-----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, FAsU715pEHa74mpRB8BhEGtKBnH5WWOKC3UA2Pz1UKvZOGEdijLB5hhEruPanHD5 3lvUGXs++wtuC8pNahpBDA== 0000892569-97-003266.txt : 19971118 0000892569-97-003266.hdr.sgml : 19971118 ACCESSION NUMBER: 0000892569-97-003266 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971117 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOYDS WHEELS INC CENTRAL INDEX KEY: 0000913007 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 951000272 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-26738 FILM NUMBER: 97722982 BUSINESS ADDRESS: STREET 1: 8380 CERRITOS AVE CITY: STANTON STATE: CA ZIP: 90680 BUSINESS PHONE: 7149524038 10QSB 1 FORM 10QSB FOR PERIOD ENDED SEPTEMBER 30, 1997 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-26738 BOYDS WHEELS, INC. (Exact name of registrant as specified in its charter) California 93-1000272 State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 8380 Cerritos Ave. Stanton, CA 90680 714-952-4038 (Address and telephone number of principal executive offices) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of October 12, 1997, there were outstanding 3,848,618 shares of registrant's common stock, no par value. Transitional Small Business Disclosure Format (check one); Yes No X --- --- ================================================================================ 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. BOYDS WHEELS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
Sept. 30, 1997 December 31, 1996 -------------- ----------------- (Unaudited) ASSETS: Current Assets: Cash and cash equivalents $ 556,527 $ 5,792,764 Restricted cash 443,000 -- Accounts receivable, net 1,328,106 2,316,979 Other receivables 121,649 178,339 Income tax refund receivable 736,975 355,623 Inventories 8,627,449 7,710,149 Cost and estimated earnings in excess of billings 250,500 56,616 Prepaids and other current assets 563,647 605,186 Deferred income taxes 296,956 296,956 ------------ ------------ Total current assets 12,924,809 17,312,612 Property and equipment, net 14,785,772 11,047,029 Covenants not to compete, net 122,987 145,487 Other assets 61,167 97,655 ------------ ------------ Total assets $ 27,894,735 $ 28,602,783 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 4,228,055 $ 3,307,176 Accrued liabilities 709,808 663,467 Revolving credit agreements -- 1,634,154 Current maturities of long-term debt 8,861,763 560,140 Billings in excess of cost and estimated earnings 205,025 122,286 Other current liabilities 1,348 139,163 ------------ ------------ Total current liabilities 14,005,999 6,426,386 Long-term debt 1,344,419 2,397,695 Other long-term liabilities 10,382 53,738 Deferred income taxes 345,572 345,572 ------------ ------------ Total liabilities 15,706,372 9,223,391 ------------ ------------ Shareholders' Equity: Preferred stock, no par value 5,000,000 shares authorized, no shares outstanding Common stock, no par value; authorized 25,000,000 shares, issued and outstanding 3,848,618 shares at Sept. 30, 1997 and 3,780,106 at December 31, 1996 17,856,101 17,585,262 Contributed capital 1,036,516 1,036,516 Unearned compensation -- (3,123) Retained (deficit) earnings (6,704,254) 760,737 ------------ ------------ Total shareholders' equity 12,188,363 19,379,392 ------------ ------------ Total liabilities and shareholders' equity $ 27,894,735 $ 28,602,783 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 2 3 BOYDS WHEELS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Nine Months Ended Months Ended Sept.30, Sept 30, -------- -------- 1997 1996 1997 1996 ---- ---- ---- ---- (Restated) (Restated) Net sales $ 4,777,007 $ 7,629,621 $ 12,632,877 $ 21,299,787 Cost of goods sold 5,202,547 5,652,091 16,119,696 15,717,578 ----------- ----------- ------------ ------------ Gross (loss) profit (425,540) 1,977,530 (3,486,819) 5,582,209 Selling, general and administrative expenses 1,762,842 1,051,930 4,112,221 2,972,297 ----------- ----------- ------------ ------------ (Loss) income from operations (2,188,382) 925,600 (7,599,040) 2,609,912 Interest expense (income) and other expenses, net 43,461 (55,714) 222,151 (93,467) ----------- ----------- ------------ ------------ (Loss) income before provision for income taxes (2,231,843) 981,314 (7,821,191) 2,703,379 (Benefit) provision for income taxes (112,200) 413,476 (356,200) 1,037,895 ----------- ----------- ------------ ------------ Net (loss) income ($2,119,643) $ 567,838 ($ 7,464,991) $ 1,665,484 =========== =========== ============ ============ Net (loss) income per share ($ .55) $ .14 ($ 1.95) $ .55 =========== =========== ============ ============ Weighted average common shares and common equivalent shares outstanding 3,849,000 3,932,000 3,838,000 3,052,000 =========== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 3 4 BOYDS WHEELS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended Sept 30, ------------------------------ 1997 1996 ------------ ------------ (Restated) Cash flows from operating activities: Net (loss) income $ (7,464,991) $ 1,665,484 Adjustments to reconcile net (loss) income to cash used by operating activities: Depreciation and amortization 1,881,427 725,121 Loss on disposal of property and equipment 9,654 78,264 Bad debt expense 1,138,822 36,370 Reserve for inventory obsolescence 777,763 20,000 Compensation related to stock option vesting 3,123 6,251 Increase in accounts receivable (149,949) (327,532) Increase in income tax refund receivable (381,352) -- Decrease in other receivables 56,690 8,558 Increase in inventories (1,695,063) (3,646,629) (Increase) decrease in costs and estimated earnings in excess of billings on uncompleted contracts (193,884) 83,302 (Increase) decrease in prepaid and other current assets 41,539 (221,050) Decrease in other assets 36,488 155,958 Increase in accounts payable 920,879 137,573 Increase (decrease) in accrued liabilities 46,341 (584,088) Increase in income taxes payable -- 364,695 Increase (decrease) in billings in excess of costs and estimated earnings on uncompleted contracts 82,739 (72,432) Decrease in other current liabilities (137,815) (100,660) Decrease in other long term liabilities (43,356) (18,731) ------------ ------------ Net cash used by operating activities (5,070,945) (1,689,546) ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (5,356,638) (4,198,102) Proceeds from the sale of property and equipment 40,000 6,400 Payments on covenants not to compete -- (24,585) Increase in restricted cash (443,000) -- ------------ ------------ Net cash used by investing activities (5,759,638) (4,216,287) ------------ ------------ Cash flows from financing activities: Borrowings on revolving lines of credit 956,104 1,689,554 Payments on revolving lines of credit (2,590,258) (1,689,554) Proceeds from issuance of long-term debt 10,126,261 938,887 Principal repayments of long-term debt (3,168,601) (997,141) Proceeds from sale of common stock -- 12,936,250 Cost of equity issuance -- (1,266,000) Proceeds from exercise of common stock warrants 270,840 -- ------------ ------------ Net cash provided by financing activities 5,594,346 11,611,996 ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements. 4 5 BOYDS WHEELS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended Sept 30, --------------------------- 1997 1996 ----------- ---------- (Restated) Net (decrease) increase in cash and cash equivalents $(5,236,237) $5,706,163 Cash and cash equivalents at beginning of year 5,792,764 1,061,889 ----------- ---------- Cash and cash equivalents at end of period $ 556,527 $6,768,052 =========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 5 6 BOYDS WHEELS, INC., AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies: Basis of Presentation: ---------------------- The accompanying consolidated financial statements include the accounts of Boyds Wheels, Inc. (the "Company") and its wholly owned subsidiary, Hot Rods by Boyd, Inc. ("HRBB"). The acquisition of HRBB in December 1996 was accounted for as a pooling of interests business combination (see Note 4). The interim financial data as of and for the three months and nine months ended September 30, 1997 and September 30, 1996 are unaudited and have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The year-end balance sheet information was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited financial statements. 2. Inventories: Inventories consist of the following:
(Unaudited) Sept 30, 1997 December 31, 1996 ------------- ----------------- Finished goods $3,488,809 $1,572,189 Work in process 3,946,929 3,869,080 Raw materials 334,102 1,814,270 Construction-in-progress automobiles 782,609 380,831 Completed automobile 75,000 73,779 ---------- ---------- $8,627,449 $7,710,149 ========== ==========
3. Long Term Debt In June 1997, the bank line of credit facility for the Company was reduced from maximum borrowings of $9,000,000 to $8,000,000 and for HRBB from $500,000 to $200,000. At September 30, 1997, the Company was not in compliance with certain loan covenants. As a result, the Company has been requested to seek alternative financing with another lending institution recommended by the bank. All amounts due under these facilities have been classified as current at September 30, 1997. 4. Pooling of Interests: In 1996, the Company completed an acquisition of HRBB which was accounted for as a pooling of interests, and accordingly the Company's interim financial statements for the three and nine months ended September 30, 1996, have been restated to include HRBB for such periods. Unaudited consolidated and separate results of the Company and HRBB were as follows: 6 7 BOYDS WHEELS, INC., AND SUBSIDIARY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Three Months Nine Months Ended Ended September 30, September 30, ------------- ------------- 1996 1996 ---- ---- Net Sales: Boyds Wheels, Inc., as previously reported $ 7,521,026 $ 20,531,943 Hot Rods by Boyds, Inc. 108,595 787,893 Adjustments -- (20,049) ----------- ------------ Consolidated $ 7,629,621 $ 21,299,787 =========== ============ Net Income (Loss): Boyds Wheels, Inc., as previously reported $ 614,848 $ 1,594,388 Hot Rods by Boyds, Inc. (47,010) 71,096 ----------- ------------ Consolidated $ 567,838 $ 1,665,484 =========== ============
The adjustments relate to intercompany transactions between the two companies. 5. Statements of Financial Accounting Standards not yet adopted In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 requires companies to adopt its provisions for fiscal years beginning after December 15, 1997 and requires restatement of all prior period earnings per share (EPS) data presented. Earlier application is not permitted. SFAS No. 128 specifies the computation, presentation and disclosure requirements for EPS. The implementation of SFAS No. 128 is not expected to have a material effect on the EPS data presented by the Company. In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" SFAS No. 130, which is effective for fiscal years beginning after December 15, 1997 and requires restatement of earlier periods presented, establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. The implementation of SFAS No. 130 is not expected to have a material effect on the Company's results of operations. In September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", SFAS No. 131, which is effective for fiscal years beginning after December 15, 1997 and requires restatement of earlier periods presented, establishes standards for the way that a public enterprise reports information about key revenue-producing segments in the annual financial statements and selected information in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The implementation of SFAS No. 131 is not expected to have a material effect on the Company's current reporting disclosures. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING, "BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996. GENERAL The Company designs, manufactures and markets high quality aluminum wheels for the specialty automotive and motorcycle aftermarkets. The Company also markets a premium line of car care products and a line of sportswear under its own label. The Company sells its products domestically through a national distribution network of tire and performance retailers, warehouse distributors and mail order outlets and internationally through foreign distribution channels. The Company's wholly owned subsidiary, Hot Rods By Boyd, Inc., designs and manufactures custom vehicles which are sold directly to private clientele and promotional businesses. Since the Company utilizes its own facility and equipment for the manufacture of its products, gross margins are especially dependent upon sales volumes as a result of substantial fixed manufacturing overhead. Overhead costs were significantly increased in the third and fourth quarters of 1996 and the first quarter of 1997, when the Company elected to expand its manufacturing facility through the acquisition of additional equipment and increase its square footage by approximately 50% in anticipation of higher sales volumes which did not materialize. At the low sales volumes currently being realized by the Company, it is unlikely that positive gross margins from proprietary products can be achieved. However, at higher sales volumes, the allocation of fixed costs over more sales should result in increased gross margins. Accordingly, the Company anticipates variances in gross margins from quarter to quarter as a result of fluctuations in production, which coincide with seasonality of the Company's business. Sales of and demand for the Company's wheel products have not met management's expectations due to a variety of factors including, competitive pressure, changes in consumer demand, the lack of a fully integrated sales and marketing plan, and a slower than expected expansion in newer markets. The Company has responded by: (1) focusing its sales efforts on expanding its domestic and, to a lesser degree, its international distribution channels; (2) introducing new product lines to respond to new trends; (3) streamlining and restructuring its manufacturing process and facility to eliminate underutilized equipment and consolidate manufacturing operations; and (4) restructuring its sales and customer service departments to more effectively target new business and service its existing customer base. Sales are expected to be subject to month-to-month and quarter-to-quarter variability due to the limited market penetration in the Company's new markets to date. The markets for the aluminum aftermarket wheels are subject to rapidly changing consumer tastes and a high level of competition. Demand for the Company's products is expected to be influenced by marketing and advertising expenditures, product positioning through its distributors and retailers, design trends and general economic conditions. Because these factors can change rapidly, customer demand can also shift quickly. The Company may not be able to respond to changes in consumer demand because of the time required to change or introduce new products, production limitations or limited financial resources. 8 9 RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND THREE MONTHS ENDED SEPTEMBER 30, 1996 Net Sales - --------- Net sales for the three months ended September 30, 1997, were $4,777,007 compared to $7,629,621 for the same period in 1996, a decrease of $2,852,614 or 37.4%. The decrease in sales for the period was the result of continued weak sales of the Company's two-piece cast wheel line, which accounted for the majority of the decrease. This continued decrease is the result of a lack of newer wheel designs, along with a continued shift in consumer demand to the one-piece cast wheel. The Company's one-piece cast wheel line was relatively flat for the third quarter. The private label segment of the business continued to experience declining sales. The Company did not properly anticipate the immediate shipping response required and therefore lost sales. The steering wheels and accessories lines also declined slightly which is consistent with the previous periods. Gross (Loss) Profit - ------------------- Gross (loss) profit for the three months ended September 30, 1997 was ($425,540) compared to $1,977,530 for the same period in 1996, a decrease of $2,403,070. The decrease in gross profit was primarily attributable to a 37.4% decrease in sales combined with under utilization of the facility. The fixed costs in the third quarter of 1997, compared to the third quarter of 1996, included higher wages, increased overhead costs for rent, utilities and depreciation as a result of the Company's expansion. During the three months ended September 30, 1997, the Company continued to reduce personnel and the salaries of management personnel in an effort to reduce overhead. In addition, the Company has continued to sell or sublease underutilized machinery and facilities in an effort to reduce its break-even point, as well as, introduce additional purchasing and inventory controls designed to reduce future product costs. These cuts and changes will primarily benefit future periods of operation. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses for the three months ended September 30, 1997 were $1,762,842 compared to $1,051,930 for the same period in 1996, an increase of $710,912 or 67.6%. Period costs were impacted by increased expenses related to the restructuring of the management team and the relocation of certain individuals to the Company's facilities, increased legal and accounting fees and a bad debt charge of $464,674 for one customer who filed for bankruptcy protection. In September 1997, the Company further reduced the number of employees in an effort to reduce expenses. These cuts will primarily benefit future periods of operation. Interest and Other Expenses (Net) - --------------------------------- Interest income (expenses) and other expenses (net) for the three months ended September 30, 1997 were ($43,461) compared to $55,714 for the same period in 1996, a change of $99,175. Interest expense increased as a result of increased borrowings for working capital and long-term debt, which was partially offset by interest income from available funds and other income in the third quarter of 1997. Income Tax (Benefit) Provision - ------------------------------ Income tax (benefit) provision for the three months ended September 30, 1997 was ($112,200), compared to a provision of $413,476 for the same period in 1996, a change of $525,676. The tax benefit was based upon the benefit resulting from the carryback of the third quarter 1997 loss. Net (Loss) Income - ----------------- Net loss for the three months ended September 30, 1997 was ($2,119,643), compared to net income of $567,838 for the three months ended September 30, 1996, a decrease of $2,687,481. 9 10 COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1996 Net Sales - --------- Net sales for the nine months ended September 30, 1997, were $12,632,877 compared to $21,299,787 for the same period in 1996, a decrease of $8,666,910 or 40.7%. The decrease in sales was the result of a reduced backlog and continued weak sales of the Company's two-piece cast wheel line, which accounted for approximately $7,200,000 of the decrease. This continued decrease is the result of a lack of newer wheel designs, along with a continued shift in consumer demand to the one-piece cast wheel. The Company's one-piece cast wheel line increased its sales to $1,424,000, compared to $756,000, for a net increase of $668,000 over the same period in 1996. This increase was achieved as a result of an ongoing increase in the product line, even though the Company has experienced delays in tooling and production. The motorcycle product line experienced a decline in sales of approximately $537,000 for the nine month period resulting from the change in distribution methods, from selling to distributors to selling direct to dealers and from the overall reduction in the motorcycle accessories product line in light of the Company's effort to concentrate on wheels. The Company did not properly anticipate the immediate shipping response required, and therefore lost sales. The private label center business also declined for the nine month period by $1,113,000, as a result of the previously mentioned shift to one-piece cast wheels. The Company's two-piece billet wheels increased during the nine months by $196,000 as the result of direct sales to the public and a more competitive price structure. The steering wheels and accessories lines also declined by $409,000 for the period. Gross (Loss) Profit - ------------------- Gross (loss) profit for the nine months ended September 30, 1997 was ($3,486,819) compared to $5,582,209 for the same period in 1996, a decrease of $9,069,028. The decrease in gross profit was the result of a 40.7% decrease in sales combined with an increase in fixed costs and under utilization of the facility. Fixed costs for the nine months ended September 30, 1997, compared to the same period of 1996, included higher wages and increased overhead costs of rent, utilities, and depreciation as a result of the Company's expansion. The expansion of the manufacturing facility which continued through the first quarter of 1997, and the operating expenses associated with having more employees in manufacturing during the first, second, and a portion of the third quarter of 1997 resulted in a significant negative gross profit margin. The reduced sales and production levels equate to low absorption of overhead costs, resulting in the expensing of overhead costs in the period. Selling, General and Administrative Expenses - -------------------------------------------- Selling, general and administrative expenses for the nine months ended September 30, 1997 were $4,112,221 compared to $2,972,297 for the same period in 1996, an increase of $1,139,924 or 38.4%. This increase is primarily the result of increased advertising and promotional expenses, together with a bad debt charge of $464,674 for one customer who filed for bankruptcy protection. During the second and third quarters of 1997, the Company reduced personnel and reduced the salaries of personnel. In addition, the Company is analyzing all advertising and administrative costs in an effort to further reduce overhead. These cuts will primarily benefit future periods of operation. Interest and Other Expenses (Net) - --------------------------------- Interest (income) expenses and other expenses (net) for the nine months ended September 30, 1997 were $222,151 compared to ($93,467) for the same period in 1996, an expense increase of $315,618. Interest expense increased as a result of increased borrowings for working capital and long-term debt, which partially were offset by interest income from available funds and other income in the nine months of 1997. 10 11 Income Tax (Benefit) Provision - ------------------------------ Income tax (benefit) for the nine months ended September 30, 1997 was ($356,200), compared to a provision of $1,037,895 for the same period in 1996. The tax benefit was based upon the benefit resulting from the carryback of the loss for the nine months ended September 30, 1997. Net (Loss) Income - ----------------- Net loss for the nine months ended September 30, 1997 was ($7,464,991), compared to net income of $1,665,484 for the nine months ended September 30, 1996, a decrease of $9,130,475. LIQUIDITY AND CAPITAL RESOURCES Through September 30, 1997, the Company's inventory increased to $8,627,449 from $7,710,149 at December 31, 1996, an increase of $917,300 or 11.9%. This increase was primarily due to the manufacture of new products and styles, including new one-piece cast wheels and motorcycle components. The increase in one-piece cast wheels and other new products and styles was made in anticipation of the Company's planned expansion of its sales efforts in the Eastern United States. In order to meet the needs of Harley-Davidson dealers, the Company increased its motorcycle inventory levels to supply the dealers directly, as they require shipment in less than one week. Slower than expected sales overall also contributed to the increase in inventory levels. Working capital was ($1,081,190) at September 30, 1997 compared to $10,886,226 at December 31, 1996, or a decrease of $11,967,416. The Company's cash position at September 30, 1997 was $556,527 compared to $5,792,764 at December 31, 1996, a decrease of $5,236,237. Cash was utilized, along with the Company's line of credit to fund operations, increase inventory, and to add equipment and leasehold improvements. The effect of lower sales and increased overhead has had a significant impact on cash and working capital. The Company is currently attempting to secure a new working line of credit and equipment financing, to replace the current facility, which has been informally frozen at the bank's request. At September 30, 1997, the revolving lines of credit had borrowings of $8,126,604, all of which are classified as current. The borrowings on the line of credit increased during the period as a result of operating needs, equipment and leasehold improvements of $3,014,181, the payoff of previous line of credit borrowings of $2,590,258 and the payoff of a long-term capital lease of $888,011. Long-term debt also increased by $1,643,000 as these funds were used for the purchase of 2.5 acres of land with 26,000 square feet of buildings to accommodate the Company's distribution center. Based on the Company's cash position and currently planned expenditures and level of operations, the Company estimates it will require additional capital within the next three months to meet its debts as they become due and to continue as a going concern. The Company's business may be able to generate the additional funding required depending on the ability of manufacturing activities to generate additional revenues, however there can be no assurance thereof. The Company is currently pursuing various alternatives to meet its needs for capital including, without limitation, the bank financing previously described. There can be no assurance the Company will be successful and any such financing may be dilutive to current shareholders. The failure to raise additional funds could have a material adverse effect on the Company and could force the Company to further reduce or curtail operations. The Company may, from time to time, seek additional funds through lines of credit, public or private debt or equity financing. There can be no assurances that additional capital will be available when needed. MANAGEMENT'S PLANS FOR IMPROVING OPERATIONS Management has taken steps to improve operations with the goal of sustaining the Company operations for the next twelve months and beyond. These steps include: (1) focusing its sales efforts on expanding its domestic and, to a lesser degree, its international distribution channels; (2) introducing new product lines to respond to new trends; (3) streamlining and restructuring its manufacturing process and facility to eliminate underutilized equipment and consolidate manufacturing operations; (4) restructuring its sales and customer service departments to more effectively target new business and service its existing customer base; and (5) reducing overhead and operating expenses. There can be no assurance the Company can attain profitable operations in the future. 11 12 BUSINESS RISKS This report contains a number of forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. In this report, the words "anticipates," "believes," "expects," "intends," "future" and similar expressions identify forward-looking statements. Readers are cautioned to consider the risk factors described above and in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996, and not to place undue reliance on the forward-looking statements contained herein, which speak only as of the date hereof. The Company undertakes no obligation to publicly revise these forward-looking statements, to reflect events or circumstances that may arise after the date hereof. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Company is involved in routine litigation incidental to the conduct of its business. There are currently no material pending legal proceedings to which the Company is a party or to which any of its property is subject. ITEM 2 THROUGH ITEM 4. Have been omitted because the related information is either inapplicable or has been previously reported. ITEM 5. OTHER INFORMATION. On September 23, 1997, Rex A. Ours resigned as Chief Financial Officer of the Company to accept a position in public accounting. Mr. Ours' duties are being performed by current members of management and outside consultants until a new Chief Financial Officer can be located and retained. On October 31, 1997, Boyd L. Coddington resigned as Chairman of the Board and Chief Executive Officer of the Company, and effective November 1, 1997, became a consultant to the Company. Pursuant to the terms of the Separation Agreement executed by the parties, Mr. Coddington agreed to immediately terminate his Employment Agreement (previously due to terminate December 31, 1999) and to release the Company from any claims which Mr. Coddington may have against the Company and others for payment of salary or otherwise which arose or pertained to his employment or the termination of his employment. The terms of the Separation Agreement provide that Mr. Coddington will continue to serve on the Company's Board of Directors for the term prescribed by, and otherwise in accordance with, the Bylaws of the Company, although Mr. Coddington shall cease being Chairman of the Board. At the time of his resignation, Mr. Coddington entered into a Consulting Agreement with the Company. Under the terms of the Consulting Agreement, Mr. Coddington has agreed, upon request of the executive officers of the Company, to assist Company personnel with the executive, sales, marketing, operations, design and other functions previously performed by Mr. Coddington for the Company for an amount of time each month, not to exceed 50% of the time previously spent by Mr. Coddington on such duties while an employee. The Consulting Agreement is for an initial term of five years and is renewed automatically thereafter for successive renewal periods of five years each, unless either party gives notice of termination to the other party at least thirty (30) days prior to the commencement of any successive five (5) year renewal period. The Consulting Agreement prohibits Mr. Coddington from (i) competing, directly or indirectly, against the Company (during the term of the Consulting Agreement), (ii) soliciting, directly or indirectly, for himself or for any other person or entity, any employee, independent contractor or existing or potential customer of the Company (during the term of the Consulting Agreement and for a period of two years thereafter) and (iii) disclosing to any third party any confidential or proprietary trade secrets, know how, processes, business practices, finances, suppliers, customers or potential customers of the Company. In consideration of the agreements made by Mr. Coddington and the consulting services to be rendered, the Company has agreed to pay Mr. Coddington (i) base compensation equal to $6,000 per month for the first thirteen months and $12,500 per month for each month thereafter, plus (ii) incentive 12 13 compensation, payable annually, equal to one-half of one percent of the Company's sales in excess of $24,000,000 with such incentive compensation not to exceed $60,000 annually. On October 31, 1997, Gardiner S. Dutton was elected to succeed Mr. Coddington as Chairman of the Board and Chief Executive Officer of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. 1. (a) Exhibits. Number ------ 10.43 Separation Agreement and General Release by and between the Company and Boyd L. Coddington; 10.44 Consulting Agreement by and between the Company and Boyd L. Coddington dated October 31, 1997; 27.1 Financial Data Schedule 2. (b) None. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BOYDS WHEELS, INC. Date: November 14, 1997 By: /s/ Gardiner S. Dutton ------------------------ Gardiner S. Dutton Chief Executive Officer and Chairman of the Board (Principal Executive Officer) Date: November 14, 1997 By: /s/ David M. Asher -------------------- David M. Asher President and Chief Operating Officer (Principal Operating Officer) 13 EX-10.43 2 SEPARATION AGREEMENT & GENERAL RELEASE 1 EXHIBIT 10.43 SEPARATION AGREEMENT AND GENERAL RELEASE This Agreement is entered into by and between BOYDS WHEELS, INC., ("Employer"), a California corporation, and BOYD CODDINGTON, an individual ("Employee"). RECITALS -------- A. Employee has been employed by Employer in the positions of Chairman of the Board and Chief Executive Officer. B. Employer and Employee desire to terminate Employee's employment and to have Employee resign from such positions. C. Employee has previously hereto received consideration in the amount of $16,154, representing Employee's accrued and unused vacation benefits through October 31, 1997, together with Employee's final paycheck. D. Employer and Employee are desirous of entering into a Consulting Agreement (the "Consulting Agreement") and provide for the settlement and release of Employer for any claims related to Employee's employment or the termination of that employment. NOW, THEREFORE, in consideration of the terms, conditions and agreements set forth below, the parties agree as follows: 1. Review Period. Employee shall have until the close of business on October 31, 1997 to accept the terms of this Separation Agreement and General Release ("Separation Agreement"). Employee has been encouraged to consult with an attorney before signing the Release. Employee understands that whether or not to do so is Employee's decision. 2. Termination of Employment. Employer agrees to accept Employee's resignation. By entering into this Separation Agreement, Employee tenders and Employer accepts Employee's resignation from employment effective on October 31, 1997 ("Termination Date"). Employer will ensure that all of its records reflect a resignation from employment on the Termination Date. Notwithstanding the foregoing, Employee shall continue to serve on Employer's Board of Directors for the term prescribed by, and otherwise in accordance with, the Bylaws of Employer, although Employee shall cease being Chairman of the Board. 3. Payments and Benefits. Employer will provide to Employee the Consulting Agreement generally described in subparagraph 3.1 below. Employee understands that the amounts to be paid to Employee pursuant to the Consulting Agreement are all that Employee is entitled to receive from Employer. Employee acknowledges that the payments to be made pursuant to the Consulting Agreement below are being made by Employer in lieu of the 2 remaining payments under Employee's Employment Agreement, dated as of January 1, 1995 (the "Employment Agreement"). 3.1 Consulting Agreement. In lieu of receipt of the remaining payments under the Employment Agreement which is hereby terminated, Employee and Employer will enter into a Consulting Agreement. In consideration for Employee's agreement to be available and consult with the Company for a period of five years upon the terms and conditions set forth therein, and for a covenant by Employee not to compete with Employer for the term thereof, Employee will receive (i) base compensation equal to $6,000 per month for the first thirteen months and $12,500 per month for each month thereafter plus (ii) incentive compensation payable annually equal to one-half of one percent (1/2%) of Employer's sales in excess of $24,000,000, not to exceed $60,000 annually. 3.2 Medical Coverage. Employer has given Employee written notification of his rights to continuation of insurance coverage under the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA"). Employee will be responsible for the full cost of continued coverage in accordance with the provisions of COBRA. 4. Press Release. Employer and Employee shall jointly agree on the form and content of the press release to be issued in connection with Employee's termination. 5. Release of Claims. Subject only to paragraph 6, Employee on his own behalf, and on behalf of his successors and assigns, releases the Employer and its officers, directors, employees, agents, and attorneys and any parent, subsidiary, affiliated or related companies and their respective successors and assigns, ("Released Parties") from all claims, demands, actions, or other legal responsibilities of any kind which Employee may have based on, or pertaining to Employee's employment with the Employer or the termination of that employment. This release includes (but is not limited to) any claims Employee may have to indemnification pursuant to that certain Indemnification Agreement between Employee and Employer, dated as of July 24, 1995, Employer's Bylaws, and California Corporate and Labor Codes, respectively, in connection with claims, suits or proceedings brought by the Employer against Employee, which rights are hereby expressly terminated and/or waived, as well as, the Age Discrimination in Employment Act, which prohibits age discrimination in employment, Title VII of the Civil Rights Act, which prohibits discrimination in employment based on race, color, sex, religion or national origin, or any other federal, state or local law or regulation prohibiting employment discrimination. This release also includes any claim for wrongful discharge arising under public policy or any contract or policy of the Employer. 6. Claims Not Affected by Release. This Release does not affect Employee's right to receive benefits under and to apply for continuation of conversion of insurance coverage to the extent that the Employer's insurance plans or applicable law provide for such continuation or conversion. In addition, this Release does not apply to any claim for workers' compensation under any federal or state workers' compensation or occupational disease law. Finally, this 2 3 Release does not waive any rights or claims that Employee may have under the Age Discrimination in Employment Act which arise after the date Employee signs this Agreement. 7. Unknown Claims. Employee understands that the release of claims set forth in paragraph 6 above covers claims which the Employee knows about and those he may not know about. Employee expressly waives all rights under Section 1542 of the California Civil Code, which Section Employee has read and understands, and which provides as follows: Section 1542. A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor. 8. Agreement not to Sue. Employee promises never to file a lawsuit asserting any claims that are released in paragraph 5 above. 9. Representations and Warranties. Employee represents and warrants that (i) he has not assigned to any other person or entity the claims which are the subject of paragraph 5 above and (ii) except for matters specifically set forth in Section 13, there is no litigation, arbitration or proceeding pending or, to the best of Employee's knowledge, threatened against or relating to the properties or business of Employer, nor has any person manifested to Employee an awareness of a reasonable basis for any claim against Employer which could have a material adverse effect on the business or financial condition of Employer. 10. Consequences of Employee's Violation of Promises. If Employee violates Employee's promises contained in paragraphs 5 or 8 above, Employee will pay for all costs incurred by Employer, any related companies, or the directors or employees of any of them, including reasonable attorneys' fees, in defending against Employee's claim. 11. Confidentiality. Employee and Employer both agree not to disclose the terms and conditions of this Agreement nor the substance of any discussions or negotiations leading up to this Agreement for any reason to any person or entity not a party hereto unless such communication is required by law or is necessary to comply with the law including, without limitation, federal or state tax or securities laws (e.g., communications to a tax preparer for purposes of submitting a tax return to the Internal Revenue Service, disclosures which are required by the rules of the Securities and Exchange Commission, etc.) 12. Confidential Information. Employee agrees to return all documents, disks, programs, or other materials that he has received during his employment. Employee further agrees to maintain the confidentiality of all confidential, proprietary and trade secret information that Employee learned during his employment. 3 4 13. Indemnification. Employee agrees to indemnify and hold Employer harmless against any and all liabilities of any nature arising after the date of this Agreement, whether known or unknown, accrued, absolute, contingent or otherwise including, without limitation, any claims, damages, fines, penalties, assessments or similar charges, which arise out of or are related to (i) any breach of this Agreement or (ii) any activity by Employee during the course and scope of his retention pursuant to the terms of the Consulting Agreement which is either ultra vires or unauthorized or which may constitute a breach of fiduciary duty, duty of loyalty or other duty owed to Employer plus any liabilities resulting from claims made by Fernando Lavin, Yoshi Nakarama, American Motoring Accessories and Ousyu Hambai Company, Ltd. Notwithstanding anything in this Agreement or the Consulting Agreement to the contrary, Employer may withhold and set off against amounts due to Employee hereunder or under the Consulting Agreement any amount as to which Employee is obligated to indemnify Employer pursuant to this Agreement or otherwise. 14. No Waiver. Nothing herein shall constitute a waiver or relinquishment of any right, power or claim that Employer may have against Employee of any kind or nature, whether known or unknown, accrued, absolute, contingent or otherwise including, without limitation, any claims, damages, fines, penalties, assessments or similar charges, which arise out of or are related to any activity by Employee during the course and scope of his employment or otherwise including actions which may have been ultra vires or unauthorized or which may have constituted a breach of fiduciary duty, duty of loyalty or other duty owed to Employer. 15. Amendments. No addition, modification, amendment or waiver of any part of this Agreement shall be binding or enforceable unless executed in writing by both parties hereto. 16. Severability. Should any part of this Agreement be declared invalid, void or unenforceable, all remaining parts shall remain in full force and effect and shall in no way be invalidated or affected. 17. Survival. The representations, warranties, covenants and agreements made in this Agreement shall survive the execution hereof and shall be binding upon and inure to the benefit of the respective parties hereto. 18. Non-Admissions. Employer and Employee agree that neither this Agreement nor the consideration given shall be construed as an admission of any wrongdoing or liability by Employer, and that all such liability is expressly denied. 19. Arbitration. Any dispute arising out of or related to this Agreement shall be submitted to arbitration in Orange County, California, before an arbitrator selected from Judicial Arbitration and Mediation Services, Inc., Orange County, California and shall be conducted in accordance with the provisions of California Code of Civil Procedure Section 1280 et seq. as the exclusive remedy of such dispute; provided, however, that provisional injunctive relief may, but need not, be sought in a court of law while arbitration proceedings are pending, 4 5 and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the Arbitrator. Final resolution of any dispute through arbitration may include any remedy or relief which the Arbitrator deems just and equitable, including permanent injunctive relief or specific performance, or both, and the Arbitrator is hereby empowered to award such relief. Any award or relief granted by the Arbitrator hereunder shall be final and binding on the parties hereto and may be enforced by any court of competent jurisdiction. 20. Future Employment. Employee waives any rights to future employment with the Employer or any of its affiliated or related companies. 21. Entire Agreement. This is the entire Agreement between Employee and Employer. Employer has made no promises other than those set forth in this Agreement and the Consulting Agreement. 5 6 EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT WITH THE INTENTION OF RELINQUISHING ALL CLAIMS AND RIGHTS OTHER THAN THOSE SET FORTH HEREIN. "EMPLOYER" "EMPLOYEE" BOYDS WHEELS, INC., a California corporation By:_________________________ Boyd Coddington By:____________________________ Title:_________________________ Date:______________________ Date:________________________ 6 EX-10.44 3 CONSULTING AGREEMENT 1 EXHIBIT 10.44 CONSULTING AGREEMENT This Consulting Agreement (the "Agreement") is made and entered into as of November 1, 1997, by and between BOYDS WHEELS, INC., a California corporation (the "Company") and BOYD CODDINGTON ("Consultant"). RECITALS -------- A. Consultant has served as a key executive officer, director and shareholder of the Company, is intimately aware of the operations of the Company, its customers, manufacturing, operations and technology, and has the ability to effectively compete with the Company absent the existence of and compliance with this Agreement. B. Consultant is in good health, intends to continue living in geographic areas where the Company is doing business and/or manufacturing and, absent the existence of this Agreement, would desire to actively compete with the Company, and therefore would have substantial opportunity to compete with the Company. C. The Company believes that it would be substantially harmed if Consultant were to engage in a business competitive with that of the Company, and that the Company would lose amounts substantially greater than that being paid under this Agreement if Consultant was to actively compete with the Company during the term of this Agreement. D. As a result of Consultant's experience and stature, the consulting services which the Consultant is agreeing to perform pursuant hereto are deemed vital to the success of the Company. NOW, THEREFORE, in consideration of the premises and covenants contained herein, the Company and Consultant agree as follows: 1. Term. Consultant hereby agrees to provide the services hereinafter described on the terms and conditions set forth herein for a period of five (5) years commencing on November 1, 1997. This Agreement shall automatically renew for successive periods of five (5) years each, unless either party gives notice of termination to the other party at least thirty (30) days prior to the commencement of any such successive five (5) year renewal period. 2. Duties. Consultant, upon request of the executive officers of the Company, shall assist appropriate Company personnel with the executive, sales, marketing, operations, design and other functions previously performed by Consultant for Company. Consultant shall provide such services, and such other services as the Company may request which are similar to those heretofore provided by Consultant to Company, via means acceptable to the Company, for an amount of time not to exceed, on a monthly basis, fifty percent (50%) of the time heretofore spent by Consultant on his employment duties. A list of specific duties and limitations is attached hereto as Exhibit A. The Company shall give reasonable advance notice to Consultant regarding the exact hours during which such services are to be provided, whether Consultant's physical presence shall be required and whether such services 2 require travel. The consulting services to be rendered by Consultant shall be rendered in good faith, on a reasonably timely basis, and shall be rendered with such diligence, attention and skill as the Consultant devotes to his other professional activities. 3. Non-Competition. Consultant agrees that, unless he has received the express prior written consent of the Company, he, including any affiliated entities, will not, in the counties or parishes in any state of the United States of America or in any other jurisdiction in the world in which the Company or it affiliates is now or then doing business, during the term hereof (including any renewal periods or such other period during which termination payments are being made), directly or indirectly, permit his name to be used by, personally engage in, work for, advise, consult, render services to or directly or indirectly invest in any individual, sole proprietorship, partnership, corporation, trust or other person (in any capacity including without limitation as an employee, consultant, advisor, officer, director, shareholder or partner) which directly or indirectly, either itself or with an affiliated entity or entities, engages in any business involving the design, promotion, distribution or sale of wheels, car care products, custom cars, hot rods and related products for the specialty automotive and motorcycle aftermarkets (the "Products"). Notwithstanding the foregoing, this Section 3 shall be void and no longer binding upon Consultant in the event that the Company and its affiliates or assignees cease their active business operations or in the event the Company and its affiliates or assignees permanently cease the design, promotion, distribution, or sale of the Products. Further, this Section 3 shall not prohibit Consultant from engaging in a business (such as Consultant's hot rods and collectibles store) which involves the retail resale of hot rods and custom cars, provided that neither the Company's (or its affiliates) employees nor the Company's (or its affiliates) independent contractors are utilized in the sale of such hot rods and custom cars in violation of Section 3 hereof. 4. Permitted Stock Ownership. Notwithstanding Section 3, Consultant, or any affiliate, collectively may acquire the ownership of less than 1% of any class of equity securities of any company engaged in business similar to that of the Company whose securities are publicly traded. 5. Non-Solicitation of Employees/Contractors. During the terms of this Agreement and for a period of two (2) years thereafter, Consultant and any of his affiliated entities, will not (i) solicit, directly or indirectly, for himself or for any other person or entity, employees of the Company or its affiliates, or any independent contractors of the Company or its affiliates, (ii) solicit, directly or indirectly, for himself or for any other person or entity, existing or potential customers for business that will compete with the Company's business, or (iii) directly or indirectly encourage, or do any act that would encourage, any employees or independent contractors of the Company to terminate their working relationship with the Company. For purposes of this Agreement, "employees" and "independent contractors" shall include cottage, piece work, and similar laborers retained by the Company or its affiliates for the benefit of the Company or its affiliates. 6. Confidential Information. Consultant and any of his affiliated entities will maintain in confidence and will not disclose to any third party any confidential or proprietary information of the business of the Company, including, without limitation, personnel information, trade secrets, know how, processes, business practices, finances, suppliers, customers or potential customers of the Company. 2 3 7. Injunctive Relief; Breach. Consultant acknowledges that his compliance with the covenants and agreements contained herein is necessary to protect the goodwill and other proprietary interests of the Company. The Consultant acknowledges that any breach by him or by any affiliated entities of any of the foregoing covenants and agreements will cause irreparable damage to the Company, the exact amount of which will be difficult or impossible to ascertain, and that the remedies at law for any such breach will be inadequate. Accordingly, Consultant agrees that the Company shall be entitled to injunctive relief ordering specific performance of the foregoing covenants and agreements, in addition to such further relief as may be proper. 8. Termination. This Agreement and all rights and obligations of the parties hereunder (except as set forth in Sections 4, 5, 6, 7 and 20) shall terminate immediately upon occurrence of any of the following events: A. Upon the death of Consultant. B. Upon the "permanent disability" of Consultant. As used herein, the term "permanent disability" shall mean the good faith determination by the Company that Consultant has become so physically or mentally disabled as to be incapable of satisfactorily performing his responsibilities under this Agreement for a period of ninety (90) consecutive days. C. Upon notice from the Company for "good cause." As used herein, the term "good cause" shall include, without limitation, a material breach of this Agreement by Consultant, a material breach by Consultant of any other agreement between the parties, a material breach by Consultant of an agreement with a third party for the benefit of the Company, future misconduct by Consultant which materially and adversely impacts the Company or its reputation or a failure or refusal by Consultant to perform his duties hereunder in the manner reasonably specified. D. Upon notice from the Company without "good cause," provided that the Company shall pay Consultant payments equal to (i) $300,000, if such termination occurs during the first year of the term of this Agreement, and (ii) one (1) year of base compensation, if such termination occurs after the first year of this Agreement or during any renewal period of this Agreement, if applicable. In the event of such a termination without good cause, then Consultant will be relieved of any obligations set forth in Section 3 hereof that would otherwise restrict his ability to compete after the date of such termination. Notwithstanding the foregoing, Consultant shall not be entitled to receive any termination payments upon (i) any termination of this Agreement pursuant to Sections A, B or C above, or (ii) any expiration of this Agreement with notice as provided in Section 1. 9. Severability. If any of the provisions of this Agreement shall contravene or be invalid under the laws of any state or other jurisdiction where it is applicable but for such contravention or invalidity, such contravention or invalidity shall not invalidate all of the provisions of this Agreement, but, rather, it shall be construed, insofar as the laws of that state or jurisdiction are concerned, as not containing the provision or provisions contravening or invalid under the laws of that 3 4 state or jurisdiction, and the rights and obligations created hereby shall be construed and enforced accordingly. If, however, any such contravening provision relates to the term of this Agreement or the geographic area or areas to which it applies, then this Agreement shall be construed as providing for the maximum time period and widest geographic area or areas which the laws of that state or jurisdiction permit; provided that such time period and geographic area shall never exceed the time period or geographic area provided for herein. 10. Payment for Services and Covenants. In consideration of the agreements being made by Consultant hereunder, the Company hereby agrees to pay to Consultant (i) base compensation equal to the sum of SIX THOUSAND DOLLARS ($6,000) for the first thirteen months and TWELVE THOUSAND FIVE HUNDRED DOLLARS ($12,500) per month for each month thereafter, plus (ii) annual incentive compensation equal to one-half of one percent (1/2%) of the Company's sales in excess of $24,000,000, with such incentive compensation not to exceed $60,000 annually. Further, the Company agrees to (i) reimburse Consultant for reasonable expenses incurred in performance of his duties hereunder and (ii) provide Consultant with a telephone and a facsimile line to be installed in Consultant's home or other agreed upon place to be used by Consultant exclusively in connection with the performance of Consultant's duties hereunder and to reimburse Consultant for telephone and facsimile charges reasonably incurred. Said amounts shall be payable at any such times that Consultant is not in material breach of the terms and provisions hereof. 11. Relationship and Authority, Taxes, Insurance, Other. The relationship between the Company and Consultant intended to be created by this Agreement is that of an independent contractor, and nothing herein contained shall be construed as creating a relationship of employer and employee or principal and agent between the parties hereto. Consultant covenants and agrees that he shall not act as if or make any representation that he is authorized to act as an agent or officer of the Company and specifically covenants and agrees that he will not attempt to contractually obligate or bind the Company. Consultant, not the Company, shall pay all federal income taxes, FICA taxes, medicare taxes, state income taxes, state disability insurance, and all other federal, state, and local taxes, insurance, or other charges relating to Consultant's performance of services hereunder. Consultant also shall carry for himself any required worker's compensation insurance. 12. Surrender of Books and Records. Consultant agrees that, as and when requested to do so by the Company, and in any event upon the termination of this Agreement, Consultant shall immediately surrender to the Company all lists, books and records (and any copies thereof) of, or in connection with, the business of the Company, and all other properties belonging to the Company then in his possession, it being distinctly understood that all such lists, books and records, and other documents or property are that confidential, proprietary property of the Company. 13. Amendment and Waiver. This Agreement may not be amended, modified or waived in any way except in a writing signed by all of the parties hereto. Failure of any party to insist upon strict observance of or compliance with an aspect of this Agreement on one or more instances shall not be deemed a waiver of that term in that instance or in the future, or as to any other term at any time. Waivers, to be effective, must be express and in writing, and no waiver shall operate as a waiver 4 5 of any other default or of the same default on a future occasion. Failure to enforce any similar agreement against any other person shall in no event constitute a waiver under this Agreement. 14. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 15. Advice of Counsel. Each party hereto acknowledges that he has been advised to seek independent legal counsel for advice regarding the effect of the terms and provisions hereof, and has either obtained such advice of independent legal counsel, or has voluntarily and without compulsion elected to enter into and be bound by the terms of this Agreement without such advice of independent legal counsel. 16. Attorneys' Fees. In the event of any proceeding arising out of or related to this Agreement, the prevailing party shall be entitled to recover from the losing party all of its costs and expenses incurred in connection with such proceeding, including court costs and reasonable attorneys' fees, whether or not such proceeding is prosecuted to judgment. 17. Further Assurances. The parties shall at their own cost and expense execute and deliver such further documents and instruments and shall take such other actions as may be reasonably required or appropriate to carry out the intent and purposes of this Agreement. 18. Gender and Number. The use of the masculine, feminine and neuter genders and the singular and plural number shall include the others where the context so requires. 19. Notices. All notices, requests, demands and other communications under this Agreement shall be given in writing and shall be served either personally, by facsimile or delivered by first class mail, registered or certified, return receipt requested, postage prepaid, and properly addressed as follows: If to the Company: BOYDS WHEELS, INC. 8380 Cerritos Avenue Stanton, California 90680 If to Consultant: Boyd Coddington 2727 Casalero Road La Habra Heights, California 90631 With a copy to: Louis J. Khoury, Esq. 1801 Century Park East, Suite 2400 Los Angeles, California 90067 Notices shall be deemed received upon the earliest of actual receipt, confirmed facsimile or three (3) days following mailing pursuant to this Section. 20. Arbitration. Any dispute arising out of or related to this Agreement shall be submitted to arbitration in Orange County, California, before an arbitrator selected from Judicial Arbitration and Mediation Services, Inc., Orange County, California and shall be conducted in 5 6 accordance with the provisions of California Code of Civil Procedure Section 1280 et seq. as the exclusive remedy of such dispute; provided, however, that provisional injunctive relief may, but need not, be sought in a court of law while arbitration proceedings are pending, and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the Arbitrator. Final resolution of any dispute through arbitration may include any remedy or relief which the Arbitrator deems just and equitable, including permanent injunctive relief or specific performance, or both, and the Arbitrator is hereby empowered to award such relief. Any award or relief granted by the Arbitrator hereunder shall be final and binding on the parties hereto and may be enforced by any court of competent jurisdiction. 21. Assignment. This Agreement and the rights and obligations created hereunder may not be assigned, transferred, pledged, or hypothecated in any manner by either of the parties hereto, whether voluntarily or by operation of law, without the prior written consent of the other party. Any attempted assignment, transfer, pledge, hypothecation, or other disposition of this Agreement in a manner contrary hereto, shall be null and void and without force or effect. Notwithstanding the foregoing, this Agreement may be assigned by the Company to one or more affiliates of the Company, or in connection with the sale or transfer of all or substantially all of the assets of the Company; provided that upon any such assignment hereunder, that each and all of the provisions hereof shall be binding upon such successors and permitted assigns. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the date first above written. "CONSULTANT" -------------------------- Boyd Coddington "COMPANY" BOYDS WHEELS, INC., a California corporation By: ------------------------------------- Its: ------------------------------------ 6 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 556,527 0 2,503,223 1,175,117 8,627,449 12,924,809 19,407,850 4,622,078 27,894,735 14,005,999 1,344,419 0 0 17,856,101 (5,667,736) 27,894,735 4,777,007 4,777,007 5,202,547 5,202,547 0 0 0 (2,231,843) (112,200) (2,119,643) 0 0 0 (2,119,643) (.55) 0
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