-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIaV3aiejLdSBZOuGvFLcyLH5aGFubWlJG98/yqZxF5p9U72+dmeo8QppyXXGfZT N7vCzx5RafnMDv0so4K6EA== 0000912057-96-011161.txt : 19960711 0000912057-96-011161.hdr.sgml : 19960711 ACCESSION NUMBER: 0000912057-96-011161 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960131 FILED AS OF DATE: 19960530 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUSTOM CHROME INC /DE CENTRAL INDEX KEY: 0000879360 STANDARD INDUSTRIAL CLASSIFICATION: 5013 IRS NUMBER: 770239046 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19540 FILM NUMBER: 96574872 BUSINESS ADDRESS: STREET 1: 16100 JACQUELINE COURT CITY: MORGAN HILL STATE: CA ZIP: 95037 BUSINESS PHONE: 4087780500 MAIL ADDRESS: STREET 1: 16100 JACQUELINE CT CITY: MORGAN HILL STATE: CA ZIP: 95037 10-K/A 1 10-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended January 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to ---------- -------- Commission file number 0-19540 CUSTOM CHROME, INC. (Exact name of Registrant as specified in its charter) Delaware 94-1716138 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 16100 Jacqueline Court Morgan Hill, California 95037 (Address of Principal Executive Offices, including Zip Code) Registrant's telephone number, including area code: (408) 778-0500 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value (Title and Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [x] The aggregate market value of voting stock held by non-affiliates of the Registrant, as of April 15, 1996, was approximately $83,600,000 (based upon the closing price for shares of the Registrant's Common Stock as reported by the NASDAQ National Market for the last trading date prior to that date). Shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. On April 15, 1996, approximately 5,114,000 shares of the Registrant's Common Stock, $.001 par value, were outstanding. The undersigned Registrant hereby amends its Annual Report on Form 10-K for the fiscal year ended January 31, 1996 (the "10-K"), as set forth below: The Registrant had originally intended to incorporate certain items from Part III of the 10-K from designated portions of the Registrant's definitive proxy statement. Since such definitive proxy statement will not be filed with the Commission within 120 days after the end of fiscal year covered by the 10-K, the Registrant is hereby filing the required information for Part III in this Report on Form 10-K/A. -2- PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is information regarding the directors of the Company, and their respective ages and positions as of April 30, 1996: NAME POSITION(S) WITH THE COMPANY AGE - - ---- ---------------------------- --- Ignatius J. Panzica. . Chairman of the Board of Directors; 52 Chief Executive Officer and President James J. Kelly, Jr.. . Director; Executive Vice President, Finance; 45 Chief Financial Officer; Secretary Lionel M. Allan. . . . Director 52 Joseph F. Keenan . . . Director 55 Joseph Piazza. . . . . Director 61 BUSINESS EXPERIENCE OF DIRECTORS IGNATIUS ("NACE") J. PANZICA is a co-founder of the Company and has been President of the Company since February 1991, Chief Executive Officer since September 1991 and Chairman of the Board since January 1994. Mr. Panzica served as Vice President, Operations of the Company from 1975 to 1991 and has been a member of the Board of Directors of the Company since 1975. JAMES J. KELLY, JR. has served as Executive Vice President, Finance of the Company since November 1995, Vice President, Finance and Chief Financial Officer of the Company since March 1992, Secretary of the Company since June 1992 and as a Director of the Company since July 1993. Prior to joining the Company in March 1992, Mr. Kelly served as Vice President, Finance and Chief Financial Officer of Canadian Marconi Company for eight years. Mr. Kelly is a member of the American Institute of Certified Public Accountants, the California Society of Certified Public Accountants and the Financial Executives Institute. LIONEL M. ALLAN has served as a director of the Company since June 1994. Mr. Allan is President of Allan Advisors, Inc., a legal consulting firm that he founded in April 1992. Previously, and for more than 20 years, Mr. Allan was in private law practice with Hopkins & Carley. Mr. Allan is also a director and past Chairman of the Board of KTEH Public Television Channel 54, in San Jose, California, a director of Accom, Inc., a digital video systems company, and a director of Catalyst Semiconductor, Inc., a semiconductor company. JOSEPH F. KEENAN has served as a Director of the Company since July 1993. Mr. Keenan served as President and Chief Executive Officer of Data East U.S.A. Inc., a privately owned manufacturer of coin operated and home video electronics games, from 1989 to 1992. Previously, he was principal of Wilkes Bashford Ltd., a specialty retailer of clothing and accessories in Northern California. Mr. Keenan has also held the positions of President and Chief Executive Officer at Pizza Time Theater, Inc. and Atari, Inc. JOSEPH PIAZZA has served as a Director of the Company since April 1996. From 1989 until October 1992, Mr. Piazza served as Executive Vice President of Lacy Diversified Industries, a privately-owned holding company, which owns Rocky Cycle Co., a motorcycle parts and accessory distribution company. From 1975 to 1986, Mr. Piazza served as President and Chief Executive Officer of Rocky Cycle Co. -3- BOARD MEETINGS AND COMMITTEES The Board of Directors held a total of five (5) meetings during the year ended January 31, 1996. The Company has an Audit Committee and a Compensation Committee of the Board of Directors. Each incumbent director attended at least 75% of the aggregate number of meetings of the Board of Directors and of the Committees on which such directors served and that were held during the period that such individual was a member of the Board of Directors. There are no family relationships among executive officers or directors of the Company. The Audit Committee is primarily responsible for approving the services performed by the Company's independent auditors and reviewing reports of the Company's external auditors regarding the Company's accounting practices and systems of internal accounting controls. This Committee currently consists of Messrs. Allan and Keenan. The Audit Committee held two (2) meetings during the year ended January 31, 1996. The Compensation Committee reviews and approves the Company's general compensation policies, establishes the compensation levels for the Company's executive officers and is responsible for administration of the Company's Stock Option Plans. This Committee currently consists of Messrs. Keenan and Piazza. The Compensation Committee held four (4) meetings during the year ended January 31, 1996. REMUNERATION The Company currently pays all non-employee Board members a fee of $5,000 for each full fiscal quarter that they serve as a Board member and also reimburses such individuals for the expenses incurred in connection with their attendance at Board and Committee meetings. In addition, the Company's 1995 Stock Option Plan includes an automatic option grant program under which each individual who first becomes a non-employee Board member after September 30, 1994 will receive, at the time of his or her initial election or appointment to the Board, an automatic option grant to purchase 2,500 shares of Common Stock at an exercise price per share equal to 100% of the fair market value per share on the grant date. In addition, at each Annual Stockholders Meeting, each individual who is to continue to serve as a non-employee Board member after the Meeting will receive an additional option grant to purchase 2,500 shares of Common Stock. The initial 2,500 share grant will become exercisable for 25% of the option shares upon the optionee's completion of one year of Board service measured from the grant date and will become exercisable for the balance of the option shares in 36 equal and successive monthly installments upon the optionee's completion of each additional month of Board service thereafter. Each additional 2,500 share grant will vest upon the optionee's completion of one year of Board service measured from the grant date. However, each option will become immediately exercisable for all the option shares in the event the Company is acquired by merger or asset sale or there should occur a change in control of the Company, whether through a successful tender offer for more than 50% of the outstanding Common Stock or a change in the majority of the Board by one or more proxy contests. Each option will have a maximum term of 10 years, subject to earlier termination upon the optionee's cessation of Board service. Information as to the Company's executive officers appears at the end of Part I of the originally-filed Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth the compensation earned by the Company's Chief Executive Officer and the Company's only other executive officer whose compensation for the year ended January 31, 1996 was at least $100,000 for services rendered in all capacities to the Company for each of the last three fiscal years. -4- SUMMARY COMPENSATION TABLE
Long Term Annual Compensation Compensation ------------------- ------------ Number of Year Securities Name and Ended Underlying All Other Principal Position January 31, Salary($)(1) Bonus($) Options(#) Compensation - - ------------------ ----------- ------------ -------- ---------- ------------ Ignatius J. Panzica 1996 337,550 614,805 100,000 500(2) Chairman of the Board, 1995 325,964 467,126 241,088 500(2) President and 1994 269,231 619,277 100,000 500(2) Chief Executive Officer James J. Kelly, Jr. 1996 131,005 4,551(3) 32,250 500(2) Director, Executive 1995 135,511 12,676(4) 30,000 500(2) Vice President, Finance 1994 121,608 20,000 27,500 500(2) Chief Financial Officer, Secretary
- - ---------- (1) Includes (i) salary deferral contributions made by the executive officer to the Company's 401(k) Plan and (ii) compensation for accrued vacation time not taken. (2) Represents matching contributions made by the Company on behalf of such executive officers to the Company's 401(k) Plan. (3) Represents forgiveness of interest accrued during calendar year 1995 on a loan made to Mr. Kelly to the Company in June 1994. See "Certain Relationships and Related Transactions." (4) Includes forgiveness of interest accrued of $2,676 during calendar year 1994 on a loan made to Mr. Kelly by the Company in June 1994 and a cash bonus of $10,000, which was applied as payment toward the outstanding principal balance on the loan. See "Certain Relationships and Related Transactions." -5- OPTION GRANTS The following table provides information with respect to the stock option grants made during the year ended January 31, 1996 to the Company's executive officers named in the Summary Compensation Table above. No stock appreciation rights were granted to these individuals during such fiscal year. OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at Assumed Annual Rate of Stock Price Appreciation Individual Grants for Option Term ------------------------------------------------- ------------------------ % of Total Options Exercise Granted to or Base Options Employees in Price(1) Expiration Name Granted(#) Fiscal Year ($/sh) Date 5 % ($)(2) 10 % ($)(2) - - ---- ---------- ----------- ------ ---- ---------- ----------- Ignatius J. Panzica 100,000(3) 32.2% $18.63 02/08/05 1,173,690 2,962,170 James J. Kelly, Jr. 32,250(4) 10.4% $18.63 02/08/05 378,515 955,300
- - ---------- (1) The exercise price may be paid in cash, in shares of Common Stock valued at fair market value on the exercise date or through a cashless exercise procedure involving a same-day sale of the purchased shares. The Company may also finance the option exercise by loaning the optionee sufficient funds to pay the exercise price for the purchased shares and the federal and state income tax liability incurred by the optionee in connection with such exercise. (2) The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by the Securities and Exchange Commission. There is no assurance provided to any executive officer or any other holder of the Company's securities that the actual stock price appreciation over the 10-year option term will be at the assumed 5% and 10% levels or at any other defined level. Unless the market price of the Common Stock appreciates over the option term, no value will be realized from the option grants made to the executive officers. (3) Such option will become exercisable for 100% of the option shares upon the optionee's completion of one year of service with the Company, measured from the February 8, 1995 grant date. However, the option will become immediately exercisable for all the option shares in the event the Company is acquired by a merger or asset sale, unless the option is assumed or replaced by the acquiring entity. The Compensation Committee also has the authority to provide for the automatic acceleration of such option in the event there is a hostile take-over of the Company, whether by successful tender offer for more than 50% of the Company's outstanding voting securities or contested election of Board membership. The option has a maximum term of 10 years, subject to earlier termination in the event of the optionee's cessation of employment with the Company. (4) Such option will become exercisable for 25% of the option shares upon the optionee's completion of one year of service with the Company, measured from the February 8, 1995 grant date, and will become exercisable -6- for the balance of the shares in 36 equal and successive monthly installments upon the optionee's completion of each additional month of service thereafter. However, the option will become immediately exercisable for all the option shares in the event the Company is acquired by a merger or asset sale, unless the option is assumed or replaced by the acquiring entity. The Compensation Committee also has the authority to provide for the automatic acceleration of such option in the event there is a hostile take-over of the Company, whether by successful tender offer for more than 50% of the Company's outstanding voting securities or contested election of Board membership. The option has a maximum term of 10 years, subject to earlier termination in the event of the optionee's cessation of employment with the Company. OPTION EXERCISES AND HOLDINGS The table below sets forth information concerning the exercise of options during the fiscal year ended January 31, 1996 and unexercised options held as of the end of such year by the Company's executive officers named in the Summary Compensation Table. No stock appreciation rights were exercised during such fiscal year or outstanding as of the end of that fiscal year. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Number Value of of Unexercised Unexercised In-the-Money Shares Aggregate Options at Options at Acquired On Value Realized FY-End (#) FY-End(2) Name Exercise(#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable - - ---- ----------- -------------- ------------------------- ------------------------- Ignatius J. Panzica 29,167 $298,556 206,713/205,208 $1,197,224/$1,442,165 James J. Kelly, Jr. 27,082 $302,088 12,397/62,771 $70,310/$497,151
(1) Value Realized is equal to the market price of the purchased shares at the time the option is exercised, less the aggregate exercise price paid for such shares. Value Realized does not take into account the federal and state income taxes payable by the individual in connection with the option exercise or the subsequent sale of the shares. (2) Market price at fiscal year end ($25.06) less exercise price. For purposes of this calculation, the fiscal year end market price of the shares is deemed to be the closing sale price of the Company's Common Stock as reported on the National Association of Securities Dealers Automated Quotations System on Wednesday, January 31, 1996. EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENT Ignatius J. Panzica entered into an employment agreement with the Company in August 1989 in connection with the acquisition of the Company by Custom Chrome Holdings, Inc. This agreement was subsequently amended in September 1991 in connection with the initial public offering of the Common Stock and provides for an employment relationship terminable at will by either party at any time for any reason. Pursuant to this agreement, Mr. Panzica is entitled to a minimum level of annual base salary, which as a result of periodic increases authorized by the Compensation Committee is at $300,000, effective February 1, 1994. In addition, Mr. Panzica is to be paid an annual bonus based upon the Company's operating income for each fiscal year. Under the bonus formula, Mr. Panzica will earn an aggregate bonus each year equal to 3% of operating income up to $5,400,000, 4% of -7- operating income between $5,400,000 and $8,000,000 and 5% of operating income in excess of $8,000,000. Operating income is defined as the consolidated net income of the Company and its subsidiaries, as reflected in the Company's audited financial statements, but adjusted to exclude extraordinary gains or losses and to add back nonrecurring charges, interest on long-term debt, income taxes and amortization and depreciation associated with the 1989 acquisition. The bonus will be payable in a lump sum following the close of the fiscal year for which earned. When the cumulative gross amounts paid to Mr. Panzica after February 1, 1991 on account of salary in excess of $125,000 per year for fiscal years through January 31, 1994 and $300,000 per year for fiscal years beginning January 31, 1994 and bonus exceed $6,093,000, no further bonuses under this agreement will be payable. James J. Kelly, Jr. entered into an employment agreement with the Company in March 1992, when he first joined the Company as Chief Financial Officer. Pursuant to that agreement, Mr. Kelly is entitled to a minimum level of annual base salary, which as a result of periodic increases authorized by the Compensation Committee is at $125,000 effective March 1, 1994, plus a bonus of up to 20% of his base salary awarded in the sole discretion of the Compensation Committee. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 The members of the Board of Directors, the executive officers of the Company and persons who hold more than ten percent (10%) of the Company's outstanding Common Stock are subject to the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, which requires such individuals to file reports with respect to their ownership of and transactions in the Company's securities. Officers, directors and greater than ten percent (10%) stockholders are required to furnish the Company with copies of all such reports they file. Based upon the copies of those reports furnished to the Company and written representations that no other reports were required to be filed, the Company believes that all reporting requirements under Section 16(a) for the year ended January 31, 1996 were met in a timely manner by executive officers, Board members and greater than ten percent (10%) stockholders. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee are Mr. Keenan and (since April 1996) Joseph Piazza. Neither Mr. Keenan nor Mr. Piazza was at any time during the year ended January 31, 1996 or at any other time an officer or employee of the Company. Tyrone Cruze, Sr. also served on the Compensation Committee during the year ended January 31, 1996 and also served as the Vice- Chairman of the Board during such fiscal year and served as President and Chief Executive Officer from 1975 to January 1991. Mr. Cruze resigned from the Board of Directors and from the Compensation Committee in March 1996. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity which has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information known to the Company with respect to the beneficial ownership of the Company's Common Stock as of April 15, 1996 by (i) all persons who are beneficial owners of five percent or more of the Company's Common Stock, (ii) each director, (iii) each executive officer of the Company named in the Summary Compensation Table above, and (iv) all current directors and executive officers as a group. Except as otherwise indicated, the Company believes that the beneficial owners of the Common Stock listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. -8-
NAME AND ADDRESS, IF REQUIRED, OF SHARES PERCENT OF SHARES BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED ---------------- ------------------ ------------------ Ignatius J. Panzica (1) 469,808 8.6% Custom Chrome, Inc. 16100 Jacqueline Court Morgan Hill, CA 95037 Northwestern Mutual Life Insurance Co. (2) 457,100 8.9% 720 East Wisconsin Avenue Milwaukee, WI 53202 State of Wisconsin Investment Board (3) 437,700 8.6% 121 E. Wilson Street Madison, WI 53702 Putnam Investment Management, Inc. (4) 376,625 7.4% One Post Office Square Boston, MA 02109 Gardner Lewis Asset Management, Inc. (5) 370,400 7.2% 285 Wilmington Pike Chadford, PA 19317 James J. Kelly, Jr. (6) 24,862 * Lionel M. Allan (7) 5,291 * Joseph F. Keenan (8) 3,208 * Joseph Piazza -- * All current directors and executive officers as a group (8 persons) (1)(6)(7)(8) 615,850 11.1%
- - ------------------ * Less than one percent (1%). (1) Includes 319,423 shares issuable upon the exercise of options which are currently exercisable or which will become exercisable within 60 days of April 15, 1996. (2) Such information is based upon information received from Northwestern Mutual Life Insurance Company and reflects shares held in several accounts. (3) Represents shares beneficially owned by Wisconsin Investment Board as a result of its serving as investment advisor to various investment accounts. Wisconsin Investment Board has sole voting power and sole dispositive power with respect to all such shares. Such information is based on communications from Wisconsin Investment Board and the Company's knowledge after investigation. (4) Represents shares beneficially owned by Putnam Investment Management, Inc. ("Putnam Investment") as a result of its serving as investment advisor to various investment accounts. Putnam Investment has sole -9- voting power and sole dispositive power with respect to all such shares. Such information is based on the Company's knowledge after investigation and previous communications from Putnam Investment. (5) Represents shares beneficially owned by Gardner Lewis Asset Management, Inc. ("Gardner Lewis") as a result of its serving as investment advisor to various investment accounts. Gardner Lewis has sole voting power with respect to 332,200 of such shares. Such information is based on communications from Gardner Lewis. (6) Includes 23,412 shares issuable upon the exercise of options which are currently exercisable or which will become exercisable within 60 days after April 15, 1996. (7) Includes 3,291 shares issuable upon the exercise of options which are currently exercisable or which will become exercisable within 60 days after April 15, 1996. Mr. Allan's shares are held by the Allan Advisors, Inc. Profit Sharing Plan. (8) Includes 708 shares issuable upon the exercise of options which are currently exercisable or which will become exercisable within 60 days after April 15, 1996. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On June 11, 1994, the Company loaned James J. Kelly, Jr., the Executive Vice President, Finance, Chief Financial Officer, Secretary, and a Director of the Company, $100,000, at an annual interest rate of 5.63%, compounded annually. The loan was made for the sole purpose of assisting Mr. Kelly with the purchase of Mr. Kelly's principal residence in Morgan Hill, California, and the loan is secured by a Second Deed of Trust on such residence. The entire principal balance of the loan, together with all accrued and unpaid interest, was due and payable on July 11, 2001. The Company agreed to forgive the interest accrued on the unpaid total balance on the loan as a yearly bonus at the end of each calendar year while the loan remained outstanding; in turn, 75% of the cash portion of any annual bonus received by Mr. Kelly was to be applied as payment toward the outstanding principal balance on the loan. During the year ended January 31, 1996, the largest amount outstanding under Mr. Kelly's loan was $100,000, and on April 15, 1996, Mr. Kelly repaid the entire remaining amount outstanding under the loan. -10- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- The following Consolidated Financial Statements of Custom Chrome, Inc. and its subsidiaries are filed as part of this report on Form 10-K: Independent Auditors' Report F-1 Consolidated Balance Sheets - January 31, 1996 and 1995 F-2 Consolidated Statements of Operations - Years ended January 31, 1996, 1995 and 1994 F-3 Consolidated Statements of Shareholders' Equity - Years ended January 31,1996, 1995 and 1994 F-4 Consolidated Statements of Cash Flows - Years ended January 31, 1996, 1995 and 1994 F-5 & F-6 Notes to Consolidated Financial Statements F-7 - F-12 2. CONSOLIDATED FINANCIAL STATEMENT SCHEDULES Schedule II - Valuation and Qualifying Accounts II-1 All other schedules have been omitted because the matter or conditions are not present or the information required to be set forth therein is included in the Consolidated Financial Statements hereto. (b) REPORTS ON FORM 8-K A report on Form 8-K was filed with the Securities and Exchange Commission on March 20, 1996 disclosing important factors that could cause the Company's actual results to differ materially from those described in forward-looking statements made by or on behalf of the Company. (c) EXHIBITS Exhibit Number Exhibit - - ------ ------- 3.1(1) Certificate of Incorporation of Custom Chrome, Inc. 3.2(3) Restated Certificate of Incorporation of Custom Chrome, Inc. 3.3(1) Bylaws, as amended. 3.4(1) Form of Amendment to Bylaws. 4.1 Reference is made to Exhibit 3.1. 4.2 Reference is made to Exhibit 3.2. -11- 4.3 Reference is made to Exhibit 3.3. 10.1(1) Custom Chrome, Inc. 1991 Stock Option Plan (the "Stock Option Plan"). 10.2(1) Form of Stock Option Agreement for granting stock options under the Stock Option Plan. 10.3(2) Custom Chrome, Inc. 1991 Stock Option Plan, as restated on March 2, 1992 (the "Restated Stock Option Plan"). 10.4(2) Form of Notice of Grant of Stock Option (the "Notice of Grant") and Stock Option Agreement, attached as Exhibit A to the Notice of Grant, for granting stock options under the Restated Stock Option Plan. 10.5(2) Form of Non-Statutory Stock Option Agreement for automatic option grants made under the Restated Stock Option Plan. 10.6(1) Form of Employment or Association Agreement for Assignment of Inventions and Confidentiality of Company Information. 10.7(1) Form of Director's Indemnification Agreement. 10.10(1) Stock Purchase Agreement among Tyrone Cruze, Sr., Custom Chrome Holdings, Inc. and Custom Chrome, Inc. dated May 24, 1989. 10.15(1) Long-Term Incentive Compensation Agreement between Custom Chrome Holdings, Inc. and Ignatius J. Panzica dated August 23, 1989. 10.18(1) Management Bonus and Non-competition Agreement between Custom Chrome, Inc. and Ignatius J. Panzica dated August 23, 1989. 10.39(1) Asset Purchase Agreement between Custom Chrome Manufacturing, Inc. and TBW, Inc. dba Santee Industries dated January 19, 1990. 10.40(1) Assignment and Assumption Agreement among Derek and Louise Whitehead, F.M.& L., Inc. and Custom Chrome Manufacturing, Inc., dated January 19, 1990, including promissory notes to F.M.& L. 10.42(1) Settlement Agreement, Release and Covenant Not-To-Sue among Custom Chrome Manufacturing, Inc., Custom Chrome, Inc., Robert Lautz and TBW, Inc. (d/b/a Santee Industries) dated November 4, 1990. 10.45(1) Exclusive Manufacturing and Royalty Agreement between Custom Chrome, Inc. and Zodiac Enterprises, Ltd. dated March 7, 1987. 10.46(1) Amendment Agreement to Exclusive Manufacturing and Royalty Agreement between Custom Chrome, Inc. and Zodiac Enterprises, Ltd. dated August 1991. 10.55(1) Option Agreement between Custom Chrome Holdings, Inc. and Ignatius J. Panzica dated July 31, 1991. 10.56(1) Employment Agreement between Custom Chrome, Inc. and Ignatius J. Panzica dated September 19, 1991. 10.57(1) Amendment between Ignatius J. Panzica and Custom Chrome, Inc. dated September 19, 1991, to Subscription and Stockholders Agreement between Custom Chrome, Inc. and the Investors therein August 23, 1989. 10.62(3) Form of Master Lease Agreement between Custom Chrome, Inc. and BancBoston Leasing Inc. 10.63(3) Installment Sale Agreement between Custom Chrome, Inc. and Hewlett-Packard Company dated February 1992 and related documents. 10.64(5) Lease agreement between Custom Chrome, Inc. and Central Storage & Transfer Co. dated December 17, 1991. -12- 10.65(4) Line of Credit Agreement between the Company and Bank of America N. T. & S. A. 10.66(6) Lease between the Company and Allen Chrome Partners, dated April 14, 1994. 10.67(6) Lease between the Company and H.L.M Properties dated February 18, 1994. 10.68(7) Note Agreement between the Company and Connecticut Mutual Life Insurance Company, dated as of December 1, 1994. 10.69(8) Note Secured by Second Deed of Trust executed by James J. Kelly, Jr., dated July 11, 1994 and related letter agreement of the same date. 10.70(8) 1995 Stock Option Plan and form of stock option agreement. 10.71 Business Loan Agreement between the Company and Bank of America National Trust and Savings Association, dated May 23, 1996. 11.1(9) Statement re Computation of Net Income per Common Share and Share Equivalent. 22.1(1) Subsidiaries of the Company. 23.1(9) Consent of Independent Auditors 24.1 Power of Attorney. Reference is made to page 22 of the originally filed Report on Form 10-K. - - -------------------------------- (1) Incorporated by reference from an exhibit filed with the Company's Registration Statement on Form S-1 (File No. 33-42875) declared effective by the Securities and Exchange Commission on November 5, 1991. (2) Incorporated by reference from an exhibit filed with the Company's Registration Statement on Form S-8 (File No. 33-47223) filed with the Securities and Exchange Commission on April 15, 1992. (3) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 00019540) filed with the Securities and Exchange Commission on April 30, 1992. (4) Incorporated by reference from an exhibit filed with the Company's Registration Statement on Form S-3 (File No. 33-65112) declared effective by the Securities and Exchange Commission on July 22, 1993. (5) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 00019540) filed with the Securities and Exchange Commission on April 30, 1993. (6) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 00019540) filed with the Securities and Exchange Commission on April 28, 1994. (7) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 00019540) filed with the Securities and Exchange Commission on April 28, 1995. (8) Incorporated by reference from an exhibit filed with the Company's Registration Statement of Form S-8 (File No. 33-80095) filed with the Securities and Exchange Commission on December 6, 1995. (9) Incorporated by reference from an exhibit filed with the Company's Annual Report on Form 10-K (File No. 00019540) filed with the Securities and Exchange Commission on April 30, 1996. -13- 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, IN MORGAN HILL, CALIFORNIA ON THIS 28TH DAY OF MAY, 1996. CUSTOM CHROME, INC. By: /s/ Ignatius J. Panzica -------------------------- Ignatius J. Panzica Chairman, President and Chief Executive Officer -14- EX-10.71 2 EXHIBIT 10.71 - - -------------------------------------------------------------------------------- [LOGO] BANK OF AMERICA BUSINESS LOAN AGREEMENT NATIONAL TRUST AND SAVINGS ASSOCIATION - - -------------------------------------------------------------------------------- THIS AGREEMENT DATED AS OF MAY 23, 1996, IS BETWEEN BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (THE "BANK") AND CUSTOM CHROME, INC. (THE "BORROWER"). 1. FACILITY NO. 1: LINE OF CREDIT AMOUNT AND TERMS 1.1 LINE OF CREDIT AMOUNT. (a) During the availability period described below, the Bank will provide a line of credit to the Borrower. The amount of the line of credit (the "Facility 1 Commitment") is equal to the amount indicated for each period set forth below: Period Amount -------- -------- From the date of this Agreement through July 31, 1996 $20,000,000 On August 1, 1996 and thereafter $15,000,000 Notwithstanding the foregoing, if at any time during the period from the date of this Agreement through July 31, 1996, the Borrower receives proceeds of any new private placement of debt or any new private placement or public offering of equity, then the Facility 1 Commitment for such period shall be immediately decreased to Fifteen Million Dollars ($15,000,000), and any payments that may be required in accordance with subparagraph (c) of this paragraph as a result of such decrease shall be immediately made. (b) This is a revolving line of credit with within line facilities for letters of credit and Local Currency (as defined below) advances. During the availability period, the Borrower may repay principal amounts and reborrow them. (c) The Borrower agrees not to permit the outstanding principal balance of the line of credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, plus the Equivalent Amount (as defined below) of Local Currency advances outstanding to exceed the Facility 1 Commitment. 1.2 AVAILABILITY PERIOD. The line of credit is available between the date of this Agreement and June 30, 1997 (the "Facility 1 Expiration Date") unless the Borrower is in default. 1.3 INTEREST RATE. (a) Unless the Borrower elects an optional interest rate as described below, the interest rate is the Bank's Reference Rate. (b) The Reference Rate is the rate of interest publicly announced from time to time by the Bank in San Francisco, California, as its Reference Rate. The Reference Rate is set by the Bank based on various factors, including the Bank's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans. The Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Bank's Reference Rate. 1.4 REPAYMENT TERMS. (a) The Borrower will pay interest on June 1, 1996, and then monthly thereafter until payment in full of any principal outstanding under this line of credit. -1- (b) The Borrower will repay in full all principal and any unpaid interest or other charges outstanding under this line of credit no later than the Facility 1 Expiration Date. 1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's Reference Rate, the Borrower may elect to have all or portions of the line of credit (during the availability period) bear interest at the rate(s) described below during an interest period agreed to by the Bank and the Borrower. Each interest rate is a rate per year. Interest will be paid on the last day of each interest period, and on the first day each month during the interest period. At the end of any interest period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrower has designated another optional interest rate for the portion. 1.6 SHORT TERM FIXED RATE. The Borrower may elect to have all or portions of the principal balance of the line of credit bear interest at the Short Term Fixed Rate, subject to the following requirements: (a) The "Short Term Fixed Rate" means the Short Term Base Rate plus 1.0 percentage point. (b) The "Short Term Base Rate" means the fixed interest rate per annum, determined solely by the Bank on the first day of the applicable interest period for the Short Term Fixed Rate portion, as the rate at which the Bank would be able to borrow funds in the Money Market in the amount of the Short Term Fixed Rate portion and with an interest and principal payment schedule equal to the Short Term Fixed Rate portion and for a term equal to the applicable interest period. The Short Term Base Rate shall include adjustments for reserve requirements, federal deposit insurance, and other similar adjustment which the Bank deems appropriate. The Short Term Base Rate is the Bank's estimate only and the Bank is under no obligation to actually purchase or match funds for any transaction. (c) "Money Market" means one or more wholesale funding markets available to the Bank, including domestic negotiable certificates of deposit, eurodollar deposits, bank deposit notes or other appropriate money market instruments selected by the Bank. (d) The interest period during which the Short Term Fixed Rate will be in effect will be one year or less. (e) Each Short Term Fixed Rate portion will be for an amount not less than the following: (i) for interest periods of 14 days or longer, Five Hundred Thousand Dollars ($500,000). (ii) for interest periods of 1 to 3 days, Five Million Dollars ($5,000,000). (iii) for interest periods of between 4 days and 13 days, an amount which, when multiplied by the number of days in the applicable interest period, is not less than fifteen million (15,000,000) dollar-days. (f) Any portion of the principal balance of the line of credit already bearing interest at the Short Term Fixed Rate will not be converted to a different rate during its interest period. (g) Each prepayment of a Short Term Fixed Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee equal to the amount (if any) by which (i) the additional interest which would have been payable on the amount prepaid had it not been prepaid, exceeds (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the Money Market for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion (or the scheduled payment date for the amount prepaid, if earlier). 1.7 OFFSHORE RATE. The Borrower may elect to have all or portions of the principal balance of the line of credit bear interest at the Offshore Rate plus 1.0 percentage point. Designation of an Offshore Rate portion is subject to the following requirements: (a) The interest period during which the Offshore Rate will be in effect will be one year or less. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter- bank market. -2- (b) Each Offshore Rate portion will be for an amount not less than Five Hundred Thousand Dollars ($500,000) for interest periods of 30 days or longer. For shorter maturities, each Offshore Rate portion will be for an amount which, when multiplied by the number of days in the applicable interest period, is not less than fifteen million (15,000,000) dollar-days. (c) The "Offshore Rate" means the interest rate determined by the following formula, rounded upward to the nearest 1/100 of one percent. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) Offshore Rate = Grand Cayman Rate ----------------------------- (1.00 - Reserve Percentage) Where, (i) "Grand Cayman Rate" means the interest rate (rounded upward to the nearest 1/16th of one percent) at which the Bank's Grand Cayman Branch, Grand Cayman, British West Indies, would offer U.S. dollar deposits for the applicable interest period to other major banks in the offshore dollar inter-bank markets. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in the Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrower may not elect an Offshore Rate with respect to any portion of the principal balance of the line of credit which is scheduled to be repaid before the last day of the applicable interest period. (e) Any portion of the principal balance of the line of credit already bearing interest at the Offshore Rate will not be converted to a different rate during its interest period. (f) Each prepayment of an Offshore Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid, and a prepayment fee equal to the amount (if any) by which (i) the additional interest which would have been payable on the amount prepaid had it not been prepaid, exceeds (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the offshore dollar market for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion (or the scheduled payment date for the amount prepaid, if earlier). (g) The Bank will have no obligation to accept an election for an Offshore Rate portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of an Offshore Rate portion are not available in the offshore dollar inter-bank markets; or (ii) the Offshore Rate does not accurately reflect the cost of an Offshore Rate portion. 1.8 LETTERS OF CREDIT. This line of credit may be used for financing: (i) commercial letters of credit with a maximum maturity of 365 days but not to extend more than 90 days beyond the Facility 1 Expiration Date. Each commercial letter of credit will require drafts payable at sight. (ii) standby letters of credit with a maximum maturity of 365 days but not to extend more than 90 days beyond the Facility 1 Expiration Date. -3- (iii) The amount of letters of credit outstanding at any one time (including amounts drawn on letters of credit and not yet reimbursed) may not exceed Two Million Five Hundred Thousand Dollars ($2,500,000) for commercial letters of credit and One Million Dollars ($1,000,000) for standby letters of credit. The Borrower agrees: (a) any sum drawn under a letter of credit may, at the option of the Bank, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement. (b) if there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding letters of credit. (c) the issuance of any letter of credit and any amendment to a letter of credit is subject to the Bank's written approval and must be in form and content satisfactory to the Bank and in favor of a beneficiary acceptable to the Bank. (d) to sign the Bank's form Application and Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit. (e) to pay any issuance and/or other fees that the Bank notifies the Borrower will be charged for issuing and processing letters of credit for the Borrower. (f) to allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges. (g) to pay the Bank a non-refundable fee equal to 1.25% per annum of the outstanding undrawn amount of each standby letter of credit, payable quarterly in advance, calculated on the basis of the face amount outstanding on the day the fee is calculated. 1.9 THE LOCAL CURRENCY FACILITY. (a) From time to time during the availability period, the Bank or a Local Currency Affiliate will make Local Currency advances to the Borrower and to direct and indirect subsidiaries of the Borrower acceptable to the Bank and located outside of the United States ("Subsidiaries"). The Equivalent Amount of all Local Currency advances outstanding at any one time under this Agreement may not exceed Two Million Five Hundred Thousand Dollars ($2,500,000). (b) Neither the Bank nor the Local Currency Affiliate shall have any obligation to make any Local Currency advance unless the Bank or the Local Currency Affiliate and the Borrower or the Subsidiary agree, at the time of the Borrower's or the Subsidiary's request for a Local Currency advance, on the currency, the amount, the principal payment date, the interest rate and payment dates, the prepayment and overdue payment terms, and the reserve and tax provisions for such advance. (c) The Borrower or the Subsidiary shall execute such additional documentation as the Bank or the Local Currency Affiliate may require relating to each Local Currency advance. (d) Each Local Currency advance to a Subsidiary shall be guaranteed by the Borrower pursuant to a guaranty in form and substance satisfactory to the Bank or the Local Currency Affiliate. (e) For purposes of this Agreement: (i) "Equivalent Amount" means the equivalent in U.S. Dollars of another currency calculated at the spot rate for the purchase of such other currency with U.S. Dollars quoted by the Bank's Foreign Exchange Trading Center in San Francisco, California, at approximately 8:00 a.m. San Francisco time two (2) banking days (as determined by the Bank with respect to such currency) prior to the relevant date. (ii) "Local Currency" means a lawful currency other than U.S. Dollars which is available at a Local Currency Affiliate and is the legal tender of the country where the Local Currency Affiliate is located. -4- (iii) "Local Currency Affiliate" means an affiliate or branch of the Bank located in the country where a Local Currency advance is to be made or, with respect to Article 2 below, where a foreign exchange contract is to be entered into. 2. FACILITY NO. 2: FOREIGN EXCHANGE FACILITY AMOUNT AND TERMS 2.1 FOREIGN EXCHANGE FACILITY. (a) Between the date of this Agreement and June 30, 1997 (the "Facility 2 Expiration Date"), the Bank or a Local Currency Affiliate in its discretion may enter into spot and future foreign exchange contracts with the Borrower or a Subsidiary. The foreign exchange contract limit will be Thirteen Million U.S. Dollars (U.S. $13,000,000), and the settlement limit will be Four Million Five Hundred Thousand U.S. Dollars (U.S. $4,500,000). The "foreign exchange contract limit" is the maximum limit on the net difference between the total foreign exchange contracts outstanding less the total foreign exchange contracts for which the Borrower or a Subsidiary has already compensated the Bank or a Local Currency Affiliate, as applicable. The "settlement limit" is the maximum limit on the gross total amount of all sale and purchase contracts on which delivery is to be effected and settlement allowed on any one banking day. (b) Neither the Bank nor the Local Currency Affiliate shall be required to pay the Borrower or the Subsidiary or deliver any foreign currency to the Borrower or the Subsidiary under any foreign exchange contract until the Bank or the Local Currency Affiliate receives evidence satisfactory to it that the Borrower or the Subsidiary has paid the Bank or the Local Currency Affiliate the required U. S. Dollars in immediately available funds or delivered the required foreign currency to the Bank or the Local Currency Affiliate under such foreign exchange contract. Neither the Bank nor the Local Currency Affiliate shall be liable for interest or other damages caused by any such failure to pay or deliver or any such delay in payment or delivery. (c) The Borrower or the Subsidiary will pay the Bank or the Local Currency Affiliate on demand the Bank's or the Local Currency Affiliate's then standard foreign exchange contract fees for each contract. (d) Foreign exchange contracts will be in form and substance satisfactory to the Bank or the Local Currency Affiliate. The Borrower or the Subsidiary shall execute such additional documentation as the Bank or the Local Currency Affiliate may require relating to each foreign exchange contract including, with respect to any foreign exchange contract between the Bank or a Local Currency Affiliate and a Subsidiary, a guaranty signed by the Borrower in form, amount, and substance satisfactory to the Bank or the Local Currency Affiliate. (e) No foreign exchange contract will mature later than fifteen (15) months from the date it is entered into and in no event more than ninety (90) days after the Facility 2 Expiration Date; provided, however, that for a Subsidiary, no foreign exchange contract will mature later than twelve (12) months from the date it is entered into. (f) Neither the Bank nor the Local Currency Affiliate shall be liable for any loss suffered by the Borrower or the Subsidiary as a result of the Borrower's or the Subsidiary's foreign exchange transactions. (g) Any sum owed to the Bank or a Local Currency Affiliate under a foreign exchange contract may, at the option of the Bank or the Local Currency Affiliate, be added to the principal amount outstanding under this Agreement. The amount will bear interest and be due as described elsewhere in this Agreement. (h) In addition to any other rights or remedies which the Bank or the Local Currency Affiliate may have under this Agreement or otherwise, upon the occurrence of an event of default the Bank or the Local Currency Affiliate may: (i) Suspend performance of its obligations to the Borrower or the Subsidiary under any foreign exchange contract; (ii) Declare all foreign exchange contracts, interest and any other amounts which are payable by the Borrower or the Subsidiary to the Bank or the Local Currency Affiliate immediately due and payable; and (iii) Without notice to the Borrower or the Subsidiary, close out any or all foreign exchange contracts or positions of the Borrower or the Subsidiary with the Bank or the Local Currency Affiliate. -5- Neither the Bank nor the Local Currency Affiliate shall be under any obligation to exercise any such rights or remedies or to exercise them at a time or in a manner beneficial to the Borrower or the Subsidiary. The Borrower or the Subsidiary shall be liable for any amounts owing to the Bank or the Local Currency Affiliate after exercise of any such rights and remedies. 3. FACILITY NO. 3: TERM LOAN AMOUNT AND TERMS 3.1 LOAN AMOUNT. The Bank agrees to provide a term loan to the Borrower in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) (the "Facility 3 Commitment"). 3.2 AVAILABILITY PERIOD. The loan is available in one or more disbursements from the Bank between the date of this Agreement and September 30, 1996, unless the Borrower is in default. 3.3 INTEREST RATE. Unless the Borrower elects an optional interest rate as described below, the interest rate is the Bank's Reference Rate. 3.4 REPAYMENT TERMS. (a) The Borrower will pay all accrued but unpaid interest on June 1, 1996, and then monthly thereafter and upon payment in full of the principal of the loan. (b) The Borrower will repay principal in 28 successive monthly installments starting November 1, 1996. Each installment will be in an amount that would fully amortize the outstanding principal amount over 180 monthly installments. On February 21, 1999, the Borrower will repay the remaining principal balance plus any interest then due. (c) The Borrower may prepay the loan in full or in part at any time. The prepayment will be applied to the most remote installment of principal due under this Agreement. 3.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's Reference Rate, the Borrower may elect to have all or portions of the loan bear interest at the rate(s) described below during an interest period agreed to by the Bank and the Borrower. Each interest rate is a rate per year. Interest will be paid on the last day of each interest period, and on the first day each month during the interest period. At the end of any interest period, the interest rate will revert to the rate based on the Reference Rate, unless the Borrower has designated another optional interest rate for the portion. 3.6 SHORT TERM FIXED RATE. The Borrower may elect to have all or portions of the principal balance of the loan bear interest at the Short Term Fixed Rate, subject to the same requirements set forth in subparagraphs (b) through (g) of Paragraph 1.6 (except for purposes of this Facility No. 3, the "Short Term Fixed Rate" means the Short Term Base Rate plus 2.25 percentage points, and the term "loan" is substituted for the term "line of credit" in subparagraph (f) of Paragraph 1.6). 3.7 LONG TERM RATE. The Borrower may elect to have all or portions of the principal balance of the loan bear interest at the Long Term Rate, subject to the following requirements: (a) The interest period during which the Long Term Rate will be in effect will be one year or more. (b) The "Long Term Rate" means the Long Term Base Rate plus 2.25 percentage points. (c) The "Long Term Base Rate" means the fixed interest rate per annum, determined solely by the Bank on the first day of the applicable interest period for the Long Term Rate portion, as the rate at which the Bank would be able to borrow funds in the Money Market in the amount of the Long Term Rate portion and with an interest payment frequency and principal repayment schedule equal to the Long Term Rate portion and for a term equal to the applicable interest period. The Long Term Base Rate shall include adjustments for reserve requirements, federal deposit insurance, and any other similar adjustment which the Bank deems appropriate. The Long Term Base Rate is the Bank's estimate only and the Bank is under no obligation to actually purchase or match funds for any transaction. -6- (d) "Money Market" means one or more wholesale funding markets available to the Bank, including domestic negotiable certificates of deposit, eurodollar deposits, bank deposit notes or other appropriate money market instruments selected by the Bank. (e) Each Long Term Rate portion will be for an amount not less than One Hundred Thousand Dollars ($100,000). (f) Any portion of the principal balance of the loan already bearing interest at the Long Term Rate will not be converted to a different rate during its interest period. (g) The Borrower may prepay the Long Term Rate portion in whole or in part in the minimum amount of One Hundred Thousand Dollars ($100,000). The Borrower will give the Bank irrevocable written notice of the Borrower's intention to make the prepayment, specifying the date and amount of the prepayment. The notice must be received by the Bank at least 5 banking days in advance of the prepayment. All prepayments of principal on the Long Term Rate portion will be applied on the most remote principal installment or installments then unpaid. (h) Each prepayment of a Long Term Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by payment of all accrued interest on the amount of the prepayment and the prepayment fee described below. (i) The prepayment fee will be the sum of fees calculated separately for each Prepaid Installment, as follows: (i) The Bank will first determine the amount of interest which would have accrued each month for the Prepaid Installment had it remained outstanding until the applicable Original Payment Date, using the Long Term Rate; (ii) The Bank will then subtract from each monthly interest amount determined in (i), above, the amount of interest which would accrue for that Prepaid Installment if it were reinvested from the date of prepayment through the Original Payment Date, using the following rate: (A) If the Original Payment Date is more than 5 years after the date of prepayment: the Treasury Rate plus one-quarter of one percentage point; (B) If the Original Payment Date is 5 years or less after the date of prepayment: the Money Market Rate. (iii) If (i) minus (ii) for the Prepaid Installment is greater than zero, the Bank will discount the monthly differences to the date of prepayment by the rate used in (ii) above. The sum of the discounted monthly differences is the prepayment fee for that Prepaid Installment. (j) The following definitions will apply to the calculation of the prepayment fee: "Money Market Rate" means the fixed interest rate per annum which the Bank determines could be obtained by reinvesting a specified Prepaid Installment in the Money Market from the date of prepayment through the Original Payment Date. "Original Payment Dates" means the dates on which principal of the Long Term Rate portion would have been paid if there had been no prepayment. If a portion of the principal would have been paid later than the end of the interest period in effect at the time of prepayment, then the Original Payment Date for that portion will be the last day of the interest period. "Prepaid Installment" means the amount of the prepaid principal of the Long Term Rate portion which would have been paid on a single Original Payment Date. "Treasury Rate" means the interest rate yield for U.S. Government Treasury Securities which the Bank determines could be obtained by reinvesting a specified Prepaid Installment in such securities from the date of prepayment through the Original Payment Date. The Bank may adjust the Treasury Rate and Money Market Rate to reflect the compounding, accrual basis, or other costs of the Long Term Rate portion. Each of the rates is the Bank's estimate only and the Bank is under no -7- obligation to actually reinvest any prepayment. The rates will be based on information from either the Telerate or Reuters information services, THE WALL STREET JOURNAL, or other information sources the Bank deems appropriate. 3.8 LIBOR RATE. The Borrower may elect to have all or portions of the principal balance bear interest at the LIBOR Rate plus 2.25 percentage points. Designation of a LIBOR Rate portion is subject to the following requirements: (a) The interest period during which the LIBOR Rate will be in effect will be one, three, or six months. The first day of the interest period must be a day other than a Saturday or a Sunday on which the Bank is open for business in California, New York and London and dealing in offshore dollars (a "LIBOR Banking Day"). The last day of the interest period and the actual number of days during the interest period will be determined by the Bank using the practices of the London inter-bank market. (b) Each LIBOR Rate portion will be for an amount not less than Five Hundred Thousand Dollars ($500,000). (c) The "LIBOR Rate" means the interest rate determined by the following formula. (All amounts in the calculation will be determined by the Bank as of the first day of the interest period.) LIBOR Rate = LIBOR --------------------------- (1.00 - Reserve Percentage) Where, (i) "LIBOR" means the average per annum rate of interest at which U.S. dollar deposits in the amount of the LIBOR Rate portion would be offered for the applicable interest period by major banks in the London U.S. dollar inter-bank market as shown on the Telerate Page 3750 (or such other page as may replace it) at approximately 11:00 a.m. London time two (2) London Banking Days before the commencement of the interest period. If such rate does not appear on the Telerate Page 3750 (or such other page as may replace it), the rate for that interest period will be determined by such alternative method as reasonably selected by the Bank. A "London Banking Day" is a day on which the Bank's London Branch is open for business and dealing in offshore dollars. (ii) "Reserve Percentage" means the total of the maximum reserve percentages for determining the reserves to be maintained by member banks of the Federal Reserve System for Eurocurrency Liabilities, as defined in Federal Reserve Board Regulation D, rounded upward to the nearest 1/100 of one percent. The percentage will be expressed as a decimal, and will include, but not be limited to, marginal, emergency, supplemental, special, and other reserve percentages. (d) The Borrower shall irrevocably request a LIBOR Rate portion no later than 12:00 noon San Francisco time on the LIBOR Banking Day preceding the day on which LIBOR will be set, as specified above. (e) The Borrower may not elect a LIBOR Rate with respect to any principal amount which is scheduled to be repaid before the last day of the applicable interest period. (f) Any portion of the principal balance already bearing interest at the LIBOR Rate will not be converted to a different rate during its interest period. (g) Each prepayment of a LIBOR Rate portion, whether voluntary, by reason of acceleration or otherwise, will be accompanied by the amount of accrued interest on the amount prepaid and a prepayment fee as described below. A "prepayment" is a payment of an amount on a date earlier than the scheduled payment date for such amount as required by this Agreement. The prepayment fee shall be equal to the amount (if any) by which: (i) the additional interest which would have been payable during the interest period on the amount prepaid had it not been prepaid, exceeds -8- (ii) the interest which would have been recoverable by the Bank by placing the amount prepaid on deposit in the domestic certificate of deposit market, the eurodollar deposit market, or other appropriate money market selected by the Bank, for a period starting on the date on which it was prepaid and ending on the last day of the interest period for such portion (or the scheduled payment date for the amount prepaid, if earlier). (h) The Bank will have no obligation to accept an election for a LIBOR Rate portion if any of the following described events has occurred and is continuing: (i) Dollar deposits in the principal amount, and for periods equal to the interest period, of a LIBOR Rate portion are not available in the London inter-bank market; or (ii) the LIBOR Rate does not accurately reflect the cost of a LIBOR Rate portion. 4. FEES AND EXPENSES 4.1 LOAN FEES. The Borrower agrees to pay a Twenty-Two Thousand Five Hundred Dollar ($22,500) fee due on June 30, 1996. 4.2 EXPENSES. (a) The Borrower agrees to immediately repay the Bank for expenses that include, but are not limited to, filing, recording and search fees and documentation fees. (b) The Borrower agrees to reimburse the Bank for any expenses it incurs in the preparation of this Agreement and any agreement or instrument required by this Agreement. Expenses include, but are not limited to, reasonable attorneys' fees, including any allocated costs of the Bank's in-house counsel. (c) The Borrower agrees to reimburse the Bank for the cost of periodic audits and appraisals of the personal property collateral securing this Agreement, at such intervals as the Bank may reasonably require. The audits and appraisals may be performed by employees of the Bank or by independent appraisers. 5. COLLATERAL 5.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under this Agreement will be secured pursuant to the Security Agreement and Intercreditor Agreement Re: Receivables, Equipment, Inventory and General Intangibles dated as of December 1, 1994, among the Borrower, Wilmington Trust Company, individually only as expressly provided therein and otherwise solely as Collateral Agent (the "Collateral Agent"), the Bank and Connecticut Mutual Life Insurance Company (as now in effect and as amended from time to time, the "Security and Intercreditor Agreement") and will constitute Senior Secured Obligations as defined in the Security and Intercreditor Agreement. 6. DISBURSEMENTS, PAYMENTS AND COSTS 6.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made in writing in a manner acceptable to the Bank, or by another means acceptable to the Bank. 6.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment by the Borrower will be: (a) made at the Bank's branch (or other location) selected by the Bank from time to time; (b) made for the account of the Bank's branch selected by the Bank from time to time; (c) made in immediately available funds, or such other type of funds selected by the Bank; (d) evidenced by records kept by the Bank. In addition, the Bank may, at its discretion, require the Borrower to sign one or more promissory notes. -9- 6.3 TELEPHONE AND TELEFAX AUTHORIZATION. (a) The Bank may honor telephone or telefax instructions for advances or repayments or for the designation of optional interest rates and telefax requests for the issuance of letters of credit given by any one of the individuals authorized to sign loan agreements on behalf of the Borrower, or any other individual designated by any one of such authorized signers. (b) Advances will be deposited in and repayments will be withdrawn from the Borrower's account number 14870 -50076, or such other of the Borrower's accounts with the Bank as designated in writing by the Borrower. (c) The Borrower indemnifies and excuses the Bank (including its officers, employees, and agents) from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions it reasonably believes are made by any individual authorized by the Borrower to give such instructions. This indemnity and excuse will survive this Agreement's termination. 6.4 DIRECT DEBIT. (a) The Borrower agrees that interest and principal payments and any fees will be deducted automatically on the due date from checking account number 14870-50076. (b) The Bank will debit the account on the dates the payments become due. If a due date does not fall on a banking day, the Bank will debit the account on the first banking day following the due date. (c) The Borrower will maintain sufficient funds in the account on the dates the Bank enters debits authorized by this Agreement. If there are insufficient funds in the account on the date the Bank enters any debit authorized by this Agreement, the debit will be reversed. 6.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday or a Sunday on which the Bank is open for business in California. For amounts bearing interest at an offshore rate (if any), a banking day is a day other than a Saturday or a Sunday on which the Bank is open for business in California and dealing in offshore dollars. All payments and disbursements which would be due on a day which is not a banking day will be due on the next banking day. All payments received on a day which is not a banking day will be applied to the credit on the next banking day. 6.6 TAXES. The Borrower will not deduct any taxes from any payments it makes to the Bank. If any government authority imposes any taxes on any payments made by the Borrower, the Borrower will pay the taxes and will also pay to the Bank, at the time interest is paid, any additional amount which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such taxes had not been imposed. Upon request by the Bank, the Borrower will confirm that it has paid the taxes by giving the Bank official tax receipts (or notarized copies) within 30 days after the due date. However, the Borrower will not pay the Bank's net income taxes. 6.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the Bank's costs or losses arising from any statute or regulation, or any request or requirement of a regulatory agency which is applicable to all national banks or a class of all national banks. The costs and losses will be allocated to the loan in a manner determined by the Bank, using any reasonable method. The costs include the following: (a) any reserve or deposit requirements; and (b) any capital requirements relating to the Bank's assets and commitments for credit. 6.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all interest and fees, if any, will be computed on the basis of a 360-day year and the actual number of days elapsed. This results in more interest or a higher fee than if a 365-day year is used. 6.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any amount not paid when due under this Agreement (including interest) shall bear interest from the due date at the Bank's Reference Rate. This may result in compounding of interest. -10- 7. CONDITIONS The Bank must receive the following items, in form and content acceptable to the Bank, before it is required to extend any credit to the Borrower under this Agreement: 7.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by the Borrower (and any Subsidiary) of this Agreement and any instrument or agreement required under this Agreement have been duly authorized. 7.2 SECURITY AGREEMENTS. Signed original security agreements, assignments, acknowlegments, financing statements and fixture filings (together with collateral in which the Bank requires a possessory security interest), which the Bank requires, subject in all cases to the Security and Intercreditor Agreement. 7.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in favor of the Bank and the Collateral Agent under the Security and Intercreditor Agreement are valid, enforceable, and prior to all others' rights and interests, except those the Bank consents to in writing and except as provided in the Security and Intercreditor Agreement. 7.4 INSURANCE. Evidence of insurance coverage, as required in the "Covenants" section of this Agreement. 7.5 GUARANTIES. Continuing Guaranties (Multicurrency) in favor of the Bank, its subsidiaries or any of its affiliates, each signed by the Borrower, in the amount of Two Million Seven Hundred Fifty Thousand U.S. Dollars (U.S. $2,750,000) and One Million Five Hundred Thousand U.S. Dollars (U.S. $1,500,0000), respectively, as required under Paragraph(s) 1.9 and/or 2.1 above. 7.6 ENVIRONMENTAL PHASE 2 REPORT. A completed environmental Phase 2 report on the existing warehouse located in Louisville, KY ("Warehouse Property"). The results of such report must be acceptable to the Bank. 7.7 OTHER ITEMS. Any other items that the Bank reasonably requires. 8. REPRESENTATIONS AND WARRANTIES When the Borrower signs this Agreement, and until the Bank is repaid in full, the Borrower makes the following representations and warranties. Each request for an extension of credit constitutes a renewed representation. 8.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and existing under the laws of the state where organized. 8.2 AUTHORIZATION. This Agreement, and any instrument or agreement required hereunder, are within the Borrower's powers, have been duly authorized, and do not conflict with any of its organizational papers. 8.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms, and any instrument or agreement required hereunder, when executed and delivered, will be similarly legal, valid, binding and enforceable. 8.4 GOOD STANDING. In each state in which the Borrower does business, it is properly licensed, in good standing, and, where required, in compliance with fictitious name statutes. 8.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or obligation by which the Borrower is bound. 8.6 FINANCIAL INFORMATION. All financial and other information that has been or will be supplied to the Bank is: (a) sufficiently complete to give the Bank accurate knowledge of the Borrower's financial condition. (b) in form and content required by the Bank. (c) in compliance with all government regulations that apply. -11- 8.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or threatened against the Borrower, which, if lost, would impair the Borrower's financial condition or ability to repay the loan, except as have been disclosed in writing to the Bank. 8.8 COLLATERAL. All collateral required in this Agreement is owned by the grantor of the security interest free of any title defects or any liens or interests of others, except those which have been approved by the Bank in writing and except as provided in the Security and Intercreditor Agreement. 8.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships, franchises, contracts and licenses required and all trademark rights, trade name rights, patent rights and fictitious name rights necessary to enable it to conduct the business in which it is now engaged. 8.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for borrowed money, any purchase money obligation or any other material lease, commitment, contract, instrument or obligation. 8.11 INCOME TAX RETURNS. The Borrower has no knowledge of any pending assessments or adjustments of its income tax for any year. 8.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse of time or both would be, a default under this Agreement. 8.13 ERISA PLANS. (a) The Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and has not incurred any liability with respect to any Plan under Title IV of ERISA. (b) No reportable event has occurred under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (c) No action by the Borrower to terminate or withdraw from any Plan has been taken and no notice of intent to terminate a Plan has been filed under Section 4041 of ERISA. (d) No proceeding has been commenced with respect to a Plan under Section 4042 of ERISA, and no event has occurred or condition exists which might constitute grounds for the commencement of such a proceeding. (e) The following terms have the meanings indicated for purposes of this Agreement: (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended from time to time. (iii) "PBGC" means the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA. (iv) "Plan" means any employee pension benefit plan maintained or contributed to by the Borrower and insured by the Pension Benefit Guaranty Corporation under Title IV of ERISA. 8.14 LOCATION OF BORROWER. The Borrower's place of business (or, if the Borrower has more than one place of business, its chief executive office) is located at the address listed under the Borrower's signature on this Agreement. 9. COVENANTS The Borrower agrees, so long as credit is available under this Agreement and until the Bank is repaid in full: 9.1 USE OF PROCEEDS. To use the proceeds of (a) Facility No. 1 only for financing working capital requirements and for the issuance of commercial and standby letters of credit, and (b) Facility No. 3 only for financing the expansion of the Warehouse Property. -12- 9.2 USE OF PROCEEDS - INELIGIBLE SECURITIES. Not to use, directly or indirectly, any portion of the proceeds of the credit (including any letters of credit) for any of the following purposes: (a) knowingly to purchase Ineligible Securities from BA Securities, Inc. (the "Arranger") during any period in which the Arranger makes a market in such Ineligible Securities, or (b) knowingly to purchase during the underwriting or placement period Ineligible Securities being underwritten or privately placed by the Arranger. (c) to make payments of principal or interest on Ineligible Securities underwritten or privately placed by the Arranger and issued by or for the benefit of the Borrower or any affiliate of the Borrower. "Ineligible Securities" means securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as amended. The Arranger is a wholly-owned subsidiary of BankAmerica Corporation, and is a registered broker- dealer which is permitted to underwrite and deal in certain Ineligible Securities. 9.3 FINANCIAL INFORMATION. To provide the following financial information and statements and such additional information as requested by the Bank from time to time: (a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual financial statements. These financial statements must be audited (with an unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to the Bank. The statements shall be prepared on a consolidated basis. (b) Within 120 days of the Borrower's fiscal year end, copies of CPA audited annual financial statements for each Subsidiary for which the Bank requests such statements. (c) Within 120 days of the Borrower's fiscal year end, copies of the Borrower's Form 10-K Annual Report filed with the Securities and Exchange Commission ("SEC"). (d) Within 60 days of each quarter's end, copies of the Borrower's Form 10-Q Quarterly Report filed with the SEC and, within 30 days after the date of filing with the SEC, copies of any Form 8-K Current Report filed by the Borrower. (e) Within 60 days of the Borrower's fiscal year end, copies of the Borrower's annual business plan and capital expenditure budget for the next fiscal year which shall include a balance sheet and income statement forecast on a monthly basis. 9.4 CURRENT RATIO. To maintain on a consolidated basis a ratio of current assets to current liabilities of at least 2.0:1.0. For the purposes of this calculation, the principal balance outstanding under Facility No. 1 shall be classified as a current liability. 9.5 FIXED CHARGES COVERAGE RATIO. To maintain a Fixed Charges Coverage Ratio of not less than 3.00 to 1.00. "Fixed Charges Coverage Ratio" shall have the meaning set forth in that Note Agreement dated as of December 1, 1994 Re: $15,000,000 8.01% Senior Secured Notes Due December 15, 2001 executed by the Borrower and accepted by Connecticut Mutual Life Insurance Company ("Note Agreement"). For purposes of this Agreement, the definition of Fixed Charges Coverage Ratio shall remain as defined in the Note Agreement as in effect on December 1, 1994, and shall not be modified or amended by any change, amendment, restatement, or other modification or the termination of the Note Agreement unless agreed to by the Bank in writing. 9.6 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a consolidated basis a ratio of total liabilities not subordinated to tangible net worth not exceeding the amounts indicated for each period specified below: PERIOD RATIO ------ ----- From the date of this Agreement through July 30, 1996 1.10:1.0 On July 31, 1996 and thereafter 1.0:1.0 -13- "Total liabilities not subordinated" means the sum of current liabilities plus long term liabilities, excluding debt subordinated to the Borrower's obligations to the Bank in a manner acceptable to the Bank, using the Bank's standard form. "Tangible net worth" means the gross book value of the Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred research and development costs, deferred marketing expenses, and other like intangibles, and monies due from affiliates, officers, directors or shareholders of the Borrower) plus liabilities subordinated to the Bank in a manner acceptable to the Bank (using the Bank's standard form) less total liabilities, including but not limited to accrued and deferred income taxes, and any reserves against assets. 9.7 PROFITABILITY. To maintain on a consolidated basis a positive net income before taxes and extraordinary items and a positive net income after taxes and extraordinary items as of the end of each quarterly accounting period on a fiscal year-to-date basis. 9.8 OTHER DEBTS. Not to have outstanding or incur any direct or contingent debts or lease obligations (other than those to the Bank), or become liable for the debts of others without the Bank's written consent. This does not prohibit: (a) Acquiring goods, supplies, or merchandise on normal trade credit. (b) Endorsing negotiable instruments received in the usual course of business. (c) Obtaining surety bonds in the usual course of business. (d) Debts and leases in existence on the date of this Agreement disclosed in writing to the Bank. (e) Additional debts and lease obligations for the acquisition of fixed or capital assets, to the extent permitted by Paragraph 9.10 below. (f) Additional indebtedness in a total principal amount not to exceed Fifteen Million Dollars ($15,000,000), placed by the Arranger. 9.9 OTHER LIENS. Not to create, assume, or allow any security interest or lien (including judicial liens) on property the Borrower now or later owns, except: (a) Deeds of trust and security agreements in favor of the Bank. (b) Liens for taxes not yet due. (c) Liens outstanding on the date of this Agreement disclosed in writing to the Bank. (d) Additional purchase money security interests in personal or real property acquired after the date of this Agreement which secure obligations permitted under subparagraph 9.8(e), above. (e) Liens pursuant to the Security and Intercreditor Agreement. 9.10 CAPITAL EXPENDITURES. Not to spend or incur obligations (including the total amount of any capital leases) for more than Two Million Five Hundred Thousand Dollars ($2,500,000) in any single fiscal year to acquire fixed or capital assets. Any such acquisitions funded by cash shall be excluded from this limitation. 9.11 MAXIMUM INDEBTEDNESS. To limit the total principal balance outstanding under Facility No. 1 to Two Million Five Hundred Thousand Dollars ($2,500,000) for a period of at least 30 consecutive days in each line-year. "Line-year" means the period between the date of this Agreement and June 30, 1997, and each subsequent one-year period (if any). For the purposes of this paragraph, "principal balance outstanding" does not include undrawn amounts of outstanding letters of credit or the outstanding amounts of Local Currency advances. 9.12 DIVIDENDS. Unless the Borrower is in compliance with the terms and conditions of this Agreement as evidenced by compliance certificates required herein, (a) not to declare or pay any dividends on any of its shares except dividends -14- payable in capital stock of the Borrower, and (b) not to purchase, redeem or otherwise acquire for value any of its shares, or create any sinking fund in relation thereto. 9.13 NOTICES TO BANK. To promptly notify the Bank in writing of: (a) any lawsuit over Five Hundred Thousand Dollars ($500,000) against the Borrower. (b) any substantial dispute between the Borrower and any government authority. (c) any failure to comply with this Agreement. (d) any material adverse change in the Borrower's financial condition or operations. (e) any change in the Borrower's name, legal structure, place of business, or chief executive office if the Borrower has more than one place of business. (f) any dividends declared or paid on any of the Borrower's shares, any purchases, redemption or other acquisition of any of the Borrower's shares, or the creation of any sinking fund in relation to any of the Borrower's shares, any of which events shall be accompanied by the certificates of compliance required under Paragraph 9.25 below. 9.14 BOOKS AND RECORDS. To maintain adequate books and records. 9.15 AUDITS. To allow the Bank and its agents to inspect the Borrower's properties and examine, audit and make copies of books and records at any reasonable time. If any of the Borrower's properties, books or records are in the possession of a third party, the Borrower authorizes that third party to permit the Bank or its agents to have access to perform inspections or audits and to respond to the Bank's requests for information concerning such properties, books and records. 9.16 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious name statute), regulations, and orders of any government body with authority over the Borrower's business. 9.17 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges, and franchises the Borrower now has. 9.18 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements to keep the Borrower's properties in good working condition. 9.19 PERFECTION OF LIENS. To help the Bank perfect and protect its security interests and liens, and reimburse it for related costs it incurs to protect its security interests and liens. 9.20 COOPERATION. To take any action requested by the Bank to carry out the intent of this Agreement. 9.21 INSURANCE. (a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage insurance policies covering the tangible property comprising the collateral. Each insurance policy must be in an amount acceptable to the Bank. The insurance must be issued by an insurance company acceptable to the Bank and must include a lender's loss payable endorsement in favor of the Bank in a form acceptable to the Bank. (b) GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the business it is in. (c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the Bank a copy of each insurance policy, or, if permitted by the Bank, a certificate of insurance listing all insurance in force. 9.22 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent: (a) engage in any business activities other than manufacturing and/or distribution of goods related to sports and /or recreation. -15- (b) liquidate or dissolve the Borrower's business. (c) enter into any consolidation, merger, pool, joint venture, syndicate, or other combination, or acquire or purchase a business or its assets for a consideration, including assumption of debt, in excess of an aggregate of Thirteen Million Dollars ($13,000,000) in any one fiscal year. (d) lease, or dispose of all or a substantial part of the Borrower's business or the Borrower's assets. (e) sell or otherwise dispose of any assets for less than fair market value. (f) sell, otherwise dispose of, or enter into any sale and leaseback agreement covering any of its fixed or capital assets in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate for each fiscal year. 9.23 ERISA PLANS. To give prompt written notice to the Bank of: (a) The occurrence of any reportable event under Section 4043(b) of ERISA for which the PBGC requires 30 day notice. (b) Any action by the Borrower to terminate or withdraw from a Plan or the filing of any notice of intent to terminate under Section 4041 of ERISA. (c) Any notice of noncompliance made with respect to a Plan under Section 4041(b) of ERISA. (d) The commencement of any proceeding with respect to a Plan under Section 4042 of ERISA. 9.24 ACQUISITIONS. To notify the Bank in writing of any acquisition of a business or its assets at least 45 days prior to closing. For the acquisition that causes the cumulative aggregate consideration (including assumption of debt) for all such acquisitions since the date of this Agreement to exceed Five Million Dollars ($5,000,000), and for each subsequent acquisition, the Borrower agrees to submit a pro forma balance sheet and income statement, prepared with monthly data for the period extending through the Facility 1 Expiration Date, demonstrating both the financial effect of such acquisition and the fact that the Borrower will continue to comply with all the terms and conditions of this Agreement. 9.25 COMPLIANCE CERTIFICATES. To deliver to the Bank (a) within 60 days of each quarter's end, a quarterly certificate showing compliance with the terms and conditions of this Agreement and the Note Agreement, and (b) in conjunction with any notice required under Paragraph 9.13(f) above, a certificate showing compliance with the terms and conditions of this Agreement and the Note Agreement for the next 3 fiscal quarters. 9.26 MAXIMUM INVENTORY. During the period beginning January 1, 1996 and ending April 30, 1996, not to allow net inventory to exceed Fifty Four Million Dollars ($54,000,000), and during the period beginning May 1, 1996 and ending July 31,1996, not to allow net inventory to exceed Fifty Million Dollars ($50,000,000). For the purposes of this paragraph, "net inventory" means the value of the Borrower's inventory as shown in that certain line item labelled "Net inventory" on the Borrower's most recent financial statements delivered to the Bank under Paragraph 9.3 of this Agreement. 10. DEFAULT If any of the following events occur, the Bank may do one or more of the following: declare the Borrower in default, stop making any additional credit available to the Borrower, and require the Borrower to repay its entire debt immediately and without prior notice. If an event of default occurs under the paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the entire debt outstanding under this Agreement will automatically be due immediately. 10.1 FAILURE TO PAY. The Borrower or any Subsidiary fails to make a payment when due under this Agreement, under any Local Currency advance, or under any foreign exchange contract. 10.2 LIEN PRIORITY. The Collateral Agent on behalf of the Bank fails to have an enforceable first lien (except for any prior liens to which the Collateral Agent and the Bank have consented in writing) on or security interest in any property given as security for this loan. -16- 10.3 FALSE INFORMATION. The Borrower has given the Bank false or misleading information or representations. 10.4 BANKRUPTCY. The Borrower or any Subsidiary files a bankruptcy petition, a bankruptcy petition is filed against the Borrower or any Subsidiary, or the Borrower or any Subsidiary makes a general assignment for the benefit of creditors. 10.5 RECEIVERS. A receiver or similar official is appointed for the Borrower's or any Subsidiary's business, or the business is terminated. 10.6 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade creditors against the Borrower in an aggregate amount of Five Hundred Thousand Dollars ($500,000) or more in excess of any insurance coverage. 10.7 JUDGMENTS. Any judgments or arbitration awards are entered against the Borrower, or the Borrower enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of Five Hundred Thousand Dollars ($500,000) or more in excess of any insurance coverage. 10.8 GOVERNMENT ACTION. Any government authority takes action that the Bank believes materially adversely affects the Borrower's financial condition or ability to repay. 10.9 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's financial condition, properties or prospects, or ability to repay the loan. 10.10 CROSS-DEFAULT. Any default occurs under any agreement in connection with any credit the Borrower has obtained from anyone else or which the Borrower has guaranteed. 10.11 DEFAULT UNDER RELATED DOCUMENTS. Any guaranty, subordination agreement, security agreement, deed of trust, or other document required by or referred to in this Agreement is violated or no longer in effect, including any document executed at any time by any Subsidiary in connection with Facility No. 1 or Facility No. 2. 10.12 OTHER BANK AGREEMENTS. The Borrower or any Subsidiary fails to meet the conditions of, or fails to perform any obligation under any other agreement the Borrower or any Subsidiary has with the Bank or any affiliate of the Bank including, without limitation, the Security and Intercreditor Agreement. 10.13 ERISA PLANS. The occurrence of any one or more of the following events with respect to the Borrower, provided such event or events could reasonably be expected, in the judgment of the Bank, to subject the Borrower to any tax, penalty or liability (or any combination of the foregoing) which, in the aggregate, could have a material adverse effect on the financial condition of the Borrower with respect to a Plan: (a) A reportable event shall occur with respect to a Plan which is, in the reasonable judgment of the Bank likely to result in the termination of such Plan for purposes of Title IV of ERISA. (b) Any Plan termination (or commencement of proceedings to terminate a Plan) or the Borrower's full or partial withdrawal from a Plan. 10.14 OTHER BREACH UNDER AGREEMENT. The Borrower or any Subsidiary fails to meet the conditions of, or fails to perform any obligation under, any term of this Agreement not specifically referred to in this Article. 11. ENFORCING THIS AGREEMENT; MISCELLANEOUS 11.1 GAAP. Except as otherwise stated in this Agreement, all financial information provided to the Bank and all financial covenants will be made under generally accepted accounting principles, consistently applied. 11.2 CALIFORNIA LAW. This Agreement is governed by California law. 11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the Bank's successors and assignees. The Borrower agrees that it may not assign this Agreement without the Bank's prior consent. The Bank may sell participations in or assign this loan, and may exchange financial information about the Borrower with actual or potential -17- participants or assignees. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower. -18- 11.4 ARBITRATION. (a) This paragraph concerns the resolution of any controversies or claims between the Borrower and the Bank, including but not limited to those that arise from: (i) This Agreement (including any renewals, extensions or modifications of this Agreement); (ii) Any document, agreement or procedure related to or delivered in connection with this Agreement; (iii) Any violation of this Agreement; or (iv) Any claims for damages resulting from any business conducted between the Borrower and the Bank, including claims for injury to persons, property or business interests (torts). (b) At the request of the Borrower or the Bank, any such controversies or claims will be settled by arbitration in accordance with the United States Arbitration Act. The United States Arbitration Act will apply even though this Agreement provides that it is governed by California law. (c) Arbitration proceedings will be administered by the American Arbitration Association and will be subject to its commercial rules of arbitration. (d) For purposes of the application of the statute of limitations, the filing of an arbitration pursuant to this paragraph is the equivalent of the filing of a lawsuit, and any claim or controversy which may be arbitrated under this paragraph is subject to any applicable statute of limitations. The arbitrators will have the authority to decide whether any such claim or controversy is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. (e) If there is a dispute as to whether an issue is arbitrable, the arbitrators will have the authority to resolve any such dispute. (f) The decision that results from an arbitration proceeding may be submitted to any authorized court of law to be confirmed and enforced. (g) The procedure described above will not apply if the controversy or claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property located in California. In this case, both the Borrower and the Bank must consent to submission of the claim or controversy to arbitration. If both parties do not consent to arbitration, the controversy or claim will be settled as follows: (i) The Borrower and the Bank will designate a referee (or a panel of referees) selected under the auspices of the American Arbitration Association in the same manner as arbitrators are selected in Association-sponsored proceedings; (ii) The designated referee (or the panel of referees) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections; (iii) The referee (or the presiding referee of the panel) will be an active attorney or a retired judge; and (iv) The award that results from the decision of the referee (or the panel) will be entered as a judgment in the court that appointed the referee, in accordance with the provisions of California Code of Civil Procedure Sections 644 and 645. (h) This provision does not limit the right of the Borrower or the Bank to: (i) exercise self-help remedies such as setoff; (ii) foreclose against or sell any real or personal property collateral; or (iii) act in a court of law, before, during or after the arbitration proceeding to obtain: (A) an interim remedy; and/or -19- (B) additional or supplementary remedies. (i) The pursuit of or a successful action for interim, additional or supplementary remedies, or the filing of a court action, does not constitute a waiver of the right of the Borrower or the Bank, including the suing party, to submit the controversy or claim to arbitration if the other party contests the lawsuit. However, if the controversy or claim arises from or relates to an obligation to the Bank which is secured by real property located in California at the time of the proposed submission to arbitration, this right is limited according to the provision above requiring the consent of both the Borrower and the Bank to seek resolution through arbitration. (j) If the Bank forecloses against any real property securing this Agreement, the Bank has the option to exercise the power of sale under the deed of trust or mortgage, or to proceed by judicial foreclosure. 11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable, the rest of the Agreement may be enforced. The Bank retains all rights, even if it makes a loan after default. If the Bank waives a default, it may enforce a later default. Any consent or waiver under this Agreement must be in writing. 11.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all reasonable costs incurred by the Bank in connection with administering this Agreement. 11.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable costs and attorneys' fees incurred by the Bank in connection with the enforcement or preservation of any rights or remedies under this Agreement and any other documents executed in connection with this Agreement, and including any amendment, waiver, "workout" or restructuring under this Agreement. In the event of a lawsuit or arbitration proceeding, the prevailing party is entitled to recover costs and reasonable attorneys' fees incurred in connection with the lawsuit or arbitration proceeding, as determined by the court or arbitrator. As used in this paragraph, "attorneys' fees" includes the allocated costs of in- house counsel. 11.8 ONE AGREEMENT. This Agreement and any related security or other agreements required by this Agreement, collectively: (a) represent the sum of the understandings and agreements between the Bank and the Borrower concerning this credit; and (b) replace any prior oral or written agreements between the Bank and the Borrower concerning this credit; and (c) are intended by the Bank and the Borrower as the final, complete and exclusive statement of the terms agreed to by them. In the event of any conflict between this Agreement and any other agreements required by this Agreement, this Agreement will prevail. 11.9 NOTICES. All notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, to the addresses on the signature page of this Agreement, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. 11.10 HEADINGS. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement. 11.11 COUNTERPARTS. This Agreement may be executed in as many counterparts as necessary or convenient, and by the different parties on separate counterparts each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same agreement. 11.12 PRIOR AGREEMENT AMENDED, RESTATED, AND SUPERSEDED. This Agreement amends and restates in its entirety and supersedes the Business Loan Agreement entered into as of June 29, 1995, between the Bank and the Borrower, as amended, and any credit outstanding thereunder shall be deemed to be outstanding under this Agreement. -20- This Agreement is executed as of the date stated at the top of the first page. [LOGO] BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION CUSTOM CHROME, INC. X /s/ Kenneth E. Jones X /s/ James J. Kelly, Jr. ---------------------------- ---------------------------- BY: KENNETH E. JONES BY: JAMES J. KELLY, JR. TITLE: VICE PRESIDENT TITLE: EVP-FINANCE AND CHIEF FINANCIAL OFFICER ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE BORROWER ARE TO BE SENT: ARE TO BE SENT: San Jose Commercial Banking Office # 1487 16100 Jacqueline Court Post Office Box 910 Morgan Hill, CA 95037 San Jose, CA 95115
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