<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ________
Commission file number 0-19540
CUSTOM CHROME, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-1716138
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
16100 Jacqueline Court
Morgan Hill, California 95037
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number, including area code: (408) 778-0500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title and Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
____ ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [x]
The aggregate market value of voting stock held by non-affiliates of the
Registrant, as of April 4, 1997, was approximately $41,831,000 (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
Nasdaq National Market for the last trading date prior to that date). Shares of
Common Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
On April 3, 1997, approximately 5,299,000 shares of the Registrant's Common
Stock, $.001 par value, were outstanding.
Documents Incorporated By Reference
-----------------------------------
Not applicable.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results and the
timing of certain events could differ materially from those projected in the
forward-looking statements as a result of a number of important factors. For a
discussion of important factors that could affect the Company's results, please
refer to the section entitled "Factors That May Affect Future Results" and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein.
Custom Chrome, Inc. (the "Company" or "Custom Chrome") is the largest
independent supplier of aftermarket parts and accessories for Harley-Davidson
motorcycles. Custom Chrome distributes its own products, many of which are
offered under the brand names RevTech, Premium, Dyno Power and C. C. Rider, and
products offered by other recognized manufacturers, such as Dunlop, Champion,
Hastings and Accel. The Company has an integrated approach to the design,
manufacture, importing, marketing and distribution of many of its products. The
Company currently offers approximately 15,000 products primarily to
approximately 4,700 dealers. Custom Chrome has experienced significant growth in
net sales over the last three fiscal years and has achieved gross margins of at
least 40% on its net sales during those periods. Recently the Company has
experienced reduced overall gross margins primarily as a result of increased
price competition in the marketplace and because an increasing proportion of the
new products being offered by the Company are non-exclusive domestically
produced products which generally carry lower gross margins than the Company's
proprietary and non-U.S. sourced products. The Company's marketing approach
includes its over 800-page catalog supported by a national telemarketing
program, active participation in numerous trade shows and consumer events, and
advertising in magazines focused on the Harley-Davidson motorcycle market.
MOTORCYCLE PARTS AND ACCESSORIES INDUSTRY
According to information made public by Harley-Davidson, approximately 118,700
new Harley-Davidson motorcycles were sold in calendar 1996, with approximately
84,000 sold in the United States and 34,700 sold in export markets. Based upon
state motor vehicle registrations and sales by the Company of parts and
accessories for older model motorcycles, the Company estimates that there are in
excess of 1,000,000 Harley-Davidson motorcycles currently in use worldwide and
that fewer Harley-Davidson motorcycles go out of use each year than are
manufactured. According to information made public by Harley-Davidson, new
registrations of Harley-Davidson motorcycles and Harley-Davidson's market share
(based on new registrations) in the North American heavyweight (engine
displacements in excess of 651cc) class was over 46% in each of the last three
years and was 47.6% in 1996. Harley-Davidson motorcycles emphasize traditional
styling, design simplicity, durability, ease of service and adaptability to
accessories. The suggested retail prices of Harley-Davidson motorcycles range
from approximately $5,200 to $18,500.
During its useful life, which the Company estimates (based upon sales of parts
and accessories for older model motorcycles) often exceeds 30 years, the average
Harley-Davidson motorcycle will be resold a number of times. According to
information made public by Harley-Davidson, the typical Harley-Davidson owner is
a male in his mid-forties with a household annual income of approximately
$68,000 who purchases a motorcycle for recreational rather than transportation
purposes. Because of the large and increasing number of Harley-Davidson
motorcycles in use, the desire and ability of Harley-Davidson enthusiasts to
customize their motorcycles and the Company's belief that Harley-Davidson
motorcycles frequently change ownership, the Company believes there is a
significant market for parts and accessories for Harley-Davidson motorcycles.
The parts and accessories market includes product sales to owners of both new
and used Harley-Davidson motorcycles. The market for Harley-Davidson motorcycle
parts and accessories has grown rapidly in recent years. The Company believes
this growth is a result of many factors, including (i) the popularity of Harley-
Davidson motorcycles, (ii) the design of Harley-Davidson motorcycles incorpo
rating visible and easily accessible parts making such motorcycles readily
adaptable to accessories, (iii) the desire of Harley-Davidson owners to
customize their motorcycles, (iv) the purchasing power of Harley-Davidson owners
and (v) the relatively higher resale value of Harley-Davidson motorcycles as
compared to other super heavyweight motorcycles. Parts and accessories for
Harley-Davidson motorcycles are generally sold to motorcycle owners by either
franchised Harley-Davidson dealerships or by independent dealers. These dealers
are usually small, locally owned retail stores that lack significant financial
or marketing resources and are operated by people who are themselves Harley-
Davidson enthusiasts. Dealers generally carry a relatively small inventory of
replacement parts and accessories and are dependent upon quick delivery and a
high level of service from suppliers of parts and accessories. In order to
successfully service these dealers and develop customer loyalty, the Company
believes that a successful supplier must quickly respond to market trends with
high-quality and customized parts and accessories and provide rapid delivery of
a broad line of products.
"Custom Chrome," "RevTech," "Bullskins," "Tour Ease," Premium," "C.C. Rider" and
"Dyno Power" are registered trademarks of Custom Chrome. This Form 10-K also
includes trademarks of companies other than Custom Chrome, Inc., including
"Harley-
1
<PAGE>
Davidson" which is a registered trademark of Harley-Davidson, Inc. Unless the
context indicates otherwise, reference in this to the "Company" and "Custom
Chrome" refers to Custom Chrome, Inc. and its consolidated subsidiaries.
BUSINESS STRATEGY
Since its inception, Custom Chrome's business strategy has been to offer a wide
range of high-quality aftermarket parts and accessories for Harley-Davidson
motorcycles. The following are the key elements in this strategy:
Responsiveness to Dealer Needs. The Company seeks to achieve a high level of
service in all aspects of its business, from identifying customer demand for new
products to providing rapid delivery of existing products. In the past four
years the Company has taken several steps to improve its responsiveness. These
steps included opening new distribution facilities in Harrisburg, Pennsylvania
(March 1992) and Visalia, California (October 1994) to reduce delivery times to
its customers in the Northeastern and Western United States, respectively,
expanding its current distribution facility at Louisville, Kentucky by 73,000
square feet, increasing inventory levels of its most popular products to ensure
product availability and generally improving the efficiency of its distribution
system through new delivery arrangements. The Company also provides service
through innovative promotions, credit, technical support, merchandising and
marketing programs. The Company strives to remain close to its customers through
its computerized telemarketing system and field sales support representatives.
In 1997 the Company plans to open distribution facilities in Dallas, Texas and
plans to open in Jacksonville, Florida, on or about May 1997, to improve
delivery times to its customers in the Southwestern and Southeastern United
States. In addition, it is expanding its number of sales road representatives to
improve its direct contact with its customers.
Company Brand Name and Proprietary Products. The Company offers high-quality and
brand name products that are proprietary to Custom Chrome. The Company maintains
extensive control over the entire process of designing, manufacturing, importing
and distributing products to help ensure high quality and rapid delivery of its
proprietary products. By designing many of its own products and closely
monitoring the manufacturing process, Custom Chrome believes that its products
are manufactured to its specifications with quality materials, and believes its
products equal or exceed the original equipment quality standards. In addition,
because of its control over the design and manufacture of products, Custom
Chrome is generally better able to control manufacturing costs and ensure timely
sales of its products. The Company sells its proprietary products, as well as
products supplied by third parties, under its own brand names. The Company's
brand name strategy is intended to build name recognition and loyalty.
Product Development. The Company identifies new product opportunities and
designs products to implement technical innovations and to respond to changing
consumer preferences. Custom Chrome focuses only on products for Harley-Davidson
motorcycles and is involved in all major consumer events in the United States
for Harley-Davidson motorcycles to help the Company quickly identify new product
trends. In addition, by having an experienced internal product development
staff, as well as flexible manufacturing arrangements, the Company is often able
to move new product ideas from the design stage to volume production in three to
six months. Custom Chrome added approximately 500 proprietary products during
the current catalog year beginning in late September 1996. The Company designs
products to fit a wide range of Harley-Davidson models and years to reduce the
risk of product obsolescence. In addition, the Company seeks to identify trends
that indicate opportunities to expand its existing markets by offering new
products such as products aimed at the high performance products market.
Large Selection of Leading Brands. The Company believes it carries the largest
selection of brand name products of any independent distributor serving the
parts and accessories aftermarket for Harley-Davidson motorcycles. Because of
the large volume of products handled by the Company and its long-standing
relationships with its suppliers, the Company is often able to obtain these
products at favorable prices and terms, and often receives preference in gaining
access to products that may be in short supply.
Effective Sales and Marketing Techniques. To increase its market penetration,
the Company employs advanced sales and marketing techniques. The Company
supports its extensive catalog with an in-house telemarketing and sales
department, sales support representatives who visit customers in various regions
throughout the United States, a technical support staff, extensive trade and
consumer advertising and trade show and consumer event attendance. In addition,
the Company provides flexible financing arrangements for dealers during the
winter months and discount programs for dealers that meet certain purchase
volumes.
Expanding Existing Markets and Entering New Markets. The Company seeks to
increase the penetration of its existing markets by providing a wider selection
of products supported by strategically located warehouses to ensure rapid
distribution of parts and accessories. The Company seeks opportunities for
growth by developing new products and identifying general product line
opportunities in its market. The Company established its distribution facility
in Kentucky in August 1988, and a distribution facility in Harrisburg,
Pennsylvania in March 1992, to better serve the eastern portion of the United
States market. In October 1994, the Company opened a 100,800 square foot
distribution facility in Visalia, California, to improve delivery times to the
Western United States. In February 1996, the Company added 73,000 square feet to
its facility in Louisville, Kentucky. In 1997 the Company plans to open
distribution
2
<PAGE>
facilities in Dallas, Texas and plans to open in Jacksonville, Florida, on or
about May 1997, to improve delivery times to its customers in the Southwestern
and Southeastern United States
PRODUCTS AND PACKAGING
The Company distributes a full line of approximately 15,000 aftermarket parts
and accessories, including replacement parts, custom parts, accessories and
apparel. The Company's approach to offering products includes offering many
proprietary products in distinctive, uniform packaging as well as a large
selection of high-quality, brand name parts from well known manufacturers.
Proprietary Products. The Company offers a large number of proprietary products,
which the Company designs and engineers and for which the Company typically owns
the manufacturing tooling. Such proprietary products are not widely available
from any other source, which allows the Company to obtain higher margins than
may be available on products for which it acts solely as a distributor. During
the fiscal year ended January 31, 1997, approximately 20% of net sales were
represented by sales of proprietary products, all of which are offered under the
Company's brand names.
Company Brand Names. The Company has created several brand names under which it
markets both proprietary and nonproprietary products supplied by third parties.
Over 62% of Custom Chrome's net sales during each of the last three fiscal years
were derived from products sold under the Company's brand names. These brand
names are used to promote market awareness and to identify particular products
with specific features or performance characteristics. The Company's brand names
include the following:
. "RevTech" identifies products designed to enhance the performance of
Harley-Davidson motorcycles, such as carburetors, cylinder heads,
ignition systems, exhaust systems, oil pumps and cams. Each RevTech
product is designed to be a "bolt on" replacement of the original part
in order to provide maximum performance without the need for special
tools.
. "Premium" denotes products offered by Custom Chrome that it believes
equal or exceed the quality standards of Harley-Davidson's original
equipment parts but are generally available at lower prices. This
product line includes many essential maintenance products, such as air
and oil filters, spark plugs, gaskets, batteries, starters, pistons
and piston rings. This line also includes parts no longer manufactured
by Harley-Davidson but for which a market still exists.
. "C.C. Rider," which stands for "Custom Chrome Rider," is the brand
name for a line of high quality, large-volume, maintenance and
replacement products. These products include chains, tire tubes and
oil filters.
. "Dyno Power" is the Company's brand name for its complete line of
exhaust systems, mufflers and related accessories. Many of these
products are manufactured to the Company's own design and are often
"style" oriented.
. "Tour Ease" represents the Company's product line that addresses the
long-distance touring market. Designed for the long-distance rider and
passenger with an emphasis on comfort, convenience and style, these
products include backrests, windshields and luggage racks.
. "Bullskins" is Custom Chrome's brand name for its leather apparel
product line. This name represents a high-quality and durable line of
leather jackets, chaps, vests and tops with distinctive styles for men
and women.
In addition, the Company markets and sells a number of products, such as
fenders, gas tanks and ignition parts, under the "Custom Chrome" name, which
indicates to consumers that the product has been manufactured to the Company's
quality standards. The Company believes product packaging is an important aspect
of its products. The Company distributes many of its products in distinctive,
colorful packaging, designed to build brand name recognition and to identify the
product as being supplied by the Company regardless of the manufacturing source.
The Company often packages its parts and accessories in kits which include all
components needed for installation.
Sales of Other Recognized Brand Name Products. The Company also sells a number
of products from selected aftermarket manufacturers such as Champion spark
plugs, Dunlop tires, Crane cams, Accel electrical parts and Russell braided
lines and tubing under the manufacturer's brand name. Because the Company is the
largest independent distributor in the aftermarket for Harley-Davidson
motorcycles, it often plays an important role in the manufacturer's effort to
distribute its parts and accessories to Harley-Davidson enthusiasts. As such,
the Company is often able to obtain favorable pricing and terms as well as
access to some products not available to other distributors. Each year the
Company hosts a trade show in which it brings well-known manufacturers into its
warehouse to display and promote their products directly.
3
<PAGE>
During each of the last three fiscal years ended January 31, 1997, approximately
38% of net sales were represented by sales of other recognized brand name
products.
Product Categories. The Company's products are presented in the Company's
catalog along functional lines. The Company currently offers products in the
following categories:
<TABLE>
<CAPTION>
=======================================================================================================================
Representatives Brand Names
-------------------------------------------------------------------------------
Product Categories Company Brands Other Companies' Brands
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Apparel and leather accessories Bullskins, Custom Chrome Ace Leather, Hatch
- -----------------------------------------------------------------------------------------------------------------------
Brakes, handlebars and controls Premium, C.C. Rider, Custom Chrome Accel, Barnett, K&N, Russell
- -----------------------------------------------------------------------------------------------------------------------
Carburetors and intake parts RevTech, Premium, Custom Chrome Zenith, Mikuni, K&N
- -----------------------------------------------------------------------------------------------------------------------
Chassis and footpegs RevTech, Premium, Tour Ease, Custom Progressive Suspension, Kuryakyn
Chrome
- -----------------------------------------------------------------------------------------------------------------------
Chemicals, hardware and tools RevTech, Premium, C. C. Rider, PJ1, Colony
Custom Chrome
- -----------------------------------------------------------------------------------------------------------------------
Drive lines (clutches, chains, etc.) Premium, C.C. Rider, RevTech, Custom Barnett, Diamond
Chrome
- -----------------------------------------------------------------------------------------------------------------------
Electrical parts and accessories RevTech, Premium, C. C. Rider, Accel, Champion, Morris, Crane
Custom Chrome
- -----------------------------------------------------------------------------------------------------------------------
Engine products RevTech, Premium, Custom Chrome Accel, Crane, Delkron, Hastings,
Manley, S.T.D., Edelbrock
- -----------------------------------------------------------------------------------------------------------------------
Exhaust products DynoPower, Custom Chrome White Bros., Supertrapp
- -----------------------------------------------------------------------------------------------------------------------
Gaskets and seals Premium, RevTech, Custom Chrome Jim's Machining
- -----------------------------------------------------------------------------------------------------------------------
General parts and accessories Premium, C. C. Rider, Custom Chrome National Cycle, Arlen Ness
- -----------------------------------------------------------------------------------------------------------------------
Lighting products Custom Chrome Candle Power
- -----------------------------------------------------------------------------------------------------------------------
Seats Corbin, LePera
- -----------------------------------------------------------------------------------------------------------------------
Gas and oil tanks and accessories Custom Chrome Lockhart, Russell, Accel
- -----------------------------------------------------------------------------------------------------------------------
Tires and wheels RevTech, C. C. Rider, Custom Chrome Avon, Cheng-Shin, Continental, Dunlop
- -----------------------------------------------------------------------------------------------------------------------
Transmissions RevTech, Premium, Custom Chrome Andrews, S.T.D.
=======================================================================================================================
</TABLE>
The suggested retail prices of the Company's products range from about $1.00 for
a gasket to approximately $4,900.00 for a Custom Chrome Rolling Chassis kit.
During the fiscal year ended January 31, 1997 no single product accounted for
greater than 1.0% of total net sales.
PRODUCT DEVELOPMENT
Based upon its knowledge of the product offerings, manufacturing sources and
operations of its competitors, the Company believes it is the only large
independent supplier of parts and accessories for Harley-Davidson motorcycles
that operates a significant, full-time, internal product development department
which designs and develops a substantial number of its own products and which
tests and inspects products supplied and developed by others. By designing and
developing new products as well as acquiring additional products for
distribution, the Company frequently adds to its product lines with a goal to
more effectively address the needs of the consumer. During the year ended
January 31, 1997, approximately 500 new proprietary products and over 2,800 non-
proprietary products were added to the Company's product line. The Company
currently employs a product development staff of 34 persons, and the Company's
product development expenditures in the fiscal years ended January 31, 1995,
1996 and 1997 were approximately $1,535,000, $1,652,000, and $1,723,000,
respectively.
4
<PAGE>
Ideas for new products arise through a variety of sources, including the
Company's in-house engineering staff, dealers, suppliers and consumers. New
product ideas are evaluated on a weekly basis by a product evaluation committee
comprised of members of the engineering, manufacturing, sales, finance and
marketing staffs. In determining whether to produce an individual part or a line
of related parts or products, Custom Chrome evaluates each product concept based
on its estimated market demand, cost and profitability.
Once the Company makes the initial determination to proceed with a new product,
the product development staff prepares a prototype. After testing, refinement
and approval by the product evaluation committee, the final product is drawn,
specifications prepared and analyzed, and a development package is produced
primarily for production by outside contract manufacturers. Tooling for a
production run is then produced by the selected manufacturer, typically at
Custom Chrome's expense. A pilot run of the product is manufactured and
subjected to testing and qualification by the Company's product development
engineers to assure that the Company's standards for quality, structural
integrity and finish are maintained. After a product has been qualified, volume
production is undertaken. The Company typically moves a new idea from the design
stage to volume production in three to six months.
The Company's design staff strives to understand the needs and preferences of
consumers based on a combination of its own extensive experience and frequent
input from dealers, Harley-Davidson enthusiasts and others regarding new
products or improvements to existing products. Custom Chrome seeks to remain
close to its dealers and consumers through participation in industry trade
shows, consumer events and its own in-house trade show in order to anticipate
new trends and introduce innovative parts and accessories in advance of its
competitors. As a result, Custom Chrome believes it is well positioned to
introduce new products that are responsive to the needs of its dealers and
consumers.
The Company generally provides detailed specifications for its products to its
suppliers. Custom Chrome currently has a large number of engineering drawings
and specifications on hand and has developed an extensive technical library
enabling it to design products more easily. The Company believes that by
designing many of its products and contracting only for manufacturing services
pursuant to detailed specifications, it is better able to maintain higher
quality control standards and lower costs.
MANUFACTURING AND SOURCES OF SUPPLY
The Company currently purchases products from more than 700
supplier/manufacturers worldwide. Although the Company uses independent
representatives to supervise and coordinate the activities of many overseas
manufacturers, the Company continues to maintain direct working relationships
with all manufacturers and regularly monitors their performance.
The Company's manufacturing strategy for its proprietary products is to closely
control the entire process from product design through volume production. The
Company has extensive internal design capabilities but relies almost exclusively
upon unaffiliated contract manufacturers in the United States and
internationally, principally in the Far East. The Company qualifies each
contract manufacturer and works closely with the manufacturer to help assure the
timely delivery of high-quality, low-cost products that meet the Company's
specifications. By predominantly using outside manufacturers for its internally-
designed products, the Company seeks to minimize capital expenditures and
inventory costs while maintaining flexibility in response to changing production
costs and market demands.
The Company also usually retains ownership of the tooling used to produce a
proprietary part and can remove the tooling from the manufacturer's plant after
a production run in order to assure that such products will not be manufactured
for other suppliers. Although the Company has in the past, and intends in the
future, to enforce vigorously the exclusive use of its tooling, there can be no
assurance that these measures will be successful.
The Company acquires its products on a purchase order basis. As is common in the
industry, the Company experiences short-term inventory shortages with respect to
a limited number of products. However, the Company has generally experienced no
material difficulties in obtaining adequate quantities of most products from its
manufacturers.
The Company employs the services of various independent representatives, the
most significant of which is Zodiac Enterprises Ltd. ("Zodiac"), to expedite the
activities of its foreign manufacturers and to act as a purchasing agent for the
Company. The Company has been doing business with Zodiac since 1984. Under the
terms of the agreement between Zodiac and the Company, Zodiac is an agent for
the Company to purchase products in Taiwan and to manufacture products in
Taiwan. The agreement provides that Zodiac will supply Custom Chrome with
products that meet certain specifications designated by the Company and, when
necessary, provide the tooling that is necessary to manufacture such products.
The Company's agreement with Zodiac is renewed annually, and can be terminated
by the Company at any time on 90 days notice and by either party 90 days prior
to the end of each annual period. Products purchased through Zodiac represented
22%, 18%, and 11% of Custom Chrome's net sales in the fiscal years ended January
31, 1995, 1996 and 1997, respectively. If Zodiac's services were discontinued
for any reason, the Company believes it could replace such services
5
<PAGE>
in a timely manner by its own capabilities and using other trading companies. In
many cases, the Company would expect to continue using the same manufacturer.
There can be no assurance, however, that the Company would not experience
temporary supply delays.
In July 1992, the Company opened a purchasing office in Tainan, Taiwan. The
primary purpose of this office is to develop relationships with Taiwanese
manufacturers to provide new sources of production and supply of the Company's
products. In May 1994, the Company moved to a newer, larger 20,000 square foot
office and warehouse facility in Tainan to conduct its operations.
Although the Company, in certain instances, has chosen to purchase its entire
supply of certain products from a single manufacturer, the Company does not
regard any single manufacturer as essential to its operations. The Company did
not purchase products representing more than 2.0% of its total sales from any
single manufacturer during the fiscal years ended January 31, 1995, 1996 or
1997. As to products for which there is a single supplier, the Company has, in
many cases, pre-qualified an acceptable alternative source and believes that
such an alternative source could commence delivery of volume production
quantities within several months. In certain cases, the Company also seeks to
mitigate the potential adverse consequences of sole sources by maintaining
adequate levels of finished goods inventory in stock and in transit.
Nonetheless, the loss of a single source supplier or a major trading company
relationship could have short-term adverse effects on the Company's operations.
A substantial number of the Company's products are manufactured in Taiwan, South
Korea and Japan. Consequently, the availability and cost of products
manufactured overseas could be adversely affected if political or economic
conditions in these countries were to deteriorate. In addition, although the
prices for the products purchased by the Company are stated in United States
dollars, because the prices often are not determined until the manufacturing
process is completed, the Company bears risk with respect to changes in exchange
rates. The cost of the Company's products could also be affected by the tariff
structure imposed on imports or other trade policies of the United States or
other governments, which could adversely affect the Company. The Company
attempts to minimize this risk by maintaining a pricing policy with its dealers
that allows Custom Chrome to change its prices at any time. In certain
circumstances, the Company also contracts to purchase foreign currencies at
fixed prices in the future for major foreign currency exposures. In addition,
because the Company has relationships with United States manufacturers, the
Company believes that it is capable of obtaining many of the products presently
sourced overseas from domestic sources. In this manner, the Company believes
that it can also reduce its exposure to currency fluctuations and other risks of
manufacturing in a foreign country. See also "Additional Factors That May Affect
Future Results - Dependence on Third Party and Foreign Manufacturing
Relationships; Taiwanese Political Volatility."
As is typical of similar manufacturing operations, Custom Chrome Manufacturing,
Inc., which utilized a chrome-plating and polishing process, was subject to a
variety of laws and regulations relating to environmental matters. Both federal
and state authorities have various environmental control requirements relating
to air, water and noise pollution which affect the business operations of Custom
Chrome Manufacturing, Inc. During the year ended January 31, 1994 the Company
discontinued in-house chrome plating of its products and currently subcontracts
such work to outside vendors. The Company endeavors to ensure that all its
facilities comply with applicable environmental regulations and standards.
Compliance with such standards has not had a material effect on the Company's
capital expenditures, earnings or competitive position and no material capital
expenditures are anticipated for the remainder of this fiscal year. Although the
Company believes it is in compliance with all applicable environmental
requirements, there can be no assurance that this operation does not violate
such requirements or that compliance with such requirements would not have a
material effect on the Company's operations.
Custom Chrome has not experienced any product liability claims in the past that
have had a material adverse effect on its business. The Company generally
provides only limited warranties on its products and relies upon the
manufacturers' warranties whenever possible.
PRODUCT DISTRIBUTION
Product availability and rapid delivery are critical considerations for dealers
who purchase the Company's products. Most dealers do not carry substantial
inventories. Based on the shipment requirements of most of its customers, the
Company believes that if a dealer cannot provide an item to the consumer within
one or possibly two days, the dealer runs a substantial risk of losing the sale.
Typically, the Company ships products the same day an order is received.
The Company's products are presently distributed from one of four facilities,
its headquarters and a limited distribution facility located in Morgan Hill,
California or its regional distribution facilities located in Visalia,
California, Louisville, Kentucky and Harrisburg, Pennsylvania. The Kentucky
facility was opened in August 1988, the Harrisburg, Pennsylvania facility was
opened in March 1992, and the Visalia, California facility was opened in October
1994. These facilities were opened to reduce shipping costs and to shorten
delivery times to the Company's customers. In 1996, the Company added a 73,000
square foot warehouse to its existing facilities in Louisville, Kentucky. The
Company continues to evaluate opportunities to open additional distribution
facilities in other strategic locations in the United States. As a result of
such studies the Company plans to open distribution facilities in Dallas, Texas
and
6
<PAGE>
Jacksonville, Florida in 1997 to offer better delivery service to customers in
the Southwestern and Southeastern United States, respectively.
The Company has implemented a real-time computer tracking system which interacts
between the Company's warehouses in California, Kentucky and Pennsylvania to
help move products from Custom Chrome's initial purchase order through
manufacturing, delivery to the Company's warehouse and, finally, sale and
delivery to the customer. The Company continues to focus on optimizing the
placement of products among its four facilities in order to streamline the
delivery process.
MARKETING, SALES AND CUSTOMERS
Custom Chrome's customers consist primarily of approximately 3,400 independent
dealers and 600 Harley-Davidson franchised dealers throughout the United States
and approximately 650 dealers outside the United States. Motorcycle dealers
generally stock those parts and accessories most commonly used by their
customers, which include standard maintenance and repair parts and supplies such
as oil, tires and batteries. The Company relies upon marketing techniques
designed to encourage dealers to order Custom Chrome products as well as to
prompt the retail consumer to request Custom Chrome supplied parts and
accessories from their dealers.
Catalog. The most important of the Company's marketing techniques is its annual
product catalog. The annual catalog, which is over 800 pages for 1997 has in the
past earned awards within the industry for its highly attractive presentation
and its introduction in September of the year leads the industry. The catalog
contains a large amount of technical information concerning the compatibility of
the Company's parts and accessories with various models of Harley-Davidson
motorcycles and tips on how the parts and accessories should be installed and
maintained. The catalog is an important marketing tool for dealers because it
allows them to sell products to their customers which the dealers do not include
in their inventories or of which customers might not otherwise be aware. Custom
Chrome sells its catalogs to both dealers and retail consumers to establish a
greater presence in its market. The Company believes that direct distribution of
its catalog to consumers has stimulated demand for the Company's products. In
addition to its annual catalog, Custom Chrome also distributes seasonal catalogs
to announce new products and to promote selected products.
Telemarketing and Support. The Company supports its catalog with a computerized
telemarketing program which consists of both placing and receiving calls to and
from dealers to promote products and take orders. When an order is taken, the
computer allows the Company to provide the dealer with current information on
pricing and product availability. Custom Chrome's telemarketing sales
representatives receive extensive initial and on-going training in the technical
aspects of the Company's products and have access to technical information via
the Company's computer network. The Company's sales representatives also have
quick access to the Company's technical service, engineering and customer
service staffs. Such technical information helps Custom Chrome's dealers to
better serve the retail consumer and helps strengthen the Company's dealer
relationships. Custom Chrome believes that this customer service and support is
essential to the successful marketing of its products.
Advertising and Trade Shows. The Company also relies on advertisements in
motorcycle industry, enthusiast and trade magazines and the Company's annual in-
house trade show. In addition, the Company attends all major trade shows and
other consumer events for Harley-Davidson enthusiasts such as the Black Hills
Motorcycle Rally, a popular annual event held in Sturgis, South Dakota. The
Company also publishes a bi-weekly "Dealer's Edge" sales flyer, which is sent to
dealers and provides advice on advertising and information about parts and
accessories for Harley-Davidson motorcycles and a monthly supplement called the
"Cutting Edge" which deals with new products available from the Company. In
addition, the Company has sought to more closely coordinate promotions with new
product releases to help stimulate demand for these products.
Dealer Programs. Custom Chrome rewards dealers making higher purchases of the
Company's products through its Dealer VIP programs. Under these programs,
dealers achieving agreed-upon purchase levels are granted additional discounts
beyond the Company's standard pricing schedules.
Fall/Winter Programs. During the fall and winter, the Company's sales tend to
decrease as compared with other periods of the year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
below. The Company has increased sales in the fall and winter by several
techniques, including issuing holiday catalogs that supplement the annual
catalog and promoting apparel and other gift-type products during the Christmas
season; allowing certain customers to purchase the Company's products during
these months and defer payment until the following spring under the Company's
"Spring Dating" program; and conducting an annual, in-house trade show in the
Fall of each year which is generally attended both by the Company's major
customers and suppliers.
Electronic Ordering and Software Assistance. The Company has a marketing program
under which participating dealers can link-up through their personal computers
with the Company's order-entry and warehousing system. This system allows more
efficient and rapid shipment of products to customers and provides a stronger
link between the Company and its customers.
7
<PAGE>
The Company's sales and marketing force consists of a Senior Vice President of
Sales and Marketing who oversees 88 personnel. The majority of these personnel
are in the Company's computerized telemarketing program. The remainder are field
representatives, foreign in-house telemarketing sales representatives, in-house
retail sales representatives and new dealer development personnel.
The Company's products are sold primarily to about 4,000 dealers throughout the
United States and to approximately 650 dealers in Canada, Europe, Australia, New
Zealand and the Far East. International sales accounted for approximately 17%,
20% and 19% of the Company's net sales in the fiscal years ended January 31,
1995, 1996 and 1997, respectively. No single customer, domestic or
international, accounted for more than 2.0% of the Company's total net sales in
the fiscal years ended January 31, 1995, 1996 or 1997. Although many of the
Company's customers are small businesses with limited capital, the Company has
not historically experienced significant losses due to uncollectible trade
receivables.
PATENTS, TRADEMARKS, COPYRIGHTS, TRADE SECRETS AND LICENSES
The Company has numerous United States and international patents, trademarks and
copyrights, and has applied for additional United States and international
patents, trademarks and copyrights, in connection with certain of its products.
Although these types of intellectual property protection may have value, the
Company believes that other factors, such as product innovations, are of more
significance in the Company's industry. The Company attempts to avoid infringing
patents of others by monitoring on a regular basis patents issued with respect
to motorcycle parts and accessories. The Company has obtained license rights in
connection with the development and marketing of certain of its products. These
agreements generally require the Company to pay a royalty to the licensor based
on product sales.
The Company believes that its proprietary products provide it with a key
competitive advantage, but patent protection generally cannot be obtained for
most of these products. The Company attempts to minimize unauthorized copying of
these products by a variety of methods, including the ability to remove tooling
after a production run. The Company also believes that its annual catalog, which
is copyrighted, provides an important competitive advantage and the Company
intends to vigorously protect its copyrights with respect to the catalog.
However, there can be no assurance that unauthorized copying will not occur.
From time to time, Custom Chrome and Harley-Davidson have had disputes regarding
alleged infringement of certain of each other's trademarks and patents. In 1989,
litigation occurred between the companies, primarily concerning certain
trademark matters. This litigation was settled satisfactorily to both parties in
1990. However, there can be no assurance that other disputes, including those
which could lead to litigation regarding trademarks, patents or other matters,
will not occur in the future between Custom Chrome and Harley-Davidson.
EMPLOYEES
As of January 31, 1997, the Company employed approximately 363 permanent
employees, including 95 in sales and marketing, 204 in operations, 34 in product
development and 30 in administrative and management positions. In addition, the
Company utilizes the services of 34 temporary workers contracted through an
agency. The Company's ability to attract and retain qualified personnel is
essential to the Company's continued success. None of the Company's employees is
represented by collective bargaining agreements, nor has the Company ever
experienced a work stoppage. The Company believes its employee relations are
good.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company desires to take advantage of certain provisions of the Private
Securities Litigation Reform Act of 1995, enacted in December 1995 (the "Reform
Act") that provide a "safe harbor" for forward-looking statements made by or on
behalf of the Company. The Company hereby cautions shareholders, prospective
investors in the Company and other readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's stock price or cause the Company's actual results for the fiscal year
ending January 31, 1998, for the fiscal quarter ending April 30, 1997, and for
other future fiscal years and quarters to differ materially from those expressed
in any forward-looking statements, oral or written, made by or on behalf of the
Company.
DEPENDENCE ON, AND COMPETITION WITH, HARLEY-DAVIDSON
The Company is the largest independent supplier of aftermarket parts and
accessories for Harley-Davidson motorcycles. The Company's past success has
depended, and the Company's future growth depends, in large part on the
popularity of Harley-Davidson motorcycles
8
<PAGE>
and the continued success of Harley-Davidson in maintaining a significant market
share for motorcycle sales and the number of units sold in the heavyweight
class. In particular, the Company's continued growth in earnings is in large
part dependent upon continuing demand for Harley-Davidson motorcycles and upon
Harley-Davidson's ability to meet such demand. In recent years, many other
motorcycle manufacturers have experienced fluctuations in market share and
number of units sold. If the market for new Harley-Davidson motorcycles were to
decline or if the popularity of existing Harley-Davidson motorcycles were to
decline, the Company's business, including earnings, could be materially
adversely affected.
In addition, it appears that the Company's stock price has in the past and may
in the future be affected by fluctuations in the price of Harley-Davidson's
stock. Adverse results in any of Harley-Davidson's businesses, including its
non-motorcycle businesses, could adversely affect the price of Harley-Davidson's
stock, which could, in turn, adversely affect the Company's stock price. See
"Business -Motorcycle Parts and Accessories Industry."
The Company also competes with Harley-Davidson in the sale of parts and
accessories for both new and used Harley-Davidson motorcycles to Harley-
Davidson's franchised dealers, most of which are also customers of the Company.
Harley-Davidson has substantially greater financial, marketing, manufacturing
and technical resources than the Company. There can be no assurance that the
Company will be able to compete effectively with Harley-Davidson in the future.
From time to time, the Company and Harley-Davidson have had disputes regarding
alleged infringement of certain of each other's trademarks and patents, and
certain litigation related thereto was settled in 1990. There can be assurance
that other disputes, including those which could lead to litigation regarding
trademarks, patents or other matters, will not occur in the future between the
Company and Harley-Davidson.
COMPETITION
The market for the Company's products is highly competitive. Key competitive
factors in the parts and accessories aftermarket for Harley-Davidson motorcycles
include the ability to promptly fill orders from inventory, the range of unique
products offered and the speed and cost of product delivery. The Company's
competitors include independent distributors ranging in size from small to
large, and the proximity of any distributor to a particular dealer and the
availability of unique products is often a competitive advantage. Accordingly,
even small local distributors may be able to compete effectively against the
Company. In addition, the Company competes with Harley-Davidson in the sales of
parts and accessories to Harley-Davidson franchised dealers. There can be no
assurance that the Company will be able to compete successfully in the future
with small distributors or with Harley-Davidson. See also "Business-Competition"
above.
In 1995, the Federal Trade Commission (the "FTC") voted to dissolve a 1954
consent decree against Harley-Davidson which, among other things, had prohibited
Harley-Davidson from imposing exclusive dealing requirements upon its dealers.
This consent decree was lifted pursuant to the FTC's "sunset" policy which
presumes that decrees which are more than 20 years old should be eliminated. In
response to extensive public comments to the FTC urging that it keep this
consent decree in force, Harley-Davidson reported that it had no plans to change
its dealer agreements in order to require exclusive dealings. However, there can
be no assurance that Harley-Davidson will not impose such exclusive dealing
requirements upon its dealers who now purchase parts and accessories from Custom
Chrome; nor can there be any assurance that, if Harley-Davidson decided to
impose such requirements upon its dealers, that a legal challenge to prevent
such an action would be successful. If Harley-Davidson is successful in imposing
exclusive dealing requirements on its dealers, such requirements could have a
material adverse effect on the Company's business.
RECENT GROWTH IN NET SALES
The Company's net sales grew rapidly over the three years ended January 31,
1997, with 15.6% growth experienced in the current year, 25.4% in the year ended
January 31, 1996, and 11.4% in the year ended January 31, 1995 as compared to
the respective prior fiscal years. Continued growth in net sales and earnings is
dependent upon a number of factors, however, and the Company may, as a result,
be unable to maintain quarterly or annual revenue growth in net sales or
earnings at rates comparable to those experienced in recent periods. See
"Dependence on, and Competition with, Harley-Davidson." See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations" below.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in part, upon the continued performance of the
Company's Co-founder, Ignatius J. Panzica, who serves as President and Chief
Executive Officer of the Company, and other key executives, including James J.
Kelly, Jr. (Executive Vice President, Finance), R. Steven Fisk (Senior Vice
President, Purchasing, Operations and Product Development), Daniel J. Stern
9
<PAGE>
(Senior Vice President, Sales and Marketing) and Dennis Navarra (Vice President,
Administration). In addition, the Company's success also depends in part on the
continued performance of certain other key employees. Although incentives exist
for these individuals to remain with the Company, the loss of the services of
any one of them could have a material adverse effect on the business of the
Company.
SEASONALITY AND WEATHER
The Company's net sales for its last two quarters of any particular fiscal year
are generally lower than the net sales for the first two quarters of such year.
This decrease in net sales is due to a lower number of orders by dealers in
anticipation of, and during, the cold weather months, during which motorcycle
riding decreases relative to the warm weather months. In particular, the
Company's operating results may be negatively affected by adverse weather
conditions, such as those experienced in the Eastern and Southern United States
during the spring and early summer months of 1996. Any such decrease has a
significant impact on the Company's quarterly earnings during the last two
quarters of its fiscal year because certain operating expenses remain relatively
constant throughout the year. The Company seeks to mitigate this seasonality
through various promotional efforts and incentives, but no assurance can be
given that such seasonality will not have a material adverse affect on the
Company's revenues and earnings during this period. See "Management Discussion
and Analysis of Financial Condition and Results of Operations" below.
DEPENDENCE ON THIRD PARTY AND FOREIGN MANUFACTURING RELATIONSHIPS; TAIWANESE
POLITICAL VOLATILITY
A significant portion of the Company's products are purchased from third party
manufacturers, often through independent trading companies. Although the Company
believes it has close working relationships with its trading companies and most
of its suppliers, the Company does not have long-term arrangements with these
parties, and therefore, cannot be assured that products will be delivered on a
timely basis or on terms favorable to the Company in the future. In addition,
any disruption in the Company's trading company or manufacturing relationships
could result in supply delays. Many of the Company's suppliers are located in
Asia, and, therefore, the Company is subject to certain risks associated with
dealing with foreign suppliers, including currency exchange fluctuations, trade
restrictions and changes in tariff and freight rates. Moreover, many of the
Company's suppliers are located in Taiwan and the Company's relationships with
such suppliers are subject to disruption in the event of remaining volatility
in, or a worsening of, Taiwan's political and military relationship with the
People's Republic of China.
MANAGEMENT OF GROWTH
The Company's success will depend in part on its ability to manage growth, both
domestically and internationally. Such growth will require the Company to
enhance its operational, management information and financial control systems.
In addition, continued growth will require the Company to increase the personnel
in its sales, marketing and customer support departments. If the Company is
unable to successfully enhance its systems or to hire a sufficient number of
employees with the appropriate levels of experience in a timely manner, the
Company's business, financial condition and results of operations could be
materially and adversely affected.
INTERNATIONAL OPERATIONS
In the fiscal years ended 1995, 1996 and 1997, international sales accounted for
17%, 20% and 19%, respectively, of the Company's total net sales. The Company
expects that international sales will continue to represent a significant
portion of its net sales in the future. The Company's results of operations may
be adversely affected by fluctuations in exchange rates, difficulties in
collecting accounts receivable, tariffs and difficulties in obtaining export
licenses. Moreover, the Company's international sales may be adversely affected
by lower sales levels that typically occur during the summer months in Europe
and other parts of the world. International sales and operations are also
subject to risks such as the imposition of governmental controls, political
instability, trade restrictions and changes in regulatory requirements,
difficulties in staffing and managing international operations, generally longer
payment cycles and potential insolvency of international dealers. There can be
no assurance that these factors will not have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
business, financial condition and results of operations.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Both federal and state authorities have various environmental control
requirements relating to air, water and noise pollution that effect the business
operations of the Company and Custom Chrome Manufacturing, Inc., which in the
past utilized a chrome-plating and polishing process. The Company endeavors to
ensure that all its facilities comply with applicable environmental
requirements, there can be no assurance that its operations do not violate such
requirements or that any steps taken by the Company to remediate any former
noncompliance with such requirements would not have a material effect on the
Company's operations.
10
<PAGE>
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Board of Directors has the authority to issue up to 1,000,000 shares of
undesignated Preferred Stock and to determine the rights, preferences,
privileges and restrictions of such shares without further vote or action by the
Company's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely effected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance, or possible
issuance, of Preferred Stock could have the effect of making it more difficult
for third parties to acquire a majority of the outstanding voting stock of the
Company. In addition, on November 13, 1996, the Board of Directors approved a
Preferred Shares Rights plan. The rights plan, as well as certain provisions of
the Company's Amended and Restated Certificate of Incorporation and Bylaws and
of Delaware law, could delay or make difficult a merger, tender offer or proxy
contest involving the Company.
POSSIBLE VOLATILITY OF STOCK PRICE
The Company's stock price may be subject to significant volatility, particularly
on a quarterly basis. Any shortfall in revenue or earnings from levels expected
or projected by securities analysts or others could have an immediate and
significant adverse effect on the trading price of the Company's common stock in
any given period. Additionally, the Company may not learn of, or be able to
confirm, revenue or earnings shortfalls until late in the fiscal quarter or
following the end of the quarter, which could result in an even more immediate
and adverse effect on the trading of the Company's common stock.
11
<PAGE>
ITEM 2. PROPERTIES
PROPERTIES
The Company owns and leases the properties set forth below subject to the
particular loan agreements and leases for each particular location:
OWNED PROPERTIES
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE USE
- -------- -------------- ---
<S> <C> <C>
Morgan Hill, CA 120,000 Headquarters
Louisville, KY 163,000 Distribution facility
</TABLE>
LEASED PROPERTIES
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE USE
- -------- -------------- ---
<S> <C> <C>
Coppell, TX 60,000 Distribution facility
Harrisburg, PA 87,500 Distribution facility
Jacksonville, FL 60,600 Distribution facility
Visalia, CA 100,800 Distribution facility
Sylmar, CA 38,400 Manufacturing facility
Tainan, Taiwan 20,000 Procurement office and warehouse
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
(a) There is no material legal proceeding to which the Company is a
party or to which any of its properties are subject.
(b) No material legal proceedings were terminated in the fourth
quarter of the year ended January 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded over-the-counter on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") National
Market ("NNM") under the symbol CSTM. The following table sets forth the range
of high and low closing sales prices, as reported on the NASDAQ National Market
for the last two fiscal years.
<TABLE>
<CAPTION>
Price Range of
Common Stock
--------------
High Low
---- ---
<S> <C> <C>
Year ended January 31, 1997
First Quarter $27.50 $24.00
Second Quarter $27.88 $22.00
Third Quarter $22.63 $16.25
Fourth Quarter $21.375 $18.25
Year ended January 31, 1996
First Quarter $20.13 $17.06
Second Quarter $24.75 $19.00
Third Quarter $25.125 $21.75
Fourth Quarter $26.50 $22.25
</TABLE>
On April 3, 1997, the Company had 268 holders of record of its Common Stock and
approximately 5,299,000 shares outstanding.
Since its initial public offering on November 6, 1991, the Company has not
declared or paid a cash dividend on its common stock. In addition, on December
19, 1994, the Company issued $15,000,000 of 8.01% Senior Notes to a life
insurance company which are due and payable in equal payments in 1997 through
2001. The Note Agreement contains certain restrictions regarding the Company's
ability to pay dividends.
The Company currently plans to retain all of its earnings to support the
development and expansion of its business and has no present intention of paying
any cash dividends on the Common Stock in the foreseeable future. However, the
Board of Directors of the Company will review the dividend policy periodically
to determine whether the declaration of cash dividends is appropriate.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data of the
Company. This historical data should be read in conjunction with the attached
Consolidated Financial Statements and the related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing in Item 7 of this Form 10-K.
<TABLE>
<CAPTION>
Years Ended
January 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 (1) 1993(2)
---- ---- ---- -------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Sales, net $108,557 $93,906 $74,904 $67,252 $52,428
Gross profit 43,723 39,127 31,571 28,669 21,810
Operating income 14,961 13,953 11,341 10,007 7,208
Income before income taxes, extraordinary items
items and cumulative effect of a change in
accounting principle 13,046 12,316 10,640 9,180 6,415
Income before extraordinary items and cumulative
effect of a change in accounting principle 7,872 7,921 6,416 5,508 3,878
Net income $ 7,872 $ 7,921 $ 6,416 $ 7,108 $ 4,993
======== ======= ======= ======= =======
Income per share before extraordinary items and
cumulative effect of a change in accounting principle $ 1.48 $ 1.52 $ 1.27 $ 1.10 $ .78
======== ======= ======= ======= =======
Net income per share $ 1.48 $ 1.52 $ 1.27 $ 1.42 $ 1.00
======== ======= ======= ======= =======
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
January 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital $ 52,791 $45,710 $39,286 $18,826 $11,684
Total assets 91,497 89,712 64,337 47,264 40,469
Long-term debt 16,154 19,489 19,476 4,752 4,691
</TABLE>
(1) Net income for the year ended January 31, 1994 includes a credit of
$1,600,000 related to an accounting change for income taxes.
(2) Net income for the year ended January 31, 1993 includes an extraordinary
credit of $1,115,000 related to the utilization of income tax benefits from
net operating loss carry-forwards.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in this Report. In addition, the
Company desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Specifically, the Company wishes to
alert readers that the factors set forth in "Additional Factors That May Affect
Future Results" in Item 1 of Part I of this Report, as well as other factors,
have in the past and could in the future affect the Company's actual results and
could cause the Company's results for future quarters to differ materially from
those expressed in any forward looking statements made by or on behalf of the
Company.
Results of Operations
Seasonality
-----------
Custom Chrome's net sales for its first two quarters of any particular fiscal
year, are generally greater than the net sales for the balance of the year. This
increase in net sales is due to a greater number of shippable orders placed by
dealers in anticipation of, and during, the warm-weather months, which are the
peak of the motorcycle riding season. Because the Company's markets are
influenced by seasonal weather conditions, net sales generally decrease during
the last two quarters of the fiscal year. This decrease has a significant impact
on the Company's quarterly operating income during the last two quarters of the
year because certain operating expenses remain relatively constant throughout
the year. The Company attempts to mitigate this seasonality through various
promotional efforts and incentives during the last two quarters.
Year ended January 31, 1997 compared to year ended January 31, 1996
Net sales increased 15.6% to $108,557,000 for the year ended January 31, 1997
from $93,906,000 for the year ended January 31, 1996. This percentage increase
compares to the prior year increase of 25.4% for the same period last year over
net sales for the year ended January 31, 1995. Sales growth was the result of
higher shipment levels to a broad base of customers in the United States. Sales
growth to customers in the Eastern and Central United States was lower than the
Company average primarily as a result of poor weather conditions in the first
six months of the fiscal year. In addition, sales growth in overseas markets was
significantly lower than the Company average, which management believes was
attributable to the high value of the U. S. dollar and poor economic conditions
in large markets such as Germany and Japan. Sales growth slowed in each
succeeding quarter of the fiscal year. Management believes the slowing sales
growth rate throughout the year was a result of slowing general market
conditions which have continued into the new fiscal year and not a loss of
market share to competitors.
Gross profit increased 11.7% to $43,723,000 for the year ended January 31, 1997
from $39,127,000 for the same period of last year. The increase over the prior
year comparable amount was principally a result of higher shipment levels in the
current year. Gross profit as a percentage of sales was 40.3% for the year ended
January 31, 1997 compared with 41.7% last year. The decrease in gross profit as
a percentage of sales for the current year, compared with last year, is the
result of sales discounts and sales price decreases responding to price
competition from smaller competitors. In addition, a large number of new parts
sold were purchased from domestic manufacturers which carry lower gross margins
than foreign produced products. As a result the overall percentage of sales of
proprietary and foreign produced products, which traditionally have earned a
higher than average gross margin, decreased and the overall percentage of sales
and products manufactured by domestic manufacturers increased. Management
continues to see these trends in the marketplace.
14
<PAGE>
Selling general and administrative expenses increased 15% to $27,039,000 for the
year ended January 31, 1997 from $23,522,000 in the last fiscal year. The
increase over the prior year comparable amount was principally a result of
higher compensation costs related to staff additions and higher advertising and
promotion costs. These expenses as a percentage of sales were 24.9% for the year
ended January 31, 1997 as compared to 25.0% for last year.
Product development expenses increased 4.3% to $1,723,000 from $1,652,000 in the
last fiscal year. These expenses were 1.6% as a percentage of sales for the year
ended January 31, 997 as compared with 1.8% for the same period last year. The
increase in product development expenses in absolute amount resulted from higher
compensation costs and the Company's continued focus on developing and
introducing new proprietary products. Product development expenses were
relatively consistent as a percentage of sales.
Interest expense increased 17% to $1,915,000 for the year ended January 31, 1997
from $1,637,000 in the last fiscal year. The increase in interest expense was
principally due to higher average short-term borrowings to support the Company's
higher inventory levels.
The Company's effective income tax rate was 39.7% for the year ended January 31,
1997 as compared with 35.7% for last fiscal year. The reduced interest rate in
the prior fiscal year was principally due to the recognition of state income tax
refunds from prior years as a result of filing amended tax returns with revised
income allocation bases and tax benefits resulting from the Company's employment
of a certain class of labor at its Louisville, Kentucky warehouse.
Year ended January 31, 1996 compared to year ended January 31, 1995
Net sales increased 25.4% to $93,906,000 for the year ended January 31, 1996
from $74,904,000 for the same period of last year. Sales growth in the year was
primarily the result of higher shipment levels to a broad base of the Company's
dealers in the United States and overseas. Exceptionally strong sales growth was
achieved in the European market as a result of increased marketing and strategic
alliances with customers in that market.
Gross profit increased 23.9% to $39,127,000 for the year ended January 31, 1996
from $31,571,000 for the same period of last year. The increase over the prior
year comparable amount was principally a result of higher shipment levels. Gross
profit as a percentage of sales was 41.7% for the year ended January 31, 1996
compared with 42.1% last year. The decrease in gross profit as a percentage of
sales for the current year, compared to last year, is the result of sales
discounts and sales price decreases responding to price competition from smaller
competitors in non-proprietary product lines.
Selling, general and administration expenses increased 25.8% to $23,522,000 for
the year ended January 31, 1996. The increase over the prior year comparable
amount were principally a result of higher compensation costs, related to staff
additions to support the Company's growth and higher advertising and promotions
costs, including freight incentives. These expenses as a percentage of sales
were 25.0% for the year ended January 31, 1996 as compared to 25.0% for last
year.
Product development expenses increased 7.6% to $1,652,000 for the year ended
January 31, 1996 from $1,535,000 for last year. These expenses as a percentage
of sales were 1.8% for the year ended January 31, 1996 compared with 2.0% for
last year. The increase in product development expenses primarily resulted from
higher compensation costs and the Company's intention to increase the
introduction of new proprietary products.
Interest expense increased 133.5% to $1,637,000 for the year ended January 31,
1996 from $701,000 for last year. The increase in interest expenses related to
the Company's issuance of $15,000,000 in 8.01% Senior Secured Notes to an
insurance company in December 1994 and higher short-term borrowings in the
second six months of the year to finance an increase in the Company's
inventories.
The Company's effective income tax rate was 35.7% for the year ended January 31,
1996, as compared with 39.7% for last year. The reduced income tax rate in the
current year was principally due to the recognition of state income tax refunds
from prior years as the result of filing amended tax returns with revised income
allocation bases and tax benefits resulting from the Company's employment of a
certain class of labor at its Louisville, Kentucky warehouse.
Liquidity and Capital Resources
The Company maintains a $15,000,000 working capital line of credit and a
$10,000,000 foreign exchange facility which expires on June 30, 1997. The
Company uses the working capital line of credit, which is subject to certain
restrictions and covenants, for seasonal cash requirements, which typically peak
during the Company's fourth fiscal quarter when inventories are increased in
anticipation of sales in the first and second fiscal quarters. Borrowings under
the working capital line of credit bear interest at the bank's prime rate (8.5%
at January 31, 1997). Under the working capital line of credit, the bank will
create short term fixed borrowings at the Company's request. At January 31, 1997
and 1996 the weighted average interest rate on short-term fixed borrowings was
6.7% and 7.0%,
15
<PAGE>
respectively. As of January 31, 1997, there were outstanding short-term fixed
borrowings in the principal amount of $4,878,000. In addition, the Company was
contingently liable under letters of credit in the amount of $468,000 at January
31, 1997.
On December 19, 1994, the Company issued $15,000,000 in Senior Secured Notes to
a life insurance company, which are repayable, as to principal, in five annual
payments in the years 1997 to 2001. The Notes carry an interest rate of 8.01%
and are secured by substantially all of the assets of the Company. Proceeds from
the issuance of the Notes are being used to support the Company's working
capital requirements and other corporate purposes.
In the year ended January 31, 1997, the Company made capital expenditures of
$3,601,000 primarily for a building expansion to its Louisville, Kentucky
distribution location, tooling for new products, computer equipment and general
office and warehouse equipment purchases.
Net cash provided by operating activities in the year ended January 31, 1997,
was $9,523,000 compared with $19,792,000 used by operating activities in the
prior year. The net cash provided by operations was the result of the Company's
profitability, non cash charges to income and small increase in net working
capital from the prior year.
Net cash provided by operating activities and funds provided by stock option
exercises was used to repay short- and long-term borrowings.
The Company believes that cash flow from operations and funds from the working
capital line of credit will be adequate to meet its capital and cash
requirements at least through the next 12 months.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
See item 14(a) for an index to the consolidated financial statements and
supplementary financial information which are attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information regarding the directors of the Company, and their
respective ages and positions as of April 30, 1996:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY AGE
- ---- ---------------------------- ---
<S> <C> <C>
Ignatius J. Panzica... Chairman of the Board of Directors; 53
Chief Executive Officer and President
James J. Kelly, Jr.... Director; Executive Vice President, Finance; 46
Chief Financial Officer; Secretary
Lionel M. Allan....... Director 53
Joseph F. Keenan...... Director 56
Joseph Piazza......... Director 62
R. Steven Fisk........ Senior Vice President, Purchasing, Product 46
Development and Operations
Daniel J. Stern....... Senior Vice President, Sales and Marketing 38
Dennis B. Navarra..... Vice President, Administration and Assistant 43
Secretary
</TABLE>
BUSINESS EXPERIENCE OF DIRECTORS
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.
16
<PAGE>
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 Finance Officer of
Canadian Marconi 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. For
more than five years, Mr. Allan has been President of Allan Advisors, Inc., a
legal consulting firm. Mr. Allan has been a director and in the 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 is currently in private law practice in San Francisco, California.
Previously, 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
electronic 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.
JOSEPH PIAZZA has served as a Director of the Company since April 1996. From
1989 until 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 served as President and Chief Executive Officer of Rocky Cycle
Co.
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 Zodiac
Enterprises Ltd., one of the Company's significant vendors.
DANIEL J. STERN has served as Senior Vice President, Sales and Marketing since
November 1995. Mr. Stern joined the Company in June 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 employed as a senior
auditor with KPMG Peat Marwick LLP.
REMUNERATION OF BOARD OF DIRECTORS
The Company currently pays all non-employee Board members of 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.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
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, 1997 was at least $100,000 for
services rendered in all capacities to the Company for each of the last three
fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
-------------------------- ------------
Number of
Year Securities
Ended Underlying All Other
January 31, Salary($)/1/ Bonus($) Options(#) Compensation
----------- ------------ -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Ignatius J. Panzica 1997 328,038 653,910 100,000 500/(2)/
Chairman of the Board, 1996 337,550 614,805 100,000 500/(2)/
Chief Executive Officer 1995 325,964 467,126 241,088 500/(2)/
James J. Kelly, Jr. 1997 134,189 5,293/(3)/ 32,250 500/(2)/
Director, Executive 1996 131,005 4,551/(3)/ 32,250 500/(2)/
Vice President, Finance 1995 135,511 12,676/(4)/ 30,000 500/(2)/
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
and 1996 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 $10,000, which was applied as payment toward the
outstanding principal balance on the loan. See "Certain Relationships
and Related Transactions."
18
<PAGE>
OPTION GRANTS
The following table provides information with respect to the stock option grants
made during the fiscal year ended January 31, 1997 to the Company's executive
officers named in the Summary Compensation Table above. No stock appreciation
rights were granted to these individuals during such fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual
Rate of Stock
Price Appreciation
Individual Grants for Option Term
----------------------------------------------------------- --------------------------------
% of Total
Options Exercise
Granted to or Base
Options Employees in Price/(1)/ Expiration
Name Granted(#) Fiscal Year ($/sh) Date 5 % ($)/(2)/ 10 % ($)/(2)/
- ---------------------- ------------ ----------- -------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Ignatius J. Panzica 100,000/(3)/ 29.5% $18.13 09/12/06 $1,140,186 $2,889,455
James J. Kelly, Jr. 32,250/(4)/ 9.5% $18.13 09/12/06 $367,710 $931,849
</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 officer.
/(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 September 12, 1996 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 September 12, 1996 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.
19
<PAGE>
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning the exercise of options during
the fiscal year ended January 31, 1997 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 EXERCISED IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Shares Aggregate Unexercised Options at In-the-Money
Acquired On Value Realized/(1)/ FY-End (#) Options at FY-End/(2)/
Name Exercise (#) $ Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- ------------ ------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ignatius J. Panzica 133,332 $1,176,317 323,385/70,204 $227,339/$207,880
James J. Kelly, Jr. 14,081 156,799 29,447/31,640 $ 44,565/$113,394
</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 ($19.25) 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 National Association of Securities Dealers
Automated Quotations System on Wednesday, January 31, 1997.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENT
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 minimum level of annual
base salary, which as a result of periodic increases authorized by the
Compensation Committee is at $130,000 effective March 1, 1996, plus a bonus of
up to 20% of his base salary awarded in the sole discretion of the Compensation
Committee.
20
<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 report 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, 1997 were met in a timely manner by each executive officer, Board
member and greater than ten percent (10%) stockholder.
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, 1997 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 also served as the Vice-Chairman of the Board
during such fiscal year and served as President and Chief Executive Officer from
1975 to January 1991. Mr. Cruze resigned from the Board of Directors and from
the Compensation Committee in March 1996.
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 April 4,
1997 by (i) all persons who are beneficial owners of five percent or more of the
Company's Common Stock, (ii) each director, (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.
21
<PAGE>
<TABLE>
<CAPTION>
Percent of Shares
Name and Address if Required, of Beneficial Owner Shares Beneficially Owned Beneficially Owned
- ------------------------------------------------------- ------------------------- -------------------
<S> <C> <C>
Ignatius J. Panzica (1) 492,629 8.7%
Custom Chrome, Inc.
16100 Jacqueline Court
Morgan Hill, CA 95037
FMR Corp. (2) 525,300 9.9%
82 Devonshire Street
Boston, MA 02109
State of Wisconsin Investment Board (3) 470,300 8.9%
121 E. Wilson Street
Madison, WI 53702
Putnam Investment Management, Inc. (4) 322,200 6.1%
One Post Office Square
Boston, MA 02109
T. Rowe Price Associates, Inc. (5) 313,300 5.7%
100 East Pratt Street
Baltimore, MD 21202
The Prudential Insurance Company of America (6) 264,800 5.0%
751 Broad Street
Newark, NJ 07102-3777
James J. Kelly, Jr. (7) 39,664 *
Lionel M. Allan (8) 20,145 *
Joseph F. Keenan (9) 4,395 *
Joseph Piazza (10) 729 *
All current directors and executive officers as
a group (8 persons) (1)(7)(8)(9)(10) 557,562 9.8%
</TABLE>
* Less than one percent (1%)
(1) Includes 341,096 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days of
April 4, 1997.
(2) Based on schedule 13G dated February 11, 1997, filed by FMR Corp. ("FMR").
Represents shares beneficially owned by Fidelity Management & Research
Company, a wholly-owned subsidiary of FMR, as a result of its serving as an
investment advisor to various investment accounts.
(3) Based on Schedule 13G/A dated January 24, 1997, filed by the State of
Wisconsin Investment Board.
(4) Based on Schedule 13G/A dated January 30, 1997, filed by Putnam
Investments, Inc. ("Putnam Investments"). Represents shares beneficially
owned by subsidiaries of Putnam Investments as a result of such
subsidiaries serving as investment advisors to various investment accounts.
(5) Based on Schedule 13G/A dated February 14, 1997, filed by T. Rowe Price
Associates, Inc.
(6) Based on Schedule 13G dated February 5, 1997, filed by the Prudential
Insurance Company of America ("Prudential"). Represents shares
beneficially owned by subsidiaries and other affiliates of Prudential as a
result of such entities serving as investment advisors to various
investment accounts.
(7) Includes 37,651 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days after
April 4, 1997.
(8) Represents 20,145 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days after
April 4, 1997.
(9) Includes 1,895 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days after
April 4, 1997.
(10) Includes 729 shares issuable upon the exercise of options which are
currently exercisable or which will become exercisable within 60 days after
April 4, 1997.
ITEM 13. 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 5.64%, 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
22
<PAGE>
by a Second Deed of Trust on such residence. The entire principal balance of the
loan, together with all accrued and unpaid interest are 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, 1997 the
largest amount outstanding under Mr. Kelly's loan was $25,000, and on April 15,
1996, Mr. Kelly repaid the entire remaining amount outstanding under the loan.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The following Consolidated Financial Statements of Custom Chrome, Inc.
and its subsidiaries are filed as part of this report on Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets - January 31, 1997 and 1996 F-2
Consolidated Statements of Operations - Years ended January 31, 1997, 1996 and
1995 F-3
Consolidated Statements of Shareholders' Equity - Years ended January 31,1997,
1996 and 1995 F-4
Consolidated Statements of Cash Flows - Years ended January 31, 1997, 1996
and 1995 F-5 & F-6
Notes to Consolidated Financial Statements F-7 - F-12
2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts II-1
</TABLE>
All other schedules have been omitted because the matter or conditions
are not present or the information required to be set forth therein is
included in the Consolidated Financial Statements hereto.
(B) REPORTS ON FORM 8-K
Report on Form 8-K filed December 10, 1996 regarding Preferred Share
Purchase Rights.
(C) EXHIBITS
Exhibit
Number Exhibit
------ -------
3.1(1) Certificate of Incorporation of Custom Chrome, Inc.
3.2(3) Restated Certificate of Incorporation of Custom Chrome, Inc.
3.3(1) Bylaws, as amended.
3.4(1) Form of Amendment to Bylaws.
4.1 Reference is made to Exhibit 3.1.
4.2 Reference is made to Exhibit 3.2.
4.3 Reference is made to Exhibit 3.3.
23
<PAGE>
10.1(1) Custom Chrome, Inc. 1991 Stock Option Plan (the "Stock
Option Plan").
10.2(1) Form of Stock Option Agreement for granting stock options
under the Stock Option Plan.
10.3(2) Custom Chrome, Inc. 1991 Stock Option Plan, as restated on
March 2, 1992 (the "Restated Stock Option Plan").
10.4(2) Form of Notice of Grant of Stock Option (the "Notice of
Grant") and Stock Option Agreement, attached as Exhibit A to
the Notice of Grant, for granting stock options under the
Restated Stock Option Plan.
10.5(2) Form of Non-Statutory Stock Option Agreement for automatic
option grants made under the Restated Stock Option Plan.
10.6(1) Form of Employment or Association Agreement for Assignment
of Inventions and Confidentiality of Company Information.
10.7(1) Form of Director's Indemnification Agreement.
10.15(1) Long-Term Incentive Compensation Agreement between Custom
Chrome Holdings, Inc. and Ignatius J. Panzica dated August
23, 1989.
10.18(1) Management Bonus and Non-competition Agreement between
Custom Chrome, Inc. and Ignatius J. Panzica dated August 23,
1989.
10.45(1) Exclusive Manufacturing and Royalty Agreement between Custom
Chrome, Inc. and Zodiac Enterprises, Ltd. dated March 7,
1987.
10.46(1) Amendment Agreement to Exclusive Manufacturing and Royalty
Agreement between Custom Chrome, Inc. and Zodiac
Enterprises, Ltd. dated August 1991.
10.55(1) Option Agreement between Custom Chrome Holdings, Inc. and
Ignatius J. Panzica dated July 31, 1991.
10.56(1) Employment Agreement between Custom Chrome, Inc. and
Ignatius J. Panzica dated September 19, 1991.
10.57(1) Amendment between Ignatius J. Panzica and Custom Chrome,
Inc. dated September 19, 1991, to Subscription and
Stockholders Agreement between Custom Chrome, Inc. and the
Investors therein August 23, 1989.
10.62(3) Form of Master Lease Agreement between Custom Chrome, Inc.
and BancBoston Leasing Inc.
10.63(3) Installment Sale Agreement between Custom Chrome, Inc. and
Hewlett-Packard Company dated February 1992 and related
documents.
10.64(5) Lease agreement between Custom Chrome, Inc. and Central
Storage & Transfer Co. dated December 17, 1991.
10.65(4) Line of Credit Agreement between the Company and Bank of
America N. T. & S. A.
10.66(6) Lease between the Company and Allen Chrome Partners, dated
April 14, 1994.
10.67(6) Lease between the Company and H.L.M Properties dated
February 18, 1994.
10.68(7) Note Agreement between the Company and Connecticut Mutual
Life Insurance Company, dated as of December 1, 1994.
10.70(8) 1995 Stock Option Plan and form of stock option agreement.
24
<PAGE>
10.71(9) Amended and Restated Business Loan Agreement between the
Company and Bank of America National Trust and Savings
Association.
10.72 Lease between Company and Primera Coppell Properties I,
Ltd., dated December 3, 1996
10.73 Lease between Company and Stone Mountain Industrial Park,
Inc., dated February 11, 1997.
11.1 Statement re Computation of Net Income per Common Share and
Share Equivalent. Reference is made to page II-1 of this
report.
22.1(1) Subsidiaries of the Company.
23.1 Consent of Independent Auditors
24.1 Power of Attorney. Reference is made to page 27 of this
Report.
27.1 Financial Data Schedule.
________________________________
(1) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-42875) declared effective
by the Securities and Exchange Commission on November 5, 1991.
(2) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 33-47223) filed with the
Securities and Exchange Commission on April 15, 1992.
(3) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 30, 1992.
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-3 (File No. 33-65112) declared effective
by the Securities and Exchange Commission on July 22, 1993.
(5) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 30, 1993.
(6) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 28, 1994.
(7) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 28, 1995.
(8) Incorporated by reference from an exhibit filed with the Company's
Registration Statement of Form S-8 (File No. 33-80095) filed with the
Securities and Exchange Commission on December 6, 1995.
(9) Incorporated by reference from an exhibit filed with the Company's amended
Annual Report on Form 10-K/A (File No. 0-19540) filed with the Securities
and Exchange Commission on May 30, 1996.
25
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MORGAN HILL, CALIFORNIA ON
THIS 30TH DAY OF APRIL, 1997.
CUSTOM CHROME, INC.
By /S/ IGNATIUS J. PANZICA
----------------------------
Ignatius J. Panzica
Chairman, President and
Chief Executive Officer
26
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ignatius J. Panzica and James J. Kelly, Jr. and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Report
on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED:
Name Title Date
- ---- ----- ----
/S/ IGNATIUS J. PANZICA Chairman, President,Chief Executive April 30, 1997
- ------------------------ Officer and Director (Principal
(Ignatius J. Panzica) Executive Officer)
/S/ JAMES J. KELLY, JR. Executive Vice President, Finance and April 30, 1997
- ------------------------ Chief Financial Officer and Director
(James J. Kelly, Jr.) (Principal Financial and Accounting
Officer)
/S/ JOSEPH F. KEENAN Director April 30, 1997
- ------------------------
(Joseph F. Keenan)
/S/ LIONEL M. ALLAN Director April 30, 1997
- ------------------------
(Lionel M. Allan)
/S/ JOSEPH PIAZZA Director April 30, 1997
- ------------------------
(Joseph Piazza)
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Custom Chrome, Inc.
We have audited the consolidated financial statements of Custom Chrome, Inc. and
subsidiaries, as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Custom Chrome, Inc.
and subsidiaries as of January 31, 1997, and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG PEAT MARWICK LLP
San Jose, California
March 21, 1997
F-1
<PAGE>
CUSTOM CHROME, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
January 31,
1997 1996
------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 40 $ 312
Accounts receivable, net....................... 11,349 9,529
Merchandise inventories........................ 49,522 51,165
Deferred income taxes.......................... 1,334 2,115
Prepaid income taxes........................... 2,378 1,709
Deposits and prepaid expenses.................. 2,851 2,564
------- -------
Total current assets........................ 67,474 67,394
Property and equipment, net...................... 15,802 14,066
Other assets..................................... 8,221 8,252
------- -------
$91,497 $89,712
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations.................... $ 3,293 $ 263
Bank borrowings................................ 4,878 14,766
Accounts payable............................... 4,600 4,587
Accrued expenses and other liabilities......... 1,912 2,068
------- -------
Total current liabilities................... 14,683 21,684
Long-term debt and capital lease obligations..... 16,154 19,489
Deferred income taxes............................ 817 567
Shareholders' equity:
Common stock, $.001 par value; 20,000,000
shares authorized; 5,290,189 and 5,090,385
shares issued and outstanding................ 5 5
Additional paid-in capital..................... 31,760 27,761
Retained earnings.............................. 28,078 20,206
------- -------
Total shareholders' equity.................. 59,843 47,972
Commitments and contingencies
------- -------
$91,497 $89,712
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
CUSTOM CHROME, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year ended
January 31,
----------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Sales, net............................ $108,557 $93,906 $74,904
Cost of sales......................... 64,834 54,779 43,333
------ ------ ------
Gross profit.................... 43,723 39,127 31,571
Operating expenses:
Selling, general & administrative... 27,039 23,522 18,695
Product development................. 1,723 1,652 1,535
------ ------ ------
28,762 25,174 20,230
------ ------ ------
Operating income................ 14,961 13,953 11,341
Interest expense................ 1,915 1,637 701
------ ------ ------
Income before income taxes...... 13,046 12,316 10,640
Income taxes.................... 5,174 4,395 4,224
----- ----- -----
Net income $7,872 $ 7,921 $6,416
====== ======= ======
Net income per share $ 1.48 $ 1.52 $ 1.27
====== ======= ======
Weighted average shares outstanding 5,327 5,209 5,053
====== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CUSTOM CHROME, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional
------------ paid-in Retained
Shares Amount capital earnings Total
------------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance as of January 31, 1994... 4,855 5 25,860 5,869 31,734
Exercise of stock options........ 146 -- 423 -- 423
Net income....................... -- -- -- 6,416 6,416
----- ------- ------- ------- -------
Balance as of January 31, 1995... 5,001 5 26,283 12,285 38,573
Exercise of stock options........ 89 -- 1,478 -- 1,478
Net income....................... -- -- -- 7,921 7,921
----- ------- ------- ------- -------
Balance as of January 31, 1996... 5,090 $5 $27,761 $20,206 $47,972
----- ------- ------- ------- -------
Exercise of stock options........ 200 -- 3,999 -- 3,999
Net income....................... -- -- -- 7,872 7,872
----- ------- ------- ------- -------
Balance as of January 31, 1997... 5,290 $5 $31,760 $28,078 $59,843
===== ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CUSTOM CHROME, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended
January 31,
-----------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 7,872 $ 7,921 $ 6,416
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization......................... 1,896 1,612 1,561
Deferred income taxes................................. 1,031 (749) 1,352
Changes in items affecting operations:
Accounts receivable................................. (1,820) (1,221) (2,311)
Merchandise inventories............................. 1,643 (26,923) (4,039)
Deposits and prepaid expenses....................... (956) (2,021) (840)
Accounts payable, accrued expenses and
other liabilities.................................. (143) 1,589 542
------- -------- -------
Net cash provided (used) by operating activities... 9,523 (19,792) 2,681
------- -------- -------
Cash flows from investing activities:
Additions to property and equipment..................... (3,601) (4,659) (3,331)
------- -------- -------
Cash flows from financing activities:
Bank borrowings, net.................................... (9,888) 14,366 (5,536)
Issuance of long-term debt.............................. 375 276 15,000
Repayment of long-term debt
and capital lease obligations........................... (680) (314) (280)
Issuance of common stock................................ 3,999 1,478 423
------- -------- -------
Net cash provided (used) by financing
activities.............................................. (6,194) 15,806 9,607
------- -------- -------
Net change in cash and cash equivalents.............. (272) (8,645) 8,957
Cash and cash equivalents at beginning of year.......... 312 8,957 --
------- -------- -------
Cash and cash equivalents at end of year................ $ 40 $ 312 $ 8,957
======= ======== =======
Supplemental disclosures:
Cash paid during the year:
Interest.............................................. $ 2,110 $ 1,758 $ 754
======= ======== =======
Income taxes.......................................... $ 4,493 $ 5,148 $ 4,395
======= ======== =======
Noncash investing and financing activities:
Equipment acquired under capital leases............... $ 375 $ -- $ --
======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CUSTOM CHROME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Custom Chrome, Inc. (Custom Chrome or the Company) is engaged in the
development, manufacture, and wholesale distribution of aftermarket parts and
accessories for Harley-Davidson motorcycles.
The accompanying consolidated financial statements include the Company and
its wholly owned subsidiaries. All intercompany transactions have been
eliminated.
(a) Cash and cash equivalents
The Company considers all highly liquid investment with original
maturities of 3 months or less to be cash equivalents.
(b) Revenue Recognition
The Company recognizes revenue when products are shipped. Export sales
represented 19%, 20%, and 17% of net sales for the years ended January
31, 1997, 1996 and 1995, respectively.
(c) Merchandise Inventories
Merchandise inventories are stated at the lower of first-in, first-out
cost or market. The Company continually evaluates and adjusts the
overhead components of inventory, as necessary.
(d) Advertising
The Company expenses the costs of advertising the first time the
advertising takes place except for direct response advertising which is
capitalized and amortized over periods not exceeding one year.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Assets under capital leases are stated at the present value of minimum
lease payments at the inception of the lease. Depreciation is provided
over the estimated useful lives of the respective assets, generally 5 to
30 years, on a straight-line basis. Amortization of assets under capital
leases and leasehold improvements is calculated using the straight line
method over the lesser of the estimated useful life of the asset or the
term of the respective leases.
(f) Other Assets
Other assets consist primarily of goodwill arising from the application
of purchase accounting. Goodwill is amortized on a straight-line basis
over its estimated useful life not to exceed 40 years. Management
assesses the carrying value of other assets annually by reference to the
operating performance and projected future cash flows.
(g) Impairment of Long-Lived Assets
In the current year, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No.
121 requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or
changes indicate that the carrying amount of an asset may not be
recoverable. Upon adoption, the Company identified no long-lived assets
or identifiable intangibles which were impaired.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
F-6
<PAGE>
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) Per Share Data
Net income per share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares include the effect of the exercise of
stock options.
(j) Stock Option and Stock Purchase Plan Accounting
Prior to February 1, 1996, the Company accounted for its stock option
plans in accordance with Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, together with its related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On February 1, 1996 the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, which permits the Company to recognize as
expense over the vesting period the fair value of all stock-based awards
on the date of grant. Alternatively, SFAS No. 123 allows the Company to
continue to apply the provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma net income per share disclosures for stock
option grants and stock purchase plan purchases made in 1996 and future
years as if the fair-value-based method defined in SFAS No. 123 was
applied. The Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure provisions of
SFAS No. 123.
(k) Treasury Stock
Treasury stock is reported at par value and constructively retired. The
excess of fair value over par value is first charged to paid-in-capital,
if any, and then to retained earnings.
(l) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
<TABLE>
<CAPTION>
(2) ACCOUNTS RECEIVABLE
January 31,
-------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Trade accounts receivable.............. $11,852 $ 9,809
Less allowance for doubtful accounts... 503 280
------- -------
$11,349 $ 9,529
======= =======
</TABLE>
<TABLE>
<CAPTION>
(3) PROPERTY AND EQUIPMENT
January 31,
-------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Land................................... 1,402 $ 1,392
Buildings and improvements............. 9,764 8,192
Machinery and equipment................ 11,357 10,264
Vehicles............................... 1,255 1,906
------- -------
23,778 21,754
Less accumulated depreciation.......... 7,976 7,688
------- -------
$15,802 $14,066
======= =======
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
(4) OTHER ASSETS
January 31,
-------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Goodwill........................ $9,679 $9,656
Other........................... 282 43
------ ------
9,961 9,699
Less accumulated amortization... 1,740 1,447
------ ------
$8,221 $8,252
====== ======
</TABLE>
(5) BANK BORROWINGS
The Company has a $15 million working capital line of credit, and a $10
million foreign exchange facility with its bank. The lines of credit are
secured by the assets of the Company and expire in June 1997. Borrowings
bear interest, payable monthly, at the bank's prime reference rate or at
the Company's option at short term fixed interest rates which were 8.25%
and 6.50%, respectively.
The credit agreement covering the working capital line contains covenants,
including the maintenance of a minimum current ratio, cash flow coverage
ratio, interest coverage ratio, tangible net worth and profitability,
maximum debt to tangible net worth ratio. As of January 31, 1997, the
Company was in compliance with such covenants.
As of January 31, 1997, the Company was contingently liable for issued and
open letters of credit to foreign vendors aggregating approximately
$468,000.
In order to hedge future commitments, the Company enters into contracts
with its bank to buy foreign currencies at fixed forward exchange rates. As
of January 31, 1997 there were approximately $230,000 in foreign currency
contracts outstanding.
(6) ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
January 31,
-------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Payroll-related expenses........................ $1,086 $1,383
Other........................................... 826 685
------ ------
$1,912 $2,068
====== ======
</TABLE>
<TABLE>
<CAPTION>
(7) LONG-TERM DEBT
January 31,
-------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
8.01% senior secured notes, due in five equal
payments on December 15, 1997 through 2001...... $15,000 $15,000
7.31% mortgage loan, payable in semi-annual
installments of $100,153 through June 2011...... 2,904 3,013
10.625% mortgage loan, payable in monthly
installments; remaining principal balance of
approximately $1.2 million due in March 1999.... 1,217 1,239
Capital lease obligations and other............. 326 500
------- -------
Long-term debt.................................. 19,447 19,752
Less current maturities......................... 3,293 263
------- -------
Long-term debt, excluding current maturities.... $16,154 $19,489
======= =======
</TABLE>
The aggregate maturities of long-term debt for the years subsequent to
January 31, 1998 are as follows: 1999, $3,302,000; 2000, $4,433,000; 2001,
$3,286,000; 2002, $3,230,000; thereafter $1,903,000.
F-8
<PAGE>
(8) FAIR VALUE OF FINANCIAL INSTRUMENTS
Except for long term debt, the amounts recorded for financial instruments in
the Company's consolidated financial statements approximate fair value as
defined in Financial Accounting Standards Board Statement No. 107. The fair
value of long term debt is estimated by discounting the future cash flows of
each instrument at rates currently offered to the Company for debt
instruments of comparable maturities by the Company's bankers. At January 31,
1997 and 1996 the fair value of long term debt exceeded the amounts recorded
in the Company's consolidated financial statements by approximately $390,000
and $325,000, respectively.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(9) INCOME TAXES
Income tax expense consists of: Current Deferred Total
------- -------- -----
(in thousands)
Year ended January 31, 1997
Federal.................... $3,412 $ 803 $4,215
State and local............ 731 228 959
------ ------ ------
$4,143 $1,031 $5,174
====== ====== ======
Year ended January 31, 1996:
Federal.................... $4,631 $ (520) $4,111
State and local............ 513 (229) 284
------ ------ ------
$5,144 $ (749) $4,395
====== ====== ======
Year ended January 31, 1995:
Federal.................... $2,347 $ 903 $3,250
State and local............ 525 449 974
------ ------ ------
$2,872 $1,352 $4,224
====== ====== ======
</TABLE>
Included in current income tax expense for the years ended January 31, 1997,
1996 and 1995, is the effect of compensation expense for tax purposes in
excess of amounts reported for financial statement purposes of $709,000,
369,000, and $342,000, respectively.
Income tax expense for the years ended January 31, 1997, 1996, and 1995,
differed from the amounts computed by applying the Federal income tax rate of
35% to pretax income as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Computed "expected" tax expense......................... $4,566 $4,311 $3,724
Increase (reduction) in income taxes resulting
from:
State and local taxes, net of federal tax benefit... 636 158 701
Amortization of goodwill............................ 104 96 74
Effect of graduated income tax rate................. (100) (100) (100)
Effect of foreign net operating loss carryforward... (101)
Other, net.......................................... 69 (70) (175)
------ ------ ------
$5,174 $4,395 $4,224
====== ====== ======
</TABLE>
F-9
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
January 31,
-------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts..................................... 209 120
Inventories, principally due to additional costs inventoried for tax
purposes in excess of amounts for financial reporting purposes...... 513 1,913
Bonuses and compensated absences, principally due to accrual
for financial reporting purposes.................................... 337 90
State income taxes..................................................... 171 308
Accrued liabilities and other deferred assets.......................... 11 69
Foreign net operating loss carryforwards............................... 105 --
State enterprise zone credit carry forwards............................ 37 46
------ ------
Total deferred tax assets.............................................. 1,383 2,546
------ ------
Deferred tax liabilities:
Plant and equipment, principally due to differences in depreciation.... (668) (613)
State income taxes..................................................... (198) (385)
------ ------
Total deferred tax liabilities........................................... (866) (998)
------ ------
Net deferred tax assets.................................................. $ 517 $1,548
====== ======
</TABLE>
Based on the Company's historical operating earnings, management believes it
is more likely than not that the Company will realize the benefit of the
deferred income tax asset recorded, and accordingly, has established no
valuation allowance. Certain factors beyond management's control can affect
future levels of taxable income, and therefore, no assurances can be given
that sufficient taxable income will be generated to fully realize recorded
tax benefits.
In March 1996 the Company received a Notice of Deficiency from the Internal
Revenue Service (IRS) arising out of an examination of its income tax returns
for the years ended January 31, 1992, 1993 and 1994. The Notice asserted that
the Company had underpaid its income taxes in those years by approximately
$4.3 million due to the IRS disallowance of deductions primarily for
compensation related issues. In February 1997 the Company received another
Notice of Deficiency related to the same compensation related issues in its
tax returns for the years ended January 31, 1995 and 1996. This Notice
asserted that the Company had underpaid its income taxes in those years by
$1.3 million due to additional disallowance of deductions. Based on the
advice of outside tax counsel, the Company has petitioned the U. S. Tax Court
for a redetermination of these alleged deficiencies citing numerous errors in
the IRS's allegations. In addition the Company has asserted that it is due
additional tax deductions totaling at least $3.1 million in the tax period
which was examined. While the outcome of this matter cannot be predicted with
certainty, management believes, based on their review and the opinion of
outside experts, that any liability resulting from this proceeding is not
reasonably likely to have a material effect on the Company's liquidity,
financial condition or results of operations.
F-10
<PAGE>
(10) SHAREHOLDERS' EQUITY
(a) Common Stock
The Company has reserved an aggregate of 1,530,000 shares of common stock
for issuance under its 1991 and 1995 Stock Option Plans. Under these
plans, the Company may issue options to purchase shares of common stock
to eligible employees, officers, directors, independent contractors and
consultants at prices determined by the Board of Directors on the grant
date. Options can be granted for terms of up to ten years and vesting
will be set by the Board of Directors.
Details of stock option activity under these plans are as follows:
<TABLE>
<CAPTION>
Weighted- Weighted- Weighted-average
average average Options Fair Value of
Options Exercise Grant Date Exercisable Options Granted
Outstanding Price Fair Value* at Year End During Year
----------- --------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
January 31, 1995.......... 546,435 $ 15.900 N/A $ N/A
=== =====
Granted............... 310,000 19.105 $ 7.692
========
Exercised............. (89,079) 12.451
Canceled or expired... (11,197) 17.570
--------
January 31, 1996.......... 756,159 17.596 247,956 $7.692
======= ======
Granted............... 360,365 18.367 $ 7.312
========
Exercised............. (199,804) 16.369
Canceled or expired... (53,490) 19.625
--------
January 31, 1997.......... 863,230 18.076 328,613 $7.312
======== ======= ======
Shares available for future grant 130,046
========
</TABLE>
* Fair value assumptions:
BLACK-SCHOLES OPTION-PRICING MODEL
<TABLE>
<CAPTION>
Weighted-
average Average Dividend
Risk Free Rate Expected Life Volatility Yield
--------------- ------------- ---------- --------
<S> <C> <C> <C> <C>
1996....... 6.79% 3.00 50% 0%
1997....... 6.31% 3.00 50% 0%
</TABLE>
The following table summarizes information about the Company's stock
options outstanding at January 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------
Weighted-
Number average Weighted- Number Weighted-
Outstanding Remaining average Exercisable average
at 1/31/97 Contractual Life Exercise Price at 1/31/97 Exercise Price
------------------- ------------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$10.00............ 3,645 5.39 $10.000 3,645 $10.000
$11.25 - $16.00... 111,468 7.35 13.516 28,234 13.491
$18.13 - $26.25... 748,117 8.49 18.795 296,734 19.192
------- -------
$7.00 - $26.25.... 863,230 8.33 $18.076 328,613 $18.600
======= =======
</TABLE>
F-11
<PAGE>
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan")
was adopted by the Board of Directors and approved by the Company's
shareholders in September, 1996. A total of 150,000 shares of common
stock are reserved for issuance under the Purchase Plan. The Purchase
Plan is administered by the Board of Directors. The Purchase Plan
permits eligible employees, as defined, to purchase common stock
through payroll deductions, which may not exceed 15% of the employee's
base compensation. No employee may purchase more than $25,000 worth of
stock in any calendar year. The price of shares purchased under the
Purchase Plan is 85% of the lower of the fair market value of the
common stock on (i) the first day of the offering period; or (ii) the
last day of the offering period. Employees may end their participation
in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. In March 1997 employees purchased 8,280 shares under this
plan.
The Company applies APB Opinion No. 25 in accounting for its various
stock option plans and Employee Stock Purchase Plan (the "stock
plans"). Accordingly, no compensation cost has been recognized for the
stock plans. However, if the Company had determined compensation costs
pursuant to SFAS No. 123 for its stock plans, the Company's net income
and net income per share would have been reduced to the pro forma
amounts indicated below for the years noted:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C> <C>
Net income............. As reported $7,872 $7,921
====== ======
Pro Forma $7,132 $7,484
====== ======
Net income per share... As reported $ 1.48 $ 1.52
====== ======
Pro Forma $ 1.34 $ 1.44
====== ======
</TABLE>
Pro forma net income reflects only options granted in 1997 and 1996.
Therefore the full impact of calculating compensation cost for the
Company's stock option plans under SFAS No. 123 is not reflected in
the pro forma net income amounts presented above as compensation cost
is reflected over a stock options' vesting period and compensation
cost for options granted prior to February 1, 1995 is not considered.
In October 1996 the Board of Directors authorized the repurchase of up
to 300,000 common shares of the Company in the open market. Subsequent
to year end the Company repurchased 236,000 common shares for
$3,020,000.
(b) Preferred Stock
The Company has the authority to issue up to 1,000,000 shares of
preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions of the shares, including
dividend rights, voting rights, terms of redemption and liquidation
preferences. There are no shares of preferred stock outstanding.
(c) Preferred Share Purchase Rights
In November 1996 the Board of Directors declared a dividend
distribution on November 13, 1996 of one Preferred Shares Purchase
Right on each outstanding share of the Company's Common Stock. Each
Right will entitle stockholders to buy 1/1000th share of the Company's
Series A Participating Preferred Stock at an exercise price of $80.00.
The Board of Directors has initially reserved 100,000 shares for
issuance upon exercise of the Rights. The Rights will become
exercisable following the tenth day after a person or group announces
acquisition of 15% or more of the Company's Common Stock or announces
commencement of a tender offer the consummation of which would result
in ownership by the person or group of 15% or more of the Common
Stock. The Company will be entitled to redeem the Rights at $.01 per
Right at any time on or before the tenth day following acquisition by
a person or group of 15% or more of the Company's Common Stock.
If, prior to redemption of the Rights, a person or group acquires 15%
or more of the Company's Common Stock, each Right not owned by a
holder of 15% or more of the Common Stock will entitle its holder to
purchase, at the Right's then current exercise price, that number of
shares of Common Stock of the Company (or, in certain circumstances as
determined by the Board, cash, other property or other securities)
having a market value at that time of twice the Right's exercise
price. If, after the tenth day following acquisition by a person or
group of 15% or more of the Company's Common Stock, the Company sells
more than 50% of its assets or earning power or is acquired in a
merger or other business combination transaction, the acquiring person
must assume the obligations under the Rights and the Rights will
become exercisable to acquire Common Stock of the acquiring person at
the discounted price. At any time after an event triggering
exercisability of the Rights at a discounted price and prior to the
acquisition by the acquiring person of 50% or more of the outstanding
Common Stock, the Board of Directors of the Company may exchange the
Rights (other than those
F-12
<PAGE>
owned by the acquiring person or its affiliates) for Common Stock of
the Company at an exchange ratio of one share of Common Stock per
Right.
(11) COMMITMENTS AND CONTINGENCIES
(a) Bonus Agreements
The Company has an agreement with the Chairman, President and Chief
Executive Officer which provides for a bonus ranging from 3 to 5% of
operating income before nonrecurring charges. The agreement terminates
when $6,093,000 has been paid or the officer resigns or is terminated
for cause. As of January 31, 1997, $3,127,000 remains to be paid or
accrued under this agreement.
The Company also has a bonus agreement with a consultant which
provides for annual payments based upon defined operating results up
to a limit of $2,031,000. As of January 31, 1997, $1,546,000 remains
to be paid or accrued under this agreement.
Both of these agreements provide for a lump-sum payment, less amounts
already paid, in the event that the Company sells all or substantially
all of its assets.
(b) Operating Leases
The Company leases certain facilities and equipment under
noncancelable operating leases. Certain facilities leases include
renewal options and rent escalation clauses to reflect changes in
price indices, real estate taxes and maintenance costs. Future minimum
lease payments are as follows:
<TABLE>
<CAPTION>
Year ending January 31, (in thousands)
----------------------- --------------
<S> <C>
1998.............................. $ 1,742
1999.............................. $ 1,737
2000.............................. $ 1,604
2001.............................. $ 1,298
2002.............................. $ 1,195
Thereafter........................ $ 2,606
-------
Total minimum lease commitments... $10,182
=======
</TABLE>
Rental expense under operating leases for the years ended January 31,
1997, 1996 and 1995 was $1,150,000, $1,183,000 and $721,000,
respectively.
(c) Litigation
The Company is involved in potential claims or legal actions arising
in the ordinary course of business. In the opinion of management, the
ultimate resolution of these matters will not have a material adverse
effect on the Company's financial position or results of operations.
F-13
<PAGE>
(12) UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
1997
----
Three months ended
------------------
(in thousands)
April 30 July 31 October 31 January 31
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales, net............. $30,627 $30,357 $26,193 $21,380
------- ------- ------- -------
Gross profit........... 12,992 12,224 10,454 8,053
------- ------- ------- -------
Operating income....... 5,668 5,021 3,104 1,168
------- ------- ------- -------
Net income............. $ 3,008 $ 2,776 $ 1,574 $ 514
======= ======= ======= =======
Net income per share... $ 0.58 $ 0.52 $ 0.30 $ 0.10
======= ======= ======= =======
1996
----
Three months ended
------------------
(in thousands)
April 30 July 31 October 31 January 31
-------- ------- ---------- ----------
Sales, net............. $24,493 $25,951 $23,574 $19,888
------- ------- ------- -------
Gross profit........... 10,529 10,959 9,609 8,030
------- ------- ------- -------
Operating income....... 4,539 4,263 2,888 2,263
------- ------- ------- -------
Net income............. $ 2,545 $ 2,632 $ 1,554 $ 1,190
======= ======= ======= =======
Net income per share... $ 0.50 $ 0.51 $ 0.30 $ 0.23
======= ======= ======= =======
</TABLE>
F-14
<PAGE>
SCHEDULE II
CUSTOM CHROME, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance Additions Balance
at Charged to at
Beginning Costs & End of
of Period Expenses Deductions Period
--------- -------- ----------- -------
<S> <C> <C> <C> <C>
Year ended January 31, 1995
Allowance for doubtful
accounts............................................ $ 245 $ 70 $40 (1) $ 275
====== ==== ====== ======
Accumulated amortization of
other assets........................................ $ 947 $217 $ --- $1,164
====== ==== ====== ======
Year ended January 31, 1996
Allowance for doubtful
accounts............................................ $ 275 $ 75 $70 (1) $ 280
====== ==== ====== ======
Accumulated amortization of
other assets........................................ $1,164 $283 $ --- $1,447
====== ==== ======= ======
Year ended January 31, 1997
Allowance for doubtful
accounts............................................ $ 280 $260 $37 (1) $ 503
====== ==== ====== ======
Accumulated amortization of
other assets........................................ $1,447 $293 $ $1,740
====== ==== ====== ======
</TABLE>
- ------------------------------------------
(1) Specific accounts written off.
S-1
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 31, 1997 January 31, 1996 January 31, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income............................. $7,872,000 $7,921,000 $6,416,000
========== ========== ==========
Weighted average shares outstanding:
Common stock........................... 5,290,000 5,090,000 5,001,000
Common stock equivalents............... 37,000 119,000 52,000
---------- ---------- ----------
Weighted average shares
outstanding......................... 5,327,000 5,209,000 5,053,000
========== ========== ==========
Net income per share $1.48 $1.52 $1.27
===== ===== =====
</TABLE>
II-1
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
3.1(1) Certificate of Incorporation of Custom Chrome, Inc.
3.2(3) Restated Certificate of Incorporation of Custom Chrome, Inc.
3.3(1) Bylaws, as amended.
3.4(1) Form of Amendment to Bylaws.
4.1 Reference is made to Exhibit 3.1.
4.2 Reference is made to Exhibit 3.2.
4.3 Reference is made to Exhibit 3.3.
10.1(1) Custom Chrome, Inc. 1991 Stock Option Plan (the "Stock
Option Plan").
10.2(1) Form of Stock Option Agreement for granting stock options
under the Stock Option Plan.
10.3(2) Custom Chrome, Inc. 1991 Stock Option Plan, as restated on
March 2, 1992 (the "Restated Stock Option Plan").
10.4(2) Form of Notice of Grant of Stock Option (the "Notice of
Grant") and Stock Option Agreement, attached as Exhibit A to
the Notice of Grant, for granting stock options under the
Restated Stock Option Plan.
10.5(2) Form of Non-Statutory Stock Option Agreement for automatic
option grants made under the Restated Stock Option Plan.
10.6(1) Form of Employment or Association Agreement for Assignment
of Inventions and Confidentiality of Company Information.
10.7(1) Form of Director's Indemnification Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.15(1) Long-Term Incentive Compensation Agreement between Custom
Chrome Holdings, Inc. and Ignatius J. Panzica dated August
23, 1989.
10.18(1) Management Bonus and Non-competition Agreement between
Custom Chrome, Inc. and Ignatius J. Panzica dated August 23,
1989.
10.45(1) Exclusive Manufacturing and Royalty Agreement between Custom
Chrome, Inc. and Zodiac Enterprises, Ltd. dated March 7,
1987.
10.46(1) Amendment Agreement to Exclusive Manufacturing and Royalty
Agreement between Custom Chrome, Inc. and Zodiac
Enterprises, Ltd. dated August 1991.
10.55(1) Option Agreement between Custom Chrome Holdings, Inc. and
Ignatius J. Panzica dated July 31, 1991.
10.56(1) Employment Agreement between Custom Chrome, Inc. and
Ignatius J. Panzica dated September 19, 1991.
10.57(1) Amendment between Ignatius J. Panzica and Custom Chrome,
Inc. dated September 19, 1991, to Subscription and
Stockholders Agreement between Custom Chrome, Inc. and the
Investors therein August 23, 1989.
10.62(3) Form of Master Lease Agreement between Custom Chrome, Inc.
and BancBoston Leasing Inc.
10.63(3) Installment Sale Agreement between Custom Chrome, Inc. and
Hewlett-Packard Company dated February 1992 and related
documents.
10.64(5) Lease agreement between Custom Chrome, Inc. and Central
Storage & Transfer Co. dated December 17, 1991.
10.65(4) Line of Credit Agreement between the Company and Bank of
America N. T. & S. A.
10.66(6) Lease between the Company and Allen Chrome Partners, dated
April 14, 1994.
10.67(6) Lease between the Company and H.L.M Properties dated
February 18, 1994.
10.68(7) Note Agreement between the Company and Connecticut Mutual
Life Insurance Company, dated as of December 1, 1994.
10.70(8) 1995 Stock Option Plan and form of stock option agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------ -------
<S> <C>
10.71(9) Amended and Restated Business Loan Agreement between the
Company and Bank of America National Trust and Savings
Association.
10.72 Lease between Company and Primera Coppell Properties I,
Ltd., dated December 3, 1996
10.73 Lease between Company and Stone Mountain Industrial Park,
Inc., dated February 11, 1997.
11.1 Statement re Computation of Net Income per Common Share and
Share Equivalent. Reference is made to page II-1 of this
report.
22.1(1) Subsidiaries of the Company.
23.1 Consent of Independent Auditors
24.1 Power of Attorney. Reference is made to page 27 of this
Report.
27.1 Financial Data Schedule.
________________________________
(1) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-42875) declared effective
by the Securities and Exchange Commission on November 5, 1991.
(2) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-8 (File No. 33-47223) filed with the
Securities and Exchange Commission on April 15, 1992.
(3) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 30, 1992.
(4) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-3 (File No. 33-65112) declared effective
by the Securities and Exchange Commission on July 22, 1993.
(5) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 30, 1993.
(6) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 28, 1994.
(7) Incorporated by reference from an exhibit filed with the Company's Annual
Report on Form 10-K (File No. 0-19540) filed with the Securities and
Exchange Commission on April 28, 1995.
(8) Incorporated by reference from an exhibit filed with the Company's
Registration Statement of Form S-8 (File No. 33-80095) filed with the
Securities and Exchange Commission on December 6, 1995.
(9) Incorporated by reference from an exhibit filed with the Company's amended
Annual Report on Form 10-K/A (File No. 0-19540) filed with the Securities
and Exchange Commission on May 30, 1996.
</TABLE>
<PAGE>
EXHIBIT 10.72
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
COMMERCIAL LEASE AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Article Page
------- ----
<C> <S> <C>
1. Defined Terms.................................................. 1
2. Lease and Lease Term........................................... 2
3. Rent and Security Deposit...................................... 2
4. Taxes.......................................................... 2
5. Insurance and Indemnity........................................ 2
6. Use of Demised Premises........................................ 3
7. Property Condition: Maintenance, Repairs and Alterations....... 4
8. Damage or Destruction.......................................... 4
9. Condemnation................................................... 5
10. Assignment and Subletting...................................... 5
11. Default and Remedies........................................... 5
12. Landlord's Contractual Lien.................................... 6
13. Protection of Lenders.......................................... 6
14. Professional Service Fees...................................... 7
15. Environmental Representations and Indemnity.................... 7
16. Miscellaneous.................................................. 8
17. Additional Provisions.......................................... 8
</TABLE>
An Exhibit or Exhibits may be attached to this Lease which shall be made a part
of this Lease for all purposes [check all boxes which apply]:
EXHIBITS TO LEASE
-----------------
<TABLE>
<S> <C>
[X] Exhibit A Floor Plan/Site Plan [_] Exhibit E Guarantee
[X] Exhibit B Legal Description of Property [X] Exhibit F Expense Reimbursement
[X] Exhibit C Renewal Options [_] Exhibit G Percentage Rental/Gross Sales Reports
[ ] Exhibit D Right of First Refusal for [X] Exhibit H Construction of Improvements
Additional Space [X] Exhibit I Addendum Number One To Lease
----------------------------
</TABLE>
ARTICLE ONE: DEFINED TERMS
As used in this Lease, the following terms set forth in this Article One shall
have the respective meanings set forth hereinbelow:
1.01. DATE OF LEASE: December 3, 1996.
----------- --
1.02. LANDLORD: Primera Coppell Properties I, Ltd., a Texas limited
---------------------------------------------------
partnership
-----------
Address of Landlord: 2001 Bryan Street, Suite 3810, Dallas, Texas 75201
--------------------------------------------------
Telephone: 214/855-6620
------------
1.03. TENANT: Custom Chrome, Inc.
-------------------
Address of Tenant: 16100 Jacqueline Court, Morgan Hill, California 95037
-----------------------------------------------------
Telephone: 408/778-0500
------------
1.04. PREMISES:
A. Street address (including county): 1111 Executive Drive, Coppell,
------------------------------
Dallas County, Texas
--------------------
B. Floor or site plan: Being a floor area of approximately 60,000 square
------
feet and being approximately 250 by 240 feet (measured to the
--- ---
exterior of outside walls and to the center of the interior walls,
and being more particularly shown in outline on the floor/site plan
attached hereto as Exhibit A. (The aforementioned street address and
the floor or site plan shall collectively be referred to herein as
the "Demised Premises".)
C. Legal description: The legal description of the property on which the
floor/site plan is situated is more particularly described in Exhibit
B attached hereto (the "Property").
1.05. LEASE TERM: 5 years and 0 months beginning on the 1st day
------- ------- --------
of January, 1997, and ending on the 31st day of
----------- -- --------
December, 2001.
--------
1.06. BASE RENT: $960,000.00* total Base Rent for the Lease Term payable
------------
in monthly installments of $16,000.00* per month in advance.
-----------
1.07. SECURITY DEPOSIT: $ one month's Base Rent
---------------------
1.08. PERMITTED USE: [See Section 6.01] Warehouse, light manufacturing,
-------------------------------
distribution and such other commercial uses relating to Tenant's business
-------------------------------------------------------------------------
or operations which comply with the applicable requirements.
------------------------------------------------------------
1.09. PRINCIPAL BROKER: [If none, so state] Colliers Baldwin Realtors
-------------------------
Address: 9400 N. Central Expressway Suite 250, Dallas, Texas 75231
---------------------------------------------------------
1.10. COOPERATING BROKER: [If none, so state]: Foster & Rudd
-------------
Address: 12900 Preston, Suite 550, Dallas, Texas 75230
---------------------------------------------
1.11. PROFESSIONAL SERVICE FEES: [See Article 14]
A. Payments due to the Principal and Cooperating Brokers shall be
calculated and paid in accordance with Paragraph []A or [] B of
Section 14.01.
[Check applicable paragraph] s ** 4.50% to Principal Broker
2.25% to Cooperating Broker
B. The percentage applicable for leases in Sections 14.01 shall be
** percent ( %).
----------------------- ------------------
1.12. HOLDOVER RENT: [See Section 2.04] $ one hundred twenty-five percent
---------------------------------
(125%) of Base Rent per month in advance.
-------------------
1.13. DAILY LATE CHARGE: [See Section 3.03] Thirty Dollars ($30) per day.
------ --
1.14. ACCEPTANCE: [See Section 16.13] The number of days for acceptance of
this offer to lease shall be 7 days.
-----
* Subject to adjustment per Exhibit H, paragraph 6.
Page 1
<PAGE>
ARTICLE TWO: LEASE AND LEASE TERM
2.01. LEASE OF DEMISED PREMISES FOR LEASE TERM. Landlord leases the Demised
Premises to Tenant and Tenant leases the Demised Premises from Landlord for the
Lease Term stated in Section 1.05. As used herein, the "Commencement Date"
shall be the date specified in Section 1.05 for the beginning of the Lease Term,
unless advanced or delayed under any provision of this Lease.
2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant if
Landlord does not deliver possession of the Demised Premises to Tenant on the
first date specified in Section 1.05 above. Landlord's nondelivery of possession
of the Demised Premises to Tenant on that date shall not affect this Lease or
the obligations of Tenant under this Lease. However, the Commencement Date shall
be delayed until possession of the Demised Premises is delivered to Tenant. The
Lease Term shall be extended for a period equal to the delay in delivery of
possession of the Demised Premises to Tenant, plus the number of days necessary
for the Lease Term to expire on the last day of a month. If Landlord does not
deliver possession of the Demised Premises to Tenant within thirty (30) days
after the first date specified in Section 1.05 above, Tenant may elect to cancel
this Lease by giving written notice to Landlord within ten (10) days after the
thirty (30) day period ends. If Tenant gives such notice, the Lease shall be
canceled effective as of the date of its execution, and no party hereto shall
have any obligations, one to the other. If delivery of possession of the Demised
Premises to Tenant is delayed, Landlord and Tenant shall, upon such delivery,
execute an amendment to this Lease setting forth the Commencement Date and
expiration date of the Lease Term.
2.03. EARLY OCCUPANCY. If Tenant occupies the Demised Premises prior to the
Commencement Date, Tenant's occupancy of the Demised Premises shall be subject
to all of the provisions of this Lease. Early occupancy of the Demised Premises
shall not advance the expiration date of the Lease Term. Unless provided
otherwise herein, Tenant shall pay Base Rent and all other charges specified in
this Lease for the period of occupancy. (See Addendum, (S)1)
2.04. HOLDING OVER. Tenant shall vacate the Demised Premises upon the
expiration of the Lease Term or earlier termination of this Lease. Tenant shall
reimburse Landlord for and indemnify Landlord against all damages incurred by
Landlord as a result of any delay by Tenant in vacating the Demised Premises.
If Tenant does not vacate the Demised Premises upon the expiration of the Lease
Term or earlier termination of the Lease, Tenant's occupancy of the Demised
Premises shall be a "month to month" tenancy, subject to all of the terms of
this Lease applicable to a month to month tenancy, except that the Base Rent per
month then in effect shall be the amount designated in Section 1.12.
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01. MANNER OF PAYMENT. All sums payable hereunder by Tenant (the "Rent")
shall be made to the Landlord at the address designated in Section 1.02 or to
such other party or address as Landlord may designate in writing to Tenant. Any
and all payments made to a designated third party for the account of the
Landlord shall be deemed made to Landlord when received by said designated third
party. All sums payable by Tenant hereunder, whether or not expressly
denominated as rent, shall constitute rent for the purposes of Section 502(b)(6)
of the Bankruptcy Code and for all other purposes. The Base Rent is the minimum
rent for the Demised Premises and is subject to the terms and conditions
contained in this Lease together with the Exhibits attached hereto, if any.
3.02. TIME OF PAYMENT. Upon execution hereof, Tenant shall pay the
installment of rent for the first month of the Lease Term. On or before the
first day of the second month of the Lease Term and of each month thereafter,
the installment of rent and other sums due hereunder shall be due and payable,
in advance, without off-set, deduction or prior demand. If the Lease Term
commences or ends on a day other than the first or last day of a calendar month,
the rent for any fractional calendar month following the Commencement Date or
preceding the end of the Lease Term shall be prorated by days.
3.03. LATE CHARGES. Tenant's failure to pay sums due hereunder promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, deed of trust or mortgage encumbering
the Demised Premises. Therefore, if any sum due hereunder is not received when
due, Tenant shall pay the Landlord a late charge equal to the Daily Late Charge
for each day after the due date until such delinquent sum is received. The
parties agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of such late payment or such dishonored
check.
3.04. SECURITY DEPOSIT. Upon execution hereof, Tenant shall deposit with
Landlord a cash Security Deposit in the sum stated in Section 1.07. Landlord may
apply all or part of the Security Deposit to any unpaid rent or other charges
due from Tenant or to cure any other defaults of Tenant. If Landlord uses any
part of the Security Deposit, Tenant shall restore the Security Deposit to its
full amount within ten (10) business days after Landlord's written demand.
Tenant's failure to restore the full amount of the Security Deposit within the
time specified shall be a default under this Lease. No interest shall be paid
on the Security Deposit. Landlord shall not be required to keep the Security
Deposit separate from its other accounts and no trust relationship is created
with respect to the Security Deposit. Upon any termination of this Lease not
resulting from Tenant's default, and after Tenant has vacated the Demised
Premises in the manner required by this Lease, Landlord shall refund the unused
portion of the Security Deposit to Tenant within ten (10) business days.
3.05. GOOD FUNDS PAYMENTS. If, for any reason whatsoever, any two or more
payments by check from Tenant to Landlord for Rent are dishonored and returned
unpaid, thereafter, Landlord may, at Landlord's sole option, upon written notice
to Tenant, require that all future payments of Rent for the remaining term of
the Lease shall be made by cash, cashier's check, or money order and that the
delivery of Tenant's personal or corporate check will no longer constitute
payment of Rent as provided in this Lease. Any acceptance by Landlord of a
payment for Rent by Tenant's personal or corporate check thereafter shall not be
construed as a waiver of Landlord's right to insist upon payment by good funds
as set forth in this Section 3.05.
ARTICLE FOUR: TAXES
4.01. PAYMENT BY LANDLORD. Landlord shall pay the real estate taxes on the
Demised Premises during the Lease Term.
4.02. IMPROVEMENTS BY TENANT. In the event the real estate taxes levied
against the Demised Premises for the real estate tax year in which the Lease
Term commences are increased in the current tax year or subsequent tax years as
a result of any alterations, additions or improvements made by Tenant or by
Landlord at the request of Tenant, Tenant shall pay to Landlord upon demand the
amount of such increase and continue to pay such increase during the term of
this Lease. Landlord shall use reasonable efforts to obtain from the tax
assessor or assessors a written statement of the total amount of such increase.
4.03. JOINT ASSESSMENT. If the real estate taxes are assessed against the
Demised Premises jointly with other property not constituting a part of the
Demised Premises, the real estate taxes for such years shall be equal to the
amount bearing the same proportion to the aggregate assessment that the total
square feet of building area in the Demised Premises bears to the total square
feet of building area included in the joint assessment.
4.04. PERSONAL PROPERTY TAXES. Tenant shall pay all taxes assessed against
trade fixtures, furnishings, equipment, or any other personal property belonging
to Tenant. Tenant shall use reasonable efforts to have its personal property
taxed separately from the Demised Premises, but if any of Tenant's personal
property is taxed with the Demised Premises, Tenant shall pay the taxes for the
personal property within fifteen (15) days after Tenant receives a written
statement for such personal property taxes.
ARTICLE FIVE: INSURANCE AND INDEMNITY
5.01. CASUALTY INSURANCE. During the Lease Term, Landlord shall maintain
policies of insurance covering loss of or damage to the Demised Premises in an
amount equal to the full replacement value of the Demised Premises. Such
policies shall provide protection against all perils included within the
classification of fire and extended coverage and any other perils which Landlord
deems necessary. Landlord may obtain insurance coverage for Tenant's fixtures,
equipment or building improvements installed by Tenant in or on the Demised
Premises. Tenant shall, at Tenant's expense, maintain such primary or additional
insurance on its fixtures, equipment and building improvements as Tenant deems
necessary to protect its interest. Tenant shall not do or permit to be done
anything which invalidates any such insurance policies.
Page 2
<PAGE>
Any casualty insurance which may be carried by Landlord or Tenant shall be for
the sole benefit of the party carrying such insurance and under its sole
control.
5.02. INCREASE IN PREMIUMS. Tenant shall not permit any operation or
activity to be conducted or storage or use of any volatile or any other
materials on or about the Demised Premises that would cause suspension or
cancellation of any fire and extended coverage insurance policy carried by
Landlord, or increase the premiums therefor, without the prior written consent
of Landlord. If Tenant's use and occupancy of the Demised Premises causes an
increase in the premiums for any fire and extended coverage insurance policy
carried by Landlord as of the day immediately prior to Tenant's possession of
the Demised Premises under this Lease, Tenant shall pay, as additional rental,
the amount of such increase to Landlord upon demand and presentation of written
evidence of the increase by Landlord.
5.03. LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use,
occupancy, or maintenance of the Demised Premises. The initial amount of such
insurance shall be at least $1,000,000 combined single-limit bodily injury and
property damage, for each occurrence, and shall be subject to periodic increases
based upon such economic factors as Landlord shall determine, in Landlord's
discretion, exercised in good faith. However, the amount of such insurance
shall not limit Tenant's liability nor relieve Tenant of any obligation
hereunder. The policy shall contain cross-liability endorsements, if
applicable, and shall insure Tenant's performance of the indemnity provisions of
Section 5.04. Such policy shall contain a provision which prohibits
cancellation or modification of the policy except upon thirty (30) days' prior
written notice to Landlord. Tenant may discharge its obligations under this
Section by naming Landlord as an additional insured under a policy of
comprehensive liability insurance maintained by Tenant and containing the
coverage and provisions described in this Section. Tenant shall deliver a copy
of such policy or certificate (or a renewal thereof) to Landlord prior to the
Commencement Date and prior to the expiration of any such policy during the
Lease Term. If Tenant fails to maintain such policy, Landlord may elect to
maintain such insurance at Tenant's expense. Tenant shall, at Tenant's expense,
maintain such other liability insurance as Tenant deems necessary to protect
Tenant.
5.04. INDEMNITY. Landlord shall not be liable to Tenant or to Tenant's
employees, agents, invitees or visitors, or to any other person whomsoever, for
any injury to persons or damage to property on or about the Demised Premises or
any adjacent area owned by Landlord caused by the negligence or misconduct of
Tenant, its employees, subtenants, licensees or concessionaires or any other
person entering the Demised Premises under express or implied invitation of
Tenant, or arising out of the use of the Demised Premises by Tenant and the
conduct of its business therein, or arising out of any breach or default by
Tenant in the performance of its obligations hereunder; and Tenant hereby agrees
to indemnify and hold Landlord harmless from any loss, expense or claims arising
out of such damage or injury. Tenant shall not be liable for any injury or
damage caused by the negligence or misconduct of Landlord, or its employees or
agents, and Landlord agrees to indemnify and hold Tenant harmless from any loss,
expense or damage arising out of such damage or injury.
5.06. WAIVER OF SUBROGATION. Each party hereto waives any and every claim
which arises or may arise in its favor against the other party hereto during the
term of this Lease or any renewal or extension thereof for any and all loss of,
or damage to, any of its property located within or upon, or constituting a part
of, the Demised Premises, which loss or damage is covered by valid and
collectible fire and extended coverage insurance policies, to the extent that
such loss or damage is recoverable under such insurance policies. Such mutual
waivers shall be in addition to, and not in limitation or derogation of, any
other waiver or release contained in this Lease with respect to any loss of, or
damage to, property of the parties hereto. Inasmuch as such mutual waivers will
preclude the assignment of any aforesaid claim by way of subrogation or
otherwise to an insurance company (or any other person), each party hereby
agrees immediately to give to each insurance company which has issued to such
party policies of fire and extended coverage insurance, written notice of the
terms of such mutual waivers, and to cause such insurance policies to be
properly endorsed, if necessary, to prevent the invalidation of such insurance
coverages by reason of such waivers.
ARTICLE SIX: USE OF DEMISED PREMISES
6.01. PERMITTED USE. Tenant may use the Demised Premises only for the
permitted use stated in Section 1.08. Tenant acknowledges that Tenant has or
will independently investigate and verify to Tenant's satisfaction the extent of
any or nonconforming uses of the Demised Premises. Tenant further acknowledges
that Tenant is not relying upon any warranties or representations of Landlord or
the Brokers who are participating in the negotiation of this Lease concerning
the permitted uses of the Demised Premises or with respect to any nonconforming
uses of the improvements located on the Demised Premises.
6.02. COMPLIANCE WITH LAW. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Demised Premises, and
shall promptly comply with all governmental orders and directives for the
correction, prevention and abatement of nuisances and other activities in or
upon, or connected with the Demised Premises, all at Tenant's sole expense. (See
Addendum, (S)2)
6.03. CERTIFICATE OF OCCUPANCY. Tenant may, prior to the commencement of the
term of this Lease, apply for a Certificate of Occupancy from the municipality
in which the Demised Premises are located and Landlord shall cooperate with
Tenant in obtaining such Certificate of Occupancy. If Tenant is unable to obtain
a Certificate of Occupancy prior to the Commencement Date, Tenant shall have the
right to terminate this Lease by written notice to Landlord if Landlord or
Tenant is unwilling or unable to cure the defects which prevented the issuance
of the Certificate of Occupancy. Landlord shall, cure any such defects
preventing the issuance of a Certificate of Occupancy, including any repairs,
installations, or replacements of any items which are not presently existing on
the Demised Premises, or which have not been expressly agreed upon by Landlord
in writing.
6.04. SIGNS. Without the prior written consent of Landlord, Tenant shall
not place or affix any signs or other objects upon or to the Demised Premises,
including but not limited to the roof or exterior walls of the building or other
improvements thereon, or paint or otherwise deface said exterior walls. Any
signs installed by Tenant shall conform with applicable laws and deed and other
restrictions. Tenant shall remove all signs at the termination of this Lease
and shall repair any damage and close any holes caused or revealed by such
removal.
6.05. UTILITY SERVICES. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water, sewerage, storm water disposal, communications and electricity used on
the Demised Premises, and for all electric lights, lamps and tubes.
6.06. LANDLORD'S ACCESS. Landlord and its authorized agents shall have the
right, during normal business hours, upon written notice to Tenant at least
twenty-four (24) hours in advance to enter the Demised Premises (a) to inspect
the general condition and state of repair thereof, (b) to make repairs required
or permitted under this Lease, (c) to show the Demised Premises or the Property
to any prospective tenant or purchaser, or (d) for any other reasonable purpose.
During the final one hundred fifty (150) days of the Lease Term, Landlord and
its authorized agents shall have the right to erect and maintain on or about the
Demised Premises customary signs advertising the Demised Premises for lease or
for sale. (See Addendum, (S)3)
(during the last one hundred fifty (150) days of the Lease Term only)
6.07. QUIET POSSESSION. If Tenant pays the rent and complies with all other
terms of this Lease, Tenant may occupy and enjoy the Demised Premises for the
full Lease Term, subject to the provisions of this Lease.
6.08. EXEMPTIONS FROM LIABILITY. Landlord shall not be liable for any
damage or injury to the person, business (or any loss of income therefrom),
goods, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers or any other person in or about the
Page 3
<PAGE>
Demised Premises, whether such damage or injury is caused by or results from:
(a) fire, steam, electricity, water, gas or rain; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or any other cause; (c) conditions arising
on or about the Demised Premises or upon other portions of any building of which
the Demised Premises is a part, or from other sources or places; or (d) any act
or omission of any other tenant of any building of which the Demised Premises is
a part. Landlord shall not be liable for any such damage or injury even though
the cause of or the means of repairing such damage or injury are not accessible
to Tenant. The provisions of this Section 6.08 shall not, however, exempt
Landlord from liability for Landlord's gross negligence or willful misconduct.
ARTICLE SEVEN: PROPERTY CONDITION, MAINTENANCE, REPAIRS AND ALTERATIONS
7.01. PROPERTY CONDITION. Except as disclosed in writing by Landlord to
Tenant contemporaneously with the execution hereof (the "Disclosure Notice"), to
the best of Landlord's knowledge the Demised Premises has no known latent
structural defects, construction defects of a material nature, and to the best
of Landlord's knowledge none of the improvements has been constructed with
materials known to be a potential health hazard to occupants of the Demised
Premises. Tenant acknowledges that neither the Principal Broker nor any
cooperating Broker has made any warranty or representation to Tenant with
respect to the condition of the Demised Premises, and that Tenant is relying
exclusively upon the representations, if any, of Landlord with respect to the
condition of the Demised Premises. Landlord agrees to hold said Brokers
harmless of and from any and all damages, claims, costs and expenses of every
kind and character resulting from or related to Landlord's furnishing to said
Brokers any false, incorrect or inaccurate information with respect to the
Demised Premises of Landlord's concealing any material information with respect
to the condition of the Demised Premises. Other than as expressly set forth in
this Lease, Landlord represents that on the Commencement Date, the plumbing,
electrical and lighting system, exterior doors, any fire protection sprinkler
system, heating system, air conditioning equipment, dock levelers and elevators
in the Demised Premises are in good operating condition.
7.02. ACCEPTANCE OF DEMISED PREMISES. Tenant acknowledges that a full and
complete inspection of the Demised Premises and adjacent common areas has been
made. Tenant specifically acknowledges that as a result of such inspection and
disclosure, Tenant has taken possession of the Demised Premises and has made its
own determination to fully accept same in its as-is condition., except for
improvements as expressly provided for herein.
7.03. OBLIGATION TO REPAIR. Except as otherwise provided herein, Landlord
shall be under no obligation to perform any repair, maintenance or management
service in the Demised Premises or adjacent common areas. Tenant shall be fully
responsible, at its expense, for all repair, maintenance and management services
other than those which are expressly assumed by Landlord.
A. LANDLORD'S OBLIGATION TO REPAIR.
(1) Subject to the provisions of Article Eight (Damage or Destruction)
and Article Nine (Condemnation) and except for damage caused by any act or
omission of Tenant, together with foundation and structural supports,
exterior and load bearing walls, Landlord shall keep the foundation, roof
and the structural portions of exterior walls of the improvements of the
Demised Premises in good order, condition and repair. Landlord shall not
be obligated to maintain or repair windows, doors, plate glass or the
surfaces of walls. In addition, Landlord shall not be obligated to make
any repairs under this Section until a reasonable time after receipt of
written notice from Tenant of the need of such repairs. If any repairs are
required to be made by Landlord, Tenant shall, at Tenant's sole cost and
expense, promptly remove Tenant's fixtures, inventory, equipment and other
property, to the extent required to enable Landlord to make such repairs.
Landlord's liability hereunder shall be limited to the cost of such repairs
or corrections. Tenant waives the benefit of any present or future law
which might give Tenant the right to repair the Demised Premises at
Landlord's expense or to terminate the Lease because of the condition.
B. TENANT'S OBLIGATION TO REPAIR. Subject to the provisions of the last
sentence of Section 7.01, the preceding Section 7.03.A, Article Eight (Damage
or Destruction) and Article Nine (Condemnation), Tenant shall, at all times,
keep all other portions of the Demised Premises in good order, condition and
repair, including but not limited to repairs (including all necessary minor
replacements) of the windows, plate glass, doors, heating system, air
conditioning equipment, electrical and lighting system, fire protection
sprinkler system, dock levelers, elevators, interior and exterior plumbing and
the interior of the building in general. In addition, Tenant shall, at
Tenant's expense, repair any damage to any portion of the Property, including
the roof, foundation, or structural portions of exterior walls of the Demised
Premises, caused by Tenant's acts or omissions, subject to the waiver of
subrogation in Section 5.06. If Tenant fails to maintain and repair the
Property within the applicable notice and cure periods of this Lease, Landlord
may, on ten (10) days' prior written notice, enter the Demised Premises and
perform such maintenance or repair on behalf of Tenant, except that no notice
shall be required in case of emergency, and Tenant shall reimburse Landlord
for all costs incurred in performing such maintenance or repair immediately
upon demand. (See Addendum, (S)4)
7.04. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. Tenant shall not create any
openings in the roof or exterior walls, or make any alterations, additions or
improvements to the Demised Premises without the prior written consent of
Landlord. Consent for nonstructural alterations, additions or improvements
shall not be unreasonably withheld by Landlord. Tenant shall have the right to
erect or install shelves, bins, machinery, air conditioning or heating equipment
and trade fixtures, provided that Tenant complies with all applicable
governmental laws, ordinances, codes, and regulations. At the expiration or
termination of this Lease, Tenant shall, subject to the restrictions of Section
7.05 below, have the right to remove such items so installed by it, provided
Tenant is not in default at the time of such removal and provided further that
Tenant shall, at the time of removal of such items, repair in a good and
workmanlike manner any damage caused by installation or removal thereof. Tenant
shall pay for all costs incurred or arising out of alterations, additions or
improvements in or to the Demised Premises and shall not permit a mechanic's or
materialman's lien to be filed against the Demised Premises. Upon request by
Landlord, Tenant shall deliver to Landlord proof of payment reasonably
satisfactory to Landlord of all costs incurred or arising out of any such
alterations, additions or improvements. (See Addendum, (S)5)
7.05. CONDITION UPON TERMINATION. Upon the termination of the Lease, Tenant
shall surrender the Demised Premises to Landlord, broom clean and in the same
condition as received except for ordinary wear and tear which Tenant was not
otherwise obligated to remedy under any provision of the Lease, except for
casualty losses beyond the control of Tenant. Tenant shall not be obligated to
repair any damage which Landlord is required to repair under Article Eight
(Damage or Destruction). In addition, Landlord may require Tenant to remove any
alterations, additions or improvements (whether or not made with Landlord's
consent) prior to the termination of the Lease and to restore the Demised
Premises to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
termination of the Lease. In no event, however, shall Tenant remove any of the
following materials or equipment without Landlord's prior written consent: any
power wiring or power panels; lighting or lighting fixtures; wall coverings;
drapes, blinds or other window coverings; carpets or other floor coverings;
heaters, air conditioners or any other heating or air conditioning equipment;
fencing or security gates; or other similar building operating equipment and
decorations. (See Addendum, (S)5)
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01. NOTICE. If the building or other improvements situated on the Demised
Premises should be damaged or destroyed by fire, tornado or other casualty,
Tenant shall immediately give written notice thereof to Landlord. upon learning
thereof.
8.02. PARTIAL DAMAGE. If the building or other improvements situated on the
Demised Premises are damaged by fire, tornado, or other casualty but not to such
an extent that rebuilding or repairs cannot reasonably be completed within one
hundred twenty (120) days from the date Landlord receives written notification
by Tenant of the happening of the damage, this Lease shall not terminate, but
Landlord shall, at its sole cost and risk, proceed forthwith and use reasonable
diligence to rebuild or repair such building and other improvements on the
Demised Premises (other than leasehold improvements made by Tenant or any
assignee, subtenant or other occupant of the Demised Premises) to substantially
the condition in which they existed prior to such damage; provided, however, if
the casualty occurs during the final eighteen (18) months of the Lease Term,
Landlord shall not be required to rebuild or repair such damage unless Tenant
shall exercise its renewal option (if any is contained herein) within fifteen
(15) days after the date of receipt by Landlord of the notification of the
occurrence of the damage. If Tenant does not elect to exercise its renewal
option or if there is no renewal option contained herein or previously
unexercised at such time, this Lease shall terminate at the option of Landlord
and the Rent shall be abated for the unexpired portion of this Lease, effective
from the date of actual receipt by Landlord of the written notification of the
damage. If the building and other improvements are to be rebuilt or repaired and
are untenantable in whole or in part following such damage, the monthly
installments of Rent payable hereunder during the period in which they are
untenantable shall be adjusted equitably.
Page 4
<PAGE>
8.03. SUBSTANTIAL OR TOTAL DESTRUCTION. If the building or other
improvements situated on the Demised Premises are substantially or totally
destroyed by fire, tornado, or other casualty, or so damaged that rebuilding or
repairs cannot reasonably be completed within one hundred twenty (120) days from
the date Landlord receives written notification by Tenant of the happening of
the damage, this Lease shall terminate at the option of either Landlord or
Tenant and monthly installments of Rent shall be abated for the unexpired
portion of this Lease, effective from the date of receipt by Landlord or Tenant
of such written notification. If this Lease is not terminated, the building and
the improvements shall be rebuilt or repaired and monthly installments of Rent
abated to the extent provided under Section 8.02.
ARTICLE NINE: CONDEMNATION
If, during the term of this Lease or any extension or renewal thereof, all or
a substantial part of the Demised Premises are taken for any public or quasi-
public use under any governmental law, ordinance or regulation or by right of
eminent domain, or are sold to the condemning authority under threat of
condemnation, this Lease shall terminate and the monthly installments of Rent
shall be abated during the unexpired portion of this Lease, effective from the
date of taking of the Demised Premises by the condemning authority. If less
than a substantial part of the Demised Premises is taken for public or quasi-
public use under any governmental law, ordinance or regulation, or by right of
eminent domain, or is sold to the condemning authority under threat of
condemnation, Landlord, at its option, may by written notice terminate this
Lease or shall forthwith at its sole expense restore and reconstruct the
buildings and improvements (other than leasehold improvements made by Tenant or
any assignee, subtenant or other occupant of the Demised Premises) situated on
the Demised Premises in order to make the same reasonably tenantable and
suitable for the use for which the Demised Premises is leased as defined in
Section 6.01. The monthly installments of Base Rent payable hereunder during
the unexpired portion of this Lease shall be adjusted equitably. Landlord and
Tenant shall each be entitled to receive and retain such separate awards and
portions of lump sum awards as may be allocated to their respective interests in
any condemnation proceedings. The termination of this Lease shall not affect
the rights of the respective parties to such awards.
ARTICLE TEN: ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord which consent
shall not be unreasonably withheld or delayed, assign this Lease or sublet the
Demised Premises or any portion thereof. Any assignment or subletting shall be
expressly subject to all terms and provisions of this Lease, including the
provisions of Section 6.01 pertaining to the use of the Demised Premises. In
the event of any assignment or subletting, Tenant shall remain fully liable for
the full performance of all Tenant's obligations under this Lease. Tenant shall
not assign its rights hereunder or sublet the Demised Premises without first
obtaining a written agreement from the assignee or sublessee whereby the
assignee or sublessee agrees to assume the obligations of Tenant hereunder and
to be bound by the terms of this Lease. No such assignment or subletting shall
constitute a novation. In the event of the occurrence of an event of default
while the Demised Premises is assigned or sublet, Landlord, in addition to any
other remedies provided herein or by law, may at Landlord's option, collect
directly from such assignee or subtenant all rents becoming due under such
assignment or subletting and apply such rent against any sums due to Landlord
hereunder. No direct collection by Landlord from any such assignee or subtenant
shall release Tenant from the performance of its obligations hereunder.
ARTICLE ELEVEN: DEFAULT AND REMEDIES
11.01. DEFAULT. Each of the following events shall be an event of default
under this Lease:
A. Failure of Tenant to pay any installment of the Rent or other sum
payable to Landlord hereunder on the date that same is due and such failure
shall continue for a period of ten (10) days;
B. Failure of Tenant to comply with any term, condition or covenant of
this Lease, other than the payment of Base Rent or other sum of money, and
such failure shall not be cured within thirty (30) days after written notice
thereof to Tenant; (See Addendum, (S)6)
C. Tenant or any guarantor of Tenant's obligations hereunder shall make a
general assignment for the benefit of creditors;
D. Tenant or any guarantor of Tenant's obligations hereunder shall
commence any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
property;
E. Any case, proceeding or other action against Tenant or any guarantor of
Tenant's obligations hereunder shall be commenced seeking to have an order for
relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under
any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property,
and Tenant (i) fails to obtain a dismissal of such case, proceeding, or other
action within sixty (60) days of its commencement; or (ii) converts the case
from one chapter of the Federal Bankruptcy Code to another chapter; or (iii)
is the subject of an order of relief which is not fully stayed within seven
(7) business days after the entry thereof; and
F. Abandonment by Tenant of any substantial portion of the Demised
Premises or cessation of the use of the Demised Premises for the purpose
leased. for a period of ninety (90) consecutive days or more.
11.02. REMEDIES. Upon the occurrence of any of the events of default listed
in Section 11.01, Landlord shall have the option to pursue any one or more of
the following remedies without any prior notice or demand whatsoever:
A. Terminate this Lease, in which event Tenant shall immediately surrender
the Demised Premises to Landlord. If Tenant fails to so surrender the Demised
Premises, Landlord may, without prejudice to any other remedy which it may
have for possession of the Demised Premises or arrearages in Rent, enter upon
and take possession of the Demised Premises and expel or remove Tenant and any
other person who may be occupying the Demised Premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim for
damages therefor. Tenant shall pay to Landlord on demand the amount of all
loss and damage which Landlord may suffer by reason of such termination,
whether through inability to relet the Demised Premises on satisfactory terms
or otherwise.
B. Enter upon and take possession of the Demised Premises, by force if
necessary, without terminating this Lease and without being liable for
prosecution or for any claim for damages therefor, and expel or remove Tenant
and any other person who may be occupying the Demised Premises or any part
thereof. Landlord may relet the Demised Premises and receive the rent
therefor. Tenant agrees to pay to Landlord monthly or on demand from time to
time any deficiency that may arise by reason of any such reletting. In
determining the amount of such deficiency, the professional service fees,
attorneys' fees, remodeling expenses and other costs of reletting shall be
subtracted from the amount of rent received under such reletting.
C. Enter upon the Demised Premises, by force if necessary, without
terminating this Lease and without being liable for prosecution or for any
claim for damages therefor, and do whatever Tenant is obligated to do under
the terms of this Lease. Tenant agrees to pay Landlord on demand for expenses
which Landlord may incur in thus effecting compliance with Tenant's
obligations under this Lease, together with interest thereon at the rate of
twelve percent (12%) per annum from the date expended until paid. Landlord
shall not be liable for any damages resulting to Tenant from such action,
whether caused by negligence of Landlord or otherwise.
D. In addition to the foregoing remedies, Landlord shall have the right to
change or modify the locks on the Demised Premises in the event Tenant fails
to pay the monthly installment of Rent when due. Landlord shall not be
obligated to provide another key to Tenant or allow Tenant to regain entry to
the Demised Premises unless and until Tenant pays Landlord all Rent which is
delinquent. Tenant agrees that Landlord shall not be liable for any damages
resulting to the Tenant from the lockout. At such time that Landlord changes
or modified the lock, Landlord shall post a "Notice of Change of Locks" on the
front of the Demised Premises. Such Notice shall state the following:
(1) That Tenant's monthly installment of Rent is delinquent, and
therefore, under authority of Section 11.02D of Tenant's Lease, the
Landlord has exercised its contractual right to change or modify Tenant's
door lock;
(2) That the Notice has been posted on the Tenant's front door by a
representative of Landlord and that Tenant should make arrangements to pay
the delinquent installment of Rent when Tenant picks up the key; and
Page 5
<PAGE>
(3) That the failure of the Tenant to comply with the provisions of the
Lease and the Notice and/or tampering with or changing the door lock(s) by
Tenant may subject the Tenant to legal liability.
E. No re-entry or taking possession of the Demised Premises by Landlord
shall be construed as an election to terminate this Lease, unless a written
notice of such intention is given to Tenant. Notwithstanding any such
reletting or re-entry or taking possession, Landlord may, at any time
thereafter, elect to terminate this Lease for a previous default. Pursuit of
any of the foregoing remedies shall not preclude pursuit of any of the other
remedies provided by law, nor shall pursuit of any remedy herein provided
constitute a forfeiture or waiver of any monthly installment of Rent due to
Landlord hereunder or of any damages accruing to Landlord by reason of the
violation of any of the terms, provisions and covenants herein contained.
Forbearance by Landlord to enforce one or more of the remedies herein provided
upon an event of default shall not be deemed or construed to constitute a
waiver of any other violation or default. The loss or damage that Landlord
may suffer by reason of termination of this Lease or the deficiency from any
reletting as provided for above shall include the expense of repossession and
any repairs or remodeling undertaken by Landlord following possession. Should
Landlord terminate this Lease at any time for any default, in addition to any
other remedy Landlord may have, Landlord may recover from Tenant all damages
Landlord may incur by reason of such default, including the cost of recovering
the Demised Premises and the cost of the rental then remaining unpaid.
11.03. NOTICE OF DEFAULT. Tenant shall give written notice of any failure by
Landlord to perform any of its obligations under this Lease to Landlord and to
any ground lessor, mortgagee or beneficiary under any deed of trust encumbering
the Demised Premises whose name and address have been furnished to Tenant in
writing. Landlord shall not be in default under this Lease unless Landlord (or
such ground lessor, mortgagee or beneficiary) fails to cure such nonperformance
within thirty (30) days after receipt of Tenant's notice. However, if such
nonperformance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such 30-day period and
thereafter diligently pursued to completion.
11.04. LIMITATION OF LANDLORD'S LIABILITY. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Demised Premises or the leasehold estate under a ground lease of the Demised
Premises at the time in question. Each Landlord is obligated to perform the
obligations of Landlord under this Lease only during the time such Landlord owns
such interest or title. Any Landlord who transfers its title or interest is
relieved of all liability with respect to the obligations of Landlord under this
Lease accruing on or after the date of transfer. However, each Landlord shall
deliver to its transferee the Security Deposit held by Landlord if such Security
Deposit has not then been applied under the terms of this Lease.
ARTICLE THIRTEEN: PROTECTION OF LENDERS
13.01. SUBORDINATION. Landlord shall have the right to subordinate this
Lease to any future ground Lease, deed of trust or mortgage encumbering the
Demised Premises, and advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Landlord's right to obtain such a future subordination is subject
to Landlord's providing Tenant with a written Subordination, Nondisturbance and
Attornment Agreement from any such ground lessor, beneficiary or mortgagee
wherein Tenant's right to peaceable possession of the Demised Premises during
the Lease Term shall not be disturbed if Tenant pays the Rent and performs all
of Tenant's obligations under this Lease and is not otherwise in default. If
any ground lessor, beneficiary, or mortgagee elects to have this Lease superior
to the lien of its ground lease, deed of trust or mortgage and gives written
notice thereof to Tenant, this Lease shall be deemed superior to such ground
lease, deed of trust or mortgage whether this Lease is dated prior or subsequent
to the date of said ground lease, deed of trust or mortgage or the date of
recording thereof. Tenant's rights under this Lease, unless specifically
modified at the time this Lease is executed, are subordinated to any existing
ground lease, deed of trust or mortgage encumbering the Demised Premises. (See
Addendum, (S)7)
13.02. ATTORNMENT. If Landlord's interest in the Demised Premises is
transferred voluntarily or involuntarily to any ground lessor, beneficiary under
a deed of trust, mortgagee or purchaser at a foreclosure sale, Tenant shall
attorn to the transferee of or successor to Landlord's interest in the Demised
Premises and recognize such transferee or successor as Landlord under this
Lease. Tenant waives the protection of any statute or rule of law which gives
or purports to give Tenant any right to terminate this Lease or surrender
possession of the Demised Premises upon the transfer of Landlord's interest.
13.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instruments
or documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so.
13.04. ESTOPPEL CERTIFICATES.
A. Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been
canceled or terminated; (iii) the last date of payment of the Base Rent and
other charges and the time period covered by such payment; and (iv) that, to
the best of Tenant's knowledge, Landlord is not in default under this Lease
(or, if Landlord is claimed to be in default, stating why). Tenant shall
deliver such statement to Landlord within twenty (20) days after Landlord's
request. Any such statement by Tenant may be furnished by Landlord to any
prospective purchaser or lender of the Demised Premises. Such purchaser or
lender may rely conclusively upon such statement as true and correct.
B. If Tenant does not deliver such statement to Landlord within such 20-day
period, Landlord, and any prospective purchaser or lender, may conclusively
presume and rely upon the following facts: (i) that the terms and provisions
of this Lease have not been changed except as otherwise represented by
Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord; (iii) that not more than one monthly
installment of Base Rent or other charges have been paid in advance; and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall
be estopped from denying the truth of such facts.
13.05. TENANT'S FINANCIAL CONDITION. Within twenty (20) days after written
request from Landlord, Tenant shall deliver to Landlord such financial
statements as are reasonably required by Landlord to verify the net worth of
Tenant, or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant
shall deliver to any lender designated by Landlord any financial statements
required by such lender to facilitate the financing or refinancing of the
Demised Premises.
Page 6
<PAGE>
All financial statements shall be confidential and shall be used only for the
purposes set forth herein.
ARTICLE FOURTEEN: PROFESSIONAL SERVICE FEES
14.01. Amount and Manner of Payment of Service Fees. Fees due to the
Principal and Cooperating Brokers shall be calculated and paid in accordance
with Article 1.11 as follows:
A. Landlord agrees to pay to the Principal Brokers a fee for negotiating
this Lease equal to the percentage stated in Section 1.11B of each monthly
Rent payment at the time such payment is due.
B. Landlord agrees to pay to the Brokers a fee for negotiating this Lease
equal to the percentage stated in Section 1.11B of the total Rent to become
due to Landlord during the term of this Lease. Said fees shall be payable to
the Brokers 50% on the date of the execution of this Lease. and 50% upon
occupancy by Tenant. (See Addendum, (S)8)
ARTICLE FIFTEEN: ENVIRONMENTAL REPRESENTATIONS AND INDEMNITY
15.01. TENANT'S COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant, at Tenant's
expense, shall comply with all laws, rules, orders, ordinances, directions,
regulations and requirements of federal, state, county and municipal authorities
pertaining to Tenant's use of the Property and with the recorded covenants,
conditions and restrictions, including, without limitation, all applicable
federal, state and local laws, regulations or ordinances pertaining to air and
water quality, Hazardous Material (as defined hereinafter), waste disposal, air
emissions and other environmental matters, all zoning and other land use
matters, and with any direction of any public officer or officers, pursuant to
law, which shall impose any duty upon Landlord or Tenant with respect to the use
or occupation of the Property. (See Addendum, (S)9)
15.02. TENANT'S INDEMNIFICATION. Tenant shall not cause or authorize any
hazardous material to be brought upon, kept or used in or about the Property by
Tenant, its agents, employees, contractors or invitees without the prior written
consent of Landlord. If Tenant breaches the obligations stated in the preceding
Section or sentence, or if the presence of Hazardous Material on the Property
caused or permitted by Tenant results in contamination of the Property or any
other property, or if contamination of the Property or any other property by
Hazardous Material otherwise occurs for which Tenant is legally liable to
Landlord for damage resulting therefrom, then Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims, judgments, damages, penalties,
fines, costs, liability or losses (including, without limitation, damages for
the loss or restriction on use of rentable or unusable space or of any amenity
or appurtenance of the Property, damages arising from any adverse impact on
marketing of building space or land area, and sums paid in settlement of claims,
reasonable attorneys' fees, consultant fees and expert fees) which arise during
or after the Lease Term as a result of such contamination. This indemnification
of Landlord by Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any clean-up, remedial work,
removal or restoration work required by any federal, state or local government
agency or political subdivision because of Hazardous Material present in the
soil or groundwater on or under the Property. Without limiting the foregoing, if
the presence of any Hazardous Material on the Property or any other property
caused or permitted by Tenant results in any contamination of the Property,
Tenant shall promptly take all actions at its sole expense as are necessary to
return the Property to the condition existing prior to the introduction of any
such Hazardous Material to the Property, provided that Landlord's approval of
such actions shall first be obtained. The foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
Page 7
<PAGE>
15.05. DEFINITIONS. For purposes of this Article 15, the term "Hazardous
Material" shall mean any pollutant, toxic substance, hazardous waste, hazardous
material, hazardous substance, or oil as defined in or pursuant to the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, the Federal Clean Water
Act, as amended, or any other federal, state or local environmental law,
regulation, ordinance, rule, or bylaw, whether existing as of the date hereof,
previously enforced or subsequently enacted.
15.06. SURVIVAL. The indemnities contained in this Article 15 shall survive
the expiration or earlier termination of this Lease.
ARTICLE SIXTEEN: MISCELLANEOUS
16.01. FORCES MAJEURE. In the event performance by Landlord or Tenant of any
term, condition or covenant in this Lease (except the payment of Rent) is
delayed or prevented by any Act of God, strike, lockout, shortage of material or
labor, restriction by any governmental authority, civil riot, flood, or any
other cause not within its control, the period for performance of such term,
condition or covenant shall be extended for a period equal to the period such
party is so delayed or hindered.
16.02. INTERPRETATION. The captions of the Articles or Sections of this
Lease are to assist the parties in reading this Lease and are not a part of the
terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. For convenience, each party hereto is referred to in the neuter
gender, but the masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Demised Premises with Tenant's
expressed or implied permission.
16.03. WAIVERS. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provisions of this Lease or its
acceptance of late installments of Rent shall not be a waiver and shall not
estop Landlord from enforcing that provision or any other provision of this
Lease in the future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord. Landlord may, with or
without notice to Tenant, negotiate, cash, or endorse such check without being
bound to the conditions of such statement.
16.04. SEVERABILITY. A determination by a court of competent jurisdiction
that any provision of this Lease or any part thereof is invalid or unenforceable
shall not cancel or invalidate the remainder of such provision or this Lease,
which shall remain in full force and effect.
16.05. JOINT AND SEVERAL LIABILITY. All parties signing this Lease as Tenant
shall be jointly and severally liable for all obligations of Tenant.
16.06. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is the
only agreement between the parties pertaining to the lease of the Demised
Premises and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
16.07. NOTICES. All notices required or permitted under this Lease shall be
in writing and shall be personally delivered or shall be deemed to be delivered,
whether actually received or not, when deposited in the United States mail,
postage pre-paid, registered or certified mail, return receipt requested,
addressed as stated herein. Notices to Tenant shall be delivered to the address
specified in Section 1.03 above. Notices to any other party hereto shall be
delivered to the address specified in Article One as the address for such party.
Any party hereto may change its notice address upon written notice to the other
parties.
16.08. ATTORNEY'S FEES. If on account of any breach or default by any party
hereto in its obligations to any other party hereto, it shall become necessary
for the nondefaulting party to employ an attorney to enforce or defend any of
its rights or remedies hereunder, the defaulting party agrees to pay the
nondefaulting party its reasonable attorneys' fees, whether or not suit is
instituted in connection therewith.
16.09. VENUE. All obligations hereunder, including but not limited to the
payment of fees to the Principal Broker, shall be performable and payable in the
county in which the Property is located.
16.10. GOVERNING LAW. The laws of the State of Texas shall govern this
Lease.
16.11. SURVIVAL. All obligations of any party hereto not fulfilled at the
expiration or the earlier termination of this Lease shall survive such
expiration or earlier termination as continuing obligations of such party.
16.12. BINDING EFFECT. This Lease shall inure to the benefit of and be
binding upon each of the parties hereto and their respective heirs,
representatives, successors and assigns; provided, however, Landlord shall have
no obligation to Tenant's successors or assigns unless the rights or interests
of such successors or assigns are acquired in accordance with the terms of this
Lease.
16.13. EXECUTION AS OFFER. The execution of this Lease by the first party to
do so constitutes an offer to lease the Demised Premises. Unless within the
number of days stated in Section 1.14 above after the date of its execution by
the first party to do so, this Lease is signed by the other party and a fully
executed copy is delivered to the first party, such offer shall be automatically
withdrawn and terminated.
Page 8
<PAGE>
ARTICLE SEVENTEEN: ADDITIONAL PROVISIONS
Additional provisions may be set forth in the blank space below, and/or an
Exhibit or Exhibits may be attached hereto which shall be made a part of this
Lease for all purposes.
17.01 Expansion Option. Landlord hereby grants Tenant the option to lease the
adjacent spaces on each side of the Demised Premises in accordance with
the following terms. If, during the original term of this Lease, the space
consisting of approximately 79,750 square feet which is adjacent on one
side or the space of approximately 149,750 square feet which is adjacent
on the other side to the Demised Premises (the "Additional Space") shall
become available for lease, after the initial lease of such space to third
parties, and provided that Tenant is not then in default hereunder and has
not assigned this Lease or sublet the premises (or a part hereof), Tenant
shall have the first right and option to lease the Additional Space. When
the Additional Space becomes available, or at Landlord's option, up to six
(6) months prior to the date that the Additional Space is scheduled to
become available, Landlord shall first offer, in writing, to lease such
space to Tenant upon the same terms and conditions and at the same rental
rate, as would be offered by Landlord to third parties. If within ten (10)
business days after Landlord delivers Tenant such written offer, Landlord
does not receive notice in writing that Tenant elects to lease all (and
not part) of the Additional Space and within ten (10) days thereafter
Tenant does not execute a lease on the Additional Space, the Tenant's
right to lease the Additional Space shall terminate and Lessee shall have
no further rights pursuant to this paragraph.
EFFECTIVE as of the date stated in Section 1.01 above.
BROKERS: LANDLORD:
COLLIERS BALDWIN REALTORS PRIMERA COPPELL PROPERTIES I, LTD.
- ------------------------- ----------------------------------
Principal Broker, Member of the a Texas limited partnership
Greater Dallas Association of
REALTORS(R), Inc. By: Primera Consolidated, L.L.C.
General Partner
By: /S/ DAVID JACKSON By: /S/ RALPH HEINS
----------------- ----------------
Name: David Jackson Name: Ralph Heins
------------- -----------
Address: 9400 N. Central, Suite 250 Title: Manager
-------------------------- -------
Dallas, Texas 75231 Date of Execution by Landlord:
------------------- ---------
Telephone:
-------------------
License No.:
------------------ TENANT:
FOSTER & RUDD CUSTOM CHROME, INC.
- ------------- -------------------
Cooperating Broker
By: /S/ GORDON S. FOSTER By: /S/ IGNATIUS J. PANZICA
-------------------- -----------------------
Name: Gordon S. Foster Name: Ignatius J. Panzica
---------------- -------------------
Address: 12900 Preston Road, Suite 550 Title: Chairman and Chief Executive
----------------------------- ----------------------------
Dallas, Texas 75230 Officer
----------------------------- -------
----------------------------- Date of Execution by Tenant:
-----------
Telephone: 214/233-2383
------------
License No.:
------------
********************************************************************************
[For voluntary use only by members of the Greater Dallas Association of
REALTORS(R), Inc.]
Page 9
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT A
FLOOR PLAN/SITE PLAN
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
INITIALS: LANDLORD: INITIALS: TENANT:
---------- -----------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT B
LEGAL DESCRIPTION OF PROPERTY
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
Lot 5, Block 7, of the Replat of all of Blocks 5 and 6 and part
of Block 7 of Park West Commerce Center, an Addition to the City
of Coppell, Dallas County, Texas, according to the plat thereof
recorded in Volume 95017, Page 00398, Map Records of Dallas
County, Texas.
INITIALS: LANDLORD: INITIALS: TENANT:
--------- ---------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT C
RENEWAL OPTIONS
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
1. Option(s) to Extend Term
Landlord hereby grants to Tenant one (1) option(s) [the "Option(s)"]
----------------
to extend the Lease Term for additional term(s) of five (5) years each [the
--------
"Extension(s)"], on the same terms, conditions and covenants set forth in the
Lease Agreement, except as provided below. Each Option shall be exercised only
by written notice delivered to the Landlord at least one hundred eighty
------------------------
(180) days before the expiration of the Lease Term or the preceding Extension
---
of the Lease Term. If Tenant fails to deliver Landlord written notice of the
exercise of an Option within the prescribed time period, such Option and any
succeeding Options shall lapse, and there shall be no further right to extend
the Lease Term. Each Option shall be exercisable by Tenant on the express
condition that at the time of the exercise, and at all times prior to the
commencement of such Extension(s), Tenant shall not be in default under any of
the provisions of this Lease. The foregoing Option(s) are personal to Tenant and
may not be exercised by any assignee or subtenant.
2. Calculation of Rent
The Base Rent during the Extension(s) shall be determined by one of the
following methods: [INDICATED BY CHECKING THE APPROPRIATE BOX UPON THE
EXECUTION OF THE LEASE AGREEMENT]
[ ] (a) Consumer Price Index Adjustment
[X] (b) Fair Rental Value Adjustment
[ ] (c) Fixed Rental Adjustment
A. Consumer Price Index Adjustment
The monthly rent during the particular Extension shall be determined by
multiplying the monthly installment of Base Rent during the Lease Term by a
fraction determined as follows:
(1) The numerator shall be the latest Index.
(2) The denominator shall be the initial Index.
If such computation would reduce the rent for the particular Extension,
it shall be disregarded, and the rent during the immediately preceding period
shall apply instead.
The Index, as defined herein, shall mean the Consumer Price Index for
Urban Consumers (all items), Dallas/Fort Worth, Texas, area (1984 = 100)
published by the United States Department of Labor, Bureau of Labor Statistics.
The initial Index shall mean the Index published for the nearest calendar
month preceding the commencement date of the Lease Term. The latest Index
shall mean the Index published for the nearest calendar month preceding the
first day of the Extension.
If a base year other than 1984 is adopted, the Index shall be converted
in accordance with the appropriate conversion factor. If the Index is
discontinued or revised, such other Index or computation with which it is
replaced shall be used in order to obtain substantially the same result as
would have been obtained it if had not been discontinued or revised.
B. Fair Rental Value Adjustment
The Base Rent shall be increased on the first day of the particular
Extension to the "Fair Rental Value" of the Demised Premises, determined in the
following manner:
(1) If the Landlord and Tenant have not been able to agree on the Fair
Rental Value Adjustment prior to the date the option is required to he
exercised, the rent for the Extension shall he determined as follows: Within
fifteen (15) days following the exercise of the option, Landlord and Tenant
shall endeavor in good faith to agree upon a single appraiser. If Landlord
and Tenant are unable to agree upon a single appraiser within said fifteen
(15) day period, each shall then, by written notice to the other, given
within ten (10) days after said fifteen (15) day period, appoint one
appraiser. Within ten (10) days after the two appraisers are appointed, they
shall appoint a third appraiser. If either Landlord or Tenant fails to
appoint its appraiser within the prescribed time period the single appraiser
appointed shall determine the Fair Rental Value of the Demised Premises.
Each party shall hear the cost of the appraiser appointed by it and the
parties shall share equally the cost of the third appraiser.
(2) The "Fair Rental Value" of the Demised Premises shall mean the price
that a ready and willing tenant would pay as of the commencement of the
Extension as monthly rent to a ready and willing landlord or demised premises
comparable to the Demised Premises if such property were exposed for lease on
the open market for a reasonable period of time and taking into account all
of the purposes for which such property may be used and not just the use
proposed to be made of the Demised Premises by Tenant. The Fair Rental Value
of the Demised Premises shall be the average of the two of the three
appraisals which are closest in amount, and the third appraisal shall be
disregarded. In no event shall the rent be reduced by reason of such
computation. If the Fair Rental Value is not determined prior to the
commencement of the Extension, then Tenant shall continue to pay to Landlord
the rent applicable to the Demised Premises immediately prior to such
Extension until the Fair Rental Value is determined, and when it is
determined, Tenant shall pay to Landlord within ten (10) days after receipt
of such notice the difference between the rent actually paid by Tenant to
Landlord and the new rent determined hereunder.
C. Fixed Adjustments
The Base Rent shall be increased to the following amounts on the following
dates:
Date Amount
---- ------
N/A N/A
--------------------- -----------------------
--------------------- -----------------------
--------------------- -----------------------
--------------------- -----------------------
--------------------- -----------------------
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT D
RIGHT OF FIRST REFUSAL FOR ADDITIONAL SPACE
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
1. During the initial Lease Term, Tenant shall have a right of first refusal
("Right of First Refusal") to lease the space shown on the floor plan attached
hereto as Exhibit A, known as Suite ______________, containing approximately
______________ square feet of area (the "Additional Space"), on the same terms
and conditions that Landlord is prepared to accept from any third party. When
Landlord receives a legally sufficient offer to lease the Additional Space from
a third party which Landlord desires to accept, Landlord shall present the same,
in writing, to Tenant, and Tenant shall thereafter have ten (10) days in which
to accept or reject such offer in writing. If Tenant rejects such offer or fails
to accept the same in writing within such time, then Landlord shall be free to
lease the Additional Space to such third party on substantially the same terms
and conditions offered to Tenant in the foregoing manner. If Landlord does not
enter into such lease with such third party, the Right of First Refusal shall
apply again and Landlord shall be required to submit any future offer to Tenant
in the foregoing manner.
2. The Right of First Refusal shall, at Landlord's election, be null and void
if Tenant is in default under the Lease on the date Landlord would otherwise
notify Tenant of the offer concerning the Additional Space or at any time
thereafter and prior to commencement of the lease for the Additional Space.
After Tenant validly exercises the Right of First Refusal provided herein, the
parties shall execute an amendment to the Lease adding the Additional Space, or
a new lease for the Additional Space, or such other documentation as Landlord
shall require, promptly after Landlord shall prepare the same, in order to
confirm the leasing of such Additional Space to Tenant, but an otherwise valid
exercise of the Right of First Refusal contained herein shall be fully
effective, whether or not such confirmatory documentation is executed.
3. The Right of First Refusal shall apply only with respect to the entire
Additional Space and may not be exercised with respect to only a portion
thereof, unless only a portion shall first become the subject of a legally
sufficient offer acceptable to Landlord [in which case, the Right of First
Refusal shall apply to such portion(s) which is subject to such offer(s)]. If
the Additional Space, or any portion thereof, is the subject of an offer which
includes other space at the Property, and such offer is acceptable to Landlord,
the Right of First Refusal shall apply to the entire space which is the subject
of such offer, and Tenant shall be obligated to either accept or refuse to lease
such entire space on such terms and conditions included in such offer.
4. If Tenant exercises the Right of First Refusal, Landlord does not guarantee
that the Additional Space will be available on the commencement date for the
lease thereof if the then existing occupants of the Additional Space shall
holdover for any reason beyond Landlord's reasonable control. In such event,
Tenant's sole recourse shall be that the rent with respect to the Additional
Space shall be abated until Landlord legally delivers possession of the same to
Tenant. Tenant's exercise of such Right of First Refusal shall not operate to
cure any default by Tenant of any of the terms or provisions in the Lease, nor
to extinguish or impair any rights or remedies of Landlord arising by virtue of
such default. If the Lease or Tenant's right to possession of the Demised
Premises shall terminate in any manner whatsoever before Tenant shall exercise
the right herein provided, or if Tenant shall have subleased or assigned all or
any portion of the Demised Premises, then immediately upon such termination,
sublease or assignment, the Right of First Refusal shall simultaneously
terminate and become null and void. Such right is personal to Tenant. Under no
circumstances whatsoever shall a subtenant under a sublease of the Demised
Premises, or the assignee under a partial assignment of the Lease, have any
right to exercise the Right of First Refusal. Tenant agrees that time is of the
essence in this provision.
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT F
EXPENSE REIMBURSEMENT
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
1. Expense Reimbursement
Tenant shall pay the Landlord, as additional rental hereunder, a portion of
the following expenses, as defined hereafter, incurred, levied or assessed for
or against the Demised Premises: [Check those that are to apply. Boxes not
checked do not apply.]
[X] Ad Valorem Taxes
[X] Insurance Premiums
[X] Common Area Maintenance Charges (CAM)
[X] Operating Expenses
(herein collectively called "Reimbursement")
2. Expense Reimbursement Limitations
The amount of Tenant's Reimbursement obligation shall be determined by one of
the following methods: [Check only the one applicable box]
[ ] Base year/Expense Stop Adjustment
[X] Pro Rata Adjustment
[ ] Fixed Amount Adjustment
The calculation for each of said methods is set forth under Section 4 below.
3. Expense Reimbursement Payments
Tenant agrees to pay the applicable Reimbursement within thirty (30) days
after receiving an invoice therefor from Landlord. If at any time during the
Lease Term or any renewals or extensions Landlord has reason to believe that at
some time within the immediately succeeding 12-month period Tenant will owe
Landlord a payment pursuant to this provision, Landlord may direct Tenant to pay
monthly an estimated portion of the projected future amount. Tenant agrees that
any such payment directed by Landlord shall be due and payable monthly on the
same day that the Base Rent is due. Any Reimbursement relating to partial
calendar years shall be prorated accordingly.
4. Definitions
A. Ad Valorem Taxes: All general real estate taxes, general and
special assessments, parking surcharges, rent taxes, and other similar
governmental charges levied against the Property for each calendar year.
B. Insurance Premiums: All insurance premiums attributable to the
Property, including, but not limited to, premiums for fire, casualty, and
extended coverage, liability coverage, and loss of rents coverage.
C. Common Area Maintenance Charges: All costs of the ownership,
operation, and maintenance of the common area, including, but not limited to,
those costs for security, lighting, painting, cleaning, leasing, inspecting,
and repairing which may be incurred by Landlord, in its discretion, including a
reasonable allowance for Landlord's overhead and management. The term "common
area" is defined as that part of the Property intended for the common use of
all tenants, including, but not limited to, the parking areas, landscaping,
loading areas, sidewalks, malls, promenades (enclosed or otherwise), public
rest rooms, meeting rooms, corridors, and curbs. Common area maintenance shall
not include depreciation on Landlord's original investment, cost of tenant
improvements, real estate brokers' fees, and interest or depreciation on
capital investments.
D. Operating Expenses: All costs of management, operation, and
maintenance of the Property, including, but not limited to, wages, salaries,
janitorial services, maintenance, repairs, and cost of utilities. Operating
expenses shall not include depreciation on Landlord's original investment, cost
of tenant improvements, real estate brokers' fees, and interest or depreciation
on capital investments.
E. Base Year/Expense Stop Adjustment: If the Landlord's ad valorem
taxes, insurance premiums, common area maintenance charges and/or operating
expenses for the Property for any calendar year during the term hereof or
during any extension of this lease increase over (1) such amounts paid by
Landlord for the Base Year N/A , or (2) $ N/A per square foot per
--------- ---------
year [choose one], Tenant agrees to pay its share of such increase based on the
square footage contained in the Demised Premises in proportion to the square
footage of leasable area of the Property.
F. Pro Rata Adjustment: Tenant shall pay to Landlord its pro rata
share of the total amount of Landlord's insurance premiums, ad valorem taxes,
common area maintenance charges, and/or operating expenses for any calendar
year during the term hereof and during any extension of this lease. Tenant's
pro rata share of such amount shall be based on the square footage contained in
the Demised Premises in proportion to the square footage of the leasable area
of the Property.
Estimated Expenses per month:
Ad Valorem Taxes $3,000.00 per month
--------
Insurance Premiums $ 350.00 per month
------
Common Area Maintenance Charges $ 650.00 per month
------
Operating Expenses $4,000.00 per month
--------
The above listed expenses are estimates only and the actual expenses may vary
from such amounts. Tenant shall pay to Landlord its pro rata share of the
actual expenses pursuant to Section 4.F. above.
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT H
Page 1 of 3
-----------
CONSTRUCTION OF IMPROVEMENTS
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
1. Construction of Improvements:
A. Landlord agrees to construct (or complete) a building and other
improvements upon the Demised Premises in accordance with detailed Plans and
Specifications to be prepared forthwith by Landlord and delivered to Tenant.
Upon approval by Tenant, two or more sets of said Plans and Specifications
shall be signed by both parties, with one signed set retained by Tenant.
Changes to said Plans and Specifications thereafter shall be made only by
written addenda signed by both parties.
B. Upon approval of said Plans and Specifications, Landlord shall
forthwith begin construction and pursue same to completion with reasonable
diligence in a good and workmanlike manner.
2. Completion Date:
A. It is estimated by Landlord that the building and other improvements
shall be completed by January 1 , 1997.
--------------- --
B. Landlord shall notify Tenant in writing when construction has been
completed. Tenant shall thereupon inspect the building and other improvements,
and if same have in fact been completed in accordance with the Plans and
Specifications, the Lease Term shall begin upon the date of completion with
Base Rent due and payable as provided in Article Three of the Lease.
C. If the building and other improvements have not in fact been completed
in accordance with the Plans and Specifications, written notification of the
items deemed incomplete shall be given by Tenant to Landlord immediately
following inspection. Landlord shall forthwith proceed to finish the
incomplete items, and the lease term shall begin upon the date that such items
are in fact complete.
D. Completion, as used herein, shall mean substantial completion.
Substantial completion shall mean at such time as the Landlord obtains a
Certificate of Occupancy issued by the local municipal authorities whose
jurisdiction includes the Demised Premises, and is the stage when the
construction is sufficiently complete in accordance with the Plans and
Specifications that the Tenant can occupy of utilize the Demised Premises for
its intended use, except for minor "punch list" items remaining to be
completed.
3. Letter of Acceptance: Tenant agrees to execute and deliver to Landlord,
with a copy to the Principal Broker, a Letter of Acceptance, addressed to
Landlord and signed by Tenant (or its authorized representative) acknowledging
that construction has been completed in accordance with the Plans and
Specifications and acknowledging the Commencement Date of the Lease Term.
4. Taking of Possession: The taking of possession of the Demised Premises by
Tenant shall be deemed conclusively to be acknowledgment by Tenant that
construction has been completed in accordance with Plans and Specifications
(except for latent defects) and that the Lease Term has begun as of the date of
completion.
5. Failure to Complete: In the event that the building and other improvements
have not been completed in accordance with the Plans and Specifications by
February 1 , 1997, or by such date as extended by application of Section
- ---------- --
16.01, Tenant shall have the right and option to terminate this Lease by giving
written notice of Tenant's intention to terminate as of a certain date not less
than fifteen (15) days prior to said certain date. If the building and other
improvements have not been completed by said certain date, the lease shall, at
the option of Tenant, terminate with no further liability of one party to the
other.
6. Such improvements are based on a total cost of $63,842 to be paid by
Landlord. If the improvements cost less, the Base Rent shall be reduced $0.01
per square foot per year for each $3,000 saved, and if the improvements cost
more, the Base Rent shall be increased $0.01 per square foot for each $3,000 in
additional costs. The Base Rent shall be adjusted only in even increments of
$0.01 per square foot based on an increase or decrease in costs of at least
$3,000.
7. The improvements to be provided are described in the memorandum attached
hereto as pages 2 and 3 of this Exhibit H and in the drawings prepared by
Ultratech, dated December 4, 1996.
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT H CONTINUED
Page 2 of 3
-----------
CONSTRUCTION OF IMPROVEMENTS CONTINUED
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
MEMORANDUM
DATE: December 6, 1996
TO: Ralph Heins
FROM: Ken McCall
RE: Custom Chrome Buildout
The following cost factors are based on the Plans received from Ultratech dated
12/04/96 #21197D01 Sheet 2 of 2.
<TABLE>
<S> <C>
Electrical:
Permits
New 400 amp service
Install 50 new 400w MH high bay fixtures
Install 11 480v drops at tenant's equipment location
Re-locate approx. 28 existing light fixtures
Cost: $ 31,945.00
RAMP:
Install 50' ramp north of Fire Pump Room
Cost: 7,030.00
Employee Entrance:
Close up first bay door next to office with Metal door and
add landing
Cost: 4,636.00
Wrought Iron Fence:
Install Painted iron fence with hydraulic closed Gate.
Cost: 2,200.00
MIS Room:
Construct one 13 X 9 room with ceiling, two light fixtures
One Sprinkler Drop, insulated walls and double doors
Cost: 3,898.00
</TABLE>
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT H CONTINUED
Page 3 of 3
-----------
CONSTRUCTION OF IMPROVEMENTS CONTINUED
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
<TABLE>
<S> <C>
Concrete Pad/Fence:
Construct 4 x 8 concrete pad with 8' chain fence with 2 four
foot doors
Cost: $ 660.00
Office Repair:
Remove 12 x 18 sq. ft. of carpet and install VCT
Repaint all interior walls
Cost: 900.00
Card Swipes w/Buzzer: Tax incl.
Install two card readers
Cost: 4,000.00
Dock Seals: Tax incl.
Relocate 2 sets of dock seals and lights
Cost: 600.00
Fire Safety Equipment: Tax incl.
Strobe light, Audible Horns, Fire House Stations (prices
depend on city requirement and may vary)
Cost: 4,000.00
</TABLE>
Cost: $59,869.00
Tax: 3,973.35
Total: 63,842.35
Sincerely:
/s/ Ken McCall
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT I
ADDENDUM NUMBER ONE TO LEASE
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
ADDENDUM NUMBER ONE TO LEASE
----------------------------
THIS ADDENDUM NUMBER ONE TO LEASE ("Addendum") is attached to and made
a part of the certain Commercial Lease Agreement ("Lease") dated December 3,
1996, between Landlord and Tenant. The capitalized terms used in this Addendum
shall have the meanings set forth in the Lease, unless otherwise defined herein,
Landlord and Tenant hereby agree that the following are additional terms and
provisions of the Lease, and to the extent of any inconsistency between the
terms and provisions of the Lease and this Addendum, the terms of this Addendum
shall control:
1. Early Entry. Tenant and Tenant's representatives may enter the
-----------
Demised Premises and install trade fixtures and equipment in the Demised
Premises prior to the Commencement Date, and such installation of equipment and
fixtures shall not be deemed the Commencement Date of the Lease or constitute
possession of the Demised Premises for purposes of this Lease.
2. Compliance with Laws. Notwithstanding anything to the contrary in the
--------------------
Lease, Tenant shall have no obligation whatsoever to make, or pay for, any
alterations to the Demised Premises which are of a capital or structural nature
and are required by applicable law, ordinance, private restriction of insurance
rating organization unless made necessary by either Tenant's particular use of
the Demised Premises (as opposed to warehouse, light manufacturing and
distribution uses generally) or alterations voluntarily made to the Demised
Premises by Tenant.
3. Landlord's Access. Notwithstanding anything to the contrary in the
-----------------
Lease, Landlord shall conduct all of Landlord's activities on the Demised
Premises in a manner designed to cause the least possible interruption to Tenant
and Tenant's use of the Demised Premises.
4. Tenant's Obligation to Repair. In no event shall Tenant's obligation
-----------------------------
to repair under this subsection extend to (i) claims for damage and repairs
waived under Section 5.06; (ii) damage caused by any defects in the design,
construction or materials of the Demised Premises, including the Demised
Premises and improvements installed therein by Landlord; (iii) damage caused in
whole or in part by the negligence or willful misconduct of Landlord or
Landlord's agents, employees, invitees or licensees, (iv) repairs covered under
operating expenses otherwise paid by Tenant; (v) reasonable wear and tear; or
(vi) conditions repaired or otherwise cured pursuant to any warranties of
Landlord's contractors.
5. Alterations, Additions and Improvements. Notwithstanding anything to
---------------------------------------
the contrary in the Lease, Landlord's consent shall not be necessary for
alterations, additions or improvements made to the Demised Premises which are
not structural and do not affect the building systems, provided that such
alterations, additions or improvements cost less than Twenty Thousand Dollars
($20,000) each and are otherwise performed in accordance with the terms of this
Lease.
6. Default. Tenant shall not be deemed to be in default under this
-------
Section 11.01(b) if such default is incapable of cure within said period and
Tenant has commenced to complete the cure of such default within said thirty
(30) day period and is proceeding diligently.
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT I CONTINUED
ADDENDUM NUMBER ONE TO LEASE CONTINUED
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
ADDENDUM NUMBER ONE TO LEASE
----------------------------
7. Subordination. Notwithstanding anything to the contrary herein, it
-------------
shall be a condition precedent to the effectiveness of this Lease that Tenant
receive a fully-executed (and notarized) non-disturbance agreement in form
reasonably satisfactory to Tenant from any lender or ground lessor with a lien
on the Demised Premises as of the date of this Lease.
8. Brokers. Landlord and Tenant each warrants and represents for the
-------
benefit of the other that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease, except for any Broker
specified in the Basic Lease Information, and that it knows of no other real
estate broker or agent who is or might be entitled to a real estate brokerage
commission or finder's fee in connection with this Lease. Landlord shall
indemnify and hold harmless Tenant from and against any claims by the Broker
stated in the Basic Lease Information. Each party shall indemnify and hold
harmless the other from and against any and all liabilities or expenses arising
out of claims made by any broker (other than the Broker stated in the Basic
Lease Information) or individual for commissions or fees resulting from the
actions of the indemnifying party in connection with this Lease.
9. Environmental Matters. Notwithstanding anything to the contrary
---------------------
in the Lease, Tenant shall have the right, without the need for Landlord's
consent, to keep on the Demised Premises the following Hazardous Materials:
oil, chemicals and paint for motorcycle maintenance and repair
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------,
all of which are customary and normal to Tenant's business, provided that all
such Hazardous Materials are used in compliance with all applicable laws.
INITIALS: LANDLORD: INITIALS: TENANT:
-------- --------
<PAGE>
GREATER DALLAS ASSOCIATION OF REALTORS(R), INC.
EXHIBIT H CONTINUED
Page 2 of 3
-----------
CONSTRUCTION OF IMPROVEMENTS CONTINUED
PROPERTY ADDRESS OR DESCRIPTION: 1111 Executive Drive, Coppell, Texas
------------------------------------
DATE OF LEASE: December 3, 1996
----------------
MEMORANDUM
DATE: December 6, 1996
TO: Ralph Heins
FROM: Ken McCall
RE: Custom Chrome Buildout
The following cost factors are based on the Plans received from Ultratech dated
12/04/96 #21197D01 Sheet 2 of 2.
<TABLE>
<S> <C>
Electrical:
Permits
New 400 amp service
Install 50 new 400w MH high bay fixtures
Install 11 480v drops at tenant's equipment location
Re-locate approx. 28 existing light fixtures
Cost: $ 31,945.00
RAMP:
Install 50' ramp north of Fire Pump Room
Cost: 7,030.00
Employee Entrance:
Close up first bay door next to office with Metal door and
add landing
Cost: 4,636.00
Wrought Iron Fence:
Install Painted iron fence with hydraulic closed Gate.
Cost: 2,200.00
MIS Room:
Construct one 13 X 9 room with ceiling, two light fixtures
One Sprinkler Drop, insulated walls and double doors
Cost: 3,898.00
</TABLE>
<PAGE>
EXHIBIT 10.73
LEASE AGREEMENT
---------------
THIS LEASE, made this 11th day of February, 1997, by and between Stone Mountain
Industrial Park, Inc., a Georgia Corporation, hereinafter referred to as
"Lessor"; and Custom Chrome, Inc., a Delaware Corporation, hereinafter referred
to as "Lessee";
W I T N E S S E T H
1. Premises. The Lessor, for and in consideration of the rents, covenants,
--------
agreements, and stipulations hereinafter mentioned, reserved, and
contained, to be paid, kept and performed by the Lessee, has leased and
rented, hereby does lease and rent, to the Lessee, and said Lessee hereby
agrees to lease and take upon the terms and conditions which hereinafter
appear, the following described property (hereinafter called "Premises"):
A 60,600 square foot portion of Building No. 5 (a 150,233 square foot
building) known as 7780 Unit 2 Westside Industrial Drive, Westside
Industrial Park, Jacksonville, Florida, said building being a part of
Section 35, Township 1 South, Range 25 East, Duval County, Florida, being a
portion of Unit 1, Westside Industrial Park Subdivision as recorded in Plat
Book 46, page 84A-E of the Public Records of Duval County, Florida, and
being more particularly described on Exhibit "A" Legal Description attached
hereto by this reference and incorporated herein.
This Lease is subject to all encumbrances, easements, covenants and
restrictions of record and to the Declaration of Covenants, Restrictions,
and Easements for Westside Industrial Park. See Addendum Paragraph 46.
2. Term. To have and to hold for a term of five (5) years, said term to begin
----
on the 1st day of May, 1997, and to end at midnight on the 30th day of
April, 2002.
3. Rental. Lessee shall pay to Lessor monthly "Base Rent" of $____________
------
(See Addendum Paragraph 34 "Schedule of Rents") due on the first day of
each month, in advance, without offset or demand, commencing on May 1,
1997, subject to the terms of Paragraph 34 hereof. Upon execution of this
Lease, Lessee has paid to Lessor $19,695.00, representing the first month's
rent due hereunder. In the event Lessee fails to pay the rent or any other
payment called for under this Lease within ten (10) days of the time period
specified, Lessee shall pay a late charge equal to five percent (5%) of the
unpaid amount, which late charge shall be paid with the required payment.
Upon execution of this Lease, Lessee has deposited $19,695.00
("Security Deposit") with Lessor to secure Lessee's performance of its
obligations hereunder. If Lessee defaults hereunder, then Lessor may,
after the appropriate notices have been given as provided herein,
<PAGE>
without prejudice to Lessor's other remedies, apply part or all of the
Security Deposit to cure Lessee's default. If Lessor so uses part or all of
the Security Deposit, Lessee shall, within ten (10) days after written
demand, pay Lessor the amount necessary to restore the Security Deposit to
its original amount. Lessor shall not be required to pay any interest on
said Security Deposit. If Lessor sells the Premises, the Security Deposit
shall be transferred to the purchaser and Lessor shall be relieved of any
further liability in relation to the Security Deposit. At the termination
of this Lease and after Lessee has vacated the Premises, Lessor may use
said Security Deposit to cure any defaults of Lessee or to apply to
expenses of repairing or cleaning the Premises, if necessary. In the event
all or any portion of the Security Deposit remains after paying for such
items, said amount shall be paid to Lessee within ten (10) days of said
termination and vacating of the Premises.
4. Utility Bills. See Also Paragraph 33
-------------
5. Mortgagee's Rights. Lessee's rights shall be subject to any bona fide
------------------
mortgage or deed to secure debt which is now, or may hereafter be, placed
upon the Premises by Lessor, and Lessee agrees to execute and deliver such
documentation as may be required by any such mortgagee to effect any
subordination within ten (10) days of receipt of a request for such
execution. See Addendum Paragraph 38.
6. Maintenance and Repairs by Lessee. Lessee shall not allow the Premises to
---------------------------------
fall out of repair or deteriorate, and, at Lessee's own expense, Lessee
shall keep and maintain said Premises in good order and repair, except
portions of the Premises to be repaired by Lessor under terms of Paragraph
7 below. Lessee also agrees to keep all systems pertaining to water, fire
protection, drainage, sewer, electrical, heating, ventilation, air
conditioning and lighting in good order and repair, and agrees to return
same to Lessor at the expiration of this Lease or renewal hereof in the
same condition in which they were received as of the commencement date,
reasonable wear and tear and damage due to casualty or acts of Lessor or
Lessor's agents, employees or contractors excepted. Lessee shall maintain
at all times a maintenance contract for the heating, ventilation and air
conditioning ("HVAC") equipment with a licensed HVAC contractor. Said
maintenance contract shall provide for regular inspection and filter
changes not less than every 60 days. The Lessee covenants and agrees that
during the term of this Lease and for such further time as Lessee, or any
person claiming under it, shall hold the Premises or any part thereof, it
shall not cause the estate of the Lessor in said Premises to become subject
to any lien, charge or encumbrance whatsoever, it being agreed that the
Lessee shall have no authority, express or implied, to create any lien,
charge or encumbrance upon the estate of the Lessor in the Premises.
7. Repairs by Lessor. Lessor gives to Lessee exclusive control of Premises
-----------------
and shall be under no obligation to inspect said Premises. Lessee shall
promptly notify Lessor of any damage covered under this paragraph, and
Lessor shall be under no duty to repair unless it receives notice of such
damage. See Addendum Paragraph 39.
-2-
<PAGE>
8. Modifications and Alterations to the Premises. No modification or
---------------------------------------------
alterations to the building on the Premises or openings cut through the
roof are allowed without prior written consent of Lessor. In the event any
such modifications or alterations are performed, same shall be completed in
accordance with all applicable codes and regulations.
9. Return of Premises. Lessee agrees to return the Premises to Lessor, at the
------------------
expiration or prior termination of this Lease, broom clean and in as good
condition and repair as when first received, natural wear and tear, damage
by storm, fire, lightening, earthquake or other casualty or damage caused
by Lessor or Lessor's agents, employees or contractors alone excepted.
Lessee agrees to remove in personal property from the Premises at the
expiration or prior termination of this Lease.
10. Destruction of or Damage to Premises. If Premises are totally destroyed by
------------------------------------
storm, fire, lightning, earthquake or other casualty, this Lease shall
terminate as of the date of such destruction, and rental shall be accounted
for as between Lessor and Lessee as of that date. If Premises are damaged,
but not wholly destroyed by any of such casualties, rental shall abate in
such proportion as use of Premises has been destroyed, and Lessor shall
restore Premises to substantially the same conditions as before damage as
speedily as practicable, whereupon full rental shall recommence; provided
further, however, that if the damage shall be so extensive that the same
cannot be reasonably repaired and restored within six (6) months from date
of the casualty, then either Lessor or Lessee may cancel this Lease by
giving written notice to the other party within thirty (30) days from the
date of such casualty. In the event of such cancellation, rental shall be
apportioned and paid up to the date of such casualty.
11. Indemnity. Lessee agrees to indemnify and save harmless the Lessor against
---------
all claims for injuries to persons or damages to property by reason of the
use or occupancy of the Premises, the improvements on the Premises or the
failure or cessation of services to the Premises, and all expenses incurred
by Lessor because of such injuries or occupancy, including reasonable
attorneys' fees and court costs. Notwithstanding the foregoing, nothing
herein shall require Lessee to indemnify or save Lessor harmless from
claims arising from the negligence or willful misconduct of Lessor or
Lessor's agents, employees or contractors.
12. Governmental Orders. Lessee agrees, at its own expense, to promptly comply
-------------------
with all requirements of any legally constituted public authority made
necessary by reason of Lessee's use or occupancy of Premises or operation
of its business. Notwithstanding the foregoing, nothing herein shall
require Lessee to make any alterations or improvements of a structural or
capital nature in order for the Premises to comply with applicable laws
unless such alterations or improvements are required due to Lessee's
particular use of the Premises (as opposed to office and warehouse uses
generally) or Lessee's voluntary making of alterations to the Premises.
Lessor agrees to promptly comply with any such requirements if not made
necessary by reason of Lessee's occupancy or operation of the Premises.
-3-
<PAGE>
13. Condemnation. If the whole of the Premises, or such portion thereof as
------------
will make Premises unusable for the purpose herein leased, shall be
condemned by any legally constituted authority for any public use or
purpose, or sold under threat of condemnation, then, in any of said events
the term hereby granted shall cease from the time when possession or
ownership thereof is taken by public authorities and rental shall be
accounted for as between Lessor and Lessee as of that date. Such
termination, however, shall be without prejudice to the rights of either
Lessor or Lessee to recover compensation and damage caused by condemnation
from the condemnor. It is further understood and agreed that neither the
Lessee, nor Lessor, shall have any rights in any award made to the other by
any condemnation.
14. Assignment. Lessee may not assign this Lease, or any interest thereunder,
----------
or sublet the Premises in whole or in part without the prior express
written consent of Lessor, which consent shall not be unreasonably withheld
or delayed and without giving prior written notice to Lessor of intent to
assign or sublease. Subtenants or assignees shall become liable directly
to Lessor for all obligations of Lessee hereunder, without relieving
Lessee's liability. Lessee agrees not to assign or sublease Premises to
any one who will create a nuisance or trespass, nor use the Premises for
any illegal purpose; nor in violation of any valid regulations of any
governmental body; nor in any manner to vitiate the insurance. upon any
such sublease or assignment, Lessee shall provide Lessor with copies of any
and all documents pertaining to such sublease or assignment. See Addendum
Paragraph 40.
15. Hazardous Substances. Lessee will not use or suffer the use (by Lessee or
--------------------
Lessee's agents, employees or invitees), of the premises as a landfill or
as a dump for garbage or refuse, or as a site for storage, treatment, or
disposal of hazardous wastes, hazardous substances, or toxic substances
(defined as "hazardous waste" or hazardous substance under Section 1004 of
the Federal Conservation and Recovery Act, 42 U.S.C. (S) 6801 et seq., or
Section 101 of the Comprehensive Environmental Responses, Compensation, and
Liability Act, 42 U.S.C. (S) 9601 et seq. or under any other applicable
laws); Lessee shall not cause hazardous or toxic waste, contaminants,
asbestos, oil, radioactive or other material, the removal of which is
required or the maintenance or storage of which is prohibited, regulated,
or penalized by any local, state, or federal agency, authority, or
governmental unit, to be brought onto the Premises or if so brought or
found located thereon, shall cause the same to be immediately removed,
unless same complies with all applicable laws, and Lessee's obligation to
so remove shall survive the termination of this Lease; Lessee will not use
or suffer the use of the Premises in any manner other than in full
compliance with all applicable federal, state and local environmental laws
and regulations; Lessor warrants and represents that it has not received
any notice from a governmental agency for violation of any environmental
laws and regulations and, if such notice is received, it immediately shall
notify Lessee orally and in writing; Lessee shall indemnify, defend, and
hold Lessor harmless from and against any and all costs, damages, and
expenses (including, without limitation, environmental compliance or
response costs, costs for all remedial action and/or damage to third
parties, reasonable attorneys' fees and court costs at both trial and
appellate levels, and damages for business interruption and any lost
profits) resulting, directly or indirectly, from any environmental
contamination of the Premises caused by Lessee, its agents, employees or
-4-
<PAGE>
invitees or any misstatement or misrepresentation of facts concerning the
matters recited in this paragraph. See Addendum Paragraph 41.
16. Removal of Fixtures. Lessee may (if not in default hereunder) prior to the
-------------------
expiration of this Lease, or any extension hereof, remove all fixtures and
equipment which Lessee has placed in Premises, provided Lessee repairs all
damages to Premises caused by such removal. Provided, however, Lessee shall
not remove, under any circumstances, the following: heating, ventilating,
air conditioning, plumbing, electrical and lighting systems and fixtures or
dock levelers. In the event this Lease is terminated for any reason, any
property remaining in or upon the Premises may be deemed to become property
of the Lessor and Lessor may dispose of same as it deems proper with no
liability to Lessor and no obligation to Lessee.
17. Default; Remedies. It is mutually agreed that in the event: (A) the rent
-----------------
herein reserved is not paid at the time and place when and where due and
lessee fails to pay said rent within ten (10) days after written demand
from Lessor; (B) the Premises shall be deserted or vacated for more than
thirty (30) consecutive days without Lessor's prior written consent; (C)
the Lessee shall fail to comply with any term, provision, condition, or
covenant of this Lease, other than the payment of rent, and shall not cure
such failure within twenty (20) days after notice to the Lessee of such
failure to comply, provided that Lessee shall not be deemed to be in
default under this Paragraph 17 if such default is incapable of cure within
said period and Lessee has commenced to complete the cure of such default
within said twenty (20) day peirod and is proceeding diligently; (D) Lessee
causes any lien to be placed against the Premises and does not cure same
within twenty (20) days after notice from Lessor to Lessee demanding cure,
if any of such events, Lessor shall have the option at once, or during
continuance of such default or condition to do any of the following, in
addition to, and not in limitation of any other remedy permitted by law or
by this Lease:
(1) Terminate this Lease, in which event Lessee shall immediately
surrender the Premises to Lessor. Lessee agrees to indemnify Lessor for
all loss, damage and expense which Lessor may suffer by reason of such
termination, whether through inability to relet the Premises, through
decrease in rent, through incurring court costs, actual attorneys' fees or
other costs in enforcing this provision or otherwise;
(2) Lessor, as Lessee's agent, without terminating this Lease, may
terminate Lessee's right of possession, and, at Lessor's option, enter upon
and rent Premises at the best price obtainable by reasonable effort,
without advertisement and by private negotiations and for any term Lessor
deems proper. Lessee shall be liable to Lessor for the deficiency, if any,
between Lessee's rent hereunder and the price obtained by Lessor on
reletting and for any damage, actual attorneys' fees or expenses incurred
by Lessor in enforcing its rights under this provision.
(3) Lessor also retains the right to apply for and obtain a
dispossessory action against Lessee and to hold Lessee liable for all costs
incident to seeking such dispossessory action, including actual attorneys'
fees and court costs.
-5-
<PAGE>
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any other remedies herein provided or any other remedies provided by law.
Lessor shall have the duty to mitigate any possible damages which may be
incurred pursuant to any such default by Lessee except in the event Lessee
deserts or vacates the Premises beyond the time period described above
without prior notification to Lessor. Any notice in this provision may be
given by Lessor or its attorney.
18. Entry for Carding, Etc. Lessor may card Premises "For Lease" or "For Sale"
-----------------------
ninety (90) days before the termination of this Lease. Lessor may enter
the Premises at reasonable hours during the term of this Lease to exhibit
same to prospective purchasers or tenants and to make repairs required of
Lessor under the terms hereof, or to make repairs to Lessor's adjoining
property, if any.
19. Effects of Termination of Lease. No termination of this Lease prior to the
-------------------------------
normal ending thereof, by lapse of time or otherwise, shall affect Lessor's
right to collect rent for the period prior to termination thereof.
20. No Estate in Land. This contract shall create the relationship of landlord
-----------------
and tenant between Lessor and Lessee; no estate shall pass out of Lessor;
Lessee has only a possessory interest, not subject to levy and sale, and
not assignable by Lessee except as provided in Paragraph 14 above.
21. Holding Over. If Lessee remains in possession of Premises after expiration
------------
of the term hereof, with Lessor's acquiescence and without any express
agreement of parties, Lessee shall be a month-to-month tenant upon all the
same terms and conditions as contained in this Lease, except that the
rental rate shall become one and one-half times the amount in effect at the
end of said term of this Lease; and there shall be no renewal of this Lease
by operation of law. Such month-to-month tenancy shall only require thirty
(30) days notice by either party to the other to terminate such tenancy and
Lessee's right of possession.
22. Rights Cumulative. All rights, powers and privileges conferred hereunder
-----------------
upon parties hereto shall be cumulative but not restrictive to those given
by law.
23. Notices. Any notice given pursuant to this Lease shall be in writing and
-------
sent by certified mail, return receipt requested, or by reputable overnight
courier to:
(a) Lessor in care of Stone Mountain Industrial Park, Inc., 5830 E.
Ponce DeLeon Avenue, Stone Mountain, Georgia 30083, or such other address
as Lessor may hereafter designate in writing to Lessee.
(b) Lessee in care of Custom Chrome, Inc., Attention: R. Steven
Fisk, 16100 Jacqueline Court, Morgan Hill, CA 95037, or such other address
as Lessee may hereafter designate in writing to Lessor.
-6-
<PAGE>
Any notice sent in the manner set forth above shall be deemed
sufficiently given for all purposes hereunder on the day said notice is
deposited in the mail or with the courier.
24. Waiver of Rights. No failure of Lessor to exercise any power given Lessor
----------------
hereunder, or to insist upon strict compliance by Lessee with its
obligations hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of Lessor's right to demand
exact compliance with the terms hereof.
25. Time of Essence. Time is of the essence in this Lease.
---------------
26. Definitions. "Lessor" as used in this Lease shall include Lessor, its
-----------
heirs, representatives, assigns, and successors in title to the Premises.
"Lessee" shall include Lessee, its heirs and representatives, successors,
and if this Lease shall be validly assigned or sublet, shall include also
Lessee's assignees or sub-lessees, as to Premises covered by such
assignment or sublease. "Lessor" and "Lessee" include male and female,
singular and plural, corporation, partnership or individual, as may fit the
particular parties.
27. Exterior Signs. Lessee is given permission to erect its customary sign
--------------
used to identify itself on the front entrance glass of the Premises
provided any such sign by Lessee shall be subject to and in conformity with
all applicable laws, zoning ordinances and building restrictions or
covenants of record and must be approved by Lessor, based on the scaled
drawing provided by Lessee, before installation. In the event a sign is
erected by Lessee without Lessor's consent, Lessor shall have the right to
remove said sign and charge the cost of such removal to Lessee as
additional rent hereunder. Except upon prior written consent from Lessor,
in no event shall Lessee utilize any portable of vehicular signs at the
Premises. On or before termination of this Lease, Lessee shall remove any
sign thus erected, and shall repair any damage or disfigurement, and close
any holes, caused by such removal.
28. Ad Valorem Taxes. Lessee herein is leasing 60,600 square feet of a 150,233
----------------
square foot building. Lessor will pay all ad valorem taxes levied against
the full 150,233 square foot building each year of the Lease term or any
renewal hereof and Lessee will be responsible for reimbursement of certain
taxes paid in the following manner. Commencing in the year 1998 and during
each remaining year of the Lease term herein granted, or any renewal
hereof, Lessee, as additional rent, shall reimburse Lessor for all sums
paid by Lessor for the above ad valorem taxes, pro rata, based on the
square footage occupied by the Lessee, in the 150,233 square foot building
in excess of the total amount of ad valorem taxes payable for the year
1997. Upon being notified by Lessor of said pro rata amount of ad valorem
taxes, Lessee will remit same to Lessor within thirty (30) days in the same
manner as rent. A per diem apportionment shall apply for any year within
the term of this Lease which is less than twelve (12) full months. See
Addendum Paragraph 42.
29. Use of Premises and Insurance. (A) Premises shall be used for storage and
-----------------------------
distribution and related office purposes. Premises shall not be used for
any illegal purposes, nor in any
-7-
<PAGE>
manner to create any nuisance or trespass, nor in any manner to vitiate the
insurance, based on the above purposes for which the Premises are leased.
(B) Lessee herein is leasing 60,600 square feet of a 150,233 square
foot building. Lessor will carry, at Lessor's expense, "All Risk" Insurance
Coverage on the full 150,233 square foot building in an amount not less
than $3,390,000 or the full insurable value, if greater. The term "full
insurable value" shall mean the actual replacement cost, excluding
foundation and excavation costs, as determined by Lessor. Commencing in
the year 1998 and during each remaining year of the Lease term herein
granted, or any renewal hereof, Lessee, as additional rent, shall reimburse
Lessor for all sums paid by Lessor for the above coverage, pro rata, based
on the square footage occupied by the Lessee in the 150,233 square foot
building in excess of the annual premium for said coverage for the year
1997, (provided, however, that Lessee's cost for said insurance shall not
increase more than 3% per annum) unless such increases shall result of the
occupancy or use by any other tenant in the building, in which case Lessee
shall have no obligation to pay any portion of such increase. However, if
such increases are the result of the occupancy or use of Lessee or of the
occupancy or use by any sub-tenant or assignee of Lessee, Lessee shall be
responsible for the increase on the entire building. Upon being notified
by Lessor of said increased sums, Lessee will remit to Lessor said amount
within thirty (30) days. A per diem apportionment shall apply for any year
within the term of this Lease which is less than twelve (12) full months.
(C) Lessee will carry, at Lessee's own expense, insurance coverage on
all equipment, inventory, fixtures, furniture, appliances and other
personal property on the Premises.
(D) Lessee shall procure, maintain and keep in full force and effect
at all times during the term of this Lease and any renewal hereof,
comprehensive public liability insurance protecting Lessor and Lessee
against all claims and demands for injury to, or death of, persons, or
damage to property which may be claimed to have occurred upon the Premises
in an amount not less than $2,000,000.00, per occurrence of coverage for
injury (including death) to one or more persons attributable to a single
occurrence and for property damage.
To the fullest extent permitted by law, Lessor and Lessee each waives
all right of recovery against the other for, and agrees to release the
other from liability for, loss or damage to the extent such loss or damage
is covered by valid and collectible insurance in effect at the time of such
loss or damage. This provision is intended to waive fully, and for the
benefit of each party, any rights and/or claims which might give rise to a
right of subrogation in favor of any insurance carrier. The insurance
coverage obtained by each party pursuant to this Lease shall include,
without limitation, a waiver or subrogation by the carrier which conforms
to the provisions of this paragraph.
All insurance provided for in this Lease shall be effected under
enforceable policies issued by insurers of recognized responsibility
licensed to do business in the state where the Premises are located. At
least 15 days prior to the expiration date of any policy procured by
Lessee, a certificate of the original renewal policy for such insurance
shall be delivered by the
-8-
<PAGE>
Lessee to the Lessor. Within 15 days after the premium on any such policy
shall become due and payable, the Lessor shall be furnished with
satisfactory evidence of its payment. The original policy or policies shall
be delivered to Lessor at the commencement of this Lease.
If the Lessee provides any insurance required by this Lease in the
form of a blanket policy, the Lessee shall furnish satisfactory proof that
such blanket policy complies in all respects with the provisions of this
Lease, and that the coverage thereunder is at least equal to the coverage
which would be provided under a separate policy covering only the Premises.
If the Lessor so requires, the policies of insurance provided for
shall be payable to the holder of any mortgage, as the interest of such
holder may appear, pursuant to a standard mortgage clause. All such
policies shall, to the extent obtainable provide that any loss shall be
payable to the Lessor or to the holder of any mortgage notwithstanding any
act or negligence of the lessee which might otherwise result in forfeiture
of such insurance. All such policies shall, to the extent obtainable,
contain an agreement by the insurers that such policies shall not be
canceled without at least thirty days prior written notice to the Lessor
and to the holder of any mortgage to whom loss hereunder may be payable.
30. Additional Charges. In addition to rent, Lessee shall pay monthly in
------------------
advance concurrent with rental payments, all applicable State and Local
Sales Tax on all sums due under this Lease.
31. Radon Gas. Radon is a naturally occurring radioactive gas that, when it
---------
has accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit.
32. Grounds and Common Area Maintenance. Notwithstanding the provisions of
-----------------------------------
Paragraph 6 herein above, Lessor shall provide all material, equipment and
labor for exterior landscape and grounds maintenance for the Premises
including mowing, mulching, weeding, fertilizing, insecticiding, pruning,
routine replacement of trees and shrubbery, and other landscaping,
drainage, and irrigation system maintenance. Lessor will also provide
landscaping and maintenance for right-of-way areas, and the common
irrigation and storm water management systems which serve the Premises and
Westside Industrial park ("common area maintenance").
33. Water and Sewer Bills. The building of which the Premises are a part is
---------------------
served by one main water service and meter. Lessor will promptly pay all
bills for water and sewer service to the building, including charges for
monitoring, maintenance, and repair of water pumps, backflow devices, etc.
serving the building. Lessor shall invoice Lessee monthly for Lessee's
share of such water and sewer charges based on Lessee's portion of the
leased space in building, and Lessee shall promptly pay said invoices. If
Lessee's consumption of water is increased by "non-domestic" manufacturing,
processing, or other uses, exclusive of "domestic" uses such as office,
restroom, drinking fountain, or is increased by "domestic"
-9-
<PAGE>
uses arising form occupancy by more than on person per 2,000 sq. ft. of
leased floor area, Lessee's share of water billed shall take such extra
uses into account. Conversely, if water use by any other occupant of the
building is increased by such "non-domestic" use or "domestic" uses arising
from occupancy exceeding on person per 2,000 sq. ft. of leased floor area,
such other occupant's billing shall take such extra use into account.
Attached hereto and incorporated herein by reference are the following:
Addendum to Lease
Exhibit "A" - Legal Description
Exhibit "B" - Floor Plan
Exhibit "C" - Building Specifications
Exhibit "D" - Expansion Space
THIS LEASE contains the entire agreement of the parties hereto, and no
representations, inducements, promises or agreements, oral or otherwise,
between the parties, not embodied herein, shall be of any force or effect.
If any term, covenant or condition of this Lease or the application
thereof to any person, entity or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application
of such term, covenant or condition to persons, entities or circumstances
other than those which or to which used may be held invalid or
unenforceable, shall not be affected thereby, and each term, covenant or
condition of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, the day and year first above written.
Signed, sealed, and delivered Stone Mountain Industrial Park, Inc.
in the presence of: A Georgia Corporation
/s/ Linda G. Lawson By: /s/ Michael G. Kerman
------------------- ---------------------
Witness Title: Vice President
LESSOR (Corp. Seal)
Signed, sealed and delivered Custom Chrome, Inc.
in the presence of: A Delaware Corporation
/s/ Ignatius J. Panzica By: /s/ R. Steven Fisk
----------------------- ------------------
Witness Title: Senior Vice President
LESSEE (Corp. Seal)
-10-
<PAGE>
ADDENDUM TO
LEASE AGREEMENT
DATED February 11, 1997
BETWEEN STONE MOUNTAIN INDUSTRIAL PARK, INC. ("LESSOR")
AND
CUSTOM CHROME, INC. ("LESSEE")
This Addendum to Lease Agreement ("Addendum") is attached to, and modifies
and supplements, the Lease Agreement referenced above. Unless otherwise defined
herein, capitalized terms used in this Addendum have the meanings given them in
the Lease. Where the provisions of this Addendum conflict with the provisions
of the Lease, this Addendum shall control.
34. Schedule of Rents. Lessee shall pay to Lessor promptly on the first day of
-----------------
each month during the term of this Lease, in advance and without demand or
------
offset:
(a) $19,965.00 per month from May 1, 1997 through October 31, 1998
(b) $20,269.00 per month from November 1, 1998 through April 30, 2002
Notwithstanding the foregoing rental schedule and the provisions of
Paragraph 3 of this Lease, in the event that Lessor's work described in
Paragraph 35 below shall not be substantially completed on May 1, 1997
(subject only to "punchlist" items which, by their nature, will not
interfere with the use and enjoyment of the Premises for Lessee's intended
purpose), then the rent set forth above and all other monetary charges
hereunder shall be abated until such work in the Premises shall have been
substantially completed.
35. Lessor's Work. Lessor at its expense shall complete the Premises pursuant
-------------
to the floor plan and specifications attached hereto.
36. Warranty of Construction. Lessor shall warrant all workmanship and
-------------------------
material for one (1) year from the commencement of the term of this Lease.
If and to the extent any manufacturer's or contractor's warranty for
building systems may be applicable beyond the period of Lessor's one-year
warranty, Lessor agrees to enforce such warranty against the issuer
thereof.
37. Access. Lessee shall be allowed access to the Premises fifteen (15) days
------
after the full execution of this lease for the purpose of installing
Lessee's racking and equipment.
38. Mortgagee's Rights. Lessor warrants that no mortgage currently encumbers
------------------
the Premises. Lessor agrees to request from the holder of any such
mortgage hereafter made by Lessor that such holder execute and deliver to
Lessee a subordination and non-disturbance agreement between such holder
and Lessee, acceptable to Lessee in the exercise of good faith and
reasonable discretion. The effective subordination of this Lease to any
existing or future mortgages, deeds of trust, other security interest or
leases shall be subject to the fulfillment of the conditions precedent that
(i) the holder of such mortgage or other lien on the Premises shall first
have agreed in writing that so long as Lessee is not in default, the Lease
shall not be
Addendum - Page 1
<PAGE>
terminated by foreclosure or sale pursuant to the terms of
such mortgage or lien; and (ii) such subordination shall not otherwise
restrict or limit the rights or increase the obligations of Lessee under
this Lease.
39. Repairs by Lessor. Except as may be caused by the willful act or the
-----------------
negligence of Lessee or Lessee's agents, employees or invitees, and is not
covered by insurance maintained by Lessor, Lessor shall, at Lessor's sole
cost and expense, maintain in good condition and repair in a prompt and
diligent manner (i) all portion of the building which are not a part of the
Premises, including but not limited to all elevators, electrical,
mechanical, plumbing, sewage, heating, ventilating and air conditioning
systems serving the Premises and the building; (ii) all portions of the
roof, roof structures and supports, and all structural portions of the
Premises, including but not limited to, the foundation and structural
supports, exterior and load bearing walls, subfloors and floors (but not
floor coverings), gutters, downspouts and exterior doors; (iii) all
utilities to the Premises; (iv) all driveways, sidewalks, parking areas and
all other common areas and facilities thereof', and (v) all defects in the
Premises as well as damage to the Premises caused by the willful act or the
negligence of the Lessor or its agents.
40. Assignment. If Lessee shall assign, sublease or otherwise transfer all or
----------
any portion of the Premises, Lessor and Lessee shall evenly divide any rent
or other consideration paid to Lessee in connection with such assignment,
sublease or other transfer which is in excess of the base rent due under
this Lease, after first deducting out for the Lessee's account the cost of
(i) broker's commissions paid by Lessee with regard to the transfer; (ii)
legal fees; (iii) the cost of improvements made to the subleased premises
by Lessee at Lessee's expense for the purpose of subletting; (iv) the
unamortized portions of improvements made in the subleased area by Lessee
for Lessee's use during the original tenancy; (v) all rent paid by Lessee
to Lessor while the Premises were vacant prior to such subletting; and (vi)
any other expenses incurred by Lessee in effectuating the subletting.
41. Hazardous Substances. Lessor shall not cause or allow any of its
--------------------
employees, agents, customers, visitors, invitees, licensees, contractors,
assignees or other tenants (collectively "Lessor's Parties") to cause any
hazardous materials to be used, generated, stored or disposed of, on or
about the Premises, the building or the surrounding property, unless same
complies with all applicable laws. To the extent such hazardous materials
are present in violation of such laws, Lessor shall immediately provide
Lessee with notice of such fact. Lessee may, at Lessee's sole choice,
either: (i) treat such a condition as a breach of this Lease by Lessor; or
(ii) require Lessor, at its sole expense, to comply with all laws regarding
the use, storage, generation or removal of hazardous materials in, on or
under the Premises. Lessee shall have the right at its sole expense at all
reasonable times to conduct tests and investigations to determine whether
Lessor is in compliance with the foregoing provisions. Lessor shall
indemnify, defend by counsel acceptable to Lessee, protect and hold Lessee
harmless from and against all liabilities, losses, costs and expenses,
demands, causes of action, claims or judgments directly or indirectly
arising out of the use, generation, storage or disposal of hazardous
materials by Lessor or any of Lessor's Parties. Lessor's and Lessee's
obligations
Addendum - Page 2
<PAGE>
pursuant to the foregoing indemnity, and the indemnity
contained in Paragraph 15 above, respectively, shall survive the
termination of this Lease.
42. Ad Valorem Taxes. The following shall not constitute real property taxes
----------------
for the purposes of this Lease, and nothing contained herein shall be
deemed to require Lessee to pay any of the following: (i) any state,
local, federal, personal or corporate income tax measured by the income of
Lessor; (ii) any estate, inheritance taxes, or gross rental receipts tax;
(iii) any franchise, succession or transfer taxes; (iv) interest on taxes
or penalties resulting from Lessor's failure to pay taxes; (v) any
increases in taxes attributable to additional improvements to the building
unless such improvements are constructed for Lessee's sole benefit; (vi)
any increases in taxes attributable to the sale of the building, property
or the Premises; (vii) any assessments for public improvements; (viii) real
estate taxes resulting from over standard improvements made by other
tenants; or (ix) any taxes which are essentially payments to a governmental
agency for the right to make improvements to the building or surrounding
area.
43. Expansion. Provided that Lessee is not in default hereunder and that
---------
Lessee has not sublet the Premises or assigned this Lease or its rights
hereunder, Lessee shall have the option to expand into a larger available
facility at Westside Industrial Park owned by Stone Mountain Industrial
Park, Inc. at any time during this Lease, and this Lease shall terminate
upon the commencement date of the lease for such larger facility.
44. Right of First Owner. Provided that Lessee is not in default hereunder and
--------------------
provided that Lessee has not sublet the Premises or assigned this Lease or
its rights hereunder, during the first twelve (12) months of the term
Lessee shall have a "right of first offer" for the Expansion Area adjacent
to the Premises, consisting of approximately 10,000 square feet, as more
particularly shown on Exhibit "D" attached hereto, on the terms and
conditions of this paragraph. If Lessor desires to offer the Expansion
Space for lease, Lessor will deliver to Lessee a written notice specifying
the terms of the offer. Lessee will then have five (5) business days from
the delivery of such notice to accept the offer in writing to lease the
identical space as contained in the offer in accordance with terms of the
offer. Lessor and Lessee shall promptly enter into an amendment to this
Lease, incorporating the rental terms contained in Lessor's notice with
respect to the Additional Space, and adjusting other matters dependent upon
the size of the new premises, such as Lessee's share of the common area
expenses, ad valorem taxes and insurance premium payments. If Lessee fails
to accept or rejects the offer within the 5-day period, Lessor will be
entitled to lease the space on substantially the same terms stated in the
notice to Lessee; provided, however, that if Lessor proposes to lease the
Additional Space on more favorable terms to a third-party, Lessor will
again re-offer the Additional Space to Lessee on such terms and Lessee
shall respond to such offer in the time period provided above. If Lessor
does lease the space, the right granted Lessee in this paragraph will
automatically terminate. However, if Lessor does not lease the space, the
space will not subsequently be leased without Lessor's compliance with this
paragraph. Time is of the essence of this Lease.
Addendum - Page 3
<PAGE>
45. Renewal Option. Provided that Lessee is not in default hereunder beyond
--------------
any applicable cure period, and provided that Lessee has not sublet or
assigned this Lease or its rights hereunder, except to an affiliate of
Lessee, at the expiration of the initial lease term Lessee shall have the
one time option to extend this Lease for an additional five (5) year term
under the same terms and conditions herein set forth, except that the Base
Rent for the renewal term shall be $20,269, plus an increase equal to the
same percentage which the Consumer Price Index shall have increased from
the month immediately preceding the commencement date of the initial lease
term to the month of immediately preceding the commencement date for the
five-year renewal term. "Consumer Price Index," as used herein, shall mean
"The Consumer Price Index for All Urban Consumers (CPI-U), All Items, U.S.
City Average (1982-1984 equals 100), published by the United States
Department of Labor, Bureau of Labor Statistics." In the event the
Consumer Price Index referenced herein is discontinued, the parties shall
accept comparable statistics on the purchasing power of the consumer's
dollar as published at the time of said discontinuation by a responsible
periodical or recognized authority to be chosen by the parties. Lessee
shall provide Lessor with not less than 180 days advance written notice of
Lessee's intent to renew the Lease.
46. Covenants, Conditions and Restrictions. Lessor hereby represents and
--------------------------------------
warrants to Lessee that (i) the aforesaid Declaration of Covenants,
Restrictions and Easements for Westside Industrial Park is dated July 28,
1994, and recorded in O.R. Book 7904, Page 1708, Official Records of Duval
County, Florida (the "CC&Rs"), (ii) the CC&R's have not been amended or
modified in any manner, (iii) the CC&Rs are in full force and effect and
neither Lessor nor the Declarant is in default thereunder; (iv) Lessor
knows of no claims or defenses or circumstances which, with the passage of
time, would lead to claims or defenses by Declarant against Lessor; and (v)
this Lease does not violate any provision of the CC&R's.
Addendum - Page 4
<PAGE>
LEGAL DESCRIPTION
BLDG. 5
WESTSIDE INDUSTRIAL PARK
A parcel of land situated in Section 35, Township 1 South, Range 25 East,
Duval County Florida, being a portion of Unit 1, Westside Industrial Park
Subdivision as recorded in Plat Book 46, page 84A-E of the Public Records of
Duval County, Florida, and being more particularly described as follows:
In order to find the TRUE POINT OF BEGINNING, begin at the point of
intersection of the northern right of way of Pritchard Road (100 ft. r/w) and
the western right of way of Imeson Road (80 ft. r/w); running thence along the
northern right of way of Pritchard Road (100 ft. r/w) S 87 degrees 51'21" W a
distance of 226.67 feet to a point and the TRUE POINT OF BEGINNING; running
thence along said right of way S 87 degrees 51'00" W a distance of 693.01 feet
to a point; running thence and leaving said right of way N 0 degrees 00'00" E a
distance of 572.13 feet to a point lying on the southern right of way of
Westside Industrial Drive (variable r/w); running thence along said right of way
and a curve to the left (said curve having a chord bearing of S 81 degrees
24'13" E, a chord distance of 222.06 feet, and a radius of 742.91 feet) an arc
distance of 222.89 feet to a point; running thence along said right of way N 90
degrees 00'00" E a distance of 433.47 feet to a point; running thence along said
right of way S 0 degrees 00'00" E a distance of 30.00 feet to a point; running
thence along said right of way and a curve to the right (said curve having a
chord bearing of S 86 degrees 05'36" E, a chord distance of 39.52 feet, and a
radius of 290.00 feet) an arc distance of 39.55 feet to a point; running thence
and leaving said right of way S 0 degrees 00'00" E a distance of 480.25 feet to
a point and the TRUE POINT OF BEGINNING.
Said tract or parcel contains 8.4 acres and is more fully shown on that
Site Plan of Building 5 for Pattillo Construction Co., prepared by Jason R.
Houston, dated 6/25/96.
Exhibit A
<PAGE>
Custom Chrome, Inc.
February 11, 1997
WESTSIDE INDUSTRIAL PARK
BUILDING SPECIFICATIONS - BUILDING NO. 5
CUSTOM CHROME, INC.
GENERAL FACILITY DESCRIPTION
- ----------------------------
(a) LOCATION: Building No. 5, Westside Industrial Drive, Westside
Industrial Park, Jacksonville, Florida.
(b) SIZE & OVERALL
DIMENSIONS: Approximately 60,600 sq. ft. including 1,000+ sq. ft.
-
of office area with 24' minimum ceiling clearance and
50' x 40' interior column spacing.
(c) OFFICE: Approximately 1,000 + sq. ft. of centrally heated and
air-conditioned office area to be construction at the
dock door area.Offices will be built according to a
Floor Plan to be prepared by Pattilloand mutually
approved by Custom Chrome, Inc. and Pattillo. (See
Office Area Design & Finishes section for additional
detail).
(d) GENERAL
CONDITIONS: Cost of design, supervision, permits, fees, meters,
utilities, and other expenses to construction are
included. All work will be performed in a professional
manner by Pattillo Construction Corporation in
accordance with the applicable laws and regulations in
effect in Duval County and the State of Florida.
Special water, sewer, environmental or other permits
that may be related to Lessee's particular processes,
operations, or. emissions are not included.
SITE WORK
- ---------
(a) LANDSCAPE, DRAINAGE,
& IRRIGATION: All surface water drains away from the building. A
architect has designed landscaping for the premises,
which will be installed in accordance with overall
standards for Westside Industrial Park.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Two
(b) AUTOMOBILE
PARKING: Fifteen (15) parking spaces will be stripped in the all
concrete truck court area near the office entrance.
Additional parking spaces, paved with asphalt, along
with curb and gutter will provided at the front of the
facility.
(c) TRUCK AREAS &
ACCESS DRIVES: The 240' x 120' deep truck court area and all drives
are paved with 6" of concrete rated at 3,000 PSI.
(d) CURB & GUTTER: Poured with 3,000 PSI concrete 18" x 6".
(e) SIGNS & STRIPING: Parking areas will receive single line painted striping
and handicap signs.
(f) DRIVE-IN: A concrete ramp will be constructed to allow drive-in
access through a 10' x 10' truck door.
CONCRETE
- --------
(a) FOUNDATIONS: All footings have been designed for 3,000 PSF soil
bearing pressure and are constructed of 3,000 PSI
concrete with rebar matting.
(b) SLAB ON GRADE:
(1) Five inch (5") thick 3,000 PSI concrete reinforced with synthetic
fibers. The surface will be steel trowel finished and floors will be
chemically cured and hardened with "Lapidolith". Subgrade will be
chemically treated for termite protection. Caulking of floor joints is
excluded.
(2) Column isolation joint will be non-keyed, diamond or round formed with
asphalt impregnated felt.
(3) Expansion joints at slab perimeter with asphalt impregnated
fiberboard, 5/8" thick.
(4) Control joints saw cut, 1/4 of slab depth, 1/8" wide, bisect bays.
(5) Construction joints will have smooth dowels every 18" on center.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Three
(c) DOCK CANOPIES: Eighteen (18) poured in place concrete canopies, one over
each dock door opening.
(d) EXTERIOR
STAIRWAYS: Concrete stairway lead from warehouse area to truck
court.
(e) EXCLUDED: Striping, caulking, granular fill.
MASONRY
- -------
(a) EXTERIOR WALLS: Exterior walls will be four inch brick backed with eight
inch (8") concrete masonry unit.
(b) INTERIOR WALLS: Interior warehouse/office and demising walls will be
constructed with concrete masonry unit (12" x 8" x 16").
Control joints will be filled with one layer 5/8" thick
asphalt impregnated felt.
STRUCTURAL SYSTEM/METALS
- ------------------------
(a) STRUCTURAL STEEL: Structural steel beams, columns and joists (column
spacing 50' x 40') including perimeter beams at the eave
line and wind columns as required. The structural steel
frame is designed for a dead load of 25 lbs. per square
foot and a live load of 20 lbs. per square foot.
(b) STEEL JOISTS: Designed for dead load of 25 lbs. per square foot and
live load of 20 lbs. per square foot and Seismic Zone 1.
Bridging will be 1" x 1" x 7/76".
MOISTURE PROTECTION
- -------------------
(a) The roof deck is galvanized steel deck (0.5" deep) covered with a flood
coat of lightweight insulating aggregate concrete with 1" polystyrene board
embedded in the flood coat along with two inches of additional insulating
concrete above the polystyrene board. The insulating concrete will be
covered with a 4 ply, smooth surface, fiberglass built-up roof membrane
topped with light tan pea gravel. The roof system is designed to provide
an "R" Factor of approximately 10 as calculated in accordance with the
Energy Efficiency Code. Gutters and downspouts are shop cooled galvanized
steel, 24 gauge.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Four
DOORS AND WINDOWS
- -----------------
(a) OVERHEAD DOCK HEIGHT TRUCK DOORS:
(1) Fifteen (15) each 10' (w) x 10' (h) doors are to be provided at each
truck door. Each truck door is a 24 gauge steel, high lift truck door
with 13 gauge angle mounted track.
(b) WOOD DOORS: Flush, solid core, 36" x 84", 1-3/4" thickness, birch
veneer face, stain grade doors shall be provided for
all interior office spaces.
(c) ALUMINUM ENTRANCE DOORS AND FIXED GLASS FRAMES:
(1) Entrance door frames will be narrow style, extruded aluminum, with
electrostatically applied enamel finish in color selected by
Architect/Engineer.
(2) Fixed glass storefront framing system shall be extruded aluminum
sections with electrostatically applied enamel finish in color selected
by Architect/Engineer. Members will be installed with concealed
fasteners.
(d) GLASS AND GLAZING:
(1) All exterior glass shall be reflective, 1/4 inch minimum thickness,
double glazed, solar bronze, insulated. Installation will be in
accordance with the recommendations of the manufacturers of the glass
and glazing materials.
(2) Interior sidelight glass (if any) will be 1/4 inch clear glazing.
(3) The glass storefront windows located at the front of the facility will
be covered with 5/8" gypsum board, painted black to restrict
visibility.
(e) FINISH HARDWARE:
(1) Locks and latch sets will be heavy duty cylindrical case, brushed
aluminum finish as manufactured by Ruswin or equal. Lever handle sets
shall be installed as required by code.
(2) Door closures will be surface mounted.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Five
(3) Push, kick, and mop plates will be stainless or brushed aluminum.
(4) Hinges shall be heavy duty, ball bearing at doors with closures, oil
bearing elsewhere. On exterior hardware provide non-removable hinge
pins.
(5) Office area to be keyed separate from warehouse.
FINISHES
- --------
(a) GENERAL:
1,000+ sq. ft. of office area will be provided per office plan.
-
(b) FURRING: The 8" concrete block office/warehouse demising wall will be
furred and finished with 5/8" gypsum board.
(c) DRYWAIL: Interior office walls and the temporary expansion wall will be
constructed as follows:
(1) Sheetrock will be 5/8 inch thickness, tapered edges, fire rated, where
required. Corner beads to be metal and edge molding J type. Finished
height 9' - 0" and shall be screw applied and finished with a ready
mixed, all purpose joint compound. Fixture walls of toilet rooms shall
receive moisture resistant gypsum board.
(2) Standard metal studs shall be 3-5/8", 26 gauge electro-galvanized
steel, cold rolled C shaped, screw type, gauge as recommended by the
manufacturer for partition framing. Studs to be 24" on center.
(3) Restrooms to have 4" x 4" ceramic tile floor to 9' - 0" ceiling height.
(d) FLOORS:
(1) Offices: Carpeting with a $12.50/sq. yd. allowance or 12" x 12" x
1//8" vinyl composition tile as required.
(2) Restrooms: 4" x 4" ceramic tile.
(3) Production: Sealed concrete floor.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Six
(e) CEILINGS: Spaces scheduled to receive acoustical tile ceiling system
shall have exposed grid system, 24 inches by 48 inches, non-
directional fissured mineral board, 5/8 inch thickness,
square edges, exposed steel "T" runners, white painted
finish. Ceiling shall be insulated with 3-1/2 inch
fiberglass batts.
(f) WAREHOUSE FINISHES:
(1) The personnel doors and frames will be painted - two coats.
(2) Warehouse walls and structural steel columns and beams will be painted
white.
(g) MILLWORK: Breakroom area shall be provided with base and/or wall cabinets
per office design.
SPECIALTIES
(a) TOILET PARTITIONS: Plastic laminate (wood particle board core) with
standard polish non-corrosive metal hardware (if any).
(b) TOILET ROOM ACCESSORIES:
(1) Brushed stainless steel toilet room accessories manufactured by Bobrick
or equal shall be provided as follows:
(2) Combination semi-recessed paper towel dispenser and waste receptacle:
one each toilet room.
(3) Mirrors: one each lavatory, sloped, handicapped type where required by
Southern Building Code.
(4) Handicapped grab bars: one pair each toilet.
(5) Soap dispenser: one (1) each toilet room.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Seven
(c) FIRE EXTINGUISHERS
(1) Fire extinguishers will be provided as required by Southern Building
Code in both the warehouse and office.
(2) All fire extinguishers in finished office areas are to be located in
semi-recessed enameled steel cabinets with signage.
EQUIPMENT
- ---------
DOCK SEALS: Three (3) each WG402PF Frommelt shelter.
DOCK LEVELERS: Three (3) 6' x 8' mechanical dock revelers with 16" lips and
rated for 20,000 pounds will be installed.
FENCING: To be installed as follows:
(1) Type A Storage - Approximately 140 l.f. 12' high cyclone
fence (with horizontal rails at the top and bottom of the
fence) with one man door entrance.
(2) Gated entrance area approximately 40 l.f. of 10' high
fabricated gate with one man door.
PLUMBING
- --------
(a) SERVICE LINES: A 2" water line with standard 2" meter connection and 6"
Schedule 40 PVC sewer line serve the building. All systems
and fixtures will be designed in accordance with applicable
Florida codes. Domestic water piping above grade will be
copper. Restrooms will be provided as described under Office
Area Design and Finishes and will be designed for handicapped
accessibility as required by code. Surcharges or tap on fees
based on water or sewage effluent quality or quantity are
excluded.
(b) RESTROOMS: Flush valve wall hung urinals and flush valve floor mounted
toilets will be provided.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Eight
(c) WATER COOLERS: One (1) wall mounted electric stainless steel, top barrier
free electric water cooler is included in the office area.
Plumbing for a second water cooler to be located at column
B4 will also be provided.
(d) SINKS:
(1) Bathroom lavatories to be provided per plan.
(2) Breakroom - single compartment, stainless steel sink shall be provided
in breakroom area.
(e) WATER CLOSETS: Standard floor mounted, low consumption, flush valve, open
front, elongated bowl, 17" rim height, white, vitreous china
(handicap per code).
(f) URINALS: Wall mounted, low consumption, flush valve, white, vitreous
china (if any).
(g) WATER HEATER: Electric, 25 gallon (typical) hot water will be provided to
restrooms and sinks.
(h) HOSE BIB: Bronze or brass, integral mounting flange (if any).
FIRE PROTECTION
- ---------------
(a) SPRINKLER
SYSTEM: A complete wet sprinkler system designed and constructed to
provide 0.30 gallons per minute to the most remote 3,000
square feet in accordance with N.F.P.A. Standards for a
system. System shall include yard mains, hose hydrants,
interior hose stations, sprinkler heads, and chrome pendant
heads will be used in the finished office area. Office area
to have 0. 10 gpm per sq. ft. over most remote 3,000 sq. ft.
to Code.
(b) FIRE HYDRANTS: Fire hydrants - will be provided per NFPA Standards.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Nine
(c) EXCLUSION: In-rack sprinkler, foam, etc. have not been provided for.
HVAC/MECHANICAL
- ---------------
(a) NATURAL GAS: Natural gas supply will be provided to the building with 2"-
5 psi entrance piping by the gas utility company.
(b) OFFICE AREA HEAT AND COOLING:
(1) A complete independent HVAC system shall be provided for the office
areas.
(2) The HVAC system shall be packaged by units and mounted on the roof or
split systems with the condensers ground mounted. The units shall be
York, Trane, Carrier or equal. System designed to provide maximum 75
degrees Fahrenheit and minimum of 72 degrees Fahrenheit.
(3) Air distribution will be by ceiling diffusers and controls with be
electric thermostats.
(4) Exhaust fans will be provided for each restroom.
(c) WAREHOUSE AREA
HEAT: Suspended gas fired unit heaters will be provided. Design
will maintain 70 degrees Fahrenheit at outside temperature
of 29 degrees Fahrenheit.
(d) WAREHOUSE
VENTILATION: 48" roof mounted fans will be provided to exhaust. Fans to
draw from louvers mounted at the dock doors.
(e) COMPRESSED
AIR PIPING: (1) Approximately 390 l.f. of 1 1/2" galvanized Schedule 40
with each joint connected with plugged tee positioned
upwards (per plan).
(2) Approximately 225 l.f. of 3/4" galvanized Schedule 40
"drop." With each joint connected with plugged tee
positioned upwards (approximately every 8 l.f.)
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Ten
ELECTRICAL
- ----------
(a) MAIN
SERVICE: 600 amp, 277/480 volt, three phase 4 wire main service with
dry type transformers serving 120/208 volt loads. Secondary
distribution to panels for lights, office outlets, office
HVAC and other building circuitry equipment is included.
Circuitry for and connection of Purchaser supplied equipment
is not included except as provided below.
(b) EMERGENCY
LIGHTING: Facility exits will be clearly marked and the warehouse and
office will have emergency light fixtures, all according to
State and local codes. Approximately 10% of all fixtures
will be quartz restrike.
(c) WAREHOUSE LIGHTING:
(1) General warehouse lighting to be 400 watt metal halide fixtures
suspended between the bar joists. Lighting will be installed pursuant
to the floor plan provided by Customer Chrome to Pattillo. Said plan
calls for approximately 125 fixtures.
(2) Picking Area Lighting - Nine (9) each double tube, 81 florescent lights
with reflectors will be provided at a height of 12' at the picking area
(along conveyor line).
(d) FORKLIFT
DISCONNECT: Three (3) each 480 volt, 30 amp, three phase disconnects for
forklifts. Space will be provided for five (5) future
disconnects.
(e) EXTERIOR
LIGHTING: Building mounted exterior flood lights will be installed at
the corners of the building and above truck loading doors.
Soffit lighting will highlight the front entrance. Lighting
to provide 1/2 - l f.c. and to be high pressure sodium.
(f) WAREHOUSE/MANUFACTURING OUTLETS:
(1) Provide thirty seven (37) each, 20 amp 120 volt single phase duplex
outlets pursuant to floor plan.
Exhibit C
<PAGE>
Custom Chrome, Inc.
Westside Industrial Park - Building No. 5
February 11, 1997
Page Eleven
(2) Provide conduit and wire for seven (7) seven each, 480 volt, three
phase connections pursuant to plan. (Connection by Lessee).
(g) OFFICES:
(1) Lighting will be 2' x 4' lay in four tube 277 volt fixtures T8 lamps
with electronic ballast.
(2) Telephone wire ways include empty outlet boxes and conduit to above
finished ceiling (1 per office).
(3) 110 Volt convenience outlets per standard (minimum 1 per office wall
12' spacing)
(4) Ten (10) each, 110 v. duplex outlets will be provided per the office
floor plan.
(h) EXCLUDED: Tenant supplied security and monitoring system, telephone
and data system wiring, monitoring of fire alarm system, and
connection of owner furnished equipment.
Exhibit C
<PAGE>
April 1997
MCom Wireless S.A.
Supplemental Due Diligence Checklist
------------------------------------
In addition to the items set forth on the Legal Due Diligence Checklist for
Share Purchases that was sent to our client from Lazard Freres & Co. LLC, please
provide copies of all of the indicated documents or the information requested as
appropriate to Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto,
California 94304. If you have any questions regarding this checklist please call
John Roos, Jack Sheridan or Tamara G. Mattison at (415) 493-9300.
"X" = Previously provided
"H" = Provided herewith
"I" = Inapplicable
X/H/I
- -----
1. BASIC CORPORATE DOCUMENTS:
-------------------------
[ ] a. List of all countries and states in which the Company is doing
business or contemplates undertaking business operations, either
directly or through other parties, including a description of
business activities carried out in each such country.
2. SECURITIES ISSUANCES:
--------------------
[ ] a. Any agreements and other documentation (including related permits)
relating to repurchases, redemptions, exchanges, conversions or
similar transactions involving the Company's securities.
[ ] b. All agreements containing preemptive rights or assigning such rights.
[ ] c. Documents relating to any conversion, recapitalization,
reorganization or significant restructuring of the Company.
3. CORPORATE FINANCE:
-----------------
[ ] a. Convertible Debt Financings, if any. Copies of any indentures,
securities purchase agreements, convertible securities and related
documents.
[ ] b. Lease financings, including leveraged, synthetic and other
off-balance sheet transactions.
<PAGE>
"X" = Previously provided
"H" = Provided herewith
"I" = Inapplicable
X/H/I
- -----
[___] c. Other agreements evidencing outstanding loans to, guarantees
by, letters of credit or bankers acceptances issued for the
account of, repurchase agreements to maintain the solvency,
net worth or economic viability of, or assure performance of
any obligations by, any other person, comfort and keep-well
letters and any other evidence of extension of credit or
financial accommodations in respect of which the Company is
directly or indirectly obligated.
[___] d. Interest rate cap, collar, or swap, options, commodity
contracts, foreign currency exchange agreements, or any other
derivative contract of any kind.
4. FINANCIAL INFORMATION:
---------------------
[___] a. Audited financial statements including historical quarterly
financial statements (past three years).
[___] b. Unaudited interim financial statements including historical
quarterly financial statements (past three years).
[___] c. Information on all planned acquisitions and dispositions.
5. OPERATIONS:
----------
[___] a. List of major suppliers showing total and type of purchases
from each supplier during the last and current fiscal years,
indication of which are sole sources.
[___] b. List of contract manufacturers showing total and type of
purchases from each contract manufacturer during the last and
current fiscal years.
[___] c. Collaborative agreements.
6. SALES AND MARKETING:
-------------------
[___] a. List of future products and new business areas.
-2-
<PAGE>
"X" = Previously provided
"H" = Provided herewith
"I" = Inapplicable
X/H/I
- -----
[__] b. List of major distributors, dealers and sales representatives
showing total and type of sales during the last and current fiscal
years and include copies of any written agreements.
[__] c. List of major customers showing total and type of sales during the
last and current fiscal years and geographic location.
7. OFFICERS AND DIRECTORS:
-----------------------
[__] a. Founders agreements, management employment agreements and
indemnification agreements, if any.
[__] b. Description of any transactions between the Company and any
"insider" (i.e., any officer, director, or owner of a substantial
amount of the Company's securities) or any associate of an
"insider" or between or involving any two or more such "insiders."
-3-
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
The Board of Directors and Shareholders
Custom Chrome, Inc.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Custom Chrome, Inc. of our report dated March 21, 1997, relating to the
consolidated balance sheets of Custom Chrome, Inc. and subsidiaries as of
January 31, 1997 and 1996, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the years in the
three-year period ended January 31, 1997, and the related financial statement
schedule, which report appears in the January 31, 1997, annual report on Form
10-K Custom Chrome, Inc.
KPMG Peat Marwick LLP
San Jose, California
April 25, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1996
<PERIOD-START> FEB-01-1996 FEB-01-1995
<PERIOD-END> JAN-31-1997 JAN-31-1996
<CASH> 40 312
<SECURITIES> 0 0
<RECEIVABLES> 11,349 9,529
<ALLOWANCES> 0 0
<INVENTORY> 49,522 51,165
<CURRENT-ASSETS> 67,474 67,394
<PP&E> 23,778 21,754
<DEPRECIATION> 7,976 7,688
<TOTAL-ASSETS> 91,497 89,712
<CURRENT-LIABILITIES> 14,683 21,684
<BONDS> 16,154 19,489
0 0
0 0
<COMMON> 5 5
<OTHER-SE> 59,838 47,967
<TOTAL-LIABILITY-AND-EQUITY> 91,497 89,712
<SALES> 108,557 93,906
<TOTAL-REVENUES> 108,557 93,906
<CGS> 64,834 54,779
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 260 75
<INTEREST-EXPENSE> 1,915 1,637
<INCOME-PRETAX> 13,046 12,316
<INCOME-TAX> 5,174 4,395
<INCOME-CONTINUING> 7,872 7,921
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,872 7,921
<EPS-PRIMARY> 1.48 1.52
<EPS-DILUTED> 0 0
</TABLE>
