Note 8 – Commitments and Contingencies

Facilities Leases

The Company moved the corporate headquarters from Carson, California to Torrance, California in April 2020 and entered into the new office space lease on April 13, 2020. The lease between the Company and Preylock Gramercy, LLC is for approximately 25,200 square feet. The initial seventy-month lease term is set to expire in March of 2026. The Company is obligated to pay approximately $73 in monthly base rent (rent abatement for five months in the first two years), which shall increase by 3% each year beginning on the second-year anniversary of the lease term. In accordance with ASU 842 – Leases (“ASC 842”), the Company recorded $4,338 in Right-of-use assets – operating, non-current, and $3,916 in Right-of-use obligation – operating, non-current, with $422 recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet at the commencement of the lease. The Company is also obligated to pay certain operating expenses set forth in the lease.

The Company also leases warehouse space in LaSalle, Illinois, Chesapeake, Virginia, Las Vegas, Nevada, Grand Prairie, Texas, and Jacksonville, Florida, in addition to leasing office space for the Philippines subsidiary.

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During the fourth quarter of 2021, the Company entered into a lease for its distribution center located in Jacksonville, Florida for approximately 180,000 square feet. The initial eighty-seven month lease term is set to expire in January of 2029. The Company is obligated to pay approximately $742 in annual base rent (rent abatement for the first

three months of the lease term) the first year, which shall increase to 1,026 in annual base rent for the second year of the lease term and then shall increase by 3% each year beginning on the third anniversary year of the lease term. In accordance with ASC 842, the Company recorded $6,565 in Right-of-use assets – operating, non-current,and $5,898 in Right-of-use obligation – operating, non-current, with $667 recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet.

During the fourth quarter of 2021, the Company extended its lease for an additional eighty-four months, commencing as of July 1, 2022 to end in June 2029. In accordance with ASU 842, the Company recorded a net effect of $4,350 Right-of-use assets – operating, non-current, and $4,220 in Right-of-use obligation – operating, non-current, with $153 recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet.

During the third quarter of 2021, the Company expanded space at their Grand Prairie, Texas (“Grand Prairie”) distribution center by approximately 156,000 square feet. The lease term on the expansion is set to expire in December of 2027 and the Company is obligated to pay approximately $644 in annual base rent, which shall increase by approximately 3% each year beginning on the second year of the lease term. In accordance with ASU 842, the Company recorded $4,058 in Right-of-use assets – operating, non-current, and $3,567 in Right-of-use obligation – operating, non-current, with $491 recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet.

On March 15, 2020, the Company entered into a lease for new office space for its Philippines subsidiary. The lease between the Company and Mendrez Reality Development Corporation is for approximately 15,800 square feet. The initial ten-year lease term is set to expire in March of 2030. The Company is obligated to pay approximately $500 in annual base rent, which shall increase by 5% each year beginning on the second year of the lease term and then increase by 4% each year beginning on the sixth year of the lease term. In accordance with ASU 842, the Company recorded $5,325 in Right-of-use assets – operating, non-current, and $4,981 in Right-of-use obligation – operating, non-current, with $344 recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet at the commencement of the lease.

On July 1, 2020, the Company entered into a lease for its distribution center located in Grand Prairie, Texas. The lease between the Company and Morris Truman Associates LLC is for approximately 210,000 square feet. The initial ninety-month lease term is set to expire in December of 2027. The Company is obligated to pay approximately $578 in annual base rent (rent abatement for the first six months of the lease term) the first year, which shall increase to $851 in annual base rent for the second year of the lease term and then shall increase by 3% each year beginning on the third-year anniversary. In accordance with ASU 842, the Company recorded $5,469 in Right-of-use assets – operating, non-current, and $5,231 in Right-of-use obligation – operating, non-current, with $238 recorded in Right-of-use obligation – operating, current, on the consolidated balance sheet at the commencement of the lease.

On April 25, 2019, the Company entered into a lease for its distribution center located in Las Vegas, Nevada. The Lease between the Company and Prologis Sunrise Industrial Park is for approximately 124,546 square feet. The initial sixty three-month term of the Lease commenced on July 1, 2019 and is set to expire in September of 2024. The Company is obligated to pay approximately $687 in annual base rent, which shall increase by approximately 3.0% each year. The Company is also obligated to pay certain operating expenses set forth in the Lease.

On February 4, 2016, the Company entered into a lease for its distribution center located in Chesapeake, Virginia. The Lease between the Company and Liberty Property Limited Partnership is for approximately 159,294 square feet. The initial three-year term of the Lease commenced on July 1, 2016 and expired in June of 2019. The extended three-year term of the Lease commenced on July 1, 2019 and is set to expire in June of 2022. The Company is obligated to pay approximately $640 in annual base rent, which shall increase by approximately 2.5% each year. The Company is also obligated to pay certain operating expenses set forth in the Lease. Pursuant to the Lease, the Company has the option to extend the Lease for an additional three-year term, with certain increases in base rent. During 2019, the Company reduced the square footage rented from 159,294 square feet to approximately 116,000 square feet which reduced the annual base rent to $574.

On April 17, 2013, the Company’s wholly-owned subsidiary, Whitney Automotive Group, Inc. (“WAG”) entered into a sales leaseback for its facility in LaSalle, Illinois, receiving $9,750 pursuant to a purchase and sale agreement dated April 17, 2013 between WAG and STORE Capital Acquisitions, LLC. The Company used the net proceeds of $9,507 from this sale to reduce its revolving loan payable. Simultaneously with the execution of the purchase and sale agreement and the closing of the sale of the property, the Company entered into a lease agreement with STORE Master Funding III, LLC (“STORE”) whereby we leased back the property for our continued use as an office, retail and warehouse facility for storage, sale and distribution of automotive parts, accessories and related items for 20 years, terminating on April 30, 2033. The Company’s initial base annual rent is $853 for the first year (“Base Rent Amount”), after which the rental amount will increase annually on May 1 by the lesser of 1.5% or 1.25 times the change in the Consumer Price Index as published by the U.S. Department of Labor’s Bureau of Labor Statistics, except that in no event will the adjusted annual rental amount fall below the Base Rent Amount. We were not required to pay any security deposit. Under the terms of the lease, we are required to pay all taxes associated with the lease, pay for any required maintenance on the property, maintain certain levels of insurance and indemnify STORE for losses incurred that are related to our use or occupancy of the property. The lease was initially accounted for as a capital lease and the $376 excess of the net proceeds over the net carrying amount of the property is amortized in interest expense on a straight-line basis over the lease term of 20 years. Upon the adoption of ASC 842 in the beginning of fiscal year 2019, this lease was revalued and reclassified in Right-of-use-assets-finance leases, on the consolidated balance sheet.

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Facility rent expense for fiscal years 2021, 2020, and 2019 was $6,019, $4,058 and 2,275, respectively.

Quantitative information regarding the Company’s leases are as follows (in thousands):

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Lease commitments as of January 1, 2022 were as follows:

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Legal Matters

Asbestos. A wholly-owned subsidiary of the Company, Automotive Specialty Accessories and Parts, Inc. and its wholly-owned subsidiary Whitney Automotive Group, Inc. ("WAG"), are named defendants in several lawsuits involving claims for damages caused by installation of brakes during the late 1960’s and early 1970’s that contained asbestos. WAG marketed certain brakes, but did not manufacture any brakes. WAG maintains liability insurance coverage to protect its and the Company’s assets from losses arising from the litigation and coverage is provided on an occurrence rather than a claims made basis, and the Company is not expected to incur significant out-of-pocket costs in connection with this matter that would be material to its consolidated financial statements.

Ordinary course litigation. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. As of the date hereof, the Company believes that the final disposition of such matters will not have a material adverse effect on the financial position, results of operations or cash flow of the Company. The Company maintains liability insurance coverage to protect the Company’s assets from losses arising out of or involving activities associated with ongoing and normal business operations.

Related Party Matters

The Company has entered into indemnification agreements with the Company’s directors and executive officers. These agreements require the Company to indemnify these individuals to the fullest extent permitted under law against liabilities that may arise by reason of their service to the Company, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.