<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 11, 1996
REGISTRATION NO. 333-4029
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
BOYDS WHEELS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 3714 93-1000272
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
8380 CERRITOS AVENUE, STANTON, CALIFORNIA 90680
(714) 952-4038
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
8380 CERRITOS AVENUE, STANTON, CALIFORNIA 90680
(714) 952-4038
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS)
BOYD CODDINGTON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
8380 CERRITOS AVENUE, STANTON, CALIFORNIA 90680
(714) 952-4038
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
EVRIDIKI (VICKI) DALLAS, ESQ. NICK E. YOCCA, ESQ.
THOMAS G. BROCKINGTON, ESQ. MICHAEL E. FLYNN, ESQ.
RUTAN & TUCKER MATTHEW P. THULLEN, ESQ.
611 ANTON BOULEVARD, SUITE 1400 STRADLING, YOCCA, CARLSON & RAUTH
COSTA MESA, CALIFORNIA 92626 660 NEWPORT CENTER DRIVE, SUITE 1600
(714) 641-5100 NEWPORT BEACH, CALIFORNIA 92660
(714) 725-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement under the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLES OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
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Common Stock, no par value(1)...... 1,380,000 $11.25 $15,525,000 $5,354(2)
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Representative's Warrants(3)....... 68,000 $ .001 $ 68.00 (3)
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Common Stock, no par value(4)...... 68,000 $13.50 $ 918,000 $ 317(2)
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TOTAL.............................. $5,671(2)
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</TABLE>
(1) Includes 180,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) The Registrant has previously paid a Registration Fee of $4,602.
Concurrently with this filing, the Registrant is submitting an additional
Registration Fee of $1,070.
(3) To be issued to the Representative of the several Underwriters. No fee
pursuant to Rule 457(g).
(4) Issuable upon exercise of the Representative's Warrants. Pursuant to Rule
416, there are also being registered such additional shares as may be
issuable pursuant to anti-dilution provisions of the Representative's
Warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 11, 1996
PROSPECTUS
1,200,000 SHARES
LOGO
BOYDS WHEELS, INC.
COMMON STOCK
Of the 1,200,000 shares of Common Stock offered, 971,000 shares are being
offered by Boyds Wheels, Inc. (the "Company") and 229,000 shares are being
offered by certain shareholders of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the shares sold by the Selling Shareholders. The Common Stock of
the Company is quoted on the Nasdaq National Market under the symbol "BYDS". On
June 10, 1996, the last sale price per share of the Common Stock as reported by
the Nasdaq National Market was $12.125. See "Price Range for Common Stock and
Dividend Policy."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" AT PAGE 5 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS PROCEEDS TO SELLING
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(2)
<S> <C> <C> <C> <C>
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Per Share.................. $11.25 $0.7875 $10.4625 $10.4625
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Total(3)................... $13,500,000 $945,000 $10,159,087.50 $2,395,912.50
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</TABLE>
(1) Does not include (i) a non-accountable expense allowance payable by the
Company to the Representative and (ii) the sale by the Company to the
Representative of the Underwriters of five-year warrants to purchase up to
68,000 shares of Common Stock at an exercise price of $13.50 per share (120%
of the per share price to the public). The Company and the Selling
Shareholders have agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $430,000,
including the Representative's nonaccountable expense allowance.
(3) The Company has granted the Underwriters a 45-day option to purchase up to
180,000 additional shares on the same terms and conditions as set forth
above solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Shareholders will
be $15,525,000, $1,086,750, $12,042,337.50 and $2,395,912.50, respectively.
See "Underwriting."
The shares of Common Stock are being offered severally by the Underwriters
named herein, subject to receipt and acceptance by them, and subject to other
conditions. The Underwriters reserve the right to reject any order in whole or
in part and to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the certificates representing the shares of Common
Stock will be made against payment therefor at the offices of Cruttenden Roth
Incorporated, Irvine, California, on or about June 14, 1996.
CRUTTENDEN ROTH
I N C O R P O R A T E D
THE DATE OF THIS PROSPECTUS IS JUNE 11, 1996
<PAGE> 3
[PHOTOS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as otherwise indicated, the information in this
Prospectus assumes no exercise of: (i) the Underwriters' over-allotment option,
(ii) outstanding options and warrants to purchase up to 179,090 shares of Common
Stock and (iii) options which have been granted under the Company's 1995 Stock
Option Plan; and assumes no conversion of outstanding notes which are
convertible into 7,143 shares of Common Stock. See "Risk Factors" for a
discussion of important factors that should be considered by prospective
investors related to forward-looking statements included in this Summary.
THE COMPANY
Boyds Wheels, Inc. (the "Company") designs, manufactures and markets high
quality aluminum wheels for the specialty automotive aftermarket. In addition to
its premium aluminum wheels, the Company designs, manufactures and markets
motorcycle wheels, steering wheels for automobiles, automotive and motorcycle
billet aluminum accessories and also sells car care products under its own
label. The Company's products utilize machined aluminum materials and unique
designs which the Company believes enhance individuality of vehicle styling. The
Company sells its products domestically through a national distribution network
of tire and performance retailers, warehouse distributors and mail order
outlets, and internationally through foreign distribution channels.
The Company was founded in 1988 by Boyd Coddington in response to consumer
demand for billet aluminum wheels similar to those featured on custom hot rod
vehicles designed and manufactured by Hot Rods by Boyd, a company which has been
recognized as a leading designer, manufacturer and marketer of custom vehicles
and hot rods. Since 1978, Mr. Coddington has owned and operated Hot Rods by
Boyd, which has built vehicles that have been featured in many automotive and
general interest publications, including Car and Driver, Autoweek, Hot Rod,
Smithsonian and Forbes. The Company believes that its relationship with Hot Rods
by Boyd is a key factor in maintaining and enhancing the image and brand name
recognition of the Company's products. The Company has entered into a
marketing/promotion agreement with Hot Rods by Boyd pursuant to which Hot Rods
by Boyd is required to endorse, promote and market the Company's products as the
"official wheel" of Hot Rods by Boyd, use the Company's wheels on vehicles
produced by Hot Rods by Boyd and permit the Company to use these vehicles for
promotional displays and photographs. In addition, the Company has an option to
purchase Hot Rods by Boyd.
The custom wheel market is the second largest segment of the specialty
automotive aftermarket. The custom wheel market is generally divided into five
product categories: aluminum wheels, composite wheels, modular wheels, steel
wheels and custom wheel accessories. According to Specialty Equipment Market
Association ("SEMA"), aluminum wheels are the largest segment of this market,
accounting for more than 75% of total sales. SEMA reports that the custom wheel
industry has grown from sales of approximately $525 million in 1992 to $650
million in 1994. The Company believes that this industry grew at approximately
10% in 1995 and will continue to grow at that rate for 1996. The Company further
believes that consumer desire for individuality in vehicle appearance will
contribute to the Company's growth since custom wheels represent one of the
easiest, least expensive and quickest ways to dramatically alter the appearance
of a vehicle.
The Company's strategy is to expand its position as a leading marketer of
premium automotive/ motorcycle aftermarket products by capitalizing on consumer
recognition of the "Boyds" brand name and the Company's growing distribution
network. The Company intends to implement this strategy by (i) leveraging and
strengthening its premium brand name recognition, (ii) creating selected new
product lines in order to build its customer loyalty into a broader based
business, (iii) differentiating its products from its competition by continually
identifying and introducing trend setting designs, (iv) diversifying domestic
product distribution by penetrating new geographic areas and targeting key
distributors to service its customer and consumer markets and (v) expanding the
Company's penetration into international markets by establishing relationships
with selected distributors in Europe and the Pacific Rim.
The Company was incorporated in California in April 1988. The principal
executive offices of the Company are located at 8380 Cerritos Avenue, Stanton,
California 90680. The Company's telephone number is (714) 952-4038.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company....................... 971,000 shares.
Common Stock offered by Selling Shareholders.............. 229,000 shares.
Common Stock to be outstanding after the offering......... 3,522,699 shares.
Use of proceeds........................................... To acquire capital equipment,
repay outstanding indebtedness,
for general corporate purposes
and working capital requirements.
See "Use of Proceeds."
Nasdaq National Market symbol............................. BYDS
</TABLE>
SUMMARY FINANCIAL INFORMATION
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------------- ---------------
STATEMENTS OF INCOME DATA: 1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales........................................ $10,188 $12,127 $17,796 $3,660 $5,334
Cost of goods sold............................... 8,524 9,336 13,263 2,782 3,976
------ ------ ------ ----- -----
Gross margin..................................... 1,664 2,791 4,533 878 1,358
Selling, general and administrative expenses..... 1,230 1,648 2,741 465 714
------ ------ ------ ----- -----
Income from operations........................... 434 1,143 1,792 413 644
Interest and other expenses, net................. 423 695 383 142 48
------ ------ ------ ----- -----
Income before income taxes....................... 11 448 1,409 271 596
Provision (benefit) for income taxes............. 1 (227) 462 111 236
------ ------ ------ ----- -----
Net income....................................... $ 10 $ 675 $ 947 $ 160 $ 360
====== ====== ====== ===== =====
Net income per common share and common equivalent
share(1)...................................... $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14
====== ====== ====== ===== =====
Weighted average shares outstanding.............. 1,671 1,701 1,960 1,697 2,655
====== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
----------------- -------------------------
BALANCE SHEET DATA: 1994 1995 ACTUAL AS ADJUSTED(2)
------ ------- ------- ---------------
<S> <C> <C> <C> <C>
Working capital (deficit)........................ $ (175) $ 2,113 $ 2,646 $10,993
Total assets..................................... 6,326 11,782 12,862 20,146
Long-term debt................................... 1,328 903 1,326 --
Shareholders' equity............................. 1,880 5,856 6,266 15,995
</TABLE>
- ---------------
(1) Does not reflect adjustment for accretion of the Company's Series A
Redeemable Preferred Stock which was redeemed with the proceeds of the
initial public offering of the Company's Common Stock in September 1995. See
"Financial Statements."
(2) Adjusted to give effect to the sale by the Company of 971,000 shares of
Common Stock offered hereby at an offering price of $11.25 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
------------------------
BOYDS(R), BOYDS WHEELS(TM), BOYDS ULTRA VIOLET(TM) and THE BOYD LOOK(TM
)are trademarks of the Company. This Prospectus also contains trademarks of
companies other than those of the Company.
4
<PAGE> 6
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Common Stock offered hereby.
DEPENDENCE ON KEY CUSTOMERS
Typically a limited number of customers have accounted for a substantial
portion of the Company's revenues. In 1995, the Company's ten largest customers
accounted for approximately 82.4% of net sales, with four accounting for greater
than 10% each: Wheel City at 24.1%, Ousyu Hambi Co. Ltd. ("American Motoring
Accessories") at 16.7%, Moon of Japan, Ltd. ("Mooneyes") at 15.6% and American
Racing Equipment, Inc. ("American Racing") at 12.0%. In 1994, the Company's ten
largest customers accounted for approximately 84.6% of net sales, with three
accounting for greater than 10% each: American Racing at 25.2%, Mooneyes at
15.5% and Wheel City at 12.3%. The Company does not have any long-term
contractual relationships with its major customers. The loss of or any material
reduction in orders by any of such customers, including reductions due to
market, economic or competitive pressures in the automotive aftermarket
industry, could adversely affect the Company's business, financial condition and
results of operations. The Company's ability to maintain or increase its sales
levels in the future will depend in part upon its ability to obtain orders from
new customers as well as the financial condition and success of its current
customers and the general economy. There can be no assurance that the Company
will be able to maintain or continue to increase the level of its sales in the
future or that the Company will be able to retain existing customers or attract
new customers. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Business -- Distribution, Sales and Marketing."
COMPETITION
The market for the Company's products is highly competitive and is based
primarily on price, product selection, product availability and service. Many of
the Company's competitors have substantially greater financial and other
resources than the Company and may offer lower prices on competing products. The
Company also competes with dealers and distributors who may offer their own
branded products at prices below those offered by the Company. A key competitive
factor among suppliers of automotive aftermarket products is the ability to
promptly deliver products to dealers and distributors and, accordingly, even
smaller regional companies may be able to compete effectively against the
Company. Increased competition could result in product price reductions, reduced
margins and loss of market share, all of which could have a material adverse
effect on the Company's results of operations and financial condition. While the
Company believes its prices are competitive for the quality level of its
products, the Company relies primarily on its reputation for selling quality
products supported by strong customer service. There can be no assurance that
the Company will be able to compete successfully in the future with its
competitors. Furthermore, the custom aluminum wheel business has been
characterized by widespread imitation of popular designs. The Company must,
therefore, continually strive to develop new designs to differentiate its
products from those of its competitors. There can be no assurance that the
Company will continue to develop sufficient new designs and any failure to do so
could have a material adverse effect on its results of operations and financial
condition. See "Business -- Competition."
CHANGING CONSUMER TRENDS
The Company's success depends substantially on its ability to correctly and
consistently anticipate, gauge and respond in a timely manner to rapidly
changing consumer preferences. The Company attempts to minimize the risks
relating to changing consumer trends by offering a wide variety of product
styles, analyzing consumer purchases, maintaining an active product development
effort and monitoring sales of its products. However, any misjudgment by the
Company of the market for a particular product, or its failure to correctly
anticipate consumer preferences, could have a material adverse impact on its
results of operations and financial condition. See "Business -- Product
Development."
5
<PAGE> 7
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in large part, on the efforts and abilities
of Boyd Coddington, its founder, Chairman and Chief Executive Officer. Under the
terms of his employment agreement with the Company, Mr. Coddington is not
required to and does not expend his full time and attention on the Company's
activities and Mr. Coddington has other business interests, including Hot Rods
by Boyd, which require his time and attention. The Company does not maintain key
man life insurance on Mr. Coddington. The loss of the services of Mr. Coddington
would have a material adverse effect on the business of the Company. The success
of the Company will depend on, among other factors, the successful recruitment
and retention of quality management and personnel. See "Management."
COST OF ALUMINUM AND DEPENDENCE ON THIRD PARTY SUPPLIERS
The Company purchases several types of aluminum, including billet discs,
billet bar stock, prime ingot and prefabricated outer rims from third party
suppliers for use in the manufacture of its products. Consequently, an
interruption in the supply or a significant increase in the price of aluminum
could have a material adverse effect on the Company's results of operations and
financial condition. There can be no assurance that such materials will be
delivered on a timely basis or on terms favorable to the Company. Should the
Company lose its present sources of supply for these materials, not be able to
obtain such materials on favorable terms or experience delays in receiving them,
a material adverse impact on the Company's results of operations and financial
condition may result. The Company believes, however, that alternative sources of
supply exist or can be developed. The Company experienced significant rises in
aluminum prices in 1994 and early 1995. Although such prices have subsequently
stabilized, there can be no assurance that the Company will not experience
significant rises in aluminum prices in the future. See
"Business -- Manufacturing."
DEPENDENCE ON INTERNATIONAL SALES
A significant element of the Company's business strategy is to expand into
selected international markets, such as the recent introduction of its products
in Japan. In 1994 and 1995 and the first quarter of 1996, the Company derived
approximately 26.3%, 39.3% and 26.4%, respectively, of its net sales from
international markets, substantially all of which were in Japan. The Company's
international sales efforts are subject to the customary risks of doing business
abroad, including exposure to regulatory requirements, political and economic
instability, barriers to trade, trade restrictions (including import quotas),
tariff regulations, foreign taxes, restrictions on transfer of funds, difficulty
in obtaining distribution and support and export licensing requirements, any of
which could have a material adverse effect on the Company's operations. In
addition, a weakening in the value of foreign currencies relative to the U.S.
dollar and potential fluctuations in foreign currency exchange rates could have
an adverse impact on the effective price of the Company's products in its
international markets. See "Business -- Distribution, Sales and Marketing."
ADVERSE EFFECT OF REDUCED DISCRETIONARY CONSUMER SPENDING
Purchases of specialty automotive aftermarket products are discretionary
for consumers. The success of the Company is influenced by a number of economic
factors affecting disposable income such as employment levels, business
conditions, interest rates and tax rates. Adverse changes in these economic
factors, among others, may cause consumers to reduce discretionary spending for
the Company's products, thereby adversely affecting the Company's results of
operations and growth.
VARIABILITY IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors including, among other things, the
size and timing of customer orders, delays in new product enhancements and new
product introductions, quality control difficulties, market acceptance of new
products, product returns, seasonality in product purchases by distributors and
end users and pricing trends in the automotive aftermarket industry in general
and in the specific markets in which the Company is active. Any of these factors
could cause quarterly operating results to vary significantly from prior
periods. Furthermore, the
6
<PAGE> 8
Company's business is seasonal in most sections of the country, as the Company
believes that it is affected by weather conditions. Historically, the Company's
net sales have been highest in the second and third quarters of each year.
However, the Company believes that unusually adverse or otherwise poor weather
conditions in the spring and summer seasons may have a negative effect on the
Company's sales in such quarters. Significant variability in orders during any
period may have an adverse impact on the Company's cash flow or work flow, and
any significant decrease in orders could have a material adverse impact on the
Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PRODUCT CONCENTRATION
Substantially all of the Company's revenues are derived from sales of
aluminum automobile and motorcycle wheels. The Company anticipates that these
products will continue to account for a substantial portion of its sales in the
foreseeable future. A decline in the demand for these products, whether as a
result of competition or other factors, could have a material adverse effect on
the Company's results of operations and financial condition.
RISK OF DECLINING AVERAGE SELLING PRICES
The Company may face increasing pricing pressures from current and future
competitors and, accordingly, there can be no assurance that competitive
pressures will not require the Company to reduce its prices. In particular, over
time, the average selling prices for the Company's wheel products (which
currently represent a significant portion of the Company's revenues) may decline
as the market for these products becomes more competitive. Any material
reduction in the price of the Company's products would negatively affect the
Company's gross margin and would require the Company to increase unit sales in
order to maintain net sales. See "Business -- Distribution, Sales and Marketing"
and "-- Competition."
MANAGEMENT OF COMPANY GROWTH; FUTURE CAPITAL REQUIREMENTS
The Company has experienced significant growth in recent years. This growth
will continue to make significant demands on the Company's management, resources
and operations. To manage its growth effectively, the Company intends to
continue to improve its operational, financial, sales and marketing systems and
to hire and train new employees and better manage its current employees. The
Company's failure to manage its growth effectively could have a material adverse
effect on the Company's results of operations and financial condition.
To the extent that the proceeds from this offering and cash flow from
operations are insufficient to fund the Company's activities, the Company will
be required to raise additional funds through equity or debt financings. No
assurance can be given that such financings will be available on terms
acceptable to the Company, if at all and, if available, such financings may
result in further dilution to the Company's shareholders and in higher interest
expense. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
RISK OF PRODUCT LIABILITY
The nature of the Company's business exposes it to risk from product
liability claims. The Company currently maintains product liability insurance
for its products worldwide, with limits of $5,000,000 per occurrence and
$5,000,000 in the aggregate, per annum. However, such coverage is becoming
increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be successful in maintaining adequate product liability insurance
at commercially reasonable rates. Any losses that the Company may suffer from
future liability claims, including the successful assertion against the Company
of one or a series of large uninsured claims in excess of the Company's
coverage, may have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, any product
liability litigation may have a material adverse effect on the reputation and
marketability of the Company's products. See "Business -- Product Warranties."
7
<PAGE> 9
ENVIRONMENTAL COMPLIANCE
In the ordinary course of its manufacturing process, the Company uses
metals, oils and similar materials which are stored on-site. The waste created
by use of these materials is transported off-site on a regular basis by a
state-registered waste hauler. Although the Company is not aware of any claim
involving violation of environmental or occupational safety and health laws and
regulations, there can be no assurance that such a claim may not arise in the
future, which may have a material adverse effect on the Company.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock in the public
market following this offering could adversely affect the market price of the
Common Stock. Mr. and Mrs. Coddington have agreed pursuant to lock-up agreements
that they will not, without the prior written consent of the Representative,
sell or otherwise dispose of approximately 656,942 shares of Common Stock
beneficially owned by them for a period of twelve months from the date of this
Prospectus, but may sell or otherwise dispose of up to 15,000 shares of Common
Stock per quarter commencing after this offering. Upon the completion of this
offering, the Company will have 3,522,699 shares of Common Stock outstanding. Of
this amount, the 1,200,000 shares sold in this offering (plus any additional
shares sold upon the Underwriter's exercise of the over-allotment option) and
approximately 1,545,000 other shares (subject in certain cases to the volume and
other limitations of Rule 144 ("Rule 144") as promulgated under the Securities
Act of 1933, as amended (the "Securities Act")), will be available for immediate
sale in the public market as of the date of this Prospectus. As of December 1,
1996, approximately 106,000 shares will become available for immediate sale in
the public market, subject to Rule 144. See "Principal and Selling Shareholders"
and "Underwriting."
CONTROL BY EXISTING SHAREHOLDERS
Upon completion of this offering, the principal shareholders, directors and
officers of the Company will beneficially own approximately 18.6% of the
Company's outstanding voting securities, or 17.7% in the event the
over-allotment option is exercised. Because of their stock ownership and
positions with the Company, these persons will be in a position to continue to
control the affairs and management of the Company. Such concentration of
ownership and control may have the effect of delaying, deferring or preventing a
change in control of the Company. See "Principal and Selling Shareholders" and
"Description of Capital Stock."
EFFECT OF PREFERRED STOCK ON RIGHTS OF COMMON STOCK
The Board of Directors of the Company is authorized to issue, from time to
time, without any action on the part of the Company's shareholders, up to
5,000,000 shares of Preferred Stock in one or more series, with such relative
rights, powers, preferences, limitations and restrictions as are determined by
the Board of Directors at the time of issuance. Accordingly, the Board of
Directors is empowered to issue Preferred Stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
or other rights of the holders of Common Stock. In the event of such issuance,
the Preferred Stock could be utilized, under either circumstances, as a method
of discouraging, delaying or preventing a change in control of the Company. See
"Description of Capital Stock -- Preferred Stock."
VOLATILITY OF STOCK PRICE; NO DIVIDENDS
The trading price of the Common Stock has been and is likely to continue to
be subject to significant fluctuations in response to variations in quarterly
operating results, the gain or loss of significant contracts, changes in
management, announcements of technological innovations or new products by the
Company or its competitors, legislative or regulatory changes, general trends in
the industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have affected the market
price for many companies for reasons frequently unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock. The Company currently
intends to retain any future earnings for use in its business and does not
anticipate any cash dividends in the future. See "Price Range for Common Stock
and Dividend Policy."
8
<PAGE> 10
DILUTION
Purchasers of the Common Stock offered hereby will incur immediate
substantial dilution in net tangible book value of the Common Stock. The
conversion of existing convertible notes or the exercise of warrants and options
may also have an additional dilutive effect on the interest of the investors in
this offering. See "Dilution."
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act") and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the products and
future economic performance of the Company. The forward-looking statements and
associated risks set forth in this Prospectus may include or relate to (i)
development of brand name recognition and loyalty to the Company's trade names
and trademarks, (ii) increasing sales through the introduction and development
of new products and product lines, (iii) success of marketing initiatives to be
undertaken by the Company, (iv) increasing international sales through
distribution arrangements in Japan and through the pursuit of additional
distribution arrangements in other countries, (v) increasing distribution
through expansion of the Company's network of distributors and its customer
base, (vi) success of the Company in forecasting demand for particular designs
and product styles and its success in establishing production and delivery
schedules and forecasts which accurately anticipate and respond to market
demand, (vii) success in expanding the Company's market through increasing sales
to large regional and national distributor accounts, (viii) success of the
Company in achieving increases in net sales such that cost of goods sold and
selling, general and administrative expenses may decrease as a percentage of net
sales and (ix) the size and growth rate of the custom wheel market.
The forward-looking statements included herein are based upon current
expectations that involve a number of risks and uncertainties. These
forward-looking statements are based upon assumptions that the Company will
continue to design, manufacture, market and ship new products on a timely basis,
that competitive conditions within the automotive aftermarket industry will not
change materially or adversely, that the custom wheel market will continue to
experience steady growth, that demand for the Company's products will remain
strong, that the Company will retain existing distributors and key management
personnel, that inventory risks due to shifts in market demand will be
minimized, that the Company's forecast will accurately anticipate market demand
and that there will be no material adverse change in the Company's operations or
business. Assumptions relating to the foregoing involve judgments with respect,
among other things, to future economic, competitive and market conditions and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could prove inaccurate and, therefore,
there can be no assurance that the results contemplated in forward-looking
information will be realized. In addition, as disclosed above, the business and
operations of the Company are subject to substantial risks which increase the
uncertainty inherent in such forward-looking statements. Any of the other
factors disclosed above could cause the Company's net sales or net income, or
growth in net sales or net income, to differ materially from prior results.
Growth in absolute amounts of costs of goods sold and selling, general and
administrative expenses or the occurrence of extraordinary events could cause
actual results to vary materially from the results contemplated in the
forward-looking statements. Budgeting and other management decisions are
subjective in many respects and thus susceptible to interpretations and periodic
revisions based on actual experience in business developments, the impact of
which may cause the Company to alter its marketing, capital expenditure or other
budgets, which may in turn affect the Company's results of operations. In light
of the significant uncertainties inherent in the forward-looking information
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
9
<PAGE> 11
USE OF PROCEEDS
The net proceeds to the Company from the sale of 971,000 shares of Common
Stock offered hereby by the Company, at an offering price of $11.25 per share
and after deducting the underwriting discount and estimated offering expenses,
are estimated to be approximately $9.7 million ($11.6 million if the
Underwriters' overallotment option is fully exercised). The Company will not
receive any of the proceeds from the sale of shares of Common Stock by the
Selling Shareholders.
The Company intends to use approximately $3.5 million of the net proceeds
to purchase capital equipment in order to develop additional manufacturing
capacity. In addition, approximately $1.8 million of the net proceeds will be
used to retire long-term debt and approximately $0.9 million will be used to
repay the Company's indebtedness under its revolving line of credit. The
interest rates on the long-term debt vary from 4.8% to 15.0% per annum with
various maturity dates. The interest rate on the revolving line of credit is
1.0% over the Wall Street Journal's published prime rate. The Company intends to
use the balance of the net proceeds for general corporate purposes, including
the financing of product sales growth, development of new products and working
capital requirements. A portion of the net proceeds may also be used by the
Company to acquire or invest in businesses, assets, technologies or product
lines that complement the Company's existing businesses. While from time to time
the Company evaluates potential acquisitions of such businesses, assets,
technologies or product lines, there is no present understanding or agreement
with respect to any such acquisitions.
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this offering based on current planning and business
conditions. The Company reserves the right to change such use when and if market
conditions or unexpected changes in operating conditions or results occur. The
amounts actually expended for each use may vary significantly depending upon a
number of factors, including future sales growth and the amount of cash
generated by the Company's operations. Net proceeds not immediately required for
the purposes described above will be invested principally in U.S. government
securities, short-term certificates of deposit, money market funds or other
short-term, interest-bearing securities.
10
<PAGE> 12
PRICE RANGE FOR COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "BYDS." The following table sets forth for the quarters indicated the
reported high and low closing sale prices as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1995:
Third Quarter (commencing September 15, 1995).............. 7 5/8 6 7/8
Fourth Quarter............................................. 9 3/4 6 3/4
Fiscal 1996:
First Quarter.............................................. 10 3/4 8
Second Quarter (through June 10, 1996)..................... 12 1/8 8 1/2
</TABLE>
At June 10, 1996, there were approximately 1,400 holders of the Company's
outstanding shares of Common Stock and the closing sale price of the Common
Stock on the Nasdaq National Market was $12.125 per share.
The Company anticipates that all future earnings, if any, will be retained
for use in the Company's business and it does not anticipate paying any cash
dividends. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion. The Company's ability to pay
cash dividends is restricted under its revolving line of credit facility and
future borrowings may contain similar restrictions.
DILUTION
As of March 31, 1996, the Company had a net tangible book value of
approximately $6,094,000 or $2.45 per share. "Net tangible book value" per share
represents the amount of total tangible assets less total liabilities divided by
the number of shares of Common Stock issued and outstanding. After giving effect
to the sale of the Common Stock offered by the Company hereby at an offering
price of $11.25 per share, and assuming no other changes in the net tangible
book value after March 31, 1996, the Company's net tangible book value (after
deduction of underwriting discounts and commissions and estimated offering
expenses) at March 31, 1996 would have been approximately $15,823,000 or $4.57
per share. This represents an immediate increase in net tangible book value of
$2.12 per share to existing shareholders and an immediate dilution to new
investors of $6.68 per share. Dilution is determined by subtracting net tangible
book value per share after the offering from the amount of cash paid by a new
investor for a share of Common Stock. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Offering price per share........................................... $ 11.25
Net tangible book value per share before the offering............ $ 2.45
Increase per share attributable to new investors................. 2.12
------
Net tangible book value per share after the offering............... 4.57
------
Dilution per share to new investors................................ $ 6.68
======
</TABLE>
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 and as adjusted to give effect to the sale of the Common Stock offered
hereby at an offering price of $11.25 per share and the application of the net
proceeds thereof to repay certain indebtedness.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt(1)....................................................... $1,326 $ --
------ -------
Shareholders' equity:
Preferred Stock, no par value:
5,000,000 shares authorized, none issued or outstanding............... -- --
Common Stock, no par value:
25,000,000 shares authorized; 2,489,856 shares issued and outstanding,
3,460,856 shares as adjusted(2)....................................... 6,007 15,736
Contributed capital..................................................... 827 827
Accumulated deficit..................................................... (568) (568)
------ -------
Total shareholders' equity............................................ 6,266 15,995
------ -------
Total capitalization............................................... $7,592 $15,995
====== =======
</TABLE>
- ---------------
(1) See Note 9 of Notes to Financial Statements for a description of the
Company's long-term debt.
(2) Excludes (i) 158,613 of Common Stock issuable upon exercise of currently
outstanding warrants, (ii) 69,762 shares of Common Stock issuable upon
exercise of currently outstanding options, (iii) 7,143 shares of Common
Stock issuable upon conversion of the convertible notes and (iv) 247,500
shares of Common Stock issuable pursuant to options under the 1995 Stock
Option Plan.
12
<PAGE> 14
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of income data for the years ended December 31, 1993, 1994 and 1995
and balance sheet data at December 31, 1994 and 1995 are derived from the
audited financial statements of the Company included elsewhere in this
Prospectus that have been audited by Coopers & Lybrand L.L.P., independent
accountants. The selected financial data as of March 31, 1996, and for the three
month periods ended March 31, 1995 and 1996 have been derived from the Company's
unaudited financial statements, which reflect all adjustments of a normal
recurring nature which the Company considers necessary for a fair presentation
of the results for such periods. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results of operations
to be expected for any future quarter or the fiscal year ending December 31,
1996. The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes related thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------------- ----------------
STATEMENTS OF INCOME DATA: 1993 1994 1995 1995 1996
------- ------- ------- ------ ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.................................... $10,188 $12,127 $17,796 $3,660 $5,334
Cost of goods sold........................... 8,524 9,336 13,263 2,782 3,976
------- ------- ------- ------ ------
Gross margin................................. 1,664 2,791 4,533 878 1,358
Selling, general and administrative
expenses.................................. 1,230 1,648 2,741 465 714
------- ------- ------- ------ ------
Income from operations....................... 434 1,143 1,792 413 644
Interest and other expenses, net............. 423 695 383 142 48
------- ------- ------- ------ ------
Income before income taxes................... 11 448 1,409 271 596
Provision (benefit) for income taxes......... 1 (227) 462 111 236
------- ------- ------- ------ ------
Net income................................... $ 10 $ 675 $ 947 $ 160 $ 360
======= ======= ======= ====== ======
Net income per common share and common
equivalent share(1)....................... $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14
======= ======= ======= ====== ======
Weighted average shares outstanding.......... 1,671 1,701 1,960 1,697 2,655
======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
------------------ -------------------------
BALANCE SHEET DATA: 1994 1995 ACTUAL AS ADJUSTED(2)
------ ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Working capital (deficit)....................... $ (175) $ 2,113 $ 2,646 $ 10,993
Total assets.................................... 6,326 11,782 12,862 20,146
Long-term debt.................................. 1,328 903 1,326 --
Shareholders' equity............................ 1,880 5,856 6,266 15,995
</TABLE>
- ---------------
(1) Does not reflect adjustment for accretion of the Company's Series A
Redeemable Preferred Stock which was redeemed with the proceeds of the
initial public offering of the Company's Common Stock in September 1995. See
"Financial Statements."
(2) Adjusted to give effect to the sale by the Company of 971,000 shares of
Common Stock offered hereby at an offering price of $11.25 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information includes forward-looking statements, the
realization of which may be impacted by certain important factors discussed
under "Risk Factors -- Important Factors Related to Forward-Looking Statements
and Associated Risks."
OVERVIEW
The Company designs, manufactures and markets high quality aluminum wheels
for the specialty automotive aftermarket. In addition to its premium aluminum
wheels, the Company designs, manufactures and markets motorcycle wheels,
steering wheels for automobiles, automotive and motorcycle billet aluminum
accessories, and also sells car care products under its own label. The Company
sells its products domestically through a national distribution network of tire
and performance retailers, warehouse distributors and mail order outlets and
internationally through foreign distribution channels. The Company derived
approximately 26.3%, 39.3% and 26.4% of its sales in fiscal 1994 and 1995, and
the first quarter of fiscal 1996, respectively, from international sales,
primarily in Japan.
Net sales consist of gross sales less the amount of discounts, returns and
allowances. The Company generally provides its customers a standard term of
2%/10 net 30 days upon payment of the gross invoice price. Discounts, returns
and allowances vary from year to year but were approximately 3% for 1994 and 5%
for 1995, with most of the increase attributable to discounts taken by customers
for early payment of invoices. Net sales for any of the Company's product lines
can be influenced by a number of factors, including changes in customer
preferences and pricing policies of the Company's competitors. In late 1994, the
Company adopted a long term strategy to shift its domestic sales distribution to
large, national and regional warehouse distributors from local and smaller
regional chains and independent dealers. As a result of implementing this
strategy, domestic sales increased 20.9% in fiscal 1995 over fiscal 1994 and
68.0% in the three months ended March 31, 1996 over the same period in 1995.
Cost of goods sold consists primarily of the costs of labor, aluminum, raw
materials and overhead used in the production of the Company's products. The
Company's gross margin in late 1994 and early 1995 was adversely impacted by
significant rises in aluminum costs. During 1995 and the first quarter of 1996
aluminum prices stabilized. The Company currently does not purchase forward
contracts for aluminum and, therefore, any future increase in aluminum prices
could adversely affect the Company's gross margin. The Company's gross margin
was 25.5% for 1995 and remained at 25.5% for the first quarter of 1996. The
Company anticipates that its gross margin will remain relatively constant or
will slightly increase in the near future.
Selling, general and administrative expenses consist primarily of
commissions, marketing expenses, sales and administrative salaries, product
development expenses, office expenses and general overhead. The Company expects
that selling, general and administrative expenses will increase in absolute
amounts in fiscal 1996 due, in part, to increased advertising and promotion
activities, increased product development expenditures, the hiring of additional
personnel and periodic reporting and compliance requirements associated with
being a public company. However, the Company believes that such expenses should
decrease as a percentage of net sales from the 1995 level.
Traditionally, the Company's ten largest customers have accounted for a
substantial portion of the Company's net sales. During the three months ended
March 31, 1996, the Company's ten largest customers accounted for approximately
87.8% of the Company's net sales. During 1995 and for the three months ended
March 31, 1996, the Company's significant customers were Wheel City (24.1% of
net sales in 1995 and 27.5% of net sales for the three months ended March 31,
1996), American Motoring Accessories (16.7% and 13.0%), Mooneyes (15.6% and
10.2%) and American Racing (12.0% and 16.6%).
14
<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items included in the Company's Statements
of Income.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
------------------------- ---------------
STATEMENTS OF INCOME DATA: 1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................. 83.7 77.0 74.5 76.0 74.5
----- ----- ----- ----- -----
Gross margin....................................... 16.3 23.0 25.5 24.0 25.5
Selling, general and administrative expenses....... 12.1 13.6 15.4 12.7 13.4
----- ----- ----- ----- -----
Income from operations............................. 4.2 9.4 10.1 11.3 12.1
Interest and other expenses, net................... 4.1 5.7 2.2 3.9 0.9
----- ----- ----- ----- -----
Income before provision for income taxes........... 0.1 3.7 7.9 7.4 11.2
Provision (benefit) for income taxes............... -- (1.9) 2.6 3.0 4.4
----- ----- ----- ----- -----
Net income......................................... 0.1% 5.6% 5.3% 4.4% 6.8%
===== ===== ===== ===== =====
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1996 AND THREE MONTHS ENDED MARCH 31,
1995
Net sales for the three months ended March 31, 1996, were $5,334,000
compared to $3,660,000 for the same period in 1995, an increase of $1,674,000 or
45.7%. The increase was primarily attributable to the continued demand for the
Company's main product lines, two-piece cast wheels and billet wheels, sales of
which increased approximately $600,000. The new motorcycle wheels and
accessories, introduced in mid-1995, accounted for approximately $500,000 of the
increase. The new one-piece cast wheels, introduced in the fourth quarter of
1995, contributed approximately $200,000 to the increase in net sales and
private label sales contributed approximately $300,000 to the increase in net
sales.
Gross margin for the three months ended March 31, 1996 was $1,358,000
compared to $878,000 for the same period in 1995, an increase of $480,000 or
54.7%. As a percentage of net sales, gross margin increased to 25.5% in 1996
from 24.0% in 1995. The increase in gross margin was primarily attributable to
volume discounts associated with larger quantity purchases of raw materials, an
increase in average sales price and a change in sales mix which included new
products at higher gross margins. The increase in gross margin was slightly
offset by an increase in general factory overhead.
Selling, general and administrative expenses for the three months ended
March 31, 1996 were $714,000 compared to $465,000 for the same period in 1995,
an increase of $249,000 or 53.5%. As a percentage of net sales, selling, general
and administrative expenses increased to 13.4% in 1996 from 12.7% in 1995. This
increase was primarily attributable to an increase in expenditures related to
new product development, advertising and promotional costs associated with new
product introductions and legal, accounting and other costs related to being a
public company.
Interest and other expenses, net, for the three months ended March 31, 1996
were $48,000 compared to $142,000 for the same period in 1995, a decrease of
$94,000 or 66.2%. This decrease was attributable to the partial application of
the proceeds from the Company's initial public offering which were used to
reduce debt and were invested in short-term interest-bearing securities.
Income taxes for the three months ended March 31, 1996 were $236,000
compared to $111,000 for the same period in 1995, an increase of $125,000 or
112.6%. The provision for income taxes in the first quarter of 1996 and 1995
represents the Company's expected annual effective tax rate and was 39.6% and
41.0% for 1996 and 1995, respectively.
15
<PAGE> 17
As a result of the above, net income for the three months ended March 31,
1996 was $360,000 compared to $160,000 for the same period in 1995, an increase
of $200,000 or 125.0%.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31,
1994
Net sales for the year ended December 31, 1995, were $17,796,000 compared
to $12,127,000 for the same period in 1994, an increase of $5,669,000 or 46.7%.
This increase was attributable to increased sales as a result of additional
product offerings, continued growth internationally and a general price increase
in May 1995.
Gross margin for the year ended December 31, 1995 was $4,533,000 compared
to $2,791,000 for the same period in 1994, an increase of $1,742,000 or 62.4%.
As a percent of sales gross margin increased to 25.5% in 1995 from 23.0% in
1994. The increase in gross margin was primarily attributable to a
reconfiguration of the Company's plant layout which resulted in greater
production efficiencies. These efficiencies were offset in part by an increase
in the price of aluminum stock. In addition, the allocation of overhead charges
over a greater sales base helped to improve gross margin.
Selling, general and administrative expenses for the twelve months ended
December 31, 1995, were $2,741,000 compared to $1,648,000 for the same period in
1994, an increase of $1,093,000 or 66.3%. As a percent of sales the costs
increased in 1995 to 15.4%, from 13.6% in 1994. This increase was attributable
to additional administrative and facility costs incurred to support the
Company's growth and the addition of management, including a one-time payment to
a former executive officer.
Interest and other expenses, net for the year ended December 31, 1995, were
$383,000 compared to $695,000 for the same period in 1994, a decrease of
$312,000 or 44.9%. This decrease was attributable to favorable lease refinancing
and a decrease in factoring costs, which were eliminated by year-end. During the
fourth quarter, the Company earned interest income of $19,000 from the cash
proceeds of the initial public offering.
The benefit for income taxes in 1994 resulted from the elimination of the
valuation allowance against deferred tax assets resulting from current taxable
income and the expected utilization of the Company's net operating loss
carryforwards. The provision for income taxes in 1995 of $462,000, reflects the
continued application of the net operating loss carryforwards and the benefit of
state tax credits. The effective tax rate for 1995 was 32.8%.
As a result of the above, net income for the year ended December 31, 1995,
was $947,000 compared to $675,000 for the same period in 1994, an increase of
$272,000 or 40.3%.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 AND THE YEAR ENDED DECEMBER 31,
1993
Net sales for 1994 were $12,127,000 compared to $10,188,000 for 1993, an
increase of $1,939,000 or 19.0%. This increase was attributable to additional
sales volume in the Japanese market as a result of additional product offerings
and an increased number of distributors to such market.
Gross margin for 1994 was $2,791,000 compared to $1,664,000 for 1993, an
increase of $1,127,000 or 67.7%. As a percentage of sales, gross margin
increased to 23.0% in 1994 from 16.3% in 1993. The improved margins were
attributable to the allocation of overhead charges to a greater sales base,
substituting costly outside processing with in-house services and the
efficiencies obtained by the reconfiguration of the Company's plant layout.
Selling, general and administrative expenses for 1994 were $1,648,000
compared to $1,230,000 for 1993, an increase of $418,000 or 34.0%. As a
percentage of sales, these expenses increased from 12.1% to 13.6%. This increase
was attributable to the expansion of sales and administrative personnel to
support the Company's growth, larger administrative facilities and increased
participation at industry trade shows throughout the United States.
Interest and other expenses, net, for 1994 were $695,000 compared to
$423,000 for 1993, an increase of $272,000 or 64.3%. The increase in interest
expense was attributable to higher debt levels needed to finance the Company's
growth and to higher factoring costs.
16
<PAGE> 18
The benefit for income taxes in 1994 was attributable to the elimination of
the valuation allowance on deferred tax assets resulting from current taxable
income and the expected utilization of net operating loss carryforwards. See
Note 13 to the Financial Statements.
As a result of the above, net income for 1994 was $675,000 compared to
$10,000 for 1993, an increase of $665,000.
QUARTERLY RESULTS
The following table sets forth unaudited selected quarterly financial
information. This information has been derived from unaudited financial
statements which, in the opinion of management, include all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
such information. Results of operations for any one or more quarters are not
necessarily indicative of results for an entire year or of results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------
MAR.
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 31,
1994 1994 1994 1994 1995 1995 1995 1995 1996
-------- -------- --------- -------- -------- -------- --------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $2,728 $3,214 $ 3,141 $3,044 $3,660 $4,680 $ 4,594 $4,862 $5,334
Cost of goods sold... 2,100 2,474 2,418 2,344 2,782 3,516 3,455 3,510 3,976
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin......... 628 740 723 700 878 1,164 1,139 1,352 1,358
Selling, general and
administrative
expenses........... 346 407 420 475 465 607 623 1,046 714
------ ------ ------ ------ ------ ------ ------ ------ ------
Income from
operations......... 282 333 303 225 413 557 516 306 644
Interest and other
expenses, net...... 238 164 160 134 142 117 97 27 48
------ ------ ------ ------ ------ ------ ------ ------ ------
Income before
provision for
income taxes....... 44 169 143 91 271 440 419 279 596
Provision (benefit)
for income taxes... (22) (86) (73) (47) 111 173 166 12 236
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income........... $ 66 $ 255 $ 216 $ 138 $ 160 $ 267 $ 253 $ 267 $ 360
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors including, among others things, the
size and timing of customer orders, delays in new product enhancements and new
product introductions, quality control difficulties, market acceptance of new
products, product returns, seasonality in product purchases by distributors and
end users and pricing trends in the automotive aftermarket industry in general
and in the specific markets in which the Company is active. While the effect of
these factors on the Company's operating results has been obscured to date by
the Company's growth, any of these factors could cause quarterly operating
results to vary from prior periods.
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<PAGE> 19
SEASONALITY
The following table sets forth net sales information for each of the
Company's last 17 quarters. This unaudited net sales information has been
prepared on the same basis as the annual information presented elsewhere in this
Prospectus and, in the opinion of management, reflects all adjustments
(consisting of normal recurring entries) necessary for a fair presentation of
the information presented. Net sales for any quarter are not necessarily
indicative of sales for any future period.
<TABLE>
<CAPTION>
NET SALES
---------------------------------------
FIRST SECOND THIRD FOURTH
YEAR QUARTER QUARTER QUARTER QUARTER
---------------------------------------- ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1992.................................... $1,411 $2,115 $1,762 $1,440
1993.................................... 2,261 2,726 2,654 2,547
1994.................................... 2,728 3,214 3,141 3,044
1995.................................... 3,660 4,680 4,594 4,862
1996.................................... 5,334 -- -- --
</TABLE>
In general, the Company's business is seasonal in most sections of the
country, as the Company believes that it is affected by weather conditions.
Historically, the Company's net sales have been the highest in the second and
third quarters of each year. The Company believes that unusually adverse or
otherwise poor weather conditions in the spring and summer seasons may have a
negative effect on the Company's sales in such quarters. Significant variability
in orders during any period may have an adverse impact on the Company's cash
flow or work flow, and any significant decrease in orders could have a material
adverse impact on the Company's results of operations and financial condition.
The Company believes that its strategy of diversifying its product offerings to
include motorcycle wheels and accessories as well as its continued expansion
into international markets has lessened the impact of seasonality on the
Company's business.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth since 1992, with its net
sales growing from $6,728,000 in 1992 to $17,796,000 in 1995 which represents a
38% compound annual growth rate. During this period, the Company has financed
its cash requirements primarily through cash generated from operations,
borrowings on bank credit lines, capitalized lease financing of fixed asset
purchases, a factoring arrangement from September 1993 to March 1995, private
placements of securities and an initial public offering of Common Stock in
September 1995. At March 31, 1996, the Company's cash and cash equivalents
balance was $555,000 and its current ratio was 1.53 to 1.00.
In August 1995 and as amended in November 1995 and April 1996, the Company
entered into a revolving line of credit agreement and an equipment line of
credit agreement with a bank with maximum loan amounts of $2,500,000 and
$1,000,000, respectively. The interest rate on the revolving line of credit
agreement is 1.0% over the Wall Street Journal's published prime rate and the
interest rate on the equipment line of credit agreement is 1.5% over the Wall
Street Journal's published prime rate. The bank has a lien on the Company's
assets as collateral for both agreements. At May 21, 1996, the outstanding
balance of the revolving line of credit was $850,000, with $383,000 available on
that date. The equipment line of credit of $1,000,000 had an available balance
of $1,000,000 as of May 21, 1996. On April 19, 1996, the Company also refinanced
the then outstanding balance on the equipment line of $599,874 into a 60-month
term loan, payable in equal monthly installments and bearing interest at 1.75%
over the Wall Street Journal's published prime rate (an effective rate of 10% at
April 19, 1996).
Net cash used by operating activities totalled approximately $862,000 for
the three months ended March 31, 1996. This increase was directly attributable
to working capital used for an increase in inventories from approximately
$3,600,000 at December 31, 1995 to $4,700,000 at March 31, 1996. The increase in
inventories reflects the general growth of the Company's business and the
seasonal growth in anticipation of customer orders to be shipped in the second
and third quarters of 1996. Net cash used by investing activities totalled
approximately $419,000 for the three months ended March 31, 1996. The primary
use of cash was for
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<PAGE> 20
the purchase of property and equipment of approximately $442,000 to expand the
Company's plant capacity. Working capital was approximately $2,646,000 at March
31, 1996 compared to $2,113,000 at December 31, 1995. Working capital
requirements are expected to grow as the Company expands its inventories,
property and equipment and seeks to increase sales through additional marketing
activities and extension of its new products and product lines.
The Company intends to use the proceeds of this offering, its revolving
line of credit, equipment line of credit and cash generated from operations, if
any, to support the growth of the Company.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." The accounting or disclosure requirements of this statement are
effective at the Company's fiscal year-end 1996. It is currently anticipated
that the Company will continue to account for stock-based compensation using
Accounting Principles Board Opinion No. 25 and the impact of SFAS 123 has not
yet been determined.
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<PAGE> 21
BUSINESS
The following discussion contains certain forward-looking statements.
Actual results could differ materially. See "Risk Factors -- Important Factors
Related to Forward-Looking Statements and Associated Risks."
INTRODUCTION
Boyds Wheels, Inc. (the "Company") designs, manufactures and markets high
quality aluminum wheels for the specialty automotive aftermarket. In addition to
its premium aluminum wheels, the Company designs, manufactures and markets
motorcycle wheels, steering wheels for automobiles and automotive and motorcycle
billet aluminum accessories, and also sells car care products under its own
label. The Company's products utilize machined aluminum materials and unique
designs which the Company believes enhance individuality of vehicle styling. The
Company sells its products domestically through a national distribution network
of tire and performance retailers, warehouse distributors and mail order outlets
and internationally through foreign distribution channels.
The Company was founded in 1988 by Boyd Coddington in response to consumer
demand for billet aluminum wheels similar to those featured on custom hot rod
vehicles designed and manufactured by Hot Rods by Boyd, a company which has been
recognized as a leading designer, manufacturer and marketer of custom vehicles
and hot rods. Since 1978, Mr. Coddington has owned and operated Hot Rods by
Boyd, which has built vehicles that have been featured in many automotive and
general interest publications, including Car and Driver, Autoweek, Hot Rod,
Smithsonian and Forbes. The Company believes that its relationship with Hot Rods
by Boyd is a key factor in maintaining and enhancing the image and brand name
recognition of the Company's products. The Company has entered into a
marketing/promotion agreement with Hot Rods by Boyd pursuant to which Hot Rods
by Boyd is required to endorse, promote and market the Company's wheels as the
"official wheel" of Hot Rods by Boyd, use the Company's wheels on vehicles
produced by Hot Rods by Boyd and permit the Company to use these vehicles for
promotional displays and photographs. In addition, the Company has an option to
purchase Hot Rods by Boyd.
INDUSTRY BACKGROUND
The custom wheel market is the second largest segment of the specialty
automotive aftermarket. The custom wheel market is generally divided into five
product categories: aluminum wheels, composite wheels, modular wheels, steel
wheels and custom wheel accessories. According to Specialty Equipment Market
Association ("SEMA"), aluminum wheels are the largest segment of this market,
accounting for more than 75% of total sales. SEMA reports that the custom wheel
industry has grown from sales of approximately $525 million in 1992 to $650
million in 1994. The Company believes that this industry grew at approximately
10% in 1995 and will continue to grow at that rate for 1996.
The Company believes that several factors which have contributed to the
growth in its segment of the market include: (i) increases in sales of domestic
cars and light trucks which have resulted in increasing the aggregate number of
vehicles in use and therefore potential consumers of automotive aftermarket
products, (ii) increases in average vehicle life, which the Company believes
contributes to demand for automotive aftermarket parts as vehicle owners seek to
enhance the appearance of older vehicles, (iii) increases in sales through tire
dealers and performance retailers, (iv) the continuing enthusiasm of Americans
for vehicle styling and (v) the growing popularity in international markets for
American-styled and "Made in the USA" products. The Company further believes
that consumer desire for individuality in vehicle appearance will contribute to
the Company's growth and custom wheels represent one of the easiest, least
expensive, and quickest ways to dramatically alter the appearance of a vehicle.
Additionally, increased government regulation of specialty performance
automotive aftermarket parts has made it more difficult to modify engine and
drive-train components, which the Company believes will also contribute to its
growth.
To address the growing Harley-Davidson motorcycle accessory market, the
Company has developed a line of machined billet aluminum wheels, belt drives,
stainless steel rotors and other accessories marketed under the brand name
"Boyds Motorcycle Accessories." According to Harley-Davidson's 1995 annual
report, Harley-Davidson dominates the heavy-weight portion of the market (751cc
and above) with 55% of the North American market and 22% and 11% of the
Asian/Pacific and European markets, respectively. Harley-
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<PAGE> 22
Davidson reports that annual shipments of its motorcycles have increased at a
compound annual growth rate of 12.4% since 1986, with approximately 680,000 of
its motorcycles shipped worldwide in that period. This large installed base
combined with projected annual shipments represents a significant potential
market for the Company's motorcycle aftermarket wheels and accessories. The
Company believes that by leveraging its brand awareness in this cross-over
market, the Company can capitalize on established consumer recognition and
diversify the product line through this growing industry. Currently the
Company's motorcycle product line addresses the entire Harley-Davidson line.
Also, the Company is currently seeking distribution in Europe, the largest
market in the world for heavy-weight motorcycles. The Company is also in the
process of developing a one-piece cast aluminum motorcycle wheel, which it
expects to introduce during the second half of 1996.
BUSINESS STRATEGY
The Company's strategy is to expand its position as a leading marketer of
premium automotive and motorcycle aftermarket products by capitalizing on
consumer recognition of the "Boyds" brand name and the Company's growing
distribution network. Key elements of the Company's business strategy include:
Leverage and Strengthen Premium Brand Name Recognition. The Company has
developed the reputation for delivering premium products to the marketplace. The
Company intends to leverage its premium brand name recognition in order to
introduce new products and product lines to the markets it serves. Furthermore,
the Company intends to strengthen its premium brand name recognition through the
use of dynamic advertising and marketing programs, public relations efforts,
licensing agreements and celebrity associations.
Create New Product Lines. The Company continually assesses industry
trends, the marketplace and product positioning. The Company is committed to
adding selected new product lines in order to build its customer loyalty into a
broader based business. For example, the Company has introduced Boyds Ultra
Violet car care products and billet motorcycle wheels marketed under the name
"Boyds Motorcycle Accessories" and in late 1995 introduced one-piece cast
aluminum wheels. The Company also plans to introduce a one-piece cast aluminum
motorcycle wheel during the second half of 1996.
Continue Innovative Product Design and Development. The Company's strategy
is to differentiate its products from its competition by continually identifying
and introducing trend setting designs. Innovative designs for new products in
existing product lines that appeal to the consumer's desire for individuality
and superior product quality are critical to the Company's sales growth. The
goal of the Company's product development team is to be a leader in design
trends, develop fashions for the aftermarket and develop cost effective and
creative manufacturing techniques for the production of its products.
Diversify Domestic Product Distribution. The Company has successfully
established distribution of its products in key regions of the United States.
The Company believes that future growth of its distribution channels will come
from penetration of new geographic areas. In addition, through the use of
demographic and psychographic information, the Company intends to target key
distributors to service its customer and consumer markets. Creative distribution
methods and new distribution channels are key elements of continued sales
expansion for the Company.
Expand Penetration of International Markets. The Company's products are
recognized in many international markets. In order to meet what the Company
anticipates to be a growing international market, the Company intends to expand
its foreign presence by establishing relationships with selected distributors in
Europe and the Pacific Rim. The Company believes that its premium brand name
recognition, promotion of its "Made in the USA" products and unique styling will
facilitate penetration into these markets.
PRODUCTS
The Company currently offers three distinct lines of custom aluminum
automotive wheels: two-piece machined billet wheels, two-piece machined cast
wheels and one-piece machined cast wheels. The Company offers a line of custom
aluminum steering wheels, machined billet motorcycle wheels and related billet
aluminum accessories in addition to car-care products. Innovative designs and
premium quality are key elements of each product line manufactured by the
Company.
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<PAGE> 23
TWO-PIECE BILLET WHEELS. The Company currently markets 54 styles of
two-piece machined billet aluminum wheels, with a suggested retail price range
of $1,300 to $6,500 for a set of four wheels. The Company believes that the
machined billet wheel is the most elite and high-quality custom aluminum wheel
available. Billet wheel centers are manufactured from a solid piece of aluminum
known as a billet, through the use of computerized numerically controlled
("CNC") machines which "carve" out the specialized custom designs from the
billet aluminum. After polishing, the finished center is welded into an aluminum
outer rim. Through the precision and flexibility of this billet manufacturing
process, the Company is able to offer billet wheels with greater detail in
design, higher quality finish and larger variety of styles, applications and
vehicle fitments than other standard manufacturing processes. Billet wheels
accounted for approximately 33.6%, 28.1% and 17.8% of the Company's sales for
the years ended December 31, 1994 and 1995, and for the three months ended March
31, 1996, respectively.
TWO-PIECE MACHINED CAST WHEELS. The Company currently markets 28 styles of
custom two-piece machined cast wheels. Nine additional styles are sold to
Japanese distributors for sale exclusively in Japan. The suggested retail price
range for a set of four wheels is $700 to $1,000. The two-piece cast wheels are
produced with integrated machine processes, whereby the wheel centers are molded
from aluminum ingot in a low pressure foundry, machined to achieve a more
distinctive look (similar to that of the billet wheel), polished and welded into
an aluminum outer rim. This two-piece assembly process allows the Company to
weld the center into a variety of positions creating a larger selection of
appearances and fitments and, in some cases, to produce a variety of designs
from a single mold. Included within this product line are cast aluminum wheel
centers which are sold to American Racing which then assembles the centers with
its own outer rims for resale as private label wheels. See "-- Product
Distribution -- Warehouse Distributors." Two-piece cast wheels accounted for
approximately 61.3%, 64.1% and 64.0% of the Company's sales for the years ended
December 31, 1994 and 1995, and for the three months ended March 31, 1996,
respectively.
STEERING WHEELS. The Company currently markets ten styles of steering
wheels, made with the same machining process as its billet wheels. The suggested
retail price range for one steering wheel is $400 to $1,000. Each steering wheel
begins as a 1/8 inch thick piece of billet aluminum which is stamped into a
basic pattern and machined on a CNC machine. The steering wheel is then
polished, a foam grip is injected around its perimeter and a hand-stitched
leather wrap is sewn to the steering wheel. The Company also builds limited
quantities of an extremely high end steering wheel which is hand machined and
available in special finishes. Steering wheels accounted for approximately 4.7%,
3.6% and 2.3% of the Company's sales for the years ended December 31, 1994 and
1995, and for the three months ended March 31, 1996, respectively.
MOTORCYCLE WHEELS AND ACCESSORIES. The Company currently markets 14 styles
of motorcycle wheels as well as accessories under the trade name Boyds
Motorcycle Accessories for application on Harley-Davidson motorcycles. The
Company's motorcycle wheels were first manufactured in 1994 and are currently
distributed by Sullivan Brothers, Drag Specialties and Nempco. Currently the
motorcycle accessories include stainless steel brake rotors, billet aluminum
belt drives, aluminum chain drive sprockets, billet aluminum rocker boxes,
billet aluminum swing arms and billet aluminum cam covers. These accessory
products are designed to complement the styling of wheels and further enhance
the look of the motorcycle. The Company introduced five new accessory items in
1995. The Company's suggested retail price for one motorcycle wheel ranges from
$650 to $980. Motorcycle wheels and accessories accounted for approximately 3.0%
of the Company's sales for the year ended December 31, 1995 and 9.0% for the
three months ended March 31, 1996. The Company also plans to introduce a
one-piece cast aluminum motorcycle wheel during the second half of 1996.
ONE-PIECE MACHINED CAST WHEELS. The Company introduced five styles of
one-piece machined cast aluminum wheels in late 1995 for the sport utility
vehicle and European vehicle markets. One-piece cast wheels are produced with
integrated machine processes whereby the entire wheel is molded from aluminum
ingot in a low pressure foundry. The wheel is then machined to achieve a more
distinctive look. One-piece cast wheels have a greater load capacity than the
Company's other wheel lines thereby making them suitable for applications on
heavier vehicles. One-piece cast wheels are manufactured using a simpler, faster
production process since the rim and the center is molded as one integral unit
thereby eliminating the costs associated with an outside supplier of outer rims
and reduced assembly and handling costs. The lower material costs and reduced
machining time should enable the Company to reach a market in which it could not
otherwise
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<PAGE> 24
effectively compete. The Company's suggested retail price range for a set of
four wheels is $600 to $1,200. One-piece cast wheels accounted for approximately
4.0% of the Company's first quarter 1996 net sales.
WHEEL ACCESSORIES AND CAR-CARE PRODUCTS. The Company currently sells Boyds
Ultra Violet car care products and also sells a variety of billet aluminum
accessory items under its "The Boyd Look" trademark, such as pedal kits, horn
buttons, air cleaners and license plate frames. These products enhance the
product line and provide ancillary sales at the dealer level. The Company is
currently in negotiations with a national auto parts retail chain pursuant to
which Boyds Ultra Violet car care products will be manufactured and sold by such
retail chain.
PRODUCT DEVELOPMENT
The Company seeks to design innovative and trend-setting styles for
existing and new product lines. The Company's design influence is derived
primarily from Boyd Coddington and is often referred to in the industry as "The
Boyd Look," which is based on simplicity in style, look and design. The
Company's products are designed by a five-person product development team which
includes Boyd Coddington. Boyd Coddington and one other member of the team
design wheels as well as vehicles for Hot Rods by Boyd. The product development
team uses CAD/CAM technology for the development of many new products. The
CAD/CAM system enables the Company to transition new products rapidly from
design, to prototype development, and then to full-scale production. The Company
currently has several products within several product lines under development.
DISTRIBUTION, SALES AND MARKETING
PRODUCT DISTRIBUTION
The Company's products are currently sold through a national and
international distribution network consisting primarily of the categories
described below. The following are brief descriptions of the Company's
distribution channels:
TIRE DEALERS AND PERFORMANCE RETAILERS. The Company sells its custom
wheels and other products to tire dealers throughout the United States,
including Discount Tire, Les Schwab and Super Shops, Inc. The Company's
performance retailer customers currently include Tradertim, Inc., Hunter's
and Super Shops, Inc. Tire dealers and performance retailers, two
traditionally separate channels which are beginning to overlap in their
product coverages, are currently the largest distribution channel for the
Company's custom wheels and related accessories. The Company believes that
tire dealers have experienced success with "combination" sales of tires
with custom wheels and that performance retailers serve as an important
link to automotive enthusiasts.
WAREHOUSE DISTRIBUTORS. The Company sells its products to warehouse
distributors, such as Wheel City and American Racing, who sell to tire
dealers, performance retailers, service stations and specialty boutiques.
Since 1993, the Company has sold both its billet wheels and private label
cast wheel centers to American Racing which the Company believes is the
nation's largest warehouse distributor of specialty automotive wheels with
approximately 65 warehouses. In 1995, the Company agreed to sell wheels
directly to Tredit Tire, one of the largest direct distributors of custom
wheels and tires to the van/truck conversion industry. Automotive
aftermarket warehouse distributors generally seek rapid inventory turnover
by heavily stocking a limited selection of high quality merchandise offered
at good values. The Company believes that warehouse distributors are, and
will continue to be, an important factor in the Company's penetration of
new geographic areas and that the van conversion industry will be a new
market for distribution of its wheel lines.
MAIL ORDER OUTLETS. The Company sells its products to mail order
catalog houses which resell them to the public. The Company believes that
inclusion of its products in large mail-order catalogs, including ASAP,
Tradertim Inc. and Hunter's, has been, and will continue to be, a
significant factor in promoting the brand name recognition of the Company's
products and increasing direct sales to consumers.
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<PAGE> 25
INTERNATIONAL SALES. In 1992, the Company began selling to the
Japanese market through a domestic distributor and currently sells to eight
distributors that market the Company's products in Japan. In 1994 and 1995,
and for the three months ended March 31, 1996 international sales accounted
for approximately 26.3%, 39.3% and 26.4%, respectively, of the Company's
net sales, substantially all of which were in Japan. The Company believes
that continued success and growth in this market will be largely due to (i)
significant demand that exists for wheels made and designed in the United
States with distinctive styling and (ii) the offering of exclusive designs
to individual distributors.
SALES
The Company's strategy is to increase sales by (i) identifying new niche
markets such as sport utility vehicles, sports cars and European vehicles, (ii)
reaching new domestic distribution channels in new geographic areas of the
United States, (iii) using direct marketing to specialty groups through mail
order outlet channels, (iv) expanding its international distribution to address
selected foreign markets and (v) developing new products and product lines,
including those to be aimed at new market segments, such as the one-piece cast
wheels introduced in late 1995 for use on other types of vehicles and
applications.
As of June 10, 1996, the Company employed ten individuals in its sales and
marketing department. The Company's sales and marketing employees are
responsible for implementing marketing plans and sales programs, providing
technical advice and customer service, handling customer inquiries, coordinating
the Company's trade shows and staffing exhibits. Returns in excess of $5,000 are
subject to preapproval and a 15% restocking fee.
Typically a limited number of customers have accounted for a substantial
portion of the Company's net sales. In 1995, the Company's ten largest customers
accounted for approximately 82.4% of net sales, with four accounting for greater
than 10% each: Wheel City at 24.1%, American Motoring Accessories at 16.7%,
Mooneyes at 15.6% and American Racing at 12.0%. In 1994, the Company's ten
largest customers accounted for approximately 84.6% of net sales, with three
accounting for greater than 10% each: American Racing at 25.2%, Mooneyes at
15.5% and Wheel City at 12.3%. The Company does not have any long-term
contractual relationships with its major customers. The loss of or any reduction
in orders by any such customers could adversely affect the Company's business,
financial condition and results of operations.
MARKETING
The Company's collaboration with Hot Rods by Boyd is one of its principal
marketing tools. See "-- Collaboration with Hot Rods by Boyd." The Company uses
a variety of other methods to promote its products, including participation in
automotive events and international trade shows. In order to ensure that the
Company stays in close touch with the constantly changing needs of its
customers, including both consumers and distributors, the Company maintains a
consumer data base derived from warranty card information and other sources.
Sales personnel also attend distributor open houses and retail store openings,
enabling direct one-on-one interaction with consumers and customers. Key
management personnel attend many of these events in order to develop ideas for
new products and programs. The Company believes that its trademarks, Boyds,
Boyds Wheels, Boyds Ultra Violet, and The Boyd Look have become recognized brand
names in the automotive/motorcycle markets and represent its commitment to
well-designed, high-quality innovative wheels and accessories.
To date, the Company has utilized limited print advertising. The Company
has, instead, concentrated on high-profile public relations opportunities such
as featuring its wheels on the award-winning vehicles of Hot Rods by Boyd and
gaining coverage of its wheels in leading specialty automotive publications such
as Hot Rod Magazine, Truckin', Street Rodder, Sport Truck and AutoWeek and
targeted enthusiast television and radio programs. The Company recently received
the 1995 "Wheel of the Year" award presented by Eagle One. The Petersen
Automotive Museum in Los Angeles also recently devoted a wing of the museum to a
retrospective
24
<PAGE> 26
of the works of Boyd Coddington, including his hot rods and the Company's
wheels. The Company also engages in cooperative advertising efforts with its
major retailers and distributors.
The Company currently publishes a periodic newsletter which is mailed
directly to various newspapers and periodicals, retailers, distributors and
customers and features new products, special events, technical innovations,
employee profiles and interesting facts about the Company. The Company believes
that its direct mail programs are effective in maintaining its reputation as a
leading manufacturer of premium custom wheels and related accessories. The
Company also believes that dealer support programs are key factors for marketing
success and provides its wheel dealers with marketing kits that include ad
slicks, product photos, logo sheets, press releases and other advertising
information and a videotape presentation featuring the Company's latest products
and information. The Company also supports its dealers and brand name image with
special events and onsite presentations, featuring two 70 foot
semi-tractor/trailer rigs. These act as mobile displays of the Company's
products and award winning vehicles by Hot Rods by Boyd. The rolling displays
travel the country attending shows and dealer events allowing for dealer
hospitality in the on-board lounge. These vehicle costs have been partially
underwritten by the corporate sponsorship of B.F. Goodrich and revenues derived
from direct retail sales from the trucks.
The Company also promotes its brand name through exclusive styling
agreements and product licensing. In 1994 the Company began a program to license
its various brand names to selected licensees. The Company has granted licenses
to Franklin Mint and through Hot Rods by Boyds to Testors Corporation and Mattel
Corporation allowing reproduction of the Boyds Wheels styles on scale models.
The Company charges royalty fees for such licenses and exercises care in
selecting the licensees to protect the association of its brand names with
premium products. This program was recently initiated and to date has not
yielded any significant revenues to the Company. The Company believes exclusive
styling arrangements and private licensing will broaden the Company's visibility
and brand name recognition.
COLLABORATION WITH HOT RODS BY BOYD
The Company has had a long-standing collaboration with Hot Rods by Boyd, a
company wholly-owned by Mr. Coddington and his wife. In 1977, Mr. Coddington
began building custom vehicles and hot rods in his garage which were quickly
recognized by automotive publications as design leaders. Today, Hot Rods by Boyd
designs and builds custom vehicles which range in price from $75,000 to $500,000
and are custom produced typically for wealthy individuals, including
celebrities, as promotional vehicles for corporations and as prototypes or show
cars for major automobile manufacturers. These cars, displaying the Company's
custom wheels, are regularly featured at hot rod and automotive shows and have
been featured in national automotive and general interest publications such as
Car and Driver, Autoweek, Hot Rod, Smithsonian and Forbes and have also been
displayed in the Petersen Automotive Museum in Los Angeles. In June 1995, the
Company entered into a marketing/promotion agreement with Hot Rods by Boyd
pursuant to which Hot Rods by Boyd is required to (i) endorse, promote and
market the Company's wheels as the "official wheel" of Hot Rods by Boyd, (ii)
use the Company's wheels on vehicles produced by Hot Rods by Boyd and (iii)
allow the Company to use vehicles produced by Hot Rods by Boyd for promotional
displays and photographs, including the likeness of Boyd Coddington and the
vehicles for printed and electronic media in connection with the design,
manufacture and sale of automotive wheels, motorcycle wheels, steering wheels,
car care products and related accessories. Unless terminated in accordance with
the provisions thereof, this agreement expires upon the exercise of the
Company's option to purchase Hot Rods by Boyd. The Company has entered into an
option agreement with Mr. and Mrs. Coddington and Hot Rods by Boyd pursuant to
which the Company currently has an option to purchase all of the outstanding
Common Stock of Hot Rods by Boyd for up to $750,000, payable in shares of the
Company's Common Stock, valued at its then fair market value. This option is
exercisable by the Company commencing after delivery to it of the audited
financial statements of Hot Rods by Boyd for the years ending December 31, 1995
and December 31, 1996, but in no event after September 30, 1997, unless extended
pursuant to the terms thereof. If, at the time the option agreement becomes
exercisable the Company believes that the acquisition of Hot Rods by Boyd is in
the Company's best interests, the Company intends to exercise the option.
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<PAGE> 27
MANUFACTURING
The Company's aluminum products are manufactured, finished and packaged at
its Stanton, California facilities. The Company's corporate offices and
manufacturing and distributing facilities occupy seven buildings covering
approximately 75,900 square feet. The Company is committed to maintaining
control over the entire design and manufacturing process which it believes
enables it to (i) reduce design and production time, (ii) refine manufacturing
techniques and existing products, (iii) design future products and (iv) maintain
the Company's high quality standards.
The machined billet aluminum wheel manufacturing process for commercial
applications was developed by Mr. Coddington and continues to be refined by the
Company. The Company believes that the machined billet manufacturing process
results in a superior quality of product and that other types of billet
manufacturing processes, such as stamped, are inferior due to structural and
design limitations. The billet wheel centers for the two-piece machined billet
aluminum wheels are manufactured from a solid piece of aluminum known as a
billet, through the use of CNC machines which "carve" out the specialized custom
designs from the billet aluminum. After polishing, the finished center is welded
into an aluminum outer rim. Through the precision and flexibility of this billet
manufacturing process, the Company is able to offer billet wheels with greater
detail in design, higher quality finish and larger variety of styles,
applications and vehicle fitments than other types of manufacturing processes
such as cast or forged. An additional advantage of the billet manufacturing
process is reduced development time, whereby a new wheel design can be typically
produced in one to two weeks, compared to ten to twelve weeks required for the
development and tooling of a new cast wheel design. The Company believes that
the shorter design cycle enables the Company to maintain a competitive
advantage. During 1995 the Company produced approximately 12,000 billet aluminum
wheel centers.
The two-piece cast wheels are also produced with integrated machine
processes. The wheel centers are molded from aluminum ingot in a low pressure
foundry, machined to achieve a more distinctive look (similar to that of the
billet wheel) and, after polishing, welded into an aluminum outer rim. This
two-piece assembly process allows the Company to store work-in-process in a
smaller area, to weld the center into a variety of positions creating a larger
selection of appearances and fitments and, in some cases, to produce a variety
of designs from a single mold. The Company's cast wheel manufacturing facility
is equipped with seven state-of-the-art low pressure casting machines. During
1995 the Company produced approximately 175,000 cast aluminum wheels.
Steering wheels begin as a 1/8 inch thick piece of billet aluminum, which
is stamped into a basic pattern and machined on a CNC machine. The wheel is then
polished, a foam grip is injected around its perimeter and a hand-stitched
leather wrap is sewn to the wheel. All of the machining processes (except
stamping), and all of the polishing, leather wrapping, foam injection and
packaging efforts for the manufacture of the Company's steering wheels, are
completed on-site at the Company's facilities. During 1995 the Company produced
approximately 4,800 steering wheels. The Company's various accessory products
are manufactured in-house, while its line of Boyds Ultra Violet car care
products are mixed and packaged by an outside contractor.
Billet motorcycle wheels are produced in a similar process as the billet
automotive wheels. The product begins as a solid piece of billet aluminum which
is machined on the same type of CNC equipment as the automotive wheels. The
wheels undergo a trueing process to ensure proper fit and are then polished and
welded. Final assembly involves stringent controls that maintain proper fit of
the hub assemblies. The exclusive "Invisible Weld(C)" technology employed by the
Company in manufacturing its motorcycle wheels was developed by Boyd Coddington
and the Company believes it provides a better looking and more structurally
sound product.
The Company uses a modern design and manufacturing system for the
manufacture of its wheels and billet accessories, which through the use of
CAD/CAM technologies, provides the Company with two dimensional CAD drawings.
All of the CNC equipment in the Company's manufacturing facility is linked to a
CAD/CAM manufacturing system in order to obtain efficiencies and maintain
exacting tolerances in manufacture. The Company's design control department
monitors the compliance of production processes in order to ensure that the
designs have been correctly processed by the manufacturing computers and that
26
<PAGE> 28
finished products are accurately produced. The CAD/CAM system allows the Company
to transition new products rapidly from development to full-scale production.
The Company's CNC machinery maintains precise controls over manufacturing
processes. The CNC machinery greatly reduces the chance of error, scrap and
injury commonly found in manually operated machines. CNC technology also allows
for reduced machine times. The Company continually seeks to increase efficiency
at its production facilities through further automation and increased use of
technology.
The Company relies on outside suppliers for its billet aluminum and ingot
aluminum requirements. The Company currently purchases billet aluminum from
Metalcenter, Inc. and Earle M. Jorgensen Co. The Company currently does not have
any contractual relationships with any billet or ingot aluminum suppliers and
purchases materials on an as-needed basis. In 1994 and 1995, the Company
purchased 100% of its ingot requirements for its cast aluminum wheels from two
suppliers, Noranda Aluminum, Inc. and Vista Sales Co. The Company believes that
there are other suppliers of billet and ingot from which the Company could
obtain such materials in the future should the need arise. Any significant
interruption in the supply of these required raw materials could have a material
adverse effect on the Company's business and results of operations. The rims for
the Company's wheels are purchased from five different suppliers and the Company
believes alternative sources of supply of rims are readily available.
In the ordinary course of its manufacturing process, the Company uses
metals, oils and similar materials which are stored on-site. The waste created
by use of these materials is transported off-site on a regular basis by a state
registered waste hauler. To date, the Company has not experienced any
significant environmental compliance problems, although there can be no
assurances such problems will not arise in the future.
COMPETITION
The custom aluminum wheel business is highly competitive and is based
primarily on price, product selection, product availability and service and is
characterized by widespread imitation of popular wheel designs. The preferences
of custom aluminum wheel purchasers may also be subject to rapid and
unanticipated changes. Competition in the billet segment of the custom wheel
market is intense, but concentrated among a limited number of manufacturers,
such as Budnik Wheels, Colorado Custom, Weld Racing, Inc. and Billet
Specialties, Inc. In addition, the Company believes several wheel manufacturers
such as Ultra Custom Wheel and American Racing who do not currently manufacture
premium quality billet aluminum wheels could, because of their substantial
resources, pose significant competition if they were to enter this market.
Cast aluminum wheels comprise a much larger portion of the custom wheel
market than billet wheels, due to their lower retail prices. There are numerous
competitors in the cast wheel market, including American Racing, Ultra Custom
Wheel and Prime Wheel, and competition is fierce and based primarily on cost,
with most manufacturers seeking high volume to compensate for low margins. The
one-piece cast wheels which the Company introduced in 1995 will be aimed at a
broader range of customers than the Company's other wheel lines because of their
moderate price range and more varied vehicle applications. Accordingly, the
Company expects that these wheels may face more competition, including branded
wheels and "look-alike" designs produced by low-cost offshore manufacturing
sources.
There are several competing manufacturers of steering wheel products and
motorcycle wheels, including Grant Products and Weld Racing, Inc., some with
substantially more resources than the Company. Increased competition could
result in product price reductions, reduced margins and loss of market share,
all of which could have a material adverse effect on the Company's results of
operations and financial condition. The Company intends to meet its competition
with innovative designs, quality workmanship and the strength of its brand
names. The Company believes its relationship with its customers is strengthened
by its exclusive styling of products for certain of its competitors who are also
customers, such as American Racing.
FACILITIES
The Company's executive offices, product development, manufacturing and
distribution facilities are currently housed in a cluster of leased industrial
buildings. Building No. 1 contains the foundry and machining facilities and is
approximately 20,700 square feet. Building No. 2 contains the warehouse and
administrative
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<PAGE> 29
facilities and is approximately 20,400 square feet. Building No. 3 contains the
assembly area and is approximately 9,800 square feet. Building No. 4 contains a
motorcycle wheel design studio and custom motorcycle assembly area and is
approximately 17,000 square feet, of which Hot Rods by Boyds currently subleases
approximately 12,500 square feet. Building No. 5 contains the polishing
department and is approximately 5,100 square feet. Building No. 6 contains the
manufacturing facilities for motorcycle wheels and accessories and is
approximately 8,550 square feet. Building No. 7 contains machining facilities
and is approximately 6,850 square feet. The Company believes that its facilities
are adequate for its immediate needs, however, it is currently in negotiations
to lease additional property containing buildings with approximately 28,000
square feet. The Company has expanded its facilities in the last year in order
to accommodate its growing motorcycle product operations and to take advantage
of adjacent properties which became available for lease within the past nine
months.
INTELLECTUAL PROPERTY
The Company markets its custom wheels and products under a variety of brand
names designed to capitalize on the reputations of Boyd Coddington and Hot Rods
by Boyd among automotive enthusiasts. The Company believes that its trademarks,
Boyds, Boyds Wheels, Boyds Ultra Violet, and The Boyd Look, are critical to its
marketing strategy. There are no infringing uses currently known to the Company.
The Company does not believe its business is otherwise dependent upon any
patent, license, trademark, service mark or copyright.
PRODUCT WARRANTIES
Historically, the Company's wheels have been sold with a limited one-year
warranty from the date of purchase. Commencing in April 1995, the Company began
honoring a limited three-year warranty from the date of purchase. The Company's
warranties generally provide that, in the case of defects in material or
workmanship, the Company will, at its option, replace or repair the defective
product without charge. The Company currently maintains product liability
insurance for its products worldwide with limits of $5,000,000 per occurrence
and $5,000,000 in the aggregate, per annum. Such coverage is becoming
increasingly expensive and there can be no assurance that the Company's
insurance will be adequate to cover future product liability claims, or that the
Company will be able to maintain adequate product liability insurance at
commercially reasonable rates.
EMPLOYEES
As of June 10, 1996, the Company had approximately 315 employees, a
majority of which were full-time employees, including ten employed in sales and
marketing, three employed in development and 248 employed in production. The
remaining full-time employees are administrative and support staff. The Company
considers its employee relations to be good. None of the Company's employees are
represented by unions.
LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to the conduct of
its business. There are currently no material pending legal proceedings to which
the Company is a party or to which any of its property is subject.
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<PAGE> 30
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers, directors and nominees for the office of director
of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -----------------------------------------
<S> <C> <C>
Boyd Coddington(1)....................... 52 Chairman of the Board and Chief Executive
Officer
Stanley Clark............................ 44 Chief Operating Officer and Nominee
(Director)
Rex A. Ours.............................. 35 Chief Financial Officer and Secretary
Marcus Sorenson(1)(2).................... 48 Director
Curt Barwick(1)(2)....................... 41 Director
Melanie McCaffery........................ 42 Nominee (Director)
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Boyd Coddington founded the Company in 1988 and has served as a director
and executive officer of the Company since its inception. Mr. Coddington also
founded Hot Rods by Boyd in 1978 and has been featured in many automotive and
general interest publications, including Car and Driver, Autoweek, Smithsonian
and Forbes.
Stanley Clark joined the Company in April 1996 as the Chief Operating
Officer of the Company and is a nominee for the Board of Directors. From 1992 to
March 1996, Mr. Clark was vice president and general manager for the automotive
wheels division of Titan Wheel International, where he was in charge of
production of wheels for original equipment manufacturers and the automotive
aftermarket. Prior to 1992, Mr. Clark worked for fourteen years in the aerospace
industry with American Welding and Manufacturing Inc., a division of Freedom
Forge Corporation, a manufacturer of jet engine components for the aerospace
industry.
Rex A. Ours joined the Company in June 1994 as the Chief Financial Officer.
From 1993 to June 1994, Mr. Ours was an accountant in private practice
specializing in tax and general business matters. From 1991 to 1993, Mr. Ours
was Chief Financial Officer of Russell Performance, Inc., a manufacturer of
specialty aftermarket automotive products and high performance hoses for racing
engines and from 1990 to 1991, he was Vice President of Finance of Simpson Race
Products, Inc., a manufacturer of racing safety equipment. Mr. Ours was
previously employed by B.D.O. Seidman and Ernst & Whinney.
Marcus Sorenson joined the Board of Directors in June 1995. From 1976 to
the present, Mr. Sorenson has been the President of Calwest Marketing, a
manufacturer's representative specializing in consumer electronics and
automotive electronics. Mr. Sorenson is a co-founder of Mackie Designs, a
publicly traded company and since 1990 has served as its Vice President and
director. Mackie Designs manufactures recording consoles used in professional
and home recording studios.
Curt Barwick joined the Board of Directors in April 1996. From May 1994 to
the present, Mr. Barwick has been an attorney with the law firm of Day Campbell
& McGill. From February 1992 to September 1993, Mr. Barwick was Vice President
and General Counsel of DVI, Inc., a New York stock exchange listed company and a
healthcare finance and service provider. From February 1985 until January 1992,
Mr. Barwick was an attorney with the law firm of Buchalter, Nemer, Fields &
Younger. Mr. Barwick is a member of the California and District of Columbia
Bars.
Melanie McCaffery is a nominee for the Board of Directors. Ms. McCaffery, a
Certified Public Accountant, is the President of McCaffery & Associates, a
financial and accounting firm which she founded in October 1995. From October
1988 through September 1995, Ms. McCaffery was a Partner with the international
accounting firm of Coopers & Lybrand L.L.P.
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<PAGE> 31
The Company's Bylaws provide that the authorized number of directors of the
Company must be no less than three nor more than five. The number of authorized
directors, which is currently five, may be set from time to time within this
range by either approval of the Board of Directors or the affirmative vote of
the holders of a majority of the Company's capital stock. Directors are elected
annually to serve until the next annual meeting of shareholders and until their
successors are elected and qualified. Executive officers are elected annually
by, and serve at the discretion of, the Board of Directors.
BOARD COMMITTEES
The Compensation Committee consists of Messrs. Barwick and Sorenson. The
Compensation Committee establishes salaries, incentives and other forms of
compensation for officers and other employees, administers incentive
compensation and benefit plans, including the Company's 1995 Stock Option Plan
and recommends policies relating to such plans.
The Audit Committee consists of Messrs. Coddington, Sorenson and Barwick.
The Audit Committee, which meets periodically with management and the Company's
independent auditors, reviews the results and scope of the audit and other
services provided by the Company's independent auditors and the need for
internal auditing procedures and the adequacy of internal controls.
DIRECTORS' COMPENSATION
Standard Compensation
Directors who are not employees of the Company or its subsidiaries
("Non-Employee Directors") receive $1,000 for attendance at the Company's annual
meeting of shareholders plus $500 for each meeting of the Board or committee
meeting that they attend, plus reimbursement of any expenses they may incur with
respect to such meeting. Directors who are employees of the Company serve as
directors without compensation.
Stock Options
Non-Employee Directors receive additional compensation in the form of stock
options granted automatically under the Company's 1995 Stock Option Plan. Upon
their initial election to the Board of Directors, Non-Employee Directors
automatically receive options to purchase 3,000 shares of Common Stock. Such
options vest on the Non-Employee Directors' first anniversary with the Company.
In addition, such Non-Employee Directors will automatically be granted options
to purchase 1,000 shares of Common Stock each year they serve as a Director.
Such additional options will be fully vested and exercisable after each
additional full year of service. All options granted to Non-Employee Directors
have an exercise price equal to the fair market value of the shares on the date
of grant of such option.
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<PAGE> 32
EXECUTIVE COMPENSATION
The following table shows certain information concerning the compensation
of the Chief Executive Officer and each other executive officer of the Company
where aggregate compensation for services in all capacities rendered during the
year ended December 31, 1995 exceeded $100,000 (collectively the "Named
Executive Officers.")
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------- LONG-TERM
OTHER ANNUAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (OPTIONS/SARS)
- ---------------------------------- ---- -------- ----- ------------ --------------
<S> <C> <C> <C> <C> <C>
Boyd Coddington(1) 1995 $173,675 $ -0- $ 15,200 60,000
Chairman and Chief Executive 1994 79,075 -0- 14,000 --
Officer
Brad Fanshaw 1995 124,146 -0- 12,300 30,000
President (former)(2) 1994 69,160 -0- 12,000 --
Stanley Clark(3) 1995 -- -- -- --
Chief Operating Officer 1994 -- -- -- --
</TABLE>
- ---------------
(1) Pursuant to a five-year employment agreement between the Company and Boyd
Coddington, Mr. Coddington currently receives an annual salary of $160,000
and will receive an annual bonus in an amount to be determined by the
Compensation Committee of the Board of Directors. Mr. Coddington is required
to devote his entire productive time, with certain limited exceptions
described in his employment agreement, to the business of the Company. In
addition to salary and bonus, under the terms of his employment agreement
the Company is required to provide Mr. Coddington with a nonaccountable
automobile expense allowance of at least $1,100 per month, pay all health
insurance premiums for him and his spouse and pay the premiums of a term
life insurance policy. In the event of termination of the executive without
cause, the Company is liable for the remaining unpaid annual salary under
the full term of the agreement plus a severance payment equal to 10% of the
annual salary each year. Other annual compensation for 1995 included the
above-described annual automobile allowance of $13,200 for a vehicle used by
Mr. Coddington and approximately $2,000 in repair and maintenance expenses
for this automobile. Other annual compensation for 1994 included a separate
annual automobile allowance of $12,000 for a vehicle used by Mr. Coddington
and approximately $2,000 in repair and maintenance expenses for this
automobile.
(2) Mr. Fanshaw's employment with the Company terminated in February 1996.
During fiscal 1995, Mr. Fanshaw received, in addition to salary and bonus, a
nonaccountable automobile expense allowance of $1,100 per month and payment
of health insurance premiums for him and his spouse. Other annual
compensation for 1995 included an annual automobile allowance of $12,300 for
a vehicle used by Mr. Fanshaw. Other annual compensation for 1994 included
an annual automobile allowance of approximately $12,000 for a vehicle used
by Mr. Fanshaw. In May 1993, Mr. Fanshaw was granted stock options
exercisable until December 31, 1999 to purchase 71,429 shares of Common
Stock for a price of $1.00 per share. Mr. Fanshaw exercised 2,000 of these
options in September 1995.
(3) Mr. Clark's employment with the Company commenced in April 1996. Mr. Clark
currently receives an annual salary of $110,000.
OPTION GRANTS TABLE
The following table sets forth information with respect to options to
purchase shares of the Company's Common Stock granted in fiscal 1995 to the
Named Executive Officers.
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<PAGE> 33
STOCK OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL YEAR (PER SHARE) DATE
- ----------------------------- -------------------- -------------------- -------------- ----------
<S> <C> <C> <C> <C>
Boyd Coddington.............. 60,000 24% $ 6.25 9/15/05
Brad Fanshaw................. 30,000 12% 6.25 9/15/05
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information regarding option
exercises during the year ended December 31, 1995 by the Named Executive
Officers. The number of shares covered by both exercisable and unexercisable
options as of December 31, 1995 and the value of unexercised in-the-money
options held by the Named Executive Officers as of December 31, 1995. None of
the Named Executive Officers held any stock appreciation rights at the end of
that fiscal year.
<TABLE>
<CAPTION>
NUMBER OF UNDERLYING VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED SECURITIES IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR END FISCAL YEAR END
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Boyd Coddington.......... -0- $ -0- 60,000 -0- $ 210,000 $ -0-
Brad Fanshaw............. 2,000 10,500 99,429 -0- 712,504 -0-
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1995, the Company's Board of Directors
established the levels of compensation for certain of the Company's executive
officers prior to the formation of the Compensation Committee. The current
members of the Company's Compensation Committee are Messrs. Barwick and
Sorenson. None of these individuals were at any time during 1995 an officer or
employee of the Company.
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "Plan") was adopted by the Board
of Directors in June 1995 and was approved by the shareholders at the Company's
annual meeting of shareholders in July 1995. The Plan is administered by the
Compensation Committee (the "Committee") of the Board of Directors, except that
grants to the Non-Employee Directors are automatically made pursuant to a
predetermined formula. The Committee consists solely of Non-Employee Directors.
The Committee has broad authority in administering and interpreting the Plan.
The purpose of the Plan is to enable the Company to attract, retain and
motivate employees by providing for or increasing their proprietary interests in
the Company and, in the case of Non-Employee Directors, to attract such
directors and further align their interests with those of the Company's
shareholders by providing for or increasing their proprietary interests in the
Company. Under the Plan, officers, directors, employees and independent
consultants of the Company are eligible to receive options to purchase Common
Stock. As of June 10, 1996, approximately 300 persons were eligible.
The aggregate number of shares which may be issued pursuant to the grant of
awards under the Plan is 250,000, subject to adjustment for certain
circumstances such as a stock exchange, reorganization, recapitalization, stock
split, reverse stock split, stock dividend or other capital change or
adjustment. At the Company's next annual meeting scheduled for June 12, 1996,
the shareholders of the Company will be requested to consider and approve a
proposed amendment to the Plan to increase the number of shares of Common Stock
reserved for issuance thereunder by 200,000 shares, bringing the total number of
shares issuable under the Plan to 450,000 shares. The Board of Directors
approved such amendment in May 1996.
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<PAGE> 34
Awards to Employees
Options granted under the Plan may be options intended to qualify as
incentive stock options (the "Incentive Stock Options") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), or options not intended
to so qualify (the "Non-Qualified Stock Options").
An award to an employee may permit the employee to pay all or part of the
purchase price of the shares issuable pursuant thereto, and/or to pay all or
part of such employee's tax withholding obligation with respect to such
issuance, by (i) delivering previously owned shares of capital stock of Company
or (ii) reducing the amount of shares otherwise issuable pursuant to the award.
If an option granted to an employee permitted the employee to pay for the shares
issuable pursuant thereto with previously owned shares, the employee would be
able to exercise the option in successive transactions, known as pyramiding, to
acquire a large number of shares with no more investment than the original share
or shares delivered upon exercise of the option.
Upon the grant of an option under the Plan, the person receiving the grant
(the "Option Holder") must enter into a written option agreement with the
Company that contains terms, provisions and conditions that are consistent with
the Plan and have been determined from time to time by the Committee. Incentive
Stock Options granted under the Plan may not expire later than ten years after
the date of grant except that an Incentive Stock Option granted to an individual
owning (after the application of the family and other attribution rules of
Section 424(d) of the Code), at the time the option was granted, more than 10%
of the total combined voting power of all classes of stock of the Company (a
"10% Shareholder"), may not expire later than five years from the date the
option is granted. The exercise price for any Incentive Stock Option may not be
less than 100% of the fair market value of Common Stock of the Company at the
date the Option is granted and the exercise price of an Incentive Stock Option
granted to a 10% Shareholder may not be less than 110% of the fair market value
of the Common Stock of the Company on the date such option is granted. The Plan
provides that the maximum number of shares of Common Stock that may be issued
pursuant to Incentive Stock Options, in the aggregate, is 250,000 shares.
An award granted under the Plan to an employee may include a provision
terminating the award upon termination of employment under certain circumstances
or accelerating the receipt of benefits upon the occurrence of specified events,
such as a change of control of the Company or a dissolution, liquidation,
merger, reclassification, sale of substantially all of the property and assets
of the Company or other significant corporate transaction. Options granted to
Non-Employee directors must be exercised by the first anniversary of the date of
grant if the grantee ceases to be a director of the Company as a result of death
or disability, and the three months after such grantee ceases to be a director
for any other reason other than cause, in which case the option terminates
immediately.
Awards to Non-Employee Directors
Non-Qualified Stock Options to purchase 3,000 shares of Common Stock are
automatically granted to Non-Employee Directors upon their initial election to
the Board. Such options will vest on the first anniversary of the date of
appointment or election. Non-Qualified Stock Options to purchase an additional
1,000 shares will be granted to each Non-Employee Director each year provided
such individual continues to serve as a director. Such additional options will
vest after each additional year of service.
33
<PAGE> 35
CERTAIN TRANSACTIONS
Boyd and Diane Coddington, the Company's principal shareholders, have
personally guaranteed the Company's equipment leases and the leases on the real
properties located at 8400, 8402 and 8380 Cerritos Avenue, 10540 Fern Avenue and
10541 Ashdale Street.
In September 1994, Boyd and Diane Coddington assigned to the Company all of
their rights and interests under the lease of the real properties located at
8380 Cerritos Avenue and 10541 Ashdale Street in consideration of the Company's
assumption of all of the obligations of the Coddingtons' under such leases. The
Company has been subleasing a portion of the premises located at 10541 Ashdale
Street to Hot Rods by Boyd (a company which is wholly owned by Boyd Coddington)
since the commencement of the lease term, and has been paying Hot Rods by Boyd's
share of all rental and other payments due thereunder. The total current monthly
rent under these leases is $14,991, with the Company's share being $10,000. The
rent is subject to annual adjustment based on increases in the Consumer Price
Index.
From time to time the Company has loaned amounts to Hot Rods by Boyd on an
interest free basis, for use as working capital and to cover certain expenses,
including the build-out of the premises occupied by Hot Rods by Boyd. In 1993
and 1994, the Company also paid on behalf of Hot Rods by Boyd the entire salary
for several employees that work for both Hot Rods by Boyd and the Company. As of
March 31, 1996, the amount owed to the Company from Hot Rods by Boyd was
approximately $158,000, representing amounts previously advanced by the Company
and the portion of the salary payments made to such employees by the Company
which are allocable to Hot Rods by Boyd.
The Company has entered into an option agreement with Mr. and Mrs.
Coddington pursuant to which the Company currently has the option to purchase
all of the outstanding Common Stock of Hot Rods by Boyd for up to $750,000,
payable in shares of the Company's Common Stock, valued at its then fair market
value. This option is exercisable by the Company commencing after delivery to it
of audited financial statements of Hot Rods by Boyd for the years ending
December 31, 1995 and December 31, 1996, but in no event after September 30,
1997, unless extended pursuant to the terms of the option agreement. Until the
option is exercised, any transactions between the Company and Hot Rods by Boyd
will be reviewed and approved by the outside board members of the Company. In
June 1995, the Company entered into a marketing/promotion agreement with Hot
Rods by Boyd pursuant to which Hot Rods by Boyd is required to (i) endorse,
promote and market the Company's products, (ii) use the Company's wheels on
vehicles produced by Hot Rods by Boyd and (iii) allow the Company to use
vehicles produced by Hot Rods by Boyd for promotional displays and photographs,
including the likeness of Boyd Coddington and the vehicles for printed and
electronic media. Unless terminated in accordance with the provisions thereof,
this agreement expires upon the exercise of the Company's option to purchase Hot
Rods by Boyd.
In November 1994, the Board of Directors of the Company authorized the
issuance of 1,000,000 shares of Series A Redeemable Preferred Stock, 706,668
shares of which were issued to Karl Kantarjian, a former director of the
Company, in exchange for 706,668 shares of Common Stock held by Mr. Kantarjian.
The Series A Redeemable Preferred Stock was redeemed by the Company in September
1995. In consideration for exchanging his shares of Common Stock for shares of
Series A Redeemable Preferred Stock, Mr. Kantarjian received a warrant to
purchase 10,000 shares of Common Stock (the "Kantarjian Warrant") at a price of
$6.25 per share. The Kantarjian Warrant expires on November 3, 1996.
Codde, Inc., a company in which Mr. Coddington is an officer, director and
principal shareholder, leases two 70 foot semi-tractor/trailer rigs to the
Company for special event and onsite presentations for a monthly fee of
approximately $10,000. The Company believes that its agreement with Codde, Inc.
is on terms no less favorable than could be obtained from a nonaffiliated party.
Boyd Coddington, Jr., the son of Boyd Coddington, is employed by the
Company in the position of National Sales Manager at an annual salary of $78,000
plus bonus. In fiscal 1995, he received aggregate compensation of $61,035 from
the Company.
In February 1996, the Company entered into an agreement under which Mr.
Fanshaw, the Company's former President was released from his duties under an
employment contract. Under the agreement, the
34
<PAGE> 36
Company paid to Mr. Fanshaw total consideration of $275,000, consisting of
$150,000 in consideration for a five-year covenant not to compete and $125,000
for other compensation. Of such consideration, $225,000 was paid in cash and the
remaining $50,000 was paid in shares of the Company's Common Stock. All other
amounts due to/from the Company and Mr. Fanshaw pursuant to the employment
contract were cancelled.
In February 1996 the Company purchased substantially all of the assets of
Velocity Distribution, Inc. ("Velocity"), a company owned by Boyd Coddington and
Mr. Fanshaw. Velocity was in 1995 a party to an agreement with the Company
pursuant to which Velocity was granted a license to use certain trademarks owned
by the Company in connection with the distribution of apparel and other
accessories. As consideration for these assets, the Company assumed certain
liabilities of Velocity totalling approximately $81,000 and also entered into a
five-year covenant not to compete with an employee of Velocity for total
consideration of approximately $25,000.
35
<PAGE> 37
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 10, 1996 and as adjusted to
reflect the sale of the Common Stock being offered hereby (assuming no exercise
of the Underwriter's over-allotment option) by (i) each person (or group of
affiliated persons) who is known by the Company to own beneficially more than 5%
of the Common Stock, (ii) each of the Company's directors, (iii) the executive
officers named in the Summary Compensation Table, (iv) all Selling Shareholders,
and (v) all directors and executive officers of the Company as a group. Except
as otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable:
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING (1) OFFERING
------------------ SHARES BEING ------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------------------------- ------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Boyd Coddington(2)(3)........................ 413,334 15.8% 24,863 388,471 10.8%
Diane Coddington(2).......................... 353,334 13.8% 24,863 328,471 9.3%
Entities associated with
Gruber & McBaine Capital Management, Inc.
50 Osgood Place
San Francisco, CA 94133(4)............... 169,600 6.6% 0 169,600 4.8%
Brad Fanshaw(5).............................. 87,250 3.4% 52,821 34,429 1.0%
Frank W. Cutler++............................ 27,879 1.1% 17,879 10,000 *
The Richard F. Foster Family Trust UAD
5/24/93++.................................. 19,362 * 13,362 6,000 *
The Silagy Living Trust DTD 1/15/93(6)++..... 19,362 * 14,362 5,000 *
George Nicholas++............................ 16,842 * 10,842 6,000 *
Kendall W. Everson, Jr. Family Trust DTD
9/21/89(7)++............................... 12,102 * 7,730 4,372 *
Larry E. Baumgardner, Jr++................... 10,839 * 10,839 0 *
CJ & WM Reed Trust DTD 1986(8)++............. 10,839 * 5,839 5,000 *
The Davis Living Trust(9)++.................. 9,681 * 6,681 3,000 *
John E. Thompson and Linda Thompson++........ 6,619 * 6,619 0 *
Gregory A. Brown and Susan R. Brown++........ 5,519 * 5,519 0 *
Silverberg Trust DTD 12/21/88(10)++.......... 5,434 * 5,434 0 *
Dale Mitchum++............................... 5,419 * 5,419 0 *
Ajit Singh M.D. Profit Sharing Plan and
Trust++.................................... 5,419 * 2,919 2,500 *
Lawrence J. Larsen and Janice L. Larsen++.... 4,842 * 4,842 0 *
Michael Murphy++............................. 4,119 * 3,000 1,119 *
Newport Potomac Partners(11)++............... 3,872 * 2,500 1,372 *
Miller Revocable Intervivos Trust UDT
11/29/90(12)++............................. 2,717 * 2,717 0 *
Kurt Mason++................................. 2,418 * 1,500 918 *
Yie Fong Chiang and Kuang Chi Chiang++....... 2,170 * 500 1,670 *
Gary Rorden and Sheryl S. Rorden++........... 1,450 * 450 1,000 *
Rex A. Ours.................................. 500 * -- 500 *
Stanley Clark................................ -- * -- -- *
Marcus Sorenson.............................. -- * -- -- *
Curt Barwick................................. -- * -- -- *
All Executive Officers and Directors as a
Group (5 persons)(13)...................... 413,834 15.8% 24,863 388,971 10.9%
</TABLE>
36
<PAGE> 38
- ---------------
* Indicates ownership of less than one percent.
++ Indicates that the shareholder purchased Common Stock and warrants in a
November 1994 private placement and converted the warrants into Common
Stock in September 1995. (See "Description of Capital Stock").
(1) Includes Common Stock issued pursuant to a conversion of warrants into
shares of Common Stock, in September 1995. See "Description of Capital
Stock -- Warrants from Private Placement," and "Description of Capital
Stock -- Other Warrants." Any correspondence to the shareholders should be
addressed to such shareholder c/o the Company at the Company's address. The
percent beneficially owned by each shareholder has been calculated pursuant
to Rule 13d-3(d) promulgated by the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, as amended.
(2) Boyd Coddington and Diane Coddington are married, and therefore, each has a
beneficial interest in the other's shares of Common Stock.
(3) Includes 60,000 shares purchasable within 60 days of the date hereof upon
exercise of an option to purchase Common Stock.
(4) Based on Schedule 13D filed by Jon D. Gruber ("Gruber"), J. Patterson
McBaine ("McBaine"), Gruber & McBaine Capital Management ("GMCM"), Gruber &
McBaine Capital Management International ("International"), GMJ
Investments, L.P. ("GMJ") and Lagunitas Partners ("Lagunitas"). Gruber is
deemed to be the beneficial owner of 156,600 shares and McBaine is deemed
to be the beneficial owner of 142,000 shares. Each of Messrs. Gruber and
McBaine has shared voting and dispositive power with respect to 132,000
shares. Gruber and McBaine are the sole directors and officers of GMCM and
International. Gruber, McBaine and GMCM are the general partners of
Lagunitas and GMJ.
(5) Includes 34,429 shares purchasable within 60 days of the date hereof upon
exercise of an option to purchase Common Stock.
(6) John W. Silagy and Deana K. Silagy are deemed to be beneficial owners of
all shares of Common Stock owned by the Silagy Living Trust dated January
15, 1993.
(7) Includes shares owned by Newport Potomac Partners, of which Kendall W.
Everson, Jr. is also a general partner and in such capacity has shared
voting and investment power with respect to shares of Common Stock owned
thereby. As a result, Mr. Everson is deemed to be a beneficial owner of
such Common Stock.
(8) Charles J. Reed and Winifred M. Reed are deemed to be beneficial owners of
all shares of Common Stock owned by the CS & WM Reed Trust dated 1986.
(9) James P. Davis and Virginia D. Davis are deemed to be beneficial owners of
all shares of Common Stock owned by the Davis Living Trust.
(10) Joseph G. Silverberg and Audrey G. Silverberg are deemed to be beneficial
owners of all the shares of Common Stock owned by the Silverberg Trust
dated December 21, 1988.
(11) Kendall W. Everson, Jr. is a general partner of Newport Potomac Partners
and in such capacity has shared voting and investment power with respect to
shares of Common Stock owned by Newport Potomac Partners and is deemed to
be a beneficial owner of such Common Stock. Steven Wilcox is also a general
partner of Newport Potomac Partners and in such capacity has shared voting
and investment power with respect to shares of Common Stock owned by
Newport Potomac Partners and is deemed to be a beneficial owner of such
Common Stock.
(12) Richard A. Miller and Beverly L. Miller are deemed to be beneficial owners
of all the shares of Common Stock owned by the Miller Revocable Intervivos
Trust dated November 29, 1990.
(13) Includes 60,000 shares of Common Stock purchasable within 60 days of the
date hereof upon exercise of an option to purchase Common Stock. See Note
(3).
37
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value. The following description of the Company's capital stock is qualified in
all respects by reference to the Company's Amended and Restated Articles of
Incorporation ("Articles of Incorporation"), which have been filed as an exhibit
to the Registration Statement incorporating this Prospectus.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may, from time to time, determine, subject to
any preferences which may be granted to the holders of Preferred Stock. Holders
of Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote and the holders of Common Stock may
cumulate their votes in the election of directors upon giving notice as required
by law. Cumulative voting means that in any election of directors, each
shareholder may give one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares held by such
shareholder, or such shareholder may distribute such number of votes among as
many candidates as the shareholder sees fit. The Common Stock is not entitled to
preemptive rights and is not subject to redemption or conversion. Upon
liquidation, dissolution or winding-up of the Company, the assets (if any)
legally available for distribution to shareholders are distributable ratably
among the holders of the Common Stock after payment of all debt and liabilities
of the Company and the liquidation preference of any outstanding class or series
of Preferred Stock. All outstanding shares of Common Stock are, and the shares
of Common Stock to be issued pursuant to this offering will be, when issued and
delivered, validly issued, fully paid and nonassessable. The rights, preferences
and privileges of holders of Common Stock are subject to any series of Preferred
Stock that the Company may issue in the future.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series, and
the Board of Directors, without action by the holders of the Common Stock, may
fix or alter the voting rights, redemption provisions (including sinking fund
provisions), dividend rights, dividend rates, liquidation preferences,
conversion rights and any other rights, preferences, privileges and restrictions
of any wholly unissued series of Preferred Stock. The Board of Directors,
without shareholder approval, can issue shares of Preferred Stock with rights
that could adversely affect the rights of the holders of Common Stock. No shares
of Preferred Stock presently are outstanding, and the Company has no present
plans to issue any such shares. The issuance of shares of Preferred Stock could
adversely affect the voting power of holders of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company
or other corporate action.
OPTIONS
In May 1993, the Company granted to Mr. Fanshaw options to purchase 71,429
shares of Common Stock at an exercise price of $1.00 per share (the "Fanshaw
Options"). Mr. Fanshaw exercised 2,000 of the Fanshaw Options in September 1995
and 35,000 in May 1996. Mr. Fanshaw was also granted certain registration rights
with respect to the shares of Common Stock issuable upon exercise of the Fanshaw
Options. See "Description of Capital Stock -- Registration Rights."
9% CONVERTIBLE PROMISSORY NOTES
In September 1993, the Company privately sold $660,000 principal amount of
9% Convertible Promissory Notes due June 30, 1996 (the "Notes"). In November
1994, in connection with an offering of securities in the Private Placement, the
Company converted $622,500 in principal amount ($572,648, net of original debt
issue costs) of Notes into 177,857 shares of the Company's Common Stock and
redeemed $12,500 in principal amount of Notes. As of the date of this offering,
$25,000 in principal amount of Notes is outstanding. The Company does not have
the right to prepay all or any part of the principal of the Notes. The Notes are
38
<PAGE> 40
convertible, in whole or in part, into shares of Common Stock at the rate of
$3.50 per share. However, no fractional shares will be issued, as all fractional
shares will be rounded down to the nearest whole number of shares with
fractional shares, if any, to be paid a cash adjustment based upon the
conversion price. The Company granted to the holders of Notes, subject to
certain limitations, certain registration rights covering the Common Stock
issuable upon conversion of the Notes. See "Description of Capital
Stock -- Registration Rights."
OTHER WARRANTS
In connection with the September 1993 private placement of Notes, the
Company issued to officers of the placement agent warrants to purchase (the
"Note Placement Agent Warrants") an aggregate of 9,328 shares of Common Stock at
a price of $4.25 per share. The Note Placement Agent Warrants are currently
exercisable and expire in September 1999. The holders of the Note Placement
Agent Warrants may elect to exercise the Note Placement Agent Warrants by having
withheld from the number of shares issuable upon exercise of the Note Placement
Agent Warrants that number of shares of Common Stock with an aggregate fair
market value at the time of exercise equal to the aggregate exercise price. The
exercise price and the number of shares of Common Stock issuable upon the
exercise of the Note Placement Agent Warrants is subject to adjustment in the
event of any stock dividend, stock split, recapitalization or similar
transaction and upon the issuance of shares of Common Stock, or rights to
acquire shares of Common Stock, at a price which is less than the exercise price
then in effect, with certain exceptions. Holders of the Note Placement Agent
Warrants also have been granted certain registration rights with respect to the
shares of Common Stock issuable upon exercise. See "Description of Capital
Stock -- Registration Rights."
In November 1994, the Board of Directors of the Company authorized the
issuance of 1,000,000 shares of Series A Redeemable Preferred Stock, 706,668
shares of which were issued to Karl Kantarjian in exchange for 706,668 shares of
Common Stock held by Mr. Kantarjian. These shares were redeemed in September
1995. In consideration for exchanging his shares of Common Stock for Series A
Redeemable Preferred Stock, Mr. Kantarjian received a warrant to purchase 10,000
shares of Common Stock at $6.25 per share.
In connection with an offering of securities in a private placement in
November 1994 (the "Private Placement"), the Company issued to officers of the
placement agent warrants to purchase (the "Unit Placement Agent Warrants") an
aggregate of 85,714 shares of Common Stock, which effective as of the closing of
the initial public offering were converted into 35,714 shares of Common Stock as
a result of having withheld from the number of shares issuable upon exercise of
the Unit Placement Agent Warrants that number of shares of Common Stock (at an
agreed price of $6.00 per share) equal to the aggregate exercise price of $3.50
per share. Holders of the Unit Placement Agent Warrants have been granted
certain registration rights with respect to the shares of Common Stock which
were issued upon exercise. See "Description of Capital Stock -- Registration
Rights."
IPO WARRANTS
In connection with the Company's initial public offering, the Company
agreed to sell to the Representative and its co-manager warrants to purchase up
to 125,000 shares of Common Stock at an exercise price per share equal to $7.50
(the "IPO Warrants"). The IPO Warrants, which are not transferable (other than
to officers or partners of the Representative or its co-manager), are
exercisable beginning September 20, 1996 until September 20, 2000. See
"Underwriting."
REPRESENTATIVE'S WARRANTS
The Company has agreed to sell to the Representative warrants to purchase
up to 68,000 shares of Common Stock at an exercise price per share equal to 120%
of the public offering price (the "Representative's Warrants"). The
Representative's Warrants which are not transferable (other than to officers or
partners of the Representative), are exercisable for a period of four years
beginning one year from the date of this Prospectus. See "Underwriting."
39
<PAGE> 41
REGISTRATION RIGHTS
The Company has granted to the holder of the Notes, subject to certain
limitations, the right to require the Company to file one registration statement
covering the Common Stock issuable upon conversion of the Notes at any time
commencing December 15, 1995.
The Company has granted to the holders of the Common Stock underlying
warrants issued in connection with the Private Placement (the "Warrants"),
subject to certain limitations, the right to require the Company to file a
registration statement covering such Common Stock, commencing March 15, 1996. In
addition, the Company has agreed to use its best efforts to register such shares
of Common Stock on Form S-3 under the Securities Act, and in addition to
register the shares if the Company proposes to register stock or securities in
connection with certain underwritten public offerings of its securities, subject
to certain limitations.
In connection with the Private Placement, the Company granted to the
holders of Common Stock certain rights to register the shares if the Company
proposes to register stock or securities in connection with certain underwritten
public offerings of its securities, subject to certain limitations. Any such
shares of Common Stock not sold in this offering will continue to have
registration rights, subject to certain limitations.
The Company has agreed to use its best efforts to register the shares of
Common Stock issuable to Mr. Fanshaw upon exercise of the Fanshaw Options.
The Company has granted to the holders of the Note Placement Agent Warrants
certain rights with respect to the registration under the Securities Act of the
9,328 shares of Common Stock issuable upon exercise of the Note Placement Agent
Warrants (the "Note Placement Agent Shares"). The holders of the Note Placement
Agent Warrants can require the Company, subject to certain limitations, to file
a registration statement covering the Note Placement Agent Shares at any time
commencing March 15, 1996 and can request, on up to three occasions, that the
Note Placement Agent Shares be sold by means of an underwritten public offering.
In addition, the Company has agreed to use its best efforts to register such
shares on Form S-3 under the Securities Act and the holders of the Note
Placement Agent Warrants can require the Company, subject to certain
limitations, to include all or any portion of the 9,328 Note Placement Agent
Shares in any registration statement.
The Unit Placement Agent Warrants provide certain rights with respect to
the registration under the Securities Act of the shares of Common Stock issuable
upon exercise thereof. If the Company registers any of its Common Stock either
for its own account or for the account of other security holders, the holders of
such shares are entitled to include their shares of Common Stock in the
registration. Effective as of the closing of the Company's initial public
offering, the Unit Placement Agent Warrants were converted into 35,714 shares of
Common Stock.
The Company has agreed to register the shares of Common Stock issued to Mr.
Fanshaw in February 1996 in the event that the Company undertakes a public
offering of its Common Stock and has included such shares in this offering.
The IPO Warrants provide certain rights with respect to the registration
under the Securities Act of up to 125,000 shares of Common Stock issuable upon
exercise thereof. The holders of the shares issuable upon exercise of the IPO
Warrants may require the Company to file a registration statement under the
Securities Act with respect to such shares. In addition, if the Company
registers any of its Common Stock either for its own account or for the account
of other security holders, the holders of the shares issuable upon exercise of
the IPO Warrants are entitled to include their shares of Common Stock in the
registration.
The Representative's Warrants provide certain rights with respect to the
registration under the Securities Act of up to 68,000 shares of Common Stock
issuable upon exercise thereof at 120% of the per share price to the public. The
holders of the shares issuable upon exercise of the Representative's Warrants
may require the Company to file a registration statement under the Securities
Act with respect to such shares. In addition, if the Company registers any of
its Common Stock either for its own account or for the account of other security
holders, the holders of the shares issuable upon exercise of the
Representative's Warrants are entitled to include their shares of stock in the
registration.
40
<PAGE> 42
The Company generally is required to bear all costs incurred in connection
with any such registrations, other then underwriting discounts and commissions.
The foregoing registration rights could result in substantial future expense to
the Company and could adversely affect any future equity or debt offerings of
the Company.
CERTAIN CHARTER PROVISIONS
The Company's Articles of Incorporation provide that, to the fullest extent
permitted by California law, the Company's directors will not be liable for
monetary damages for breach of the directors' fiduciary duty of care to the
Company or its shareholders. Pursuant to this provision, the Company has entered
into indemnity agreements with each of its directors and executive officers.
This provision in the Articles of Incorporation does not eliminate the duty of
care, and in appropriate circumstances equitable remedies such as an injunction
or other forms of nonmonetary relief would remain available under California
law. Each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company, for acts or omissions involving
intentional misconduct or knowing and culpable violations of law, for acts or
omissions that a director believes to be contrary to the best interests of the
Company or its shareholders or that involve the absence of good faith on the
part of the director, for any transaction from which the director derived an
improper personal benefit, for acts or omissions involving a reckless disregard
for the director's duty to the Company or its shareholders when the director was
aware or should have been aware of a risk of serious injury to the Company or
its shareholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its shareholders, for improper transactions between the director and the
Company, for improper distributions to shareholders and loans to directors and
officers or for acts or omissions by the director acting in his or her capacity
as an officer of the Company. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The stock transfer agent, registrar and warrant agent for the Common Stock
and Warrants is U.S. Stock Transfer Corporation, Glendale, California.
41
<PAGE> 43
UNDERWRITING
The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as representative (the "Representative"), have severally agreed, subject
to the terms and conditions of the Underwriting Agreement (the form of which has
been filed as an exhibit to the Registration Statement), to purchase from the
Company the respective number of shares of Common Stock set forth opposite their
names in the table below. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters shall be obligated to purchase all of the Common Stock
offered hereby (other than the Common Stock covered by the over-allotment option
described below) if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------ ---------
<S> <C>
Cruttenden Roth Incorporated...................................... 680,000
Baird, Patrick & Co., Inc. ....................................... 40,000
Black & Company, Inc. ............................................ 40,000
Brean Murray, Foster Securities Inc. ............................. 40,000
Cleary Gull Reiland & McDevitt Inc. .............................. 40,000
Commonwealth Associates........................................... 40,000
Dabney/Resnick Inc. .............................................. 40,000
First of Michigan Corporation..................................... 40,000
Laidlaw Equities, Inc. ........................................... 40,000
McDonald & Company Securities, Inc. .............................. 40,000
Parker/Hunter Incorporated........................................ 40,000
Roney & Co. ...................................................... 40,000
Sutro & Co. Incorporated.......................................... 40,000
Wedbush Morgan Securities......................................... 40,000
--------
Total........................................................ 1,200,000
========
</TABLE>
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $0.42 per share. The Underwriters
may allow and such dealers may reallow a concession not in excess of $0.10 per
share to certain other dealers. After the public offering, the public offering
price and such concessions may be changed. The Representative has informed the
Company that the Underwriters do not intend to confirm sales to accounts over
which they exercise discretionary authority.
The offering of the shares of Common Stock is made for delivery when, as if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares.
The Company has granted an option to the Underwriters, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to an
aggregate of 180,000 additional shares of Common Stock at the public offering
price set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriters may exercise such option only for
the purpose of covering over-allotments made in connection with the sale of the
Common Stock offered hereby. To the extent that the Underwriters exercise such
option, each Underwriter may be committed, subject to certain conditions, to
purchase a number of additional shares of Common Stock proportionate to such
Underwriter's initial commitment pursuant to the Underwriting Agreement.
The Company has agreed to indemnify the Underwriters against certain
liabilities in connection with the Registration Statement, including liabilities
under the Securities Act.
The Company has agreed to pay the Representative a non-accountable expense
allowance of 1.5% of the aggregate offering price of the Common Stock offered
hereby (including any Common Stock purchased pursuant to the Underwriters'
over-allotment option), of which $10,000 has been paid to date. The
42
<PAGE> 44
Representative's expenses in excess of the nonaccountable expense allowance,
including their legal expenses, will be borne by the Representative.
The Company has also agreed to sell to the Representative for nominal
consideration the Representative's Warrants pursuant to which the Representative
may purchase up to 68,000 shares of Common Stock at a price of 120% of the
public offering price. The Representative's Warrants will be exercisable
commencing one year after the date hereof for a period of four years thereafter.
The Representative's Warrants cannot be transferred, assigned or hypothecated
for one year from the date of their issuance, except that they may be assigned,
in whole or in part, to any successor, officer or partner of the Representative
or their partners or members of the underwriting group. The Representative's
Warrants will contain certain registration rights and antidilution provisions
providing for appropriate adjustment of the exercise price and number of shares
which may be purchased upon exercise upon the occurrence of certain events.
The Company has granted the Representative the right to effect any public
or private offering of any debt or equity securities (other than bank debt or
similar financing) proposed to be undertaken by the Company or by any of its
stockholders owning at least five percent of the Common Stock. Such right of
first refusal will terminate on the earlier to occur of (i) one year following
the consummation of this offering or (ii) at such time that the Representative
declines to exercise such right when offered.
Pursuant to the Underwriting Agreement, Boyd and Diane Coddington, who will
own after this offering an aggregate of 656,942 shares of the Company's Common
Stock, are subject to lock-up arrangements for a period of twelve months from
the date of this Prospectus (but collectively may sell or otherwise dispose of
up to 15,000 shares of Common Stock per quarter after the date of this
Prospectus).
In November 1994, the Company raised $1,512,500 and converted $622,500 in
Notes in a private placement of units consisting of one share of Common Stock
and a Warrant to purchase one share of Common Stock at a price of $3.50 per
share. The Representative acted as placement agent for such private placement
and was paid an aggregate commission of $185,800. In addition, in connection
with such private placement, the Representative received Unit Placement Agent
Warrants to purchase an aggregate of 85,714 shares of Common Stock at $3.50 per
share which were converted into 35,714 shares of Common Stock effective upon the
closing of the Company's initial public offering. The Company has also granted
certain registration rights with respect to the shares of Common Stock.
In September 1995, the Company agreed to sell to the Representative and its
co-manager the IPO Warrants, pursuant to which the Representative and its
co-manager may purchase up to 125,000 shares of Common Stock at an exercise
price of $7.50 per share. The IPO Warrants, which are not transferrable (other
than to officers or partners of the Representative or its co-manager) are
exercisable commencing September 20, 1996 and for a period of four years
thereafter.
The rules of the Commission generally prohibit the Underwriters and other
members of the selling group from making a market in the Company's Common Stock
during the "cooling off" period immediately preceding the commencement of sales
in the offering. The Commission has, however, adopted an exemption from these
rules that permits passive market making under certain conditions. These rules
permit an Underwriter or other member of the selling group to continue to make a
market in the Company's Common Stock subject to the conditions, among others,
that its bid not exceed the highest bid by a market maker not connected with the
offering and that its net purchases on any one trading day not exceed prescribed
limits. Pursuant to those exemptions, certain Underwriters and other members of
the selling group intend to engage in passive market making in the Company's
Common Stock during the cooling off period.
The foregoing sets forth the material terms and conditions of the
Underwriting Agreement, but does not purport to be a complete statement of the
terms and conditions thereof, copies of which are on file at the offices of the
Representative, the Company and the Securities and Exchange Commission,
Washington, D.C. See "Additional Information."
43
<PAGE> 45
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Rutan & Tucker LLP, Costa Mesa, California.
Certain legal matters will be passed upon for the Underwriters by Stradling,
Yocca, Carlson & Rauth, a Professional Corporation, Newport Beach, California.
EXPERTS
The balance sheets as of December 31, 1994 and 1995 and the statements of
income, shareholders' equity and cash flows for the years ended December 31,
1993, 1994 and 1995 included in this Prospectus have been so included in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (herein, together with all amendments and
exhibits, referred to as the "Registration Statement") under the Securities Act
with respect to the securities being offered pursuant to this Prospectus. This
Prospectus does not contain all information set forth in the Registration
Statement and exhibits and schedules thereto, certain parts of which are omitted
in accordance with the rules and regulations of the Commission. The Registration
Statement may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 25049
and at the regional office of the Commission located at 5670 Wilshire Boulevard,
11th Floor, Los Angeles, California 90036-3648. Copies of such material can be
obtained at prescribed rates from the Public Reference Room of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549. Statements contained in this
Prospectus concerning the provisions of any documents are not necessarily
complete and in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
The Company is subject to the reporting and other informational
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company, including the Registration Statement and
exhibits thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at the offices of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, 7 World Trade Center, New York, New York 10048 and 5670
Wilshire Boulevard, Los Angeles, California 90036-3648. Copies of such materials
can also be obtained by written request to the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The Company's Common Stock is quoted on the Nasdaq National
Market (symbol: BYDS). Reports and other information concerning the Company may
be inspected at the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
44
<PAGE> 46
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets at December 31, 1994 and 1995 and at March 31, 1996 (unaudited)......... F-3
Statements of Income For the Years Ended December 31, 1993, 1994 and 1995 and for the
Three Months Ended March 31, 1995(unaudited) and for the Three Months Ended March 31,
1996 (unaudited)..................................................................... F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1993, 1994 and 1995
and for the Three Months Ended March 31, 1996 (unaudited)............................ F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for
the Three Months Ended March 31, 1995 (unaudited) and for the Three Months Ended
March 31, 1996 (unaudited)........................................................... F-6
Notes to Financial Statements.......................................................... F-8
</TABLE>
F-1
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
Boyds Wheels, Inc.
We have audited the accompanying balance sheets of Boyds Wheels, Inc. as of
December 31, 1994 and 1995, and the related statements of income, shareholders'
equity and cash flows for the years ended December 31, 1993, 1994 and 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our 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 financial statements referred to above present fairly,
in all material respects, the financial position of Boyds Wheels, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash flows
for the years ended December 31, 1993, 1994 and 1995, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Newport Beach, California
March 14, 1996
F-2
<PAGE> 48
BOYDS WHEELS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1996
DECEMBER 31, DECEMBER 31, -----------
1994 1995
------------ ------------ (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 144,595 $ 1,039,552 $ 554,606
Accounts receivable, net............................ 437,616 1,287,275 1,375,453
Inventories, net.................................... 1,540,753 3,643,512 4,667,007
Due from affiliate.................................. 100,000 100,000 100,000
Prepaids and other current assets................... 264,536 593,642 753,566
Deferred income taxes............................... 49,304 156,946 156,946
------------ ------------ -----------
Total current assets............................. 2,536,804 6,820,927 7,607,578
Due from affiliate.................................... 178,841 72,684 58,142
Property and equipment, net........................... 3,137,142 4,689,372 4,977,752
Covenants not to compete, net......................... -- 150,000 172,085
Other assets.......................................... 292,317 49,034 46,627
Deferred tax asset.................................... 180,779 -- --
------------ ------------ -----------
Total assets................................ $6,325,883 $ 11,782,017 $12,862,184
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $1,200,137 $ 2,449,674 $ 2,695,326
Accrued liabilities................................. 588,458 1,458,980 988,749
Revolving credit agreements......................... -- 289,554 550,000
Current maturities of long-term debt................ 860,366 343,413 494,932
Due to affiliate.................................... 37,752 35,769 29,170
Due to majority shareholder......................... 25,545 -- --
Income taxes payable................................ -- 130,689 203,521
------------ ------------ -----------
Total current liabilities........................ 2,712,258 4,708,079 4,961,698
Long-term debt........................................ 1,328,221 902,754 1,326,072
Other long-term liabilities........................... 223,534 79,757 72,979
Deferred income taxes................................. -- 235,179 235,179
------------ ------------ -----------
Total liabilities........................... 4,264,013 5,925,769 6,595,928
------------ ------------ -----------
Commitments and contingencies
Preferred stock, no par value; 5,000,000 shares
authorized:
Series A redeemable preferred stock, noncumulative,
$1.7688 per share liquidation value, 1,000,000
shares authorized, 706,668 shares issued and
outstanding at December 31, 1994.................... 181,371 -- --
------------ ------------ -----------
Shareholders' equity:
Common stock, no par value; 25,000,000 shares
authorized, 1,316,666, 2,484,593 and 2,489,856
shares issued and outstanding, respectively...... 1,860,457 5,957,207 6,007,207
Contributed capital................................... 826,511 826,511 826,511
Accumulated deficit................................... (806,469) (927,470) (567,462)
------------ ------------ -----------
Total shareholders' equity....................... 1,880,499 5,856,248 6,266,256
------------ ------------ -----------
Total liabilities and shareholders'
equity.................................... $6,325,883 $ 11,782,017 $12,862,184
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 49
BOYDS WHEELS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------- ------------------------
1993 1994 1995 1995 1996
------------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 10,187,984 $12,127,208 $17,796,110 $3,659,669 $5,334,074
Cost of goods sold................ 8,523,504 9,336,026 13,262,522 2,781,721 3,976,019
----------- ----------- ----------- ---------- ----------
Gross margin................. 1,664,480 2,791,182 4,533,588 877,948 1,358,055
Selling, general and
administrative expenses......... 1,230,059 1,647,793 2,741,332 464,932 714,142
----------- ----------- ----------- ---------- ----------
Income from operations....... 434,421 1,143,389 1,792,256 413,016 643,913
Interest and other expenses,
net............................. 422,798 694,931 382,859 142,392 47,873
----------- ----------- ----------- ---------- ----------
Income before provision
(benefit) for income
taxes...................... 11,623 448,458 1,409,397 270,624 596,040
Provision (benefit) for income
taxes........................... 1,600 (226,783) 461,769 111,074 236,032
----------- ----------- ----------- ---------- ----------
Net income.............. $ 10,023 $ 675,241 $ 947,628 $ 159,550 $ 360,008
=========== =========== =========== ========== ==========
Net income per common share and
common equivalent share before
accretion of Series A redeemable
preferred stock................. $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14
=========== =========== =========== ========== ==========
Accretion of Series A redeemable
preferred stock:
Net income, as above............ $ 10,023 $ 675,241 $ 947,628 $ 159,550 $ 360,008
Adjustment for accretion of
Series A redeemable preferred
stock........................ -- (180,371) (1,068,629) (313,840) --
----------- ----------- ----------- ---------- ----------
Net income (loss)
applicable to common
shareholders.......... $ 10,023 $ 494,870 $ (121,001) $ (154,290) $ 360,008
=========== =========== =========== ========== ==========
Net income per share, as above.... $ -- $ 0.40 $ 0.48 $ 0.09 $ 0.14
Adjustment for accretion of Series
A redeemable preferred stock.... -- (0.11) (0.55) (0.18) --
----------- ----------- ----------- ---------- ----------
Net income (loss) per common share
and common equivalent share..... $ -- $ 0.29 $ (0.07) $ (0.09) $ 0.14
=========== =========== =========== ========== ==========
Weighted average common shares and
common equivalent shares
outstanding..................... 1,671,000 1,701,000 1,960,000 1,697,000 2,655,000
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 50
BOYDS WHEELS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- CONTRIBUTED ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1992............ 1,413,336 $ 2,000 $ 798,225 $(1,311,362) $ (511,137)
Cash contributions....................... -- -- 142,870 -- 142,870
Noncash contributions.................... -- -- 54,017 -- 54,017
Cash distributions....................... -- -- (157,420) -- (157,420)
Noncash distributions.................... -- -- (11,181) -- (11,181)
Net income............................... -- -- -- 10,023 10,023
--------- ---------- -------- ---------- ---------
Balances at December 31, 1993............ 1,413,336 2,000 826,511 (1,301,339) (472,828)
Conversion of common stock to Series A
redeemable preferred stock.......... (706,668) (1,000) -- -- (1,000)
Issuance of common stock for cash (net
of costs of $225,695)............... 432,141 1,286,809 -- -- 1,286,809
Conversion of notes payable into common
stock (net of debt issuance costs of
$49,852)............................ 177,857 572,648 -- -- 572,648
Accretion of Series A redeemable
preferred stock..................... -- -- -- (180,371) (180,371)
Net income............................. -- -- -- 675,241 675,241
--------- ---------- -------- ---------- ---------
Balances at December 31, 1994............ 1,316,666 1,860,457 826,511 (806,469) 1,880,499
Accretion of Series A redeemable
preferred stock..................... -- -- -- (1,068,629) (1,068,629)
Issuance of common stock for cash (net
of costs of $1,417,875)............. 850,000 3,894,625 -- -- 3,894,625
Issuance of common stock upon
conversion of warrants.............. 315,927 200,000 -- -- 200,000
Issuance of common stock warrants for
cash................................ -- 125 -- -- 125
Common stock options exercised......... 2,000 2,000 -- -- 2,000
Net income............................. -- -- -- 947,628 947,628
--------- ---------- -------- ---------- ---------
Balances at December 31, 1995............ 2,484,593 5,957,207 826,511 (927,470) 5,856,248
Issuance of common stock in connection
with employment contract settlement
(unaudited)......................... 5,263 50,000 -- -- 50,000
Net income (unaudited)................. -- -- -- 360,008 360,008
--------- ---------- -------- ---------- ---------
Balances at March 31, 1996 (unaudited)... 2,489,856 $6,007,207 $ 826,511 $ (567,462) $ 6,266,256
========= ========== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 51
BOYDS WHEELS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................... $ 10,023 $ 675,241 $ 947,628 $ 159,550 $ 360,008
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation and amortization............... 403,466 533,798 581,527 125,665 185,392
Loss (gain) on disposal of property and
equipment................................. 48,982 2,413 (5,171) -- 8,160
Bad debt expense............................ 34,352 75,577 2,540 -- 20,000
Reserve for inventory obsolescence.......... -- -- -- -- 20,000
Deferred income taxes....................... -- (230,083) 308,316 111,074 --
Increase in accounts receivable............. (115,620) (94,807) (852,199) (578,522) (100,302)
(Increase) decrease in inventories.......... 288,490 (801,984) (2,051,561) (841,157) (1,011,907)
Increase in prepaids and other assets....... (226,206) (128,022) (147,468) (77,440) (157,217)
Increase (decrease) in accounts payable..... (72,366) 385,095 726,637 906,223 242,935
Increase (decrease) in accrued
liabilities............................... 190,807 67,082 568,383 (277,296) (494,671)
Increase in income taxes payable............ -- -- 130,689 -- 72,832
Increase (decrease) in other long-term
liabilities............................... 18,581 29,324 56,223 32,965 (6,778)
--------- ----------- ----------- ----------- -----------
Net cash provided (used) by operating
activities........................... 580,509 513,634 265,544 (438,938) (861,548)
--------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment............ (481,458) (493,758) (1,275,564) (178,773) (442,049)
Proceeds from the sale of property and
equipment................................... 19,824 2,000 700 -- 2,400
Deposits on leased equipment.................. -- (10,000) (20,000) -- --
Decrease (increase) in due to (from)
affiliates.................................. (261,537) 24,584 (41,024) 24,114 7,943
Payments on covenants not to compete.......... -- -- -- -- (24,585)
Cash acquired in acquisition.................. -- -- -- -- 37,693
--------- ----------- ----------- ----------- -----------
Net cash used by investing activities........... (723,171) (477,174) (1,335,888) (154,659) (418,598)
--------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Decrease in book overdraft.................... (25,155) (125,398) -- -- --
Increase (decrease) in revolving purchasing
agreement................................... 288,794 (5,024) -- -- --
Increase (decrease) in due to majority
shareholder................................. (85,300) 37,168 (25,545) (20,641) --
Borrowings on revolving line of credit........ -- -- 862,105 550,000 550,000
Payments on revolving line of credit.......... -- -- (862,105) -- --
Proceeds from issuance of long-term debt...... 850,000 -- 1,192,686 1,111,782 332,407
Principal repayments of long-term debt........ (871,127) (1,085,420) (2,183,609) (1,187,347) (87,207)
Proceeds from sale of common stock............ -- 1,512,504 5,312,500 -- --
Cost of equity issuances...................... -- (225,695) (1,083,156) -- --
Proceeds from issuance of common stock
warrants.................................... -- -- 125 -- --
Proceeds from exercise of common stock
options..................................... -- -- 2,000 -- --
Redemption of Series A redeemable preferred
stock....................................... -- -- (1,250,000) -- --
Cash contributions............................ 142,870 -- -- -- --
Cash distributions............................ (157,420) -- -- -- --
--------- ----------- ----------- ----------- -----------
Net cash provided by financing activities... 142,662 108,135 1,965,301 453,794 795,200
--------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................. -- 144,595 894,957 (139,803) (484,946)
Cash and cash equivalents at beginning of
period........................................ -- -- 144,595 144,595 1,039,552
--------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period...... $ -- $ 144,595 $ 1,039,552 $ 4,792 $ 554,606
========= =========== =========== =========== ===========
</TABLE>
F-6
<PAGE> 52
BOYDS WHEELS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------------- --------------------------
1993 1994 1995 1995 1996
------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the year for:
Income taxes.................................. $ 4,954 $ 800 $ 1,600 $ 800 $ 163,200
========= =========== =========== =========== ===========
Interest...................................... $ 341,307 $ 686,432 $ 372,492 $ 47,998 $ 142,956
========= =========== =========== =========== ===========
Supplemental schedule of noncash investing and
financing activities:
Equipment leases capitalized.................. $ 390,343 $ 169,471 $ 77,578 $ 53,875 $ 40,084
Equipment financed with a contract payable.... -- 88,463 372,900 -- --
Equipment financed with long-term debt........ -- 13,521 -- -- --
Equipment financed with equipment line of
credit...................................... -- -- 289,554 -- --
Interest capitalized to construction in
progress.................................... -- -- 15,000 -- --
Accounts payable paid by the majority
shareholder on behalf of the Company........ 76,347 74,298 -- -- --
Revolving purchasing agreement converted to
long-term debt.............................. -- 979,641 -- -- --
Collections on accounts receivable retained by
the majority shareholder.................... 10,949 -- -- -- --
Cash proceeds from sale of fixed assets
retained by the majority shareholder........ 10,176 40,000 -- -- --
Borrowings on revolving line of credit
converted to long-term debt................. 250,000 -- -- -- --
Noncash reductions of due from affiliate...... -- 99,219 145,198 30,605 14,542
Exchange of common stock for Series A
redeemable preferred stock.................. -- 1,000 -- -- --
Accretion of Series A redeemable preferred
stock....................................... -- 180,371 1,068,629 313,840 --
Conversion of notes payable into common
stock....................................... -- 622,500 -- -- --
Costs of 1995 equity issuances not paid in
1995........................................ -- -- 128,939 -- --
Debt issuance costs of notes payable converted
into common stock........................... -- 49,852 -- -- --
Costs of 1995 equity issuances deferred in
1994........................................ -- 205,780 -- --
Deposits on leased equipment made by majority
shareholder on behalf of the Company........ -- 71,929 -- -- --
Common stock warrants converted to common
stock....................................... -- -- 200,000 -- --
Prior year deposits transferred to fixed
assets...................................... -- -- 70,690 -- --
Covenant not to compete liability included in
accounts payable (Note 18).................. -- -- 150,000 -- --
Cancellation of note payable to former
employee (Note 18).......................... -- -- 29,375 -- --
Common stock issued in settlement of
employment contract (Note 18)............... -- -- -- -- 50,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 53
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Boyds Wheels, Inc. (the "Company") was incorporated in California in May
1988. The Company designs, manufactures and markets high quality aluminum wheels
for the specialty automotive aftermarket. In addition to its premium aluminum
wheels, the Company designs, manufactures and markets motorcycle wheels,
steering wheels for automobiles, automotive and motorcycle billet aluminum
accessories and also sells car care products under its own label. The Company's
products utilize machined aluminum materials and unique designs which the
Company believes enhance individuality of vehicle styling. The Company sells its
products domestically through a national distribution network of tire and
performance retailers, warehouse distributors and mail order outlets, and
internationally through foreign distribution channels.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash And Cash Equivalents
Cash and cash equivalents include cash and highly liquid investments with
acquired maturities of three months or less. Cash and cash equivalents are
carried at cost, which approximates market.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
Property And Equipment
Property and equipment is stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the respective assets,
ranging generally from 5 to 10 years. Capital leases are recorded at the lower
of the fair market value of the leased assets or the present value of the future
minimum lease payments. The leased assets are depreciated on a straight-line
basis over their economic useful lives.
Upon sale or disposition of assets, any gain or loss is included in the
statement of income.
Normal repairs and maintenance are expensed as incurred whereas significant
improvements which materially increase values or extend useful lives are
capitalized and depreciated over the estimated useful lives of the related
assets.
Covenants Not To Compete
The covenants not to compete are stated at cost and will be amortized using
the straight-line basis over the five-year lives of the agreements (Note 18).
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and the tax bases of assets and
liabilities using enacted rates in effect for the years in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized. The
provision for income taxes represents the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
Stock Options
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." SFAS No. 123 defines a fair
value based method of accounting for an employee
F-8
<PAGE> 54
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
stock option. Fair value of the stock option is determined considering factors
such as the exercise price, the expected life of the option, the current price
of the underlying stock and its volatility, expected dividends on the stock, and
the risk-free interest rate for the expected term of the option. Under the fair
value based method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the service period.
A company may elect to adopt SFAS No. 123 or elect to continue accounting
for its stock option or similar equity awards using the intrinsic method, where
compensation cost is measured at the date of grant based on the excess of the
market value of the underlying stock over the exercise price. If a company
elects not to adopt SFAS No. 123, then it must provide pro forma disclosure of
net income and earnings per share, as if the fair value based method had been
applied.
SFAS No. 123 is effective for transactions entered into for fiscal years
that begin after December 15, 1995. Pro forma disclosures for entities that
elect to continue to measure compensation cost under the old method must include
the effects of all awards granted in fiscal years that begin after December 15,
1994. It is currently anticipated that the Company will continue to account for
stock-based compensation plans under the intrinsic method and the impact of SFAS
No. 123 has not yet been determined.
Revenue Recognition
Sales and related costs of goods sold are recognized when goods are shipped
to customers. Provisions are recorded for estimated sales returns and
allowances.
Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Data
The interim financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for the fair statement of the results for the
interim periods.
3. INITIAL PUBLIC OFFERING
In September 1995, the Company completed an initial public offering (the
"Offering") of 850,000 shares of its common stock at $6.25 per share (the
"Offering Price") for proceeds, net of offering expenses of $1,417,875, of
$3,894,625. Of such amount, $1,250,000 was used to redeem all of the outstanding
shares of the Company's Series A redeemable preferred stock (Note 11), $580,000
was used to repay outstanding indebtedness (Note 7) and approximately $862,000
was used to repay amounts outstanding under the revolving line of credit (Note
8). In addition, the following events occurred concurrent with the closing of
the Offering: (a) 681,427 warrants were converted into 283,927 shares of the
Company's common stock (Note 10); (b) $200,000 of warrants were converted to
32,000 shares of the Company's common stock (Note 7); and (c) stock options were
exercised for 2,000 shares of the Company's common stock (Note 10).
In September 1995, the underwriters of the Offering exercised their option
to purchase warrants to acquire 125,000 shares of common stock for cash proceeds
of $125 (Note 10).
F-9
<PAGE> 55
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. ACCOUNTS RECEIVABLE
In 1994, the Company had a factoring agreement on a full recourse basis.
The Company's obligations to the factor were collateralized by all of the
Company's assets and were personally guaranteed by the majority shareholder. As
of December 31, 1994, the Company had assigned a total of $6,317,602 in gross
accounts receivable to the factor and had received a total of $6,223,983 in cash
against those receivables, which resulted in an amount due from the factor of
$93,619. In March 1995, the Company terminated the factoring agreement and as a
result all outstanding uncollected invoices were repurchased and all asset liens
and personal guarantees were released.
The allowance for doubtful accounts was $73,893, $3,630 and $23,630 as of
December 31, 1994 and 1995, and March 31, 1996, respectively.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................... $ 410,410 $ 921,819 $ 821,642
Work in process.................................. 624,460 1,805,882 3,043,871
Finished goods................................... 505,883 915,811 801,494
--------- ---------- -----------
$1,540,753 $3,643,512 $ 4,667,007
========= ========== ===========
</TABLE>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment......................... $ 4,390,410 $ 5,573,267 $ 5,792,407
Office equipment................................ 132,640 262,893 284,980
Leasehold improvements.......................... 96,341 550,432 636,847
Vehicles........................................ 138,957 133,198 133,198
Construction in progress........................ -- 313,872 447,266
----------- ----------- -----------
4,758,348 6,833,662 7,294,698
Less, accumulated depreciation and
amortization............................... (1,621,206) (2,144,290) (2,316,946)
----------- ----------- -----------
$ 3,137,142 $ 4,689,372 $ 4,977,752
=========== =========== ===========
</TABLE>
Machinery and equipment under capital leases at December 31, 1994 and 1995
were $2,982,726 and $3,227,235, respectively, with accumulated amortization of
$1,204,665 and $1,544,661, respectively. Construction in progress at December
31, 1995 includes approximately $15,000 of capitalized interest.
F-10
<PAGE> 56
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REVOLVING PURCHASE AGREEMENT
In prior years, the Company had a revolving purchase agreement with a major
vendor. Under this agreement, the Company could purchase up to $1,000,000 of
rims at the prevailing market price. Interest accrued on outstanding balances
greater than 60 days at the rate of one percent per month and was payable
monthly.
On December 30, 1994, the Company restructured the then outstanding balance
under this agreement into a note payable of $979,641 and made an immediate
payment of $200,000. Interest accrued on the outstanding balance at a rate of
one percent per month and was paid monthly. In August 1995, a principal payment
of $200,000 was made. With the proceeds from the Offering, all remaining amounts
outstanding under this agreement, approximately $580,000, were paid in full.
In May 1992 and as amended in March 1993, the Company issued to the vendor
a warrant to purchase, at a price of $.01 per share, shares of the Company's
common stock with an aggregate fair market value of $200,000 to be determined at
the time of exercise. Concurrent with the Offering, the warrant was converted
into 32,000 shares of the Company's common stock.
8. REVOLVING CREDIT AGREEMENTS
Revolving Line Of Credit
At December 31, 1995, the Company had no outstanding balance due under a
revolving line of credit agreement with a bank. During the year ended December
31, 1995, the Company drew advances of, and repaid amounts owed on,
approximately $862,000 on the revolving line of credit.
The revolving line of credit agreement provides for maximum borrowings of
up to $2,000,000, or 80% of eligible accounts receivable plus 40% of eligible
inventory, as defined, and bears interest at 1.0% over the Wall Street Journal's
published prime rate (an effective rate of 9.75% at December 31, 1995), and
expires on May 1, 1996, unless renewed.
Unaudited: At March 31, 1996, the Company had $550,000 outstanding under
the revolving line of credit. On April 19, 1996, the Company renewed its
revolving line of credit on the same terms as described above, with maximum
borrowings increased to $2,500,000.
Equipment Line Of Credit
At December 31, 1995, the Company had $289,554 outstanding under an
equipment line of credit agreement with a bank.
The equipment line of credit agreement provides for maximum borrowings of
up to $750,000 and bears interest at 1.75% over the Wall Street Journal's
published prime rate (an effective rate of 10.5% at December 31, 1995). The
equipment line of credit expires on May 1, 1996 and it contains a provision to
refinance all then outstanding amounts over a 60-month period, under certain
conditions.
The above credit agreements are collateralized by substantially all the
assets of the Company and require the Company to maintain certain financial
ratios.
Unaudited: At March 31, 1996, the Company had $599,874 outstanding under
the equipment line of credit. On April 19, 1996, the Company refinanced the then
outstanding balance on the equipment line of credit of $599,874 into a 60-month
term loan, payable in equal monthly installments bearing interest at 1.75% over
the Wall Street Journal's published prime rate (an effective rate of 10.0% at
April 19, 1996). Such terms have been reflected in the accompanying March 31,
1996 balance sheet. Also on April 19, 1996, the Company renewed its equipment
line of credit and increased the maximum borrowings to $1,000,000. This renewed
equipment line of credit bears interest at 1.5% over the Wall Street Journal's
published prime rate (an effective rate of 9.75% at April 19, 1996).
F-11
<PAGE> 57
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1994 1995 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Convertible notes payable, unsecured, remaining
balance due June 30, 1996, and otherwise
convertible into the Company's common stock at
the rate of one share per $3.50 of unpaid
principal, interest payable semiannually at
9.0%............................................. $ 25,000 $ 25,000 $ 25,000
Note payable to the City of Stanton, unsecured,
balance due April 25, 2000, interest at 9.5% per
annum............................................ -- 43,539 33,482
Note payable to a former employee, unsecured,
settled in 1995 (Note 18)........................ 29,375 -- --
Note payable to a vendor, all amounts were paid
during 1995 (Note 7)............................. 779,641 -- --
Notes payable with a finance company with various
maturity dates ranging from December 1997 to
February 1999, collateralized by automobiles,
principal and interest due in monthly
installments ranging from $221 to $483 at
interest rates ranging from 4.8% to 8.9% per
annum............................................ 11,835 31,385 24,278
Term loan with a bank, collateralized by equipment,
payable in equal monthly installments through
April 19, 2001, bearing interest at 1.75% over
the Wall Street Journal's published prime rate
(an effective rate of 10.0% at April 19, 1996)... -- -- 599,874
Capital lease obligations for equipment, due in
monthly installments ranging from $191 to $29,854
through January 1999 at interest rates ranging
from 10.5% to 15.0% per annum.................... 1,342,736 1,146,243 1,138,370
---------- ---------- ----------
2,188,587 1,246,167 1,821,004
Less, current maturities........................... (860,366) (343,413) (494,932)
---------- ---------- ----------
$1,328,221 $ 902,754 $ 1,326,072
========== ========== ==========
</TABLE>
The future principal payments at December 31, 1995 on long-term debt are
scheduled as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
- ---------------------------------------------------------------
<S> <C>
1996......................................................... $ 343,413
1997......................................................... 309,411
1998......................................................... 530,242
1999......................................................... 18,556
2000......................................................... 44,545
----------
$1,246,167
==========
</TABLE>
10. COMMON STOCK AND COMMON STOCK WARRANTS
In October 1994, the Company's Board of Directors declared a 1-for-1.4151
reverse stock split on the then outstanding common stock and preferred stock.
All share and per share amounts have been adjusted to give retroactive effect to
the common and preferred shares outstanding resulting from the reverse stock
split.
F-12
<PAGE> 58
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In November 1994, the Company issued 432,141 units for cash of $3.50 per
unit in a private offering. Net proceeds from this private offering were
$1,286,809. The Company also converted $622,500 ($572,648, net of original debt
issue costs) of its convertible notes payable into 177,857 units.
Each of the 609,998 units issued above included one share of common stock
and one warrant to purchase one share of the Company's common stock at the
lesser of $3.50 or 58 1/3% of the share price in the event of an initial public
offering of the Company's common stock. Concurrent with the Offering, 595,713 of
the above-mentioned warrants were converted into 248,213 shares of the Company's
common stock. The remaining 14,285 warrants are exercisable at their original
terms through November 1997. Unaudited: In May 1996, 10,714 warrants were
exercised for cash proceeds of $37,499.
In November 1994, the Company issued warrants to the underwriter of the
private stock offering to purchase up to 85,714 shares of the Company's common
stock at the lesser of $3.50 or 58 1/3% of the share price in the event of an
initial public offering of the Company's common stock. Concurrent with the
Offering, all 85,714 warrants were converted into 35,714 shares of the Company's
common stock.
In May 1993, the Company issued its then President an option to purchase up
to 71,429 shares of the Company's common stock at an exercise price of $1.00 per
share. The option expires in December 1999. Concurrent with the Offering,
options to acquire 2,000 shares of common stock were exercised for cash proceeds
of $2,000. Unaudited: In May 1996, options to acquire 35,000 shares of common
stock were exercised for cash proceeds of $35,000.
In 1993, the Company issued warrants to an unrelated party to purchase up
to 9,328 shares of the Company's common stock at an exercise price of $4.25 per
share. The warrants expire in September 1999. No warrants have been exercised
through December 31, 1995.
In September 1995, concurrent with the Offering, the Company granted
warrants to the underwriters of the Offering to purchase up to 125,000 shares of
the Company's common stock for $.001 per warrant. These warrants are exercisable
at 120% of the Company's Offering Price for a period of four years beginning one
year from the Offering. In September 1995, the underwriters purchased these
warrants for cash proceeds of $125.
11. REDEEMABLE PREFERRED STOCK
In October 1994, the Company authorized 1,000,000 shares of Series A
redeemable preferred stock (the "Redeemable Preferred Stock") from its initial
authorization of 5,000,000 shares of preferred stock. Holders of the Redeemable
Preferred Stock were entitled to receive noncumulative dividends at the
Company's discretion. No dividends were declared or paid through December 31,
1995. The holders of the Redeemable Preferred Stock had the right to cast one
vote per share.
In October 1994, the Company issued 706,668 shares of Redeemable Preferred
Stock to a related party in exchange for 706,668 shares of common stock. The
difference between the consideration paid and the redemption price was accreted
by a charge to the accumulated deficit. With the proceeds from the Offering, the
Company redeemed all of the Redeemable Preferred Stock for cash of $1,250,000.
The Company also issued a warrant to purchase up to 10,000 shares of the
Company's common stock at the Offering Price to the holder of the Redeemable
Preferred Stock. This warrant expires on November 3, 1996 and has not been
exercised through December 31, 1995.
F-13
<PAGE> 59
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTION PLAN
Under the Company's 1995 Stock Option Plan (the "Plan"), the Company may
grant nonqualified and incentive stock options to officers, directors,
employees, and consultants up to a maximum of 250,000 shares of the Company's
common stock. The exercise price of incentive stock options must equal at least
the fair market value of the common stock on the date of grant. The term of any
option may not exceed ten years from the date of grant. A summary of the shares
under option is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
NONQUALIFIED PER SHARE
------------ ---------------
<S> <C> <C>
Year ended December 31, 1995:
Granted................................................ 247,500 $6.25 to $7.25
Exercised.............................................. --
Canceled............................................... --
-------
Balance at December 31, 1995............................. 247,500 $6.25 to $7.25
Granted (unaudited).................................... --
Exercised (unaudited).................................. --
Canceled (unaudited)................................... --
-------
Balance at March 31, 1996 (unaudited).................... 247,500 $6.25 to $7.25
=======
Exercisable at March 31, 1996 (unaudited)................ 188,500 $6.25 to $7.25
=======
</TABLE>
In addition to the above, the Company issued 1,000 options outside the Plan
of which 333 options have vested and are exercisable at a price of $7.00 per
share and 667 options have been canceled as of December 31, 1995.
Unaudited: In May 1996, options to acquire 30,000 shares of common stock
were exchanged for 12,558 shares of common stock.
13. INCOME TAXES
The provision (benefit) for federal and state income taxes consists of the
following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
------ --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal........................ $ -- $ 2,500 $125,115 $ 30,101 $145,706
State.......................... 1,600 800 28,338 6,776 10,054
------ --------- -------- -------- --------
1,600 3,300 153,453 36,877 155,760
------ --------- -------- -------- --------
Deferred:
Federal........................ -- (236,623) 351,345 84,527 41,898
State.......................... -- 6,540 (43,029) (10,330) 38,374
------ --------- -------- -------- --------
-- (230,083) 308,316 74,197 80,272
------ --------- -------- -------- --------
Total.................. $1,600 $(226,783) $461,769 $111,074 $236,032
====== ========= ======== ======== ========
</TABLE>
F-14
<PAGE> 60
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The tax effects of the temporary differences that give rise to the deferred
tax provision (benefit) consist of the following:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
FOR THE YEARS ENDED MARCH
DECEMBER 31, 31,
---------------------------------- --------
1993 1994 1995 1996
-------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accrued liabilities..................... $ (6,552) $ (4,648) $ (11,728) $ (1,663)
Bad debts............................... 3,199 (26,892) 30,424 (9,272)
Net operating loss carryforward......... (72,333) (43,095) 374,051 36,412
Property and equipment.................. 92,031 126,555 96,032 55,843
State income taxes...................... -- 272 3,041 (20,655)
Income tax credits...................... -- 8,851 (164,938) 19,607
Change in valuation allowance........... (16,345) (291,126) -- --
Other................................... -- -- (18,566) --
-------- --------- --------- --------
$ -- $(230,083) $ 308,316 $ 80,272
======== ========= ========= ========
</TABLE>
The provision (benefit) for income taxes differs from the amount that would
result from applying the federal statutory rate as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------------- ----------
1993 1994 1995 1996
----- ----- ----- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal statutory income tax rate................ 34.0% 34.0% 34.0% 34.0%
State income taxes, net of federal benefit....... 9.1 1.6 6.0 7.1
State manufacturer's investment tax credit, net
of federal benefit............................. -- -- (6.7) (1.7)
Change in valuation allowance.................... (51.1) (90.1) -- --
Other............................................ 21.8 3.9 (.5) .2
----- ----- ---- ----
13.8% (50.6)% 32.8% 39.6%
===== ===== ==== ====
</TABLE>
The components of the deferred tax asset and (liability) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1994 1995
--------- ---------
<S> <C> <C>
Accrued liabilities.......................................... $ 17,036 $ 28,764
Bad debts.................................................... 31,996 1,572
Net operating loss carryforward.............................. 476,030 101,979
Property and equipment....................................... (295,251) (391,283)
State income taxes........................................... -- (2,769)
Income tax credits........................................... -- 164,938
Other........................................................ 272 18,566
--------- ---------
$ 230,083 $ (78,233)
========= =========
</TABLE>
Unaudited: no material changes in the deferred tax balances occurred during
the three months ended March 31, 1996.
The Company did not record a valuation allowance against the deferred
income tax assets at December 31, 1994 or 1995. At December 31, 1995, the
Company had net operating loss carryforwards for federal income tax reporting
purposes of approximately $300,000 which begin expiring in 2007. The utilization
of net operating loss carryforwards may be limited under the provisions of
Internal Revenue Code Section 382.
F-15
<PAGE> 61
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES
Leases
The Company has many noncancellable capital leases with lease terms ranging
from two to five years. The majority of the equipment leases have bargain
purchase options at the end of the lease term.
The Company leases its facilities under noncancellable operating leases.
Under these lease agreements, the Company is required to pay for insurance,
taxes, utilities and building maintenance and is subject to certain consumer
price index adjustments. The facilities leases are personally guaranteed by the
majority shareholder.
Future minimum lease payments at December 31, 1995 under capital leases and
noncancellable operating leases with remaining lease terms in excess of one year
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------------------------------------------------------ ---------- ----------
<S> <C> <C>
1996...................................................... $ 447,166 $ 709,483
1997...................................................... 398,913 591,307
1998...................................................... 574,113 501,030
1999...................................................... 19,219 436,129
2000...................................................... 1,655 392,715
Thereafter................................................ -- 313,105
---------- ----------
1,441,066 $2,943,769
==========
Less, amount representing interest........................ (294,823)
----------
$1,146,243
==========
</TABLE>
Rent expense for the years ended December 31, 1994 and 1995 was $511,326
and $437,909, respectively.
Employment Agreement
The Company has entered into an employment agreement with its Chairman and
Chief Executive Officer which provides for a minimum annual salary of $160,000
and benefits and expires on December 31, 1999. In the event of disability, as
defined, the executive is entitled to twelve months base salary in addition to
earned base salary and benefits through the date of disability.
In the event of termination of the executive without cause, the Company is
liable for the remaining unpaid annual salary under the full terms of the
agreement plus a severance payment equal to 10% of the annual salary each year.
Litigation
The Company is involved in various legal matters resulting from the normal
course of business. Such legal matters, when ultimately determined, will not, in
the opinion of the management, have a material effect on the financial position
or the results of operations of the Company.
15. RELATED PARTIES
The majority shareholder of the Company is also the majority shareholder of
two other entities. The balance due to affiliate included as a current liability
in the December 31, 1995 balance sheet represents equipment lease payments due
to the affiliate.
F-16
<PAGE> 62
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
On March 20, 1995, the Company entered into an agreement with one of the
affiliates whereby the affiliate is required to make minimum net reductions of
$25,000 each quarter until the outstanding balance has been paid in full. The
outstanding balance due from this affiliate as of December 31, 1995 was $172,684
and the affiliate has complied with the quarterly reduction requirement.
Accordingly, the outstanding amounts due from this affiliate have been
classified as an asset on the accompanying balance sheet.
The Company has entered into an option agreement with the majority
shareholder pursuant to which the Company currently has the option to purchase
all of the outstanding common stock of Hot Rods by Boyd, an affiliate of the
Company, for up to $750,000, payable in shares of the Company's common stock,
valued at its then fair market value. This option is exercisable by the Company
commencing after delivery to it of audited financial statements of Hot Rods by
Boyd for the years ending December 31, 1995 and 1996, but in no event after
September 30, 1997, unless extended pursuant to the terms of the option
agreement. Until the option is exercised, any transactions between the Company
and Hot Rods by Boyd will be reviewed and approved by the outside board members
of the Company.
16. NET INCOME PER COMMON SHARE
Net income per share is based on the reported net income, with such
reported net income reduced for the accretion of the Redeemable Preferred Stock.
The resulting amount is presented below as income applicable to common
shareholders.
Such income applicable to common shareholders in each period is divided by
the weighted average number of outstanding common shares and common equivalent
shares in accordance with Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 83. The SAB requires that common stock issued by the
Company in the twelve months immediately preceding an initial public offering
plus the number of common equivalent shares which became issuable during the
same period pursuant to the issuance of common stock options and warrants (using
the modified treasury stock method) at prices substantially less than the
Offering Price be included in the calculation of common stock and common stock
equivalents as if they were outstanding for all periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------- ---------------------------------
1993 1994 1995 1995 1996
--------------- --------------- ---------------- --------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income and net income per
share, before accretion of
Redeemable Preferred Stock...... $ 10 $ -- $ 675 $ 0.40 $ 948 $ 0.48 $ 160 $ 0.09 $ 360 $0.14
Adjustment for accretion of
Redeemable Preferred
Stock........................... -- -- (180) (0.11) (1,069) (0.55) (314) (0.18) -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ -----
Net income (loss) applicable to
common shareholders and net
income per share................ $ 10 -- $ 495 $ 0.29 $ (121) $(0.07) $ (154) $(0.09) $ 360 $0.14
====== ====== ====== ====== ====== ====== ====== ====== ====== =====
Weighted average number of:
Common shares..................... 1,317 1,317 1,886 1,634 2,490
Common equivalent shares.......... 354 384 74 63 165
------ ------ ------ ------ ------
Weighted average common shares and
common equivalent shares........ 1,671 1,701 1,960 1,697 2,655
====== ====== ====== ====== ======
</TABLE>
Primary and fully diluted per share amounts do not differ.
F-17
<PAGE> 63
BOYDS WHEELS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
17. CONCENTRATION OF CREDIT RISK
The Company has cash and cash equivalent deposits of $1,013,187 at an
investment firm at December 31, 1995 which are exposed to credit loss in the
event of nonperformance; however, the Company does not anticipate
nonperformance.
The Company's customers are concentrated in the specialty automotive
aftermarket industry. The Company's ten largest customers accounted for
approximately 60.0%, 84.6%, and 82.4% of net sales during 1993, 1994 and 1995,
respectively. The Company's five largest customers comprised 51.0% and 55.0% of
gross accounts receivable at December 31, 1994 and 1995, respectively. In 1993,
1994 and 1995, the Company derived approximately 11.1%, 26.3% and 39.3%,
respectively, of its net sales from international markets, substantially all of
which were in Japan. The Company reviews a customer's credit history before
extending unsecured credit. The Company establishes allowances for doubtful
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information. To reduce credit risk, the Company
generally requires a down payment on large orders. The accounting loss, should a
customer be unable to meet its obligation to the Company, would be equal to the
recorded account receivable.
18. SUBSEQUENT EVENTS
In February 1996, the Company entered into an agreement under which an
employee of the Company was released from his duties under an employment
contract. Under the agreement, the Company paid to this employee total
consideration of $275,000 consisting of $150,000 in consideration for a
five-year covenant not to compete and $125,000 for other compensation. Of such
consideration, $225,000 was paid in cash and the remaining $50,000 was paid in
shares of the Company's common stock. All other amounts due to/from the Company
and the employee pursuant to the employment contract were canceled. The above
transactions have been recognized in the December 31, 1995 financial statements.
Unaudited: in February 1996, the Company also finalized an Agreement for
the Purchase and Sale of Assets of Velocity Distribution Inc. (the "Velocity
Agreement"). Under the Velocity Agreement, the Company assumed the assets and
liabilities of Velocity Distribution Inc. and entered into a five-year covenant
not to compete with a former employee of Velocity Distribution Inc. for a total
amount of approximately $25,000.
F-18
<PAGE> 64
[PHOTOS]
<PAGE> 65
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 10
Price Range for Common Stock and
Dividend Policy..................... 11
Dilution.............................. 11
Capitalization........................ 12
Selected Financial Data............... 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 20
Management............................ 29
Certain Transactions.................. 34
Principal and Selling Shareholders.... 36
Description of Capital Stock.......... 38
Underwriting.......................... 42
Legal Matters......................... 43
Experts............................... 43
Additional Information................ 43
Index to Financial Statements......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
1,200,000 SHARES
LOGO
BOYDS WHEELS, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
JUNE 11, 1996
CRUTTENDEN ROTH
INCORPORATED
------------------------------------------------------
------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Underwriting Agreement (Exhibit 1 hereto) provides for indemnification
by the Underwriters of the Registrant and its officers and directors and by the
Registrant of the Underwriters for certain liabilities arising under the
Securities Act or otherwise.
The Registrant's Amended and Restated Articles of Incorporation ("Articles
of Incorporation") provide that, to the fullest extent permitted by California
law, the Registrant's directors will not be liable for monetary damages for
breach of the directors' fiduciary duty of care to the Registrant or its
shareholders. This provision in the Articles of Incorporation does not eliminate
the duty of care and in appropriate circumstances equitable remedies such as an
injunction or other forms of nonmonetary relief would remain available under
California law. Each director will continue to be subject to liability for
breach of the director's duty of loyalty to the Registrant, for acts or
omissions involving intentional misconduct or knowing and culpable violations of
law, for acts or omissions that a director believes to be contrary to the best
interests of the Registrant or its shareholders or that involve the absence of
good faith on the part of the director, for any transaction from which the
director derived an improper personal benefit, for acts or omissions involving a
reckless disregard for the director's duty to the Registrant or its shareholders
when the director was aware or should have been aware of a risk of serious
injury to the Registrant or its shareholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the Registrant or its shareholders, for improper
transactions between the director and the Registrant, for improper distributions
to shareholders and loans to directors and officers or for acts or omissions by
the director in his or her capacity as an officer of the Registrant.
The inclusion of the above provision in the Articles of Incorporation may
have the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from bringing a
lawsuit against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Registrant and its
shareholders. At present, there is no litigation or proceeding pending involving
a director of the Registrant as to which indemnification is being sought, nor is
the Registrant aware of any threatened litigation that may result in claims for
indemnification by any director.
The Registrant's Articles of Incorporation authorizes the Registrant to
indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law. The Registrant entered into indemnification
agreements with certain of its directors and officers that require the
Registrant to indemnify such directors and officers to the fullest extent
permitted by law. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
II-1
<PAGE> 67
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee....................... $ 5,671
NASD Filing Fee........................................................... 2,145
Nasdaq Filing Fee......................................................... 17,500*
Underwriter's Nonaccountable Expense Allowance............................ 203,000*
Printing Expenses......................................................... 60,000*
Legal Fees and Expenses................................................... 50,000*
Accounting Fees and Expenses.............................................. 30,000*
Blue Sky Filing Fees and Expenses......................................... 10,000*
Warrant Agent, Transfer Agent and Registrar Fees.......................... 10,000*
Miscellaneous............................................................. 41,684*
--------
TOTAL........................................................... $430,000*
========
</TABLE>
- ---------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since May 17, 1993, the Registrant has sold and issued the following
unregistered securities:
1. In May 1993, the Company granted to Brad Fanshaw, the former President
and former director of the Company, options to purchase 71,429 shares of Common
Stock at an exercise price of $1.00 per share, the fair market value of the
Company's Common Stock as of the date of grant, as determined by the Board of
Directors of the Company. In September 1995 Mr. Fanshaw exercised options to
purchase 2,000 shares of the Registrant's Common Stock for cash. In May 1996,
Mr. Fanshaw exercised options to purchase 35,000 shares of the Registrant's
Common Stock for cash. The above issuances were deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and/or Rule 701 promulgated under the Securities Act.
2. In September 1993, the Registrant privately sold for cash $660,000
principal amount of 9% Convertible Promissory Notes due June 30, 1996 (the
"Notes") to certain accredited or sophisticated investors. The sale of the Notes
was deemed to be exempt from registration under the Securities Act by virtue of
Rule 504 promulgated under Section 3(b) of the Securities Act.
3. In connection with the September 1993 private placement of Notes, the
Registrant issued to officers of the placement agent, in consideration for their
efforts in the private placement, warrants to purchase (the "Note Placement
Agent Warrants") an aggregate of 9,328 shares of Common Stock, at a price of
$4.25 per share. The Note Placement Agent Warrants are currently exercisable and
expire in September 1999. The issuance of the Note Placement Agent Warrants was
deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act.
4. In November 1994, the Board of Directors of the Registrant issued
706,668 shares of Series A Redeemable Preferred Stock to Karl Kantarjian in
exchange for 706,668 shares of Common Stock issued to Mr. Kantarjian in 1988. In
consideration for exchanging his shares of Common Stock for Series A Redeemable
Preferred Stock, Mr. Kantarjian received a warrant (the "Kantarjian Warrant") to
purchase 10,000 shares of Common Stock at $6.25 per share. The Kantarjian
Warrant is currently exercisable and expires on November 3, 1996. The issuance
of Series A Redeemable Preferred Stock and the Kantarjian Warrant were deemed to
be exempt from registration under the Securities Act by virtue of Section 4(2)
of the Securities Act.
5. In November 1994, the Registrant sold to certain accredited or
sophisticated investors 609,998 "Units," each Unit consisting of one share of
the Registrant's Common Stock and one warrant to purchase one share of the
Registrant's Common Stock. Of the total Units issued, 177,857 were issued upon
conversion of $622,500 in principal amount of Notes. The Registrant received
cash for the remainder of the Units issued. Holders of 595,713 warrants
converted such warrants into 248,213 shares of the Registrant's Common Stock
II-2
<PAGE> 68
effective upon the closing of the Registrant's initial public offering
(September 20, 1995). Holders of the remaining warrants exercised such warrants
to purchase 14,285 shares of the Registrant's Common Stock for cash in May and
June 1996. The above issuances were deemed to be exempt from registration under
the Securities Act by virtue of Rule 506 promulgated thereunder.
6. In connection with the 1994 Private Placement, the Registrant issued to
officers of the placement agent warrants to purchase an aggregate of 85,714
shares of Common Stock, which effective as of the closing of the Registrant's
initial public offering, were converted into 35,714 shares of Common Stock at a
price equal to $3.50 per share. The issuance of the Unit Placement Agent
Warrants was deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) of the Securities Act.
7. In September 1995, the Registrant granted options to purchase 207,500
shares of Common Stock at an exercise price of $6.25 per share, in November
1995, the Registrant granted options to purchase 40,000 shares of Common Stock
at an exercise price of $7.25 per share and in April 1996 the Registrant granted
options to purchase 5,000 shares of Common Stock at an exercise price of $6.25
per share to certain key officers and employees. In addition, options to
purchase 3,000 shares of the Registrant's Common Stock were granted to each of
the Registrant's Non-Employee Directors under the provisions of the Registrant's
1995 Stock Option Plan. In May 1996, 30,000 options issued under the 1995 Stock
Option Plan were exercised in a cashless exchange to receive a net issuance of
12,558 shares of the Registrants' Common Stock. The grant of all such options
was deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) of the Securities Act and/or Rule 701 promulgated under the
Securities Act.
8. In connection with the departure of an employee of Registrant, in
February 1996, the Registrant issued 5,263 shares of the Registrant's Common
Stock. The issuance of this common stock was deemed to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------------------------------------------------------------------------
<S> <C> <C>
1.1+ -- Form of Underwriting Agreement by and among the Registrant, certain Selling
Shareholders of the Registrant and Cruttenden Roth Incorporated.
3.1** -- Articles of Incorporation as filed with the California Secretary of State on
April 27, 1988.
3.2** -- Amended and Restated Articles of Incorporation filed with the California
Secretary of State on December 12, 1991.
3.3** -- Amended and Restated Articles of Incorporation filed with the California
Secretary of State on October 13, 1994.
3.4** -- Certificate of Determination of Preferences of Series A Redeemable Preferred
Stock of Registrant filed with the California Secretary of State on November
2, 1994.
3.5** -- Agreement of Merger by and between Registrant and Boyds Ultra Violet, Inc.
filed with the California Secretary of State on November 2, 1994.
3.6** -- Bylaws of the Registrant, as amended and restated.
4.1** -- Form of Warrant held by Robert E. Fitzgerald to purchase 10,560 shares of
Common Stock and Ty Rogers to purchase 2,640 shares of Common Stock.
4.2** -- Warrant held by Karl Kantarjian to purchase 10,000 shares of Common Stock
dated as of November 3, 1994.
4.3** -- Form of 9% Convertible Promissory Note due June 30, 1996.
4.4** -- Form of Warrant issued in 1994 Private Placement held as of the date hereof
by Mr. Fitzgerald.
4.5** -- Option to Purchase Common Stock by and between the Registrant and Brad
Fanshaw dated as of May 19, 1993.
4.6** -- 1995 Stock Option Plan.
</TABLE>
II-3
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------------------------------------------------------------------------
<S> <C> <C>
4.7** -- Representatives' Warrant Agreement by and between the Registrant, Cruttenden
Roth Incorporated and Black & Company, Inc.
4.8+ -- Form of Representative's Warrant Agreement by and between the Registrant and
Cruttenden Roth Incorporated.
4.9 -- Form of Nonstatutory Stock Option Agreement (1995 Stock Option Plan).
4.10** -- Form of Registration Agreement executed in 1994 Private Placement.
5.1 -- Opinion of Rutan & Tucker, LLP.
10.1 -- Loan Agreement, Security Agreement and Promissory Notes each dated April 19,
1996 between the Registrant and Eldorado Bank.
10.2 -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank
Leasing dated March 18, 1996.
10.3 -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank
Leasing dated March 18, 1996.
10.4 -- Equipment Lease Agreement between the Registrant and Sunston Equipment Inc.
dated January 30, 1996.
10.5** -- Letter dated March 20, 1995 memorializing agreement between Registrant and
Hot Rods by Boyd concerning inter-company account balance.
10.6** -- Standard Industrial Lease between Registrant and A & P Leasing Registrant
dated April 9, 1992 (8350 Cerritos Avenue).
10.7** -- Standard Industrial Lease between Registrant and Currie Family Trust dated
July 17, 1994 (8402 Cerritos Avenue).
10.8** -- Standard Industrial Lease between Registrant and Currie Family Trust dated
October 1, 1994 (8400 Cerritos Avenue).
10.9** -- Standard Industrial/Commercial Single-Tenant Lease between Boyd and Diane
Coddington and Duane and Carole Logsdon dated June 15, 1992 (8380 Cerritos
Avenue and 10541 Ashdale Street).
10.10** -- Assignment of Real Property Lease Rights of Boyd and Diane Coddington to
Registrant dated September 29, 1994 (8380 Cerritos Avenue and 10541 Ashdale
Street), and Assignment of Equipment Lease Rights.
10.11** -- Standard Industrial/Commercial Single-Tenant Lease between Registrant and
Hopper Shop Equipment Sales dated January 11, 1995. (8250 Cerritos Avenue).
10.12** -- Letter Agreements between Registrant and Codde, Inc. to lease a tractor and
trailer, dated January 1, 1995 and May 1, 1995.
10.13** -- Equipment Lease between Registrant and Financial Federal Credit, dated March
10, 1995.
10.14** -- Equipment Lease between Registrant and Financial Federal Credit, dated March
22, 1995.
10.15** -- Textron Financial Corp. Master Lease Schedule, Master Lease Agreement and
Guaranty, dated August 14, 1992.
10.16** -- Master Lease Schedule by and between Citicorp Leasing Inc. and Registrant
dated January 23, 1995.
10.17** -- Automobile purchase agreement between Boyd Coddington and Richard Hibbard
Chevrolet, Inc., dated May 23, 1994.
10.18** -- Guaranty of Boyd and Diane Coddington and Hot Rods by Boyd to Financial
Federal Credit, dated March 10, 1995.
10.19** -- Marketing/Promotion Agreement by and among the Registrant, Boyd Coddington
and Hot Rods by Boyd, Inc.
</TABLE>
II-4
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------------------------------------------------------------------------
<S> <C> <C>
10.20** -- Option Agreement by and among the Registrant, Boyd and Diane Coddington and
Hot Rods by Boyd, Inc.
10.21** -- Employment Agreement by and between the Registrant and Boyd Coddington.
10.22*** -- Agreement for the Purchase and Sale of Assets among the Registrant, Velocity
Distribution, Inc., Brad Fanshaw, Charlotte Fanshaw, Boyd Coddington and
Diane Coddington.
10.23*** -- Settlement Agreement and General Release dated February 15, 1996.
10.24** -- Equipment Lease between Registrant and Financial Federal Credit dated July
21, 1995.
10.25 -- Standard Industrial/Commercial Single-Tenant Lease between the Registrant and
Flam Properties, Ltd. dated July 26, 1995.
10.26 -- Guaranty of Boyd Coddington to Flam Properties, Ltd. dated July 26, 1996.
10.27 -- Commercial Lease between the Registrant and Custom Pipe & Coupling Inc. dated
February 5, 1996.
10.28 -- Standard Industrial/Commercial Multi-Tenant Lease among the Registrant, Gary
Hollander, Susan Henson, Kevin Henson Trust and Hollander Glass dated August
15, 1995.
10.29 -- Form of Indemnification Agreement.
10.30 -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank
dated March 20, 1996.
11.1 -- Computation of Earnings Per Share (included in Note 16 to the Registrant's
Financial Statements at page F-17).
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Rutan & Tucker, LLP (included in the opinion to be filed as
Exhibit 5).
24.1 -- Power of Attorney (included on page II-7).
27.1+ -- Financial Data Schedule.
</TABLE>
- ---------------
** Incorporated by reference from the Registration Statement on Form SB-2 of
Boyds Wheels, Inc. (Registration No. 33-94064-LA).
*** Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995 (Commission File No. 0-26738), as
amended.
+ Previously filed.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide the Underwriter at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or preceding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
<PAGE> 71
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1), or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
reflect in the prospectus any facts or events arising after the effective date
of this Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in this Registration Statement; (iii) include any
material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-6
<PAGE> 72
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has
reasonable grounds to believe it meets all of the requirements for filing on
Form SB-2 and authorized this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Stanton, State of California, on the 11th day of June, 1996.
BOYDS WHEELS, INC.
By: /s/ BOYD CODDINGTON
------------------------------------
Boyd Coddington
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors
of Boyds Wheels, Inc., a California corporation, which is filing a Registration
Statement on Form SB-2 with the Securities and Exchange Commission, Washington
D.C., under the provisions of the Securities Act of 1933, as amended, hereby
constitute and appoint Boyd Coddington and Rex A. Ours, and each of them, their
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 such Registration Statement and any or all amendments to the
Registration Statement, including a Prospectus or an amended Prospectus therein,
and all other documents in connection therewith to be filed 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 and about the premises, as fully to
all interests and purposes as they might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Amendment No. 2 to Registration Statement has been signed by the
following persons in the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- --------------
<S> <C> <C>
/s/ BOYD CODDINGTON Chairman of the Board of June 11, 1996
- --------------------------------------------- Directors, and Chief Executive
Boyd Coddington Officer (Principal Executive
Officer)
/s/ REX A. OURS Secretary, Chief Financial June 11, 1996
- --------------------------------------------- Officer Principal Financial and
Rex A. Ours Accounting Officer)
/s/ CURT BARWICK Director June 11, 1996
- ---------------------------------------------
Curt Barwick
/s/ MARCUS SORENSON Director June 11, 1996
- ---------------------------------------------
Marcus Sorenson
</TABLE>
II-7
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------------------------------------------------------------------------
<S> <C> <C>
1.1+ -- Form of Underwriting Agreement by and among the Registrant, certain Selling
Shareholders of the Registrant and Cruttenden Roth Incorporated.
3.1** -- Articles of Incorporation as filed with the California Secretary of State on
April 27, 1988.
3.2** -- Amended and Restated Articles of Incorporation filed with the California
Secretary of State on December 12, 1991.
3.3** -- Amended and Restated Articles of Incorporation filed with the California
Secretary of State on October 13, 1994.
3.4** -- Certificate of Determination of Preferences of Series A Redeemable Preferred
Stock of Registrant filed with the California Secretary of State on November
2, 1994.
3.5** -- Agreement of Merger by and between Registrant and Boyds Ultra Violet, Inc.
filed with the California Secretary of State on November 2, 1994.
3.6** -- Bylaws of the Registrant, as amended and restated.
4.1** -- Form of Warrant held by Robert E. Fitzgerald to purchase 10,560 shares of
Common Stock and Ty Rogers to purchase 2,640 shares of Common Stock.
4.2** -- Warrant held by Karl Kantarjian to purchase 10,000 shares of Common Stock
dated as of November 3, 1994.
4.3** -- Form of 9% Convertible Promissory Note due June 30, 1996.
4.4** -- Form of Warrant issued in 1994 Private Placement held as of the date hereof
by Mr. Fitzgerald.
4.5** -- Option to Purchase Common Stock by and between the Registrant and Brad
Fanshaw dated as of May 19, 1993.
4.6** -- 1995 Stock Option Plan.
4.7** -- Representatives' Warrant Agreement by and between the Registrant, Cruttenden
Roth Incorporated and Black & Company, Inc.
4.8+ -- Form of Representative's Warrant Agreement by and between the Registrant and
Cruttenden Roth Incorporated.
4.9 -- Form of Nonstatutory Stock Option Agreement (1995 Stock Option Plan).
4.10** -- Form of Registration Agreement executed in 1994 Private Placement.
5.1 -- Opinion of Rutan & Tucker, LLP.
10.1 -- Loan Agreement, Security Agreement and Promissory Notes each dated April 19,
1996 between the Registrant and Eldorado Bank.
10.2 -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank
Leasing dated March 18, 1996.
10.3 -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank
Leasing dated March 18, 1996.
10.4 -- Equipment Lease Agreement between the Registrant and Sunston Equipment Inc.
dated January 30, 1996.
10.5** -- Letter dated March 20, 1995 memorializing agreement between Registrant and
Hot Rods by Boyd concerning inter-company account balance.
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------------------------------------------------------------------------
<S> <C> <C>
10.6** -- Standard Industrial Lease between Registrant and A & P Leasing Registrant
dated April 9, 1992 (8350 Cerritos Avenue).
10.7** -- Standard Industrial Lease between Registrant and Currie Family Trust dated
July 17, 1994 (8402 Cerritos Avenue).
10.8** -- Standard Industrial Lease between Registrant and Currie Family Trust dated
October 1, 1994 (8400 Cerritos Avenue).
10.9** -- Standard Industrial/Commercial Single-Tenant Lease between Boyd and Diane
Coddington and Duane and Carole Logsdon dated June 15, 1992 (8380 Cerritos
Avenue and 10541 Ashdale Street).
10.10** -- Assignment of Real Property Lease Rights of Boyd and Diane Coddington to
Registrant dated September 29, 1994 (8380 Cerritos Avenue and 10541 Ashdale
Street), and Assignment of Equipment Lease Rights.
10.11** -- Standard Industrial/Commercial Single-Tenant Lease between Registrant and
Hopper Shop Equipment Sales dated January 11, 1995. (8250 Cerritos Avenue).
10.12** -- Letter Agreements between Registrant and Codde, Inc. to lease a tractor and
trailer, dated January 1, 1995 and May 1, 1995.
10.13** -- Equipment Lease between Registrant and Financial Federal Credit, dated March
10, 1995.
10.14** -- Equipment Lease between Registrant and Financial Federal Credit, dated March
22, 1995.
10.15** -- Textron Financial Corp. Master Lease Schedule, Master Lease Agreement and
Guaranty, dated August 14, 1992.
10.16** -- Master Lease Schedule by and between Citicorp Leasing Inc. and Registrant
dated January 23, 1995.
10.17** -- Automobile purchase agreement between Boyd Coddington and Richard Hibbard
Chevrolet, Inc., dated May 23, 1994.
10.18** -- Guaranty of Boyd and Diane Coddington and Hot Rods by Boyd to Financial
Federal Credit, dated March 10, 1995.
10.19** -- Marketing/Promotion Agreement by and among the Registrant, Boyd Coddington
and Hot Rods by Boyd, Inc.
10.20** -- Option Agreement by and among the Registrant, Boyd and Diane Coddington and
Hot Rods by Boyd, Inc.
10.21** -- Employment Agreement by and between the Registrant and Boyd Coddington.
10.22*** -- Agreement for the Purchase and Sale of Assets among the Registrant, Velocity
Distribution, Inc., Brad Fanshaw, Charlotte Fanshaw, Boyd Coddington and
Diane Coddington.
10.23*** -- Settlement Agreement and General Release dated February 15, 1996.
10.24** -- Equipment Lease between Registrant and Financial Federal Credit dated July
21, 1995.
10.25 -- Standard Industrial/Commercial Single-Tenant Lease between the Registrant and
Flam Properties, Ltd. dated July 26, 1995.
10.26 -- Guaranty of Boyd Coddington to Flam Properties, Ltd. dated July 26, 1996.
10.27 -- Commercial Lease between the Registrant and Custom Pipe & Coupling Inc. dated
February 5, 1996.
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
-------- -----------------------------------------------------------------------------
<S> <C> <C>
10.28 -- Standard Industrial/Commercial Multi-Tenant Lease among the Registrant, Gary
Hollander, Susan Henson, Kevin Henson Trust and Hollander Glass dated August
15, 1995.
10.29 -- Form of Indemnification Agreement.
10.30 -- Close End Vehicle Lease Agreement between the Registrant and Eldorado Bank
dated March 20, 1996.
11.1 -- Computation of Earnings Per Share (included in Note 16 to the Registrant's
Financial Statements at page F-17).
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Rutan & Tucker, LLP (included in the opinion to be filed as
Exhibit 5).
24.1 -- Power of Attorney (included on page II-7).
27.1+ -- Financial Data Schedule.
</TABLE>
- ---------------
** Incorporated by reference from the Registration Statement on Form SB-2 of
Boyds Wheels, Inc. (Registration No. 33-94064-LA).
*** Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1995 (Commission File No. 0-26738), as
amended.
+ Previously filed.
<PAGE> 1
EXHIBIT 4.9
NONSTATUTORY STOCK OPTION AGREEMENT
(1995 Stock Option Plan)
THIS NONSTATUTORY STOCK OPTION AGREEMENT (the "Agreement") is made and
entered into this day of , 199 by and between _______________________________
(the "Optionee") and BOYDS WHEELS, INC., a California corporation (the
"Company").
RECITALS
A. This Company has adopted the 1995 Stock Option Plan (the "Plan")
which provides for the granting of options to officers, directors, employees and
consultants of the Company. The terms of this Agreement are governed solely by
the Plan, a copy of which has been provided to Optionee.
B. The Board has authorized the grant of options to purchase Common
Stock of the Company pursuant to the terms and conditions set forth herein and
in the Plan. This option is not intended to qualify as and will not be treated
as an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
C. Before making any decision concerning the Plan, this Agreement or an
exercise of any option granted hereby, Optionee is advised to read the Plan and
consult with an attorney and a tax advisor. THE UNTIMELY EXERCISE OF THE OPTION
GRANTED HEREBY
AND THE SALE OF STOCK ACQUIRED AS A RESULT OF SUCH EXERCISE MAY CAUSE OPTIONEE
TO INCUR LIABILITIES UNDER THE TAXATION AND SECURITIES LAWS OF WHICH OPTIONEE
MAY BE OTHERWISE UNAWARE WITHOUT SEEKING THE ADVICE OF ADVISORS.
AGREEMENT
NOW, THEREFORE, the parties agree as follows:
1. Grant to Optionee.
The Company hereby grants to Optionee, subject to the terms and
conditions of the Plan and subject to the terms and conditions set forth herein,
an option (the "Option") to purchase from the Company all or any part of an
aggregate of _________________________ (________) shares of the Company's Common
Stock ("Common Stock").
2. Exercise of the Option.
(a) Exercise Price. The exercise price of this Option is ___________
($_____) per share. Payment of the exercise price per share is due in full upon
exercise of all or any part of this Option. Optionee may elect, to the extent
permitted by applicable statutes and regulations, to make payment of the
exercise price under one of the following alternatives:
<PAGE> 2
(i) Payment of the exercise price per share in cash (including
check) at the time of exercise;
(ii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street
Journal, payment by delivery of already-owned shares of Common Stock,
held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims,
encumbrances or security interests, which Common Stock shall be valued
at its fair market value, which is the per share price of the last sale
of Common Stock on the trading day immediately preceding the date the
Option is exercised (or the closing bid if no sales were reported),
based on the composite transactions in the Common Stock as reported in
The Wall Street Journal (or any successor publication thereto) ("Fair
Market Value");
(iii) Provided that at the time of exercise the Company's Common
Stock is publicly traded and quoted regularly in the Wall Street
Journal, and provided further, that the cashless exercise will not
result in a charge to the Company's earnings, payment by delivery and
surrender of this Option with a Cashless Exercise Notice (in the form
attached hereto as Exhibit B). In the event of a cashless exercise, the
Optionee shall exchange the Option for such number of shares of Common
Stock underlying the Option determined by multiplying the number of
shares by a fraction, the numerator of which shall be the difference
between the Fair Market Value per share of the Common Stock and the
exercise price per share of the Option, the denominator of which shall
be the Fair Market Value per share of the Common Stock;
(iv) To the extent permitted by applicable law, payment by a
combination of the methods of payment permitted by Sections 2(a)(i),
(ii) and (iii) above.
(b) Exercise Notice. In order to exercise this Option, Optionee or any
other person or persons entitled to exercise the Option shall give written
notice to the Secretary of the Company or to such other person as may be
designated by the Company, in the form set forth on Exhibit A or Exhibit B
hereto, specifying the number of shares to be purchased. This notice shall be
accompanied by payment of the exercise price for the shares as provided in
Section 2(a). Optionee shall also deliver such additional documents as the
Company may then require pursuant to the Plan.
(c) Compliance with Securities Laws. Notwithstanding anything to the
contrary contained herein, this Option may not be exercised unless the shares
issuable upon exercise of this Option are then registered under the Act, or, if
such shares are not then so registered, the Company has determined that such
exercise and issuance would be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Act").
(d) Additional Terms and Conditions. By exercising this Option,
Optionee agrees that the Company may require (as a condition to the exercise of
this Option) Optionee to enter an arrangement providing for the payment by
Optionee to the Company of any tax withholding obligation of the Company arising
by reason of (1) the exercise of the Option; (2) the lapse of
-2-
<PAGE> 3
any substantial risk of forfeiture to which the shares are subject at the time
of exercise; or (3) the disposition of shares acquired upon such exercise.
3. Vesting Schedule.
Subject to the limitations contained herein, _____________ (___) of the
shares will vest on ________________, 19__, and _______________ (___) of the
shares will then vest on ____________ of every year thereafter for the next
________ (___) years. Vested installments may be exercised in whole or in part,
and, to the extent not exercised, will accumulate and be exercisable at any time
on or before the termination of the Option; provided however, that this Option
may not be exercised for any number of shares which would require the issuance
of anything other than whole shares. Notwithstanding the above, the vesting of
shares subject to this Option shall accelerate upon the terms and conditions set
forth in Section 1.10 of the Plan.
4. Expiration Date.
The Option shall terminate and expire at 5:00 p.m., California time, on
________________ (which date shall not be more than ten (10) years from the date
this Option is granted), or such earlier time as may be required by the Plan if
Optionee ceases to be employed or retained by the Company or ceases to be a
member of the Board of Directors. In no event may this Option be exercised after
the date on which it terminates. This Option shall terminate prior to the
expiration of its term as follows: ninety days (90) days after the termination
of Optionee's employment with or engagement by the Company or an affiliate for
any reason or for no reason unless:
(i) Disability/Retirement. Such termination is due to Optionee's
permanent and total disability (within the meaning of Section 422(c)(6)
of the Code) or to the retirement of an Optionee who is an employee of
the Company, in which event the Option shall terminate on the earlier
of the termination date set forth above or twelve (12) months following
such termination; or
(ii) Death. Such termination is due to Optionee's death, in which
event the Option shall terminate on the earlier of the termination date
set forth above or twelve (12) months after Optionee's death; or
(iii) Removal for Cause. Such termination is due Optionee's
commission of fraud, theft or embezzlement against the Company or a
subsidiary, affiliated entity or customer of the company, or for
conflict of interest (other than legitimate competition), in which
event the Option shall terminate at the time Optionee's employment or
engagement is terminated.
(iv) Section 16(b) Liability. Exercise of the Option within ninety
(90) days after the termination of Optionee's employment with or
engagement by the Company or with an affiliate would result in
liability under section 16(b) of the Securities Exchange Act of 1934,
as amended, in which case the Option will terminate on the earlier of
(i) the tenth (10th) day after the last date upon which exercise would
result in such liability
-3-
<PAGE> 4
or (ii) six (6) months and ten (10) days after the termination of
Optionee's employment with or engagement by the Company or an
affiliate.
Notwithstanding the foregoing, this Option may be exercised following
termination of Optionee's employment or engagement by the Company or an
affiliate only as to that number of shares as to which it was exercisable on the
date of such termination under the provisions of Section 3 of this Option.
5. Nontransferable.
This Option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during Optionee's life only by
Optionee. Any attempt to transfer, assign, pledge, hypothecate or otherwise
dispose of, or to subject to execution, attachment or similar process, the
Option, or any right thereunder, contrary to the provisions hereof, shall be
void and ineffective, shall give no right to the purported transferee, and
shall, at the sole discretion of the Committee, result in forfeiture of the
Option with respect to the shares involved in such attempt.
6. No Right to Continued Employment or Engagement by the Company.
This Agreement is not an employment contract and nothing in this Option
shall be deemed to create in any way whatsoever any obligation on Optionee's
part to continue in the employ of the Company, or of the Company or an affiliate
to continue Optionee's employment with the Company or an affiliate. In the event
that this Option is granted to Optionee in connection with the performance of
services as a consultant or director, references to employment, employee and
similar terms shall be deemed to include the performance of services as a
consultant or a director, as the case may be; provided however, that no rights
as an employee shall arise by reason of the use of such terms.
7. No Rights as a Shareholder.
The holder of this Option shall not have any of the rights of a
shareholder with respect to the shares subject to the Option until such holder
shall have exercised the option and paid the exercise price.
8. Notices.
Any notices provided for in this Option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or five (5) days
after deposit in the United States mail, postage prepaid, certified mail
addressed to Optionee or the Company at the address specified below or at such
other address as the parties may hereafter designate by written notice:
Optionee: ____________________________________________
____________________________________________
____________________________________________
-4-
<PAGE> 5
The Company: Boyds Wheels, Inc.
8380 Cerritos Avenue
Stanton, California 90680
Attn: Corporate Secretary
9. Subject to the Plan.
This Option is subject to all the provisions of the Plan, a copy of
which has been provided to Optionee, and its provisions are hereby made a part
of this Option. Optionee acknowledges receipt of a copy of the Plan. This Option
is further subject to all interpretations, amendments, rules and regulations
which may from time to time be promulgated and adopted pursuant to the Plan. In
the event of any conflict between the provisions of this Option and those of the
Plan, the provisions of the Plan shall control.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first set forth above.
"Company" BOYDS WHEELS, INC.
a California corporation
By:
------------------------------------
Title:
---------------------------------
"Optionee"
---------------------------------------
Social Security No.:
-------------------
-5-
<PAGE> 6
EXHIBIT A
EXERCISE NOTICE
Boyds Wheels, Inc.
8380 Cerritos Avenue
Stanton, California 90680
Attention: Corporate Secretary
Re: Exercise of Stock Option
Ladies and Gentlemen:
Pursuant to Section 2 of that certain Nonqualified Stock Option
Agreement (the "Agreement") between the undersigned and Boyds Wheels, Inc., a
California corporation (the "Company"), the undersigned hereby elects to
exercise the option granted thereby to purchase __________ shares of Common
Stock of the Company at a price of $______ per share. Accompanying this Notice
is the payment in full for such shares as permitted by the terms of the 1995
Stock Option Plan, which Plan is specifically made a part of this Agreement and
has been read and understood by the undersigned.
The undersigned represents and warrants to the Company that the
undersigned is acquiring the shares for investment only and not with a view to
distribution or resale.
Dated:
------------ -------------------------------
Signature
-------------------------------
Print Name
-------------------------------
Please print here the exact name desired to
be on the stock certificate and the records of
the Company.
-6-
<PAGE> 7
EXHIBIT B
CASHLESS EXERCISE NOTICE
Boyds Wheels, Inc.
8380 Cerritos Avenue
Stanton, California 90680
Attention: Corporate Secretary
Re: Cashless Exercise of Stock Option
Ladies and Gentlemen:
Pursuant to Section 2(a)(iii) of that certain Nonqualified Stock Option
Agreement (the "Agreement") between the undersigned and Boyds Wheels, Inc., a
California corporation (the "Company"), the undersigned hereby irrevocably
elects to exchange the Option granted thereby for _______ shares of Common Stock
of the Company, as permitted by the terms of the 1995 Stock Option Plan, which
Plan is specifically made a part of this Agreement and has been read and
understood by the undersigned.
If the number of shares referenced in this Cashless Exercise Notice
shall not be all of the shares exchangeable or purchasable under the Option, a
new Agreement shall be issued in the name of the undersigned for the balance
remaining of the shares purchasable thereunder rounded up to the next higher
number of shares.
The undersigned represents and warrants to the Company that the
undersigned is acquiring the shares for investment only and not with a view to
distribution or resale.
Dated:
------------ -------------------------------
Signature
-------------------------------
Print Name
-------------------------------
Please print here the exact name desired to
be on the stock certificate and the records of
the Company.
NOTE: This form may only be used if the cashless exercise will not result
in a charge to the Company's reported earnings.
-7-
<PAGE> 1
EXHIBIT 5.1
June 11, 1996
Boyds Wheels, Inc.
8380 Cerritos Avenue
Stanton, California 90680
Gentlemen:
At your request, we have examined the form of Registration Statement on
Form SB-2 (the "Registration Statement") which has been filed by Boyds Wheels,
Inc. (the "Company") with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "Act") for the purpose of registering
the sale of 1,380,000 shares of Common Stock of the Company, and the issuance by
the Company of warrants for the purchase of 68,000 shares of Common Stock (the
"Representatives' Warrants") to the representatives of the several underwriters
in such offering.
We are familiar with the proceedings taken and proposed to be taken in
connection with the issuance and sale of the securities in the manner set forth
in the Registration Statement. Subject to completion of the proceeds
contemplated in connection with the foregoing matters, we are of the opinion
that:
(i) all of the Common Stock to be sold pursuant to the Registration
Statement has been duly authorized and, when issued and sold in the manner
set forth in the Registration Statement will, upon such issuance and sale,
be validly and legally issued, fully paid and nonassessable; and
(ii) the Representative's Warrants have been duly authorized and, when
issued, will constitute the valid and binding obligations of the Company,
and the securities issuable upon exercise of such warrants will, when so
issued and the exercise price therefor is received by the Company, be
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, or any amendment thereto, and to the use of our name
under the caption "Legal Matters" in the Registration Statement.
Respectfully submitted,
/s/ Rutan & Tucker, LLP.
<PAGE> 1
EXHIBIT 10.1
[ELDORADO BANK LOGO]
LOAN AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,500,000.00 04-19-1996 05-01-1997 13482 511 055 104121 GG1
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR
- -----------------------------------------------------------------------------
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
THIS LOAN AGREEMENT BETWEEN BOYD'S WHEELS, INC. ("BORROWER") AND ELDORADO BANK
("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS.
BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO
LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS,
INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO
THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL
FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED
TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE
"LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR
EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS,
WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING,
RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO
LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL BE AND
SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT.
TERM. This Agreement shall be effective as of April 19, 1996, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.
ACCOUNT. The word "Account" means a trade account, account receivable,
or other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).
ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.
ADVANCE. The word "Advance" means a disbursement of Loan funds under
this Agreement.
BORROWER. The word "Borrower" means BOYD'S WHEELS, INC. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates
of Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $2,500,000.00; or (b) the sum of (i)
80.000% of the aggregate amount of Eligible Accounts, plus (ii) 40.000%
of the aggregate amount of Eligible Inventory (not to exceed
$1,000,000.00). Inventory advances shall not exceed advances against
Receivables.
BUSINESS DAY. The words "Business Day" mean a day on which commercial
banks are open for business in the State of California.
CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
CASH FLOW. The words "Cash Flow" mean net income after taxes, and
exclusive of extraordinary gains and income, plus depreciation and
amortization.
COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan,
whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted in
the form of a security interest, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment trust,
conditional sale, trust receipt, lien, charge, line or title retention
contract, lease or consignment intended as a security device, or any
other security or lien interest whatsoever, whether created by law,
contract, or otherwise. The word "Collateral" includes without
limitation all collateral described below in the section titled
"COLLATERAL."
DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all
of Borrower's Accounts which contain selling terms and conditions
acceptable to Lender. The net amount of any Eligible Account against
which Borrower may borrow shall exclude all returns, discounts, credits,
and offsets of any nature. Unless otherwise agreed to by Lender in
writing, Eligible Accounts do not include:
(a) Accounts with respect to which the Account Debtor is an
officer, an employee or an agent of Borrower.
(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.
(c) Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of which the
payment by the Account Debtor may be conditional.
(d) Accounts with respect to which the Account Debtor is not a
resident of the United States, except to the extent such Accounts
are supported by insurance, bonds or other assurances satisfactory
to Lender.
(e) Accounts with respect to which Borrower is or may become
liable to the Account Debtor for goods sold or services rendered by
the Account Debtor to Borrower.
(f) Accounts which are subject to dispute, counterclaim, or
setoff.
(g) Accounts with respect to which the goods have not been shipped
or delivered, or the services have not been rendered, to the Account
Debtor.
(h) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.
(i) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any provision of any state or federal bankruptcy, insolvency,
or debtor-in-relief acts; or who has had appointed a trustee,
custodian, or receiver for the assets of such Account Debtor; or who
has made an assignment for the benefit of creditors or has become
insolvent or fails generally to pay its debts (including its
payrolls) as such debts become due.
(j) Accounts with respect to which the Account Debtor is the
United States government or any department or agency of the United
States.
(k) Accounts which have not been paid in full within 90 days from
the invoice date. The entire balance of any Account of any single
Account Debtor will be ineligible whenever the portion of the
Account which has not been paid within 90 days from the invoice date
is in excess of 25.000% of the total amount outstanding on the
Account.
(l) That portion of the Accounts of any single Account Debtor
which exceeds 25.000% of all of Borrower's Accounts.
(m) Other Accounts deemed ineligible at Bank's discretion.
<PAGE> 2
04-19-1996 LOAN AGREEMENT PAGE 2
LOAN NO. 13482 (CONTINUED)
================================================================================
* Item (d) above to include the exception that Canada is not
considered "Foreign" for the purpose of this Agreement.
** Item (f) above to include contra accounts.
*** Item (l) above to include the exception that, during the
period from November 1 through February 28, Trader Tim's and All
Star Tire to increase to 30.000%.
ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, all of
Borrower's inventory as defined below except:
(a) Inventory which is not owned by Borrower free and clear of all
security interests, liens, encumbrances, and claims of third parties.
(b) Inventory which Lender, in its sole discretion, deems to be
obsolete, unsalable, damaged, defective, or unfit for further processing.
(c) Work in progress.
(d) Product packaging.
ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" means and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."
EXPIRATION DATE. The words "Expiration Date" mean the date of
termination of Lender's commitment to lend under this Agreement.
GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the indebtedness, including without limitation all
Borrowers granting such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them;
whether now or hereafter existing, voluntary or involuntary, due or not
due, absolute or contingent, liquidated or unliquidated; whether Borrower
may be liable individually or jointly with others; whether Borrower may
be obligated as a guarantor, surety, or otherwise; whether recovery upon
such indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such indebtedness may be or hereafter may become
otherwise unenforceable.
INVENTORY. The word "Inventory" means all of Borrower's raw materials,
work in process, finished goods, merchandise, parts and supplies, of
every kind and description, and goods held for sale or lease or furnished
under contracts of service in which Borrower now has or hereafter
acquires any right, whether held by Borrower or others, and all documents
of title, warehouse receipts, bills of lading, and all other documents of
every type covering all or any part of the foregoing. Inventory includes
inventory temporarily out of Borrower's custody or possession and all
returns on Accounts.
LENDER. The word "Lender" means ELDORADO BANK, its successors and
assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand
plus Borrower's readily marketable securities.
LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.
NOTE. The word "Note" means and includes without limitation Borrowers'
promissory note or notes, if any, evidencing Borrower's Loan obligations
in favor of Lender, as well as any substitute, replacement or refinancing
note or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and
security interests securing indebtedness owed by Borrower to Lender; (b)
liens for taxes, assessments, or similar charges either not yet due or
being contested in good faith; (c) liens of materialmen, mechanics,
warehousemen, or carriers, or other like liens arising in the ordinary
course of business and securing obligations which are not yet delinquent;
(d) purchase money liens or purchase money security interests upon or in
any property acquired or held by Borrower in the ordinary course of
business to secure indebtedness outstanding on the date of this Agreement
or permitted to be incurred under the paragraph of this Agreement titled
"Indebtedness and Liens"; (e) liens and security interests which, as of
the date of this Agreement, have been disclosed to and approved by the
Lender in writing; and (f) those liens and security interests which in
the aggregate constitute an immaterial and insignificant monetary amount
with respect to the net value of Borrower's assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection with
the indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form
of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional
sale, trust receipt, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.
SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owned by Borrower to Lender in form and substance
acceptable to Lender.
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible
items, but including leaseholds and leasehold improvements) less total
Debt.
WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows:
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:
(a) Lender shall have received evidence that this Agreement and
all Related Documents have been duly authorized, executed, and
delivered by Borrower to Lender.
(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.
(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and
shall be in full force and effect.
(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be in
full force and effect.
(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, inventory, books,
records, and operations, and Lender shall be satisfied as to their
condition.
(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related Documents as
are then due and payable, including without limitation the following
loan fees: Loan Fee of $12,500.00.
<PAGE> 3
04-19-1996 LOAN AGREEMENT PAGE 3
LOAN NO. 13482 (CONTINUED)
================================================================================
(g) There shall not exist at the time of any Advance a condition
which would constitute an Event of Default under this Agreement, and
Borrower shall have delivered to Lender the compliance certificate
called for in the paragraph below titled "Compliance Certificate."
MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing subject to the limitations set forth below.
Lender may, but need not, require that all oral requests be confirmed in
writing. Each Advance shall be conclusively deemed to have been made at
the request of and for the benefit of Borrower (a) when credited to any
deposit account of Borrower maintained with Lender or (b) when advanced
in accordance with the instructions of an authorized person. Lender, at
its option, may set a cutoff time, after which all requests for Advances
will be treated as having been requested on the next succeeding Business
Day.
MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount
of the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay
to Lender an amount equal to the difference between the outstanding
principal balance of the Advances and the Borrowing Base. On the
Expiration Date, Borrower shall pay to Lender in full the aggregate
unpaid principal amount of all Advances then outstanding and all accrued
unpaid interest, together with all other applicable fees, costs and
charges, if any, not yet paid.
LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits
and credits as shall be appropriate in connection with the credit
facility. Lender shall provide Borrower with periodic statements of
Borrower's account, which statements shall be considered to be correct
and conclusively binding on Borrower unless Borrower notifies Lender to
the contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, if required) shall grant to Lender Security Interests in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts, general intangibles, and
inventory. Lender's Security Interests in the Collateral shall be continuing
liens and shall include the proceeds and products of the Collateral, including
without limitation the proceeds of any insurance. With respect to the
Collateral, Borrower agrees and represents and warrants to Lender:
PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such
financing statements and to take whatever other actions are requested by
Lender to perfect and continue Lender's Security Interests in the
Collateral. Upon request of Lender, Borrower will deliver to Lender any
and all of the documents evidencing or constituting the Collateral, and
Borrower will note Lender's interest upon any and all chattel paper if
not delivered to Lender for possession by Lender. Contemporaneous with
the execution of this Agreement, Borrower will execute one or more UCC
financing statements and any similar statements as may be required by
applicable law, and will file such financing statements and all such
similar statements in the appropriate location or locations. Borrower
hereby appoints Lender as its irrevocable attorney-in-fact for the
purpose of executing any documents necessary to perfect or to continue
any Security Interest. Lender may at any time, and without further
authorization from Borrower, file a carbon, photograph, facsimile, or
other reproduction of any financing statement for use as a financing
statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of
Lender's security interest in the Collateral. Borrower promptly will
notify Lender of any change in Borrower's name including any change to
the assumed business names of Borrower. Borrower also promptly will
notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender
in writing prior to any change in address or location of Borrower's
principal governance office or should Borrower merge or consolidate with
any other entity.
COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings. With respect to the Inventory,
Borrower agrees to keep and maintain such records as Lender may require,
including without limitation information concerning Eligible Inventory
and records itemizing and describing the kind, type, quality, and
quantity of Inventory, Borrower's Inventory costs and selling prices, and
the daily withdrawals and additions to Inventory. The following is an
accurate and complete list of all locations at which Borrower keeps or
maintains business records concerning Borrower's Accounts and Inventory:
8380 Cerritos Avenue, Stanton, Ca 90680, 8400 Cerritos Ave., Stanton, Ca
90680, 8402 Cerritos Ave., Stanton, Ca 90680, 8350 Cerritos Ave.,
Stanton, Ca 90680, 10541 Ashdale Street, Stanton, Ca 90680 and 8250
Cerritos Ave., Stanton, Ca 90680.
COLLATERAL SCHEDULES. Concurrently with the execution and delivery of
this Agreement, Borrower shall execute and deliver to Lender schedules of
Accounts and Inventory and Eligible Accounts and Eligible Inventory, in
form and substance satisfactory to the Lender. Thereafter Borrower shall
execute and deliver to Lender such supplemental schedules of Eligible
Accounts and Eligible Inventory and such other matters and information
relating to the Accounts and Inventory as Lender may request.
Supplemental schedules shall be delivered according to the following
schedules: Monthly Borrowing Base Certificates, Accounts Receivable and
Accounts Payables agings and Inventory certification due within 15 days
of month end.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrowers' records and
to confirm with Account Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the
Inventory, Borrower represents and warrants to Lender: (a) All Inventory
represented by Borrower to be Eligible Inventory for purposes of this
Agreement conforms to the requirements of the definition of Eligible
Inventory; (b) All Inventory values listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; (c) The
value of the Inventory will be determined on a consistent accounting
basis; (d) Except as agreed to the contrary by Lender in writing, all
Eligible Inventory is now and at all times hereafter will be Borrower's
physical possession and shall not be held by others on consignment, sale
on approval, or sale or return; (e) Except as reflected in the Inventory
schedules delivered to Lender, all Eligible Inventory is now and at all
times hereafter will be of good and merchantable quality, free from
defects; (f) Eligible Inventory is not now and will not at any time
hereafter be stored with a bailee, warehouseman, or similar party without
Lender's prior written consent, and, in such event, Borrower will
concurrently at the time of bailment cause any such bailee, warehouseman,
or similar party to issue and deliver to Lender, in form acceptable to
Lender, warehouse receipts in Lender's name evidencing the storage of
Inventory; and (g) Lender, its assigns, or agents shall have the right at
any time and at Borrower's expense to inspect and examine the Inventory
and to check and test the same as to quality, quantity, value, and
condition.
ADDITIONAL CREDIT FACILITIES. In addition to the Line of Credit facility, the
following credit accommodations are either in place or will be made available
to Borrower:
OTHER FACILITY. Subject to the terms and conditions of this Agreement,
the following described credit facility is either in place or will be
made available to Borrower:
Non-revolving equipment loan - Note #13678 in the amount of
$1,000,000.000 at a rate of Wall Street Journal Prime plus 1.50% due to
be termed out over 60 months (fully amortized - principal plus interest)
on May 1, 1997. Advances for new equipment purchased limited to 80.0% of
total invoice cost with security agreements to be executed with each
advance.
Term loan - Note #13483 in the amount of $599,874.42.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of California
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage. Borrower also is duly
qualified as a foreign corporation and is in good standing in all states
in which the failure to so qualify would have a material adverse effect
on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to be
executed, delivered or performed by Borrower, have been duly authorized
by all necessary action by Borrower; do not require the consent or
approval of any other person, regulatory authority or governmental body;
and do not conflict with, result in a violation of, or constitute a
default under (a) any provision of its articles of incorporation or
organization, or bylaws, or any agreement or other instrument binding
upon Borrower or (b) any law, governmental regulation, court decree, or
order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as
of the date of the statement, and there has been no material adverse
change in Borrower's financial condition subsequent to the date of the
most recent financial statement supplied to Lender. Borrower has no
material contingent obligations except as disclosed in such financial
statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or
agreement required hereunder to be given by Borrower when delivered will
constitute, legal, valid and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
<PAGE> 4
04-19-1996 LOAN AGREEMENT PAGE 4
LOAN NO. 13482 (CONTINUED)
================================================================================
PROPERTIES. Except for Permitted Liens, Borrower owns and has good title
to all of Borrower's properties free and clear of all Security Interests,
and has not executed any security documents or financing statements
relating to such properties. All of Borrower's properties are titled in
Borrower's legal name, and Borrower had not used, or filed a financing
statement under, any other name for at least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous
substance," "disposal," "release," and "threatened release," as used in
this Agreement, shall have the same meanings as set forth in the
"CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of
the California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant
to any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a) During the
period of Borrower's ownership of the properties, there has been no use,
generation, manufacture, storage, treatment, disposal, release or
threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no
knowledge of, or reason to believe that there has been (i) any use,
generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about
or from the properties by any prior owners or occupants of any of the
properties, or (ii) any actual or threatened litigation or claims of any
kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of
the properties; and any such activity shall be conducted in compliance
with all applicable federal, state, and local laws, regulations, and
ordinances, including without limitation those laws, regulations and
ordinances described above. Borrower authorizes Lender and its agents to
enter upon the properties to make such inspections and tests as Lender
may deem appropriate to determine compliance of the properties with this
section of the Agreement. Any inspections or tests made by Lender shall
be at Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investing at
the properties for hazardous waste and hazardous substances. Borrower
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to indemnify
and hold harmless Lender against any and all claims, losses, liabilities,
damages, penalties, and expenses which Lender may directly or indirectly
sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture,
storage, disposal, release or threatened release occurring prior to
Borrower's ownership or interest in the properties, whether or not the
same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of
any interest in any of the properties, whether by foreclosure or
otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events,
if any, that have been disclosed to and acknowledged by Lender in
writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports
of Borrower that are or were required to be filed, have been filed, and
all taxes, assessments and other governmental charges have been paid in
full, except those presently being or to be contested by Borrower in good
faith in the ordinary course of business and for which adequate reserves
have been provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or indirectly
securing repayment of Borrower's Loan and Note, that would be prior or
that may in any way be superior to Lender's Security Interests and rights
in and to such Collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note and
all of the Related Documents are binding upon Borrower as well as upon
Borrower's successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely
for business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable
Event nor Prohibited Transaction (as defined in ERISA) has occurred with
respect to any such plan, (ii) Borrower has not withdrawn from any such
plan or initiated steps to do so, (iii) no steps have been taken to
terminate any such plan, and (iv) there are no unfunded liabilities other
than those previously disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of
business, or Borrower's Chief executive office, if Borrower has more than
one place of business, is located at 8380 CERRITOS AVENUE, STANTON, CA
90680. Unless Borrower has designated otherwise in writing this location
is also the office or offices where Borrower keeps its records concerning
the Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender
will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such
information is or will be incomplete by omitting to state any material
fact necessary to make such information not misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and
agrees that Lender, without independent investigation, is relying upon
the above representations and warranties in extending Loan Advances to
Borrower. Borrower further agrees that the foregoing representations and
warranties shall be continuing in nature and shall remain in full force
and effect until such time as Borrower's indebtedness shall be paid in
full, or until this Agreement shall be terminated in the manner provided
above, whichever is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all existing
and all threatened litigation, claims, investigations, administrative
proceedings or similar actions affecting Borrower or any Guarantor which
could materially affect the financial condition of Borrower or the
financial condition of any Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at
all reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in
no event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited
by a certified public accountant satisfactory to Lender. All financial
reports required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns, and other
reports with respect to Borrower's financial condition and business
operations as Lender may request from time to time.
FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less
than $5,000,000.00.
NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.50 to 1.00.
CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities
in excess of 1.40 to 1.00.
The following provisions shall apply for purposes of determining
compliance with the foregoing financial covenants and ratios: FINANCIAL
COVENANTS AND RATIOS TO BE MEASURED QUARTERLY. Except as provided above,
all computations made to determine compliance with the requirements
contained in this paragraph shall be made in accordance with generally
accepted accounting principles, applied on a consistent basis, and
certified by Borrower as being true and correct.
INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and
with insurance companies reasonably acceptable to Lender. Borrower, upon
request of Lender, will deliver to Lender from time to time the policies
or certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without
at least ten (10) days' prior written notice to Lender. Each insurance
policy also shall include an endorsement providing
that coverage in favor of Lender will not be impaired in any way by any
act, omission or default of Borrower or any other person. In connection
with all policies covering assets in which Lender holds or is offered a
security interest for the Loans, Borrower will provide Lender with such
loss payable or other endorsements as Lender may require.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
<PAGE> 5
04-19-1996 LOAN AGREEMENT PAGE 5
LOAN NO. 13482 (CONTINUED)
================================================================================
LOAN FEES AND CHARGES. In addition to all other agreed upon fees and
charges, pay the following: LOAN FEE OF $12,500.00.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of every kind
and nature, imposed upon Borrower or its properties, income, or profits,
prior to the date on which penalties would attach, and all lawful claims
that, if unpaid, might become a lien or charge upon any of Borrower's
properties, income, or profits. Provided however, Borrower will not be
required to pay and discharge any such assessment, tax, charge, levy,
lien or claim so long as (a) the legality of the same shall be contested
in good faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such contested
assessment, tax, charge, levy, lien, or claim in accordance with
generally accepted accounting practices. Borrower, upon demand of
Lender, will furnish to Lender evidence of payment of the assessments,
taxes, charges, levies, liens and claims and will authorize the
appropriate governmental official to deliver to Lender at any time a
written statement of any assessments, taxes, charges, levies, liens and
claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in a
timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under this
Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to Lender of
any change in executive and management personnel; conduct its business
affairs in a reasonable and prudent manner and in compliance with all
applicable federal, state and municipal laws, ordinances, rules and
regulations respecting its properties, charters, businesses and
operations, including without limitation, compliance with the Americans
With Disabilities Act and with all minimum funding standards and other
requirements of ERISA and other laws applicable to Borrower's employee
benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time
to inspect any and all Collateral for the Loan or Loans and Borrower's
other properties and to examine or audit Borrower's books, accounts, and
records and to make copies and memoranda of Borrower's books, accounts,
and records. If Borrower now or at any time hereafter maintains any
records (including without limitation computer generated records and
computer software programs for the generation of such records) in the
possession of a third party, Borrower, upon request of Lender, shall
notify such party to permit Lender free access to such records at all
reasonable times and to provide Lender with copies of any records it may
request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide
Lender at least annually and at the time of each disbursement of Loan
proceeds with a certificate executed by Borrower's chief financial
officer, or other officer or person acceptable to Lender, certifying that
the representations and warranties set forth in this Agreement are true
and correct as of the date of the certificate and further certifying
that, as of the date of the certificate, no Event of Default exists under
this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all
respects with all environmental protection federal, state and local laws,
statutes, regulations and ordinances; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on its part
or on the part of any third party, on property owned and/or occupied by
Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities; shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, instruments, documents and other agreements as
Lender or its attorneys may reasonably request to evidence and secure the
Loans and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent
of Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien,
sell, transfer, mortgage, assign, pledge, lease, grant a security
interest in, or encumber any of Borrower's assets, or (c) sell with
recourse any of Borrower's accounts, except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently
engaged, (b) cease operations, liquidate, merge, transfer, acquire or
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than dividends
payable in its stock), provided, however that notwithstanding the
foregoing, but only so long as no Event of Default has occurred and is
continuing or would result from the payment of dividends, if Borrower is
a "Subchapter S Corporation" (as defined in the Internal Revenue Code of
1986, as amended), Borrower may pay cash dividends on its stock to its
shareholders from time to time in amounts necessary to enable the
shareholders to pay income taxes and made estimated income tax payments
to satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S Corporation
because of their ownership of shares of stock of Borrower, or (d)
purchase or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money
or assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement
or any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or
any other loan with Lender.
ADDITIONAL CONDITIONS.
1. Two Accounts Receivable and Inventory Audits to be performed per line
year by auditor to be selected by Bank with results satisfactory to Bank.
Costs of audits not to exceed $1,000,000.00 to be paid by Borrower.
2. Borrower to provide quarterly financial statement and 10Q report within 45
days after quarter end.
3. Borrower to provide federal tax return within 15 days of filing.
4. No further advances to affiliates beyond the $195,000.00 as shown on the
9/30/95 financial statement without prior written consent of Bank.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing in the indebtedness against
any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement.
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when
due on the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or
failure of Borrower to comply with or to perform any other term,
obligation, covenant or condition contained in any other agreement
between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement, purchase
or sales agreement, or any other agreement, in favor of any other
creditor or person that may materially affect any of Borrower's property
or Borrower's or any Grantor's ability to repay the Loans or perform
their respective obligations under this Agreement or any of the Related
Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
<PAGE> 6
04-19-1996 LOAN AGREEMENT PAGE 6
LOAN NO. 13482 (CONTINUED)
================================================================================
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
Security Agreement to create a valid and perfected Security Interest) at
any time and for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the indebtedness,
or by any governmental agency. This includes a garnishment, attachment,
or levy on or of any of Borrower's deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor dies
or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guaranty of the indebtedness.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the indebtedness is impaired.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option,
all indebtedness immediately will become due and payable, all without notice of
any kind to Borrower, except that in the case of an Event of Default of the
type described in the "insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's
rights and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to take
action to perform an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement.
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment
to this Agreement shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration
or amendment.
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Borrower
agrees upon Lender's request to submit to the jurisdiction of the courts
of ORANGE County, the State of California. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the
provisions of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the
Borrowers signing below is responsible for all obligations in this
Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchases, whether related or
unrelated to Lender. Lender may provide, without any limitation
whatsoever, to any one or more purchases, or potential purchasers, any
information or knowledge Lender may have about Borrower or about any
other matter relating to the Loan, and Borrower hereby waives any rights
to privacy it may have with respect to such matters. Borrower also
agrees that the purchasers of any such participation interests will be
considered as the absolute owners of such interests in the Loans and will
have all the rights granted under the participation agreement or
agreements governing the sale of such participation interests. Borrower
further waives all rights of offset or counterclaim that it may have now
or later against Lender or against any purchase of such a participation
interest and unconditionally agrees that either Lender or such purchaser
may enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans.
Borrower further agrees that the purchaser of any such participation
interests may enforce its interests irrespective of any personal claims
or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made
pursuant to this Agreement. Lender may pay someone else to help collect
the Loans and to enforce this Agreement, and Borrower will pay that
amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses, whether or not
there is a lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post-judgment collection services. Borrower
also will pay any court costs, in addition to all other sums provided by
law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other
parties, specifying that the purpose of the notice is to change the
party's address. To the extent permitted by applicable law, if there is
more than one Borrower, notice to any Borrower will constitute notice to
all Borrowers. For notice purposes, Borrower will keep Lender informed
at all times of Borrower's current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision
of this Agreement to be invalid or unenforceable as to any person or
circumstances such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain invalid and
enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of
any provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower"
as used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure
to the benefit of Lender, its successors and assigns. Borrower shall
not, however, have the right to assign its rights under this Agreement or
any interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by
Borrower in this Agreement or in any certificate or other instrument
delivered by Borrower to Lender under this Agreement shall be considered
to have been relied upon by Lender and will survive the making of the
Loan and delivery to Lender of the Related Documents, regardless of any
investigation made by Lender or in Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of
this Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender.
No delay or omission on the part of Lender is exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's
rights or of any obligations of Borrower or of any Grantor as to any
future transactions. Whenever the consent of Lender is required under
this Agreement, the granting of such consent by Lender in any instance
shall not constitute continuing consent in subsequent instances where
such consent is required, and in all cases such consent may be granted or
withheld in the sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT,
AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 19, 1996.
BORROWER:
BOYD'S WHEELS, INC.
BY:
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
<PAGE> 7
04-19-1996 LOAN AGREEMENT PAGE 7
LOAN NO. 13482 (CONTINUED)
================================================================================
LENDER:
ELDORADO BANK
BY:
-------------------------------
AUTHORIZED OFFICER
================================================================================
VARIABLE RATE. LINE OF CREDIT
LASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21 (C) 1996 CFI PROSERVICES, INC.
ALL RIGHTS RESERVED. [CA-D20 E3.20 41 BOYDS.LN C2.OVL]
<PAGE> 8
[ELDORADO BANK LOGO]
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,500,000.00 04-19-1996 05-01-1997 13482 511 055 104121 GG1
- ----------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
================================================================================
PRINCIPAL AMOUNT: $2,500,000.00
INITIAL RATE: 9.250%
DATE OF NOTE: APRIL 19, 1996
PROMISE TO PAY. BOYD'S WHEELS, INC. ("Borrower") promises to pay to ELDORADO
BANK ("Lender"), or order, in lawful money of the United States of America, the
principal amount of Two Million Five Hundred Thousand & 00/100 Dollars
($2,500,000.00) or so much as may be outstanding, together with interest on the
unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in
one payment of all outstanding principal plus all accrued unpaid interest on
May 1, 1997. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning June 1, 1996, and all subsequent interest
payments are due on the same day of each month after that. Interest on this
Note is computed on a 365/360 simple interest basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal is outstanding. Borrower will pay Lender at Lender's address shown
above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to accrued unpaid interest, then to principal, and any remaining amount to any
unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the WALL
STREET JOURNAL PRIME RATE (the "INDEX"). The index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each DAY. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE
APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.000
PERCENTAGE POINT OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.250% PER
ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment
of this Note, Borrower understands that Lender is entitled to A MINIMUM
INTEREST CHARGE OF $100.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $10.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform
when due any other term, obligation, covenant, or condition contained in this
Note or any agreement related to this Note, or in any other agreement or Loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other
agreement, in favor of any other creditor or person that may materially affect
any of Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d)
Any representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the indebtedness is
impaired.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid balance on
this Note and all accrued unpaid interest immediately due, with notice, and
then Borrower will pay that amount. Upon Borrower's failure to pay all amounts
declared due pursuant to this section, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable law,
increase the variable interest rate on this Note to 6.000 percentage points
over the Index. Lender may hire or pay someone else to help collect this Note
if Borrower does not pay. Borrower also will pay Lender that amount. This
includes, subject to any limits under applicable law, Lender's attorneys' fees
and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs in addition to all other sums provided by law. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF
THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF ORANGE COUNTY, THE STATE OF CALIFORNIA. THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual promissory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
COLLATERAL. This Note is secured by a Security Agreement dated April 19, 1996.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note may be requested either orally or in writing by Borrower or as
provided in this paragraph. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to lender are to be directed to lender's
office shown above. The following party or parties are authorized to request
advances under the line of credit until Lender receives from Borrower at
Lender's address shwon above written notice of revocation of their authority:
STAN CLARK OR BOYD CODDINGTON. Borrower agrees to be liable for all sums
either: (a) advanced in
<PAGE> 9
04-19-1996 PROMISSORY NOTE PAGE 2
LOAN NO. 13482 (CONTINUED)
================================================================================
accordance with the instructions of an authorized person or (b) credited to any
of Borrower's accounts with Lender. The unpaid principal owing on this Note at
any time may be evidenced the endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation
to advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with the
signing of this Note; (b) Borrower or any guarantor ceases doing business or is
insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit,
modify or revoke such guarantor's guarantee of this Note or any other loan with
Lender; or (d) Borrower has applied funds provided pursuant to this Note for
purposes other than those authorized by Lender.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive any applicable statute of limitations,
presentment, demand for payment, protest and notice of debtor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation, maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon
or perfect Lender's security interest in the collateral; and take any other
action deemed necessary by Lender without the consent of or notice to anyone.
All such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the modification
is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
BOYD'S WHEELS, INC.
By: /s/ BOYD CODDINGTON
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
================================================================================
VARIABLE RATE. LINE OF CREDIT
LASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21 (C) 1996 CFI PROSERVICES, INC.
ALL RIGHTS RESERVED. [CA-D20 E3.20 41 BOYDS.LN C2.OVL]
<PAGE> 10
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,500,000.00 04-19-1996 05-01-1997 13482 511 055 104121 GG1
- ----------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
================================================================================
INSURANCE REQUIREMENTS. BOYD'S WHEELS, INC. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or
the providing of other financial accommodations to Grantor by Lender. these
requirements are set forth in the security documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
COLLATERAL: ALL INVENTORY, INCLUDING AS SECURITY FOR ALL PRESENTLY EXISTING OR
HEREAFTER ARISING OBLIGATIONS OF DEBTOR TO OR TO SECURED PARTY,
DEBTOR HEREBY GRANTS TO SECURED PARTY A SECURITY INTEREST IN: ALL
PROPERTY IN WHICH A SECURITY INTEREST CAN BE GRANTED PURSUANT TO
THE CALIFORNIA COMMERCIAL CODE, WHICH PROPERTY INCLUDES, BUT IS
NOT LIMITED TO, ALL PRESENTLY OR HEREAFTER ARISING, NOW OWNED OR
HEREAFTER ACQUIRED INVENTORY, EQUIPMENT, ACCOUNTS, CONTRACT
RIGHTS, CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, GOODS, GENERAL
INTANGIBLES, DEPOSIT ACCOUNTS AND MONEY.
TYPE. All risks, including fire, theft and liability.
AMOUNT. $2,500,000.00.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation that
coverage will not be cancelled or diminished without a minimum of
ten (10) days' prior written notice to lender.
DEDUCTIBLES. $1,000.00.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance company
Grantor may choose that is reasonably acceptable to Lender. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Lender.
INSURANCE MAILING ADDRESS. All documents and other materials relating to
insurance for this loan should be mailed, delivered or directed to the
following address:
ELDORADO BANK
CENTRAL NOTE DEPARTMENT
P.O. BOX 15510
IRVINE, CA 92715
(714) 798-1100
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Lender, ten (10)
days from the date of this Agreement, evidence of the required insurance as
provided above, with an effective date of April 19, 1996, or earlier. Grantor
acknowledges and agrees that if Grantor fails to provide any required insurance
or fails to continue such insurance in force, Lender may do so at Grantor's
expenses as provided in the applicable security document. GRANTOR ACKNOWLEDGES
THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED.
IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY
DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral, Grantor
authorizes Lender to provide to any person (including any insurance agent or
company) all information Lender deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO
PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 19,
1996.
GRANTOR:
BOYD'S WHEELS, INC.
By: /s/ Boyd Coddington
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
- --------------------------------------------------------------------------------
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
------------------------------ ------------------------------
AGENT'S NAME:
-------------------------------------------------------------------
INSURANCE COMPANY:
--------------------------------------------------------------
POLICY NUMBER:
------------------------------------------------------------------
EFFECTIVE DATES:
----------------------------------------------------------------
COMMENTS:
-----------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
LASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21 (C) 1996 CFI PROSERVICES, INC.
ALL RIGHTS RESERVED. [CA-D20 E3.20 41 BOYDS.LN C2.OVL]
<PAGE> 11
[ELDORADO BANK LOGO]
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,500,000.00 04-19-1996 05-01-1997 13482 511 055 104121 GG1
- ----------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE
APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
================================================================================
LOAN TYPE. This is a Variable Rate (1.000% over WALL STREET JOURNAL PRIME
RATE, making an initial rate of 9.250%), Principal Plus interest Loan to a
Corporation for $2,500,000.00 due on May 1, 1997.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for (please
initial):
/ / ____ PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT
/x/ ____ BUSINESS (INCLUDING REAL ESTATE INVESTMENT)
SPECIFIC PURPOSE. The specific purpose of this loan is: TO RENEW AND INCREASE
REVOLVING LINE #13482, USED TO FINANCE ONGOING SALES GROWTH.
DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $2,500,000.00 as follows:
<TABLE>
<S> <C>
UNDISBURSED FUNDS: $1,950,000.00
AMOUNT PAID ON BORROWER'S ACCOUNT: $550,000.00
$550,000.00 Payment on Loan # 13482
-------------
NOTE PRINCIPAL: $2,500,000.00
</TABLE>
CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the
following charges:
<TABLE>
<S> <C>
PREPAID FINANCE CHARGES PAID IN CASH: $0.00
OTHER CHARGES PAID IN CASH: $12,500.00
$12,500 Loan Fees
----------
TOTAL CHARGES PAID IN CASH: $12,500.00
</TABLE>
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL
CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER.
THIS AUTHORIZATION IS DATED APRIL 19, 1996.
BORROWER:
BOYD'S WHEELS, INC.
BY: /s/ Boyd Coddington
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
================================================================================
VARIABLE RATE. LINE OF CREDIT.
LASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21 (C) 1996 CFI PROSERVICES, INC.
ALL RIGHTS RESERVED. [CA-120 E3.20 41 BOYDS.LN C2.OVL]
<PAGE> 12
NOTICE OF INSURANCE REQUIREMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
LOAN DATE LOAN NO CALL COLLATERAL CUSTOMER NO OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C>
04-19-1996 13482 511 055 104121 GG1
- ------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
================================================================================
--------------------------------
TO: DATE: APRIL 19, 1996
--------------------------------
DEAR INSURANCE AGENT:
BOYD'S WHEELS, INC. ("GRANTOR") IS OBTAINING A LOAN FROM ELDORADO BANK. PLEASE
SEND APPROPRIATE EVIDENCE OF INSURANCE TO ELDORADO BANK, TOGETHER WITH THE
REQUESTED ENDORSEMENTS, ON THE FOLLOWING PROPERTY, WHICH BORROWER IS GIVING AS
SECURITY FOR THE LOAN.
COLLATERAL: ALL INVENTORY, INCLUDING AS SECURITY FOR ALL PRESENTLY
EXISTING OR HEREAFTER ARISING OBLIGATIONS OF DEBTOR TO OR TO
SECURED PARTY, DEBTOR HEREBY GRANTS TO SECURED PARTY A
SECURITY INTEREST IN: ALL PROPERTY IN WHICH A SECURITY
INTEREST CAN BE GRANTED PURSUANT TO THE CALIFORNIA COMMERCIAL
CODE, WHICH PROPERTY INCLUDES, BUT IS NOT LIMITED, ALL
PRESENTLY EXISTING OR HEREAFTER ARISING, NOW OWNED OR
HEREAFTER ACQUIRED INVENTORY, EQUIPMENT, ACCOUNTS, CONTRACT
RIGHTS, CHATTEL PAPER, DOCUMENTS, INSTRUMENTS, GOODS, GENERAL
INTANGIBLES, DEPOSIT ACCOUNTS AND MONEY.
TYPE. All risks, including fire, theft and money.
AMOUNT. $2,500,000.00.
BASIS. Replacement value.
ENDORSEMENTS. Lender's loss payable clause with stipulation
that coverage will not be cancelled or diminished without a
minimum of ten (10) days' prior written notice to Lender.
DEDUCTIBLES. $1,000.00.
BORROWER:
BOYD'S WHEELS, INC.
By: /s/ Boyd Coddington
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
MAIL TO:
------------------------------
ELDORADO BANK
CENTRAL NOTE DEPARTMENT
P.O. BOX 15510
IRVINE, CA 92715
------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.21 (c) 1996 CFI ProServices, Inc.
All Rights Reserved.
<PAGE> 13
[ELDORADO BANK LOGO] COMMERCIAL SECURITY AGREEMENT
<TABLE>
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PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
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$2,500,000.00 04-19-1996 05-01-1997 13482 511 055 104121 GG1
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REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR
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BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17762 E. 17TH STREET
TUSTIN, CA 92680
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THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN BOYD'S WHEELS, INC.
(REFERRED TO BELOW AS "GRANTOR"); AND ELDORADO BANK (REFERRED TO BELOW AS
"LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL,
IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined in this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.
COLLATERAL. The word "Collateral" means the following described property
of Grantor, whether now owned or hereafter acquired, whether now existing
or hereafter arising, and wherever located:
ALL INVENTORY, ACCOUNTS AND GENERAL INTANGIBLES, TOGETHER WITH THE
FOLLOWING SPECIFICALLY DESCRIBED PROPERTY: AS SECURITY FOR ALL
PRESENTLY EXISTING OR HEREAFTER ARISING OBLIGATIONS OF DEBTOR TO OR
TO SECURED PARTY, DEBTOR HEREBY GRANTS TO SECURED PARTY A SECURITY
INTEREST IN: ALL PROPERTY IN WHICH A SECURITY INTEREST CAN BE
GRANTED PURSUANT TO THE CALIFORNIA COMMERCIAL CODE, WHICH PROPERTY
INCLUDES, BUT IS NOT LIMITED TO, ALL PRESENTLY EXISTING OR HEREAFTER
ARISING, NOW OWNED OR HEREAFTER ACQUIRED INVENTORY, EQUIPMENT,
ACCOUNTS, CONTRACT RIGHTS, CHATTEL PAPER, DOCUMENTS, INSTRUMENTS,
GOODS, GENERAL INTANGIBLES, DEPOSIT ACCOUNTS AND MONEY.
In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising,
and wherever located:
(a) All attachments, accessions, accessories, tools, parts,
supplies, increases, and additions to and all replacements of and
substitutions for any property described above.
(b) All products and produce of any of the property described in
this Collateral section.
(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or
other disposition of any of the property described in this
Collateral section.
(d) All proceeds (including insurance proceeds) from the sale,
destruction, loss, or other disposition of any of the property
described in this Collateral section.
(e) All records and data relating to any of the property described
in this Collateral section, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media, together
with all of Grantor's right, title, and interest in and to all
computer software required to utilize, create, maintain, and process
any such records or data on electronic media.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the Section
titled "Events of Default."
GRANTOR. The word "Grantor" means BOYD'S WHEELS, INC., it successors and
assigns.
GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with the indebtedness.
INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents.
LENDER. The word "Lender" means ELDORADO BANK, its successors and
assigns.
NOTE. The word "Note" means the note or credit agreement dated April 19,
1996, in the principal amount of $2,500,000.00 from BOYD'S WHEELS, INC. to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or
credit agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.
RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory
security interest in and hereby assigns, conveys, delivers, pledges, and
transfers all of Grantor's right, title and interest in and to Grantor's
accounts with Lender (whether checking, savings, or some other account),
including all accounts held jointly with someone else and all accounts Grantor
may open in the future, excluding, however, all IRA and Keogh accounts, and all
trust accounts for which the grant of a security interest would be prohibited
by law. Grantor authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all Indebtedness against any and all such accounts.
OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:
PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to
Lender for possession by Lender. Grantor hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any
financing statement or of this Agreement for use as a financing statement.
Grantor will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.
NO VIOLATION. The execution and delivery of this Agreement will not
violate any law or agreement governing Grantor or to which Grantor is a
party, and its certificate or articles of incorporation and bylaws do not
prohibit any term or condition of this Agreement.
ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral
have authority and capacity to contract and are in fact obligated as they
appear to be on the Collateral. At any time any account becomes subject
to a security interest in favor of Lender, the account shall be a good and
valid account representing an undisputed, bona fide indebtedness incurred
by the account debtor, for merchandise held subject to delivery
instructions or therefore shipped or delivered pursuant to a contract of
sale, or for services therefore performed by Grantor with or for the
account debtor; there shall be no setoffs or counterclaims against any
such account; and no agreement under which any deductions or discounts may
be claimed shall have been made with the account debtor except those
disclosed to Lender in writing.
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04-19-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO. 13482 (CONTINUED)
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LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver
to Lender in form satisfactory to Lender a schedule of real properties and
Collateral locations relating to Grantor's operations, including without
limitation the following: (a) all real property owned or being purchased
by Grantor; (b) all real property being rented or leased by Grantor; (c)
all storage facilities owned, rented, leased, or being used by Grantor;
and (d) all other properties where Collateral is or may be located.
Except in the ordinary course of its business, Grantor shall not remove
the Collateral from its existing locations without the prior written
consent of Lender.
REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the
extent the Collateral consists of intangible property such as accounts,
the records concerning the Collateral) at Grantor's address shown above,
or at such other locations as are acceptable to Lender. Except in the
ordinary course of its business, including the sales of inventory, Grantor
shall not remove the Collateral from its existing locations without the
prior written consent of Lender. To the extent that the Collateral
consists of vehicles, or other titled property, Grantor shall not take or
permit any action which would require application for certificates of
title for the vehicles outside the State of California, without the prior
written consent of Lender.
TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
While Grantor is not in default under this Agreement, Grantor may sell
inventory, but only in the ordinary course of its business and only to
buyers who qualify as a buyer in the ordinary course of business. A sale
in the ordinary course of Grantor's business does not include a transfer
in partial or total satisfaction of a debt or any bulk sale. Grantor
shall not pledge, mortgage, encumber or otherwise permit the Collateral to
be subject to any lien, security interest, encumbrance, or charge, other
than the security interest provided for in this Agreement, without the
prior written consent of Lender. This includes security interests even if
junior in right to the security interests granted under this Agreement.
Unless waived by Lender, all proceeds from any disposition of the
Collateral (for whatever reason) shall be held in trust for Lender and
shall not be commingled with any other funds; provided however, this
requirement shall not constitute a consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.
TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing
statement covering any of the Collateral is on file in any public office
other than those which reflect the security interest created by this
Agreement or to which Lender has specifically consented. Grantor shall
defend Lender's rights in the Collateral against the claims and demands of
all other persons.
COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Insofar as the Collateral consists of inventory, Grantor
shall deliver to Lender, as often as Lender shall require, such lists,
descriptions, and designations of such Collateral as Lender may require to
identify the nature, extent, and location of such Collateral. Such
information shall be submitted for Grantor and each of its subsidiaries or
related companies.
MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall
have the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of
all cases involving the return, rejection, repossession, loss or damage of
or to any Collateral; of any request for credit or adjustment or of any
other dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.
TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse
judgment before enforcement against the Collateral. Grantor shall name
Lender as an additional obligee under any surety bond furnished in the
contest proceedings.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.
HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499
("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the
California Health and Safety Code, Section 25100, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant
to any of the foregoing. The terms "hazardous waste" and "hazardous
substance" shall also include, without limitation, petroleum and petroleum
by-products or any fraction thereof and asbestos. The representations and
warranties contained herein are based on Grantor's due diligence in
investigating the Collateral for hazardous wastes and substances. Grantor
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Grantor becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims and losses resulting from a
breach of this provision of this Agreement. This obligation to indemnify
shall survive the payment of the Indebtedness and the satisfaction of this
Agreement.
MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis
reasonably acceptable to Lender and issued by a company or companies
reasonably acceptable to Lender. Grantor, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10)
days' prior written notice to Lender and not including any disclaimer of
the insurer's liability for failure to give such a notice. Each insurance
policy also shall include an endorsement providing that coverage in favor
of Lender will not be impaired in any way by any act, commission or
default of Grantor or any other person. In connection with all policies
covering assets in which Lender holds or is offered a security interest,
Grantor will provide Lender with such loss payable or other endorsements
as Lender may require. In no event shall the insurance be in an amount
less than the amount agreed upon in the Agreement to Provide Insurance.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.
APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender
of any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory expenditure, pay or reimburse Grantor from
the proceeds for the reasonable cost of repair or restoration. If Lender
does not consent to repair or replacement of the Collateral, Lender shall
retain a sufficient amount of the proceeds to pay all of the Indebtedness,
and shall pay the balance to Grantor. Any proceeds which have not been
disbursed within six (6) months after their receipt and which Grantor has
not committed to the repair or restoration of the Collateral shall be used
to repay the Indebtedness.
INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be
created by monthly payments from Grantor of a sum estimated by Lender to
be sufficient to produce, at least fifteen (15) days before the premium
due date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the
payment of premiums shall remain grantor's sole responsibility.
INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to
Lender reports on each existing policy of insurance showing such
information as Lender may reasonably request including the following: (a)
the name of the insurer; (b) the risks insured; (c) the amount of the
policy; (d) the property insured; (e) the then current value on the basis
of which insurance has been obtained and the manner of determining that
value; and (f) the expiration date of the policy. In addition, Grantor
shall upon request by Lender (however not more often than annually) have
an independent appraiser satisfactory to Lender determine, as applicable,
the cash value or replacement cost of the Collateral.
GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and
except as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not
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04-19-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO. 13482 (CONTINUED)
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apply to any Collateral where possession of the Collateral by Lender is
required by law to perfect Lender's security interest in such Collateral.
Unless otherwise notified by Lender, Grantor may collect any of the Collateral
consisting of accounts. At any time and even though no Event of Default
exists, Lender may exercise its rights to collect the accounts and to notify
account debtors to make payments directly to Lender for application to the
Indebtedness. If Lender at any time has possession of any Collateral, whether
before or after an Event of Default, Lender shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral if Lender
takes such action for that purpose as Grantor shall request or as Lender, in
Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.
EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without
limitation all taxes, liens, security interests, encumbrances, and other
claims, at any time levied or placed on the Collateral. Lender also may (but
shall not be obligated to) pay all costs for insuring, maintaining and
preserving the Collateral. All such expenditures incurred or paid by Lender
for such purposes will then bear interest at the rate charged under the Note
from the date incurred or paid by Lender to the date of repayment by Grantor.
All such expenses shall become a part of the Indebtedness and, at Lender's
option, will (a) be payable on demand, (b) be added to the balance of the Note
and be apportioned among and be payable with any installment payments to become
due during either (i) the terms of any applicable insurance policy or (ii) the
remaining terms of the Note, or (c) be treated as a balloon payment which will
be due and payable at the Note's maturity. This Agreement also will secure
payment of these amounts. Such right shall be in addition to all other rights
and remedies to which Lender may be entitled upon the occurrence of an Event of
Default.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due
on the Indebtedness.
OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other agreement between Lender and
Grantor.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase of sales
agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of Borrower's property or Borrower's
or any Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related
Documents ceases to be in full force and effect (including failure of any
collateral documents to create a valid and perfected security interest or
lien) at any time and for any reason.
INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral
securing the Indebtedness. This includes a garnishment of any Grantor's
deposit accounts with Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the Indebtedness or such Guarantor dies
or becomes incompetent.
ADVERSE CHANGE. A material adverse change occurs in Grantor's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.
INSECURITY. Lender, in good faith, deems itself insecure.
RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have the rights of a secured
party under the California Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following right and
remedies:
ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.
ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all
or any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If
the Collateral contains other goods not covered by this Agreement at the
time repossession, Grantor agrees Lender may take such other goods,
provided that Lender makes reasonable efforts to return them to Grantor
after repossession.
SELL THE COLLATERAL. Lender shall have full power to sell, lease,
transfer, or otherwise deal with the Collateral or proceeds thereof in it
own name or that of Grantor. Lender may sell the Collateral at public
auction or private sale. Unless the Collateral threatens to decline
speedily in value or is of a type customarily sold on a recognized market,
Lender will give Grantor reasonable notice of the time after which any
private sale or any other intended disposition of the Collateral is to be
made. The requirements of reasonable notice shall be met if such notice
is given at least ten (10) days, or such lesser time as required by state
law, before the time of the sale or disposition. All expenses relating to
the disposition of the Collateral, including without limitation the
expenses of retaking, holding, insuring, preparing for sale and selling
the Collateral, shall become a part of the Indebtedness secured by this
Agreement and shall be payable on demand, with interest at the Note rate
from date of expenditure until repaid.
APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.
COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness
in such order of preference as Lender may determine. Insofar as the
Collateral consists of accounts, general intangibles, insurance policies,
instruments, chattel paper, choses in action, or similar property, Lender
may demand, collect, receipt for, settle, compromise, adjust, sue for,
foreclose, or realize on the Collateral as Lender may determine, whether
or not Indebtedness or Collateral is then due. For these purposes, Lender
may, on behalf of and in the name of Grantor, receive, open and dispose of
mail addressed to Grantor, change any address to which mail and payments
are to be sent; and endorse notes, checks, drafts, money orders, documents
of title, instruments and items pertaining to payment, shipment, or
storage of any Collateral. To facilitate collection, Lender may notify
account debtors and obligors on any Collateral to make payments directly
to Lender.
OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the
Collateral, Lender may obtain a judgment against Grantor for any
deficiency remaining on the Indebtedness due to Lender after application
of all amounts received from the exercise of the rights provided in this
Agreement. Grantor shall be liable for a deficiency even if the
transaction described in this subsection is a sale of accounts or chattel
paper.
OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and
may exercise any or all other rights and remedies it may have available at
law, in equity, or otherwise.
CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether
evidenced by this Agreement or the Related Documents or by any other
writing, shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude
pursuit of any other remedy, and an election to make expenditures or to
take action to perform an obligation of Grantor under this Agreement,
after Grantor's failure to perform, shall not affect Lender's right to
declare a default and to exercise its remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:
AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to
the matters set forth in this Agreement. No alteration of or amendment to
this Agreement shall be effective unless given in writing and signed by
the party or parties sought to be charged or bound by the alteration or
amendment.
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LOAN NO. 13482 (CONTINUED)
===============================================================================
APPLICABLE LAW. This Agreement has been delivered to Lender and accepted
by Lender in the State of California. If there is a lawsuit, Grantor
agrees upon Lender's request to submit to the jurisdiction of the courts
of ORANGE County, State of California. This Agreement shall be governed
by and construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there
is a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court.
CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the Borrowers
signing below is responsible for ALL obligations in this Agreement.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective
when actually delivered or when deposited with a nationally recognized
overnight courier or deposited in the United States mail, first class,
postage prepaid, addressed to the party to whom the notice is to be given
at the address shown above. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's
address. To the extent permitted by applicable law, if there is more than
one Grantor, notice to any Grantor will constitute notice to all Grantors.
For notice purposes, Grantor will keep Lender informed at all times of
Grantor's current address(es).
POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued
in payment for the Collateral; (c) to settle or compromise any and all
claims arising under the Collateral, and, in the place and stead of
Grantor, to execute and deliver its release and settlement for the claim;
and (d) to file any claim or claims or to take any action or institute or
take part in any proceedings, either in its own name or in the name of
Grantor, or otherwise, which in the discretion of Lender may seem to be
necessary or advisable. This power is given as security for the
Indebtedness, and the authority hereby conferred is and shall be
irrevocable and shall remain in full force and effect until renounced by
Lender.
PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.
SUCCESSOR INTERESTS. Subject to the limitations set forth above on
transfer of the Collateral, this Agreement shall be binding upon and inure
to the benefit of the parties, their successors and assigns.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender
of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Grantor, shall
constitute a waiver of any of Lender's rights or of any of Grantor's
obligations as to any future transactions. Whenever the consent of Lender
is required under this Agreement, the granting of such consent by Lender
in any instance shall not constitute continuing consent to subsequent
instances where such consent is required and in all cases such consent may
be granted or withheld in the sole discretion of Lender.
WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishes
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 19,
1996.
GRANTOR:
BOYD'S WHEELS, INC.
BY: /s/ Boyd Coddington
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
================================================================================
LASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21 (C) 1996 CFI PROSERVICES, INC.
ALL RIGHTS RESERVED. [CA-E20 E3.20 41 BOYDS.LN C2.OVL]
<PAGE> 17
AGREEMENT TO PROVIDE INSURANCE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 04-19-1996 05-01-1997 13678 511 055 104121 GG1
- ----------------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
INSURANCE REQUIREMENTS. BOYD'S WHEELS, INC. ("GRANTOR") UNDERSTANDS THAT
INSURANCE COVERAGE IS REQUIRED IN CONNECTION WITH THE EXTENDING OF A LOAN OR THE
PROVIDING OF OTHER FINANCIAL ACCOMMODATIONS TO GRANTOR BY LENDER. THESE
REQUIREMENTS ARE SET FORTH IN THE SECURITY DOCUMENTS. THE FOLLOWING MINIMUM
INSURANCE COVERAGES MUST BE PROVIDED ON THE FOLLOWING DESCRIBED COLLATERAL (THE
"COLLATERAL"):
COLLATERAL: ALL INVENTORY, INCLUDING AS SECURITY FOR ALL PRESENTLY EXISTING
OR HEREAFTER ARISING OBLIGATIONS OF DEBTOR TO OR TO SECURED
PARTY, DEBTOR HEREBY GRANTS TO SECURED PARTY A SECURITY INTEREST
IN: ALL PROPERTY IN WHICH A SECURITY INTEREST CAN BE GRANTED
PURSUANT TO THE CALIFORNIA COMMERCIAL CODE, WHICH PROPERTY
INCLUDES, BUT IS NOT LIMITED TO, ALL PRESENTLY OR HEREAFTER
ARISING, NOW OWNED OR HEREAFTER ACQUIRED INVENTORY, EQUIPMENT,
ACCOUNTS, CONTRACT RIGHTS, CHATTEL PAPER, DOCUMENTS, INSTRUMENTS,
GOODS, GENERAL INTANGIBLES, DEPOSIT ACCOUNTS AND MONEY.
TYPE. ALL RISKS, INCLUDING FIRE, THEFT AND LIABILITY.
AMOUNT. $1,000,000.00.
BASIS. REPLACEMENT VALUE.
ENDORSEMENTS. LENDER'S LOSS PAYABLE CLAUSE WITH STIPULATION THAT
COVERAGE WILL NOT BE CANCELLED OR DIMINISHED WITHOUT A MINIMUM OF
TEN (10) DAYS' PRIOR WRITTEN NOTICE TO LENDER.
DEDUCTIBLES. $1,000.00.
INSURANCE COMPANY. GRANTOR MAY OBTAIN INSURANCE FROM ANY INSURANCE COMPANY
GRANTOR MAY CHOOSE THAT IS REASONABLY ACCEPTABLE TO LENDER. GRANTOR UNDERSTANDS
THAT CREDIT MAY NOT BE DENIED SOLELY BECAUSE INSURANCE WAS NOT PURCHASED THROUGH
LENDER.
INSURANCE MAILING ADDRESS. ALL DOCUMENTS AND OTHER MATERIALS RELATING TO
INSURANCE FOR THIS LOAN SHOULD BE MAILED, DELIVERED OR DIRECTED TO THE FOLLOWING
ADDRESS:
ELDORADO BANK
CENTRAL NOTE DEPARTMENT
P.O. BOX 15510
IRVINE, CA 92715
(714) 798-1100
FAILURE TO PROVIDE INSURANCE. GRANTOR AGREES TO DELIVER TO LENDER, TEN (10) DAYS
FROM THE DATE OF THIS AGREEMENT, EVIDENCE OF THE REQUIRED INSURANCE AS PROVIDED
ABOVE, WITH AN EFFECTIVE DATE OF APRIL 19, 1996, OR EARLIER. GRANTOR
ACKNOWLEDGES AND AGREES THAT IF GRANTOR FAILS TO PROVIDE ANY REQUIRED INSURANCE
OR FAILS TO CONTINUE SUCH INSURANCE IN FORCE, LENDER MAY DO SO AT GRANTOR'S
EXPENSES AS PROVIDED IN THE APPLICABLE SECURITY DOCUMENT. THE COST OF ANY SUCH
INSURANCE, AT THE OPTION OF LENDER, SHALL BE PAYABLE ON DEMAND OR SHALL BE ADDED
TO THE INDEBTEDNESS AS PROVIDED IN THE SECURITY DOCUMENT. GRANTOR ACKNOWLEDGES
THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE
LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE
OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN
ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE
INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL
RESPONSIBILITY LAWS.
AUTHORIZATION. FOR PURPOSES OF INSURANCE COVERAGE ON THE COLLATERAL, GRANTOR
AUTHORIZES LENDER TO PROVIDE TO ANY PERSON (INCLUDING ANY INSURANCE AGENT OR
COMPANY) ALL INFORMATION LENDER DEEMS APPROPRIATE, WHETHER REGARDING THE
COLLATERAL, THE LOAN OR OTHER FINANCIAL ACCOMMODATIONS, OR BOTH.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 19, 1996.
GRANTOR:
BOYD'S WHEELS, INC.
BY: /s/ BOYD CODDINGTON
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
FOR LENDER USE ONLY
INSURANCE VERIFICATION
DATE:______________________________ PHONE:____________________________
AGENT'S NAME:___________________________________________________________________
INSURANCE COMPANY:______________________________________________________________
POLICY NUMBER:__________________________________________________________________
EFFECTIVE DATES:________________________________________________________________
COMMENTS: ______________________________________________________________________
LASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21 (C) 1996 CFI PROSERVICES, INC.
ALL RIGHTS RESERVED. [CA-110 E3.20 41 BOYDS3.LN C2.OVL]
<PAGE> 18
[ELDORADO BANK CORP. LOGO]
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 04-19-1996 05-01-1997 13678 511 055 104121 GG1
- ------------------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
LOAN TYPE. THIS IS A VARIABLE RATE (1.750% OVER WALL STREET JOURNAL PRIME RATE,
MAKING AN INITIAL RATE OF 10.000%), PRINCIPAL PLUS INTEREST LOAN TO A
CORPORATION FOR $599,874.42 DUE ON MAY 1, 2001.
PRIMARY PURPOSE OF LOAN. THE PRIMARY PURPOSE OF THIS LOAN IS FOR (PLEASE
INITIAL):
/ / ____ PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT
/X/ ____ BUSINESS (INCLUDING REAL ESTATE INVESTMENT)
SPECIFIC PURPOSE. THE SPECIFIC PURPOSE OF THIS LOAN IS: TO TERM OUT NOTE #13483,
ORIGINAL PURPOSE WAS TO PURCHASE EQUIPMENT.
DISBURSEMENT INSTRUCTIONS. BORROWER UNDERSTANDS THAT NO LOAN PROCEEDS WILL BE
DISBURSED UNTIL ALL OF LENDER'S CONDITIONS FOR MAKING THE LOAN HAVE BEEN
SATISFIED. PLEASE DISBURSE THE LOAN PROCEEDS OF $1,000,000.00 AS FOLLOWS:
UNDISBURSED FUNDS: $1,000,000.00
-------------
NOTE PRINCIPAL: $1,000.000.00
CHARGES PAID IN CASH. BORROWER HAS PAID OR WILL PAY IN CASH AS AGREED THE
FOLLOWING CHARGES:
PREPAID FINANCE CHARGES PAID IN CASH: $0.00
OTHER CHARGES PAID IN CASH: $290.00
$290.00 DOCUMENTATION FEE:
-------
TOTAL CHARGES PAID IN CASH: $290.00
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED APRIL 19, 1996.
BORROWER:
BOYD'S WHEELS, INC.
BY: /s/ BOYD CODDINGTON
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
VARIABLE RATE. PRINCIPAL + INTEREST. LASER PRO, REG. U.S. PAT. & T.M. OFF., VER.
3.21 (C) 1996 CFI PROSERVICES, INC. ALL RIGHTS RESERVED. [CA-120 E3.20 41
BOYDS2.LN C2.OVL]
<PAGE> 19
[ELDORADO BANK LOGO]
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 04-19-1996 05-01-1997 13678 511 055 104121 GG1
- ------------------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
<TABLE>
<S> <C> <C>
PRINCIPAL AMOUNT: $1,000,000.00 INITIAL RATE: 9.750% DATE OF NOTE: APRIL 19, 1996
</TABLE>
PROMISE TO PAY. BOYD'S WHEELS, INC. ("BORROWER") PROMISES TO PAY TO ELDORADO
BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF ONE MILLION & 00/100 DOLLARS ($1,000,000.00) OR SO MUCH AS
MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL
BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH
ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON MAY 1,
1997. IN ADDITION BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID
INTEREST BEGINNING JUNE 1, 1996, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON
THE SAME DAY OF EACH MONTH AFTER THAT. INTEREST ON THIS NOTE IS COMPUTED ON A
365/360 SIMPLE INTEREST BASIS; THAT IS, BY APPLYING THE RATIO OF THE ANNUAL
INTEREST RATE OVER A YEAR OF 360 DAYS, MULTIPLIED BY THE OUTSTANDING PRINCIPAL
BALANCE, MULTIPLIED BY THE ACTUAL NUMBER OF DAYS THE PRINCIPAL BALANCE IS
OUTSTANDING. BORROWER WILL PAY LENDER AT LENDER'S ADDRESS SHOWN ABOVE OR AT SUCH
OTHER PLACE AS LENDER MAY DESIGNATE IN WRITING. UNLESS OTHERWISE AGREED OR
REQUIRED BY APPLICABLE LAW, PAYMENTS WILL BE APPLIED FIRST TO ACCRUED UNPAID
INTEREST, THEN TO PRINCIPAL, AND ANY REMAINING AMOUNT TO ANY UNPAID COLLECTION
COSTS AND LATE CHARGES.
VARIABLE INTEREST RATE. THE INTEREST RATE ON THIS NOTE IS SUBJECT TO CHANGE FROM
TIME TO TIME BASED ON CHANGES IN AN INDEPENDENT INDEX WHICH IS THE WALL STREET
JOURNAL PRIME RATE (THE "INDEX"). THE INDEX IS NOT NECESSARILY THE LOWEST RATE
CHARGED BY LENDER ON ITS LOANS. IF THE INDEX BECOMES UNAVAILABLE DURING THE TERM
OF THIS LOAN, LENDER MAY DESIGNATE A SUBSTITUTE INDEX AFTER NOTICE TO BORROWER.
LENDER WILL TELL BORROWER THE CURRENT INDEX RATE UPON BORROWER'S REQUEST.
BORROWER UNDERSTANDS THAT LENDER MAY MAKE LOANS BASED ON OTHER RATES AS WELL.
THE INTEREST RATE CHANGE WILL NOT OCCUR MORE OFTEN THAN EACH DAY. THE INDEX
CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.500 PERCENTAGE POINTS OVER
THE INDEX, RESULTING IN AN INITIAL RATE OF 9.750% PER ANNUM. NOTICE: UNDER NO
CIRCUMSTANCES WILL THE INTEREST RATE ON THIS NOTE BE MORE THAN THE MAXIMUM RATE
ALLOWED BY APPLICABLE LAW.
PREPAYMENT; MINIMUM INTEREST CHARGE. IN ANY EVENT, EVEN UPON FULL PREPAYMENT OF
THIS NOTE, BORROWER UNDERSTANDS THAT LENDER IS ENTITLED TO A MINIMUM INTEREST
CHARGE OF $100.00. OTHER THAN BORROWER'S OBLIGATION TO PAY ANY MINIMUM INTEREST
CHARGE, BORROWER MAY PAY WITHOUT PENALTY ALL OR A PORTION OF THE AMOUNT OWED
EARLIER THAN IT IS DUE. EARLY PAYMENTS WILL NOT, UNLESS AGREED TO BY LENDER IN
WRITING, RELIEVE BORROWER OF BORROWER'S OBLIGATION TO CONTINUE TO MAKE PAYMENTS
OF ACCRUED UNPAID INTEREST. RATHER, THEY WILL REDUCE THE PRINCIPAL BALANCE DUE.
LATE CHARGE. IF A PAYMENT IS 10 DAYS OR MORE LATE, BORROWER WILL BE CHARGED
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $10.00, WHICHEVER IS GREATER.
DEFAULT. BORROWER WILL BE IN DEFAULT IF ANY OF THE FOLLOWING HAPPENS: (A)
BORROWER FAILS TO MAKE ANY PAYMENT WHEN DUE. (B) BORROWER BREAKS ANY PROMISE
BORROWER HAD MADE TO LENDER, OR BORROWER FAILS TO COMPLY WITH OR TO PERFORM WHEN
DUE ANY OTHER TERM, OBLIGATION, COVENANT, OR CONDITION CONTAINED IN THIS NOTE OR
ANY AGREEMENT RELATED TO THIS NOTE, OR IN ANY OTHER AGREEMENT OR LOAN BORROWER
HAS WITH LENDER. (C) BORROWER DEFAULTS UNDER ANY LOAN, EXTENSION OF CREDIT,
SECURITY AGREEMENT, PURCHASE OR SALES AGREEMENT, OR ANY OTHER AGREEMENT IN FAVOR
OF ANY OTHER CREDITOR OR PERSON THAT MAY MATERIALLY AFFECT ANY OF BORROWER'S
PROPERTY OR BORROWER'S ABILITY TO REPLAY THIS NOTE OR PERFORM BORROWER'S
OBLIGATIONS UNDER THIS NOTE OR ANY OF THE RELATED DOCUMENTS. (D) ANY
REPRESENTATION OR STATEMENT MADE OR FURNISHED TO LENDER BY BORROWER OR ON
BORROWER'S BEHALF IS FALSE OR MISLEADING IN ANY MATERIAL RESPECT EITHER NOW OR
AT THE TIME MADE OR FURNISHED. (E) BORROWER BECOMES INSOLVENT, A RECEIVER IS
APPOINTED FOR ANY PART OF BORROWER'S PROPERTY, BORROWER MAKES AN ASSIGNMENT FOR
THE BENEFIT OF CREDITORS, OR ANY PROCEEDING IS COMMENCED EITHER BY BORROWER OR
AGAINST BORROWER UNDER ANY BANKRUPTCY OR INSOLVENCY LAWS. (F) ANY CREDITOR TRIED
TO TAKE ANY OF BORROWER'S PROPERTY ON OR IN WHICH LENDER HAS A LIEN OR SECURITY
INTEREST. THIS INCLUDES A GARNISHMENT OF ANY OF BORROWER'S ACCOUNTS WITH LENDER.
(G) ANY GUARANTOR DIES OR ANY OF THE OTHER EVENTS DESCRIBED IN THIS DEFAULT
SECTION OCCURS WITH RESPECT TO ANY GUARANTOR OF THIS NOTE. (H) A MATERIAL
ADVERSE CHANGE OCCURS IN BORROWER'S FINANCIAL CONDITION, OR LENDER BELIEVES THE
PROSPECT OF PAYMENT OR PERFORMANCE OF THE INDEBTEDNESS IS IMPAIRED.
LENDER'S RIGHTS. UPON DEFAULT, LENDER MAY DECLARE THE ENTIRE UNPAID PRINCIPAL
BALANCE ON THIS NOTE AND ALL ACCRUED UNPAID INTEREST IMMEDIATELY DUE, WITHOUT
NOTICE, AND THEN BORROWER WILL PAY THAT AMOUNT. UPON BORROWER'S FAILURE TO PAY
ALL AMOUNTS DECLARED DUE PURSUANT TO THIS SECTION, INCLUDING FAILURE TO PAY UPON
FINAL MATURITY, LENDER, AT ITS OPTION, MAY ALSO, IF PERMITTED UNDER APPLICABLE
LAW, INCREASE THE VARIABLE INTEREST RATE ON THIS NOTE TO 6.5000 PERCENTAGE
POINTS OVER THE INDEX. LENDER MAY HIRE OR PAY SOMEONE ELSE TO HELP COLLECT THIS
NOTE IF BORROWER DOES NOT PAY. BORROWER ALSO WILL PAY LENDER THAT AMOUNT. THIS
INCLUDES, SUBJECT TO ANY LIMITS UNDER APPLICABLE LAW, LENDER'S ATTORNEYS' FEES
AND LENDERS' LEGAL EXPENSES WHETHER OR NOT THERE IS A LAWSUIT, INCLUDING
ATTORNEYS' FEES AND LEGAL EXPENSES FOR BANKRUPTCY PROCEEDINGS (INCLUDING EFFORTS
TO MODIFY OR VACATE ANY AUTOMATIC STAY OR INJUNCTION), APPEALS, AND ANY
ANTICIPATED POST-JUDGMENT COLLECTION SERVICES. BORROWER ALSO WILL PAY ANY COURT
COSTS, IN ADDITION TO ALL OTHER SUMS PROVIDED BY LAW. THIS NOTE HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF ORANGE COUNTY, THE STATE OF CALIFORNIA. THIS NOTE
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
RIGHT OF SETOFF. BORROWER GRANTS TO LENDER A CONTRACTUAL POSSESSORY SECURITY
INTEREST IN, AND HEREBY ASSIGNS, CONVEYS, DELIVERS, PLEDGES, AND TRANSFERS TO
LENDER ALL BORROWER'S RIGHT, TITLE AND INTEREST IN AND TO, BORROWER'S ACCOUNTS
WITH LENDER (WHETHER CHECKING, SAVINGS, OR SOME OTHER ACCOUNT), INCLUDING
WITHOUT LIMITATION ALL ACCOUNTS HELD JOINTLY WITH SOMEONE ELSE AND ALL ACCOUNTS
BORROWER MAY OPEN IN THE FUTURE, EXCLUDING HOWEVER ALL IRA AND KEOUGH ACCOUNTS,
AND ALL TRUST ACCOUNTS FOR WHICH THE GRANT OF A SECURITY INTEREST WOULD BE
PROHIBITED BY LAW. BORROWER AUTHORIZES LENDER, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO CHARGE OR SETOFF ALL SUMS OWING ON THIS NOTE AGAINST ANY AND
ALL SUCH ACCOUNTS.
COLLATERAL. THIS NOTE IS SECURED BY A SECURITY AGREEMENT DATED APRIL 19, 1996.
LINE OF CREDIT. THIS NOTE EVIDENCES A STRAIGHT LINE OF CREDIT. ONCE THE TOTAL
AMOUNT OF PRINCIPAL HAS BEEN ADVANCED, BORROWER IS NOT ENTITLED TO FURTHER LOAN
ADVANCE. ADVANCES UNDER THIS NOTE MAY BE REQUESTED EITHER ORALLY OR IN WRITING
BY BORROWER OR BY AN AUTHORIZED PERSON. LENDER MAY, BUT NEED NOT REQUIRE THAT
ALL ORAL REQUESTS BE CONFIRMED IN WRITING. ALL COMMUNICATIONS, INSTRUCTIONS, OR
DIRECTIONS BY TELEPHONE OR OTHERWISE TO LENDER ARE TO BE DIRECTED TO LENDER'S
OFFICE SHOWN ABOVE. THE FOLLOWING PARTY OR PARTIES ARE AUTHORIZED TO REQUEST
ADVANCES UNDER THE LINE
<PAGE> 20
04-19-1996 PROMISSORY NOTE PAGE 2
LOAN NO. 13678 (CONTINUED)
OF CREDIT UNTIL LENDER RECEIVES FROM BORROWER AT LENDER'S ADDRESS SHOWN ABOVE
WRITTEN NOTICE OF REVOCATION OF THEIR AUTHORITY: BOYD CODDINGTON AND STAN CLARK.
BORROWER AGREES TO BE LIABLE FOR ALL SUMS EITHER: (A) ADVANCED IN ACCORDANCE
WITH THE INSTRUCTIONS OF AN AUTHORIZED PERSON OR (B) CREDITED TO ANY OF
BORROWER'S ACCOUNTS WITH LENDER. THE UNPAID PRINCIPAL BALANCE OWING ON THIS NOTE
AT ANY TIME MAY BE EVIDENCED BY ENDORSEMENTS ON THIS NOTE OR BY LENDER'S
INTERNAL RECORDS, INCLUDING DAILY COMPUTER PRINT-OUTS. LENDER WILL HAVE NO
OBLIGATION TO ADVANCE FUNDS UNDER THIS NOTE IF: (A) BORROWER OR ANY GUARANTOR IS
IN DEFAULT UNDER THE TERMS OF THIS NOTE OR ANY AGREEMENT THAT BORROWER OR ANY
GUARANTOR HAS WITH LENDER, INCLUDING ANY AGREEMENT MADE IN CONNECTION WITH THE
SIGNING OF THIS NOTE; (B) BORROWER OR ANY GUARANTOR CEASES DOING BUSINESS OR IS
INSOLVENT; (C) ANY GUARANTOR SEEKS, CLAIMS OR OTHERWISE ATTEMPTS TO LIMIT,
MODIFY OR REVOKE SUCH GUARANTOR'S GUARANTEE OF THIS NOTE OR ANY OTHER LOAN WITH
LENDER; OR (D) BORROWER HAS APPLIED FUNDS PROVIDED PURSUANT TO THIS NOTE FOR
PURPOSES OTHER THAN THOSE AUTHORIZED BY LENDER.
GENERAL PROVISIONS. THIS NOTE IS PAYABLE ON DEMAND. THE INCLUSION OF SPECIFIC
DEFAULT PROVISIONS OR RIGHTS OF LENDER SHALL NOT PRECLUDE LENDER'S RIGHT TO
DECLARE PAYMENT OF THIS NOTE ON ITS DEMAND. LENDER MAY DELAY OR FORGO ENFORCING
ANY OF ITS RIGHTS OR REMEDIES UNDER THIS NOTE WITHOUT LOSING THEM. BORROWER AND
ANY OTHER PERSON WHO SIGNS, GUARANTEES OR ENDORSES THIS NOTE, TO THE EXTENT
ALLOWED BY LAW, WAIVE ANY APPLICABLE STATUTE OF LIMITATIONS, PRESENTMENT, DEMAND
FOR PAYMENT, PROTEST AND NOTICE OF DISHONOR. UPON ANY CHANGE IN THE TERMS OF
THIS NOTE, AND UNLESS OTHERWISE EXPRESSLY STATED IN WRITING, NO PARTY WHO SIGNS
THIS NOTE, WHETHER AS MAKER, GUARANTOR, ACCOMMODATION MAKE OR ENDORSER, SHALL BE
RELEASED FROM LIABILITY. ALL SUCH PARTIES AGREE THAT LENDER MAY RENEW OR EXTEND
(REPEATEDLY AND FOR ANY LENGTH OF TIME) THIS LOAN, OR RELEASE ANY PARTY OR
GUARANTOR OR COLLATERAL; OR IMPAIR, FAIL TO REALIZE UPON OR PERFECT LENDER'S
SECURITY INTEREST IN THE COLLATERAL; AND TAKE ANY OTHER ACTION DEEMED NECESSARY
BY LENDER WITHOUT THE CONSENT OF OR NOTICE TO ANYONE. ALL SUCH PARTIES ALSO
AGREE THAT LENDER MAY MODIFY THIS LOAN WITHOUT THE CONSENT OF OR NOTICE TO
ANYONE OTHER THAN THE PARTY WITH WHOM THE MODIFICATION IS MADE.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
BOYD'S WHEELS, INC.
BY: /s/ BOYD CODDINGTON
----------------------
BOYD CODDINGTON, CEO
VARIABLE RATE. LINE OF CREDITLASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21
(C) 1996 CFI PROSERVICES, INC. ALL RIGHTS RESERVED. [CA-D20 E3.20 41 BOYDS.LN
C2.OVL]
<PAGE> 21
[ELDORADO BANK LOGO]
COMMERCIAL SECURITY AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 04-19-1996 05-01-1997 13678 511 055 104121 GG1
- ------------------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17762 E. 17TH STREET
TUSTIN, CA 92680
THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN BOYD'S WHEELS, INC.
(REFERRED TO BELOW AS "GRANTOR"); AND ELDORADO BANK (REFERRED TO BELOW AS
"LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A SECURITY
INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT LENDER
SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE COLLATERAL,
IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.
DEFINITIONS. THE FOLLOWING WORDS SHALL HAVE THE FOLLOWING MEANINGS WHEN USED IN
THIS AGREEMENT. TERMS NOT OTHERWISE DEFINED IN THIS AGREEMENT SHALL HAVE THE
MEANINGS ATTRIBUTED TO SUCH TERMS IN THE UNIFORM COMMERCIAL CODE. ALL REFERENCES
TO DOLLAR AMOUNTS SHALL MEAN AMOUNTS IN LAWFUL MONEY OF THE UNITED STATES OF
AMERICA.
AGREEMENT. THE WORD "AGREEMENT" MEANS THIS COMMERCIAL SECURITY AGREEMENT,
AS THIS COMMERCIAL SECURITY AGREEMENT MAY BE AMENDED OR MODIFIED FROM TIME
TO TIME, TOGETHER WITH ALL EXHIBITS AND SCHEDULES ATTACHED TO THIS
COMMERCIAL SECURITY AGREEMENT FROM TIME TO TIME.
COLLATERAL. THE WORD "COLLATERAL" MEANS THE FOLLOWING DESCRIBED PROPERTY
OF GRANTOR, WHETHER NOW OWNED OR HEREAFTER ACQUIRED, WHETHER NOW EXISTING
OR HEREAFTER ARISING, AND WHEREVER LOCATED:
AS SECURITY FOR ALL PRESENTLY EXISTING OR HEREAFTER ARISING
OBLIGATIONS OF DEBTOR TO OR TO SECURED PARTY, DEBTOR HEREBY GRANTS
TO SECURED PARTY A SECURITY INTEREST IN: ALL PROPERTY IN WHICH A
SECURITY INTEREST CAN BE GRANTED PURSUANT TO THE CALIFORNIA
COMMERCIAL CODE, WHICH PROPERTY INCLUDES, BUT IS NOT LIMITED TO, ALL
PRESENTLY EXISTING OR HEREAFTER ARISING, NOW OWNED OR HEREAFTER
ACQUIRED INVENTORY, EQUIPMENT, ACCOUNTS, CONTRACT RIGHTS, CHATTEL
PAPER, DOCUMENTS, INSTRUMENTS, GOODS, GENERAL INTANGIBLES, DEPOSIT
ACCOUNTS AND MONEY.
IN ADDITION, THE WORD "COLLATERAL" INCLUDES ALL THE FOLLOWING, WHETHER NOW
OWNED OR HEREAFTER ACQUIRED, WHETHER NOW EXISTING OR HEREAFTER ARISING,
AND WHEREVER LOCATED:
(A) ALL ATTACHMENTS, ACCESSIONS, ACCESSORIES, TOOLS, PARTS,
SUPPLIES, INCREASES, AND ADDITIONS TO AND ALL REPLACEMENTS OF AND
SUBSTITUTIONS FOR ANY PROPERTY DESCRIBED ABOVE.
(B) ALL PRODUCTS AND PRODUCE OF ANY OF THE PROPERTY DESCRIBED IN
THIS COLLATERAL SECTION.
(C) ALL ACCOUNTS, GENERAL INTANGIBLES, INSTRUMENTS, RENTS, MONIES,
PAYMENTS, AND ALL OTHER RIGHTS, ARISING OUT OF A SALE, LEASE, OR
OTHER DISPOSITION OF ANY OF THE PROPERTY DESCRIBED IN THIS
COLLATERAL SECTION.
(D) ALL PROCEEDS (INCLUDING INSURANCE PROCEEDS) FROM THE SALE,
DESTRUCTION, LOSS, OR OTHER DISPOSITION OF ANY OF THE PROPERTY
DESCRIBED IN THIS COLLATERAL SECTION.
(E) ALL RECORDS AND DATA RELATING TO ANY OF THE PROPERTY DESCRIBED
IN THIS COLLATERAL SECTION, WHETHER IN THE FORM OF A WRITING,
PHOTOGRAPH, MICROFILM, MICROFICHE, OR ELECTRONIC MEDIA, TOGETHER
WITH ALL OF GRANTOR'S RIGHT, TITLE, AND INTEREST IN AND TO ALL
COMPUTER SOFTWARE REQUIRED TO UTILIZE, CREATE, MAINTAIN, AND PROCESS
ANY SUCH RECORDS OR DATA ON ELECTRONIC MEDIA.
EVENT OF DEFAULT. THE WORDS "EVENT OF DEFAULT" MEAN AND INCLUDE WITHOUT
LIMITATION ANY OF THE EVENTS OF DEFAULT SET FORTH BELOW IN THE SECTION
TITLED "EVENTS OF DEFAULT."
GRANTOR. THE WORD "GRANTOR" MEANS BOYD'S WHEELS, INC., IT SUCCESSORS AND
ASSIGNS.
GUARANTOR. THE WORD "GUARANTOR" MEANS AND INCLUDES WITHOUT LIMITATION EACH
AND ALL OF THE GUARANTORS, SURETIES, AND ACCOMMODATION PARTIES IN
CONNECTION WITH THE INDEBTEDNESS.
INDEBTEDNESS. THE WORD "INDEBTEDNESS" MEANS THE INDEBTEDNESS EVIDENCED BY
THE NOTE, INCLUDING ALL PRINCIPAL AND INTEREST, TOGETHER WITH ALL OTHER
INDEBTEDNESS AND COSTS AND EXPENSES FOR WHICH GRANTOR IS RESPONSIBLE UNDER
THIS AGREEMENT OR UNDER ANY OF THE RELATED DOCUMENTS.
LENDER. THE WORD "LENDER" MEANS ELDORADO BANK, ITS SUCCESSORS AND ASSIGNS.
NOTE. THE WORD "NOTE" MEANS THE NOTE OR CREDIT AGREEMENT DATED APRIL 19,
1996, IN THE PRINCIPAL AMOUNT OF $1,000,000.00 FROM BOYD'S WHEELS, INC. TO
LENDER, TOGETHER WITH ALL RENEWALS OF, EXTENSIONS OF, MODIFICATIONS OF,
REFINANCINGS OF, CONSOLIDATIONS OF AND SUBSTITUTIONS FOR THE NOTE OR
CREDIT AGREEMENT.
RELATED DOCUMENTS. THE WORDS "RELATED DOCUMENTS" MEAN AND INCLUDE WITHOUT
LIMITATION ALL PROMISSORY NOTES, CREDIT AGREEMENTS, LOAN AGREEMENTS,
ENVIRONMENTAL AGREEMENTS, GUARANTEES, SECURITY AGREEMENTS, MORTGAGES,
DEEDS OF TRUST, AND ALL OTHER INSTRUMENTS, AGREEMENTS AND DOCUMENTS,
WHETHER NOW OR HEREAFTER EXISTING, EXECUTED IN CONNECTION WITH THE
INDEBTEDNESS.
RIGHT OF SETOFF. GRANTOR HEREBY GRANTS LENDER A CONTRACTUAL POSSESSORY SECURITY
INTEREST IN AND HEREBY ASSIGNS, CONVEYS, DELIVERS, PLEDGES, AND TRANSFERS ALL OF
GRANTOR'S RIGHT, TITLE AND INTEREST IN AND TO GRANTOR'S ACCOUNTS WITH LENDER
(WHETHER CHECKING, SAVINGS, OR SOME OTHER ACCOUNT), INCLUDING ALL ACCOUNTS HELD
JOINTLY WITH SOMEONE ELSE AND ALL ACCOUNTS GRANTOR MAY OPEN IN THE FUTURE,
EXCLUDING, HOWEVER, ALL IRA AND KEOGH ACCOUNTS, AND ALL TRUST ACCOUNTS FOR WHICH
THE GRANT OF A SECURITY INTEREST WOULD BE PROHIBITED BY LAW. GRANTOR AUTHORIZES
LENDER, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO CHARGE OR SETOFF ALL
INDEBTEDNESS AGAINST ANY AND ALL SUCH ACCOUNTS.
OBLIGATIONS OF GRANTOR. GRANTOR WARRANTS AND COVENANTS TO LENDER AS FOLLOWS:
PERFECTION OF SECURITY INTEREST. GRANTOR AGREES TO EXECUTE SUCH FINANCING
STATEMENTS AND TO TAKE WHATEVER OTHER ACTIONS ARE REQUESTED BY LENDER TO
PERFECT AND CONTINUE LENDER'S SECURITY INTEREST IN THE COLLATERAL. UPON
REQUEST OF LENDER, GRANTOR WILL DELIVER TO LENDER ANY AND ALL OF THE
DOCUMENTS EVIDENCING OR CONSTITUTING THE COLLATERAL, AND GRANTOR WILL NOTE
LENDER'S INTEREST UPON ANY AND ALL CHATTEL PAPER IF NOT DELIVERED TO
LENDER FOR POSSESSION BY LENDER. GRANTOR HEREBY APPOINTS LENDER AS ITS
IRREVOCABLE ATTORNEY-IN-FACT FOR THE PURPOSE OF EXECUTING ANY DOCUMENTS
NECESSARY TO PERFECT OR TO CONTINUE THE SECURITY INTEREST GRANTED IN THIS
AGREEMENT. LENDER MAY AT ANY TIME, AND WITHOUT FURTHER AUTHORIZATION FROM
GRANTOR, FILE A CARBON, PHOTOGRAPHIC OR OTHER REPRODUCTION OF ANY
FINANCING STATEMENT OR OF THIS AGREEMENT FOR USE AS A FINANCING STATEMENT.
GRANTOR WILL REIMBURSE LENDER FOR ALL EXPENSES FOR THE PERFECTION AND THE
CONTINUATION OF THE PERFECTION OF LENDER'S SECURITY INTEREST IN THE
COLLATERAL. GRANTOR PROMPTLY WILL NOTIFY LENDER BEFORE ANY CHANGE IN
GRANTOR'S NAME INCLUDING ANY CHANGE TO THE ASSUMED BUSINESS NAMES OF
GRANTOR.
NO VIOLATION. THE EXECUTION AND DELIVERY OF THIS AGREEMENT WILL NOT
VIOLATE ANY LAW OR AGREEMENT GOVERNING GRANTOR OR TO WHICH GRANTOR IS A
PARTY, AND ITS CERTIFICATE OR ARTICLES OF INCORPORATION AND BYLAWS DO NOT
PROHIBIT ANY TERM OR CONDITION OF THIS AGREEMENT.
ENFORCEABILITY OF COLLATERAL. TO THE EXTENT THE COLLATERAL CONSISTS OF
ACCOUNTS, CHATTEL PAPER, OR GENERAL INTANGIBLES, THE COLLATERAL IS
ENFORCEABLE IN ACCORDANCE WITH ITS TERMS, IS GENUINE, AND COMPLIES WITH
APPLICABLE LAWS CONCERNING FORM, CONTENT AND MANNER OF PREPARATION AND
EXECUTION, AND ALL PERSONS APPEARING TO BE OBLIGATED ON THE COLLATERAL
HAVE AUTHORITY AND CAPACITY TO CONTRACT AND ARE IN FACT OBLIGATED AS THEY
APPEAR TO BE ON THE COLLATERAL.
LOCATION OF THE COLLATERAL. GRANTOR, UPON REQUEST OF LENDER, WILL DELIVER
TO LENDER IN FORM SATISFACTORY TO LENDER A SCHEDULE OF REAL PROPERTIES AND
COLLATERAL LOCATIONS RELATING TO GRANTOR'S OPERATIONS, INCLUDING WITHOUT
LIMITATION THE FOLLOWING: (A) ALL REAL PROPERTY OWNED OR BEING PURCHASED
BY GRANTOR; (B) ALL REAL PROPERTY BEING RENTED OR LEASED BY GRANTOR; (C)
ALL STORAGE FACILITIES OWNER, RENTED, LEASED, OR BEING USED BY GRANTOR;
AND (D) ALL OTHER PROPERTIES WHERE COLLATERAL IS OR MAY BE LOCATED. EXCEPT
IN THE ORDINARY COURSE OF ITS BUSINESS, GRANTOR SHALL NOT REMOVE THE
COLLATERAL FROM ITS EXISTING LOCATIONS WITHOUT THE PRIOR WRITTEN CONSENT
OF LENDER.
REMOVAL OF COLLATERAL. GRANTOR SHALL KEEP THE COLLATERAL (OR TO THE EXTENT
THE COLLATERAL CONSISTS OF INTANGIBLE PROPERTY SUCH AS ACCOUNTS, THE
RECORDS CONCERNING THE COLLATERAL) AT GRANTOR'S ADDRESS SHOWN ABOVE, OR AT
SUCH OTHER LOCATIONS AS ARE ACCEPTABLE TO LENDER. EXCEPT IN THE ORDINARY
COURSE OF ITS BUSINESS, INCLUDING THE SALES OF INVENTORY, GRANTOR SHALL
NOT REMOVE THE COLLATERAL FROM ITS EXISTING LOCATIONS
<PAGE> 22
04-19-1996 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO. 13678 (CONTINUED)
WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER. TO THE EXTENT THAT THE
COLLATERAL CONSISTS OF VEHICLES, OR OTHER TITLED PROPERTY, GRANTOR SHALL
NOT TAKE OR PERMIT ANY ACTION WHICH WOULD REQUIRE APPLICATION FOR
CERTIFICATES OF TITLE FOR THE VEHICLES OUTSIDE THE STATE OF CALIFORNIA,
WITHOUT THE PRIOR WRITTEN CONSENT OF LENDER.
TRANSACTIONS INVOLVING COLLATERAL. EXCEPT FOR INVENTORY SOLD OR ACCOUNTS
COLLECTED IN THE ORDINARY COURSE OF GRANTOR'S BUSINESS, GRANTOR SHALL NOT
SELL, OFFER TO SELL, OR OTHERWISE TRANSFER OR DISPOSE OF THE COLLATERAL.
WHILE GRANTOR IS NOT IN DEFAULT UNDER THIS AGREEMENT, GRANTOR MAY SELL
INVENTORY, BUT ONLY IN THE ORDINARY COURSE OF ITS BUSINESS AND ONLY TO
BUYERS WHO QUALIFY AS A BUYER IN THE ORDINARY COURSE OF BUSINESS. A SALE
IN THE ORDINARY COURSE OF GRANTOR'S BUSINESS DOES NOT INCLUDE A TRANSFER
IN PARTIAL OR TOTAL SATISFACTION OF A DEBT OR ANY BULK SALE. GRANTOR SHALL
NOT PLEDGE, MORTGAGE, ENCUMBER OR OTHERWISE PERMIT THE COLLATERAL TO BE
SUBJECT TO ANY LIEN, SECURITY INTEREST, ENCUMBRANCE, OR CHARGE, OTHER THAN
THE SECURITY INTEREST PROVIDED FOR IN THIS AGREEMENT, WITHOUT THE PRIOR
WRITTEN CONSENT OF LENDER. THIS INCLUDES SECURITY INTERESTS EVEN IF JUNIOR
IN RIGHT TO THE SECURITY INTERESTS GRANTED UNDER THIS AGREEMENT. UNLESS
WAIVED BY LENDER, ALL PROCEEDS FROM ANY DISPOSITION OF THE COLLATERAL (FOR
WHATEVER REASON) SHALL BE HELD IN TRUST FOR LENDER AND SHALL NOT BE
COMMINGLED WITH ANY OTHER FUNDS; PROVIDED HOWEVER, THIS REQUIREMENT SHALL
NOT CONSTITUTE A CONSENT BY LENDER TO ANY SALE OR OTHER DISPOSITION. UPON
RECEIPT, GRANTOR SHALL IMMEDIATELY DELIVER ANY SUCH PROCEEDS TO LENDER.
TITLE. GRANTOR REPRESENTS AND WARRANTS TO LENDER THAT IT HOLDS GOOD AND
MARKETABLE TITLE TO THE COLLATERAL, FREE AND CLEAR OF ALL LIENS AND
ENCUMBRANCES EXCEPT FOR THE LIEN OF THIS AGREEMENT. NO FINANCING STATEMENT
COVERING ANY OF THE COLLATERAL IS ON FILE IN ANY PUBLIC OFFICE OTHER THAN
THOSE WHICH REFLECT THE SECURITY INTEREST CREATED BY THIS AGREEMENT OR TO
WHICH LENDER HAS SPECIFICALLY CONSENTED. GRANTOR SHALL DEFEND LENDER'S
RIGHTS IN THE COLLATERAL AGAINST THE CLAIMS AND DEMANDS OF ALL OTHER
PERSONS.
COLLATERAL SCHEDULES AND LOCATIONS. INSOFAR AS THE COLLATERAL CONSISTS OF
INVENTORY, GRANTOR SHALL DELIVER TO LENDER, AS OFTEN AS LENDER SHALL
REQUIRE, SUCH LISTS, DESCRIPTIONS, AND DESIGNATIONS OF SUCH COLLATERAL AS
LENDER MAY REQUIRE TO IDENTIFY THE NATURE, EXTENT, AND LOCATION OF SUCH
COLLATERAL. SUCH INFORMATION SHALL BE SUBMITTED FOR GRANTOR AND EACH OF
ITS SUBSIDIARIES OR RELATED COMPANIES.
MAINTENANCE AND INSPECTION OF COLLATERAL. GRANTOR SHALL MAINTAIN ALL
TANGIBLE COLLATERAL IN GOOD CONDITION AND REPAIR. GRANTOR WILL NOT COMMIT
OR PERMIT DAMAGE TO OR DESTRUCTION OF THE COLLATERAL OR ANY PART OF THE
COLLATERAL. LENDER AND ITS DESIGNATED REPRESENTATIVES AND AGENTS SHALL
HAVE THE RIGHT AT ALL REASONABLE TIMES TO EXAMINE, INSPECT, AND AUDIT THE
COLLATERAL WHEREVER LOCATED. GRANTOR SHALL IMMEDIATELY NOTIFY LENDER OF
ALL CASES INVOLVING THE RETURN, REJECTION, REPOSSESSION, LOSS OR DAMAGE OF
OR TO ANY COLLATERAL; OF ANY REQUEST FOR CREDIT OR ADJUSTMENT OR OF ANY
OTHER DISPUTE ARISING WITH RESPECT TO THE COLLATERAL; AND GENERALLY OF ALL
HAPPENINGS AND EVENTS AFFECTING THE COLLATERAL OR THE VALUE OR THE AMOUNT
OF THE COLLATERAL.
TAXES, ASSESSMENTS AND LIENS. GRANTOR WILL PAY WHEN DUE ALL TAXES,
ASSESSMENTS AND LIENS UPON THE COLLATERAL, ITS USE OR OPERATION, UPON THIS
AGREEMENT, UPON ANY PROMISSORY NOTE OR NOTES EVIDENCING THE INDEBTEDNESS,
OR UPON ANY OF THE OTHER RELATED DOCUMENTS. GRANTOR MAY WITHHOLD ANY SUCH
PAYMENT OR MAY ELECT TO CONTEST ANY LIEN IF GRANTOR IS IN GOOD FAITH
CONDUCTING AN APPROPRIATE PROCEEDING TO CONTEST THE OBLIGATION TO PAY AND
SO LONG AS LENDER'S INTEREST IN THE COLLATERAL IS NOT JEOPARDIZED IN
LENDER'S SOLE OPINION. IF THE COLLATERAL IS SUBJECTED TO A LIEN WHICH IS
NOT DISCHARGED WITHIN FIFTEEN (15) DAYS, GRANTOR SHALL DEPOSIT WITH LENDER
CASH, A SUFFICIENT CORPORATE SURETY BOND OR OTHER SECURITY SATISFACTORY TO
LENDER IN AN AMOUNT ADEQUATE TO PROVIDE FOR THE DISCHARGE OF THE LIEN PLUS
ANY INTEREST, COSTS, ATTORNEYS' FEES OR OTHER CHARGES THAT COULD ACCRUE AS
A RESULT OF FORECLOSURE OR SALE OF THE COLLATERAL. IN ANY CONTEST GRANTOR
SHALL DEFEND ITSELF AND LENDER AND SHALL SATISFY ANY FINAL ADVERSE
JUDGMENT BEFORE ENFORCEMENT AGAINST THE COLLATERAL. GRANTOR SHALL NAME
LENDER AS AN ADDITIONAL OBLIGEE UNDER ANY SURETY BOND FURNISHED IN THE
CONTEST PROCEEDINGS.
COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. GRANTOR SHALL COMPLY PROMPTLY
WITH ALL LAWS, ORDINANCES, RULES AND REGULATIONS OF ALL GOVERNMENTAL
AUTHORITIES, NOW OR HEREAFTER IN EFFECT APPLICABLE TO THE OWNERSHIP,
PRODUCTION, DISPOSITION, OR USE OF THE COLLATERAL. GRANTOR MAY CONTEST IN
GOOD FAITH ANY SUCH LAW, ORDINANCE OR REGULATION AND WITHHOLD COMPLIANCE
DURING ANY PROCEEDINGS, INCLUDING APPROPRIATE APPEALS, SO LONG AS LENDER'S
INTEREST IN THE COLLATERAL, IN LENDER'S OPINION, IS NOT JEOPARDIZED.
HAZARDOUS SUBSTANCES. GRANT REPRESENTS AND WARRANT THAT THE COLLATERAL
NEVER HAS BEEN, AND NEVER WILL BE SO LONG AS THIS AGREEMENT REMAINS IN
LIEN ON THE COLLATERAL, USED FOR THE GENERATION, MANUFACTURE, STORAGE,
TRANSPORTATION, TREATMENT, DISPOSAL, RELEASE OR THREATENED RELEASE OF ANY
HAZARDOUS WASTE OR SUBSTANCE, AS THOSE TERMS ARE DEFINED IN THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF
1960, AS AMENDED, 42 U.S.C. SECTION 9601, ET SEQ. ("CERCLA"), THE
SUPERFUND AMENDMENTS AND REAUTHORIZATION ACT OF 1986, PUB. L. NO. 99-499
("SARA"), THE HAZARDOUS MATERIALS TRANSPORTATION ACT, 49 U.S.C. SECTION
1801, ET SEQ., THE RESOURCE CONSERVATION AND RECOVERY ACT, 42 U.S.C.
SECTION 6901, ET SEQ., CHAPTERS 6.5 THROUGH 7.7 OF DIVISION 20 OF THE
CALIFORNIA HEALTH AND SAFETY CODE, SECTION 25100 ET SEQ., OR OTHER
APPLICABLE STATE OR FEDERAL LAWS, RULES, OR REGULATIONS ADOPTED PURSUANT
TO ANY OF THE FOREGOING. THE TERMS "HAZARDOUS WASTE" AND "HAZARDOUS
SUBSTANCE" SHALL ALSO INCLUDE WITHOUT LIMITATION, PETROLEUM AND PETROLEUM
BY- PRODUCTS OR ANY FRACTION THEREOF AND ASBESTOS. THE REPRESENTATIONS AND
WARRANTIES CONTAINED HEREIN ARE BASED ON GRANTOR'S DUE DILIGENCE IN
INVESTIGATING THE COLLATERAL FOR HAZARDOUS WASTES AND SUBSTANCES. GRANTOR
HEREBY (A) RELEASES AND WAIVES ANY FUTURE CLAIMS AGAINST LENDER FOR
INDEMNITY OR CONTRIBUTION IN THE EVENT GRANTOR BECOMES LIABLE FOR CLEANUP
OR OTHER COSTS UNDER ANY SUCH LAWS, AND (B) AGREES TO INDEMNIFY AND HOLD
HARMLESS LENDER AGAINST ANY AND ALL CLAIMS AND LOSSES RESULTING FROM A
BREACH OF THIS PROVISION OF THIS AGREEMENT. THIS OBLIGATION TO INDEMNIFY
SHALL SURVIVE THE PAYMENT OF THE INDEBTEDNESS AND THE SATISFACTION OF THIS
AGREEMENT.
MAINTENANCE OF CASUALTY INSURANCE. GRANTOR SHALL PROCURE AND MAINTAIN ALL
RISKS INSURANCE, INCLUDING WITHOUT LIMITATION FIRE, THEFT AND LIABILITY
COVERAGE TOGETHER WITH SUCH OTHER INSURANCE AS LENDER MAY REQUIRE WITH
RESPECT TO THE COLLATERAL, IN FORM, AMOUNTS, COVERAGES AND BASIS
REASONABLY ACCEPTABLE TO LENDER AND ISSUED BY A COMPANY OR COMPANIES
REASONABLY ACCEPTABLE TO LENDER. GRANTOR, UPON REQUEST OF LENDER, WILL
DELIVER TO LENDER FROM TIME TO TIME THE POLICIES OR CERTIFICATES OF
INSURANCE IN FORM SATISFACTORY TO LENDER, INCLUDING STIPULATIONS THAT
COVERAGES WILL NOT BE CANCELLED OR DIMINISHED WITHOUT AT LEAST TEN (10)
DAYS' PRIOR WRITTEN NOTICE TO LENDER AND NOT INCLUDING ANY DISCLAIMER OF
THE INSURER'S LIABILITY FOR FAILURE TO GIVE SUCH A NOTICE. EACH INSURANCE
POLICY ALSO SHALL INCLUDE AN ENDORSEMENT PROVIDING THAT COVERAGE IN FAVOR
OF LENDER WILL NOT BE IMPAIRED IN ANY WAY BY ANY ACT, COMMISSION OR
DEFAULT OF GRANTOR OR ANY OTHER PERSON. IN CONNECTION WITH ALL POLICIES
COVERING ASSETS IN WHICH LENDER HOLDS OR IS OFFERED A SECURITY INTEREST,
GRANTOR WILL PROVIDE LENDER WITH SUCH LOSS PAYABLE OR OTHER ENDORSEMENTS
AS LENDER MAY REQUIRE. IN NO EVENT SHALL THE INSURANCE BE IN AN AMOUNT
LESS THAN THE AMOUNT AGREED UPON IN THE AGREEMENT TO PROVIDE INSURANCE. IF
GRANTOR AT ANY TIME FAILS TO OBTAIN OR MAINTAIN ANY INSURANCE AS REQUIRED
UNDER THIS AGREEMENT, LENDER MAY (BUT SHALL NOT BE OBLIGATED TO) OBTAIN
SUCH INSURANCE AS LENDER DEEMS APPROPRIATE, INCLUDING IF IT SO CHOOSES
"SINGLE INTEREST INSURANCE," WHICH WILL COVER ONLY LENDER'S INTEREST IN
THE COLLATERAL.
APPLICATION OF INSURANCE PROCEEDS. GRANTOR SHALL PROMPTLY NOTIFY LENDER OF
ANY LOSS OR DAMAGE TO THE COLLATERAL. LENDER MAY MAKE PROOF OF LOSS IF
GRANTOR FAILS TO DO SO WITHIN FIFTEEN (15) DAYS OF THE CASUALTY. ALL
PROCEEDS OF ANY INSURANCE ON THE COLLATERAL, INCLUDING ACCRUED PROCEEDS
THEREON, SHALL BE HELD BY LENDER AS PART OF THE COLLATERAL. IF LENDER
CONSENTS TO REPAIR OR REPLACEMENT OF THE DAMAGED OR DESTROYED COLLATERAL,
LENDER SHALL, UPON SATISFACTORY EXPENDITURE, PAY OR REIMBURSE GRANTOR FROM
THE PROCEEDS FOR THE REASONABLE COST OF REPAIR OR RESTORATION. IF LENDER
DOES NOT CONSENT TO REPAIR OR REPLACEMENT OF THE COLLATERAL, LENDER SHALL
RETAIN A SUFFICIENT AMOUNT OF THE PROCEEDS TO PAY ALL OF THE INDEBTEDNESS,
AND SHALL PAY THE BALANCE TO GRANTOR. ANY PROCEEDS WHICH HAVE NOT BEEN
DISBURSED WITHIN SIX (6) MONTHS AFTER THEIR RECEIPT AND WHICH GRANTOR HAS
NOT COMMITTED TO THE REPAIR OR RESTORATION OF THE COLLATERAL SHALL BE USED
TO REPAY THE INDEBTEDNESS.
INSURANCE RESERVES. LENDER MAY REQUIRE GRANTOR TO MAINTAIN WITH LENDER
RESERVES FOR PAYMENT OF INSURANCE PREMIUMS, WHICH RESERVES SHALL BE
CREATED BY MONTHLY PAYMENTS FROM GRANTOR OF A SUM ESTIMATED BY LENDER TO
BE SUFFICIENT TO PRODUCE, AT LEAST FIFTEEN (15) DAYS BEFORE THE PREMIUM
DUE DATE, AMOUNTS AT LEAST EQUAL TO THE INSURANCE PREMIUMS TO BE PAID. IF
FIFTEEN (15) DAYS BEFORE PAYMENT IS DUE, THE RESERVE FUNDS ARE
INSUFFICIENT, GRANTOR SHALL UPON DEMAND PAY ANY DEFICIENCY TO LENDER. THE
RESERVE FUNDS SHALL BE HELD BY LENDER AS A GENERAL DEPOSIT AND SHALL
CONSTITUTE A NON-INTEREST-BEARING ACCOUNT WHICH LENDER MAY SATISFY BY
PAYMENT OF THE INSURANCE PREMIUMS REQUIRED TO BE PAID BY GRANTOR AS THEY
BECOME DUE. LENDER DOES NOT HOLD THE RESERVE FUNDS IN TRUST FOR GRANTOR,
AND LENDER IS NOT THE AGENT OF GRANTOR FOR PAYMENT OF THE INSURANCE
PREMIUMS REQUIRED TO BE PAID BY GRANTOR. THE RESPONSIBILITY FOR THE
PAYMENT OF PREMIUMS SHALL REMAIN GRANTOR'S SOLE RESPONSIBILITY.
INSURANCE REPORTS. GRANTOR, UPON REQUEST OF LENDER, SHALL FURNISH TO
LENDER REPORTS ON EACH EXISTING POLICY OF INSURANCE SHOWING SUCH
INFORMATION AS LENDER MAY REASONABLY REQUEST INCLUDING THE FOLLOWING: (A)
THE NAME OF THE INSURER; (B) THE RISKS INSURED; (C) THE AMOUNT OF THE
POLICY; (D) THE PROPERTY INSURED; (E) THE THEN CURRENT VALUE ON THE BASIS
OF WHICH INSURANCE HAS BEEN OBTAINED AND THE MANNER OF DETERMINING THAT
VALUE; AND (F) THE EXPIRATION DATE OF THE POLICY. IN ADDITION, GRANTOR
SHALL UPON REQUEST BY LENDER (HOWEVER NOT MORE OFTEN THAN ANNUALLY) HAVE
AN INDEPENDENT APPRAISER SATISFACTORY TO LENDER DETERMINE, AS APPLICABLE,
THE CASH VALUE OR REPLACEMENT COST OF THE COLLATERAL.
GRANTOR'S RIGHT TO POSSESSION. UNTIL DEFAULT, GRANTOR MAY HAVE POSSESSION OF THE
TANGIBLE PERSONAL PROPERTY AND BENEFICIAL USE OF ALL THE COLLATERAL AND MAY USE
IT IN ANY LAWFUL MANNER NOT INCONSISTENT WITH THIS AGREEMENT OR THE RELATED
DOCUMENTS, PROVIDED THAT GRANTOR'S RIGHT TO POSSESSION AND BENEFICIAL USE SHALL
NOT APPLY TO ANY COLLATERAL WHERE POSSESSION OF THE COLLATERAL BY LENDER IS
REQUIRED BY LAW TO PERFECT LENDER'S SECURITY INTEREST IN SUCH COLLATERAL. IF
LENDER AT ANY TIME HAS POSSESSION OF THE COLLATERAL, WHETHER BEFORE OR AFTER AN
EVENT OF DEFAULT, LENDER SHALL BE DEEMED TO HAVE EXERCISED REASONABLE CARE IN
THE CUSTODY AND PRESERVATION OF THE COLLATERAL IF LENDER TAKES SUCH ACTION FOR
THAT PURPOSE AS GRANTOR SHALL REQUEST OR AS LENDER, IN LENDER'S SOLE DISCRETION,
SHALL DEEM APPROPRIATE UNDER THE CIRCUMSTANCES, BUT FAILURE TO HONOR ANY REQUEST
BY GRANTOR SHALL NOT OF IT SELF BE DEEMED TO BE A FAILURE TO EXERCISE REASONABLE
CARE. LENDER SHALL NOT BE REQUIRED TO TAKE ANY STEPS NECESSARY TO PRESERVE ANY
RIGHTS IN THE COLLATERAL AGAINST PRIOR PARTIES, NOR TO PROTECT, PRESERVE OR
MAINTAIN ANY SECURITY INTEREST GIVEN TO SECURE THE INDEBTEDNESS.
EXPENDITURES BY LENDER. IF NOT DISCHARGED OR PAID WHEN DUE, LENDER MAY (BUT
SHALL NOT BE OBLIGATED TO) DISCHARGE OR PAY ANY AMOUNTS REQUIRED TO BE
DISCHARGED OR PAID BY GRANTOR UNDER THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
ALL TAXES, LIENS, SECURITY INTERESTS, ENCUMBRANCES, AND OTHER CLAIMS, AT ANY
TIME LEVIED OR PLACED ON THE COLLATERAL. LENDER ALSO MAY (BUT SHALL NOT BE
OBLIGATED TO) PAY ALL COSTS FOR INSURING, MAINTAINING AND PRESERVING THE
COLLATERAL. ALL SUCH EXPENDITURES INCURRED OR PAID BY LENDER FOR SUCH PURPOSES
WILL THEN BEAR INTEREST AT THE RATE CHARGED UNDER THE NOTE FROM THE DATE
INCURRED OR PAID BY LENDER TO THE DATE OF REPAYMENT BY GRANTOR. ALL SUCH
EXPENSES SHALL BECOME A PART OF THE INDEBTEDNESS AND, AT LENDER'S OPTION, WILL
(A) BE PAYABLE ON DEMAND, (B) BE ADDED TO THE BALANCE OF THE NOTE AND BE
APPORTIONED AMONG
<PAGE> 23
04-19-1996 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO. 13678 (CONTINUED)
AND BE PAYABLE WITH ANY INSTALLMENT PAYMENTS TO BECOME DUE DURING EITHER (I) THE
TERMS OF ANY APPLICABLE INSURANCE POLICY OR (II) THE REMAINING TERMS OF THE
NOTE, OR (C) BE TREATED AS A BALLOON PAYMENT WHICH WILL BE DUE AND PAYABLE AT
THE NOTE'S MATURITY. THIS AGREEMENT ALSO WILL SECURE PAYMENT OF THESE AMOUNTS.
SUCH RIGHT SHALL BE IN ADDITION TO ALL OTHER RIGHTS AND REMEDIES TO WHICH LENDER
MAY BE ENTITLED UPON THE OCCURRENCE OF AN EVENT OF DEFAULT.
EVENTS OF DEFAULT. EACH OF THE FOLLOWING SHALL CONSTITUTE AN EVENT OF DEFAULT
UNDER THIS AGREEMENT:
DEFAULT ON INDEBTEDNESS. FAILURE OF GRANTOR TO MAKE ANY PAYMENT WHEN DUE
ON THE INDEBTEDNESS.
OTHER DEFAULTS. FAILURE OF GRANTOR TO COMPLY WITH OR TO PERFORM ANY OTHER
TERM, OBLIGATION, COVENANT OR CONDITION CONTAINED IN THIS AGREEMENT OR IN
ANY OF THE RELATED DOCUMENTS OR IN ANY OTHER AGREEMENT BETWEEN LENDER AND
GRANTOR.
DEFAULT IN FAVOR OF THIRD PARTIES. SHOULD BORROWER OR ANY GRANTOR DEFAULT
UNDER ANY LOAN, EXTENSION OF CREDIT, SECURITY AGREEMENT, PURCHASE OF SALES
AGREEMENT, OR ANY OTHER AGREEMENT, IN FAVOR OF ANY OTHER CREDITOR OR
PERSON THAT MAY MATERIALLY AFFECT ANY OF BORROWER'S PROPERTY OR BORROWER'S
OR ANY GRANTOR'S ABILITY TO REPAY THE LOANS OR PERFORM THEIR RESPECTIVE
OBLIGATIONS UNDER THIS AGREEMENT OR ANY OF THE RELATED DOCUMENTS.
FALSE STATEMENTS. ANY WARRANTY, REPRESENTATION OR STATEMENT MADE OR
FURNISHED TO LENDER BY OR ON BEHALF OF GRANTOR UNDER THIS AGREEMENT, THE
NOTE OR THE RELATED DOCUMENTS IS FALSE OR MISLEADING IN ANY MATERIAL
RESPECT, EITHER NOW OR AT THE TIME MADE OR FURNISHED.
DEFECTIVE COLLATERALIZATION. THIS AGREEMENT OR ANY OF THE RELATED
DOCUMENTS CEASES TO BE IN FULL FORCE AND EFFECT (INCLUDING FAILURE OF ANY
COLLATERAL DOCUMENTS TO CREATE A VALID AND PERFECTED SECURITY INTEREST OR
LIEN) AT ANY TIME AND FOR ANY REASON.
INSOLVENCY. THE DISSOLUTION OR TERMINATION OF GRANTOR'S EXISTENCE AS A
GOING BUSINESS, THE INSOLVENCY OF GRANTOR, THE APPOINTMENT OF A RECEIVER
FOR ANY PART OF GRANTOR'S PROPERTY, ANY ASSIGNMENT FOR THE BENEFIT OF
CREDITORS, ANY TYPE OF CREDITOR WORKOUT, OR THE COMMENCEMENT OF ANY
PROCEEDING UNDER ANY BANKRUPTCY OR INSOLVENCY LAWS BY OR AGAINST GRANTOR.
CREDITOR OR FORFEITURE PROCEEDINGS. COMMENCEMENT OF FORECLOSURE OR
FORFEITURE PROCEEDINGS, WHETHER BY JUDICIAL PROCEEDING, SELF-HELP,
REPOSSESSION OR ANY OTHER METHOD, BY ANY CREDITOR OF GRANTOR OR BY ANY
GOVERNMENTAL AGENCY AGAINST THE COLLATERAL OR ANY OTHER COLLATERAL
SECURING THE INDEBTEDNESS. THIS INCLUDES A GARNISHMENT OF ANY GRANTOR'S
DEPOSIT ACCOUNTS WITH LENDER.
EVENTS AFFECTING GUARANTOR. ANY OF THE PRECEDING EVENTS OCCURS WITH
RESPECT TO ANY GUARANTOR OF ANY OF THE INDEBTEDNESS OR SUCH GUARANTOR DIES
OR BECOMES INCOMPETENT.
ADVERSE CHANGE. A MATERIAL ADVERSE CHANGE OCCURS IN GRANTOR'S FINANCIAL
CONDITION, OR LENDER BELIEVES THE PROSPECT OF PAYMENT OR PERFORMANCE OF
THE INDEBTEDNESS IS IMPAIRED.
INSECURITY. LENDER, IN GOOD FAITH, DEEMS ITSELF INSECURE.
RIGHTS AND REMEDIES ON DEFAULT. IF AN EVENT OF DEFAULT OCCURS UNDER THIS
AGREEMENT, AT ANY TIME THEREAFTER, LENDER SHALL HAVE THE RIGHTS OF A SECURED
PARTY UNDER THE CALIFORNIA UNIFORM COMMERCIAL CODE. IN ADDITION AND WITHOUT
LIMITATION, LENDER MAY EXERCISE ANY ONE OR MORE OF THE FOLLOWING RIGHT AND
REMEDIES:
ACCELERATE INDEBTEDNESS. LENDER MAY DECLARE THE ENTIRE INDEBTEDNESS,
INCLUDING ANY PREPAYMENT PENALTY WHICH GRANTOR WOULD BE REQUIRED TO PAY,
IMMEDIATELY DUE AND PAYABLE, WITHOUT NOTICE.
ASSEMBLE COLLATERAL. LENDER MAY REQUIRE GRANTOR TO DELIVER TO LENDER ALL
OR ANY PORTION OF THE COLLATERAL AND ANY AND ALL CERTIFICATES OF TITLE AND
OTHER DOCUMENTS RELATING TO THE COLLATERAL. LENDER MAY REQUIRE GRANTOR TO
ASSEMBLE THE COLLATERAL AND MAKE IT AVAILABLE TO LENDER AT A PLACE TO BE
DESIGNATED BY LENDER. LENDER ALSO SHALL HAVE FULL POWER TO ENTER UPON THE
PROPERTY OF GRANTOR TO TAKE POSSESSION OF AND REMOVE THE COLLATERAL. IF
THE COLLATERAL CONTAINS OTHER GOODS NOT COVERED BY THIS AGREEMENT AT THE
TIME REPOSSESSION, GRANTOR AGREES LENDER MAY TAKE SUCH OTHER GOODS,
PROVIDED THAT LENDER MAKES REASONABLE EFFORTS TO RETURN THEM TO GRANTOR
AFTER REPOSSESSION.
SELL THE COLLATERAL. LENDER SHALL HAVE FULL POWER TO SELL, LEASE,
TRANSFER, OR OTHERWISE DEAL WITH THE COLLATERAL OR PROCEEDS THEREOF IN IT
OWN NAME OR THAT OF GRANTOR. LENDER MAY SELL THE COLLATERAL AT PUBLIC
AUCTION OR PRIVATE SALE. UNLESS THE COLLATERAL THREATENS TO DECLINE
SPEEDILY IN VALUE OR IS OF A TYPE CUSTOMARILY SOLD ON A RECOGNIZED MARKET,
LENDER WILL GIVE GRANTOR REASONABLE NOTICE OF THE TIME AFTER WHICH ANY
PRIVATE SALE OR ANY OTHER INTENDED DISPOSITION OF THE COLLATERAL IS TO BE
MADE. THE REQUIREMENTS OF REASONABLE NOTICE SHALL BE MET IF SUCH NOTICE IS
GIVEN AT LEAST TEN (10) DAYS, OR SUCH LESSER TIME AS REQUIRED BY STATE
LAW, BEFORE THE TIME OF THE SALE OR DISPOSITION. ALL EXPENSES RELATING TO
THE DISPOSITION OF THE COLLATERAL, INCLUDING WITHOUT LIMITATION THE
EXPENSES OF RETAKING, HOLDING, INSURING, PREPARING FOR SALE AND SELLING
THE COLLATERAL, SHALL BECOME A PART OF THE INDEBTEDNESS SECURED BY THIS
AGREEMENT AND SHALL BE PAYABLE ON DEMAND, WITH INTEREST AT THE NOTE RATE
FROM DATE OF EXPENDITURE UNTIL REPAID.
OBTAIN DEFICIENCY. IF LENDER CHOOSES TO SELL ANY OR ALL OF THE COLLATERAL,
LENDER MAY OBTAIN A JUDGMENT AGAINST GRANTOR FOR ANY DEFICIENCY REMAINING
ON THE INDEBTEDNESS DUE TO LENDER AFTER APPLICATION OF ALL AMOUNTS
RECEIVED FROM THE EXERCISE OF THE RIGHTS PROVIDED IN THIS AGREEMENT.
GRANTOR SHALL BE LIABLE FOR A DEFICIENCY EVEN IF THE TRANSACTION DESCRIBED
IN THIS SUBSECTION IS A SALE OF ACCOUNTS OR CHATTEL PAPER.
OTHER RIGHTS AND REMEDIES. LENDER SHALL HAVE ALL THE RIGHTS AND REMEDIES
OF A SECURED CREDITOR UNDER THE PROVISIONS OF THE UNIFORM COMMERCIAL CODE,
AS MAY BE AMENDED FROM TIME TO TIME. IN ADDITION, LENDER SHALL HAVE AND
MAY EXERCISE ANY OR ALL OTHER RIGHTS AND REMEDIES IT MAY HAVE AVAILABLE AT
LAW, IN EQUITY, OR OTHERWISE.
CUMULATIVE REMEDIES. ALL OF LENDER'S RIGHTS AND REMEDIES, WHETHER
EVIDENCED BY THIS AGREEMENT OR THE RELATED DOCUMENTS OR BY ANY OTHER
WRITING, SHALL BE CUMULATIVE AND MAY BE EXERCISED SINGULARLY OR
CONCURRENTLY. ELECTION BY LENDER TO PURSUE ANY REMEDY SHALL NOT EXCLUDE
PURSUIT OF ANY OTHER REMEDY, AND AN ELECTION TO MAKE EXPENDITURES OR TO
TAKE ACTION TO PERFORM AN OBLIGATION OF GRANTOR UNDER THIS AGREEMENT,
AFTER GRANTOR'S FAILURE TO PERFORM, SHALL NOT AFFECT LENDER'S RIGHT TO
DECLARE A DEFAULT AND TO EXERCISE ITS REMEDIES.
MISCELLANEOUS PROVISIONS. THE FOLLOWING MISCELLANEOUS PROVISIONS ARE A PART OF
THIS AGREEMENT:
AMENDMENTS. THIS AGREEMENT, TOGETHER WITH ANY RELATED DOCUMENTS,
CONSTITUTES THE ENTIRE UNDERSTANDING AND AGREEMENT OF THE PARTIES AS TO
THE MATTERS SET FORTH IN THIS AGREEMENT. NO ALTERATION OF OR AMENDMENT TO
THIS AGREEMENT SHALL BE EFFECTIVE UNLESS GIVEN IN WRITING AND SIGNED BY
THE PARTY OR PARTIES SOUGHT TO BE CHARGED OR BOUND BY THE ALTERATION OR
AMENDMENT.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, GRANTOR
AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS
OF ORANGE COUNTY, STATE OF CALIFORNIA. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
ATTORNEYS' FEES; EXPENSES. GRANTOR AGREES TO PAY UPON DEMAND ALL OF
LENDER'S COSTS AND EXPENSES, INCLUDING ATTORNEYS' FEES AND LENDER'S LEGAL
EXPENSES, INCURRED IN CONNECTION WITH THE ENFORCEMENT OF THIS AGREEMENT.
LENDER MAY PAY SOMEONE ELSE TO HELP ENFORCE THIS AGREEMENT AND GRANTOR
SHALL PAY THE COSTS AND EXPENSES OF SUCH ENFORCEMENT. COSTS AND EXPENSES
INCLUDE LENDER'S ATTORNEYS' FEES AND LEGAL EXPENSES WHETHER OR NOT THERE
IS A LAWSUIT, INCLUDING ATTORNEYS' FEES AND LEGAL EXPENSES FOR BANKRUPTCY
PROCEEDINGS (AND INCLUDING EFFORTS TO MODIFY OR VACATE ANY AUTOMATIC STAY
OR INJUNCTION), APPEALS, AND ANY ANTICIPATED POST-JUDGMENT COLLECTION
SERVICES. GRANTOR ALSO SHALL PAY ALL COURT COSTS AND SUCH ADDITIONAL FEES
AS MAY BE DIRECTED BY THE COURT.
CAPTION HEADINGS. CAPTION HEADINGS IN THIS AGREEMENT ARE FOR CONVENIENCE
PURPOSES ONLY AND ARE NOT TO BE USED TO INTERPRET OR DEFINE THE PROVISIONS
OF THIS AGREEMENT.
MULTIPLE PARTIES; CORPORATE AUTHORITY. ALL OBLIGATIONS OF GRANTOR UNDER
THIS AGREEMENT SHALL BE JOINT AND SEVERAL, AND ALL REFERENCES TO GRANTOR
SHALL MEAN EACH AND EVERY GRANTOR. THIS MEANS THAT EACH OF THE BORROWERS
SIGNING BELOW IS RESPONSIBLE FOR ALL OBLIGATIONS IN THIS AGREEMENT.
NOTICES. ALL NOTICES REQUIRED TO BE GIVEN UNDER THIS AGREEMENT SHALL BE
GIVEN IN WRITING, MAY BE SENT BY TELEFACSIMILIE, AND SHALL BE EFFECTIVE
WHEN ACTUALLY DELIVERED OR WHEN DEPOSITED WITH A NATIONALLY RECOGNIZED
OVERNIGHT COURIER OR DEPOSITED IN THE UNITED STATES MAIL, FIRST CLASS,
POSTAGE PREPAID, ADDRESSED TO THE PARTY TO WHOM THE NOTICE IS TO BE GIVEN
AT THE ADDRESS SHOWN ABOVE. ANY PARTY MAY CHANGE ITS ADDRESS FOR NOTICES
UNDER THIS AGREEMENT BY GIVING FORMAL WRITTEN NOTICE TO THE OTHER PARTIES,
SPECIFYING THAT THE PURPOSE OF THE NOTICE IS TO CHANGE THE PARTY'S
ADDRESS. TO THE EXTENT PERMITTED BY APPLICABLE LAW, IF THERE IS MORE THAN
ONE GRANTOR, NOTICE TO ANY GRANTOR WILL CONSTITUTE NOTICE TO ALL GRANTORS.
FOR NOTICE PURPOSES, GRANTOR WILL KEEP LENDER INFORMED AT ALL TIMES OF
GRANTOR'S CURRENT ADDRESS(ES).
POWER OF ATTORNEY. GRANTOR HEREBY APPOINTS LENDER AS ITS TRUE AND LAWFUL
ATTORNEY-IN-FACT, IRREVOCABLY, WITH FULL POWER OF SUBSTITUTION TO DO THE
FOLLOWING: (A) TO DEMAND, COLLECT, RECEIVE, RECEIPT FOR, SUE AND RECOVER
ALL SUMS OF MONEY OR OTHER PROPERTY WHICH MAY NOW OR HEREAFTER BECOME DUE,
OWING OR PAYABLE FROM THE COLLATERAL; (B) TO EXECUTE, SIGN AND ENDORSE ANY
AND ALL CLAIMS, INSTRUMENTS, RECEIPTS, CHECKS, DRAFTS OR WARRANTS ISSUED
IN PAYMENT FOR THE COLLATERAL; (C) TO SETTLE OR COMPROMISE ANY AND ALL
CLAIMS ARISING UNDER THE COLLATERAL, AND, IN THE PLACE AND STEAD OF
GRANTOR, TO EXECUTE AND DELIVER ITS RELEASE AND SETTLEMENT FOR THE CLAIM;
AND (D) TO FILE ANY CLAIM OR CLAIMS OR TO TAKE ANY ACTION OR INSTITUTE OR
TAKE PART IN ANY PROCEEDINGS, EITHER IN ITS OWN NAME OR IN THE NAME OF
GRANTOR, OR OTHERWISE, WHICH IN THE DISCRETION OF LENDER MAY SEEM TO BE
NECESSARY OR ADVISABLE. THIS POWER IS GIVEN AS SECURITY FOR THE
INDEBTEDNESS, AND THE AUTHORITY HEREBY CONFERRED IS AND SHALL BE
IRREVOCABLE AND SHALL REMAIN IN FULL FORCE AND EFFECT UNTIL RENOUNCED BY
LENDER.
<PAGE> 24
04-19-1996 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO. 13678 (CONTINUED)
PREFERENCE PAYMENTS. ANY MONIES LENDER PAYS BECAUSE OF AN ASSERTED
PREFERENCE CLAIM IN BORROWER'S BANKRUPTCY WILL BECOME A PART OF THE
INDEBTEDNESS AND, AT LENDER'S OPTION, SHALL BE PAYABLE BY BORROWER AS
PROVIDED ABOVE IN THE "EXPENDITURES BY LENDER" PARAGRAPH.
SEVERABILITY. IF A COURT OF COMPETENT JURISDICTION FINDS ANY PROVISION OF
THIS AGREEMENT TO BE INVALID OR UNENFORCEABLE AS TO ANY PERSON OR
CIRCUMSTANCE, SUCH FINDING SHALL NOT RENDER THAT PROVISION INVALID OR
UNENFORCEABLE AS TO ANY OTHER PERSONS OR CIRCUMSTANCES. IF FEASIBLE, ANY
SUCH OFFENDING PROVISION SHALL BE DEEMED TO BE MODIFIED TO BE WITHIN THE
LIMITS OF ENFORCEABILITY OR VALIDITY; HOWEVER, IF THE OFFENDING PROVISION
CANNOT BE SO MODIFIED, IT SHALL BE STRICKEN AND ALL OTHER PROVISIONS OF
THIS AGREEMENT IN ALL OTHER RESPECTS SHALL REMAIN VALID AND ENFORCEABLE.
SUCCESSOR INTERESTS. SUBJECT TO THE LIMITATIONS SET FORTH ABOVE ON
TRANSFER OF THE COLLATERAL, THIS AGREEMENT SHALL BE BINDING UPON AND INURE
TO THE BENEFIT OF THE PARTIES, THEIR SUCCESSORS AND ASSIGNS.
WAIVER. LENDER SHALL NOT BE DEEMED TO HAVE WAIVED ANY RIGHTS UNDER THIS
AGREEMENT UNLESS SUCH WAIVER IS GIVEN IN WRITING AND SIGNED BY LENDER. NO
DELAY OR OMISSION ON THE PART OF LENDER IN EXERCISING ANY RIGHT SHALL
OPERATE AS A WAIVER OF SUCH RIGHT OR ANY OTHER RIGHT. A WAIVER BY LENDER
OF A PROVISION OF THIS AGREEMENT SHALL NOT PREJUDICE OR CONSTITUTE A
WAIVER OF LENDER'S RIGHT OTHERWISE TO DEMAND STRICT COMPLIANCE WITH THAT
PROVISION OR ANY OTHER PROVISION OF THIS AGREEMENT. NO PRIOR WAIVER BY
LENDER, NOR ANY COURSE OF DEALING BETWEEN LENDER AND GRANTOR, SHALL
CONSTITUTE A WAIVER OF ANY OF LENDER'S RIGHTS OR OF ANY OF GRANTOR'S
OBLIGATIONS AS TO ANY FUTURE TRANSACTIONS. WHENEVER THE CONSENT OF LENDER
IS REQUIRED UNDER THIS AGREEMENT, THE GRANTING OF SUCH CONSENT BY LENDER
IN ANY INSTANCE SHALL NOT CONSTITUTE CONTINUING CONSENT TO SUBSEQUENT
INSTANCES WHERE SUCH CONSENT IS REQUIRED AND IN ALL CASES SUCH CONSENT MAY
BE GRANTED OR WITHHELD IN THE SOLE DISCRETION OF LENDER.
WAIVER OF CO-OBLIGOR'S RIGHTS. IF MORE THAN ONE PERSON IS OBLIGATED FOR
THE INDEBTEDNESS, BORROWER IRREVOCABLY WAIVES, DISCLAIMS AND RELINQUISHES
ALL CLAIMS AGAINST SUCH OTHER PERSON WHICH BORROWER HAS OR WOULD OTHERWISE
HAVE BY VIRTUE OF PAYMENT OF THE INDEBTEDNESS OR ANY PART THEREOF,
SPECIFICALLY INCLUDING BUT NOT LIMITED TO ALL RIGHTS OF INDEMNITY,
CONTRIBUTION OR EXONERATION.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED APRIL 19,
1996.
GRANTOR:
BOYD'S WHEELS, INC.
BY: /s/ BOYD CODDINGTON
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
LASER PRO, REG. U.S. PAT. & T.M. OFF., VER. 3.21 (C) 1996 CFI PROSERVICES, INC.
ALL RIGHTS RESERVED. [CA-E-40 E3.20 41 BOYDS3.LN C2.OVL]
<PAGE> 25
[ELDORADO BALNK LOGO]
DISBURSEMENT REQUEST AND AUTHORIZATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$599,874.42 04-19-1996 05-01-2001 13483 510 055 104121 GG1
- ------------------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
LOAN TYPE. THIS IS A VARIABLE RATE (1.750% OVER WALL STREET JOURNAL PRIME RATE,
MAKING AN INITIAL RATE OF 10.000%), PRINCIPAL PLUS INTEREST LOAN TO A
CORPORATION FOR $599,874.42 DUE ON MAY 1, 2001.
PRIMARY PURPOSE OF LOAN. THE PRIMARY PURPOSE OF THIS LOAN IS FOR (PLEASE
INITIAL):
/ / ____ PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT
/x/ ____ BUSINESS (INCLUDING REAL ESTATE INVESTMENT)
SPECIFIC PURPOSE. THE SPECIFIC PURPOSE OF THIS LOAN IS: TO TERM OUT NOTE #13483,
ORIGINAL PURPOSE WAS TO PURCHASE EQUIPMENT.
DISBURSEMENT INSTRUCTIONS. BORROWER UNDERSTANDS THAT NO LOAN PROCEEDS WILL BE
DISBURSED UNTIL ALL OF LENDER'S CONDITIONS FOR MAKING THE LOAN HAVE BEEN
SATISFIED. PLEASE DISBURSE THE LOAN PROCEEDS OF $599,874.42 AS FOLLOWS:
AMOUNT PAID ON BORROWER'S ACCOUNT: $599,874.42
$599,874.42 PAYMENT ON LOAN # 13483
-----------
NOTE PRINCIPAL: $599,874.42
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED APRIL 19, 1996.
BORROWER:
BOYD'S WHEELS, INC.
BY: /s/ BOYD CODDINGTON
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
VARIABLE RATE. PRINCIPAL + INTEREST. LASER PRO, REG. U.S. PAT. & T.M. OFF., VER.
3.21 (C) 1996 CFI PROSERVICES, INC. ALL RIGHTS RESERVED. [CA-120 E3.20 41
BOYDS2.LN C2.OVL]
<PAGE> 26
[ELDORADO BANK LOGO]
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$599,874.42 04-19-1996 05-01-2001 13483 510 055 104121 GG1
- -----------------------------------------------------------------------------------------------------------------------------------
REFERENCES IN THE SHADED AREA ARE FOR LENDER'S USE ONLY AND DO NOT LIMIT THE APPLICABILITY OF THIS DOCUMENT TO ANY PARTICULAR LOAN
OR ITEM.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
BORROWER: BOYD'S WHEELS, INC. LENDER: ELDORADO BANK
8380 CERRITOS AVENUE TUSTIN OFFICE
STANTON, CA 90680 17752 E. 17TH STREET
TUSTIN, CA 92680
<TABLE>
<S> <C> <C>
PRINCIPAL AMOUNT: $599,874.42 INITIAL RATE: 10.000% DATE OF NOTE: APRIL 19, 1996
</TABLE>
PROMISE TO PAY. BOYD'S WHEELS, INC. ("BORROWER") PROMISES TO PAY TO ELDORADO
BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF FIVE HUNDRED NINETY NINE THOUSAND EIGHT HUNDRED SEVENTY FOUR
& 42/100 DOLLARS ($599,874.42), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL
BALANCE FROM APRIL 19, 1996, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN 50 PRINCIPAL
PAYMENTS OF $10,000.000 EACH AND ONE FINAL PRINCIPAL AND INTEREST PAYMENT OF
$9,956.71. BORROWER'S FIRST PRINCIPAL PAYMENT IS DUE JUNE 1, 1996, AND ALL
SUBSEQUENT PRINCIPAL PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT.
IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID
INTEREST DUE AS OF EACH PAYMENT DATE. BORROWER'S FIRST INTEREST PAYMENT IS DUE
JUNE 1, 1996, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF
EACH MONTH AFTER THAT. BORROWER'S FINAL PAYMENT DUE MAY 1, 2001, WILL BE FOR ALL
PRINCIPAL AND ACCRUED INTEREST NOT YET PAID. INTEREST ON THE NOTE IS COMPUTED ON
A 365/360 SIMPLE INTEREST BASIS; THAT IS, BY APPLYING THE RATIO OF THE ANNUAL
INTEREST RATE OVER A YEAR OF 360 DAYS, MULTIPLIED BY THE OUTSTANDING PRINCIPAL
BALANCE, MULTIPLIED BY THE OUTSTANDING PRINCIPAL BALANCE, MULTIPLIED BY THE
ACTUAL NUMBER OF DAYS THE PRINCIPAL BALANCE IS OUTSTANDING. BORROWER WILL PAY
LENDER AT LENDER'S ADDRESS SHOWN ABOVE OR AT SUCH OTHER PLACE AS LENDER MAY
DESIGNATE IN WRITING. UNLESS OTHERWISE AGREED OR REQUIRED BY APPLICABLE LAW,
PAYMENTS WILL BE APPLIED FIRST TO ACCRUED UNPAID INTEREST, THEN TO PRINCIPAL,
AND ANY REMAINING AMOUNT TO ANY UNPAID COLLECTION COSTS AND LATE CHARGES.
VARIABLE INTEREST RATE. THE INTEREST RATE ON THIS NOTE IS SUBJECT TO CHANGE FROM
TIME TO TIME BASED ON CHANGES IN AN INDEPENDENT INDEX WHICH IS THE WALL STREET
JOURNAL PRIME RATE (THE "INDEX"). THE INDEX IS NOT NECESSARILY THE LOWEST RATE
CHARGED BY LENDER ON ITS LOANS. IF THE INDEX BECOMES UNAVAILABLE DURING THE TERM
OF THIS LOAN, LENDER MAY DESIGNATE A SUBSTITUTE INDEX AFTER NOTICE TO BORROWER.
LENDER WILL TELL BORROWER THE CURRENT INDEX RATE UPON BORROWER'S REQUEST.
BORROWER UNDERSTANDS THAT LENDER MAY MAKE LOANS BASED ON OTHER RATES AS WELL.
THE INTEREST RATE CHANGE WILL NOT OCCUR MORE OFTEN THAN EACH DAY. THE INDEX
CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID
PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 1.750 PERCENTAGE POINTS OVER
THE INDEX, RESULTING IN AN INITIAL RATE OF 10.000% PER ANNUM. NOTICE: UNDER NO
CIRCUMSTANCES WILL THE INTEREST RATE ON THIS NOTE BE MORE THAN THE MAXIMUM RATE
ALLOWED BY APPLICABLE LAW.
PREPAYMENT; MINIMUM INTEREST CHARGE. IN ANY EVENT, EVEN UPON FULL PREPAYMENT OF
THIS NOTE, BORROWER UNDERSTANDS THAT LENDER IS ENTITLED TO A MINIMUM INTEREST
CHARGE OF $100.00. OTHER THAN BORROWER'S OBLIGATION TO PAY ANY MINIMUM INTEREST
CHARGE, BORROWER MAY PAY WITHOUT PENALTY ALL OR A PORTION OF THE AMOUNT OWED
EARLIER THAN IT IS DUE. EARLY PAYMENTS WILL NOT, UNLESS AGREED TO BY LENDER IN
WRITING, RELIEVE BORROWER OF BORROWER'S OBLIGATION TO CONTINUE TO MAKE PAYMENTS
OF ACCRUED UNPAID INTEREST. RATHER, THEY WILL REDUCE THE PRINCIPAL BALANCE DUE.
LATE CHARGE. IF A PAYMENT IS 10 DAYS OR MORE LATE, BORROWER WILL BE CHARGED
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $10.00, WHICHEVER IS GREATER.
DEFAULT. BORROWER WILL BE IN DEFAULT IF ANY OF THE FOLLOWING HAPPENS: (A)
BORROWER FAILS TO MAKE ANY PAYMENT WHEN DUE. (B) BORROWER BREAKS ANY PROMISE
BORROWER HAS MADE TO LENDER, OR BORROWER FAILS TO COMPLY WITH OR TO PERFORM WHEN
DUE ANY OTHER TERM, OBLIGATION, COVENANT, OR CONDITION CONTAINED IN THIS NOTE OR
ANY AGREEMENT RELATED TO THIS NOTE, OR IN ANY OTHER AGREEMENT OR LOAN BORROWER
HAS WITH LENDER. (C) BORROWER DEFAULTS UNDER ANY LOAN, EXTENSION OF CREDIT,
SECURITY AGREEMENT, PURCHASE OR SALES AGREEMENT, OR ANY OTHER AGREEMENT, IN
FAVOR OF ANY OTHER CREDITOR OR PERSON THAT MAY MATERIALLY AFFECT ANY OF
BORROWER'S PROPERTY OR BORROWER'S ABILITY TO REPAY THIS NOTE OR PERFORM
BORROWER'S OBLIGATIONS UNDER THIS NOTE OR ANY OF THE RELATED DOCUMENTS. (D) ANY
REPRESENTATION OR STATEMENT MADE OR FURNISHED TO LENDER BY BORROWER OR ON
BORROWER'S BEHALF IS FALSE OR MISLEADING IN ANY MATERIAL RESPECT EITHER NOW OR
AT THE TIME MADE OR FURNISHED. (E) BORROWER BECOMES INSOLVENT, A RECEIVER IS
APPOINTED FOR ANY PART OF BORROWER'S PROPERTY, BORROWER MAKES AN ASSIGNMENT FOR
THE BENEFIT OF CREDITORS, OR ANY PROCEEDING IS COMMENCED EITHER BY BORROWER OR
AGAINST BORROWER UNDER ANY BANKRUPTCY OR INSOLVENCY LAWS. (F) ANY CREDITOR TRIES
TO TAKE ANY OF BORROWER'S PROPERTY ON OR IN WHICH LENDER HAS A LIEN OR SECURITY
INTEREST. THIS INCLUDES A GARNISHMENT OF ANY OF BORROWER'S ACCOUNTS WITH LENDER.
(G) ANY GUARANTOR DIES OR ANY OF THE OTHER EVENTS DESCRIBED IN THIS DEFAULT
SECTION OCCURS WITH RESPECT TO ANY GUARANTOR OF THIS NOTE. (H) A MATERIAL
ADVERSE CHANGE OCCURS IN BORROWER'S FINANCIAL CONDITION, OR LENDER BELIEVES THE
PROSPECT OF PAYMENT OR PERFORMANCE OF THE INDEBTEDNESS IS IMPAIRED.
LENDER'S RIGHTS. UPON DEFAULT, LENDER MAY DECLARE THE ENTIRE UNPAID PRINCIPAL
BALANCE ON THIS NOTE AND ALL ACCRUED UNPAID INTEREST IMMEDIATELY DUE, WITHOUT
NOTICE, AND THEN BORROWER WILL PAY THAT AMOUNT. UPON BORROWER'S FAILURE TO PAY
ALL AMOUNTS DECLARED DUE PURSUANT TO THIS SECTION, INCLUDING FAILURE TO PAY UPON
FINAL MATURITY, LENDER, AT ITS OPTION, MAY ALSO, IF PERMITTED UNDER APPLICABLE
LAW, INCREASE THE VARIABLE INTEREST RATE ON THIS NOTE TO 6.750 PERCENTAGE POINTS
OVER THE INDEX. LENDER MAY HIRE OR PAY SOMEONE ELSE TO HELP COLLECT THIS NOTE IF
BORROWER DOES NOT PAY. BORROWER ALSO WILL PAY LENDER THAT AMOUNT. THIS INCLUDES,
SUBJECT TO ANY LIMITS UNDER APPLICABLE LAW, LENDER'S ATTORNEYS' FEES AND
LENDERS' LEGAL EXPENSES WHETHER OR NOT THERE IS A LAWSUIT, INCLUDING ATTORNEYS'
FEES AND LEGAL EXPENSES FOR BANKRUPTCY PROCEEDINGS (INCLUDING EFFORTS TO MODIFY
OR VACATE ANY AUTOMATIC STAY OR INJUNCTION), APPEALS, AND ANY ANTICIPATED
POST-JUDGMENT COLLECTION SERVICES. BORROWER ALSO WILL PAY ANY COURT COSTS, IN
ADDITION TO ALL OTHER SUMS PROVIDED BY LAW. THIS NOTE HAS BEEN DELIVERED TO
LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT,
BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF ORANGE COUNTY, THE STATE OF CALIFORNIA. THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
RIGHT OF SETOFF. BORROWER GRANTS TO LENDER A CONTRACTUAL PROMISSORY SECURITY
INTEREST IN, AND HEREBY ASSIGNS, CONVEYS, DELIVERS, PLEDGES, AND TRANSFERS TO
LENDER ALL BORROWER'S RIGHT, TITLE AND INTEREST IN AND TO, BORROWER'S ACCOUNTS
WITH LENDER (WHETHER CHECKING, SAVINGS, OR SOME OTHER ACCOUNT), INCLUDING
WITHOUT LIMITATION ALL ACCOUNTS HELD JOINTLY WITH SOMEONE ELSE AND ALL ACCOUNTS
BORROWER MAY OPEN IN THE FUTURE, EXCLUDING HOWEVER ALL IRA AND KEOGH ACCOUNTS,
AND ALL TRUST ACCOUNTS FOR WHICH THE GRANT OF A SECURITY INTEREST WOULD BE
PROHIBITED BY LAW. BORROWER AUTHORIZES LENDER, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, TO CHARGE OR SETOFF ALL SUMS OWING ON THIS NOTE AGAINST ANY AND
ALL SUCH ACCOUNTS.
COLLATERAL. THIS NOTE IS SECURED BY VARIOUS SECURITY AGREEMENTS DATED NOVEMBER
28, 1995, JANUARY 10, 1996 AND MARCH 19, 1996.
<PAGE> 27
04-19-1996 PROMISSORY NOTE PAGE 2
LOAN NO. 13483 (CONTINUED)
GENERAL PROVISIONS. THIS NOTE IS PAYABLE ON DEMAND. THE INCLUSION OF SPECIFIC
DEFAULT PROVISIONS OR RIGHTS OF LENDER SHALL NOT PRECLUDE LENDER'S RIGHT TO
DECLARE PAYMENT OF THIS NOTE ON ITS DEMAND. LENDER MAY DELAY OR FORGO ENFORCING
ANY OF ITS RIGHTS OR REMEDIES UNDER THIS NOTE WITHOUT LOSING THEM. BORROWER AND
ANY OTHER PERSON WHO SIGNS, GUARANTEES OR ENDORSES THIS NOTE, TO THE EXTENT
ALLOWED BY LAW, WAIVE ANY APPLICABLE STATUTE OF LIMITATIONS, PRESENTMENT, DEMAND
FOR PAYMENT, PROTEST AND NOTICE OF DEBTOR. UPON ANY CHANGE IN THE TERMS OF THIS
NOTE, AND UNLESS OTHERWISE EXPRESSLY STATED IN WRITING, NO PARTY WHO SIGNS THIS
NOTE, WHETHER AS MAKER, GUARANTOR, ACCOMMODATION, MAKER OR ENDORSER, SHALL BE
RELEASED FROM LIABILITY. ALL SUCH PARTIES AGREE THAT LENDER MAY RENEW OR EXTEND
(REPEATEDLY AND FOR ANY LENGTH OF TIME) THIS LOAN, OR RELEASE ANY PARTY OR
GUARANTOR OR COLLATERAL; OR IMPAIR, FAIL TO REALIZE UPON OR PERFECT LENDER'S
SECURITY INTEREST IN THE COLLATERAL; AND TAKE ANY OTHER ACTION DEEMED NECESSARY
BY LENDER WITHOUT THE CONSENT OF OR NOTICE TO ANYONE. ALL SUCH PARTIES ALSO
AGREE THAT LENDER MAY MODIFY THIS LOAN WITHOUT THE CONSENT OF OR NOTICE TO
ANYONE OTHER THAN THE PARTY WITH WHOM THE MODIFICATION IS MADE.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
BOYD'S WHEELS, INC.
BY: /s/ BOYD CODDINGTON
-------------------------------
BOYD CODDINGTON, CHAIRMAN & CEO
VARIABLE RATE. PRINCIPAL + INTEREST.LASER PRO, REG. U.S. PAT. & T.M. OFF., VER.
3.21 (C) 1996 CFI PROSERVICES, INC. ALL RIGHTS RESERVED. [CA-D20 E3.20 41
BOYDS2.LN C2.OVL]
<PAGE> 1
EXHIBIT 10.2
CLOSED END VEHICLE LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into this 18 day of March 1996 between:
LESSOR Eldorado Bank Leasing
whose address is 19100 Von Karman Suite #550, Irvine, CA 92715 and
LESSEE Boyd's Wheels, Inc.
whose address is 8380 Cerritos Ave., Stanton, CA 90680
and covers the lease of the vehicle described below. As used in this agreement
the words "I", "me", or "my" refer to the Lessee and "you" or "your" refer to
the Lessor. I understand that the consumer lease disclosures you have included
in this lease are also made on behalf of _____________________________________
________________________________
DESCRIPTION OF LEASED VEHICLE
<TABLE>
<CAPTION>
MODEL YEAR MAKE MODEL BODY STYLE COLOR VEHICLE I.D. NUMBER LICENSE NUMBER
<S> <C> <C> <C> <C> <C> <C>
1996 Dodge Caravan Van Flame Red 2B4FP2539TR692299 NEW
</TABLE>
Vehicle includes following equipment and accessories:
<TABLE>
<S> <C> <C> <C>
X Air Conditioning Power Windows X Transmission Auto X Other Equipment Per M.S.R.P.
X Power Brakes Power Door Locks Radio X AntiLock Brakes
X Power Steering Power Seat Wheels
Tilt Wheel Cruise Control Roof/Rack
Trunk Key No. Ignition Key No. Leather
</TABLE>
1. AGREEMENT TO LEASE
I agree to lease from you the vehicle described above. My obligations
and your obligations under this lease begin when you and I sign this
form. If the vehicle is not delivered to me at such time, you will use
your best efforts to deliver it to me as soon as practicable.
2. LEASE COMPUTATIONS
<TABLE>
<S> <C>
a. Lease Term (from lease signing) 1. 36 months
---------------
2. -0- days
------------
b. End of Lease Purchase Option Price $ 10,050.00
---------------
(based in part on an average of
15,000 miles annually)
c. Average Monthly Lease Depreciation $ 234.12
---------------
d. Base Monthly Lease Payment $ 337.86
---------------
e. Sales/Use Tax 7.75 % of d. $ 26.18*+
---------------
f. Luxury Car Tax $-0-
---------------
g. Total Monthly Lease Payment (d. plus f.) $ 364.04*
---------------
I promise to pay you the number of monthly
lease payment indicated in a.1. above, with
the first payment to be due March 18, 1996
and the remaining payments to be due on the
18 day of each month, beginning on
April 18, 1996
h. Sum of All Monthly Lease Payments and $ 13,105.44*
Prorata Rent (a.1. times g. plus 3.c. plus 3.d.) ---------------
i. Excess Mileage Charge 15 c
j. Early Termination Commencement 12 payments
(right commences after making this number of
monthly lease payments)
</TABLE>
* Estimate based on current sales/use tax rate
+ MTE tax reimbursement,if appropriate.
<PAGE> 2
3. AMOUNTS DUE AT LEASE SIGNING
I will pay the amounts indicated below when I sign this lease:
<TABLE>
<S> <C>
a. Lease Inception Payment
1. Trade-In Allowance $ -0-
-----------
Description N/A
2. Cash $ -0-
-----------
3. Total $ -0-
-----------
b. Tax on Lease Inception Payment $ -0-
-----------
c. Prorata Rent $ -0-
-----------
d. Tax on Prorata Rent $ -0-
-----------
e. Refundable Security Deposit $ 350.00
-----------
f. First Monthly Lease Payment $ 364.04
(includes sales/use tax) -----------
g. First Year's License/Registration/Excise Fees $ 396.00
-----------
h. Luxury Car Tax $ -0-
-----------
i. Other $ -0-
-------------------------------- -----------
j. TOTAL (a. through i.) $ 1,110.04
-----------
</TABLE>
4. INSURANCE
I agree that I must pay for and maintain during the lease term, and
until the vehicle is returned to you, insurance on the vehicle which has
the following minimum coverages:
<TABLE>
<S> <C>
a. BODILY INJURY LIABILITY: $100,000/300,000
----------------
b. PROPERTY DAMAGE LIABILITY $ 50,000
----------------
c. COLLISION WITH MAXIMUM DEDUCTIBLE OF: $ 1,000
----------------
d. COMPREHENSIVE WITH MAXIMUM
DEDUCTIBLE OF: (Including fire and theft) $ 1,000
----------------
</TABLE>
I understand that the policy must provide primary coverage for you
and/or another party you specify as an Additional Insured on coverage a.
and b. and for your or your assignee as Loss Payee on coverages c. and
d. and must also provide all insureds with at least 10 days notice of
cancellation or policy revision. I will buy the insurance from an
insurance company which is acceptable to you and will furnish you with
whatever written proof of coverage you may require.
INSURANCE COMPANY'S NAME
------------------------------------------------
AGENT'S NAME
------------------------------------------------------------
AGENT'S ADDRESS AND PHONE NUMBER
----------------------------------------
------------------------------------------------------------------------
( )
------------------------------------------------------------------------
INSURANCE VERIFIED BY:
--------------------------------------------------
POLICY NO EXPIRATION DATE:
--------------------------------------------------------------
BINDER NO. EFFECTIVE DATE:
--------------------------------------------------------------
<TABLE>
<S> <C>
5. OFFICIAL FEES AND TAXES
a. Estimated Sales/Use Tax During
Lease Term (2.a.1x2.e.+3.b.+3.d.) $ 942.48
----------
b. Estimated License/Registration/Excise Fees
During Lease Term (3.g. or other estimate times
number of years of lease) $ 1,188.00
----------
c. Luxury Car Tax (2.a.1 times 2.f. or 3.h.) $ -0-
----------
d. TOTAL (a. plus b. plus c.) $ 2,130.48
----------
</TABLE>
6. MECHANICAL BREAKDOWN PROTECTION
<PAGE> 3
While I have no obligation to do so, I understand that I may purchase
from you a contract under which I will have the right to have a portion
of the costs of repair of certain major mechanical breakdowns of the
vehicle and some related expenses paid by the contract administrator
listed in the contract. The term of this protection would be N/A years
from the date the lease is signed or until the vehicle's odometer shows
N/A miles, whichever happens first. If I have decided to purchase this
protection, I have reviewed the terms of the contract which describe the
details of this protection and understand that a copy of the filled-in
contract will be sent to me as soon as practicable. I have chosen the
following option:
a. I choose to purchase your mechanical breakdown LESSEE(S)
protection contract for the price of $ N/A INITIALS
which I will pay when I sign the lease. -------
b. I choose to purchase your mechanical LESSEE(S)
breakdown protection contract INITIALS
and have its cash value of $ N/A -------
If I have not initialed either a. or b., I have chosen not to purchase
your mechanical breakdown protection contract.
7. INSURANCE PROCEEDS DEFICIENCY LIABILITY RELEASE
As noted in Item 20, in the event of a casualty loss to the vehicle I
will be obligated to pay any difference between the proceeds of my
insurance and the total amount of my obligations under this lease.
However, if I have initialed below, I agree to purchase your optional
insurance proceeds deficiency liability release. If I purchase this
release, you will waive any right to collect a deficiency in insurance
proceeds from me in the event of a casualty loss of the vehicle which is
covered fully by my insurance policy. I understand that this release
does not cover the deductible under the policy, the product of item 2.f.
and the number of monthly lease payments remaining during the lease term
or amounts which may be past due at the time of a casualty and that I
will still be obligated to pay those amounts. I also understand this
release will not apply if an event not covered by my insurance policy,
such as a confiscation, occurs.
a. I choose to purchase your insurance proceeds deficiency liability
release for the price of $ N/A which I will pay when I sign
the lease.
-------
Lessee Initials
b. I choose to purchase your insurance proceeds deficiency liability
release and have its cash price of $ N/A amortized in the
monthly lease payments.
---------
Lessee Initials
If I have not initialed a. or b., I have chosen not to purchase this
release.
8. LEASE CHARGES AND DEPRECIATION
Portions of each monthly lease payment are for depreciation, lease fee
and sales/use/luxury car tax. While the total amount of each monthly
lease payment will be the same (assuming that current sales/use tax
rates, if applicable, do not change), the depreciation and lease fee
portions will differ with each payment. I realize this allocation of
monthly lease payments may be important in determining my liability if
the lease is terminated early as explained in Item 15 or the price at
which I may purchase the vehicle, if I have that option, as explained in
item 9. The next paragraph explains how the lease fee and depreciation
portions of any monthly lease payment are figured.
During the lease term you will earn a total of lease fees equal to the
product of the number of monthly lease payments due during the lease
term, Item 2.a.1., times the difference between the Base Monthly Lease
Payment, Item 2.d., and the average monthly lease depreciation, Item
2.c. These lease fees will be earned by you on a constant yield basis in
relation to the "adjusted lease balance" as it declines during the lease
term. The lease fee portion for any monthly lease payment is figured by
multiplying the rate which provides a constant yield times the adjusted
lease balance. At any given time, the adjusted lease balance is the
difference between the Initial
<PAGE> 4
Lease Balance described in the next sentence and the sum of (1) the
total depreciation amounts for all previously due monthly lease payments
and (2) one Base Monthly Lease Payment. The Initial Lease Balance equals
the End of Lease Purchase Option Price, Item 2.b., plus the product of
the average monthly lease depreciation, Item 2.c., and the number of
monthly lease payments due during the lease term, Item 2.a.1 The portion
of a monthly lease payment which does not go to either lease fees or
sales/use/luxury car tax is for depreciation. I realize I will not
receive any credit for depreciation for any prorata rent shown in Item
3.c.. These calculations follow the rules for journal entries for
lessors as to "Direct Financing Leases" set forth in the Financial
Accounting Standards Board's Standard No. 13.
9. PURCHASE OPTION
I understand that instead of returning the vehicle to you at expiration
or early termination, I may purchase the vehicle "AS-IS, WHERE-IS" if
this lease is not in default for the sum of:
a. The end of Lease Purchase Option Price, Item 2.b., if I purchase the
vehicle depreciation amounts credited to it as also described in Item
8, if I purchase the vehicle at early termination; plus
b. a purchase option fee of $200; plus
c. the product of Item 2.f. and the number of monthly lease payments
remaining during the lease term; plus
d. any official fees and taxes imposed in connection with the purchase.
I also realize that this is a lease and except for my right to possess
and use the vehicle while I keep my promises under this lease, I have no
ownership interest in the vehicle, its equipment, accessories or
replacement parts unless I exercise the purchase option.
10. OFFICIAL FEES AND TAXES
I agree to be responsible for the payment when due of all official fees
and taxes (other than your net income taxes) imposed by any governmental
authority in connection with the vehicle or this lease. You have
estimated in Item 5.d. the total of official fees and taxes you expect I
will have to pay during the lease term. I also understand there may be
excise or similar taxes which are assessed during the lease term but are
not due until afterwards and that I will remain liable for these
amounts.
11. LATE CHARGE AND LATE RETURN
If any monthly lease payment is not received by you within 10 days of
its due date, a late charge of the least of 5% of that payment, $25 or
such amount as may be set by law will be imposed, which I agree to pay.
I will pay you a returned check charge of $15 for any check I give you
which is not honored.
In addition, if I do not return the vehicle to you at lease expiration,
I will be liable for an additional monthly lease payment for each month
or portion of a month I retain the vehicle. I realize, however, that I
have no right to retain the vehicle after lease expiration without your
consent and that my holding over is a default under the lease.
12. VEHICLE RETURN
I understand that upon lease termination I must return the vehicle to
the place you specify. I also understand that I must pay you my
termination liability as calculated in Item 14 or 15 below, whichever is
applicable.
13. VEHICLE VALUATION AT EARLY TERMINATION
My termination liability in the event of early termination may be
affected by the realized value of the vehicle. The realized value may be
determined in one of the following ways:
a. Within 10 days after return of the vehicle, you and I may enter into
a written agreement as to the vehicle's value, should I request it,
or I may obtain a professional appraisal of the
<PAGE> 5
wholesale value of the vehicle which could be realized upon sale made
by a qualified person I find, who is acceptable to you as well as to
me. I know that the expense for any such appraisal will be mine.
b. If the realized value is not determined as above within 10 days after
return of the vehicle, you will attempt to obtain 3 bids to purchase
the vehicle at wholesale for cash or to dispose of the vehicle in
some other commercially reasonable manner. I will have the right to
submit a written bid which you agree to consider together with all
other bids you may receive. Even though you may decide not to sell
the vehicle to any bidder, the highest bona fide bid received (which
is supported by whatever proof of ability to pay you may require)
will be considered the realized value of the vehicle.
I understand that the realized value amount will be exclusive of any
official fees and taxes imposed upon vehicle disposition.
14. END OF LEASE TERMINATION LIABILITY
I agree that my payment liability at the end of the lease term will be
the sum of:
a. a termination fee of $350; plus
b. any monthly lease payments due you which are unpaid and any other
amounts arising from my failure to keep my promises under this lease;
plus
c. a charge shown in Item 2.i. for each mile the vehicle has been driven
in excess of the mileage the vehicle would have if it had been driven
the average number of miles a year stated in Item 2.b.; plus
d. any official fees and taxes imposed in connection with lease
termination (for example, sales/use taxes due on a mileage charge
under c.).
15. EARLY TERMINATION LIABILITY
At any time after I have paid the number of monthly lease payments
indicated in Item 2.j., I may terminate this lease on the due date of a
monthly lease payment if this lease is not in default. At any time after
I sign this lease, you may terminate it if conditions as stated in Item
20 occur or this lease is in default as stated in Item 21.
I agree that, except as provided in Items 7, 9 and 20, my payment
liability upon early termination will be the sum of:
1. a termination fee of $350; plus
b. any monthly lease payments already due you which are unpaid, any
monthly lease payments which would be due you before my early
termination right commences and any other amounts arising from my
failure to keep my promises under this lease; plus
c. the product of Item 2.f. and the number of monthly lease payments
remaining during the lease term; plus
d. the amount, if any, by which the Initial Lease Balance described in
Item 8 less all depreciation amounts credited to it as also described
in Item 8 exceeds the realized value; plus
e. any official fees and taxes imposed in connection with lease
termination (for example, sales/use taxes due on a deficiency balance
under d.).
16. VEHICLE MAINTENANCE
I agree at my expense to have the vehicle serviced in accordance with
the manufacturers' recommendations, to maintain the vehicle in good
running order and condition and to have all necessary repairs made.
Unless I obtain your written consent beforehand, I will not make any
changes to the vehicle which would decrease its economic value or
functional utility. Any changes made to the vehicle which cannot be
removed without decreasing its economic value or functional utility will
become your property when made. If you request, you may inspect the
vehicle at any reasonable time.
<PAGE> 6
I also agree that when I return the vehicle to you, if I have properly
maintained the vehicle, it will be in good running order and condition
and will have, among other things, no less than 5 matching tires of
equal quality to the originals (or 4 with emergency "doughnut" spare),
with each tire having at least 1/8 inch of remaining tread at its
shallowest point, and no chips, scratches, cracks or other damage or
defects in the glass, body or interior beyond normal wear and tear. If
it costs you more than $75 to put the vehicle in this condition, I
promise to pay the difference.
17. VEHICLE WARRANTIES AND DISCLAIMERS
To the extent they are assignable, you agree to assign to me all your
rights and remedies under the warranties applicable to the vehicle which
have been made by its manufacturers. I ACKNOWLEDGE THAT YOU MAKE NO
EXPRESS WARRANTIES REGARDING THE VEHICLE, THAT YOU DISCLAIM ANY IMPLIED
WARRANTIES AND THAT I AM LEASING IT FROM YOU "AS-IS".
18. LIENS AND CLAIMS
I will keep this lease and the vehicle free from any liens, encumbrances
or claims which you have not created under Item 23.e. I will hold you
harmless and indemnify you for all liability, loss and expense arising
from the use, condition or ownership of the vehicle, including any claim
made under the strict liability doctrine.
19. USE OF VEHICLE
I understand that I am responsible for all operating expenses (for
example, gasoline and oil) incurred in connection with the use of the
vehicle. I will not use or permit use of the vehicle:
a. for any unlawful purpose or in violation of any law;
b. by a person not having a valid drivers' license or one who for
insurance purposes is deemed an assigned risk or one who does not
exercise reasonable care in its operation;
c. for the transportation of persons for hire;
d. outside the state where I reside when I sign this lease for a period
exceeding 30 days without your prior written consent; or
e. outside the United States, without your prior written consent.
20. DAMAGE, LOSS OR POTENTIAL LOSS OF VEHICLE
I agree to be responsible for the risk of loss, damage or destruction of
the vehicle during the lease term and until I return the vehicle to you.
If the vehicle is damaged or destroyed in an accident or other
occurrence or confiscated by any governmental authority or is stolen or
is abandoned or is subject to undue peril, I will notify you of such
occurrence or condition as soon as possible. If the vehicle is damaged
and is in a condition which you believe is beyond reasonable repair, the
lease will be terminated immediately. With respect to any other
occurrence or condition included above, you reserve the right to
terminate the lease immediately. If the lease is terminated, my
termination liability will be determined on the basis of any early
termination except that the termination fee will be $200. While any loss
proceeds you receive from the insurance I provide will be credited to my
termination liability, I also acknowledge my liability for any
difference between the termination liability figure and the loss
proceeds amount.
21. DEFAULT
If any information in my credit application or that of a guarantor of
this lease is false or misleading or I fail either to make a monthly
lease payment when due or otherwise to keep my promises under this lease
or any other agreement I have with you or if I or a guarantor becomes
insolvent or dies, you can treat this lease as being in default.
In the event of default, you may do any one or more of the following
without giving me advance notice: (a) take any reasonable measures
designed either to correct the default or to save yourself from loss,
such as purchasing insurance to protect your interest if I fail to
fulfill my
<PAGE> 7
obligations under Item 4, in which case I will pay you upon demand for
the costs and expenses incurred; (b) terminate the lease and my rights
to possess and use the vehicle; (c) take possession of the vehicle by
any method or manner permitted by law; (d) determine my termination
liability on an early termination basis which I agree to pay upon your
demand; (e) apply my security deposit to any amounts I owe you; (f)
pursue any other remedy permitted by law.
I also agree to pay you upon your demand for all collections and legal
costs, including reasonable attorneys' fee and court costs, you incur,
to the extent permitted by law.
22. MORE THAN ONE LESSEE
If more than one lessee signs this lease, all lessees will be jointly
and severally liable. I agree that you can waive or delay the
enforcement of your rights as to one lessee without affecting your
rights as to any other lessees. I also agree that you can release any
lessee from his or her obligations without releasing any other lessees
from their obligations.
23. GENERAL PROVISIONS
I understand that:
a. Your waiver or delay in requiring me to keep my promises or in
enforcing your rights will not affect your ability to require me to
keep my promises or to enforce your rights afterwards;
b. You have no obligation to provide a replacement vehicle for any
reason;
c. Notices under this lease must be in writing, addressed to the
appropriate party at the address shown above, and must be mailed by
U.S. Mail, first class postage prepaid, and each party shall notify
the other of a change in address;
d. Any changes to this lease must be in writing and signed by the party
to be bound;
e. I HAVE NO RIGHT TO ASSIGN AN INTEREST IN THE LEASE OR THE VEHICLE OR
TO SUBLET OR LEND THE VEHICLE. I acknowledge that you may assign an
interest in this lease or the vehicle and that if I receive notice of
the assignment, I will acknowledge the notice and pay any assigned
amounts specified in the notice as you have directed. I agree that
unless otherwise provided by applicable law the rights of your
assignee will be free of any claims I may have against you and
further that no assignee is responsible for the performance of any of
your duties under this lease unless the assignee expressly assumes
the duties;
f. Any security deposit shown in Item 3.e. will not be considered as
rent, will not bear interest unless otherwise provided by applicable
law and will not release me from any of my obligations to you, and
you may at any time apply the deposit to the payment of my
obligations to you. I understand that you will return any remaining
balance of the deposit after I have paid off my liability under this
lease.
g. You will have no liability for a failure or delay in delivering the
vehicle or any other failure to perform your obligations related to
the lease if caused by circumstances beyond your control. In no event
will you be liable for consequential damages. Also, my obligations
under this lease are independent and irrevocable. As a result, you
will have no liability and my obligations will not be affected if the
vehicle is damaged or does not work properly, or if any other
occurrence which is not the direct result of your conduct affects my
use of the vehicle; and
h. I waive any right to confidentiality of my address in any
registration records related to the vehicle, including any such right
I may have under California Vehicle Code 1808.21, and authorize you
and your assignee to obtain my address from those records to assist
in the enforcement of this lease.
CONSUMER OR COMMERCIAL LEASE: I intend to use the vehicle (initial applicable
box only):
Primarily for personal, / / / / Primarily for agricultural, / / / /
<PAGE> 8
family or household OR business or commercial B.C.
purposes /X/ /X/ purposes /X/ /X/
------- -------
THESE DISCLOSURES REQUIRE THE LESSEE'S INITIALS IF CALIFORNIA'S VEHICLE
LEASING ACT APPLIES
("You" refers to the lessee in contrast to the rest of the lease where "you"
refers to the lessor):
(a) Notice to the lessee: (1) Do not sign this agreement before you read it
or if it contains any blank spaces to be filled in; (2) You are entitled
to a completely filled in copy of this agreement; (3) If you default in
the performance of your obligations under this agreement, the vehicle
may be repossessed and you may be subject to suit and liability for the
unpaid indebtedness evidenced by this agreement.
B.C.
/X/ /X/
(b) Warning - Unless a charge is included in this agreement for public
liability or property damage insurance, payment for such coverage is not
provided by this agreement.
B.C.
/X/ /X/
(c) Lessee has the right to return the vehicle and receive a refund of any
payments made if the credit application is not approved, unless
non-approval results from an incomplete application or from incorrect
information provided by the lessee.
B.C.
/X/ /X/
(d) California law does not provide for a "cooling-off" or other
cancellation period for vehicle leases. Therefore, you cannot later
cancel this lease simply because you change your mind, decide the
vehicle costs too much, or wish you had acquired a different vehicle.
You may only cancel this lease with the agreement of the lessor or for
legal cause, such as fraud.
B.C.
/X/ /X/
I HAVE READ BOTH SIDES OF THIS LEASE AND RECEIVED A COMPLETELY FILLED IN
COPY BEFORE SIGNING BELOW
DATE March 18, 1996 Boyd's Wheels, Inc.
---------------------------- -------------------------------
NAME OF COMPANY (IF APPLICABLE)
LESSOR Eldorado Bank Leasing LESSEE Boyd Coddington
-------------------------- -------------------------------
BY Michael Robbins
------------------------ -------------------------------
TITLE Vice-President LESSEE TITLE
------------------------ -------------------------------
DELIVERY RECEIPT
I acknowledge that I have received and examined the vehicle described at the
beginning of this lease, that the vehicle is equipped as described and is in
good operating order and condition and that I accept the vehicle for all
purposes of the lease.
Boyd's Wheels, Inc.
-------------------------------
NAME OF COMPANY (IF APPLICABLE)
DATE March 18, 1996 LESSEE: Boyd Coddington
---------------------- -------------------------------
STARTING MILEAGE ON ODOMETER LESSEE: TITLE
-------- -------------------------------
<PAGE> 1
EXHIBIT 10.3
CLOSED END VEHICLE LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into this 18 day of March 1996 between:
LESSOR Eldorado Bank Leasing
whose address is 19100 Von Karman Suite #550, Irvine, CA 92715 and
LESSEE Boyd's Wheels, Inc.
whose address is 8380 Cerritos Ave., Stanton, CA 90680
and covers the lease of the vehicle described below. As used in this agreement
the words "I", "me", or "my" refer to the Lessee and "you" or "your" refer to
the Lessor. I understand that the consumer lease disclosures you have included
in this lease are also made on behalf of
DESCRIPTION OF LEASED VEHICLE
<TABLE>
<CAPTION>
MODEL YEAR MAKE MODEL BODY STYLE COLOR VEHICLE I.D. NUMBER LICENSE NUMBER
<S> <C> <C> <C> <C> <C> <C>
1996 Dodge Caravan Van Bright White 2B4FP2533TR675885 NEW
</TABLE>
Vehicle includes following equipment and accessories:
<TABLE>
<S> <C> <C> <C>
X Air Conditioning Power Windows X Transmission Auto X Other Equipment Per M.S.R.P.
X Power Brakes Power Door Locks Radio X AntiLock Brakes
X Power Steering Power Seat Wheels
Tilt Wheel Cruise Control Roof/Rack
Trunk Key No. Ignition Key No. Leather
</TABLE>
1. AGREEMENT TO LEASE
I agree to lease from you the vehicle described above. My obligations
and your obligations under this lease begin when you and I sign this
form. If the vehicle is not delivered to me at such time, you will use
your best efforts to deliver it to me as soon as practicable.
2. LEASE COMPUTATIONS
<TABLE>
<S> <C>
a. Lease Term (from lease signing) 1. 36 months
---------------
2. -0- days
---------------
b. End of Lease Purchase Option Price $ 10,050.00
(based in part on an average of ---------------
15,000 miles annually)
c. Average Monthly Lease Depreciation $ 234.12
---------------
d. Base Monthly Lease Payment $ 337.86
---------------
e. Sales/Use Tax 7.75% of d. $ 26.18*+
---- ---------------
f. Luxury Car Tax $ -0-
---------------
g. Total Monthly Lease Payment (d. plus f.) $ 364.04*
---------------
I promise to pay you the number of monthly
lease payment indicated in a.1. above, with
the first payment to be due March 18, 1996
and the remaining payments to be due on the
18 day of each month, beginning on
4/18/96
h. Sum of All Monthly Lease Payments and $ 13,105.44*
Prorata Rent (a.1. times g. plus 3.c. plus 3.d) ---------------
i. Excess Mileage Charge 15 c
---------------
j. Early Termination Commencement 12 payments
(right commences after making this number of ---------------
monthly lease payments)
</TABLE>
* Estimate based on current sales/use tax rate
+ MTE tax reimbursement, if appropriate.
<PAGE> 2
3. AMOUNTS DUE AT LEASE SIGNING
I will pay the amounts indicated below when I sign this lease:
<TABLE>
<S> <C>
a. Lease Inception Payment
1. Trade-In Allowance $ -0-
Description N//A ----------
2. Cash $ -0-
----------
3. Total $ -0-
----------
b. Tax on Lease Inception Payment $ -0-
----------
c. Prorata Rent $ -0-
----------
d. Tax on Prorata Rent $ -0-
----------
e. Refundable Security Deposit $ 350.00
----------
f. First Monthly Lease Payment $ 364.04
(includes sales/use tax) ----------
g. First Year's License/Registration/Excise Fees $ 396.00
----------
h. Luxury Car Tax $ -0-
----------
i. Other $ -0-
----------
j. TOTAL (a. through i.) $ 1,110.04
----------
</TABLE>
4. INSURANCE
I agree that I must pay for and maintain during the lease term, and
until the vehicle is returned to you, insurance on the vehicle which has
the following minimum coverages:
<TABLE>
<S> <C>
a. BODILY INJURY LIABILITY: $100,000/300,000
----------------
b. PROPERTY DAMAGE LIABILITY $ 50,000
----------------
c. COLLISION WITH MAXIMUM DEDUCTIBLE OF: $ 1,000
----------------
d. COMPREHENSIVE WITH MAXIMUM
DEDUCTIBLE OF: (Including fire and theft) $ 1,000
----------------
</TABLE>
I understand that the policy must provide primary coverage for you
and/or another party you specify as an Additional Insured on coverage a.
and b. and for your or your assignee as Loss Payee on coverages c. and
d. and must also provide all insureds with at least 10 days notice of
cancellation or policy revision. I will buy the insurance from an
insurance company which is acceptable to you and will furnish you with
whatever written proof of coverage you may require.
INSURANCE COMPANY'S NAME
------------------------------------------------
AGENT'S NAME
------------------------------------------------------------
AGENT'S ADDRESS AND PHONE NUMBER
----------------------------------------
------------------------------------------------------------------------
( )
------------------------------------------------------------------------
INSURANCE VERIFIED BY:
--------------------------------------------------
POLICY NO EXPIRATION DATE:
--------------------------------------------------------------
BINDER NO. EFFECTIVE DATE:
--------------------------------------------------------------
5. OFFICIAL FEES AND TAXES
<TABLE>
<S> <C>
a. Estimated Sales/Use Tax During
Lease Term (2.a.1x2.e.+3.b.+3.d.) $ 942.48
----------
b. Estimated License/Registration/Excise Fees
During Lease Term (3.g. or other estimate times
number of years of lease) $ 1,188.00
----------
c. Luxury Car Tax (2.a.1 times 2.f. or 3.h.) $ -0-
----------
d. TOTAL (a. plus b. plus c.) $ 2,130.48
----------
</TABLE>
6. MECHANICAL BREAKDOWN PROTECTION
<PAGE> 3
While I have no obligation to do so, I understand that I may purchase
from you a contract under which I will have the right to have a portion
of the costs of repair of certain major mechanical breakdowns of the
vehicle and some related expenses paid by the contract administrator
listed in the contract. The term of this protection would be N/A years
from the date the lease is signed or until the vehicle's odometer shows
N/A miles, whichever happens first. If I have decided to purchase this
protection, I have reviewed the terms of the contract which describe the
details of this protection and understand that a copy of the filled-in
contract will be sent to me as soon as practicable. I have chosen the
following option:
a. I choose to purchase your mechanical breakdown LESSEE(S)
protection contract for the price of $ N/A INITIALS
which I will pay when I sign the lease. ------------
b. I choose to purchase your mechanical LESSEE(S)
breakdown protection contract INITIALS
and have its cash value of $ N/A ------------
If I have not initialed either a. or b., I have chosen not to purchase
your mechanical breakdown protection contract.
7. INSURANCE PROCEEDS DEFICIENCY LIABILITY RELEASE
As noted in Item 20, in the event of a casualty loss to the vehicle I
will be obligated to pay any difference between the proceeds of my
insurance and the total amount of my obligations under this lease.
However, if I have initialed below, I agree to purchase your optional
insurance proceeds deficiency liability release. If I purchase this
release, you will waive any right to collect a deficiency in insurance
proceeds from me in the event of a casualty loss of the vehicle which is
covered fully by my insurance policy. I understand that this release
does not cover the deductible under the policy, the product of item 2.f.
and the number of monthly lease payments remaining during the lease term
or amounts which may be past due at the time of a casualty and that I
will still be obligated to pay those amounts. I also understand this
release will not apply if an event not covered by my insurance policy,
such as a confiscation, occurs.
a. I choose to purchase your insurance proceeds deficiency liability
release for the price of $ N/A which I will pay when I sign the
lease.
------------
Lessee Initials
b. I choose to purchase your insurance proceeds deficiency liability
release and have its cash price of $ N/A amortized in the
monthly lease payments.
------------
Lessee Initials
If I have not initialed a. or b., I have chosen not to purchase this
release.
8. LEASE CHARGES AND DEPRECIATION
Portions of each monthly lease payment are for depreciation, lease fee
and sales/use/luxury car tax. While the total amount of each monthly
lease payment will be the same (assuming that current sales/use tax
rates, if applicable, do not change), the depreciation and lease fee
portions will differ with each payment. I realize this allocation of
monthly lease payments may be important in determining my liability if
the lease is terminated early as explained in Item 15 or the price at
which I may purchase the vehicle, if I have that option, as explained in
item 9. The next paragraph explains how the lease fee and depreciation
portions of any monthly lease payment are figured.
During the lease term you will earn a total of lease fees equal to the
product of the number of monthly lease payments due during the lease
term, Item 2.a.1., times the difference between the Base Monthly Lease
Payment, Item 2.d., and the average monthly lease depreciation, Item
2.c. These lease fees will be earned by you on a constant yield basis in
relation to the "adjusted lease balance" as it declines during the lease
term. The lease fee portion for any monthly lease payment is figured by
multiplying the rate which provides a constant yield times the adjusted
lease balance. At any given time, the adjusted lease balance is the
difference between the Initial
<PAGE> 4
Lease Balance described in the next sentence and the sum of (1) the
total depreciation amounts for all previously due monthly lease payments
and (2) one Base Monthly Lease Payment. The Initial Lease Balance equals
the End of Lease Purchase Option Price, Item 2.b., plus the product of
the average monthly lease depreciation, Item 2.c., and the number of
monthly lease payments due during the lease term, Item 2.a.1 The portion
of a monthly lease payment which does not go to either lease fees or
sales/use/luxury car tax is for depreciation. I realize I will not
receive any credit for depreciation for any prorata rent shown in Item
3.c.. These calculations follow the rules for journal entries for
lessors as to "Direct Financing Leases" set forth in the Financial
Accounting Standards Board's Standard No. 13.
9. PURCHASE OPTION
I understand that instead of returning the vehicle to you at expiration
or early termination, I may purchase the vehicle "AS-IS, WHERE-IS" if
this lease is not in default for the sum of:
a. The end of Lease Purchase Option Price, Item 2.b., if I purchase the
vehicle depreciation amounts credited to it as also described in Item
8, if I purchase the vehicle at early termination; plus
b. a purchase option fee of $200; plus
c. the product of Item 2.f. and the number of monthly lease payments
remaining during the lease term; plus
d. any official fees and taxes imposed in connection with the purchase.
I also realize that this is a lease and except for my right to possess
and use the vehicle while I keep my promises under this lease, I have no
ownership interest in the vehicle, its equipment, accessories or
replacement parts unless I exercise the purchase option.
10. OFFICIAL FEES AND TAXES
I agree to be responsible for the payment when due of all official fees
and taxes (other than your net income taxes) imposed by any governmental
authority in connection with the vehicle or this lease. You have
estimated in Item 5.d. the total of official fees and taxes you expect I
will have to pay during the lease term. I also understand there may be
excise or similar taxes which are assessed during the lease term but are
not due until afterwards and that I will remain liable for these
amounts.
11. LATE CHARGE AND LATE RETURN
If any monthly lease payment is not received by you within 10 days of
its due date, a late charge of the least of 5% of that payment, $25 or
such amount as may be set by law will be imposed, which I agree to pay.
I will pay you a returned check charge of $15 for any check I give you
which is not honored.
In addition, if I do not return the vehicle to you at lease expiration,
I will be liable for an additional monthly lease payment for each month
or portion of a month I retain the vehicle. I realize, however, that I
have no right to retain the vehicle after lease expiration without your
consent and that my holding over is a default under the lease.
12. VEHICLE RETURN
I understand that upon lease termination I must return the vehicle to
the place you specify. I also understand that I must pay you my
termination liability as calculated in Item 14 or 15 below, whichever is
applicable.
13. VEHICLE VALUATION AT EARLY TERMINATION
My termination liability in the event of early termination may be
affected by the realized value of the vehicle. The realized value may be
determined in one of the following ways:
a. Within 10 days after return of the vehicle, you and I may enter into
a written agreement as to the vehicle's value, should I request it,
or I may obtain a professional appraisal of the
<PAGE> 5
wholesale value of the vehicle which could be realized upon sale made
by a qualified person I find, who is acceptable to you as well as to
me. I know that the expense for any such appraisal will be mine.
b. If the realized value is not determined as above within 10 days after
return of the vehicle, you will attempt to obtain 3 bids to purchase
the vehicle at wholesale for cash or to dispose of the vehicle in
some other commercially reasonable manner. I will have the right to
submit a written bid which you agree to consider together with all
other bids you may receive. Even though you may decide not to sell
the vehicle to any bidder, the highest bona fide bid received (which
is supported by whatever proof of ability to pay you may require)
will be considered the realized value of the vehicle.
I understand that the realized value amount will be exclusive of any
official fees and taxes imposed upon vehicle disposition.
14. END OF LEASE TERMINATION LIABILITY
I agree that my payment liability at the end of the lease term will be
the sum of:
a. a termination fee of $350; plus
b. any monthly lease payments due you which are unpaid and any other
amounts arising from my failure to keep my promises under this lease;
plus
c. a charge shown in Item 2.i. for each mile the vehicle has been driven
in excess of the mileage the vehicle would have if it had been driven
the average number of miles a year stated in Item 2.b.; plus
d. any official fees and taxes imposed in connection with lease
termination (for example, sales/use taxes due on a mileage charge
under c.).
15. EARLY TERMINATION LIABILITY
At any time after I have paid the number of monthly lease payments
indicated in Item 2.j., I may terminate this lease on the due date of a
monthly lease payment if this lease is not in default. At any time after
I sign this lease, you may terminate it if conditions as stated in Item
20 occur or this lease is in default as stated in Item 21.
I agree that, except as provided in Items 7, 9 and 20, my payment
liability upon early termination will be the sum of:
1. a termination fee of $350; plus
b. any monthly lease payments already due you which are unpaid, any
monthly lease payments which would be due you before my early
termination right commences and any other amounts arising from my
failure to keep my promises under this lease; plus
c. the product of Item 2.f. and the number of monthly lease payments
remaining during the lease term; plus
d. the amount, if any, by which the Initial Lease Balance described in
Item 8 less all depreciation amounts credited to it as also described
in Item 8 exceeds the realized value; plus
e. any official fees and taxes imposed in connection with lease
termination (for example, sales/use taxes due on a deficiency balance
under d.).
16. VEHICLE MAINTENANCE
I agree at my expense to have the vehicle serviced in accordance with
the manufacturers' recommendations, to maintain the vehicle in good
running order and condition and to have all necessary repairs made.
Unless I obtain your written consent beforehand, I will not make any
changes to the vehicle which would decrease its economic value or
functional utility. Any changes made to the vehicle which cannot be
removed without decreasing its economic value or functional utility will
become your property when made. If you request, you may inspect the
vehicle at any reasonable time.
<PAGE> 6
I also agree that when I return the vehicle to you, if I have properly
maintained the vehicle, it will be in good running order and condition
and will have, among other things, no less than 5 matching tires of
equal quality to the originals (or 4 with emergency "doughnut" spare),
with each tire having at least 1/8 inch of remaining tread at its
shallowest point, and no chips, scratches, cracks or other damage or
defects in the glass, body or interior beyond normal wear and tear. If
it costs you more than $75 to put the vehicle in this condition, I
promise to pay the difference.
17. VEHICLE WARRANTIES AND DISCLAIMERS
To the extent they are assignable, you agree to assign to me all your
rights and remedies under the warranties applicable to the vehicle which
have been made by its manufacturers. I ACKNOWLEDGE THAT YOU MAKE NO
EXPRESS WARRANTIES REGARDING THE VEHICLE, THAT YOU DISCLAIM ANY IMPLIED
WARRANTIES AND THAT I AM LEASING IT FROM YOU "AS-IS".
18. LIENS AND CLAIMS
I will keep this lease and the vehicle free from any liens, encumbrances
or claims which you have not created under Item 23.e. I will hold you
harmless and indemnify you for all liability, loss and expense arising
from the use, condition or ownership of the vehicle, including any claim
made under the strict liability doctrine.
19. USE OF VEHICLE
I understand that I am responsible for all operating expenses (for
example, gasoline and oil) incurred in connection with the use of the
vehicle. I will not use or permit use of the vehicle:
a. for any unlawful purpose or in violation of any law;
b. by a person not having a valid drivers' license or one who for
insurance purposes is deemed an assigned risk or one who does not
exercise reasonable care in its operation;
c. for the transportation of persons for hire;
d. outside the state where I reside when I sign this lease for a period
exceeding 30 days without your prior written consent; or
e. outside the United States, without your prior written consent.
20. DAMAGE, LOSS OR POTENTIAL LOSS OF VEHICLE
I agree to be responsible for the risk of loss, damage or destruction of
the vehicle during the lease term and until I return the vehicle to you.
If the vehicle is damaged or destroyed in an accident or other
occurrence or confiscated by any governmental authority or is stolen or
is abandoned or is subject to undue peril, I will notify you of such
occurrence or condition as soon as possible. If the vehicle is damaged
and is in a condition which you believe is beyond reasonable repair, the
lease will be terminated immediately. With respect to any other
occurrence or condition included above, you reserve the right to
terminate the lease immediately. If the lease is terminated, my
termination liability will be determined on the basis of any early
termination except that the termination fee will be $200. While any loss
proceeds you receive from the insurance I provide will be credited to my
termination liability, I also acknowledge my liability for any
difference between the termination liability figure and the loss
proceeds amount.
21. DEFAULT
If any information in my credit application or that of a guarantor of
this lease is false or misleading or I fail either to make a monthly
lease payment when due or otherwise to keep my promises under this lease
or any other agreement I have with you or if I or a guarantor becomes
insolvent or dies, you can treat this lease as being in default.
In the event of default, you may do any one or more of the following
without giving me advance notice: (a) take any reasonable measures
designed either to correct the default or to save yourself from loss,
such as purchasing insurance to protect your interest if I fail to
fulfill my
<PAGE> 7
obligations under Item 4, in which case I will pay you upon demand for
the costs and expenses incurred; (b) terminate the lease and my rights
to possess and use the vehicle; (c) take possession of the vehicle by
any method or manner permitted by law; (d) determine my termination
liability on an early termination basis which I agree to pay upon your
demand; (e) apply my security deposit to any amounts I owe you; (f)
pursue any other remedy permitted by law.
I also agree to pay you upon your demand for all collections and legal
costs, including reasonable attorneys' fee and court costs, you incur,
to the extent permitted by law.
22. MORE THAN ONE LESSEE
If more than one lessee signs this lease, all lessees will be jointly
and severally liable. I agree that you can waive or delay the
enforcement of your rights as to one lessee without affecting your
rights as to any other lessees. I also agree that you can release any
lessee from his or her obligations without releasing any other lessees
from their obligations.
23. GENERAL PROVISIONS
I understand that:
a. Your waiver or delay in requiring me to keep my promises or in
enforcing your rights will not affect your ability to require me to
keep my promises or to enforce your rights afterwards;
b. You have no obligation to provide a replacement vehicle for any
reason;
c. Notices under this lease must be in writing, addressed to the
appropriate party at the address shown above, and must be mailed by
U.S. Mail, first class postage prepaid, and each party shall notify
the other of a change in address;
d. Any changes to this lease must be in writing and signed by the party
to be bound;
e. I HAVE NO RIGHT TO ASSIGN AN INTEREST IN THE LEASE OR THE VEHICLE OR
TO SUBLET OR LEND THE VEHICLE. I acknowledge that you may assign an
interest in this lease or the vehicle and that if I receive notice of
the assignment, I will acknowledge the notice and pay any assigned
amounts specified in the notice as you have directed. I agree that
unless otherwise provided by applicable law the rights of your
assignee will be free of any claims I may have against you and
further that no assignee is responsible for the performance of any of
your duties under this lease unless the assignee expressly assumes
the duties;
f. Any security deposit shown in Item 3.e. will not be considered as
rent, will not bear interest unless otherwise provided by applicable
law and will not release me from any of my obligations to you, and
you may at any time apply the deposit to the payment of my
obligations to you. I understand that you will return any remaining
balance of the deposit after I have paid off my liability under this
lease.
g. You will have no liability for a failure or delay in delivering the
vehicle or any other failure to perform your obligations related to
the lease if caused by circumstances beyond your control. In no event
will you be liable for consequential damages. Also, my obligations
under this lease are independent and irrevocable. As a result, you
will have no liability and my obligations will not be affected if the
vehicle is damaged or does not work properly, or if any other
occurrence which is not the direct result of your conduct affects my
use of the vehicle; and
h. I waive any right to confidentiality of my address in any
registration records related to the vehicle, including any such right
I may have under California Vehicle Code 1808.21, and authorize you
and your assignee to obtain my address from those records to assist
in the enforcement of this lease.
CONSUMER OR COMMERCIAL LEASE: I intend to use the vehicle (initial applicable
box only):
Primarily for personal, / / / / Primarily for agricultural, / / / /
<PAGE> 8
family or household OR business or commercial B.C.
purposes /X/ /X/ purposes /X/ /X/
THESE DISCLOSURES REQUIRE THE LESSEE'S INITIALS IF CALIFORNIA'S VEHICLE
LEASING ACT APPLIES
("You" refers to the lessee in contrast to the rest of the lease where "you"
refers to the lessor):
(a) Notice to the lessee: (1) Do not sign this agreement before you read it
or if it contains any blank spaces to be filled in; (2) You are entitled
to a completely filled in copy of this agreement; (3) If you default in
the performance of your obligations under this agreement, the vehicle
may be repossessed and you may be subject to suit and liability for the
unpaid indebtedness evidenced by this agreement.
B.C.
/X/ /X/
(b) Warning - Unless a charge is included in this agreement for public
liability or property damage insurance, payment for such coverage is not
provided by this agreement.
B.C.
/X/ /X/
(c) Lessee has the right to return the vehicle and receive a refund of any
payments made if the credit application is not approved, unless
non-approval results from an incomplete application or from incorrect
information provided by the lessee.
B.C.
/X/ /X/
(d) California law does not provide for a "cooling-off" or other
cancellation period for vehicle leases. Therefore, you cannot later
cancel this lease simply because you change your mind, decide the
vehicle costs too much, or wish you had acquired a different vehicle.
You may only cancel this lease with the agreement of the lessor or for
legal cause, such as fraud.
B.C.
/X/ /X/
I HAVE READ BOTH SIDES OF THIS LEASE AND RECEIVED A COMPLETELY FILLED IN
COPY BEFORE SIGNING BELOW
DATE March 18, 1996 Boyd's Wheels, Inc.
---------------------------- -------------------------------
NAME OF COMPANY (IF APPLICABLE)
LESSOR Eldorado Bank Leasing LESSEE Boyd Coddington
-------------------------- -------------------------------
BY Michael Robbins
------------------------
TITLE Vice-President LESSEE TITLE
------------------------ -------------------------------
DELIVERY RECEIPT
I acknowledge that I have received and examined the vehicle described at the
beginning of this lease, that the vehicle is equipped as described and is in
good operating order and condition and that I accept the vehicle for all
purposes of the lease.
Boyd's Wheels, Inc.
-------------------------------
NAME OF COMPANY (IF APPLICABLE)
DATE March 18, 1996 LESSEE: Boyd Coddington
-------------------- -------------------------------
STARTING MILEAGE ON ODOMETER LESSEE: TITLE
--------- -------------------------------
<PAGE> 1
EXHIBIT 10.4
ASSOCIATES LEASING, INC.
NAME AND ADDRESS OF LESSEE: NAME AND ADDRESS OF LESSOR:
BOYDS WHEELS INC SUNSTON EQUIPMENT INC
8380 CERRITOS AVENUE 14133 E FREEWAY DRIVE
STANTON, CA 90680 SANTA FE SPRINGS, CA 90670
DESCRIBE EQUIPMENT FULLY, INCLUDING MAKE,
KIND OF UNIT, MODEL AND SERIAL NUMBERS
AND ANY OTHER PERTINENT INFORMATION. EQUIPMENT LOCATION
ONE NEW KOMATSU FORKLIFT TRUCK, 8380 CERRITOS AVENUE
MODEL FG25T11 S/N 467474A 5000 LBS. STANTON, CA 90680
CAPACITY, 128" CV MAST, LPG (1) TANK, ORANGE COUNTY
42" FORKS SOLID PNEUMATIC TIRES
A. Term: 60 Months D. PAYMENT SCHEDULE: THE ADVANCE RENTAL PAYMENT IS
PAYABLE UPON DELIVERY OF THE LEASE APPLICATION TO
LESSOR. THE REMAINING RENTAL PAYMENTS ARE PAYABLE
MONTHLY ON THE FIRST DAY OF __________(MO/YR).
<TABLE>
<S> <C>
B. LIQUIDATION VALUE RATE 6.00% PER ANNUM E. RENTAL PAYMENTS: 60 Payments of $410.05
C. PURCHASE OPTION PRICE (if any) $1.00 F. ADVANCE RENTAL PAYMENT: FIRST RENTAL
(61st PAYMENT) APPLICABLE TAXES
</TABLE>
DELIVERY AND ACCEPTANCE OF EQUIPMENT (CHECK APPROPRIATE BOX)
Lessee's obligations and liabilities under this Lease are absolute and
unconditional under all circumstances and regardless of any failure of
operations or loss of possession of any item of Equipment or the cessation
or interruption of Lessee's business for any reason whatsoever.
On 1-19-96, the Equipment leased under this Lease was delivered to Lessee
with all installation and other work necessary for the proper use of the
Equipment completed at a location agreed to by Lessee and the Equipment
was inspected by Lessee and found to be in satisfactory condition in all
respects and delivery thereof was unconditionally accepted by Lessee.
The Equipment leased under this Lease has not yet been delivered to or
accepted by Lessee and, upon delivery, Lessee agrees to execute such
delivery and acceptance certificate as Lessor or Lessor's assignee
requires.
THE UNDERSIGNED HEREBY AGREE TO ALL THE TERMS AND PROVISIONS SET FORTH ON BOTH
SIDES OF THIS LEASE.
<TABLE>
<S> <C>
LESSEE: BOYDS WHEELS INC LESSOR: SUNSTON EQUIPMENT INC
By: REX A. OURS By: PETER WANG
Title: CFO Title PRESIDENT
Date 1/30/96 Federal Tax ID# 93-1000272 Date 1-30-96
</TABLE>
TERMS AND PROVISIONS OF LEASE
1. LEASE: Lessor hereby leases to Lessee, and Lessee hereby hires and takes
from Lessor, under and subject to the terms and provisions hereof until
the end of the Term specified above ("Term"), the personal property
described above and on any supplemental schedule(s) identified as
constituting a part of this lease (herein, with all present and future
attachments, accessories, replacement parts, repairs, and additions, and
all proceeds thereof, referred to as "Equipment").
2. TERM AND RENTALS: This Lease is for the Term commencing on the date the
Equipment was delivered to Lessee. For the Term or any portion thereof,
Lessee agrees to pay to Lessor aggregate rentals equal to the sum of all
Rental Payments (including advance rentals) in accordance with the
Payment Schedule.
3. EFFECTIVE DATE: The terms and provisions hereof and the obligations and
liabilities of Lessee hereunder are effective on the date of Lessor's
acceptance of this Lease ("Effective Date"), even though the Term and
Lessee's obligation to pay the remaining Rental Payments may begin on a
later date.
4. PLACE OF PAYMENT AND OBLIGATION TO PAY: All Rental Payments are payable
without notice or demand. All amounts payable hereunder to Lessor are
payable at Lessor's address set forth herein or at such other address as
Lessor may specify from time to time in writing. Except as otherwise
specifically provided herein, Lessee's obligation to pay the Rental
<PAGE> 2
Payments and all other amounts due or to become due hereunder shall be
absolute and unconditional under all circumstances, regardless of any
set-off, counterclaim, recoupment, defense or other claim whatsoever.
5. DELINQUENCY CHARGES: For each Rental Payment or other sum due hereunder
which is not paid when due, Lessee agrees to pay Lessor a delinquency
charge calculated thereon at the rate of 1-1/2% per month for the period
of delinquency or, at Lessor's options, 5% of such Rental Payment or
other sum due hereunder, provided that such a delinquency charge is not
prohibited by law, otherwise at the highest rate Lessee can legally
obligate itself to pay and/or Lessor can legally collect.
6. NO WARRANTIES BY LESSOR, MAINTENANCE, AND COMPLIANCE WITH LAWS: Lessor
makes no representations or warranties as to the character of this
transaction for tax or other purposes. Lessee acknowledges and agrees
that: the Equipment is of a size, design, capacity and manufacture
selected by Lessee; Lessor is not the manufacturer of the Equipment or
the manufacturer's agent: LESSEE LEASES THE EQUIPMENT "AS IS" AND LESSOR
HAS NOT MADE, AND DOES NOT MAKE, ANY REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, AS TO THE VALUE, CONDITION, QUALITY, MATERIAL, WORKMANSHIP,
DESIGN, CAPACITY, MERCHANTABILITY, DURABILITY, FITNESS OR SUITABILITY OF
THE EQUIPMENT FOR ANY USE OR PURPOSE, OR ANY OTHER REPRESENTATION OR
WARRANTY WHATSOEVER, EXPRESS OR IMPLIED. Lessee will not assert any
claim whatsoever, regardless of cause, against Lessor. Lessee will not
bring any suit or claim against or make any settlement with the
manufacturer or seller to Lessor of the Equipment (both herein called
"Seller") without Lessor's prior written consent; and the selection,
servicing and maintaining of the Equipment shall be entirely at Lessee's
risk and expense. Lessee agrees, at its own cost and expense: (a) to
cause the Equipment to be operated with care and only by qualified
personnel in the regular course of Lessee's business; (b) to comply with
all applicable laws, rules and regulations relating to the Equipment,
with any published instructions or specifications of the Seller and with
all of the terms of any insurance policy covering the Equipment; (c) to
obtain, or sign any documents Lessor deems necessary and any
certificates of title required or permitted by law with respect to the
Equipment; (d) to maintain the Equipment in good operating condition,
repair and appearance; and (e) to furnish lessor promptly with such
financial statements and other information as Lessor may reasonably
request from time to time.
7. LIQUIDATION VALUE: "Liquidation Value" as of any date shall mean an
amount equal to the then present worth of all unaccrued Rental Payments
plus either (a) the then present worth of the Purchase Option Price, or
if no purchase option is offered, then (b) the present worth of the Fair
Market Value ("Fair Market Value" to be calculated by Lessor based on an
arm's length transaction between an informed and willing buyer and an
informed and willing seller under no compulsion to sell) of the
Equipment in the same condition as when received by Lessee, reasonable
wear and tear resulting from normal use thereof alone excepted. Present
worth shall be determined by discounting such unaccrued rental Payments
from their respective due dates at the Liquidation Value Rate and by
discounting the Purchase Option Price or the Fair Market Value of the
Equipment, whichever is applicable, from the last day of the Term at the
Liquidation Value Rate, compounded at the same intervals as such Rental
Payments are payable.
8. LOSS OR DESTRUCTION OF EQUIPMENT: On and after the Effective Date,
Lessee shall bear all risk of loss of, damage to, or destruction of the
Equipment. If, for any reason, any of the Equipment is lost, stolen,
destroyed or damaged beyond repair, Lessee shall (a) immediately and
fully inform Lessor with regard thereto, and (b) promptly pay to Lessor
the Liquidation Value calculated as of the date of payment thereof plus
all accrued and unpaid Rental Payments and all other amounts then due
and remaining unpaid. Any amounts actually received by Lessor from
Insurance or otherwise on Lessee's behalf for such loss or damage shall
be applied to reduce Lessee's obligation under this paragraph. Except as
expressly provided herein, the total or partial destruction of the
Equipment or the total or partial loss of use or possession thereof to
Lessee, shall not release or relieve Lessee from its obligations and
liabilities under this Lease.
9. INSURANCE: Lessee agrees to procure and maintain at all times on and
after the Effective Date such liability, physical damage and other
insurance as Lessor may require from time to time, and to immediately
furnish evidence thereof satisfactory to Lessor. Lessee agrees that all
such insurance shall be in form and amount and with insurers
satisfactory to Lessor, and that Lessee will deliver promptly to Lessor
certificates or, upon request, policies satisfactory to Lessor
evidencing such insurance. All liability policies shall name Lessor as
an additional insured, and all physical damage policies shall provide
that payment thereof shall be made to Lessor and Lessee as their
interests may appear. Each policy shall provide that Lessor's interest
therein shall not be invalidated by any acts, omissions or neglect of
anyone other than Lessor, and shall contain insurer's agreement to give
Lessor 30 days prior written notice before cancellation or any material
change in the policy shall be effective as to Lessor, whether such
cancellation or change is at the direction of Lessee or the insurer.
10. TAXES: Lessee shall be liable for all taxes, levies, duties,
assessments, and other governmental charges (including any penalties and
interest, and any fees for titles or registration) levied or assessed
against Lessee, Lessor or the Equipment, upon or with respect to the
lease or the purchase, use, operation, leasing, ownership, value, return
or other disposition of the Equipment, or the rent, earnings or receipts
arising therefrom, exclusive, however, of any taxes based on Lessor's
net income. Unless Lessor notifies Lessee otherwise, Lessor will file
all returns and remit all personal property taxes applicable to the
Equipment. Lessee agrees to reimburse Lessor for all such personal
property taxes immediately upon receipt of Lessor's invoice. If
requested, Lessee agrees to file promptly on behalf of Lessor all
requested tax returns and reports concerning the Equipment in form
satisfactory to Lessor, with all appropriate governmental agencies and
to mail a copy thereof to Lessor concurrently with the filing thereof.
Lessee further agrees to keep or cause to be kept and made available to
Lessor any and all necessary records relevant to the use of the
Equipment and pertaining to the aforesaid taxes, assessments and other
governmental charges. The obligations arising under this paragraph shall
survive payment of all other obligations under this Lease and the
termination of this Lease.
<PAGE> 3
11. LESSOR'S TITLE, STORAGE AND IDENTIFICATION OF EQUIPMENT: Title to the
Equipment will at all times remain in Lessor and Lessee will at all
times, at its own cost and expense, protect and defend the title of
Lessor from an against all claims, liens and legal processes of
creditors of Lessee and keep the Equipment free and clear from all such
claims, liens and processes. Lessee agrees not to alter or modify the
Equipment without first obtaining in each instance the prior written
approval of Lessor. Upon the expiration or termination of this Lease,
Lessee, at Lessee's sole expense, shall return the Equipment
unencumbered to Lessor at a place to be designated by Lessor, and in the
same condition as when received by Lessee, reasonable wear and tear
resulting from normal use thereof alone excepted. Lessee shall, upon
Lessor's request, and at Lessee's own expense, firmly affix to the
Equipment, in a conspicuous place, such label, sign or other device as
Lessor may supply to identify Lessor as the owner and lessor of the
Equipment.
12. POSSESSION, LOCATION OF EQUIPMENT, RIGHT OF INSPECTION AND ASSIGNMENT:
The Equipment will be kept by Lessee at the location indicated herein,
and will not be removed from said location without the prior written
consent of Lessor. Lessor shall have the right to inspect the Equipment
at all reasonable times and from time to time as Lessor may require.
Lessee shall not sell, assign, transfer, pledge, encumber, secrete,
sublet or otherwise dispose of the Equipment or any interest of Lessee
in or under this Lease without Lessor's prior written consent. This
Lease and all rights of Lessor hereunder will be assignable by Lessor
without Lessee's consent. Upon the execution of the LESSOR'S ASSIGNMENT
section below, this Lease is assigned to Associates Leasing, Inc. LESSEE
HEREBY WAIVES, RELINQUISHES AND DISCLAIMS AS TO ANY ASSIGNEE OF LESSOR
ALL CLAIMS, RIGHTS OF SET-OFF AND DEFENSES LESSEE MAY HAVE AGAINST
LESSOR, INCLUDING THE RIGHT TO WITHHOLD PAYMENT OF ANY MONIES WHICH MAY
BECOME DUE HEREUNDER. LESSEE FURTHER AGREES THAT LESSOR MAY WITHOUT
NOTICE TO OR CONSENT OF LESSEE, SELL OR GRANT A SECURITY INTEREST IN THE
EQUIPMENT AND IN SUCH EVENT LESSEE'S RIGHTS IN AND TO THE EQUIPMENT
SHALL BE SUBJECT AND SUBORDINATE TO THE INTEREST AND RIGHTS, INCLUDING
THE RIGHT OF POSSESSION OF ANY SUCH PURCHASER OR HOLDER OF A SECURITY
INTEREST IN THE EQUIPMENT. After receiving notice of any assignment by
lessor (or the execution of the LESSOR'S ASSIGNMENT below) or of any
sale or grant of a security interest in the Equipment, Lessee agrees
that it will not, without the prior written consent of the assignee,
purchaser or secured party, (i) prepay any amounts owing hereunder; (ii)
modify or amend this Lease; or (iii) exercise any rights which are
exercisable only with the consent of the Lessor. Lessee further agrees
that at the same time it sends to Lessor any notice hereunder it will
send a copy thereof to any assignee of Lessor or purchaser or holder of
any security interest in the Equipment at the address specified from
time to time by such assignee, purchaser or secured party.
13. PERFORMANCE OF OBLIGATIONS OF LESSEE BY LESSOR: If Lessee fails to
perform duly and promptly any of its obligations under this Lease,
Lessor may perform the same, but shall not be obligated to do so, for
the account of Lessee to protect the interest of Lessor or Lessee or
both, at Lessor's option. Any amount paid or expense (including
reasonable attorney's fees), penalty or other liability incurred by
Lessor in such performance shall be payable by Lessee upon demand as
additional rent for the Equipment.
14. DEFAULT AND REMEDIES: An event of default shall occur if: (a) any Rental
Payment or any other amount owed by Lessee to Lessor or to any affiliate
of Lessor, whether hereunder or under any other instrument or agreement,
is not paid promptly when due; (b) Lessee breaches any warranty or
provision hereof or of any other instrument or agreement delivered by
Lessee to Lessor or to any affiliate of Lessor; (c) Lessee ceases to do
business as a going concern, becomes insolvent, makes an assignment for
the benefit of creditors, admits in writing its inability to pay its
debts as they become due, or takes advantage of any law for the relief
of debtors; (d) any property of lessee is attached; (e) a petition in
bankruptcy or for an arrangement, reorganization, composition,
liquidation, dissolution or similar relief is filed by or against lessee
under any present or future statute, law or regulation; (f) Lessee or
its shareholder take any action looking to its dissolution or
liquidation; or (g) a trustee or receiver is appointed for Lessee or for
any substantial part of its property.
Upon the occurrence of an event of default Lessee shall be in default
hereunder and Lessor may, at its option, with or without notice to
Lessee (a) declare all sums due and to become due hereunder and all
other sums then owing by Lessee to Lessor to be immediately due and
payable; (b) proceed by appropriate court action or actions or other
proceedings either at law or in equity to enforce performance by Lessee
of any and all provisions of this Lease and to recover damages for the
breach thereof; (c) require Lessee to assemble the Equipment and deliver
the same forthwith to Lessor at Lessee's expense at such place as Lessor
may designate which is reasonably convenient to both parties; (d)
exercise one or more of the rights and remedies available to a secured
party under the Uniform Commercial Code, whether or not this transaction
is subject thereto; and (e) enter, or its agents may enter, without
notice or liability or legal process, into any premises where the
Equipment may be, or is believed by Lessor to be, and repossess all or
any part thereof, disconnecting and separating the same from any other
property and using all force necessary and permitted by applicable law,
Lessee hereby expressly waiving all further rights to possession of the
Equipment after default and all claims for injuries suffered through or
loss caused by such repossession. In addition, Lessee agrees to pay to
Lessor, as liquidated damages for loss of the bargain and not as a
penalty, (1) the Liquidation Value plus (2) all expenses of retaking,
holding, preparing for sale, selling and the like, including reasonable
attorneys' fees (20% of all sums then owing hereunder if permitted by
law) and other legal expenses, less any amount actually received by
Lessor from the re-lease, sale or other disposition of the Equipment.
Lessee hereby waives any right to trial by jury in any proceeding
arising out of this Lease. Nothing herein contained will require Lessor
to re-lease, sell or otherwise dispose of the Equipment. No remedy of
Lessor hereunder shall be exclusive of any other remedy herein or
provide by law, but each shall be cumulative and in addition to every
other remedy. A waiver of a default shall not be a waiver of any other
or a subsequent default. Lessee agrees to pay all expenses incurred by
Lessor in enforcing its rights after the occurrence of an event of
default hereunder, including the reasonable fees of any attorneys
retained by Lessor (20% of all sums then owing hereunder if permitted by
law).
<PAGE> 4
15. INDEMNITY: Lessor (which term as used herein includes Lessor's
successors, assigns, agents, and servants) shall have no responsibility
or liability to Lessee, its successors or assigns or any other person
with respect to any Liabilities (as "Liabilities" is herein defined),
and Lessee hereby assumes liability for, and hereby agrees, at its sole
cost and expense, to indemnify, defend, protect and save lessor and keep
it harmless from and against, any and all Liabilities. The term
"Liabilities" as used herein shall include any and all liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs,
expenses and disbursements of whatsoever kind and nature, including
legal fees and expenses, (whether or not any transaction contemplated
hereby is consummated) imposed on, incurred by or asserted against
lessor or the Equipment (whether by way of strict or absolute liability
or otherwise) and in any way relating to or arising out of this Lease or
the selection, manufacture, purchase, acceptance, ownership, delivery,
non-delivery, lease, possession, use, operation, condition, servicing,
maintenance, repair, improvement, alteration, replacement, storage,
return or other disposition of the Equipment (including without
limitation, (i) claims as a result of latent or patent defects, whether
or not discoverable by Lessor or Lessee, (ii) claims for trademark,
patent or copyright infringement, and (iii) tort claims of any kind
(whether based on Lessor's alleged negligence or otherwise), including
claims for injury or damage to property, or injury or death to any
person (including Lessee's employees ) or, for any claim or liability
hereby indemnified against. The indemnities arising under this paragraph
shall survive payment of all other obligations under this Lease and the
termination of this Lease.
16. NOTICES AND FURTHER ASSURANCES: All notices relating hereto will either
be delivered in person to an officer of Lessor or Lessee, or be mailed
certified to Lessor or Lessee at its respective address shown on the
face hereof or at any later address last known to the sender. Lessee
agrees to execute and deliver to Lessor, upon lessor's request such
documents and assurances as Lessor deems necessary or advisable for the
confirmation or perfection of this Lease and Lessors' rights hereunder,
including such documents as Lessor may require for filing or recording.
17. FINANCING STATEMENTS: LESSEE HEREBY AGREES AND DOES HEREBY APPOINT
LESSOR AND LESSOR'S ASSIGNEE, ITS TRUE AND LAWFUL ATTORNEY IN FACT TO
SIGN ON BEHALF OF LESSEE ANY INSTRUMENT OR FINANCING STATEMENT(S)
NECESSARY TO PROTECT LESSOR'S SECURITY AND OTHER INTERESTS IN THE
EQUIPMENT SUBJECT HERETO, WITH THE SAME FORCE AND EFFECT AS IF SIGNED BY
LESSEE, AND TO FILE SUCH INSTRUMENT OR FINANCING STATEMENT(S) IN THE
PROPER LOCATION(S). LESSEE FURTHER AGREES, IF LESSOR SO REQUESTS, TO
EXECUTE ANY INSTRUMENT OR FINANCING STATEMENT(S) NECESSARY TO PROTECT
LESSOR'S SECURITY AND OTHER INTERESTS IN THE EQUIPMENT AND TO PAY A
ONE-TIME UCC FILING FEE TO COVER LESSOR'S COST FOR SUCH FILING(S) AND
OTHER DOCUMENTATION COST. IF PERMITTED BY LAW, LESSEE AGREES THAT A
CARBON, PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS LEASE OR OF A
FINANCING STATEMENT MAY BE FILED AS A FINANCING STATEMENT.
18. SEVERABILITY: Any provisions hereof contrary to, prohibited by or
invalid under applicable laws or regulations shall be inapplicable and
deemed omitted herefrom, but shall not invalidate the remaining
provisions hereof.
19. ENTIRE AGREEMENT: This Lease and any addenda referred to herein
constitute the entire agreement of the parties hereto. No oral
agreement, guaranty, promise, condition, representation or warranty
shall be binding. All prior conversations, agreements or representations
related hereto and/or to the Equipment are superseded hereby, and no
modification hereof shall be binding unless in writing and signed by an
officer of the party to be bound.
20. PURCHASE OPTION: Provided the amount set forth as the Purchase Option
Price in Section C, on the first page hereof is not $-0- or is not left
blank and further provided that lessee is not then in default and
subject to all of the following, Lessee shall have the option to
purchase, upon the expiration of the Term of this Lease, all but not
less than all of the Equipment subject to this Lease at the Purchase
Option Price. If "FMV" is designated as the Purchase Option Price, the
purchase price shall be the Fair Market Value of the Equipment in the
return condition required under section 11, at the end of the Term. To
exercise the option to purchase, Lessee must so notify Lessor in writing
at least sixty (60) days prior to the expiration of the Lease Term.
Payment of the full amount of the Purchase Option Price must be received
by Lessor no later than ten (10) days after the last day of the Lease
Term. Upon receipt of the total Purchase Option Price, Lessor shall
convey the Equipment to Lessee AS-IS, WHERE-IS, WITHOUT ANY WARRANTIES
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION,
WARRANTIES OR MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. If
the amount set forth as the Purchase Option Price in Section C, is $-0-
or is left blank, Lessee shall have no option whatsoever to purchase the
Equipment.
21. GOVERNING LAW: This Lease will be governed by and construed in
accordance with the laws of the state of Texas.
LESSORS' ASSIGNMENT
For value received, Lessor sells and assigns to Associates Leasing, Inc.
("ALI"), free and clear of all liens and encumbrances, all right, title and
interest in and to this Lease and the Equipment. Lessor warrants to ALI that the
Lease in genuine, enforceable, contains the entire agreement with respect to the
Equipment, and is and will continue to be free from defenses and offsets; all
signatures, names, addresses, amounts and the statements in the Lease are
genuine, true and correct; the Equipment has been delivered to Lessee in
satisfactory condition and unconditionally accepted by Lessee; the Lease
evidences a valid reservation of title to or first lien upon the Equipment and
all necessary action has been taken in accordance with applicable law so that
the reservation of title or security interest is valid and perfected and
paramount to any other party's claim or interest; all parties to the Lease and
to any Guarantees thereof have the capacity to contract and none are minors;
this Lease is the only lease covering the Equipment; no down payment, security
deposit or advance rental required to be paid by Lessee was loaned directly or
indirectly by Lessor. If any
<PAGE> 5
of the foregoing are untrue or breached by Lessor, Lessor shall, without
requiring ALI to tender this Lease or the Equipment or to proceed against Lessee
or any other party of any security, repurchase this Lease and the Equipment on
demand and pay ALI in cash, an amount equal to the Liquidation Value as of the
date of payment plus all costs and expenses paid or incurred by ALI with respect
to his Lease and/or the Equipment.
Lessor: SUNSTON EQUIPMENT INC By: PETER WANG Title: PRESIDENT
------------------------ ------------ -----------
<PAGE> 6
DATE: 1-30-96
-----------------
To: DAN GUEST (AOV) CONTACT:
------------------------------ --------------
(Insurance Agent)
333 CITY BLVD WEST STE 200 PHONE: (714) 937-1800
------------------------------- --------------
(Address)
ORANGE, CA 92668 FAX# (714) 938-1420
------------------------------- --------------
Gentlemen:
We have entered into a Contract with Associates Leasing Inc., 8001 Ridgepoint
Drive, Irving, TX 75063-3117, whereby they have an insurable interest in the
following described property:
ONE NEW KOMATSU FORKLIFT TRUCK, MODEL FG25T11
S/N 467474A 5000 LBS. CAPACITY, 128" CV MAST,
8380 CERRITOS AVENUE LPG (1) 42" FORKS SOLID PNEUMATIC TIES
STANTON, CA 90680
(LOCATION OF PROPERTY) (VALUE)
Under the terms of the contract, we are required to insure the property against
all risks for an amount at least equal to the value stated above. Please place
the necessary coverage and provide with a copy of the complete Policy or a
Certificate of insurance showing the following information:
Name of Insured Policy Number
Name of Insurance Agent Description of Property Insured
Name of Insurance Company Description of Limits of Coverage
Effective Date of Coverage Any Exclusions and
Expiration Date of Coverage Special Conditions of Coverage
AMOUNT OF DEDUCTIBLE
In addition to the above Policy or Certificate, please execute and send them a
standard Long Form Loss Payable Endorsement NAMING THEM AS LOSS PAYEE. Please
fax a copy of your certificate of insurance to Michele Davis at fax number (800)
362-0659.
Sincerely,
BOYDS WHEELS
BY: REX A. OURS
<PAGE> 7
This FINANCING STATEMENT is presented for filing and will remain
effective, with certain exceptions, for five years from the date of filing,
pursuant to Section 9403 of the California Uniform Commercial Code.
1. DEBTOR (LAST NAME FIRST--IF AN INDIVIDUAL)
BOYDS WHEELS INC
1A. SOCIAL SECURITY OR FEDERAL TAX NO.
93-1000272
1B. MAILING ADDRESS
8380 CERRITOS AVENUE
1C. CITY, STATE
STANTON, CA
1D. ZIP CODE
90680
2. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST--IF AN INDIVIDUAL)
2A. SOCIAL SECURITY OR FEDERAL TAX NO.
2B. MAILING ADDRESS
2C. CITY, STATE
2D. ZIP CODE
3. DEBTOR'S TRADE NAMES OR STYLES (IF ANY)
3A. FEDERAL TAX NUMBER
4. SECURED PARTY
4A. SOCIAL SECURITY NO. FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME SUNSTON EQUIPMENT INC
MAILING ADDRESS 14133 E FREEWAY DRIVE
CITY SANTA FE SPRINGS STATE CA ZIP CODE 90670
5. ASSIGNEE OF SECURED PARTY (IF ANY)
5A. SOCIAL SECURITY NO. FEDERAL TAX NO.
OR BANK TRANSIT AND A.B.A. NO.
NAME ASSOCIATES LEASING INC
MAILING ADDRESS 8001 RIDGEPOINT DRIVE
CITY IRVING STATE TX ZIP CODE 75063
6. This FINANCING STATEMENT covers the following types or items (INCLUDE
DESCRIPTION OF REAL PROPERTY ON WHICH LOCATED AND OWNER OF RECORD WHEN
REQUIRED BY INSTRUCTION 4).
ONE NEW KOMATSU FORKLIFT TRUCK, MODEL FG25T11 S/N 467474A
5000 LBS. CAPACITY 128" CV MAST, LPG (1) TANK, 42" FORKS
SOLID PNEUMATIC TIRES
7. CHECK X
IF APPLICABLE
7A. PROCEEDS OF COLLATERAL
X ARE ALSO COVERED
7B. DEBTOR(S) SIGNATURE NOT REQUIRED IN ACCORDANCE
WITH INSTRUCTION 5(A) ITEM:
(1) (2) (3) (4)
8. CHECK X DEBTOR IS A "TRANSMITTING UTILITY" IN ACCORDANCE WITH
IF APPLICABLE UCC 9105 (1) (N)
<TABLE>
<S> <C> <C> <C>
9. DATE: C 10. THIS SPACE FOR USE OF FILING OFFICER
O (DATE. TIME. FILE NUMBER
REX A. OURS 1/30/96 D AND FILING OFFICER)
SIGNATURE(S) OF DEBTOR(S) E
</TABLE>
1
BOYDS WHEELS INC
TYPE OR PRINT NAME(S) OF DEBTOR(S) 2
3
PETER WANG, PRESIDENT
<PAGE> 8
SIGNATURE OF SECURED PARTY(IES) 4
5
SUNSTON EQUIPMENT INC
TYPE OR PRINT NAME(S) OF SECURED PARTY(IES) 6
11. RETURN COPY TO: 7
NAME ASSOCIATES LEASING INC. 8
ADDRESS 8001 RIDGEPOINT DRIVE
CITY IRVING, TX 75063-3117 9
STATE
ZIP CODE 0
FORM UCC-1
(4) FILE COPY--DEBTOR APPROVED BY THE SECRETARY OF STATE
<PAGE> 9
INSTRUCTIONS (REV. 1/90)
1. PLEASE TYPE THIS FORM USING BLACK TYPEWRITER RIBBON.
2. If the space provided for any item is inadequate:
a. Note "Cont'd." in the appropriate space(s).
b. Continue the item(s) preceded by the Item No. on an additional
8-1/2x11" sheet.
c. Head each additional sheet with the Debtor's name (last name first
for individuals) appearing in Item No. 1 of this form. Be sure to
attach a copy of the additional sheet to each copy of the form.
3. NUMERICAL IDENTIFICATION:
a. If the Debtor, Secured Party or Assignee is an individual, include
Social Security number in the appropriate space. Disclosure of
Social Security number is optional for the filing of this statement.
It will be used to assist in correctly identifying individuals with
similar names. (UCC 9403[5])
b. If the Debtor, Secured Party or Assignee is other than an individual
or a bank, show Federal Tax-payer Number in the appropriate space.
c. If the Secured Party or Assignee is a bank, show Transit and ABA
number in the appropriate space. This must be the complete 10 digit
number.
4. COLLATERAL DESCRIPTION---Item 6
a. If the financing statement covers crops growing or to be grown, the
statement must also contain a description of the real estate
concerned in accordance with UCC 9402(1)..
b. If the financing statement covers timber to be cut or covers
minerals or the like, oil or gas or accounts subject to UCC 9103(5),
the statement must show that it covers this type of collateral and
the statement must also show it is to be recorded in the real estate
records, and the financing statement must contain a description of
the real estate sufficient if it were contained in a mortgage of the
real estate to give constructive notice of the mortgage under the
law of this State. If the debtor does not have an interest of record
in the real estate, the financing statement must show the name of a
record owner in Item No. 6.
5. SIGNATURES:
Before mailing, be sure that the financing statement has been properly
signed. A financing statement requires the signature of the debtor only
except under the following circumstances. If any of these circumstances
apply, check the appropriate box in Item 7B and enter required information
in Item 6.
a. Under the provisions of UCC 9402(2) a financing statement is
sufficient when it is signed by the secured party alone if it is
filed to perfect a security interest in:
(1) collateral already subject to a security interest in another
jurisdiction when it is brought into this State or when the debtor's
location is changed to this State. Such a financing statement must
state that the collateral was brought into this State or that the
debtor's location was changed to this State.
(2) proceeds under UCC 9306, if the security interest in the
original collateral was perfected. Such a financing statement must
describe the original collateral and give the date of filing and the
file number of the prior financing statement.
<PAGE> 10
(3) collateral as to which the filing has lapsed. Such a financing
statement must include a statement to the effect that the prior
financing statement has lapsed and give the date of filing and the
file number of the prior financing statement.
(4) collateral acquired after a change of name, identity or
corporate structure of the debtor. Such a financing statement must
include a statement that the name, identity or corporate structure
of the debtor has been changed and give the date of filing and the
file number of the prior financing statement and the name of the
debtor as shown in the prior financing statement.
6. FILING FEE---PROPER PLACE TO FILE:
Enclose filing fee of * payable to the appropriate Filing Officer.
Financing statements and related papers pertaining to consumer goods
should be filed with the County Recorder in the county of the debtor's
residence, or if the debtor is not a resident of this State, then in the
office of the County Recorder of the county in which the goods are kept.
When the collateral is crops growing or to be grown, timber to be cut,
or minerals or the like (including oil and gas), or accounts subject to
UCC 9103(5), then filing is with the County Recorder where the property
is located. In all other cases, filing is with the Secretary of State.
7. REMOVE SECURED PARTY AND DEBTOR COPIES.
Send the original and first copy with interleaved carbon paper to the
Filing Officer with the correct filing fee. The original will be
retained by the Filing Officer. The copy will be returned with the
filing date and time stamped thereon. Indicate the name and mailing
address of the person or firm to whom the copy is to be returned in Item
No. 11.
* For current fee to the Secretary or State Call (916) 445-8061
<PAGE> 1
EXHIBIT 10.25
STANDARD INDUSTRIAL/ COMMERCIAL MULTI-TENANT LEASE--GROSS
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only.
JULY 26 , 1995, is made by and between FLAM PROPERTIES, LTD.("lessor") , and
BOYD'S WHEELS INC., A CALIFORNIA CORPORATION ("LESSEE ") (collectively the
"PARTIES," or individually a "PARTY")
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 10540 FERN AVENUE, STANTON located in the County
of ORANGE, State of CALIFORNIA, and generally described as (describe briefly the
nature of the property): AN APPROXIMATELY 8550 SQUARE FOOT INDUSTRIAL BUILDING
AND LAND DESCRIBED AS PARCEL 4, IN THE CITY OF STANTON COUNTY OF ORANGE, STATE
OF CALIFORNIA AS PER MAP FILED IN BOOK 11 OF PARCEL MAPS, IN THE OFFICE OF THE
COUNTY RECORDER("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 Term: FIVE (5) years and ZERO months ("Original Term") commencing
OCTOBER 1, 1995 (("Commencement Date") and ending SEPTEMBER 30, 2000
("Expiration Date"). (See Paragraph 3 for further provisions.)
1.4 Early Possession: ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $3,675.00 per month (Base Rent"), payable on the FIRST
day of each month commencing OCTOBER 1, 1995 (SEE ADDENDUM PARAGRAPH 51 FOR
DELAY OF NOVEMBER 1995 RENT UNTIL MARCH 1, 1996) (See Paragraph 4 for further
provisions.) [ ] If this box is checked, there are provisions in this Lease for
the Base Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $3,675.00 as Base Rent for the
period
1.7 Security Deposit: $4000.00 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 Permitted Use: WAREHOUSE & DISTRIBUTION OF BOYDS WHEELS PRODUCTS,
MANUFACTURING & RELATED USES (See Paragraph 6 for further provisions.)
1.9 Insuring Party. Lessor is the "Insuring Party." $1036.00 is the
"Base Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers. The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
NONE represents [ ] Lessor exclusively ("Lessor's Broker");
[ ] both Lessor and Lessee, and
NONE represents [ ] Lessee exclusively ("Lessee's Broker");
[ ] both Lessee and Lessor. (See Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by BOYD CODDINGTON "Guarantor"). (See Paragraph 37 for further
provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 52, and Exhibits through , all of which constitute a
part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes.
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use; (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefore as the same relate to Lessee's occupancy of the Premises and/or the
term of this lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2, shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties
3. Term
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
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4. Rent
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent
or charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on or
before the day on which it is due under the terms of this Lease. Base Rent and
all other rent and charges for any period during the term hereof which is for
less than one (1) full calendar month shall be prorated based upon the actual
number of days of the calendar month involved. Payment of Base Rent and other
charges shall be made to Lessor at its address stated herein or to such other
persons or at such other addresses as Lessor may from time to time designate in
writing to Lessee.
5. Security Deposit. Lessee shall deposit with Lessor execution hereof of the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit monies
with lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional monies
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration or earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that is creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Law (as defined
in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of
any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but in compliance with all Applicable Law,
use any ordinary and customary materials reasonably required to be used by
Lessee in the normal course of Lessee's business permitted on the Premises, so
long as such use is not a Reportable Use and does not expose the Premises or
neighboring properties to any meaningful risk of contamination or damage or
expose Lessor to any liability therefor. In addition, Lessor may (but without
any obligation to do so) condition its consent to the use or presence of any
Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action, or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
such Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to mean all laws, rules, regulations, ordinances, directives, covenants,
easements and restrictions of record, permits, the requirements of any
applicable fire insurance underwriter or rating bureau, and the recommendations
of Lessor's engineers and/or consultants, relating in any manner to the Premises
(including but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance or storage tank), now in effect or which may
hereafter come into effect, and whether or not reflecting a change in policy
from any previously existing policy. Lessee shall, within five (5) days after
receipt of Lessor's written request, provide Lessor with copies of all documents
and information, including but not limited to permits, registrations, manifests,
applications, reports and certificates, evidencing Lessee's compliance with any
Applicable Law specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, complaint or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined
in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to
Lessee's installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law or a
contamination, caused or materially contributed to by Lessee, is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty
as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage or destruction), and 14
(condemnation, Lessee shall, at Lessee's sole cost and expense and at all times,
keep the Premises and every part thereof in good order, condition and repair
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the
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foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), ceilings, floors, windows, doors, plate glass, skylights,
landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks
and parkways located in, on, about, or adjacent to the Premises, but excluding
foundations, the exterior roof and the structural aspects of the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including through the plumbing or
sanitary sewer system) and shall promptly, at Lessees' expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with a contractors specializing and experienced in the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need
for such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's
expense, keep the foundations, exterior roof and structural aspects of the
Premises in good order, condition and repair. Lessor shall not, however, be
obligated to paint the exterior or interior surface of the exterior walls or to
maintain the windows, doors or plate glass or the interior surface of exterior
walls. Lessor shall not, in any event, have any obligation to make any repairs
until Lessor receives written notice of the need for such repairs. It is the
intention of the Parties that the terms of this Lease govern the respective
obligations of the Parties as to maintenance and repair of the Premises. Lessee
and Lessor expressly waive the benefit of any statute now or hereafter in effect
to the extent it is inconsistent with the terms of this Lease with respect to,
or which affords Lessee the right to make repairs at the expense of Lessor or to
terminate this Lease by reason of, any needed repairs.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protections systems,
communications systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4 (a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3 (a) or by subsequent
specific consent, shall be deemed conditioned upon: (i) Lessee's acquiring all
applicable permits required by governmental authorities; (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon; and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with all Applicable Law. Lessee shall promptly upon completion thereof furnish
Lessor with as-built plans and specifications therefor. Lessor may, (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by Law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal
and become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee-Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4 (b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
the Premises and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/o4 Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase
("Insurance Cost Increase") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2 (b), 8.3 (a) and 8.3 (b), ("Required Insurance"),
over and above the Base Premium, as hereinafter defined, calculated on an annual
basis. "Insurance Cost Increase" shall include, but not be limited to, increases
resulting from the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, and/or premium rate increase. If the
parties insert a dollar amount in Paragraph 1.9, such amount shall be considered
the "Base Premium." In lieu thereof, if the Premises have been previously
occupied, the "Base Premium" shall be the annual premium applicable to the most
recent occupancy. If the Premises have never been occupied, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement of the Original Term, assuming the most nominal
use possible of the Premises. In no event, however, shall Lessee be responsible
for any portion of the premium cost attributable to liability insurance coverage
in excess of $1,000,000 procured under Paragraph 8.2 (b) (Liability Insurance
Carried by Lessor).
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(b ) Lessee shall pay any Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement Date or Expiration of the Lease term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "Insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2 (a)
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy of policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the
Lessor shall not be required to Insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property and the restoration of Lessee-Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the polity term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. Lessee shall
cause to be delivered to Lessor certified copies of, or certificates evidencing
the existence and amounts of, the insurance, and with the additional insureds,
required under Paragraphs 8.2 (a) and 8.4. No such policy shall be cancellable
or subject to modification except after thirty (30) days' prior written notice
to Lessor. Lessee shall at least thirty (30) days prior to the expiration of
such policies, furnish Lessor with evidence of renewals of "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
cost, liens, judgments, penalties, permits, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant or Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
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(a) "Premises Partial Damage" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility Installations
the repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3 (a) irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2 (a), in, on, or under the
Premises.
9.2 Partial Damage-Insured Loss. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect, then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee to repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option, and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee's election to do so within ten (10) days after the expiration of the
Exercise Period, notwithstanding any term or provision in the grant of option to
the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b), shall be abated
in proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
first occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000 whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the date of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent of $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve months.
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9.8 Termination-Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor .
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent it is inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by Lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. All moneys paid to Lessor under this Paragraph may be
intermingled with other moneys of Lessor and shall not bear interest. In the
event of a Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a)
hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any
increase in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes". As used herein, the term
"Real Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all such charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the New Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
New Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as its exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
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(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the current monthly
Base Rent, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1 (c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment structure of the
rent payable under this Lease be adjusted to what is then the market value
and/or adjustment structure for property similar to the Premises as then
constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
such sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter of thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1,(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs 13.1 (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (e) is contrary to any applicable law, such
provision shall be of no force or effect, and shall not affect the validity of
the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or of any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
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13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under Subparagraph 13.1 (b), (c), or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1 (b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under this Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within five (5) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee in
writing for such purpose, of written notice specifying wherein such obligation
of Lessor has not been performed; provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days after such notice
are reasonably required for its performance, then Lessor shall not be in breach
of this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall be responsible for
the payment of any amount in excess of such net severance damages required to
complete such repair.
15. Brokers' Fees.
15.1 The Broker(s) named in Paragraph 1.10 is/are the procuring causes
of this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $__________) for brokerage services rendered
by said Brokers to Lessor in transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale
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entered into between the Parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, or (e) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then as to any
of said transactions, Lessor shall pay said Brokers a fee in accordance with the
schedule of said Brokers in effect at the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease,
whether such transfer is by agreement or by operation of law, shall be deemed to
have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it
has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days
after written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in a form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes. Either
Party may by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail, the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 than the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
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27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have not duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party of Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term "Prevailing Party" shall
include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorneys' fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorneys' fees reasonably incurred. Lessor shall be entitled to attorneys'
fees, costs and expenses incurred in preparation and service of notices of
Default and consultations in connection therewith, whether in connection
therewith, whether or not a legal action is subsequently commenced in connection
with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure with ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2 (e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph
1.11, the form of the guaranty to be executed by each such Guarantor shall be in
the form most recently published by the American Industrial Real Estate
Association, and each said Guarantor shall have the same obligations as Lessee
under this Lease, including but not limited to the obligation to provide the
Tenancy Statement and information called for by Paragraph 16.
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37.2 It shall constitute a Default of the Lessee under this Lease if
any such Guarantor fails or refuses, upon reasonable request by Lessor to give:
(a) evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the notices Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not
the Defaults are cured, during the twelve (12) month period immediately
preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve month period, whether or not the Defaults are cured, or (iii) if Lessee
commits a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises. Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights and dedications
that Lessor deems necessary, and to cause the recordation of parcel maps and
restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent or Lessee's
agent and submission of same to Lessee shall not be deemed an offer to lease to
Lessee. This Lease is not intended to be binding until executed and delivered by
all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
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IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY'S FOR HIS APPROVAL, FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE
THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE
TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S)
OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVISE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above to their respective signatures.
Executed at: STANTON, CA Executed at: STANTON, CA
on: on:
------------------------------ ---------------------------
By LESSOR: By LESSEE:
FLAM PROPERTIES, LTD. BOYDS WHEELS, INC.
- ---------------------------------- -------------------------------
By: By: BOYD CODDINGTON
------------------------------ ---------------------------
Name Printed: BARNEY FLAM Name Printed: BOYD CODDINGTON
Title: GENERAL PARTNER Title: CEO
By: By:
------------------------------ ---------------------------
Name Printed: Name Printed:
-------------------- -----------------
Title: Title:
--------------------------- ------------------------
Address: 1 PALERMO WALK Address: 8380 CERRITOS AVENUE
LONG BEACH, CA 90803 STANTON, CA 90680
Telephone: (310) 433-0941 Telephone: 714) 952-4038
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 345
South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213)
687-6777. Fax No. (213) 687-8616.
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ADDENDUM TO STANDARD INDUSTRIAL LEASE
Dated July 26, 1995
By and Between FLAM PROPERTIES, LTD, Lessor, and BOYDS WHEELS, INC.
49. OPTION TO EXTEND: Lessor hereby grants to Lessee the option to extend the
term of this Lease for a five (5) year period commencing October 1, 2000, when
the prior term expires upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor and Lessor receives written notice of the
exercise of this option to extend this Lease for said additional five (5) year
term no earlier than January 1, 2000 and no later than April 1, 2000, time being
of the essence. If said notification of the exercise of said option is not given
and received, this option shall automatically expire;
(ii) The provisions of paragraph 39, including the provision relating
to default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this Option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as specified in paragraph 50, RENT ESCALATIONS.
50. RENT ESCALATIONS.
(a) On October 1, 1996 and on each October 1st of each succeeding year
of the term of this Lease and of any extension under paragraph 49 or any
carrying over, the monthly rent payable under paragraph 4 of this Lease shall be
adjusted by the increase, if any, from the date this Lease commenced, in the
Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of
Labor for All Urban Consumers, Los Angeles-Anaheim-Riverside, California,
(1982-84=100), "All Items", herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
paragraph above shall be calculated as follows: the Base Rent, $3,675.00, as set
forth in paragraph 1.5 of this Lease, shall be multiplied by a traction the
numerator of which shall be the latest C.P.I. available on October 1, which will
be the August C.P.I. released in mid September, and the denominator of which
shall be the latest C.P.I. available on October 1, 1995 which will be the
August, 1995 C.P.I. to be released in mid September 1995.
(c) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the C.P.I. shall be used
to make such calculation. In the event that Lessor and Lessee cannot agree on
such alternative index, then the matter shall be submitted to decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
FLAM PROPERTIES, LTD. BOYDS WHEELS, INC.
by by /s/ Boyd Coddington
-------------------------------- ------------------------------
Barney Flam, General Partner Boyd Coddington, CEO
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ADDENDUM TO STANDARD INDUSTRIAL LEASE
Dated July 26, 1995
By and Between FLAM PROPERTIES, LTD, Lessor, and BOYDS WHEELS, INC.
51. PAYMENT SCHEDULE:
Lessee is to pay Lessor:
On Execution of this lease $7,675.00, the $4,000.00 Security Deposit per
paragraph 1.7 and $3,765.00, the rent for October 1995.
No payment need be paid on November 1, 1995.
Payments will made $3,675.00 on December 1, 1995
3,675.00 on January 1, 1996
3,675.00 on February 1, 1996
7,350.00 on March 1, 1996 (making up the Nov 95 pmt.)
3,675.00 on April 1, 1996 and on the first of each
month until the C.P.I. adjustment on October 1, 1996
52. IMPROVEMENTS: Lessee at Lessee's sole cost and expense will renovate,
refurbish and maintain the interior, exterior, fencing, paving and landscaping
to suit Lessee's needs and purposes. Lessor will provide a water-tight roof,
however it is Lessee's responsibility to keep the roof free and clear of debris,
especially to keep the downspouts free and clear and functioning. Lessee is not
to, or permit other agents of Lessee to, penetrate the roof membrane without
first obtaining Lessor's permission and approval of the method of installation
and the method of sealing the penetrating object.
FLAM PROPERTIES, LTD. BOYDS WHEELS, INC.
by by /s/ Boyd Coddington
-------------------------------- ------------------------------
Barney Flam, General Partner Boyd Coddington, CEO
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<PAGE> 1
Exhibit 10.26
GUARANTY OF LEASE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS, FLAM PROPERTIES, LTD., hereinafter referred to as "Lessor",
and BOYDS WHEELS, INC., hereinafter referred to as "Lessee", are about to
execute a document entitled "Lease" dated JULY 26, 1995 concerning the premises
commonly known as 10540 FERN AVE., STANTON, CA wherein Lessor will lease the
premises to Lessee, and
WHEREAS, BOYD CODDINGTON hereinafter referred to as "Guarantors" have a
financial interest in Lessee, and WHEREAS, Lessor would not execute the Lease if
Guarantors did not execute and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the
foregoing Lease by Lessor and as a material inducement to Lessor to execute said
Lease, Guarantors hereby jointly, severally, unconditionally and irrevocably
guarantee the prompt payment by Lessee of all rentals and all other sums payable
by Lessee under said Lease and the faithful and prompt performance by Lessee of
each and every one of the terms, conditions and covenants of said Lease to be
kept and performed by Lessee.
It is specifically agreed and understood that the terms of the
foregoing Lease may be altered, affected, modified or changed by agreement
between Lessor and Lessee, or by a course of conduct, and said Lease may be
assigned by Lessor or any assignee of Lessor without consent or notice to
Guarantors and that this Guaranty shall thereupon and thereafter guarantee the
performance of said Lease as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease, whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that
recourse may be had against her separate property for all of her obligations
hereunder.
The obligations of Lessee under the Lease to execute and deliver
estoppel statements and financial statements, as therein provided, shall be
deemed to also require the Guarantors hereunder to do and provide the same
relative to Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the
Lessor in the foregoing Lease specifically named and also any assignee of said
Lessor, whether by outright assignment or by assignment for security, and also
any successor to the interest of said Lessor or of any assignee in such Lease or
any part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of
Initials __R.O. _
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PAGE 15
GROSS
<PAGE> 2
trust or assignment, of any purchase at sale by judicial foreclosure or under
private power of sale, and of the successors and assigns of any such mortgagee,
beneficiary, trustee, assignee or purchaser.
The term "Lessee" whenever hereinabove used refers to and means the
Lessee in the foregoing Lease specifically named and also any assignee or
sublessee of said Lease and also any successor to the interests of said Lessee,
assignee or sublessee of such Lease or any part thereof, whether by assignment,
sublease or otherwise.
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
IF THIS FORM HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS FORM OR
THE TRANSACTION RELATING THERETO.
Executed
------------------------- -------------------------------
on
------------------------------- -------------------------------
Address 2235 VALLE DR. BOYD CODDINGTON
-------------------------- -------------------------------
LA HABRA HEIGHTS, CA 90631 "GUARANTORS"
--------------------------
1977---American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced in any form
without permission in writing.
For these forms write the American Industrial Real Estate Association, 5670
Wilshire Boulevard, Los Angeles, CA 90036
Initials __R.O. _
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PAGE 16
GROSS
<PAGE> 1
Exhibit 10.27
Commercial Lease
THIS LEASE is made on the 5th day of February, 1996.
The Landlord hereby agrees to lease to the Tenant, and the Tenant hereby agrees
to hire and take from the Landlord, the Leased Premises described below pursuant
to the terms and conditions specified herein:
LANDLORD: Custom Pipe & Coupling, Inc. TENANT: Boyd Wheels, Inc.
10560 Fern Ave.
Stanton, CA
1. Leased Premises. The Leased Premises are those premises described as: N.W.
section of yard 55.5' x 78.5' fence enclosed by tenant.
2. TERM. The term of the Lease shall be for a period of 1 year commencing on the
5 day of February, 1996 ending on the 5 day of February, 1997 unless sooner
terminated as hereinafter provided. If Tenant remains in possession of the
Leased Premises with the written consent of the Landlord after the lease
expiration date stated above, this Lease will be converted to a month-to-month
Lease and each party shall have the right to terminate the Lease by giving at
least one month's prior written notice to the other party.
3. RENT. The Tenant agrees to pay the ANNUAL RENT of ten thousand four hundred
fifty six 80/100 Dollars ($10456.80) payable in equal installments $871.40 in
advance on the first day of each and every calendar month during the full term
of this Lease.
4. RENT ADJUSTMENT. If in any tax year commencing with the fiscal year_________,
the real estate taxes on the land and buildings, of which the Leased Premises
are a part, are in excess of ;the amount of the real estate taxes thereon for
the fiscal year (hereinafter called the "Base Year"), Tenant will pay to
Landlord as additional rent hereunder, when and as designated by notice in
writing by Landlord,
_______per cent of such excess that may occur in each year of the term of this
Lease or any extension or renewal thereof and proportionately for any part of a
fiscal year.
5. SECURITY DEPOSIT. The sum of none Dollars ($ ) is deposited by the
Tenant with the Landlord as security for the faithful performance of all the
covenants and conditions of the lease by the said Tenant. If the Tenant
faithfully performs all the covenants and conditions on his part to be
performed, then the sum deposited shall be returned to the Tenant.
6. DELIVERY OF POSSESSION. If for any reason the Landlord cannot deliver
possession of the leased property to the Tenant when the lease term commences,
this Lease shall not be void or voidable, nor shall the Landlord be liable to
the Tenant for any loss or damage resulting therefrom. However, there shall be
an abatement of rent for the period between the commencement of the lease term
and the time when the Landlord delivers possession.
7. USE OF LEASED PREMISES. The Leased Premises may be used only for the
following purpose:
Storage of aluminum castings and unfinished products - material in-process
8. UTILITIES. Except as specified below, the Tenant shall be responsible for all
utilities and services that are furnished to the Leased Premises. The
application for and connecting of utilities, as well as all services, shall be
made by and only in the name of the Tenant:
(List exceptions, if any)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
9. CONDITION OF LEASED PREMISE; MAINTENANCE AND REPAIR. The Tenant acknowledges
that the Leased Premises are in good order and repair. The Tenant agrees to take
good care of and maintain the Leased Premises in good condition throughout the
term of the Lease.
The Tenant, at his expense, shall make all necessary repairs and replacements to
the Leased Premises, including the repair and replacement of pipes, electrical
wiring, heating and plumbing systems, fixtures and all other systems and
appliances and their appurtenances. The quality and class of all repairs and
replacements shall be equal to the original worth. j If Tenant defaults in
making such repairs or replacements, Landlord may make them for Tenant's
account, and such expenses will be considered additional rent.
10. COMPLIANCE WITH LAWS AND REGULATIONS. Tenant, at his expense, shall promptly
comply with all federal, state, and municipal laws, orders, and regulations, and
with all lawful directives of public officers, which impose any duty upon it or
Landlord with respect to the Leased Premises. The tenant at its expense, shall
obtain all required licenses or permits for the conduct of its business within
the terms of this lease, or for the making of repairs, alterations,
improvements, or additions. Landlord, when necessary, will join with the Tenant
in applying for all such permits or licenses.
11. ALTERATIONS AND IMPROVEMENTS. Tenant shall not make any alterations,
additions, or improvements to, or install any fixtures on, the Leased Premises
without Landlord's prior written consent. If such consent is given, all
alterations, additions, and improvements made, and fixtures installed, by Tenant
shall become Landlord's property upon the expiration or sooner termination of
this Lease. Landlord may, however, require Tenant to remove such fixtures, at
Tenant's cost, upon the termination hereof.
12. ASSIGNMENT/SUBLETTING RESTRICTIONS. Tenant may not assign this agreement or
sublet the Leased Premises without the prior written consent of the Landlord.
Any assignment, sublease or ;other purported license to use the Leased Premises
by Tenant without the Landlord's consent shall be void and shall (at Landlord's
option) terminate this Lease.
<PAGE> 2
13. INSURANCE
(i) BY LANDLORD. NONE
(ii) BY TENANT. Tenant shall, at its expense, during the term hereof,
maintain and deliver to Landlord public liability and property damage and plate
glass insurance policies with respect to the Leased Premises. Such policies
shall name the Landlord and Tenant
as insureds, and have limits of at least $1,000,000 for injury or death to any
one person and $1,000,000 for any one accident with respect to damage to
property. Such policies shall be in whatever form and with such insurance
companies as are reasonably satisfactory to Landlord, andD shall provide for at
least ten days' prior notice to Landlord of cancellation.
14. INDEMNIFICATION OF LANDLORD. Tenant shall defend, indemnify, and hold
Landlord harmless from and against any claim, loss expense or damage to any
person or property in or upon the Leased Premises, arising out of Tenant's use
or occupancy of the Leased Premises, or arising out of any act or neglect of
Tenant or its servants, employees, agents, or invitees.
15. CONDEMNATION. If all or any part of the Leased Premises is taken by eminent
domain, this lease shall expire on the date of such taking, and the rent shall
be apportioned as of that date. No part of any award shall belong to Tenant.
16. DESTRUCTION OF PREMISES. If the building in which the Leased Premises is
located is damaged by fire or other casualty, without Tenant fault, and the
damage is so extensive as to effectively constitute a total destruction of the
property or building, this Lease shall terminate and the rent shall be
apportioned to the time of the damage. In all other cases of damage without
Tenant's fault, Landlord shall repair the damage with reasonable dispatch, and
if the damage has rendered the Leased Premises wholly or partially untenantable,
the rent shall be apportioned until the damage is repaired. In determining what
constitutes reasonable dispatch, consideration shall be given to delays caused
by strikes, adjustment of insurance , and other causes beyond the Landlord's
control.
17. LANDLORD'S RIGHTS UPON DEFAULT. In the event of any breach of this lease by
the Tenant, which shall not have been cured within TEN (10) DAYS, then the
Landlord, besides other rights or remedies it may ;have, shall have the
immediate right of reentry and may remove all persons and property from the
Leased Premises; such property may be removed and stored in a public warehouse
or elsewhere at the cost of, and for the account of, the Tenant. If the Landlord
elects to reenter as herein provide, or should it take possession pursuant to
any notice provided for by law, it may either terminate this Lease or Landlord
may, from time to time, without terminating this lease, relet the Leased
Premises or any part thereof, for such term or terms and at such rental or
rentals and upon such other terms and conditions as the Landlord in Landlord's
own discretion may deem advisable. Should rentals received from such reletting
during any ;month be less than that agreed to be paid during the month by the
Tenant hereunder, the Tenant shall pay such deficiency to the Landlord monthly.
The Tenant shall also pay to the Landlord, as soon as ascertained, the cost and
expenses incurred by the Landlord in such reletting.
18. QUIET ENJOYMENT. The Landlord agrees that if the Tenant shall pay the rent
as aforesaid and perform the covenants and agreements herein contained on its
part to be performed, the Tenant shall peaceably hold and enjoy the said rented
premises without hindrance or interruption by the landlord or by any other
person or persons.
19. LANDLORD'S RIGHT TO ENTER. Landlord may, at reasonable times, enter the
Leased Premises to inspect it, to make repairs or alterations, and to show it to
potential buyers, lenders or tenants.
20. SURRENDER UPON TERMINATION. At the expiration of the lease term, the Tenant
shall surrender the leased property in as good condition as it was in at the
beginning of the term, reasonable use and wear excepted.
21. SUBORDINATION. This lease, and the Tenant's leasehold interest, is and shall
be subordinate, subject and inferior to any and all liens and encumbrances now
and thereafter placed on the Leased Premises by Landlord, any and all extensions
of such liens and encumbrances and all advances paid under such liens and
encumbrances.
22. ADDITIONAL PROVISIONS:
23. MISCELLANEOUS TERMS.
(i) NOTICES. Any notice, statement, demand or other communication by
one party to the other, shall be given by personal delivery or by mailing the
same, postage prepaid, addressed to the Tenant at the premises, ;or to the
Landlord at the address set forth above.
(ii) SEVERABILITY. If any clause or provision herein shall be adjudged
invalid or unenforceable by a court of competent jurisdiction or by operation of
any applicable law, it shall not affect the validity of any other clause or
provision, which shall remain in full force and effect.
(iii) WAIVER. The failure of either party to enforce any of the
provisions of this lease shall not be considered a waiver of that provision or
the right of the party to thereafter enforce the provision.
(iv) COMPLETE AGREEMENT. This Lease constitutes the entire
understanding of the parties with respect to the subject matter hereof and may
not be modified except by an instrument in writing and signed by the parties.
(v) Successors. This Lease is binding on all parties who lawfully
succeed to the rights or take the place of the Landlord or Tenant.
IN WITNESS WHEREOF the parties have set their hands and seals on this 12 day of
February, 1996.
- ---------------------------------- ------------------------------------
Landlord Tenant
------------------------------------
Tenant
<PAGE> 1
Exhibit 10.28
STANDARD INDUSTRIAL/ COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only.
AUGUST 15 , 1995, is made by and between GARY HOLLANDER, SUSAN HENSON,
KEVIN HENSON TRUST & HOLLANDER GLASS ("lessor") , and BOYD'S WHEELS INC.,
A CALIFORNIA CORPORATION ("LESSEE") (collectively the "PARTIES," or
individually a "PARTY")
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 10541 DALE STREET, located in the City
of STANTON, County of ORANGE, State of CALIFORNIA, with zip code 90680, as
outlined on Exhibit __ attached hereto ("Premises"). The "Building" is the
certain building containing the Premises and generally described as (describe
briefly the nature of the Building):
APPROXIMATELY 6,850 S.F. PART OF LARGER CONCRETE TILT-UP BUILDING TOGETHER WITH
APPROXIMATELY 300 S.F. OF OFFICE AREA In addition to Lessee's rights to use and
occupy the Premises as hereinafter specified, Lessee shall have non-exclusive
rights to the Common Areas (as defined in Paragraph 2.7 below) as hereinafter
specified, but shall not have any rights to the roof, exterior walls or utility
raceways of the Building or to any other buildings in the Industrial Center. The
Premises, the Building, the Common Areas, the land upon which they are located,
along with all other buildings and improvements thereon, are herein collectively
referred to as the "Industrial Center." (Also see Paragraph 2.)
1.2b Parking: THREE (3) unreserved vehicle parking spaces ("Unreserved
Parking Spaces"); and NONE ( 0 ) reserved vehicle parking spaces (("Reserved
Parking Spaces"). (Also see Paragraph 2.6.)
1.3 Term: 3 years and 0 months ("Original Term") commencing OCTOBER 15,
1996 (("Commencement Date") and ending OCTOBER 14, 1998 ("Expiration Date").
(Also see Paragraph 3.)
1.4 Early Possession: EXECUTION OF LEASE ("Early Possession Date").
(Also see Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $2500.00 per month (Base Rent"), payable on the 1ST day
of each month commencing OCTOBER 1, 1995 (Also see Paragraph 4.)
[] If this box is checked, this Lease provides for the base Rent to be adjusted
per Addendum N/A , attached hereto. 1.6 (a) Base Rent Paid Upon Execution:
$2500. as base Rent for the period 10/1/95 through 11/1/95
1.6 (b) Lessee's share of Common Area Operating Expenses: FIVE & 95/100
percent (5.9%) ("Lessee's Share") as determined by
[] prorata square footage of the Premises as compared to the total square
footage of the Building or [ ] other criteria as described in Addendum ____.
1.7 Security Deposit: $2500.00 ("Security Deposit"). (Also see
Paragraph 5.) 1.8 Permitted Use: ASSEMBLY AND DISTRIBUTION OF AUTOMOTIVE WHEELS,
MANUFACTURING ACCESSORIES, AND OTHER LAWFUL RELATED
PURPOSES. ("Permitted Use") (Also see Paragraph 6.)
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10 (a) Real Estate Brokers. The following real estate broker (s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
<TABLE>
<S> <C> <C>
[] VINCENT B. RUH COMPANY represents Lessor exclusively ("Lessor's Broker");
[] NONE represents Lessee exclusively ("Lessee's Broker"); or
[] NONE represents both Lessor and Lessee ("Dual Agency").
(Also see Paragraph 15.)
</TABLE>
1.10 (b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker (s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker (s) (or in the event there is
no separate written agreement between Lessor and said Broker(s), the sum of $ *
) for brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by N/Al ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 50, and Exhibits A through B, all of which
constitute a part of this Lease.
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes. regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same representations or warranties with respect
to said matters other than as set forth in this Lease.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2, shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any non-compliance of the Premises with said warranties
Initials
---------
---------
* BY SEPARATE AGREEMENT
<PAGE> 2
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong
to or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7 Common Areas--Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas--Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 Common Areas--Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas--Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the
Common Areas;
(e) To use the Common Areas while engaged in making
additional improvements, repairs or alterations to the Industrial Center, or any
portion thereof and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. Term
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4 or if no Early Possession Date is specified, by the
commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this lease, or the obligation of
Lessee under the terms of this Lease until Lessor delivers possession of the
Premises to Lessee. If possession of the Premises is not delivered to Lessee
within sixty (60) days after the Commencement Date, Lessee may, at its option,
by notice in writing to Lessor within ten (10) days after the end of said sixty
(60) day period, cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder; provided further, however, that if
such written notice of Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and be of
no further force or effect. Except as may be otherwise provided, and regardless
of when the Original Term actually commences, if possession is not tendered to
Lessee when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to the period during which the Lessee
would have otherwise enjoyed under the terms hereof, but minus any days of delay
caused by the acts, changes or omissions of Lessee.
4. Rent
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4..2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's share (as specified in
Paragraph 1.6 (b) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for
purposes of this Lease, as all costs incurred by Lessor relating to the
ownership and operation of the Industrial Center, including, but not limited to,
the following:
(I) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(AA) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone
to service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2 (b) for the Building and Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in
Paragraph 8.1).
(viii) Any deductible portion of an insured loss
concerning the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that
are stated elsewhere in this Lease to be a Common Area Operating Expense.
<PAGE> 3
(b) Any common Area Operating Expenses and real Property
Taxes that are specifically attributable to the Building or to any other
building in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other building.
However, any Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and
services set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same, Lessor
already provides the services, or Lessor has agreed elsewhere in this Lease to
provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. at Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12 month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Leas. If Lessee fails to
pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1). Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its assignees
and subtenants, for a modification of said Permitted Use, so long as the same
will not impair the structural integrity of the improvements on the Premises or
in the Building or the mechanical or electrical systems therein, does not
conflict with uses by other lessees, is not significantly more burdensome to the
Premises or the Building and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If lessor elects to withhold such
consent, Lessor shall within five (5) business days after such request give a
written notification of same, which notice shall include an explanation of
Lessor's reasonable objections to the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or
use of any above or below ground storage tank, (iii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including but
not limited to the installation (and, at Lessor's option, removal on or before
Lease expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) Indemnification. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any, and
the Premises, harmless from and against any and all damages, liabilities,
judgments, costs, claims, liens, expenses, penalties, loss of permits and
attorneys' and consultants' fees arising out of or involving any Hazardous
Substance brought onto the Premises by or for Lessee or by anyone under Lessee's
control. Lessee's obligations under this Paragraph 6.2 (c) shall include, but
not be limited to, the effects of any contamination or injure to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances, unless specifically so agreed by Lessor in
writing at the time of such agreement.
<PAGE> 4
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, with five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition),
2.3 (Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation, Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure
and maintain a contract, with copies to Lessor, in customary form and substance
for and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under
this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in the case of an emergency, in which
case no notice shall be required), perform such obligations on Lessee's behalf,
and put the Premises in good order, condition and repair, in accordance with
Paragraph 13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls not shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center of
Common Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protections systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4 (a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) Consent. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3 (a) or by subsequent specific
consent, shall be deemed conditioned upon: (I) Lessee's acquiring all applicable
permits required by governmental authorities; (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon; and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and be in compliance with all
Applicable Requirements. Lessee shall promptly upon completion thereof furnish
Lessor with as-build plans and specifications therefor. Lessor may, (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $2,500.00 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) Lien Protection. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by Law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4 (b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
<PAGE> 5
(b) Removal. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier termination
date, clean and free of debris and in good operating order, condition and state
of repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premium Increases.
(a) As used herein, the term "Insurance Cost Increase" is
defined as any increase in the actual cost of the insurance applicable to the
Building and required to be carried by Lessor pursuant to Paragraphs 8.2 (b),
8.3 (a) and 8.3 (b), ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, requirements of the holder of a mortgage
or deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase' shall
not, however, include any premium increases resulting from the nature of the
occupancy of any other lessee of the Building. If the parties insert a dollar
amount in Paragraph 1.9, such amount shall be considered the "Base Premium." If
a dollar amount has not been inserted in Paragraph 1.9 and if the Building has
been previously occupied during the twelve (12) month period immediately
preceding the Commencement Date, the "Base Premium" shall be the annual premium
applicable to such twelve (12) month period. If the Building was not fully
occupied during such twelve (12) month period, the "Base Premium" shall be the
lowest annual premium reasonably obtainable for the Required Insurance as of the
Commencement Date, assuming the most nominal use possible of the Building. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2 (b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
head, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organization, but shall
include coverage for liability assumed under this Lease as an "Insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to by carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2 (a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against loss
or damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said polity of policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, Insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, Insurance premium costs and other expenses, if any,
otherwise payable, for the next 12 month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in
the premiums for the property insurance of the Building and for the Common Areas
of other buildings in the Industrial Center if said increase is caused by
Lessee's acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring
Party, Lessor shall not be required to Insure Lessee-Owned Alterations and
Utility Installations unless the item in questions has become the property of
Lessor under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate polity or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3
(a). Such insurance shall be full replacement cost coverage with a deductible
not to exceed $1,000 per occurrence. The proceeds from any such insurance shall
be used by Lessee for the replacement of personal property and the restoration
of Trade Fixtures and Lessee-Owned Alterations and Utility Installations. Upon
request from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the polity term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
with seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2 (a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals of "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
<PAGE> 6
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
cost, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee or Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than fifty
percent (50%) of the then Replacement Cost (as defined in Paragraph 9.1 (d)) of
the Premises (excluding Lessee-Owned Alterations and Utility Installations and
Trade Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage to
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3 (a) irrespective of any deductible amounts
or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence
of discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2 (a), in, on, or under the
Premises.
9.2 Premises Partial Damage-Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available. Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage-Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continues, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3 (b).
Except for abatement of Base Rent, Common Area Operating Expenses and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such damage, destruction, repair, remediation
or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall
<PAGE> 7
terminate as of the date specified in said notice. If Lessor or a Lender
commences the repair or restoration of the Premises within thirty (30) days
after the receipt of such notice, this Lease shall continue in full force and
effect. "Commence" as used in this Paragraph 9.6 shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2 (c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 Termination-Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as his not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2 (a), applicable to the Industrial Center, and except
as otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definitions.
(a) As used herein, the term "Real Property Taxes" shall
include any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (Other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"Real Property Taxes" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "Base Real Property Taxes" shall
be the amount of Real Property Taxes, which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property with ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services supplied
to the Premises, including but not limited to electricity, telephone, security,
gas and cleaning of the Premises, together with any taxes thereon. If any such
utilities or services are not separately metered to the Premises or separately
billed to the Premises, Lessee shall pay to Lessor a reasonable proportion to be
determined by Lessor of all such charges jointly metered or billed with other
premises in the Building, in the manner and within the time periods set forth in
Paragraph 4.2 (d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or in the
Premises without Lessor's prior written consent given under and subject to the
terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged by-out or otherwise), whether or not
a formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the New Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five percent
(25%) of such New Worth of Lessee as it was represented to Lessor at the time of
full execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as its exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent "Net
Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days' written notice ("Lessor's Notice"), increase the monthly Base Rent
for the Premises to the greater of the then fair market rental value of the
Premises, as reasonably determined by Lessor, or one hundred ten percent (110%)
of the Base Rent then in effect. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii)
<PAGE> 8
any fixed rental adjustments scheduled during the remainder of the Lease term
shall be increased in the same ratio as the new rental bears to the Base Rent in
effect immediately prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach of
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
(d) In the event of any Default of Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph
12.2 (c) shall give Lessor the right (but not the obligation) to require that
the Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment schedule of
the rent payable under this Lease be adjusted to what is then the market value
and/or adjustment schedule for property similar to the Premises as then
constituted, as determined by Lessor.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such Sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter of thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1, (iii) the rescission of an unauthorized
assignment or subletting per Paragraph 12.1, (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations
under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution
of any document requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of Lessee under
the terms of this lease, where any such failure continues for a period of ten
(10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under Paragraph
40 hereof that are to be observed, complied with or performed by Lessee, other
than those described in Subparagraphs 13.1 (a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice thereof
by or on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably required
for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee
if Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession
<PAGE> 9
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1 (e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery of Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at is own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco of the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1 (b), (c), or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph 13.1
(b), (c) or (d). In such case, the applicable grace period under the unlawful
detainer statue shall run concurrently after the one such statutory notice, and
the failure to Lessee to cure the Default within the greater of the two (2) such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitation. Lessor and Lessee agree
that the limitations on assignment and subletting in this Lease are reasonable.
Acts of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Leas,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, the, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a fair
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
<PAGE> 10
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option (as
defined in Paragraph 39.1) granted under this Lease or any Option subsequently
granted, or (b) if Lessee acquires any rights to the Premises or other premises
in which Lessor has an interest, or (c) if Lessee remains in possession of the
Premises with the consent of Lessor after the expiration of the term of this
Lease after having failed to exercise an Option, or (d) if said Brokers are the
procuring cause of any other lease or sale entered into between the Parties
pertaining to the Premises and/or any adjacent property in which Lessor has an
interest, or (e) if Base Rent is increased, whether by agreement or operation of
an escalation clause herein, then as to any of said transactions, Lessor shall
pay said Broker(s) a fee in accordance with the schedule of said Broker(s) in
effect at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealing with any person, firm,
broker or finder other than as named in Paragraph 1.10 (a) in connection with
the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that is has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Liease shall be in writing and may be delivered in person (by hand or by
messenger of courier service) or may be sent by regular, certified or registered
mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile
transmission during normal business hours, and shall be deemed sufficiently
given if served in a manner specified in this Paragraph 23. The addresses noted
adjacent to a Party's signature on this Lease shall be that Party's address for
delivery or mailing of notice purposes. Either Party may by written notice to
the other specify a different address for notice purposes, except that upon
Lessee's taking possession of the Premises, the Premises shall constitute
Lessee's address for the purpose of mailing or delivering notices to Lessee. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition thereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agree to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 than the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
<PAGE> 11
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law, This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have not duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party of Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fee, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" sings and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lessor estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure with ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2 (e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other conditions
as are then reasonable with reference to the particular matter for which consent
is being given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to
<PAGE> 12
obligate such Guarantor on said guaranty, and resolution of its board of
directors authorizing the making of such guaranty, together with a certificate
of incumbency showing the signatures of the persons authorized to sign on its
behalf, (b) current financial statements of Guarantor as may from time to time
be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation
that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the notices Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during the twelve (12) month period immediately preceding the exercise of the
Option, whether or not the Defaults are cured.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect. notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of thirty (30) days after such obligation becomes due
(without any necessity of Lessor to give notice thereof to Lessee), or (ii)
Lessor gives to Lessee three (3) or more notices of separate Defaults under
Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults
are cured, or (iii) if Lessee commits a Breach of this Lease.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the ground, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises. Lessee,
its agents and invitees and their property from the act of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions to not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is in corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. LESSEE AT LESSEE'S SOLE COST AND EXPENSE SHALL HAVE THE RIGHT TO CONSTRUCT
AN OPENING IN THE NORTHERLY WALL OF SAID UNIT: SIZE OF OPENING AND METHOD OF
REPLACING OPENING SHALL BE DETERMINED AND APPROVED IN WRITING BY LESSOR.
OVERHEAD ROLL-UP DOOR AND MAN DOOR SHALL BE CENTERED IN MIDDLE OF THE PANEL OF
WHICH THEY ARE LOCATED. ALL CONSTRUCTION AND ALTERATIONS SHALL BE COMPLETED IN
ACCORDANCE WITH CITY AND COUNTY CODES. AT TERMINATION OF THE LEASE, LESSEE AT
LESSEE'S SOLE COST AND EXPENSE SHALL REPLACE THE OPENINGS WITH MORTAR FILLED
CONCRETE BLOCK WITH RE-BAR. LESSEE SHALL HAVE PERMISSION TO ATTACH TO THE
OUTSIDE OF THE NORTHERLY WALL AN AIR LINE. PENETRATION INTO THE BUILDING SHALL
BE ONLY AT UNIT 10541 DALE STREET (SEE ATTACHED EXHIBIT B).
<PAGE> 13
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVISE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
------------------------------ -----------------------
on: on:
--------------------------------------- ------------------------------------
By LESSOR: By LESSEE:
GARY HOLLANDER, SUSAN HENSON, KEVIN HENSON BOYD'S WHEELS INC., A CALIFORNIA
- ------------------------------------------ --------------------------------
TRUST & HOLLANDER GLASS CORPORATION
- ------------------------------------------ ------------------------------------
By: By:
--------------------------------------- ---------------------------------
Name Printed: Name Printed:
----------------------------- -----------------------
Title: Title:
------------------------------------ ------------------------------
By: By:
--------------------------------------- --------------------------------
Name Printed: Name Printed:
----------------------------- -----------------------
Title: Title:
------------------------------------ ------------------------------
Address: Address:
---------------------------------- ----------------------------
- ------------------------------------------ -----------------------------------
Telephone: ( ) Telephone: ( )
--------------------------- --------------------
Facsimile: ( ) Facsimile: ( )
--------------------------- -------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------------ -----------------------
on: on:
--------------------------------------- --------------------------------
By: By:
--------------------------------------- --------------------------------
Name Printed: Name Printed:
----------------------------- -----------------------
Title: Title:
------------------------------------ ------------------------------
Address: Address:
---------------------------------- ----------------------------
- ------------------------------------------ ------------------------------------
Telephone: ( ) Telephone: ( )
--------------------------- ---------------------
Facsimile: ( ) Facsimile: ( )
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<PAGE> 14
OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
Dated AUGUST 15, 1995
By and Between (Lessor) GARY HOLLANDER, SUSAN HENSON, KEVIN
HENSON TRUST & HOLLANDER GLASS
(Lessee) BOYD'S WHEELS , INC., A CALIFORNIA
CORPORATION
Property Address: 10541 DALE STREET, STANTON, CA 90680
Paragraph 50
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term
of this Lease for 1 additional 36 month period(s) commencing when the prior
term expires upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date
which is prior to the date that the option period would commence (if exercised)
by at least 4 and not more than 6 months, a written notice of the exercise
of the option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is(are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating
to default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
II. Market Rental Value Adjustment(s) (MRV)
(a) On (fill in MRV Adjustment Date(s): OCTOBER 1,
1998 the monthly rent payable under
paragraph 1.5 ("Base Rent:) of the attached Lease shall be adjusted to the
"Market Rental Value" of the property as follows:
1). Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
<PAGE> 15
OPTION(S) TO EXTEND
Page 1 of 2
(i) Lessor and Lessee shall immediately appoint a mutually acceptable
appraiser or broker to establish the new MRV within the next 30 days. Any
associated costs will be split equally between the parties, or
(ii) Both Lessor and Lessee shall each immediately select and pay the
appraiser or broker of their choice to establish a MRV within the next 30 days.
If, for any reason, either one of the appraisals is not completed within the
next 30 days, as stipulated, then the appraisal that is completed at that time
shall automatically become the new MRV> If both appraisals are completed and the
two appraisers/brokers cannot agree on a reasonable average MRV then they shall
immediately select a third mutually acceptable appraiser/broker to establish a
third MRV within the next 30 days. The average of the two appraisals closest in
value shall then become the new MRV> The costs of the third appraisal will be
split equally between the parties.
2) In any event, the new MRV shall not be less than the rent
payable for the month immediately preceding the date for rent adjustment.
(b) Upon the establishment of each New Market Rental Value as described
in paragraph all:
1) the monthly rental sum so calculated for each term as specified
in paragraph All(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
Al(a) above and
2) the first month of each Market Rental Value term as specified
in paragraph All(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
Al(b).
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the attached Lease.
<PAGE> 1
EXHIBIT 10.29
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made as of this ______
day of ________________, 19__, by and between BOYDS WHEELS, INC., a California
corporation (the "Company"), and _________________________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the availability and coverage
of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
AGREEMENT
NOW, THEREFORE, The Company and Indemnitee hereby agree as follows:
1. Agreement to Indemnify.
The Company hereby agrees to indemnify Indemnitee and hold him harmless
to the full extent authorized or permitted by the provisions of the General
Corporation Law of California, or by any amendment thereof or other statutory
provision requiring, authorizing or permitting such indemnification which may be
adopted after the date hereof; provided, however, that any such amendment or
other statutory provision which further limits the availability of or further
restricts the Company's ability to provide such indemnification shall operate
prospectively only, to the extent permitted by law.
<PAGE> 2
2. Agreement to Serve.
In consideration of the protection afforded by this Agreement, if
Indemnitee is presently a director of the Company he agrees to serve at least
for the balance of the current term as a director and not to resign voluntarily
during such period without the written consent of a majority of the Board of
Directors. If Indemnitee is presently an officer of the Company not serving
under an employment contract, he agrees to serve in such capacity at least for
the balance of the current fiscal year of the Company and not to resign
voluntarily during such period without the written consent of a majority of the
Board of Directors. Following the applicable period set forth above, Indemnitee
agrees to continue to serve in such capacity at the will of the Company (or
under separate agreement, if such agreement exists) so long as he is duly
appointed or elected and qualified in accordance with the applicable provisions
of the bylaws of the Company or any subsidiary of the Company or until such time
as he tenders his resignation in writing. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding subject to the
indemnification provided in Section 1 hereof, to the final disposition of such
action, suit or proceeding. Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
the Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to the
Indemnitee as soon as possible following delivery of a written request therefor
by Indemnitee to the Company, but in no event more than twenty (20) days after
such request.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. Notice
to the Company shall be directed to Rex A. Ours (Attn: Chief Financial Officer)
(or such other address as the Company shall designate in writing to Indemnitee).
Notice shall be deemed received on the third business day after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. The Indemnitee's omission to so notify the Company
under this Section 3(b) shall not relieve the Company from any liability which
it may have to Indemnitee under this Agreement (provided that the Company shall
retain the right to reimbursement from the Indemnitee for any damages it may
have suffered as a result of the failure so to notify). In addition, Indemnitee
shall give the Company such information and cooperation as it may reasonably
require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in Section
1 and this Section 3 shall be made no later than twenty (20) days after receipt
of the written request of Indemnitee. If a claim under this Agreement, under any
statute, or under any provision of the Company's Articles of Incorporation or
Bylaws providing for indemnification, is not paid in full
-2-
<PAGE> 3
by the Company within twenty (20) days after a written request for payment
thereof has first been received by the Company, Indemnitee may, but need not, at
any time thereafter bring an action against the Company to recover the unpaid
amount of the claim and, subject to Section 11(c) of this Agreement, Indemnitee
shall also be entitled to be paid for the expenses (including attorneys' fees)
of bringing such action. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in connection with any
action, suit or proceeding in advance of its final disposition) that Indemnitee
has not met the standards of conduct which make it permissible under applicable
law for the Company to indemnify Indemnitee for the amount claimed, but the
burden of proving such defense shall be on the Company and Indemnitee shall be
entitled to receive interim payments of expenses pursuant to Subsection 3(a)
unless and until such defense may be finally adjudicated by court order or
judgment from which no further right of appeal exists. It is the parties'
intention that if the Company contests Indemnitee's right to indemnification,
the question of Indemnitee's right to indemnification shall be for the court to
decide, and neither the failure of the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct required by applicable law, nor an
actual determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of a
claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) Selection of Counsel. In the event the Company shall be obligated
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel reasonably acceptable to the Indemnitee, upon
the delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense or (C) the Company
shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of Indemnitee's counsel shall be at the
expense of the Company.
-3-
<PAGE> 4
4. Additional Indemnification Rights; Nonexclusivity.
(a) Scope. Notwithstanding any other provision of this Agreement, the
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute, or rule which
expands the right of a California corporation to indemnify a member of its board
of directors or an officer, such changes shall be, ipso facto, within the
purview of Indemnitee's rights and Company's obligations, under this Agreement.
In the event of any change in any applicable law, statute or rule which narrows
the right of a California corporation to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Articles of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested Directors, the General Corporation Law of
the State of California, or otherwise, both as to action in Indemnitee's
official capacity and as to action in another capacity while holding such office
(an "Indemnified Capacity"). The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an Indemnified Capacity even though he may have ceased to serve in an
Indemnified Capacity at the time of any action, suit or other covered
proceeding.
5. Partial Indemnification.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of the expenses, judgments,
fines or penalties actually or reasonably incurred by him in the investigation,
defense, appeal or settlement of any civil or criminal action, suit or
proceeding, but not, however, for the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion of such expenses, judgments,
fines or penalties to which Indemnitee is entitled.
6. Enforcement.
(a) Public Policy. Both the Company and Indemnitee acknowledge that in
certain instances, Federal law or public policy may override applicable state
law and prohibit the Company from indemnifying its directors and officers under
this Agreement or otherwise. For example, the Company and Indemnitee acknowledge
that the Securities and Exchange Commission (the "SEC") has taken the position
that indemnification is not permissible for liabilities arising under certain
federal securities laws, and federal legislation prohibits indemnification for
certain ERISA violations. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
SEC to
-4-
<PAGE> 5
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
(b) Inducement. The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligation imposed on the Company
hereby in order to induce Indemnitee to continue to serve as a director or
officer of the Company and/or one or more of its subsidiaries, and acknowledges
that Indemnitee is relying upon this Agreement in continuing in such indemnity.
7. Officer and Director Liability Insurance.
The Company shall, from time to time, make the good faith determination
whether or not it is practicable for the Company to obtain and maintain a policy
or policies of insurance with reputable insurance companies providing the
officers and directors of the Company with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of director and officer liability insurance,
Indemnitee shall be named as an insured in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a parent or subsidiary of the Company.
8. Severability.
Nothing in this Agreement is intended to require or shall be construed
as requiring the Company to do or fail to do any act in violation of applicable
law, and to the extent this Agreement requires any act or omission to act which
would be in violation of applicable law, such requirement shall be ipso facto
eliminated herefrom. The Company's inability, pursuant to court order, to
perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
-5-
<PAGE> 6
9. Exceptions.
Any other provision herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement:
(a) Claims Initiated by Indemnitee. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
applicable law, but such indemnification or advancement of expenses may be
provided by the Company in specific cases if the Board of Directors finds it to
be appropriate; or
(b) Insured Claims. To indemnify Indemnitee for expenses or liabilities
of any type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) which have been
actually paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company, without
further liability to the Indemnitee for reimbursement of any such amounts.
(c) Claims Under Section 16(b). To indemnify Indemnitee for expenses or
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. Construction of Certain Phrases.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee or agent of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to any employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not
opposed to the best interests of the Company" as referred to in this Agreement.
-6-
<PAGE> 7
11. Miscellaneous.
(a) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
(b) Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
(c) Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement or to enforce
or interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
(d) Notice. All notices, requests, demands and other communications
under this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by certified or registered mail with postage prepaid,
on the third business day after the date postmarked. Addresses for notice to
either party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
(e) Consent to Jurisdiction. The Company and the Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California.
(f) Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BOYDS WHEELS, INC.
By:________________________________
Its:____________________________
AGREED TO AND ACCEPTED:
INDEMNITEE:
- ----------------------------
(Address)
- -----------------------------
- -----------------------------
- -----------------------------
-8-
<PAGE> 1
EXHIBIT 10.30
CLOSED END VEHICLE LEASE AGREEMENT
THIS LEASE AGREEMENT is entered into this 20 day of March 1996 between:
LESSOR Eldorado Bank Leasing
whose address is 19100 Von Karman Suite #550, Irvine, CA 92715 and
LESSEE Boyd's Wheels, Inc.
whose address is 8380 Cerritos Ave., Stanton, CA 90680
and covers the lease of the vehicle described below. As used in this agreement
the words "I", "me", or "my" refer to the Lessee and "you" or "your" refer to
the Lessor. I understand that the consumer lease disclosures you have included
in this lease are also made on behalf of _____________________________________
________________________________
DESCRIPTION OF LEASED VEHICLE
<TABLE>
<CAPTION>
MODEL YEAR MAKE MODEL BODY STYLE COLOR VEHICLE I.D. NUMBER LICENSE NUMBER
<S> <C> <C> <C> <C> <C> <C>
1996 Dodge Caravan Van Flame Red 2B4FP2536TR693255 NEW
</TABLE>
Vehicle includes following equipment and accessories:
<TABLE>
<S> <C> <C> <C>
X Air Conditioning Power Windows X Transmission Auto X Other Equipment Per M.S.R.P.
X Power Brakes Power Door Locks Radio X AntiLock Brakes
X Power Steering Power Seat Wheels
Tilt Wheel Cruise Control Roof/Rack
Trunk Key No. Ignition Key No. Leather
</TABLE>
1. AGREEMENT TO LEASE
I agree to lease from you the vehicle described above. My obligations
and your obligations under this lease begin when you and I sign this
form. If the vehicle is not delivered to me at such time, you will use
your best efforts to deliver it to me as soon as practicable.
2. LEASE COMPUTATIONS
<TABLE>
<S> <C>
a. Lease Term (from lease signing) 1. 36 months
---------------
2. -0- days
------------
b. End of Lease Purchase Option Price $ 10,050.00
---------------
(based in part on an average of
15,000 miles annually)
c. Average Monthly Lease Depreciation $ 234.12
---------------
d. Base Monthly Lease Payment $ 337.86
---------------
e. Sales/Use Tax 7.75 % of d. $ 26.18*+
---------------
f. Luxury Car Tax $-0-
---------------
g. Total Monthly Lease Payment (d. plus f.) $ 364.04*
---------------
I promise to pay you the number of monthly
lease payment indicated in a.1. above, with
the first payment to be due March 18, 1996
and the remaining payments to be due on the
18 day of each month, beginning on
April 18, 1996
h. Sum of All Monthly Lease Payments and $ 13,105.44*
Prorata Rent (a.1. times g. plus 3.c. plus 3.d.) ---------------
i. Excess Mileage Charge 15 c
j. Early Termination Commencement 12 payments
(right commences after making this number of
monthly lease payments)
</TABLE>
* Estimate based on current sales/use tax rate
+ MTE tax reimbursement,if appropriate.
<PAGE> 2
3. AMOUNTS DUE AT LEASE SIGNING
I will pay the amounts indicated below when I sign this lease:
<TABLE>
<S> <C>
a. Lease Inception Payment
1. Trade-In Allowance $ -0-
-----------
Description N/A
2. Cash $ -0-
-----------
3. Total $ -0-
-----------
b. Tax on Lease Inception Payment $ -0-
-----------
c. Prorata Rent $ -0-
-----------
d. Tax on Prorata Rent $ -0-
-----------
e. Refundable Security Deposit $ 350.00
-----------
f. First Monthly Lease Payment $ 364.04
(includes sales/use tax) -----------
g. First Year's License/Registration/Excise Fees $ 396.00
-----------
h. Luxury Car Tax $ -0-
-----------
i. Other $ -0-
-------------------------------- -----------
j. TOTAL (a. through i.) $ 1,110.04
-----------
</TABLE>
4. INSURANCE
I agree that I must pay for and maintain during the lease term, and
until the vehicle is returned to you, insurance on the vehicle which has
the following minimum coverages:
<TABLE>
<S> <C>
a. BODILY INJURY LIABILITY: $100,000/300,000
----------------
b. PROPERTY DAMAGE LIABILITY $ 50,000
----------------
c. COLLISION WITH MAXIMUM DEDUCTIBLE OF: $ 1,000
----------------
d. COMPREHENSIVE WITH MAXIMUM
DEDUCTIBLE OF: (Including fire and theft) $ 1,000
----------------
</TABLE>
I understand that the policy must provide primary coverage for you
and/or another party you specify as an Additional Insured on coverage a.
and b. and for your or your assignee as Loss Payee on coverages c. and
d. and must also provide all insureds with at least 10 days notice of
cancellation or policy revision. I will buy the insurance from an
insurance company which is acceptable to you and will furnish you with
whatever written proof of coverage you may require.
INSURANCE COMPANY'S NAME
------------------------------------------------
AGENT'S NAME
------------------------------------------------------------
AGENT'S ADDRESS AND PHONE NUMBER
----------------------------------------
------------------------------------------------------------------------
( )
------------------------------------------------------------------------
INSURANCE VERIFIED BY:
--------------------------------------------------
POLICY NO EXPIRATION DATE:
--------------------------------------------------------------
BINDER NO. EFFECTIVE DATE:
--------------------------------------------------------------
<TABLE>
<S> <C>
5. OFFICIAL FEES AND TAXES
a. Estimated Sales/Use Tax During
Lease Term (2.a.1x2.e.+3.b.+3.d.) $ 942.48
----------
b. Estimated License/Registration/Excise Fees
During Lease Term (3.g. or other estimate times
number of years of lease) $ 1,188.00
----------
c. Luxury Car Tax (2.a.1 times 2.f. or 3.h.) $ -0-
----------
d. TOTAL (a. plus b. plus c.) $ 2,130.48
----------
</TABLE>
6. MECHANICAL BREAKDOWN PROTECTION
<PAGE> 3
While I have no obligation to do so, I understand that I may purchase
from you a contract under which I will have the right to have a portion
of the costs of repair of certain major mechanical breakdowns of the
vehicle and some related expenses paid by the contract administrator
listed in the contract. The term of this protection would be N/A years
from the date the lease is signed or until the vehicle's odometer shows
N/A miles, whichever happens first. If I have decided to purchase this
protection, I have reviewed the terms of the contract which describe the
details of this protection and understand that a copy of the filled-in
contract will be sent to me as soon as practicable. I have chosen the
following option:
a. I choose to purchase your mechanical breakdown LESSEE(S)
protection contract for the price of $ N/A INITIALS
which I will pay when I sign the lease. -------
b. I choose to purchase your mechanical LESSEE(S)
breakdown protection contract INITIALS
and have its cash value of $ N/A -------
If I have not initialed either a. or b., I have chosen not to purchase
your mechanical breakdown protection contract.
7. INSURANCE PROCEEDS DEFICIENCY LIABILITY RELEASE
As noted in Item 20, in the event of a casualty loss to the vehicle I
will be obligated to pay any difference between the proceeds of my
insurance and the total amount of my obligations under this lease.
However, if I have initialed below, I agree to purchase your optional
insurance proceeds deficiency liability release. If I purchase this
release, you will waive any right to collect a deficiency in insurance
proceeds from me in the event of a casualty loss of the vehicle which is
covered fully by my insurance policy. I understand that this release
does not cover the deductible under the policy, the product of item 2.f.
and the number of monthly lease payments remaining during the lease term
or amounts which may be past due at the time of a casualty and that I
will still be obligated to pay those amounts. I also understand this
release will not apply if an event not covered by my insurance policy,
such as a confiscation, occurs.
a. I choose to purchase your insurance proceeds deficiency liability
release for the price of $ N/A which I will pay when I sign
the lease.
-------
Lessee Initials
b. I choose to purchase your insurance proceeds deficiency liability
release and have its cash price of $ N/A amortized in the
monthly lease payments.
---------
Lessee Initials
If I have not initialed a. or b., I have chosen not to purchase this
release.
8. LEASE CHARGES AND DEPRECIATION
Portions of each monthly lease payment are for depreciation, lease fee
and sales/use/luxury car tax. While the total amount of each monthly
lease payment will be the same (assuming that current sales/use tax
rates, if applicable, do not change), the depreciation and lease fee
portions will differ with each payment. I realize this allocation of
monthly lease payments may be important in determining my liability if
the lease is terminated early as explained in Item 15 or the price at
which I may purchase the vehicle, if I have that option, as explained in
item 9. The next paragraph explains how the lease fee and depreciation
portions of any monthly lease payment are figured.
During the lease term you will earn a total of lease fees equal to the
product of the number of monthly lease payments due during the lease
term, Item 2.a.1., times the difference between the Base Monthly Lease
Payment, Item 2.d., and the average monthly lease depreciation, Item
2.c. These lease fees will be earned by you on a constant yield basis in
relation to the "adjusted lease balance" as it declines during the lease
term. The lease fee portion for any monthly lease payment is figured by
multiplying the rate which provides a constant yield times the adjusted
lease balance. At any given time, the adjusted lease balance is the
difference between the Initial
<PAGE> 4
Lease Balance described in the next sentence and the sum of (1) the
total depreciation amounts for all previously due monthly lease payments
and (2) one Base Monthly Lease Payment. The Initial Lease Balance equals
the End of Lease Purchase Option Price, Item 2.b., plus the product of
the average monthly lease depreciation, Item 2.c., and the number of
monthly lease payments due during the lease term, Item 2.a.1 The portion
of a monthly lease payment which does not go to either lease fees or
sales/use/luxury car tax is for depreciation. I realize I will not
receive any credit for depreciation for any prorata rent shown in Item
3.c.. These calculations follow the rules for journal entries for
lessors as to "Direct Financing Leases" set forth in the Financial
Accounting Standards Board's Standard No. 13.
9. PURCHASE OPTION
I understand that instead of returning the vehicle to you at expiration
or early termination, I may purchase the vehicle "AS-IS, WHERE-IS" if
this lease is not in default for the sum of:
a. The end of Lease Purchase Option Price, Item 2.b., if I purchase the
vehicle depreciation amounts credited to it as also described in Item
8, if I purchase the vehicle at early termination; plus
b. a purchase option fee of $200; plus
c. the product of Item 2.f. and the number of monthly lease payments
remaining during the lease term; plus
d. any official fees and taxes imposed in connection with the purchase.
I also realize that this is a lease and except for my right to possess
and use the vehicle while I keep my promises under this lease, I have no
ownership interest in the vehicle, its equipment, accessories or
replacement parts unless I exercise the purchase option.
10. OFFICIAL FEES AND TAXES
I agree to be responsible for the payment when due of all official fees
and taxes (other than your net income taxes) imposed by any governmental
authority in connection with the vehicle or this lease. You have
estimated in Item 5.d. the total of official fees and taxes you expect I
will have to pay during the lease term. I also understand there may be
excise or similar taxes which are assessed during the lease term but are
not due until afterwards and that I will remain liable for these
amounts.
11. LATE CHARGE AND LATE RETURN
If any monthly lease payment is not received by you within 10 days of
its due date, a late charge of the least of 5% of that payment, $25 or
such amount as may be set by law will be imposed, which I agree to pay.
I will pay you a returned check charge of $15 for any check I give you
which is not honored.
In addition, if I do not return the vehicle to you at lease expiration,
I will be liable for an additional monthly lease payment for each month
or portion of a month I retain the vehicle. I realize, however, that I
have no right to retain the vehicle after lease expiration without your
consent and that my holding over is a default under the lease.
12. VEHICLE RETURN
I understand that upon lease termination I must return the vehicle to
the place you specify. I also understand that I must pay you my
termination liability as calculated in Item 14 or 15 below, whichever is
applicable.
13. VEHICLE VALUATION AT EARLY TERMINATION
My termination liability in the event of early termination may be
affected by the realized value of the vehicle. The realized value may be
determined in one of the following ways:
a. Within 10 days after return of the vehicle, you and I may enter into
a written agreement as to the vehicle's value, should I request it,
or I may obtain a professional appraisal of the
<PAGE> 5
wholesale value of the vehicle which could be realized upon sale made
by a qualified person I find, who is acceptable to you as well as to
me. I know that the expense for any such appraisal will be mine.
b. If the realized value is not determined as above within 10 days after
return of the vehicle, you will attempt to obtain 3 bids to purchase
the vehicle at wholesale for cash or to dispose of the vehicle in
some other commercially reasonable manner. I will have the right to
submit a written bid which you agree to consider together with all
other bids you may receive. Even though you may decide not to sell
the vehicle to any bidder, the highest bona fide bid received (which
is supported by whatever proof of ability to pay you may require)
will be considered the realized value of the vehicle.
I understand that the realized value amount will be exclusive of any
official fees and taxes imposed upon vehicle disposition.
14. END OF LEASE TERMINATION LIABILITY
I agree that my payment liability at the end of the lease term will be
the sum of:
a. a termination fee of $350; plus
b. any monthly lease payments due you which are unpaid and any other
amounts arising from my failure to keep my promises under this lease;
plus
c. a charge shown in Item 2.i. for each mile the vehicle has been driven
in excess of the mileage the vehicle would have if it had been driven
the average number of miles a year stated in Item 2.b.; plus
d. any official fees and taxes imposed in connection with lease
termination (for example, sales/use taxes due on a mileage charge
under c.).
15. EARLY TERMINATION LIABILITY
At any time after I have paid the number of monthly lease payments
indicated in Item 2.j., I may terminate this lease on the due date of a
monthly lease payment if this lease is not in default. At any time after
I sign this lease, you may terminate it if conditions as stated in Item
20 occur or this lease is in default as stated in Item 21.
I agree that, except as provided in Items 7, 9 and 20, my payment
liability upon early termination will be the sum of:
1. a termination fee of $350; plus
b. any monthly lease payments already due you which are unpaid, any
monthly lease payments which would be due you before my early
termination right commences and any other amounts arising from my
failure to keep my promises under this lease; plus
c. the product of Item 2.f. and the number of monthly lease payments
remaining during the lease term; plus
d. the amount, if any, by which the Initial Lease Balance described in
Item 8 less all depreciation amounts credited to it as also described
in Item 8 exceeds the realized value; plus
e. any official fees and taxes imposed in connection with lease
termination (for example, sales/use taxes due on a deficiency balance
under d.).
16. VEHICLE MAINTENANCE
I agree at my expense to have the vehicle serviced in accordance with
the manufacturers' recommendations, to maintain the vehicle in good
running order and condition and to have all necessary repairs made.
Unless I obtain your written consent beforehand, I will not make any
changes to the vehicle which would decrease its economic value or
functional utility. Any changes made to the vehicle which cannot be
removed without decreasing its economic value or functional utility will
become your property when made. If you request, you may inspect the
vehicle at any reasonable time.
<PAGE> 6
I also agree that when I return the vehicle to you, if I have properly
maintained the vehicle, it will be in good running order and condition
and will have, among other things, no less than 5 matching tires of
equal quality to the originals (or 4 with emergency "doughnut" spare),
with each tire having at least 1/8 inch of remaining tread at its
shallowest point, and no chips, scratches, cracks or other damage or
defects in the glass, body or interior beyond normal wear and tear. If
it costs you more than $75 to put the vehicle in this condition, I
promise to pay the difference.
17. VEHICLE WARRANTIES AND DISCLAIMERS
To the extent they are assignable, you agree to assign to me all your
rights and remedies under the warranties applicable to the vehicle which
have been made by its manufacturers. I ACKNOWLEDGE THAT YOU MAKE NO
EXPRESS WARRANTIES REGARDING THE VEHICLE, THAT YOU DISCLAIM ANY IMPLIED
WARRANTIES AND THAT I AM LEASING IT FROM YOU "AS-IS".
18. LIENS AND CLAIMS
I will keep this lease and the vehicle free from any liens, encumbrances
or claims which you have not created under Item 23.e. I will hold you
harmless and indemnify you for all liability, loss and expense arising
from the use, condition or ownership of the vehicle, including any claim
made under the strict liability doctrine.
19. USE OF VEHICLE
I understand that I am responsible for all operating expenses (for
example, gasoline and oil) incurred in connection with the use of the
vehicle. I will not use or permit use of the vehicle:
a. for any unlawful purpose or in violation of any law;
b. by a person not having a valid drivers' license or one who for
insurance purposes is deemed an assigned risk or one who does not
exercise reasonable care in its operation;
c. for the transportation of persons for hire;
d. outside the state where I reside when I sign this lease for a period
exceeding 30 days without your prior written consent; or
e. outside the United States, without your prior written consent.
20. DAMAGE, LOSS OR POTENTIAL LOSS OF VEHICLE
I agree to be responsible for the risk of loss, damage or destruction of
the vehicle during the lease term and until I return the vehicle to you.
If the vehicle is damaged or destroyed in an accident or other
occurrence or confiscated by any governmental authority or is stolen or
is abandoned or is subject to undue peril, I will notify you of such
occurrence or condition as soon as possible. If the vehicle is damaged
and is in a condition which you believe is beyond reasonable repair, the
lease will be terminated immediately. With respect to any other
occurrence or condition included above, you reserve the right to
terminate the lease immediately. If the lease is terminated, my
termination liability will be determined on the basis of any early
termination except that the termination fee will be $200. While any loss
proceeds you receive from the insurance I provide will be credited to my
termination liability, I also acknowledge my liability for any
difference between the termination liability figure and the loss
proceeds amount.
21. DEFAULT
If any information in my credit application or that of a guarantor of
this lease is false or misleading or I fail either to make a monthly
lease payment when due or otherwise to keep my promises under this lease
or any other agreement I have with you or if I or a guarantor becomes
insolvent or dies, you can treat this lease as being in default.
In the event of default, you may do any one or more of the following
without giving me advance notice: (a) take any reasonable measures
designed either to correct the default or to save yourself from loss,
such as purchasing insurance to protect your interest if I fail to
fulfill my
<PAGE> 7
obligations under Item 4, in which case I will pay you upon demand for
the costs and expenses incurred; (b) terminate the lease and my rights
to possess and use the vehicle; (c) take possession of the vehicle by
any method or manner permitted by law; (d) determine my termination
liability on an early termination basis which I agree to pay upon your
demand; (e) apply my security deposit to any amounts I owe you; (f)
pursue any other remedy permitted by law.
I also agree to pay you upon your demand for all collections and legal
costs, including reasonable attorneys' fee and court costs, you incur,
to the extent permitted by law.
22. MORE THAN ONE LESSEE
If more than one lessee signs this lease, all lessees will be jointly
and severally liable. I agree that you can waive or delay the
enforcement of your rights as to one lessee without affecting your
rights as to any other lessees. I also agree that you can release any
lessee from his or her obligations without releasing any other lessees
from their obligations.
23. GENERAL PROVISIONS
I understand that:
a. Your waiver or delay in requiring me to keep my promises or in
enforcing your rights will not affect your ability to require me to
keep my promises or to enforce your rights afterwards;
b. You have no obligation to provide a replacement vehicle for any
reason;
c. Notices under this lease must be in writing, addressed to the
appropriate party at the address shown above, and must be mailed by
U.S. Mail, first class postage prepaid, and each party shall notify
the other of a change in address;
d. Any changes to this lease must be in writing and signed by the party
to be bound;
e. I HAVE NO RIGHT TO ASSIGN AN INTEREST IN THE LEASE OR THE VEHICLE OR
TO SUBLET OR LEND THE VEHICLE. I acknowledge that you may assign an
interest in this lease or the vehicle and that if I receive notice of
the assignment, I will acknowledge the notice and pay any assigned
amounts specified in the notice as you have directed. I agree that
unless otherwise provided by applicable law the rights of your
assignee will be free of any claims I may have against you and
further that no assignee is responsible for the performance of any of
your duties under this lease unless the assignee expressly assumes
the duties;
f. Any security deposit shown in Item 3.e. will not be considered as
rent, will not bear interest unless otherwise provided by applicable
law and will not release me from any of my obligations to you, and
you may at any time apply the deposit to the payment of my
obligations to you. I understand that you will return any remaining
balance of the deposit after I have paid off my liability under this
lease.
g. You will have no liability for a failure or delay in delivering the
vehicle or any other failure to perform your obligations related to
the lease if caused by circumstances beyond your control. In no event
will you be liable for consequential damages. Also, my obligations
under this lease are independent and irrevocable. As a result, you
will have no liability and my obligations will not be affected if the
vehicle is damaged or does not work properly, or if any other
occurrence which is not the direct result of your conduct affects my
use of the vehicle; and
h. I waive any right to confidentiality of my address in any
registration records related to the vehicle, including any such right
I may have under California Vehicle Code 1808.21, and authorize you
and your assignee to obtain my address from those records to assist
in the enforcement of this lease.
CONSUMER OR COMMERCIAL LEASE: I intend to use the vehicle (initial applicable
box only):
Primarily for personal, / / / / Primarily for agricultural, / / / /
<PAGE> 8
family or household OR business or commercial B.C.
purposes /X/ /X/ purposes /X/ /X/
------- -------
THESE DISCLOSURES REQUIRE THE LESSEE'S INITIALS IF CALIFORNIA'S VEHICLE
LEASING ACT APPLIES
("You" refers to the lessee in contrast to the rest of the lease where "you"
refers to the lessor):
(a) Notice to the lessee: (1) Do not sign this agreement before you read it
or if it contains any blank spaces to be filled in; (2) You are entitled
to a completely filled in copy of this agreement; (3) If you default in
the performance of your obligations under this agreement, the vehicle
may be repossessed and you may be subject to suit and liability for the
unpaid indebtedness evidenced by this agreement.
B.C.
/X/ /X/
(b) Warning - Unless a charge is included in this agreement for public
liability or property damage insurance, payment for such coverage is not
provided by this agreement.
B.C.
/X/ /X/
(c) Lessee has the right to return the vehicle and receive a refund of any
payments made if the credit application is not approved, unless
non-approval results from an incomplete application or from incorrect
information provided by the lessee.
B.C.
/X/ /X/
(d) California law does not provide for a "cooling-off" or other
cancellation period for vehicle leases. Therefore, you cannot later
cancel this lease simply because you change your mind, decide the
vehicle costs too much, or wish you had acquired a different vehicle.
You may only cancel this lease with the agreement of the lessor or for
legal cause, such as fraud.
B.C.
/X/ /X/
I HAVE READ BOTH SIDES OF THIS LEASE AND RECEIVED A COMPLETELY FILLED IN
COPY BEFORE SIGNING BELOW
DATE March 18, 1996 Boyd's Wheels, Inc.
---------------------------- -------------------------------
NAME OF COMPANY (IF APPLICABLE)
LESSOR Eldorado Bank Leasing LESSEE Boyd Coddington
-------------------------- -------------------------------
BY Michael Robbins
------------------------ -------------------------------
TITLE Vice-President LESSEE TITLE
------------------------ -------------------------------
DELIVERY RECEIPT
I acknowledge that I have received and examined the vehicle described at the
beginning of this lease, that the vehicle is equipped as described and is in
good operating order and condition and that I accept the vehicle for all
purposes of the lease.
Boyd's Wheels, Inc.
-------------------------------
NAME OF COMPANY (IF APPLICABLE)
DATE March 18, 1996 LESSEE: Boyd Coddington
---------------------- -------------------------------
STARTING MILEAGE ON ODOMETER LESSEE: TITLE
-------- -------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
(File No. 333-4029) of our report dated March 14, 1996 on our audits of the
financial statements of Boyds Wheels, Inc. We also consent to the references to
our firm under the captions "Selected Financial Data" and "Experts."
COOPERS & LYBRAND L.L.P.
Newport Beach, California
June 11, 1996
