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                                                                   Exhibit  4.2



                             CRAGAR INDUSTRIES, INC.

                                WARRANT AGREEMENT


         THIS AGREEMENT (the "Agreement"), dated as of December 18, 1996, is
between CRAGAR INDUSTRIES, INC., a Delaware corporation (the "Company"), and
AMERICAN STOCK TRANSFER & TRUST COMPANY, as warrant agent (the "Warrant Agent").

         WHEREAS, in connection with (i) an offering to the public of up to
977,500 shares of the Company's Common Stock, $.01 par value (the "Common
Stock"), and 977,500 Redeemable Common Stock Purchase Warrants (the "Redeemable
Warrants"), and (ii) the issuance to Dickinson & Co. (the "Representative") or
its designees of warrants (the "Representative's Warrants") to purchase up to
(x) 85,000 additional shares of Common Stock and (y) 85,000 Common Stock
Purchase Warrants (the "Underlying Warrants"), each such Underlying Warrant
entitling the holder thereof to purchase one share of Common Stock (the
Redeemable Warrants and the Underlying Warrants, the "Warrants"), the Company
will issue up to 1,062,500 Warrants evidencing the right to purchase an
aggregate of 1,062,500 shares of Common Stock as constituted on the date hereof
as contemplated by the Prospectus of the Company dated December 18, 1996 (the
"Definitive Prospectus"); and

         WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange, exercise, and redemption of the
Warrants;

         NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties agree as follows:

         Section 1. APPOINTMENT OF WARRANT AGENT. The Company hereby appoints
the Warrant Agent to act as agent of the Company for the Warrants, and the
Warrant Agent hereby accepts such appointment and agrees to perform the same in
accordance with the terms and conditions set forth in this Agreement.

         Section 2. WARRANTS AND FORM OF WARRANT CERTIFICATES.

                  (a) Each Redeemable Warrant shall entitle the registered
holder of the certificate representing such Warrant to purchase upon the
exercise thereof one share of Common Stock, subject to the adjustments provided
for in Section 9 hereof, at any time until 5:00 p.m., New York City time, on
December 18, 2001 (five years after the date of the Definitive Prospectus),
unless earlier redeemed pursuant to Section 11 hereof.

                  (b) Each Representative's Warrant entitles the registered
holder of the certificate representing such Warrant to purchase upon the
exercise thereof one share of Common Stock, subject to adjustments provided in
Section 8 of the Representative's Warrant Agreement referred to below, and one
Underlying Warrant at any time after 9:00 a.m., New York City time, on December
19, 1997 (one year from the date of the Definitive Prospectus) until 5:00 p.m.,
New York City time, on


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December 18, 2001 (five years after such date), in accordance with a
Representative's Warrant Agreement, dated the date hereof (the "Representative's
Warrant Agreement").

                  (c) Each Underlying Warrant entitles the registered holder of
the certificate representing such Warrant to purchase upon the exercise thereof
one share of Common Stock, subject to adjustments provided in Section 9 hereof,
at any time after 9:00 a.m., New York City time, on December 19, 1997 (one year
from the date of the Definitive Prospectus) until 5:00 p.m., New York City time,
on December 18, 2001 (five years from such date).

                  (d) The Warrant certificates shall be in registered form only.
The text of the Warrant certificate and the form of election to exercise a
warrant on the reverse side thereof shall be substantially in the form of
Exhibit A attached hereto. Each Warrant certificate shall be dated by the
Warrant Agent as of the date of issuance thereof (whether upon initial issuance
or upon transfer or exchange), and shall be executed on behalf of the Company by
the manual or facsimile signature of its President or a Vice President, under
its corporate seal, affixed or in facsimile, and attested to by the manual or
facsimile signature of its Secretary or an Assistant Secretary. In case any
officer of the Company who shall have signed any Warrant certificate shall cease
to be such officer of the Company prior to the issuance thereof, such Warrant
certificate may nevertheless be issued and delivered with the same force and
effect as though the person who signed the same had not ceased to be such
officer of the Company. Any such Warrant certificate may be signed on behalf of
the Company by persons who, at the actual date of execution of such Warrant
certificate, are the proper officers of the Company, although at the nominal
date of such Warrant certificate any such person shall not have been such
officer of the Company.

         Section 3. EXERCISE OF WARRANTS, DURATION AND WARRANT PRICE. Subject to
the provisions of this Agreement, each registered holder of one or more Warrant
certificates shall have the right, which may be exercised as provided in such
Warrant certificates, to purchase from the Company (and the Company shall issue
and sell to such registered holder) the number of shares of Common Stock to
which the Warrants represented by such certificates are at the time entitled
hereunder.

         Each Warrant not exercised by its expiration date shall become void,
and all rights thereunder and all rights in respect thereof under this Agreement
shall cease on such date.

         A Warrant may be exercised by the surrender of the certificate
representing such Warrant to the Company, at the office of the Warrant Agent, or
at the office of a successor to the Warrant Agent, with the subscription form
set forth on the reverse thereof duly executed and properly endorsed with the
signatures properly guaranteed, and upon payment in full to the Warrant Agent
for the account of the Company of the Warrant Price (as hereinafter defined) for
the number of shares of Common Stock as to which the Warrant is exercised. Such
Warrant Price shall be paid in full in cash, or by certified check or bank draft
payable in United States currency to the order of the Warrant Agent.

         The price per share of Common Stock at which the Warrants may be
exercised (the "Warrant Price") shall be $6.60 (adjusted in accordance with
Section 9 hereof, taking into account prior adjustments).


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         Subject to the further provisions of this Section 3 and of Section 6
hereof, upon surrender of Warrant certificates and payment of the Warrant Price,
the Company shall issue and cause to be delivered, with all reasonable dispatch
to or upon the written order of the registered holder of such Warrants and in
such name or names as such registered holder may designate, subject to
applicable securities laws, a certificate or certificates for the number of
securities so purchased upon the exercise of such Warrants, together with cash,
as provided in Section 10 of this Agreement, in respect of any fraction of a
share or security otherwise issuable upon such surrender. All shares of Common
Stock issued upon the exercise of a Warrant shall be validly issued, fully paid
and nonassessable and shall be listed on any and all national securities
exchanges or approved for quotation on the level of National Association of
Securities Dealers Automatic Quotation System ("Nasdaq") upon which any other
shares of the Common Stock or securities otherwise issuable are then listed or
traded.

         Certificates representing such securities shall be deemed to have been
issued and any person so designated to be named therein shall be deemed to have
become a holder of record of such securities as of the date of the surrender of
such Warrants and payment of the Warrant Price; provided, however, that if, at
the date of surrender of such Warrants and payment of such Warrant Price, the
transfer books for the Common Stock or other securities purchasable upon the
exercise of such Warrants shall be closed, the certificates for the securities
in respect of which such Warrants are then exercised shall be issuable as of the
date on which such books shall next be opened and until such date the Company
shall be under no duty to deliver any certificate for such securities. The
rights of purchase represented by each Warrant certificate shall be exercisable,
at the election of the registered holder thereof, either as an entirety or from
time to time for part of the number of securities specified therein and, in the
event that any Warrant certificate is exercised in respect of less than all of
the securities specified therein at any time prior to the expiration date of the
Warrant certificate, a new Warrant certificate or certificates will be issued to
such registered holder for the remaining number of securities specified in the
Warrant certificate so surrendered.

         Section 4. COUNTERSIGNATURE AND REGISTRATION. The Warrant Agent shall
maintain books (the "Warrant Register") for the registration and the
registration of transfer of the Warrants. Upon the initial issuance of the
Warrants, the Warrant Agent shall issue and register the Warrants in the names
of the respective holders thereof in such denominations and otherwise in
accordance with instructions delivered to the Warrant Agent by the Company. The
Warrant certificates shall be countersigned manually or by facsimile by the
Warrant Agent (or by any successor to the Warrant Agent then acting as such
under this Agreement) and shall not be valid for any purpose unless so
countersigned. Warrant certificates may be so countersigned, however, by the
Warrant Agent and delivered by the Warrant Agent, notwithstanding that the
persons whose manual or facsimile signatures appear thereon as proper officers
of the Company shall have ceased to be such officers at the time of such
countersignature or delivery.

         Prior to due presentment for registration of transfer of any Warrant
certificate, the Company and the Warrant Agent may deem and treat the person in
whose name such Warrant certificate shall be registered upon the Warrant
Register (the "registered holder") as the absolute owner of such Warrant
certificate and of each Warrant represented thereby (notwithstanding any
notation of ownership or other writing on the Warrant certificate made by anyone
other than the Company or the Warrant Agent), for the purpose of any exercise
thereof, of any distribution or notice to the holder


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thereof, and for all other purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice to the contrary.

         Section 5. TRANSFER AND EXCHANGE OF WARRANTS. The Warrant Agent shall
register the transfer, from time to time, of any outstanding Warrant upon the
Warrant Register, upon surrender of the certificate evidencing such warrant for
transfer, properly endorsed with signatures properly guaranteed and accompanied
by appropriate instructions for transfer. Upon any such transfer, a new Warrant
certificate representing an equal aggregate number of Warrants shall be issued
to the transferee and the surrendered Warrant certificate shall be canceled by
the Warrant Agent. The Warrant certificates so canceled shall be delivered by
the Warrant Agent to the Company from time to time upon request. Notwithstanding
the foregoing, no transfer or exchange may be made except in compliance with
applicable securities laws.

         Warrant certificates may be surrendered to the Warrant Agent, together
with a written request for exchange, and thereupon the Warrant Agent shall issue
in exchange therefor one or more new Warrant certificates as requested by the
registered holder of the Warrant certificate or certificates so surrendered,
representing an equal aggregate number of Warrants.

         The Warrant Agent shall not be required to effect any registration of
transfer or exchange which will result in the issuance of a Warrant certificate
for a fraction of a Warrant.

         No service charge shall be made for any exchange or registration of
transfer of Warrant certificates.

         The Warrant Agent is hereby authorized to countersign and to deliver,
in accordance with the terms of this Agreement, the new Warrant certificates
required to be issued pursuant to the provisions hereof, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
certificates duly executed on behalf of the Company for such purpose.

         Section 6. PAYMENT OF TAXES. The Company will pay any documentary stamp
taxes attributable to the initial issuance of the shares of Common Stock
issuable upon the exercise of Warrants; provided, however, the Company shall not
be required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issuance or delivery of any certificates for shares of
Common Stock in a name other than registered holder of Warrants in respect of
which such shares are issued, and in such case neither the Company nor the
Warrant Agent shall be required to issue or deliver any certificate for shares
of Common Stock or any Warrant certificate until the person requesting the same
has paid to the Company the amount of such tax or has established to the
Company's satisfaction that such tax has been paid.

         Section 7. MUTILATED OR MISSING WARRANTS. In case any of the Warrant
certificates shall be mutilated, lost, stolen or destroyed, the Company may in
its discretion issue, and the Warrant Agent shall countersign and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant
certificate, or in lieu of and substitution for the Warrant certificate lost,
stolen or destroyed, a new Warrant certificate representing an equal aggregate
number of Warrants, but only upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such loss, theft or


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destruction of such Warrant certificate and reasonable indemnity, if requested,
also satisfactory to them. Applicants for such substitute Warrant certificates
shall also comply with such other reasonable conditions and pay such reasonable
charges as the Company or the Warrant Agent may prescribe.

         Section 8. RESERVATION OF COMMON STOCK. There have been reserved, and
the Company shall at all times keep reserved, out of the authorized and unissued
shares of Common Stock, a number of shares sufficient to provide for the
exercise of the rights of purchase represented by the Redeemable Warrants, the
Representative's Warrants and the Underlying Warrants then outstanding or
issuable upon exercise, and the transfer agent for the Common Stock and every
subsequent transfer agent for any shares of the Company's capital stock issuable
upon the exercise of any of the rights of purchase aforesaid are hereby
irrevocably authorized and directed at all times to reserve such number of
authorized and unissued shares as shall be requisite for such purpose.

         Prior to the issuance of any shares of Common Stock upon exercise of
the Warrants, the Company shall secure the listing of such shares on any and all
national securities exchanges or approved for quotation on the level of Nasdaq
upon which any of the other shares of the Common Stock are then listed or
quoted. So long as any unexpired Redeemable Warrants remain outstanding, the
Company will file such post-effective amendments to the Registration Statement
or supplements to the Prospectus filed pursuant to the Securities Act of 1933,
as amended (the "Act"), with respect to the Warrants (or such other registration
statements or post-effective amendments or supplements) as may be necessary to
permit trading in the Warrants and to permit the Company to deliver to each
person exercising a Warrant a Prospectus meeting the requirements of Section
10(a)(3) of the Act, and otherwise complying therewith; and the Company will,
from time to time, furnish the Warrant Agent with such Prospectuses in
sufficient quantity to permit the Warrant Agent to deliver such a Prospectus to
each holder of a Warrant upon the exercise thereof. The Company will keep a copy
of this Agreement on file with the transfer agent for the Common Stock and with
every subsequent transfer agent for any shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants.

         The Warrant Agent is hereby irrevocably authorized to requisition from
time to time from such transfer agent stock certificates required to honor
outstanding Warrants. The Company will supply such transfer agent with duly
executed certificates for such purpose and will itself provide or otherwise make
available any cash as provided in Section 10 of this Agreement. All Warrant
certificates surrendered in the exercise of the rights thereby evidenced shall
be canceled by the Warrant Agent and shall thereafter be delivered to the
Company, and such canceled Warrant certificates shall constitute sufficient
evidence of the number of shares of Common Stock which have been issued upon the
exercise of such Warrants. Promptly after the expiration date of the Warrants,
the Warrant Agent shall certify to the Company the aggregate number of such
Warrants which expired unexercised, and after the expiration date of the
Warrants, no shares of Common Stock shall be subject to reservation in respect
of such Warrants.

         Section 9. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES OF COMMON
STOCK. The number and kind of securities purchasable upon the exercise of the
Warrants and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:


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                  9.1 ADJUSTMENTS. The number of shares of Common Stock
purchasable upon the exercise of each Warrant and the Warrant Price shall be
subject to adjustment as follows:

                           (a) If the Company (i) pays a dividend in Common
Stock or makes a distribution in Common Stock, (ii) subdivides its outstanding
Common Stock into a greater number of shares, (iii) combines its outstanding
Common Stock into a smaller number of shares, or (iv) issues, by
reclassification of its Common Stock, other securities of the Company, then the
number of shares of Common Stock purchasable upon exercise of a Warrant
immediately prior thereto will be adjusted so that the holder of a Warrant will
be entitled to receive the kind and number of shares of Common Stock or other
securities of the Company that such holder would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had the Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subsection 9.1(a) will become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event.

                           (b) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants, or convertible securities containing the right to subscribe
for or purchase Common Stock, then the Company shall reserve, and the
Warrantholder shall be entitled to receive upon the exercise of such Warrant,
for each Share issuable upon exercise of such Warrant, the amount of
indebtedness or assets or the number of rights, options, warrants, or
convertible securities that such Warrantholder would have received had the
Warrantholder been the holder of such Share on the record date established by
the Company for the determination of holders of Common Stock entitled to receive
such distribution, or, if no such record date shall have been established, then
on the date of such distribution.

                           (c) No adjustment in the number of shares purchasable
pursuant to the Warrants shall be required unless such adjustment would require
an increase or decrease of at least one percent in the number of shares then
purchasable upon the exercise of the Warrants or, if the Warrants are not then
exercisable, the number of shares purchasable upon the exercise of the Warrants
on the first date thereafter that the Warrants become exercisable; provided,
however, that any adjustments which by reason of this subsection 9.1(c) are not
required to be made immediately shall be carried forward and taken into account
in any subsequent adjustment.

                           (d) Whenever the number of shares purchasable upon
the exercise of the Warrant is adjusted, as herein provided, the Warrant Price
for shares payable upon exercise of the Warrant shall be adjusted by multiplying
such Warrant Price immediately prior to such adjustment by a fraction, of which
the numerator shall be the number of shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of shares so purchasable immediately thereafter.

                           (e) Whenever the number of shares purchasable upon
the exercise of the Warrants is adjusted as herein provided, the Company shall
cause to be promptly mailed to the Warrant Agent and each registered holder of a
Warrant by first class mail, postage prepaid, notice of such adjustment and with
regard to the Warrant Agent only, a certificate of the chief financial officer


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of the Company setting forth the number of shares purchasable upon the exercise
of the Warrants after such adjustment, a brief statement of the facts requiring
such adjustment and the computation by which such adjustment was made.

                           (f) For the purpose of this subsection 9.1, the term
"Common Stock" shall mean (i) the class of stock designated as the Common Stock
of the Company at the date of this Agreement, or (ii) any other class of stock
resulting from successive changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time, as a result of an
adjustment made pursuant to this Section 9, a registered holder shall become
entitled to purchase any securities of the Company other than shares of Common
Stock, thereafter the number of such other securities so purchasable upon
exercise of the Warrants shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to the shares contained in this Section 9.

                           (g) The adjustments set forth in this Section 9.1
shall be applied with respect to each Underlying Warrant retroactively to the
date of original issuance of the Representative's Warrant to which it relates,
as if such Underlying Warrant had been issued and outstanding on and from such
original issuance date, and notwithstanding the fact that at the time any event
occurs giving rise to adjustment under this Section 9.1, such Underlying Warrant
has not yet been issued pursuant to the Representative's Warrant to which such
Underlying Warrant relates.

                  9.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
subsection 9.1, no adjustment in respect of any dividends or distributions out
of earnings shall be made during the term of the Warrants or upon the exercise
of the Warrants.

                  9.3 NO ADJUSTMENT IN CERTAIN CASES. No adjustments are
required to be made pursuant to Section 9 hereof in connection with the issuance
in the transactions related hereto of shares of Common Stock, the Warrants (or
the underlying shares of Common Stock), or the Representative's Warrants (or any
of the underlying securities).

                  9.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger
of the Company into another corporation or in case of any sale or conveyance to
another corporation of the property, assets or business of the Company as an
entirety or substantially as an entirety, the Company or such successor or
purchasing corporation, as the case may be, shall execute with the Warrant Agent
an agreement that the registered holders of the Warrants shall have the right
thereafter, upon payment of the Warrant Price in effect immediately prior to
such action, to purchase, upon exercise of each Warrant, the kind and amount of
shares and other securities and property which it would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale or
conveyance had each Warrant been exercised immediately prior to such action. In
the event of a merger described in Section 368(a)(2)(E) of the Internal Revenue
Code of 1954, as amended, in which the Company is not the surviving corporation,
the right to purchase shares of Common Stock under the Warrants will terminate
on the date of such merger and thereupon the Warrants will become null and void,
but only if the controlling corporation agrees to substitute for the Warrants
its warrants which entitle the holders thereof to


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purchase upon their exercise the kind and amount of shares and other securities
and property which they would have owned or been entitled to receive had the
Warrants been exercised immediately prior to such merger. Any such agreements
referred to in this subsection 9.4 shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
Section 9 hereof. The provisions of this subsection 9.4 shall similarly apply to
successive consolidations, mergers, sales, or conveyances.

                  9.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any
action that would cause an adjustment reducing the Warrant Price below the then
par value of the Common Stock issuable upon exercise of the Warrants, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable Common Stock at such adjusted Warrant Price.

                  9.6 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a
firm of independent public accountants of recognized regional or national
standing (which may be any such firm regularly employed by the Company) to make
any computation required under this Section 9, and a certificate signed by such
firm shall be conclusive evidence of the correctness of any computation made
under this Section 9.

                  9.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the Warrant Price or the number of securities issuable upon
exercise of Warrants, Warrant certificates theretofore or thereafter issued may
continue to express the same price and number of securities as are stated in the
similar Warrant certificates initially issuable pursuant to this Agreement.
However, the Company may, at any time in its sole discretion (which shall be
conclusive), make any change in the form of Warrant certificate that it may deem
appropriate and that does not affect the substance thereof; and any Warrant
certificate thereafter issued, whether upon registration of, transfer of, or in
exchange or substitution for, an outstanding Warrant certificate, may be in the
form so changed.

                  9.8 NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDERS OF WARRANTS.
If, at any time prior to the expiration of a Warrant and prior to its exercise,
any one or more of the following events shall occur:

                           (a) any action that would require an adjustment
pursuant to subsection 9.1 or 9.4 hereof; or

                           (b) a dissolution, liquidation or winding up of the
Company (other than in connection with a consolidation, merger or sale of its
property, assets and business as an entirety or substantially as an entirety)
shall be proposed; then the Company must give notice in writing of such event to
the registered holders of the Warrants, as provided in Section 18 hereof, at
least 20 days to the extent practicable, prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to any relevant dividend, distribution, subscription
rights or other rights or for the determination of stockholders entitled to vote
on such proposed dissolution, liquidation or winding up. Such notice must
specify such record date or the date of closing the transfer books, as the case
may be. Failure to mail or receive such notice or any defect therein will not
affect the validity of any action taken with respect thereto.


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         Section 10. FRACTIONAL INTERESTS. The Company is not required to issue
fractional shares of Common Stock on the exercise of a Warrant. If any fraction
of a share of Common Stock would, except for the provisions of this Section 10,
be issuable on the exercise of a Warrant (or specified portion thereof), the
Company will in lieu thereof pay an amount in cash equal to the then Current
Market Price multiplied by such fraction. For purposes of this Agreement, the
term "Current Market Price" means (i) if the Common Stock is traded in the
over-the-counter market and is not listed for quotation on the Nasdaq National
Market or the Nasdaq SmallCap Market nor on any national securities exchange,
the average of the per share closing bid prices of the Common Stock on the 30
consecutive trading days immediately preceding the date in question, as reported
by Nasdaq or an equivalent generally accepted reporting service, or (ii) if the
Common Stock is listed for quotation on the Nasdaq National Market or the Nasdaq
SmallCap Market or on a national securities exchange, the average for the 30
consecutive trading days immediately preceding the date in question of the daily
per share closing prices of the Common Stock as quoted by the Nasdaq National
Market or the Nasdaq SmallCap Market or on the principal stock exchange on which
it is listed, as the case may be, whichever is the higher. For purposes of
clause (i) above, if trading in the Common Stock is not reported by Nasdaq, the
bid price referred to in said clause shall be the lowest bid price as reported
on the OTC Bulletin Board or in the "pink sheets" published by National
Quotation Bureau, Incorporated. The closing price referred to in clause (ii)
above shall be the last reported sale price or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices, in either case as quoted by the Nasdaq National Market or the Nasdaq
SmallCap Market or on the national securities exchange on which the Common Stock
is then listed.

         Section 11. REDEMPTION.

                  (a) The then outstanding Warrants may be redeemed, at the
option of the Company, at $.10 per share of Common Stock purchasable upon
exercise of such Warrants, at any time after the average Daily Market Price per
share of the Common Stock for a period of at least 20 consecutive trading days
ending not more than three days prior to the date of the notice given pursuant
to Section 11(b) hereof has equaled or exceeded $9.00, and prior to expiration
of the Warrants. The Daily Market Price of the Common Stock will be determined
by the Company in the manner set forth in Section 11(e) as of the end of each
trading day (or, if no trading in the Common Stock occurred on such day, as of
the end of the immediately preceding trading day in which trading occurred) and
verified to the Warrant Agent before the Company may give notice of redemption.
All outstanding Warrants must be redeemed if any are redeemed, and any right to
exercise an outstanding Warrant shall terminate at 5:00 p.m. (New York City
time) on the date fixed for redemption. A trading day means a day in which
trading of securities occurred on the Boston Stock Exchange.

                  (b) The Company may exercise its right to redeem the Warrants
only by giving the notice set forth in the following sentence. If the Company
exercises its right to redeem, it shall give notice to the Warrant Agent and the
registered holders of the outstanding Warrants by mailing or causing the Warrant
Agent to mail to such registered holders a notice of redemption, first class,
postage prepaid, at their addresses as they shall appear on the records of the
Warrant Agent. Any notice mailed in the manner provided herein will be
conclusively presumed to have been duly given whether or not the registered
holder actually receives such notice.


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                  (c) The notice of redemption must specify the redemption
price, the date fixed for redemption (which must be at least 30 days after such
notice is mailed), the place where the Warrant certificates must be delivered
and the redemption price paid, and that the right to exercise the Warrant will
terminate at 5:00 P.M. (New York City time) on the date fixed for redemption.

                  (d) Appropriate adjustment shall be made to the redemption
price and to the minimum Daily Market Price prerequisite to redemption set forth
in Section 11(a) hereof, in each case on the same basis as provided in Section 9
hereof with respect to adjustment of the Warrant Price.

                  (e) For purposes of this Agreement, the term "Daily Market
Price" means (i) if the Common Stock is traded in the over-the-counter market
and not quoted on the Nasdaq National Market or the Nasdaq SmallCap Market nor
on any national securities exchange, the closing bid price of the Common Stock
on the trading day in question, as reported by Nasdaq or an equivalent generally
accepted reporting service, or (ii) if the Common Stock is quoted on the Nasdaq
National Market or the Nasdaq SmallCap Market or on a national securities
exchange, the daily per share closing price of the Common Stock as quoted on the
Nasdaq National Market or the Nasdaq SmallCap Market or on the principal stock
exchange on which it is listed on the trading day in question, as the case may
be, whichever is the higher. For purposes of clause (i) above, if trading in the
Common Stock is not reported by Nasdaq, the bid price referred to in said clause
shall be the lowest bid price as quoted on the OTC Bulletin Board or reported in
the "pink sheets" published by National Quotation Bureau, Incorporated. The
closing price referred to in clause (ii) above shall be the last reported sale
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case on the Nasdaq National
Market or the Nasdaq SmallCap Market or on the national securities exchange on
which the Common Stock is then listed.

                  (f) On the redemption date, each Warrant will be automatically
converted into the right to receive the redemption price and the Warrant Agent
will no longer honor any purported exercise of a Warrant. On or before the
redemption date, the Company will deposit with the Warrant Agent sufficient
funds for the purpose of redeeming all of the outstanding unexercised Warrants.
All such funds shall be maintained by the Warrant Agent in an interest-bearing,
segregated account. Funds remaining in such account on the date three years from
the redemption date will be returned to the Company. Any Warrants thereafter
submitted to the Warrant Agent for redemption will be forwarded for redemption
by the Warrant Agent to the Company and the Warrant Agent will have no further
responsibility with respect thereto.

         Section 12. RIGHTS AS WARRANTHOLDERS. Nothing contained in this
Agreement or in any of the Warrants shall be construed as conferring upon the
holders thereof, as such, any of the rights of stockholders of the Company,
including, without limitation, the right to receive dividends or other
distributions, to exercise any preemptive rights, to vote or to consent or to
receive notice as stockholders in respect of the meetings of stockholders or the
election of directors of the Company or any other matter. Anything herein to the
contrary notwithstanding, the Company shall cause copies of all financial
statements and reports, proxy statements and other documents as it shall send
generally to its stockholders to be sent by the same class mail as sent to its
stockholders, postage prepaid, on the date of the mailing to such stockholders,
to each registered holder of Warrants at his or her address


                                       10

<PAGE>   11
appearing on the Warrant Register as of the record date for the determination of
the stockholders entitled to such documents.

         Section 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS. The
Warrant Agent must account promptly to the Company with respect to Warrants
exercised, and must promptly pay to the Company all monies received by it upon
the exercise of such Warrants, and agrees to keep copies of this Agreement
available for inspection by holders of Warrants during normal business hours.

         Section 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
Any corporation into which the Warrant Agent may be merged or with which it may
be consolidated, or any corporation resulting from any merger or consolidation
to which the Warrant Agent shall be a party, or any corporation succeeding to
the corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Warrant Agent under
the provisions of Section 16 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement and any of the Warrant certificates shall have been countersigned but
not delivered, any such successor to the Warrant Agent may adopt the
countersignature of the original Warrant Agent and deliver such Warrant
certificates so countersigned; and in case at that time any of the Warrant
certificates shall not have been countersigned, any successor to the Warrant
Agent may countersign such Warrant certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant Agent, and in
all such cases the Warrants represented by such Warrant certificates shall have
the full force provided in the Warrant certificates and in this Agreement. Any
such successor Warrant Agent shall promptly give notice of its succession as
Warrant Agent to the Company and to the registered holder of each Warrant
certificate.

         If at any time the name of the Warrant Agent is changed and at such
time any of the Warrant certificates have been countersigned but not delivered,
the Warrant Agent may adopt the countersignature under its prior name and
deliver Warrant certificates so countersigned; and if at that time any of the
Warrant certificates have not been countersigned, the Warrant Agent may
countersign such Warrant certificates either in its prior name or in its changed
name; and in all such cases the Warrants represented by such Warrant
certificates will have the full force provided in the Warrant certificates and
in this Agreement.

         Section 15. DUTIES OF WARRANT AGENT. The Warrant Agent hereby
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, all of which bind the Company and the holders of
Warrants by their acceptance thereof:

                  (a) The statements of fact and recitals contained herein and
in the Warrants shall be taken as statements of the Company, and the Warrant
Agent assumes no responsibility for the correctness of any of the same except
such as describe the Warrant Agent or action taken or to be taken by it. The
Warrant Agent assumes no responsibility with respect to the distribution of the
Warrants except as herein expressly provided.


                                       11

<PAGE>   12
                  (b) The Warrant Agent will not be responsible for any failure
of the Company to comply with any of the covenants contained in this Agreement
or in the Warrants to be complied with by the Company.

                  (c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant Agent
shall incur no liability or responsibility to the Company or to any holder of
any Warrant in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or the advice of such counsel.

                  (d) The Warrant Agent will incur no liability or
responsibility to the Company or to any holder of any Warrant for any action
taken in reliance on any notice, resolution, waiver, consent, order, certificate
or other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the proper party or parties.

                  (e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses, taxes (other
than income taxes) and governmental charges and other charges incurred by the
Warrant Agent in the execution of this Agreement and to indemnify the Warrant
Agent and save it harmless against any and all liabilities, including judgments,
costs and reasonable counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this Agreement, except as a result of the Warrant
Agent's negligence, willful misconduct or bad faith.

                  (f) The Warrant Agent will be under no obligation to institute
any action, suit or legal proceeding or to take any other action on behalf of
the Company or any registered holder, but this provision will not affect the
power of the Warrant Agent to take such action as the Warrant Agent may consider
proper. All rights of action under this Agreement or under any of the Warrants
may be enforced by the Warrant Agent without the possession of any of the
Warrants or the production thereof at any trial or other proceeding relative
thereto, and any such action, suit or proceeding instituted by the Warrant Agent
must be brought in its name as Warrant Agent, and any recovery of judgment must
be for the ratable benefit of all the registered holders of the Warrants, as
their respective rights or interests may appear.

                  (g) The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
Warrant Agent under this Agreement. Nothing herein precludes the Warrant Agent
from acting in any other capacity for the Company or for any other legal entity.

                  (h) The Warrant Agent will act hereunder solely as agent and
not in a ministerial capacity, and its duties will be determined solely by the
provisions hereof. The Warrant Agent shall not be liable for anything which it
may do or refrain from doing in connection with this Agreement, except for its
own negligence, willful misconduct or bad faith.


                                       12

<PAGE>   13
                  (i) Any request, direction, election, order or demand of the
Company will be sufficient if evidenced by an instrument signed in the name of
the Company by its President, a Vice President or chief financial officer
(unless other evidence in respect thereof is herein specifically prescribed);
and any resolution of the Board of Directors may be evidenced to the Warrant
Agent by a copy thereof certified by the Secretary or an Assistant Secretary of
the Company.

         Section 16. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and
be discharged from its duties under this Agreement by giving the Company at
least 30 days prior notice in writing, and by mailing notice in writing to the
registered holders at their addresses appearing on the Warrant Register, of such
resignation, specifying a date when such resignation shall take effect. The
Warrant Agent may be removed by like notice to the Warrant Agent from the
Company and by like mailing of notice to the registered holders of the Warrants.
If the Warrant Agent resigns or is removed or otherwise becomes incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company fails to make such appointment within 30 days after such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by the registered holder of a
Warrant (who shall, with such notice, submit his Warrant certificate for
inspection by the Company), then the registered holder of any Warrant may apply
to any court of competent jurisdiction for the appointment of a successor to the
Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or
by such a court, must be registered and otherwise authorized to serve as a
transfer agent pursuant to the Securities Exchange Act of 1934, as amended. If
at any time the Warrant Agent ceases to be eligible in accordance with the
provisions of this Section 16, it will resign immediately in the manner and with
the effect specified in this Section 16. After acceptance in writing of the
appointment, the successor Warrant Agent will be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as
Warrant Agent without further act or deed; but the former Warrant Agent will
deliver and transfer to the successor Warrant Agent any property at the time
held by it hereunder, and execute and deliver any further assurance, conveyance,
act or deed necessary for this purpose. Upon request of any successor Warrant
Agent, the Company will make, execute, acknowledge and deliver any and all
instruments in writing for more fully and effectually vesting in and confirming
to such successor Warrant Agent all such powers, rights, duties and
responsibilities. Failure to file or mail any notice provided in this Section
16, however, or any defect therein, will not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.

         Section 17. IDENTITY OF TRANSFER AGENT. Following the appointment of
any transfer agent for the Common Stock or of any subsequent transfer agent for
shares of the Common Stock or other shares of the Company's capital stock
issuable upon the exercise of the rights of purchase represented by the
Warrants, the Company will file with the Warrant Agent a statement setting forth
the name and address of such transfer agent.

         Section 18. NOTICES. All notices, requests and other communications
pursuant to this Agreement must be in writing and will be sufficiently given or
made when delivered or mailed by first class mail, postage prepaid, addressed as
follows:

                  (a) if to the Company, to (until another address is filed in
writing by the Company with the Warrant Agent):


                                       13

<PAGE>   14
                           Cragar Industries, Inc.
                           4636 N. 43rd Avenue
                           Phoenix, Arizona  85031
                           (602) 247-1300
                           Attention:  President

                  (b) if to the Warrant Agent, to (until another address is
filed in writing by the Warrant Agent with the Company):

                           American Stock Transfer & Trust Company
                           40 Wall Street
                           New York, New York 10005
                           (212) 936-5100
                           Attention:  Warrant Department

                  (c) if to the registered holder of a Warrant, to the address
of such holder as shown in the Warrant Register.

         Section 19. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrants in order to cure any ambiguity or to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provision herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and the
Warrant Agent may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants, or which shall not adversely
affect the interests of the holders of Warrants (including reducing the Warrant
Price or extending the redemption or expiration date). In any situation in which
this Agreement cannot be amended pursuant to the next sentence above, this
Agreement may be amended by the holder or holders of a majority of the
outstanding Warrants representing a majority of the Shares underlying such
Warrants; provided, however, that without the consent of each holder of a
Warrant, there can be no increase of the Warrant Price or reduction of the
exercise period for such holder's Warrants and provided, further, that no such
amendment may affect the rights or duties of the Warrant Agent without the
consent of the Warrant Agent.

         Section 20. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent or the
registered holders of the Warrants will bind and inure to the benefit of their
respective successors and assigns hereunder.

         Section 21. GOVERNING LAW. This Agreement will be deemed to be a
contract made under the laws of the State of Arizona and for all purposes will
be construed in accordance with the laws of said State.

         Section 22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement will
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrants any legal or equitable
right, remedy or claim under this Agreement. This


                                       14

<PAGE>   15
Agreement is for the sole and exclusive benefit of the Company, the Warrant
Agent and the registered holders of the Warrants.

         Section 23. COUNTERPARTS. This Agreement may be executed in
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and all such counterparts will together constitute but one and the
same instrument.

         Section 24. DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections of this Agreement are inserted for convenience only and do not
control or affect the meaning or construction of any of the provisions hereof.


                                       15

<PAGE>   16
         IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the day and year first above written.

                                                 CRAGAR INDUSTRIES, INC.



                                                 By: /s/ Michael R. Miller
                                                     -------------------------
                                                 Name: Michael R. Miller
                                                       -----------------------
                                                 Its:  COO/Secretary
                                                       -----------------------


                                                 AMERICAN STOCK TRANSFER &
                                                 TRUST COMPANY



                                                 By: /s/ H. J. Lemmer
                                                     -------------------------
                                                 Name: Herbert J. Lemmer
                                                       -----------------------
                                                 Its:  Vice President
                                                       -----------------------


                                       16

<PAGE>   17
Warrant No. ____

                                    EXHIBIT A

                WARRANT TO PURCHASE _____ SHARES OF COMMON STOCK

                              VOID AFTER 5:00 P.M.,
                   NEW YORK CITY TIME, ON DECEMBER ____, 2001

                             CRAGAR INDUSTRIES, INC.


         This certifies that, for value received ______________, the registered
holder hereof or assigns (the "Holder"), is entitled to purchase from CRAGAR
INDUSTRIES, INC., a Delaware corporation (the "Company"), at any time before
5:00 p.m., New York City time, on December ____, 2001, at the purchase price per
share of $6.60 (the "Warrant Price"), the number of shares of Common Stock, par
value $0.01 per share, of the Company set forth above (the "Shares") . The
number of shares of Common Stock purchasable upon exercise of the Warrant
evidenced hereby and the Warrant Price is subject to adjustment from time to
time as set forth in the Warrant Agreement referred to below.

         This Warrant may be redeemed, at the option of the Company, at $.10 per
share of Common Stock purchasable upon exercise hereof, at any time after the
average Daily Market Price (as defined in Section 11 of the Warrant Agreement)
per share of the Common Stock for a period of at least 20 consecutive trading
days ending not more than three days prior to the date of the notice given
pursuant to Section 11(b) thereof has equaled or exceeded $9.00, and prior to
expiration of this Warrant. The Holder's right to exercise this Warrant
terminates at 5:00 p.m. (New York City time) on the date fixed for redemption in
the notice of redemption delivered by the Company in accordance with the Warrant
Agreement.

         The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant certificate with the Purchase Form attached hereto
duly executed and guaranteed and simultaneous payment of the Warrant Price
(subject to adjustment) at the principal office in New York, New York, of
American Stock Transfer & Trust Company (the "Warrant Agent"). Payment of such
price may be made at the option of the Holder in cash or by certified check or
bank draft, all as provided in the Warrant Agreement.

         The Warrants evidenced hereby are part of a duly authorized issue of
Warrants and are issued under and in accordance with the Warrant Agreement dated
as of December ____, 1996, between the Company and the Warrant Agent (the
"Warrant Agreement") and are subject to the terms and provisions contained in
such Warrant Agreement, to all of which the Holder of this Warrant certificate
by acceptance hereof consents. A copy of the Warrant Agreement may be obtained
for inspection by the Holder hereof upon written request to the Warrant Agent.


<PAGE>   18
         Upon any partial exercise of the Warrants evidenced hereby, there will
be issued to the Holder a new Warrant certificate in respect of the Shares
evidenced hereby that have not been exercised. This Warrant certificate may be
exchanged at the office of the Warrant Agent by surrender of this Warrant
certificate properly endorsed either separately or in combination with one or
more other Warrants for one or more new Warrants to purchase the same aggregate
number of Shares as evidenced by the Warrant or Warrants exchanged. No
fractional Shares will be issued upon the exercise of rights to purchase
hereunder, but the Company will pay the cash value of any fraction upon the
exercise of one or more Warrants.

         The number of shares of Common Stock issuable upon exercise of this
Warrant are subject to adjustment as provided in Section 9 of the Warrant
Agreement.

         The Holder hereof may be treated by the Company, the Warrant Agent and
all other persons dealing with this Warrant certificate as the absolute owner
hereof for all purposes and as the person entitled to exercise the rights
represented hereby, any notice to the contrary notwithstanding, and until any
transfer is entered on such books, the Company may treat the Holder hereof as
the owner for all purposes.


Dated: __________                                CRAGAR INDUSTRIES, INC.



                                                 By: _______________
                                                     President

ATTEST:



_____________________
Secretary


                                        2

<PAGE>   19
                             CRAGAR INDUSTRIES, INC.
                                  PURCHASE FORM

                                Mailing Address:
                             CRAGAR INDUSTRIES, INC.
                               4636 N. 43rd Avenue
                             Phoenix, Arizona 85031

         The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder, __________ Shares of Common Stock provided for therein, and requests
that certificates for such Shares be issued in the name of:
_______________________________________________________________________________
_______________________________________________________________________________
(Please Print or Type Name, Address and Social Security Number)

and, if said number of Shares shall not be all the Shares purchasable hereunder,
that a new Warrant certificate for the balance of the Shares purchasable under
the within Warrant certificate be registered in the name of the undersigned
Holder or his or her Assignee as below indicated and delivered to the address
stated below.

                                            Dated: ______________________
Name of Holder or Assignee:

______________________________________________________________________________
(Please Print)

Address: _____________________________________________________________________
______________________________________________________________________________

Signature:

_______________________________________
NOTE: The above signature must correspond with the name as it appears upon the
face of the within Warrant certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been assigned.

Signature Guaranteed:


_______________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (Banks, Stock Brokers, Savings and Loan Association, and Credit
Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM
PURSUANT TO S.E.C. RULE 17Ad-15.


<PAGE>   20


                                   ASSIGNMENT

                 (To be signed only upon assignment of Warrants)

  FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

  ___________________________________________________________________________
          (Name and Address of Assignee Must Be Printed or Typewritten)

  ___________________________________________________________________________


the within Warrants, hereby irrevocably constituting and appointing __________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises.

Dated: _____________

                         ______________________________________________
                         Signature of Registered Holder

                           Note:    The signature on this assignment must
                                    correspond with the name as it appears upon
                                    the face of the within Warrant certificate
                                    in every particular, without alteration or
                                    enlargement or any change whatever.

Signature Guaranteed:


________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (Banks, Stock Brokers, Savings and Loan Association, and Credit
Unions) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM
PURSUANT TO S.E.C. RULE 17Ad-15.