SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1997
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________
Commission File No. 0-23538
MOTORCAR PARTS & ACCESSORIES, INC.
(Exact name of Registrant as specified in its charter)
New York 11-2153962
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2727 Maricopa Street, Torrance, California 90503
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (310) 212-7910
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, $.01 par
value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
Issuer's revenues for its most recent fiscal year: $86,872,000.
The aggregate market value, calculated on the basis of the average bid and asked
prices of such stock on the National Association of Securities Dealers Automated
Quotation System, of Common Stock held by non-affiliates of the Registrant as of
June 23, 1997 was approximately $65,774,512.
There were 5,036,455 shares of Common Stock outstanding as of June 23, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of the Registrant's Proxy Statement relating to its 1997 Annual
Meeting of Shareholders is incorporated by reference herein
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PART I
ITEM 1. BUSINESS.
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GENERAL
The Company is a leading remanufacturer and distributor of
replacement alternators and starters for both imported and domestic cars and
light trucks in the United States. The Company's alternators and starters are
remanufactured for vehicles imported from Japan, Germany, Sweden, England,
France, Italy and Korea and, as commenced in fiscal 1997, for domestic vehicles.
The imported vehicles for which the Company remanufactures alternators and
starters also include (i) "world cars," which are produced by General Motors,
Chrysler and Ford and originally equipped with components produced by foreign
manufacturers, and (ii) "transplants," which are manufactured in the United
States by Toyota, Nissan, Honda, Mazda and others. The Company also assembles
and distributes ignition wire sets for imported and domestic cars and light
trucks.
The Company's products are sold throughout the United States to many
of the nation's largest chains of retail automotive stores, including AutoZone,
CSK Auto, The Pep Boys, O'Reilly Automotive, Hi-Lo Automotive and Trak
Automotive. The Company also sells its alternators and starters throughout
Canada as a supplier to that country's largest chain of retail automotive
stores, Canadian Tire. During the last several years, the Company has
concentrated on sales to retail automotive chains, which the Company believes is
the fastest growing segment of the automotive after-market industry. For fiscal
1997, approximately 85% of the Company's sales were to retail automotive chains
comprised of approximately 4,000 stores, with the balance of sales primarily to
large warehouse distributors, such as APS Holdings. The Company also supplies
remanufactured alternators and starters for imported vehicles for distribution
through Service Parts Operations (SPO), which units are sold under General
Motors' private label, AC Delco.
THE AUTOMOTIVE AFTER-MARKET INDUSTRY
The Company's historical market, the import automotive after-market
industry for alternators and starters, which is comprised almost exclusively of
remanufacturers and rebuilders, has experienced significant growth during recent
years. The Company expects this growth to continue as a result of several
trends. These trends include the proliferation of imported cars and light trucks
(including world cars and transplants) in use, the growth in the number of miles
driven each year and the growth in the number of imported vehicles at the prime
repair age of four years and older. In addition, the Company believes its new
market, the domestic automotive after-market industry for alternators and
starters, represents substantial growth opportunities. The Company believes that
this new market is approximately three times the size of the Company's
historical import market.
The Company targets two distinct groups of end-users that buy
replacement automotive parts: (i) individual consumers, who purchase parts to
perform "do-it-yourself" repairs on their own vehicles; and (ii) professional
"do-it-for-me" installers, which include automotive repair shops and the
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service departments of automobile dealers. The individual consumer market is
typically supplied through retailers and through the retail arms of warehouse
distributors. Automotive repair shops generally purchase parts through local
independent parts wholesalers, through national warehouse distributors and, more
recently, through automotive parts retailers. Automobile dealer service
departments generally obtain parts through the distribution systems of
automobile manufacturers. In recent years, chains of retail stores in the
automotive after-market industry have become an increasingly important channel
for the distribution of the Company's products. The Company also believes that
significant consolidation among distributors of automotive replacement parts has
resulted in fewer and larger distributors. In addition, the Company believes
that, as a result of its entrance into the business of remanufacturing
alternators and starters for domestic vehicles, warehouse distributors will
become a more important distribution channel for the Company.
Remanufacturing of operational replacement parts is a significant
component of the automotive aftermarket industry. Sales by chains of retail
automotive stores and by automotive wholesalers of remanufactured alternators
and starters are believed by the Company to comprise the vast majority of the
Company's market. Only a portion of that market is supplied by the sale of
similar new replacement parts. Remanufacturing, which involves the re-use of
parts which might otherwise be discarded, creates a supply of parts at a
significantly lower cost to the user than newly- manufactured parts, and makes
available automotive parts which are no longer being manufactured. By making
readily available parts for automotive general use, remanufacturing benefits
automotive repair shops by relieving them of the need to rebuild worn parts on
an individual basis and conserves materials which would otherwise be used to
manufacture new replacement parts. Most importantly, however, the Company's
remanufactured parts are sold at significantly lower prices than competitive new
replacement parts. These features also enable retail customers themselves to
engage in cost- saving repairs.
COMPANY PRODUCTS
The Company's primary products are remanufactured replacement
alternators and starters for both imported and domestic cars and light trucks.
The Company also assembles and distributes ignition wire sets for the automotive
after-market for use in a wide variety of makes and models of foreign
automobiles. Alternators, starters and ignition wire sets are essential
components in all makes and models of automobiles. These products constitute
non-elective replacement parts, which are required for a vehicle to operate.
Approximately 17% of the Company's products are sold under its brand name,
including the use of its registered trademark "MPA," and the remainder are sold
for resale under customer private labels. Customers that sell the Company's
products under private label include AutoZone, CSK Auto, The Pep Boys, APS
Holdings and Delphi.
The Company's alternators and starters are produced to meet or
exceed automobile manufacturer specifications depending upon the make and model
of the automobile. The Company remanufactures a broad assortment of starters and
alternators in order to accommodate the numerous and increasing varieties of
these products currently in use. The Company currently provides approximately
825 different alternators and 575 different starters. The Company's import
alternators
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and starters are provided for virtually all Japanese manufacturers, including
Toyota, Honda, Nissan, Mazda and Mitsubishi, certain European manufacturers,
including Mercedes Benz, BMW, Volvo and Volkswagen, manufacturers of world cars,
including Chrysler, General Motors and Ford, and foreign manufacturers of
transplant cars.
CUSTOMERS
The Company's products are marketed throughout the United States and
Canada. The Company's customers consist of many of the United States' largest
chains of retail automotive stores and automotive warehouse distributors. The
Company also sells its products to Canada's largest chain of retail automotive
stores, Canadian Tire.
A significant percentage of the Company's sales has been
concentrated among a relatively small number of customers. The Company's three
largest customers accounted for approximately 29%, 18% and 18%, respectively, of
net sales during fiscal 1997. The Company's four largest customers accounted for
approximately 21%, 11%, 20% and 18%, respectively, of net sales during fiscal
1996. The Company's three largest customers accounted for approximately 27%, 14%
and 12%, respectively, of the Company's net sales during fiscal 1995. There can
be no assurance that this concentration of sales among customers will not
continue in the future. The loss of a significant customer or a substantial
decrease in sales to such a customer would have a material adverse effect on the
Company's sales and operating results. In addition, customers may demand price
concessions from the Company that could adversely affect profit margins. The
Company's arrangements with most of its customers are based on the receipt of
purchase orders and otherwise are not subject to long-term written contracts and
generally may be terminated upon short notice.
OPERATIONS OF THE COMPANY
Cores
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," which are sorted by make
and model and stored until needed. When needed for remanufacturing, the cores
are completely disassembled into component parts. Components which can be
incorporated into the remanufactured product are thoroughly cleaned, tested and
refinished. All components known to be subject to major wear, and those
components determined not to be reusable or repairable, are replaced by new
components. The unit is then reassembled on an assembly line into a finished
product. Inspection and testing are conducted at various stages of the
remanufacturing process, and each finished product is inspected and tested on
equipment designed to simulate performance under operating conditions.
Components of cores which are not used by the Company in its remanufacturing
process are sold as scrap.
The majority of the cores remanufactured by the Company are obtained
from customers as trade-ins, which are credited against future purchases. The
Company's customers encourage consumers to exchange their used units at the time
of purchase through the use of credits. To a lesser
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extent, the Company also purchases cores in the open market from core brokers,
who are dealers specializing in buying and selling cores. Although the Company
believes that the open market does not and will continue not to represent a
primary source of cores, this market offers a reliable source for maintaining
stock balance. Other materials and components used in remanufacturing are also
purchased in the open market. The ability to obtain cores of the types and
quantities required by the Company is essential to the Company's ability to meet
demand and expand production.
The price of a finished product generally is comprised of a
separately invoiced amount for the core included in the product ("core value")
and an amount for remanufacturing. Upon receipt of a core as a trade-in, credit
generally is given to the customer for the amount originally invoiced with
respect to that core. The Company limits trade-ins to cores for units included
in its sales catalogs and in condition able to be remanufactured, and credit for
cores is allowed only against purchases by a customer of similar remanufactured
products within a specified time period. A customer's total allowable credit for
core trade-ins is further limited by the dollar volume of the customer's
purchases of similar products within such time period. Core values fluctuate on
the basis of several economic factors, including market availability and demand
and core prices then being paid by other remanufacturers and core brokers.
Beginning with fiscal 1997, the Company implemented a new accounting
presentation with respect to its reporting of sales. In the past, the Company
deducted the value of all cores returned from its customers in order to reach
net sales. Under the new presentation, revenues are reported on a gross basis,
that is core returns from customers are not deducted in order to reach net
sales, but rather are included in cost of goods sold. Fiscal 1996 and 1995 net
sales and cost of goods sold have been reclassified to reflect this new
presentation. The Company believes that this new presentation provides a truer
depiction of actual sales and cost of goods sold. In addition, it reflects a
more proper relationship between sales and inventory.
Production Process
The initial step in the Company's remanufacturing process begins
with the receipt in boxed quantities of cores from various sources, including
trade-ins from customers and purchases in the open market. The cores are
assessed and evaluated for inventory control purposes and then sorted by part
number. Each core is then completely disassembled into all of its fundamental
components. The components are cleaned in a process that employs customized
equipment, detergents and other chemicals. The cleaning process is accomplished
in accordance with the required specifications of the particular units.
After the cleaning process is complete, the components are then
inspected and tested as prescribed by the Company's rigorous quality control
program. This program, which is implemented throughout the operational process,
is known as statistical process control. Upon passage of all tests, the
components are placed on an automatic conveyor for assembly into the required
units. The assembly process is monitored by designated quality control
personnel. Each fully assembled unit is then subjected to additional testing to
ensure performance and quality. Finished products are then
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either stored in the Company's warehouse facility or packaged for immediate
delivery. In addition, to maximize efficiency, the Company stores in its
warehousing facilities component parts ready for assembly. The Company's
management information systems, including hardware and software, facilitate the
remanufacturing process from cores to finished products. In general, this
process takes approximately four days.
The Company conducts business through two wholly-owned foreign
subsidiaries, MVR Products Pte Limited ("MVR"), which operates a shipping
warehouse and testing facility and maintains office space and remanufacturing
capability in Singapore, and Unijoh Sdn, Bhd ("Unijoh"), which conducts in
Malaysia remanufacturing operations similar to those conducted by the Company at
its remanufacturing facility in Torrance. These foreign operations are conducted
with quality control standards and other internal controls similar to those
currently implemented at the Company's remanufacturing facilities in Torrance.
The facilities of MVR and Unijoh are located approximately one hour drive apart.
The Company believes that the operations of its foreign subsidiaries are
important because of the lower labor costs experienced by these subsidiaries in
the same remanufac turing process.
In April 1997, the Company acquired all of the outstanding capital
stock of MVR and Unijoh from its shareholders, Mel Marks, Richard Marks and
Vincent Quek (each of whom owned one-third of each acquired entity), for an
aggregate purchase price to all such selling shareholders for both acquired
entities of 145,455 shares of Common Stock. The shares of Common Stock
constituting the purchase price have not been registered for sale pursuant to
the Securities Act of 1933 and are subject to a lock-up arrangement between the
Company and each such selling shareholder releasing for public resale one-fourth
of such shares on each of the first four anniversaries of the acquisitions. The
purchase price and other terms of the acquisitions were determined by the
Special Committee of the Board of Directors of the Company following
negotiations with the selling shareholders. In connection with, and as a
condition to, the acquisitions, the Special Committee received a fairness
opinion from Houlihan Lokey Howard & Zukin, a specialty investment banking firm.
Product Trade-Ins
The Company has a trade-in policy that it believes is typical for
the remanufactured automotive replacement parts industry. A manufacturer
typically provides a product warranty that is honored whether or not the
purchaser continues to do business with the manufacturer. As the Company
believes is the practice in its industry, however, the Company accepts product
trade-ins only if the purchaser makes future purchases from the Company within a
specified time period. Product trade-ins to the Company result only in credits
against future purchases. If a customer ceases doing business with the Company,
the Company recognizes no further obligations to that customer with respect to
product trade-ins and no additional product returns would be accepted by the
Company. The customer would return any returnable products to a new
remanufacturer maintaining the same policy, which remanufacturer would accept
the product trade-ins and grant appropriate credits regardless of whether the
units were originally purchased from that new remanufacturer.
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As a result of the product trade-in policy in the Company's
industry, the Company accounts for product trade-ins on a current basis. No
reserve is made for future product trade-ins since there is no on-going
obligation to accept such trade-ins in the absence of continuing sales to the
returning customer. The Company believes that its return rate has been
consistent with the return rates generally experienced in its industry. In
addition, the obligation to accept trade-ins is only recognized as a credit
against future sales in the form of a reduction in the purchase price for those
sales. The Company's product trade-in policy encompasses all product trade-ins,
including cores, true warranty trade-ins, alleged warranty trade-ins and any
other product adjustments. The amount of the credit given in connection with a
returned unit is equal to the sum of the unit price and the core price.
COMPETITION
The automotive after-market industry of remanufacturers and
rebuilders of alternators and starters for both imported cars and light trucks
is highly competitive. The Company's competitors include several other
relatively large sources of remanufactured units and numerous smaller, regional
rebuilders. Certain of the Company's competitors sell a wide variety of other
automotive parts, thereby establishing broader name recognition in the entire
automotive after-market. In addition, certain of the Company's competitors are
divisions or subsidiaries of entities also engaged in other businesses which
have substantially greater financial resources than those of the Company. The
Company also competes with several large regional remanufacturers and with
remanufacturers which are franchised by certain original equipment manufacturers
to remanufacture their products for regional distribution. Alternators and
starters produced by regional and other small rebuilders typically are not
processed and finished to the same extent as, and do not compete directly with,
the Company's products. The Company also competes with numerous rebuilders which
serve comparatively local areas.
The Company's products have not been patented nor does the Company
believe that its products are patentable. The Company will continue to attempt
to protect its proprietary processes and other information by relying on trade
secret laws and non-disclosure and confidentiality agreements with certain of
its employees and other persons who have access to its proprietary processes and
other information.
GOVERNMENTAL REGULATION
The Company's operations are subject to federal, state and local
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company is not subject to any such
laws and regulations which are specific to the automotive after-market industry.
The Company believes that its business, operations and facilities have been and
are being operated in compliance in all material respects with applicable
environmental and health and safety laws and regulations, many of which provide
for substantial fines and criminal sanctions for violations. The operation of
automotive parts remanufacturing plants, however, entails risks in these areas,
and there can be no assurance that the Company will not incur material costs or
liabilities. In addition,
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potentially significant expenditures could be required in order to comply with
evolving environmental and health and safety laws, regulations or requirements
that may be adopted or imposed in the future. The Company believes, although
there can be no assurance, that the overall impact of compliance with
regulations and legislation protecting the environment will not have a material
effect on its future financial position or results of operations.
EMPLOYEES
The Company has approximately 640 full time employees. Of the
Company's employees, 20 are considered administrative personnel and six are
sales personnel. None of the Company's employees is a party to any collective
bargaining agreement. The Company has not experienced any work stoppages and
considers its employee relations to be satisfactory.
ITEM 2. PROPERTIES.
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The Company maintains facilities in Torrance, California, Roslyn,
New York and Nashville, Tennessee. The Torrance facilities contain an aggregate
of approximately 352,000 square feet and accommodate most of the Company's
corporate headquarters and remanufacturing, warehousing and other office
requirements. The Company moved into its initial Torrance facility, consisting
of approximately 125,000 square feet, in September 1993. The lease for the
initial facility provides for a monthly rental of $44,280 through September
1999, increasing thereafter to $47,601 through March 31, 2002, the termination
date of the lease. In September 1995, the Company entered into a lease for an
additional approximately 80,000 square feet in a second facility in the same
industrial area in Torrance and, in October 1996, increased its leased space in
the second facility to a total of approximately 227,000 square feet. The lease
for the second facility provides for a base monthly rental of $60,252 through
September 1999, increasing thereafter to $64,771 through March 31, 2002, the
termination date of the lease. The Company's facilities were designed and
equipped according to specifications generated by the Company in order to
accommodate the Company's current and projected needs. The facilities are
anticipated to be sufficient to satisfy the Company's foreseeable production
requirements. The Company also maintains an East Coast administrative and sales
office in Roslyn, New York. This site contains approximately 1,000 square feet
of office space. In October 1995, the Company opened a 31,000-square foot
warehouse and distribution facility in Nashville, Tennessee to service the
Company's growing East Coast and Southern market. The lease for this facility
expires on October 31, 1998 and provides for a monthly rental of $9,331. In
addition, the Company has facilities at its subsidiaries' locations in Malaysia
and Singapore.
ITEM 3. LEGAL PROCEEDINGS.
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There are no pending material legal proceedings to which the Company
or any of its properties is subject nor, to the knowledge of the Company, are
any such legal proceedings threatened.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------- -------------------------------------------------------------
Matters.
--------
The Company's Common Stock, par value $0.01 per share (the "Common
Stock"), is quoted on the National Association of Securities Dealers' Automated
Quotation ("NASDAQ") National Market under the symbol MPAA. The following table
sets forth the high and low bid prices for the Common Stock during each quarter
of fiscal 1996 and fiscal 1997 as reported by NASDAQ. The prices reported
reflect inter-dealer quotations, may not represent actual transactions and do
not include retail mark-ups, mark-downs or commissions.
Fiscal 1996 Fiscal 1997
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High Low High Low
---- --- ---- ---
First Quarter 11 8.5 19 14.250
Second Quarter 15 10.375 15.750 9.375
Third Quarter 15.875 12.750 15 11.875
Fourth Quarter 15.875 11.375 17.625 13.250
As of June 23, 1997, there were 5,036,455 shares of Common Stock
outstanding held by 45 holders of record.
The Company has not declared or paid dividends on the Common Stock
during the last two fiscal years.
The declaration of dividends in the future will be at the election
of the Board of Directors and will depend upon the earnings, capital
requirements and financial position of the Company, general economic conditions,
state law requirements and other relevant factors. In addition, the Company's
agreement with its bank lender prohibits payment of dividends without the bank's
prior consent, except dividends payable in Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
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The financial information set forth below for the fiscal years ended
March 31, 1997, 1996 and 1995 should be read in conjunction with the detailed
information in the financial statements and notes thereto appearing elsewhere
herein.
The financial information set forth below for the fiscal years ended
March 31, 1994 and 1993 have been audited by Richard A. Eisner & Company, LLP,
independent certified public accountants.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data (1):
Net sales ....................................... $ 86,872 $ 64,358 $ 39,235 $ 29,018 $ 24,033
Cost of goods sold .............................. 69,255 50,965 30,690 21,816 19,038
Research and development ........................ 185 -- -- -- --
Selling expenses ................................ 2,305 1,984 1,498 2,117 1,441
General and administrative expenses ............. 4,974 4,577 3,704 2,593 2,134
Moving expenses ................................. -- -- -- 256 --
Operating income ................................ 10,153 6,832 3,343 2,236 1,420
Interest expense (net of interest income) ....... (1,090) (833) (540) (453) (352)
-------- -------- -------- -------- --------
Income before income taxes ...................... 9,063 5,999 2,803 1,783 1,068
Provision for income taxes (pro forma for fiscal
1994 and 1993) (2) .............................. 3,529 2,353 1,197 728 453
-------- -------- -------- -------- --------
Net Income ............................... $ 5,534 $ 3,646 $ 1,606 $ 1,055 $ 615
======== ======== ======== ======== ========
Net Income per share (pro forma for fiscal
1994 and fiscal 1993) (3) ................ $ 1.11 $ 0.93 $ 0.49 $ 0.52 $ 0.29
======== ======== ======== ======== ========
Weighted average common shares outstanding
(pro forma for fiscal 1994 and fiscal 1993) (3) . 5,007 3,939 3,295 2,018 2,145
======== ======== ======== ======== ========
March 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Total assets ............................ $75,510 $60,189 $25,823 $16,871 $ 9,045
Working capital ......................... 51,800 44,254 18,096 12,041 1,958
Long-term debt and capitalized lease
obligations -- less current portions 17,839 15,135 9,502 4,920 14
Shareholders' equity .................... 40,108 34,031 10,016 8,410 2,274
</TABLE>
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(1) Net sales and cost of goods sold for fiscal 1996, 1995, 1994 and 1993
have been reclassified to increase cost of goods sold, rather than
decrease net sales, by core trade-ins. See Note A[6] to the financial
statements contained herein.
(2) From January 1, 1987 through December 31, 1993, the Company was subject
to taxation as an "S" corporation in accordance with the Code. As a
result, the net income of the Company during that time was faxed for
federal (and some state) income tax purposes directly to the Company's
shareholders rather than to the Company. Pro forma data reflects the
income tax expense that would have been recorded had the Company not
been exempt from the payment of such taxes.
(3) Pro forma data for fiscal 1994 and fiscal 1993 reflect the stock split
effected by the Company in January 1994, which increased the number of
issued and outstanding shares of Common Stock from 54.3428 shares to
2,000,000 shares.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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FINANCIAL CONDITION AND RESULTS OF OPERATION.
---------------------------------------------
GENERAL
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS
Fiscal Year Ended March 31,
1997 1996 1995
------- ------- -------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 79.7 79.2 78.2
------- ------- -------
Gross profit 20.3 20.8 21.8
Research and development 0.2 0.0 0.0
Selling expenses 2.7 3.1 3.8
General and administrative expenses 5.7 7.1 9.4
------- ------- -------
Operating income 11.7 10.6 8.5
Interest expense - net of interest income 1.3 1.3 1.4
------- ------- -------
Income before income taxes 10.4 9.3 7.1
Provision for income taxes 4.1 3.7 3.1
------- ------- -------
Net income 6.4% 5.7% 4.1%
======= ======= =======
In its remanufacturing operations, the Company obtains used
alternators and starters, commonly known as "cores," from various sources,
principally the Company's existing customers, as trade-ins. Such trade-ins are
recorded when cores are received from customers. Credits for cores are allowed
only against purchases of similar remanufactured products and are generally used
within sixty days of issuance by the customer. Due to this trade-in policy, the
Company does not reserve for trade-ins. In addition, since it is unlikely that a
customer will not utilize its trade-in credits, the credit is recorded when the
core is returned as opposed to when the customer purchases new products. The
Company believes that this policy is consistent throughout the remanufacturing
and rebuilding industry.
Beginning with fiscal 1997, the Company implemented a new accounting
presentation with respect to its reporting of sales. In the past, the Company
deducted the value of all cores returned from its customers in order to reach
net sales. Under the new presentation, revenues are reported on a gross basis,
that is core returns from customers are not deducted in order to reach net
sales, but rather are included in cost of goods sold. Fiscal 1996 and 1995 have
been reclassified to reflect this new presentation. The Company believes that
this new presentation provides a truer depiction of
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actual sales and cost of goods sold. In addition, it reflects a more proper
relationship between sales and inventory.
Fiscal 1997 compared to Fiscal 1996
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Net sales for fiscal 1997 increased $22,514,000 or 35.0%, from
$64,358,000 to $86,872,000, over fiscal 1996. The increase is attributable to
the general growth of business with existing customers, including the
commencement of sales to a large customer of alternators for domestic vehicles,
and the number of SKUs that these customers offer in their stores. In addition,
the Company believes that the continued aging of the import vehicle fleet also
contributed to its increased sales. The expansion of the Company's product line
to include remanufactured alternators and starters for domestic vehicles
generated net sales of approximately $6,832,000 for fiscal 1997. The number of
all units shipped to all customers was approximately 1,379,000 units during
fiscal 1997 and approximately 1,093,000 units during fiscal 1996, representing
an increase of approximately 26.2%. The increase in net sales also reflects an
increase in the number of higher priced, later-model units.
Cost of goods sold for fiscal 1996 increased $18,290,000 or 35.9%,
from $50,965,000 to $69,255,000, over fiscal 1996. The increase is primarily
attributable to additional costs in connection with increased production. Cost
of goods sold as a percentage of net sales increased over the periods from 79.2%
to 79.7%. While the increase in cost of goods sold over the periods is minimal,
it can be primarily attributed to pricing pressures experienced by the Company
as offset by the continuing lowering of manufacturing costs by the Company.
Selling expenses for fiscal 1997 increased $321,000 or 16.2%, from
$1,984,000 to $2,305,000, over fiscal 1996. Selling expenses as a percentage of
net sales decreased to 2.7% for fiscal 1997 from 3.1% for fiscal 1996. This
decrease in selling expenses as a percentage of net sales represents the
continued leveraging of selling costs over the Company's increased net sales.
The increases in selling expenses in general are attributable to increased
payroll relating to the Company's sales department.
General and administrative expenses for fiscal 1997 increased
$397,000 or 8.7%, from $4,577,000 to $4,974,000, over fiscal 1996. As a
percentage of net sales these expenses decreased over the periods from 7.1% to
5.7%. This decrease represents the continued leveraging of these costs over the
Company's increased net sales. The increase over the periods was the result of
additional insurance costs, including as a result of an increase in directors
and officers liability coverage up to $15,000,000, general salary increases
(including giving effect to the 1996 federal minimum wage increase) and certain
non-income-based state and local taxes.
Interest expense net of interest income was $1,090,000 for fiscal
1997. This represents an increase of $257,000 or 30.9% over fiscal 1996.
Interest expense is comprised principally of interest paid on the Company's
revolving credit facility, the borrowings under which increased over the
periods. The balance of interest expense is from loans on the Company's capital
leases. Interest
-13-
<PAGE>
income of $218,000 for fiscal 1997 was derived from investments principally from
the Company's second public offering in November 1995.
Fiscal 1996 compared to Fiscal 1995
- -----------------------------------
Net sales for fiscal 1996 increased $25,123,000 or 64.0% from
$39,235,000 to $64,358,000. The increase in net sales is attributable to sales
to new customers, the general growth of business with existing customers and,
indirectly, to, the Company believes, the continued aging of the import vehicle
fleet. During fiscal 1996, the Company began shipping products to two
significant new customers. The number of units shipped to all customers was
approximately 1,093,000 during fiscal 1996 as compared with approximately
689,000 during fiscal 1995, representing an increase of approximately 55.9%.
Cost of goods sold over the periods increased $20,275,000 or 66.1%
from $30,690,000 to $50,965,000. The increases are attributable to additional
costs during the recent year in connection with increased production. As a
percentage of net sales these expenses increased to 79.2% for the recent fiscal
year from 78.2% for the prior fiscal year. This relatively small percentage
increase is primarily attributable to increased direct production costs, which
were partially offset by benefits the Company experienced from leveraging
indirect production costs over increased net sales. In February 1996, the
Company began experiencing pricing pressures on certain of its alternators and
starters, which may affect gross profit to a limited extent in the future. The
Company also anticipates lowering its manufacturing costs to help offset price
decreases in response to these pricing pressures.
Selling expenses over the periods increased $486,000 or 32.4% from
$1,498,000 to $1,984,000. This increase was the result of an increase of
approximately $433,000 in advertising and other allowances to customers during
fiscal 1996. The balance of the increase was primarily attributable to increased
salaries of the Company's sales force. Advertising allowances accounted for
57.5% of the Company's total selling expenses for fiscal 1996 as compared to
47.3% for fiscal 1995. Despite these increases, selling expenses as a percentage
of net sales decreased to 3.1% from 3.8% over the periods reflecting leveraging
of these expenses over increased net sales.
General and administrative expenses over the periods increased
$873,000 or 23.6% from $3,704,000 to $4,577,000. Approximately 69.2% of the
increase was due to costs incurred under the Company's new incentive bonus plan
which was implemented in September 1995. The additional increase is primarily
attributable to increased insurance coverage, computer expenses and professional
fees. As a percentage of net sales, general and administrative expenses
decreased from 9.4% to 7.1% over the periods reflecting leveraging of these
expenses over increased net sales.
Interest expense net of interest income of $219,000 for fiscal 1996
was $833,000, an increase of 54.3% from $540,000 in fiscal 1995. Interest
expense is comprised principally of interest on the Company's revolving credit
facility. The significantly increased interest expense over the prior year was
due to the Company's increased borrowing under this facility. Interest income is
derived from short-term investments principally from the Company's second public
offering in November 1995.
-14-
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's recent operations have been financed principally from
the net proceeds of the Company's second public offering in November 1995,
borrowings under its revolving credit facility and cash flow from operations. As
of March 31, 1997, the Company's working capital was $51,800,000, including
$3,539,000 of cash and cash equivalents.
Net cash used in operating activities during fiscal 1997, 1996 and
1995 was $5,978,000, $15,344,000 and $6,721,000, respectively. The principal use
of cash in fiscal 1997 related to an increase in inventory of $13,311,000 and an
increase in accounts receivable of $5,064,000 offset by an increase in accounts
payable and accrued expenses of $5,134,000. The increase in inventory was due in
large part to the addition of inventory in excess of $10,000,000 in connection
with the Company's entrance during fiscal 1997 into the business of
remanufacturing alternators and starters for domestic vehicles. The timing of
this inventory build-up was based in part upon the Company's belief that the
demand for its initial domestic alternator product will be highest in the
summer. The increase in accounts receivable was due primarily to the increased
net sales in fiscal 1997, although the days outstanding of the accounts
receivable remained constant over the periods. As of March 31, 1997, the current
portion of capitalized lease obligations was $743,000.
Net cash provided by investing activities during fiscal 1997 was
$6,770,000 as compared to net cash used in investing activities during fiscal
1996 and 1995 of $10,770,000 and $991,000, respectively. During fiscal 1997, the
Company used $8,855,000 of investments to fund its operations and purchased
$2,085,000 of property, plant and equipment. In fiscal 1996, short-term
investments of $10,113,000 were purchased with proceeds from the Company's 1996
public offering, which short-term investments provided the source of the cash
used during fiscal 1997.
Net cash provided by financing activities in fiscal 1997, 1996 and
1995 was $2,583,000, $25,667,000 and $4,525,000, respectively. The net cash
provided by financing activities in 1997 was primarily attributable to an
increase in the Company's revolving line of credit as offset primarily by
payments on a capital lease obligation. The increase in fiscal 1996 was
primarily attributable to the proceeds from the second public offering and, to a
lesser extent, an increase in the Company's revolving line of credit and the
exercise of warrants and options. Proceeds from the second public offering
totaled $19,501,000. The balance of cash provided by financing activities in
fiscal 1996 was from an increase in the Company's revolving line of credit. The
increase in fiscal 1995 was due primarily to an increase in the Company's
revolving line of credit. During fiscal 1997, the Company realized $356,000 from
the proceeds of exercised stock options and increased its borrowings under the
line of credit by $2,955,000.
The Company has a credit agreement expiring in 1998 with Wells Fargo
Bank, National Association (the "Bank") that provides for a revolving credit
facility in an aggregate principal amount not exceeding $25,000,000, which
credit facility is secured by a lien on substantially all of the assets of the
Company. The credit facility provides for an interest rate on borrowings at the
lower of the
-15-
<PAGE>
Bank's prime rate less .25% or LIBOR plus 1.65%. Under the terms of the credit
facility and included in the maximum amount thereunder, the Bank will issue
letters of credit and banker's acceptances for the account of the Company in an
aggregate amount not exceeding $2,500,000. At June 16, 1997, the outstanding
balance on the credit facility was approximately $23,878,000.
The Company's accounts receivable as of March 31, 1997 was
$22,328,000. This represents an increase of $5,064,000 or 29.3% over accounts
receivable on March 31, 1996. This is consistent with the 35.0% increase in net
sales in fiscal 1997 over fiscal 1996. In addition, there are times when the
Company extends payment terms with certain customers in order to help them
finance an increase in the number of SKUs carried by that customer and for other
purposes. The Company partially protects itself from losses due to uncollectible
accounts receivable through an insurance policy with an independent credit
insurance company at an annual premium of approximately $70,000. The Company's
policy generally has been to issue credit to new customers only after the
customers have been included under the coverage of its accounts receivable
insurance policy. As of March 31, 1997, the Company's accounts receivable from
its largest customer represented approximately 57% of all accounts receivable.
The Company's inventory as of March 31, 1997 was $41,862,000, which
represents an increase of $13,311,000 or 46.6% over inventory as of March 31,
1996. The increase includes the addition of approximately $10,800,000 of
inventory during the last half of fiscal 1997 for the Company's entrance into
the business of remanufacturing alternators and starters for domestic vehicles.
The increase generally reflects the Company's anticipated growth in net sales,
primarily in connection with respect to domestic vehicles, increased business
from existing customers and the need to have sufficient inventory to support
shorter lead times for deliveries to customers. Also, the Company continues to
increase the number of SKUs sold requiring the Company to carry raw materials
for this wider variety of parts.
Disclosure Regarding Private Securities Litigation Reform Act of 1995
- ---------------------------------------------------------------------
This report contains certain forward-looking statements with respect
to the future performance of the Company that involve risks and uncertainties.
Various factors could cause actual results to differ materially from those
projected in such statements. These factors include, but are not limited to, the
uncertainty of long-term results from the Company's recent entrance into the
business of remanufacturing alternators and starters for domestic vehicles,
concentration of sales to certain customers, the potential for changes in
consumer spending, consumer preferences and general economic conditions,
increased competition in the automotive parts remanufacturing industry,
unforeseen increases in operating costs and other factors discussed herein and
in the Company's other filings with the Securities and Exchange Commission.
-16-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
The information required by this item is set forth in the Financial
Statements, commencing on page F-1 included herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
------------------------------------
Not applicable.
-17-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
The information required by this item is incorporated by reference
herein in the "Election of Directors" section of the Company's Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
The information required by this item is incorporated by reference
herein in the "Executive Compensation" section of the Company's Proxy Statement
to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
- -------- -----------------------------
BENEFICIAL OWNERS AND MANAGEMENT.
---------------------------------
The information required by this item is incorporated by reference
herein in the "Security Ownership of Management" section of the Company's Proxy
Statement to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
The information required by this item is incorporated by reference
herein in the "Certain Transactions" section of the Company's Proxy Statement to
be filed pursuant to Regulation 14A.
-18-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
- -------- ----------------------------------------------------------------
a. Exhibits:
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
3.1 Certificate of Incorporation Incorporated by reference to
of the Company. Exhibit 3.1 to the Company's
Registration Statement on Form SB-2
(No. 33-74528) declared effective
on March 22, 1994 (the "1994
Registration Statement").
3.2 Amendment to Certificate of Incorporated by reference to
Incorporation of the Company. Exhibit 3.2 to the Company's
Registration Statement on Form S-1
(No. 33-97498) declared effective
on November 14, 1995 (the "1995
Registration Statement").
3.3 Amendment to Certificate of Filed herewith.
Incorporation of the Company.
3.4 By-Laws of the Company. Incorporated by reference to
Exhibit 3.2 to the 1994
Registration Statement.
4.1 Specimen Certificate of the Incorporated by reference to
Company's Common Stock. Exhibit 4.1 to the 1994
Registration Statement.
4.2 Form of Underwriter's Common Incorporated by reference to
Stock Purchase Warrant. Exhibit 4.2 to the 1994
Registration Statement.
4.3 1994 Stock Option Plan. Incorporated by reference to
Exhibit 4.3 to the 1994
Registration Statement.
-19-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
4.4 Form of Incentive Stock Option Incorporated by reference to
Agreement. Exhibit 4.4 to the 1994
Registration Statement.
4.5 1994 Non-Employee Director Incorporated by reference to
Stock Option Plan. Exhibit 4.5 to the Company's Annual
Report on Form 10- KSB for the
fiscal year ended March 31, 1995.
4.6 Executive and Key Employee Incorporated by reference to
Incentive Bonus Plan. Exhibit 4.6 to the 1995
Registration Statement.
10.1 Credit Agreement, dated as Incorporated by reference to
of June 1, 1996, by and Exhibit 10.4 to the Company's
between the Company and Quarterly Report on Form 10- Q for
Wells Fargo Bank, N.A. the quarter ended December 31, 1996
(the "December 31, 1996 Form 10-
Q").
10.2 First Amendment to Credit Filed herewith.
Agreement, dated as of
November 1, 1996, by and
between the Company and Wells
Fargo Bank, N.A.
10.3 Revolving Line of Credit Note, Incorporated by reference to
dated as of November 1, 1996, Exhibit 10.5 to the December 31,
by and between the Company and 1996 Form 10-Q.
Wells Fargo Bank, N.A.
10.4 Lease Agreement, dated March 9, Incorporated by reference to
1993, by and between the Company Exhibit 10.3 to the 1994
and Maricopa Enterprises, Ltd., Registration Statement.
relating to the Company's initial
facility located in Torrance,
California.
-20-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.5 Second Amendment to Lease, Filed herewith.
dated October 1, 1996, by and
between the Company and Maricopa
Enterprises, Ltd., relating
to the Company's initial facility
located in Torrance, California.
10.6 Amendment to Lease, dated Incorporated by reference to
October 3, 1996, by and between Exhibit 10.17 to the December 31,
the Company and Golkar 1996 Form 10-Q.
Enterprises, Ltd. relating to
additional property in Torrance,
California.
10.7 Amended and Restated Employment Incorporated by reference to
Agreement, dated as of September Exhibit 10.7 to the 1995
1, 1995, by and between the Registration Statement.
Company and Mel Marks.
10.8 First Amendment to Amended and Filed herewith.
Restated Employment Agreement,
dated as of April 1, 1997, by
and between the Company and Mel
Marks.
10.9 Amended and Restated Employment Incorporated by reference to
Agreement, dated as of September Exhibit 10.8 to the 1995
1, 1995, by and between the Registration Statement.
Company and Richard Marks.
10.10 First Amendment to Amended Filed herewith.
and Restated Employment
Agreement, dated as of April
1, 1997, by and between the
Company and Richard Marks.
10.11 Employment Agreement, dated Incorporated by reference to
as of February 1, 1994, by and Exhibit 10.7 to the 1994
between the Company and Registration Statement.
Steven Kratz.
-21-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.12 First Amendment to Employment Exhibit 10.12 to the 1995
Agreement, dated as of Registration Statement.
September 1, 1995, by and
between the Company and
Steven Kratz.
10.13 Second Amendment to Employment Filed herewith.
Agreement, dated as of
April 1, 1997, by and between
the Company and Steven Kratz.
10.14 Employment Agreement, dated Incorporated by reference to
as of March 1, 1994, by and Exhibit 10.12 to the 1994
between the Company and Peter Registration Statement.
Bromberg.
10.15 First Amendment to Employment Incorporated by reference to
Agreement, dated as of September Exhibit 10.12 to the 1995
1, 1995, by and between the Registration Statement.
Company and Peter Bromberg.
10.16 Second Amendment to Employment Filed herewith.
Agreement, dated as of April
1, 1997, by and between the
Company and Peter Bromberg.
10.17 Employment Agreement, dated as Incorporated by reference to
of September 1, 1995, by and Exhibit 10.13 to the 1995
between the Company and Eli Registration Statement.
Markowitz.
10.18 Employment Agreement, dated as Filed herewith.
of April 1, 1997, by and among
MVR, Unijoh and Vincent Quek.
10.19 Form of Consulting Agreement, Incorporated by reference to
dated as of September 1, 1995, Exhibit 10.14 to the 1995
by and between the Company and Registration Statement.
Selwyn Joffe.
-22-
<PAGE>
Number Description of Exhibit Method of Filing
- ------ ---------------------- ----------------
10.20 Lease Agreement, dated March Incorporated by reference to
28, 1995, by and between the Exhibit 10.11 to the Company's
Company and Equitable Life Annual Report on Form 10-KSB for
Assurance Society of the the fiscal year ended March 31,
United States, relating to 1995.
the Company's facility located
in Nashville, Tennessee.
10.21 Lease Agreement, dated Incorporated by reference to
September 19, 1995, by and Exhibit 10.18 to the 1995
between Golkar Enterprises, Registration Statement.
Ltd. and the Company relating
to the Company's facility
located in Nashville, Tennessee.
10.22 Agreement and Plan of Filed herewith.
Reorganization, dated as of
April 1, 1997, by and among
the Company, Mel Marks, Richard
Marks and Vincent Quek relating
to the acquisition of MVR
and Unijoh.
22.1 List of Subsidiaries. Filed herewith.
23.1 Consent of Richard A. Eisner Filed herewith.
& Company, LLP.
27.1 Financial Data Schedule. Filed herewith.
b. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Company during the fiscal
quarter ended March 31, 1997.
-23-
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
- I N D E X -
PAGE
NUMBER
REPORT OF INDEPENDENT AUDITORS F-2
BALANCE SHEETS AS AT MARCH 31, 1997
AND MARCH 31, 1996 F-3
STATEMENTS OF INCOME FOR EACH OF
THE YEARS IN THE THREE-YEAR PERIOD
ENDED MARCH 31, 1997 F-4
STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY FOR EACH OF THE YEARS IN THE
THREE-YEAR PERIOD ENDED MARCH 31, 1997 F-5
STATEMENTS OF CASH FLOWS FOR EACH OF
THE YEARS IN THE THREE-YEAR PERIOD
ENDED MARCH 31, 1997 F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Motorcar Parts & Accessories, Inc.
Torrance, California
We have audited the accompanying balance sheets of Motorcar Parts &
Accessories, Inc. as at March 31, 1997 and March 31, 1996 and the related
statements of income, changes in shareholders' equity and cash flows for each of
the three years in the period ended March 31, 1997. 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 enumerated above present
fairly, in all material respects, the financial position of Motorcar Parts &
Accessories, Inc. at March 31, 1997 and March 31, 1996 and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1997, in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
May 16, 1997
F-2
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
BALANCE SHEETS
A S S E T S March 31,
----------- -------------------------
(Note F) 1997 1996
----------- -----------
Current assets:
Cash and cash equivalents (Note A[1]) . . $ 3,539,000 $ 164,000
Short-term investments (Notes A[2] and B) 8,336,000
Accounts receivable - net of allowance
for doubtful accounts of $200,000 and
$100,000, respectively (Note J) . . . . 22,328,000 17,264,000
Inventory (Notes A[3] and C) . . . . . . . 41,862,000 28,551,000
Prepaid expenses and other current assets 593,000 637,000
Deferred income tax asset
(Notes A[4] and K) . . . . . . . . . . . 142,000 226,000
----------- -----------
Total current assets . . . . . . . 68,464,000 55,178,000
Long-term investments (Notes A[2] and B) . . 1,874,000 2,393,000
Plant and equipment - net (Notes A[7] and D) 4,291,000 2,469,000
Other assets . . . . . . . . . . . . . . . . 881,000 149,000
----------- -----------
T O T A L . . . . . . . . . . . . . $75,510,000 $60,189,000
=========== ===========
L I A B I L I T I E S
---------------------
Current liabilities:
Current portion of capital lease
obligations (Note E) . . . . . . . . . . $ 743,000 $ 554,000
Accounts payable and accrued expenses . . 13,777,000 8,855,000
Income taxes payable (Notes A[6] and K) . 2,005,000 1,331,000
Due to affiliate (Note G) . . . . . . . . 139,000 184,000
----------- -----------
Total current liabilities . . . . . 16,664,000 10,924,000
Long-term debt (Note F) . . . . . . . . . . . 17,496,000 14,541,000
Capitalized lease obligations - less current
portion (Note E) . . . . . . . . . . . . . 343,000 594,000
Other liabilities . . . . . . . . . . . . . . 570,000
Deferred income tax liability
(Notes A[6] and K) . . . . . . . . . . . . 329,000 99,000
----------- -----------
T o t a l . . . . . . . . . . . . . 35,402,000 26,158,000
----------- -----------
Commitments and other matters (Notes H, I and J)
SHAREHOLDERS' EQUITY
--------------------
(Note L)
Preferred stock; par value $.01 per share,
5,000,000 shares authorized; none issued
Common stock; par value $.01 per share,
20,000,000 shares authorized; 4,867,500
and 4,819,750 shares issued and
outstanding . . . . . . . . . . . . . . . 49,000 48,000
Additional paid-in capital . . . . . . . . . 28,973,000 28,431,000
Retained earnings . . . . . . . . . . . . . . 11,086,000 5,552,000
----------- -----------
Total shareholders' equity . . . . 40,108,000 34,031,000
----------- -----------
T O T A L . . . . . . . . . . . . . $75,510,000 $60,189,000
=========== ===========
The accompanying notes to financial
statements are an integral part hereof.
F-3
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
STATEMENTS OF INCOME
Year Ended March 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Income:
Net sales (Note A[6]) . . . $86,872,000 $64,358,000 $39,235,000
----------- ----------- -----------
Operating expenses:
Cost of goods sold . . . . 69,255,000 50,965,000 30,690,000
Research and development . 185,000
Selling expenses . . . . . 2,305,000 1,984,000 1,498,000
General and administrative
expenses . . . . . . . . 4,974,000 4,577,000 3,704,000
----------- ----------- -----------
Total operating
expenses . . . . . 76,719,000 57,526,000 35,892,000
----------- ----------- -----------
Operating income . . . . . . . 10,153,000 6,832,000 3,343,000
Interest expense (net of
interest income of $218,000,
$219,000 and $73,000 for
1997, 1996 and 1995,
respectively) . . . . . . . 1,090,000 833,000 540,000
----------- ----------- -----------
Income before income taxes . . 9,063,000 5,999,000 2,803,000
Provision for income taxes
(Notes A[4] and K) . . . . 3,529,000 2,353,000 1,197,000
----------- ----------- -----------
NET INCOME . . . . . . . . . . $ 5,534,000 $ 3,646,000 $ 1,606,000
=========== =========== ===========
Weighted average common shares
outstanding (Note A[7]) . . 5,007,000 3,939,000 3,295,000
=========== =========== ===========
Net income per common share . $ 1.11 $ .93 $ .49
=========== =========== ===========
The accompanying notes to financial
statements are an integral part hereof.
F-4
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Note L)
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional
Number of Paid-in Retained
Shares Amount Capital Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - March 31, 1994 ....................... 3,207,500 $ 32,000 $ 8,078,000 $ 300,000 $ 8,410,000
Net income ...................................... 1,606,000 1,606,000
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1995 ....................... 3,207,500 32,000 8,078,000 1,906,000 10,016,000
Proceeds from exercise of warrants
and options .................................. 112,250 1,000 867,000 868,000
Proceeds from public offering (net
of costs of $1,874,000) ..................... 1,500,000 15,000 19,486,000 19,501,000
Net income ...................................... 3,646,000 3,646,000
----------- ----------- ----------- ----------- -----------
Balance - March 31, 1996 ....................... 4,819,750 48,000 28,431,000 5,552,000 34,031,000
Proceeds from exercise of options ............... 47,750 1,000 355,000 356,000
Tax benefit from exercise of options ............ 187,000 187,000
Net income ...................................... 5,534,000 5,534,000
----------- ----------- ----------- ----------- -----------
BALANCE - MARCH 31, 1997 ....................... 4,867,500 $ 49,000 $28,973,000 $11,086,000 $40,108,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial
statements are an integral part hereof.
F-5
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 5,534,000 $ 3,646,000 $ 1,606,000
Adjustments to reconcile net income to net cash (used in) operating
activities:
Depreciation and amortization .................................... 717,000 429,000 306,000
(Increase) decrease in:
Accounts receivable ............................................ (5,064,000) (6,589,000) (6,409,000)
Inventory ...................................................... (13,311,000) (16,434,000) (4,886,000)
Prepaid expenses and other current assets ...................... 44,000 (300,000) (115,000)
Other assets ................................................... (732,000) (50,000) 29,000
Deferred income taxes .......................................... 314,000 (82,000) 20,000
Increase (decrease) in:
Accounts payable and accrued expenses .......................... 5,134,000 3,094,000 2,486,000
Income taxes payable ........................................... 861,000 785,000 290,000
Due to affiliate ............................................... (45,000) 157,000 (48,000)
Other liabilities .............................................. 570,000
------------ ------------ ------------
Net cash (used in) operating activities ...................... (5,978,000) (15,344,000) (6,721,000)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment ............................ (2,085,000) (657,000) (375,000)
Change in investments ................................................ 8,855,000 (10,113,000) (616,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities .......... 6,770,000 (10,770,000) (991,000)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in line of credit ....................................... 2,955,000 5,552,000 4,683,000
Payments on capital lease obligation ................................. (728,000) (254,000) (158,000)
Proceeds from public offerings ....................................... 19,501,000
Proceeds from exercise of warrants and options ....................... 356,000 868,000
------------ ------------ ------------
Net cash provided by financing activities .................... 2,583,000 25,667,000 4,525,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... 3,375,000 (447,000) (3,187,000)
Cash and cash equivalents - beginning of year ........................... 164,000 611,000 3,798,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR ................................. $ 3,539,000 $ 164,000 $ 611,000
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest ........................................................... $ 1,262,000 $ 1,035,000 $ 572,000
Income taxes ....................................................... 2,354,000 1,590,000 862,000
Noncash investing and financing activities:
Property acquired under capital lease .............................. 454,000 707,000 93,000
Property acquired included in accounts payable and accrued expenses
at March 31, 1996 and financed through a capitalizable lease
during fiscal 1997 ............................................... 212,000 212,000
</TABLE>
The accompanying notes to financial
statements are an integral part hereof.
F-6
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
Motorcar Parts & Accessories, Inc. (the "Company"), remanufactures
and distributes alternators and starters and assembles and distributes spark
plug wire sets for the automotive after-market industry (replacement parts sold
for use on vehicles after initial purchase). These automotive parts are sold to
automotive retail chains and warehouse distributors throughout the United
States.
[1] Cash equivalents:
The Company considers all highly liquid short-term investments
purchased with a maturity of three months or less to be cash equivalents.
[2] Investments:
The Company's marketable securities are classified as available for
sale and reported at fair value which approximates amortized cost. Any
unrealized gains or losses are classified as a separate component of
shareholders' equity.
[3] Inventory:
Inventory is stated at the lower of cost or market; cost being
determined by the average cost method.
[4] Income taxes:
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes" which requires the use of the liability method of accounting for income
taxes. The liability method measures deferred income taxes by applying enacted
statutory rates in effect at the balance sheet date to the differences between
the tax bases of assets and liabilities and their reported amounts in the
financial statements. The resulting asset or liability is adjusted to reflect
changes in the tax laws as they occur.
[5] Depreciation and amortization:
Property and equipment are depreciated on the straight-line method
over their estimated useful lives. Leasehold improvements are amortized by the
straight-line method over the shorter of their estimated useful life or the term
of the lease.
(continued)
F-7
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
- ---------------------------------------------------------------
(continued)
[6] Revenue recognition:
The Company recognizes sales when products are shipped. The Company
obtains used alternator and starter units, commonly known as cores, from its
customers as trade-ins and by purchasing them from vendors. Cores are an
essential material needed for remanufacturing operations. During the year ended
March 31, 1997, the Company implemented a new accounting presentation with
respect to its reporting of sales. In the past, net sales were reduced by the
core inventory value to reflect deductions for cores returned for credit from
customers ("core trade- ins") and by the value of the credits issued in excess
of core inventory value ("product trade-ins"). Cost of goods sold was reduced
for core trade-ins only. As reclassified, net sales are reduced by product
trade-ins and other deductions and allowances only and core trade-ins are
included in cost of goods sold. Net sales and cost of goods sold for the years
ended March 31, 1996 and March 31, 1995 were reclassified to reflect this
change.
Trade-ins are recorded upon receipt of cores from customers. Credits
for core and product trade-ins are allowed only against future purchases of
similar remanufactured products and are generally used by the customer within
sixty days of issuance. Due to this unique trade-in policy, the Company does not
provide a reserve for trade-ins. In addition, since it is remote that a customer
will not utilize its trade-in credits, the credit is recorded when the core is
returned as opposed to when the customer purchases new products. This policy is
consistent throughout the remanufacturing and rebuilding industry.
The effect of this policy is as follows:
March 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
Sales. . . . . . . . . . $ 97,677,000 $ 73,826,000 $ 45,272,000
Product trade-ins. . . . (10,805,000) (9,468,000) (6,037,000)
------------- ------------- -------------
Net sales. . . . . . . . 86,872,000 64,358,000 39,235,000
Core trade-ins . . . . . (29,179,000) (19,445,000) (10,978,000)
------------- ------------- -------------
Net sales as previously
classified. . . . . . $ 57,693,000 $ 44,913,000 $ 28,257,000
============= ============= ============
Cost of goods sold . . . $ 69,255,000 $ 50,965,000 $ 30,690,000
Core trade-ins . . . . . (29,179,000) (19,445,000) (10,978,000)
------------- ------------- -------------
Cost of goods sold as
previously classified $ 40,076,000 $ 31,520,000 $ 19,712,000
============= ============= ============
(continued)
F-8
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[7] Earnings per share:
Earnings per share is computed using the weighted average number of
shares outstanding during each year, which include the incremental effect of
common stock equivalents consisting of stock options.
[8] Use of estimates:
The preparation of financial statements in conformity 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.
[9] Impairment of long-lived assets:
The Company adopted Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" during the year. SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable assets, and goodwill related to those assets. There was no effect
of adoption of SFAS 121 on the financial statements.
[10] Financial instruments:
The carrying amounts of accounts receivable, accounts payable,
accrued expenses, capitalized lease obligations and long-term debt approximate
their fair value.
Estimated fair value of these financial instruments, some of which
are for short durations, has been determined using available market information.
In evaluating the fair value information, considerable judgment is required to
interpret the market data used to develop the estimates. The use of different
market assumptions and/or different valuation techniques may have a material
effect on the estimated fair value amounts. Accordingly, the estimates of fair
value presented herein may not be indicative of the amounts that could be
realized in a current market exchange.
(continued)
F-9
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and its Significant Accounting Policies:
(continued)
[11] Stock-based compensation:
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting
for Stock-Based Compensation". SFAS 123 encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for its
stock-based compensation plans using the intrinsic value method prescribed by
Accounting Principles Board Opinion No. 25 ("APB No. 25"), Accounting for Stock
Issued to Employees" and disclose the pro forma effects on net income and
earnings per share had the fair value of options been expensed. Under the
provisions of APB No. 25, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's common stock at the
date of the grant over the amount an employee must pay to acquire the stock.
(See Note L[2]).
[12] Recently issued accounting pronouncements:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share". This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statement of income and requires
reconciliation of the numerators and the denominators of the basic and diluted
EPS calculations. This statement will be effective for the third quarter of the
Company's 1998 fiscal year. The Company has not yet quantified what effect the
adoption of SFAS 128 will have on its earnings per share of common stock.
(NOTE B) - Investments:
The estimated fair value of available for sale investments at March
31 is as follows:
1997 1996
----------- -----------
U.S. Treasury bills due in
one year or less . . . . . . $ - 0 - $ 2,272,000
Municipal bonds due in one
year or less . . . . . . . . - 0 - 4,492,000
U.S. Treasury notes due in
one year or less . . . . . . - 0 - 1,572,000
----------- -----------
- 0 - 8,336,000
Mortgage-backed securities and
municipal bonds due after
one year . . . . . . . . . . 1,874,000 2,393,000
----------- -----------
T o t a l . . . . . . $ 1,874,000 $10,729,000
=========== ===========
(continued)
F-10
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Investments: (continued)
The estimated fair value of each investment approximates the
amortized cost and, therefore, there are no unrealized gains or losses as of
March 31, 1997.
(NOTE C) - Inventory:
Inventory is comprised of the following:
March 31,
-------------------------
1997 1996
------------ -----------
Raw materials. . . . . . . . . $24,046,000 $17,568,000
Work-in-process. . . . . . . . 4,270,000 3,466,000
Finished goods . . . . . . . . 13,546,000 7,517,000
------------ -----------
T o t a l. . . . . . $41,862,000 $28,551,000
============ ===========
(NOTE D) - Plant and Equipment:
Plant and equipment, at cost, are summarized as follows:
March 31,
-------------------------
1997 1996
------------ -----------
Machinery and equipment. . . . $ 4,362,000 $ 2,311,000
Office equipment and fixtures. 1,272,000 891,000
Leasehold improvements . . . . 472,000 365,000
------------ -----------
6,106,000 3,567,000
Less accumulated depreciation
and amortization (including
assets held under capital
lease). . . . . . . . . . . (1,815,000) (1,098,000)
------------ ------------
T o t a l. . . . . . $ 4,291,000 $ 2,469,000
============ ============
(NOTE E) - Obligations Under Capital Leases:
The Company has various capital leases for machinery and computer
equipment. Assets aggregating approximately $2,338,000 have been capitalized.
(continued)
F-11
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE E) - Obligations Under Capital Leases: (continued)
Future minimum lease payments at March 31, 1997 for the capitalized
leases are as follows:
1998......................................... $ 829,000
1999......................................... 306,000
2000......................................... 61,000
----------
1,196,000
Amount representing imputed interest . 110,000
Present value of future minimum
lease payments............................ 1,086,000
Less current maturities...................... 743,000
Long-term obligation at March 31, 1997....... $ 343,000
==========
(NOTE F) - Long-Term Debt:
In November 1996, the Company amended its revolving line of credit
agreement. The agreement provides for a credit facility in an aggregate
principal amount not exceeding $25,000,000 and is collateralized by a lien on
substantially all of the assets of the Company. The agreement expires on June 1,
1998 and provides for interest on borrowings at a fluctuating rate per annum
.25% below the bank's prime rate or at a fixed rate at 1.65% above LIBOR. The
agreement allows the Company to obtain from the bank letters of credit, and
banker's acceptances in an aggregate amount not exceeding $2,500,000 and
requires the Company to maintain certain financial ratios. As of March 31, 1997
balances due under this agreement amounted to $17,496,000.
The Company previously had a $15,000,000 revolving line of credit
agreement with the same bank. Balances due under this agreement amounted to
$14,541,000 as of March 31, 1996.
(continued)
F-12
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE G) - Related Parties:
- ---------------------------
The Company conducts business with MVR Products Co. PTE, Ltd.
("MVR"). MVR operates a shipping warehouse which conducts business with Unijoh
Sdn, Bhd ("Unijoh"). Unijoh operates a remanufacturing facility similar to the
Company. MVR's warehouse is located in Singapore and Unijoh's factory is located
in Malaysia. Two shareholders/officers/directors of the Company own 70% of both
MVR and Unijoh, with the remaining 30% owned by an unrelated third party. All of
the cores processed by Unijoh are produced for the Company on a contract
remanufacturing basis. The cores and other raw materials used in production by
Unijoh are supplied by the Company and are included in the Company's inventory.
Inventory owned by the Company and held by MVR and Unijoh was $762,000 and
$920,000 as at March 31, 1997 and March 31, 1996, respectively. The Company
incurred costs of approximately $1,574,000, $1,432,000 and $1,349,000 from the
affiliates for the years ended March 31, 1997, March 31, 1996 and March 31,
1995, respectively. The amount due to affiliate as at March 31, 1997 and March
31, 1996 was due to MVR.
In April 1997, MVR and Unijoh became wholly owned subsidiaries of
the Company in a stock-for-stock merger which will be accounted for in a manner
similar to a pooling of interests. Under the terms of the merger agreement, the
Company issued 145,455 shares of common stock. The financial statements prior to
the date of combination have not been restated as the effect is not material to
the Company's financial condition and results of operations. The combined assets
and combined liabilities of MVR and Unijoh aggregated approximately $632,000 and
$398,000, respectively, at the date of combination.
(NOTE H) - Employment Agreement and Bonus Plan:
- -----------------------------------------------
The Company has employment agreements with six officers, expiring
from September 1, 1997 through September 1, 2000, which provide for annual base
salaries aggregating $1,295,000. In addition, four of the officers were granted
options pursuant to the Company's Stock Option Plan (Note L[2]) for the purchase
of 317,500 shares of common stock (92,500, 90,000 and 135,000 granted in fiscal
years 1997, 1996 and 1995, respectively). Of these options, 25,000 and 10,000
were exercised during the years ended March 31, 1997 and March 31, 1996,
respectively.
The Company has established a bonus plan for the benefit of
executives and certain key employees. The bonus is calculated as a percentage of
the base salary ranging from 18% to 50%. The bonus percentage varies according
to the percentage increase in earnings before income taxes and other
predetermined parameters.
(continued)
F-13
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Commitments:
- -----------------------
The Company leases offices and warehouse facilities in New York,
California and Tennessee under operating leases expiring through 2002. The
aggregate rentals under these leases and leases which have been terminated was
$819,000, $609,000 and $435,000 for the years ended March 31, 1997, March 31,
1996 and March 31, 1995, respectively. Certain leases contain escalation clauses
for real estate taxes and operating expenses.
The Company also leases office equipment and machinery under
noncancellable operating leases having remaining terms in excess of one year.
At March 31, 1997, the future minimum rental payments under the
above operating leases are as follows:
Real
Total Estate Machinery
1998. . . . . . . . . $1,493,000 $1,366,000 $127,000
1999. . . . . . . . . 1,401,000 1,319,000 82,000
2000. . . . . . . . . 1,334,000 1,301,000 33,000
2001. . . . . . . . . 1,353,000 1,348,000 5,000
2002. . . . . . . . . 1,348,000 1,348,000
----------- ---------- --------
T o t a l . $6,929,000 $6,682,000 $247,000
=========== =========== ========
(NOTE J) - Major Customers and Credit Concentration:
- ----------------------------------------------------
The Company partially protects itself from losses due to
uncollectible accounts receivable through the purchase of credit insurance.
Accounts receivable balances not covered by credit insurance are primarily due
from leading automotive parts retailers.
The Company's four largest customers accounted for the following
percentage of net sales:
Year Ended
March 31,
----------------
Customer 1997 1996 1995
-------- ---- ---- ----
A. . . . . . . . . . . . 18% 21% 27%
B. . . . . . . . . . . . 18 11 14
C. . . . . . . . . . . . 29 20 12
D. . . . . . . . . . . . 8 18
(continued)
F-14
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Major Customers and Credit Concentration: (continued)
- ----------------------------------------------------
Customer A accounted for approximately 13%, 25% and 50% of the
accounts receivable at March 31, 1997, March 31, 1996 and March 31, 1995. In
addition, Customer C accounted for approximately 57% and 35% of the accounts
receivable at March 31, 1997 and March 31, 1996.
(NOTE K) - Income Taxes:
- ------------------------
The provision for income taxes consists of the following:
Year Ended March 31,
--------------------
1997 1996 1995
---- ---- ----
Current:
Federal. . . . . . . $2,750,000 $1,913,000 $ 900,000
State. . . . . . . . 465,000 522,000 277,000
Deferred . . . . . . 314,000 (82,000) 20,000
----------- ----------- ----------
T o t a l . . $ 3,529,000 $ 2,353,000 $ 1,197,000
=========== =========== ===========
The difference between the tax provision and the amount that would
be computed by applying the statutory federal income tax rate to income before
taxes is attributable to the following:
Year Ended March 31,
--------------------
1997 1996 1995
---- ---- ----
Income tax provision
at 34% . . . . . . . $ 3,081,000 $ 2,040,000 $ 953,000
State and local taxes,
net of federal
benefit. . . . . . . 307,000 345,000 183,000
Permanent differences . (20,000) 18,000 11,000
Other . . . . . . . . . 161,000 (50,000) 50,000
----------- ----------- -----------
T o t a l . . $ 3,529,000 $ 2,353,000 $ 1,197,000
=========== =========== ===========
Deferred income tax asset of $142,000 and $226,000 at March 31, 1997
and March 31, 1996, respectively, is comprised of temporary differences in tax
and financial reporting resulting primarily from capitalization of certain
inventory costs for tax purposes. Deferred tax liability of $329,000 and $99,000
at March 31, 1997 and March 31, 1996, respectively, is comprised of differences
resulting from using accelerated depreciation rates for tax purposes.
(continued)
F-15
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Shareholders' Equity:
- --------------------------------
[1] Capital Stock:
--------------
In November 1995, the Company effected a public offering of its
securities. The Company issued 1,500,000 shares for $14.25 a share, yielding net
proceeds of approximately $19,501,000 after underwriting commissions and
expenses totalling approximately $1,874,000. Also, two principal shareholders
sold an aggregate of 344,500 shares in connection with this offering.
[2] Stock option plan:
------------------
In December 1993, the shareholders approved a Stock Option Plan (the
"Plan") which was amended in October 1996 to provide for the granting of options
to purchase 720,000 common shares to employees and directors. Options granted
may be either "incentive stock options" within the meaning of Section 422A of
the Internal Revenue Code or nonqualified options. The Plan is administered by
the Board of Directors, which determines the terms of options exercised,
including the exercise price, the number of shares subject to the option and the
terms and conditions of exercise.
In August of 1995, the shareholders approved a Nonemployee Director
Stock Option Plan (the "Directors Plan") which provides for the granting of
options to purchase 15,000 common shares to directors. The Directors Plan is
administered by the Board of Directors.
The following table summarizes the activity under these Plans:
<TABLE>
<CAPTION>
Y e a r E n d e d M a r c h 3 1,
-----------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at beginning
of year ....................... 335,000 $ 9.23 250,000 $ 7.40 85,000 $ 6.00
Granted .......................... 381,500 12.98 109,000 12.96 165,000 8.13
Exercised ........................ (47,750) 7.46 (23,000) 7.19
Cancelled ........................ (180,250) 14.69 (1,000) 8.13
--------- --------- ---------
Options outstanding at end of year 488,500 10.31 335,000 9.23 250,000 7.40
========= ========= =========
Options exercisable at end of
year .......................... 290,417 9.34 278,000 8.83 173,000 7.47
========= ========= =========
</TABLE>
(continued)
F-16
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Shareholders' Equity: (continued)
- --------------------------------
[2] Stock option plan: (continued)
------------------
The following table presents information relating to stock options
outstanding at March 31, 1997:
Options Outstanding Options Exercisable
---------------------------- -------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Range of Exercise Life in Exercise
Exercise Price Shares Price Years Shares Price
-------------- ------ ----- ----- ------ -----
$ 6.00 - $ 8.125 178,000 $ 7.41 7.06 178,000 $ 7.41
$ 9.00 - $10.625 184,500 10.59 8.72 61,250 10.51
$11.875 - $12.250 51,500 12.31 9.13 15,000 13.13
$14.69 - $17.313 74,500 15.20 9.68 36,167 15.26
--------- ---------
T o t a l. . 488,500 10.31 8.30 290,417 9.34
========= =========
As of March 31, 1997, 165,000 options are available for
future grant under the Plan and 10,500 options are available for future grant
under the Directors Plan.
The weighted-average fair value at date of grant for options
granted during the year ended March 31, 1997 and March 31, 1996 was $5.50 and
$5.63 per option, respectively. The fair value of options at date of grant was
estimated using the Black-Scholes option pricing model utilizing the following
assumptions:
March 31,
-----------------------
1997 1996
---------- ----------
Risk-free interest rates. . . . . 5.8% - 6.5% 6.1% - 6.9%
Expected option life in years . . 5 5
Expected stock price volatility . 36% 38%
Expected dividend yield . . . . . 0% 0%
Had the Company elected to recognize compensation cost based on the
fair value of the options at the date of grant as prescribed by SFAS 123, net
income for the years ended March 31, 1997 and March 31, 1996 would have been
$5,180,000 and $3,425,000 or $1.03 per share and $.87 per share, respectively.
(continued)
F-17
<PAGE>
MOTORCAR PARTS & ACCESSORIES, INC.
NOTES TO FINANCIAL STATEMENTS
(NOTE L) - Shareholders' Equity: (continued)
- ---------------------------------
[3] Warrants:
---------
In connection with the Company's initial public offering the
Company issued to the underwriter 105,000 warrants to purchase common stock at
an exercise price of $7.20. In connection with a public offering in November
1995, 90,000 warrants were exercised.
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: June 26, 1997
MOTORCAR PARTS & ACCESSORIES, INC.
By: /s/ Mel Marks
-------------------------------
Mel Marks,
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Mel Marks Chairman of the Board, June 26, 1997
- ------------------------ Chief Executive Officer
Mel Marks and Director (principal
executive officer)
/s/ Richard Marks President, Chief June 26, 1997
- ------------------------ Operating Officer and
Richard Marks Director
/s/ Murray Rosenzweig Director June 26, 1997
- ------------------------
Murray Rosenzweig
/s/ Mel Moskowitz Director June 26, 1997
- ------------------------
Mel Moskowitz
Director June 26, 1997
- ------------------------
Selwyn Joffe
/s/ Peter Bromberg Chief Financial Officer June 26, 1997
- ------------------------ (principal financial officer
Peter Bromberg and principal accounting officer)
-24-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page Number
- ------ ----------- -----------
3.3 Amendment to Certificate of Incorporation of the Company
10.2 First Amendment to Credit Agreement, dated as of November 1,
1996, by and between the Company and Wells Fargo Bank, N.A.
10.5 Second Amendment to Lease, dated October 1, 1996, by and
between the Company and Maricopa Enterprises, Ltd., relating
to the Company's initial facility located in Torrance,
California
10.8 First Amendment to Amended and Restated Employment Agreement,
dated as of April 1, 1997, by and between the Company and Mel
Marks
10.10 First Amendment to Amended and Restated Employment Agreement,
dated as of April 1, 1997, by and between the Company and
Richard Marks
10.13 Second Amendment to Employment Agreement, dated as of April 1,
1997, by and between the Company and Steven Kratz
10.16 Second Amendment to Employment Agreement, dated as of April 1,
1997, by and between the Company and Peter Bromberg
10.18 Employment Agreement, dated as of April 1, 1997, by and among
MVR, Unijoh and Vincent Quek.
10.22 Agreement and Plan of Reorganization, dated as of April 1,
1997, by and among the Company, Mel Marks, Richard Marks and
Vincent Quek relating to the acquisition of MVR and Unijoh
21.1 List of Subsidiaries
23.1 Consent of Richard A. Eisner & Company, LLP
27.1 Financial Data Schedule
-25-
<PAGE>
COMMISSION FILE NO. 0-23538
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
MOTORCAR PARTS & ACCESSORIES, INC.
CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION
OF
MOTORCAR PARTS & ACCESSORIES, INC.
Under Section 805 of the Business Corporation Law
It is hereby certified that:
FIRST: The name of the Corporation is MOTORCAR PARTS & ACCESSORIES,
INC. The name under which the Corporation was formed was MOTORCAR PARTS
ASSOCIATES, INC.
SECOND: The Certificate of Incorporation of the Corporation was
filed by the Department of State of the State of New York on the 2nd day of
April, 1968.
THIRD: The Amendment to the Certificate of Incorporation, as
heretofore amended and restated, effected by this Certificate of Amendment is as
follows:
(a) to increase the aggregate number of shares which the Corporation
shall have authority to issue by authorizing 10,000,000 additional shares of ii
Common Stock, with a par value of $.01 per share, and of the same class of
Common Stock as the presently authorized shares.
FOURTH: To accomplish the foregoing amendment, Article FOURTH of the
Certificate of Incorporation relating to the aggregate number of shares which
the Corporation is authorized to issue, is hereby amended to read as follows:
"FOURTH: The aggregate number of shares which the Corporation is
authorized to issue is 25,000,000 shares, consisting of 20,000,000 shares of
Common Stock of the par value of $.01 per share and 5,000,000 shares of
Preferred Stock of the par value of $.01 per share.
<PAGE>
The relative rights, preferences and limitations of the shares of
each class of capital stock are as follows:
(a) Common Stock.
(1) Subject to the rights of any other class or series of stock,
the holders of shares of Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of the assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
(2) Subject to such rights of any other class or series of
securities as may be granted from time to time, the holders of shares of Common
Stock shall be entitled to receive all the assets of the Corporation available
for distribution to shareholders in the event of the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, ratably, in
proportion to the number of shares of Common Stock held by them. Neither the
merger or consolidation of the Corporation into or with any other corporation
nor the merger or consolidation of any other corporation into or with the
Corporation nor the sale, lease, exchange or other disposition (for cash, shares
of stock, securities or other consideration) of all or substantially all the
assets of the Corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, of the Corporation.
(3) Common Stock shall not be subject to redemption.
(4) Subject to such voting rights of any other class or series of
securities as may be granted from time to time pursuant to this Certificate of
Incorporation, any amendment thereto, or the provisions of the laws of the State
of New York governing business corporations,
-2-
<PAGE>
voting rights shall be vested exclusively in the holders of Common Stock. Each
holder of Common Stock shall have one vote in respect of each share of such
stock held.
(b) Preferred Stock. The Board of Directors of the Corporation is
authorized, subject to limitations prescribed by law and the provisions of this
Certificate of Incorporation, to provide for the issuance of the Preferred Stock
in series, and by filing a certificate pursuant to the New York Business
Corporation Law, to establish the number of shares to be included in each such
series, and to fix the designation, relative rights, preferences and limitations
of the shares of each such series. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
the following:
(1) the number of shares constituting that series and the
distinctive designation of that series;
(2) whether the holders of shares of that series shall be
entitled to receive dividends and, if so, the rates of such dividends,
conditions under which and times such dividends may be declared or paid, any
preference of any such dividends to, and the relation to, the dividends payable
on any other class or classes of stock or any other series of the same class and
whether dividends shall be cumulative or non-cumulative and, if cumulative, from
which date or dates;
(3) whether the holders of shares of that series have voting
rights in addition to the voting rights provided by law and, if so, the terms
and conditions of exercise of such voting rights;
(4) whether shares of that series shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, and, if so, the terms and
-3-
<PAGE>
conditions thereof, including the date or dates when such shares shall be
convertible into or exchangeable for shares of any other class, or any series of
the same or any other class, the price or prices of or the rate or rates at
which shares of such series shall be so convertible or exchangeable, and any
adjustments which shall be made, and the circumstances in which any such
adjustments shall be made, in such conversion or exchange prices or rates;
(5) whether the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(6) whether the shares of that series shall be subject to the
operation of a retirement or sinking fund and, if so subject, the extent and the
manner in which it shall be applied to the purchase or redemption of the shares
of that series, and the terms and provisions relative to the operation thereof;
(7) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and any presence of any such rights to, and the relation to, the
rights in respect thereto of any class or classes of stock or any other series
of the same class; and
(8) any other relative rights, preferences and limitations of
that series; provided, however, that if the stated dividends and amounts payable
on liquidation with respect to shares of any series of the Preferred Stock are
not paid in full, the shares of all series of the Preferred Stocks shall share
ratably in the payment of dividends including accumulations, if any, in
accordance with the sums which would be payable on such shares if all dividends
were declared
-4-
<PAGE>
and paid in full, and in any distribution of assets (other than by way of
dividends) in accordance with the sums which would be payable on such
distribution if all sums payable were discharged in full."
FIFTH: The foregoing Amendment of the Certificate of
Incorporation of the Corporation was authorized by the consent in writing of all
the members of the Board of Directors of the Corporation, followed by the vote
of the holders of more than 50% of all outstanding shares of the Corporation
entitled to vote on the said Amendment of the Certificate of Incorporation.
IN WITNESS WHEREOF, we have subscribed this document this 22nd
day of August, 1996, and do hereby affirm, under penalty of perjury, that the
statements contained therein have been examined by us and are true and correct.
/s/ Mel Marks
-----------------------------------
MEL MARKS, Chairman of the Board of
Directors and Chief Executive Officer
/s/ Peter Bromberg
-----------------------------------
PETER BROMBERG, Assistant Secretary
-5-
<PAGE>
STATE OF New York )
) SS.:
COUNTY OF New York )
Peter Bromberg, being duly sworn deposes and says that he is one
of the persons who signed the foregoing certificate of amendment; that he signed
said certificate in the capacity set opposite or beneath his signature thereon;
that he has read the said certificate and knows the contents thereof; and that
the statements contained therein are true to his own knowledge.
/s/ Peter Bromberg
-----------------------------------
Peter Bromberg, Assistant Secretary
Subscribed and sworn to before
me on August 22 , 1996.
/s/ Brooke Spiegel
------------------
Notary Public
-6-
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into
as of November 1, 1996, by and between MOTORCAR PARTS & ACCESSORIES, INC., a New
York corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
--------
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of June 1, 1996, as amended from time to time ("Credit Agreement");
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the Credit
Agreement to reflect said changes;
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1(a) is hereby amended by deleting "Fifteen Million Dollars
($15,000,000.00)" as the maximum principal amount available under the Line of
Credit, and by substituting for said amount "Twenty-five Million Dollars
($25,000,000.00)," with such change to be effective upon the execution and
delivery to Bank of a promissory note substantially in the form of Exhibit A
attached hereto (which promissory note shall replace and be deemed the Line of
Credit Note defined in and made pursuant to the Credit Agreement) and all other
contracts, instruments and documents required by Bank to evidence such change.
2. Section 1.2(c) is hereby deleted in it's entirety and the following
substituted therefor:
"Borrower shall pay to Bank a non-refundable annual commitment fee for
the Line of Credit equal to Twenty-five Thousand Dollars ($25,000.00),
which fee shall be due and payable in full upon execution of this
Amendment, and in June of each following year if and only if the Line
of Credit is renewed by Bank for an additional year."
<PAGE>
3. Section 4.9(e) is hereby deleted in it's entirety and the following
substituted therefor:
"(e) Ratio of Funded Debt to EBITDA not greater than 30 to 1.0,
with "Funded Debt" defined as the principal balance outstanding under
the Line of Credit as of any given calculation date, and with "EBITDA"
defined as net profit before tax plus interest expense (net of
capitalization interest expense), depreciation expense and
amortization expense, calculated on a rolling four-quarter basis as of
any given calculation date;"
4. The following is hereby added to the Credit Agreement as Sections 4.9(f)
and (g):
"(f) EBITDA Coverage Ratio not less than 5.0 to 1.0 to be
calculated on a rolling four quarter basis, with "EBITDA" as defined
above and "EBITDA Coverage Ratio" defined as EBITDA divided by the
aggregate of total interest expense plus the prior period current
maturity of long-term debt and the prior period current maturity of
subordinated debt;
(g) from time to time such other information as Bank may
reasonably request."
5. The following is hereby added to the Credit Agreement as Section 7.10:
"SECTION 7.10. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall
be resolved by binding arbitration (except as set forth in (e) below)
in accordance with the terms of this Agreement. A "Dispute" shall mean
any action, dispute, claim or controversy of any kind, whether in
contract or tort, statutory or common law, legal or equitable, now
existing or hereafter arising under or in connection with, or in any
way pertaining to, any of the Loan Documents, or any past, present or
future extensions of credit and other activities, transactions or
obligations of any kind related directly or indirectly to any of the
Loan Documents, including without limitation, any of the foregoing
arising in connection with the exercise of any self-help, ancillary or
other remedies pursuant to any of the Loan Documents. Any party may by
summary proceedings bring an action in court to compel arbitration of
a Dispute. Any party who fails or refuses to submit to arbitration
following a lawful demand by any other party shall bear all costs
-2-
<PAGE>
and expenses incurred by such other party in compelling arbitration of
any Dispute.
(b) Governing Rules. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such
other administrator as the parties shall mutually agree upon in
accordance with the AAA Commercial Arbitration Rules. All Disputes
submitted to arbitration shall be resolved in accordance with the
Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in
California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms
and procedures set forth herein shall control. All statutes of
limitation applicable to any Dispute shall apply to any arbitration
proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein
shall be deemed to be a waiver by any party that is bank of the
protections afforded to it under 12 U.S.C. ss.91 or any similar
applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure.
No provision hereof shall limit the right of any party to exercise
self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain
provisional or ancillary remedies, including without limitation
injunctive relief, sequestration, attachment, garnishment or the
appointment of a receiver, from a court of competent jurisdiction
before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators
must be active members of the California State Bar or retired judges
of the state or federal judiciary of California, with expertise in the
substantive laws applicable to the subject matter of the Dispute.
Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration hearing.
Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of California, (ii)
-3-
<PAGE>
may grant any remedy or relief that a court of the state of California
could order or grant within the scope hereof and such ancillary relief
as is necessary to make effective any award, and (iii) shall have the
power to award recovery of all costs and fees, to impose sanctions and
to take such other actions as they deem necessary to the same extent a
judge could pursuant to the Federal Rules of Civil Procedure, the
California Rules of Civil Procedure or other applicable law. Any
Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of
greater than $5,000,000 (including damages, costs, fees and expenses).
By submission to a single arbitrator, each party expressly waives any
right or claim to recover more than $5,000,000. Any Dispute in which
the amount in controversy exceeds $5,000,000 shall be decided by
majority vote of a panel of three arbitrators; provided however, that
all three arbitrators must actively participate in all hearings and
deliberations.
(e) Judicial Review. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy
exceeds $25,000,000, the arbitrators shall be required to make
specific, written findings of fact and conclusions of law. In such
arbitrations (i) the arbitrators shall not have the power to make any
award which is not supported by substantial evidence or which is based
on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of
the state of California, and (iii) the parties shall have in addition
to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial
review of (A) whether the findings of fact rendered by the arbitrators
are supported by substantial evidence, and (B) whether the conclusions
of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be
entered only if a court determines the award is supported by
substantial evidence and not based on legal error under the
substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to
arbitration if the Dispute concerns indebtedness secured directly or
indirectly, in whole or in part, by any real property unless (i) the
holder of the mortgage, lien or security interest specifically elects
in writing to proceed with the arbitration,
-4-
<PAGE>
or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute
of California, thereby agreeing that all indebtedness and obligations
of the parties, and all mortgages, liens and security interests
securing such indebtedness and obligations, shall remain fully valid
and enforceable. If any such Dispute is not submitted to arbitration,
the Dispute shall be referred to a referee in accordance with
California Code of Civil Procedure Section 638 et seq., and this
general reference agreement is intended to be specifically enforceable
in accordance with said Section 638. A referee with the qualifications
required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was
commenced in accordance with California Code of Civil Procedure
Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to
conclude any arbitration proceeding within 180 days of the filing of
the Dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results
thereof, except for disclosures of information by a party required in
the ordinary course of its business, by applicable law or regulation,
or to the extent necessary to exercise any judicial review rights set
forth herein. If more than one agreement for arbitration by or between
the parties potentially applies to a Dispute, the arbitration
provision most directly related to the Loan Documents or the subject
matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties."
6. Except as specifically provided herein, all terms and conditions of the
Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
7. Borrower hereby remakes all representations and warranties contained in
the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event of
Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
MOTORCAR PARTS & WELLS FARGO BANK,
ACCESSORIES, INC. NATIONAL ASSOCIATION
By: /s/ Richard Marks By: /s/ John P. Manning
----------------- -------------------
John P. Manning
Vice President
Title: President
---------
By: /s/ Peter Bromberg
------------------
Title: CFO
---
-6-
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease, dated for reference purposes only, October
1, 1996, between Maricopa Enterprises, Ltd., (Lessor), and Motorcar Parts &
Accessories, Inc., (Lessee), who agree as follows:
1. RECITALS: This Second Amendment to Lease is made with reference to the
following facts and objectives:
a. Lessor and Lessee entered into a written Lease dated March 8,
1993, whereby Lessor leased to Lessee the Premises commonly known
as 2727 Maricopa Street, Torrance, California 90503;
b. The parties desire to amend the Term of the Lease on the terms
and conditions hereinafter set forth.
2. AMENDMENT OF TERM: The Term of the Lease shall be amended so that the
Term of the Lease shall extend to and including March 31, 2002.
3. RENT: Base Rent for the period from April 1, 1997 through September 30,
1999 shall be $44,280.00 per month. From October 1, 1999 through March 31, 2002,
Base Rent shall be $47,601.00 per month.
4. EFFECTIVENESS OF LEASE: Except as set forth in this Second Amendment to
Lease, all of the provisions of the Lease shall remain in full force and effect
and unchanged.
5. OPTIONS TO EXTEND TERM: If this Lease has not been cancelled or
terminated prior to March 31, 2002, and if the Lessee is at the time of exercise
and through March 31, 2002, in possession of the Premises and is not at the time
of exercise and through March 31, 2002 in default of any of the terms, covenants
or conditions of this Lease, Lessee is hereby granted two (2) options to extend
the Term of this Lease for two (2) additional terms of five (5) years each from
and after March 31, 2002; provided that Lessee gives written notice to Lessor of
the exercise of each option of extension at least one hundred twenty (120) days
prior to the expiration of the preceding Term. The terms and conditions of the
Lease during the extended five (5) year option periods shall be the same as
herein contained, except that the monthly Base Rent shall be increased to
ninety-five percent (95%) of the then prevailing fair rental value as of the
commencement date of each option period, which shall be mutually agreed upon by
Lessor and Lessee, if possible. However, no reevaluation shall result in a
rental rate less than that established for the prior rental period. In the event
that Lessor and Lessee cannot mutually agree upon the then prevailing fair
rental value of the Premises, the determination of the fair rental value as of
the commencement date of each option period shall be based upon an appraisal by
an S.I.R. broker or an M.A.I. appraiser acceptable to both Lessor and Lessee to
the Los Angeles Chapter of the American Arbitration Association. All costs and
fees of said broker or of the American
<PAGE>
Arbitration Association shall be borne equally by Lessor and Lessee. The fair
rental value shall be increased during the second thirty (30) months of each
five (5) year extended term, the amount of such increases to be agreed upon at
the time the fair rental value is established.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to Lease.
MARICOPA ENTERPRISES, LTD.
Dated: 11/14/96 /s/ David V. Karney
-------- --------------------------------
DAVID V. KARNEY, General Partner
MOTORCAR PARTS & ACCESSORIES, INC.
Dated: 11/14/96 /s/ Richard Marks
-------- --------------------------------
-2-
FIRST AMENDMENT
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This First Amendment to Amended and Restated Employment Agreement,
dated as of April 1, 1997 (the "Amendment"), is by and between MOTORCAR PARTS &
ACCESSORIES, INC, a New York corporation having an address at 2727 Maricopa
Street, Torrance, California 90503 (the "Company") and MEL MARKS, an individual
residing at 269 Gramercy Drive, Jericho, New York 11753 (the "Employee").
WHEREAS, the Company and the Employee are parties to an Amended and
Restated Employment Agreement dated as of September 1, 1995 (the "Agreement");
and
WHEREAS, the Company and the Employee desire to amend the Agreement
in certain respects.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:
1. Amendment to the Agreement. The Agreement is hereby amended as of
April 1, 1997, as follows:
Paragraph 5(a) of the Agreement is hereby amended in its entirety as
follows:
"(a). Base Salary. The Company shall pay Employee a
minimum base salary ("Salary") of Three Hundred Thousand Dollars
($300,000) per year. The Salary shall be subject to review and
adjustment on an annual basis, or, at the Company's discretion, on
such date as the Company may designate; provided, however, that in
no event shall Employee's Salary be adjusted below the Salary
designated herein."
2. Counterparts. This Amendment may be signed in one or more
counterpart copies, each of which constitutes an original, but all of which,
when taken together, shall consti tute one agreement binding upon all of the
parties hereto.
3. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflicts of law rules thereof.
<PAGE>
4. Agreement to Continue as Amended. Except as modified and amended
by this Amendment, the Agreement shall remain and continue in full force and
effect after the date hereof.
IN WITNESS WHEREOF, the parties hereunto have executed and delivered
this Amendment as of the date first written above.
MOTORCAR PARTS & ACCESSORIES
By:
-----------------------------
Name:
Title:
-----------------------------
Mel Marks
-2-
FIRST AMENDMENT
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This First Amendment to Amended and Restated Employment Agreement,
dated as of April 1, 1997 (the "Amendment"), is by and between MOTORCAR PARTS &
ACCESSORIES, INC, a New York corporation having an address at 2727 Maricopa
Street, Torrance, California 90503 (the "Company") and RICHARD MARKS, an
individual with an address c/o Motorcar Parts & Accessories, Inc., 2727 Maricopa
Street, Torrance, California 90503 (the "Employee").
WHEREAS, the Company and the Employee are parties to an Amended and
Restated Employment Agreement dated as of September 1, 1995 (the "Agreement");
and
WHEREAS, the Company and the Employee desire to amend the Agreement
in certain respects.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:
1. Amendment to the Agreement. The Agreement is hereby amended as of
April 1, 1997, as follows:
Paragraph 5(a) of the Agreement is hereby amended in its entirety as
follows:
"(a). Base Salary. The Company shall pay Employee a
minimum base salary ("Salary") of Four Hundred Thousand Dollars
($400,000) per year. The Salary shall be subject to review and
adjustment on an annual basis, or, at the Company's discretion, on
such date as the Company may designate; provided, however, that in
no event shall Employee's Salary be adjusted below the Salary
designated herein."
2. Counterparts. This Amendment may be signed in one or more
counterpart copies, each of which constitutes an original, but all of which,
when taken together, shall consti tute one agreement binding upon all of the
parties hereto.
3. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflicts of law rules thereof.
<PAGE>
4. Agreement to Continue as Amended. Except as modified and amended
by this Amendment, the Agreement shall remain and continue in full force and
effect after the date hereof.
IN WITNESS WHEREOF, the parties hereunto have executed and delivered
this Amendment as of the date first written above.
MOTORCAR PARTS & ACCESSORIES
By:
--------------------------
Name:
Title:
--------------------------
Richard Marks
-2-
SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement, dated as of April 1,
1997 (the "Amendment"), is by and between MOTORCAR PARTS & ACCESSORIES, INC, a
New York corporation having an address at 2727 Maricopa Street, Torrance,
California 90503 (the "Company") and STEVEN KRATZ, an individual with an address
c/o Motorcar Parts & Accessories, Inc., 2727 Maricopa Street, Torrance,
California 90503 (the "Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated as of February 1, 1994 (the "Agreement"); and
WHEREAS, the Company and the Employee desire to amend the Agreement
in certain respects.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:
1. Amendment to the Agreement. The Agreement is hereby amended as of
April 1, 1997, as follows:
The first paragraph of Paragraph 5 of the Agreement is hereby
amended in its entirety as follows:
"5. Compensation. As compensation for his services and
covenants hereunder, the Company shall pay Employee a minimum base
salary ("Salary") of Two Hundred Twenty-Five Thousand Dollars
($225,000) per year. The Salary shall be subject to review and
adjustment on an annual basis, or, at the Company's discretion, on
such date as the Company may designate; provided, however, that in
no event shall Employee's Salary be adjusted below the Salary
designated herein."
2. Counterparts. This Amendment may be signed in one or more
counterpart copies, each of which constitutes an original, but all of which,
when taken together, shall constitute one agreement binding upon all of the
parties hereto.
3. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflicts of law rules thereof.
<PAGE>
4. Agreement to Continue as Amended. Except as modified and amended
by this Amendment, the Agreement shall remain and continue in full force and
effect after the date hereof.
IN WITNESS WHEREOF, the parties hereunto have executed and delivered
this Amendment as of the date first written above.
MOTORCAR PARTS & ACCESSORIES
By:
------------------------------
Name:
Title:
-----------------------------
Steven Kratz
-2-
SECOND AMENDMENT
TO
EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement, dated as of April 1,
1997 (the "Amendment"), is by and between MOTORCAR PARTS & ACCESSORIES, INC, a
New York corporation having an address at 2727 Maricopa Street, Torrance,
California 90503 (the "Company") and PETER S. BROMBERG, an individual with an
address c/o Motorcar Parts & Accessories, Inc., 2727 Maricopa Street, Torrance,
California 90503 (the "Employee").
WHEREAS, the Company and the Employee are parties to an Employment
Agreement dated as of March 14, 1994 (the "Agreement"); and
WHEREAS, the Company and the Employee desire to amend the Agreement
in certain respects.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:
1. Amendment to the Agreement. The Agreement is hereby amended as of
April 1, 1997, as follows:
The first paragraph of Paragraph 5 of the Agreement is hereby
amended in its entirety as follows:
"5. Compensation. (a) As compensation for his services
and covenants hereunder, the Company shall pay Employee a minimum
base salary ("Salary") of One Hundred Forty-Five Thousand Dollars
($145,000) per year. The Salary shall be subject to review and
adjustment on an annual basis, or, at the Company's discretion, on
such date as the Company may designate; provided, however, that in
no event shall Employee's Salary be adjusted below the Salary
designated herein."
2. Counterparts. This Amendment may be signed in one or more
counterpart copies, each of which constitutes an original, but all of which,
when taken together, shall consti tute one agreement binding upon all of the
parties hereto.
3. Governing Law. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflicts of law rules thereof.
-1-
<PAGE>
4. Agreement to Continue as Amended. Except as modified and amended
by this Amendment, the Agreement shall remain and continue in full force and
effect after the date hereof.
IN WITNESS WHEREOF, the parties hereunto have executed and delivered
this Amendment as of the date first written above.
MOTORCAR PARTS & ACCESSORIES
By:
-------------------------------
Name:
Title:
-------------------------------
Peter S. Bromberg
-2-
EMPLOYMENT AGREEMENT
--------------------
Employment Agreement dated as of April 1, 1997, between MVR Products
Pte Limited, a Singapore corporation, and Unijoh Sdn, Bhd, a Malaysian
corporation (collectively, the "Companies"), and Vincent Quek, also known as
Quek Kok Hoe, an individual residing in Singapore (the "Employee"), each of the
foregoing having an address at 18, Penjuru Road, Singapore 609126.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Companies desire that Employee be employed by them and
render services to them, and Employee is willing to be so employed and to render
such services to the Companies, all upon the terms and subject to the conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. Employment. Subject to and upon the terms and conditions
contained in this Agreement, the Companies hereby agree to employ Employee and
Employee agrees to enter the employ of the Companies, for the period set forth
in Paragraph 2 hereof, to render the services to the Companies, their affiliates
and subsidiaries described in Paragraph 3 hereof.
2. Term. Employee's term of employment under this Agreement shall
commence on the date hereof (the "Commencement Date") and shall continue for a
period through and including the second anniversary of the date hereof (the
"Employment Term") unless extended in writing by both parties or earlier
terminated pursuant to the terms and conditions set forth herein.
3. Duties. (a) Employee shall be employed as President of MVR and
Unijoh and responsible for management of the operations thereof.
(b) Employee agrees to abide by all by-laws, policies and other
general employment conditions of each of the Companies' parent, Motorcar Parts &
Accessories, Inc. ("MPA") and the Companies.
4. Exclusive Services and Best Efforts. Employee shall devote his
entire working time, attention, best efforts and ability during regular business
hours exclusively to the service of the Companies, their affiliates and
subsidiaries during the term of this Agreement.
5. Compensation. As compensation for his services, covenants and
agreements hereunder, the Companies collectively shall pay Employee an aggregate
salary ("Salary") of One Hundred and Ten Thousand United States Dollars
(US$110,000) per year.
<PAGE>
6. Business Expenses. Employee shall be reimbursed for, and entitled
to advances (subject to repayment to the Companies if not actually incurred by
Employee) with respect to, only those business expenses incurred by him which
are authorized by MPA and the Companies and for which Employee has submitted
receipts.
7. Employee Benefits. During the Employment Term, Employee shall be
entitled to such insurance, disability, health, medical and automobile benefits
from the Companies as he was entitled to from the Companies during the preceding
fiscal year; provided that Employee shall be required to comply with the
conditions attendant to coverage by such plans and shall comply with and be
entitled to benefits only in accordance with the terms and conditions of such
plans. Employee shall be entitled to such paid vacation each year during the
Employment Term as he was entitled to from the Companies during the preceding
fiscal year and of such duration and at such times as does not, in the opinion
of MPA and the Companies, interfere with Employee's performance of his duties
hereunder. The Companies may withhold from any benefits payable to Employee all
taxes and amounts as shall be permitted or required pursuant to law, rule or
regulation. All of the benefits to which Employee may be entitled may be changed
from time to time or withdrawn at any time in the discretion of MPA or the
Companies.
8. Death and Disability. (a) The Employment Term shall terminate on
the date of Employee's death, in which event Employee's Salary, reimbursable
expenses and benefits owing to Employee through the date of Employee's death
shall be paid to his estate. Other than a death benefit equal to one-fourth of
Employee's Salary on the date of Employee's death, which shall be paid to his
estate within 120 days following such date, Employee's estate will not be
entitled to any other compensation upon termination of this Agreement pursuant
to this Paragraph 8(a).
(b) If, during the Employment Term, in the opinion of a duly
licensed physician selected by MPA and the Companies, Employee, because of
physical or mental illness or incapacity, shall become substantially unable to
perform the duties and services required of him under this Agreement for a
period of 60 consecutive days or 120 days in the aggregate during any six-month
period MPA and the Companies may, upon at least twenty (20) days' prior written
notice given at any time after the expiration of such 60 or 120 day period, as
the case may be, to Employee of their intention to do so, terminate this
Agreement as of such date as may be set forth in the notice. In case of such
termination, Employee shall be entitled to receive his Salary, reimbursable
expenses and benefits owing to Employee through the date of termination.
Employee will not be entitled to any other compensation upon termination of this
Agreement pursuant to this Paragraph 8(b).
9. Termination. (a) MPA or the Companies may terminate the
employment of Employee for Cause (as herein defined). Upon such termination, the
Companies and its affiliates shall be released from any and all further
obligations under this Agreement (it being agreed that MPA shall have no
obligations hereunder), except that the Companies shall be obligated to pay
Employee his Salary, reimbursable expenses and benefits owing to Employee
through the day on which Employee is terminated. Employee will not be entitled
to any other compensation upon termination of this Agreement pursuant to this
Paragraph 9(a).
-2-
<PAGE>
(b) As used herein, the term "Cause" shall mean: (i) the willful
failure of Employee to perform his duties pursuant to Paragraph 3 hereof, which
failure is not cured by Employee within twenty (20) days following notice
thereof from MPA or the Companies; (ii) any other material breach of this
Agreement by Employee, including any of the material representations or
warranties made by Employee; (iii) any act, or failure to act, by Employee in
bad faith or to the detriment of MPA or the Companies; (iv) the commission by
Employee of an act involving moral turpitude, dishonesty, theft, unethical
business conduct, or any other conduct which significantly impairs the
reputation of, or harms, MPA or the Companies, their subsidiaries or affiliates;
(v) any misrepresentation, concealment or omission by Employee of any material
fact in seeking employment hereunder; or (vi) any other occurrence or
circumstance generally recognized as "cause" for employment termination under
applicable law.
(c) In the event that during the 90-day period ending on the last
day of the Employment Term the employment of Employee is terminated by the
Companies other than for Cause or the Companies notify Employee of their
election not to renew or extend this Agreement for a period of at least one
year, then Employee, in addition to any and all other amounts to which he
expressly may be entitled hereunder, shall be entitled to a severance benefit in
an amount equal to his Salary multiplied by a fraction the numerator of which
shall be the number of days elapsed in such period up to the date of such
termination or election and the denominator of which shall be 360; provided that
in the event that no notice of such election is given prior to the end of the
Employment Term, then such severance benefit shall be in an amount equal to
one-fourth of such Salary.
10. Disclosure of Information and Restrictive Covenant. Employee
acknowledges that, by his employment, he has been and will be in a confidential
relationship with MPA and the Companies and their affiliates (which term,
whenever used in this Agreement, includes without limitation the Companies'
parent(s)) and will have access to confidential information and trade secrets of
MPA and the Companies, their subsidiaries and affiliates. Confidential
information and trade secrets include, but are not limited to, customer,
supplier and client lists, price lists, marketing, distribution and sales
strategies and procedures, operational and equipment techniques, business plans
and systems, quality control procedures and systems, special projects and
technological research, including projects, research and reports for any entity
or client or any project, research, report or the like concerning sales or
manufacturing or new technology, employee compensation plans and any other
information relating thereto, and any other records, files, drawings,
inventions, discoveries, applications, processes, data and information
concerning the business of MPA or the Companies, their subsidiaries and
affiliates which are not in the public domain. Employee agrees that in
consideration of the execution of this Agreement by the Companies:
(a) Employee will not, during the term of this Agreement or at
any time thereafter, use, or disclose to any third party, trade secrets or
confidential information of MPA or the Companies including, but not limited to,
confidential information or trade secrets belonging or relating to MPA or the
Companies, their subsidiaries, affiliates, customers and clients or proprietary
processes or procedures of MPA or the Companies, their subsidiaries, affiliates,
customers and clients. Proprietary processes and procedures shall include, but
shall not be limited to, all information
-3-
<PAGE>
which is known or intended to be known only to employees of MPA or the
Companies, their subsidiaries and affiliates or others in a confidential
relationship with MPA or the Companies or their subsidiaries and affiliates
which relates to business matters.
(b) Employee will not, during the term of this Agreement and for
a period of two (2) years thereafter, directly or indirectly, under any
circumstance other than at the direction and for the benefit of MPA and the
Companies, engage in or participate in any business activity, including, but not
limited to, acting as a director, officer, employee, agent, independent
contractor, partner, consultant, licensor or licensee, franchisor or franchisee,
proprietor, syndicate member, shareholder or creditor or with a person having
any other relationship with any other business, company, firm occupation or
business activity, in any geographic area within Singapore, Malaysia or
southeastern Asia that is, directly or indirectly, competitive with any business
conducted by the Companies or any of their subsidiaries or affiliates during the
term of this Agreement or thereafter. Should Employee own 5% or less of the
issued and outstanding shares of a class of securities of a corporation the
securities of which are traded on a national securities exchange or in the
over-the-counter market, such ownership shall not cause Employee to be deemed a
shareholder under this Paragraph 10(b).
(c) Employee will not, during the term of this Agreement and for
a period of two (2) years thereafter, on his behalf or on behalf of any other
business enterprise, directly or indirectly, under any circumstance other than
at the direction and for the benefit of MPA and the Companies, solicit or induce
any creditor, customer, supplier, officer, employee or agent of MPA or the
Companies or any of their subsidiaries or affiliates to sever its relationship
with or leave the employ of any such entities.
(d) This Paragraph 10 and Paragraphs 11, 12 and 13 hereof shall
survive the expiration or termination of this Agreement for any reason.
(e) It is expressly agreed by Employee that the nature and scope
of each of the provisions set forth above in this Paragraph 10 are reasonable
and necessary. If, for any reason, any aspect of the above provisions as it
applies to Employee is determined by a court of competent jurisdiction to be
unreasonable or unenforceable, the provisions shall only be modified to the
minimum extent required to make the provisions reasonable and/or enforceable, as
the case may be. Employee acknowledges and agrees that his services are of a
unique character and expressly grants to MPA and the Companies or any of their
subsidiaries, affiliates, successors or assignees, the right to enforce the
provisions above through the use of all remedies available at law or in equity,
including, but not limited to, injunctive relief.
(f) It is expressly agreed by Employee that the provisions set
forth above in this Paragraph 10 are separate from and independent of any
similar such provisions entered into under the agreement relating to the
acquisition by MPA of the Companies.
-4-
<PAGE>
11. Companies' Property. (a) Any patents, inventions, discoveries,
applications or processes, designed, devised, planned, applied, created,
discovered or invented by Employee in the course of Employee's employment under
this Agreement and which pertain to any aspect of the Companies' or their
respective subsidiaries' or affiliates' business shall be the sole and absolute
property of the Companies, and Employee shall make prompt report thereof to the
Companies and promptly execute any and all documents reasonably requested to
assure the Companies the full and complete ownership thereof.
(b) All records, files, lists, including computer generated
lists, drawings, documents, equipment and similar items relating to the
Companies' business which Employee shall prepare or receive from the Companies
shall remain the Companies' sole and exclusive property. Upon termination of
this Agreement, Employee shall promptly return to the Companies all property of
the Companies in his possession. Employee further represents that he will not
copy or cause to be copied, print out or cause to be printed out any software,
documents or other materials originating with or belonging to the Companies.
Employee additionally represents that, upon termination of his employment with
the Companies, he will not retain in his possession any such software, documents
or other materials.
12. Remedy. It is mutually understood and agreed that Employee's
services are special, unique, unusual, extraordinary and of an intellectual
character giving them a peculiar value, the loss of which cannot be reasonably
or adequately compensated in damages in an action at law. Accordingly, in the
event of any breach of this Agreement by Employee, including, but not limited
to, the breach of the non-disclosure, non-solicitation and non-compete clauses
under Paragraph 10 hereof, MPA and the Companies shall be entitled to equitable
relief by way of injunction or otherwise in addition to damages MPA and the
Companies may be entitled to recover. In addition, MPA and the Companies shall
be entitled to reimbursement from Employee, upon request, of any and all
reasonable attorneys' fees and expenses incurred by it in enforcing any term or
provision of this Agreement.
13. Representations and Warranties of Employee. (a) In order to
induce the Companies to enter into this Agreement, Employee hereby represents
and warrants to MPA and the Companies as follows: (i) Employee has the legal
capacity and unrestricted right to execute and deliver this Agreement and to
perform all of his obligations hereunder; (ii) the execution and delivery of
this Agreement by Employee and the performance of his obligations hereunder will
not violate or be in conflict with any fiduciary or other duty, instrument,
agreement, document, arrangement or other understanding to which Employee is a
party or by which he is or may be bound or subject; and (iii) Employee is not a
party to any instrument, agreement, document, arrangement or other understanding
with any person (other than MPA or the Companies) requiring or restricting the
use or disclosure of any confidential information or the provision of any
employment, consulting or other services.
(b) Employee hereby agrees to indemnify and hold harmless MPA and
the Companies from and against any and all losses, costs, damages and expenses
(including, without
-5-
<PAGE>
limitation, its reasonable attorneys' fees) incurred or suffered MPA or by the
Companies resulting from any breach by Employee of any of his representations or
warranties set forth in Paragraph 13(a) hereof.
14. Notices. All notices given hereunder shall be in writing and
shall be deemed effectively given when mailed, if sent by registered or
certified mail, return receipt requested, addressed to Employee at his address
set forth on the first page of this Agreement and to the Companies at the
address set forth on the first page of this Agreement, with a copy to MPA, 2727
Maricopa Street, Torrance, California 90503, Attention: Mr. Richard Marks,
President, and with a copy to Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue
of the Americas, New York, New York 10036, Attention: Gary J. Simon, Esq., or at
such address as such party shall have designated by a notice given in accordance
with this Paragraph 14, or when actually received by the party for whom
intended, if sent by any other means.
15. Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to its subject matter and no change,
alteration or modification hereof may be made except in writing signed by the
parties hereto. Any prior or other agreements, promises, negotiations or
representations not expressly set forth in this Agreement are of no force or
effect.
16. MPA Ownership. Employee acknowledges and agrees that the
Companies are controlled by its parent, MPA, and that any reference in this
Agreement to the judgment, discretion, opinion or other determination of any
kind (including as contemplated by Paragraph 9) to be made by the Companies may
be made on behalf of the Companies by MPA.
17. Severability. If any provision of this Agreement shall be
unenforceable under any applicable law, then notwithstanding such
unenforceability, the remainder of this Agreement shall continue in full force
and effect.
18. Waivers, Modifications, Etc. No amendment, modification or
waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by each of the parties hereto, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
19. Assignment. Neither this Agreement, nor any of Employee's
rights, powers, duties or obligations hereunder, may be assigned by Employee.
This Agreement shall be binding upon and inure to the benefit of Employee and
his heirs and legal representatives and the Companies and their successors and
assigns. Successors of the Companies shall include, without limitation, any
corporation or corporations acquiring, directly or indirectly, all or
substantially all of the assets of the Companies, whether by merger,
consolidation, purchase, lease or otherwise, and such successor shall thereafter
be deemed "the Companies" for the purposes hereof.
20. Applicable Law. This Agreement shall be deemed to have been
made, drafted, negotiated and a portion of the transactions contemplated hereby
consummated and performed in the
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<PAGE>
State of New York and shall be governed by and construed in accordance with the
laws of the State of New York, without regard to the conflicts of law rules
thereof. Nothing contained in this Agreement shall be construed so as to require
the commission of any act contrary to law, and whenever there is any conflict
between any provision of this Agreement and any statute, law, ordinance, order
or regulation, contrary to which the parties hereto have no legal right to
contract, the latter shall prevail, but in such event any provision of this
Agreement so affected shall be curtailed and limited only to the extent
necessary to bring it within the legal requirements.
21. Jurisdiction and Venue. It is hereby irrevocably agreed that all
disputes or controversies between the Companies and Employee arising out of, in
connection with or relating to this Agreement shall be exclusively heard,
settled and determined by arbitration to be held in the City of New York, County
of New York, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The parties also agree that judgment may
be entered on the arbitrator's award by any court having jurisdiction thereof
and the parties consent to the jurisdiction of any court located in the City of
New York, County of New York, for this purpose.
22. Full Understanding. Employee represents and agrees that he fully
understands his right to discuss all aspects of this Agreement with his private
attorney, that to the extent, if any that he desired, he availed himself of this
right, that he has carefully read and fully understands all of the provisions of
this Agreement, that he is competent to execute this Agreement, that his
agreement to execute this Agreement has not been obtained by any duress and that
he freely and voluntarily enters into it, and that he has read this document in
its entirety and fully understands the meaning, intent and consequences of this
document which is that it constitutes an agreement of employment.
23. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
MVR PRODUCTS PTE LIMITED
By:_________________________________
Name:
Title:
UNIJOH SDN, BHD
By:_________________________________
Name:
Title:
_________________________________
Vincent Quek
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AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION dated as of March 31, 1997,
among MOTORCAR PARTS & ACCESSORIES, INC., a New York corporation having its
principal place of business at 2727 Maricopa Street, Torrance, California 90503
("Transferee"), MEL MARKS, an individual having a residence at 17906 Aberdeen
Way, Boca Raton, Florida 33496 ("M. MARKS"), RICHARD MARKS, an individual having
a residence at 13484 Bayliss Road, Los Angeles, California 90049 ("R. MARKS")
and VINCENT QUEK, also known as Quek Kok Hoe, an individual having a residence
in Singapore and having an office at 2727 Maricopa Street, Torrance, California
90503 ("QUEK"). M. Marks, R. Marks and Quek are hereinafter sometimes
collectively referred to as "Transferors".
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, each of the Transferors owns 133,333 (133,334 in the case
of Quek) ordinary shares of S$1.00 per share of MVR Products Pte Limited, a
corporation organized under the laws of Singapore ("MVR") and 333,333 (333,334
in the case of Quek) ordinary shares RM1 per share of Unijoh Sdn, Bhd, a
corporation organized under the laws of Malaysia ("Unijoh") all such ordinary
shares of MVR (the "MVR Shares") and all such ordinary shares of Unijoh (the
"Unijoh Shares") (the MVR Shares and the Unijoh Shares, collectively, the
"Shares") being all of the issued and outstanding ordinary shares of MVR and
Unijoh, respectively; and
<PAGE>
WHEREAS, MVR and Unijoh are affiliated with the Transferee and
conduct, on a contract basis, remanufacturing operations similar to those
conducted by the Transferee at its Los Angeles remanufacturing facility; and
WHEREAS, the Transferors desire to exchange the Shares for shares of
common stock, par value $.01 per share, of the Transferee ("MPA Common Stock"),
and the Transferee is willing to issue and deliver shares of MPA Common Stock to
the Transferors solely in exchange for the Shares, upon the terms and subject to
the conditions hereinafter set forth pursuant to a plan of reorganization
designed to qualify as a tax-free reorganization under Section 368(a)(1)(B) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Transferee has obtained an independent analysis from
Houlihan Lokey Howard & Zukin, a speciality investment banking firm ("Houlihan
Lokey"), as to the value of Unijoh and MVR; and
WHEREAS, based in part upon the valuation analysis provided by
Houlihan Lokey and following such negotiations, the Special Committee of the
Board of Directors of the Transferee deems advisable and in the best interests
of the shareholders of the Transferee the acquisition of all of the issued and
outstanding Shares in exchange for 145,455 shares (the "MPA Shares") of MPA
Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
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<PAGE>
ARTICLE I
EXCHANGE OF SHARES
FOR MPA SHARES
--------------
Section 1.1. Exchange Transaction. Upon the terms and subject to the
conditions set forth in this Agreement, the Transferors shall, at the Closing
(as defined in Section 2.1 hereof), convey, transfer, assign and deliver to the
Transferee transfer forms representing all of the Shares, which transfer forms
duly executed shall convey title to and ownership of the Transferors' interest
in MVR and Unijoh to the Transferee. In exchange therefor, the Transferee shall,
at the Closing, issue and deliver to each Transferor certificates representing
an aggregate of 145,455 authorized but previously-unissued shares of MPA Common
Stock registered in the name each such Transferor. Any transfer tax or
registration duty up to an aggregate amount of $10,000 which may be payable in
Singapore and/or Malaysia in connection with such exchange transaction will be
the responsibility of the Transferee.
ARTICLE II
CLOSING
-------
Section 2.1. Date of Closing. The closing under this Agreement (the
"Closing") shall take place at the offices of Parker Chapin Flattau & Klimpl,
LLP, 1211 Avenue of the Americas, New York, New York 10036, or at such other
place as shall be mutually agreed upon in writing by the Transferee and the
Transferors, at 2:00 P.M., local time, on March 31, 1997. If the Closing is not
held by the close of business on such date, the Closing may be postponed, at the
sole option of the Transferee, to a date not later than April 30, 1997. However,
if the Closing is not held by the close
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<PAGE>
of business on April 30, 1997, this Agreement shall terminate without any
further obligation or liability on the part of any party hereto.
Section 2.2. Action at Closing. At the Closing, the Transferee and
the Transferors shall take such actions and execute and deliver such documents,
instruments, certificates and opinions as are provided for in this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS
-------------------------------------------------
Each Transferor, jointly and severally, hereby represents and
warrants to the Transferee as follows:
Section 3.1. Authority and Capacity of the Transferors. Each
Transferor has all requisite power, authority and capacity to perform the
obligations required of him under this Agreement.
Section 3.2. Title to the Shares. Each Transferor is the lawful
record and beneficial owner of 133,333 (133,334 in the case of Quek) MVR Shares
and 333,333 (333,334 in the case of Quek) Unijoh Shares, which, together with
the MVR Shares and Unijoh Shares so owned by the other Transferors, constitute
100% of the issued and outstanding shares of common stock of MVR and Unijoh; and
the conveyance, transfer, assignment and delivery of the Shares by the
Transferors to the Transferee pursuant to Section 1.1 hereof will transfer to,
and vest in, Transferee legal and valid title thereto, free and clear of all
claims, liens, charges and encumbrances of any kind whatsoever.
Section 3.3. Organization, Good Standing and Corporate Power and
Authority of MVR and Unijoh. Each of MVR and Unijoh is a corporation duly
organized, validly existing and in
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<PAGE>
good standing under the laws of Singapore and Malaysia, respectively, and each
is duly qualified and authorized to transact business as a foreign corporation
in each jurisdiction in which it owns properties or is otherwise conducting its
business, except where the failure to be so qualified or authorized would not
have a material adverse effect on the financial condition of MVR and Unijoh,
taken as a whole. Each of MVR and Unijoh has the corporate power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted.
Section 3.4. Capitalization. The authorized capital stock of MVR
consists of 400,000 ordinary shares of $1.00 per share, all of which shares are
issued and outstanding, of which 133,333 shares are held of record and
beneficially by M. Marks, 133,333 shares are held of record and beneficially by
R. Marks and 133,334 shares are held of record and beneficially by Quek. The
authorized capital stock of Unijoh consists of 1,000,000 ordinary shares RM1 per
share, all of which shares are issued and outstanding, of which 333,333 shares
are held of record and beneficially by M. Marks, 333,333 shares are held of
record and beneficially by R. Marks and 333,334 shares are held of record and
beneficially by Quek. All of the issued and outstanding shares of common stock
of MVR and Unijoh are duly authorized, validly issued, fully paid and
non-assessable, with no personal liability attaching to the ownership thereof.
There are no existing options, calls, agreements or commitments of any character
obligating either MVR or Unijoh to authorize, issue or acquire any of its
respective shares of capital stock and there are no options, calls or similar
agreements or commitments relating to the issued and outstanding shares of
common stock of MVR and Unijoh.
Section 3.5. Subsidiaries and Affiliates. Neither MVR nor Unijoh,
directly or indirectly, owns any material interest in or controls any other
corporation, association or other form of business organization.
- 5 -
<PAGE>
Section 3.6. No Violation. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(a) violate any provision of the corporate charter or by-laws of either MVR or
Unijoh, as amended to date, (b) with or without the giving of notice and/or the
passage of time, materially violate, conflict with, result in the breach or
termination of, constitute a material default under, or result in the creation
of any material lien, charge or encumbrance upon any of the assets of either MVR
or Unijoh pursuant to, any material contract, agreement, indenture, lease or
commitment to which either MVR or Unijoh is a party or by which it or any of its
assets may be bound, except as may be set forth in Schedules 3.6(a) or 3.6(b) or
as would not have a material adverse effect on the financial condition of MVR
and Unijoh, taken as a whole, or (c) materially violate any judgment, decree,
order, statute, rule or governmental regulation applicable to either MVR or
Unijoh.
Section 3.7. Financial Statements. There have been furnished to the
Transferee the audited balance sheets of MVR as at March 31, 1995 and 1996 (the
latter balance sheet of MVR being hereinafter referred to as the "MVR Balance
Sheet") and the audited statements of income for each of the years then ended,
in each case including the respective notes thereto and accompanied by the
report of Ernst & Young, independent certified public accountants. Such 1995 and
1996 financial statements fairly present the financial position of MVR as at the
respective dates specified and the results of operations of MVR for the
respective periods specified, in conformity with Statements of Auditing
Guideline and Statements of Auditing Practice and applicable accounting
standards. Except for liabilities and obligations incurred in the ordinary
course of business since the date of the MVR Balance Sheet or referred to in
Schedules 3.7(a) or 3.7(b), MVR does not have any material liabilities or
obligations, other than liabilities and obligations reflected in the MVR Balance
Sheet or the respective notes thereto and liabilities and obligations which, in
accordance with the foregoing
- 6 -
<PAGE>
accounting standards, were not required to have been so reflected as of such
date. In addition, there have been furnished to the Transferee the audited
balance sheets of Unijoh as at March 31, 1995 and 1996 (the latter balance sheet
of Unijoh being hereinafter referred to as the "Unijoh Balance Sheet") and the
audited statements of income for each of the years then ended, in each case
including the respective notes thereto and accompanied by the report of Ernst &
Young, independent certified public accountants. Such 1995 and 1996 financial
statements fairly present the financial position of Unijoh as at the respective
dates specified and the results of operations of Unijoh for the respective
periods specified, in conformity with approved auditing standards. Except for
liabilities and obligations incurred in the ordinary course of business since
the date of the Unijoh Balance Sheet or referred to in Schedules 3.7(a) or
3.7(b), Unijoh does not have any material liabilities or obligations, other than
liabilities and obligations reflected in the Unijoh Balance Sheet or the
respective notes thereto and liabilities and obligations which, in accordance
with approved auditing standards, were not required to have been so reflected as
of such date.
Section 3.8. Title to Assets. Except as set forth in Schedules
3.8(a) and 3.8(b), MVR owns the assets reflected on the MVR Balance Sheet as
owned by it and Unijoh owns the assets reflected on the Unijoh Balance Sheet as
owned by it, in each case free and clear of all material claims, liens, charges
and encumbrances. All of such assets generally are in good condition and repair,
reasonable wear and tear excepted, and are suitable for the uses for which they
are intended.
Section 3.9. Contracts, Etc. Schedules 3.9(a) and 3.9(b) set forth
all material written contracts, agreements, indentures, leases, licenses and
commitments (collectively, the "Contracts") to which MVR or Unijoh is a party or
by which either of them or any of their respective assets may be bound, other
than (a) sales orders and purchase orders entered into in the ordinary course of
business, (b) contracts, agreements, indentures, leases and commitments which
may be terminated
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at the option of MVR or Unijoh, as the case may be, on not more than 60 days,
prior notice and do not involve, in the aggregate, more than $50,000 and (c)
contracts with the Transferee. All of the Contracts are in full force and
effect, without material amendment.
Section 3.10. Insurance. The assets of MVR and Unijoh are covered by
insurance policies which are in full force and effect with all premiums due
thereon paid in full and which are reasonably adequate in amount, scope and
coverage to protect MVR and Unijoh against any material loss of its properties
or any material interruption in its operations.
Section 3.11. Books and Records. The books and records of each of
MVR and Unijoh are in all material respects complete and correct, have been
maintained in accordance with sound business practices and reflect all material
transactions to which either MVR or Unijoh was a party since January 1, 1995.
Section 3.12. Bank Accounts. The Transferors have advised, and will
continue to advise, the Transferee as to the name and address of each bank or
other financial institution which is a depositary of MVR or Unijoh or in which
either has a safe deposit box, the name and account number under which such
account is maintained and the name and title or capacity of each person
authorized to draw thereon or have access thereto.
Section 3.13. Taxes. Each of MVR and Unijoh has filed with the
.appropriate governmental agencies all tax returns required to be filed and has
paid all assessments shown to be due on such tax returns and all assessments
claimed to be due by a governmental authority with respect thereto. To the best
knowledge of the Transferors, there are no pending examinations by any
governmental authority of the income tax returns of either MVR or Unijoh, and
all prior additional assessments for taxes (or interest or penalties thereon),
if any, have been paid or provided for. Neither MVR nor Unijoh has executed or
filed with any taxing authority any agreement extending
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the period for assessment or collection of any tax and neither MVR nor Unijoh is
a party to any action or proceeding by any governmental authority for assessment
or collection of taxes.
Section 3.14. Litigation. Except as set forth in Schedule 3.14,
there are no actions, suits, proceedings, judgments or decrees existing or, to
the knowledge of the Transferors, threatened or proposed against or affecting
MVR or Unijoh or any of the properties of either which have resulted or would
result in any material adverse change in the business, properties or financial
condition of MVR or Unijoh, and neither MVR nor Unijoh nor any of the assets of
either is subject to any outstanding judgment issued by any court involving in
excess of $25,000 in the aggregate. To the best knowledge of the Transferors,
there are no pending orders known to the Transferors of any governmental
authority which may materially adversely affect the operations of MVR or Unijoh
as now conducted.
Section 3.15. Trademarks, Trade Names, Patents, Etc. Schedules
3.15(a) and 3.15(b) set forth complete and correct lists and descriptions of all
patents, copyrights, trade names, trademarks, logos, service names and service
marks which are used or held for use in the business or operations of MVR or
Unijoh, respectively (the "Intangible Property"). Each of MVR and Unijoh is the
registered and beneficial owner, or registered user, as the case may be, of all
such Intangible Property set forth on Schedule 3.15(a) or 3.15(b). All of MVR's
and Unijoh's rights in said Intangible Property are in full force and effect and
the Transferors have no knowledge of any claims that any such right is not valid
or enforceable by MVR or Unijoh, as the case may be, or of any infringement upon
or conflict with any Intangible Property rights, or of any infringement upon or
conflict with any trademark, trade name, copyright, patent or proprietary right,
or any application relating to the foregoing, or of any third party claim
alleging such infringement or conflict. Each of MVR and Unijoh has the right to
use all patents, trademarks, trade names, copyrights, inventions, designs,
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formulae, trade secrets, manufacturing processes, know-how and other industrial
property rights necessary to manufacture and market the products presently
manufactured or marketed by it, including any product licensed from others.
Section 3.16. Absence of Defaults, Etc. Neither MVR nor Unijoh is in
default, and neither has received any notice of any alleged material default,
under any contract, agreement, indenture, lease or other commitment to which it
is a party or by which it or any of its assets is bound and, to the best
knowledge of the Transferors, no other party to any such contract, agreement,
indenture, lease or other commitment is in material default thereunder. To the
best knowledge of the Transferors, neither MVR nor Unijoh has violated, in any
material respect, or received notice of any alleged material violation of, any
applicable law, regulation or ordinance relating to its operations or assets.
All material licenses and permits required in connection with the operation of
MVR's business and Unijoh's business have been issued and are in full force and
effect.
Section 3.17. Absence of Certain Changes. Since the date of the MVR
Balance Sheet and the Unijoh Balance Sheet neither MVR nor Unijoh has:
(a) operated its business and dealt with its assets
other than in the ordinary course;
(b) cancelled or compromised any material debt or claim;
(c) released, transferred or granted any material
rights;
(d) suffered any material adverse change in its
financial condition, properties or business or obtained actual
knowledge of any present or future business condition which would
materially adversely affect the assets, properties or business of
MVR or Unijoh or which would prevent either of them from carrying on
its business in substantially the same manner as that in which it is
being conducted;
(e) made, amended or cancelled any material contract,
agreement, indenture, lease or other commitment or failed to keep
any of them in full force and effect or to perform any of its
obligations thereunder;
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(f) paid any material bonus or extraordinary
compensation to any director, officer or employee inconsistent with
past practice;
(g) entered into any transaction which would result in
any representation or warranty of the Transferors contained in this
Agreement becoming untrue in any material respect immediately after
the consummation of such transaction; or
(h) declared any dividend or made any distribution to
its shareholders.
Section 3.18. Consideration. For purposes of Section 505 of the New
York Business Corporation Law, notwithstanding any other representations or
warranties hereunder, the right to receive any MPA Shares under this Agreement
or pursuant to the transactions contemplated hereby has not been agreed to as an
incentive to service or continued service with MPA or any subsidiary or
affiliate of MPA.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE TRANSFEREE
------------------------------------------------
The Transferee hereby represents and warrants to each of the
Transferors as follows:
Section 4.1. Organization, Good Standing and Corporate Power and
Authority. The Transferee is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York. The Transferee has the
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted.
Section 4.2. Capitalization. The authorized capital stock of the
Transferee consists of 10,000,000 shares of common stock, par value $.01 per
share, of which 4,866,000 shares are issued and outstanding and 5,000,000 shares
of preferred stock, none of which is issued or outstanding. Upon the delivery at
the Closing of the MPA Shares to the Transferors in exchange for
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the MVR Shares, the MPA Shares delivered to the Transferors will be duly
authorized, validly issued, fully paid and non-assessable, with no personal
liability attaching to the ownership thereof.
Section 4.3. Financial Statements and Other Corporate Information.
The Transferee has furnished to each of the Transferors copies of the Annual
Report to Shareholders of the Transferee for the fiscal year ended March 31,
1996, the Annual Report on Form 10-K of the Transferee for the fiscal year ended
March 31, 1996 filed with the Securities and Exchange Commission ("SEC") and the
Quarterly Reports on Form 10-Q of the Transferee for each of the fiscal quarters
ended June 30, September 30 and December 31, 1996 filed with the SEC. The
financial statements of the Transferee contained in the aforesaid reports fairly
present the financial position of the Transferee as at the respective dates
specified and the consolidated results of operations and cash flows of the
Transferee for the respective periods specified, in conformity with United
States generally accepted accounting principles consistently applied, subject,
in the case of unaudited financial statements, to changes resulting from
year-end audit adjustments. None of such reports, as of the respective dates on
which they were filed with the SEC, contained any untrue statement of a material
fact or failed to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 4.4. Effective Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action of the Transferee and this
Agreement constitutes the legal, valid and binding obligation of the Transferee
enforceable against the Transferee in accordance with its terms. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (a) violate any provision of the
certificate of incorporation or by-laws of the Transferee,
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as amended to date, (b) with or without the giving of notice and/or the passage
of time, materially violate, conflict with, result in the breach or termination
of, constitute a material default under, or result in the creation of any
material lien, charge or encumbrance upon any of the assets of the Transferee or
its subsidiary pursuant to, any material contract, agreement, indenture, lease
or commitment to which the Transferee is a party or by which the Transferee or
any of its properties may be bound or (c) materially violate any judgment,
decree, order, statute, rule or governmental regulation applicable to the
Transferee, except such individual violations, conflicts, breaches,
terminations, defaults or liens as would not have a material adverse effect on
the financial condition of the Transferee.
Section 4.5. Litigation. There are no actions, suits, proceedings,
judgments or decrees existing or, to the knowledge of the Transferee, threatened
or proposed against or affecting the Transferee or any of its properties which
would result in any material adverse change in the consolidated business,
properties or financial condition of the Transferee.
Section 4.6. Absence of Certain Changes. Since March 31, 1996, the
Transferee has not suffered any material adverse change in its financial
condition, properties or business.
ARTICLE V
COVENANTS OF THE TRANSFERORS
----------------------------
Section 5.1. Access to Properties and Records. From and after the
date hereof, the Transferors will cause MVR and Unijoh to afford to the
officers, attorneys, accountants and other representatives of the Transferee
full and free access to such of the premises, properties, personnel, books and
records of MVR and Unijoh as the Transferee may reasonably request.
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Section 5.2. Certain Restrictions. Each Transferor acknowledges that
by his employment with or stock ownership of MVR and Unijoh and prospective
stock ownership of MPA that he may have access to confidential information and
trade secrets of such entities. Confidential information and trade secrets
include, but are not limited to, customer, supplier and client lists, price
lists, marketing, distribution and sales strategies and procedures, operational
and equipment techniques, business plans and systems, quality control procedures
and systems, special projects and technological research, including projects,
research and reports for any entity or client or any project, research, report
or the like concerning sales or manufacturing or new technology, employee
compensation plans and any other information relating thereto, and any other
records, files, drawings, inventions, discoveries, applications, processes, data
and information concerning the business of such entities which are not in the
public domain. Each Transferor agrees that he will not at any time following the
date hereof use or disclose to any third party, trade secrets or confidential
information of any such entities, including, but not limited to, confidential
information or trade secrets belonging to such entities or their customers and
clients or proprietary processes or procedures thereof. Each Transferor agrees
that for two years (four years in the case of Mr. Quek) following the date
hereof he will not, directly or indirectly, under any circumstances other than
at the direction and for the benefit of such entities, engage in or participate
in any business activity, including, but not limited to, acting as a director,
officer, employee, agent, independent contractor, partner, consultant, licensor
or licensee, franchisor or franchisee, proprietor, syndicate member, shareholder
or creditor or with a person having any other relationship with any other
business, company, firm occupation or business activity, in any geographic area
within the United States or southeastern Asia (including Singapore and Malaysia)
that is, directly or indirectly, competitive with any business conducted by such
entities. Should Mr. Quek own 5% or less of the issued and outstanding shares of
a class of securities of a
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corporation the securities of which are traded on a United States national
securities exchange or in the over-the-counter market, such ownership shall not
cause Mr. Quek to be deemed a shareholder under the immediately preceding
sentence. Each Transferor agrees that for two years (four years in the case of
Mr. Quek) following the date hereof he will not, on his behalf or on behalf of
any other business enterprise, directly or indirectly, under any circumstance
other than at the direction and for the benefit of such entities, solicit or
induce any creditor, customer, supplier, officer, employee or agent of any such
entity to sever its relationship with or leave the employ of any such entity.
Each Transferor agrees that the nature and scope of the provisions of this
Section 5.2 are reasonable and necessary. If, for any reason, any aspect of the
above provisions as it applies to a Transferor is determined by a court of
competent jurisdiction to be unreasonable or unenforceable, the provisions shall
only be modified to the minimum extent required to make the provisions
reasonable and/or enforceable, as the case may be.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRANSFEREE
-----------------------------------------------------
The obligations of the Transferee under this Agreement are subject
to the satisfaction at or prior to the Closing of each of the following
conditions (any of which may be waived by the Transferee in its sole
discretion):
Section 6.1. Correctness of Representations and Warranties. All of
the representations and warranties of the Transferors contained in this
Agreement or otherwise made in writing pursuant to this Agreement shall have
been true and correct in all material respects when made and shall be true and
correct in all material respects at the date of the Closing as though restated
and made at such time; all of the terms, covenants and conditions of this
Agreement required to be complied with and performed by the Transferors shall
have been duly complied with and performed
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in all material respects; and the Transferors shall have delivered to the
Transferee a certificate signed by M. Marks, R. Marks and Quek, dated the date
of the Closing, to the foregoing effect.
Section 6.2. Fairness Opinion. The Transferee shall have received an
opinion of Houlihan Lokey, in form and substance satisfactory to the Transferee,
to the effect that the terms of the transaction contemplated by this Agreement
are fair, from a financial viewpoint, to the shareholders of the Transferee.
Section 6.3. Absence of Litigation. There shall be no action, suit,
proceeding, judgment or decree pending before or threatened by any court or
governmental agency which would result in any material adverse change in the
business, properties or financial condition of either MVR or Unijoh or in which
it is sought or threatened to restrain, enjoin or prohibit (or to obtain damages
in a material amount in connection with) the consummation of the transaction
contemplated hereby.
Section 6.4. Absence of Certain Changes. There shall not have
occurred since the date of the MVR Balance Sheet any material casualty
(irrespective of any insurance relating thereto) to any of the assets of either
MVR or Unijoh or any other material adverse change in the financial condition,
properties or business of either MVR or Unijoh.
Section 6.5. Corporate Books; Corporate Approvals. The Transferee
shall have received (a) all of the corporate minute books, stock books, stock
transfer ledgers, corporate seals and other corporate records of MVR and Unijoh;
and (b) such other items and documents as the Transferee may reasonably request
and as may be consistent with the purposes of this Agreement.
Section 6.6. Opinions of Counsel. The Transferee shall have received
an opinion of counsel to each of MVR and Unijoh substantially in the form
attached hereto as Annex A.
Section 6.7. Employment Agreement. MVR, Unijoh and Quek shall have
entered into an employment agreement between them substantially in the form
attached hereto as Annex B.
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ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRANSFERORS
------------------------------------------------------
The obligations of the Transferors under this Agreement are subject
to the satisfaction at or prior to the date of Closing of each of the following
conditions (any of which may be waived by the Transferors jointly) in their sole
discretion:
Section 7.1. Correctness of Representations and Warranties. All of
the representations and warranties of the Transferee contained in this Agreement
or otherwise made in writing pursuant to this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects at the date of the Closing as though restated and made at such
time; all of the terms, covenants and conditions of this Agreement required to
be complied with and performed by the Transferee at or prior to the date of the
Closing shall have been duly complied with and performed in all material
respects; and the Transferee shall have delivered to the Transferors a
certificate signed by the Chief Financial Officer of the Transferee, dated the
date of the Closing, to the foregoing effect.
Section 7.2. Absence of Litigation. There shall be no action, suit,
proceeding, judgment or decree pending before or threatened by any court or
governmental agency which could result in any material adverse change in the
business, properties or financial condition of the Transferee or in which it is
sought or threatened to restrain, enjoin or prohibit (or to obtain damages in a
material amount in connection with) the consummation of the transactions
contemplated hereby.
Section 7.3. Fairness Opinion. The Transferee shall have received
the opinion of Houlihan Lokey described in Section 6.2 hereof.
Section 7.4. Employment Agreement. MVR, Unijoh and Quek shall have
entered into an employment agreement between them substantially in the form
attached hereto as Annex B.
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ARTICLE VIII
INVESTMENT UNDERTAKING; REGISTRATION RIGHTS
-------------------------------------------
Section 8.1. Investment Undertaking and Lock-Up. Each of M. Marks,
R. Marks and Quek confirms his understanding that the shares of MPA Shares to be
issued to him pursuant to this Agreement will be "restricted securities" within
the meaning of Rule 144 of the General Rules and Regulations under the
Securities Act of 1933, as amended (the "Act"), and acknowledges that he will
acquire such shares for his own account for investment and not with a view to
the distribution thereof. Each of M. Marks, R. Marks and Quek severally agrees
that he will not sell, transfer or otherwise dispose of any of such shares
unless (a) a registration statement under the Act with respect to such shares
has become, and is at the time of disposition, effective or (b) in the opinion
of counsel for the Transferee, the proposed disposition may be made in
accordance with the provisions of such Rule 144 or another exemption from
registration without constituting a violation of the Act or of any other
applicable federal or state securities laws. Each of M. Marks, R. Marks and Quek
further agrees that he may sell one-fourth of the MPA Shares received by him
hereunder commencing on the first anniversary of the date hereof and may sell an
additional one-fourth of the MPA Shares received by him hereunder commencing on
each of the next succeeding three anniversaries of the date of this Agreement
(notwithstanding earlier saleability under any applicable securities laws) (the
"Lock-Up") and further agrees that the Transferee may place on all certificates
representing MPA Shares delivered to them pursuant to this Agreement (or shares
issued in replacement thereof) (a) a legend to the effect that the shares
represented by such certificates have not been registered under the Act and that
the sale, transfer or other disposition of such shares is subject to the
provisions of the Act and of this Agreement, a copy of which shall be available
for inspection at the office of the Transferee in
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Torrance, California, and (b) a legend to the effect that the shares represented
by such certificates are subject to the Lock-Up.
Section 8.2. Additional Investment Representations. Each Transferor
represents that he is an accredited investor as that term is defined under
Regulation D promulgated by the SEC under the Act (or is not a United States
person for purposes of applicability of the Act and any rules and regulations
thereunder), is financially able to bear the economic risk of this investment,
including the ability to afford holding the MPA Shares for an indefinite period
or to afford a complete loss of the investment therein, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of an investment in the MPA Shares, has received and read the
financial and other information regarding MPA referred to herein, has been
employed by and/or conducted extensive business with MPA for an extended period
of time prior to the date hereof, has been given the opportunity to ask
questions of, and receive answers from, MPA concerning this transaction and the
business and financial condition of MPA, and has made an independent evaluation
of the merits of this transaction.
Section 8.3. No Registration Rights. Each Transferor acknowledges
and agrees that the Transferee does not grant any registration rights of any
kind with respect to the MVR Shares.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
Section 9.1. Survival of Representations and Warranties. All
representations, warranties and agreements made by the Transferors or the
Transferee in this Agreement or in any instrument pursuant hereto shall survive
the Closing and any investigation at any time made by or on behalf of such
party, provided, however, that no claim shall be asserted by the Transferee
against
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either of the Transferors or by either of the Transferors against the Transferee
for breach of any such representation, warranty or agreement unless the party
asserting such claim shall have given written notice of such claim to the party
or parties against whom it is asserted on or before the date which is one year
after the date of the Closing (except that the foregoing proviso shall not apply
to the obligations of the Transferors set forth in Section 5.2 of this Agreement
or those of the Transferors and the Transferee set forth in Article VIII of this
Agreement).
Section 9.2. Indemnification. (a) Each of the Transferors jointly
and severally, shall, on demand, indemnify and hold harmless the Transferee
from, and reimburse the Transferee for, any losses, damages, liabilities,
deficiencies and expenses (including reasonable attorneys' fees) incurred by the
Transferee after the date hereof by reason of, or arising out of, (i) any
material misrepresentation, omission of fact or material breach of any
representation or warranty contained in this Agreement or in any instrument
delivered to the Transferee hereunder on behalf of any Transferor, or (ii) any
failure by any Transferor to perform any obligation or duty required to be
performed by any of them under any provision of this Agreement. In the event
that any claim shall be asserted against the Transferee, MVR or Unijoh by anyone
other than a party to this Agreement, which may result in the assertion by the
Transferee of a claim under this Section 9.2(a) or otherwise against the
Transferors, the Transferee shall notify the Transferors of such claim promptly,
and the Transferors shall be given a reasonable opportunity, at their sole
expense, to control or, at their option, to participate in, the original defense
against or the compromise of such claim. In connection therewith, the Transferee
shall cooperate fully with the Transferors and shall make available to the
Transferors all pertinent information under the Transferee's control relating
thereto. Notwithstanding anything in this Agreement to the contrary, (x) the
Transferors shall in no event be liable to the Transferee under this Section
9.2(a) or otherwise under this Agreement until the aggregate damages
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sustained by the Transferee shall exceed $50,000 and then only for the damages
above $50,000 and (y) in no event shall such liability of any Transferor exceed
the value, at Closing, of the MPA Shares received by him pursuant to this
Agreement.
(b) The Transferee shall, on demand, indemnify and hold harmless
each Transferor from, and reimburse each Transferor for, any losses, damages,
liabilities, deficiencies and expenses (including reasonable attorneys' fees)
incurred by him after the date hereof by reason of, or arising out of (i) any
material misrepresentation, omission of fact or material breach of any
representation or warranty contained in this Agreement or in any instrument
delivered to him hereunder by the Transferee or (ii) any failure by the
Transferee to perform any obligation or duty required to be performed by the
Transferee under any provision of this Agreement. In the event that any claim
shall be asserted against any Transferor by anyone other than a party to this
Agreement which may result in the assertion by any Transferor of a claim under
this Section 9.2(b) or otherwise against the Transferee, the Transferors shall
notify the Transferee of such claim promptly, and the Transferee shall be given
a reasonable opportunity, at its sole expense, to control or, at its option, to
participate in the original defense against or the compromise of such claim. In
connection therewith, the Transferors shall cooperate fully with the Transferee
and shall make available to the Transferee all pertinent information under the
Transferors' control relating thereto. Notwithstanding anything in this
Agreement to the contrary, (x) the Transferee shall in no event be liable to the
Transferors under this Section 9.2(b) or otherwise under this Agreement until
the aggregate damages sustained by the Transferors shall exceed $50,000 and (y)
in no event shall such liability of the Transferee exceed the value, at Closing,
of the MPA Shares transferred to the Transferors at the Closing.
ARTICLE X
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MISCELLANEOUS
-------------
Section 10.1. Expenses. Whether or not the transactions contemplated
by this Agreement shall be consummated and except as otherwise expressly
provided in this Agreement, each of the parties hereto shall pay the fees and
expenses of its counsel, accountants and other experts (including Houlihan Lokey
in the case of the Transferee) and all other expenses incurred by it in
connection with the preparation for, entering into and consummation of the
transactions contemplated by this Agreement and all other matters incident
thereto.
Section 10.2. Notices. All notices, requests, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given upon the
delivery or mailing thereof, as the case may be, if delivered personally or sent
by registered or certified mail, return receipt requested, postage prepaid, as
follows:
(a) if to any or all of the Transferors, to such parties
at any of their respective addresses set forth above, with a copy
thereof to William Pollak, Esq., Putney, Twombly, Hall & Hirson, 521
Fifth Avenue, New York, New York 10175; and
(b) if to the Transferee, to Peter Bromberg, Chief
Financial Officer, Motorcar Parts & Accessories, Inc., 2727 Maricopa
Street, Torrance, California 90503, with a copy thereof to Gary J.
Simon, Esq., Parker Chapin Flattau & Klimpl, LLP, 1211 Avenue of the
Americas, New York, New York 10036;
or to such other person or address as any of the parties hereto shall have
specified by notice in writing to all other parties hereto.
Section 10.3. Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with respect to the
transactions contemplated hereby and supersedes any and all prior agreements and
understandings relating to the subject matter hereof. No representation,
promise, inducement or statement of intention has been made by any party hereto
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which is not embodied in this Agreement or the written statements, certificates,
schedules or other documents delivered pursuant hereto or in connection with the
transactions contemplated hereby, and no party hereto shall be bound by or
liable for any alleged representation, promise, inducement or statement of
intention not set forth herein or therein.
Section 10.4. Amendment., Waiver. This Agreement may be amended,
modified. superseded or cancelled, and any of the terms, covenants,
representations, warranties or conditions hereof may be waived, only by a
written instrument executed by the parties hereto or, in the case of a waiver,
by the party waiving compliance.
Section 10.5. Parties in Interest. All of the terms, covenants,
representations, warranties and conditions contained in this Agreement shall be
binding upon, and shall inure to the benefit of and be enforceable by, the
parties hereto and their respective heirs, successors and assigns, but this
Agreement and the rights and obligations contained herein shall not be
assignable by any of the parties hereto prior to the Closing without the prior
written consent of each other party hereto.
Section 10.6. Severability. If any provision of this Agreement or
the application of any such provision to any person or circumstance shall be
held invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
Section 10.7. Delivery of Schedules and Documents. The schedules and
documents referred to herein have been delivered and initialed on behalf of the
respective parties hereto for identification purposes.
Section 10.8. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without regard to the application of the conflicts of law rules thereof.
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Section 10.9. Captions. The section headings contained herein are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 10.10. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original
instrument and all of which together shall constitute a single agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first above written.
/s/ Mel Marks
------------------------------------
MEL MARKS
/s/ Richard Marks
------------------------------------
RICHARD MARKS
/s/ Vincent Quek
------------------------------------
VINCENT QUEK
MOTORCAR PARTS & ACCESSORIES, INC.
By: /s/ Peter Bromberg
--------------------------------
Peter Bromberg,
Chief Financial Officer
-25-
SUBSIDIARIES
Name Jurisdiction of Organization
MVR Products Pte Limited Singapore
Unijoh Sdn, Bhd Malaysia
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the
Registration Statement pertaining to the 1994 stock option plan of Motorcar
Parts & Accessories, Inc. on Form S-8 of our report dated May 16, 1997 which is
included in the annual report on Form 10-K for the year ended March 31, 1997.
/s/ Richard A. Eisner & Company, LLP
New York, New York
June 23, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000918251
<NAME> Motorcar Parts and Accessories
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,539,000
<SECURITIES> 0
<RECEIVABLES> 22,528,000
<ALLOWANCES> 200,000
<INVENTORY> 41,862,000
<CURRENT-ASSETS> 68,464,000
<PP&E> 6,106,000
<DEPRECIATION> 1,815,000
<TOTAL-ASSETS> 75,510,000
<CURRENT-LIABILITIES> 16,664,000
<BONDS> 0
0
0
<COMMON> 49,000
<OTHER-SE> 40,059,000
<TOTAL-LIABILITY-AND-EQUITY> 75,510,000
<SALES> 86,872,000
<TOTAL-REVENUES> 86,872,000
<CGS> 69,255,000
<TOTAL-COSTS> 76,719,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,090,000
<INCOME-PRETAX> 9,063,000
<INCOME-TAX> 3,529,000
<INCOME-CONTINUING> 5,534,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,534,000
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
