<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
CUSTOM CHROME, INC.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[INSERT LOGO OF CUSTOM CHROME]
CUSTOM CHROME, INC.
16100 JACQUELINE COURT
MORGAN HILL, CA 95037
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Annual Meeting") of Custom Chrome, Inc. ("Custom Chrome" or the "Company")
which will be held on Wednesday, September 18, 1996, at 10:00 a.m., local
time, at the Company's principal executive offices in Morgan Hill, California.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) the election of five directors of the Company, (ii)
the approval of the adoption of the Company's 1996 Employee Stock Purchase
Plan and the reservation of 150,000 shares of Common Stock for issuance
thereunder, and (iii) the ratification of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ended January 31, 1997.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has approved
the proposals and recommends that you vote IN FAVOR OF each such proposal.
After reading the Proxy Statement, please mark, date, sign and return, as
soon as possible the enclosed proxy card in the accompanying reply envelope.
If you decide to attend the Annual Meeting, please notify the Secretary of the
Company that you wish to vote in person and your proxy will not be voted. YOUR
SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE AND RETURN THE ENCLOSED PROXY, OR
ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Custom Chrome, Inc. 1996 Annual Report is also enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely yours,
Ignatius J. Panzica
Chairman of the Board of Directors,
Chief Executive Officer and
President
Morgan Hill, California
August 22, 1996
IMPORTANT
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT YOUR EARLIEST
CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN ENVELOPE SO THAT IF YOU
ARE UNABLE TO ATTEND THE ANNUAL MEETING, YOUR SHARES MAY BE VOTED.
<PAGE>
CUSTOM CHROME, INC.
----------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 18, 1996
----------------------------------------------
The Annual Meeting of Stockholders (the "Annual Meeting") of Custom Chrome,
Inc. ("Custom Chrome" or the "Company") will be held at the Company's
principal executive offices at 16100 Jacqueline Court, Morgan Hill, California
95037, on Wednesday, September 18, 1996, at 10:00 a.m., for the following
purposes:
1. To elect five (5) directors to hold office until the next Annual Meeting
of Stockholders and until their respective successors are duly elected
and qualified. The nominees are Ignatius J. Panzica, James J. Kelly,
Jr., Lionel M. Allan, Joseph F. Keenan, and Joseph Piazza.
2. To approve the adoption of the Company's 1996 Employee Stock Purchase
Plan and the reservation of 150,000 shares of Common Stock for issuance
thereunder.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ending January 31, 1997.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The record date for determining those stockholders entitled to notice of,
and to vote at, the Annual Meeting and any adjournment thereof is August 15,
1996. A complete list of the stockholders entitled to vote at the Annual
Meeting will be available for inspection at the offices of the Company for at
least ten days prior to the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read
the accompanying Proxy Statement which describes the matters to be voted upon
at the Annual Meeting and sign, date and return the enclosed proxy card in the
reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to assure that all your shares will be voted. If you attend the
Annual Meeting and vote by ballot, your proxy vote will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the Annual
Meeting.
By Order of the Board of Directors,
James J. Kelly, Jr.
Executive Vice President, Finance,
Chief
Financial Officer and Secretary
Morgan Hill, California
August 22, 1996
<PAGE>
CUSTOM CHROME, INC.
----------------
PROXY STATEMENT
----------------
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Custom Chrome, Inc., a Delaware
corporation, with principal executive offices at 16100 Jacqueline Court,
Morgan Hill, California 95037 ("Custom Chrome" or the "Company"), to be voted
upon at the Annual Meeting of Stockholders on Wednesday, September 18, 1996
(the "Annual Meeting") and at any adjournment or adjournments thereof.
These proxy materials were first mailed to stockholders on or about August
22, 1996.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice of Annual Meeting of Stockholders.
Each proposal is described in more detail in this Proxy Statement.
REVOCABILITY OF PROXIES
Any stockholder giving a proxy pursuant to this solicitation may revoke it
at any time prior to exercise of such proxy by providing written notice of
such revocation to the Secretary of the Company at its offices at 16100
Jacqueline Court, Morgan Hill, California 95037, or by providing a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
Stockholders of record at the close of business on August 15, 1996 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, the Company had approximately 5,261,453 shares of
Common Stock outstanding and entitled to vote and approximately 216
stockholders of record. Each holder of Common Stock is entitled to one vote
for each share held as of the record date. All votes will be tabulated by the
inspector of election appointed for the meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes. Abstentions
will be counted towards the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes, whereas
broker non-votes will not be counted for purposes of determining whether a
proposal has been approved or not.
The cost of soliciting these proxies, consisting of the printing, handling
and mailing of the proxy card and related material, and the actual expense
incurred by brokerage houses, custodians, nominees and fiduciaries in
forwarding proxy material to the beneficial owners of stock, will be paid by
the Company. In order to assure a majority vote will be present in person or
by proxy at the Annual Meeting, it may be necessary for certain officers,
directors, regular employees and other representatives of the Company to
solicit proxies by telephone, facsimile, telegraph or in person. These persons
will receive no extra compensation for their services. The Company also
reserves the right to have an outside solicitor conduct the solicitation of
proxies and to pay such solicitor for its services.
The Annual Report of the Company for the fiscal year ended January 31, 1996
has been mailed to all stockholders entitled to notice of and to vote at the
Annual Meeting. The Annual Report is not incorporated into this Proxy
Statement and is not considered proxy soliciting material.
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Annual Meeting, five (5) directors will be elected by the
stockholders to serve until the next Annual Meeting and until their successors
are elected and qualified, or until their death, resignation or removal. THE
BOARD OF DIRECTORS WILL VOTE ALL PROXIES RECEIVED BY THEM IN FAVOR OF THE FIVE
(5) NOMINEES LISTED BELOW UNLESS OTHERWISE INSTRUCTED IN WRITING ON SUCH
PROXY. In the event any nominee is unable to or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for an
additional nominee who will be designated by the current Board of Directors to
fill the vacancy. As of the date of this Proxy Statement, the Board of
Directors is not aware of any nominee who is unable or will decline to serve
as director.
The five nominees receiving the highest number of votes in person or by
proxy at the Annual Meeting will be elected as directors.
INFORMATION WITH RESPECT TO NOMINEES
Set forth below is information regarding the nominees, including information
furnished by them as to their principal occupation at present and for the last
five years, certain other directorships held by them, the year in which each
became a director of the Company and their ages as of July 31, 1996:
<TABLE>
<CAPTION>
NOMINEES POSITION(S) WITH THE COMPANY AGE
-------- ---------------------------- ---
<C> <S> <C>
Ignatius J. Panzica Chairman of the Board of Directors; 53
Chief Executive Officer and President
James J. Kelly, Jr. Director; Executive Vice President, 45
Finance;
Chief Financial Officer; Secretary
Lionel M. Allan Director 52
Joseph F. Keenan Director 55
Joseph Piazza Director 61
</TABLE>
BUSINESS EXPERIENCE OF BOARD NOMINEES
IGNATIUS ("NACE") J. PANZICA is a co-founder of the Company and has been
President of the Company since February 1991, Chief Executive Officer since
September 1991 and Chairman of the Board since January 1994. Mr. Panzica
served as Vice President, Operations of the Company from 1975 to 1991 and has
been a member of the Board of Directors of the Company since 1975.
JAMES J. KELLY, JR. has served as Executive Vice President, Finance of the
Company since November 1995, Vice President, Finance and Chief Financial
Officer of the Company since March 1992, Secretary of the Company since June
1992 and as a Director of the Company since July 1993. Prior to joining the
Company in March 1992, Mr. Kelly served as Vice President, Finance and Chief
Financial Officer of Canadian Marconi Company, an electronics company, for
eight years. Mr. Kelly is a member of the American Institute of Certified
Public Accountants, the California Society of Certified Public Accountants and
the Financial Executives Institute.
LIONEL M. ALLAN has served as a director of the Company since June 1994. Mr.
Allan is President of Allan Advisors, Inc., a legal consulting firm that he
founded in April 1992. Previously, and for more than 20 years, Mr. Allan was
in private law practice with Hopkins & Carley. Mr. Allan is also a director
and past Chairman of the Board of KTEH Public Television Channel 54, in San
Jose, California, a director of Accom, Inc., a digital video systems company,
and a director of Catalyst Semiconductor, Inc., a semiconductor company.
JOSEPH F. KEENAN has served as a Director of the Company since July 1993.
Mr. Keenan served as President and Chief Executive Officer of Data East U.S.A.
Inc., a privately owned manufacturer of coin operated and home video
electronics games, from 1989 to 1992. Previously, he was principal of Wilkes
Bashford Ltd., a specialty retailer of clothing and accessories in Northern
California. Mr. Keenan has also held the positions of President and Chief
Executive Officer at Pizza Time Theater, Inc. and Atari, Inc.
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JOSEPH PIAZZA has served as a Director of the Company since April 1996. From
1989 until his retirement in October 1992, Mr. Piazza served as Executive Vice
President of Lacy Diversified Industries, a privately-owned holding company,
which owns Rocky Cycle Co., a motorcycle parts and accessory distribution
company. From 1975 to 1986, Mr. Piazza also served as President and Chief
Executive Officer of Rocky Cycle Co.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held a total of five (5) meetings during the year
ended January 31, 1996. The Company has an Audit Committee and a Compensation
Committee of the Board of Directors. Each incumbent director attended at least
75% of the aggregate number of meetings of the Board of Directors and of the
Committees on which such directors served and that were held during the period
that such individual was a member of the Board of Directors. There are no
family relationships among executive officers or directors of the Company.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent auditors and reviewing reports of the
Company's external auditors regarding the Company's accounting practices and
systems of internal accounting controls. This Committee currently consists of
Messrs. Allan and Keenan. The Audit Committee held two (2) meetings during the
year ended January 31, 1996.
The Compensation Committee reviews and approves the Company's general
compensation policies, establishes the compensation levels for the Company's
executive officers and is responsible for administration of the Company's
Stock Option Plans. This Committee currently consists of Messrs. Keenan and
Piazza. The Compensation Committee held four (4) meetings during the year
ended January 31, 1996.
REMUNERATION
The Company currently pays all non-employee Board members a fee of $5,000
for each full fiscal quarter that they serve as a Board member and also
reimburses such individuals for the expenses incurred in connection with their
attendance at Board and Committee meetings. In addition, the Company's 1995
Stock Option Plan includes an automatic option grant program under which each
individual who first becomes a non-employee Board member after September 30,
1994 will receive, at the time of his or her initial election or appointment
to the Board, an automatic option grant to purchase 2,500 shares of Common
Stock at an exercise price per share equal to 100% of the fair market value
per share on the grant date. In addition, at each Annual Stockholders Meeting,
each individual who is to continue to serve as a non-employee Board member
after the Meeting will receive an additional option grant to purchase 2,500
shares of Common Stock. The initial 2,500 share grant will become exercisable
for 25% of the option shares upon the optionee's completion of one year of
Board service measured from the grant date and will become exercisable for the
balance of the option shares in 36 equal and successive monthly installments
upon the optionee's completion of each additional month of Board service
thereafter. Each additional 2,500 share grant will vest upon the optionee's
completion of one year of Board service measured from the grant date. However,
each option will become immediately exercisable for all the option shares in
the event the Company is acquired by merger or asset sale or there should
occur a change in control of the Company, whether through a successful tender
offer for more than 50% of the outstanding Common Stock or a change in the
majority of the Board by one or more proxy contests. Each option will have a
maximum term of 10 years, subject to earlier termination upon the optionee's
cessation of Board service.
PROPOSAL NO. 2
APPROVAL OF ADOPTION OF 1996 EMPLOYEE STOCK PURCHASE PLAN
At the Annual Meeting, the Company's stockholders are being asked to approve
the adoption of the Company's 1996 Employee Stock Purchase Plan (the "Purchase
Plan"). The Purchase Plan provides for employee purchases of the Company's
Common Stock through accumulated payroll deductions, and is a continuation of
the Company's policy of equity ownership by employees as an incentive for
employees to exert maximum efforts for the success of the Company.
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GENERAL
The Purchase Plan was adopted by the Board of Directors in August 1996. A
total of 150,000 shares of Common Stock has been reserved for issuance under
the Purchase Plan. The Purchase Plan, and the right of participants to make
purchases thereunder, is intended to qualify under the provisions of Section
423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Purchase Plan is not a qualified deferred compensation plan under Section
401(a) of the Code, and is not subject to the provisions of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA").
PURPOSE
The purpose of the Purchase Plan is to provide employees of the Company (and
any of its subsidiaries designated by the Board of Directors) who participate
in the Purchase Plan with an opportunity to purchase Common Stock of the
Company through payroll deductions.
ADMINISTRATION
The Purchase Plan may be administered by the Board of Directors or a
committee appointed by the Board of Directors. All questions of interpretation
of the Purchase Plan are determined by the Board of Directors or its
committee, and its decisions are final and binding upon all participants. The
composition of the committee shall be in accordance with the requirements to
obtain or retain any available exemption from the operation of Section 16(b)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
pursuant to Rule 16b-3 promulgated thereunder (or any successor rule or
provision).
ELIGIBILITY
Any person who is customarily employed by the Company (or any of designated
subsidiaries) for at least 20 hours per week and more than five months in any
calendar year is eligible to participate in the Purchase Plan, provided that
the employee is employed on the first day of an Offering Period (as defined
below) and subject to certain limitations imposed by Section 423(b) of the
Code. See "Purchase of Stock; Exercise of Option."
OFFERING DATES
In general, the Purchase Plan will be implemented by a series of twelve
month offering periods ("Offering Periods") commencing on the fourth Tuesday
of March and September of each year (or at such other times as may be
determined by the Board of Directors), each of which shall consist of two (2)
consecutive purchase periods of six months' duration ("Purchase Periods") with
the last day of each Purchase Period being designated a "Purchase Date". A
Purchase Period commencing on the fourth Tuesday in March shall end on the
fourth Monday of the following September. A Purchase Period commencing on the
fourth Tuesday in September shall end on the fourth Monday of the following
March. The first Offering Period will commence on October 1, 1996 and end on
the fourth Monday of September 1997, of which the first Purchase Period will
end on the fourth Monday of March 1997 and the second Purchase Period will end
on the fourth Monday of September 1997. The Board of Directors has the power
to change the duration and/or frequency of the Offering Periods with respect
to future offerings without stockholder approval if such change is announced
at least fifteen (15) days prior to the scheduled beginning of the first
Offering Period to be affected.
PARTICIPATION IN THE PLAN
Eligible employees may participate in the Purchase Plan by completing a
subscription agreement on the form provided by the Company and filing it with
the Company prior to the first business day of the applicable Offering Period,
unless a later time for filing the subscription agreement is set by the Board
for all eligible employees with respect to a given offering. The subscription
agreement currently authorizes payroll deductions of up to fifteen percent
(15%) of the participant's eligible compensation on the date of the purchase.
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PURCHASE PRICE
The purchase price per share at which shares are sold under the Purchase
Plan is eighty-five percent (85%) of the lower of the fair market value of the
Common Stock on (a) the date of commencement of the Offering Period (the
"Offering Date") or (b) on the applicable Purchase Date. The fair market value
on a given date shall be determined by the Board in its discretion based on
the closing price of the Common Stock for such date (or, in the event that the
Common Stock is not traded on such date, on the immediately preceding trading
date), as reported by the National Association of Securities Dealers Automated
Quotation ("Nasdaq") National Market.
PAYMENT OF PURCHASE PRICE; PAYROLL DEDUCTIONS
The purchase price of the shares is accumulated by payroll deductions during
the applicable Offering Period. The deductions may be up to fifteen percent
(15%) of a participant's eligible compensation received on each payday during
the Offering Period. Eligible compensation is defined in the Purchase Plan to
include the regular straight time gross earnings including payments for
overtime, shift premium and commissions, and does not include payments for
incentive compensation, incentive payments, bonuses and other compensation. A
participant may discontinue his or her participation in the Purchase Plan at
any time during the Offering Period prior to a Purchase Date, and may decrease
the rate of his or her payroll deductions once during the Offering Period by
completing and filing a new subscription agreement. Payroll deductions shall
commence on the first payroll following the Offering Date and shall end on the
last payroll paid on or prior to the last Purchase Period of the Offering
Period to which the subscription agreement is applicable, unless sooner
terminated by the participant as provided below under "Withdrawal." No
interest accrues on the payroll deductions of a participant in the Purchase
Plan.
PURCHASE OF STOCK; EXERCISE OF OPTION
By executing a subscription agreement to participate in the Purchase Plan,
the participant is entitled to have shares placed under option. The maximum
number of shares placed under option to a participant in an Offering Period is
the number determined by dividing $12,500 by the fair market value of one
share of the Company's Common Stock on the Offering Date. Within this limit,
the number of shares purchased by a participant will be determined by dividing
the amount of the participant's total payroll deductions accumulated prior to
the Purchase Date by the lower of (i) 85% of the fair market value of the
Common Stock on the Offering Date, or (ii) 85% of the fair market value of the
Common Stock on the Purchase Date. See "Payment of Purchase Price; Payroll
Deductions" for additional limitations on payroll deductions. Unless the
participant's participation is discontinued, each participant's option for the
purchase of shares will be exercised automatically on each Purchase Date of an
Exercise Period at the applicable price. See "Withdrawal." Notwithstanding the
foregoing, no participant shall be permitted to subscribe for shares under the
Purchase Plan if immediately after the grant of the option he or she would own
five percent (5%) or more of the combined voting power or value of all classes
of stock of the Company or of a parent or of any of its subsidiaries
(including stock which may be purchased under the Purchase Plan or pursuant to
any other options), nor shall any participant be granted an option which would
permit the participant to buy pursuant to the Purchase Plan more than $25,000
of fair market value of stock (determined at the fair market value of the
shares at the time the option is granted) in any calendar year. Furthermore,
if the number of shares which would otherwise be placed under option at the
beginning of an Offering Period exceeds the number of shares then available
under the Purchase Plan, a pro rata allocation of the available shares shall
be made in as uniform a manner as is practicable and as is determined to be
equitable.
WITHDRAWAL
Although each participant in the Purchase Plan is required to sign a
subscription agreement authorizing payroll deductions, the participant's
interest may be decreased once during any Offering Period by completing and
filing a new subscription agreement with the Company. In addition, a
participant's interest may be terminated in whole, but not in part, by giving
written notice to the Company. Such withdrawal may be elected at any time
prior to the end of the applicable six-month period prior to a Purchase Date
under the Purchase Plan.
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Any withdrawal by the participant of accumulated payroll deductions for a
given Offering Period automatically terminates the participant's interest in
that Offering Period. In effect, the participant is given an installment
option, for a maximum number of shares, which may or may not be exercised at
the end of each six-month Purchase Period. However, unless the participant
actively withdraws from the Offering Period, the option will be exercised
automatically at the end of each Purchase Period, and the maximum number of
full shares purchasable (within the limits of the Purchase Plan) with the
participant's accumulated payroll deductions will be purchased for that
participant at the applicable price.
A participant's withdrawal from an Offering Period does not have an effect
upon such participant's eligibility to participate in subsequent Offering
Periods under the Purchase Plan.
AUTOMATIC WITHDRAWAL
If the fair market value of the shares on the first Purchase Date of an
Offering Period is less than the fair market value of the shares on the
Offering Date for such Offering Period, then every participant shall
automatically (i) be withdrawn from such Offering Period at the close of such
Purchase Date and after the acquisition of shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business
day subsequent to such Purchase Period.
TERMINATION OF EMPLOYMENT
Upon termination of the participant's continuous status as an employee prior
to the Exercise Date of an Offering Period for any reason, including
retirement or death, the contributions credited to his or her account (and not
previously used for the exercise of options pursuant to the Purchase Plan)
will be returned to him or her, without interest, or, in the case of his or
her death, to the person or persons entitled thereto, and his or her option
will be automatically terminated.
In the event an employee fails to remain in continuous status as an employee
of the Company for at least twenty (20) hours per week during the Offering
Period in which the employee is a participant, he or she will be deemed to
have elected to withdraw from the Purchase Plan and the contributions credited
to his or her account will be returned to him or her, without interest, and
his or her option terminated.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS
In the event any change, such as a stock split or stock dividend, is made in
the Company's capitalization which results in an increase or decrease in the
number of outstanding shares of Common Stock without receipt of consideration
by the Company, appropriate adjustments will be made in the number of shares
subject to purchase and in the purchase price per share covered by each option
not yet exercised, and in the number of shares of Common Stock that have been
authorized for issuance under the Purchase Plan but have not yet been placed
under option. In the event of the proposed dissolution or liquidation of the
Company, each option will terminate immediately prior to the consummation of
such proposed action unless otherwise provided by the Board of Directors.
In the event of a proposed sale of all or substantially all of the assets of
the Company, or the merger of the Company with or into another corporation,
each option under the Purchase Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary
of such successor corporation, unless the Board of Directors determines, in
the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Purchase Date (the "New Purchase Date"). If the Board shortens the Offering
Period then in progress in lieu of assumption or substitution in the event of
a merger or sale of assets, the Board shall notify each participant in
writing, at least ten (10) days prior to the New Purchase Date, that the
Purchase Date for his or her option has been changed to the New Purchase Date
and that his or her option will be exercised automatically on the New Purchase
Date, unless prior to such date he or she has withdrawn from the Offering
Period. An option granted under the Purchase
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Plan shall be deemed to be assumed if, following the sale of assets or merger,
the option confers the right to purchase, for each share of option stock
subject to the option immediately prior to the sale of assets or merger, the
consideration (whether stock, cash or other securities or property) received
in the sale of assets or merger by holders of Common Stock for each share of
Common Stock held on the effective date of the transaction (and if such
holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares of Common
Stock); provided, however, that if such consideration received in the sale of
assets or merger was not solely common stock of the successor corporation or
its parent (as defined in Section 424(e) of the Code), the Board of Directors
may, with the consent of the successor corporation and the participant,
provide for the consideration to be received upon exercise of the option to be
solely common stock of the successor corporation or its parent equal in fair
market value to the per share consideration received by holders of Common
Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the number of shares of Common Stock subject
to purchase and in the purchase price per share covered by each option not yet
exercised, and in the number of shares of Common Stock that have been
authorized for issuance under the Purchase Plan but have not yet been placed
under option, in the event that the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock, and in the event of the
Company being consolidated with or merged into any other corporation.
NONTRANSFERABILITY
No rights or accumulated payroll deductions of a participant under the
Purchase Plan may be pledged, assigned or transferred for any reason and any
such attempt may be treated by the Company as an election to withdraw from the
Purchase Plan.
REPORTS
Individual accounts will be maintained for each participant in the Purchase
Plan. Promptly following each Purchase Date, each participant shall receive a
report of such participant's account setting forth the total amount of payroll
deductions accumulated, the per share purchase price and the number of shares
purchased and the remaining cash balance, if any.
TERM OF PLAN
The Purchase Plan will become effective upon its approval by the
stockholders of the Company. It shall continue in effect for a term of twenty
(20) years unless sooner terminated.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may at any time amend or terminate the Purchase Plan.
Except as provided under "Adjustments Upon Change in Capitalization; Corporate
Transactions," such termination shall not affect options previously granted
nor may any amendment make any change in any option granted prior thereto
which adversely affects the rights of any participant. Except as provided
under "Adjustments Upon Change in Capitalization; Corporate Transactions," no
amendment may be made to the Purchase Plan without prior approval of the
stockholders of the Company if such amendment would increase the number of
shares reserved under the Purchase Plan, permit a new class of employees to
participate in the Purchase Plan or make any other change to the Purchase Plan
for which stockholder approval is required to comply with Section 16 of the
Exchange Act, Rule 16b-3 promulgated thereto or under Section 423 of the Code
(or any successor provisions thereto).
FEDERAL INCOME TAX ASPECTS OF THE PURCHASE PLAN
THE FOLLOWING IS A GENERAL SUMMARY OF THE EFFECT OF U.S. FEDERAL INCOME
TAXATION UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE PURCHASE
7
<PAGE>
AND SALE OF SHARES UNDER THE PURCHASE PLAN. THE SUMMARY DOES NOT PURPORT TO BE
COMPLETE. MOREOVER, THE SUMMARY IS BASED UPON EXISTING STATUES, REGULATIONS
AND INTERPRETATIONS AS OF THE DATE HEREOF. BECAUSE THE CURRENTLY APPLICABLE
RULES ARE COMPLEX, THE TAX LAWS MAY CHANGE AND THE INCOME TAX CONSEQUENCES MAY
VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH PARTICIPANT. THE
FOREGOING DOES NOT DISCUSS THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR
NON-U.S. TAXING JURISDICTION OR GIFT, ESTATE OR OTHER LAWS OTHER THAN U.S.
FEDERAL INCOME TAX LAW. THE COMPANY ADVISES EACH PARTICIPANT TO CONSULT HIS OR
HER OWN TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF PARTICIPATION IN THE
PURCHASE PLAN.
General Tax Information. The Purchase Plan, and the right of participants to
make purchases thereunder, is intended to qualify for the federal income tax
treatment provided to employee stock purchase plans and their participants
under the provisions of Sections 421 and 423 of the Code. Under these
provisions, no income will be taxable to a participant until the shares
purchased under the Purchase Plan are sold or otherwise disposed of. Upon sale
or other disposition of the shares, the participant will generally be subject
to tax in an amount which depends upon the holding period of the shares. If
the shares are sold or otherwise disposed of (including by gift) more than two
years from the first day of the offering period and one year from the date the
shares are purchased, the participant will recognize ordinary income measured
as the lesser of (a) the excess of the fair market value of the shares at the
time of such sale or disposition over the purchase price, or (b) an amount
equal to fifteen percent (15%) of the fair market value of the shares as of
the first day of the offering period. Any additional gain will be treated as
long-term capital gain. If the shares are sold or otherwise disposed of
(including by gift) before the expiration of either of these holding periods,
the participant will recognize ordinary income generally measured as the
excess of the fair market value of the shares on the date the shares are
purchased over the purchase price. Any additional gain or loss on such sale or
disposition will be long-term or short-term capital gain or loss, depending on
whether or not the disposition occurs more than one year after the date the
shares are purchased. The Company is not entitled to a deduction for amounts
taxed as ordinary income or capital gain to a participant except to the extent
of ordinary income recognized by a participant upon a sale or disposition of
shares prior to the expiration of the holding periods described above. Capital
losses are allowed in full against capital gains plus $3,000 of other income.
The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of
the shares.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the Common Stock
present or represented by proxy at the Annual Meeting is required to approve
the adoption of the Purchase Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN
FAVOR OF THE ADOPTION OF THE PURCHASE PLAN.
PROPOSAL NO. 3
RATIFICATION OF SELECTION OF
INDEPENDENT AUDITORS
The firm of KPMG Peat Marwick LLP served as independent auditors for the
Company for the year ended January 31, 1996. The Board of Directors has
selected that firm to continue in this capacity for the current fiscal year.
The Company is asking the stockholders to ratify the selection by the Board of
Directors of KPMG Peat Marwick LLP, as independent auditors, to audit the
accounts and records of the Company for the year ending January 31, 1997, and
to perform other appropriate services. A representative of KPMG Peat Marwick
LLP is expected to be present at the Annual Meeting to respond to
stockholders' questions, and if he or she so desires, will be given an
opportunity to make a brief statement.
8
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE RATIFICATION OF THE
SELECTION OF KPMG PEAT MARWICK LLP. In the event that a majority of the shares
voted at the Annual Meeting do not vote for the ratification, the Board of
Directors will reconsider such selection. Under all circumstances, the Board
of Directors retains the corporate authority to change its independent
auditors at a later date.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is information regarding the executive officers of the
Company, and their respective ages and positions as of July 31, 1996:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY AGE
- ---- ---------------------------- ---
<S> <C> <C>
Ignatius J. Panzica....... Chairman of the Board of Directors, President and 53
Chief Executive Officer
James J. Kelly, Jr........ Director; Executive Vice President, Finance; 45
Chief Financial Officer; Secretary
R. Steven Fisk............ Senior Vice President, Purchasing, Product 45
Development and Operations
Daniel J. Stern........... Senior Vice President, Sales and Marketing 37
Dennis B. Navarra......... Vice President, Administration and Assistant 43
Secretary
</TABLE>
Business Experience of Executive Officer
IGNATIUS ("NACE") J. PANZICA is a co-founder of the Company and has been
President of the Company since February 1991, Chief Executive Officer since
September 1991, and Chairman of the Board since January 1994. Mr. Panzica
served as Vice President, Operations of the Company from 1975 to 1991 and has
been a member of the Board of Directors of the Company since 1975.
JAMES J. KELLY, JR. has served as Executive Vice President, Finance of the
Company since November 1995, Chief Financial Officer of the Company since
March 1992 (during which time he was also Vice President, Finance), Secretary
of the Company since June 1992, and as a Director of the Company since July
1993. Prior to joining the Company in March 1992, Mr. Kelly served as Vice
President, Finance and Chief Financial Officer of Canadian Marconi Company, an
electronics company, for eight years. Mr. Kelly is a member of the American
Institute of Certified Public Accountants, the California Society of Certified
Public Accountants and the Financial Executives Institute.
R. STEVEN FISK has served as Senior Vice President, Purchasing, Product
Development and Operations since November 1995. Mr. Fisk joined the Company as
Director of Purchasing in January 1986. In 1988, Mr. Fisk received additional
responsibilities in the area of product development. Prior to joining the
Company, Mr. Fisk spent 10 years in Taiwan managing the operations of a
motorcycle parts trading company.
DANIEL J. STERN has served as Senior Vice President, Sales and Marketing
since November 1995. Mr. Stern joined the Company in 1988, as a senior buyer
in the Domestic Purchasing Department. Mr. Stern became Director of Sales and
Marketing of the Company in February 1991. For three years prior to joining
the Company, Mr. Stern was General Manager of K&L Supply, a motorcycle parts
and accessories company.
DENNIS B. NAVARRA has served as Vice President, Administration since
November 1995. Before that, he served as Director of Administration since June
1991. Before that, he served in various senior management positions since
joining the Company in May 1984. Mr. Navarra has also served as Assistant
Secretary since August 1989. Prior to joining the Company, Mr. Navarra was a
senior auditor with KPMG Peat Marwick, LLP.
9
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors has general
responsibility for establishing the compensation payable to the Company's
executive officers and other key executives and has the sole and exclusive
authority to administer the Company's 1991 and 1995 Stock Option Plans under
which grants may be made to such individuals. However, the compensation
payable to the Company's Chief Executive Officer (Mr. Panzica) and the
Company's Chief Financial Officer (Mr. Kelly) was initially established by
direct negotiation between such individuals and the Board of Directors. Those
agreements provide each individual with the right to receive a minimum level
of cash compensation each year, subject to such increases and additional
compensation, whether in the form of cash bonuses or equity incentives, as the
Compensation Committee may deem appropriate. Accordingly, for the year ended
January 31, 1996, the cash compensation paid to Mr. Panzica and Mr. Kelly was
based primarily upon the terms and provisions of their existing employment
agreements, and the additional compensation paid to them for the year ended
January 31, 1996 was determined by the Compensation Committee on the basis of
the factors summarized in this report.
This report is divided into three parts. Part One is a brief description of
the employment agreements in effect for the year ended January 31, 1996 for
Mr. Panzica and Mr. Kelly. Part Two is a discussion of the general
compensation policy which the Compensation Committee has established for the
Company's other officers and key executives and which the Committee took into
account in awarding additional compensation in the form of cash bonuses and
stock option grants to Mr. Panzica and Mr. Kelly. Part Three is a discussion
of the factors which governed the compensation payable to Mr. Panzica as Chief
Executive Officer for the year ended January 31, 1996.
PART ONE--EXISTING EMPLOYMENT AGREEMENTS.
Pursuant to the terms of his employment agreement with the Company, Mr.
Panzica is entitled to a minimum annual base salary, which after periodic
increases authorized by the Compensation Committee is $300,000. Mr. Panzica is
also entitled to a performance bonus for each fiscal year based upon the
Company's operating income for that year. This bonus is tied to an escalating
percentage of operating income, ranging from 3% of the first $5,400,000 of
operating income to 5% of all operating income over $8,000,000. No further
bonuses will become payable to Mr. Panzica under this arrangement once the sum
of (i) his salary in excess of $125,000 per year, beginning with the 1992
fiscal year, and in excess of $300,000 per year, beginning with the 1995
fiscal year, and (ii) the bonuses paid on the basis of the operating income
formula reaches $6,093,000. For a more detailed description of this agreement
and the bonus arrangement, see the section of this Proxy Statement below
entitled "Employment Contracts and Change of Control Arrangements."
The Board of Directors entered into an employment agreement with Mr. Kelly
in March 1992, when he first joined the Company as Chief Financial Officer.
Pursuant to that agreement, Mr. Kelly is entitled to a minimum base salary of
$10,317 per month, subject to periodic increases as determined by the
Compensation Committee, plus a bonus of up to 20% of his base salary awarded
in the sole discretion of the Compensation Committee.
PART TWO--GENERAL COMPENSATION POLICY.
Under the supervision of the Compensation Committee, the Company's
compensation policy is designed to attract and retain qualified key executives
critical to the Company's growth and long-term success. It is the objective of
the Compensation Committee to have a portion of each executive's compensation
contingent upon the Company's performance as well as upon the individual's
personal performance. Accordingly, each executive officer's compensation
package is comprised of three elements: (i) base salary which reflects
individual performance and expertise, (ii) variable performance awards payable
in cash and tied to the achievement of certain performance goals which the
Compensation Committee establishes from time to time for the Company
10
<PAGE>
and (iii) long-term stock-based incentive awards which are designed to
strengthen the mutuality of interests between the executive officers and the
Company's stockholders. As indicated above, however, a substantial portion of
the cash compensation paid to Messrs. Panzica and Kelly for the year ended
January 31, 1996 was established pursuant to their existing employment
agreements.
The summary below describes in more detail the factors which the
Compensation Committee considers in establishing each of the three primary
components of the compensation package provided the executive officers.
Base Salary
The level of base salary is established primarily on the basis of the
individual's qualifications and relevant experience, the strategic goals for
which he has responsibility, the compensation levels at companies which
compete with the Company for business and executive talent, and the incentives
necessary to attract and retain qualified management. Base salary is adjusted
in February or March of each year to take into account the individual's
performance and to maintain a competitive salary structure. Company
performance does not play a significant role in the determination of base
salary.
Incentive Compensation
Cash bonuses are awarded to executive officers on the basis of their success
in achieving designated personal goals and the Company's success in attaining
certain performance targets, such as earnings growth and stock price
appreciation. The chief corporate performance goals established for the year
ended January 31, 1996 were tied primarily to pre-tax profitability growth.
Long-Term Incentive Compensation
The Company has utilized the 1991 Stock Option Plan and the 1995 Stock
Option Plan to provide executives and other key employees with incentives to
maximize long-term stockholder values. Awards under these plans by the
Compensation Committee take the form of stock options designed to give the
recipient a significant equity stake in the Company and thereby closely align
his interests with those of the Company's stockholders. Factors considered in
making such awards include the individual's position in the Company, his
performance and responsibilities and internal comparability considerations. In
addition, the Compensation Committee has established certain general
guidelines in making option grants to the executive officers in an attempt to
target a fixed number of unvested option shares based upon each individual's
position with the Company and his existing holdings of unvested options.
However, the Compensation Committee does not adhere strictly to these
guidelines and will vary the size of the option grant made to each executive
officer as it feels the circumstances warrant.
Each option grant allows the officer to acquire shares of Common Stock at a
fixed price per share (the closing selling price on the date of grant) over a
specified period of time (up to 10 years). The options typically vest in
periodic installments over a four-year period, contingent upon the executive
officer's continued employment with the Company. Accordingly, the option will
provide a return to the executive officer only if he remains in the Company's
service, and then only if the market price of the Common Stock appreciates
over the option term.
Tax Limitation
As a result of federal tax legislation enacted in 1993, a publicly-held
company such as Custom Chrome will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any fiscal year beginning
after December 31, 1993. However, compensation payable to certain executive
officers under their existing employment agreements and outstanding options
may be entitled to the transitional relief provisions of the new law and would
not have to be taken into account for purposes of the $1 million limitation.
11
<PAGE>
PART THREE -- CEO COMPENSATION.
Mr. Panzica's rate of base salary for the year ended January 31, 1996 was
determined on the basis of the minimum level of base salary to which he is
entitled under his existing employment agreement. In January 1994, the
Compensation Committee authorized an additional increase to Mr. Panzica's base
salary to $300,000 in recognition of his personal performance and to maintain
his salary at a level competitive with that paid to the chief executive
officers of other companies with which the Company competes for executive
talent. Mr. Panzica also earned a bonus in the amount of $614,805 for the year
ended January 31, 1996 on the basis of the operating income formula in effect
under his employment agreement.
The Compensation Committee also granted Mr. Panzica a stock option for
100,000 shares in February 1995. Such option grant was made to replenish Mr.
Panzica's option holdings to a level which the Compensation Committee believed
appropriate in view of his tenure and position with the Company and the equity
holdings of similarly situated chief executive officers. Each option grant has
an exercise price equal to the fair market value of the underlying option
shares on the grant date and will accordingly have value to Mr. Panzica only
if the stock price of the Common Stock appreciates in value, thereby
benefiting all other stockholders of the Company as well.
Compensation Committee
Joseph F. Keenan
Joseph Piazza
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Mr. Keenan and (since April
1996) Joseph Piazza. Neither Mr. Keenan nor Mr. Piazza was at any time during
the year ended January 31, 1996 or at any other time an officer or employee of
the Company. Tyrone Cruze, Sr. also served on the Compensation Committee
during the year ended January 31, 1996 and until his resignation from the
Board in March 1996 and also served as President and Chief Executive Officer
from 1975 to January 1991.
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
12
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
returns for the Company, the NASDAQ Total Return Index and the Standard &
Poors Small Cap 600 Index for the period commencing November 6, 1991, the date
of the initial public offering of the Company's Common Stock, to the last day
of the Company's fiscal year ended January 31, 1996.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CUSTOM CHROME, INC., NASDAQ TOTAL
RETURN INDEX AND S&P 600 INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
11/6/91 1/31/92 1/31/93 1/31/94 1/31/95 1/31/96
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Custom Chrome, Inc........ $100 $ 90.00 $130.00 $241.25 $170.63 $250.63
NASDAQ Total Return In-
dex...................... $100 $114.35 $128.92 $148.78 $139.90 $229.03
Standard & Poors Small Cap
600 Index (1)............ $100 $111.41 $127.03 $148.90 $135.04 $175.58
</TABLE>
- --------
1 The Company has not found a comparable published industry or line of
business index and does not believe it can reasonably identify a peer
group. The comparison with the Standard & Poors Small Cap 600 Index, which
includes the Company, is provided in compliance with Item 8 of Regulation
14A of the Securities and Exchange Act of 1934, as amended.
13
<PAGE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Compensation
Committee Report on Executive Compensation and Performance Graph are not to be
incorporated by reference into any of those previous filings; nor is such
report or graph to be incorporated by reference into any future filings which
the Company may make under those statutes.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's only other executive officer whose
compensation for the year ended January 31, 1996 was at least $100,000 for
services rendered in all capacities to the Company for each of the last three
fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
NUMBER OF
YEAR SECURITIES
NAME AND ENDED UNDERLYING ALL OTHER
PRINCIPAL POSITION JANUARY 31, SALARY($)(1) BONUS($) OPTIONS(#) COMPENSATION
- ------------------ ----------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ignatius J. Panzica..... 1996 337,550 614,805 100,000 500(2)
Chairman of the Board, 1995 325,964 467,126 241,088 500(2)
President and Chief 1994 269,231 619,277 100,000 500(2)
Executive Officer
James J. Kelly, Jr., 1996 131,005 4,551(3) 32,250 500(2)
Director,..............
Executive Vice 1995 135,511 12,676(4) 30,000 500(2)
President,
Finance, Chief Financial 1994 121,608 20,000 27,500 500(2)
Officer, Secretary
</TABLE>
- --------
(1) Includes (i) salary deferral contributions made by the executive officer
to the Company's 401(k) Plan and (ii) compensation for accrued vacation
time not taken.
(2) Represents matching contributions made by the Company on behalf of such
executive officers to the Company's 401(k) Plan.
(3) Represents forgiveness of interest accrued during calendar year 1995 on a
loan made to Mr. Kelly to the Company in June 1994. See "Certain
Relationships and Related Transactions."
(4) Includes forgiveness of interest accrued of $2,676 during calendar year
1994 on a loan made to Mr. Kelly by the Company in June 1994 and a cash
bonus of $10,000, which was applied as payment toward the outstanding
principal balance on the loan. See "Certain Relationships and Related
Transactions."
14
<PAGE>
OPTION GRANTS
The following table provides information with respect to the stock option
grants made during the year ended January 31, 1996 to the Company's executive
officers named in the Summary Compensation Table above. No stock appreciation
rights were granted to these individuals during such fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL
RATE OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
-------------------------------------------- ----------------------
% OF TOTAL
OPTIONS EXERCISE
GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE(1) EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5 % ($)(2) 10 % ($)(2)
- ---- ---------- ------------ -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ignatius J. Panzica..... 100,000(3) 32.2% $18.63 02/08/05 1,173,690 2,962,170
James J. Kelly, Jr...... 32,250(4) 10.4% $18.63 02/08/05 378,515 955,300
</TABLE>
- --------
(1) The exercise price may be paid in cash, in shares of Common Stock valued
at fair market value on the exercise date or through a cashless exercise
procedure involving a same-day sale of the purchased shares. The Company
may also finance the option exercise by loaning the optionee sufficient
funds to pay the exercise price for the purchased shares and the federal
and state income tax liability incurred by the optionee in connection with
such exercise.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the 10-
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates
over the option term, no value will be realized from the option grants
made to the executive officers.
(3) Such option will become exercisable for 100% of the option shares upon the
optionee's completion of one year of service with the Company, measured
from the February 8, 1995 grant date. However, the option will become
immediately exercisable for all the option shares in the event the Company
is acquired by a merger or asset sale, unless the option is assumed or
replaced by the acquiring entity. The Compensation Committee also has the
authority to provide for the automatic acceleration of such option in the
event there is a hostile take-over of the Company, whether by successful
tender offer for more than 50% of the Company's outstanding voting
securities or contested election of Board membership. The option has a
maximum term of 10 years, subject to earlier termination in the event of
the optionee's cessation of employment with the Company.
(4) Such option will become exercisable for 25% of the option shares upon the
optionee's completion of one year of service with the Company, measured
from the February 8, 1995 grant date, and will become exercisable for the
balance of the shares in 36 equal and successive monthly installments upon
the optionee's completion of each additional month of service thereafter.
However, the option will become immediately exercisable for all the option
shares in the event the Company is acquired by a merger or asset sale,
unless the option is assumed or replaced by the acquiring entity. The
Compensation Committee also has the authority to provide for the automatic
acceleration of such option in the event there is a hostile take-over of
the Company, whether by successful tender offer for more than 50% of the
Company's outstanding voting securities or contested election of Board
membership. The option has a maximum term of 10 years, subject to earlier
termination in the event of the optionee's cessation of employment with
the Company.
15
<PAGE>
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options
during the fiscal year ended January 31, 1996 and unexercised options held as
of the end of such year by the Company's executive officers named in the
Summary Compensation Table. No stock appreciation rights were exercised during
such fiscal year or outstanding as of the end of that fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER VALUE OF
OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES AGGREGATE OPTIONS AT OPTIONS AT
ACQUIRED ON VALUE REALIZED FY-END (#) FY-END(2)
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ignatius J. Panzica..... 29,167 $298,556 206,713/205,208 $1,197,224/$1,442,165
James J. Kelly, Jr...... 27,082 $302,088 12,397/62,771 $ 70,310/$497,151
</TABLE>
- --------
(1) Value Realized is equal to the market price of the purchased shares at the
time the option is exercised, less the aggregate exercise price paid for
such shares. Value Realized does not take into account the federal and
state income taxes payable by the individual in connection with the option
exercise or the subsequent sale of the shares.
(2) Market price at fiscal year end ($25.06) less exercise price. For purposes
of this calculation, the fiscal year end market price of the shares is
deemed to be the closing sale price of the Company's Common Stock as
reported on the Nasdaq National Market on Wednesday, January 31, 1996.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
IGNATIUS J. PANZICA entered into an employment agreement with the Company in
August 1989 in connection with the acquisition of the Company by Custom Chrome
Holdings, Inc. This agreement was subsequently amended in September 1991 in
connection with the initial public offering of the Common Stock and provides
for an employment relationship terminable at will by either party at any time
for any reason. Pursuant to this agreement, Mr. Panzica is entitled to a
minimum level of annual base salary, which as a result of periodic increases
authorized by the Compensation Committee is at $300,000, effective February 1,
1994. In addition, Mr. Panzica is to be paid an annual bonus based upon the
Company's operating income for each fiscal year. Under the bonus formula, Mr.
Panzica will earn an aggregate bonus each year equal to 3% of operating income
up to $5,400,000, 4% of operating income between $5,400,000 and $8,000,000 and
5% of operating income in excess of $8,000,000. Operating income is defined as
the consolidated net income of the Company and its subsidiaries, as reflected
in the Company's audited financial statements, but adjusted to exclude
extraordinary gains or losses and to add back nonrecurring charges, interest
on long-term debt, income taxes and amortization and depreciation associated
with the 1989 acquisition. The bonus will be payable in a lump sum following
the close of the fiscal year for which earned. When the cumulative gross
amounts paid to Mr. Panzica after February 1, 1991 on account of salary in
excess of $125,000 per year for fiscal years through January 31, 1994 and
$300,000 per year for fiscal years beginning January 31, 1994 and bonus exceed
$6,093,000, no further bonuses under this agreement will be payable.
JAMES J. KELLY, JR. entered into an employment agreement with the Company in
March 1992, when he first joined the Company as Chief Financial Officer.
Pursuant to that agreement, Mr. Kelly is entitled to a minimum level of annual
base salary, which as a result of periodic increases authorized by the
Compensation Committee is at $125,000 effective March 1, 1994, plus a bonus of
up to 20% of his base salary awarded in the sole discretion of the
Compensation Committee.
16
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
The members of the Board of Directors, the executive officers of the Company
and persons who hold more than ten percent (10%) of the Company's outstanding
Common Stock are subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, which requires such individuals to file
reports with respect to their ownership of and transactions in the Company's
securities. Officers, directors and greater than ten percent (10%)
stockholders are required to furnish the Company with copies of all such
reports they file.
Based upon the copies of those reports furnished to the Company and written
representations that no other reports were required to be filed, the Company
believes that all reporting requirements under Section 16(a) for the year
ended January 31, 1996 were met in a timely manner by executive officers,
Board members and greater than ten percent (10%) stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 11, 1994, the Company loaned James J. Kelly, Jr., the Executive Vice
President, Finance, Chief Financial Officer, Secretary, and a Director of the
Company, $100,000, at an annual interest rate of 5.63%, compounded annually.
The loan was made for the sole purpose of assisting Mr. Kelly with the
purchase of Mr. Kelly's principal residence in Morgan Hill, California, and
the loan is secured by a Second Deed of Trust on such residence. The entire
principal balance of the loan, together with all accrued and unpaid interest,
was due and payable on July 11, 2001. The Company agreed to forgive the
interest accrued on the unpaid total balance on the loan as a yearly bonus at
the end of each calendar year while the loan remained outstanding; in turn,
75% of the cash portion of any annual bonus received by Mr. Kelly was to be
applied as payment toward the outstanding principal balance on the loan.
During the year ended January 31, 1996, the largest amount outstanding under
Mr. Kelly's loan was $100,000, and on April 15, 1996, Mr. Kelly repaid the
entire remaining amount outstanding under the loan.
17
<PAGE>
OWNERSHIP OF SECURITIES
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of July
31, 1996 by (i) all persons who are beneficial owners of five percent or more
of the Company's Common Stock, (ii) each director and nominee, (iii) each
executive officer of the Company named in the Summary Compensation Table
above, and (iv) all current directors and executive officers as a group.
Except as otherwise indicated, the Company believes that the beneficial owners
of the Common Stock listed below, based on information furnished by such
owners, have sole investment and voting power with respect to such shares,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
NAME AND ADDRESS,
IF REQUIRED, OF SHARES PERCENT OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------- ------------------ ------------------
<S> <C> <C>
Strong Capital Management Inc.(1)........ 583,075 11.1%
100 Heritage Reserves
Menomonee Falls, WI 53051
Northwestern Mutual Life Insurance
Co.(2).................................. 518,900 9.9%
720 East Wisconsin Avenue
Milwaukee, WI 53202
State of Wisconsin Investment Board(3)... 437,700 8.3%
121 E. Wilson Street
Madison, WI 53702
Ignatius J. Panzica(4)................... 375,851 6.8%
Custom Chrome, Inc.
16100 Jacqueline Court
Morgan Hill, CA 95037
Putnam Investment Management, Inc.(5).... 300,075 5.7%
One Post Office Square
Boston, MA 02109
T. Rowe Price Associates, Inc.(6)........ 275,000 5.2%
100 East Pratt Street
Baltimore, MD 21202
James J. Kelly, Jr. (7).................. 26,618 *
Lionel M. Allan (8)...................... 4,979 *
Joseph F. Keenan (9)..................... 3,291 *
Joseph Piazza............................ 0 *
All current directors and executive
officers
as a group (8 persons) (10)............. 467,761 8.4%
</TABLE>
- --------
*Less than one percent (1%).
(1) Such information is based upon information contained in filings made with
the Securities and Exchange Commission by Strong Capital Management Inc.
but without independent verification by the Company.
(2) Reflects shares held in several accounts. Such information is based upon
information previously received from Northwestern Mutual Life Insurance
Company and the Company's knowledge after investigation.
(3) Represents shares beneficially owned by Wisconsin Investment Board as a
result of its serving as investment advisor to various investment
accounts. Such information is based on communications from Wisconsin
Investment Board and the Company's knowledge after investigation.
(4) Includes 225,466 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days of
July 31, 1996.
(5) Represents shares beneficially owned by Putnam Investment Management,
Inc. ("Putnam Investment") as a result of its serving as investment
advisor to various investment accounts. Such information is based on the
Company's knowledge after investigation and previous communications from
Putnam Investment.
(6) Such information is based on the Company's knowledge after investigation
but without independent confirmation from T. Rowe Price Associates, Inc.
18
<PAGE>
(7) Includes 25,168 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after July 31, 1996.
(8) Represents 4,979 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after July 31, 1996.
(9) Includes 791 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after July 31, 1996.
(10)Includes 292,189 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days
after July 31, 1996.
OTHER BUSINESS
The Board of Directors is not aware of any other matter which may be
presented for action at the Annual Meeting other than the matters set forth in
this Proxy Statement. Should any other matter requiring a vote of the
stockholders arise, it is intended that the persons named as proxy holders on
the enclosed proxy card will vote the shares represented thereby in accordance
with their best judgment in the interest of the Company. Discretionary
authority with respect to such other matters is granted by the execution of
the enclosed proxy.
STOCKHOLDER PROPOSALS
Under the present rules of the Commission, the deadline for stockholders to
submit proposals to be considered for inclusion in the Company's Proxy
Statement for the next year's Annual Meeting of Stockholders is expected to be
April 22, 1997. Such proposals may be included in next year's Proxy Statement
if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission.
By Order of the Board of Directors,
James J. Kelly, Jr.
Executive Vice President,
Finance, Chief Financial Officer
and Secretary
Dated: August 22, 1996
19
<PAGE>
CUSTOM CHROME, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1996 Employee Stock Purchase
Plan of Custom Chrome, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Custom Chrome, Inc., a Delaware corporation.
-------
(e) "Compensation" shall mean all regular straight time gross
------------
earnings, shift premium, overtime pay and commissions, and shall not include
payments for incentive compensation, incentive payments, bonuses and other
compensation.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
--------
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of
-------------
a participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(i) "Employee" shall mean any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
<PAGE>
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Purchase Date" shall mean the last day of each Purchase Period of
-------------
the Plan.
(l) "Offering Date" shall mean the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" shall mean a period of approximately twelve (12)
---------------
months commencing on the first Trading Day after the fourth Monday of March and
September of each year and terminating on the Fourth Monday of the following
March and September, respectively, during which an option granted pursuant to
the Plan may be exercised, except for the first Offering Period as set forth in
Section 4(a).
(n) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Plan" shall mean this Employee Stock Purchase Plan.
----
(p) "Purchase Period" shall mean a period of approximately six (6)
---------------
months within an Offering Period, except for the first Purchase Period as set
forth in Section 4(b).
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which the National Stock
-----------
Exchanges and the National Association of Securities Dealers Automated Quotation
(NASDAQ) System are open for trading.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Company or of any subsidiary of the Company, or (ii) if such option would permit
his or her rights to purchase stock under all employee stock purchase plans
(described in Section 423 of the Code) of the Company and its Subsidiaries to
accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) of fair
market value of such stock (determined at the time such option is granted) for
each calendar year in which such option is outstanding at any time.
-2-
<PAGE>
4. Offering Periods and Purchase Periods.
-------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods of twelve (12) months duration, with new Offering Periods
commencing on the first Trading Day after the fourth Monday in March and
September of each year (or at such other time or times as may be determined by
the Board of Directors). The first Offering Period shall commence on October 1,
1996 and continue until the fourth Monday in September, 1997. The Plan shall
continue until terminated in accordance with Section 20 hereof. The Board of
Directors of the Company shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings without
stockholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
Eligible employees may not participate in more than one Offering Period at a
time.
(b) Purchase Periods. Each Offering Period shall consist of two (2)
----------------
consecutive purchase periods of approximately six (6) months duration. The last
day of each Purchase Period shall be the "Purchase Date" for such Purchase
-------------
Period. A Purchase Period commencing on the first Trading Day after the fourth
Monday in March shall end on the fourth Monday in the next September. A
Purchase Period commencing on the first Trading Day after the fourth Monday in
September shall end on the fourth Monday in the next March. The first Purchase
Period shall commence on October 1, 1996 and shall end on the fourth Monday in
March, 1997. The Board of Directors of the Company shall have the power to
change the duration and/or frequency of Purchase Periods with respect to future
purchases without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Purchase Period
to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 15%) to be paid
as Contributions pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) The participant shall elect to have payroll deductions made on
each payday during the Offering Period in an amount not less than one percent
(1%) and not more than fifteen percent (15%) of such participant's Compensation
on each such payday. All payroll deductions
-3-
<PAGE>
made by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during the Offering Period,
may decrease the rate of his or her Contributions during the Offering Period by
completing and filing with the Company a new subscription agreement. The change
in rate shall be effective as of the beginning of the next calendar month
following the date of filing of the new subscription agreement, if the agreement
is filed at least ten (10) business days prior to such date and, if not, as of
the beginning of the next succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the lower of (i) eighty-five percent (85%) of the fair market value of a
share of the Company's Common Stock on the Offering Date, or (ii) eighty-five
percent (85%) of the fair market value of a share of the Company's Common Stock
on the Purchase Date; provided, however, that the maximum number of shares an
-------- -------
Employee may purchase during each Offering Period shall be determined at the
Offering Date by dividing $12,500 by the fair market value of a share of the
Company's Common Stock on the Offering Date, and provided further that such
-------- -------
purchase shall be subject to the limitations set forth in Sections 3(b) and 13.
The fair market value of a share of the Company's Common Stock shall be
determined as provided in Section 7(b).
(b) The option price per share of the shares offered in a given
Offering Period shall be the lower of: (i) 85% of the fair market value of a
share of the Common Stock of the Company on the Offering Date; or (ii) 85% of
the fair market value of a share of the Common Stock of the Company on the
Purchase Date. The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the immediately preceding trading date), as
reported by the National Association of Securities Dealers Automated Quotation
(Nasdaq) National Market or, if such price is not reported, the mean of the bid
and asked prices per share of the Common Stock as reported by Nasdaq or, in the
event the Common Stock is listed on a stock exchange, the fair market value per
-4-
<PAGE>
share shall be the closing price on such exchange on such date (or, in the event
that the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported in The Wall Street Journal.
-----------------------
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable option price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. During his or
her lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Deposit of Shares. As promptly as practicable after each Purchase Date
-----------------
of each Offering Period, the Company shall arrange for the deposit to each
participant's account with the broker designated by the Company to administer
the Plan, as appropriate, of the number of shares purchased upon exercise of his
or her option. Any cash remaining to the credit of a participant's account
under the Plan after a purchase by him or her of shares at the termination of
each Purchase Period, or which is insufficient to purchase a full share of
Common Stock of the Company, shall be carried over to the next Purchase Period
if the Employee continues to participate in the Plan, or if the Employee does
not continue to participate, shall be returned to said participant.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
-5-
<PAGE>
11. Automatic Withdrawal. If the fair market value of the shares on the
--------------------
first Purchase Date of an Offering Period is less than the fair market value of
the shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 150,000 shares, subject
to adjustment upon changes in capitalization of the Company as provided in
Section 19. If the total number of shares which would otherwise be subject to
options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is
-6-
<PAGE>
married and the designated beneficiary is not the spouse, spousal consent shall
be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 14) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
(a) Adjustment. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each option under
the Plan which has not yet been exercised and the number of shares of Common
Stock which have been authorized for issuance under the Plan but have not yet
been placed under option (collectively, the "Reserves"), as well as the price
per share of Common Stock covered by each option under the Plan which has not
yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
--------
however, that conversion of any convertible securities of the Company shall not
- -------
be deemed to have been "effected without receipt of consideration". Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no issue
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no
-7-
<PAGE>
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.
(b) Corporate Transactions. In the event of the proposed dissolution
----------------------
or liquidation of the Company, the Offering Period will terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board. In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation, each option under the Plan shall be assumed or an equivalent option
shall be substituted by such successor corporation or a parent or subsidiary of
such successor corporation, unless the Board determines, in the exercise of its
sole discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Purchase Date (the "New
---
Purchase Date"). If the Board shortens the Offering Period then in progress in
- -------------
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) days prior
to the New Purchase Date, that the Purchase Date for his or her option has been
changed to the New Purchase Date and that his or her option will be exercised
automatically on the New Purchase Date, unless prior to such date he or she has
withdrawn from the Offering Period as provided in Section 10. For purposes of
this paragraph, an option granted under the Plan shall be deemed to be assumed
if, following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately prior
to the sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
-------- -------
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event that
the Company effects one or more reorganizations, recapitalizations, rights
offerings or other increases or reductions of shares of its outstanding Common
Stock, and in the event of the Company being consolidated with or merged into
any other corporation.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time terminate or
amend the Plan. Except as provided in Section 19, no such termination may
affect options previously granted, nor may an amendment make any change in any
option theretofore granted which adversely affects the rights of any
participant. In addition, to the extent necessary to comply with Rule 16b-3
under the Exchange Act, or under Section 423 of the Code (or any
-8-
<PAGE>
successor rule or provision or any applicable law or regulation), the Company
shall obtain stockholder approval in such a manner and to such a degree as so
required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
its approval by the stockholders of the Company. It shall continue in effect
for a term of twenty (20) years unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
-9-
<PAGE>
CUSTOM CHROME, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the Custom
Chrome, Inc., 1996 Employee Stock Purchase Plan (the "Plan") for the Offering
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Period ______________, 19__ to _______________, 19__, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 15% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can decrease the rate of my Contributions on one occasion only
during any Offering Period by completing and filing a new Subscription Agreement
with such decrease taking effect as of the beginning of the calendar month
following the date of filing of the new Subscription Agreement, if filed at
least ten (10) business days prior to the beginning of such month. Further, I
may change the rate of deductions for future Offering Periods by filing a new
Subscription Agreement, and any such change will be effective as of the
beginning of the next Offering Period. In addition, I acknowledge that, unless
I discontinue my participation in the Plan as provided in Section 10 of the
Plan, my election will continue to be effective for each successive Offering
Period.
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "CUSTOM CHROME, INC., 1996 EMPLOYEE STOCK
PURCHASE
<PAGE>
PLAN." I understand that my participation in the Plan is in all respects subject
to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
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7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print)
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(First) (Middle) (Last)
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(Relationship) (Address)
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8. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Offering Date (the first day of the Offering
Period during which I purchased such shares) or within 1 year after the Purchase
Date, I will be treated for federal income tax purposes as having received
ordinary compensation income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares on the Purchase Date over
the price which I paid for the shares, regardless of whether I disposed of the
shares at a price less than their fair market value at the Purchase Date. The
remainder of the gain or loss, if any, recognized on such disposition will be
treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after
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the date of any such disposition, and I will make adequate provision for
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federal, state or other tax withholding obligations, if any, which arise upon
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the disposition of the Common Stock. The Company may, but will not be obligated
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to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the shares
on the Offering Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.
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<PAGE>
I understand that this tax summary is only a summary and is subject to
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change. I further understand that I should consult a tax advisor concerning the
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tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE:
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SOCIAL SECURITY #:
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DATE:
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SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
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(Signature)
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(Print name)
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<PAGE>
CUSTOM CHROME, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Custom Chrome, Inc., 1996 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period _________. This withdrawal covers all Contributions credited to
my account and is effective on the date designated below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:
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Signature of Employee
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Social Security Number
<PAGE>
CUSTOM CHROME, INC.
PROXY
Annual Meeting of Stockholders, September 18, 1996
This Proxy is Solicited on Behalf of the Board of Directors of
Custom Chrome, Inc.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held on September 18, 1996
and the Proxy Statement and appoints Ignatius J. Panzica and James J. Kelly,
Jr., and each of them, as the Proxy of the undersigned, with full power of
substitution, to vote all shares of Common Stock of Custom Chrome, Inc. (the
"Company") which the undersigned is entitled to vote, either on his or her own
behalf or on behalf of any entity or entities, at the Annual Meeting of
Stockholders of the Company to be held at the Company's facilities located at
16100 Jacqueline Court, Morgan Hill, California 95037, on Wednesday, September
18, 1996 at 10:00 a.m. (the "Annual Meeting"), and at any adjournment or
postponement thereof, with the same force and effect as the undersigned might or
could do if personally present thereat. The shares represented by this Proxy
shall be voted in the following manner:
[TO BE SIGNED ON REVERSE SIDE]
<PAGE>
1. To elect the following directors to serve until the next annual
meeting of stockholders and until their successors are elected and qualified:
WITHHOLD
AUTHORITY
FOR _________ TO VOTE ________
Nominees:
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Ignatius J. Panzica
James J. Kelly, Jr.
Lionel M. Allan
Joseph F. Keenan
Joseph Piazza
(INSTRUCTION: To withhold authority to vote for any individual nominee, print
that nominee's name on the line provided below:)
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2. FOR AGAINST ABSTAIN To approve the adoption of the Company's
1996 Employee Stock Purchase Plan and the
reservation of 150,000 shares of Common
Stock for issuance thereunder;
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3. FOR AGAINST ABSTAIN To ratify the Board of Directors' selection
of KPMG Peat Marwick LLP to serve as the
Company's independent auditors for the
fiscal year ending January 31, 1997; and
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4. FOR AGAINST ABSTAIN To transact such other business as may
properly come before the Annual Meeting or
any adjournment or postponement thereof.
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<PAGE>
The Board of Directors recommends a vote FOR each of the directors listed
above and a vote FOR the other proposals. This Proxy, when properly executed,
will be voted as specified above. THIS PROXY WILL BE VOTED FOR THE ELECTION OF
THE DIRECTORS LISTED ABOVE AND FOR THE OTHER PROPOSALS IF NO SPECIFICATION IS
MADE.
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(Print name(s) on certificate)
Please sign your name:
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(Authorized Signature(s))
Date:
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NOTE: Please print the name(s) appearing on each share certificate(s) over
which you have voting authority.
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