<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-26738
BOYDS WHEELS, INC.
(Exact name of registrant as specified in its charter)
California 93-1000272
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8380 Cerritos Ave.
Stanton, CA 90680
714-952-4038
(Address and telephone number of principal executive offices)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
As of October 12, 1997, there were outstanding 3,848,618 shares of registrant's
common stock, no par value.
Transitional Small Business Disclosure Format (check one);
Yes No X
--- ---
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 556,527 $ 5,792,764
Restricted cash 443,000 --
Accounts receivable, net 1,328,106 2,316,979
Other receivables 121,649 178,339
Income tax refund receivable 736,975 355,623
Inventories 8,627,449 7,710,149
Cost and estimated earnings in excess of billings
250,500 56,616
Prepaids and other current assets 563,647 605,186
Deferred income taxes 296,956 296,956
------------ ------------
Total current assets 12,924,809 17,312,612
Property and equipment, net 14,785,772 11,047,029
Covenants not to compete, net 122,987 145,487
Other assets 61,167 97,655
------------ ------------
Total assets $ 27,894,735 $ 28,602,783
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,228,055 $ 3,307,176
Accrued liabilities 709,808 663,467
Revolving credit agreements -- 1,634,154
Current maturities of long-term debt 8,861,763 560,140
Billings in excess of cost and estimated
earnings 205,025 122,286
Other current liabilities 1,348 139,163
------------ ------------
Total current liabilities 14,005,999 6,426,386
Long-term debt 1,344,419 2,397,695
Other long-term liabilities 10,382 53,738
Deferred income taxes 345,572 345,572
------------ ------------
Total liabilities 15,706,372 9,223,391
------------ ------------
Shareholders' Equity:
Preferred stock, no par value 5,000,000 shares
authorized, no shares outstanding
Common stock, no par value; authorized
25,000,000 shares, issued and outstanding
3,848,618 shares at Sept. 30, 1997 and
3,780,106 at December 31, 1996 17,856,101 17,585,262
Contributed capital 1,036,516 1,036,516
Unearned compensation -- (3,123)
Retained (deficit) earnings (6,704,254) 760,737
------------ ------------
Total shareholders' equity 12,188,363 19,379,392
------------ ------------
Total liabilities and shareholders' equity $ 27,894,735 $ 28,602,783
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 3
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
Sept.30, Sept 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales $ 4,777,007 $ 7,629,621 $ 12,632,877 $ 21,299,787
Cost of goods sold 5,202,547 5,652,091 16,119,696 15,717,578
----------- ----------- ------------ ------------
Gross (loss) profit (425,540) 1,977,530 (3,486,819) 5,582,209
Selling, general and administrative
expenses 1,762,842 1,051,930 4,112,221 2,972,297
----------- ----------- ------------ ------------
(Loss) income from operations (2,188,382) 925,600 (7,599,040) 2,609,912
Interest expense (income) and other
expenses, net 43,461 (55,714) 222,151 (93,467)
----------- ----------- ------------ ------------
(Loss) income before provision for
income taxes (2,231,843) 981,314 (7,821,191) 2,703,379
(Benefit) provision for income taxes (112,200) 413,476 (356,200) 1,037,895
----------- ----------- ------------ ------------
Net (loss) income ($2,119,643) $ 567,838 ($ 7,464,991) $ 1,665,484
=========== =========== ============ ============
Net (loss) income per share ($ .55) $ .14 ($ 1.95) $ .55
=========== =========== ============ ============
Weighted average common shares and common
equivalent shares outstanding 3,849,000 3,932,000 3,838,000 3,052,000
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine
Months Ended
Sept 30,
------------------------------
1997 1996
------------ ------------
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (7,464,991) $ 1,665,484
Adjustments to reconcile net (loss) income to
cash used by operating activities:
Depreciation and amortization 1,881,427 725,121
Loss on disposal of property and equipment 9,654 78,264
Bad debt expense 1,138,822 36,370
Reserve for inventory obsolescence 777,763 20,000
Compensation related to stock option vesting 3,123 6,251
Increase in accounts receivable (149,949) (327,532)
Increase in income tax refund receivable (381,352) --
Decrease in other receivables 56,690 8,558
Increase in inventories (1,695,063) (3,646,629)
(Increase) decrease in costs and estimated
earnings in excess of billings on
uncompleted contracts (193,884) 83,302
(Increase) decrease in prepaid and other
current assets 41,539 (221,050)
Decrease in other assets 36,488 155,958
Increase in accounts payable 920,879 137,573
Increase (decrease) in accrued liabilities 46,341 (584,088)
Increase in income taxes payable -- 364,695
Increase (decrease) in billings in excess
of costs and estimated earnings on
uncompleted contracts 82,739 (72,432)
Decrease in other current liabilities (137,815) (100,660)
Decrease in other long term liabilities (43,356) (18,731)
------------ ------------
Net cash used by operating activities (5,070,945) (1,689,546)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (5,356,638) (4,198,102)
Proceeds from the sale of property and
equipment 40,000 6,400
Payments on covenants not to compete -- (24,585)
Increase in restricted cash (443,000) --
------------ ------------
Net cash used by investing activities (5,759,638) (4,216,287)
------------ ------------
Cash flows from financing activities:
Borrowings on revolving lines of credit 956,104 1,689,554
Payments on revolving lines of credit (2,590,258) (1,689,554)
Proceeds from issuance of long-term debt 10,126,261 938,887
Principal repayments of long-term debt (3,168,601) (997,141)
Proceeds from sale of common stock -- 12,936,250
Cost of equity issuance -- (1,266,000)
Proceeds from exercise of common stock
warrants 270,840 --
------------ ------------
Net cash provided by financing
activities 5,594,346 11,611,996
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine
Months Ended
Sept 30,
---------------------------
1997 1996
----------- ----------
(Restated)
<S> <C> <C>
Net (decrease) increase in cash and cash
equivalents $(5,236,237) $5,706,163
Cash and cash equivalents at beginning of year 5,792,764 1,061,889
----------- ----------
Cash and cash equivalents at end of period $ 556,527 $6,768,052
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
BOYDS WHEELS, INC., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation:
----------------------
The accompanying consolidated financial statements include the accounts
of Boyds Wheels, Inc. (the "Company") and its wholly owned subsidiary,
Hot Rods by Boyd, Inc. ("HRBB"). The acquisition of HRBB in December
1996 was accounted for as a pooling of interests business combination
(see Note 4).
The interim financial data as of and for the three months and nine
months ended September 30, 1997 and September 30, 1996 are unaudited and
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.
The year-end balance sheet information was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. These financial statements
should be read in conjunction with the Company's audited financial
statements.
2. Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
Sept 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Finished goods $3,488,809 $1,572,189
Work in process 3,946,929 3,869,080
Raw materials 334,102 1,814,270
Construction-in-progress automobiles 782,609 380,831
Completed automobile 75,000 73,779
---------- ----------
$8,627,449 $7,710,149
========== ==========
</TABLE>
3. Long Term Debt
In June 1997, the bank line of credit facility for the Company was
reduced from maximum borrowings of $9,000,000 to $8,000,000 and for HRBB
from $500,000 to $200,000. At September 30, 1997, the Company was not in
compliance with certain loan covenants. As a result, the Company has
been requested to seek alternative financing with another lending
institution recommended by the bank. All amounts due under these
facilities have been classified as current at September 30, 1997.
4. Pooling of Interests:
In 1996, the Company completed an acquisition of HRBB which was
accounted for as a pooling of interests, and accordingly the Company's
interim financial statements for the three and nine months ended
September 30, 1996, have been restated to include HRBB for such periods.
Unaudited consolidated and separate results of the Company and HRBB were
as follows:
6
<PAGE> 7
BOYDS WHEELS, INC., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1996 1996
---- ----
<S> <C> <C>
Net Sales:
Boyds Wheels, Inc., as
previously reported $ 7,521,026 $ 20,531,943
Hot Rods by Boyds, Inc. 108,595 787,893
Adjustments -- (20,049)
----------- ------------
Consolidated $ 7,629,621 $ 21,299,787
=========== ============
Net Income (Loss):
Boyds Wheels, Inc., as
previously reported $ 614,848 $ 1,594,388
Hot Rods by Boyds, Inc. (47,010) 71,096
----------- ------------
Consolidated $ 567,838 $ 1,665,484
=========== ============
</TABLE>
The adjustments relate to intercompany transactions between the two
companies.
5. Statements of Financial Accounting Standards not yet adopted
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 requires companies to adopt its provisions for fiscal years
beginning after December 15, 1997 and requires restatement of all prior period
earnings per share (EPS) data presented. Earlier application is not permitted.
SFAS No. 128 specifies the computation, presentation and disclosure requirements
for EPS. The implementation of SFAS No. 128 is not expected to have a material
effect on the EPS data presented by the Company.
In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" SFAS No. 130, which is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented,
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. The implementation of SFAS No. 130 is not expected to have a
material effect on the Company's results of operations.
In September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", SFAS No. 131, which is effective for
fiscal years beginning after December 15, 1997 and requires restatement of
earlier periods presented, establishes standards for the way that a public
enterprise reports information about key revenue-producing segments in the
annual financial statements and selected information in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The implementation of SFAS
No. 131 is not expected to have a material effect on the Company's current
reporting disclosures.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING,
"BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED DECEMBER 31, 1996.
GENERAL
The Company designs, manufactures and markets high quality aluminum
wheels for the specialty automotive and motorcycle aftermarkets. The Company
also markets a premium line of car care products and a line of sportswear 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's wholly owned subsidiary, Hot Rods By Boyd, Inc., designs
and manufactures custom vehicles which are sold directly to private clientele
and promotional businesses.
Since the Company utilizes its own facility and equipment for the
manufacture of its products, gross margins are especially dependent upon sales
volumes as a result of substantial fixed manufacturing overhead. Overhead costs
were significantly increased in the third and fourth quarters of 1996 and the
first quarter of 1997, when the Company elected to expand its manufacturing
facility through the acquisition of additional equipment and increase its square
footage by approximately 50% in anticipation of higher sales volumes which did
not materialize. At the low sales volumes currently being realized by the
Company, it is unlikely that positive gross margins from proprietary products
can be achieved. However, at higher sales volumes, the allocation of fixed costs
over more sales should result in increased gross margins. Accordingly, the
Company anticipates variances in gross margins from quarter to quarter as a
result of fluctuations in production, which coincide with seasonality of the
Company's business.
Sales of and demand for the Company's wheel products have not met
management's expectations due to a variety of factors including, competitive
pressure, changes in consumer demand, the lack of a fully integrated sales and
marketing plan, and a slower than expected expansion in newer markets. The
Company has responded by: (1) focusing its sales efforts on expanding its
domestic and, to a lesser degree, its international distribution channels; (2)
introducing new product lines to respond to new trends; (3) streamlining and
restructuring its manufacturing process and facility to eliminate underutilized
equipment and consolidate manufacturing operations; and (4) restructuring its
sales and customer service departments to more effectively target new business
and service its existing customer base.
Sales are expected to be subject to month-to-month and
quarter-to-quarter variability due to the limited market penetration in the
Company's new markets to date. The markets for the aluminum aftermarket wheels
are subject to rapidly changing consumer tastes and a high level of competition.
Demand for the Company's products is expected to be influenced by marketing and
advertising expenditures, product positioning through its distributors and
retailers, design trends and general economic conditions. Because these factors
can change rapidly, customer demand can also shift quickly. The Company may not
be able to respond to changes in consumer demand because of the time required to
change or introduce new products, production limitations or limited financial
resources.
8
<PAGE> 9
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net Sales
- ---------
Net sales for the three months ended September 30, 1997, were $4,777,007
compared to $7,629,621 for the same period in 1996, a decrease of $2,852,614 or
37.4%. The decrease in sales for the period was the result of continued weak
sales of the Company's two-piece cast wheel line, which accounted for the
majority of the decrease. This continued decrease is the result of a lack of
newer wheel designs, along with a continued shift in consumer demand to the
one-piece cast wheel. The Company's one-piece cast wheel line was relatively
flat for the third quarter. The private label segment of the business continued
to experience declining sales. The Company did not properly anticipate the
immediate shipping response required and therefore lost sales. The steering
wheels and accessories lines also declined slightly which is consistent with the
previous periods.
Gross (Loss) Profit
- -------------------
Gross (loss) profit for the three months ended September 30, 1997 was
($425,540) compared to $1,977,530 for the same period in 1996, a decrease of
$2,403,070. The decrease in gross profit was primarily attributable to a 37.4%
decrease in sales combined with under utilization of the facility. The fixed
costs in the third quarter of 1997, compared to the third quarter of 1996,
included higher wages, increased overhead costs for rent, utilities and
depreciation as a result of the Company's expansion. During the three months
ended September 30, 1997, the Company continued to reduce personnel and the
salaries of management personnel in an effort to reduce overhead. In addition,
the Company has continued to sell or sublease underutilized machinery and
facilities in an effort to reduce its break-even point, as well as, introduce
additional purchasing and inventory controls designed to reduce future product
costs. These cuts and changes will primarily benefit future periods of
operation.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the three months ended
September 30, 1997 were $1,762,842 compared to $1,051,930 for the same period in
1996, an increase of $710,912 or 67.6%. Period costs were impacted by increased
expenses related to the restructuring of the management team and the relocation
of certain individuals to the Company's facilities, increased legal and
accounting fees and a bad debt charge of $464,674 for one customer who filed for
bankruptcy protection. In September 1997, the Company further reduced the number
of employees in an effort to reduce expenses. These cuts will primarily benefit
future periods of operation.
Interest and Other Expenses (Net)
- ---------------------------------
Interest income (expenses) and other expenses (net) for the three months
ended September 30, 1997 were ($43,461) compared to $55,714 for the same period
in 1996, a change of $99,175. Interest expense increased as a result of
increased borrowings for working capital and long-term debt, which was partially
offset by interest income from available funds and other income in the third
quarter of 1997.
Income Tax (Benefit) Provision
- ------------------------------
Income tax (benefit) provision for the three months ended September 30,
1997 was ($112,200), compared to a provision of $413,476 for the same period in
1996, a change of $525,676. The tax benefit was based upon the benefit
resulting from the carryback of the third quarter 1997 loss.
Net (Loss) Income
- -----------------
Net loss for the three months ended September 30, 1997 was ($2,119,643),
compared to net income of $567,838 for the three months ended September 30,
1996, a decrease of $2,687,481.
9
<PAGE> 10
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net Sales
- ---------
Net sales for the nine months ended September 30, 1997, were $12,632,877
compared to $21,299,787 for the same period in 1996, a decrease of $8,666,910 or
40.7%. The decrease in sales was the result of a reduced backlog and continued
weak sales of the Company's two-piece cast wheel line, which accounted for
approximately $7,200,000 of the decrease. This continued decrease is the result
of a lack of newer wheel designs, along with a continued shift in consumer
demand to the one-piece cast wheel. The Company's one-piece cast wheel line
increased its sales to $1,424,000, compared to $756,000, for a net increase of
$668,000 over the same period in 1996. This increase was achieved as a result of
an ongoing increase in the product line, even though the Company has experienced
delays in tooling and production. The motorcycle product line experienced a
decline in sales of approximately $537,000 for the nine month period resulting
from the change in distribution methods, from selling to distributors to selling
direct to dealers and from the overall reduction in the motorcycle accessories
product line in light of the Company's effort to concentrate on wheels. The
Company did not properly anticipate the immediate shipping response required,
and therefore lost sales. The private label center business also declined for
the nine month period by $1,113,000, as a result of the previously mentioned
shift to one-piece cast wheels. The Company's two-piece billet wheels increased
during the nine months by $196,000 as the result of direct sales to the public
and a more competitive price structure. The steering wheels and accessories
lines also declined by $409,000 for the period.
Gross (Loss) Profit
- -------------------
Gross (loss) profit for the nine months ended September 30, 1997 was
($3,486,819) compared to $5,582,209 for the same period in 1996, a decrease of
$9,069,028. The decrease in gross profit was the result of a 40.7% decrease in
sales combined with an increase in fixed costs and under utilization of the
facility. Fixed costs for the nine months ended September 30, 1997, compared to
the same period of 1996, included higher wages and increased overhead costs of
rent, utilities, and depreciation as a result of the Company's expansion.
The expansion of the manufacturing facility which continued through the first
quarter of 1997, and the operating expenses associated with having more
employees in manufacturing during the first, second, and a portion of the third
quarter of 1997 resulted in a significant negative gross profit margin. The
reduced sales and production levels equate to low absorption of overhead costs,
resulting in the expensing of overhead costs in the period.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the nine months ended
September 30, 1997 were $4,112,221 compared to $2,972,297 for the same period in
1996, an increase of $1,139,924 or 38.4%. This increase is primarily the result
of increased advertising and promotional expenses, together with a bad debt
charge of $464,674 for one customer who filed for bankruptcy protection. During
the second and third quarters of 1997, the Company reduced personnel and reduced
the salaries of personnel. In addition, the Company is analyzing all advertising
and administrative costs in an effort to further reduce overhead. These cuts
will primarily benefit future periods of operation.
Interest and Other Expenses (Net)
- ---------------------------------
Interest (income) expenses and other expenses (net) for the nine months
ended September 30, 1997 were $222,151 compared to ($93,467) for the same period
in 1996, an expense increase of $315,618. Interest expense increased as a result
of increased borrowings for working capital and long-term debt, which partially
were offset by interest income from available funds and other income in the nine
months of 1997.
10
<PAGE> 11
Income Tax (Benefit) Provision
- ------------------------------
Income tax (benefit) for the nine months ended September 30, 1997 was
($356,200), compared to a provision of $1,037,895 for the same period in 1996.
The tax benefit was based upon the benefit resulting from the carryback of the
loss for the nine months ended September 30, 1997.
Net (Loss) Income
- -----------------
Net loss for the nine months ended September 30, 1997 was ($7,464,991),
compared to net income of $1,665,484 for the nine months ended September 30,
1996, a decrease of $9,130,475.
LIQUIDITY AND CAPITAL RESOURCES
Through September 30, 1997, the Company's inventory increased to
$8,627,449 from $7,710,149 at December 31, 1996, an increase of $917,300 or
11.9%. This increase was primarily due to the manufacture of new products and
styles, including new one-piece cast wheels and motorcycle components. The
increase in one-piece cast wheels and other new products and styles was made in
anticipation of the Company's planned expansion of its sales efforts in the
Eastern United States. In order to meet the needs of Harley-Davidson dealers,
the Company increased its motorcycle inventory levels to supply the dealers
directly, as they require shipment in less than one week. Slower than expected
sales overall also contributed to the increase in inventory levels.
Working capital was ($1,081,190) at September 30, 1997 compared to
$10,886,226 at December 31, 1996, or a decrease of $11,967,416. The Company's
cash position at September 30, 1997 was $556,527 compared to $5,792,764 at
December 31, 1996, a decrease of $5,236,237. Cash was utilized, along with the
Company's line of credit to fund operations, increase inventory, and to add
equipment and leasehold improvements. The effect of lower sales and increased
overhead has had a significant impact on cash and working capital. The Company
is currently attempting to secure a new working line of credit and equipment
financing, to replace the current facility, which has been informally frozen at
the bank's request. At September 30, 1997, the revolving lines of credit had
borrowings of $8,126,604, all of which are classified as current. The borrowings
on the line of credit increased during the period as a result of operating
needs, equipment and leasehold improvements of $3,014,181, the payoff of
previous line of credit borrowings of $2,590,258 and the payoff of a long-term
capital lease of $888,011. Long-term debt also increased by $1,643,000 as these
funds were used for the purchase of 2.5 acres of land with 26,000 square feet of
buildings to accommodate the Company's distribution center.
Based on the Company's cash position and currently planned expenditures
and level of operations, the Company estimates it will require additional
capital within the next three months to meet its debts as they become due and to
continue as a going concern. The Company's business may be able to generate the
additional funding required depending on the ability of manufacturing activities
to generate additional revenues, however there can be no assurance thereof. The
Company is currently pursuing various alternatives to meet its needs for capital
including, without limitation, the bank financing previously described. There
can be no assurance the Company will be successful and any such financing may be
dilutive to current shareholders. The failure to raise additional funds could
have a material adverse effect on the Company and could force the Company to
further reduce or curtail operations.
The Company may, from time to time, seek additional funds through lines
of credit, public or private debt or equity financing. There can be no
assurances that additional capital will be available when needed.
MANAGEMENT'S PLANS FOR IMPROVING OPERATIONS
Management has taken steps to improve operations with the goal of
sustaining the Company operations for the next twelve months and beyond. These
steps include: (1) focusing its sales efforts on expanding its domestic and, to
a lesser degree, its international distribution channels; (2) introducing new
product lines to respond to new trends; (3) streamlining and restructuring its
manufacturing process and facility to eliminate underutilized equipment and
consolidate manufacturing operations; (4) restructuring its sales and customer
service departments to more effectively target new business and service its
existing customer base; and (5) reducing overhead and operating expenses. There
can be no assurance the Company can attain profitable operations in the future.
11
<PAGE> 12
BUSINESS RISKS
This report contains a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are cautioned to
consider the risk factors described above and in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996, and not to place undue
reliance on the forward-looking statements contained herein, which speak only as
of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements, to reflect events or circumstances that may
arise after the date hereof.
PART II. OTHER INFORMATION
ITEM 1. 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.
ITEM 2 THROUGH ITEM 4.
Have been omitted because the related information is either inapplicable
or has been previously reported.
ITEM 5. OTHER INFORMATION.
On September 23, 1997, Rex A. Ours resigned as Chief Financial Officer
of the Company to accept a position in public accounting. Mr. Ours' duties are
being performed by current members of management and outside consultants until a
new Chief Financial Officer can be located and retained.
On October 31, 1997, Boyd L. Coddington resigned as Chairman of the
Board and Chief Executive Officer of the Company, and effective November 1,
1997, became a consultant to the Company. Pursuant to the terms of the
Separation Agreement executed by the parties, Mr. Coddington agreed to
immediately terminate his Employment Agreement (previously due to terminate
December 31, 1999) and to release the Company from any claims which Mr.
Coddington may have against the Company and others for payment of salary or
otherwise which arose or pertained to his employment or the termination of his
employment. The terms of the Separation Agreement provide that Mr. Coddington
will continue to serve on the Company's Board of Directors for the term
prescribed by, and otherwise in accordance with, the Bylaws of the Company,
although Mr. Coddington shall cease being Chairman of the Board. At the time of
his resignation, Mr. Coddington entered into a Consulting Agreement with the
Company. Under the terms of the Consulting Agreement, Mr. Coddington has agreed,
upon request of the executive officers of the Company, to assist Company
personnel with the executive, sales, marketing, operations, design and other
functions previously performed by Mr. Coddington for the Company for an amount
of time each month, not to exceed 50% of the time previously spent by Mr.
Coddington on such duties while an employee. The Consulting Agreement is for an
initial term of five years and is renewed automatically thereafter for
successive renewal periods of five years each, unless either party gives notice
of termination to the other party at least thirty (30) days prior to the
commencement of any successive five (5) year renewal period. The Consulting
Agreement prohibits Mr. Coddington from (i) competing, directly or indirectly,
against the Company (during the term of the Consulting Agreement), (ii)
soliciting, directly or indirectly, for himself or for any other person or
entity, any employee, independent contractor or existing or potential customer
of the Company (during the term of the Consulting Agreement and for a period of
two years thereafter) and (iii) disclosing to any third party any confidential
or proprietary trade secrets, know how, processes, business practices, finances,
suppliers, customers or potential customers of the Company. In consideration of
the agreements made by Mr. Coddington and the consulting services to be
rendered, the Company has agreed to pay Mr. Coddington (i) base compensation
equal to $6,000 per month for the first thirteen months and $12,500 per month
for each month thereafter, plus (ii) incentive
12
<PAGE> 13
compensation, payable annually, equal to one-half of one percent of the
Company's sales in excess of $24,000,000 with such incentive compensation not to
exceed $60,000 annually.
On October 31, 1997, Gardiner S. Dutton was elected to succeed Mr.
Coddington as Chairman of the Board and Chief Executive Officer of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. (a) Exhibits.
Number
------
10.43 Separation Agreement and General Release by and between
the Company and Boyd L. Coddington;
10.44 Consulting Agreement by and between the Company and Boyd
L. Coddington dated October 31, 1997;
27.1 Financial Data Schedule
2. (b) None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BOYDS WHEELS, INC.
Date: November 14, 1997 By: /s/ Gardiner S. Dutton
------------------------
Gardiner S. Dutton
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ David M. Asher
--------------------
David M. Asher
President and
Chief Operating Officer
(Principal Operating Officer)
13
<PAGE> 1
EXHIBIT 10.43
SEPARATION AGREEMENT AND GENERAL RELEASE
This Agreement is entered into by and between BOYDS WHEELS, INC.,
("Employer"), a California corporation, and BOYD CODDINGTON, an individual
("Employee").
RECITALS
--------
A. Employee has been employed by Employer in the positions of Chairman
of the Board and Chief Executive Officer.
B. Employer and Employee desire to terminate Employee's employment and
to have Employee resign from such positions.
C. Employee has previously hereto received consideration in the amount
of $16,154, representing Employee's accrued and unused vacation benefits through
October 31, 1997, together with Employee's final paycheck.
D. Employer and Employee are desirous of entering into a Consulting
Agreement (the "Consulting Agreement") and provide for the settlement and
release of Employer for any claims related to Employee's employment or the
termination of that employment.
NOW, THEREFORE, in consideration of the terms, conditions and
agreements set forth below, the parties agree as follows:
1. Review Period. Employee shall have until the close of business on
October 31, 1997 to accept the terms of this Separation Agreement and General
Release ("Separation Agreement"). Employee has been encouraged to consult with
an attorney before signing the Release. Employee understands that whether or not
to do so is Employee's decision.
2. Termination of Employment. Employer agrees to accept Employee's
resignation. By entering into this Separation Agreement, Employee tenders and
Employer accepts Employee's resignation from employment effective on October 31,
1997 ("Termination Date"). Employer will ensure that all of its records reflect
a resignation from employment on the Termination Date. Notwithstanding the
foregoing, Employee shall continue to serve on Employer's Board of Directors for
the term prescribed by, and otherwise in accordance with, the Bylaws of
Employer, although Employee shall cease being Chairman of the Board.
3. Payments and Benefits. Employer will provide to Employee the
Consulting Agreement generally described in subparagraph 3.1 below. Employee
understands that the amounts to be paid to Employee pursuant to the Consulting
Agreement are all that Employee is entitled to receive from Employer. Employee
acknowledges that the payments to be made pursuant to the Consulting Agreement
below are being made by Employer in lieu of the
<PAGE> 2
remaining payments under Employee's Employment Agreement, dated as of January 1,
1995 (the "Employment Agreement").
3.1 Consulting Agreement. In lieu of receipt of the remaining
payments under the Employment Agreement which is hereby terminated, Employee and
Employer will enter into a Consulting Agreement. In consideration for Employee's
agreement to be available and consult with the Company for a period of five
years upon the terms and conditions set forth therein, and for a covenant by
Employee not to compete with Employer for the term thereof, Employee will
receive (i) base compensation equal to $6,000 per month for the first thirteen
months and $12,500 per month for each month thereafter plus (ii) incentive
compensation payable annually equal to one-half of one percent (1/2%) of
Employer's sales in excess of $24,000,000, not to exceed $60,000 annually.
3.2 Medical Coverage. Employer has given Employee written
notification of his rights to continuation of insurance coverage under the
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA"). Employee will be responsible for the full cost of continued coverage
in accordance with the provisions of COBRA.
4. Press Release. Employer and Employee shall jointly agree on the form
and content of the press release to be issued in connection with Employee's
termination.
5. Release of Claims. Subject only to paragraph 6, Employee on his own
behalf, and on behalf of his successors and assigns, releases the Employer and
its officers, directors, employees, agents, and attorneys and any parent,
subsidiary, affiliated or related companies and their respective successors and
assigns, ("Released Parties") from all claims, demands, actions, or other legal
responsibilities of any kind which Employee may have based on, or pertaining to
Employee's employment with the Employer or the termination of that employment.
This release includes (but is not limited to) any claims Employee may have to
indemnification pursuant to that certain Indemnification Agreement between
Employee and Employer, dated as of July 24, 1995, Employer's Bylaws, and
California Corporate and Labor Codes, respectively, in connection with claims,
suits or proceedings brought by the Employer against Employee, which rights are
hereby expressly terminated and/or waived, as well as, the Age Discrimination in
Employment Act, which prohibits age discrimination in employment, Title VII of
the Civil Rights Act, which prohibits discrimination in employment based on
race, color, sex, religion or national origin, or any other federal, state or
local law or regulation prohibiting employment discrimination. This release also
includes any claim for wrongful discharge arising under public policy or any
contract or policy of the Employer.
6. Claims Not Affected by Release. This Release does not affect
Employee's right to receive benefits under and to apply for continuation of
conversion of insurance coverage to the extent that the Employer's insurance
plans or applicable law provide for such continuation or conversion. In
addition, this Release does not apply to any claim for workers' compensation
under any federal or state workers' compensation or occupational disease law.
Finally, this
2
<PAGE> 3
Release does not waive any rights or claims that Employee may have under the Age
Discrimination in Employment Act which arise after the date Employee signs this
Agreement.
7. Unknown Claims. Employee understands that the release of claims set
forth in paragraph 6 above covers claims which the Employee knows about and
those he may not know about. Employee expressly waives all rights under Section
1542 of the California Civil Code, which Section Employee has read and
understands, and which provides as follows:
Section 1542. A general release does not extend to
claims which the creditor does not know or suspect to exist in
his favor at the time of executing the release, which if known
by him must have materially affected his settlement with the
debtor.
8. Agreement not to Sue. Employee promises never to file a lawsuit
asserting any claims that are released in paragraph 5 above.
9. Representations and Warranties. Employee represents and warrants
that (i) he has not assigned to any other person or entity the claims which are
the subject of paragraph 5 above and (ii) except for matters specifically set
forth in Section 13, there is no litigation, arbitration or proceeding pending
or, to the best of Employee's knowledge, threatened against or relating to the
properties or business of Employer, nor has any person manifested to Employee an
awareness of a reasonable basis for any claim against Employer which could have
a material adverse effect on the business or financial condition of Employer.
10. Consequences of Employee's Violation of Promises. If Employee
violates Employee's promises contained in paragraphs 5 or 8 above, Employee will
pay for all costs incurred by Employer, any related companies, or the directors
or employees of any of them, including reasonable attorneys' fees, in defending
against Employee's claim.
11. Confidentiality. Employee and Employer both agree not to disclose
the terms and conditions of this Agreement nor the substance of any discussions
or negotiations leading up to this Agreement for any reason to any person or
entity not a party hereto unless such communication is required by law or is
necessary to comply with the law including, without limitation, federal or state
tax or securities laws (e.g., communications to a tax preparer for purposes of
submitting a tax return to the Internal Revenue Service, disclosures which are
required by the rules of the Securities and Exchange Commission, etc.)
12. Confidential Information. Employee agrees to return all documents,
disks, programs, or other materials that he has received during his employment.
Employee further agrees to maintain the confidentiality of all confidential,
proprietary and trade secret information that Employee learned during his
employment.
3
<PAGE> 4
13. Indemnification. Employee agrees to indemnify and hold Employer
harmless against any and all liabilities of any nature arising after the date of
this Agreement, whether known or unknown, accrued, absolute, contingent or
otherwise including, without limitation, any claims, damages, fines, penalties,
assessments or similar charges, which arise out of or are related to (i) any
breach of this Agreement or (ii) any activity by Employee during the course and
scope of his retention pursuant to the terms of the Consulting Agreement which
is either ultra vires or unauthorized or which may constitute a breach of
fiduciary duty, duty of loyalty or other duty owed to Employer plus any
liabilities resulting from claims made by Fernando Lavin, Yoshi Nakarama,
American Motoring Accessories and Ousyu Hambai Company, Ltd. Notwithstanding
anything in this Agreement or the Consulting Agreement to the contrary, Employer
may withhold and set off against amounts due to Employee hereunder or under the
Consulting Agreement any amount as to which Employee is obligated to indemnify
Employer pursuant to this Agreement or otherwise.
14. No Waiver. Nothing herein shall constitute a waiver or
relinquishment of any right, power or claim that Employer may have against
Employee of any kind or nature, whether known or unknown, accrued, absolute,
contingent or otherwise including, without limitation, any claims, damages,
fines, penalties, assessments or similar charges, which arise out of or are
related to any activity by Employee during the course and scope of his
employment or otherwise including actions which may have been ultra vires or
unauthorized or which may have constituted a breach of fiduciary duty, duty of
loyalty or other duty owed to Employer.
15. Amendments. No addition, modification, amendment or waiver of any
part of this Agreement shall be binding or enforceable unless executed in
writing by both parties hereto.
16. Severability. Should any part of this Agreement be declared
invalid, void or unenforceable, all remaining parts shall remain in full force
and effect and shall in no way be invalidated or affected.
17. Survival. The representations, warranties, covenants and agreements
made in this Agreement shall survive the execution hereof and shall be binding
upon and inure to the benefit of the respective parties hereto.
18. Non-Admissions. Employer and Employee agree that neither this
Agreement nor the consideration given shall be construed as an admission of any
wrongdoing or liability by Employer, and that all such liability is expressly
denied.
19. Arbitration. Any dispute arising out of or related to this
Agreement shall be submitted to arbitration in Orange County, California, before
an arbitrator selected from Judicial Arbitration and Mediation Services, Inc.,
Orange County, California and shall be conducted in accordance with the
provisions of California Code of Civil Procedure Section 1280 et seq. as the
exclusive remedy of such dispute; provided, however, that provisional injunctive
relief may, but need not, be sought in a court of law while arbitration
proceedings are pending,
4
<PAGE> 5
and any provisional injunctive relief granted by such court shall remain
effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable, including permanent injunctive
relief or specific performance, or both, and the Arbitrator is hereby empowered
to award such relief. Any award or relief granted by the Arbitrator hereunder
shall be final and binding on the parties hereto and may be enforced by any
court of competent jurisdiction.
20. Future Employment. Employee waives any rights to future employment
with the Employer or any of its affiliated or related companies.
21. Entire Agreement. This is the entire Agreement between Employee and
Employer. Employer has made no promises other than those set forth in this
Agreement and the Consulting Agreement.
5
<PAGE> 6
EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, UNDERSTANDS IT
AND IS VOLUNTARILY ENTERING INTO IT WITH THE INTENTION OF RELINQUISHING ALL
CLAIMS AND RIGHTS OTHER THAN THOSE SET FORTH HEREIN.
"EMPLOYER" "EMPLOYEE"
BOYDS WHEELS, INC.,
a California corporation By:_________________________
Boyd Coddington
By:____________________________
Title:_________________________ Date:______________________
Date:________________________
6
<PAGE> 1
EXHIBIT 10.44
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is made and
entered into as of November 1, 1997, by and between BOYDS WHEELS, INC., a
California corporation (the "Company") and BOYD CODDINGTON ("Consultant").
RECITALS
--------
A. Consultant has served as a key executive officer, director
and shareholder of the Company, is intimately aware of the operations of the
Company, its customers, manufacturing, operations and technology, and has the
ability to effectively compete with the Company absent the existence of and
compliance with this Agreement.
B. Consultant is in good health, intends to continue living in
geographic areas where the Company is doing business and/or manufacturing and,
absent the existence of this Agreement, would desire to actively compete with
the Company, and therefore would have substantial opportunity to compete with
the Company.
C. The Company believes that it would be substantially harmed
if Consultant were to engage in a business competitive with that of the Company,
and that the Company would lose amounts substantially greater than that being
paid under this Agreement if Consultant was to actively compete with the Company
during the term of this Agreement.
D. As a result of Consultant's experience and stature, the
consulting services which the Consultant is agreeing to perform pursuant hereto
are deemed vital to the success of the Company.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein, the Company and Consultant agree as follows:
1. Term. Consultant hereby agrees to provide the services
hereinafter described on the terms and conditions set forth herein for a period
of five (5) years commencing on November 1, 1997. This Agreement shall
automatically renew for successive periods of five (5) years each, unless either
party gives notice of termination to the other party at least thirty (30) days
prior to the commencement of any such successive five (5) year renewal period.
2. Duties. Consultant, upon request of the executive officers
of the Company, shall assist appropriate Company personnel with the executive,
sales, marketing, operations, design and other functions previously performed by
Consultant for Company. Consultant shall provide such services, and such other
services as the Company may request which are similar to those heretofore
provided by Consultant to Company, via means acceptable to the Company, for an
amount of time not to exceed, on a monthly basis, fifty percent (50%) of the
time heretofore spent by Consultant on his employment duties. A list of specific
duties and limitations is attached hereto as Exhibit A. The Company shall give
reasonable advance notice to Consultant regarding the exact hours during which
such services are to be provided, whether Consultant's physical presence shall
be required and whether such services
<PAGE> 2
require travel. The consulting services to be rendered by Consultant shall be
rendered in good faith, on a reasonably timely basis, and shall be rendered with
such diligence, attention and skill as the Consultant devotes to his other
professional activities.
3. Non-Competition. Consultant agrees that, unless he has
received the express prior written consent of the Company, he, including any
affiliated entities, will not, in the counties or parishes in any state of the
United States of America or in any other jurisdiction in the world in which the
Company or it affiliates is now or then doing business, during the term hereof
(including any renewal periods or such other period during which termination
payments are being made), directly or indirectly, permit his name to be used by,
personally engage in, work for, advise, consult, render services to or directly
or indirectly invest in any individual, sole proprietorship, partnership,
corporation, trust or other person (in any capacity including without limitation
as an employee, consultant, advisor, officer, director, shareholder or partner)
which directly or indirectly, either itself or with an affiliated entity or
entities, engages in any business involving the design, promotion, distribution
or sale of wheels, car care products, custom cars, hot rods and related products
for the specialty automotive and motorcycle aftermarkets (the "Products").
Notwithstanding the foregoing, this Section 3 shall be void and no longer
binding upon Consultant in the event that the Company and its affiliates or
assignees cease their active business operations or in the event the Company and
its affiliates or assignees permanently cease the design, promotion,
distribution, or sale of the Products. Further, this Section 3 shall not
prohibit Consultant from engaging in a business (such as Consultant's hot rods
and collectibles store) which involves the retail resale of hot rods and custom
cars, provided that neither the Company's (or its affiliates) employees nor the
Company's (or its affiliates) independent contractors are utilized in the sale
of such hot rods and custom cars in violation of Section 3 hereof.
4. Permitted Stock Ownership. Notwithstanding Section 3,
Consultant, or any affiliate, collectively may acquire the ownership of less
than 1% of any class of equity securities of any company engaged in business
similar to that of the Company whose securities are publicly traded.
5. Non-Solicitation of Employees/Contractors. During the terms
of this Agreement and for a period of two (2) years thereafter, Consultant and
any of his affiliated entities, will not (i) solicit, directly or indirectly,
for himself or for any other person or entity, employees of the Company or its
affiliates, or any independent contractors of the Company or its affiliates,
(ii) solicit, directly or indirectly, for himself or for any other person or
entity, existing or potential customers for business that will compete with the
Company's business, or (iii) directly or indirectly encourage, or do any act
that would encourage, any employees or independent contractors of the Company to
terminate their working relationship with the Company. For purposes of this
Agreement, "employees" and "independent contractors" shall include cottage,
piece work, and similar laborers retained by the Company or its affiliates for
the benefit of the Company or its affiliates.
6. Confidential Information. Consultant and any of his
affiliated entities will maintain in confidence and will not disclose to any
third party any confidential or proprietary information of the business of the
Company, including, without limitation, personnel information, trade secrets,
know how, processes, business practices, finances, suppliers, customers or
potential customers of the Company.
2
<PAGE> 3
7. Injunctive Relief; Breach. Consultant acknowledges that his
compliance with the covenants and agreements contained herein is necessary to
protect the goodwill and other proprietary interests of the Company. The
Consultant acknowledges that any breach by him or by any affiliated entities of
any of the foregoing covenants and agreements will cause irreparable damage to
the Company, the exact amount of which will be difficult or impossible to
ascertain, and that the remedies at law for any such breach will be inadequate.
Accordingly, Consultant agrees that the Company shall be entitled to injunctive
relief ordering specific performance of the foregoing covenants and agreements,
in addition to such further relief as may be proper.
8. Termination. This Agreement and all rights and obligations
of the parties hereunder (except as set forth in Sections 4, 5, 6, 7 and 20)
shall terminate immediately upon occurrence of any of the following events:
A. Upon the death of Consultant.
B. Upon the "permanent disability" of Consultant. As used
herein, the term "permanent disability" shall mean the good faith
determination by the Company that Consultant has become so physically
or mentally disabled as to be incapable of satisfactorily performing
his responsibilities under this Agreement for a period of ninety (90)
consecutive days.
C. Upon notice from the Company for "good cause." As used
herein, the term "good cause" shall include, without limitation, a
material breach of this Agreement by Consultant, a material breach by
Consultant of any other agreement between the parties, a material
breach by Consultant of an agreement with a third party for the benefit
of the Company, future misconduct by Consultant which materially and
adversely impacts the Company or its reputation or a failure or refusal
by Consultant to perform his duties hereunder in the manner reasonably
specified.
D. Upon notice from the Company without "good cause,"
provided that the Company shall pay Consultant payments equal to (i)
$300,000, if such termination occurs during the first year of the term
of this Agreement, and (ii) one (1) year of base compensation, if such
termination occurs after the first year of this Agreement or during any
renewal period of this Agreement, if applicable. In the event of such a
termination without good cause, then Consultant will be relieved of any
obligations set forth in Section 3 hereof that would otherwise restrict
his ability to compete after the date of such termination.
Notwithstanding the foregoing, Consultant shall not be entitled to
receive any termination payments upon (i) any termination of this
Agreement pursuant to Sections A, B or C above, or (ii) any expiration
of this Agreement with notice as provided in Section 1.
9. Severability. If any of the provisions of this Agreement
shall contravene or be invalid under the laws of any state or other jurisdiction
where it is applicable but for such contravention or invalidity, such
contravention or invalidity shall not invalidate all of the provisions of this
Agreement, but, rather, it shall be construed, insofar as the laws of that state
or jurisdiction are concerned, as not containing the provision or provisions
contravening or invalid under the laws of that
3
<PAGE> 4
state or jurisdiction, and the rights and obligations created hereby shall be
construed and enforced accordingly. If, however, any such contravening provision
relates to the term of this Agreement or the geographic area or areas to which
it applies, then this Agreement shall be construed as providing for the maximum
time period and widest geographic area or areas which the laws of that state or
jurisdiction permit; provided that such time period and geographic area shall
never exceed the time period or geographic area provided for herein.
10. Payment for Services and Covenants. In consideration of
the agreements being made by Consultant hereunder, the Company hereby agrees to
pay to Consultant (i) base compensation equal to the sum of SIX THOUSAND DOLLARS
($6,000) for the first thirteen months and TWELVE THOUSAND FIVE HUNDRED DOLLARS
($12,500) per month for each month thereafter, plus (ii) annual incentive
compensation equal to one-half of one percent (1/2%) of the Company's sales in
excess of $24,000,000, with such incentive compensation not to exceed $60,000
annually. Further, the Company agrees to (i) reimburse Consultant for reasonable
expenses incurred in performance of his duties hereunder and (ii) provide
Consultant with a telephone and a facsimile line to be installed in Consultant's
home or other agreed upon place to be used by Consultant exclusively in
connection with the performance of Consultant's duties hereunder and to
reimburse Consultant for telephone and facsimile charges reasonably incurred.
Said amounts shall be payable at any such times that Consultant is not in
material breach of the terms and provisions hereof.
11. Relationship and Authority, Taxes, Insurance, Other. The
relationship between the Company and Consultant intended to be created by this
Agreement is that of an independent contractor, and nothing herein contained
shall be construed as creating a relationship of employer and employee or
principal and agent between the parties hereto. Consultant covenants and agrees
that he shall not act as if or make any representation that he is authorized to
act as an agent or officer of the Company and specifically covenants and agrees
that he will not attempt to contractually obligate or bind the Company.
Consultant, not the Company, shall pay all federal income taxes, FICA taxes,
medicare taxes, state income taxes, state disability insurance, and all other
federal, state, and local taxes, insurance, or other charges relating to
Consultant's performance of services hereunder. Consultant also shall carry for
himself any required worker's compensation insurance.
12. Surrender of Books and Records. Consultant agrees that, as
and when requested to do so by the Company, and in any event upon the
termination of this Agreement, Consultant shall immediately surrender to the
Company all lists, books and records (and any copies thereof) of, or in
connection with, the business of the Company, and all other properties belonging
to the Company then in his possession, it being distinctly understood that all
such lists, books and records, and other documents or property are that
confidential, proprietary property of the Company.
13. Amendment and Waiver. This Agreement may not be amended,
modified or waived in any way except in a writing signed by all of the parties
hereto. Failure of any party to insist upon strict observance of or compliance
with an aspect of this Agreement on one or more instances shall not be deemed a
waiver of that term in that instance or in the future, or as to any other term
at any time. Waivers, to be effective, must be express and in writing, and no
waiver shall operate as a waiver
4
<PAGE> 5
of any other default or of the same default on a future occasion. Failure to
enforce any similar agreement against any other person shall in no event
constitute a waiver under this Agreement.
14. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
15. Advice of Counsel. Each party hereto acknowledges that he
has been advised to seek independent legal counsel for advice regarding the
effect of the terms and provisions hereof, and has either obtained such advice
of independent legal counsel, or has voluntarily and without compulsion elected
to enter into and be bound by the terms of this Agreement without such advice of
independent legal counsel.
16. Attorneys' Fees. In the event of any proceeding arising
out of or related to this Agreement, the prevailing party shall be entitled to
recover from the losing party all of its costs and expenses incurred in
connection with such proceeding, including court costs and reasonable attorneys'
fees, whether or not such proceeding is prosecuted to judgment.
17. Further Assurances. The parties shall at their own cost
and expense execute and deliver such further documents and instruments and shall
take such other actions as may be reasonably required or appropriate to carry
out the intent and purposes of this Agreement.
18. Gender and Number. The use of the masculine, feminine and
neuter genders and the singular and plural number shall include the others where
the context so requires.
19. Notices. All notices, requests, demands and other
communications under this Agreement shall be given in writing and shall be
served either personally, by facsimile or delivered by first class mail,
registered or certified, return receipt requested, postage prepaid, and properly
addressed as follows:
If to the Company: BOYDS WHEELS, INC.
8380 Cerritos Avenue
Stanton, California 90680
If to Consultant: Boyd Coddington
2727 Casalero Road
La Habra Heights, California 90631
With a copy to: Louis J. Khoury, Esq.
1801 Century Park East, Suite 2400
Los Angeles, California 90067
Notices shall be deemed received upon the earliest of actual
receipt, confirmed facsimile or three (3) days following mailing pursuant to
this Section.
20. Arbitration. Any dispute arising out of or related to this
Agreement shall be submitted to arbitration in Orange County, California, before
an arbitrator selected from Judicial Arbitration and Mediation Services, Inc.,
Orange County, California and shall be conducted in
5
<PAGE> 6
accordance with the provisions of California Code of Civil Procedure Section
1280 et seq. as the exclusive remedy of such dispute; provided, however, that
provisional injunctive relief may, but need not, be sought in a court of law
while arbitration proceedings are pending, and any provisional injunctive relief
granted by such court shall remain effective until the matter is finally
determined by the Arbitrator. Final resolution of any dispute through
arbitration may include any remedy or relief which the Arbitrator deems just and
equitable, including permanent injunctive relief or specific performance, or
both, and the Arbitrator is hereby empowered to award such relief. Any award or
relief granted by the Arbitrator hereunder shall be final and binding on the
parties hereto and may be enforced by any court of competent jurisdiction.
21. Assignment. This Agreement and the rights and obligations
created hereunder may not be assigned, transferred, pledged, or hypothecated in
any manner by either of the parties hereto, whether voluntarily or by operation
of law, without the prior written consent of the other party. Any attempted
assignment, transfer, pledge, hypothecation, or other disposition of this
Agreement in a manner contrary hereto, shall be null and void and without force
or effect. Notwithstanding the foregoing, this Agreement may be assigned by the
Company to one or more affiliates of the Company, or in connection with the sale
or transfer of all or substantially all of the assets of the Company; provided
that upon any such assignment hereunder, that each and all of the provisions
hereof shall be binding upon such successors and permitted assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed effective as of the date first above written.
"CONSULTANT"
--------------------------
Boyd Coddington
"COMPANY"
BOYDS WHEELS, INC.,
a California corporation
By:
-------------------------------------
Its:
------------------------------------
6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 556,527
<SECURITIES> 0
<RECEIVABLES> 2,503,223
<ALLOWANCES> 1,175,117
<INVENTORY> 8,627,449
<CURRENT-ASSETS> 12,924,809
<PP&E> 19,407,850
<DEPRECIATION> 4,622,078
<TOTAL-ASSETS> 27,894,735
<CURRENT-LIABILITIES> 14,005,999
<BONDS> 1,344,419
0
0
<COMMON> 17,856,101
<OTHER-SE> (5,667,736)
<TOTAL-LIABILITY-AND-EQUITY> 27,894,735
<SALES> 4,777,007
<TOTAL-REVENUES> 4,777,007
<CGS> 5,202,547
<TOTAL-COSTS> 5,202,547
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,231,843)
<INCOME-TAX> (112,200)
<INCOME-CONTINUING> (2,119,643)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,119,643)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> 0
</TABLE>
