after
December 21, 1992 that the beneficiaries of certain trusts, which had beneficial
ownership of approximately 23% of the Common Stock, were the three sons of
Robert E. Brennan, the former President of First Jersey Securities, Inc. (the
"Brennan Trusts"). Furthermore, Mr. Brennan's beneficial ownership of the Common
Stock on a fully diluted basis was approximately 38% On January 8, 1993, trading
in the Company's securities was resumed.
During 1993 and 1994, the Company's President and Principal Stockholder did
not sell any shares of Common Stock, and there were no developments or changes
in the Company's operations which would have accounted for the substantial
decrease in the market price of the Common Stock as disclosed under "Price Range
of Common Stock." However, certain broker-dealers, which were active market
makers in the Common Stock and which were alleged by the Commission to be under
the control of Robert E. Brennan, were investigated by the Commission for, among
other things, trading in the Company's securities, and ultimately ceased doing
business.
In January 1995, Joseph Ende and two non-affiliated persons purchased all
of the Brennan Trusts' shares in the Company, as the Company was without the
funds to do so. Thus, as of January 1995 and at present, management has no
knowledge that Robert E. Brennan, who never attempted to exercise any control
over the Company, or the Brennan Trusts or any of Mr. Brennan's affiliates,
holds any beneficial interest in the Company's securities. See "Principal
Stockholders."
DIVIDEND POLICY
To date, no cash dividends have been paid on the Common Stock. On April 30,
1995, a dividend in the amount of $112,730 was declared, but not paid, to the
Company's President on the Preferred Stock issued in connection with the Reverse
Merger. On April 30, 1995, all of the then outstanding shares of Preferred Stock
were converted into Common Stock in accordance with their terms as a result of
the attainment by the Company of certain performance levels. Of the $112,730 in
accrued dividends, $50,000 was exchanged for the 1,000 shares of newly issued
Series B Preferred Stock issued to the Company's President in March 1996, and
the remaining $62,730 is still owing. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Certain Relationships and
Related Transactions" and "Description of Securities -- Series B Preferred
Stock."
No cash dividends on the Common Stock are contemplated in the foreseeable
future, and the Company presently intends to retain all of its earnings for the
future operations and growth of the business. In addition, the Company's loan
agreement with its senior lender prohibits the payment of dividends if such
payment would result in a breach of the loan agreement.
10
<PAGE>
CAPITALIZATION
The following table presents the actual capitalization of the Company as of
June 30, 1996 and the capitalization of the Company as of June 30, 1996 as
adjusted for the gross proceeds from the exercise of all Warrants included in
this Prospectus and the Placement Agent's Warrants. This table should be read in
connection with the Consolidated Financial Statements included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
ACTUAL AS ADJUSTED(1)
<S> <C> <C>
(UNAUDITED)
Long-term debt.................................................... $ 5,230,850 5,230,850
Stockholders' equity:
Series B Preferred Stock, $.001 par value;
1,000 shares authorized, issued and outstanding................. 1 1
Common Stock, $.001 par value; 6,000,000 shares authorized;
3,418,730 shares issued and outstanding; and
4,980,030 shares as adjusted................................. 3,418 4,989
Additional paid-in capital...................................... 13,070,309 18,100,738
Accumulated deficit............................................. (9,107,081) (9,107,081)
Total stockholders' equity........................................ 3,966,647 8,998,647
Total capitalization.............................................. $ 9,197,497 $ 14,229,497
</TABLE>
(1) As adjusted to reflect the Company's receipt of $5,032,000 (after deducting
$50,000 of offering expenses) consisting of: the issuance of 450,000 shares
of Common Stock in the August 1996 Private Placement; the prospective
exercise of 900,000 Warrants issued in the Private Placement exercisable at
$3.80 per share; the prospective exercise of 40,000 Placement Agent's
Warrants, at $2.50 per Warrant, as well as the underlying 80,000 Warrants
exercisable at $3.80 per warrant; and the conversion of a $258,000
convertible promissory note for 91,300 shares of Common Stock offered hereby
by a Selling Securityholder.
11
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data as of and for the five-year period
ended December 31, 1995 have been derived from the Company's Consolidated
Financial Statements. This data should be read in conjunction with the
Consolidated Financial Statements and related Notes for the three-year period
ended December 31, 1995 and Management's Discussion and Analysis of Financial
Condition and Results of Operations. The consolidated balance sheet data as of
December 31, 1994 and 1995, and the consolidated statements of operations data
for each of the three years in the period ended December 31, 1995 and the
accountants' reports thereon, are audited and are included in this Prospectus.
The consolidated balance sheet data as of December 31, 1991, 1992 and 1993 and
the consolidated statements of operations data for the years ended December 31,
1991 and 1992 are derived from the audited consolidated financial statements of
the Company and are not presented herein. The selected data presented below for,
and as of the end of, the six months ended June 30, 1995 and 1996 are derived
from the unaudited consolidated financial statements of the Company appearing in
this Prospectus. In the opinion of management, the unaudited consolidated
financial statements for the interim periods include all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for the six months ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 6 MONTHS ENDED JUNE 30,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $8,868,974 $13,672,234 $17,717,023 $25,094,473 $30,463,730 $15,617,040 $16,614,411
Income (loss) from
operations.................. 298,793 605,845 370,009 (1,041,037)(1) 566,874 1,192,111 557,899
Interest expense.............. (307,874) (261,643) (314,796) (520,602) (774,762) (305,429) (478,108)
Net income (loss)............. 48,409 235,982 41,187 (1,968,909)(1) (179,072) 546,659 54,791
Net income (loss) per common
and common equivalent
share(2).................... $ .02 $ .05 $ .00 $ (.92) $ (.06) $ .18 $ .02
<CAPTION>
DECEMBER 31, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital............... $1,336,197 $ 1,977,053 $ 1,823,459 $ 3,706,239 $ 3,288,863 $ 4,022,620 $ 8,050,180
Total assets.................. 6,064,582 8,070,849 10,189,885 11,937,143 15,496,294 15,132,646 17,843,732
Long-term obligations......... 545,639 80,113 133,927 216,469 630,494 567,716 5,230,850
Total stockholders' equity.... 941,535 2,174,915 2,176,102 4,124,961 3,855,804 4,556,268 3,966,647
</TABLE>
(1) After a non-cash compensatory charge of $2,314,000 resulting from the
release of escrow shares, the exercisability of warrants and the conversion
of preferred stock, upon the Company's attainment of the specified 1994
pre-tax income level under the Company's July 1992 Reverse Acquisition and
certain cumulative levels for the three-year period ended December 31, 1994.
See "Certain Relationships and Related Transactions" and Note 4 of Notes to
the 1995 Consolidated Financial Statements.
(2) Net income (loss) per share is computed on the basis described in Note 1 of
Notes to the 1995 Consolidated Financial Statements, including,
but not limited to, the adjustment for dividends on preferred stock.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements included elsewhere herein.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE AND SIX MONTHS
ENDED JUNE 30, 1995
Gross sales in the three months ended June 30, 1996 increased by $543,675,
or 6.0%, to $9,572,400 compared to $9,028,725 for the three months ended June
30, 1995. Gross sales for the six months ended June 30, 1996 increased by
$1,905,834, or 11.8%, to $18,018,775 compared to $16,112,941 for the
corresponding period in 1995. These increases were due primarily to the
continued expansion of product lines which includes brake rotors and drums, disc
pads and shoes, wheel cylinders, brake hoses and other hydraulics with current
customers and a successful program for obtaining new customers. The Company
expanded its customer base by approximately 10% during the six months ended June
30, 1996 to include sales to new customers who were not customers during the
comparable period in 1995. In addition, Autozone, Inc., a large retail chain
which became a customer in late 1993, accounted for approximately 26% of the
Company's revenues for the six months ended June 30, 1996, compared to 16% of
the Company's revenues for the six months ended June 30, 1995.
Gross profit in the three months ended June 30, 1996 increased by $111,647,
or 4.7%, to $2,503,163 compared to $2,391,516 for the three months ended June
30, 1995. Gross profit for the six months ended June 30, 1996 was $4,608,361
versus $4,210,248 for the same period in 1995. This represents an increase of
$398,113 or 9.5%. The Company attributes the improved gross profit to the
success of its products and marketing efforts, as well as to improvements made
in its procurement operation.
The Company has agreed to accept the return of merchandise under certain
circumstances. In order to obtain new customers, merchandise is exchanged, and
replaced with current Brake Headquarters merchandise. The merchandise is brought
back to the Company where it is reboxed, relabeled and placed back in inventory.
This is a common occurrence within the industry. As the marketplace has grown
more competitive, the amount of sales returns to the Company has significantly
increased. The merchandise does not deteriorate, and obsolescence is therefore
not a problem. All merchandise which is defective and returned by customers is
returned to or credited by vendors.
Operating expenses during the three months ended June 30, 1996 were
$2,311,553 representing an increase of $628,965, or 37.4%, from $1,682,588 for
the three months ended June 30, 1995. Operating expenses for the first six
months of 1996 were $4,050,462, representing an increase of $1,032,325, or 34.2%
from the $3,018,137 for the same period in 1995. The largest portion of
operating costs is payroll, which increased by approximately $207,000, or 40%,
from the comparable period last year. All other components of operating costs,
consisting primarily of freight, commissions and professional services,
increased proportionately. Operating expenses were 22.5% of gross sales for the
six months ended June 30, 1996 as compared to 18.8% for the six months ended
June 30, 1995. These increases were a result of increased sales, and a continued
building of the infrastructure needed to provide excellent service to the
Company's customers.
Income from operations for the three months ended June 30, 1996 was
$191,610 versus $708,828 for the same period in 1995. This represents a decrease
of $517,218 or 73.0%. For the six months ended June 30, 1996, income from
operations was $557,899 versus $1,192,111 for the same six months in 1995. This
was a decrease of $634,212 or 53.2%. Included within operating expenses in the
three months ended June 30, 1996 is an expense of approximately $212,000 from
the settlement of a lawsuit with a former customer.
Interest expense during the three months ended June 30, 1996 was $211,264,
an increase of $46,790 over the interest expense of $164,474 during the
corresponding period in 1995. For the six months ended June 30, 1996, interest
expense was $478,108, an increase of $172,679 compared to $305,429 for the six
months of 1995. The increase is attributed to increased financing provided by
the Company's banks in support of the growth in sales and assets.
13
<PAGE>
Most of the Company's payments to vendors are made in United States dollars
and, therefore, the amount of foreign currency more or less is immaterial.
As a result of the foregoing, the Company recorded a net loss for the three
months ended June 30, 1996 of $30,654, or $.01 per share, as compared to net
income of $325,122, or $.10 per share for the three months ended June 30, 1995.
For the six months ended June 30, 1996, the Company's net income was $54,791 or
$.02 per share, as compared to $546,659 or $.18 per share for the same period in
1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Gross sales for the year ended December 31, 1995 ("1995"), increased by
$6,254,137, or 24.0%, to $32,383,302 compared to $26,129,165 for the year ended
December 31, 1994 ("1994"). This increase was due primarily to increased sales
to existing customers and the Company's introduction of new undercar parts
product lines. In addition, the Company expanded its customer base during 1995.
Autozone, Inc., which became a customer in late 1993, accounted for
approximately 17% of the Company's net sales for 1995.
Gross profit for 1995 increased by $1,349,646, or 20.1%, to $8,053,798
compared to $6,704,152 for 1994. Gross profit margin for 1995 decreased to 26.4%
compared to 26.7% for 1994. There is no significant difference in gross profit
margin during the two periods.
Operating expenses for 1995 decreased by $258,265, or 3.3%, to $7,486,924,
compared to $7,745,189 for 1994. There was a 39.2% increase in Selling, General
and Administrative ("SG&A") expenses in 1995, resulting from higher costs
(primarily payroll, freight and commissions) associated with increased sales
volume, bad debt expenses of $617,891, and a continued building of the
infrastructure needed to provide a high level of service to the Company's
customers, offset, in part, by the implementation of certain cost controls. An
overall decrease resulted in non-recurring changes from non-cash compensatory
charges (as described below) and settlement of litigation which occurred in
1994. The Company postponed raising additional funds in 1995 through a secondary
public offering due to market conditions. The Company expended costs associated
with the offering totalling $248,000 during 1995.
The Company's attainment of the 1994 pretax income level and certain
cumulative levels for the three-year period ended December 31, 1994 under its
Reverse Merger Agreement, as amended, resulted in the release of the 125,000
escrowed shares, exercisability of the Class F warrants (relating to 1994
earnings) and conversion of the Series A Preferred Stock into shares of common
stock, all by the Company's President/principal stockholder which resulted in a
non-cash compensatory expense of $2,314,000 for 1994. Without giving effect to
the non-cash expense of $2,314,000 for 1994, the Company would have had net
income of $345,091. The non-cash compensatory charges to operations were offset
by an increase in common stock and additional paid-in-capital.
Income from operations for 1995 increased by $1,607,911 to $566,874,
compared to a loss of $1,041,037 for 1994, as a result of increased sales,
combined with certain cost controls and the elimination of certain non-recurring
charges.
Interest expense for 1995 increased by $254,160, or 48.8%, to $774,762
compared to $520,602 for 1994. The increase was a result of additional
borrowings by the Company in support of the growth in sales and assets.
As a result of the foregoing, the Company's net loss for 1995 decreased by
91%, or $1,807,837, to $179,072, or $.06 per share, as compared to $1,968,909,
or $.92 per share for 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Gross sales for 1994 increased by $7,474,092, or 40.1%, to $26,129,165
compared to the $18,655,073 reported for the year ended December 31, 1993
("1993"). This increase was due primarily to the continued success of the
Company's operations in the undercar market. The Company participated in trade
shows where its products were received favorably and published several new
catalogs of its products. The Company also continued successfully its other
lines of business where it operates as a distributor for major automotive parts
manufacturers.
14
<PAGE>
As a result of its marketing effort and the favorable acceptance of its
products, the Company obtained several large contracts to sell its products to
major companies in the automotive parts market. No single customer accounted for
more than 10% of the Company's 1994 revenues.
With the increased sales, the Company was able to increase its gross profit
margin to 26.7% of net sales in 1994, which was an increase of 2.2% from 1993.
Selling, general and administrative expenses as a percentage of net sales
decreased from 22.4% in 1993 to 20.7% in 1994, and income from operations
(excluding the noncash compensatory charges and a litigation settlement)
increased from 2.1% of net sales in 1993 to 6.0% in 1994 as a result of
increased sales growth and tighter control of expenses.
The Company's Midwest distribution center commenced operations in January
1994 and almost immediately contributed to the Company's profitability.
Interest expense in 1994 was $520,602, representing an increase of 65.4%
over the 1993 expense of $314,796. The increase is attributed to increased
borrowings which were used to help finance the growth of sales.
LIQUIDITY AND CAPITAL RESOURCES
AT JUNE 30, 1996
The Company has continued to use funds generated from operations and bank
borrowings to support operations, finance working capital requirements and lease
and improve facilities.
The Company has agreements with two banks to provide lines of credit,
bankers' acceptances, and letters of credit facilities. These facilities
currently provide for aggregate borrowing of up to $10,000,000 at June 30, 1996.
The balance due under these two loan facilities amounted to approximately
$9,599,000 at June 30, 1996. The lines of credit expire at various dates through
February 1998, at which time they will be reviewed for renewal. Interest accrues
on the outstanding principal balances at rates from 7.44% to 9%. Both lines are
secured by a pledge of substantially all of the Company's assets and both lines
are partially guaranteed by the President/majority stockholder if equity is
below $4,250,000. The agreements contain covenants which require the maintenance
of certain amounts of net worth and certain financial ratios.
The covenants in the Company's loan agreement with The Chase Manhattan Bank
N.A. include: (i) a ratio of indebtedness to tangible net worth of not more than
3:1 through and including December 31, 1996 and not more than 2.5:1.0
thereafter; (ii) tangible net worth of not less than $4,250,000, (ii) interest
coverage of not less than 225%; and (iv) a ratio of current assets (less prepaid
expenses) to current liabilities of not less than 1.25:1.00. The Company was in
technical default of number (i), (ii) and (iii) above, as of March 31, 1996,
which default the bank waived and modified the ratios as of June 30, 1996, while
the parties continue to negotiate revisions on a going forward basis.
In January 1996, the Company obtained a $69,700 five-year loan from the
City of Fairfield, Illinois bearing interest at 5% per annum to be used to
purchase equipment for its Fairfield distribution center.
Cash used in operations during the six months ended June 30, 1996 was
$1,678,143 as compared with $889,162 used in operations during the six months
ended June 30, 1995. This change was due mainly to the increase in accounts
receivable of $2,360,554 offset by the corresponding increase in accounts
payable and accrued expenses of $464,317.
Cash received from customers during the six months ended June 30, 1996
amounted to $14,233,857, an increase of $1,596,819, or 12.6%, over the same
period in 1995. At the same time, cash paid to suppliers and employees during
the six months ended June 30, 1996 increased by $2,482,897, or 19.2%, over the
same period in 1995 to $15,436,384, as the Company utilized the proceeds of
sales and increased borrowing to pay suppliers and finance its growth through
conservative cash flow management.
During the six months ended June 30, 1996, the Company made a concerted
effort to control the growth of inventory while ensuring sufficient product
availability. As a result, inventory increased by only $281,046, or 3.6%, to
$8,154,177 from $7,873,131. Accounts receivable increased by $2,124,180, or
39.8%, from January 1,
15
<PAGE>
1996 to June 30, 1996. The increase in accounts receivable was a result of the
corresponding growth in sales and extended terms given to certain customers
because of market conditions.
The Company signed a contract for a new computer system which Management
believes will improve the efficiency of operations. The cost of this expenditure
will be financed over a five-year period and will not significantly affect the
cash flows of the Company.
As of June 30, 1996, the Company had available approximately $401,000
through its various lines of credit. This would fund the Company's requirements
for cash needs for the next 12 months. It is expected that cash requirements for
large capital purchases will be funded and secured by separately financed
transactions, as was recently accomplished for the new computer system described
above.
AT DECEMBER 31, 1995
During 1995 and 1994 the Company used funds generated from operations, bank
borrowings and proceeds from exercises of warrants to finance working capital
requirements and lease and improve facilities. The Company received
approximately $1,490,000 from the exercise of warrants during 1994.
The Company's loan agreements provided for aggregate borrowings of up to
$9,000,000 at December 31, 1995. The balance due under these loan facilities
amounted to approximately $7,817,000 at December 31, 1995. The lines of credit
and bankers' acceptances bear interest at rates ranging from 3/4% to 1% per
annum above the bank's prime rate. The lines of credit expire at various dates
through June 30, 1996. In February 1996, the Company refinanced and expanded by
$1,000,000 one of its bank agreements. The Company currently has total available
credit of $10,000,000. The new two-year agreement allows for borrowings of up to
$5,000,000 based upon levels of accounts receivable and inventory. The other
line of credit will be reviewed for renewal. The notes and acceptances payable
are collateralized by substantially all of the assets of the Company and are
partially guaranteed by the Company's President/principal stockholder. One of
the agreements contains covenants which require the maintenance of certain
amounts of net worth and financial ratios. At December 31, 1995, the Company had
outstanding letters of credit of approximately $28,000. In addition, during
1995, the Company obtained a $258,000 short-term loan from an individual which
is due in August 1996, payable in cash or in Common Stock. The loan bears
interest at 8% per annum.
The Company obtained a $100,000 five-year loan in November 1993, from the
City of Fairfield, Illinois, bearing interest at 5% per annum which was used for
capital equipment and working capital requirements to open the Company's Midwest
Distribution Center in June 1995. On January 13, 1995, the Company exercised an
option to purchase the Midwest Distribution Center for $315,000. The purchase
and related construction costs were financed by first and second mortgages from
a bank. The loans bear interest at the rate of 7.36% per annum and the bank's
prime rate, respectively. In July 1995, the Company purchased an additional five
acres of land adjacent to the foregoing property for $10,000.
Cash used in operations in 1995 was $2,704,987 which represents an increase
of $628,786, or 30.3%, from $2,076,201 in 1994. The increase was primarily due
to an increase in inventory and accounts receivable. They rose by $1,593,795 and
$1,937,596, respectively, both related to continued sales growth. Accounts
payable and accrued expenses decreased by $764,220. These changes were financed
primarily with $3,650,000 of additional borrowings.
Cash received from customers during 1995 amounted to $28,526,134, an
increase of $4,444,739, or 18.5%, over the same period in 1994. At the same
time, cash paid to suppliers and employees during 1995 increased by $4,078,392,
or 15.9%, over the same period in 1994 to $29,740,631, as the Company utilized
the proceeds of sales and increased borrowings to pay suppliers and finance its
growth through conservative cash flow management.
AT DECEMBER 31, 1994
Net cash used in operations in 1994 was $2,076,201 which represents an
increase of $313,747, or 18%, from $1,762,454 in 1993. The increase was
primarily due to a decrease in accounts payable and accrued expenses of
$1,235,690, as the Company made a concerted effort to take advantage of vendor
discounts. Inventory and accounts receivable rose by $707,601 and $596,741,
respectively, both related to continued sales growth.
16
<PAGE>
These increases were financed primarily with an increase of $1,489,750
obtained from the issuance of common stock, as the result of the exercise of
warrants during 1994. In addition, the Company increased its borrowings under
notes and acceptances payable by $637,416.
The Company has maintained good relations with domestic and foreign
suppliers. The Company has agreements with banks to provide lines of credit,
bankers' acceptances, and letters of credit facilities. These facilities
provided for aggregate borrowings of up to $7,250,000 at December 31, 1994.
The Company's credit facilities with both banks were renewed in December
1994, for an additional year. The total credit available to the Company was
increased by 34%. In addition, both banks reduced the interest rate charged to
the Company by 1/2%. Interest accrues on outstanding principal at rates of 1.0%
to 1.5% above the banks' respective prime rates per annum. Both lines are
secured by the Company's assets and are guaranteed by the Company's principal
stockholder. The Company has maintained good relations with its primary lender
for a period of 17 years. The Company also has a $100,000 low interest 5-year
loan from the City of Fairfield, Illinois, which was used for capital equipment
and working capital requirements for the Company's Midwest Distribution Center.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On June 8, 1994, the Board of Directors of the Company dismissed Borek
Stockel & Marden ("BS&M") as the Company's certified public accountants. The
Board of Directors took such action following the indictment (concerning matters
unrelated to the Company) of the partner of BS&M who handled the Company's
accounts. During the two years and the interim period preceding such
termination, (a) the auditors' report on the financial statements of the Company
did not contain an adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope or accounting principles
and (b) there were no disagreements with BS&M as to auditing principles or
practices, financial statements and disclosure or auditing scope or procedure.
The Board of Directors of the Company then voted to retain the firm of
Goldstein Golub Kessler & Company, P.C. ("GGK"). Prior to its appointment, the
Company did not consult with GGK regarding the application of any accounting
principle, the type of opinion that would be rendered on the Company's financial
statements, or any matter that was the subject of disagreement.
On December 28, 1995, the Board of Directors of the Company dismissed GGK
as the Company's certified public accountants. GGK's report on the financial
statements for the year ended December 31, 1994 did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. Through December 28, 1995,
there were no disagreements on any matter of auditing principles or practices,
financial statements and disclosure, or auditing scope or procedure with GGK.
The Board of Directors then voted to retain the firm of Deloitte & Touche
LLP ("D&T") to audit the Company's financial statements for the year ended
December 31, 1995. Neither the Company nor anyone on its behalf consulted with
D&T on any accounting principle, the type of opinion that would be rendered on
the Company's financial statements, or any matter that was the subject of
disagreement prior to its engagement.
BUSINESS
The Company is a specialized distributor in the automotive aftermarket of a
complete line of brake system products including brake drums and rotors, brake
master cylinders, wheel cylinders, brake pads, brake shoes and brake hoses for
virtually all makes and models of domestic and foreign passenger cars and light
trucks from model year 1976 to the present. The Company also sells a variety of
other "undercar" parts including ride control products, steering/suspension
parts, drive shafts, shock absorbers and clutches. The brake line products are
sold primarily under the name "Brake Headquarters" as well as under the name
"Sanyo Automotive" and under private labels.
INDUSTRY OVERVIEW
Management believes based on its knowledge of the automotive aftermarket
industry that there are approximately 2,600 manufacturers and importers who are
in the business of supplying parts to distributors, wholesalers and retailers
throughout the United States. The size of the domestic automotive aftermarket
for replacement hard
17
<PAGE>
parts was approximately $7.35 billion in 1994 and was expected to grow by 2.8%
during 1995, according to Frost & Sullivan, marketing consultants. Undercar
parts continue to be a strong, stable category in the automotive aftermarket and
comprise approximately $3.6 billion of the total replacement hard parts
aftermarket with an expected compound annual growth rate of approximately 3%
through the year 2000, also according to Frost & Sullivan.
The undercar replacement parts market depends, in part, upon the age and
number of cars and light trucks on the road and the number of miles driven per
year. The Company expects that this market will continue to grow because of,
among other things, projected increases in the size of the United States'
automotive population, the higher cost of new cars which has resulted in an
aging of the automobile population, and the higher cost of replacement parts as
a result of technological changes in more recent vehicle models. In addition,
many of these technological changes have increased the demand on brake systems
by causing more wear and tear.
In addition, changing government standards for automobiles, including
pollution level standards, helped increase the performance demanded by
consumers. These changes caused original equipment manufacturers ("OEMs") to
make cars lighter, by shifting from two-wheel disc brakes and drum brakes to
four-wheel disc brakes which weigh less than drum brakes. The Company believes
that each of such factors has contributed to a significant increase in the
market for brake repairs during the past decade. The standard to bring a vehicle
to a complete stop from 60 MPH has been reduced in the last few years from 150
feet to 75 feet. In order to meet this standard a change in the friction
material of brakes was necessary and a shift was made from inexpensive long
lasting asbestos brake pads (which raised environmental concerns) to more
expensive, shorter life metallic brake pads which are more punishing to the
brake system.
Industry data show that the brake aftermarket industry performs well under
most economic conditions. In an economic recession, for example, vehicle owners
tend to retain and repair their cars rather than purchase costly new vehicles.
Since brakes are a safety-related item, drivers normally neglect brake repairs
to a lesser degree as they might otherwise do with other repairs and maintenance
less directly related to safety.
BUSINESS STRATEGY
The Company's objective is to become one of the leading undercar parts
distributors in selected markets in the United States, using both a traditional
distribution process and by developing wholesale warehouses for undercar parts
("Undercar Warehouses"). The Company's business strategy is to continue the
growth in its base distribution business by, among other things, adding new
brake and other undercar part product lines (including two new brake product
lines added in the fall of 1995) and upgrading its information system
capabilities. See -- "Management Information Systems; -- Distribution and
Assembly Operations." Management believes that the Company's continued growth
will depend upon, among other things, its ability to respond to market and other
changes in the distribution process for automotive parts and to maintain
state-of-the-art integrated computerized systems to meet its customers demands.
While many of the Company's competitors offer undercar parts for most
popular cars, management believes that no such competitor maintains an inventory
of all brake parts for substantially all cars, as does the Company. Management
also believes that the Company has positioned itself, through investment in
advanced integrated systems, to capitalize on general trends occurring in
distribution.
MARKETING AND SALES
The Company sells products primarily under the name "Brake Headquarters"
but also under the name "Sanyo Automotive" and certain private manufacturers'
labels. The Company distributes its products through salaried and independent
sales agents or manufacturers' representatives. The Company's products are sold
primarily to warehouse distributors, retail discount chains, foreign and
domestic automotive parts wholesalers, mass merchandisers and undercar
installation chains. The Company maintains a network of over 115 sales
representatives covering substantially all of the United States and most of
Canada as well as Mexico, Puerto Rico, Venezuela and the Virgin Islands. Since
1993, the Company has evolved from 100% reliance on its telemarketing sales
force to having 85% of its 1995 sales generated by representatives in the field.
The Company's marketing efforts are facilitated by the publication of
several catalogs, each of which contains a description of the parts distributed
by the Company. These catalogs are provided to the Company's sales
18
<PAGE>
representatives who use them to fill customers' orders. See "Research And
Marketing" below. The Company also participates in trade shows throughout the
United States in order to gain exposure for its products.
The Company added new large customers and reached certain critical levels
with existing large customers and, as a result, the Company's sales increased by
42% and 21% in 1994 and 1995, respectively. Autozone, Inc., a large retail chain
with no relationship to the Company, accounted for approximately 26% and 16% of
the Company's revenues for the six months ended June 30, 1996 and the year ended
December 31, 1995, respectively. Unless the Company is able to continue to add
new large customers at an increasing rate, it is unlikely that it will continue
to grow at comparable rates to the last two years.
MANAGEMENT INFORMATION SYSTEMS
In July 1996, the Company contracted to purchase a new IBM AS400 computer
system and is currently updating all of its software systems and installing the
hardware. The Company's computer system implements the fulfillment of customers'
purchase orders. All three of the Company's distribution centers are equipped
with an EDI computer link which enables customers to place orders directly
through the Company's computer system. The Company provides EDI services to its
customers through the Advantis system. The Company has a bar coded inventory
system and advanced shipping notice ("ASN") which, upon receipt of an EDI
generated purchase order, generates a computer notice of the items being
shipped, the shipment date and a tracking number. These systems give the Company
the ability to efficiently service customer needs and, the Company believes,
represent some of the most advanced integrated distribution capabilities in the
automotive parts industry.
DISTRIBUTION AND ASSEMBLY OPERATIONS
The Company maintains its headquarters office and principal distribution
center at a 94,000 square foot warehouse facility in Long Island City, New York.
This facility consists of two adjoining buildings at which activities are
maintained during two eight-hour shifts per day, usually five days per week.
In June 1995, the Company expanded its Midwest distribution center in
Fairfield, Illinois to approximately 40,000 square feet. The Company currently
operates two shifts per day, five days per week, at this facility.
The Company also maintains an approximately 10,000 square foot distribution
center in Portland, Oregon to serve the Company's West Coast customers. At the
Oregon facility, the Company conducts distribution activities generally
operating one shift per day, five days per week.
The Company maintains inventories at its three distribution centers to
maintain maximum service levels. Orders from the Company's customers are
selected, assembled and packaged from these facilities and shipped. The
Company's distribution centers in New York, Illinois and Oregon currently stock
approximately 6,000, 3,000 and 1,000 stock keeping units ("SKUs"), respectively.
The Company maintains leased trucks at each of its facilities, which it uses to
make direct local deliveries to its customers. The Company estimates that about
5% of its sales are delivered by the Company's trucks and the balance by common
carriers, including Federal Express and UPS.
SUPPLIERS
The Company has relationships with many suppliers of parts and equipment
and has alternate sources of supply and supplies readily available. Therefore,
the Company does not maintain supply contracts with any of its suppliers,
because it believes alternative sources exist for most of the products it
distributes. The loss of any one supplier is not expected to have a material
adverse effect on the Company. The Company generally obtains favorable prices
and terms because of its large volume of purchases.
COMPETITION
Competition within the automotive parts industry is affected principally by
product quality, availability, customer service and price. By expanding its
distribution facilities, the Company anticipates that it will be able to
continue to control costs, while at the same time maintain high standards of
quality for its products. The direct competitors to the Company's distribution
activities include manufacturers, consisting of Brake Parts, Inc., Wagner
Brakes, a subsidiary of Cooper Industries, Inc., EIS Brake Parts Division of
Standard Motor Products, Inc. and the ITT Automotive Aftermarket Division of
ITT/AIMCO. Such manufacturers, who also act as distributors,
19
<PAGE>
are not dependent on relationships with suppliers as is the Company. The
Company's direct competitors as a distributor include ISW, a division of APS,
Inc., and Reddi Brake Supply Corporation.
800 TECHNICAL SERVICE HOTLINE
The Company has instituted an 800 toll free technical hotline (800-221-1393
X 106) serviced by professional advisors to respond to inquiries from the
Company's customers, including personnel of the Undercar Warehouses.
RESEARCH AND MARKETING
The Company has established a special in-house Research and Marketing
("R&M") department. The R&M Department was formed to provide up-to-date
information for the Company's catalogs which the Company believes is useful and
practical to its customers. The Company has been advised by certain of its
retail chain store customers that they rely on the Company's catalogs and the
R&M Department to obtain current information in order to update and maintain
their own inventory. The Company created a part number system which it
publicized through the catalogs and on which its customers now rely. The
Company's customers are also able to provide the Company with input on their
undercar product needs, enabling the Company to increase sales to such
customers. The R&M Department has also been able to supply management with
recommendations for new additions to its product lines and new products.
GOVERNMENT REGULATION
The Company is subject to various laws and governmental regulations
relating to the operation of its business. However, the Company does not believe
that the cost of compliance with such laws and regulations has a material impact
on its operations.
TRADEMARKS
The has obtained a registered trademark from the United States Patent and
Trademark Office for the name "Brake Headquarters U.S.A."
EMPLOYEES
As of September 27, 1996, the Company had 123 employees, including four
executives; five employees in purchasing; 13 administrative personnel; seven in
sales and customer service; 85 employees in warehousing, shipping and receiving;
and nine in Quality First's operations. The Company also retains the services,
as independent contractors, of 115 independent sales representatives who are
paid solely on a commission basis.
The Company is a party to a collective bargaining agreement relating to 28
of its warehouse employees in New York. In April 1996, the Company signed a
collective bargaining agreement at the Company's Fairfield, Illinois
distribution center, covering 19 employees. The Company believes that its
employee relations are currently satisfactory.
20
<PAGE>
(D) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES.
<TABLE>
<CAPTION>
YEAR
1993 1994 1995
<S> <C> <C> <C>
SALES TO UNAFFILIATED CUSTOMERS:
United States..................................................... $16,595,008 $24,802,100 $29,016,025
Canada and Mexico................................................. 250,531 35,490 336,086
South America..................................................... 805,273 241,251 1,102,286
Europe............................................................ 66,211 15,632 9,333
SALES OR TRANSFERS BETWEEN GEOGRAPHIC AREAS:
United States..................................................... -- (251,840) (76,094)
Canada and Mexico................................................. -- 251,840 76,094
South America..................................................... -- -- --
Europe............................................................ -- -- --
OPERATING PROFIT OR (LOSS):
United States..................................................... 370,009 (996,438)(1) 527,874
Canada............................................................ -- (44,599) 39,000
Mexico and South America.......................................... --(2) --(2) --(2)
Europe............................................................ -- -- --
IDENTIFIABLE ASSETS:
United States..................................................... 10,189,885 11,509,646 15,496,294
Canada............................................................ -- 427,497 --
South America..................................................... -- -- --
Europe............................................................ -- -- --
</TABLE>
(1) After a non-cash compensatory charge of $2,314,000 resulting from the
release of escrow shares, the exercisability of warrants and the conversion
of preferred stock, upon the Company's attainment of the specified 1994
pre-tax income level and certain cumulative levels for the three-year period
ended December 31, 1994 under the Company's July 1992 Reverse Acquisition.
See "Certain Relationships and Related Transactions" and Note 4 of Notes to
the 1995 Consolidated Financial Statements.
(2) The Company does not maintain operations in South America or Mexico and is
unable to determine operating profit or loss in those geographic regions.
PROPERTIES
The Company leases approximately 94,000 square feet of office and warehouse
facilities at 33-16 Woodside Avenue, Long Island City, New York. Approximately
34,000 square feet of this facility is leased from the Company's President,
Joseph Ende, pursuant to a lease dated July 1, 1992 at a current rent of
$312,000 per year. The lease term expires July 1, 1999. Mr. Ende was paid
$302,000, $312,000 and $312,000 pursuant to the lease in 1993, 1994, and 1995,
respectively. Based on the Company's review of nearby real estate and an
independent appraisal, the Company believes that the terms of the lease with Mr.
Ende are no less favorable than would otherwise be obtained from unaffiliated
third parties. The remaining 60,000 square feet is leased from a bankruptcy
trustee on a month-to-month basis at $24,000 per year. Should the bankruptcy
trustee decide to terminate this month-to-month lease, and the Company is
obligated to lease another facility, the Company could incur an increase in
lease payments.
The Company owns a facility, purchased in April 1995, comprised of
approximately 40,000 square feet on nine acres at Lot #22, Fairfield Industrial
Park, Fairfield, Illinois, which serves as the Company's Midwest Distribution
Center.
The Company occupies approximately 10,000 square feet of public warehouse
space at 230 East Burnside, Portland, Oregon on a yearly basis. The Company
leases such space for a nominal amount each month and, in addtion, pays the
freight cost of all goods shipped from the facility.
LEGAL PROCEEDINGS
The Company is not currently subject to any legal proceedings other than
any vendor claims in the ordinary course of business.
21
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS.
Set forth below are the names, ages and positions of the Company's
executive officers and directors, along with certain information relating to the
business experience of each.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Joseph Ende 48 Chairman of the Board, President and Chief Executive Officer
Scott Osias 41 Vice President of Sales and Marketing
Marc J. Ruskin 44 Chief Financial Officer
Sandra Ende 43 Secretary and Director
</TABLE>
All directors hold office until the next annual meeting of shareholders and
the election and qualification of their successors. Directors currently receive
no cash compensation for serving on the Board of Directors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.
JOSEPH ENDE has been President, Chief Executive Officer and Chairman of the
Board of Directors of the Company since July 9, 1992. He has been the President
and a Director of Sanyo Automotive since its inception in June 1976. Mr. Ende is
the husband of the Company's Secretary, Sandra Ende.
SCOTT OSIAS has been the Vice President of Sales and Marketing of the
Company since October 1992. Mr. Osias has been employed in the retail automotive
industry for 23 years and was the principal owner and operator of Automotive
Discount Centers, a 14 store retail automotive parts store chain in New York
from 1973 to 1988. Prior to joining the Company, from 1988, Mr. Osias was
General Manager of Prime Automotive Warehouse, a warehouse distribution
automotive parts chain.
MARC J. RUSKIN, CPA, has been the Chief Financial Officer of the Company
since August 1995. He has 19 years of financial experience, including a combined
five years at Ernst & Young LLP and Deloitte & Touche LLP. From 1993 until he
joined the Company, Mr. Ruskin was Vice President of Finance and Administration
for the Nason Group LLC, a Connecticut company formed to purchase and develop
real estate. From 1991 to 1993, Mr. Ruskin was the Chief Financial Officer of
REBO Group Incorporated, a New York based international corporation specializing
in the research, development and production of high definition television. Mr.
Ruskin was Vice President of Finance and Administration of Kaufman Astoria
Studios, a company specializing in film/television and real estate management,
from 1982 to 1991. Mr. Ruskin holds an MBA from the University of Bridgeport.
SANDRA ENDE has been a Director of the Company since July 1992. She has
been employed by Sanyo Automotive since its inception in June 1976 in various
capacities including bookkeeper, Personnel Manager, Director of Marketing and
Office Manager. Ms. Ende is the wife of the Company's President, Mr. Joseph
Ende.
The Company's Placement Agent has the right at its discretion, for a
three-year period ending August 13, 1999 to designate either a member of the
Board of Directors or an advisor to the Board.
22
<PAGE>
EXECUTIVE COMPENSATION.
The following table sets forth all compensation awarded to, earned by, or
paid for all services rendered to the Company during the years ended December
31, 1995, 1994 and 1993, by the Company's Chief Executive Officer, who was the
Company's only executive officer ("Named Executive Officers") whose total
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION RESTRICTED
OTHER ANNUAL STOCK
SALARY BONUS COMPENSATION AWARD(S)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
(A) (B) (C) (D) (E) (F)
<S> <C> <C> <C> <C> <C>
Joseph Ende, Chief Executive Officer and
Director 1995 $ 127,500 -0-(1) -0- 180,000(2)
1994 $ 130,000 -0- -0-(3) 120,000(4)
1993 $ 108,000 $ 102,745 -0- -0-
</TABLE>
(1) The Board of Directors has the discretion to grant Mr. Ende a bonus of at
least $50,000 for each of the six-month periods ending June 30 and December
31 during the three-year term of his employment agreement entered into on
July 31, 1995, as amended, provided the Company reports operating income
before taxes, but after payment of such bonus for the applicable six-month
period. No bonus was issued for the period ended December 31, 1995.
(2) On July 31, 1995, Mr. Ende was granted non-qualified stock options under the
Company's 1995 Stock Option Plan, to purchase 180,000 shares of Common Stock
at $3.00 per share terminating on July 30, 2000. See "1995 Employee Stock
Option Plan" below and "Certain Relationships and Related Transactions."
(3) Excludes $7,795,839 and $2,314,000 non-cash compensatory expenses related to
the release of escrow shares, the exercise of warrants, the conversion of
the Series A Preferred Stock and the payment of dividends on the Series A
Preferred Stock during 1992 and 1994, respectively, pursuant to the terms of
the Reverse Merger Agreement. See "Certain Relationships and Related
Transactions."
(4) The Company cancelled 120,000 options, exercisable at $20 per share,
previously granted to Joseph Ende, and re-granted such options to Mr. Ende
at an exercise price of $2.50 per share. See "1994 Employee Stock Option
Plan, below.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS/SARS EXERCISE PRICE APPRECIATION
OPTIONS/SARS GRANTED TO OR BASE FOR OPTION TERM (1)
GRANTED EMPLOYEES IN PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
(A) (B) (C) (D) (E) (F) (G)
<S> <C> <C> <C> <C> <C> <C>
Joseph Ende........................... 180,000 96.7% $ 3.00 12/15/00 $ 149,400 $ 329,400
Marc Ruskin........................... 6,000(2) 3.3% $ 2.25 9/4/00 $ 3,729 $ 8,220
</TABLE>
(1) The potential realizable value through the expiration date of the options
has been determined on the basis of the fair market value of the shares at
the time the options were granted, compounded annually over the term of the
respective option, net of exercise price. These values have been determined
based upon assumed rates of appreciation and are not intended to forecast
the possible future appreciation, if any, of the price or value of the
Company's Common Stock.
23
<PAGE>
(2) Does not include options to purchase 24,000 shares of Common Stock granted
to Mr. Ruskin during 1996. See "1994 Employee Stock Option Plan" below.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY END OPTION/SAR VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT FISCAL AT FISCAL
SHARES YEAR- END YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
(A) (B) (C) (D) (E)
<S> <C> <C> <C> <C>
Joseph Ende............................................... -0-(1) -0- 80,000/40,000 -0-
</TABLE>
(1) Does not include the exercise of 41,666 Class F Warrants or the issuance of
1,000,000 shares of Common Stock upon the conversion of the Series A
Preferred Stock by Mr. Ende during 1994 pursuant to the terms of the Reverse
Merger Agreement. See "Certain Relationships and Related Transactions."
COMPENSATION OF DIRECTORS
Members of the Board of Directors presently receive no additional
remuneration for acting in that capacity. See 1994 Employee Stock Option Plan
and 1995 Employee Stock Option Plan for a description of options granted to
members of the Board of Directors.
EMPLOYMENT AGREEMENTS
On July 31, 1995, the Company entered into a three-year employment
agreement with Joseph Ende, the President and Chief Executive Officer of the
Company. The agreement automatically renews for consecutive one-year periods
unless terminated on thirty days' prior written notice by either party. In 1995,
Mr. Ende received a base annual salary of $127,500. The Board of Directors has
the discretion to grant Mr. Ende a performance bonus of at least $50,000 for
each of the six-month periods ending June 30 and December 31 during the term of
the agreement, provided the Company reports operating income before taxes, but
after payment of such bonus, for the applicable six-month period. Such bonus
will not accrue in the event the income level is not met. Uner the agreement,
Mr. Ende is also entitled to an automobile or a monthly allowance equal to the
cost of leasing such automobile, and health and other benefits. Mr. Ende has
agreed not to compete with the Company during the term of, and for a one-year
period from the date of termination of, his employment with the Company.
On November 24, 1994, the Company entered into a three-year employment
agreement with Scott Osias, Vice President of Sales and Marketing. The agreement
automatically renews for consecutive one-year periods unless terminated on
thirty days' prior written notice by either party. In 1995, Mr. Osias received a
base annual salary of $52,000. Mr. Osias has agreed not to compete with the
Company during the term of, and for a one-year period from the date of
termination of, his employment with the Company.
EMPLOYEE STOCK BONUS PLAN
In April 1995, the Company adopted an Employee Stock Bonus Plan which
enables all full-time permanent employees to purchase shares of Common Stock at
85% of its then fair market value through payroll deductions. There are 100,000
shares authorized for sale under such Plan without limitation as to the number
of shares which may be purchased by any employee. These shares may be
newly-issued shares or which may be purchased by the Company in the open market.
An aggregate of 5,078 shares have been purchased under such plan as of September
27, 1996. The 100,000 shares of Common Stock reserved under this plan are
registered for sale on the Company's Registration Statment on Form S-8, which
became effective when filed with the Commission on September 27, 1996 (the
"S-8").
24
<PAGE>
1994 EMPLOYEE STOCK OPTION PLAN
The Company has established the 1994 Employee Stock Option Plan (the "1994
Plan"). The 1994 Plan is intended to provide the employees, directors,
independent contractors and consultants of the Company with an added incentive
to continue their services to the Company and to induce them to exert their
maximum efforts toward the Company's success. The 1994 Plan provides for the
grant of options to qualified directors, employees (including officers),
independent contractors and consultants of the Company to purchase an aggregate
of 300,000 shares of Common Stock. Options to purchase no more than 120,000
shares of Common Stock may be granted to any one person in any two-year period.
The 1994 Plan is currently administered by the Board of Directors. The Board
determines, among other things, the persons to be granted options under the 1994
Plan, the number of shares subject to each option and the option price. The
shares of Common Stock authorized under the 1994 Plan are registered for sale on
the S-8.
The 1994 Plan allows the Company to grant incentive stock options ("ISOs"),
as defined in Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), Non-Qualified Stock Options ("NQSOs") not intended to qualify
under Section 422(b) of the Code and Stock Appreciation Rights ("SARs";
collectively, with ISOs and NQSOs referred to as "Options") at any time within
10 years from the date the 1994 Plan was adopted. The exercise price of ISOs may
not be less than the fair market value of the Common Stock on the date of grant,
provided that the exercise price of ISOs granted to an optionee owning more than
10% of the outstanding Common Stock may not be less than 110% of the fair market
value of the Common Stock on the date of grant. In addition, the aggregate fair
market value of stock with respect to which ISOs are exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000. Options
may not have a term exceeding ten years, except that ISOs granted to an optionee
owning more than 10% of the outstanding Common Stock may not have a term of more
than five years and ISOs must be granted to, and exercised by, employees of the
Company (including officers). Options are not transferable, except upon the
death of the optionee.
Since the 1994 Plan's adoption, ISOs to purchase 282,000 shares of Common
Stock have been granted (of which options to purchase 123,000 shares have
terminated and are available for reissuance under the 1994 Plan), and no NQSOs
or SARs have been granted under the 1994 Plan. Options to purchase 141,000
shares of Common Stock remain reserved for grant under the 1994 Plan. The
following chart sets forth in further detail, for options outstanding as of the
date hereof, the amount of options granted, the options vested, the exercise
price thereof, the number of options exercised and the expiration dates thereof.
<TABLE>
<CAPTION>
# OF OPTIONS # OF OPTIONS # OF OPTIONS EXPIRATION
GRANTED VESTED EXERCISED EXERCISE PRICE DATE
<S> <C> <C> <C> <C>
9,000 -0- -0- $2.50 11/1/99
120,000 80,000 -0- $2.50 12/15/99
6,000 -0- -0- $2.25 9/4/00
24,000 -0- -0- $3.00 5/8/02
</TABLE>
Scott Osias, Vice President of Sales and Marketing, was granted a stock
option under the 1994 Plan to purchase 9,000 shares of Common Stock at $2.50 per
share, which option becomes exercisable on a cumulative basis on January 1, 1997
to the extent of 4,000 shares; on January 1, 1998 for an additional 3,000
shares, and on January 1, 1999 until November 1, 1999 in full.
In December 1994, the Company cancelled options to purchase 120,000 shares
of Common Stock exercisable at $20 per share, previously granted to Joseph Ende
under the 1994 Plan, and re-granted such options to Mr. Ende at an exercise
price of $2.50 per share. Such options were re-granted because the Company's
Board of Directors determined that such re-grant would provide a greater
incentive to Mr. Ende. Of such options, 80,000 are currently exercisable and the
remaining 40,000 are exercisable at any time on or after December 16, 1996.
Marc J. Ruskin, Chief Financial Officer, was granted a stock option under
the 1994 Plan to purchase 6,000 shares of Common Stock at $2.25 per share, which
option becomes exercisable on a cumulative basis on September 5, 1997 to the
extent of 2,000 shares; on September 5, 1998 to the extent of an additional
2,000 shares, and on September 5, 1999 until September 4, 2000 in full. Mr.
Ruskin was granted a second option under the 1994 Plan to purchase 24,000 shares
of Common Stock at $3.00 per share, which option becomes exercisable on a
cumulative basis on May 29, 1997 to the extent of 8,000 shares; on May 29, 1998
to the extent of 3,000 shares; on
25
<PAGE>
May 29, 1999 to the extent of 3,000 shares; on May 29, 2000 to the extent of
5,000 shares; and on May 29, 2001 to the extent of 5,000 shares.
1995 EMPLOYEE STOCK OPTION PLAN
In July 1995, the Company's Board of Directors adopted the 1995 Employee
Stock Option Plan (the "1995 Plan" and, together with the Employee Stock Bonus
Plan and the 1994 Plan, the "Plans"). The 1995 Plan provides for the grant of
ISOs, NQSOs and SARs to purchase an aggregate of 300,000 shares of Common Stock.
All such shares are registered for sale on the S-8. The provisions of the 1995
Plan are otherwise identical to the above-stated terms of the 1994 Plan.
Since the adoption of the 1995 Plan, no ISOs or SARs have been granted, and
NQSOs to purchase 180,000 shares of Common Stock have been granted to Joseph
Ende. Options to purchase 120,000 shares of Common Stock remain available for
grant under the 1995 Plan. The following chart sets forth in further detail, as
of the date hereof, the amount of the options granted, the options vested, the
exercise price thereof, the number of options exercised and the expiration dates
thereof.
<TABLE>
<CAPTION>
# OF OPTIONS # OF OPTIONS # OF OPTIONS EXPIRATION
GRANTED VESTED EXERCISED EXERCISE PRICE DATE
<S> <C> <C> <C> <C>
180,000 -0- -0- $3.00 7/30/00
</TABLE>
On July 31, 1995, Mr. Ende was granted, subject to stockholder
ratification, NQSOs under the 1995 Plan, to purchase 180,000 shares of Common
Stock at $3.00 per share terminating on July 30, 2000. The option becomes
exercisable on a cumulative basis in one-third increments on July 31, 1997, 1998
and 1999. The option will become immediately exercisable, in full, upon a change
in control (as defined in the 1995 Plan) of the Company. See "Certain
Relationships and Related Transactions."
REPRICING OF OPTIONS/SARS
<TABLE>
<CAPTION>
LENGTH OF
MARKET EXERCISE ORIGINAL
NUMBER OF PRICE OF PRICE OF OPTION
SECURITIES STOCK AT STOCK AT TERM
UNDERLYING TIME OF TIME OF REMAINING
OPTIONS/SARS REPRICING REPRICING AT DATE OF
REPRICED OR OR OR NEW REPRICING
AMENDED AMENDMENT AMENDMENT EXERCISE OR
NAME DATE (#) ($) ($) PRICE ($) AMENDMENT
(A) (B) (C) (D) (E) (F) (G)
<S> <C> <C> <C> <C> <C> <C>
Joseph Ende......................... 12/16/94 120,000 $2.50 $20.00 $2.50 5 years
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company presently has no compensation committee or other board
committee performing equivalent functions. The following officers and employees
of the Company participated in deliberations of the Company's Board of Directors
concerning executive officer compensation: Joseph Ende, President and Chief
Executive Officer and Marc Ruskin, Chief Financial Officer.
INDEMNIFICATION
The Company has agreed to hold the Company's Directors and officers
harmless and to indemnify them, under certain circumstances, with respect to
suits or proceedings to which the Directors and Officers may be a party or
threatened to be made a party by reason of the fact that they are or were
Directors and Officers of the Company. Under such indemnification provisions,
the Company would be required to pay the Directors' and Officers' expenses,
including attorney's fees, and judgments or amounts paid in settlement. If an
action is brought by or in the right of the Company (a derivative action), the
Directors and Officers would be entitled to such indemnification only if they
successfully defended such action (unless the court orders otherwise). If an
action is brought by a third party, the Directors and Officers would be entitled
to indemnification if they successfully defended such action or, if such action
is not successfully defended, if the Directors and Officers acted in good faith
and not opposed to the best interests of the Company.
It should be noted that the foregoing only briefly mentions derivative
actions and third-party actions, certain remedies available to minority
stockholders under state and Federal law for breach of the fiduciary duty by a
26
<PAGE>
Director, officer or majority stockholder. Therefore, in the event that a
shareholder believes that a breach of fiduciary duty by the Directors, officers
or majority stockholders has occurred, he should consult with his own counsel as
to what rights he may have.
It should also be noted that the cost of litigation against a Director,
officer or majority stockholder for enforcement of his fiduciary obligations may
be prohibitively high and that any judgment obtained may not be collectible. An
investment decision by a prospective investor should be based on his judgment as
to the investment factors described in this Prospectus, rather than upon
reliance on the value of the right to bring legal actions against, or to control
the activities of the management.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the July 1992 Reverse Merger, the Company and Mr. Ende
entered into a Reverse Merger Agreement, as amended, which provided for the
issuance of additional shares of Common Stock to Mr. Ende upon the conversion or
exercise of convertible preferred stock and warrants, and the forfeiture to the
Company of certain shares of Common Stock held by Mr. Ende, depending upon
whether or not certain earnings levels were achieved by the Company during each
of the three years (and during the three-year period in the aggregate) ended
December 31, 1994. Pursuant to the Reverse Merger Agreement, the Company issued
to Mr. Ende Class D, Class E and Class F Warrants to purchase an aggregate of
125,000 shares of the Common Stock at an exercise price of $.40 per share,
provided that the Company earned pre-tax operating income in the amount of
$375,000, $750,000 and $1,000,000, for the years ended December 31, 1992, 1993
and 1994, respectively.
For the year ended December 31, 1992, the Company earned pre-tax operating
income (exclusive of any noncash compensatory charges against earnings arising
from release of escrowed shares, the conversion of the Series A Preferred Stock
and the exercise of Class D Warrants) of more than $375,000. As a result,
375,000 shares of Common Stock previously issued to Joseph Ende, in connection
with the Reverse Merger were released to him under the terms of the Reverse
Merger Agreement. In addition, Mr. Ende exercised all 41,666 Class D Warrants
(those relating to the 1992 earnings) in consideration for the reduction of the
Company's outstanding note payable to Mr. Ende of $16,667. Total noncash
compensatory charges resulted in a noncash expense to the Company for the year
ended December 31, 1992 of $7,795,839.
The Company earned pre-tax operating income of less than $750,000 for the
year ended December 31, 1993. As a result, Joseph Ende was required under the
Reverse Merger Agreement to return an aggregate of 250,000 shares of escrowed
Common Stock to the treasury of the Company and was unable to exercise Class E
Warrants to purchase 41,666 shares of Common Stock. Mr. Ende disputed this
forfeiture of shares, but waived any claims he had against the Company in
exchange for the July 1995 grant of an option to purchase 180,000 shares of
Common Stock under the 1995 Plan. See "Management -- Executive
Compensation -- 1995 Employee Stock Option Plan."
The Company earned pre-tax operating income of more than $1,000,000 for the
year ended December 31, 1994. As a result, under the terms of the Reverse Merger
Agreement, an aggregate of 125,000 escrowed shares were released to Mr. Ende and
Mr. Ende exercised all Class F Warrants (those relating to 1994 earnings) in
consideration of payment of $16,667.
In connection with the Reverse Merger, Mr. Ende received 2,000,000 shares
of Series A Preferred Stock of the Company in exchange for existing debt of
$507,500 owed by Sanyo Automotive to Mr. Ende. Under the terms of the Reverse
Merger Agreement, the Series A Preferred Stock was converted into 1,000,000
shares of Common Stock as of April 30, 1995, because the Company reached certain
performance goals. Specifically, it had revenues of at least $25,000,000 for
fiscal 1994 and had cumulative pre-tax operating income for the years ended
December 31, 1992, 1993 and 1994 of at least $2,125,000.
Joseph Ende personally guarantees payment of up to an aggregate of
$1,000,000 of the Company's indebtedness under its credit facility with its
primary lender. He also personally guarantees another line of credit to the
extent the Company's equity falls below $4,250,000.
27
<PAGE>
See "Management -- Executive Compensation -- Employment Agreements" for a
description of the terms of current Employment Agreements between the Company
and Joseph Ende, President, and Scott Osias, Vice President of Sales and
Marketing.
In January 1995, Joseph Ende purchased 386,000 shares of Common Stock, and
two non-affiliated persons purchased 75,000 and 131,320 shares, respectively,
from the Brennan Trusts as described under "Price Range of Common Stock."
In March 1996, the Company amended its Certificate of Incorporation to
authorize 1,000 shares of Series B Preferred Stock, $.001 par value per share,
which shares are held by Joseph Ende. These shares were issued with a view
towards, and could be utilized under certain circumstances as a method of,
discouraging, delaying or preventing a change in control of the Company. See
"Principal Stockholders."
See "Business -- Properties" for a description of a lease between Mr. Ende
and the Company.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of the date of this
Prospectus adjusted to reflect the exercise of all Warrants and the Placement
Agent's Warrants offered hereby, with respect to the beneficial ownership of the
outstanding shares of the Common Stock by each person known by the Company to be
the beneficial owner of more than 5% of the outstanding shares, by each
director, all Named Executive Officers (See "Management -- Executive
Compensation") and all directors and officers as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING
AMOUNT AND SHARES OWNED
NATURE OF BEFORE AFTER
NAME AND BENEFICIAL OFFERING OFFERING
OF BENEFICIAL OWNER OWNERSHIP (1) (1)(2) (3)
<S> <C> <C> <C>
Joseph Ende (4)..................................................... 2,689,333 (5) 68.1 % 53.1 %
Sandra Ende (4)..................................................... 30,000 (6) (7) (7)
Scott Osias (4)..................................................... 15,000 (8) (7) (7)
Marc Ruskin (4)..................................................... 0 (9) -0- -0-
Officers and Directors as a Group (4 Persons)....................... 2,734,333 (10) 69.2 % 54.0 %
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the effective date of this Prospectus upon the exercise of
warrants or options. Unless otherwise noted, each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days from the date hereof have been
exercised.
(2) Based on 3,868,730 shares of Common Stock outstanding as of September 27,
1996.
(3) Based on 4,980,030 shares of Common Stock outstanding which reflects the
exercise of 900,000 Warrants currently outstanding and the issuance of an
aggregate of 120,000 Shares of Common Stock upon full exercise of the
Placement Agent's Warrants and the issuance of 91,300 shares upon
conversion of a promissory note by a Selling Securityholder. Excludes (i)
349,000 shares of Common Stock issuable upon the exercise of options
outstanding as of the date of this Prospectus, including currently
exercisable options to purchase 80,000 shares of Common Stock; (ii) 141,000
and 120,000 shares reserved for issuance under the 1994 Plan and the 1995
Plan, respectively; and (iii) 94,922 shares reserved for issuance under the
Company's Employee Stock Bonus Plan. See "Management -- Executive
Compensation."
(4) The address of this person is c/o the Company, 33-16 Woodside Avenue, Long
Island City, New York 11101.
(5) Includes (i) 15,000 shares owned of record by the Joseph and Sandra Ende
Charitable Trust, of which Joseph and Sandra Ende are Trustees, (ii) 80,000
shares which may be obtained upon the exercise of currently exercisable
stock options, but excludes an aggregate of 220,000 shares underlying
options which are not currently exercisable or exercisable within the next
60 days; and (iii) 386,000 shares pledged to Bank
28
<PAGE>
Leumi Trust Company as security for the repayment of the loan made by such
Bank to the holder of such shares to purchase such shares. See "Price Range
of Common Stock."
In March 1996, the Company amended its Certificate of Incorporation to
authorize the issuance of 1,000 shares of Series B Preferred Stock held by
Joseph Ende. As sole stockholder of the Series B Preferred Stock, which
will vote as a separate class, Mr. Ende has the exclusive right to elect a
majority of the Company's Board of Directors until the earlier of the
redemption date of March 31, 2001 or the reporting by the Company of at
least $75 million in net sales for any fiscal through December 31, 2000.
See "Certain Relationships and Related Transactions."
(6) Includes 15,000 shares owned of record by the Joseph and Sandra Ende
Charitable Trust, of which Joseph and Sandra Ende are Trustees, but does
not include any other shares beneficially owned by Joseph Ende, Sandra
Ende's husband.
(7) Less than one percent of the issued and outstanding shares.
(8) Does not include 9,000 shares of Common Stock which may be purchased
pursuant to stock options held by Mr. Osias which are not currently
exercisable or exercisable within the next 60 days.
(9) Does not include 30,000 shares of Common Stock which may be purchased
pursuant to stock options held by Mr. Ruskin which are not currently
exercisable or exercisable within the next 60 days.
(10) Includes 80,000 shares issuable upon exercise of currently exercisable
stock options, but does not include 259,000 shares of Common Stock which
may be purchased pursuant to stock options which are not currently
exercisable.
29
<PAGE>
SELLING SECURITYHOLDERS
The table below sets forth, with respect to each Selling Securityholder,
based upon information available to the Company as of the date hereof, the
number of shares of Common Stock beneficially owned, the number of Shares to be
sold, and the number and percentage of outstanding Common Shares beneficially
owned before and after the sale of the Shares offered hereby. None of the
Selling Securityholders has been an affiliate of the Company during the
preceding three years, except as noted. Although there can be no assurance that
the Selling Securityholders will sell any or all of the Shares, the following
table assumes that each of the Selling Securityholders will sell all Shares
offered by this Prospectus.
<TABLE>
<CAPTION>
PERCENT
SHARES OF
AMOUNT AND BENEFICIALLY CLASS
NATURE SHARES OWNED (2)
BENEFICIAL TO AFTER AFTER
NAME OWNERSHIP (1) BE SOLD OFFERING OFFERING
<S> <C> <C> <C> <C>
Lawrence and Helaine Kaplan................................... 120,000 (3)(5) 120,000 -0- -0-
Stanley A. Kaplan............................................. 120,000 (3)(6) 120,000 -0- -0-
Quad Capital Partners......................................... 60,000 (7) 60,000 -0- -0-
Michael Miller................................................ 60,000 (7) 60,000 -0- -0-
Manhattan Group Funding....................................... 30,000 (8) 30,000 -0- -0-
Universal Partners L.P........................................ 60,000 (7) 60,000 -0- -0-
Kenneth Orr................................................... 120,000 (3) 120,000 -0- -0-
Murat and Ender Agirnasli..................................... 30,000 (8) 30,000 -0- -0-
Kenneth J. Koock.............................................. 30,000 (8) 30,000 -0- -0-
M.H. Meyerson & Co., Inc...................................... 30,000 (8)(9) 30,000 -0- -0-
Alliance Capital Investments Corp............................. 240,000 (10) 240,000 -0- -0-
ASN Voice & Data Corp......................................... 15,000 (11) 15,000 -0- -0-
Interpacific Capital Corp..................................... 180,000 (4) 180,000 -0- -0-
Jeanette Flam and Barry Gresser............................... 60,000 (7) 60,000 -0- -0-
Plane Tree Corp. NV........................................... 30,000 (8) 30,000 -0- -0-
Theo Muller................................................... 120,000 (3) 120,000 -0- -0-
Jerry Kaplan.................................................. 15,000 (10) 15,000 -0- -0-
OK Associates Pension Trust................................... 30,000 (8)(5) 30,000 -0- -0-
William Orzolek............................................... 75,000 (12) 75,000 -0- -0-
KanKap, Inc................................................... 91,300 (13) 91,300 -0- -0-
Barry Schwartz................................................ 4,167 (14) 4,167 -0- -0-
Al D'Ulisse................................................... 4,166 (14) 4,166 -0- -0-
</TABLE>
(1) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the effective date of this Prospectus upon the exercise of
warrants or options. Unless otherwise noted, each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
which are exercisable within 60 days from the date hereof have been
exercised.
(2) Based on 3,868,730 shares of Common Stock outstanding as of September 27,
1996.
(3) Consists of 40,000 shares of Common Stock and Warrants to purchase 80,000
shares of Common Stock.
(4) Consists of 60,000 shares of Common Stock and Warrants to purchase 120,000
shares of Common Stock.
(5) Does not include any portion of the 40,000 Placement Agent's Warrants held
by G-V Capital Corp. of which Mr. Lawrence Kaplan is an officer, director
and stockholder, or of OK Associates Pension Trust of which Mr. Kaplan is a
partner, or of Quad Capital Partners of which Mr. Kaplan is a partner.
(6) Does not include any portion of the shares of Common Stock of Quad Capital
Partners of which Mr. Stanley Kaplan is a partner.
(7) Consists of 20,000 shares of Common Stock and Warrants to purchase 40,000
shares of Common Stock.
30
<PAGE>
(8) Consists of 10,000 shares of Common Stock and Warrants to purchase 20,000
shares of Common Stock.
(9) Does not include any shares that may be held by such Selling
Securityholder, a NASD member firm, in its firm trading account.
(10) Consists of 80,000 shares of Common Stock and Warrants to purchase 160,000
shares of Common Stock.
(11) Consists of 5,000 shares of Common Stock and Warrants to purchase 10,000
shares of Common Stock.
(12) See "Shares Eligible for Future Sales," for information concerning Mr.
Orzolek's lock-up agreement concerning these shares.
(13) Issuable upon conversion of a $258,000 promissory note currently held by
KanKap, Inc.
(14) May be issued by the Company at the election of these Selling
Securityholders pursuant to an agreement for the sale of certain assets and
liabilities to the Company.
DESCRIPTION OF SECURITIES
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 6,000,000 shares of
Common Stock, $.001 par value per share and 1,000 shares of Series B Preferred
Stock, $.001 par value per share.
SERIES B PREFERRED STOCK
In March 1996, the Company amended its Certificate of Incorporation to
authorize the issuance of 1,000 shares of Series B Preferred Stock, which shares
were issued to Joseph Ende. See "Principal Stockholders." As sole stockholder of
the Series B Preferred Stock, which votes as a separate class, Mr. Ende has the
exclusive right to elect a majority of the Company's Board of Directors until
the earlier of March 31, 2001 or the reporting by the Company of at least $75
million in net sales for any fiscal year through December 31, 2000 (the
"Redemption Date"). The determination of whether the Company has achieved $75
million in net sales shall be determined by the Company and reported on its
audited financial statements. THIS THRESHOLD HAS BEEN ARBITRARILY SELECTED BY
THE COMPANY AND IS NOT TO BE CONSTRUED AS A PROJECTION OF FUTURE COMPANY
OPERATIONS.
The holder of the Series B Preferred Stock has the right to receive
cumulative dividends in cash at the rate of $4.00 per share per annum (8% of the
$50,000 basis) payable upon the date of conversion or redemption of the Series B
Preferred Stock. Commencing on the Redemption Date, the shares of Series B
Preferred Stock will be convertible at the rate of $5.00 per share into 10,000
shares of Common Stock. The Series B Preferred Stock is non-transferable and
shall automatically be redeemed upon Mr. Ende's death or resignation from the
Company. The holder of the Series B Preferred Stock is otherwise entitled to one
vote per Share on any other matter which the holders of Common Stock of the
Company are entitled to vote their shares. In the event of any liquidation,
dissolution or winding-up of the Company, the holder of shares of Series B
Preferred Stock is entitled to an aggregate preference of $50,000. Any remaining
proceeds of liquidation will be distributed, pro rata, to holders of Common
Stock.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters to be voted on by stockholders. The holders
of shares of Common Stock do not have cumulative voting rights for the election
of directors. There are no preemptive, subscription, conversion or redemption
rights pertaining to the shares of Common Stock. Holders of shares of Common
Stock are entitled to receive dividends when, as and if declared by the Board of
Directors from funds legally available therefor, and to share ratably in the
assets of the Company available upon liquidation, dissolution or winding up of
the Company, subject to any superior rights of the holders of Preferred Stock.
All of the 3,868,730 outstanding shares of Common Stock are, and the shares of
Common Stock offered hereby, upon issuance and when paid for, will be, duly
authorized, validly issued, fully paid and non-assessable.
WARRANTS
There are 900,000 Class A Common Stock Purchase Warrants issued and
outstanding as of the date of this Prospectus. An additional 80,000 Warrants are
issuable upon exercise of the Placement Agent's Warrants.
31
<PAGE>
The Warrants entitle the registered holder thereof to purchase one share of
Common Stock at a price of $3.80 per share, subject to adjustment under certain
circumstances, at any time until August 13, 1999.
The Warrants contain provisions that protect the holders thereof against
certain types of dilution. The exercise price and the number of common shares or
other securities issuable on exercise of the Warrants are subject to adjustment
in certain circumstances including, but not limited to, dividends, splits or
reclassifications.
During a period commencing sixty (60) days (subject to reduction with the
consent of the Placement Agent) after the effective date of this registration
statement registering the Common Stock underlying the Warrants for sale without
further restriction (the "Effective Date") and continuing for such time as said
registration statement is effective (the "First Redemption Period"), the Company
may redeem up to twenty-five percent (25%) of the Warrants upon thirty (30)
days' prior written notice to the record holders thereof (a "Redemption
Notice"). During a period commencing one hundred eighty (180) days (subject to
reduction with the consent of the Placement Agent) after the Effective Date and
continuing for such time as said registration statement is effective (the
"Second Redemption Period"), the Company may redeem on a cumulative basis, up to
fifty percent (50%) of the Warrants commencing thirty (30) days after the
mailing of a Redemption Notice. During a period commencing two hundred seventy
(270) days (subject to reduction with the consent of the Placement Agent) after
the Effective Date and continuing for such time as said registration statement
is effective (the "Third Redemption Period"), the Company may redeem, on a
cumulative basis, up to one hundred percent (100%) of the Warrants commencing
thirty (30) days after the mailing of a Redemption Notice. Notwithstanding the
foregoing, the Company shall have no right to redeem Warrants unless (i) the
Common Stock underlying the Warrants may be sold by the holders thereof without
restriction upon or after the exercise thereof at all times after the date of a
Redemption Notice until their redemption, (ii) with respect to the First
Redemption period, the Second Redemption Period and the Third Redemption Period,
the closing bid price of the Common Stock has equaled or exceeded $5.25 per
share for any twenty (20) consecutive trading days from and after a date
commencing sixty (60) days prior to the commencement of each such Redemption
Period, and (iii) Warrants are redeemed on a PRO RATA basis among the record
holders thereof as of the date of the Redemption Notice. The holders of Warrants
shall have the right to exercise the Warrants until the close of business on the
date fixed for redemption.
No Warrants will be exercisable unless at the time of exercise there is (i)
a current prospectus covering the issuance of the Warrant Shares upon the
exercise of such Warrants under an effective registration statement filed with
the SEC or (ii) an available exemption from registration applies to the issuance
of the Warrant Shares upon the exercise of such Warrants and such issuance has
been qualified or is exempt from qualification under the securities laws of the
state of residence of the holder of such Warrants.
No fractional shares will be issued upon exercise of the Warrants. However,
if a holder exercises all Warrants then owned of record by him, the Company will
pay to such holder, in lieu of the issuance of any fractional
share which is otherwise issuable, an amount in cash based on the market value
of the Common Stock on the last trading day prior to the exercise date.
Warrants are generally more speculative than Common Stock which are
purchasable upon the exercise thereof. Historically, the percentage increase or
decrease in the market price of a warrant has tended to be greater than the
percentage increase or decrease in the market price of the underlying common
shares. A warrant may become valueless, or of reduced value, if the market price
of the common shares decreases, or increases only modestly, over the term of the
warrant.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Company, with the exercise
form attached to the Warrant certificate completed and executed as indicated,
accompanied by full payment of the exercise price for the number of Warrants
being exercised. The holders of Warrants do not have the right or privileges of
holders of Common Stock.
32
<PAGE>
PLACEMENT AGENT'S WARRANTS
In connection with the Private Placement, the Company issued Placement
Agent's Warrants to purchase from the Company 40,000 Units at an exercise price
equal to $2.50 per Unit, or an aggregate of $100,000. Each Unit consists of one
share of Common Stock and two Warrants. The Placement Agent's Warrants are
exercisable for a period of three years ending August 13, 1999. The holders of
the Placement Agent's Warrants have no voting, dividend or other rights as
shareholders of the Company unless and until the exercise of such warrants. The
number of securities deliverable upon any exercise of the Placement Agent's
Warrants are subject to adjustment to protect against dilution upon the
occurrence of certain events. The Placement Agent has been granted certain
demand and piggy-back registration rights with respect to the Common Stock
underlying the Placement Agent's Warrants all of which shares are registered as
part of this Registration Statement.
DELAWARE LAW ANTI-TAKEOVER LAW
Under Section 203 of the Delaware GCL (the "Delaware anti-takeover law"),
certain "business combina-
tions" are prohibited between a Delaware corporation, the stock of which is
generally publicly traded or held of record by more than 2,000 stockholders, and
an "interested stockholder" of such corporation for a three-year period
following the date that such stockholder became an interested stockholder,
unless (i) the corporation has elected, in its certificate of incorporation, not
to be governed by the Delaware anti-takeover law (the Company has not made such
an election), (ii) the business combination was approved by the board of
directors of the corporation before the other party to the business combination
became an interested stockholder, (iii) upon consummation of the transaction
that made it an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan), or (iv) the
business combination was approved by the board of directors of the corporation
and ratified by 66 2/3% of the voting stock which the interested stockholder did
not own. The three-year prohibition also does not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation and
a person who had not been an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the corporation's directors. The term "business combination" is defined
generally to include mergers or consolidations between a Delaware corporation
and an interested stockholder, transactions with an interested stockholder
involving the assets or stock of the corporation or its majority-owned
subsidiaries and transactions which increase an interested stockholder's
percentage ownership of stock. The term "interested stockholder" is defined
generally as those stockholders who become beneficial owners of 15% or more of a
Delaware corporation's voting stock.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York, New York 10004.
REPORTS TO SHAREHOLDERS
The Company furnishes its stockholders with annual reports containing
audited financial statements and other periodic reports containing unaudited
financial statements as the Company may determine to be appropriate or as may be
required by law.
SHARES ELIGIBLE FOR FUTURE SALE
The Company had 3,868,730 shares of Common Stock outstanding as of
September 26, 1996, of which approximately 3,217,424 shares (including 525,000
shares registered hereby) are deemed to be "restricted securities," as that term
is defined under Rule 144 promulgated under the Securities Act, in that such
shares were issued and sold by the Company in private transactions not involving
a public offering. In addition, the Company has reserved for issuance 900,000
shares of Common Stock upon exercise of Warrants offered hereby, 120,000 shares
of Common Stock upon full exercise of the Placement Agent's Warrants, 339,000
shares of Common Stock upon exercise of outstanding stock options, up to 261,000
shares for issuance upon exercise of options reserved for
33
<PAGE>
grant under the 1994 and 1995 Plans, and up to 94,922 reserved for issuance
under the Employee Stock Bonus Plan. The 700,000 shares authorized under the
Plans are registered for sale on the S-8. Approximately 1,115,141 of the
3,217,424 currently outstanding restricted securities are currently eligible for
sale under Rule 144, however, 2,684,000 of such shares are subject to lock-up
agreements with the Company's Placement Agent, as described below.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or person whose shares are aggregated), who has owned restricted
Common Stock beneficially for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1%
(currently 38,687 shares) of the total number of outstanding shares of the same
class or, if the Common Stock are quoted on the Nasdaq system, the average
weekly trading volume during the four calendar weeks preceding the sale. A
person who has not been an affiliate of the Company for at least the three
months immediately preceding the sale and who has beneficially owned Common
Stock for at least three years is entitled to sell such shares under Rule 144
without regard to any of the volume limitations described above.
No prediction can be made as to the effect, if any, that market sales of
Common Stock or the availability of such shares for sale will have on the market
prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely affect prevailing market prices for the Common Stock and could impair
the Company's ability to raise capital through the sale of its equity
securities.
Joseph Ende, the Company's President and principal stockholder, has entered
into a lock-up agreement with the Placement Agent, not to sell or otherwise
dispose of his 2,609,333 shares of the Company for a one-year period ending
August 13, 1997, without the prior written consent of the Placement Agent.
Notwithstanding the foregoing, the Placement Agent will not unreasonably
withhold its consent to sales made by Mr. Ende pursuant to Rule 144, of up to
the 1% volume limitation of Rule 144; provided such sales are directed through
or at the direction of the Placement Agent and, provided further, that such Rule
144 sales are at: market prices if the closing bid price of the Company's Common
Stock is then below $5 per share; a discount not to exceed 15% if the closing
bid price of the Company's Common Stock is then between $5 and $8 per share, and
a discount not to exceed 20% if the closing bid price of the Company's Common
Stock is above $8 per share.
William Orzolek, a non-affiliated Selling Securityholder has entered into a
lock-up agreement with the Placement Agent not to sell or otherwise dispose of
his 75,000 shares of the Company for a one-year period ending August 13, 1997
without the prior written consent of the Placement Agent. Notwithstanding the
foregoing, Mr. Orzolek was permitted to register for sale such 75,000 shares of
Common Stock on this Registration Statement. The first 15,000 shares may be sold
by Mr. Orzolek without restriction. Commencing 90 days from the Effective Date,
Mr. Orzolek may sell an additional 15,000 shares of Common Stock, and commencing
each 90 day period thereafter an additional 15,000 shares of Common Stock until
an aggregate of 75,000 shares are sold; provided such sales are directed through
or at the direction of the Placement Agent and are at market prices.
ADDITIONAL REGISTRATION RIGHTS
The holder of an additional 131,320 shares of Common Stock of the Company
not offered hereby has been granted one demand registration right and certain
piggyback registration rights relating to such shares of Common Stock through
January 2000. These securities were purchased in a private transactions with an
investor in January 1995. The piggyback registration rights do not apply to
registrations relating to mergers, acquisitions or pursuant to Form S-8 (or any
successor form), nor do they apply if the stockholder is able to sell his shares
pursuant to Rule 144 under the Securities Act.
34
<PAGE>
PLAN OF DISTRIBUTION
The Selling Securityholders are offering the Shares for their own account
and not for the account of the Company. The Selling Securityholders may continue
to sell the Shares directly to purchasers or, alternatively, may offer the
Shares from time to time through other agents, brokers, dealers or underwriters,
who may receive compensation in the form of concessions or commissions from the
Selling Securityholders. Sales of the Shares may be made in one or more
transactions on Nasdaq, in privately negotiated transactions or otherwise, and
such sales may be made at the market price prevailing at the time of sale, a
price related to such prevailing market price or a negotiated price. The sale of
the Shares is subject to the Prospectus delivery and other requirements of the
Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Common Stock of the Company offered by this Prospectus
may not simultaneously engage in market-making activities with respect to the
Common Stock of the Company during the applicable "cooling off" period (9
business days) prior to the commencement of such distribution. In addition, and
without limiting the foregoing, the Selling Securityholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder including, without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of purchases and sales of Common Shares by the
Selling Securityholders.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, one or more
amendments or supplements to this Prospectus or a new registration statement
with respect to the Shares to describe any material information with respect to
the plan of distribution not previously disclosed in this Prospectus, including
the name or names of any additional underwriters, dealers or agents, if any, the
purchase price paid by the underwriter for Shares purchased from a Selling
Securityholder, and any discounts, commissions or concessions allowed or
reallowed or paid to dealers.
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the issuer pursuant
to the foregoing provisions or otherwise, the issuer has been advised that in
the opinion of the Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for
the Company by Snow Becker Krauss P.C., 605 Third Avenue, New York, New York
10158.
EXPERTS
The consolidated financial statements of the Company as of and for the year
ended December 31, 1995, appearing herein, have been included in reliance upon
the report of Deloitte & Touche LLP, independent auditors, given upon the
authority of said firm as experts in accounting and auditing. The consolidated
financial statements of the Company as of and for the year ended December 31,
1994, appearing herein, have been included in reliance upon the report of
Goldstein Golub Kessler & Company, P.C., independent auditors, given upon the
authority of said firm as experts in accounting and auditing. The consolidated
financial statements of the Company for the year ended December 31, 1993 have
been included in reliance upon the report of Borek, Stockel & Marden,
independent auditors, given upon the authority of said firm as experts in
accounting and auditing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure."
35
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act of 1933 (File No. 333- ) with the Commission for the
registration of the securities offered by this Prospectus. The 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 with respect to the Company and this
offering reference is made to the Registration Statement, including the exhibits
filed therewith. The statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete and where the
contract or other document has been filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by such reference to
the applicable document filed with the Commission. The Registration Statement
and other information can be examined without charge at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549, and at the following Regional Offices
of the Commission: Northeast Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60611-2511. Copies of any such material can be
obtained at prescribed rates by writing to the Securities and Exchange
Commission, Public Reference Section, 450 5th Street, N.W., Washington, D.C.
20549.
36
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC.
INDEX TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(AUDITED)
PAGE NO.
Independent Auditor's Reports..................................... F-1-3
Financial Statements:
Balance Sheets.................................................. F-4
Statements of Operations........................................ F-5
Statements of Stockholders' Equity.............................. F-6
Notes To Financial Statements................................... F-7-13
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
Balance Sheets.................................................. F-14
Statements of Income............................................ F-15
Statements of Cash Flows........................................ F-16
Notes To Financial Statements................................... F-17-18
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
BRAKE HEADQUARTERS USA, INC.
We have audited the accompanying consolidated balance sheet of Brake
Headquarters USA, Inc. and subsidiaries as of December 31, 1995, and the related
statements of operations, shareholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Brake Headquarters USA, Inc.
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
As discussed in Note 5 to the consolidated financial statements, the
Company commenced an action against a former customer to collect approximately
$971,000 of accounts receivable. The defendant has filed a counterclaim against
the Company and the Company's President seeking compensatory and punitive
damages. The Company intends to vigorously pursue its claim against the
defendant and has denied the defendant's counterclaims. The ultimate outcome or
such litigation cannot presently be determined. Accordingly, no provision for
any liability that may result upon resolution of the counterclaim has been made
in the accompanying consolidated financial statements.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
April 8, 1996
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
BRAKE HEADQUARTERS USA, INC.
We have audited the accompanying consolidated balance sheet of Brake
Headquarters USA, Inc. and subsidiaries ( formerly Sanyo Industries, Inc.) as of
December 31, 1994, and the related statements of operations, shareholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Brake
Headquarters USA, Inc. and subsidiaries as of December 31, 1994, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
February 8, 1995
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
BOARD OF DIRECTORS
BRAKE HEADQUARTERS USA, INC.
We have audited the accompanying consolidated balance sheet of Brake
Headquarters USA, Inc. and subsidiaries as of December 31, 1993, and the related
statements of operations, shareholders' equity, and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Brake Headquarters USA, Inc.
and subsidiaries as of December 31, 1993, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
BOREK, STOCKEL & MARDEN
Port Chester, New York
May 30, 1996
F-3
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................................. $ 17,895 $ 11,991
Accounts receivable, less allowance for doubtful accounts of $287,891 and
$75,000....................................................................... 5,623,117 4,309,862
Inventory........................................................................ 7,873,131 6,439,616
Prepaid expenses and other current assets........................................ 387,767 417,805
Due from President............................................................... 51,604 --
Deferred tax asset............................................................... 345,345 122,678
TOTAL CURRENT ASSETS........................................................ 14,298,859 11,301,952
Property and Equipment -- net...................................................... 921,120 324,769
Other Assets....................................................................... 276,315 310,422
TOTAL ASSETS................................................................ $15,496,294 $11,937,143
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other current liabilities................. $ 2,869,762 $ 2,156,690
Notes and acceptances payable.................................................... 8,075,196 5,054,820
Current portion of long-term debt................................................ 65,038 57,667
Income taxes payable............................................................. -- 326,536
11,009,996 7,595,713
Note Payable -- Shareholder........................................................ -- 37,063
Long-term Debt..................................................................... 630,494 179,406
11,640,490 7,812,182
Commitments and Contingencies (see notes)
SHAREHOLDERS' EQUITY:
Series A preferred stock -- $.25 par value; authorized 2,200,000 shares,
2,000,000 shares issued in 1994............................................... -- 500,000
Common stock -- $.001 par value; authorized 20,000,000 shares, issued and
outstanding 3,416,197 and 2,621,467 shares.................................... 3,416 2,622
Additional paid-in capital....................................................... 13,014,260 12,490,455
Accumulated deficit.............................................................. (9,161,872) (8,870,070)
Cumulative foreign currency translation adjustment............................... -- 1,954
TOTAL SHAREHOLDERS' EQUITY.................................................. 3,855,804 4,124,961
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $15,496,294 $11,937,143
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994 1993
<S> <C> <C> <C>
Sales............................................................... $32,383,302 $26,129,165 $18,655,073
Less returns and allowances....................................... 1,919,572 1,034,692 938,050
Net sales........................................................... 30,463,730 25,094,473 17,717,023
Cost of goods sold.................................................. 22,409,932 18,390,321 13,385,242
Gross profit........................................................ 8,053,798 6,704,152 4,331,781
Operating expenses:
Selling, general and administrative............................... 7,238,924 5,198,689 3,961,772
Non-cash compensatory charges..................................... -- 2,314,000 --
Settlement of litigation.......................................... -- 232,500 --
Public offering costs............................................. 248,000 -- --
7,486,924 7,745,189 3,961,772
Income (loss) from operations....................................... 566,874 (1,041,037) 370,009
Other income (expense):
Interest expense.................................................. (774,762) (520,602) (314,796)
Gain (loss) on foreign currency transactions...................... 2,816 (12,270) 3,431
(771,946) (532,872) (311,365)
Income (loss) before provision (benefit) for income taxes........... (205,072) (1,573,909) 58,644
Provision (benefit) for income taxes................................ (26,000) 395,000 17,457
Net income (loss)................................................... $ (179,072) $(1,968,909) 41,187
Net loss per common and common equivalent share..................... $ (0.06) $ (0.92) $ (0.00)
Weighted average number of common and common equivalent shares
outstanding....................................................... 3,058,968 2,188,414 2,618,321
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY TOTAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1993..................... 2,000,000 $ 500,000 1,875,500 $1,875 $ 8,634,785 $(6,942,348) -- $ 2,194,312
Net Income................. -- -- -- -- -- 41,187 -- 41,187
BALANCE AT DECEMBER 31,
1993..................... 2,000,000 500,000 1,875,500 1,875 8,634,785 (6,901,161 ) -- 2,235,499
Release of 1994 escrow
shares to President...... -- -- -- -- 273,125 -- -- 273,125
Exercisability of Class F
warrants................. -- -- -- -- 74,375 -- -- 74,375
Excess common shares issued
upon conversion of
preferred stock.......... -- -- -- -- 1,966,500 -- -- 1,966,500
Issuance of common stock in
connection with exercise
of Class D warrants...... -- -- 41,667 42 16,625 -- -- 16,667
Issuance of common stock
for cash in connection
with exercise of
warrants................. -- -- 702,500 702 1,489,048 -- -- 1,489,750
Issuance of common stock
for services............. -- -- 1,800 2 35,998 -- -- 36,000
Net loss................... -- -- -- -- -- (1,968,909 ) (1,968,909 )
Foreign currency
translation adjustment... -- -- -- -- -- -- $ 1,954 1,954
BALANCE AT DECEMBER 31,
1994..................... 2,000,000 500,000 2,621,467 2,621 12,490,456 (8,870,070 ) 1,954 4,124,961
Conversion of preferred
stock.................... (2,000,000) (500,000) 1,000,000 1,000 499,000 -- -- --
Foreign currency
translation adjustment... -- -- -- -- -- -- (1,954 ) (1,954)
Dividends declared......... -- -- -- -- -- (112,730 ) -- (112,730)
Issuance of common stock in
connection with exercise
of Class F warrants...... -- -- 41,666 42 16,625 -- -- 16,667
Employee Stock Bonus
Plan..................... -- -- 3,064 3 7,929 -- -- 7,932
Return of 1993 Escrow
shares to treasury and
retirement of such
shares................... -- -- (250,000) (250 ) 250 -- -- --
Net loss................... -- -- -- -- -- (179,072 ) -- (179,072)
BALANCE AT DECEMBER 31,
1995..................... 0 $ 0 3,416,197 $3,416 $13,014,260 $(9,161,872) $ 0 $ 3,855,804
</TABLE>
F-6
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY -- Brake Headquarters U.S.A., Inc. (formerly Sanyo
Industries, Inc.) and subsidiaries (the "Company") sells a complete line of
brake system parts and accessories primarily to retailers and other wholesalers.
Revenue from the sale of these products is recorded at the time the products are
shipped. During 1995, the Company closed its Canadian subsidiary and wrote-off
substantially all of its remaining assets and liabilities. This resulted in a
net gain of approximately $39,000.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Brake Headquarters U.S.A., Inc. and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated in
consolidation.
INVENTORY -- Inventory, consisting of brake system finished goods and
accessories, is stated at the lower of cost (first-in, first-out method) or
market.
DEPRECIATION -- Depreciation of property and equipment is provided for by
the straight-line method over the estimated useful lives of the related assets
(5 to 40 years). Leasehold improvements are amortized over the lesser of the
term of the respective lease or the estimated useful lives of the improvements
(5 to 40 years).
INCOME TAXES -- The Company recognizes deferred income tax assets and
liabilities for the expected future tax consequences of temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities.
CONCENTRATION OF CREDIT RISK -- The Company's customer base consists
primarily of retailers and wholesalers of brake system replacement parts
throughout North America. On a geographic basis, no area has a disproportionate
concentration of credit risk. During the years ended December 31, 1995, 1994 and
1993, less than 10% of the Company's sales were derived from foreign customers.
Although the Company is directly affected by the well-being of the brake system
replacement parts industry, management does not believe significant credit risk
exists at December 31, 1995. The Company performs ongoing credit evaluations of
its customers' financial conditions. When amounts on specific accounts
receivable are judged to be uncollectible by management, those amounts are
charged to the allowance for doubtful accounts. During the year ended December
31, 1995, the Company had sales to one customer that accounted for 17% of the
Company's net sales. As of December 31, 1995, the Company has an accounts
receivable of approximately $971,000 from a former customer. See Note 6.
STOCK SPLIT -- In August 1995, the Company effected a 1 for 10 reverse
split of its common stock. In February 1993, the Company effected a 1 for 2
reverse split of its common stock. All references in the accompanying
consolidated financial statements to the number of common shares and per share
amounts have been retroactively restated to reflect the reverse splits.
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE -- Net loss per common and
common equivalent share is based on the weighted average number of common and
common equivalent shares (when dilutive) outstanding during the year computed in
accordance with the treasury stock method. Net loss used in the determination of
loss per share has been adjusted for preferred dividend requirements.
Contingently returnable shares are not considered outstanding for loss per share
unless all conditions for release have been attained.
MANAGEMENT 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 reported periods. Actual results could differ from those estimates.
PUBLIC OFFERING COSTS -- The Company has postponed raising additional funds
through a secondary offering due to market conditions. The Company expensed
costs associated with the offering totaling $248,000 during 1995.
F-7
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING
POLICIES -- Continued
STOCK OPTIONS -- In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," which will be effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB Opinion
No. 25 to its stock based compensation awards to employees and will disclose the
required pro forma effect on net income and earnings per share.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of
the Company's credit facilities approximates fair value and is estimated based
on the quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of the same remaining maturities.
NOTE 2 -- NOTES AND ACCEPTANCES PAYABLE
The Company has agreements with two banks to provide lines of credit,
bankers' acceptances and letters of credit. The maximum availability under these
agreements at December 31, 1995 was $9,000,000. The lines of credit and bankers'
acceptances bear interest at rates ranging from 3/4-1% per annum above the
bank's prime rate (8 1/2% at December 31, 1995). The lines of credit expire at
various dates through June 30, 1996. In February 1996, the Company refinanced
and expanded by $1,000,000 one of its bank agreements. The Company currently has
total available credit of $10,000,000. The new 2 year agreement allows for
borrowings of up to $5,000,000 based upon levels of accounts receivable and
inventory. The other line of credit will be reviewed for renewal. The notes and
acceptances payable are collateralized by substantially all of the assets of the
Company and are partially guaranteed by the Company's President/majority
shareholder (the "President"). One of the agreements contains covenants which
require the maintenance of certain amounts of net worth and financial ratios. At
December 31, 1995, the Company had outstanding letters of credit of
approximately $28,000. In addition, during 1995, the Company obtained a $258,000
short-term loan from an individual which is due in August 1996, payable in cash
or in common stock at the option of the Company. The loan bears interest at 8%
per annum.
The outstanding balances are as follows:
1995 1994
Lines of credit............................... $4,030,000 $3,252,678
Bankers' acceptances.......................... 3,787,196 1,802,142
Short-term note payable....................... 258,000 --
$8,075,196 $5,054,820
NOTE 3 -- LONG-TERM DEBT
Long-term debt consists of the following:
1995 1994
Note payable -- economic development loan (a)....... $ 65,532 $ 86,564
First mortgage -- bank (b).......................... 390,000 --
Second mortgage -- State Finance Authority (c)...... 240,000 --
Notes payable -- business improvement loans (d)..... -- 150,509
695,532 237,073
Less current portion......................... 65,038 57.667
$630,494 $179,406
F-8
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- LONG-TERM DEBT -- Continued
(a) The economic development loan bears interest at 5% per annum and is payable
in monthly installments of $2,072 through November 1998. The note is
collateralized by certain property and equipment.
(b) The first mortgage, dated December 8, 1995, is payable to a bank, bears
interest at 7.36% per annum and is secured by the Company's Illinois
facility. This mortgage is being amortized over a ten year period in monthly
principal and interest installments of $4,602.
(c) The second mortgage, dated December 11, 1995, is payable to the Illinois
Development Finance Authority, bears interest at prime and is secured by the
Company's Illinois facility as well as a second lien on certain equipment.
This mortgage is payable in monthly installments of principal and interest
necessary to fully amortize the loan by January 1, 2005.
(d) Six business improvement loans from a Canadian bank bearing interest at the
rate of prime plus 1% (9.25% at December 31, 1994). Each note was payable in
60 monthly installments ranging from $136 to $1,916. The notes were repaid
by the transfer of certain machinery and equipment to the lender.
Aggregate maturities of long-term debt are as follows:
Year ending December 31,
1996......................................... $ 65,038
1997......................................... 69,712
1998......................................... 70,556
1999......................................... 54,493
2000......................................... 59,000
Thereafter................................... 376,733
$695,532
NOTE 4 -- SHAREHOLDERS' EQUITY
ESCROW AGREEMENT -- Pursuant to a business combination in 1992, the Company
and the President entered into an agreement for the issuance of 750,000 shares
of common stock held in escrow (the "Escrow Shares"). The escrow agreement, as
amended, provided for the Escrow Shares to be released upon the Company's
attainment of certain pre-tax income levels, as defined, for the years ended
December 31, 1992, 1993 and 1994. The President was also issued warrants to
purchase an aggregate of 125,000 shares (41,667 shares per year, warrant Classes
D, E, and F, respectively) of the Company's common stock at $.40 per share,
provided that the Company meets the same respective pre-tax income levels
described above. The attainment of the respective pre-tax income levels, which
result in the release of the Escrow Shares and exercisability of the warrants,
were deemed to be compensatory and resulted in a charge to operations equal to
(1) the fair market value of the Escrow Shares measured as of the last day in
the respective year in which the pre-tax income level was attained, and (2) the
fair market value of the shares to be issued upon the exercise of the warrants
measured as of the last day in the respective year in which the pre-tax income
level was attained less the exercise price to be paid. The charges related to
the release and issuance of these shares are not deductible for income tax
purposes.
During the year ended December 31, 1994, the 41,667 Class D warrants were
exercised by the President; in addition, a total of 375,000 shares were released
from escrow since the Company met the 1992 pre-tax income level. The Company did
not meet the 1993 pre-tax income level, and accordingly, 250,000 shares were
returned to the treasury of the Company and the Class E warrants were not
exercisable. Since the Company attained the 1994 pre-tax income levels, as
defined, 125,000 shares were released from escrow to the President and the
41,667 Class F warrants were exercised during 1995.
F-9
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- SHAREHOLDERS' EQUITY -- Continued
The President disputed the 1993 forfeiture of shares, but waived any claims
he had against the Company in exchange for the July 1995 grant of a
non-qualified stock option to purchase 180,000 shares of Common Stock under the
1995 Plan.
On March 30, 1994, Class A, B and C warrants were exercised and converted
into common stock as follows:
EXERCISE
PRICE NUMBER OF
PER WARRANTS
CLASS WARRANT EXERCISED AMOUNT
A......................... $.09 6,975,000 $ 627,750
B......................... .12 6,975,000 837,000
C......................... .25 100,000 25,000
14,050,000 $1,489,750
Since each warrant was convertible into one-twentieth share of common
stock, the number of common shares outstanding was increased by 702,500 shares
of common stock and additional paid-in-capital was increased by $702 and
$1,489,048, respectively.
COMMON STOCK -- In August 1995, the Company increased its authorized common
stock (post split) to 20,000,000 shares. In March 1996, the Company decreased
its authorized common stock to 6,000,000 shares.
PREFERRED STOCK -- Each share of Series A preferred stock, all of which was
owned by the President, carried a cumulative dividend of $.02 per share payable
annually. As of December 31, 1994, the Company was in arrears on the preferred
stock dividends in the amount of $99,397. On April 30, 1995, the Company
declared a dividend of $112,730 for all dividends accumulated for the period
from July 9, 1992 to April 30, 1995. The dividends were unpaid as of December
31, 1995. Since certain cumulative financial operating goals were achieved
during the three-year period ended December 31, 1994, each share of Series A
preferred stock was automatically converted into shares of common stock on April
30, 1995. The excess common shares issued (the "Excess Common Shares") upon
attainment of such operating goals were deemed to be compensatory and were
measured by the fair market value of the Excess Common Shares as of December 31,
1994.
In March 1996, the Company amended its Certificate of Incorporation to
authorize the issuance of 1,000 shares of Series B preferred stock to be held by
the President. As the sole shareholder of the Series B preferred stock, which
will vote as a separate class, the President has the exclusive right to elect a
majority of the Company's Board of Directors until the earlier of the redemption
date of March 31, 2001 or the reporting by the Company of at least $75,000,000
in revenue for any year through December 31, 2000. In the event of any
liquidation, dissolution or winding-up, the holder of Series B preferred stock
will be entitled to an aggregate preference of $50,000, his basis in the stock;
any remaining proceeds of liquidation will be distributed pro rata to holders of
the common stock. The amendment also eliminated all remaining authorized shares
of Series A preferred stock.
1994 EMPLOYEE STOCK OPTION PLAN
During 1994, the Company established the 1994 Employee Stock Option Plan
(the "1994 Plan"). The 1994 Plan provides for the grant of options to employees
and other parties to purchase an aggregate of 300,000 shares of common stock.
Options to purchase no more than 120,000 shares of common stock may be granted
to any one person in any two-year period. The 1994 Plan is administered by the
Board of Directors.
The 1994 Plan allows the Company to grant incentive stock options ("ISOs"),
non-qualified stock options ("NQSOs") and stock appreciation rights ("SARs") at
any time within 10 years from the date the 1994 Plan was adopted. The exercise
price of ISOs may not be less than the fair market value of the common stock on
the date of the grant, provided that the exercise price of ISOs granted to an
optionee owning more than 10% of the
F-10
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 4 -- SHAREHOLDERS' EQUITY -- Continued
outstanding common stock may not be less than 110% of the fair market value of
the common stock on the date of grant. In addition, the aggregate fair market
value of common stock with respect to which ISOs are exercisable for the first
time by an optionee during any calendar year shall not exceed $100,000. Options
may not have a term exceeding ten years, except that ISOs granted to an optionee
owning more than 10% of the outstanding common stock may not have a term of more
than five years and ISOs must be granted to and exercised by employees of the
Company. Since the adoption of the 1994 Plan, an aggregate of 258,000 ISOs have
been granted (of which options to purchase, 120,000 have terminated); no NQSOs
or SARs have been granted.
1995 EMPLOYEE STOCK OPTION PLAN
In July 1995, the Company established the 1995 Employee Stock Option Plan
(the "1995 Plan"). The 1995 Plan provides for the grant of options to employees
and other parties of ISOs, NQSOs and SARs to purchase an aggregate of 300,000
shares of common stock. The provisions of the 1995 Plan are identical to the
above-stated terms of the 1994 Plan.
Since the adoption of the 1995 Plan, no ISOs or SARs have been granted.
NQSOs to purchase 180,000 shares of common stock at $3.00 per share, the fair
market value on the date of grant, have been granted to the President. The
options terminate in July 2000 and are exercisable on a cumulative basis in
one-third increments on July 31, 1997, 1998 and 1999. The option becomes
immediately exercisable upon a change in control of the Company. Options to
purchase 120,000 shares of common stock remain available for grant under the
1995 Plan.
A summary of stock option transactions under employee option plans for each
of the three years in the period ended December 31, 1995 are as follows:
OPTIONS OPTION PRICE
Outstanding January 1, 1993
Granted............................ -- --
Canceled........................... -- --
Outstanding December 31, 1993
Granted............................ 252,000 $ 2.50-$20.00
Canceled........................... (120,000) $ 20.00
Outstanding December 31, 1994........ 132,000 $ 2.50
Granted............................ 186,000 $ 2.25-$3.00
Canceled........................... (3,000) $ 2.50
Outstanding December 31, 1995........ 315,000 $ 2.25-$3.00
Exercisable:
December 31, 1994.................. -- --
December 31, 1995.................. 80,000 $ 2.50
In December 1994, the Company canceled options to purchase 120,000 shares
of common stock exercisable at $20 per share, previously granted to the
President under the 1994 Plan, and re-granted such options at an exercisable
price of $2.50 per share.
EMPLOYEE STOCK BONUS PLAN
In April 1995, the Company adopted the Employee Stock Bonus Plan which
enables all full-time employees to purchase shares of common stock at 85% of the
then fair market value through payroll deductions. During 1995, 3,064 shares
were issued from the 100,000 shares available for sale under the plan.
F-11
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- INCOME TAXES
Provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal:
Current....................................... $ 81,000 $326,000 $ 25,431
Deferred...................................... (123,000) (33,000) (18,238)
(42,000) 293,000 7,193
State and Local:
Current....................................... 47,000 118,000 15,085
Deferred...................................... (31,000) (16,000) (4,821)
16,000 102,000 10,264
$ (26,000) $395,000 $ 17,457
</TABLE>
The total provision (benefit) for income taxes differs from that amount
which would be computed by applying the U.S. federal tax rate to the loss before
income taxes. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Statutory federal income tax rate.................................. (34.0)% (34.0)% 34.0%
Effect of income taxed at reduced federal statutory rates.......... -- -- (19.0)
State and local income taxes, net of federal benefit............... 7.7 4.3 13.0
Nondeductible compensatory charges................................. -- 50.0 --
Permanent and other differences.................................... 13.6 4.8 1.8
(12.7)% 25.1% 29.8%
</TABLE>
The temporary differences which give rise to the deferred tax asset of
$348,614 and $122,678 at December 31, 1995 and 1994 consist primarily of
approximately $390,000 and $171,000 of costs which were charged to operations
for financial statement purposes, but were required to be capitalized as
inventory for income tax purposes and the allowance for doubtful accounts of
$288,000 and $75,000 which represents an amount not deductible for income tax
purposes until the related asset is written-off.
The exercise of non-qualified stock options under the Company's stock
option plans give rise to compensation which is includable in the taxable income
of the recipients and deductible by the Company for federal and state income tax
purposes. Utilization of such deductions will increase additional paid-in
capital.
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
The Company leases warehouse and office space under noncancelable operating
leases. Aggregate future minimum lease payments are as follows:
Year ending December 31,
1996........................................... $ 376,000
1997........................................... 370,000
1998........................................... 361,000
1999........................................... 184,000
2000........................................... 22,000
Thereafter..................................... 7,000
$1,320,000
F-12
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- COMMITMENTS AND CONTINGENCIES -- Continued
Rent expense for the years ended December 31, 1995, 1994 and 1993 amounted
to approximately $354,000, $361,000 and $304,000, respectively, which includes
$312,000 in 1995 and 1994 and $302,000 in 1993 which is paid to the Company's
President.
In May 1995, the Company settled various litigation/claims for $232,500
which has been reflected in the 1994 consolidated financial statements.
In July 1995, the Company entered into a three-year employment agreement
with the President providing for a minimum annual salary of $156,000, with a
bonus at the discretion of the Board of Directors, determined based upon the
profitability of the Company. No bonus was issued for the period ended December
31, 1995.
In December 1995, the Company commenced an action against a former customer
to collect $971,000 of accounts receivable. The defendant has filed a
counterclaim against the Company and the Company's President seeking
compensatory and punitive damages of $25 million. The Company believes its claim
is meritorious and believes the counter claim against the Company is without
merit and will not have a material impact on the consolidated financial
condition of the Company.
F-13
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE
30,1996 DECEMBER
(UNAUDITED) 31, 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash............................................................................. $ 139,756 $ 17,895
Accounts receivable, less allowance for doubtful accounts of 77,821 and 287,891
respectively.................................................................. 7,747,297 5,623,117
Inventory........................................................................ 8,154,177 7,873,131
Prepaid expenses and other current assets........................................ 277,963 387,767
Due from President............................................................... 31,878 51,604
Deferred tax asset............................................................... 345,345 345,345
TOTAL CURRENT ASSETS........................................................ 16,696,415 14,298,859
Property and Equipment -- net...................................................... 921,756 921,120
Other Assets....................................................................... 225,561 276,315
TOTAL ASSETS................................................................ $17,843,732 $15,496,294
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other current liabilities................. $ 3,284,079 $ 2,869,762
Notes and acceptances payable.................................................... 5,281,456 8,075,196
Current portion of long-term debt................................................ 80,700 65,038
TOTAL CURRENT LIABILITIES................................................... 8,646,235 11,009,996
Long-term Debt..................................................................... 5,230,850 630,494
TOTAL LIABILITIES........................................................... 13,877,085 11,640,490
Commitments and Contingencies (see notes)
Shareholders' Equity:
Series A preferred stock -- $.25 par value; authorized 2,200,000 shares, none
issued........................................................................ -- --
Series B preferred stock -- $.001 par value; authorized, isssued and outstanding
1,000 shares.................................................................. 1 --
Common stock -- $.001 par value; authorized 6,000,000 and 20,000,000 shares,
issued and outstanding 3,418,730 and 3,416,197 shares......................... 3,418 3,416
Additional paid-in capital....................................................... 13,070,309 13,014,260
Accumulated deficit.............................................................. (9,107,081) (9,161,872)
TOTAL SHAREHOLDERS' EQUITY.................................................. 3,966,647 3,855,804
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................. $17,843,732 $15,496,294
</TABLE>
See Notes to Consolidated Financial Statements
F-14
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE
SIX MONTHS ENDED JUNE 30, 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Sales.................................................. $18,018,775 $16,112,941 $9,572,400 $9,028,725
Less returns and allowances............................ (1,404,364) (495,901) (791,870) (205,640)
Net sales.............................................. 16,614,411 15,617,040 8,780,530 8,823,085
Cost of goods sold..................................... 12,006,050 11,406,792 6,277,367 6,431,569
Gross profit........................................... 4,608,361 4,210,248 2,503,163 2,391,516
Selling, general and administrative expenses........... 4,050,462 3,018,137 2,311,553 1,682,588
Income from operations................................. 557,899 1,192,111 191,610 708,828
Other income (expense):
Interest expense....................................... (478,108) (305,429) (211,264) (164,474)
Gain (loss) on foreign currency transactions........... -- 8,977 -- (1,390)
(478,108) (296,452) (211,264) (165,864)
Income (loss) before provision for income taxes........ 79,791 895,659 (19,654) 542,964
Provision for income taxes............................. 25,000 349,000 11,000 217,842
Net income (loss)...................................... $ 54,791 $ 546,659 $ (30,654) $ 325,122
Net income per common and common equivalent share...... 0.02 0.18 (.01) 0.10
Weighted average number of common and common equivalent
shares outstanding................................... 3,687,054 2,990,991 3,687,054 3,324,244
</TABLE>
See Notes to Consolidated Financial Statements
F-15
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.................................................... $ 14,233,857 $ 12,637,038
Cash paid to suppliers and employees............................................ (15,436,384) (12,953,487)
Interest paid................................................................... (418,010) (305,429)
Taxes paid...................................................................... (57,606) (267,284)
NET CASH USED IN OPERATING ACTIVITIES...................................... (1,678,143) (889,162)
Cash flows used in investing activity-capital expenditures........................ (48,053) (574,036)
Cash flows from financing activities:
Net borrowings (repayments) under notes and acceptances payable................. (2,793,740) 1,146,547
Proceeds from issuance of long-term debt........................................ -- 461,040
Principal payments on long-term debt............................................ -- (58,442)
Proceeds from common stock issuance............................................. 6,052 --
Loans to President.............................................................. (20,357) --
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 1,782,392 1,549,145
Net increase in cash.............................................................. 121,861 85,947
Cash at beginning of period....................................................... 17,895 11,991
Cash at end of period............................................................. $ 139,756 $ 97,938
Reconciliation of net loss to net cash used in operating activities:
Net income...................................................................... $ 54,791 $ 546,659
Adjustments to reconcile net income to net cash used in operating activities:
(Gain) on foreign currency transactions...................................... -- (8,977)
Depreciation and amortization................................................ 47,417 80,248
Provision for doubtful accounts.............................................. 236,374 --
Changes in assets and liabilities:
Accounts receivable........................................................ (2,360,554) (2,980,002)
Inventory.................................................................. (281,046) 230,785
Prepaid expenses and other current assets.................................. 109,804 105,834
Other assets............................................................... 50,754 27,615
Accounts payable and accrued expenses...................................... 464,317 1,108,676
NET CASH USED IN OPERATING ACTIVITIES................................... $ (1,678,143) $ (889,162)
</TABLE>
SUPPLEMENTAL INFORMATION OF NON-CASH FINANCING ACTIVITIES:
The President purchased 1,000 shares of Series B stock for $50,000 which
was paid for by a reduction in dividends payable to him.
See Notes to the Consolidated Financial Statements
F-16
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements of Brake
Headquarters U.S.A., Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the six months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995. There has
been no significant changes of accounting policies since December 31, 1995.
Earnings per common and common equivalent share is based on the weighted
number of common and common equivalent shares (when dilutive) outstanding during
the year computed in accordance with the treasury stock method. Net income used
in the determination of earnings per share has been adjusted for preferred
dividend requirements.
NOTE 2 -- NOTES AND ACCEPTANCES PAYABLE:
In February 1996, the Company refinanced one of its bank agreements with a
new two year agreement with a new bank that allows for borrowings of an
additional $1,000,000. The Company has combined lines of credit totaling
$10,000,000. The Company's second line of credit was renewed until May 1, 1997.
The notes and acceptances payable are collateralized by substantially all the
assets of the Company. The President/majority shareholder has guaranteed a
portion of one of the bank facilities when equity falls below $4,250,000. The
second loan provides for a guarantee of $1,000,000. The Company was in technical
default of several financial ratios on one of its current loans, however the
bank has provided the Company a waver for these technical defaults, and revised
certain ratios on a going forward basis.
In January 1996, the Company obtained a $69,700 loan from the City of
Fairfield, Illinois at a rate of 5% per annum, for the purpose of purchasing
equipment for the Fairfield, Illinois distribution center.
NOTE 3 -- STOCKHOLDERS' EQUITY
COMMON STOCK -- In March 1996, the Company decreased its shares of
authorized common stock to 6,000,000 shares from 20,000,000 and also eliminated
all remaining authorized shares of Series A preferred stock.
In March 1996, the Company amended its Certificate of Incorporation to
authorize the issuance of 1,000 shares of Series B preferred stock to be held by
the President. As the sole shareholder of the Series B preferred stock, which
will vote as a separate class, the President has the exclusive right to elect a
majority of the Company's Board of Directors until the earlier of the redemption
dates of March 31, 2001 or the reporting by the Company of at least $75,000,000
in revenue for any year through December 31, 2000. In the event of any
liquidation, dissolution or winding-up, the holder of the Series B preferred
stock will be entitled to an aggregate preference of $50,000, his basis in the
stock; any remaining proceeds of liquidation will be distributed pro rata to
holders of the common stock.
In March 1996, the President purchased the 1,000 shares of Series B
preferred stock. The $50,000 purchase price was funded by a reduction of the
$112,730 dividend payable to him.
In August 1996 the Company completed the initial phase of raising
additional capital through a private placement. The Company sold 450,000 units
at a purchase price of $2.50 per unit. Each unit consists of one share
F-17
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 3 -- STOCKHOLDERS' EQUITY -- Continued
of common stock and two Redeemable Common Stock Purchase Warrants each to
purchase one share of common stock of the Company at $3.80 per share until the
third anniversary of the initial closing.
NOTE 4 -- COMMITMENTS AND CONTINGENCIES
In June 1996, the Company settled an action against a former customer to
collect $971,000 of accounts receivable. Inventory totaling approximately
$459,000, was returned to the Company. The Company was required to pay the
customer $85,000. As a result of the above settlement and available reserves the
Company recorded an expense of a $212,000 in the financial statements for six
months ended June 30, 1996. Mutual releases were exchanged for all claims and
counter claims.
In July 1996, the Company entered into an agreement to purchase a new
computer system for approximately $475,000 which is financed over a five year
period.
F-18
<PAGE>
NO DEALER, SALESMAN OR ANY 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 THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OFFERED BY THIS
PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY, BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES, IMPLY THAT THE INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF BY ANY TIME SUBSEQUENT TO THE DATE OF THIS
PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 5
Use of Proceeds...................................... 9
Price Range of Common Stock.......................... 9
Dividend Policy...................................... 10
Capitalization....................................... 11
Selected Financial Information....................... 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 13
Business............................................. 17
Management........................................... 22
Certain Relationships and Related Transactions....... 27
Principal Stockholders............................... 28
Selling Securityholders.............................. 30
Description of Securities............................ 31
Shares Eligible for Future Sale...................... 33
Plan of Distribution................................. 35
Commission Position on Indemnification for Securities
Act Liabilities.................................... 35
Legal Matters........................................ 35
Experts.............................................. 35
Additional Information............................... 36
Index to Financial Statements........................ 37
Financial Statements................................. F-1
</TABLE>
BRAKE HEADQUARTERS U.S.A., INC.
1,644,633 SHARES
COMMON STOCK
980,000 WARRANTS
PROSPECTUS
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions) are estimated below:
SEC Registration Fee........................................ $ 2,082.91
Transfer Agent's Fee........................................ 2,000.00
Printing and Engraving Expenses............................. 5,000.00
Legal Fees and Expenses..................................... 20,000.00
State Securities Qualification Fees and Expenses............ 3,000.00
Accounting and Auditing Fees and Expenses................... 15,000.00
Miscellaneous............................................... 2,917.09
Total................................................ $50,000.00
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except to the extent hereinafter set forth, there is no statute, charter
provision, by-law, contract or other arrangement under which any controlling
person, director or officer of Brake Headquarters U.S.A., Inc., a Delaware
corporation (the "Company") is insured or indemnified in an manner against
liability which he may incur in his capacity as such.
The Placement Agent Agreement dated July 10, 1996 by and between the
Company and G-V Capital Corp. (the "Placement Agent") contains provisions under
which the Company has agreed to indemnify the Placement Agent (including
officers and directors of the Company and the Placement Agent and any person who
may be deemed to control the Placement Agent or the Company) against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Securities Act").
Article Seventh of the Company's Certificate of Incorporation and Article
VI of the Company's By-laws provide for the indemnification of officers and
directors to the fullest extent allowed by Section 145 of the Delaware General
Corporation Law (the "GCL").
The GCL provides, in part, that no director shall be personally liable to a
corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such director as a director, except:
(i) for breach of the director's duty of loyalty to the corporation or its
stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(iii) pursuant to Section 174 of the GCL; or
(iv) for any transaction from which the director derived an improper
personal benefit. The Company shall, to the full extent permitted by the GCL, as
amended from time to time, indemnify all persons indemnifiable pursuant thereto.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
1. On August 13, 1996, the Registrant issued an aggregate of 450,000 Units
of the Registrant (each Unit consisting of one share of Common Stock and two
Redeemable Common Stock Purchase Warrants each to purchase one share of Common
Stock) to 18 accredited investors, at a purchase price of $2.50 per Unit. The
Placement Agent for this offering received a commission of $84,375. The issuance
of these shares was exempt from registration under Section 4(6) of the
Securities Act and Rule 506 of Regulation D promulgated thereunder.
2. On August 13, 1996, the Registrant issued warrants to purchase 40,000
Units of the Registrant (each Unit consisting of one share of Common Stock and
two Redeemable Common Stock Purchase Warrants each to purchase one share of
II-1
<PAGE>
Common Stock) to the Placement Agent in the above offering in consideration for
services rendered. The issuance of these shares was exempt from registration
under Section 4(2) of the Securities Act.
3. From April 1, 1995 through September 27, 1996, the Registrant issued an
aggregate of 5,078 shares of Common Stock to employees of the Registrant
pursuant to the Registrant's Employee Stock Bonus Plan, at purchase prices
ranging from $1.91 to $4.62. The issuance of these shares was exempt from
registration under Rule 701 of the Securities Act.
4. From January 1, 1994 through January 5, 1996, the Registrant issued an
aggregate of 2,338 shares of Common Stock to four employees of the Company, as
bonus consideration for services rendered. The issuance of these shares was
exempt from registration under Section 4(2) of the Securities Act.
5. On May 19, 1995, the Registrant issued 1,000,000 shares of Common Stock
to Joseph Ende upon conversion of 2,000,000 shares of Preferred Stock issued to
Mr. Ende in connection with the acquisition of Sanyo Automotive. The issuance of
these shares was exempt from registratin under Section 3(a)(9) of the Securities
Act.
6. On May 19, 1995, the Registrant issued 41,666 shares of Common Stock to
Joseph Ende upon the exercise of all of the Registrant's Class F Warrants for an
aggregate consideration of $16,667. The issuance of these shares was exempt from
registration under Section 4(2) of the Securities Act.
7. On December 16, 1994, the Registrant regranted to Joseph Ende options to
purchase 120,000 shares of Common Stock at an exercise price of $2.50 per share,
pursuant to the Registrant's 1994 Employee Stock Option Plan. The grant of these
options was exempt from registration under Rule 701 of the Securities Act.
8. From November 21, 1994, through May 29, 1996, the Registrant granted
options to purchase an aggregate of 42,000 shares of Common Stock to officers of
the Registrant at exercise prices ranging from $2.25 to $3.00 per share,
pursuant to the Registrant's employee stock option plans, of which 3,000 such
options terminated upon the resigation of the Registrant's former Chief
Financial Officer in 1995. The grant of these options was exempt from
registration under Rule 701 of the Securities Act.
9. On October 25, 1994, the Registrant issued 41,666 shares of Common Stock
to Joseph Ende upon the exercise of all of the Registrant's Class D Warrants for
an aggregate consideration of $16,667. The issuance of these shares was exempt
from registration under Section 4(2) of the Securities Act.
10. On March 30, 1994, the Registrant issued 348,750 shares of Common Stock
to certain warrantholders upon the exercise of the Registrant's Class A
Warrants, at an exercise price of $1.80 per share, as follows:
NUMBER OF WARRANTS
NAME EXERCISED NUMBER OF SHARES
The Christopher Trust................ 2,241,100 112,055
REB Trust............................ 1,841,100 92,055
KAB Trust............................ 1,841,100 92,055
Ruth Greer........................... 100,000 5,000
Alvin Abrams......................... 951,700 47,585
The issuance of these shares was exempt from registration under Section
4(2) of the Securities Act.
11. On March 30, 1994, the Registrant issued 348,750 shares of Common Stock
to certain warrantholders upon the exercise of the Registrant's Class B
Warrants, at an exercise price of $2.40 per share, as follows:
NUMBER OF WARRANTS
NAME EXERCISED NUMBER OF SHARES
The Christopher Trust................ 2,241,100 112,055
REB Trust............................ 1,841,100 92,055
KAB Trust............................ 1,841,100 92,055
Ruth Greer........................... 100,000 5,000
Estelle Abrams....................... 951,700 47,585
The issuance of these shares was exempt from registration under Section
4(2) of the Securities Act.
II-2
<PAGE>
12. On March 30, 1994, the Registrant issued 5,000 shares of Common Stock
to Ruth Greer upon the exercise of 100,000 of the Company's Class C Warrants, at
an exercise price of $5.00 per share. The issuance of these shares was exempt
from registration under Section 4(2) of the Securities Act.
There were no underwriters with respect to any of the above transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
*1.1 Placement Agent Agreement dated July 10, 1996, by and
between the Company and G-V Capital Corp.
3.1 Certificate of Incorporation of the Company, as amended and
restated.(5)
3.2 By-laws of the Company.(1)
4.1 Form of Common Stock Certificate.(1)
4.2 1994 Employee Stock Option Plan.(2)
4.3 1995 Employee Stock Option Plan.(5)
4.4 Form of Stock Option Agreement.(5)
4.5 Employee Stock Bonus Plan.(5)
*4.6 Form of Private Placement Warrant
*5.1 Opinion of Snow Becker Krauss P.C.
10.1 Unlimited Guaranty made by Joseph Ende on behalf of Sanyo
Automotive Parts, Ltd. in favor of Bank Leumi dated April
25, 1990.(2)
10.2 Lease Agreement between the Company and Joseph Ende dated
July 1, 1992.(2)
10.3 Loan Agreement between Sanyo Automotive Parts, Ltd. and
the City of Fairfield dated November 9, 1993.(2)
10.4 Employment Agreement between the Company and Scott Osias dated
November 24, 1994.(4)
10.5 Amendment dated April 17, 1995 to Agreement and Plan of
Reorganization by and among Unified Capital, Inc. (now
known as Sanyo Industries, Inc.), Sanyo Automotive Parts,
Ltd. and Joseph Ende dated July 9, 1992.(4)
10.6 Loan Agreement between Sanyo Automotive Parts, Ltd., The
Fairfield National Bank and Illinois Development Authority
dated January 13, 1995.(4)
10.7 Employment Agreement between the Company and Joseph Ende dated
July 31, 1995.(5)
10.8 Promissory Note in the principal amount of $258,000 made
by Brake Headquarters U.S.A., Inc. to Dean Petkanas dated
November 17, 1995.(5)
10.9 Mortgage between Sanyo Automotive Parts, Ltd. and
Fairfield National Bank dated December 8, 1995.(5)
10.10 Promissory Note in the principal amount of $390,000 made
by Sanyo Automotive Parts, Ltd. to Fairfield National Bank
dated December 8, 1995.(5)
10.11 Second Mortgage between Sanyo Automotive Parts, Ltd. and
the Illinois Development Finance Authority ("IDFA") dated
December 7, 1995.(5)
10.12 Loan Agreement between Sanyo Automotive Parts, Ltd. and
IDFA dated December 11, 1995.(5)
10.13 Promissory Note in the principal amount of $240,000 made
by Sanyo Automotive Parts, Ltd. to IDFA dated December 11,
1995.(5)
10.14 Absolute, Unconditional and Continuing Guaranty of Payment
made by Brake Headquarters U.S.A., Inc. in favor of IDFA
dated December 11, 1995.(5)
10.15 Loan Agreement between Sanyo Automotive Parts, Ltd. and
the Chase Manhattan Bank, N.A. dated February 22, 1996.(5)
10.16 Note in the principal amount of $5,000,000 made by Sanyo
Automotive Parts, Ltd., to the Chase Manhattan Bank, N.A. dated
February 22, 1996.(5)
10.17 Security Agreement between Sanyo Automotive, Ltd. and the
Chase Manhattan Bank, N.A. dated February 22, 1996.(5)
10.18 Corporate Guaranty made by Brake Headquarters U.S.A., Inc. in
favor of the Chase Manhattan Bank, N.A. dated February 22,
1996.(5)
10.19 Individual Guaranty made by Joseph Ende on behalf of Sanyo
Automotive Parts, Ltd. in favor of the Chase Manhattan Bank, N.A.
dated February 22, 1996.(5)
II-3
<PAGE>
*10.20 Grid Promissory Note in the amount of $4,300,000 made by
Sanyo Automotive Parts, Ltd. to Bank Leumi Trust Company
of New York dated May 1, 1996.
21.1 Subsidiaries of the Company.(5)
*23.1 Consent of Snow Becker Krauss P.C. (contained in Exhibit 5.1).
*23.2 Consent of Deloitte & Touche LLP.
*23.3 Consent of Goldstein Golub Kessler & Company, P.C.
*23.4 Consent of Borek, Stockel & Marden.
*24.1 Power of Attorney (see Signature Page to this Registration
Statement).
* Filed with this Registration Statement.
(1) Incorporated by reference from the Company's Registration Statement on Form
S-18, No. 33-30933-NY.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1993.
(3) Incorporated by reference from the Company's Current Report on Form 8-K
dated July 21, 1992 and as amended by Form 8 dated August 19, 1992 and
September 21, 1992.
(4) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1994.
(5) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or together,
represent a fundamental change in the information in the registration
statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer 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 small business issuer 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.
II-4
<PAGE>
(5) For determining any liability under the Act, to treat 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
small business issuer under Rule 424(b)(1), or (4) or 497(h) under the Act as
part of this registration statement as of the time the Commission declared it
effective.
(6) For determining any liability under the Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial BONA FIDE
offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to 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 October , 1996.
BRAKE HEADQUARTERS U.S.A., INC.
By: /s/ JOSEPH ENDE
JOSEPH ENDE, PRESIDENT
POWER OF ATTORNEY
Each of the undersigned hereby authorizes Joseph Ende as his
attorney-in-fact to execute in the name of each such person and to file such
amendments (including post-effective amendments) to this registration statement
as the Registrant deems appropriate and appoints such person as attorney-in-fact
to sign on his behalf individually and in each capacity stated below and to file
all amendments, exhibits, supplements and post-effective amendments to this
registration statement.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following person in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ JOSEPH ENDE Chairman of the Board of Directors, President October , 1996
JOSEPH ENDE and Chief Executive Officer (Principal
Executive Officer)
/s/ MARC J. RUSKIN Chief Financial Officer (Principal October , 1996
MARC J. RUSKIN Accounting and Financial Officer)
/s/ SANDRA ENDE Director October , 1996
SANDRA ENDE
</TABLE>
II-6
<PAGE>
PLACEMENT AGENT AGREEMENT
This Placement Agent Agreement is made this 10th day of July, 1996 by
and between Brake Headquarters, U.S.A., Inc. (the "Company"), and G-V Capital
Corp. ("G-V").
RECITALS
WHEREAS, the Company intends to offer and sell (the "Offering") a
minimum of 400,000 units, if any, and a maximum of 450,000 units of the Company
(the "Units") at a price of $2.50 per Unit, to accredited investors (as such
term is defined in Rule 501(a) of Regulation D promulgated under the Securities
Act of 1933, as amended (the "Securities Act")), and has prepared a Confidential
Private Placement Memorandum dated July 9, 1996 (together with the exhibits
attached thereto and the financial statements incorporated by reference therein
shall be collectively referred to as the "PPM") in connection therewith;
WHEREAS, each Unit will consist of one share of common stock, $.001 par
value per share ("Common Stock"), and two warrants (the "Warrants"), each to
purchase one share of Common Stock, exercisable for 3 years from the closing of
the Offering at an exercise price of $3.80 per share;
WHEREAS, the Warrants may be redeemed by the Company for $.01 per
Warrant, subject to certain restrictions as set forth in the form of Warrant
Certificate included in the PPM;
WHEREAS, the Company desires that G-V act as the exclusive placement
agent for the Offering and, in connection therewith, the Company has agreed to
pay G-V certain commissions and expenses and to issue G-V certain shares of
Common Stock upon the completion of the Offering;
WHEREAS, G-V desires to act as placement agent for the Offering,
subject to the terms and conditions set forth herein; and
WHEREAS, the parties desire to establish an escrow in connection with
the Offering;
AGREEMENTS
NOW, THEREFORE, for the mutual promises set forth herein and other good
and valuable consideration, the parties hereto agree as follows:
1. G-V.
(a) G-V, and/or other agents hired by it and reasonably acceptable
to the Company, shall act as placement agent in connection with the Offering and
use its "best efforts," subject
<PAGE>
to the Securities Act, the Securities Exchange Act of 1934, as amended, and all
applicable state securities laws, to solicit prospective investors for the
Offering.
(b) As consideration for G-V's agreement to act as placement agent
in connection with the Offering, the Company agrees to pay to G-V a seven and
one-half percent (7-1/2%) commission ($0.1875 per Unit) for each Unit (the
"Commission"). The Commission will be payable on all Units sold in the Offering.
It is expressly understood that no commission shall be earned or due with
respect to the issuance of the warrants granted to G-V pursuant to Section 1(c)
below or the Units which may be issued upon the exercise thereof.
(c) In addition to the consideration set forth in Section 1(b)
above, upon the closing of the Offering, the Company shall grant to G-V,
warrants in form and substance reasonably satisfactory to G-V, to purchase at
$2.50 per Unit an aggregate of 40,000 Units (identical to the Units sold in the
Offering) exercisable for a period of three years after the First Closing Date.
2. Escrow.
(a) All subscription proceeds for Units subscribed to be purchased
in the Offering (the "Funds") shall be held by G-V in a segregated
interest-bearing account at NorthFork Bank, Long Island, New York (or such other
bank selected by G-V). The Funds will not be released until all of the
conditions listed in Section 2(c) below have occurred or are otherwise waived in
writing by G-V.
(b) Provided that the conditions listed in Section 2(c) below have
occurred or are otherwise waived and provided further that G-V has received (and
the Company has accepted) subscription documents and Funds relating to the sale
of at least 400,000 Units, the Company and G-V will proceed with an initial
closing of the Offering. The date on which such initial closing occurs shall be
the "First Closing Date." On the First Closing Date, G-V shall wire transfer to
the Company's account, pursuant to wiring instructions provided in writing by
the Company to G-V, the Funds relating to the subscriptions accepted by the
Company as of the First Closing Date. The Company shall promptly thereafter
issue to such subscribers certificates representing the requisite Units
subscribed for. Subsequent closings of the Offering (of which there shall not be
more than two) shall occur on the same basis when and as the Company and G-V
mutually agree and provided that the conditions listed in Section 2(c) below
have occurred or are otherwise waived. Each date on which a closing occurs shall
be a "Closing Date."
(c) Listed below are the conditions to each closing, including,
without limitation, the initial closing to occur on the First Closing Date:
(i) The Company shall have accepted the subscriptions
held in escrow. Such acceptance to be evidenced by
the Company's execution of the subscription
documents.
2
<PAGE>
(ii) There shall have been furnished to G-V a certificate,
dated the applicable Closing Date (as described
below) and addressed to G-V, signed by Joseph Ende as
President of the Company to the effect that: (i) the
representations and warranties of the Company
contained in this Agreement are true and correct, as
if made at and as of such Closing Date, and the
Company has complied with all the agreements and
satisfied all the conditions on its part to be
complied with or satisfied at or prior to such
Closing Date; and (ii) the signers of said
certificate have carefully examined the PPM, and any
amendments or supplements thereto, and such documents
do not include any untrue statement of a material
fact or omit to state any material fact required to
be stated therein or necessary to make the statements
therein not misleading.
(iii) Since the date hereof, the Company shall not have
sustained any loss or interference with its business
from fire, explosion, accident, malfunction, flood or
other calamity, or shall have become a party to or
the subject of any litigation, which in each case is
materially adverse to the Company, nor, except as
accurately described in the PPM (in particular, under
the section captioned "Business" in the PPM)
(exclusive of any amendment or supplement thereto),
shall there have been any material adverse change, or
any development involving a prospective material
adverse change, in or affecting the condition
(financial or other), business prospects, net worth
or results of operations of the Company taken as a
whole, whether or not arising in the ordinary course
of business.
(iv) Joseph Ende, the Company's President and principal
stockholder, shall have entered into a lock-up
agreement with G-V, in form and substance
satisfactory to G-V as described in the PPM.
(v) The Company shall have furnished G-V with such
additional closing or due diligence documents and
certificates as G-V or counsel to G-V may reasonably
request.
All such certificates, letters and documents shall be in compliance with the
provisions hereof only if they are satisfactory in form and substance to G-V and
its counsel. If any of the conditions specified in this Section 2(c) shall not
have been fulfilled when and as required by this Agreement, G-V shall have no
obligation to transfer any Funds to the Company and may, in its sole discretion,
return such Funds to subscribers in the Offering. Any such return of Funds to
subscribers shall be without liability of G-V to the Company or to any
stockholder, officer, director, employee or creditor of the Company. Notice of
such return of Funds to subscribers shall be given to the Company in writing, or
by telegraph or telephone and confirmed in writing.
3
<PAGE>
3. Representations, Warranties and Agreements of the Company. The Company
represents and warrants to, and agrees with, G-V that:
(a) The PPM does not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own or lease its properties
and conduct its business as described in the PPM and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the character of the business conducted by it or the properties owned
or leased by it make such qualification necessary, except where the failure to
be so qualified will not, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business prospects, net
worth or results of operations of the Company taken as a whole.
(c) All of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued, fully paid and
nonassessable, with no personal liability attaching to the ownership thereof.
Except as described in the PPM (including the notes to the financial statements
included therein), there are (i) no outstanding warrants or options issued or
granted by the Company to purchase any shares of the capital stock of the
Company, (ii) no preemptive rights or other rights to subscribe for or to
purchase, or, any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the certificate of incorporation, by-laws or other
governing documents of the Company or any agreement or other instrument to which
the Company is a party or by which any of them may be bound, and (iii) no person
has any rights for or relating to the registration of any shares of Common Stock
or other securities of the Company. The capitalization of the Company as of
March 31, 1996, after giving effect to the offering of the Common Stock and
Warrants included in the Units, is as set forth in the PPM and the Common Stock
and Warrants included in the Units conform to the description thereof contained
in the PPM. Except as set forth on Schedule A attached hereto, the Company has
no direct or indirect subsidiaries.
(d) The Common Stock and Warrants included in the Units have
been duly authorized and, when issued and delivered, the Common Stock and
Warrants will be duly authorized, validly issued, fully paid and non-assessable
and free of preemptive rights and no personal liability will attach to the
ownership thereof.
(e) The Common Stock and Warrants included in the Units which
may be issuable pursuant to Section 3(aa) hereof have been reserved for issuance
and, when issued in accordance with the terms of Section 3(aa) hereof, will be
duly authorized, validly issued, fully paid and non-assessable and free of
preemptive rights and no personal liability will attach to the ownership
thereof.
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<PAGE>
(f) The Company has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder; and such agreements have been duly authorized, executed and delivered
by the Company and constitute the valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally.
(g) Neither the execution, delivery or performance of this
Agreement by the Company nor the consummation by the Company of the transactions
contemplated hereby will conflict with, or constitute a breach or violation of,
or a default under, the certificate of incorporation, by-laws or other governing
documents of the Company, or any material agreement, indenture, mortgage, deed
of trust or other instrument to which the Company is a party or by which it is
bound, or to which any of its properties or assets is subject, or any statute,
law, governmental or administrative rule or regulation, order or decree of any
court or any governmental agency or body having jurisdiction over the Company or
any of its properties, or result in the creation or imposition of any lien,
charge, claim, encumbrance, security interest or restriction whatsoever upon any
right, property or asset of the Company. Except for (i) permits and similar
authorizations required to be obtained by the Company under applicable state
securities or "Blue Sky" laws and (ii) such permits, consents and authorizations
which have been obtained, no consent, approval, authorization or order of any
court, governmental agency or body or financial institution is required in
connection with the consummation by the Company of the transactions contemplated
by this Agreement. The Offering complies with an exemption from the registration
requirements of the Securities Act.
(h) The Company has not sustained, since the date of the
latest audited financial statements included in the PPM, any loss, interruption
or interference with its business or its principal assets from fire, explosion,
flood, accident, malfunction or other calamity, whether or not covered by
insurance, or from any court or governmental action, order or decree (by its
terms applicable to the Company), which loss or interference would be material
with respect to the Company; and, since the respective dates as of which
information is given in the PPM, (i) the Company has not incurred any material
liability or obligation, direct or contingent, or entered into any material
transaction not in the ordinary course of business, (ii) the Company has not
purchased any of its capital stock, or declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock, and (iii) there has
not been any change in the capital stock of the Company or any material change
in the short-term or long-term debt of the Company or any other material adverse
change, or any development involving a prospective material adverse change, in
or affecting the condition (financial or other), business prospects, net worth
or results of operations of the Company taken as a whole, except in each case as
described in the PPM (including, without limitation, the proposed settlement of
the legal proceedings described under the caption "Business" in the PPM).
(i) The financial statements included as part of the PPM
present fairly, in all material respects, the financial condition and results of
operations of the Company, at the dates and for the periods indicated and,
except as noted therein, have been prepared in conformity with
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<PAGE>
generally accepted accounting principles applied on a consistent basis
throughout the periods involved.
(j) The Company has good and marketable title to all real
property owned by it and owns or has valid rights to use all personal property
(which is material to its businesses), free and clear of all liens, encumbrances
and defects except as described in the PPM and except such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company; and any property or
equipment, real, personal or mixed, and buildings held under lease by the
Company are held under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company.
(k) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not been
refused any insurance coverage sought or applied for; and the Company has no
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or other),
business prospects, net worth or results of operations of the Company taken as a
whole.
(l) The Company owns or possesses adequate rights to use all
patents, trademarks, service marks, trade names, copyrightable works and
licenses (and any authorizations or permits) necessary, in each case, for the
conduct of its business. The Company has no reason to believe that the conduct
of its business will conflict with, nor has any knowledge of any claim that will
conflict with, the rights of others in respect thereof.
(m) Except as described in the PPM, there are no legal or
governmental proceedings pending to which the Company is a party or of which any
property of the Company is the subject which may reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business prospects, net worth or results of
operations of the Company taken as a whole; and to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by any other party, except in each case as described
in the PPM.
(n) To the best of the Company's knowledge, no labor dispute
with the employees of the Company exists or is threatened or imminent that could
result in a material adverse change in the condition (financial or other),
business prospects, net worth or results of operations of the Company taken as a
whole.
(o) All relationships, direct or indirect, that exist between
or among the Company on the one hand and the directors, officers, or principal
shareholders of the Company on the other hand, that would be required by Item
404 of Regulation S-B to be described in a Form 10-KSB are so described in the
PPM.
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(p) The Company has no, and never has had any, plans governed
or otherwise regulated by the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and the regulations and published interpretations
thereunder.
(q) The Company has filed, or has obtained currently effective
extensions with respect to, all federal, state and local tax returns required to
be filed through the date hereof and all such returns are true, correct and
complete in all material respects. The Company has paid, or has obtained
currently effective extensions with respect to, all taxes due with respect to
all such federal, state and local tax returns, and no tax deficiency has been,
nor does the Company have any knowledge of any tax deficiency which, if
determined adversely to the Company, is reasonably likely, individually or in
the aggregate, to have a material adverse effect on the condition (financial or
other), business prospects, net worth or results of operations of the Company
taken as a whole. To the best of the Company's knowledge, there is no pending or
threatened action, audit, investigation or other proceeding regarding the
assessment against, or collection from, the Company of any taxes, except the
audits currently being conducted in the ordinary course of business by the
Internal Revenue Service relating to the Company's tax return for the period
ended December 31, 1993 and by the New York State Department of Finance (Sales
Tax Bureau) relating to the Company's sales tax returns for the period January
1, 1992 to December 31, 1995.
(r) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide reasonable
assurance that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of its financial statements in accordance with generally accepted accounting
principles and to maintain accountability for its assets, (C) access to its
accounts and financial assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is compared
with existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(s) The Company is not (i) in violation of its certificate of
incorporation, by-laws or other governing documents, (ii) in default in any
respect, and no event has occurred which, with notice or lapse of time or both,
would constitute such default, in the due performance or observance of any term,
covenant or condition contained in any agreement, indenture, mortgage, deed of
trust or other instrument to which it is a party or by which it is bound, or to
which any of its property or assets is subject, except as set forth on Schedule
B hereto (with respect to which the Company shall, prior to the First Closing
Date, obtain waivers or consents, as appropriate, or otherwise receive G-V's
written waiver of said requirement, which waiver may be withheld or denied in
G-V's sole and absolute discretion, or (iii) in violation in any respect of any
federal or state law or regulation, or any other statute, law, governmental or
administrative rule or regulation, order or decree of any court or governmental
agency or body to which it or its property is subject, except for any such
violation or default referred to in (ii) and (iii) above which would not,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business prospects, net worth or results of
operations of the Company taken as a whole.
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<PAGE>
(t) Except as described in the PPM, the Company possesses all
material certificates, authorizations and permits issued by the appropriate
federal or state regulatory authorities necessary to conduct its businesses, and
the Company has not received any notice of proceedings relating to the
suspension, revocation or modification of any such certificate, authorization or
permit or the imposition of any fine or penalty with respect to such
certificate, authorization or permit, which, individually or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would result in a
material adverse change in the operations of the Company or its condition
(financial or other), business prospects, net worth or results of operations
taken as a whole.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which might reasonably
be expected to constitute, the stabilization or manipulation of the price of its
securities to facilitate the sale or resale thereof.
(v) The Company shall furnish promptly to G-V and to G-V's
counsel such number of copies of the PPM in such quantities as G-V may from time
to time reasonably request.
(w) If, prior to the final closing of the Offering, any event
occurs as a result of which the PPM as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances then existing, not misleading, the Company shall promptly notify
G-V and shall prepare and furnish without charge to G-V as many copies as
necessary of an amended PPM or a supplement to the PPM which will correct such
statement or omission.
(x) The Company shall use its best efforts to take or cause to
be taken all necessary action and furnish to whomever G-V may reasonably direct
such information as may be required in qualifying the Units for sale under the
laws of such jurisdictions within the United States as G-V shall designate, and
shall continue such qualifications in effect for as long as may be necessary for
completion of the distribution of the Units in accordance with the terms hereof;
except that in no event shall the Company be obligated in connection therewith
to qualify to do business in any jurisdiction where it is not now so qualified
nor to take any action that will subject it to general service of process in any
jurisdiction where it is not now so subject.
(y) The Company shall not, during the twelve (12) month period
following the Effective Date (as defined below), in any public or private
transaction (including, without limitation, transactions intended to qualify
with Regulation S) offer for sale, sell, grant any option, right or warrant with
respect to, or otherwise dispose of, any Units or shares of Common Stock or any
other securities convertible into, or exchangeable or exercisable for, shares of
Common Stock, at a price per share of $3.00 or less (or announce its intention
to undertake any of the foregoing), without the prior written consent of G-V,
which consent shall not be unreasonably withheld. Notwithstanding anything to
the contrary contained in this Section 3(y), the Company may offer for sale,
sell and grant options, rights and warrants with respect to, its securities (i)
as disclosed in the PPM, (ii) in connection with Section 3(aa) hereof, (iii)
8
<PAGE>
to its employees in accordance with its employee benefit and stock option plans,
and (iv) in connection with bona fide acquisitions of assets and/or businesses.
(z) There are no statutes, regulations, contracts, agreements
or arrangements (written or oral), indentures, mortgages, loan agreements,
notes, leases, instruments or other documents which are material to the business
of the Company, other than those described or referred to in the PPM.
(aa) The Company shall prepare and file with the Securities
and Exchange Commission ("SEC") a registration statement ("Registration
Statement") with respect to the shares of Common Stock and Warrants included in
the Units (including the Units underlying the warrants granted to G-V pursuant
to Section 1(c) above) not later than 120 days from the First Closing Date (the
"Filing Deadline"). The Company shall prepare and file such amendments and
supplements to the Registration Statement as may be necessary to keep the
Registration Statement effective until all the Units have been sold pursuant
thereto or until the Units are no longer, by reason of Rule 144(k) under the
Securities Act or any other rule of similar effect, required to be registered
for the resale thereof. The Company shall use its best efforts to cause the
Registration Statement to become effective and shall diligently pursue such
effectiveness. The date that the Registration Statement becomes effective shall
be referred to as the "Effective Date." The Company shall provide, at the
Company's sole cost and expense, G-V and its counsel, with copies of all
filings, correspondence, and other non-privileged documents, relating to the
Registration Statement and its amendments. The Company shall not enter into any
registration rights, underwriting or private placement arrangement which will
conflict with the Company's obligations under this Section 3(aa). In the event
that the Company fails to file the Registration Statement with the SEC by the
Filing Deadline, the Company shall issue to each of the purchasers of Units in
the Offering, Common Stock equal to five percent (5%) of the number of Units
sold for no additional consideration. In the event that the Company fails to
file the Registration Statement with the SEC within 240 days after the Filing
Deadline, the Company shall issue to each of the purchasers of Units in the
Offering, Common Stock equal to an additional five percent (5%) (or an aggregate
of ten percent (10%)) of the number of Units sold for no additional
consideration.
4. Expenses. The Company shall pay or cause to be paid (a) all expenses
(including stock transfer taxes) incurred in connection with the delivery to
investors in the Offering of the Units; (b) all fees and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel)
in connection with the preparation, printing, and delivery of the PPM and any
amendments or supplements thereto and "Blue Sky" clearance of the foregoing; (c)
any applicable "Blue Sky" listing or other fees; (d) the cost of printing
certificates representing the shares of Common Stock and Warrants included in
the Units; (e) the cost and charges of any transfer agent or registrar; (f) the
cost of the escrow contemplated by Section 2 above; and (g) all other costs and
expenses incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section. Furthermore, it is
understood that the Company shall pay G-V's attorneys fees, not to exceed
$10,000, only if and when the Offering is completed, but shall not pay any other
expenses of G-V, except as provided
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<PAGE>
by Section 5 below. Notwithstanding the foregoing, disbursements of G-V's
counsel in connection with "Blue Sky" matters shall be borne by the Company and
shall be paid promptly upon invoice, as well as any additional legal fees
related to "Blue Sky" matters to the extent such fees cause the aggregate legal
fees of G-V's counsel to exceed $10,000.
5. Indemnification.
(a) The Company shall indemnify and hold harmless G-V from and against any
loss, claim, damage or liability (or any action in respect thereof), joint or
several, to which G-V may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage or liability (or action in respect thereof)
arises out of or is based upon (i) failure to comply with the registration
requirements of the Securities Act, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the PPM, or any amendment or
supplement thereto, or in any blue sky application or other document executed by
the Company or based upon written information furnished by the Company filed in
any state or other jurisdiction in order to qualify any or all of the Common
Stock and Warrants included in the Units under the securities laws thereof (any
such application, document or information being hereinafter referred to as a
"Blue Sky Application"), (iii) the omission or alleged omission to state in the
PPM, or any amendment or supplement thereto, or in any Blue Sky Application, a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iv) any action or inaction by the Company in
connection with the transactions contemplated by this Agreement, and shall
reimburse G-V promptly upon demand for any legal or other expenses as reasonably
incurred by G-V in connection with investigating, preparing to defend or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action, notwithstanding the possibility
that payments for such expenses might later be held to be improper, in which
case such payments shall be promptly refunded.
(b) The obligations of the Company under this Section 5 shall
be in addition to any liability which the Company may otherwise have, and shall
extend, upon the same terms and conditions, to each person, if any, who controls
G-V within the meaning of the Securities Act or any officer, director,
stockholder or partner or any authorized agent of G-V; and the obligations of
G-V under this Section 5 shall be in addition to any liability that G-V may
otherwise have, and shall extend, upon the same terms and conditions, to each
director of the Company.
(c) Promptly after receipt by any indemnified party under
subsection (a) or (b) above of notice of any claim or the commencement of any
action, the indemnified party shall notify the Company in writing of the claim
or the commencement of that action; provided, however, that the failure to so
notify the Company shall not relieve it from any liability which it may have
under this Section 5 except to the extent it has been prejudiced in any material
respect by such failure or from any liability which it may have to an
indemnified party otherwise than under this Section 5. If any such claim or
action shall be brought against any indemnified party, and such indemnified
party shall notify the Company thereof, the Company shall be entitled to
participate
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therein and, to the extent that it wishes to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
Company to the indemnified party of its election to assume the defense of such
claim or action, the Company shall not be liable to the indemnified party under
this Section 5 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; except that G-V shall have the right to employ counsel
to represent it and other indemnified parties who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by them
against the Company under this Section 5 if, in G-V's reasonable judgment, it is
advisable for them to be represented by separate counsel, and in that event the
reasonable fees and expenses of such separate counsel shall be paid by the
Company.
6. Access To Information By G-V.
(a) Prior to the completion of the Offering, G-V or any person advising
G-V shall be (i) furnished with complete and accurate copies of all documents
(including exhibits) filed by the Company with the SEC since January 1, 1995
(the "Disclosure Documents"), and (ii) given the opportunity to ask questions
and receive answers concerning the Company and the terms of the Offering. The
Company will also furnish or make available to G-V or its authorized
representatives and attorneys any and all information reasonably requested in
connection with G-V due diligence efforts concerning the Offering.
(b) Prior to the completion of the Offering, any proposed investor
designated by G-V ("Proposed Investor") or any person advising such Proposed
Investor shall be (i) furnished with the Disclosure Documents and with such
other information concerning the Company and the terms and conditions of the
Offering as may be required by the Securities Act and applicable state
securities laws, and (ii) given the opportunity to ask questions and receive
answers concerning the Company and the terms of the Offering.
7. Confidentiality. G-V and any person advising G-V, shall keep all information
obtained from the Company confidential except as disclosure may be required in
connection with the Offering. G-V shall not disclose or suffer the disclosure
of, by anyone within its control, any confidential information concerning the
Company to any third party without the Company's prior consent, except (i) as
may be required by law or a court of competent jurisdiction or (ii) in
connection with the defense or prosecution of a proceeding in connection with
the indemnification obligations set forth in this Agreement. Confidential
information does not include information that (1) was or becomes generally
available to the public, or (2) was or becomes available to G-V from a source
other than the Company, or (3) was within the possession of G-V hereto prior to
its being furnished by the Company.
8. Designation of Board Member or Advisor. For a period of three years after the
First Closing Date, G-V shall have the right at its discretion to designate one
person either as a member of the Board of Directors or as an advisor to the
Board of Directors of the Company. In the event G-V designates a person to
become a member of the Board of Directors of the Company, the Company will take
all necessary actions to cause such person to become a
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<PAGE>
member, including, without limitation, expanding the size of the Board, filling
a Board vacancy and nominating such person to be elected at the then next
shareholders meeting. If G-V chooses to designate an advisor, such advisor shall
be invited to and have the right to attend every meeting of the Board of
Directors, but shall not have the right to vote and shall receive any materials
delivered to the Board of Directors simultaneously with the Board.
9. Best Efforts to Effect. Subject to Section 1(a), G-V and the Company will
jointly use their best efforts expeditiously to take all the steps necessary to
effect the Offering, including, but not limited to, assisting in the preparation
of the PPM and obtaining blue sky clearance in such states as the Placement
Agent reasonable requires.
10. Intentionally Omitted.
11. Survival of Certain Provisions. The agreements contained in Sections 1, 4, 5
and 6 hereof, and the representations, warranties and agreements of the Company
contained in Section 3 hereof, shall survive the sale of Units to investors in
the Offering and the closing of escrow hereunder and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any
indemnified party.
12. Notices. Except as otherwise provided in this Agreement, all statements,
requests, notices and agreements hereunder shall be in writing, and (a) if to
the Company, shall be delivered or sent by mail, overnight courier or facsimile
transmission to Brake Headquarters, U.S.A., Inc., 33-16 Woodside Avenue, Long
Island City, New York 11101, Attn: Joseph Ende; and (b) if to G-V, shall be
delivered or sent by mail, telex or facsimile transmission to 150 Vanderbilt
Motor Parkway, Suite 311, Hauppauge, New York 11788, Attention: Lawrence Kaplan.
13. Parties. This Agreement shall inure to the benefit of and be binding upon
the Company and G-V and their respective successors and assigns. This Agreement
and the terms and provisions hereof are for the sole benefit of only those
persons, except as set forth in Section 5(b). Nothing in this Agreement shall be
construed to give any person, other than the persons referred to in Section
5(b), any legal or equitable right, remedy or claim under or in respect of this
Agreement or any provision contained herein. The term "successors and assigns, "
as used in this Agreement, shall not include any purchaser of Units in the
Offering merely by reason of such purchase; provided, however, that purchasers
of Units in the Offering shall benefit from the terms of Section 3(aa) and shall
have the right to enforce such terms against the Company.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be signed in one or more counterparts, each
of which shall constitute an original and all of which together shall constitute
one and the same agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
the date first set forth above.
BRAKE HEADQUARTERS, U.S.A., INC.
By:
Its:
G-V CAPITAL CORP.
By:
Its:
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SCHEDULE A
LIST OF SUBSIDIARIES
Sanyo Automotive Parts Ltd. d/b/a Brake Headquarters
Quality First Brake Corp.
Fifteen, Inc.
Thirty-Three, Inc.
Twenty-Six, Inc.
Thirty-Nine, Inc.
Quality First Brake (Canadian)
Brake Headquarters Corp.
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Schedule B
Section 6.9 Financial Covenants of Chase Manhattan
--------------------------------------
(ii) a ratio of Indebtedness to Tangible Net Worth of not more
than 3.0:1.00 during the period commencing with the date of this Agreement
through and including December 30, 1996, and not more than 2.50:1.00 thereafter
was approximately 3.347 at March 31, 1996.
(iii) Tangible Net Worth of not less than $4,250,000, was
approximately $3,991,000 at March 31, 1996.
(iv) Interest coverage of not less than 225%, was
approximately 165.7% at March 31, 1996.
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Exhibit 4.6
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, ASSIGNED OR OTHERWISE
DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL BE MADE BY THE COMPANY OR
ITS TRANSFER AGENT, IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrant No. ______ ____________ Shares
Void after 5:00 p.m. New York Time, on August 13, 1999.
REDEEMABLE WARRANTS TO PURCHASE SHARES OF COMMON STOCK
OF
BRAKE HEADQUARTERS, U.S.A., INC.
This Is To Certify That, FOR VALUE RECEIVED,____________,
residing at _________________________ (the "Holder"), is entitled to purchase,
subject to the provisions of this Warrant, from Brake Headquarters, U.S.A.,
Inc., a Delaware corporation (the "Company"),________________ ( ) fully paid,
validly issued and non-assessable shares of Common Stock ("Common Stock") of the
Company, par value $.001 per share, at an exercise price of $3.80 per share at
any time or from time to time during the period from the date hereof until 5:00
p.m. Eastern Time, on August 13, 1999. The shares of Common Stock deliverable
upon such exercise are hereinafter referred to as "Warrant Shares", and the
exercise price of a Warrant Share, as the same may be adjusted pursuant to
Section (f) below, is hereinafter referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole
or in part (but no partial exercise shall be for less than one thousand (1,000)
Warrant Shares) at any time or from time to time on or after the date hereof and
until August 13, 1999; provided, however, that if such day is a day on which
banking institutions in the State of New York are authorized by law to close,
then this Warrant may be exercised on the next succeeding day which shall not be
such a day. This Warrant may be exercised by presentation and surrender hereof
to the Company at its principal office or to the Company's warrant agent, if any
has been so appointed, with the Purchase Form annexed hereto duly executed and
accompanied by payment of the Exercise Price, in cash or by certified or bank
cashier's check, for the number of Warrant Shares specified in such form. The
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of any such exercise, provided that such exercise is in
accordance with the provisions set forth herein. As soon as practicable after
<PAGE>
each such exercise of the Warrant, the Company shall issue or cause to be issued
and delivered to the Holder a certificate or certificates for the Warrant
Shares, registered in the name of the Holder. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder to purchase the balance of the Warrant Shares purchasable hereunder. Upon
exercise, the Holder shall be deemed to be the holder of record of the Warrant
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of the Company shall then be closed or that certificates representing such
Warrant Shares shall not then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times
reserve for issuance and/or delivery upon exercise of this Warrant such number
of shares of its Common Stock as shall be required for issuance and delivery
upon exercise of this Warrant.
(c) FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share remaining upon the full
exercise hereof, the Company shall pay to the Holder in lieu of the issuance of
any fractional share which is otherwise issuable an amount of cash based on the
market value of the Common Stock on the last trading day prior to the exercise
date.
(d) LOSS OF WARRANT. Upon receipt by the Company or its warrant
agent, if any, of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein. The acceptance of this Warrant by the Holder shall be deemed
consent by the Holder for the Company to enter into any warrant agreement with a
warrant agent, provided such warrant agreement does not adversely affect any of
the rights of the Holder set forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price shall
be subject to adjustment as set forth below:
(i) (a) In case the Company shall hereafter (A) pay a dividend
or make a distribution on its Common Stock in shares of its Common Stock, (B)
subdivide its outstanding shares of Common Stock, or (C) combine its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect
2
<PAGE>
immediately prior to such action shall be adjusted so that the Holder, upon
exercise, shall be entitled to receive the number of shares of Common Stock of
the Company which the Holder would have owned immediately following such action
had such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this subsection shall become effective immediately after the record
date in the case of a dividend and shall become effective immediately after the
effective date in the case of a subdivision or combination.
(b) After each adjustment of the Exercise Price
pursuant to this subsection (i), the number of shares of Common Stock
purchasable upon the exercise of the Warrant shall be the number of Warrant
Shares receivable upon exercise hereof prior to such adjustment multiplied by a
fraction, the numerator of which shall be the original Exercise Price as defined
above and the denominator of which shall be such adjusted Exercise Price.
(c) In the event the Company at any time or from
time to time after the date hereof and prior to the exercise of this warrant
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Company other than shares of Common Stock, then and in each
such event provision shall be made so that the Holder shall receive upon
exercise of this Warrant in addition to the number of shares of Common Stock
receivable hereupon, the amount of such other securities of the Company that it
would have received had the Warrant been exercised on the date of such event and
had thereafter, during the period form the date of such event to and including
the exercise date, retained such securities receivable by it as aforesaid during
such period giving application to all adjustments called for during such period
under this Warrant with respect to the rights of the Holder.
(ii) No adjustment in the Exercise Price shall be
required to be made unless such adjustment would require an increase or decrease
of at least $.10; provided, however, that any adjustments which by reason of
this subsection are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Section
(f) shall be made to the nearest cent or to the nearest one-one hundredth of a
share, as the case may be, but in no event shall the Company be obligated to
issue fractional shares upon the exercise of any Warrant.
(iii) No adjustment of the Exercise Price shall be
made except on the conditions set forth in this Section (f). Without limitation
of the foregoing, there shall be no adjustment pursuant to this Section (f)
should the Company issue any capital stock for cash or other consideration on
terms approved by the Board of Directors.
3
<PAGE>
(iv) In case of any (A) reclassification or change of
outstanding shares of Common Stock issuable upon exercise of this Warrant, (B)
consolidation or merger of the Company with or into another corporation where
the Company is not the surviving entity or (C) sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, then, as a condition of such reclassification, change, consolidation,
merger, sale or conveyance, the Company, or such successor or purchasing
corporation, as the case may be, shall make lawful and adequate provision
whereby the Holder of the Warrant shall have the right thereafter to receive on
exercise of such Warrant the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock issuable upon exercise of such Warrant immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance. Such
provisions shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided elsewhere in this
Section (f). The above provisions of this Section (f) shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
(v) In each case of an adjustment or readjustment of the
Exercise Price, the Company, at its expense, shall prepare a certificate showing
such adjustment or readjustment signed by the duly elected Treasurer or Chief
Financial Officer of the Company (the "Adjustment Certificate") and shall mail
the Adjustment Certificate, by first class mail, postage prepaid, to the Holder.
The Adjustment Certificate shall set forth such adjustment or readjustment,
including a brief summary of the facts upon which such adjustment or
readjustment is based including a statement of the Exercise Price and the number
of shares of Common Stock or other securities issuable upon exercise of each
Warrant immediately before and after giving effect to the applicable adjustment
or readjustment. No failure to mail the Adjustment Certificate nor any defect
therein or in the mailing thereof shall affect the validity thereof except as to
the Holder to whom the Company failed to mail such Adjustment Certificate, or
except as to the Holder whose Adjustment Certificate was defective.
(g) NON-TRANSFERABILITY; INVESTMENT REPRESENTATIONS. The
Holder shall not give, grant, sell, exchange, transfer legal title,
pledge, assign or otherwise encumber or dispose of this Warrant,
otherwise than by will or the laws of descent and distribution, and
this Warrant shall be exercisable during the Holder's lifetime only
by the Holder. The Holder, by acceptance hereof, represents and
warrants that (a) it is acquiring this Warrant for its own account
for investment purposes only and not with a view to its resale or
distribution, (b) it has no present intention to resell or
otherwise dispose of all or part of this Warrant and (c) it is an
4
<PAGE>
Accredited Investor as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act and any assignee of the Holder shall be an
Accredited Investor. The Company may condition the issuance or exercise hereof
and any transfer upon death on the receipt from the party to whom this Warrant
is to be issued or transferred or to whom Warrant Shares are to be issued or
transferred of any representations and agreements requested by the Company in
order to permit such issuance or transfer to be made pursuant to exemptions from
registration under federal and applicable state securities laws. Each
certificate representing this Warrant (or any part thereof) and any Warrant
Shares shall bear appropriate legends setting forth these restrictions on
transferability.
(h) REGISTRATION RIGHTS.
(i) The Company shall file a registration statement
with the Securities and Exchange Commission for the purpose of registering the
issuance of the Warrant Shares to the Holder hereof upon the exercise of this
Warrant and the subsequent sale of the Warrant Shares by the Holder. Such
registration statement shall be filed promptly following the date hereof. In the
event, however, that such registration statement is not filed within 120 days of
the date hereof, additional shares of Common Stock shall be issued to the
Holder, without additional consideration (the "Additional Shares"). This Warrant
was originally purchased as part of "Units" of the Company. The number of
Additional Shares shall equal 5% of the number of "Units" purchased by the
Holder. Furthermore, in the event that such registration statement is not filed
within 240 days of the Closing, shares of Common Stock equal to an additional 5%
(or an aggregate of 10%) of the number of Units purchased by the Holder shall be
issued to the Holder without additional consideration.
(ii) Indemnification. In the event of any
registration of the Warrant Shares (or any of them) security pursuant to this
Warrant, the Company shall indemnify the Holder and its officers and directors
against all losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus (and as amended or supplemented) relating
to such registration, or caused by any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they are made,
unless such statement or omission was made in reliance upon and in conformity
with information furnished to the Company in writing by the Holder expressly for
use therein. The Holder shall notify the Company as soon as practicable
following receipt of notice of any action or proceeding or threatened action or
proceeding related to any alleged liability in respect of which indemnity may be
sought against the Company, and the Company shall, at its sole option,
5
<PAGE>
assume the defense of such action or proceeding (employing counsel reasonably
satisfactory to the Holder); provided, however, failure to so notify the Company
shall not relieve the Company of its indemnification obligations hereunder
unless such failure materially adversely affects the Company's defense of such
action or proceeding. The Holder shall have the right to employ separate counsel
in any such action and participate in the defense thereof, but the fees and
expenses of such counsel shall not be at the expense of the Company unless the
employment of such counsel has been specifically authorized by the Company. The
Company shall not be liable to indemnify any person for any settlement of any
such action or proceeding effected without the Company's written consent. The
Holder shall also indemnify the Company, its officers and directors and each
underwriter of the offering so registered with respect to losses, claims,
damages and liabilities caused by any untrue statement of a material fact or
omission to state a material fact required to be stated therein made in reliance
upon and in conformity with information furnished by the Holder to the Company
in writing expressly for use in such registration statement or prospectus.
(iii) Expenses. All expenses of any registration
referred to in this Warrant, except any fees and disbursements of counsel to the
Holder, underwriting commissions or discounts, any transfer or other taxes
applicable to the Warrant and/or Warrant Shares, shall be borne by the Company.
(i) REDEMPTION. The Company may call this Warrant for
redemption, in whole or in part, at a redemption price of $.01 per Warrant Share
in accordance with the terms of this Section (i). During a period commencing
sixty (60) days (subject to reduction with the consent of the Placement Agent)
after the effective date of a registration statement registering the Common
Stock underlying the Warrants for sale without further restriction (the
"Effective Date") and continuing for such time as said registration statement is
effective (the "First Redemption Period"), the Company may redeem up to
twenty-five percent (25%) of the Warrants upon at least thirty (30) days' prior
written notice to the record holders thereof (a "Redemption Notice") which
notice may be mailed during the 60 day period following the Effective Date. Each
Redemption Notice shall state (i) the date set for redemption, (ii) that the
Warrants are exercisable until such redemption date, and (iii) the number of
Warrants being redeemed pursuant to such Redemption Notice. During a period
commencing one hundred eighty (180) days (subject to reduction with the consent
of the Placement Agent) after the Effective Date and continuing for such time as
said registration statement is effective (the "Second Redemption Period"), the
Company may redeem on a cumulative basis, up to fifty percent (50%) of the
Warrants commencing thirty (30) days after the mailing of a Redemption Notice
during the Second Redemption Period. During a period commencing two hundred
seventy (270) days (subject to reduction with the consent of the Placement
Agent) after the
6
<PAGE>
Effective Date and continuing for such time as said registration statement is
effective (the "Third Redemption Period"), the Company may redeem, on a
cumulative basis, up to one hundred percent (100%) of the Warrants commencing
thirty (30) days after the mailing of a Redemption Notice during the Third
Redemption Period. Notwithstanding the foregoing, the Company shall have no
right to redeem Warrants unless (i) the Common Stock underlying the Warrants may
be sold by the holders thereof without restriction upon or after the exercise
thereof at all times after the date of a Redemption Notice until the proposed
date of redemption, (ii) with respect to the First Redemption Period, the Second
Redemption Period and the Third Redemption Period, the closing bid price of the
Common Stock has equaled or exceeded $5.25 per share for any twenty (20)
consecutive trading days from and after a date commencing sixty (60) days prior
to the commencement of each such Redemption Period, and (iii) Warrants are
redeemed on a pro rata basis among the record holders thereof as of the date of
the Redemption Notice. The Holder shall have the right to exercise the Warrants
until the close of business on the date fixed for redemption. After the
Redemption Date, this Warrant will no longer entitle the holder to receive
shares of Common Stock (or other securities or property) upon the exercise
hereof, and the only rights of a holder of a Warrant not exercised prior to the
Redemption Date will be to receive the redemption price.
(j) NOTICES. All notices and other communications which are
required or may be given under this Warrant shall be in writing and shall be
deemed to have been duly given when delivered in person or transmitted by fax,
one (1) day after being sent by overnight courier service or three (3) days
after being mailed, first-class postage prepaid, in the case of the Company to
33-16 Woodside Avenue, Long Island City, New York 11101, and in the case of the
Holder to the address set forth herein, or to such other address as such party
shall have specified by notice to the other party hereto. If notice is given by
registered or certified first class mail, postage prepaid, return receipt
requested, the return receipt shall be conclusive evidence of the notice having
been mailed on the date set forth.
(k) MISCELLANEOUS. This Warrant contains the entire agreement
and supersedes all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Warrant may
not be changed orally, but only by an agreement in writing signed by the party
against whom enforcement is sought; provided however, that this Warrant may be
amended or modified without the consent of the Holder if such amendment or
modification does not adversely affect the rights of the Holder hereunder. This
Warrant will not be assigned by either party hereto and shall be interpreted
under the laws of the State of New York without application to the principles of
conflicts of laws.
7
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC.
By: /s/ JOSEPH ENDE
Joseph Ende, President
Dated: August 13, 1996
Attest:
/s/ SANDRA ENDE
Sandra Ende, Secretary
8
<PAGE>
PURCHASE FORM
Dated _____________, _____
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _____________ shares of Common Stock and
hereby makes payment of $___________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name___________________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________________
Social Security or TIN Number__________________________________________________
Signature______________________________________________________
9
EXHIBIT 5.1
SNOW BECKER KRAUSS P.C.
605 Third Avenue
New York, NY 10158
October 4, 1996
Board of Directors
Brake Headquarters U.S.A., Inc.
33-16 Woodside Avenue
Long Island City, NY 11101
Re: Registration Statement on Form S-1
----------------------------------
Gentlemen:
We have acted as counsel to Brake Headquarters U.S.A., Inc.,
a Delaware corporation (the "Company"), in connection with the
registration by the Company pursuant to a Registration Statement on
Form S-1 (the "Registration Statement"), which has been filed with
the Securities and Exchange Commission on this date pursuant to the
Securities Act of 1933, as amended. The Registration Statement
relates to (a) 980,000 Class A Common Stock Purchase Warrants,
consisting of (i) 900,000 such warrants outstanding (the
"Warrants") and (ii) 80,000 warrants (the "Placement Agent's Common
Stock Warrants") and (b) 1,644,633 shares of common stock, $.001
par value (the "Common Stock"), consisting of (i) 616,300 shares
outstanding (the "Shares"), (ii) 8,333 shares to be issued upon the
purchase of certain assets by the Company (the "Asset Shares"),
(iii) 900,000 shares issuable upon exercise of the Warrants (the
"Warrant Shares"), (iv) 40,000 shares (the "Placement Agent's
Warrant Shares") issuable upon exercise of warrants issued to the
placement agent in the Company's August 13, 1996 Private Placement
(the "Placement Agent's Warrants"), and (v) 80,000 shares issuable
upon the exercise of the Placement Agent's Common Stock Warrants
(the "Placement Agent's Common Stock Warrant Shares").
As counsel to the Company, we have examined the Company's
Certificate of Incorporation, By-laws, records of corporate
proceedings, and such other documents as we have deemed necessary
or appropriate as a basis for the opinions set forth below. In
such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as
originals, the accuracy and completeness of all documents submitted
to us as copies and the authenticity of the originals of such
latter documents. As to any facts material to such opinions which
we did not independently establish or verify, we have relied upon
statements or representations of officers and other representatives
<PAGE>
of the Company, public officials or others.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly organized, is validly existing,
and in good standing under the laws of the State of Delaware.
2. The Warrants and the Placement Agent's Warrants have been
duly authorized and are legally issued and enforceable in
accordance with their terms.
3. The Placement Agent's Common Stock Warrants have been duly
authorized and, when duly issued and paid for, as contemplated by
the terms of the Placement Agent's Warrants and the Registration
Statement, will be legally issued and enforceable in accordance
with their terms.
4. The Shares have been duly authorized, legally issued and
are fully paid and non-assessable.
5. The Asset Shares, the Warrant Shares, the Placement
Agent's Warrant Shares and the Placement Agent's Common Stock
Warrant Shares have been duly authorized and are reserved for
issuance and, when duly issued and paid for, as contemplated by the
terms of the Asset Purchase Agreement, the Warrants, the Placement
Agent's Warrants and the Placement Agent's Common Stock Warrants,
respectively, and by the terms of the Registration Statement, will
be legally issued, fully paid and non-assessable.
We hereby consent to the reference of our name in the Prospectus
under the caption "Legal Matters" and to inclusion of this opinion
as Exhibit 5.1 to the Registration Statement and all amendments
thereto.
Very truly yours,
/s/ Snow Becker Krauss P.C.
SNOW BECKER KRAUSS P.C.
<PAGE>
EXHIBIT 10.20
PROMISSORY NOTE (GRID)
New York, N.Y. May 1, 1996 $4,300,000.00
For Value Received, We promise to pay to the order of BANK LEUMI TRUST
COMPANY OF NEW YORK (the "Bank") at its offices at 579 Fifth Avenue, New York,
New York, the principal sum of Four Million Three Hundred Thousand and 00/100
Dollars or if loss the aggregate unpaid principal sum of all loans made by the
Bank, in its sole discretion, to the maker of this Note from time to time. The
principal sum of each such loan shall be payable (strike out whichever is not
applicable);
on demand; if payment not demanded, then no later than 7/1/96
Each loan shall bear interest (from the date of such loan) at a rate per
annum which shall be equal to 3/4% per annum above the rate of interest
designated by the Bank, and in effect from time to time, as its "Reference
Rate", adjusted when said Reference Rate changes. (The maker acknowledges that
the Reference Rate may not necessarily represent the lowest rate of interest
charged by the Bank to customers.)
The Bank is hereby authorized to enter on the schedule attached hereto the
amount of each payment of principal thereon, without any further authorization
on the part of the maker or any endorser or guarantor of this Note, but the
Bank's failure to make sure entry shall not limit or otherwise affect the
obligations of the maker or any endorser or guarantor of this Note.
The maker and each endorser and guarantor of this Note acknowledge and
agree that the use of this form of Note is for their convenience, and there is
no obligation on the part of the Bank to the maker whatsoever.
Interest shall be computed on the basis of a 360-day year and shall be
payable at the end of each month and at maturity, but the foregoing provision
shall not be deemed to change the maturity of this Note if payable on demand.
The charging of interest on the basis of a 360-day year results in the payment
of more interest than would be required if interest were charged on the basis of
the actual number of days in the year. In no event shall interest exceed the
maximum legal rate permitted for the maker.
Each maker or endorser authorizes (but shall not require) the Bank to debit
any account maintained by the maker or endorser with the Bank, at any date on
which the payment of principal of or interest on any of the Liabilities (as
hereinafter defined) is due, in an amount equal to any unpaid portion of such
payment. If the time for payment of principal of or interest on any of the
Liabilities or any other money payable hereunder or with respect to any of the
Liabilities becomes due on a day on which the Bank's offices are closed (as
required or permitted by law or otherwise), such payment shall be made on the
next succeeding business day, and such extension shall be included in computing
interest in connection with such payment. All payments by any maker or endorser
of this Note on account of principal, interest or fees hereunder shall be made
in lawful money of the United States of America, in immediately available funds.
All Property (as hereinafter defined) held by the Bank shall be subject to
a security interest in favor of the Bank or holder hereof as security for any
and all Liabilities. The form "Property" shall mean the balance of every deposit
account of the maker with the Bank or any of the Bank's nominees or agents and
all other obligations of the Bank or any of its nominees or agents to the maker,
whether now existing or hereafter arising, and all other personal property of
the maker (including without limitation all money, accounts, general
intangibles, goods, instruments, documents and chattel paper) which, or evidence
of which, are now or at any time in the future shall come into the possession or
under the control of or be in transit to the Bank or any of its nominees or
agents for any purpose, whether or not acceptable for the purposes for which it
was delivered. The term "Liabilities" shall mean the indebtedness evidenced by
this Note and all other indebtedness, liabilities and obligations of any kind of
the maker (or any partnership or other group of which the maker is a member) to
(a) the Bank, (b) any group of which the Bank is a member, or (c) any other
person if the Bank has a tion or other interest in such indebtedness,
liabilities or obligation, whether (i) for the Bank's own account or as agent
for others, (ii) acquired directly or indirectly by the Bank from the maker or
others, (iii) absolute or contingent, joint or several, secured or unsecured,
liquidated or unliquidated, due or not due, contractual or tortuous, now
existing or hereafter arising, or (iv) incurred by the maker as principal,
surety, endorser, guarantor or otherwise, and including without limitation all
expenses, including attorneys' fees, incurred by the Bank in connection with any
such indebtedness, liabilities or obligations of any of the Property (including
any sale or other disposition of the Property).
<PAGE>
Upon the happening, with respect to any maker, endorser or guarantor of
this Note or any assets of any such maker, endorser or guarantor, of any of the
following events: death; the issuance of a warrant of attachment whether valid
or not; dissolution (if a corporation or partnership); the making of a mortgage
or pledge; the commencement of a foreclosure proceeding; default in the payment
of principal of or interest on any indebtedness for borrowed money owed to the
Bank or any other person or entity (including any such indebtedness in the
nature of a lease) or default in the performance or observance of the terms of
any instrument pursuant to which some indebtedness was created or is secured,
the effective which default is to cause or permit any holder of any such
indebtedness to cause the same to become due prior to its stated maturity (and
whether or not such default is waived by the holder thereof); a change in the
financial condition or affairs of any of them which in the opinion of the Bank
or subsequent holder hereof materially reduces his, their or its ability to pay
all of his, their or its obligations; the suspension of business; the filing of
a position in bankruptcy whether voluntary or involuntary; the filing of an
application, whether voluntary or involuntary, for reorganization or any
arrangement or readjustment of indebtedness; the appointment or the filing of an
application for the appointment of any receiver, trustee, liquidator or any
committee; an assignment for the benefit of creditors; the calling of a meeting
of creditors; the offering of a composition or extension to creditors; the
sending of notice of an intended bulk sale; the entry of judgments; or the
issuance of a warrant of distraint or assertion of a lien for unpaid taxes, this
Note, if not then due or payable on demand, shall become due and payable
immediately without demand or notice and all other debts or obligations of the
makers and endorsers hereof to the Bank or holder hereof, whether due or not due
and whether direct or contingent and howsoever evidenced, shall, at the option
of the Bank or holder hereof, also become due and payable immediately without
demand or notice. After this Note becomes due, at stated maturity or on
acceleration, any unpaid balance hereof shall bear interest from the date it
becomes due until paid at a rate per annum 3% above the rate borne by the Note
when it becomes due or, if such rate shall not be undersigned, then at the
highest lawful rate. The liability of any party to commercial paper held by the
Bank or holder hereof other than the makers and endorsers hereof, shall remain
unaffected hereby and such parties shall remain liable thereon in accordance
with the original tenor thereof. Each maker and endorser agrees that if any
attorney is retained to enforce or collect this Note or any other obligations by
reason of non-payment of this Note when due or made due hereunder, a reasonable
attorneys' fee shall be paid in addition, which fees shall be computed as
follows: 15% of the principal, interest and all other sums due and owing to the
payee or holder or the reasonable value of the attorneys' services, whichever is
greater.
This Note shall be governed by the laws of the State of New York and shall
be binding upon the maker and each endorser and the maker's and each endorser's
heirs, administrators, successors and assigns. The maker and each endorser
hereby irrevocably consent to the jurisdiction of any New York State or Federal
court located in New York City over any action or proceeding arising out of any
dispute between the maker and each endorser and the Bank, and the maker further
irrevocably consents to the service of process in any such action or proceeding
by the mailing of a copy of such process to the maker at the address set forth
below. In the event of litigation between the Bank and the maker over any matter
connected with this Note or resulting from transactions hereunder, the right to
a trial by jury is hereby waived by the Bank and the maker. A waiver by the
Bank, in one or more instances, of any of the terms and provisions of this Note
shall be in writing, shall apply to the particular instances and at the
particular time or times only, and shall not be deemed to be a continuing
waiver.
Sanyo Automotive Parts, Ltd.
33-16 Woodside Avenue
Long Island City, NY 11101
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Registration Statement of Brake
Headquarters U.S.A., Inc. on Form S-1 of our report dated April 8, 1996,
appearing in the Annual Report on Form 10-K of Brake Headquarters U.S.A., Inc.
for the year ended December 31, 1995 and to the reference to us under the
heading "Experts" contained in such Registration Statement.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
October 4, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Brake Headquarters U.S.A., Inc.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 of our report dated February 8, 1995 on the
consolidated financial statements of Brake Headquarters U.S.A., Inc. as of
December 31, 1994 and for the year then ended, which appear in such Prospectus.
We also consent to the reference to our firm under the caption "Experts" in the
Prospectus.
GOLDSTEIN GOLUB KESSLER & COMPANY,
P.C.
New York, New York
October 4, 1996
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Brake Headquarters U.S.A., Inc.
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-1 of our report dated February 25, 1994 on the
consolidated statements of operations, shareholders' equity and cash flows of
Brake Headquarters, U.S.A., Inc. (formerly Sanyo Industries, Inc.) and
Subsidiaries for the year ended December 31, 1993 which appear in such
Prospectus. We also consent to the reference to our firm under the captions
"Experts" and "Selected Financial Data" in such Prospectus.
BOREK, STOCKEL & MARDEN
Port Chester, New York
October 4, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000854551
<NAME> BRAKE HEADQUARTERS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JAN-01-1996
<CASH> 139,756
<SECURITIES> 0
<RECEIVABLES> 7,825,118
<ALLOWANCES> 77,821
<INVENTORY> 8,154,177
<CURRENT-ASSETS> 16,696,415
<PP&E> 1,300,403
<DEPRECIATION> (378,467)
<TOTAL-ASSETS> 17,843,732
<CURRENT-LIABILITIES> 8,646,235
<BONDS> 5,230,850
0
0
<COMMON> 3,418
<OTHER-SE> 3,963,228
<TOTAL-LIABILITY-AND-EQUITY> 3,966,647
<SALES> 18,018,775
<TOTAL-REVENUES> 16,614,411
<CGS> 12,006,050
<TOTAL-COSTS> 4,050,462
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 478,108
<INCOME-PRETAX> 79,791
<INCOME-TAX> 25,000
<INCOME-CONTINUING> 54,791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,791
<EPS-PRIMARY> .02
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</TABLE>
