<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Information Statement
BRAKE HEADQUARTERS U.S.A., INC.
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
___________________________________________________________________________
2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
3) Filing Party:
___________________________________________________________________________
4) Date Filed:
___________________________________________________________________________
<PAGE>
BRAKE HEADQUARTERS U.S.A., INC.
33-16 Woodside Avenue
Long Island City, New York 11101
(718) 779-4800
----------
INFORMATION STATEMENT
----------
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY
On March 9, 1998, the Board of Directors of Brake Headquarters U.S.A.,
Inc. (the "Company") unanimously approved the following proposals: i) amendment
of the Company's Certificate of Incorporation to increase the number of shares
of authorized common stock, par value $.001 per share (the "Common Shares") from
6,000,000 to 12,000,000 shares; ii) amendment of the Company's Certificate of
Incorporation to authorize 1,000,000 shares of "blank check" preferred stock,
par value $.001 per share (the "Preferred Stock") and iii) amendment of the
Company's 1995 Stock Option Plan ("1995 Option Plan") to increase the number of
shares included therein from 300,000 to 1,500,000 Common Shares.
THIS INFORMATION STATEMENT IS BEING PROVIDED SOLELY FOR INFORMATIONAL
PURPOSES TO NOTIFY THE COMPANY'S STOCKHOLDERS OF ANTICIPATED EVENTS WHICH WILL
RESULT IN AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO PROVIDE
FOR AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND TO
AUTHORIZE "BLANK CHECK" PREFERRED STOCK, AND TO AUTHORIZE THE AMENDMENT TO THE
COMPANY'S 1995 STOCK OPTION PLAN AS AT THE COMMENCEMENT OF BUSINESS ON APRIL 27,
1998 AND NOT IN CONNECTION WITH A VOTE OF THE COMPANY'S STOCKHOLDERS.
The By-laws of the Company, in accordance with Delaware law, permit
stockholder action to be taken without a meeting if consent in writing is
received from a majority of all stockholders who would be entitled to vote upon
the action if such meeting were held. Delaware law then requires prompt notice
to those stockholders who did not consent in writing. By written action taken as
of March 9, 1998, Joseph Ende, the President and Chairman of the Board of
Directors of the Company, who holds approximately 46.4% of the outstanding
shares of the Company's Common Stock, and three non-affiliated Stockholders, who
collectively own approximately 4.2% of the outstanding shares of the Company's
Common Stock consented to the foregoing corporate action as well as to the
execution and filing of all necessary documentation to evidence and effectuate
the authorization of the Preferred Stock; increase in the number of shares of
authorized Common Stock and increase in the number of shares included in the
1995 Option Plan. The Company had 4,563,331 shares of Common Stock, outstanding
as of March 1, 1998. Each share of Common Stock has one vote. There are 1,000
shares of Series B Preferred Stock outstanding ("Series B Preferred"). The
Series B Preferred Stock is held entirely by Joseph Ende, and is voted as a
separate class which 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 year through December 31, 2000. This Information Statement is provided
to stockholders of record as of March 11, 1998.
<PAGE>
The date of this Information Statement is April 6, 1998.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 1, 1998, the number of
shares of the Company's outstanding Common Stock, beneficially owned (as such
term is defined in Rule 13d-3 under the Securities Exchange Act of 1934) by each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares, by each director, by each Named Executive Officer, and by
all directors and officers as a group:
NAME AND ADDRESS OF AMOUNT AND NATURE PERCENTAGE OF CLASS
BENEFICIAL OWNER OF BENEFICIAL (2)
OWNERSHIP (1)
- ------------------- ----------------- -------------------
Joseph Ende (3) 2,276,032 (4) 47.7%
Sandra Ende (3) 53,600 (5) 1.1%
Marc J. Ruskin (3) 9,500 (6) (9)
Scott Osias (3) 29,500 (7) (9)
Adame Budish 0 (9)
Elliot H. Lutzker 0 (9)
Officers and Directors as a 2,368,632 (8) 49.2%
Group (6 persons)
- ----------
(1) Unless otherwise noted, the Company believes that all persons named in
this 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 date of this filing 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 4,563,331 shares of Common Stock outstanding as of March 1,
1998.
(3) The address of this person is c/o the Company, 33-16 Woodside Avenue,
Long Island City, New York 11101.
(4) Does not include 53,600 shares owned of record by the Joseph and Sandra
Ende Charitable Trust, of which Joseph and Sandra Ende are Trustees.
Includes 210,000 shares issuable upon the exercise of currently
exercisable options, but excludes 570,000 shares underlying options
which are not currently exercisable within the next 60 days.
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 Joseph Ende. As sole
3
<PAGE>
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 the redemption date
of March 31, 2001 or the reporting by the Company of at least $75
million in net sales for any year through December 31, 2000.
(5) Includes 40,000 shares owned of record by the Joseph and Sandra Ende
Charitable Trust, of which Joseph and Sandra Ende, husband and wife,
are Trustees.
(6) Includes 9,500 shares of Common Stock issuable upon the exercise of
currently exercisable options, but excludes 80,000 shares underlying
options which are not currently exercisable within the next 60 days.
(7) Includes 23,500 shares of Common Stock issuable upon the exercise of
currently exercisable options, but excludes 53,000 shares underlying
options which are not currently exercisable within the next 60 days.
(8) Includes 249,000 shares issuable upon exercise of currently exercisable
stock options, but excludes 703,000 shares underlying options which are
not currently exercisable within the next 60 days.
(9) Less than one percent of the issued and outstanding shares.
4
<PAGE>
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
INCREASE OF THE AUTHORIZED SHARES OF COMMON STOCK
The Company authorized capital stock currently consists of 6,000,000
Common Shares. As of March 1, 1998, an aggregate of 7,636,144 Common Shares were
issued or reserved for issuance, as follows: 4,563,331 Common Shares were
outstanding; 100,000 shares are issuable under the Company's Employee Stock
Bonus Plan; 300,000 shares (of which 250,000 options were outstanding) under the
1994 Employee Stock Option Plan; 1,500,000 shares (of which 980,000 options were
outstanding) under the 1995 Employee Stock Option Plan, as amended; 621,000
shares are issuable under outstanding warrants; up to 151,813 shares were
initially issuable under outstanding debentures; up to 200,000 shares are
issuable under outstanding promissory notes, and up to an additional 200,000
Common Shares upon exercise of up to 200,000 warrants expected to be issued in
April 1998 in connection with a bridge loan. Although not all of the Company's
convertible or exercisable securities are currently convertible or exercisable,
no Common Shares are available for issuance for other purposes. Members of
Management of the Company have agreed not to exercise any of their 946,000 stock
options until such time as the charter amendment described herein is effective.
The Common Shares have no preemptive or other subscription rights, and there are
no conversion rights or redemption or sinking fund provisions with respect to
such shares.
The additional Common Shares would provide needed flexibility to meet
future capital requirements and to take advantage of propitious market
conditions and acquisition opportunities. Additional shares would be available
for issuance for these and other purposes, which include employee benefit
programs, at the discretion of the Board of Directors of the Company without the
delays and expenses ordinarily attendant upon obtaining further shareholder
approval. To the extent required by Delaware law or under Nasdq Stock Market
regulations, shareholder approval will be solicited in connection with certain
issuances of stock. The Board of Directors has no present plans to authorize a
stock split or to enter into any acquisition agreement or any other transaction
involving the issuance of Common Shares.
DESIGNATION OF A SERIES OF PREFERRED STOCK
The Certificate of Incorporation will be amended to authorize 1,000,000
shares of "blank check" preferred stock, par value $.001 per share. The
Amendment will vest in the Board of Directors the authority to designate one or
more series of Preferred Stock. The Board of Directors will have the power, at
any time or from time to time, without further shareholder approval to create
one or more series of Preferred Stock and to determine the designations,
preferences and limitations of each such series including, but not limited to,
(i) the number of shares, (ii) dividend rights, (iii) voting rights, (iv)
conversion privileges, (v) redemption provisions, (vi) sinking fund provisions,
(vii) rights upon liquidation, dissolution or winding up of the Company and
(viii) other relative rights, preferences and limitations of such series.
The Board of Directors believes that amending the Certificate of
Incorporation to permit the Board to authorize the issuance of up to 1,000,000
shares of "blank check"
5
<PAGE>
preferred stock provides the Company with the flexibility to address potential
future financing needs by creating a series of Preferred Stock customized to
meet the needs of any particular transaction and to market conditions. The
Company also could issue Preferred Stock for other corporate purposes, such as
to implement joint ventures or to make acquisitions. Although the Company is not
currently considering the issuance of Preferred Stock for such financing or
transactional purposes and has no present intention to issue any series of
Preferred Stock, the Board and Management believe that the Company should have
the flexibility to issue Preferred Stock, along with its ability to issue debt
and/or additional Common Shares.
If any series of Preferred Stock authorized by the Board provides for
dividends, such dividends, when and as declared by the Board of Directors out of
any funds legally available therefor, may be cumulative and may have a
preference over the Common Shares as to the payment of such dividends. In
addition, if any series of Preferred Stock authorized by the Board so provides,
in the event of any dissolution, liquidation or winding Shares up of the
Company, whether voluntary or involuntary, the holders of each such series of
the then outstanding Preferred Stock may be entitled to receive, prior to the
distribution of any assets or funds to the holders of Common Shares, a
liquidation preference established by the Board of Directors, together with all
accumulated and unpaid dividends. Depending upon the consideration paid for
Preferred Stock, the liquidation preference of Preferred Stock and other
matters, the issuance of Preferred Stock could therefore result in a reduction
in the assets available for distribution to the holders of Common Shares in the
event of liquidation of the Company. Holders of Common Shares do not have any
preemptive rights to acquire Preferred Stock or any other securities of the
Company.
Certain Effects of Authorization of Increase of Authorized Shares of Common
Shares and "Blank Check" Preferred Stock on Holders of Outstanding Common Shares
The general effect of the authorization and issuance of Preferred
Stock, to the extent that dividends may be paid thereon, would be to reduce the
amount otherwise available for payment of dividends on the Common Shares
currently issued and outstanding, although no dividends have been paid by the
Company to date on the Common Shares and there is no present intention to do so
in the near future. In the event that any additional Common Shares and/or newly
issued Preferred Stock having limited voting rights are issued, the voting power
of the Common Shares would be diluted. To the extent that a particular series of
Preferred Stock is convertible into Common Shares, and/or additional Common
Shares may be issued, a dilution of the equity of the outstanding Common Shares
could result. Holders of shares of capital stock of the Company have no
preemptive rights, and accordingly have no preferential rights to purchase any
Common Shares or Preferred Stock in order to maintain their percentage
ownership.
In addition, to the extent that holders of the Preferred Stock receive
preferences upon dissolution, liquidation or winding up of the Company, the
rights of Common Shareholders to distribution of the Company's assets upon
dissolution will be diminished. When considering whether to issue shares of
Preferred Stock, the Board of Directors will consider various factors, including
the general effect thereof upon the Common Shareholders. The Board of
6
<PAGE>
Directors does not intend to issue any shares of Preferred Stock except on terms
which it deems to be in the best interests of the Company and its stockholders.
The Board has made no determination with respect to the issuance of any
shares of Preferred Stock and has no plans, proposals, commitments, undertakings
or arrangements which would result in the issuance of any shares of the
Preferred Stock.
Although the proposed Charter Amendments authorizing (i) "blank check"
Preferred Stock and (ii) an increase in the number of authorized Common Shares,
are not designed to deter or prevent a change in control, under certain
circumstances, the Company could, nevertheless use the Preferred Stock, as well
as unissued Common Shares, to create impediments or frustrate persons seeking to
effect a takeover or otherwise gain control of the Company and thereby protect
the continuity of the Company's Management. In addition, the issuance of
Preferred Stock or additional Common Shares at below market value would dilute
the value of the Company's then outstanding securities.
The Company could also place such shares privately with purchasers who
might support the Company's existing Board of Directors in opposing a hostile
takeover bid, although the Company has no present intention to do so. The
Company does not currently have any plans, agreements, commitments or
understandings with respect to the implementation of the issuance of either the
Preferred Stock, additional Common Shares, with the exception of outstanding
derivative securities. Neither management nor the Board is considering the use
of Preferred Stock for such purposes.
A copy of the proposed Charter Amendment is attached as attached
Appendix A to this Information Statement and should be read by stockholders in
its entirety.
AMENDMENT TO 1995 EMPLOYEE STOCK OPTION PLAN
The Company's 1995 Employee Stock Option Plan ("1995 Option Plan") will
be amended to increase the number of shares available to be granted thereunder
from 300,000 to 1,500,000.
The 1995 Option Plan provides for the grant of options to employees and
other parties. As of March 1, 1998, there were 980,000 options granted and
outstanding under the 1995 plan. The Company currently employs approximately 270
persons and has five directors. The closing price of the Common Shares on March
2, 1998 was $4.0625 per share.
SUMMARY OF 1995 OPTION PLAN
The following discussion, which summarizes certain provisions of the
1995 Option Plan, as amended, is qualified in its entirety by reference to the
text of the 1995 Option Plan. Copies of the 1995 Option Plan are available for
examination at the Securities and Exchange Commission and at the principal
executive offices of the Company at 33-16 Woodside Avenue, Long Island City, New
York 11101.
7
<PAGE>
ELIGIBILITY FOR PARTICIPATION
Under the 1995 Option Plan, incentive stock options ("ISOs") as defined
in Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
or ISOs in tandem with Stock Appreciation Rights ("SARs") which are subject to
the requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a)-(e), may
be granted, from time to time, to officers and other employees of the Company.
Non-Qualified Stock Options ("NQSOs"), not intended to quality under Section
422(b) of the Code, may also be granted under the 1995 Option Plan to employees,
officers and directors of the Company, as well as independent contractors,
consultants and other individuals who are not employees of, but are involved in
the continuing development of the Company's business ("Participants").
ADMINISTRATION
The 1995 Option Plan is to be administered by the Board of Directors.
The Board of Directors have the authority, in its discretion, to determine the
persons to whom options shall be granted, the character of such options, the
manner of exercising and making payment for Common Shares and the number of
Common Shares to be subject to each option. It is the intention of the Company
that the 1995 Option Plan shall comply in all respects with Rule 16b- 3.
Compliance with Rule 16b-3 generally allows a Section 16(b) Participant to avoid
the effect of the "short-swing" profit rules of Section 16(b) with respect to
the exercise and sale of the Common Shares underlying the Options.
TERM OF OPTIONS
The terms of Options granted are to be determined by the Board of
Directors. Options must be granted within ten years from the date the 1995
Option Plan was adopted. Each Option is to be evidenced by a stock option
agreement between the Company and the Participant, and is subject to the
following additional terms and conditions:
(a) Exercise of the Option. The Board of Directors shall determine the
time periods during which Options may be exercised. Options will be exercisable
in whole or in part at any time prior to expiration, but may not expire later
than ten years from the date of grant. If an ISO is granted to an individual
who, immediately before the grant owns directly, or through attribution, more
than 10% of the total combined voting power of all classes of capital stock of
the Company, such ISO shall not be exercisable after the expiration of five
years from the date of grant. An Option is exercised by the Participant's giving
written notice of exercise to the Company specifying the number of full Common
Shares to be purchased and tendering payment of the purchase price to the
Company in cash or certified check, or, at the discretion of the Board of
Directors, by delivery of Common Shares having a fair market value equal to the
option price of the above forms of payment. The ability to pay the option
exercise price in Common Shares may enable a Participant to engage in a series
of successive stock-for-stock exercises of an Option and thereby fully exercise
an Option with little or no cash investment.
(b) Option Price. The option price of an NQSO or an SAR in tandem with
an
8
<PAGE>
NQSO granted pursuant to the 1995 Option Plan is determined by the Board of
Directors in its sole discretion. In no event may the option price of an ISO be
less than the fair market value on the date of grant provided that the exercise
price of ISO's 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 the grant. In addition, the aggregate fair market value of
stock with respect to which ISO's are exercisable for the first time by an
Optionee during any calendar year shall not exceed $100,000. The fair market
value of an ISO shall be determined by the Board of Directors and, if the Common
Shares are listed on a national securities exchange or traded in the
over-the-counter market, the fair market value shall be the closing price on
such exchange, or the mean of the reported bid and asked prices of the Common
Shares in the over-the-counter market as reported by NASDAQ, the OTC Bulletin
Board or the National Quotation Bureau, Incorporated, as the case may be, on
such date.
(c) Vesting. The Board of Directors will determine the time or times
the Options become exercisable.
(d) Death. Except as provided in the 1995 Option Plan, if the holder of
an Option dies while employed by the Company or within three (3) months after
termination of such holder's employment other than voluntarily by the employee
or for cause, such Option may be exercised by a legatee or legatees of such
holder under such individual's last will or by such individual's personal
representatives.
No Option may in any event be exercised after the original expiration
date of the Option.
(e) Maximum Number of ISOs or SARs in Tandem with ISOs Which May Re
Issued. A maximum aggregate fair market value of $100,000, determined as of the
time any ISO or SAR in tandem with an ISO is granted and in the manner provided
in the 1995 Option Plan, may not be exceeded for any Participant as the maximum
aggregate value of (A) the Common Shares with respect to which ISOs and/or SARs
in tandem with ISOs granted under the 1995 Option Plan are exercisable for the
first time during any calendar year, together with (B) the Common Shares with
respect to which ISOs and/or SARs in tandem with ISOs granted under ISOs
qualifying as such in accordance with Section 422 of the Code were granted under
any other incentive stock option plan maintained by the Company or its parent or
subsidiary corporations. Any options granted in excess of this limit shall be
deemed to be NQSO's under the 1995 Option Plan.
(f) The aggregate number of Options which may be awarded to any one
person during the term of the 1995 Option Plan ending on July 30, 2005, in the
two calendar years commencing January 1, 1995 and each two-year period
thereafter is currently 750,000.
An option agreement issued under the 1995 Option Plan may contain such
other terms, provisions and conditions not inconsistent therewith as may be
determined by the Board of Directors.
Termination, Modification and Amendment
The 1995 Option Plan shall terminate in July 2005.
9
<PAGE>
The Board of Directors of the Company may terminate the 1995 Option
Plan at any time prior to its expiration date or make such modifications or
amendments thereto from time to time as the Board of Directors may deem
advisable. The Board of Directors may not, however, without the approval of a
majority of the then outstanding shares of the Company entitled to vote thereon,
increase the maximum number of shares as to which Options may be granted under
the 1995 Option Plan or materially change the standards of eligibility
thereunder.
No termination, modification or amendment to the 1995 Option Plan may
adversely affect the terms of any outstanding Options without the consent of the
holders thereof.
Federal Income Tax Consequences
The following discussion is only a summary of the principal Federal
income tax consequences of the grant and exercise of Options and is based on
existing Federal law, which is subject to change, in some cases retroactively.
This discussion is also qualified by the particular circumstances of each
Participant which may substantially alter or modify the Federal income tax
consequences herein discussed.
Generally, under current law, when an option qualifies as an ISO under
Section 422 of the Code, (i) an employee will not realize taxable income either
upon the grant or the exercise of the option, (ii) the amount by which the fair
market value of the shares acquired upon exercise of the option at the time of
exercise exceeds the option price is included in alternative minimum taxable
income for purposes of determining a Participant's alternative minimum tax,
(iii) any gain or loss (the difference between the net proceeds received upon
the disposition of the shares and the option price paid therefor), upon a
qualifying disposition of the shares acquired by the exercise of the option will
be treated as capital gain or loss if the stock qualifies as a capital asset in
the hands of the Participant, and (iv) no deduction will be allowed to the
Company for Federal income tax purposes in connection with the grant or exercise
of an ISO or a qualifying disposition of shares. A disposition by an employee of
shares acquired upon exercise of an ISO will constitute a qualifying disposition
if it occurs more than two years after the grant of the option and one year
after the issuance of the shares to the employee. If such shares are disposed of
by the employee before the expiration of those time limits, the transfer would
be a "disqualifying disposition" and the employee, in general, will recognize
ordinary income (and the Company will receive an equivalent deduction) equal to
the lesser of (i) the aggregate fair market value of the shares as of the date
of exercise less the option price, and (ii) the amount realized on the
disqualifying disposition less the Option Price. Ordinary income from a
disqualifying disposition will constitute compensation for which withholding may
be required under Federal and state law. Currently under the Code, the maximum
rate of tax on ordinary income is greater than the rate of tax on long-term
capital gains.
The holding period for shares of stock received upon the
exercise of an ISO commences on the date of exercise of the grant. Under present
Federal income tax law, in the event that such shares are sold after two (2)
years from the date of the grant and within
10
<PAGE>
eighteen (18) months of the exercise of the grant, the Federal capital gains tax
will be at the rate of 28%. In the event such shares are sold after two years
from the date of the grant, and eighteen months or more from the date of
exercise of the grant, the Federal capital gains tax will be at the rate of 20%.
To the extent that an optionee recognizes a capital loss, such loss may
currently generally offset capital gains and $3,000 of ordinary income. Any
excess capital loss is carried forward indefinitely.
In the case of an NQSO granted under the 1995 Option Plan, generally no
income is recognized by the Participant at the time of the grant of the option
assuming such NQSO does not have a readily ascertainable fair market value. The
Participant generally will recognize ordinary income upon exercise of an NQSO
equal to the aggregate fair market value of the shares acquired less the option
price. Ordinary income from a NQSO will constitute compensation for which
withholding may be required under Federal and state law, and the Company will
receive an equivalent deduction.
Shares acquired upon exercise of an NQSO will have a tax basis equal to
their fair market value on the exercise date or other relevant date on which
ordinary income is recognized and the holding period for the shares generally
will begin on the date of exercise or such other relevant date. Upon subsequent
disposition of the shares, a Participant will recognize capital gain or loss if
the shares constitute a capital asset in the Participant's hands. Provided the
shares are held by the Participant for more than one year prior to disposition,
such gain or loss will be long-term capital gain or loss. As set forth above,
the maximum rate of tax on ordinary income is currently greater than the rate of
tax on long-term capital gains.
The grant of an SAR is generally not a taxable event for an optionee.
Upon the exercise of an SAR, the optionee will recognize ordinary income in an
amount equal to the amount of cash and the fair market value of any Common
Shares received upon such exercise, and the Company will be entitled to a
deduction equal to the same amount. However, if the sale of any shares received
would be subject to Section 16(b) of the Securities Exchange Act of 1934,
ordinary income attributable to such sale will be recognized on the date such
sale would not give rise to a Section 16(b) action, valued at the fair market
value at such later date, unless the optionee has made a Section 83(b) election
within 30 days after the date of exercise to recognize ordinary income as of the
date of exercise based on the fair market value at the date of exercise.
The foregoing discussion is only a brief summary of the applicable
Federal income tax laws as in effect on this date and should not be relied upon
as being a complete statement thereof. The Federal tax laws are complex and are
subject to both legislative changes and new or revised judicial or
administrative interpretations at any time. In addition to the Federal income
tax consequences described herein, a grantee may also be subject to state and/or
local income tax consequences in the jurisdiction in which the Participant works
and/or resides.
11
<PAGE>
The Board of Directors deems it to be in the best interests of the
Company that the amendments be made in order to give the Board of Directors
greater flexibility in awarding Participants Options affording them a stock
interest with the opportunity to grow with the Company.
By order of the
Board of Directors
Sandra Ende
---------------------------
Secretary
Long Island City, New York
April 6, 1998
12
<PAGE>
APPENDIX A
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
BRAKE HEADQUARTERS U.S.A., INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation")
is Brake Headquarters U.S.A., Inc.
2. The Amended and Restated Certificate of Incorporation of the
Corporation is hereby amended by striking out Article FOURTH thereof and by
substituting in lieu of said Article FOURTH the following new Article FOURTH:
(a) The Corporation is authorized to issue thirteen million
and one thousand (13,001,000) shares consisting of twelve million (12,000,000)
shares of Common Stock, $.001 par value ("Common Stock"), one million one
thousand (1,001,000) shares of Preferred Stock, $.001 par value ("Preferred
Stock"), of which one thousand (1,000) shares are designated as Series B
Preferred Stock ("Series B Preferred").
(b) The Preferred Stock shall be issued from time to time in
one or more series, with such distinctive serial designations, preferences,
limitations, and relative rights, as shall be stated and expressed in the
resolution or resolutions providing for the issue of such shares from time to
time adopted by the Board of Directors; and in such resolution or resolutions
providing for the issue of shares of each particular series, the Board of
Directors is expressly authorized to fix the annual rate or rates of dividends
for the particular series; the dividend payment date for the particular series
and the date, if any, from which dividends on all shares of such series issued
prior to the record date for the first dividend payment date shall be
cumulative; the redemption price for the particular series; sinking fund
provisions, if any, for the particular series; the voting rights, if any, for
the particular series; the rights, if any, of holders of the shares of the
particular series to convert or exchange the same into shares of any other
series of class or other securities of the Corporation or of any other
corporation, with any provisions for the subsequent adjustment of such
conversion rights; the preference for the particular series in the event of
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, and
<PAGE>
to classify or reclassify any unissued Preferred Stock by fixing or altering
from time to time any of the foregoing rights, privileges and qualifications.
All the Preferred Stock of any one series shall be identical with each
other in all respects, except that the shares of any one series issued at
different times may differ as to the dates from which dividends thereon shall be
cumulative. Except as to the particulars fixed by the Board as hereinabove
provided or as provided in the description of the series, all Preferred Stock
shall otherwise be of equal rank, regardless of series, and shall be identical
in all respects.
The relative rights, preferences and limitations of the shares of
Series B Preferred Stock are as follows:
(1) Voting
(a) The holder of the Series B Preferred Stock, Joseph Ende
(the "Holder"), shall have the right to vote as a separate class to elect a
majority of the Corporation's Board of Directors by electing the smallest number
of directors ("Series B Directors") necessary for the Series B Directors to
constitute greater than 50% of the members of the Corporation's Board of
Directors. The Series B Directors shall serve until the earlier to occur of
March 31, 2001 or the reporting by the Corporation of at least $75 million in
net sales for any fiscal year through December 31, 2000 (the "Redemption Date").
The Series B Preferred Stock is non-transferable, said transfer restriction to
be conspicuously noted in a legend on the certificate(s) evidencing the shares
of Series B Preferred Stock, and shall automatically be redeemed by the
Corporation upon the Holder's death or upon his resignation from the Corporation
as both an officer and a director.
(b) The Holder shall otherwise have the right to vote on all
matters on which the holders of the Common Stock of the Corporation are entitled
to vote and shall have one (1) vote per share.
(c) At any meeting (or in a written consent in lieu thereof)
held for the purpose of electing directors, the presence in person or by proxy
(or the written consent) of the Holder and the holders of a majority of the
Common Stock then outstanding shall constitute a quorum for the election of all
directors other than Series B Directors. A vacancy in the directorship left by a
Series B Director shall be filled only by vote or written consent of the Holder.
A vacancy in the directorship elected jointly by the Holder and the holders of
the Common Stock shall be filled only by vote
-2-
<PAGE>
or written consent of the Holder and the holders of the Common Stock as provided
above.
(d) So long as the Series B Preferred Stock shall be
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent), as provided by law, of the Holder:
(i) alter or change the rights, preferences, or
privileges of the Series B Preferred Stock so as to materially adversely affect
the rights of the Series B Preferred Stock; or
(ii) create any new class or series of stock having
preferences senior to the Series B Preferred Stock upon liquidation, dissolution
or winding up of the Corporation.
(2) Dividends
The Holder shall have the right to receive dividends in cash
at the rate of $4.00 per share per annum payable upon the date of conversion or
the Redemption Date of the Series B Preferred Stock. The Series B Preferred
Stock shall not be entitled to participate in any other dividend.
(3) Liquidation, Dissolution and Winding Up
(a) In the event of any liquidation, dissolution or winding up
of the Corporation, each share of the Series B Preferred Stock held by the
Holder shall be entitled to a preference of $50.00 per share ($50,000 in the
aggregate), together with any declared but unpaid dividends, to be paid out of
the assets of the Corporation available for distribution to its stockholders
before any payment shall be made to the holders of shares of any other class or
series of capital stock of the Corporation ranking junior to the Series B
Preferred Stock. After payment has been made to the Holder of the full amount to
which he is entitled, the remaining proceeds shall be distributed among the
holders of shares of all other classes and series of capital stock of the
Corporation entitled thereto. The Series B Preferred Stock shall not be entitled
to participate in any such liquidation, dissolution or winding up of the
Corporation beyond the aforementioned preference.
(b) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation, shall not be deemed to be a liquidation,
dissolution or winding up within the meaning provided or intended in this
paragraph 3.
(c) If any of the assets of the Corporation are to be
distributed, other than in cash, pursuant to subparagraph 3(a), then the Board
of Directors of the Corporation (or any trustee, receiver or similar person)
shall promptly engage independent appraisers to determine the value of the
assets to be distributed
-3-
<PAGE>
to the Holder, the holders of shares of Common Stock or other series or classes
of stock of the Corporation. The Corporation shall, upon receipt of such
appraisers' valuation, give prompt written notice to the Holder, the holders of
shares of Common Stock or other stock of the appraiser's valuation.
(4) Conversion.
(a) The Holder shall have the right, in his sole discretion,
to convert all or part of the shares of the Series B Preferred Stock into shares
of Common Stock of the Corporation. Each share of Series B Preferred Stock shall
be convertible into ten (10) shares of Common Stock at a rate of $50.00 per such
ten shares of Common Stock (the "Conversion Price"), at any time commencing on
the Redemption Date and ending ninety (90) days thereafter, by giving written
notice of such conversion to the Corporation. In no event shall the Holder
convert less than a whole number of shares of Series B Preferred Stock. Upon
payment of the Conversion Price and delivery to the Corporation of the
certificate for each share of Series B Preferred Stock being converted, the
holder shall receive ten (10) shares of Common Stock for each such share of
Series B Preferred Stock, without further action by the stockholders, the
Corporation or its Board of Directors. The number of shares of Common Stock into
which the shares of Series B Preferred Stock may be converted shall be adjusted
for any stock split, reverse stock split, stock dividend, merger,
reorganization, reclassification or other recapitalization of the Corporation.
(b) No fractional shares shall be issued upon conversion of
the Series B Preferred Stock and no payment or adjustment in the number of
shares of Common Stock issued shall be made upon any conversion on account of
any cash dividends declared on such shares of Common Stock. In lieu of any
fractional share of Common Stock which would otherwise be issuable upon
conversion of any shares of the Series B Preferred Stock, the Corporation, at
the time the shares of Common Stock are delivered, shall pay to the Holder cash
in an amount equal to the same fraction of the market price per share of the
Common Stock at the close of business on the date of such conversion (or, if
such day is not a trading day, on the trading day immediately preceding such
day).
(c) The Corporation shall pay any issuance tax in connection
with the issuance of Common Stock certificates upon conversion of the Series B
Preferred Stock, provided that the Corporation shall not be required to pay any
tax which may be payable in connection with any transfer involved in the
issuance and delivery of any certificate in a name other than the Holder.
-4-
<PAGE>
(d) Any and all shares of the Series B Preferred Stock which
are converted, redeemed or otherwise acquired by the Corporation shall be
retired and shall not be reissued by the Corporation.
(e) The Series B Preferred Stock shall not have any relative
powers, preferences and rights, nor any qualifications, limitations or
restrictions thereof, other than as set forth in the Certificate of
Incorporation, as amended, of the Corporation.
(5) Redemption.
(a) Promptly after the Redemption Date, the Corporation shall
redeem (from funds legally available therefor) all shares of Series B Preferred
Stock. Within thirty (30) days after receipt of a written request of the
Corporation, the Holder shall (i) deliver to the Corporation the certificate(s)
for the shares of Series B Preferred Stock to be redeemed, duly endorsed for
transfer to the Corporation or (ii) convert his shares pursuant to paragraph 4
herein. Any shares of Series B Preferred Stock not converted by the Holder
during such thirty-day period shall be redeemed.
(b) Within twenty (20) days after the Corporation's receipt of
such redemption notice and the certificate(s) for the shares of Series B
Preferred Stock to be redeemed, the Corporation shall issue and deliver to the
Holder a check in an amount equal to $.01 per each share of Series B Preferred
Stock redeemed, plus any and all dividends declared and unpaid thereon."
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted by the Board of Directors and by the written consent of a
majority of the stockholders of the Corporation in accordance with the
provisions of Sections 242 and 228 of the General Corporation Law of the State
of Delaware.
Signed on April , 1998 By: /s/ Joseph Ende
--------------------------
Joseph Ende, President
-5-
