Pure Steel Custom Cycles, Inc.
4010 Grand Avenue Suite 16
Phoenix, Arizona 85019
The Company is hereby offering $2,000,000 of Series
"A" Convertible Preferred Stock to accredited
investors only. All prospective investors will be
required to complete an Accredited Investor
Questionnaire and a Subscription Agreement
containing representations which will be relied
upon by the Company in determining the
qualifications of a prospective investor to
participate in this offering. The Accredited
Investor Questionnaire and Subscription
Agreement are included herein as Exhibits A and B
respectively. The enclosed materials are designed
to provide information concerning the Company to
those persons who are qualified to purchase
Preferred Stock. Prospective investors are
encouraged to review the materials carefully and in
their entirety. Prospective investors are also
encouraged to ask questions of, and receive any
additional information requested, from authorized
representatives of the Company, who will make
themselves available for this purpose.
December 7, 1999
The Offering
The Company is offering, to accredited investors
only, up to an aggregate of $2,000,000 of Series
"A" Convertible Preferred Stock. The price per
share is $10.00 with a minimum denomination of
$50,000. Each share will carry a cumulative
preferred dividend to ten percent (1O%) per annum
to be paid in common stock. Each share of preferred
stock will be convertible into eight shares of
Common Stock and two warrants to purchase two
shares of common stock at $2.50 per share. The
Preferred Stock will be offered for a period of
ninety (90) days from the date of these Disclosure
Documents, subject to extension by the Company.
Conversion will be voluntary at any time; however,
the Company can compel conversion at any time, and
conversion will be mandatory at the time of any
registered public offering by the Company. A
description of the length, preferences and
limitations of the Preferred Stock is included
herein as Exhibit C, and prospective investors
should review the terms and conditions of the Stock
carefully before subscribing.
Use of Proceeds
The Company will use the proceeds from the sale of
the Preferred Stock for general working capital
purposes, as described in Plan of Operations.
The Company and Its Business
PURE STEEL is EPA approved and has high quality
distributors throughout the United States. Dealers
within the Easy Rider franchise network and
independently owned Harley-Davidson shops have made
PURE STEEL available in all major markets in the
country. Increased production will improve
relationships with customers and distributors who
have many requests for the PURE STEEL hand-made
motorcycle. The Company has developed seven (7)
different models that are comparable, if not
superior to any other motorcycles manufactured in
the V-twin after market. Pure Steel's motorcycles
feature Daytec frames that are powder coated to
match custom paint with a 3 5' rake and stretched
Daytec oil bags. All fenders, tanks and dashes are
high quality steel. All motors are 96" S & S,
reworked and balanced at Pure Steel and are topped
off with Pure Steel's own "Stage 4" race heads.
Transmissions feature Jims close ratio gears with
Delkron cases and chrome inner and outer primaries.
Current Models:
Scimila This bike offers sleek styling and
comfortable high performance handling. The rear
turn signals are hidden in the tail light assembly,
leaving the fender struts clean.
Dagger This bike is handcrafted for superior fit
and finish with the contour rear fender, side
mounted license plate and a unique ta light
assembly.
Saber This is Pure Steel's cruiser. It features
a low, powerful stance and Pure Steel's trademark
powertrain. This bike uses IS" Arlen Ness wheels
and Ness billet hubs laced with either straight of
diamond cut spokes.
Classic This features a nostalgic 7" tri-bar
headlight, fat handlebars, and lace wheels. It also
showcases tightly contoured fenders, the taillight
frenched in and floating rotors.
Stiletto This bike is the latest rage in
rigids. The struts are hidden in the fender and the
bike stands tall with ape hangers, or low and lean
with optional drag bars.
El Diablo This bike starts with a frame
constructed with 1 112." steel tubing and stretched
1 3/4" down as well as 2" in the back with a 38'
rake. It features a 105" motor with a DeMon case
with Patrick billet cylinders and heads. The Pure
Steel facility is currently 15,000 square feet and
has the capacity to produce 500 motorcycle units
annually. At this time Pure Steel's facility
consist of a motor room, machine shop, parts
department, polishing room, three assembly rooms,
administrative offices, conference room, upper
level storage bays and additional 5,000 square feet
that is currently used for Pure Steel show trailers
and trucks. At the present time, between the
current dealers and prospective dealers, Pure Steel
has received 400 letters of intent to build 400
Pure Steel motorcycle units in fiscal 2000.
Description of Capital Stock
The Company is authorized to issue 25,000,000
shares of common stock, and 300,000 shares of
Preferred stock
Common Stock Holders of common stock are
entitled to receive ratably dividends, if any, as
they are declared by the Board of Directors out of
legally available funds, subject to the preferences
of any outstanding preferred stock. Holders of
common stock are not entitled to any preemptive
rights. In the event of liquidation of the Company,
holders of common stock are entitled to share
ratably in the net assets remaining after payment
in full of all of the Company's liabilities,
including satisfaction of the liquidation
preferences of any Preferred Stock that may be
outstanding. The rights, privileges and preferences
of holders of common stock may become subject to
those of any Preferred Stock that the Company may
issue in the future.
All outstanding common stock is fully paid and
nonassessable. As of December 7, 1999, there are
5,300,000 shares of common stock issued and
outstanding. Mr. Oscar Coca and Mr. Danny Elzy, the
Company's founders and officers, currently hold
2,650,000 shares each respectively of common stock
and therefore can control the affairs of the
Company. Holders of common stock are entitled to
one vote for each share of common stock held of
record on afl matters submitted to a vote of
shareholders, including the election of directors.
Preferred Stock The Board of Directors may,
without further action by the shareholders,
authorize the issuance of preferred stock in one or
more series and determine the number of shares,
designations, dividend rights, conversion rights,
redemption rights, voting rights, liquidation
preferences and other terms of any such series. The
rights, preferences and limitations of the
Preferred Stock are described in the attached
Exhibit "C".
The ability of the Board of Directors to issue
classes of common -and/or preferred stock, while
providing desired flexibility in connection with
possible acquisitions, financings and other
corporate purposes, could have the effect of
delaying, deterring or preventing a change in
control of the Company that is not supported by the
Board of Directors. At this time, there are no
shares of Preferred Stock outstanding. The Company
has the right to issue Preferred Stock and/or
additional Common Stock both of which may
significantly dilute the ownership interests
current and future shareholders.
Management
The directors and executive officers of the Company
are as follows:
Name Age Position
Oscar Coca 40 President, Director
Daniel Elzy 40 Vice President, Director
Mary A. Hidalgo 29 Corporate Secretary
Oscar Coca a co-founder of Pure Steel Enterprises.
Inc. has been with the Company for the last five
years. Mr. Coca emphasis of study at the University
of Arizona was in the area of chemical engineering.
This background of precision engineering along with
a lifelong exposure in the fine arts is the driving
force behind the function, form and beauty of the
finished motorcycle.
Danny Elzy also a co-founder of Pure Steel
Enterprises, Inc. has also been with the Company
for the last five years. Mr Elzy is a graduate of
the American Motorcycle Institute. This background
contributes to the excellence in detail for the
manufacturing of Pure Steel Motorcycles.
Mary A. Hidalgo has been employed by Pure Steel
since its inception. She serves as corporate
Secretary and treasurer in charge of accounts
payable, account receivable, payroll and all of the
accounting and office functions.
Plan of Operation
At this time, the Company has sufficient cash on
hand to meet its immediate obligations. In
anticipation of additional capital requirements,
the Company is undertaking the Offering described
herein. The proceeds from the offering will be used
to fund operations and growth; to finance general
and administrative expenses; to lease equipment; to
expand production and marketing and for working
capital and general corporate purposes. The Company
anticipates that such new funding will provide
sufficient capital for long-term operations until
positive cash flow can be achieved from operations.
The Company has received between the current
dealers and prospective dealers, 400 letters of
intent to build 400 Pure Steel motorcycle units.
The Pure Steel facility is currently 15,000 square
feet and has the capacity to produce 500 motorcycle
units annually. At this time Pure Steel's facility
consist of a motor room machine shop, parts
department, polishing room three assembly rooms,
administrative offices, conference room, upper
level storage bays and additional 5,000 square feet
that is currently used for Pure Steel show trailers
and trucks. Pure Steel's plant is ample to
produce 500 custom cycles per year. If fully
utilized for 500 units, this would result in
approximately $15,000,000 is gross revenue to the
company. No assurances can be given, of course,
that these revenues will be achieved. The Company
currently employs 13 technicians and assemblers.
The Company has entered into various strategic
alliances with vendors and suppliers for a steady
supply of parts and inventory items necessary to
facilitate smooth production.
Risk Factors
The purchase of the Preferred Stock involves a high
degree of risk and is suitable only for persons
able to sustain the loss of their entire
investment. Prospective investors should consider
the following factors, among others, in evaluating
the Company and its business before making a
decision concerning purchase of the preferred
stock.
Early Stage of Market Development
The Company is offering a relatively new product to
the market and considers itself to be in a
relatively early stage of market development and
penetration. There is a risk that the market will
accept the product more slowly than anticipated or
that the product may not win acceptance at all.
No independent organization has conducted market
research so that management might have independent
assurance from which to estimate the potential
demand for the Company's product. Although the
Company employs or retains skilled persons there
can be no assurance that management's marketing
plan will prove successful. The Company does not
have a research and development department that is
comparable in resources to many of those who could
or may enter this particular market.
No Assurance of Profitability
The Company was profitable through the fiscal year
ended March 31, 1999, and had an accumulated profit
at December 31, 1999 of $22,361. Although
management expects to achieve additional profitable
operations in the future, there can be no assurance
that the Company can continue to be operated in a
profitable manner. Profitability depends on many
factors, including the success of the Company's
marketing program, the maintenance or reduction of
expense levels and the success of the Company's
business activities. Management may realize
benefits from the payment of salaries' and expenses
regardless of the profitability of the Company.
Lack of Diversification
The Company does not intend to invest at this time
in any other assets or businesses other than what
is described herein. Therefore, the Company will
be subject to the risks associated with lack of
diversification.
Competition
The Company knows of no other manufacturers
potentially suited to the market targeted by the
Company. There is a possibility of competition
unknown to the Company and a risk that as the
market for the Company's product develops, one of
several well-financed companies currently offering
similar products may enter the market as a
significant competitor.
Restrictions on Transferability
There is presently no established public trading
market for the Company's common stock or preferred
stock. There can be no assurance that an active
trading market will be developed or maintained. The
securities may be illiquid and funds may not be
available to the investors in emergency situations.
In addition, restrictions on the transferability of
the common and preferred stock will be imposed by
applicable federal and state securities laws.
Financial Statements
Attached hereto are the audited balance sheets and
income statements of the Company as of March 31,
1999 and March 31, 1998, accompanied by letter from
Sapp & Sapp P.C., Certified Public Accountant,
dated June 22, 1999.
Stanley M. Sapp CPA SAPP & SAPP, P.C.
Cindy M. Sapp CPA
Certified Public Accountants
3233 West Peoria Avenue - Suite 105
Phoenix, Arizona 85029
Independent Auditors' Report
To the Board of Directors
Pure Steel Custom Cycles, Inc.
We have audited the accompanying balance sheet of
Pure Steel Custom Cycles, Inc. as of March 31,
1999, and the related statements of income,
retained earnings, and cash flows for the year then
ended. These financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audit.
Except as explained in the following paragraph, we
conducted our audit in accordance with generally
accepted auditing standards. Those standards
require that we plan and perform our 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.
We did not observe the taking of the physical
inventory as of March 31, 1998, since that date was
prior to our appointment as auditors for the
Company, and we were unable to satisfy ourselves
regarding inventory quantities by means of other
auditing procedures. Inventory amounts as of
March 31, 1998 enter into the determination of net
income and cash flows for the year ended March 31,
1999.
Because of the matter discussed in the preceding
paragraph, the scope of our work was not sufficient
to enable us to express, and we do not express, an
opinion on the results of operations and cash flows
for the year ended March 31, 1999. In our opinion,
the balance sheet of Pure Steel Custom Cycles, Inc.
as of March 31, 1999 presents fairly, in all
material respects, the financial position of Pure
Steel Custom Cycles, Inc. as of March 31, 1999, in
conformity with generally accepted accounting
principles. The accompanying 1998 and 1997
financial statements of Pure Steel Custom Cycles,
Inc. were compiled by us in accordance with
Statements on Standards for Accounting and Review
Services issued by the American Institute of
Certified Public Accountants. A compilation is
limited to presenting in the form of financial
statements information that is the representation
of management. We have not audited or reviewed the
1998 and 1997 financial statements and,
accordingly, do not express an opinion or any other
form of assurance on them.
/s/Sapp & Sapp, P.C.
June 22, 1999
Tel(602) 504-3900
Fax(602) 504-6110
59
PURE STEEL CUSTOM CYCLES, INC.
BALANCE SHEETS
March 31, 1999 and 1998
1999 1998
-------- -----------
<s> <c> <c>
ASSETS
CURRENT ASSETS:
Cash $ 611 $ 2,514
Accounts receivable, less allowance
for doubtful accounts of $0 and
$34,100 at March 31, 2001 and 2000,
respectively 86,038 115,990
Inventory 406,333 142,320
Other current assets 17,865 -
-------- --------
Total current assets 510,847 260,854
-------- --------
PROPERTY AND EQUIPMENT, net 111,889 63,016
-------- --------
$622,736 $323,870
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable
(Note 4) $ 22,777 $ 9,702
Accounts payable-trade 59,302 17,929
Accrued payroll and related taxes 8,602 4,548
Income taxes payable 1,300 -
Customer deposits 49,000 9,000
-------- --------
Total current liabilities 140,981 32,179
-------- --------
Notes payable, less current portion
(Note 4) 60,782 23,431
Advances from stockholders (Note 5) 315,312 186,622
Deferred income taxes 3,300 -
-------- --------
379,394 210,053
-------- --------
Liabilities and Stockholders' Equity
Common stock; $1 par value
Authorized 1,000,000 shares
Issued and outstanding
3,000 shares 3,000 3,000
Additional paid in capital 77,000 77,000
Retained earnings 22,361 1,638
-------- --------
102,361 81,638
-------- --------
$622,736 $323,870
======== ========
See Accompanying Notes to the Financial Statements.
PURE STEEL CUSTOM CYCLES, INC.
Statements of Income and Retained Earnings
Years Ended March 31, 1999, 1998 and 1997
1998 1997
1999 (Unaudited (Unaudited)
<s> <c> <c> <c>
Sales $ 1,139,549 $ 661,004 $ 399,650
Cost of goods sold 771,534 539,192 285,549
----------- ----------- ----------
Gross profit 368,015 121,812 114,101
----------- ----------- ----------
Selling, general and administrative 324,286 108,461 71,816
Interest 2,446 2,359 1,137
Depreciation 15,960 10,646 10,700
----------- ----------- ----------
324,286 108,461 71,816
----------- ----------- ----------
Income before provision for income taxes 25,323 346 30,448
----------- ----------- ----------
Provision for income taxes
Current 1,300 - -
Deferred 3,300
----------- ----------- ----------
4,600 - -
Net income 20,723 346 30,448
Retained earnings, beginning of year 1,638 1,292 (29,156)
----------- ----------- ----------
Retained earnings, end of year $ 22,361 $ 1,638 $ 1,292
=========== =========== ==========
The accompanying notes are an integral
part of these financial statements.
PURE STEEL CUSTOM CYCLES, INC.
Statements of Cash Flows
Years Ended March 31, 1999, 1998 and 1997
1998 1997
1999 (Unaudited) (Unaudited)
------ ----------- -----------
<s> <c> <c> <c>
Cash Flows From Operating Activities
Cash received from customers $ 1,218,501 $ 545,015 $ 399,650
Cash paid for other goods and services (1,271,666) (632,404) (382,141)
Cash paid to employees (60,575) (17,595) (6,902)
Interest paid (2,446) (2,359) (1,137)
----------- ---------- -----------
Net cash provided (used) by
operating activities (116,186) (107,343) 9,470
----------- ---------- -----------
Cash Flows From Investing Activities
Property and equipment purchases (64,833) (24,985) (2,059)
----------- ---------- -----------
Cash Flows From Financing Activities
Advances from stockholders 128,690 136,405 -
Proceeds from notes payable 74,876 - -
Repayment of notes payable (24,450) (8,568) (8,432)
----------- ---------- -----------
Net cash provided (used) by
financing activities 179,116 127,837 (8,432)
----------- ---------- -----------
Net increase (decrease)
in cash and cash equivalents (1,903) (4,491) (1,021)
Cash and cash equivalents,
beginning of year 2,514 7,005 8,026
----------- ---------- -----------
Cash and cash equivalents, end of year $ 611 $ 2,514 $ 7,005
=========== ========== ===========
Reconciliation of Net Income to Net
Cash Provided (Used) by Operating Activities
Net income 20,723 346 30,448
Adjustments to reconcile net income
to net cash provided (used)
by operating activities
Depreciation 15,960 10,646 10,700
Deferred income taxes 3,300 - -
Decrease (increase)
in accounts receivable-trade 29,952 (115,989)
(Increase) in inventory (263,983) (24,425) (32,076)
(Increase) in prepaid expenses (17,865) - -
Increase in accounts payable-trade 41,373 17,929 -
Increase in accrued payroll and relate 4,054 4,150 398
Increase in customer deposits 49,000 - -
Increase in income taxes payable 1,300 - -
--------- --------- -----------
Total adjustments (136,909) (107,689) (20,978)
Net cash provided (used)
by operating activities $(116,186) $(107,343) $ 9,470
========= ========= ===========
The accompanying notes are an integral
part of these financial statements.
PURE STEEL CUSTOM CYCLES, INC.
Notes to Financial Statements
March 31,1999,1998 and 1997
Note I Summary of Significant Accounting Policies
Operations
Purchase Steel Custom Cycles, Inc. ("Company") wad
incorporated on March 10, 1995, in the State of
Arizona, and operations consist of the manufacture
and sale of custom motorcycles and motorcycle
repair. Sales and related cost of sales are
recorded upon product shipment.
The Company operates out of manufacturing
facilities in Phoenix, Arizona. Sales are made to
various retailers located throughout the United
States.
Inventory
Inventories are stated at the lower of cost or
market. Cost is determined by the weighted
average cost method.
Property and Equipment
Property and equipment are stated at cost. The
cost of assets retired, together with related
accumulated depreciation, are eliminated from the
accounts in the year of disposition. Gains and
losses from sales are include in the statement of
income.
Maintenance and repairs are charged to operating
expense as incurred. The cost of renewals and
betterments which materially extend the useful
lives of the assets or increase their productivity
are capitalized.
Depreciation of property and equipment is computed
using straight-line method over the estimated
useful life of seven years for machinery,
equipment, furniture and fixtures, and five years
for vehicles.
Deferred Income Taxes
Deferred income taxes arise due to timing
differences in using accelerated depreciation
methods for income tax reporting and the straight-
line method for financial statement reporting.
Concentrations of Risk
Financial instruments that potentially subject the
Company to concentrations of risk consist
principally of accounts receivable-trade. The
company's ability to collect accounts receivable-
trade is affected by the large number of customers
and their geographic diversity.
PURE STEEL CUSTOM CYCLES, INC.
Notes to Financial Statements
March 31,1999,1998 and 1997
Note 1 Summary of Significant Accounting,
Policies (Continued)
Supplemental Disclosure of Cash Flow Information
All short-term investments with an original
maturity of three months or less are considered to
be cash equivalents. Income taxes have not been
paid for each of the three years ended March 31,
1999.
Advertising Costs
Advertising costs are expensed as incurred.
Advertising costs were $112,763, $19,487 and
$15,590 for the years ended March 31, 1999, 1998
and 1997 respectively.
Management Use of Estimates
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual
results could differ from those estimates.
Note 2 - Inventories Components of inventories
at March 31, 1999 and 1998 consist of the
following:
1998
1999 (Unaudited)
---- ----------
Raw materials $ 277,162 $ 72,348
Finished goods 129,171 70,002
--------- ---------
$ 406,333 $ 142,350
========= =========
Note 3 - Property and Equipment
Property and equipment at March 31, 1999 and 1998
consist of the following:
1998
1999 (Unaudited)
Machinery and equipment 88,505 $ 77,526
Vehicles 50,726 -
Furniture and fixtures 7,943 4,815
-------- ---------
147,174 82,341
Accumulated depreciation (35,285) (19,325)
-------- ---------
$111,889 $ 63,016
======== =========
PURE STEEL CUSTOM CYCLES, INC.
Notes to Financial Statements
March 31, 1999, 1998 and 1997
Note 4. Notes Payable
Notes payable consists of the following at March
31, 1999 and 1998:
1998
1999 (Unaudited)
<s> <c> <c>
12.5% note payable to an equipment supplier,
payable in equal monthly installments of principal
and interest of $1,108 through March 2001, secured
by equipment purchased $ 24,285 $ 33,133
10% note payable to a financial corporation,
payable in equal monthly installments of principal and
interest of $1,078 through December 2003, secured
by vehicle purchased 48,558 -
10.25% bank note, payable in equal
monthly installments of principal and interest
of $358 through February 2002, secured by
equipment purchased 10,716 -
--------- --------
83,559 33,133
Less current portion (22,777) (9,702)
--------- --------
$ 60,782 $23,431
========= ========
Principal maturities for notes payable are as follows:
2000 $ 22,777
2001 26,330
2002 13,953
2003 11,377
2004 9,122
Thereafter -
--------
$ 83,559
========
Note 5 - Advances from Stockholders
Advances from stockholders represent cash payments
received from the two stockholders arising in the
normal course of business. The advances do not
bear interest and are to be repaid as cash flow
allows. Since repayment is not anticipated to
occur in the subsequent fiscal year, these
advances are classified as long-term liabilities.
The stockholders have provided management and
manufacturing service to the Company without
compensation for the three years ended March 31,
1999.
PURE STEEL CUSTOM CYCLES, INC.
Notes to Financial Statements
March 31, 1999, 1998 and 1997
Note 6 - Deferred Taxes
Deferred taxes consist of the following at March
31, 1999 and 1998:
1998
1999 (Unaudited)
<s> <c> <c>
Deferred Tax Liabilities
Depreciation $ 3,300 $ -
Note 7 - Operating lease
The Company leases its office and shop space under
an operating lease expiring in October 2001.
Minimum future annual rental payments under this
operating lease are as follows: 2000 - $66,970;
2001 - $40,544.
Rental expense under this operating lease was
$24,553, $11,530 and $10,831 for 1999, 1998, and
1997 respectively.
EXHIBIT "A"
INFORMATION REQUIRED OF ACCREDITED INVESTORS
[All Information Will Be Treated Confidentially -
See Item (7)]
1. Name
Address
City State Zip
Social Security Number or Taxpayer Identification
Number
2. If the prospective purchaser is a natural
person, please answer each of the following
questions (a) and (b):
(a) Is your individual not worth, or joint not
worth with your spouse, at the time of
purchase of the Shares greater than $1,000,000?
(You may include your home, its furnishings and
your personal automobile(s).)
Yes No
(b) Has your individual net income for each of the
last two years been in excess of $200,000 or has
your joint income with your spouse in each of those
years been in excess of $300,000- and do you
reasonably expect that your individual income for
the current year will exceed $200,000 or that your
joint income with your spouse for the current year
will exceed $300,000?
Yes No
3. If the answer to both questions (2) (a) and
(2) (b) is "Yes," a copy of either (i) your most
recent signed financial statement dated within 90
days of the date hereof, or (ii) your individual or
joint federal tax return (Form 1040, pages I and 2
through signature (s), but without attachments),
for the two years most recently filed, must be
submitted to the Company with this accredited
investor questionnaire. If the answer to question
(2)(a) is "Yes" and to question (2) (b) is "No,"
then only the financial statement need be
submitted. If the answer to question (2) (a) is
"No" and to question (2) (b) is "Yes," then only
the tax return need be submitted.
4. If the Prospective purchaser is not a natural
person, please answer each of the following
questions (a) and (b):
(a) If the prospective purchaser is a general
partnership, limited partnership, corporation,
joint venture, trust, business trust, cooperative
association, or joint stock company, has each of
its equity owners completed a separate accredited
investor questionnaire?
Yes No
(b) Is the prospective purchaser:
(i) A national?
Yes No
(ii) A bank organized under the laws of any state,
territory or the District of Columbia and subject
to supervision by any state or territorial banking
commission or similar official?
Yes No
(iii) A savings and loan association, building
and loan association, cooperative bank, homestead
association, or similar institution supervised and
examined by any state or federal authority?
Yes No
(iv) A broker or dealer registered pursuant to
section 15 of the Securities Exchange Act of 1934
("1934 Act")?
Yes No
(v) An insurance company whose primary and
predominant business activity is the writing of
insurance or the reinsuring of risks underwritten
by insurance companies, and subject to supervision
by the insurance commissioner or a similar official
or agency of a state or territory or the District
of Columbia?
Yes No
(vi) An investment company registered under the
Investment Company Act of 1940 ("1940 Act")
Yes No
(vii) A business development company ("BDC")
which (1) is a closed-end company organized under
the laws of and having its principal place of
business in any state or states; (2) is operated
for the purpose of making investments in securities
described in sections 55(a)(1)-(3) of the 1940 Act;
(3) makes available significant managerial
assistance with respect to at least those issuers
of such securities who the BDC teats as satisfying
the 70 per centum of the value of its total assets
condition of Section 55 of the 1940 Act; and (4)
has elected pursuant to Section 54(a) of the 1940
Act to be subject to the provisions of Sections 55
through 65 of the 1940 Act?
Yes No
(viii) A Small Business Investment Company
("SBIC") licensed by the U.S. Small Business
Administration ("SBA") under either Section 301(c)
or Section 301(d) of the Small Business Investment
Act of 1958?
Yes No
(ix) A plan established and maintained by a state,
its political subdivisions, or any agency or
instrumentality of a state or its political
subdivisions for the benefit of its employees, with
total assets in excess of $5,000,000?
Yes No
(x) An employee benefit plan ("EBP") within the
meaning of the Employee Retirement Income Security
Act of 1974 ("ERISA!'), so long as (1) the decision
to make this investment is made by a plan fiduciary
(as defined in Section 3(21) of ERISA) which is a
bank, savings and loan association, insurance
company, or registered investment adviser- (2) the
EBP has total assets in excess of $5,000,000; or
(3) if a self-directed EBP, the decision to make
this investment is made by a person who is an
accredited investor (as defined in SEC Rule 501(a)
Yes No
(xi) A private business development company
("PBDC") as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940
Yes No
(xii) (1) An organization described in Section
501 (c)(3) of the Internal Revenue Code ("Code"),
(2) a corporation, (3) a Massachusetts or similar
business trust, or (4) a partnership, which,
whether (1), (2), (3), or (4), has total assets in
excess of $5,000,000 and was not formed for the
specific purpose of making this investment.
Note: Generally, Section 501 (c)(3) of the Code
includes the following:
"Corporations, and any community chest, fund, or
foundation, organized and operated exclusively for
religious, charitable, scientific, testing for
public safety, literary, or educational purposes,
or to foster national or international amateur
sports competition (but only if no part of its
activities involve the provision of athletic
facilities or equipment), or for the prevention of
cruelty to children or animals, no pan of the net
earnings of which inures to the benefit of any
private shareholder or individual, substantial
part of the activities of which is carrying on
propaganda, or otherwise provided in subsection
[501 1 (h) [of the Code]), and which does not
participate in, or intervene in (including the
publishing or distributing of statements), any
political campaign on behalf of (or in opposition
to) any candidate for public office."
Yes No
(xiii) A trust (1) with total assets in excess of
$5,000,000, (2) not formed for the specific purpose
of making this investment, and (3) whose purchase
of these securities is directed by a person who
either alone or with a purchaser representative
(as defined in SEC Rule 501(h)) has such knowledge
and experience in financial and business matters
that he is capable of evaluating the merits and
risks of making this investment?
Yes No
(5) If the answer to any of the foregoing
questions (1) through (4) is "Yes," please complete
the remainder of this Accredited Investor
Questionnaire, If none of the foregoing questions
has been answered affirmatively, the prospective
purchaser is not an "accredited investor" and this
questionnaire should not be completed.
(6) If any question (4) (b) (i) through (4) (b)
(xiii) above has been answered affirmatively,
additional material must be submitted to the
Company with this Accredited Investor Questionnaire
to verify the specific status of the appropriate
entity.
(7) This questionnaire and any documents
accompanying it will be held in confidence by the
Company, but may be disclosed to agents or
officials of the U.S. Securities and Exchange
Commission or any state securities regulatory
agency upon their request. In addition, prospective
purchasers should be aware that this information
may also be produced as evidence in legal
proceedings.
I understand that the foregoing information will be
used to determine whether or not I am an it
accredited investor" as that term is defined in
Rule 501 (a) of SEC Regulation D, a copy of which
is attached hereto. Consequently, I hereby certify
that the information contained herein and the
documents that I have submitted to the Company to
verify such information are true, accurate and
complete to the best of my knowledge.
EXECUTION BY ACCREDITED INVESTOR
FOR INDIVIDUALS: FOR ENTITIES:
Subscriber (Signature)
Subscriber (Type or Print Name)
By
Type or Print Name
Signature of Representative
Subscriber (Signature)
Type of Print Name a Title or
Capacity of Representative
Type or Print Name
Date
DEFINITION OF ACCREDITED INVESTOR
Rule 501 (a) of SEC Regulation D provides the
following definition of "Accredited Investor":
"Reg. Section 230.501. As used in Regulation
D......, following terms shall have the meaning
indicated:
"(a) Accredited investor. "Accredited
investor" shall mean any person who comes within
any of the following categories, or who the
issuer reasonably believes comes within any of the
following categories, at the tine of the sale of
the securities to that person:
(l) Any bank as defined 'in section 3(a)(2)
of the [Securities] Act (of 1933), or any savings
and loan association or other institution as
defined in section 3(a)(5)(A) of the Act whether
acting in its individual or fiduciary capacity; any
broker or-dealer registered pursuant to section 15
of the Securities Exchange Act of 1934; any
insurance company as defined in section 2 (13) of
the Act; any investment company registered under
the Investment Company Act of 1940 or a business
development Company as defined In section 2 (a)(48)
of that Act; Small Business Investment company
licensed by the U.S. Small Business Administration
under section 301 (c) or (d) of the Small Business
Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its
political subdivisions for the benefit of its
employees, if such plan has total assets in excess
of $5,000,000; employee benefit plan within the
meaning of the Employee Retirement Income Security
Act of 1974 if the investment decision is made by a
plan fiduciary, an defined in section 3 (21) of
such Act, which is either a bank, savings and loan
association, insurance company, or registered
investment adviser, or if the employee benefit plan
has total assets in access of $5,000,000 or, if a
self-directed plan, with investment decisions made
solely by persons that are accredited investors;
"(2) Any private business development company
as defined in section 202 (a) (22) of the
Investment Advisers Act of 1940;
"(3) Any organization described in Section 501
(c) (3) of the Internal Revenue Code, corporation,
Massachusetts or similar business trust, or
partners' , not formed for the IP specific purpose
of acquiring the securities offered, with total
assets in excess of $5,000,000-1
"(4) Any director, executive officer, or
general partner of the issuer of the securities
being offered or sold, or any director, executive
officer, or general partner of a general partner of
that issuer;
"(5) Any natural person whose individual net
worth, or joint net worth with that person's
spouse, at the tine of his purchase exceeds
$1,000,000;
"(6) Any natural person who had an individual
income in excess of $200,000 in each of the two
most recent years or joint income with that
person's spouse in excess of $300,000 in each of
those years and has a reasonable expectation of
reaching the same income level in the current year;
"(7) Any trust with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase is
directed by a sophisticated person as described 'in
..... [SEC Rule] 506 (b) (2) (ii); and
"(8) Any entity in which all of the equity
owners are accredited investors."
Following questions (a) and (b):
(a) If the prospective purchaser is a general
partnership, limited partnership, corporation,
joint venture, trust, business trust, cooperative
association, or joint stock company, has each of
its equity owners completed a separate accredited
investor questionnaire?
Yes No
EXHIBIT "13'
PURE STEEL CUSTOM CYCLES, INC.
SERIES "A" CONVERTIBLE PREFERRED STOCK
SUBSCRIPTION AGREEMENT
THE SERIES "A" CONVERTIBLE PREFERRED STOCK THAT IS
THE SUBJECT OF TMS SUBSCRIPTION AGREEMENT (THE
"PREFERRED STOCK") HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 19331 AS AMENDED (THE "ACT"),
OR APPLICABLE STATE SECURITIES LAWS, NOR HAS M
SECURITIES AND EXCHANGE CONMSSION OR ANY STATE
REGULATORY AUTHORITY PASSED UPON THE ACCURACY OR
ADEQUACY OF ANY DOCUMENT OR REPRESENTATIONS OF PURE
STEEL CUSTOM CYCLES, INC. (THE "COMPANY") OR
ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS A CRDIBNAL
OFFENSE. THE PREFERRED STOCK IS OFFERED PURSUANT TO
AN EXENVTION PROVIDED BY THE ACT, ARIZONA
SECURITIES LAW, AND CERTAIN RULES AND REGULATIONS
THEREUNDER- THE PREFERRED STOCK MAY NOT BE SOLD,
CONVEYED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND/OR COWLLKNCE WITH THE REGISTRATION REQUIREMENTS
OF APPLICABLE STATE LAW UNLESS THE CONVANY SHALL
HAVE RECEIVED AN OPTION OF COUNSEL ACCEPTABLE TO
THE CONVANY AND ITS COUNSEL THAT SUCH REGISTRATION
IS NOT REQUIRED.
1. SUPSCIPTION TO PURCHASE THE PREFERRED STOCK.
Subject to the terms and conditions of this
Subscription Agreement, the undersigned
(individually and, if applicable, collectively,
the "Subscriber), hereby subscribes and agrees to
purchase shares of Preferred Stock at a price of
$10.00 per share. Subscriber hereby tenders a check
in the amount of $ as payment
therefor.
2. REPRESENTATIONS AND WARRANTIES. Subscriber
represents and warrants as follows:
a. Subscriber is an "accredited investor" as
defined in SEC Rule 501 (a) under Regulation D and
has executed an Accredited Investor Questionnaire,
a copy of which is attached hereto as Exhibit "A"
and incorporated by this reference;
b. Subscriber has carefully considered the
investment risks associated with the purchase of
the Preferred Stock and, in so considering, has had
full opportunity to and in fact has, asked for and
received from the Company all information about the
Company, its management, properties and all aspects
of its financial and business affairs and prospects
that a reasonably prudent person would deem
necessary to make an informed decision with respect
to such investment. Subscriber further warrants
that Subscriber has, to the extent appropriate,
consulted with professional, legal, tax and
accounting advisors on such matters relating to the
purchase of the Preferred Stock and the suitability
for Subscriber of such purchase;
c. Subscriber is the only party in interest
purchasing the Preferred Stock and is doing so only
for investment for Subscriber's own account and has
no agreement, understanding or arrangement to
subdivide, sell, assign, transfer, pledge or
otherwise dispose of all or any part of
Subscriber's interest to any other person,
d. Subscriber is knowledgeable with investments
in development-stage and/or start-up companies such
as the Company and has such knowledge and
experience in financial and business matters that
subscriber is capable of evaluating the merits and
risks of an investment in the Preferred Stock-,
e. Subscriber is able to bear the economic risk
of losing Subscriber's entire investment in the
Preferred Stock and Subscriber understands that the
Preferred Stock cannot be readily sold, and
Subscriber has adequate means of providing for
Subscriber's current financial needs and possible
personal contingencies without having to resort to
the funds contemplated to be used for the purchase
of the Preferred Stock;
f Subscriber understands that the Preferred
Stock has not been registered under either the Act
or any state's securities laws, but is being
offered and sold in reliance upon exemptions from
such registration and that these securities have
not been approved or disapproved by the Securities
and Exchange Commission or any state regulatory
body, nor has any such regulatory body reviewed any
information about the Company, the Preferred Stock
or representations, if any, of the Company.
9. Subscriber further understands that: (i) the
shares of Preferred Stock cannot be sold,
transferred or otherwise disposed of by Subscriber
unless they are subsequently registered under the
Act and applicable state laws or unless exemptions
from such registrations are available at the time
of the sale; (ii) Subscriber must, therefore, be
able to bear the economic risk of the investment
for an indefinite period; (iii) Subscriber will
have no rights to require registration of the
shares of Preferred Stock under federal or state
securities laws, and registration is neither
contemplated or likely; and (iv) it is unlikely
that any trading market in the shares of Preferred
Stock will develop. Without limiting the foregoing,
Subscriber agrees not to sell, pledge or otherwise
transfer or dispose of any interest in or any
portion of any shares of Preferred Stock except in
compliance with applicable securities laws and
Subscriber consents to be bound by the opinion of
the Company and its counsel with respect to whether
any such transfer complies with applicable
securities laws. Subscriber acknowledges and agrees
that the certificates evidencing the shares of
Preferred Stock will include a legend reading
substantially as follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THE SHARES HAVE BEEN ACQUIRED WITHOUT A VIEW TO
DISTRIBUTION AND N4AY NOT BE OFFERED, SOLD,
TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT AND UNDER ANY APPLICABLE
SECURITIES LAWS, OR AN OPINION OF COUNSEL
ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED AS TO SUCH SALE OR
OFFER. THE STOCK TRANSFER AGENT HAS BEEN ORDERED TO
EFFECTUATE TRANSFERS OF TI-HS CERTIFICATE ONLY IN
ACCORDANCE WITH THE ABOVE INSTRUCTIONS."
The Company will act as its own transfer agent with
respect to the shares of Preferred Stock, and will
not consent to transfer of such shares unless the
transferee represents that such transferee meets
certain financial and sophistication suitability
standards and will make notation in its appropriate
records of the presence of stop transfer
instructions with respect to such shares.
4. IMDEMNIFICATION. Subscriber will indemnify and
hold harmless the Company, its officers, directors,
employees, nominees, and agents against any damage,
claim or liability and the costs of any action or
proceeding brought as the result of any untrue
representation warranty or agreement made herein.
Subscriber understands that such liability could
substantially exceed the price of the Preferred
Stock, particularly if the untrue representations
relate to Subscribers' status as a sophisticated
purchaser.
5. PROPRIETARY INFORMATION. Subscriber
acknowledges that the Company may have and/or may
provide Subscriber, from time to time, Proprietary
Information. Subscriber acknowledges that
Proprietary information is a valuable asset of the
Company and, without limiting the scope of
Subscriber's rights to review records of the
Company pursuant to the Arizona Business
Corporation Act (should Subscriber be or become a
shareholder of the Company), Subscriber agrees at
all times during the period the Company and
Subscriber maintain a debtor/creditor and or
shareholder relationship and for three years
thereafter, to keep in confidence and trust all
Proprietary Information.
Subscriber will not directly or indirectly use
Proprietary Information. Subscriber will not
directly or indirectly disclose any Proprietary
Information or anything related thereto to any
person or entity, including any other security
holder of the Company. "Proprietary Information"
includes, whether marked "confidential" or
otherwise, without limitation, all correspondence
by the Company with Subscriber, documents,
corporate records (including minutes and stock
records), employee lists, financial statements,
trade secrets, processes, data, know-how,
improvements, inventions, techniques, marketing
plans and strategies, and information concerning
customers or vendors of the Company. Upon
termination of a relationship with the Company as
the holder of any security of the Company,
Subscriber agrees to either destroy all Proprietary
Information, including copies thereof, in
Subscriber's possession or control and certify same
to the Company, or return to the Company all
Proprietary Information, including copies thereof
in Subscriber's possession.
6. MISCELLANEOUS
a. This Subscription Agreement shall be governed
by and construed in accordance with Arizona State
law.
b. This Subscription Agreement constitutes the
entire agreement between the parties. Any amendment
or modification to this Subscription Agreement must
be in writing, designated as such, and signed by
all parties hereto.
C. Captions to this Subscription Agreement are
for convenience of reference only and shall not
limit or otherwise affect the interpretation or
effect of any term or provision - hereof
d. This Subscription Agreement and the rights,
powers and duties set forth herein, except as
otherwise herein set forth, shall bind and inure to
the heirs, executors, administrators, legal
representatives, successors' and assigns of the
parties hereto. Notwithstanding anything contained
herein to the contrary, the rights and duties of
Subscriber are not assignable.
e. Subscriber hereby acknowledges and agrees
that Subscriber is not entitled to cancel,
terminate or revoke this Subscription Agreement or
any related agreements of Subscriber hereunder and
that such subscription and agreements shall survive
the death or disability of Subscriber or any
assignment by Subscriber of the interest received
hereby.
f. All notices and other communications
required or permitted under this Subscription
Agreement shall be in writing and shall be deemed
to have been given if delivered personally, or
mailed, postage prepaid, by first class mail, or
express delivery service, to the parties at the
addresses set forth in this Subscription Agreement
or such other address as a party may specify to the
other by notice in accordance with this Section.
g. A waiver of any provision of this
Subscription Agreement must be in writing,
designated as such, and signed by the party against
whom enforcement of that waiver is sought. The
waiver by a party or a breach of any provision of
this Agreement shall not operate or be construed as
a waiver of any subsequent or other breach thereof
[Signature page follows]
IN WITNESS WHEREOF, the undersigned have executed
this Subscription Agreement this day of
, 1999.
Signature of Subscriber or
Authorized Representative
Name (Please print or type)
Signature of Additional Subscriber (if any)
Name (Please print or type)
Accepted by:
Pure Steel Custom Cycles, Inc.
By:
THE PREFERRED STOCK IS PURCHASED IN THE FOLLOWING
FORM OF OWNERSHIP: (check one)
[ ] Individual Ownership [ ] Community Property
[ ] Joint Tenants (both signatures
(all parties must sign required)
[ ] Tenants in Common [ ] Trust
(both parties must
sign)
Social Security No. or Federal I.D. No.
Social Security No. of Additional Subscriber
Correspondence Address:
City State ZipCode
Telephone Number
SERIES "A" CONVERTIBLE PREFERRED STOCK
RIGHTS, PREFERENCES AN]--) LMTATIONS
1. Dividends. An annual ten percent (10%)
cumulative preferred dividend of one share of 46
common for each 10 shares of Series "A" Preferred
Stock held prior to the declaration and payment of
any dividend on the Common Stock.
2. Convertibilitv. The Series "A" Preferred
Stock will be convertible, at the election of the
holder, on a one-for-eight basis into shares of the
Company's Common Stock (One Share of Preferred for
Eight shares of Common) and two warrants which
entities the holder thereof to purchase two
additional shares of Common Stock at a price of
$2.50 per share. In the event of a public offering
in which the Company raises in excess of $2,500,000
on its Common Stock, the Series "A" Preferred stock
will be automatically converted into shares of
Common Stock. In addition, upon demand, the Company
can compel conversion upon thirty (30) day's
written notice.
3. Voting. Each holder of Series "A"
Preferred Stock will be entitled to one vote per
share 04 on all matters upon which shareholders may
vote upon under Arizona law in the same manner as
holders of Common Stock.
4. Redemption. The Series "A" Preferred Stock is
not subject to any mandatory redemption, sinking
fund or other similar provisions.
5. Liquidation Preference In the event of
any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the
holders of the Series 'A" Preferred Stock will be
entitled to be paid out of the assets of the
Company available, for distribution to its
shareholders, before any payment or declaration or
setting apart for payment of any amount should be
made in respect of the Common Stock or stock of any
other class or series ranking junior as to the
assets in liquidation to this Series "A" Preferred
Stock, an amount equal to the $10.00 issue price of
the Series "A" Preferred Stock (as adjusted to
reflect splits, combinations and
reclassifications).
Thereafter, the assets shall be distributed ratably
among the holders of (i) Common Stock, (ii) Series
"A" Preferred Stock, and (iii) other preferred
stock not expressly made junior to the Series "A"
Preferred Stock on liquidation, all in proportion
to the number of shares of Common Stock owned by
each such holder in which holder would then be
entitled upon conversion of such stock owned by
such holder.
If upon liquidation, dissolution or winding up of
the Company, the assets of the Company available
for distribution to its shareholders are
insufficient to pay the holders of the Series "A"
Preferred Stock the full amount to which they
should be entitled, the holders of the Series "A"
Preferred Stock will, with respect to any
distribution of assets, be entitled to equal
priority with the holders of all preferred stock,
expressly made junior to the Series "A" Preferred
Stock on liquidation.
If upon liquidation, dissolution or winding up of
the Company, the assets of the Company available
for distribution to the shareholders should be
insufficient to pay the holders of the Company's
Series "A" Preferred Stock the full amount to which
they will be entitled, the holders of the Series
"A" Preferred Stock will share ratably in any
distribution of assets available for the holders of
Series "A" Preferred Stock and the holders of any
other preferred stock that is of equal priority and
liquidation with the Series "A" Preferred Stock
requiring the respective amounts that would be
payable in respect to the shares held by them upon
such distribution of the full amounts payable on or
with respect to said shares when paid in full.