-----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, BasAieMgqrzjYo8natAMSWQ5rAGOiROpZhU8aqfrZ8CG+2bj5ssisLj60uMp19hI f2oHw4SBhwuT0R3h1z1EUQ== 0001047469-03-005570.txt : 20030214 0001047469-03-005570.hdr.sgml : 20030214 20030214141526 ACCESSION NUMBER: 0001047469-03-005570 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTORCAR PARTS & ACCESSORIES INC CENTRAL INDEX KEY: 0000918251 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 112153962 STATE OF INCORPORATION: NY FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23538 FILM NUMBER: 03566108 BUSINESS ADDRESS: STREET 1: 2929 CALIFORNIA STREET CITY: TORRANCE STATE: CA ZIP: 90503 BUSINESS PHONE: 3109724057 MAIL ADDRESS: STREET 1: 2929 CALIFORNIA STREET CITY: TORRANCE STATE: CA ZIP: 90503 10-Q 1 a2101529z10-q.htm 10-Q
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002.
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

Commission File No. 0-23538

MOTORCAR PARTS & ACCESSORIES, INC.
(Exact name of registrant as specified in its charter)

New York		11-2153962
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2929 California Street, Torrance, California		90503
(Address of principal executive offices)		Zip Code

Registrant's telephone number, including area code: (310) 212-7910

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 ý No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes o No ý

There were 7,960,455 shares of Common Stock outstanding at February 10, 2003.

MOTORCAR PARTS & ACCESSORIES

INDEX
PART I—FINANCIAL INFORMATION

			Page
PART I—FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of December 31, 2002 (unaudited) and March 31, 2002	3
		Consolidated Statement of Operations (unaudited) for the three and nine month periods ended December 31, 2002 and 2001	4
		Consolidated Statements of Cash Flows (unaudited) for the nine month periods ended December 31, 2002 and 2001	5
		Condensed Notes to Consolidated Financial Statements (unaudited)	6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
	Item 4.	Controls and Procedure	16
PART II—OTHER INFORMATION
	Item 1.	Legal Proceedings	17
	Item 5.	Other Information	17
	Item 6.	Exhibits and Reports on Form 8-K	17
Signatures			18

MOTORCAR PARTS & ACCESSORIES, INC.

Consolidated Balance Sheets

			December 31, 2002			March 31, 2002
			(Unaudited)
*ASSETS*
Current Assets:
	Cash and cash equivalents		$	457,000		$	92,000
	Short term investments			311,000			272,000
	Accounts receivable—net			13,092,000			17,922,000
	Inventory—net			28,519,000			34,270,000
	Prepaid expenses and other current assets			432,000			406,000

		Total current assets		42,811,000			52,962,000
Plant and equipment—net				5,497,000			6,943,000
Deferred tax asset				6,250,000			6,250,000
Income tax refund receivable				63,000			3,409,000
Other assets				1,140,000			1,732,000

		TOTAL ASSETS	$	55,761,000		$	71,296,000

*LIABILITIES AND SHAREHOLDERS' EQUITY*
Current liabilities:
	Accounts payable		$	7,020,000		$	11,150,000
	Accrued liabilities			2,580,000			2,794,000
	Line of credit			10,782,000			28,029,000
	Deferred compensation			311,000			272,000
	Other current liabilities			282,000			44,000
	Current portion of capital lease obligations			1,024,000			1,269,000

		Total current liabilities		21,999,000			43,558,000
Capital lease obligations, less current portion				309,000			915,000
*SHAREHOLDERS' EQUITY*
Preferred stock; par value $.01 per share, 5,000,000 shares authorized; none issued				—			—
Common stock; par value $.01 per share, 20,000,000 shares authorized; 7,960,455 shares issued and outstanding at December 31, 2002 and March 31, 2002, respectively				80,000			80,000
Additional paid-in capital				53,126,000			53,126,000
Accumulated other comprehensive loss				(220,000	)		(112,000	)
Accumulated deficit				(19,533,000	)		(26,271,000	)

		Total shareholders' equity		33,453,000			26,823,000

		TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	55,761,000		$	71,296,000

The accompanying condensed notes to consolidated financial statements are an integral part hereof.

MOTORCAR PARTS & ACCESSORIES, INC.

Consolidated Statements of Operations
(Unaudited)

		Nine Months Ended December 31,				Three Months Ended December 31,
		2002		2001		2002			2001
Net sales		$	132,976,000	$	130,317,000	$	40,115,000		$	38,837,000
Cost of goods sold			117,743,000		115,607,000		34,921,000			35,084,000

	Gross Margin		15,233,000		14,710,000		5,194,000			3,753,000

Operating expenses:
	General and administrative		6,704,000		5,554,000		2,525,000			1,251,000
	Sales and marketing		857,000		810,000		285,000			268,000
	Research and development		411,000		399,000		127,000			128,000

	Total operating expenses		7,972,000		6,763,000		2,937,000			1,647,000

Operating income			7,261,000		7,947,000		2,257,000			2,106,000
Net interest expense (income)			1,218,000		2,939,000		(270,000	)		806,000

Income before income tax benefit			6,043,000		5,008,000		2,527,000			1,300,000
Income tax benefit			695,000		—		695,000			—

Net income		$	6,738,000	$	5,008,000	$	3,222,000		$	1,300,000

Basic net income per share		$	.85	$	.71	$	.40		$	.16

Diluted net income per share		$	.79	$	.67	$	.38		$	.15

Weighted average number of shares outstanding
	—basic		7,960,455		7,022,273		7,960,455			7,960,455
	—diluted		8,561,875		7,490,629		8,454,600			8,460,078

The accompanying condensed notes to consolidated financial statements are an integral part hereof.

MOTORCAR PARTS & ACCESSORIES, INC.

Consolidated Statement of Cash Flows
(Unaudited)

				Nine Months Ended December 31,
				2002			2001
Cash flows from operating activities:
	Net income			$	6,738,000		$	5,008,000
	Adjustments to reconcile net income to net cash used in operating activities
	Non-cash charge for compensatory stock warrants issued				—			360,000
	Depreciation and amortization				1,790,000			2,180,000
	(Increase) decrease in:
		Accounts receivable			4,830,000			(12,147,000	)
		Inventory			5,751,000			336,000
		Prepaid expenses and other current assets			(26,000	)		251,000
		Income tax refund receivable			3,346,000			—
		Other assets			592,000			34,000
	Increase (decrease) in:
		Accounts payable and accrued expenses			(4,344,000	)		3,838,000
		Deferred compensation			39,000			24,000
		Accrued litigation settlement			—			(1,500,000	)
		Other liabilities			238,000			—

			Net cash provided by (used in) operating activities		18,954,000			(1,616,000	)

Cash flows from investing activities:
	Purchase of property, plant and equipment				(344,000	)		(662,000	)
	Change in short term investments				(39,000	)		(18,000	)

			Net cash used in investing activities		(383,000	)		(680,000	)

Cash flows from financing activities:
	Net (repayments) borrowings under prior line of credit				(28,029,000	)		3,068,000
	Borrowings under new line of credit				10,782,000			—
	Proceeds from issuance of common stock				—			1,500,000
	Payments on capital lease obligation				(851,000	)		(801,000	)
	Deposit from shareholder				—			(1,500,000	)

			Net cash provided by (used in) financing activities		(18,098,000	)		2,267,000

Effect of exchange rate changes on cash					(108,000	)		(1,000	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					365,000			(30,000	)
CASH AND CASH EQUIVALENTS—BEGINNING OF PERIOD					92,000			164,000

CASH AND CASH EQUIVALENTS—END OF PERIOD				$	457,000		$	134,000

Supplemental disclosures of cash flow information:
	Cash paid during the period for:
		Interest		$	1,205,000		$	3,106,000
		Income taxes		$	32,000		$	1,000
	Non-cash investing and financing activities:
		Property acquired under capital lease			—		$	103,000
		Issuance of common stock			—			1,500,000

The accompanying condensed notes to consolidated financial statements are an integral part hereof.

MOTORCAR PARTS & ACCESSORIES, INC.

Condensed Notes to Consolidated Financial Statements
December 31, 2002 and 2001
(Unaudited)

NOTE A—The Company and its Significant Accounting Policies:

Motorcar Parts & Accessories, Inc., and its subsidiaries (the "Company"), remanufactures and distributes alternators and starters and assembles and distributes spark plug wire sets for the automotive after-market industry (replacement parts sold for use on vehicles after initial purchase). These automotive parts are sold to automotive retail chains and warehouse distributors throughout the United States, Canada and Mexico. The Company also sells after-market alternators and starters to a major automotive manufacturer.

The Company obtains used alternators and starters, commonly known as cores, primarily from its customers (retailers) as trade-ins and by purchasing them from vendors (core brokers). The retailers grant credit to the consumer when the used part is returned to them, and the Company in turn provides a credit to the retailer upon return to the Company. These cores are an essential material needed for its remanufacturing operations. The Company has remanufacturing operations for alternators and starters in California and Malaysia. Assembly operations for spark plug wire sets are performed in California and Malaysia, while purchasing operations are headquartered in Tennessee.

[1]: Principles of consolidation:

The accompanying consolidated financial statements include accounts of the Company and its wholly owned subsidiaries MVR Ltd. Pte. and Unijoh Ltd. Pte. All significant inter-company accounts and transactions have been eliminated in consolidation.

[2]: Basis of presentation:

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. 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. Operating results for the three and nine-month periods ended December 31, 2002 are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2002.

[3]: New accounting pronouncements:

In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 addresses accounting and reporting costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity." This statement requires that a liability for a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period that the liability is incurred. This statement is effective for exit or disposal activities that are initiated after December 31, 2002. The Company does not believe that the adoption of SFAS 146 will have a significant impact on its financial statements.

NOTE B—Accounts Receivable

	December 31, 2002			March 31, 2002
	(Unaudited)
Accounts Receivable	$	19,660,000		$	22,398,000
Less—allowance for bad debts		(86,000	)		(326,000	)
—customer allowances		(2,476,000	)		(1,493,000	)
—return goods authorizations		(4,006,000	)		(2,657,000	)

Balance at end of period	$	13,092,000		$	17,922,000

NOTE C—Inventory

Inventory is comprised of the following:

	December 31, 2002			March 31, 2002
	(Unaudited)
Raw materials and cores	$	20,881,000		$	23,292,000
Work-in-process		691,000			1,286,000
Finished goods		10,146,000			13,407,000

		31,718,000			37,985,000
Less allowances for excess and obsolete inventory		(3,199,000	)		(3,715,000	)

	$	28,519,000		$	34,270,000

NOTE D—Credit Facility / Line of Credit

On December 20, 2002, the Company replaced its $24,750,000 revolving line of credit and its $6,500,000 term loan with a new source of credit. Under the terms of the new loan agreement, the Company can borrow up to the lesser of (i) $25,000,000 or (ii) its borrowing base, which consists of 75% of the Company's qualified accounts receivable plus up to $10,000,000 of qualifying inventory. A portion of the funds from this new credit facility was used to pay in full the previous revolving line of credit and term loan. The Company paid the lender a loan origination fee of $125,000. Pursuant to an earlier understanding, the Company's previous lender waived restructuring fees in the amount of $655,000 which were incurred in connection with an earlier restructuring of the Company's prior lending arrangement and which were to be paid if the Company did not secure a new lending source by December 31, 2002. The unamortized balance resulted in a reduction of $208,000 in interest expense during the three months ended December 31, 2002.

At December 31, 2002 the Company's borrowing base was $17,283,000, and the Company had borrowed $10,782,000 of this amount and reserved an additional $1,171,000 in connection with the issuance of standby letters of credit for worker's compensation insurance. As such, the Company had availability under its line of credit facility of $5,330,000. The interest rate on this credit facility fluctuates and is based upon the (i) higher of the federal funds rate plus ¹/2 of 1% or the bank's prime rate, in each case adjusted by a margin of between - -.25% and .25% that fluctuates based upon the Company's cash flow coverage ratio or (ii) LIBOR or IBOR, as adjusted to take into account any bank reserve requirements, plus a margin of between 2.00% and 2.50% that fluctuates based upon the Company's cash flow coverage ratio. At December 31, 2002, $5,000,000 of the Company's available credit facility was calculated based upon the six-month LIBOR + 2.50% and $5,782,000 was calculated based upon the bank's prime rate + .25%. On December 31, 2002 LIBOR was 1.75% while the bank's prime rate was 4.25%; therefore, the Company's interest rates for the LIBOR and the prime rate

portions of the credit facility were 4.25% and 4.50%, respectively. As of January 28, 2003 the interest rates for both portions of the credit facility remained unchanged.

The bank loan agreement includes various financial covenants, including minimum levels of tangible net worth, cash flow coverage and a number of restrictive covenants, including prohibitions against additional indebtedness, payment of dividends, pledge of assets and a limit on capital expenditures and loans to officers and/or affiliates. In addition, the Company has agreed to pay a fee on any difference between the Commitment and the outstanding amount of credit it actually uses, determined by the average of the daily amount of credit outstanding during the specified period. The fee is equal to 0.25% per year.

This new line of credit facility expires on December 30, 2005.

A copy of the loan agreement and security agreement entered into in connection with the Company's new credit facility are attached to this Form 10-Q as Exhibits 10.40 and 10.41, respectively.

NOTE E—Net Income Per Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted average number of shares of common stock outstanding and assumes that all potential dilutive shares were converted at the beginning of the period.

Net income per share data for the three months ended December 31, 2002 and 2001 is as follows (unaudited):

		December 31, 2002		December 31, 2001
Net Income		$	3,222,000	$	1,300,000

Basic Weighted Average Shares Outstanding			7,960,455		7,960,455

Basic Net Income Per Share		$	.40	$	.16

Effect of Dilutive Securities:
	Basic Weighted Average Shares Outstanding		7,960,455		7,960,455
	Dilutive Effect of Stock Options and Warrants		494,145		499,623

Dilutive Weighted Average Shares Outstanding			8,454,600		8,460,078

Diluted Net Income Per Share		$	.38	$	.15

Net income per share data for the nine months ended December 31, 2002 and 2001 is as follows (unaudited):

		December 31, 2002		December 31, 2001
Net Income		$	6,738,000	$	5,008,000

Basic Weighted Average Shares Outstanding			7,960,455		7,022,273

Basic Net Income Per Share		$	.85	$	.71

Effect of Dilutive Securities:
	Basic Weighted Average Shares Outstanding		7,960,455		7,022,273
	Dilutive Effect of Stock Options and Warrants		601,420		468,356

Dilutive Weighted Average Shares Outstanding			8,561,875		7,490,629

Diluted Net Income Per Share		$	.79	$	.67

NOTE F—Factoring Agreement

The Company's liquidity has been positively impacted by an agreement executed on June 26, 2002 with one of its customer's banks, whereby the Company has the option to sell this customer's receivables to the bank at an agreed upon discount set at the time the receivables are sold. The discount has ranged from 1.02% to 1.28% of receivables sold during 2002. This has allowed the Company to accelerate collection of the customer's receivables aggregating $19,777,000 by an average of 50 days. This agreement is an important factor behind the $4,830,000 decrease in accounts receivable at December 31, 2002 when compared to the accounts receivable balance at March 31, 2002. While this arrangement has reduced the Company's working capital needs, there can be no assurance that this arrangement will continue in the future.

NOTE G—Litigation

On September 18, 2002, the Securities and Exchange Commission filed a civil suit against the Company and its former chief financial officer, Peter Bromberg, arising out of the SEC's investigation into the Company's financial statements and reporting practices for fiscal years 1997 and 1998. Simultaneously with the filing of the SEC Complaint, the Company agreed to settle the SEC's action without admitting or denying the allegations in the Complaint. Under the terms of the settlement agreement, the Company is subject to a permanent injunction barring the Company from future violations of the antifraud and financial reporting provisions of the federal securities laws. No monetary fine or penalty was imposed upon the Company in connection with this settlement with the SEC. The SEC's case against Bromberg has not been settled. In addition, the United States Attorney's Office for the Central District of California filed criminal charges against Bromberg on September 18, 2002 relating to his alleged role in the actions that form the basis for the SEC's Complaint. Bromberg has entered into a plea agreement with the government with respect to these criminal charges.

The United States Attorney's Office has informed the Company that it does not intend to pursue criminal charges against the Company arising from the events involved in the SEC Complaint. The U.S. Attorney's Office is, however, continuing its investigation into the events involved in the SEC's Complaint. The Company has been informed that the U.S. Attorney's Office has named Richard Marks as a target of its investigation. During the 1997 and 1998 periods under investigation, Mr. Marks served as the Company's President and COO. Mr. Marks is currently an advisor to the Company's Chief Executive Officer and Board of Directors.

The Company is subject to various other lawsuits and claims in the normal course of business. Management does not believe that the outcome of these matters will have a material adverse effect on its financial position or future results of operations.

NOTE H—Income Taxes/Benefits

In the third quarter ended December 31, 2002, the Company received income tax refunds of $4,073,000. Of this amount, $727,000 is the result of the federal tax refund being greater than previously anticipated. This refund was the direct result of the conclusion of an Internal Revenue Service examination and the passing of the Job Creation and Work Assistance Act of 2002, by Congress and enacted into Law on March 9, 2002. One of the provisions of this Act extended the carry-back period for five years resulting from losses arising in years ending 2001. There is no provision for Federal Income Taxes, since the Company has a net operating loss carry-forward of approximately $26,730,370. Management believes that the Company's net operating loss carry-forward will offset any anticipated income tax liability attributable to fiscal 2003. The Company has recognized State Income Tax Expense of $32,000 in these financial statements.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Critical Accounting Policies

The discussion and analysis of the Company's financial condition and results of operations is based upon the Company's consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates estimates, including those related to the valuation of inventory and stock adjustments, for reasonableness. The Company bases its estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.

Management believes that the lower of cost or market valuation of inventory, stock adjustments, reserves for excess and obsolete inventory and valuation of deferred tax assets are among the most critical accounting policies that impact its consolidated financial statements.

The Company values cores in inventory at the lower of cost or market. Company policy is to value cores based upon the last purchase price when purchases of any particular core is greater than 25% of the total number of that particular core on hand. Such values are normally less than the core value credited to customers' accounts when cores are returned to the Company as trade-ins. The difference is charged against cost of sales. For those cores not valued through purchases, the Company determines the market value based on comparisons to current core broker prices. Current core broker prices are determined by researching the core broker market and securing prices for cores from a minimum of three core brokers. Additionally, management reviews core inventory to identify excess quantities and maturing product lines. Core broker prices can fluctuate dramatically based upon the industry's activity (buying and selling of cores) in the market.

The Company's customers, from time to time, are allowed stock adjustments when their inventory level of certain product lines exceeds their anticipated levels of sales to their end-user customers. These adjustments are made by the Company's acceptance of these customer's overstocked items into inventory and do not come at any specific time during the year. In addition, these adjustments can have a distorting effect on the financial statements. The Company provides a monthly allowance of $75,000 to address the anticipated impact of potential stock adjustments. The establishment of this monthly allowance results in a charge against cost of sales. Costs associated with stock adjustments are charged against this allowance account. As of December 31, 2002 and March 31, 2002, the balance in the stock adjustment reserve account was $1,212,000 and $609,000 respectively. This allowance is reviewed quarterly, looking back at a trailing 12-month period and the Company obtains feedback from customers on expected returns, to determine if the accrual is reasonable.

The Company reserves for potential excess and obsolete inventory based upon historical usage as well as a product's life cycle. This reserve account decreased to $3,199,000 as of December 31, 2002 from $3,715,000 as of March 31, 2002 due to the liquidation of inventory through scrap sales resulting from management's decision to adjust production yields when comparing the cost of new versus remanufactured component parts. Management establishes an inventory valuation allowance to reflect the estimated net realizable value of slow moving product based upon the number of years sales on hand. Additionally, management estimates a reserve percentage for the net realizable value of product lines that are reaching their maturity. These estimated reserve percentages could fluctuate dramatically based upon the underlying core broker prices for particular parts and the value of cores to be liquidated in the core market.

Selected Financial Data

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.

Results of Operations

	Nine Months Ended December 31,				Three Months Ended December 31,
	2002		2001		2002		2001
Net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	88.5	%	88.7	%	87.1	%	90.3	%

Gross margin	11.5	%	11.3	%	12.9	%	9.7	%
General and administrative expenses	5.0	%	4.3	%	6.3	%	3.2	%
Sales and marketing expenses	0.7	%	0.6	%	0.7	%	0.7	%
Research and development expenses	0.3	%	0.3	%	0.3	%	0.4	%

Operating income	5.5	%	6.1	%	5.6	%	5.4	%
Interest expense—net of interest income	..9	%	2.3	%	(0.7	)%	2.1	%

Income before income tax benefit	4.6	%	3.8	%	6.3	%	3.3	%
Income tax benefit	0.5	%	—		1.7	%	—

Net income	5.1	%	3.8	%	8.0	%	3.3	%

Nine Months Ended December 31, 2002 Compared to Nine Months Ended December 31, 2001

Net sales for the nine months ended December 31, 2002 were $132,976,000, an increase of $2,659,000 or 2.0% over the nine months ended December 31, 2001. This increase in net sales is due to increased sales to existing customers.

Cost of goods sold, as a percentage of net sales, remained relatively flat for the nine months ended December 31, 2002. For the nine months ended December 31, 2002, there was a 0.2% decrease to 88.5% as compared to 88.7% for the nine months ended December 31, 2001. This percentage decrease is principally attributable to decreases in: (1) direct labor costs of $855,000 resulting from greater manufacturing efficiencies and improved productivity due to the Company's initiation of "lean manufacturing" practices in a number of work cells; (2) freight costs of $686,000 due to the negotiation of more favorable ocean cargo shipping rates; and (3) an increase in recycling sales of $225,000. These decreases were partially offset by increases in: (1) material costs associated with the mix of products being produced of $1,427,000; and (2) production administration costs of $156,000.

General and administrative expenses increased over the periods by $1,150,000 or 20.7% to $6,704,000 for the nine months ended December 31, 2002 from $5,554,000 for the nine months ended December 31, 2001. This increase is principally the result of additional expenses as follows: (1) extraordinary legal fees of $779,000 which relates to the indemnification of Company individuals relating to the SEC's and United States Attorney's Office's investigations; (2) salaries and bonuses of $237,000 which were paid to key executives pursuant to their respective employment agreements; (3) insurance and benefit cost increases of $188,000; (4) directors' fees of $165,000 which is the result of adding two new members to the Company's board and a change to the consulting agreement of one of the Company's board members; (5) bank fees of $134,000 which were paid to the Company's former lender; and (6) investment banker fees of $108,000 which were incurred in connection with an evaluation of the Company's strategic options. These increases were partially offset by decreases in the

following areas: (1) bad debt reserve of $471,000 and (2) computer supplies and services of $80,000. As a percentage of sales, general and administrative expenses increased over the periods to 5.0% from 4.3%.

Sales and marketing expenses increased over the periods by $47,000 or 5.8% to $857,000 for the nine months ended December 31, 2002 from $810,000 for the nine months ended December 31, 2001. This increase is the result of increases in: (1) salaries and bonuses of $107,000 which were paid to key sales executives as the result of increased profits; (2) catalog and trade show expenses of $4,000; and (3) benefits and insurance costs of $9,000. These increases were partially offset by reductions in: (1) hourly wages of $49,000; (2) commissions paid of $41,000; (3) advertising expenses of $26,000 and (4) travel expenses of $16,000. As a percentage of sales, sales and marketing expenses increased by 0.1% to 0.7% for the period ending December 31, 2002 as compared to 0.6% for the same period a year earlier.

Research and development expenses increased over the periods by $12,000 or 3.0% to $411,000 for the nine months ended December 31, 2002 from $399,000 for the nine months ended December 31, 2001. This increase resulted principally from an increase in salaries for additional personnel and was partially offset by a reduction in expenses paid to outside contractors for repairs and maintenance. As a percentage of sales, research and development expenses remained constant at 0.3%.

For the nine months ended December 31, 2002, interest expense net of interest income was $1,218,000. This represents a decrease of $1,721,000 or 58.6% from net interest expense of $2,939,000 for the nine months ended December 31, 2001. Of this decrease, $360,000 is the result of a one-time charge to interest expense made during the nine months ended December 31, 2001 in connection with the re-pricing of 400,000 warrants previously issued to the bank, $208,000 represents the unamortized restructuring fee waived by the Company's prior lender as a result of the new credit arrangement put in place on December 20, 2002 and $525,000 is principally the result of lower interest rates and lower outstanding loan balance(s) in 2002. In addition, the Company realized an increase of interest income of $628,000, principally due to interest income paid by the Internal Revenue Service and the California Franchise Tax Board related to tax refunds received during quarter ended December 31, 2002. Interest expense was comprised principally of interest on the Company's revolving line of credit facility, term loan, customer vendor program and capital leases.

Three Months Ended December 31, 2002 Compared to Three Months Ended December 31, 2001

Net sales for the three months ended December 31, 2002 were $40,115,000, an increase of $1,278,000 or 3.3% over the three months ended December 31, 2001. This increase in net sales is the result of increased sales to existing customers.

Cost of goods sold, as a percentage of net sales, decreased to 87.1% for the three months ended December 31, 2002 as compared to 90.3% for the three months ended December 31, 2001. This percentage decrease is principally attributable to decreases in: (1) direct labor costs of $474,000 resulting from greater manufacturing efficiencies and improved productivity due to the Company's initiation of "lean manufacturing" practices in a number of work cells; (2) indirect labor costs of $178,000 attributable to "lean" practices; and (3) freight costs of $194,000 due to the negotiation of more favorable ocean cargo shipping rates. These decreases were partially offset by an increase in material costs of $281,000 associated with the mix of products being produced by the Company.

General and administrative expenses increased over the periods by $1,274,000 or 101.8% to $2,525,000 for the three months ended December 31, 2002 from $1,251,000 for the three months ended December 31, 2001. This increase is principally the result of additional expenses as follows: (1) extraordinary legal fees of $334,000 which relates to the indemnification of Company individuals relating to the SEC's and the United States Attorney's Office's investigations; (2) salaries and bonuses of $265,000 which were paid to key executives pursuant to their respective employment agreements;

(3) directors' fees of $137,000 which is the result of adding two new members to the Company's board and a change to the consulting agreement of one of the Company's board members; (4) investment banker fees of $108,000 which were incurred in connection with an evaluation of the Company's strategic options; (5) insurance and benefit costs of $70,000; (6) bank fees of $30,000 which were paid to the Company's former lender; (7) various service fees of $17,000; and (8) bad debt reserve of $16,000. As a percentage of sales, general and administrative expenses increased over the periods to 6.3% from 3.2%.

Sales and marketing expenses increased over the periods by $17,000 or 6.3% to $285,000 for the three months ended December 31, 2002 from $268,000 for the three months ended December 31, 2001. This increase resulted principally from increases in the following areas: (1) salaries and bonuses of $25,000 which were paid to key sales executives as the result of increased profits; (2) travel expenses of $5,000 and (3) benefit costs of $4,000. These increases were partially offset by decreases in the following areas: (1) advertising and catalog costs of $13,000; and (2) supplies and subscriptions of $14,000. As a percentage of sales, these expenses remained constant at 0.7%.

Research and development expenses remained relatively flat for the three months ended December 31, 2002 as compared to the three months ended December 31, 2001.

For the three months ended December 31, 2002 interest income was greater than interest expense by $270,000. This compares to net interest expense of $806,000 for the three months ended December 31, 2001. Of this difference, $208,000 represents the unamortized restructuring fee waived by the Company's prior lender as a result of the new credit arrangement put in place on December 20, 2002, $262,000 is the result of lower interest rates and lower outstanding loan balance(s) and $606,000 resulted from an increase in interest income, principally due to interest income paid by the Internal Revenue Service and the California Franchise Tax Board related to Tax Refunds received during this period. Interest expense was comprised principally of interest on the Company's revolving line of credit facility, term loan, customer vendor program and capital leases.

Liquidity and Capital Resources

The Company has financed its working capital needs through the use of its bank credit facility and through cash flow generated from operations.

On December 20, 2002, the Company replaced its then existing $24,750,000 revolving line of credit and its $6,500,000 term loan with a new line of credit. Under the terms of the loan agreement, the Company can borrow up to the lesser of (i) $25,000,000 or (ii) its borrowing base, which consists of 75% of the Company's qualified accounts receivable plus up to $10,000,000 of qualifying inventory. A portion of the funds from this new loan was used to pay in full the previous revolving line of credit and term loan. The Company paid the new lender a loan origination fee of $125,000. Pursuant to an earlier understanding the Company's previous lender waived restructuring fees in the amount of $655,000 which were incurred in connection with an earlier restructuring of the Company's prior lending arrangement and which were to be paid if the Company did not secure a new lending source by December 31, 2002.

At December 31, 2002 the Company's borrowing base was $17,283,000, and the Company had borrowed $10,782,000 of this amount and reserved an additional $1,171,000 in connection with the issuance of standby letters of credit for worker's compensation insurance. As such, the Company had availability under its line of credit of $5,330,000. The interest rate on this credit facility fluctuates and is based upon the (i) higher of the federal funds rate plus ¹/2 of 1% or the bank's prime rate, in each case adjusted by a margin of between -.25% and ..25% that fluctuates based upon the Company's cash flow coverage ratio or (ii) LIBOR or IBOR, as adjusted to take into account any bank reserve requirements, plus a margin of between 2.00% and 2.50% that fluctuates based upon the Company's cash flow coverage ratio. At December 31, 2002, $5,000,000 of the Company's available credit facility was

calculated based upon the six-month LIBOR + 2.50% and $5,782,000 was calculated based upon the bank's prime rate + .25%. On December 31, 2002 LIBOR was 1.75% while the bank's prime rate was 4.25%; therefore, the Company's interest rates for the LIBOR and the prime rate portions of the credit facility were 4.25% and 4.50%, respectively. As of January 28, 2003 the interest rates for both portions of the credit facility remained unchanged.

The bank loan agreement includes various financial conditions, including minimum levels of tangible net worth, cash flow coverage and a number of restrictive covenants, including prohibitions against additional indebtedness, payment of dividends, pledge of assets and capital expenditures as well as loans to officers and/or affiliates. In addition, pursuant to the terms specified in this new loan agreement the Company agrees to pay a fee of .25% per year on any difference between the Commitment and the outstanding amount of credit it actually uses, determined by the average of the daily amount of credit outstanding during the specified period. The fee is equal to .25% per year.

The Company's liquidity has been positively impacted by an agreement executed on June 26, 2002 with one of its customer's banks, whereby the Company has the option to sell this customer's receivables to the bank, at an agreed upon discount set at the time the receivables are sold. The discount has ranged from 1.05% to 1.28% during 2002, and has allowed the Company to accelerate collection of the customer's receivables aggregating $13,000,000 by an average of 53 days. This agreement is an important factor behind the $5,751,000 decrease in accounts receivable at December 31, 2002 when compared to the accounts receivable balance at March 31, 2002. While this arrangement has reduced the Company's working capital needs, there can be no assurance that this arrangement will continue in the future.

Customer Concentration

For the nine months ended December 31, 2002, the Company was substantially dependent upon sales to three major customers. During this period (third quarter FY 2003), sales to these three customers constituted approximately 91% of the Company's total sales. During the same period in fiscal 2002, sales to the Company's top three customers totaled approximately 85% of the Company's total sales. Any meaningful reduction in the level of sales to any of these customers or the loss of one of these customers could have a materially adverse impact on the Company. In addition, the concentration of the Company's sales and the competitive environment in which the Company operates has increasingly limited the Company's ability to negotiate favorable prices and terms for its products.

Seasonality of Business

Due to the nature and design as well as the current limits of technology, alternators and starters traditionally fail when operating in extreme conditions. That is, during the summer months, when the temperature typically increases over a sustained period of time, alternators and starters are more apt to fail and thus, an increase in demand for the Company's products typically occurs. Similarly, during winter months, when the temperature is colder, but not to the same extent as summer months, alternators and starters tend to fail and require replacing immediately, since these parts are mandatory for the operation of the vehicle. As such, summer months tend to show an increase in overall volume with a few spikes in the winter.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative Disclosures. The Company is subject to interest rate risk on its existing debt and any future financing requirements. The Company's variable rate debt relates to borrowings under the Credit Facility (see "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources").

The following table presents the weighted-average interest rates expected on the Company's existing debt instruments.

Principal (Notional) Amount by Expected Maturity Date (As of December 31, 2002)

			Fiscal 2003	Fiscal 2004
			(Dollars in Thousands)
Liabilities
Bank Debt, Including Current Portion
	Line of Credit Facility		$25,000	$25,000
		Interest Rate	Prime + .25%*	Prime + .25%*

*: As noted in the discussion under the caption "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources", the spread above the bank's prime rate can increase or decrease depending upon changes in the ratio of the Company's funded debt to cash flow. Under its credit agreement, the Company may also borrow funds at a rate that is tied to LIBOR or IBOR, plus a margin of between 2.00% and 2.50% that fluctuates depending upon changes in the ratio of the Company's funded debt to cash flow.

Qualitative Disclosures. The Company's primary exposure relates to (1) interest rate risk on its long-term and short-term borrowings, (2) the Company's ability to pay or refinance its borrowings at maturity at market rates and (3) the impact of interest rate movements on the Company's ability to meet interest expense requirements and exceed financial covenants. While the Company cannot predict or manage its ability to refinance existing debt or the impact interest rate movement will have on its existing debt, management evaluates the Company's financial position on an on-going basis.

Item 4. Controls and Procedures

Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.

There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed this evaluation.

Disclosure Regarding Private Securities Litigation Reform Act of 1995

This report contains certain forward-looking statements with respect to the future performance of the Company that involve risks and uncertainties. Various factors could cause actual results to differ materially from those projected in such statements. These factors include, but are not limited to: concentration of sales to certain customers, the increasing pressure from customers for more favorable pricing and payment terms, changes in the Company's relationship with any of its customers, the Company's failure to meet the financial covenants or the other obligations set forth in its bank credit agreement and the bank's refusal to waive any such defaults, the Company's ability to refinance its bank debt at maturity, the potential for changes in consumer spending, consumer preferences and general economic conditions, increased competition in the automotive parts remanufacturing industry, unforeseen increases in operating costs associated with and the anticipated savings from the Company's consolidation of facilities, the uncertainty of the government investigations into certain former officers and employees of the Company and other factors discussed herein and in the Company's other filings with the Securities and Exchange Commission.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Item 1. Note G to the Consolidated Financial Statements included in Item 1 of Part I and incorporated by reference to this Item 1 of Part II.

Item 5. Other Information

In February, 2003, Anthony Souza, the Company's President and Chief Executive Officer informed the Company's Board of Directors that he would resign as the Company's President and Chief Executive Officer and member of the Company's Board of Director's effective February 14, 2003. The Company and Mr. Souza have agreed that Mr. Souza will receive the compensation he is entitled to under his current employment agreement through June 1, 2003, its expiration date, and will be a consultant to the Company during this period. In addition, Mr. Souza shall remain as a consultant to the Company for a one-year period beginning June 1, 2003 and will be paid a fee of $15,000 per month during that year.

The Board of Directors has appointed Selwyn Joffe, the Company's Chairman, to replace Mr. Souza as Chief Executive Officer, effective February 14, 2003.

Item 6. Exhibits and Reports on Form 8-K

(a): Exhibits:

10.40		Business Loan Agreement (Receivables and Inventory) dated December 20, 2002, by and between the Company and Bank of America, N.A.
10.41		Security Agreement dated December 20, 2002, by and between the Company and Bank of America, N.A.
99.1		Certification of Chief Executive Officer
99.2		Certification of Chief Financial Officer

(b): Reports on Form 8-K:

On October 10, 2002, the Company filed a current report on Form 8-K announcing the appointment of two new directors to the Company's Board of Directors

SIGNATURES

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.

	MOTORCAR PARTS & ACCESSORIES, INC.

Dated: February 13, 2003	By:	/s/ Charles W. Yeagley Charles W. Yeagley Chief Financial Officer

CERTIFICATIONS

I, Anthony Souza, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Motorcar Parts & Accessories, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 13, 2003

/s/ ANTHONY SOUZA

Anthony Souza
Chief Executive Officer

CERTIFICATIONS

I, Charles Yeagley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Motorcar Parts & Accessories, Inc.;

b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: February 13, 2003

/s/ CHARLES YEAGLEY

Charles Yeagley
Chief Financial Officer

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MOTORCAR PARTS & ACCESSORIES INDEX PART I—FINANCIAL INFORMATION
MOTORCAR PARTS & ACCESSORIES, INC. Consolidated Balance Sheets
MOTORCAR PARTS & ACCESSORIES, INC. Consolidated Statements of Operations (Unaudited)
MOTORCAR PARTS & ACCESSORIES, INC. Consolidated Statement of Cash Flows (Unaudited)
MOTORCAR PARTS & ACCESSORIES, INC. Condensed Notes to Consolidated Financial Statements December 31, 2002 and 2001 (Unaudited)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K

SIGNATURES
CERTIFICATIONS
CERTIFICATIONS
EX-10.40 3 a2101529zex-10_40.htm EX-10.40
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Exhibit 10.40

BUSINESS LOAN AGREEMENT
(RECEIVABLES AND INVENTORY)

This Agreement dated as of December 20, 2002, is between Bank of America, N.A. (the "Bank") and Motorcar Parts & Accessories, Inc., a New York corporation (the "Borrower").

1.: DEFINITIONS

In addition to the terms which are defined elsewhere in this Agreement, the following terms have the meanings indicated for the purposes of this Agreement:

1.1 "Alternate Base Rate" means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus ¹/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by the Bank as its "prime rate." The "prime rate" is a rate set by the Bank based upon 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, which may be priced at, above, or below such announced rate. Any change in such rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change.

1.2 "Borrowing Base" means the sum of:

(a) 75% of the balance due on Acceptable Receivables; and

(b) the lesser of Ten Million Dollars ($10,000,000) or a percentage of the value of Acceptable Inventory calculated by adding together:

(i) 20% of Acceptable Inventory (which is not classified as commodity cores (used alternators and starters)) consisting of raw materials; and

(ii) 50% of Acceptable Inventory (which is not work in progress) consisting of finished goods; and

(iii) from the date hereof through April 30, 2003, 10% of Acceptable Inventory classified as commodity cores (used alternators and starters) not exceeding an aggregate sum of Two Million Dollars ($2,000,000.00).

In determining the value of Acceptable Inventory to be included in the Borrowing Base, the Bank will use the lowest of (i) the Borrower's cost, (ii) the Borrower's estimated market value, or (iii) the Bank's independent determination of the resale value of such inventory in such quantities and on such terms as the Bank reasonably deems appropriate.

After calculating the Borrowing Base as provided above, the Bank may deduct such reserves as the Bank may establish from time to time in its reasonable credit judgment, including, without limitation, reserves for 100% of outstanding letters of credit, reserves for three months rent at leased locations subject to statutory or contractual landlord's liens, inventory shrinkage, dilution (any non-cash reduction of accounts receivable), customs charges, warehousemen's or bailees' charges, and the amount of estimated maximum exposure, as determined by the Bank from time to time, under any interest rate contracts which the Borrower enters into with the Bank (including interest rate swaps, caps, floors, options thereon, combinations thereof, or similar contracts).

1.3 "Acceptable Receivable" means an account receivable which satisfies the following requirements:

(a) The account has resulted from the sale of goods or the performance of services by the Borrower in the ordinary course of the Borrower's business and without any further obligation on

the part of the Borrower to service, repair, or maintain any such goods sold other than pursuant to any applicable warranty.

(b) There are no conditions which must be satisfied before the Borrower is entitled to receive payment of the account. Accounts arising from COD sales, consignments or guaranteed sales are not acceptable.

(d) The account balance does not include the amount of any counterclaims or offsets which have been or may be asserted against the Borrower by the account debtor (including offsets for any "contra accounts" owed by the Borrower to the account debtor for goods purchased by the Borrower or for services performed for the Borrower). To the extent any counterclaims, offsets, or contra accounts exist in favor of the debtor, such amounts shall be deducted from the account balance.

(e) The account represents a genuine obligation of the debtor for goods sold to and accepted by the debtor, or for services performed for and accepted by the debtor. To the extent any credit balances exist in favor of the debtor, such credit balances shall be deducted from the account balance.

(f) The account balance does not include the amount of any finance or service charges payable by the account debtor. To the extent any finance charges or services charges are included, such amounts shall be deducted from the account balance.

(g) The Borrower has sent an invoice to the debtor in the amount of the account.

(h) The Borrower is not prohibited by the laws of the state where the account debtor is located from bringing an action in the courts of that state to enforce the debtor's obligation to pay the account. The Borrower has taken all appropriate actions to ensure access to the courts of the state where the account debtor is located, including, where necessary, the filing of a Notice of Business Activities Report or other similar filing with the applicable state agency or the qualification by the Borrower as a foreign corporation authorized to transact business in such state.

(i) The account is owned by the Borrower free of any title defects or any liens or interests of others except the security interest in favor of the Bank.

(j) The debtor upon the account is not any of the following:

(i) an employee, affiliate, parent or subsidiary of the Borrower, or an entity which has common officers or directors with the Borrower.

(ii) the U.S. government or any agency or department of the U.S. government unless the Bank agrees in writing to accept the obligation, the Borrower complies with the procedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C. §15) with respect to the obligation, and the underlying contract expressly provides that neither the U.S. government nor any agency or department thereof shall have the right of set-off against the Borrower.

(iii) any state, county, city, town or municipality.

(iv) any person or entity located in a foreign country.

(k) The account is not in default. An account will be considered in default if any of the following occur:

(i) The account is not paid within 150 days from its invoice date, or 60 days from its due date, whichever occurs first;

(ii) The debtor obligated upon the account suspends business, makes a general assignment for the benefit of creditors, or fails to pay its debts generally as they come due; or

(iii) Any petition is filed by or against the debtor obligated upon the account under any bankruptcy law or any other law or laws for the relief of debtors.

(l) The account is not the obligation of a debtor who is in default (as defined above) on 50% or more of the accounts upon which such debtor is obligated.

(m) The account does not arise from the sale of goods which remain in the Borrower's possession or under the Borrower's control.

(n) The account is not evidenced by a promissory note or chattel paper, nor is the account debtor obligated to the Borrower under any other obligation which is evidenced by a promissory note.

(o) The account is otherwise acceptable to the Bank.

In addition to the foregoing limitations, the dollar amount of accounts included as Acceptable Receivables which are the obligations of a single debtor shall not exceed the concentration limit established for that debtor. To the extent the total of such accounts exceeds a debtor's concentration limit, the amount of any such excess shall be excluded. The concentration limit for each debtor shall be equal to 15% of the total amount of the Borrower's Acceptable Receivables at that time. It is provided, however, that if the debtor obligated upon an account is one of the debtors listed below, the concentration limit applicable to each debtor will be increased to the percentage set forth below:

Debtor	Concentration Limit
AutoZone, Inc.	60	%
CSK Automotive, Inc.	35	%
The Pep Boys-Manny, Moe & Jack	35	%
General Motors Corp.	35	%
O'Reilly Automotive, Inc.	25	%

1.4 "Acceptable Inventory" means inventory which satisfies the following requirements:

(a) The inventory is owned by the Borrower free of any title defects or any liens or interests of others except the security interest in favor of the Bank. This does not prohibit any statutory liens which may exist in favor of the growers of agricultural products which are purchased by the Borrower.

(b) The inventory is located at locations which the Borrower has disclosed to the Bank and which are acceptable to the Bank. If the inventory is covered by a negotiable document of title (such as a warehouse receipt) that document must be delivered to the Bank. Inventory which is in transit is not acceptable.

(c) The inventory is held for sale or use in the ordinary course of the Borrower's business and is of good and merchantable quality. Display items, work-in-process, samples, and packing and shipping materials are not acceptable. Inventory which is obsolete, unsalable, damaged, defective, discontinued or slow-moving, or which has been returned by the buyer (excluding cores), is not acceptable.

(d) The inventory is covered by insurance as required in the "Covenants" section of this Agreement.

(e) The inventory has not been manufactured to the specifications of a particular account debtor which cannot be readily sold to another account debtor.

(f) The inventory is not subject to any licensing agreements which would prohibit or restrict in any way the ability of the Bank to sell the inventory to third parties.

(g) The inventory has been produced in compliance with the requirements of the U.S. Fair Labor Standards Act (29 U.S.C. §§201 et seq.).

(h) The inventory is not placed on consignment; provided, however, from the date hereof through December 31, 2003, inventory in an aggregate amount not exceeding Five Million Dollars ($5,000,000) on consignment to AutoZone, Inc. may be included as Acceptable Inventory so long as the Bank has received a letter from AutoZone, Inc. (the form and substance of such letter and the signatory thereof to be acceptable to the Bank) to the effect that AutoZone Inc. acknowledges the Bank's security interest in such consigned inventory and agrees, promptly upon written demand of the Bank following an Event of Default hereunder, to purchase the consigned inventory at fair market value or return such inventory to the Borrower at no cost to the Borrower.

(i) The inventory is otherwise acceptable to the Bank.

1.5 "Change of Control" means, with respect to any Person, an event or series of events by which:

(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan and, for purposes of determining whether a "group" holds more than 25% of the equity securities of the Borrower, excluding shares of common stock of the Borrower held as of the date of this Agreement by Mel Marks, Richard Marks and each of the members of the Marks family) becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire (such right, an "option right"), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 25% or more of the equity securities of such Person entitled to vote for members of the board of directors or equivalent governing body of such Person on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right); or

(b) during any period of 12 consecutive months, a majority of the members of the board of directors or other equivalent governing body of such Person cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors).

1.6 "Credit Limit" means the amount of Twenty-Five Million Dollars ($25,000,000.00).

1.7 "Federal Funds Rate" means, for any day, the rate per annum equal to the weighted average of the rates on an overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the banking day next succeeding such day; provided that (a) if such day is not a banking day, the Federal

Funds Rate for such day shall be such rate on such transactions on the next preceding banking day as so published on the next succeeding banking day, and (b) if no such rate is so published on such next succeeding banking day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of ¹/100 of 1%) charged to the Bank on such day on such transactions as determined by the Bank.

1.8 "Person" means any natural person, corporation, limited liability company, trusts, joint venture, association, company, partnership, governmental authority or other entity.

2.: LINE OF CREDIT AMOUNT AND TERMS

2.1 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 "Commitment") is equal to the lesser of (i) the Credit Limit or (ii) the Borrowing Base.

(b) This is a revolving line of credit providing for cash advances and letters of credit. 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 advances under the line of credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, to exceed the Commitment. If the Borrower exceeds this limit, the Borrower will immediately pay the excess to the Bank upon the Bank's demand. The Bank may apply payments received from the Borrower under this Paragraph to the obligations of the Borrower to the Bank in the order and the manner as the Bank, in its discretion, may determine.

2.2 Availability Period. The line of credit is available between the date of this Agreement and December 30, 2005, or such earlier date as the availability may terminate as provided in this Agreement (the "Expiration Date").

2.3 Conditions to Availability of Credit. In addition to the items required to be delivered to the Bank under the paragraph entitled "Financial Information" in the "Covenants" section of this Agreement, the Borrower will promptly deliver the following to the Bank at such times as may be requested by the Bank:

(a) a borrowing certificate, in form and detail satisfactory to the Bank, setting forth the Acceptable Receivables and the Acceptable Inventory on which the requested extension of credit is to be based.

(b) copies of the invoices or the record of invoices from the Borrower's sales journal for such Acceptable Receivables and a listing of the names and addresses of the debtors obligated thereunder.

(c) copies of the delivery receipts, purchase orders, shipping instructions, bills of lading and other documentation pertaining to such Acceptable Receivables.

(d) copies of the cash receipts journal pertaining to the borrowing certificate.

2.4 Interest Rate. Unless the Borrower elects an optional interest rate as described below, the interest rate is a rate per year equal to the Alternate Base Rate plus (or minus) the Applicable Margin as defined below.

2.5 Repayment Terms.

(a) The Borrower will pay interest on February 1, 2003, and then monthly thereafter until payment in full of any principal outstanding under this line of credit.

(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 Expiration Date. Any interest period for an optional interest rate (as described below) shall expire no later than ninety (90) days after the Expiration Date.

2.6 Optional Interest Rates. Instead of the interest rate based on the Bank's Prime Rate, the Borrower may elect the optional interest rates listed below during interest periods agreed to by the Bank and the Borrower. The optional interest rates shall be subject to the terms and conditions described later in this Agreement. Any principal amount bearing interest at an optional rate under this Agreement is referred to as a "Portion." The following optional interest rates are available:

(a) the LIBOR Rate plus the Applicable Margin as defined below

(b) the IBOR Rate plus the Applicable Margin as defined below

2.7 Applicable Margin. The Applicable Margin shall be the following amounts per annum, based upon the Borrower's Cash Flow Coverage Ratio (as defined in the Covenants section), as set forth in the most recent compliance certificate received by the Bank as required in the Covenants section; provided, however, that, until the Bank receives the first compliance certificate, such amounts shall be those indicated for pricing level 3 set forth below.

		APPLICABLE MARGIN (in percentage points per annum)
Pricing Level	Cash Flow Ratio Coverage	LIBOR/IBOR Rate		Alternate Base Rate
1.	Greater than 1.50:1.0	+ 2.00	%	- 0.25	%
2.	Greater than 1.35:1.0 but equal to or less than 1.50:1.0	+ 2.25	%	+ 0.00	%
3.	Greater than 1.25:1.0 but equal to or less than 1.35:1.0	+ 2.50	%	+ 0.25	%

The Applicable Margin shall be in effect from the fifth day following the date the most recent compliance certificate is received by the Bank until the twentieth day of the month following the date the next compliance certificate is received; provided, however, that if the Borrower fails to timely deliver the compliance certificate, the Applicable Margin from the date such compliance certificate was due until the date such compliance certificate is received by the Bank shall be the highest pricing level set forth above.

2.8 Reduction of Commitment; Mandatory Prepayment. Within 30 days of the occurrence of each of the following events, the Commitment shall automatically be reduced by an amount equal to the percentage set forth below:

(i) 100% of the net cash proceeds (net of costs of sale and taxes payable) of any asset sales (excluding inventory sales in the ordinary course of business and receivable sales as part of a securitization) by the Borrower or any subsidiary (including sales of stock of subsidiaries).

(ii) 100% of the net cash proceeds from the issuance of any senior debt by the Borrower and its subsidiaries.

(iii) 50% of the net cash proceeds from the issuance of equity by the Borrower or any subsidiary.

If, after giving effect to the reduction of the Commitment as herein required, the outstanding principal balance of advances under the line of credit plus the outstanding amounts of any letters of credit, including amounts drawn on letters of credit and not yet reimbursed, exceeds the Commitment, the Borrower will immediately pay the excess to the Bank upon the Bank's demand.

2.9 Letters of Credit.

(a) This line of credit may be used for financing:

(i) commercial letters of credit with a maximum maturity of 180 days but not to extend more than 90 days beyond the 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 270 days beyond the Expiration Date. The standby letters of credit may include a provision providing that the maturity date will be automatically extended each year for an additional year unless the Bank gives written notice to the contrary.

(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 Five Million Dollars ($5,000,000.00).

(b) The Borrower agrees:

(i) 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.

(ii) if there is a default under this Agreement, to immediately prepay and make the Bank whole for any outstanding letters of credit.

(iii) 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.

(iv) to sign the Bank's form Application and Agreement for Commercial Letter of Credit or Application and Agreement for Standby Letter of Credit, as applicable.

(v) 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.

(vi) to allow the Bank to automatically charge its checking account for applicable fees, discounts, and other charges.

(vii) to pay the Bank a non-refundable fee equal to 1.75% per annum of the outstanding undrawn amount of each standby letter of credit, payable quarterly in arrears, calculated on the basis of the face amount outstanding on the day the fee is calculated.

3.: OPTIONAL INTEREST RATES

3.1 Optional Rates. Each optional interest rate is a rate per year. Interest will be paid on the last day of each interest period, and, if the interest period is longer than one month, then on the first day of each month during the interest period. At the end of any interest period, the interest rate will revert to the rate based on the Prime Rate, unless the Borrower has designated another optional interest rate for the Portion. No Portion will be converted to a different interest rate during the applicable interest period. Upon the occurrence of an event of default under this Agreement, the Bank may terminate the availability of optional interest rates for interest periods commencing after the default occurs.

3.2 LIBOR Rate. The election of LIBOR Rates shall be subject to the following terms and requirements:

(a) The interest period during which the LIBOR Rate will be in effect will be one, two, 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 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 One Hundred Thousand Dollars ($100,000).

(c) The "LIBOR 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.)

LIBOR Rate =

London Inter-Bank Offered Rate
(1.00 - Reserve Percentage)

Where,

(i) "London Inter-Bank Offered Rate" means the average per annum interest rate at which U.S. dollar deposits would be offered for the applicable interest period by major banks in the London inter-bank market, as shown on the Telerate Page 3750 (or any successor page) 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 any successor page), the rate for that interest period will be determined by such alternate method as reasonably selected by the Bank. A "London Banking Day" is a day on which the Bank's London Banking Center 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 California time on the LIBOR Banking Day preceding the day on which the London Inter-Bank Offered Rate will be set, as specified above. For example, if there are no intervening holidays or weekend days in any of the relevant locations, the request must be made at least three days before the LIBOR Rate takes effect.

(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) 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.

(g) The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by the Bank in connection with the foregoing. For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded.

(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.

3.3 IBOR Rate. The election of IBOR Rates shall be subject to the following terms and requirements:

(a) The interest period during which the IBOR Rate will be in effect will be 30, 60, 90 or 180 days. The last day of the interest period will be determined by the Bank using the practices of the offshore dollar inter-bank market.

(b) Each IBOR Rate Portion will be for an amount not less than One Hundred Thousand Dollars ($100,000).

(c) The "IBOR 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.)

IBOR Rate =

IBOR Base Rate
(1.00 - Reserve Percentage)

Where,

(i) "IBOR Base Rate" means the interest rate at which the Bank's Grand Cayman Banking Center, 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 market.

(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) Each prepayment of an IBOR 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.

(e) The prepayment fee shall be in an amount sufficient to compensate the Bank for any loss, cost or expense incurred by it as a result of the prepayment, including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Portion or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by the Bank in connection with the foregoing. For purposes of this paragraph, the Bank shall be deemed to have funded each Portion by a matching deposit or other borrowing in the applicable interbank market, whether or not such Portion was in fact so funded.

(f) The Bank will have no obligation to accept an election for an IBOR 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 IBOR Rate Portion are not available in the offshore dollar inter-bank market; or

(ii) the IBOR Rate does not accurately reflect the cost of an IBOR Rate Portion.

4.: FEES AND EXPENSES

4.1 Fees.

(a) Loan Fee. The Borrower agrees to pay a loan fee with respect to the Commitment in the amount of One Hundred Twenty Five Thousand Dollars ($125,000). This fee is due on or before the date of this Agreement.

(b) Unused Commitment Fee. The Borrower agrees to pay a fee on any difference between the Commitment and the amount of credit it actually uses, determined by the average of the daily amount of credit outstanding during the specified period. The fee will be calculated at 0.25% per year. The fee is due on March 31, 2003, and on the last day of each quarter thereafter until the expiration of the availability period.

4.2 Expenses. The Borrower agrees to immediately repay the Bank for expenses that include, but are not limited to, filing, recording and search fees, appraisal fees, title report fees and documentation fees.

4.3 Reimbursement Costs.

(a) 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.

(b) 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 by personal property the Borrower now owns or will own in the future as listed below. The collateral is further defined in security agreement(s) executed by the Borrower. In addition, all personal property collateral securing this Agreement shall also secure all other present and future obligations of the Borrower to the Bank (excluding any consumer credit covered by the federal Truth in Lending law, unless the Borrower has otherwise agreed in writing). All personal property collateral securing any other present or future obligations of the Borrower to the Bank shall also secure this Agreement.

(a) Equipment and fixtures.

(b) Inventory.

(d) Patents, trademarks and other general intangibles.

6.: DISBURSEMENTS, PAYMENTS AND COSTS

6.1 Request 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.

(a) Each payment by the Borrower will be made at the Bank's banking center (or other location) selected by the Bank from time to time; and will be made in immediately available funds, or such other type of funds selected by the Bank.

(b) Each disbursement by the Bank and each payment by the Borrower will be 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.

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, or purported to be 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 14593-02436, or such other of the Borrower's accounts with the Bank as designated in writing by the Borrower.

(c) The Borrower will indemnify and hold the Bank harmless from all liability, loss, and costs in connection with any act resulting from telephone or telefax instructions the Bank reasonably believes are made by any individual authorized by the Borrower to give such instructions. This paragraph will survive this Agreement's termination, and will benefit the Bank and its officers, employees, and agents.

6.4 Direct Debit (Pre-Billing).

(a) The Borrower agrees that the Bank will debit the Borrower's deposit account number 14593-02436, or such other of the Borrower's accounts with the Bank as designated in writing by the Borrower (the "Designated Account") on the date each payment of principal and interest and any fees from the Borrower becomes due (the "Due Date").

(b) Approximately 10 days prior to each Due Date, the Bank will mail to the Borrower a statement of the amounts that will be due on that Due Date (the "Billed Amount"). The calculation will be made on the assumption that no new extensions of credit or payments will be made between the date of the billing statement and the Due Date, and that there will be no changes in the applicable interest rate.

(c) The Bank will debit the Designated Account for the Billed Amount, regardless of the actual amount due on that date (the "Accrued Amount"). If the Billed Amount debited to the Designated Account differs from the Accrued Amount, the discrepancy will be treated as follows:

(i) If the Billed Amount is less than the Accrued Amount, the Billed Amount for the following Due Date will be increased by the amount of the discrepancy. The Borrower will not be in default by reason of any such discrepancy.

(ii) If the Billed Amount is more than the Accrued Amount, the Billed Amount for the following Due Date will be decreased by the amount of the discrepancy.

Regardless of any such discrepancy, interest will continue to accrue based on the actual amount of principal outstanding without compounding. The Bank will not pay the Borrower interest on any overpayment.

(d) The Borrower will maintain sufficient funds in the Designated Account to cover each debit. If there are insufficient funds in the Designated Account on the date the Bank enters any debit authorized by this Agreement, the Bank may reverse the debit.

6.5 Banking Days. Unless otherwise provided in this Agreement, a banking day is a day other than a Saturday, Sunday or other day on which commercial banks are authorized to close, or are in fact closed, in the state where the Bank's lending office is located, and, if such day relates to amounts

bearing interest at an offshore rate (if any), means any such day on which dealings in dollar deposits are conducted among banks in the offshore dollar interbank market. 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. If any payments to the Bank under this Agreement are made from outside the United States, the Borrower will not deduct any foreign taxes from any payments it makes to the Bank. If any such taxes are imposed on any payments made by the Borrower (including payments under this paragraph), 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. The Borrower will confirm that it has paid the taxes by giving the Bank official tax receipts (or notarized copies) within thirty (30) days after the due date.

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, interest based on the Alternate Base Rate will be computed on the basis of a 365-day year and the actual number of days elapsed. Interest based on the LIBOR/IBOR Rate and all 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. Installments of principal which are not paid when due under this Agreement shall continue to bear interest until paid.

6.9 Default Rate. Upon the occurrence of any default under this Agreement, principal amounts outstanding under this Agreement will at the option of the Bank bear interest at a rate which is 2.0 percentage point(s) higher than the rate of interest otherwise provided under this Agreement. This will not constitute a waiver of any default.

6.10 Interest Compounding. At the Bank's sole option in each instance, any interest, fees or costs which are not paid when due under this Agreement shall bear interest from the due date at the Bank's Prime Rate. This may result in compounding of interest.

6.11 Overdrafts. At the Bank's sole option in each instance, the Bank may do one of the following:

(a) The Bank may make advances under this Agreement to prevent or cover an overdraft on any account of the Borrower with the Bank. Each such advance will accrue interest from the date of the advance or the date on which the account is overdrawn, whichever occurs first, at the interest rate described in this Agreement. The Bank may make such advances even if the advances may cause any credit limit under this Agreement to be exceeded.

(b) The Bank may reduce the amount of credit otherwise available under this Agreement by the amount of any overdraft on any account of the Borrower with the Bank.

This paragraph shall not be deemed to authorize the Borrower to create overdrafts on any of the Borrower's accounts with the Bank.

6.12 Payments in Kind. If the Bank requires delivery in kind of the proceeds of collection of the Borrower's accounts receivable, such proceeds shall be credited to interest, principal, and other sums owed to the Bank under this Agreement in the order and proportion determined by the Bank in its sole discretion. All such credits will be conditioned upon collection and any returned items may, at the Bank's option, be charged to the Borrower.

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 each guarantor of this Agreement and any instrument or agreement required under this Agreement have been duly authorized.

7.2 Governing Documents. A copy of the Borrower's articles of incorporation.

7.3 Security Agreements. Signed original security agreements and assignments.

7.4 Perfection and Evidence of Priority. Financing statements and fixture filings (and any collateral in which the Bank requires a possessory security interest), together with evidence that the security interests and liens in favor of the Bank are valid, enforceable, and prior to all others' rights and interests, except for purchase money equipment liens.

7.5 Insurance. Evidence of insurance coverage, as required in the "Covenants" section of this Agreement.

7.6 Guaranties. Guaranty signed by MVR Products Pte Ltd., a Singapore corporation, and Unijoh Sdn. Bhd. a Malaysian corporation.

7.7 Landlord's Waiver. Within 90 days of the date of this Agreement, for any personal property collateral located on real property which is subject to a mortgage or deed of trust or which is not owned by the Borrower, a Consent to Removal from the owner of the real property, and the holder of any such mortgage or deed of trust.

7.8 Legal Opinions. A written opinion from the Borrower's legal counsel, covering such matters as the Bank may require. The legal counsel and the terms of the opinion must be acceptable to the Bank.

7.9 Good Standing. Certificates of good standing for the Borrower from its state of formation and from any other state in which the Borrower is required to qualify to conduct its business.

7.10 Payment of Fees. Payment of all accrued and unpaid expenses incurred by the Bank as required by the paragraph entitled "Reimbursement Costs."

7.11 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 renewal of these representations and warranties as of the date of the request:

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 sufficiently complete to give the Bank accurate knowledge of the Borrower's (and any guarantor's) financial condition, including all material contingent liabilities. Since the date of the most recent financial statement provided to the Bank, there has been no material adverse change in the business condition (financial or otherwise), operations, properties or prospects of the Borrower (or any guarantor).

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.

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 Tax Matters. The Borrower has no knowledge of any pending assessments or adjustments of its income tax for any year and all taxes due have been paid.

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 Insurance. The Borrower has obtained, and maintained in effect, the insurance coverage required in the "Covenants" section of this Agreement.

8.14 Merchantable Inventory; Compliance with FLSA. All inventory which is included in the Borrowing Base is of good and merchantable quality and free from defects, and has been produced in compliance with the requirements of the U.S. Fair Labor Standards Act (29 U.S.C. §§201 et seq.).

8.15 ERISA Plans.

(a) Each Plan (other than a multiemployer plan) is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan has received a favorable determination letter from the IRS and to the best knowledge of the Borrower, nothing has occurred which would cause the loss of such qualification. The Borrower has fulfilled its obligations, if any, under the minimum funding standards of ERISA and the Code with respect to each Plan, and has not incurred any liability with respect to any Plan under Title IV of ERISA.

(b) There are no claims, lawsuits or actions (including by any governmental authority), and there has been no prohibited transaction or violation of the fiduciary responsibility rules, with

respect to any Plan which has resulted or could reasonably be expected to result in a material adverse effect.

(i) No reportable event has occurred under Section 4043(c) of ERISA for which the PBGC requires 30-day notice.

(ii) No action by the Borrower or any ERISA Affiliate 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.

(iii) No termination 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.

(d) 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 Security Act of 1974, as amended from time to time.

(iii) "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code.

(iv) "PBGC" means the Pension Benefit Guaranty Corporation.

(v) "Plan" means a pension, profit-sharing, or stock bonus plan intended to qualify under Section 401(a) of the Code, maintained or contributed to by the Borrower or any ERISA Affiliate, including any multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.

8.16 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 the line of credit only for working capital and other general corporate purposes; provided that not more than One Million Dollars ($1,000,000) of the Commitment may be used for warrant repurchases from Wells Fargo Bank, N.A. and/or stock repurchases.

9.2 Financial Information. To provide the following financial information and statements in form and content acceptable to the Bank, 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 acceptable to the Bank. These statements shall be prepared on a consolidated basis.

(b) Within 45 days of the period's end (including the last period in each fiscal year), the Borrower's quarterly financial statements. These financial statements may be Borrower prepared and shall be prepared on a consolidating basis.

(c) Within 45 days of the end of each fiscal quarter, a compliance certificate of the Borrower signed by an authorized financial officer of the Borrower setting forth (i) the information and computations (in sufficient detail) to establish that the Borrower is in compliance with all financial covenants at the end of the period covered by the financial statements then being furnished and (ii) whether there existed as of the date of such financial statements and whether there exists as of the date of the certificate, any default under this Agreement and, if any such default exists, specifying the nature thereof and the action the Borrower is taking and proposes to take with respect thereto.

(d) A borrowing certificate setting forth the amount of Acceptable Receivables and Acceptable Inventory as of the last day of each month within twenty (20) days after month end and, upon the Bank's request, copies of the invoices or the record of invoices from the Borrower's sales journal for such Acceptable Receivables, copies of the delivery receipts, purchase orders, shipping instructions, bills of lading and other documentation pertaining to such Acceptable Receivables, and copies of the cash receipts journal pertaining to the borrowing certificate.

(e) A detailed aging by invoice and a summary aging by account debtor of the Borrower's receivables within twenty (20) days after the end of each month.

(f) A summary aging by vendor of accounts payable within twenty (20) days after the end of each month from Borrower.

(g) An inventory listing within twenty (20) days after the end of each month; the listing must include a description of the inventory, its location and cost, and such other information as the Bank may require from Borrower and guarantor.

(h) A listing of the names and addresses of all debtors obligated upon the Borrower's accounts receivable within twenty (20) days after the end of each year.

(i) Within 120 days of the Borrower's fiscal year end, the Borrower's forecast and operating budget for the subsequent fiscal year.

(j) Promptly upon the Bank's request, such other books, records, statements, lists of property and accounts, budgets, forecasts or reports as to the Borrower and as to each guarantor of the Borrower's obligations to the Bank as the Bank may request.

9.3 Tangible Net Worth. To maintain on a consolidated basis Tangible Net Worth equal to at least the sum of the following:

(a) Twenty Seven Million Dollars ($27,000,000.00); plus

(b) the sum of 75% of net income after income taxes (without subtracting losses) in each quarterly accounting period commencing after December 31, 2002; plus

"Tangible Net Worth" means the gross book value of Borrower's assets (excluding goodwill, patents, trademarks, trade names, organization expense, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, deferred receivables, and other like intangibles, and monies due from affiliates, officers, directors, employees or shareholders of the Borrower), less total liabilities, including but not limited to accrued and deferred income taxes, and any reserves against assets, but excluding the non-current portion of subordinated liabilities. "Subordinated liabilities" means liabilities subordinated to the Borrower's obligations to the Bank in a manner acceptable to the Bank, using the Bank's standard form. To the extent that Tangible Net Worth has been reduced by permitted warrant or stock repurchases, the amount of such warrant or stock repurchases will be added back to Tangible Net Worth for the purposes of calculating covenants under this Agreement.

9.4 Cash Flow Coverage Ratio. To maintain on a consolidated basis a Cash Flow Coverage Ratio of at least 1.25:1.0.

"Cash Flow Coverage Ratio" means the ratio of (a) EBITDA less non-financed capital expenditures less cash taxes to (b) to the sum of cash taxes, non-financed capital expenditures, cash interest expense and one-third (¹/3) of advances outstanding under this Agreement (including outstanding letters of credit).

"EBITDA" means net income, less income or plus loss from discontinued operations and extraordinary items, plus income taxes, plus interest expense, plus depreciation, depletion, and amortization. This ratio will be calculated at the end of each quarter, using the results of that quarter and the three immediately preceding quarters. The amount of advances and letters of credit outstanding shall be determined as of the last day of the calculation period.

9.5 Other Debts. Not to have outstanding or incur any direct or contingent liabilities (other than those to the Bank), or become liable for the liabilities of others, without the Bank's written consent. This does not prohibit:

(a) Acquiring goods, supplies, merchandise, or services on normal trade credit.

(b) Endorsing negotiable instruments received in the usual course of business.

(d) Liabilities in existence on the date of this Agreement disclosed in writing to the Bank.

(e) Additional debts which do not exceed a total principal amount of One Hundred Thousand Dollars ($100,000) outstanding at any one time.

9.6 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) Liens and security interests in favor of the Bank.

(b) Liens for taxes not yet due.

(d) Additional liens securing debts permitted under Section 9.7 (e) above.

9.7 Dividends. Not to declare or pay any dividends on any of its shares, except dividends payable in capital stock of the Borrower, and not to purchase, redeem or otherwise acquire for value any of its shares, or create any sinking fund in relation thereto, in excess of One Million Dollars ($1,000,000).

9.8 Loans and Investments. Not to have any existing, or make any new, loans or other extensions of credit to, or investments in, any individual or entity, or make any capital contributions or other transfers of assets to, any individual or entity, except for:

(a) existing investments in the Borrower's current subsidiaries.

(b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business to non-affiliated entities.

(i) certificates of deposit;

(ii) U.S. treasury bills and other obligations of the federal government;

(d) loans not exceeding an aggregate sum of Two Hundred Fifty Thousand Dollars ($250,000) at any one time to any of the Borrower's executives, officers, directors or shareholders (or any relatives of any of the foregoing) or to any affiliated entities.

9.9 Notices to Bank. To promptly notify the Bank in writing of:

(a) any lawsuit over One Million Dollars ($1,000,000) in excess of any insurance coverage against the Borrower (or any guarantor).

(b) any substantial dispute between the Borrower (or any guarantor and any government authority.

(c) any event of default under this Agreement, or any event which, with notice or lapse of time or both, would constitute an event of default.

(d) any material adverse change in the Borrower's (or any guarantor's) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

(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 actual contingent liabilities of the Borrower (or any guarantor), and any such contingent liabilities which are reasonably foreseeable, where such liabilities are in excess of Two Million Five Hundred Thousand Dollars ($2,500,000) in the aggregate, in excess of any insurance coverage.

9.10 Books and Records. To maintain adequate books and records.

9.11 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.

9.12 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, except where the failure to be in such compliance would not have a material adverse effect upon the Borrower.

9.13 Preservation of Rights. To maintain and preserve all rights, privileges, and franchises the Borrower now has, except where the failure to maintain or preserve such rights would not have a material adverse effect upon the Borrower.

9.14 Maintenance of Properties. To make any repairs, renewals, or replacements to keep the Borrower's properties in good working condition.

9.15 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.

9.16 Cooperation. To take any action reasonably requested by the Bank to carry out the intent of this Agreement.

9.17 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 and include a replacement cost endorsement 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 satisfactory to the Bank as to amount, nature and carrier covering property damage (including loss of use and occupancy) to any of the Borrower's properties, public liability insurance including coverage for contractual liability, product liability and workers' compensation, and any other insurance which is usual for the Borrower's business.

(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.

9.18 Additional Negative Covenants. Not to, without the Bank's written consent:

(a) engage in any business activities substantially different from the Borrower's present business.

(b) liquidate or dissolve the Borrower's business.

(c) enter into any consolidation, merger, or other combination, or become a partner in a partnership, a member of a joint venture, or a member of a limited liability company.

(d) sell, assign, lease, transfer or otherwise dispose of any assets for less than fair market value, or enter into any agreement to do so.

(e) sell, assign, lease, transfer or otherwise dispose of any part of the Borrower's business or the Borrower's assets, except that this shall not prohibit any asset securitization of AutoZone, Inc. receivables provided that all proceeds of such securitization shall be applied to repay outstanding advances under this Agreement.

(f) enter into any sale and leaseback agreement covering any of its fixed assets.

(g) acquire or purchase a business or its assets, provided, however, that such consent will not be unreasonably withheld.

(h) voluntarily suspend its business for more than 10 days in any 30 day period.

9.19 ERISA Plans. Promptly during each year, to pay contributions adequate to meet at least the minimum funding standards under ERISA with respect to each and every Plan; file each annual report required to be filed pursuant to ERISA in connection with each Plan for each year; and notify the Bank within ten (10) days of the occurrence of any Reportable Event that might constitute grounds for termination of any capital Plan by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States District Court of a trustee to administer any Plan. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. Capitalized terms in this paragraph shall have the meanings defined within ERISA.

9.20 Guaranties. Within 30 days after any Person becomes a subsidiary, cause such subsidiary to become a guarantor by executing and delivering to Bank a guaranty in form, content, and scope acceptable to Bank.

10.: HAZARDOUS SUBSTANCES

10.1 Indemnity Regarding Hazardous Substances. The Borrower will indemnify and hold harmless the Bank from any loss or liability the Bank incurs in connection with or as a result of this Agreement, which directly or indirectly arises out of the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal or presence of a hazardous substance. This indemnity will apply whether the hazardous substance is on, under or about the Borrower's property or operations or property leased to the Borrower. The indemnity includes but is not limited to attorneys' fees (including the reasonable estimate of the allocated cost of in-house counsel and staff). The indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys and assigns.

10.2 Definition of Hazardous Substances. "Hazardous substances" means any substance, material or waste that is or becomes designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant" or a similar designation or regulation under any federal, state or local law (whether under common law, statute, regulation or otherwise) or judicial or administrative interpretation of such, including without limitation petroleum or natural gas. This indemnity will survive repayment of the Borrower's obligations to the Bank.

11.: DEFAULT

If any of the following events occurs, 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.

11.1 Failure to Pay. The Borrower fails to make a payment under this Agreement when due.

11.2 Lien Priority. The Bank fails to have an enforceable first lien (except for any prior liens to which the Bank has consented in writing) on or security interest in any property given as security for this Agreement (or any guaranty).

11.3 False Information. The Borrower or any guarantor or any party pledging collateral to the Bank or any trustor (each an "Obligor") has given the Bank false or misleading information or representations.

11.4 Bankruptcy. The Borrower (or any Obligor) files a bankruptcy petition, a bankruptcy petition is filed against the Borrower (or any Obligor) or the Borrower (or any Obligor) makes a general assignment for the benefit of creditors.

11.5 Receivers. A receiver or similar official is appointed for a substantial portion of the Borrower's (or any Obligor's) business, or the business is terminated.

11.6 Judgments. Any judgments or arbitration awards are entered against the Borrower (or any Obligor), or the Borrower (or any Obligor) enters into any settlement agreements with respect to any litigation or arbitration, in an aggregate amount of One Million Dollars ($1,000,000) or more in excess of any insurance coverage.

11.7 Government Action. Any government authority takes action that the Bank believes materially adversely affects the Borrower's (or any Obligor's) financial condition or ability to repay.

11.8 Material Adverse Change. A material adverse change occurs, or is reasonably likely to occur, in the Borrower's (or any Obligor's) business condition (financial or otherwise), operations, properties or prospects, or ability to repay the credit.

11.9 Cross-default. Any default occurs under any agreement in connection with any credit the Borrower (or any Obligor) has obtained from anyone else or which the Borrower (or any Obligor) has guaranteed.

11.10 Default under Related Documents. Any default occurs under any guaranty, subordination agreement, security agreement, deed of trust, mortgage, or other document required by or delivered in connection with this Agreement or any such document is no longer in effect, or any guarantor purports to revoke or disavow the guaranty.

11.11 Other Bank Agreements. The Borrower (or any Obligor) fails to meet the conditions of, or fails to perform any obligation under any other agreement the Borrower (or any Obligor) has with the Bank or any affiliate of the Bank.

11.12 ERISA Plans. Any one or more of the following events occurs with respect to a Plan of the Borrower subject to Title IV of ERISA, 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:

(a) A reportable event shall occur under Section 4043(c) of ERISA with respect to a Plan.

(b) Any Plan termination (or commencement of proceedings to terminate a Plan) or the full or partial withdrawal from a Plan by the Borrower or any ERISA Affiliate.

11.13 Other Breach Under Agreement. The Borrower fails to meet the conditions of, or fails to perform any material obligation under, any term of this Agreement not specifically referred to in this Article. This includes any failure or anticipated failure by the Borrower to comply with any financial covenants set forth in this Agreement, whether such failure is evidenced by financial statements delivered to the Bank or is otherwise known to the Borrower or the Bank.

11.14 AutoZone Debt Rating. AutoZone, Inc. fails to maintain at all times a debt rating of at least BBB—or better from Standard & Poor's.

11.15 Change of Control. There shall occur a Change of Control.

12.: ENFORCING THIS AGREEMENT; MISCELLANEOUS

12.1 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.

12.2 California Law. This Agreement is governed by California law.

12.3 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 participants or assignees; provided that such actual or potential participants or assignees shall agree to treat all financial information exchanged as confidential. If a participation is sold or the loan is assigned, the purchaser will have the right of set-off against the Borrower.

12.4 Arbitration and Waiver of Jury Trial.

(a) This paragraph concerns the resolution of any controversies or claims between the Borrower and the Bank, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this Agreement (including any renewals, extensions or modifications); or (ii) any document related to this Agreement (collectively a "Claim").

(b) At the request of the Borrower or the Bank, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U. S. Code) (the "Act"). The Act will apply even though this Agreement provides that it is governed by the law of a specified state.

(c) Arbitration proceedings will be determined in accordance with the Act, the applicable rules and procedures for the arbitration of disputes of JAMS or any successor thereof ("JAMS"), and the terms of this paragraph. In the event of any inconsistency, the terms of this paragraph shall control.

(d) The arbitration shall be administered by JAMS and conducted in any U. S. state where real or tangible personal property collateral for this credit is located or if there is no such collateral, in California. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of

reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

(e) The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement.

(f) This paragraph does not limit the right of the Borrower or the Bank to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or nonjudicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g) The procedure described above will not apply if the Claim, at the time of the proposed submission to arbitration, arises from or relates to an obligation to the Bank secured by real property. In this case, both the Borrower and the Bank must consent to submission of the Claim to arbitration. If both parties do not consent to arbitration, the Claim will be resolved as follows: The Borrower and the Bank will designate a referee (or a panel of referees) selected under the auspices of JAMS in the same manner as arbitrators are selected in JAMS administered proceedings. The designated referee(s) will be appointed by a court as provided in California Code of Civil Procedure Section 638 and the following related sections. The referee (or the presiding referee of the panel) will be an active attorney or a retired judge. The award that results from the decision of the referee(s) 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) The filing of a court action is not intended to constitute a waiver of the right of the Borrower or the Bank, including the suing party, thereafter to require submittal of the Claim to arbitration.

(i) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this Agreement.

12.5 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.

12.6 Administration Costs. The Borrower shall pay the Bank for all reasonable costs incurred by the Bank in connection with administering this Agreement.

12.7 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 in connection with 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. In the event that any case is commenced by or against the Borrower under the Bankruptcy Code (Title 11, United States Code) or any similar or successor statute, the Bank is entitled to recover costs and reasonable attorneys' fees incurred by the

Bank related to the preservation, protection, or enforcement of any rights of the Bank in such a case. As used in this paragraph, "attorneys' fees" includes the allocated costs of the Bank's in-house counsel.

12.8 Multiple Borrowers. If two or more borrowers sign this Agreement, each will be jointly and severally obligated to repay the Bank in full.

12.9 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;

(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.

12.10 Disposition of Schedules, Reports, Etc. Delivered by Borrower. The Bank will not be obligated to return any schedules, invoices, statements, budgets, forecasts, reports or other papers delivered by the Borrower. The Bank will destroy or otherwise dispose of such materials at such time as the Bank, in its discretion, deems appropriate.

12.11 Returned Merchandise. Until the Bank exercises its rights to collect the accounts receivable as provided under any security agreement required under this Agreement, the Borrower may continue its present policies for returned merchandise and adjustments. Credit adjustments with respect to returned merchandise shall be made immediately upon receipt of the merchandise by the Borrower or upon such other disposition of the merchandise by the debtor in accordance with the Borrower's instructions. If a credit adjustment is made with respect to any Acceptable Receivable, the amount of such adjustment shall no longer be included in the amount of such Acceptable Receivable in computing the Borrowing Base.

12.12 Verification of Receivables. The Bank may at any time, either orally or in writing, request confirmation from any debtor of the current amount and status of the accounts receivable upon which such debtor is obligated.

12.13 Waiver of Confidentiality. The Borrower authorizes the Bank to discuss the Borrower's financial affairs and business operations with any accountants, auditors, business consultants, or other professional advisors employed by the Borrower, and authorizes such parties to disclose to the Bank such financial and business information or reports (including management letters) concerning the Borrower as the Bank may request.

12.14 Indemnification. The Borrower will indemnify and hold the Bank harmless from any loss, liability, damages, judgments, and costs of any kind relating to or arising directly or indirectly out of (a) this Agreement or any document required hereunder, (b) any credit extended or committed by the Bank to the Borrower hereunder, (c) any claim, whether well-founded or otherwise, that there has been a failure to comply with any law regulating the Borrower's sales or leases to or performance of services for debtors obligated upon the Borrower's accounts receivable and disclosures in connection therewith, and (d) any litigation or proceeding related to or arising out of this Agreement, any such document, any such credit, or any such claim. This indemnity includes but is not limited to attorneys' fees (including the allocated cost of in-house counsel). This indemnity extends to the Bank, its parent, subsidiaries and all of their directors, officers, employees, agents, successors, attorneys, and assigns.

This indemnity will survive repayment of the Borrower's obligations to the Bank. All sums due to the Bank hereunder shall be obligations of the Borrower, due and payable immediately without demand.

12.15 Notices. Unless otherwise provided in this Agreement or in another agreement between the Bank and the Borrower, all notices required under this Agreement shall be personally delivered or sent by first class mail, postage prepaid, or by overnight courier, to the addresses on the signature page of this Agreement, or sent by facsimile to the fax numbers listed on the signature page, or to such other addresses as the Bank and the Borrower may specify from time to time in writing. Notices and other communications sent by (a) first class mail shall be deemed delivered on the earlier of actual receipt or on the fourth business day after deposit in the U.S. mail, postage prepaid, (b) overnight courier shall be deemed delivered on the next business day, and (c) telecopy shall be deemed delivered when transmitted.

12.16 Headings. Article and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Agreement.

12.17 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.

This Agreement is executed as of the date stated at the top of the first page.

Bank of America, N.A.				Motorcar Parts & Accessories, Inc.
By				By

Typed Name:				Typed Name:

Title:				Title:

Address where notices to the Bank are to be sent: 525 South Flower Street, Mezzanine Level Los Angeles, CA 90071 Facsimile: 213/345-6981				Address where notices to the Borrower are to be sent: 2929 California Street Torrance, CA 90503 Facsimile:

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BUSINESS LOAN AGREEMENT (RECEIVABLES AND INVENTORY)
EX-10.41 4 a2101529zex-10_41.htm EX-10.41
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Exhibit 10.41

SECURITY AGREEMENT

1. THE SECURITY. The undersigned, Motorcar Parts & Accessories, Inc. ("the Pledgor") hereby assigns and grants to Bank of America, N.A. ("the Bank") a security interest in the following described property now owned or hereafter acquired by the Pledgor ("Collateral"):

(a) All accounts, contract rights, chattel paper, instruments, deposit accounts, and general intangibles, including all amounts due to the Pledgor from a factor; and all returned or repossessed goods which, on sale or lease, resulted in an account or chattel paper.

(b) All inventory, including all materials, work in process and finished goods.

(d) All of the Pledgor's deposit accounts with the Bank. The Collateral shall include any renewals or rollovers of the deposit accounts, any successor accounts, and any general intangibles and choses in action arising therefrom or related thereto.

(e) All instruments, notes, chattel paper, documents, and certificates of deposit of every type. The Collateral shall include all liens, security agreements, leases and other contracts securing or otherwise relating to the foregoing.

(f) All general intangibles, including, but not limited to, (i) all patents, and all unpatented or unpatentable inventions; (ii) all trademarks, service marks, and trade names; (iii) all copyrights and literary rights; (iv) all computer software programs; (v) all mask works of semiconductor chip products; (vi) all trade secrets, proprietary information, customer lists, manufacturing, engineering and production plans, drawings, specifications, processes and systems. The Collateral shall include all good will connected with or symbolized by any of such general intangibles; all contract rights, documents, applications, licenses, materials and other matters related to such general intangibles; all tangible property embodying or incorporating any such general intangibles; and all chattel paper and instruments relating to such general intangibles.

(g) All negotiable and nonnegotiable documents of title covering any Collateral.

(h) All accessions, attachments and other additions to the Collateral, and all tools, parts and equipment used in connection with the Collateral.

(i) All substitutes or replacements for any Collateral, all cash or non-cash proceeds, product, rents and profits of any Collateral, all income, benefits and property receivable on account of the Collateral, all rights under warranties and insurance contracts covering the Collateral, and any causes of action relating to the Collateral.

(j) All books and records pertaining to any Collateral, including but not limited to any computer-readable memory and any computer hardware or software necessary to process such memory ("Books and Records").

2. THE INDEBTEDNESS. The Collateral secures and will secure all Indebtedness of the Pledgor to the Bank. For the purposes of this Agreement, "Indebtedness" means all loans and advances made by the Bank to the Pledgor and all other obligations and liabilities of the Pledgor to the Bank, whether now existing or hereafter incurred or created, whether voluntary or involuntary, whether due or not due, whether absolute or contingent, or whether incurred directly or acquired by the Bank by assignment or otherwise, and including any obligation or liability arising pursuant to any derivative or hedge transaction of any kind entered into with the Bank and/or any affiliate of the Bank.

3. PLEDGOR'S COVENANTS. The Pledgor represents, covenants and warrants that unless compliance is waived by the Bank in writing:

(a) The Pledgor will properly preserve the Collateral; defend the Collateral against any adverse claims and demands; and keep accurate Books and Records.

(b) Pledgor's chief executive office is located, in the state specified on the signature page hereof. In addition, Pledgor is incorporated in or organized under the laws of the state specified on such signature page. Pledgor shall give Bank at least thirty (30) days notice before changing its residence or its chief executive office or state of incorporation or organization. The Pledgor will notify the Bank in writing prior to any change in the location of any Collateral, including the Books and Records.

(c) The Pledgor will notify the Bank in writing prior to any change in the Pledgor's name, identity or business structure.

(d) Unless otherwise agreed, the Pledgor has not granted and will not grant any security interest in any of the Collateral except to the Bank, and will keep the Collateral free of all liens, claims, security interests and encumbrances of any kind or nature except the security interest of the Bank.

(e) The Pledgor will promptly notify the Bank in writing of any event which affects the value of the Collateral, the ability of the Pledgor or the Bank to dispose of the Collateral, or the rights and remedies of the Bank in relation thereto, including, but not limited to, the levy of any legal process against any Collateral and the adoption of any marketing order, arrangement or procedure affecting the Collateral, whether governmental or otherwise.

(f) The Pledgor shall pay all costs necessary to preserve, defend, enforce and collect the Collateral, including but not limited to taxes, assessments, insurance premiums, repairs, rent, storage costs and expenses of sales, and any costs to perfect the Bank's security interest. Without waiving the Pledgor's default for failure to make any such payment, the Bank at its option may pay any such costs and expenses, discharge encumbrances on the Collateral, and pay for insurance of the Collateral, and such payments shall be a part of the Indebtedness and bear interest at the rate set out in the Indebtedness. The Pledgor agrees to reimburse the Bank on demand for any costs so incurred.

(g) Until the Bank exercises its rights to make collection, the Pledgor will diligently collect all Collateral.

(h) If any Collateral is or becomes the subject of any registration certificate, certificate of deposit or negotiable document of title, including any warehouse receipt or bill of lading, the Pledgor shall immediately deliver such document to the Bank, together with any necessary endorsements.

(i) The Pledgor will not sell, lease, agree to sell or lease, or otherwise dispose of any Collateral except with the prior written consent of the Bank; provided, however, that the Pledgor may sell inventory in the ordinary course of business.

(j) The Pledgor will maintain and keep in force insurance covering the Collateral against fire and extended coverages, to the extent that any Collateral is of a type which can be so insured. Such insurance shall require losses to be paid on a replacement cost basis, be issued by insurance companies acceptable to the Bank and include a loss payable endorsement in favor of the Bank in a form acceptable to the Bank.

(k) The Pledgor will not attach any Collateral to any real property or fixture in a manner which might cause such Collateral to become a part thereof unless the Pledgor first obtains the

written consent of any owner, holder of any lien on the real property or fixture, or other person having an interest in such property to the removal by the Bank of the Collateral from such real property or fixture. Such written consent shall be in form and substance acceptable to the Bank and shall provide that the Bank has no liability to such owner, holder of any lien, or any other person.

(l) Exhibit A to this Agreement is a complete list of all patents, trademark and service mark registrations, copyright registrations, mask work registrations, and all applications therefor, in which the Pledgor has any right, title, or interest, throughout the world. The Pledgor will promptly notify the Bank of any acquisition (by adoption and use, purchase, license or otherwise) of any patent, trademark or service mark registration, copyright registration, mask work registration, and applications therefor, and unregistered trademarks and service marks and copyrights, throughout the world, which are granted or filed or acquired after the date hereof or which are not listed on the Exhibit. The Pledgor authorizes the Bank, without notice to the Pledgor, to modify this Agreement by amending the Exhibit to include any such Collateral.

(m) The Pledgor will, at its expense, diligently prosecute all patent, trademark or service mark or copyright applications pending on or after the date hereof, will maintain in effect all issued patents and will renew all trademark and service mark registrations, including payment of any and all maintenance and renewal fees relating thereto. The Pledgor also will promptly make application on any patentable but unpatented inventions, registerable but unregistered trademarks and service marks, and copyrightable but uncopyrighted works. The Pledgor will at its expense protect and defend all rights in the Collateral against any claims and demands of all persons other than the Bank and will, at its expense, enforce all rights in the Collateral against any and all infringers of the Collateral. The Pledgor will not license or transfer any of the Collateral except with the Bank's prior written consent.

4. ADDITIONAL OPTIONAL REQUIREMENTS. The Pledgor agrees that the Bank may at its option at any time, whether or not the Pledgor is in default:

(a) Require the Pledgor to deliver to the Bank (i) copies of or extracts from the Books and Records, and (ii) information on any contracts or other matters affecting the Collateral.

(b) Examine the Collateral, including the Books and Records, and make copies of or extracts from the Books and Records, and for such purposes enter at any reasonable time upon the property where any Collateral or any Books and Records are located.

(d) Notify any account debtors, any buyers of the Collateral, or any other persons of the Bank's interest in the Collateral.

5. DEFAULTS. Any one or more of the following shall be a default hereunder:

(a) Any Indebtedness is not paid when due, or any default occurs under any agreement relating to the Indebtedness.

(b) The Pledgor breaches any term, provision, warranty or representation under this Agreement, or under any other obligation of the Pledgor to the Bank.

(c) Any custodian, receiver or trustee is appointed to take possession, custody or control of all or a substantial portion of the property of the Pledgor or of any guarantor or other party obligated under any Indebtedness.

(d) The Pledgor or any guarantor or other party obligated under any Indebtedness becomes insolvent, or is generally not paying or admits in writing its inability to pay its debts as they

become due, fails in business, makes a general assignment for the benefit of creditors, dies, or commences any case, proceeding or other action under any bankruptcy or other law for the relief of, or relating to, debtors.

(e) Any case, proceeding or other action is commenced against the Pledgor or any guarantor or other party obligated under any Indebtedness under any bankruptcy or other law for the relief of, or relating to, debtors.

(f) Any involuntary lien of any kind or character attaches to any Collateral, except liens for taxes not due.

(g) Any financial statements, certificates, schedules or other information now or hereafter furnished by the Pledgor to the Bank proves false or incorrect in any material respect.

6. BANK'S REMEDIES AFTER DEFAULT. In the event of any default, the Bank may do any one or more of the following:

(a) Declare any Indebtedness immediately due and payable, without notice or demand.

(b) Enforce the security interest given hereunder pursuant to the Uniform Commercial Code and any other applicable law.

(c) Enforce the security interest of the Bank in any deposit account of the Pledgor maintained with the Bank by applying such account to the Indebtedness.

(d) Require the Pledgor to obtain the Bank's prior written consent to any sale, lease, agreement to sell or lease, or other disposition of any Collateral consisting of inventory, other than in the ordinary course of business.

(e) Require the Pledgor to segregate all collections and proceeds of the Collateral so that they are capable of identification and deliver daily such collections and proceeds to the Bank in kind.

(f) Require the Pledgor to direct all account debtors to forward all payments and proceeds of the Collateral to a post office box under the Bank's exclusive control.

(g) Require the Pledgor to assemble the Collateral, including the Books and Records, and make them available to the Bank at a place designated by the Bank.

(h) Enter upon the property where any Collateral, including any Books and Records, are located and take possession of such Collateral and such Books and Records, and use such property (including any buildings and facilities) and any of the Pledgor's equipment, if the Bank deems such use necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral.

(i) Demand and collect any payments on and proceeds of the Collateral. In connection therewith the Pledgor irrevocably authorizes the Bank to endorse or sign the Pledgor's name on all checks, drafts, collections, receipts and other documents, and to take possession of and open the mail addressed to the Pledgor and remove therefrom any payments and proceeds of the Collateral.

(j) Grant extensions and compromise or settle claims with respect to the Collateral for less than face value, all without prior notice to the Pledgor.

(k) Use or transfer any of the Pledgor's rights and interests in any Intellectual Property now owned or hereafter acquired by the Pledgor, if the Bank deems such use or transfer necessary or advisable in order to take possession of, hold, preserve, process, assemble, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral. The Pledgor

agrees that any such use or transfer shall be without any additional consideration to the Pledgor. As used in this paragraph, "Intellectual Property" includes, but is not limited to, all trade secrets, computer software, service marks, trademarks, trade names, trade styles, copyrights, patents, applications for any of the foregoing, customer lists, working drawings, instructional manuals, and rights in processes for technical manufacturing, packaging and labeling, in which the Pledgor has any right or interest, whether by ownership, license, contract or otherwise.

(l) Have a receiver appointed by any court of competent jurisdiction to take possession of the Collateral. The Pledgor hereby consents to the appointment of such a receiver and agrees not to oppose any such appointment.

(m) Take such measures as the Bank may deem necessary or advisable to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, and the Pledgor hereby irrevocably constitutes and appoints the Bank as the Pledgor's attorney-in-fact to perform all acts and execute all documents in connection therewith.

(n) Without notice or demand to the Pledgor, set off and apply against any and all of the Indebtedness any and all deposits (general or special, time or demand, provisional or final) and any other indebtedness, at any time held or owing by the Bank or any of the Bank's agents or affiliates to or for the credit of the account of the Pledgor or any guarantor or endorser of the Pledgor's Indebtedness.

7. ARBITRATION AND WAIVER OF JURY TRIAL.

(a) This paragraph concerns the resolution of any controversies or claims between the Pledgor and the Bank, whether arising in contract, tort or by statute, including but not limited to controversies or claims that arise out of or relate to: (i) this Agreement (including any renewals, extensions or modifications); or (ii) any document related to this Agreement (collectively a "Claim").

(b) At the request of the Pledgor or the Bank, any Claim shall be resolved by binding arbitration in accordance with the Federal Arbitration Act (Title 9, U. S. Code) (the "Act"). The Act will apply even though this Agreement provides that it is governed by the law of a specified state.

(d) The arbitration shall be administered by JAMS and conducted in any U.S. state where any tangible personal property collateral covered by this security agreement is located, or if there is no such collateral, in California. All Claims shall be determined by one arbitrator; however, if Claims exceed Five Million Dollars ($5,000,000), upon the request of any party, the Claims shall be decided by three arbitrators. All arbitration hearings shall commence within ninety (90) days of the demand for arbitration and close within ninety (90) days of commencement and the award of the arbitrator(s) shall be issued within thirty (30) days of the close of the hearing. However, the arbitrator(s), upon a showing of good cause, may extend the commencement of the hearing for up to an additional sixty (60) days. The arbitrator(s) shall provide a concise written statement of reasons for the award. The arbitration award may be submitted to any court having jurisdiction to be confirmed and enforced.

(e) The arbitrator(s) will have the authority to decide whether any Claim is barred by the statute of limitations and, if so, to dismiss the arbitration on that basis. For purposes of the

application of the statute of limitations, the service on JAMS under applicable JAMS rules of a notice of Claim is the equivalent of the filing of a lawsuit. Any dispute concerning this arbitration provision or whether a Claim is arbitrable shall be determined by the arbitrator(s). The arbitrator(s) shall have the power to award legal fees pursuant to the terms of this Agreement.

(f) This paragraph does not limit the right of the Pledgor or the Bank to: (i) exercise self-help remedies, such as but not limited to, setoff; (ii) initiate judicial or nonjudicial foreclosure against any real or personal property collateral; (iii) exercise any judicial or power of sale rights, or (iv) act in a court of law to obtain an interim remedy, such as but not limited to, injunctive relief, writ of possession or appointment of a receiver, or additional or supplementary remedies.

(g) The filing of a court action is not intended to constitute a waiver of the right of the Pledgor or the Bank, including the suing party, thereafter to require submittal of the Claim to arbitration.

(h) By agreeing to binding arbitration, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of any Claim. Furthermore, without intending in any way to limit this agreement to arbitrate, to the extent any Claim is not arbitrated, the parties irrevocably and voluntarily waive any right they may have to a trial by jury in respect of such Claim. This provision is a material inducement for the parties entering into this Agreement.

8. MISCELLANEOUS.

(a) Any waiver, express or implied, of any provision hereunder and any delay or failure by the Bank to enforce any provision shall not preclude the Bank from enforcing any such provision thereafter.

(b) The Pledgor shall, at the request of the Bank, execute such other agreements, documents, instruments, or financing statements in connection with this Agreement as the Bank may reasonably deem necessary. To the extent permitted by applicable law, a carbon, photographic or other reproduction of this Agreement or any financing statement covering the Collateral shall be sufficient as a financing statement. The Pledgor hereby irrevocably constitutes and appoints the Bank as the Pledgor's attorney-in-fact to sign any financing statement or other document which must be executed or filed to perfect or continue perfected, maintain the priority of or provide notice of the Bank's security interest in the Collateral and file any such financing statements and other documents by electronic means with or without a signature as authorized or required by applicable law or filing procedures.

(c) All notes, security agreements, subordination agreements and other documents executed by the Pledgor or furnished to the Bank in connection with this Agreement must be in form and substance satisfactory to the Bank.

(d) This Agreement shall be governed by and construed according to the laws of the State of California, to the jurisdiction of which the parties hereto submit.

(e) All rights and remedies herein provided are cumulative and not exclusive of any rights or remedies otherwise provided by law. Any single or partial exercise of any right or remedy shall not preclude the further exercise thereof or the exercise of any other right or remedy.

(f) All terms not defined herein are used as set forth in the Uniform Commercial Code.

(g) In the event of any action by the Bank to enforce this Agreement or to protect the security interest of the Bank in the Collateral, or to take possession of, hold, preserve, process, assemble, insure, prepare for sale or lease, market for sale or lease, sell or lease, or otherwise dispose of, any Collateral, the Pledgor agrees to pay immediately the costs and expenses thereof, together with reasonable attorney's fees and allocated costs for in-house legal services.

(h) This Agreement shall constitute a continuing agreement, applying to all future as well as existing transactions, whether or not of the character contemplated at the date of this Agreement, and if all transactions between the Bank and the Pledgor shall be closed at any time, shall be equally applicable to any new transactions thereafter.

(i) The Bank's rights hereunder shall inure to the benefit of its successors and assigns. In the event of any assignment or transfer by the Bank of any of the Indebtedness or the Collateral, the Bank thereafter shall be fully discharged from any responsibility with respect to the Collateral so assigned or transferred, but the Bank shall retain all rights and powers hereby given with respect to any of the Indebtedness or the Collateral not so assigned or transferred. All representations, warranties and agreements of the Pledgor if more than one are joint and several and all shall be binding upon the personal representatives, heirs, successors and assigns of the Pledgor.

[Signatures on Next Page]

This Agreement is dated as of December 20, 2002.

BANK OF AMERICA, N.A.				MOTORCAR PARTS & ACCESSORIES, INC.


By:				By:

Title:				Title:

				By:

				Title:

				Address of Pledgor: 2929 California Street Torrance, CA 90503

Pledgor's state of incorporation
or organization (if Pledgor is a corporation, partnership,
limited liability company or other registered entity): New York

EXHIBIT A

[List of all patents, trademarks and service mark registrations, copyright registration, mask work registration, and applications therefore]

NONE

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SECURITY AGREEMENT
EXHIBIT A
EX-99.1 5 a2101529zex-99_1.htm EXHIBIT 99.1
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Exhibit 99.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Motorcar Parts & Accessories, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Periodic Report"), I, Anthony Souza, Chief Executive Officer of the Company, certify, pursuant to 19 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1.: The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.: The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ ANTHONY SOUZA Anthony Souza Chief Executive Officer February 13, 2003

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Exhibit 99.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EX-99.2 6 a2101529zex-99_2.htm EXHIBIT 99.2
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Exhibit 99.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Motorcar Parts & Accessories, Inc. (the "Company") on Form 10-Q for the quarter ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Periodic Report"), I, Charles W. Yeagley, Chief Financial Officer of the Company, certify, pursuant to 19 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:

1.: The Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and
2.: The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ CHARLES W. YEAGLEY Charles W. Yeagley Chief Financial Officer February 13, 2003

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Exhibit 99.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
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