Item 1. Business of the Registrant
General
National R.V. Holdings, Inc. (the "Company") is one of the nation's leading manufacturers of Class A motorhomes. From its Perris, California facility, the Company designs, manufactures and markets National R.V., Inc. ("NRV") Class "A" motorhomes and fifth-wheel travel trailers under brand names including Islander, Tradewinds, Caribbean, Tropi-Cal, Dolphin, Sea Breeze, Sea View, Surf Side, and Palisades. From its Junction City facility, the Company designs, manufactures and markets Country Coach, Inc. ("CCI") high-end (Highline) Class "A" motorhomes and bus conversions under brand names including Concept, Affinity, Allure, Intrigue and Magna. The Company, which began manufacturing recreational vehicles ("RVs") in 1964, is the fifth largest domestic manufacturer of Class A motorhomes and sells its motorhomes through a network of 234 dealer locations in 38 states and Canada.
The Company was incorporated in Delaware in 1988. NRV was incorporated in California in 1970 and its predecessor was organized in 1964. As used herein, the term "Company" refers to National R.V. Holdings, Inc., NRV and CCI unless the context otherwise requires.
The Company's headquarters are located at 3411 N. Perris Blvd., Perris, California 92571, and its telephone number is (909) 943-6007.
Recreational Vehicle Industry Overview
Products
Based upon standards established by the Recreational Vehicle Industry Association (the "RVIA"), RVs are commonly classified into three main categories: (i) motorhomes, composed of Class A, B and C types; (ii) towables, composed of fifth-wheel travel trailers, conventional travel trailers, truck campers and folding camping trailers, and (iii) van conversions.
Motorhomes: Motorhomes are self-powered RVs built on a motor vehicle chassis. The interior typically includes a driver's area and kitchen, bathroom, dining and sleeping areas. Motorhomes are self-contained, with their own power generation, heating, cooking, refrigeration, sewage holding and water storage facilities, so that they can be lived in without being attached to utilities. Motorhomes are generally categorized into A, B and C classes. Class A motorhomes are constructed on a medium-duty truck chassis, which includes the engine, drive train and other operating components. Retail prices for Class A motorhomes generally range from $40,000 to $150,000. Highline motorhomes, which are a subset of Class A motorhomes, generally range in retail price from $160,000 to $1,000,000. Class C motorhomes are built on a van or pick-up truck chassis,
which includes an engine, drive-train components and a finished cab section, and generally range in retail price from $40,000 to $70,000. Class B motorhomes are van campers, which generally contain fewer features than Class A or Class C motorhomes.
Towables: Towables are non-motorized RVs. Fifth-wheel travel trailers, similar to motorhomes in features and use, are constructed with a raised forward section that attaches to the bed of a pick-up truck. This allows a bi-level floor plan and generally more living space than conventional travel trailers. Fifth-wheel travel trailers are typically less expensive than motorhomes and range in retail price from $15,000 to $80,000. Conventional travel trailers are similar to fifth-wheel travel trailers but do not have the raised forward section. Truck campers have many of the amenities found on travel trailers and slide into the bed of a pickup truck. Folding camping trailers contain fewer features than other towables and are constructed with collapsible "tent" sidewalls that fold for easy towing.
Van Conversions: Van conversions are automotive vans converted by van upfitters to include such features as entertainment centers, comfortable seating, window treatments and lighting.
Trends and Demographics
According to the RVIA's wholesale statistics, RV unit sales (excluding van conversions) in 1999 increased 9.7% to 321,200 from 292,700 in 1998. The aggregate wholesale value of these 1999 shipments was $8.3 billion, with Class A motorhomes comprising $4.4 billion or 53% of the total and fifth-wheel travel trailers comprising $1.2 billion or 14.5% of the total. Unit shipments of Class A motorhomes in 1999 increased 15.2% to 49,400 from 42,900 in 1998. The average wholesale price of Class A motorhomes increased 17.4% in 1999 to $88,962 from $75,754 in 1998. Unit shipments of fifth-wheel travel trailers increased 7.1% in 1999 to 60,500 from 56,500 in 1998. The average wholesale price of fifth-wheel travel trailers increased in 1999 0.8% to $20,284 from $20,119 in 1998.
While overall unit shipments have increased over the past five years, the RV industry's manufacturing base has undergone a consolidation. Between 1992 and 1999, the number of Class A motorhome manufacturers declined from 45 to 25. In addition, during this period, the aggregate retail market share of the ten largest Class A motorhome manufacturers increased from 82.5% to 90.9%.
RVs are purchased for a variety of purposes, including camping, visiting family and friends, sightseeing, vacationing and enjoying outdoor activities and sporting events. According to a University of Michigan study, approximately 8.6 million households (or 9.8% of all households) in the United States owned RVs in 1997, up from 8.2 million in 1993, 7.7 million in 1988 and 5.8 million in 1980. In addition, the study indicated that 67% of all current RV owners and 25% of all former RV owners plan to purchase another RV in the future. This study further indicated that 65% of RVs purchased are used (RVIA and market share statistics reflect new product sales only) with more than 34%
of these used RVs older than 15 years. The eventual scrappage of these older units is expected to result in an increasing proportion of new product sales over the next ten years.
Ownership of RVs reaches its highest level among those Americans aged 55 to 64, with 16.4% of households in this category owning RVs. The number of households in this group, which constitutes the Company's primary target market, is projected to grow by 8.0 million households, or 63% from 1997 to 2010 as compared to total growth of 14.9 million households, or 14.9%. Baby Boomers are defined as those born between the years 1946 and 1964, and thus the leading edge of the Baby Boomer generation began turning 50 in 1996. This generation is expected to be more affluent and retire earlier than past generations. As Baby Boomers enter and travel through the important 50 to 65 age group for RV sales, they represent the potential for a secular uptrend in the RV industry.
As motorhomes have increased in popularity due, in part, to the entry of the Baby Boomer generation into the target market, the purchasers of these products have grown more sophisticated in their tastes. The Company believes that as a result, customers have demanded more value for their money, and brand recognition and loyalty have become increasingly important. These trends have favored companies that can deliver quality, value and reliability on a sustained basis.
Business Development and Strategy
The Company's business development and operating strategy is to deliver high quality, innovative products that offer superior value to enhance the Company's position as one of the nation's leading manufacturers of RVs. This strategy focuses on the following key elements: (i) building upon and exploiting recognition of the Company's brand names; (ii) offering the highest value products at multiple price points to appeal to first time and repeat buyers; (iii) expanding its manufacturing capacity and continuing to utilize vertically integrated manufacturing processes; (iv) capitalizing on the Company's reputation to expand its presence in the Highline market; and (v) identifying and acquiring related businesses serving niche markets.
Building upon and Exploiting Recognition of the Company's Brand Names. The Company believes that its brand names and reputation for manufacturing quality products with excellent value have fostered strong consumer awareness of the Company's products and have contributed to the growth of its net sales and market share. The Company intends to capitalize on its brand name recognition in order to increase its sales and market share, facilitate the introduction of new products and enhance its dealer network.
Offering the Highest Value Products at Multiple Price Points to Appeal to First Time and Repeat Buyers. The Company currently offers fourteen distinct lines of RVs, which are available in a variety of lengths, floorplans, color schemes and interior designs and range in suggested retail price from $42,000 to $1,200,000. Each model is intended to attract customers seeking an RV within
their price range by offering value superior to competitive products from other manufacturers. RVIA data indicates that most motorhome purchasers have previously owned a recreational vehicle, and the Company's models are positioned to address the demands of these repeat customers as well as first time buyers.
Expanded Manufacturing Capacity and Vertically Integrated Manufacturing Processes. The Company has expanded its manufacturing facilities in order to increase its production flexibility and substantially increase overall production volume to meet demand and anticipated growth. The Company designs and manufactures a significant number of the components used in the assembly of its products, rather than purchasing them from third parties. The Company believes that its vertically integrated manufacturing processes allow it to achieve cost savings and better quality control. The Company's in-house research and development staff and on-site component manufacturing departments enable the Company to ensure a timely supply of necessary products and to respond rapidly to market changes.
Capitalizing on the Company's Reputation to Expand its Presence in the Highline Market. The Company's Country Coach product offerings focus exclusively on the Highline segment of the Class A motorhome market. The Company has a strong market share in the Highline segment. For the twelve months ended December 31, 1999, the Company was the third largest manufacturer of Highline motorhomes, with approximately 15.6% of this market, up from 14.8% in 1998. The Company is actively seeking to expand its share of this market by capitalizing on its established reputation, continuing to offer superior products and expanding its production capacity in order to target the market's growing population and satisfy the desire of many current RV owners to purchase more upscale vehicles.
Identifying and Acquiring Related Businesses Serving Niche Markets. As illustrated by the Company's 1996 acquisition of Country Coach, the Company plans to expand its business through the strategic acquisition of targeted businesses in the RV industry and related areas. The Company will target acquisitions which it believes will result in expansion of the Company's product lines and/or enhancement of operating efficiencies.
Business
Products
The Company's product strategy is to offer the highest value RVs across a wide range of retail prices to appeal to a broad range of potential customers and to capture the business of brand-loyal repeat purchasers who tend to trade up with each new purchase. National RV currently manufactures Class A motorhomes under Islander, Tradewinds, Caribbean, Tropi-Cal, Dolphin, Sea Breeze, Sea View and Surf Side brand names and a line of fifth-wheel travel trailers under the Sea Breeze and Palisades brand names. Country Coach currently manufactures Highline motorhomes under the Concept, Affinity, Magna, Intrigue and Allure brand names and bus conversions under the Country Coach Prevost Conversion brand name.
The Company's products are offered with a wide range of accessories and options and manufactured with high-quality materials and components. Certain of the Company's Highline motorhomes can be customized to a particular purchaser's specifications. Each vehicle is equipped with a wide range of kitchen and bathroom appliances, audio and video electronics, communication devices, furniture, climate control systems and storage spaces.
Country Coach Prevost Conversion. Built on the 40' and 45' XL II or the VIP chassis, the Country Coach Prevost Conversion combines creative floor plans with fully custom interiors and stunning one-of-a-kind exteriors. Among its many features of note are computerized touch pad switching, computerized air leveling, a voice synthesized monitoring system, and an Infotronics multiplex control console which networks together "stand alone" systems, so the user may program multiple systems at one time. Slide-out floor plans provide expanded living space. Suggested retail prices start at $715,000. The Country Coach Prevost Conversion was introduced in 1979.
Concept. Completely custom, the 40' and 45' wide body, bus-style Concept is built from the ground up on the DynoMax chassis and is powered by a 500 horsepower Detroit Diesel Series 60 engine. The Concept's Pentium computer-driven digital dash features a Global Positioning System. Fully custom interior schemes, and Euro-styled Vitricor or laminate cabinetry complement beautiful one-of-a-kind interiors. Suggested retail prices start at $538,000. The Concept was introduced in 1988.
Affinity. Built on the DynoMax chassis, the 38', 40' and 42' models feature the CAT 455 horsepower C-12 engine. The Affinity offers 14 exterior color combinations (or custom colors) with seven custom graphic schemes in addition to the standard scheme. Galley slide floor plans are available. Six designer coordinated interior schemes (or customization) are offered with 19 floor plan combinations. A 42' Affinity with a liftable tag axle and dual slide floor plan, the Bed & Breakfast, debuted in the 1999 model year. Suggested retail prices start at $365,000. The Affinity was introduced in 1991.
Magna. In 36', 38' and 40' lengths, the wide-body Magna is built on the DynoMax diesel-powered chassis featuring the Cummins 350 horsepower engine or CAT C-10 385 horsepower engine. The Magna offers 15 floor plan combinations and six designer coordinated interior packages (along with modified or complete customization) to complement the 14 exterior color combinations (or custom exterior graphics). Full size living room slides and new galley slides maximize interior living. Suggested retail prices start at $287,000. The Magna was introduced in 1991.
Intrigue. The wide-body, bus-style Intrigue, in 32', 36' and 40' lengths, is built on the DynoMax chassis and powered by the Cummins 8.3 ISC 330 or 350 horsepower engine. It features custom crafted cabinetry with three color coordinated interior packages and 22 floor plan arrangements. Full size Great Room and galley slides are available. Suggested retail prices start at $201,000. The Intrigue was introduced in 1994.
Islander. The Islander is a luxury, bus-style diesel pusher built on a semi-monocoque chassis manufactured by CCI. Available in one floorplan just under 40' in length, the Islander features a large slide room that adds approximately 45 square feet of additional living space. It carries a suggested retail price of $201,000 and was introduced in 1999.
Allure. This Highline motorcoach is available in 32', 36' and 40' lengths. Built on the DynoMax chassis, the Allure is powered by the Cummins 8.3 ISC 275 or 330 HP C-Series horsepower engine. It features painted graphics, clear coat and bus-style aerodynamics. Offering three designer coordinated interior packages and 16 floor plan combinations, the Allure is available with full size living room slides and galley slides. Suggested retail prices start at $172,000. The Allure was introduced in 1995.
Tradewinds. The Tradewinds is available in five floorplans on a diesel powered chassis. These models are full-basement wide-body, bus-style motorhomes. All models have automatic slide-out features that expand the interior of the motorhome and add approximately 36 square feet of additional living space. Models are produced in 35-38 foot lengths and are available with a choice of oak or walnut interiors. Suggested retail prices range from $147,000 to $152,000. The Tradewinds was introduced in 1997.
Caribbean. The Caribbean is a compact, luxury, bus-style, diesel pusher that represents a newer market segment that has emerged. Featuring one floorplan of 34 feet in length with a slide-out room, the Caribbean is designed to appeal to consumers looking for a luxury product that is easier to drive and handle than conventional luxury bus-style products. The Caribbean carries a suggested retail price of $138,000, and was introduced in 1999.
Tropi-Cal. The Tropi-Cal is a wide-body bus-style motorhome outfitted similar to the Dolphin with certain distinct features, exterior styling and floorplans. The Tropi-Cal is available in seven floorplans on a gas-powered chassis and produced in 33 to 37 foot lengths. All models have an automatic slide-out feature that expands the interior of the motorhome and adds approximately 36 square feet of additional living space. Suggested retail prices range from approximately $93,000 to $104,000. The Tropi-Cal was introduced in 1993.
Dolphin. The Dolphin is available in eight floorplans on a gas-powered chassis. These models are full-basement wide-body, bus-style motorhomes. All models have automatic slide-out features that expand the interior of the motorhome and add approximately 36 square feet of additional living space. The Dolphin models are produced in 33 to 37 foot lengths and have suggested retail prices that range from $90,000 to $100,000. The Class A Dolphin motorhome was introduced in 1985.
Sea View. The Sea View is available in five floorplans on a gas-powered chassis. These models are full-basement wide-body, bus-style motorhomes. All models have automatic slide-out features that expand the interior of the motorhome and add approximately 36 square feet of additional living space. The
Sea View models are produced in 31 to 34 foot lengths and have suggested retail prices that range from $82,000 to $90,000. This product was introduced in 1997.
Sea Breeze. The Sea Breeze is a moderately priced, bus-style motorhome, built on a gas-powered chassis. The Sea Breeze is a low profile motorhome, offering partial basement storage. The Sea Breeze features Corian countertops, power heated side-view mirrors, deluxe trim and heated water and waste holding tanks. The Sea Breeze features four floorplans between 30 and 34 feet in length. Suggested retail prices range from approximately $72,000 to $90,000. The Class A Sea Breeze product was introduced in 1992.
Surf Side. The Surf Side is available in two floorplans on a gas- powered chassis. This full-basement wide-body, bus-style motorhome is offered in 30 and 31 foot lengths and has a suggested retail price of $68,000. The Surf Side was introduced in 1999.
Palisades Fifth-Wheel Travel Trailer. The Palisades fifth-wheel travel trailer comes in four, triple-slide floorplans ranging from 32 to 37 feet in length. All floorplans feature standard dark walnut interiors, and many other amenities. Suggested retail prices range from $50,000 to $65,000. The Palisades was introduced in 1999.
Sea Breeze Fifth-Wheel Travel Trailer. The Sea Breeze fifth-wheel travel trailer comes in eight floorplans equipped similar to a Sea Breeze motorhome. All floorplans feature standard living room and bedroom slide-out sections and are produced in 29 to 37 foot lengths. Suggested retail prices range from $42,000 to $51,000. The Sea Breeze fifth-wheel trailer was introduced in 1995.
Planned Product Introductions
During 2000, the Company plans to add additional floorplans to the three products introduced in the fourth quarter of 1999, the Islander, Caribbean, and Palisades. New product introductions include a Tradewinds LTC, which is a Tradewinds on a raised-rail chassis, and two new products, the Castaic and the Marlin, targeting new price points in the diesel pusher market. Additionally, with the anticipated completion of the new towables plant at the Perris, California facility late in 2000, the Company plans to introduce a Sea Breeze travel trailer. Double-slide models incorporating a slide-out room in the bedroom area will be introduced on many of the existing product lines.
Distribution and Marketing
The Company markets NRV products through a network of 207 dealer locations in 38 states and Canada. These dealers generally carry all or a portion of NRV's product lines along with competitors' products. The Company markets CCI products through 27 dealer locations. CCI utilizes a limited dealer network for its Highline motorhomes due to the selling expertise required and the tendency of Highline customers to make destination-type purchases. The Company believes that each of the CCI dealers has significant experience with top-of-the-line products and has demonstrated high standards for service.
The Company generally promotes its products through visits to dealers, attendance at industry shows, direct mail promotions, corporate newsletters, press releases, trade and consumer magazine advertising and RV owner rallies. From time to time, the Company also offers dealer or consumer incentives. In addition, to help promote customer satisfaction and brand loyalty, the Company sponsors Dolphin and Country Coach International clubs for owners of the Company's products. The clubs publish newsletters and magazines on a monthly or quarterly basis and organize RV rallies and other activities. The Company continually seeks consumer preference input from several sources, including dealers, RV owners and the Company's sales representatives and, in response, the Company implements changes in the design, decor and features of its products.
Substantially all of the Company's motorhome sales are made on terms requiring payment within 15 days or less of the dealer's receipt of the unit. Most dealers finance all, or substantially all, of the purchase price of their inventory under "floor plan" arrangements with banks or finance companies under which the lender pays the Company directly. Dealers typically are not required to commence loan repayments to such lenders for a period of at least six months. The loan is collateralized by a lien on the vehicle. Consistent with industry practice, the Company has entered into repurchase agreements with these lenders. In general, the repurchase agreements provide that the Company is required to repurchase a unit after the unit is financed and if the "floor plan" lender has repossessed the unit. Certain of these agreements limit the Company's liability to 12 to 18 months after the date of invoice of the unit. At December 31, 1999, the Company's contingent liability under these agreements was approximately $104.5 million. The risk of loss under such agreements is spread over numerous dealers and lenders and is further reduced by the resale value of the motorhomes the Company would be required to repurchase. The Company's losses under these agreements have not been material in the past.
Many finance companies and banks provide retail financing to purchasers of RVs. Certain provisions of the U.S. tax laws applicable to second residences, including the deductibility of mortgage interest and the deferral of gain on a qualifying sale, currently apply to motorhomes and travel trailers used as qualifying residences.
Manufacturing Facilities and Production
The Company owns and operates manufacturing facilities in Perris, California, and Junction City, Oregon. NRV products are designed and manufactured in facilities encompassing 400,000 square feet located on approximately 49 acres in Perris. Two additional buildings are scheduled for construction in 2000 at the Perris facility. These include a 45,000 square foot, 30-bay service center, and a 164,000 square foot travel trailer manufacturing building. CCI products are designed and manufactured in facilities encompassing 386,000 square feet located on approximately 56 acres in Junction City. Construction of an additional 150,000 square foot manufacturing building at the Junction City facility is in the planning stages, with construction scheduled to begin in late 2000. The Company also owns 12 acres in Florida, where a 15-bay service center is planned for construction in the second half of 2000.
The Company's vehicles are built by integrating manufacturing and assembly line processes. The Company has designed and built its own fabricating and assembly equipment and molds for a substantial portion of its manufacturing processes. The Company believes that its vertically integrated manufacturing systems and processes, which it has developed, enable it to efficiently produce high-quality products.
Among other items, the Company fabricates, molds and finishes fiberglass to produce its front and rear-end components, manufactures its own walls and roofs, assembles sub-floors and molds plastic components. In addition to assembling its vehicles and installing various options and accessories, the Company manufactures the majority of the installed amenities such as cabinetry, draperies, showers and bathtubs. After purchasing the basic chair and sofa frames, the Company also manufactures most of the furniture used in its motorhomes. The Company believes that by manufacturing these components on site, rather than purchasing them from third parties, the Company achieves cost savings, better quality control and timely supply of necessary components. Chassis, plumbing fixtures, floor coverings, hardware and appliances are purchased in finished form from various suppliers. Due to California environmental emission restrictions on the amount of fiberglass that the Company can fabricate, third parties manufacture certain fiberglass parts using the Company's molds.
The Company currently operates one production shift.
The Company purchases the principal raw materials and certain other components used in the production of its RVs from third parties. Other than the chassis, these components and raw materials typically have short delivery lead times. With the exception of the chassis, these materials, including plywood, lumber and plastic, are generally available from numerous sources, and the Company has not experienced any significant shortages of raw materials or components.
Product Development
The Company utilizes a combined research and development staff of 76 employees who concentrate on product development and enhancements. New ideas are presented to the staff from management and are derived from a variety of sources, including sales representatives, dealers and consumers. The staff utilizes computer-aided design equipment and techniques to assist in the development of new products and floor plans and to analyze suggested modifications of existing products and features. After the initial step of development, prototype models for new products are constructed and refined. In the case of modifications to certain features, new molds for various parts, such as front-end caps and storage doors, are produced and tested. Upon completion and acceptance of the prototypes, the new products or components are integrated into the production process. The Company believes that the maintenance of an in-house research and development staff enables the Company to respond rapidly to ongoing shifts in consumer tastes and demands. Research and development expenses were $4,087,000, $3,050,000 and $2,711,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Arrangements with Chassis Suppliers
The Company's NRV subsidiary purchases gasoline-powered chassis' that are manufactured by Ford Motor Company and Workhorse Custom Chassis, and rear engine diesel-powered chassis' from Freightliner Custom Chassis Corporation, Spartan Motor Corporation, and from CCI. The Company's CCI subsidiary manufactures its own chassis, the DynoMax, which is used as the base upon which all CCI motorhomes are built, except for the Prevost Conversions, which utilize a Prevost bus shell. The Company takes advantage of cash discounts, for payment upon delivery, that are generally provided for in the purchase agreements with these manufacturers. Such agreements generally provide that the Company must pay for a chassis in full prior to making any alterations or additions to the chassis. The agreements further provide that either party may terminate the agreement at any time. In the event of such termination, the Company may incur certain financing and other costs in order to maintain an adequate supply of chassis. The Company generally maintains a one to two month production supply of a chassis in inventory. If any of the Company's present chassis manufacturers were to cease manufacturing or otherwise reduce the availability of their chassis, the business of the Company could be adversely affected. The industry, as a whole, from time to time experiences short-term shortages of chassis.
Backlog
The Company's backlog of orders was $64.0 million as of February 29, 2000 and $79.6 million as of February 28, 1999. All backlog orders are subject to cancellation. To the extent not canceled, the Company expects that its backlog as of February 29, 2000 will be filled within 60-90 days.
Competition
The motorhome market is intensely competitive, with a number of other manufacturers selling products that compete with those of the Company. According to Statistical Surveys, Inc., the two leading manufacturers accounted for approximately 39.8% and 42.1% of total retail units sold in the Class A motorhome market during 1999 and 1998, respectively. These companies and certain other competitors have substantially greater financial and other resources than the Company. Sales of used motorhomes also compete with the Company's products. The Company competes on the basis of value, quality, price and design. According to Statistical Surveys, Inc., the Company's Class A retail market share of new product sales has increased from 1.9% in 1992 to 3.4% in 1993, 4.0% in 1994, 4.2% in 1995, 6.1% in 1996, 7.8% in 1997, 8.2% in 1998, and 8.2% in 1999.
Regulation
The Company is subject to the provisions of the National Traffic and Motor Vehicle Safety Act (the "Motor Vehicle Act") and the safety standards for RVs and components that have been promulgated thereunder by the Department of Transportation. The regulations that have been promulgated under the Motor
Vehicle Act permit the National Highway Traffic Safety Administration (the "NHTSA") to require a manufacturer to remedy vehicles containing defects related to motor vehicle safety or vehicles which fail to conform to all applicable federal motor vehicle safety standards. The Motor Vehicle Act also provides for the recall and repair of vehicles that contain certain hazards or defects. In addition, the Company has from time to time instituted voluntary recalls of certain motorhome units, none of which have had a material adverse effect on the Company.
In March, 2000, CCI received a notice from NHTSA which indicated that NHTSA is conducting a review of a safety recall by CCI in 1999 concerning certain motorhomes equipped with a slide galley option and requested certain information about motorhomes with slide out sections manufactured by CCI. CCI intends to respond fully to NHTSA's request. At this time, it is not possible to ascertain what action NHTSA may take with respect to such a review, or what impact, if any, that the review may have on the Company's financial condition or results of operations. Future recalls of the Company's vehicles, voluntary or involuntary, could have a material adverse effect on the Company's financial condition and results of operation.
The Company relies upon certifications from chassis manufacturers with respect to compliance of the Company's vehicles with all applicable emission control standards. The RVIA, of which the Company is a member, has promulgated stringent standards for quality and safety. Each of the units manufactured by the Company has a RVIA seal placed upon it to certify that such standards have been met.
Federal and state authorities have various environmental control standards relating to air, water, noise pollution and hazardous waste generation and disposal which affect the business and operations of the Company. California environmental emission regulations limit the amount of fiberglass production that the Company may fabricate. The Company believes that its facilities and products comply in all material respects with applicable environmental regulations and standards. The Company is also subject to the regulations promulgated by the Occupational Safety and Health Administration ("OSHA"), which regulates workplace health and safety. Representatives of OSHA and the RVIA periodically inspect the Company's plant.
Product Warranty
The Company provides retail purchasers of its motorhomes with a limited warranty against defects in materials and workmanship. Excluded from the Company's warranties are chassis manufactured by third parties and certain other specified components that are warranted by the Company's suppliers of these items. Service covered by warranty must be performed at either the Company's in-house service facility or any of its dealers or other authorized service centers. The warranty period covers the lesser of one year or 18,000 miles. The Company's warranty reserve was $7.8 million at December 31, 1999, which the Company believes is sufficient to cover warranty claims.
Trademarks
NRV's Dolphin, Tropi-Cal, Sea Breeze, Tradewinds, Sea View and DuraFrame trademarks, and CCI's Affinity, Magna, Intrigue, Allure, and Great
Room trademarks are registered with the United States Patent and Trademark Office and are material to the Company's business. The Company does not rely upon any material patents or licenses in the conduct of its business.
Legal Proceedings and Insurance
From time to time, the Company is involved in certain litigation arising out of its operations in the normal course of business. Accidents involving personal injuries and property damage occur from time to time in the use of RVs. The Company maintains product liability insurance in amounts deemed adequate by management. To date, aggregate costs to the Company for product liability actions have not been material. The Company believes that there are no claims or litigation pending, the outcome of which could have a material adverse effect on the financial position of the Company.
Employees
As of February 29, 2000, the Company employed a total of 2,170 people, of which 1,960 were involved in manufacturing, 63 in administration, 76 in research and development and 71 in sales and marketing. None of the Company's personnel are represented by labor unions. The Company considers its relations with its personnel to be good.
Item 2.
Item 2. Properties
The Company owns and operates manufacturing facilities in Perris, California, and Junction City, Oregon. NRV products are designed and manufactured in facilities encompassing 400,000 square feet located on approximately 49 acres in Perris. Two additional buildings are scheduled for construction in 2000 at the Perris facility. These include a 45,000 square foot, 30-bay service center, and a 164,000 square foot travel trailer manufacturing building. CCI products are designed and manufactured in facilities encompassing 386,000 square feet located on approximately 56 acres in Junction City. A portion of CCI's facilities representing 276,000 square feet is being leased under an agreement expiring in October 2000 (renewable in two separate five-year increments at fair market values). Construction plans on an additional 150,000 square foot manufacturing building at the Junction City facility are under way, with actual construction scheduled to begin in late 2000. The Company also owns 12 acres in Florida, where a 15-bay service center is planned for construction in late 2000.
The Company believes that present facilities are well maintained and in good condition. The plants are currently operating at approximately 80% capacity.
Item 3.
Item 3. Legal Proceedings
There are no material legal proceedings to which the Company is a party.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock, par value $.01 per share (the "Common Stock"), has been trading on the New York Stock Exchange under the symbol NVH since December 14, 1998. From September 30, 1993 to December 13, 1998, the stock traded on the Nasdaq National Market under the symbol NRVH. Prior to that time, there was no public market for the Common Stock.
On March 27, 2000, the last reported sales price for the Common Stock quoted on the New York Stock Exchange was $26.375 per share. As of March 27, 2000, there were 86 record holders of Common Stock. Such number does not include persons whose shares are held of record by a bank, brokerage house or clearing agency, but does include such banks, brokerage houses and clearing agencies.
Dividends
The Company has not paid any cash dividends or distributions on its Common Stock and has no intention to do so in the foreseeable future. The Company presently intends to retain earnings for general corporate purposes, including business expansion, capital expenditures and possible acquisitions. The declaration and payment of future dividends will be at the sole discretion of the Board of Directors and will depend on the Company's profitability, financial condition, capital needs, future prospects and other factors deemed relevant by the Board of Directors. The ability of the Company to declare and pay dividends is restricted by the Revolving Credit Agreement, dated as of March 11, 1999, between the Company and Bank of America NT&SA, which prohibits the payment of dividends in cash or property unless the Company satisfies certain financial tests set forth therein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources."
Item 6.
Item 6. Selected Financial Data
The following selected consolidated financial data are qualified by reference to, and should be read in conjunction with, the Company's Consolidated Financial Statements and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere herein. The selected income statement data for the years ended December 31, 1997, 1998 and 1999 and the selected balance sheet data as of December 31, 1998 and 1999 are derived from the Company's audited consolidated financial statements that are included elsewhere herein. The selected income statement data for the year ended December 31, 1996 along with the balance sheet data as of December 31, 1996 and 1997 are derived from the audited consolidated financial statements of the Company which are not included herein. The selected income statement data for the year ended December 31, 1995 along with the balance sheet data as of December 31, 1995 are derived from the accounting records of the Company and have not been audited.
(1) Operating results in 1996, 1997, 1998 and 1999 reflect the effects of the acquisition of Country Coach, Inc. in November 1996.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
This analysis of the Company's financial condition and operating results should be read in conjunction with the accompanying consolidated financial statements including the notes thereto.
Results of Operations
The following table sets forth for the periods indicated the percentage of net sales represented by certain items reflected in the Company's Consolidated Statement of Income:
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales in 1999 increased by $59.1 million to $419.4 million, or 16.4%, from $360.3 million in 1998. NRV's sales of Class A motorhomes increased 236 units, or 7.6%, in 1999 to 3,333 units compared to 3,097 units in 1998, and the average sales price increased 5.5% reflecting strong demand for higher-priced motorhomes with slide-out rooms and more diesel-pusher motorhome sales. Sales of fifth-wheel travel trailers increased 21 units, or 5.1%, in 1999 to 431 units compared to 410 units in 1998. CCI's unit sales increased 63 units, or 11.4%, in 1999 to 618 units compared to 555 units in 1998.
Cost of goods sold in 1999 increased by $46.5 million to $348.6 million, or 15.4%, from $302.1 million in 1998 resulting primarily from increased net sales. Gross profit margin was 16.9% in 1999 compared to 16.2% in 1998.
Selling expenses in 1999 increased by $0.3 million to $11.4 million, or 2.5%, from $11.1 million in 1998 primarily due to the increase in net sales. As a percentage of net sales, selling expenses decreased to 2.8% in 1999 from 3.1% in 1998.
General and administrative expenses in 1999 increased by $0.6 million to $7.2 million, or 9.5%, from $6.6 million in 1998. As a percentage of net sales, general and administrative expenses decreased to 1.7% in 1999 from 1.9% in 1998.
Amortization of intangibles was $0.4 million in 1999 and 1998.
As a result of the foregoing, operating income in 1999 increased by $11.7 million, or 29.2%, to $51.8 million from $40.1 million in 1998. As a percentage of net sales, operating income increased to 12.3% in 1999 from 11.1% in 1998.
Other income, which includes net interest income and other financing related costs, increased by $1.7 million to $1.8 million in 1999 from $0.1 million in 1998. The change was primarily due to a $1.0 million increase in interest income resulting from increased cash balances.
Provision for income taxes in 1999 and 1998 was $20.6 million and $16.0 million, respectively, representing a $4.6 million increase. The effective tax rate in 1999 was 38.5% compared to 39.9% in 1998. The decrease was due to a reduction in state income taxes resulting from state tax planning.
Net income increased $8.8 million, or 36.7%, to $33.0 million from $24.1 million in 1998. As a percentage of net sales, net income increased to 7.9% from 6.7% in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales in 1998 increased by $74.4 million to $360.3 million, or 26.0%, from 1997. NRV's sales of Class A motorhomes increased 558 units, or 22.0% in 1998 to 3,097 units compared to 2,539 units in 1997, and the average sales price increased 5.3% reflecting strong demand for higher-priced motorhomes with slide-out rooms. Sales of fifth-wheel travel trailers increased 152 units, or 58.9% in 1998 to 410 units compared to 258 units in 1997. CCI's sales of Class A motorhomes and bus conversions increased 55 units, or 11.0% in 1998 to 555 units compared to 500 units in 1997.
Cost of goods sold in 1998 increased by $56.3 million to $302.1 million, or 22.9% from 1997 resulting primarily from increased net sales. Gross profit margin was 16.2% in 1998 compared to 14.0% in 1997. The increase resulted primarily from manufacturing efficiencies realized from operating at a higher production level.
Selling expenses in 1998 increased by $1.6 million to $11.2 million, or 17.2% from 1997 primarily due to the increase in net sales. As a percentage of net sales, selling expenses decreased to 3.1% in 1998 from 3.3% in 1997.
General and administrative expenses in 1998 increased by $0.9 million to $6.6 million, or 16.6%. As a percentage of net sales, general and administrative expenses decreased to 1.9% in 1998 from 2.0% in 1997.
Amortization of intangibles was $0.4 million in 1998 and 1997.
As a result of the foregoing, operating income in 1998 increased by $15.5 million, or 62.9%, to $40.0 million. As a percentage of net sales, operating income increased to 11.1% in 1998 from 8.6% in 1997.
Other expense (income), which includes net interest expense and other financing related costs, decreased by $402,000 to $67,000 of income in 1998 from $335,000 of expense in 1997. The change was primarily due to a $321,000 increase in interest income resulting from increased cash balances.
Provision for income taxes in 1998 and 1997 was $16.0 million and $9.8 million, respectively, representing a $6.2 million increase. The effective tax rate in 1998 was 39.9% compared to 40.2% in 1997.
As a result of the foregoing, net income increased $9.6 million, or 66.2%, to $24.1 million from $14.5 million in 1997. As a percentage of net sales, net income increased to 6.7% from 5.1% in 1997.
Liquidity and Capital Resources
During 1999, the Company financed its operations primarily through its existing cash and income from operations. At December 31, 1999, the Company had working capital of $91.9 million compared to $63.5 million at December 31, 1998. This increase of $28.4 million was primarily due to a $9.9 million increase in cash, $1.8 million increase in accounts receivable, and a $21.4 million increase in inventory, partially offset by a $2.4 million increase in accounts payable and a $4.6 million increase in accrued expenses. The increase in accrued expenses was due primarily to a $1.9 million increase in warranty reserve and a $0.9 million increase in workers' compensation reserve. Net cash provided by operating activities was $18.3 million for the year ended December 31, 1999.
During the year ended December 31, 1999, net cash used in investing activities was $8.6 million and includes $11.3 million of capital expenditures, related primarily to $3.0 million in land acquisitions for planned expansion, and $4.5 million of equipment purchases. The capital expenditures were partially offset by $3.0 million received in respect of its limited partnership interest in Dune Jet Services as a result of the liquidation of the partnership.
During the twelve months ended December 31, 1999, net cash provided by financing activities was $0.1 million due mainly to $1.9 million in proceeds from the exercise of Company stock options and warrants partially offset by a $1.8 million reduction in long-term debt.
As of December 31, 1999, the Company had short-term debt of $20,000 and long-term debt of $84,000.
The Company has a revolving credit facility of $40 million with Bank of America National Trust and Savings Association. The revolving credit facility is available for general corporate and working capital needs and capital
expenditures. A separate term facility of $20 million exists for acquisitions. Amounts borrowed under the term facility reduce the amount available under the revolving credit facility. Amounts borrowed under the credit facilities bear interest at the bank's reference rate or at a LIBOR-based rate plus an applicable amount. The facilities contain, among other provisions, certain financial covenants, including net worth and debt ratios. At December 31, 1999, no amounts were outstanding under these revolving credit facilities.
The Company believes that the combination of internally generated funds, existing capital and funds available from its existing credit facilities, will be sufficient to meet the Company's planned capital and operational requirements for at least the next 24 months.
In January 2000, the Company's board of directors approved and implemented a plan to repurchase up to one million shares of the Company's common stock, to be acquired from time to time at current market or privately negotiated prices.
Effects of Inflation
Management does not believe that inflation has had a significant impact on the Company's results of operations for the periods presented.
Year 2000 Date Conversion
The Company has completed its year 2000 compliance assessment and implemented corrective solutions for its critical systems. Total costs incurred by the Company with respect to this project were immaterial. The Company experienced no measurable impact from the Y2K changeover.
Forward Looking Statements
Statements contained in this Form 10-K that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties including, without limitation, the cyclical nature of the recreational vehicle industry; seasonality and potential fluctuations in the Company's operating results; the Company's dependence on chassis suppliers; the integration by the Company of acquired businesses and the management of growth; potential liabilities under repurchase agreements; competition; government regulation; product liability; dependence on key personnel and dependence on certain dealers and concentration of dealers in certain regions. Certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested are set forth below. Additional information concerning risks and uncertainties may be identified from time to time in the Company's filings with the Securities and Exchange Commission (SEC) and the Company's public announcements, copies of which are available from the SEC or from the Company upon request.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company has no significant financial instruments. The Company has not entered into any derivative financial instruments. The Company does not have any significant foreign currency exposure because it does not transact business in foreign currencies.
Item 8.
Item 8. Financial Statements and Supplementary Data
The information required by this item is contained in the financial statements listed in Item 14(a) under the caption "Consolidated Financial Statements" and commencing on page of this Report.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Not applicable
PART III
Item 10.
Item 10. Directors and Officers of the Registrant.
The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999, which information is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999, which information is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999, which information is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Party Transactions.
The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2000 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1999, which information is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of Documents filed as part of this Report
1. Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets at December 31, 1999 and 1998
Consolidated Statements of Income for the years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts
3. Exhibits
(b) Reports on Form 8-K:
None
Designation of Exhibit Description of Exhibit - ---------- ---------------------------------------------------- 3.1 The Company's Restated Certificate of Incorporation. (2) 3.2 The Company's By-laws. (2) 4.1 Specimen-Certificate of Common Stock. (1) 10.1 National R.V. Holdings, Inc. 1993 Stock Option Plan. (1) 10.2 National R.V. Holdings, Inc. 1993 Option Plan. (2) 10.3 1995 Stock Option Plan. (3) 10.4 Rights Plan Agreement with Continental Stock Transfer & Trust Company. (4) 10.5 1996 Stock Option Plan. (5) 10.6 1997 Stock Option Plan (6) 10.7 1999 Stock Option Plan 10.8 Employment Agreement dated as of August 6, 1999 between the Company and Bradley C. Albrechtsen.
10.9 Employment Agreement dated as of January 31, 2000 between the Company and Wayne M. Mertes. 10.10 Employment Agreement dated as of January 31, 2000 between the Company and Robert B. Lee. 21.1 List of Subsidiaries. (6) 23.1 Consent of PricewaterhouseCoopers LLP 99.1 Risk Factors - --------------------------------- (1) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 filed on August 16, 1993 (File No. 33-67414) as amended by Amendment No. 1 thereto filed on September 22, 1993 and Amendment No. 2 thereto filed on September 29, 1993. (2) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 filed on December 15, 1993 (File No.33-72954). (3) Previously filed as an exhibit to the Company's Form 10-K for the seven months ended December 31, 1995 filed on March 27, 1996. (4) Incorporated by reference from Form 8-A declared effective on August 26, 1996. (5) Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1996. (6) Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NATIONAL R.V. HOLDINGS, INC.
Dated: March 27, 2000 By /s/ Wayne M. Mertes -------------------------------- Wayne M. Mertes, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Capacity in Which Signed Date - --------------- ---------------------------- ----------- /s/ Gary N. Siegler Chairman of the Board March 27, 2000 - -------------------------- Gary N. Siegler
/s/ Wayne M. Mertes Chief Executive Officer March 27, 2000 - -------------------------- and Director (Principal Wayne M. Mertes Executive Officer)
/s/ Robert B. Lee Director March 27, 2000 - -------------------------- Robert B. Lee
/s/ Bradley C. Albrechtsen Chief Financial Officer March 27, 2000 - -------------------------- (PrincipalAccounting and Bradley C. Albrechtsen Financial Officer)
/s/ Stephen M. Davis Director and Secretary March 27, 2000 - ------------------------- Stephen M. Davis
/s/ Neil H. Koffler Director March 27, 2000 - -------------------------- Neil H. Koffler
/s/ Doy B. Henley Director March 27, 2000 - -------------------------- Doy B. Henley
/s/ Greg McCaffery Director March 27, 2000 - -------------------------- Greg McCaffery
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of National R.V. Holdings, Inc.
In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 14(a)(1) on page 23 present fairly, in all material respects, the financial position of National R.V. Holdings, Inc. and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 23 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers - ---------------------------
Los Angeles, CA February 11, 2000
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
See Notes to Consolidated Financial Statements
NATIONAL R.V. HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
National R.V. Holdings, Inc. (the Company) manufactures recreational vehicles ("RVs") through its wholly-owned subsidiaries, National R.V., Inc. (NRV) and Country Coach, Inc. (CCI). The RVs are marketed primarily in the United States by NRV under the Caribbean, Dolphin, Islander, Palisades, Sea Breeze, Sea View, Surf Side, Tradewinds and Tropi-Cal brand names and by CCI under brand names including Affinity, Allure, Intrigue and Magna.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Management believes that the estimates included in the financial statements are reasonable based on the facts and circumstances known to them at the time of preparation.
CONSOLIDATION
The consolidated financial statements of the Company include the accounts of National R.V Holdings, Inc., NRV, and CCI. All significant intercompany transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include deposits in banks and short-term investments with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost generally determined by the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 31 to 39 years for buildings and 5 to 7 years for machinery and equipment.
REVENUE RECOGNITION
Sales are recorded by the Company when products are shipped to the dealer.
AMORTIZATION OF INTANGIBLE ASSETS
Goodwill related to the acquisition of CCI during 1996 is being amortized on the straight-line basis over a twenty-year period.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are charged to operations as incurred and are included in cost of goods sold. Research and development expenses were $4,087,000, $3,050,000 and $2,711,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
INCOME TAXES
The Company provides for income taxes using an asset and liability approach. Under this method deferred tax assets and liabilities are computed using statutory rates for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns.
SEGMENTS
The Company operates in one reportable segment: the manufacturing, wholesale distribution, and service of recreational vehicles. The Company does not have operations outside the United States.
INCOME PER SHARE
Basic earnings per share is based upon the weighted average number of common shares outstanding during a period. Diluted earnings per share is based upon the weighted average number of common shares plus the incremental dilutive effect of the securities convertible to Common Stock.
The difference in the shares used to determine basic and diluted EPS is as follows:
2. Inventories
Inventories consist of the following:
3. Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
4. Accrued Expenses
Accrued expenses consist of the following:
5. Debt and Credit Agreements
Debt consists of the following:
The Company has a revolving credit facility of $40 million with Bank of America National Trust and Savings Association. The revolving credit facility is available for general corporate and working capital needs and capital expenditures. A separate term facility of $20 million exists for acquisitions. Amounts borrowed under the term facility reduce the amount available under the revolving credit facility. Amounts borrowed under the revolving credit facility and the term facility bear interest, at the Company's election, at the bank's reference rate or at a LIBOR-based rate plus an applicable amount. The credit facilities contain, among other provisions, certain financial covenants, including net worth and debt ratios. At December 31, 1999, no amounts were outstanding under these facilities. Unless otherwise extended, the Company's credit facilities with Bank of America expire on April 1, 2001.
Debt maturities over the next five years are $20,000 in 2000, $21,000 in 2001, $22,000 in 2002, $22,000 in 2003 and $19,000 in 2004 and thereafter.
6. Income Taxes
The components of the provision for income taxes were as follows:
Deferred income taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. Temporary differences which give rise to deferred income tax assets and liabilities at December 31, 1999 and 1998 were as follows:
A reconciliation of the statutory U.S. federal income tax rate to the Company's effective income tax rate is as follows:
Cash paid for income taxes was $20,116,000, $16,114,000 and $9,439,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
7. Recourse on Dealer Financing
As is customary in the industry, the Company generally agrees with its dealers' lenders to repurchase any unsold RVs if the dealers become insolvent within one year of the purchase of such RVs. Although the total contingent liability under these agreements approximates $104,500,000 at December 31, 1999, as with accounts receivable, the risk of loss is spread over numerous dealers and lenders and is further reduced by the resale value of the coaches which the Company would be required to repurchase. Losses under these agreements have been negligible in the past and management believes that any future losses under such agreements will not have a significant effect on the consolidated financial position or results of operations of the Company.
8. Commitments and Contingencies
The Company is involved in litigation arising in the ordinary course of business. In the opinion of management, based in part on the advice of outside counsel, these matters will not have a material adverse effect on the Company's financial position or results of operations.
The Company has commitments under certain non-cancelable operating leases as follows:
9. Stock Options and Warrants
The Company has six fixed option plans which reserve shares of common stock for issuance to executives, key employees and directors. The Company has also issued fixed options outside of such plans pursuant to individual stock option agreements. Options granted to non-employee and employee directors generally vested immediately upon grant and expire ten years from the date of grant. Options granted to employees vest in three equal annual installments and expire five years from the date of grant. The price of the options granted pursuant to these plans will not be less than 100 percent of the market value of the shares on the date of grant. The exercise of certain of these stock options represents a tax benefit for the Company which has been reflected as a reduction of income taxes payable and an increase to additional paid-in-capital amounting to $1,263,000 and $6,021,000 in 1999 and 1998, respectively.
No compensation cost has been recognized for these fixed options in the financial statements. Had compensation cost for the Company's stock option plans and individual option agreements been determined based on the fair value rather than market value at the grant date for awards under those plans and agreements during 1997, 1998 and 1999, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
The fair value of options granted during 1997 and 1999 were estimated on the date of grant using Black-Scholes option-pricing model with the following weighted-average assumptions used for grants:
Information regarding these option plans and option agreements for 1999, 1998 and 1997 is as follows:
The weighted average fair value of options granted during 1999 and 1997 was $10.04 and $6.01, respectively.
At December 31, 1999, there were 15,336 warrants outstanding to a financial advisor at a price of $10.73. The warrants are due to expire on December 2, 2001.
10. Related Party Transactions
Through December 31, 1998, the Company was a party to a financial advisory agreement dated January 23, 1998 (the "Advisory Agreement") with 712 Advisory Services, Inc., an affiliate (the "Affiliate") of the Chairman of the Company, Mr. Gary N. Siegler. Mr. Neil H. Koffler, a director of the Company, was also an employee of the Affiliate. The Advisory Agreement terminated effective December 31, 1998. Pursuant to the Advisory Agreement, the Affiliate agreed to provide advice and consultation concerning financial and related matters, including, among other things, with respect to private financings, public offerings, acquisitions, commercial banking relations and other business ventures. Fees incurred under the Advisory Agreement in 1998 and under a prior advisory agreement in 1997 between the Company and the Affiliate totaled $231,000 and $220,000, respectively. In addition, a Chairman's salary and bonus of $235,000 for 1999, $190,000 for 1998, and $205,000 for 1997 in the aggregate were paid to Mr. Siegler.
In September 1997, the Company acquired, for $2.75 million, a limited partnership interest in Dune Jet Services, L.P. (the "Partnership"), a Delaware limited partnership formed for the purposes of acquiring and operating an airplane for the partners' business uses and for third-party charter flights (the "Aircraft"). The general partner of the Partnership was Dune Jet Services, Inc. ("DJ Services"), a Delaware corporation, the sole stockholder of which is the Company's Chairman, Mr. Siegler. DJ Services contributed $1.55 million for its general partnership interest and an additional $3.25 million for a separate limited partnership interest. During 1999 the Aircraft was sold and the Partnership was liquidated. The Company received $2,985,000 in the aggregate from the Partnership representing a return of its capital plus its share of the gain on the sale of the Aircraft, after expenses of the Partnership were allocated.
Mr. Robert B. Lee, a director of the Company and the Chairman and Chief Executive Officer of CCI, is a partner in a joint venture that is a party to a lease agreement with the Company. Pursuant to the agreement, The Company leases from the joint venture a parcel of property constituting a majority of CCI's manufacturing facilities. During the years ended December 31, 1999, 1998, and 1997, the Company paid $1.16 million, $1.14 million, and $1.11 million, respectively, under the lease agreement. The lease agreement calls for future payments totaling $990,000 through October 31, 2000. In addition, Mr. Lee is a partner in another joint venture, which in 1998 leased to CCI a separate parcel containing manufacturing facilities used by CCI (the "Acquired Property"). On October 8, 1998, the Company purchased the Acquired Property from Mr. Lee's joint venture for $2,100,000 pursuant to the exercise of a purchase option contained in the lease agreement for such property.
Heller Ehrman White & McAuliffe, a law firm in which Mr. Stephen M. Davis, the Secretary and a director of the Company, is a partner, performed legal services for the Company. Fees paid the law firm were $127,000, $124,000, and $123,000 during the years ended December 31, 1999, 1998, and 1997, respectively.
11. Repurchases of Common Stock
In January 2000, the Company's board of directors approved and implemented a plan to repurchase up to one million shares of the Company's common stock, to be acquired from time to time at current market or privately negotiated prices.
Exhibit 10.7
NATIONAL R.V. HOLDINGS, INC. 1999 STOCK OPTION PLAN
1. Purpose. The purpose of this Plan is to strengthen National R.V. Holdings, Inc. by providing an incentive to its employees, consultants and directors, encouraging them to devote their abilities to the success of the Company. It is intended that this purpose be achieved by extending to employees, consultants and directors of the Company or any subsidiary an added long-term incentive for high levels of performance and exceptional efforts through the grant of options to purchase shares of the Company's common stock under this National R.V. Holdings, Inc. 1999 Stock Option Plan.
2. Definitions. For purposes of the Plan:
2.1. "Agreement" means the written agreement between the Company and an Optionee evidencing the grant of an Option and setting forth the terms and conditions thereof.
2.2. "Board" means the Board of Directors of the Company.
2.3. "Cause" means with respect to an Eligible Employee, including an Eligible Employee who is a director of the Company, (i) the voluntary termination of employment by such Eligible Employee, (ii) intentional failure to perform, or habitual neglect of, reasonably assigned duties, (iii) dishonesty or willful misconduct in the performance of an Optionee's duties, (iv) an Optionee's engaging in a transaction in connection with the performance of such Optionee's duties to the Company or any of its Subsidiaries thereof which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit to the Optionee, (v) willful violation of any law, rule or regulation in connection with the performance of an Optionee's duties, (vi) willful violation of any policy adopted by the Company relating to the performance or behavior of employees or (vii) acts of carelessness or misconduct which have in the reasonable judgment of the Company's Board of Directors, an adverse effect on the Company.
2.4. "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, a change in value) in the Shares or exchange of Shares for a different number or kind of shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, public offering, private placement, change in corporate structure or otherwise.
2.5. "Code" means the Internal Revenue Code of 1986, as amended.
2.6. "Committee" shall mean a committee of the Board of Directors consisting of no fewer than two (2) persons who are (i) "nonemployee directors" within the meaning of Rule 16b-3 under the Exchange Act, or any successor rule or regulation and (ii) "outside directors" within the meaning of Section 162(m) of the Code; provided however, that clause (ii) shall apply only with respect to grants of Options intended by the committee to qualify as "performance-bases compensation" under Section 162(m) of the Code. 2.7. "Company" means National R.V. Holdings, Inc.
2.8. "Consultant Option" means an Option granted to a consultant pursuant to Section 7.
2.9. "Director Option" means an Option granted to a Nonemployee Director pursuant to Section 5.
2.10. "Disability" means a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of sixty (60) consecutive days.
2.11. "Eligible Employee" means any officer or other employee of the Company or a Subsidiary who is designated by the Committee as eligible to receive Options subject to the conditions set forth herein.
2.12. "Employee Options" means an Option granted to an Eligible Employee pursuant to Section 6.
2.13. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.14. "Fair Market Value" on any date means the average of the high and low sales prices of the Shares on such date on the principal national securities exchange on which such Shares are listed or admitted to trading, or if such Shares are not so listed or admitted to trading, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on such date, the Fair Market Value shall be the value established by the Board in good faith and in accordance with Section 422 of the Code.
2.15. "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option.
2.16. "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option.
2.17. "Nonemployee Director" means a director of the Company who is not a full-time employee of the Company or any Subsidiary.
2.18. "Option" means an Employee Option, a Director Option, a Consultant Option or any or all of them.
2.19. "Optionee" means a person to whom an Option has been granted under the Plan.
2.20. "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company.
2.21. "Plan" means the National R.V. Holdings, Inc. 1999 Stock Option Plan.
2.22. "Shares" means the common stock, par value $.01 per share, of the Company.
2.23. "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company.
2.24. "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies.
2.25. "Ten-Percent Stockholder" means an Eligible Employee or other eligible Plan participant, who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a Parent or a Subsidiary.
3. Administration.
3.1. The Plan shall be administered by the Committee which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A quorum shall consist of not less than a majority of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members of the Committee shall be as fully effective as if made by a majority vote at a meeting duly called and held. No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder, except for liability arising from his or her own willful misfeasance, fraud or bad faith. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiation for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any action or failure to act in administering this Plan or in authorizing or denying authorization to any transaction hereunder.
3.2. Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to determine those Optionees to whom Options shall be granted under the Plan and the number of Incentive Stock Options and/or Nonqualified Stock Options to be granted to such Optionee and to prescribe the terms and conditions (which need not be identical) of each Option, including the purchase price per Share subject to each Option, and make any amendment or modification to any Agreement consistent with the terms of the Plan.
3.3. Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time:
(a) to construe and interpret the Plan and the Options granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees and all other persons having any interest therein;
(b) to determine the duration and purposes for leaves of absence which may be granted to an Optionee on an individual basis without constituting a termination of employment or service for purposes of the Plan;
(c) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan;
(d) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan.
4. Stock Subject to Plan.
4.1. The maximum number of Shares that may be made the subject of Options granted under the Plan is 400,000 Shares (or the number and kind of shares of stock or other securities to which such Shares are adjusted upon a Change in Capitalization pursuant to Section 9) and the Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Committee. During any calendar year no person may be granted Options with respect to more than 100,000 Shares.
4.2. Whenever any outstanding Option or portion thereof expires, is canceled or is otherwise terminated for any reason, the Shares allocable to the canceled or otherwise terminated Option or portion thereof may again be the subject of Options granted hereunder.
5. Option Grants for Nonemployee Directors.
5.1. Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Nonemployee Directors who will receive Director Options, the terms and conditions of which shall be set forth in an Agreement.
5.2. Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Director Option shall be determined by the Committee and set forth in the Agreement evidencing the Option, provided that the purchase price per Share under each Director Option shall be not less than the Fair Market Value of a Share on the date the Director Option is granted.
5.3. Duration. Director Options shall be for a term to be designated by the Committee and set forth in the Agreement evidencing the Option.
5.4. Vesting. Each Director Option shall, commencing not earlier than the date of its grant, become exercisable in such installments (which need not be equal or may be one installment) and at such times as may be designated by the Committee and set forth in the Agreement evidencing the Option. To the extent not exercised, installments shall accumulate and be exercisable, in whole or part, at any time after becoming exercisable, to not later than the date the Director Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time.
6. Option Grants for Eligible Employees.
6.1. Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Employees who will receive Employee Options, the terms and conditions of which shall be set forth in an Agreement; provided, however, that no Eligible Employee shall receive an Incentive Stock Option unless he is an employee of the Company, a Parent or a Subsidiary at the time the Incentive Stock Option is granted.
6.2. Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Employee Option shall be determined by the Committee and set forth in the Agreement evidencing the Option, provided that the purchase price per Share under each Employee Option shall be (i) except as provided in clause (ii) of this Section 6.2, not less than the Fair Market Value of a Share on the date the Employee Option is granted; and (ii) with respect to any Incentive Stock Option granted to a Ten Percent Stockholder, not less than 110% of the Fair Market Value of a Share on the date the Option is granted.
6.3. Duration. Employee Options granted hereunder shall be for such term as the Committee shall determine, provided that no Employee Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). The Committee may, subsequent to the granting of any Employee Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence.
6.4. Vesting. Each Employee Option shall, commencing not earlier then the date of its grant, become exercisable in such installments (which need not be equal or may be in one installment) and at such times as may be designated by the Committee and set forth in the Agreement evidencing the Option. To the extent not otherwise provided by the Committee, Employee Options shall be exercisable in three (3) equal installments each equal to one-third of the entire Option granted, the first of which shall become exercisable on the first anniversary of the date of the grant of the Employee Option, the second installment of which shall become exercisable on the second anniversary of the date of grant of the Employee Option, and the final installment of which shall become exercisable on the third anniversary of the date of grant. To the extent not exercised, installments shall accumulate and be exercisable, in whole or part, at any time after becoming exercisable, to not later than the date the Employee Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time.
6.5. $100,000 Per Year Limitation for Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of Shares for which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company and its Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be treated as Nonqualified Stock Options.
7. Option Grants for Consultants.
7.1. Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those consultants to the Company or a Subsidiary who will receive Consultant Options, the terms and conditions of which shall be set forth in an Agreement. An employee or officer of the Company shall not be deemed a consultant.
7.2. Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Consultant Option shall be determined by the Committee and set forth in the Agreement evidencing the Option, provided that the purchase price per Share under each Consultant Option shall be not less than the Fair Market Value of a Share on the date the Consultant Option is granted.
7.3. Duration. Consultant Options granted hereunder shall be for such term as the Committee shall determine, provided that no Consultant Option shall be exercisable after the expiration of ten (10) years from the date it is granted. The Committee may, subsequent to the granting of any Consultant Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence.
7.4. Vesting. Each Consultant Option shall, commencing not earlier then the date of its grant, become exercisable in such installments (which need not be equal or may be in one installment) and at such times as may be designated by the Committee and set forth in the Agreement evidencing the Option. To the extent not otherwise provided by the Committee, Consultant Options shall be exercisable in three (3) equal installments each equal to one-third of the entire Option granted, the first of which shall become exercisable on the first anniversary of the date of grant of the Consultant Options, the second installment of which shall become exercisable on the second anniversary of the date of grant, and the final installment of which shall become exercisable on the third anniversary of the date of grant. To the extent not exercised, installments shall accumulate and be exercisable, in whole or part, at any time after becoming exercisable, to not later than the date the Consultant Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time.
8. Terms and Conditions Applicable to All Options
8.1. Non-transferability. No Option granted hereunder shall be transferable by the Optionee to whom granted otherwise than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of each Option shall be final, binding and conclusive upon the beneficiaries, executors, administrators, heirs and successors of the Optionee.
8.2. Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Chief Financial Officer of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise, as determined by the Committee in its discretion, by any one or a combination of the following: (i) cash, (ii) transferring Shares to the Company upon such terms and conditions as determined by the Committee; or (iii) as otherwise determined by the Committee. At the Optionee's request and subject to the consent of the Committee, Shares to be acquired upon the exercise of a portion of an Option will be applied automatically to pay the purchase price in connection with the exercise of additional portions of the Option then being exercised. The written notice pursuant to this Section 8.2 may also provide instructions from the Optionee to the Company that upon receipt of the purchase price in cash from the Optionee's broker or dealer, designated as such on the written notice, in payment for any Shares purchased pursuant to the exercise of an Option, the Company shall issue such Shares directly to the designated broker or dealer. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option to the Chief Financial Officer of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares.
8.3. Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Optionee and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares.
8.4. Termination of Employment or Services. Unless otherwise provided in the Agreement evidencing the Option, an Option (other than an Option granted to a consultant or a Nonemployee Director) shall terminate upon an Optionee's termination of employment (or similar arrangement) with the Company and its Subsidiaries as follows:
(e) in the event the Optionee's employment terminates as a result of Disability, the Optionee may at any time within three (3) months after such event exercise the Option or portion thereof that was exercisable on the date of such termination;
(f) if an Optionee's employment terminates for Cause, the Option shall terminate immediately and no rights thereunder may be exercised;
(g) if an Optionee's employment terminates without Cause, the Optionee may at any time within one (1) month after such event exercise the Option or portion thereof that was exercisable on the date of such termination; and
(h) if an Optionee dies while an employee of the Company or any Subsidiary or within six (6) months after termination as a result of Disability as described in clause (a) of this Section 8.4, the Option may be exercised at any time within six (6) months after the Optionee's death by the person or persons to whom such rights under the Option shall pass by will or by the laws of descent and distribution; provided, however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination.
Notwithstanding the foregoing, in no event may any Option be exercised by anyone after the expiration of the term of the Option.
8.5. Termination of Nonemployee Director Options and Consultant Options. Nonemployee Director Options and Consultant Options granted to Nonemployee Directors and consultants to the Company or a Subsidiary shall terminate under such circumstances as are provided in the Agreement evidencing the Option, and if not expressly specified, as of the close of business on the last day of the term of the Option, but in no event may such an Option be exercised by anyone after the expiration of the term of the Option.
8.6. Modification or Substitution. The Committee may, in its discretion, modify outstanding Options or accept the surrender of outstanding Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Option shall adversely alter or impair any rights or obligations under the Option without the Optionee's consent.
9. Adjustment Upon Changes in Capitalization.
9.1. Subject to Section 10, in the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the maximum number or class of Shares or other stock or securities with respect to which Options may be granted under the Plan, the number and class of Shares or other stock or securities which are subject to outstanding Options granted under the Plan, and the purchase price therefor, if applicable.
9.2. Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code.
9.3. If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise an Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions which were applicable to the Shares subject to the Option, as the case may be, prior to such Change in Capitalization.
10. Effect of Certain Transactions.
In the event of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options issued hereunder shall continue in effect in accordance with their respective terms and each Optionee shall be entitled to receive in respect of each Share subject to any outstanding Options, as the case may be, upon exercise of any Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share. In the event that, after a Transaction, there occurs any change of a type described in Section 2.4 hereof with respect to the shares of the surviving or resulting corporation, then adjustments similar to, and subject to the same conditions as, those in Section 9 hereof shall be made by the Committee.
11. Termination and Amendment of the Program.
11.1. The Plan shall terminate on the day preceding the tenth anniversary of the date of its adoption by the Board and no Option may be granted thereafter. The Board may sooner terminate or amend the Plan at any time and from time to time; provided, however, that to the extent necessary under Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder or other applicable law, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months after the date of adoption of such amendment.
11.2. Except as provided in Sections 9 and 10 hereof, rights and obligations under any Option granted before any amendment or termination of the Plan shall not be adversely altered or impaired by such amendment or termination, except with the consent of the Optionee, nor shall any amendment or termination deprive any Optionee of any Shares which he may have acquired through or as a result of the Plan.
12. Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases.
13. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(i) give any person any right to be granted an Option other than at the sole discretion of the Committee;
(ii) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan;
(iii) limit in any way the right of the Company to terminate the employment of any person at any time; or
(iv) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time.
14. Regulations and Other Approvals; Governing Law.
14.1. This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware.
14.2. The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee.
14.3. The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan.
14.4. The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder.
14.5. Each Option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions, or as otherwise determined to be acceptable to the Committee.
14.6. Notwithstanding anything contained in the Plan to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares upon exercise of an Option, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said act or pursuant to a exemption applicable under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended to reflect their status as restricted securities as aforesaid.
15. Miscellaneous.
15.1. Multiple Agreements. The terms of each Option may differ from other Options granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Eligible Employee.
15.2. Withholding of Taxes. (a) The Company shall have the right to deduct from any distribution of cash to any Optionee, an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any Option. If an Optionee is entitled to receive Shares upon exercise of an Option, the Optionee shall pay the Withholding Taxes to the Company prior to the issuance of such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option having an aggregate Fair Market Value, on the date preceding the date of exercise, equal to the Withholding Taxes, provided that in respect of an Optionee who may be subject to liability under Section 16(b) of the Exchange Act either (i) (A) the Optionee makes the Tax Election at least six (6) months after the date the Option was granted, (B) the Option is exercised during the ten day period beginning on the third business day and ending on the twelfth business day following the release for publication of the Company's quarterly or annual statements of earnings (a "Window Period") and (C) the Tax Election is made during the Window Period in which the Option is exercised or prior to such Window Period and subsequent to the immediately preceding Window Period or (ii) (A) the Tax Election is made at least six months prior to the date the Option is exercised and (B) the Tax Election is irrevocable with respect to the exercise of all Options which are exercised prior to the expiration of six months following an election to revoke the Tax Election. Notwithstanding the foregoing, the Committee may, by the adoption of rules or otherwise, (i) modify the provisions in the preceding sentence or impose such other restrictions or limitations on Tax Elections as may be necessary to ensure that the Tax Elections will be exempt transactions under Section 16(b) of the Exchange Act, and (ii) permit Tax Elections to be made at such other times and subject to such other conditions as the Committee determines will constitute exempt transactions under Section 16(b) of the Exchange Act.
(b) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes.
15.3. Designation of Beneficiary. Each Optionee may designate a person or persons to receive in the event of his or her death, any Option or any amount payable pursuant thereto, to which he or she would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If an Optionee fails effectively to designate a beneficiary, then his or her estate will be deemed to be the beneficiary.
16. Effective Date. The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of such adoption.
Exhibit 10.8 EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into effective as the 6th day of August, 1999, by and between National R.V. Holdings, Inc., a Delaware corporation (the "Company"), and Bradley C. Albrechtsen, an individual ("Executive").
RECITALS
A. The Company desires to be assured of the association and services of Executive.
B. Executive is willing and desires to be employed by the Company, and the Company is willing to employ Executive, upon the terms, covenants and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as Chief Financial Officer of the Company.
2. Term. The term of this Agreement shall be for the period commencing on the effective date hereof and ending on December 31, 2001, unless terminated earlier pursuant to Section 6 herein; provided, however, that Executive's obligations in Sections 5, 7 and 8 herein shall continue in effect after any such termination as specified therein. The term of this Agreement may be extended by the mutual written agreement of the Company and the Executive. The initial term, together with any extension thereof, is herein referred to as the "Term."
3. Compensation; Reimbursement.
3.1 Base Salary. For all services rendered by Executive under this Agreement, effective as of the date hereof, the Company shall pay Executive a base salary of One Hundred and Four Thousand Dollars ($104,000) per annum, payable weekly in equal installments (the "Base Salary"). Beginning January 1, 2000, the Base Salary shall be One Hundred Thirty Thousand Dollars ($130,000) per annum, payable weekly in equal installments. 3.2 Bonus Compensation. For each of the 1999, 2000 and 2001 calendar years, the Company shall also pay to Executive an annual bonus (the "Bonus") based upon the attainment of certain financial targets for the Company as set forth on Exhibit A attached hereto up to a maximum of 30%, 45% and 45%, respectively, of the Executive's aggregate salary received from the Company for such year. The Executive shall be entitled to a pro rata Bonus based upon the number of days employed in such calendar year in the event of termination of employment due to death, disability (as defined herein) or without cause. As soon as practicable following the completion of the audit for each of such calendar years, the Company shall calculate whether any Bonus is payable to the Executive, and, if payable, shall make such payment promptly thereafter. 3.3 Additional Benefits. In addition to the Base Salary, Executive shall be entitled to all other benefits of employment which are generally provided to senior management of the Company. Additionally, during the Term, Executive shall be granted exclusive use of a vehicle with a fair market value of no more than $45,000, which vehicle shall be purchased or leased by the Company at its discretion. All applicable taxes and license and registration fees for such vehicle shall be paid by the Company.
3.4 Reimbursement. Executive shall be reimbursed for all reasonable "out-of-pocket" business expenses incurred in connection with the performance of his duties under this Agreement. The reimbursement of Executive's business expenses shall be upon presentation to, and approval by, the Company of valid receipts and other appropriate documentation for such expenses.
4. Scope of Duties.
4.1 Assignment of Duties. Executive shall have such duties as are commensurate with his experience and responsibilities and as are consistent with past practice. Such duties shall be exercised subject to the control, supervision and direction of the Board of Directors of the Company.
4.2 Executive's Devotion of Time. Executive hereby agrees to devote his full time, abilities and energy to the faithful performance of the duties assigned to him and to the promotion and forwarding of the business affairs of the Company. Executive shall have no other employment during the Term of this Agreement.
5. Confidentiality of Trade Secrets and Other Materials.
5.1 Trade Secrets. Other than in the performance of his duties hereunder, Executive agrees not to disclose, either during the term of his employment by the Company or at any time thereafter, to any person, firm or corporation, any trade secrets or confidential information of the Company including, but not limited to, trade secrets, lists of past or present clients or customers, client or consultant contracts, product or service development plans, floor plans and designs, marketing plans, pricing policies, business acquisition plans or any portion or phase of any technical information, technique, method, process, procedure, technology, or know-how (whether or not in written or tangible form) used by the Company or any portion or phase of any technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, procedures, formulae or improvements of the Company that is valuable (whether or not in written or tangible form) and including all memoranda, notes, plans, reports, records, documents and other evidence thereof and any other information of whatever nature which gives the Company an opportunity to obtain an advantage over its competitors who do not have access or know how to use such information shall be considered a "trade secret" for the purposes of this Agreement.
5.2 Ownership of Trade Secrets; Assignment of Rights. Executive hereby agrees that all know-how, documents, reports, plans, proposals, marketing and sales plans, client lists, client files and materials made by him or by the Company are the property of the Company and shall not be used by him in any way adverse to the Company's interests. Executive shall not deliver, reproduce or in any way allow such documents or things to be delivered or used by any third party without specific direction or consent of the Board of Directors of the Company. Executive hereby assigns to the Company any rights which he may have in any such trade secret or proprietary information.
6. Termination.
6.1 Bases for Termination.
1. Executive's employment hereunder may be terminated at any time by mutual agreement of the parties.
2. This Agreement shall automatically terminate upon the Executive's death or incapacity. "Incapacity," as used herein, shall mean mental or physical incapacity, or both, reasonably determined by the Company's Board of Directors based upon a certification of such incapacity by, in the discretion of the Company's Board of Directors, either Executive's regularly attending physician or a duly licensed physician selected by the Company's Board of Directors, rendering Executive unable to perform substantially all of his duties hereunder and which appears reasonably certain to continue for at least 60 consecutive days without substantial improvement. Executive shall be deemed to have "become incapacitated" on the date the Company's Board of Directors has determined that Executive is incapacitated and so notifies Executive.
3. Executive's employment may be terminated by the Company "with cause," effective upon delivery of written notice to Executive given at any time (without any necessity for prior notice) upon the occurrence of (i) a felony criminal conviction or any other criminal conviction involving Executive's lack of honesty or Executive's moral turpitude; (ii) drug or alcohol abuse; (iii) acts of dishonesty, gross carelessness or negligence or gross misconduct which have, in the reasonable judgment of the Company's Board of Directors, a material adverse effect on the Company; or (iv) material breach of any provision of this Agreement.
4. Executive's employment may be terminated by the Company "without cause" (for any reason or no reason at all) at any time by giving Executive three days prior written notice of termination, which termination shall be effective on the fourth day following such notice.
6.2 Payment Upon Termination.
(a) If Executive's employment under this Agreement is terminated under Paragraph 6.1(4) herein, the Company shall pay to Executive, in the manner set forth below, an amount equal to the sum of (a) Executive's Base Salary through the remaining portion of the Term, less any compensation actually earned or accrued by Executive for services rendered elsewhere to himself or any other person or entity; plus (b) any unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein. After the Company's termination of Executive under this provision, the Company shall not be obligated to provide the benefits to Executive described in Section 3.3 (except as may be required by law). Payments made above shall be made in equal installments over such period of time on regularly scheduled Company paydays.
(b) Upon termination under Paragraphs 6.1(1), (2) or (3), the Company shall not be obligated to compensate Executive, his estate or representatives, except for any unpaid Base Salary accrued through the date of termination and any unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein, nor provide the benefits to Executive described in Section 3.3 (except as provided by law).
6.3 Dismissal from Premises. At the Company's option, Executive shall immediately leave the Company's premises on the date notice of termination is given by the Company.
7. Non-Competition/Non-Interference.
7.1 Non-Competition.
(a) Executive covenants and agrees that until the end of the Term of this Agreement, neither the Executive nor any entity of which 5% or more of the beneficial ownership is held or owned directly or indirectly by the Executive or controlled directly or indirectly by the Executive ("Executive Entity") will, anywhere in the Market, directly or indirectly own, manage, operate, advise (whether or not for compensation), control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, director, officer, "Key Employee" (defined herein to include any person who is employed in a management, executive, supervisory, marketing or sales capacity for another person), joint venturer, lender, investor or other participant, in any business which competes, directly or indirectly, with the Business ("Competitive Business") without regard to (X) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (Y) whether any of the activities of the Executive referred to above occur or are performed within or without the Market or (Z) whether the Executive resides, or reports to an office, within or without the Market.
(b) For purposes of this Agreement, (A) the "Business" refers to any business conducted by the Company prior to the date of this Agreement or by the Company during the Term, and (B) the "Market" refers to any and every state in the United States of America or in any similar jurisdiction of any foreign country in which the Business is so conducted.
7.2 Non-Interference.
(a) In consideration of all of the payments due to him hereunder, Executive covenants and agrees that during the period ending one year following the end of the Term (the "Restricted Period"), neither the Executive nor any Executive Entity will directly or indirectly solicit, induce or influence any customer, supplier, lender, lessor or any other person which has a business relationship with the Company or which had on the date of the end of the Term a business relationship with the Company to discontinue or reduce the extent of such relationship with the Company or its subsidiaries, if any.
(b) In consideration of all of the payments due to him hereunder, Executive covenants and agrees that during the Restricted Period, neither the Executive nor any Executive Entity will (A) directly or indirectly recruit, solicit or otherwise induce or influence any employee or sales agent of the Company to discontinue such employment or agency relationship with the Company, or (B) employ or seek to employ, or cause or permit any Competitive Business to employ or seek to employ for any Competitive Business, any person who is then (or was at any time within six months prior to the date the Executive or the Competitive Business employs or seeks to employ such person) employed by the Company. Nothing herein shall prevent the Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity.
8. Injunctive Relief; Independence and Severability of Covenants.
8.1 Injunctive Relief. Executive acknowledges and agrees that the Company is entering into this Agreement in reliance upon Executive's agreement contained herein and that, in the event of any breach or likely breach of any of the covenants of Sections 5 and 7 herein, the Company and any relevant affiliate(s) would incur damages in an amount difficult to ascertain and/or be irreparably harmed and could not be made whole solely by monetary damages. It is accordingly agreed that such persons, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to injunctive relief in respect of such breach or likely breach as may be ordered by any court of competent jurisdiction including, but not limited to, an injunction restraining any violation of Sections 5 and 7 herein and without the proof of actual damages. It is intended to grant full third party rights under this provision.
8.2 Independence and Severability of Covenants. Executive acknowledges and agrees that the covenants and other provisions set forth in Sections 5 and 7 herein and in this Section 8 are reasonable, including with respect to duration and subject matter, and that he is receiving valuable and adequate consideration for such covenants under this Agreement. The parties acknowledge that it is their intention that all such covenants and provisions be enforceable to the fullest extent possible under applicable law. If any of the provisions set forth in Sections 5 or 7 and or in this Section 8 is found to be unenforceable in any instance, such finding shall not preclude any other enforcement of such provisions and reference is made to Section 9.2. If any of the provisions set forth in Sections 5 or 7 or in this Section 8 is found to be invalid, such finding or invalidity shall not affect the validity of the remaining provisions and the provisions of Section 9.2 will apply.
9. Miscellaneous.
9.1 Transfer and Assignment. This Agreement is personal as to Executive and shall not be assigned or transferred by Executive without the prior written consent of the Company. This Agreement shall be binding upon, and inure to, the benefit of all of the parties hereto and their respective permitted heirs, personal representatives, successors and assigns.
9.2 Severability. Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation, or other pronouncement having the force of law, the latter shall prevail, but the provision of this Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Agreement shall remain in full force and effect.
9.3 Governing Law. This Agreement is made under and shall be construed pursuant to the laws of the State of California.
9.4 Counterparts. This Agreement may be executed in several counterparts and all documents so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties did not sign the original or the same counterparts.
9.5 Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, arrangements and understandings with respect thereto. No representation, promise, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein.
9.6 Modification. This Agreement may be modified, amended, superseded or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the party or parties to be bound by any such modification, amendment, supersession, cancellation or waiver.
9.7 Waiver. The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party, shall not constitute or be deemed as a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party, whether of a similar or dissimilar nature.
9.8 Cumulative Remedies. Each and all of the several rights and remedies provided in this Agreement, or by law or in equity, shall be cumulative, and no one of them shall be exclusive of any other right or remedy, and the exercise of any one or such rights or remedies shall not be deemed a waiver of, or an election to exercise, any other such right or remedy.
9.9 Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement.
9.10 Notices. Any notice under this Agreement must be in writing, may be telecopied, sent by express 24-hour guaranteed courier, or hand-delivered, or may be served by depositing the same in the United States mail, addressed to the party to be notified, postage-prepaid and registered or certified with a return receipt requested. The addresses of the parties for the receipt of notice shall be as follows:
If to the Company:
National R.V. Holdings, Inc. 27401 Los Altos, Suite 180 Mission Viejo, CA 92691 Attn: Wayne M. Mertes
If to Executive:
Bradley C. Albrechtsen 3411 N. Perris Blvd. Perris, CA 92504
Each notice given by registered or certified mail shall be deemed delivered and effective on the date of delivery as shown on the return receipt, and each notice delivered in any other manner shall be deemed to be effective as of the time of actual delivery thereof. Each party may change its address for notice by giving notice thereof in the manner provided above.
9.11 Survival. Any provision of this Agreement which imposes an obligation after termination or expiration of this Agreement shall survive the termination or expiration of this Agreement and be binding on Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be executed as of the date first set forth above.
NATIONAL R.V. HOLDINGS, INC.
By: ______________________________
Name: Wayne M. Mertes Title: President and Chief Executive Officer
______________________________
Executive: Bradley C. Albrechtsen
Exhibit 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of this 31st day of January, 2000, by and between National R.V. Holdings, Inc., a Delaware Corporation (the "Company" or "NRVH"), and Wayne Mertes, an individual ("Executive").
RECITALS
A. Executive and National R.V., Inc., a California corporation and a wholly-owned subsidiary of the Company ("NRV"), have previously entered into an Employment Agreement, dated as of October 29, 1991, as amended by the Amendment to Employment Agreement, dated as of July 2, 1993, the Second Amendment to Employment Agreement, dated as of May 23, 1994, the Third Amendment to Employment Agreement, dated as of October 31, 1996, and the Fourth Amendment to Employment Agreement, dated as of October 31, 1998 (collectively, "the Previous Employment Agreement"), whereby the Company has employed Executive as President and Chief Executive Officer of the Company.
B. The Executive and the Company wish to enter into a new employment agreement which will extend the term of the employment relationship until December 31, 2001.
C. NRVH desires to be assured of the services of Executive for the Company.
D. Executive is willing and desires to be employed by the Company and the Company is willing to employ Executive, upon the terms, covenants and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as President and Chief Executive Officer of the Company.
2. Term. The term of this Agreement shall be from date of its execution through December 31, 2001, unless terminated earlier pursuant to Section 6 herein; provided, however, that Executive's obligations in Sections 5, 7 (subject to the last sentence of Section 6.1(5)) and 8 herein shall continue in effect after any such termination as though no termination occurred. The term of this Agreement may be extended by the mutual written agreement of the Company and the Executive. The initial period (i.e., through December 31, 2001), together with any extension thereof, is herein referred to as the "Term."
3. Compensation; Reimbursement.
3.1. Base Salary. For all services rendered by Executive under this Agreement, the Company shall pay Executive a base salary of $283,400 per annum, payable biweekly in equal installments (the "Base Salary").
3.2. Bonus Compensation. The Company shall also pay to Executive an annual bonus, to be determined at the discretion of the Compensation Committee, which has engaged a compensation consultant, William M. Mercer, Inc., to advise it with regard to Executive's compensation. Executive's annual bonus, however, shall in no event be less than the Bonus Compensation provided for in the Previous Employment Agreement.
3.3. Additional Benefits. (a) In addition to the Base Salary, Executive shall be entitled to all other benefits of employment which are generally provided to senior management of NRVH, including three weeks of paid vacation each year, use of the apartment located in the Company's offices, and use of an automobile. (b) In addition, the Company shall provide Executive with a split dollar life insurance policy in the face amount of $2,950,000 and an annual premium not greater than $150,000 per year, as set forth in the Previous Employment Agreement. The Company and the Executive agree that the Company shall own the cash value of the policy and that the Company will be entitled to withdraw from the policy $92,601 per annum until the aggregate premiums paid by the Company to the insurance carrier are repaid. To insure the repayment to the Company of the aggregate premiums paid by the Company, the parties agree that upon the death of the Executive, the Company shall be entitled to receive from the policy's death benefits the greater of the aggregate premiums not thereto fore repaid to the Company and the then cash value of the insurance policy. The parties agree to enter into any necessary agreements with the insurance carrier to reflect the foregoing.
3.4. Reimbursement. Executive shall be reimbursed for all reasonable "out-of-pocket" business expenses incurred in connection with the performance of his duties under this Agreement. The reimbursement of Executive's business expenses shall be upon presentation to, and approval by, the Company of valid receipts and other appropriate documentation for such expenses.
4. Scope of Duties.
4.1. Assignment of Duties. Executive shall have such duties as are commensurate with his experience and responsibilities and as are consistent with past practice. Such duties shall be exercised subject to the control, supervision and direction of the Board of Directors of NRVH.
4.2. Executive's Devotion of Time. Executive hereby agrees to devote his full time, abilities and energy to the faithful performance of the duties assigned to him and to the promotion and forwarding of the business affairs of the Company. Executive shall have no other employment during the Term of this Agreement.
5. Confidentiality of Trade Secrets and Other Materials.
5.1. Trade Secrets. Other than in the performance of his duties hereunder, Executive agrees not to disclose, either during the term of his employment by the Company or at any time thereafter, to any person, firm or corporation, any trade secrets or confidential information of the Company including but not limited to, trade secrets, lists of past or present clients or customers, client or consultant contracts, product or service development plans, floor plans and designs, marketing plans, pricing pollicies, business acquisition plans or any portion or phase of any technical information, technique, method, process, procedure, technology, or know-how (whether or not in written or tangible form) used by the Company or any portion of phase of any technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, procedures, formulae or improvements of the Company that is valuable (whether or not in written or tangible form) and including all memoranda, notes, plans, reports, records, documents and other evidence thereof and any other information of whatever nature which gives the Company an opportunity to obtain an advantage over its competitors who do not have access or know how to use such information shall be considered a "trade secret" for the purposes of this Agreement.
5.2. Ownership of Trade Secrets; Assignments of Rights. Executive hereby agrees that all know-how, documents, reports, plans, proposals, marketing and sales plans, client lists, client files and materials made by him or by the Company are the property of the Company and shall not be used by him in any way adverse to the Company's interests. Executive shall not deliver, reproduce or in any way allow such documents or things to be delivered or used by any third party without specific direction or consent by the Board of Directors of the Company. Executive hereby assigns to the Company any rights which he may have in any such trade secret or proprietary information.
6. Termination.
6.1. Bases for Termination.
(1) Executive's employment hereunder may be terminated at any time by mutual agreement of the parties.
(2) This Agreement shall automatically terminate upon the Executive's death or incapacity. "Incapacity," as used herein, shall mean mental or physical incapacity, or both, reasonably determined by the Company's Board of Directors based upon a certification of such incapacity by, in the discretion of the Company's Board of Directors, either Executive's regularly attending physician or a duly licensed physician selected by the Company's Board of Directors, rendering Executive unable to perform substantially all of his duties hereunder and which appears reasonably certain to continue for at least 60 consecutive days without substantial improvement. Executive shall be deemed to have "become incapacitated" on the date the Company's Board of Directors has determined that Executive is incapacitated and so notifies Executive.
(3) Executive's employment may be terminated by the Company "with cause," effective upon delivery of written notice to Executive given at any time (without any necessity for prior notice) upon the occurrence of (i) a felony criminal conviction or any other criminal conviction involving Executive's lack of honesty or Executive's moral turpitude; (ii) drug or alcohol abuse; (iii) acts of dishonesty, gross carelessness or negligence or gross misconduct which have, in the reasonable judgment of the Company's Board of Directors, a material adverse effect on the Company; or (iv) material breach of any provision of this Agreement.
(4) Executive's employment may be terminated by the Company "without cause" (for any reason or no reason at all) at any time by giving Executive three days prior written notice of termination, which termination shall be effective on the fourth day following such notice.
(5) Executive may terminate this Agreement immediately upon a "Change in Control." "Change in Control," as used herein, shall mean any of the following: (1) the sale by NRVH of substantially all of the stock, business operations, or assets of NRVH, (2) the merger of NRVH with or into another corporation or consolidation into another corporation in a transaction in which the shareholders of NRVH are not majority shareholders or voting equity holders in the combined or successor entity, or (3) the acquisition by any person of more than fifty percent of the stock of NRVH. If Executive terminates his employment pursuant to this paragraph, Executive is no longer bound by the terms of Section 7.1 (Non-Competition) or Section 7.2 (Non-Interference) below.
6.2. Payment Upon Termination.
(1) If Executive's employment under this Agreement is terminated under Paragraph 6.1(4) herein, the Company shall pay to Executive, in the manner set forth below, an amount equal to the sum of (a) Executive's Base Salary through the remaining portion of the Term, less any compensation actually earned or accrued by Executive for services rendered elsewhere to himself or any other person or entity; plus (b) any unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein. After the Company's termination of Executive under this provision, the Company shall not be obligated to provide the benefits to Executive described in Section 3.3 (except as may be required by law). Payments made above shall be made in equal installments over such period of time on regularly scheduled Company paydays.
(2) Upon termination under Paragraphs 6.1(1), (2) or (3), the Company shall not be obligated to compensate Executive, his estate or representatives, except for unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein, nor provide the benefits to Executive described in Section 3.3 (except as provided by law).
(3) Upon termination under Paragraph 6.1(5), the Company shall pay Executive only his Base Salary through the date of termination, any benefits under any Plan of the Company in which the Executive is a participant to the full extent of Executive's rights under such plans, any accrued vacation, and any unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein.
6.3. Dismissal from Premises. At the Company's option, Executive shall immediately leave the Company's premises on the date notice of termination is given by the Company.
7. Non-Competition/Non-Interference.
7.1. Non-Competition.
(1) Executive covenants and agrees that during the term of this Agreement, neither the Executive nor any entity of which 5% or more of the beneficial ownership is held or owned directly or indirectly by the Executive or controlled directly or indirectly by the Executive ("Executive Entity") will, anywhere in the Market, directly or indirectly own, manage, operate, advise (whether or not for compensation), control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, director, officer, "Key Employee" (defined herein to include any person who is employed in a management, executive, supervisory, marketing or sales capacity for another person), joint venturer, lender, investor or other participant, in any business which competes, directly or indirectly, with the Business ("Competitive Business") without regard to (X) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (Y) whether any of the activities of the Executive referred to above occur or are performed within or without the Market or (Z) whether the Executive resides, or reports to an office, within or without the Market.
(2) For purposes of this Agreement, (A) the "Business" refers to any business conducted by the Company prior to the date of this Agreement or by the Company during the Term, and (B) the "Market" refers to any and every state in the United States of America or in any similar jurisdiction of any foreign country in which the Business is so conducted.
7.2. Non-Interference.
(1) In consideration of all of the payments due to him hereunder, Executive covenants and agrees that during the term of this Agreement neither the Executive nor any Executive Entity will directly or indirectly solicit, induce or influence any customer, supplier, lender, lessor or any other person which has a business relationship with the Company or which had on the date of the end of the Term a business relationship with the Company to discontinue or reduce the extent of such relationship with the Company or its subsidiaries, if any.
(2) In consideration of all of the payments due to him hereunder, Executive covenants and agrees that during the Term of this Agreement, neither the Executive nor any Executive Entity will (A) directly or indirectly recruit, solicit or otherwise induce or influence any employee or sales agent of the Company to discontinue such employment or agency relationship with the Company, or (B) employ or seek to employ, or cause or permit any Competitive Business to employ or seek to employ for any Competitive Business, any person who is then (or was at any time within six months prior to the date the Executive or the Competitive Business employs or seeks to employ such person) employed by the Company. Nothing herein shall prevent the Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity.
8. Injunctive Relief; Independence and Severability of Covenants.
8.1. Injunctive Relief. Executive acknowledges and agrees that, in the event of any breach or likely breach of any of the covenants of Sections 5 and 7 herein, the Company and any relevant affiliate(s) would incur damages in an amount difficult to ascertain and/or be irreparably harmed and could not be made whole solely by monetary damages. It is accordingly agreed that such persons, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to injunctive relief in respect of such breach or likely breach as may be ordered by any court of competent jurisdiction including, but not limited to, an injunction restraining any violation of Sections 5 and 7 herein and without the proof of actual damages. It is intended to grant full third party rights under this provision.
8.2. Independence and Severability of Covenants. Executive acknowledges and agrees that the covenants and other provisions set forth in Sections 5 and 7 herein and in this Section 8 are reasonable, including with respect to duration and subject matter, and that he is receiving valuable and adequate consideration for such covenants under this Agreement. The parties acknowledge that it is their intention that all such covenants and provisions be enforceable to the fullest extent possible under applicable law. If any of the provisions set forth in Sections 5 or 7 and or in this Section 8 is found to be in unenforceable in any instance, such finding shall not preclude any other enforcement of such provisions and reference is made to Section 9.2. If any of the provisions set forth in Sections 5 or 7 or in this Section 8 is found to be invalid, such finding or invalidity shall not affect the validity of the remaining provisions and the provisions of Section 9.2 will apply.
9. Miscellaneous.
9.1. Transfer and Assignment. This Agreement is personal as to Executive and shall not be assigned or transferred by Executive without the prior written consent of the Company. This Agreement shall be binding upon, and inure to, the benefit of all of the parties hereto and their respective permitted heirs, personal representatives, successors and assigns.
9.2. Severability. Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation, or other pronouncement having the force of law, the latter shall prevail, but the provision of this Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Agreement shall remain in full force and effect.
9.3. Governing Law. This Agreement is made under and shall be construed pursuant to the laws of the State of California.
9.4. Counterparts. This Agreement may be executed in several counterparts and all documents so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties did not sign the original or the same counterparts,
9.5. Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, arrangements and understandings with respect thereto. No representation, promises, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein.
9.6. Modification. This Agreement may be modified, amended, superseded or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by written instrument executed by the party or parties to be bound by any such modification, amendment, supersession, cancellation or waiver.
9.7. Waiver. The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party, shall not constitute or be deemed as a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party, whether of a similar or dissimilar nature.
9.8. Cumulative Remedies. Each and all of the several rights and remedies provided in this Agreement, or by law or in equity, shall be cumulative, and no one of them shall be exclusive of any other right or remedy, and the exercise of any one or such rights or remedies shall not be deemed a waiver of, or an election to exercise, any other such right or remedy.
9.9. Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement.
9.10. Notices. Any notice under this Agreement must be in writing, may be telecopied, sent by express 24-hour guaranteed courier, or hand-delivered, or may be served by depositing the same in the United States mail, addressed to the party to be notified, postage-prepaid and registered or certified with a return receipt requested. The addresses of the parties for the receipt of notice shall be as follows:
If to Company:
Chairman of the Board. National R.V. Holdings, Inc. 3411 N. Perris Blvd. Perris, California 92370
with a copy to :
Stephen M. Davis, Esq. Heller Ehrman White & McAuliffe 711 5th Avenue 5th Floor New York, New York 10022
If to Executive:
Wayne Mertes National R.V. Holdings, Inc. 3411 N. Perris Boulevard Perris, California 92370
Each notice given by registered or certified mail shall be deemed delivered and effective on the date of delivery as shown on the return receipt, and each notice delivered in any other manner shall be deemed to be effective as of the time of actual delivery thereof. Each party may change its address for notice by giving notice thereof in the manner provided above.
9.11. Survival. Any provision of this Agreement which imposes an obligation after termination or expiration of this Agreement shall survive the termination or expiration of this Agreement and be binding on Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be executed as of the date first set forth above.
NATIONAL R.V. HOLDINGS, INC.
By:_____________________________
Name: Title:
Executive
Exhibit 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement is made and entered into as of this 31st day of January, 2000, by and between Country Coach, Inc., an Oregon Corporation (the "Company" or "CCI"), and Robert B. Lee, an individual ("Executive").
RECITALS A. The Company and Executive have previously entered into an Employment Agreement, dated as of November 6, 1996, and an Amendment to Employment Agreement, dated as of November 2, 1999 (collectively, "the Previous Employment Agreement"), whereby the Company has employed Executive as Chairman of CCI.
B. The Executive and the Company wish to enter into a new employment agreement which will extend the term of the employment relationship until December 31, 2001.
C. National R.V. Holdings, Inc., a Delaware corporation ("NRVH") entered into a Share Exchange Agreement, dated October 22, 1996, with CCI by which NRVH acquired all of the Common Stock of CCI.
D. NRVH desires to be assured of the services of Executive for CCI.
E. Executive is willing and desires to be employed by the Company and the Company is willing to employ Executive, upon the terms, covenants and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions hereinafter set forth, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby employs Executive as Chairman of the CCI.
2. Term. The term of this Agreement shall be from date of its execution through December 31, 2001, unless terminated earlier pursuant to Section 6 herein; provided, however, that Executive's obligations in Sections 5, 7 (subject to the last sentence of Section 6.1(5)) and 8 herein shall continue in effect after any such termination as though no termination occurred. The term of this Agreement may be extended by the mutual written agreement of the Company and the Executive. The initial period (i.e., through December 31, 2001), together with any extension thereof, is herein referred to as the "Term."
3. Compensation; Reimbursement.
3.1. Base Salary. For all services rendered by Executive under this Agreement, the Company shall pay Executive a base salary of $210,000 per annum, payable biweekly in equal installments (the "Base Salary").
3.2. Bonus Compensation. The Company shall also pay to Executive an annual bonus, to be determined at the discretion of the Compensation Committee, which has engaged a compensation consultant, William M. Mercer, Inc., to advise it with regard to Executive's compensation. Executive's annual bonus, however, shall in no event be less than the Bonus Compensation provided for in the Previous Employment Agreement.
3.3. Additional Benefits. In addition to the Base Salary, Executive shall be entitled to all other benefits of employment which are generally provided to senior management of CCI and NRVH. On an annual basis, Executive shall be entitled to purchase a motorhome at cost from the Company.
3.4. Reimbursement. Executive shall be reimbursed for all reasonable "out-of-pocket" business expenses incurred in connection with the performance of his duties under this Agreement. The reimbursement of Executive's business expenses shall be upon presentation to, and approval by, the Company of valid receipts and other appropriate documentation for such expenses.
4. Scope of Duties.
4.1. Assignment of Duties. Executive shall have such duties as are commensurate with his experience and responsibilities and as are consistent with past practice. Such duties shall be exercised subject to the control, supervision and direction of the Board of Directors of NRVH.
4.2. Executive's Devotion of Time. Executive hereby agrees to devote his full time, abilities and energy to the faithful performance of the duties assigned to him and to the promotion and forwarding of the business affairs of the Company. Executive shall have no other employment during the Term of this Agreement.
4.3. Board of Directors. While Executive is employed by the Company hereunder, Executive shall be a member of the Board of Directors of CCI.
5. Confidentiality of Trade Secrets and Other Materials.
5.1. Trade Secrets. Other than in the performance of his duties hereunder, Executive agrees not to disclose, either during the term of his employment by the Company or at any time thereafter, to any person, firm or corporation, any trade secrets or confidential information of the Company or CCI including but not limited to, trade secrets, lists of past or present clients or customers, client or consultant contracts, product or service development plans, floor plans and designs, marketing plans, pricing pollicies, business acquisition plans or any portion or phase of any technical information, technique, method, process, procedure, technology, or know-how (whether or not in written or tangible form) used by the Company or CCI or any portion of phase of any technical information, ideas, discoveries, designs, computer programs (including source or object codes), processes, procedures, formulae or improvements of the Company or CCI that is valuable (whether or not in written or tangible form) and including all memoranda, notes, plans, reports, records, documents and other evidence thereof and any other information of whatever nature which gives the Company or CCI an opportunity to obtain an advantage over its competitors who do not have access or know how to use such information shall be considered a "trade secret" for the purposes of this Agreement.
5.2. Ownership of Trade Secrets; Assignments of Rights. Executive hereby agrees that all know-how, documents, reports, plans, proposals, marketing and sales plans, client lists, client files and materials made by him or by the Company are the property of the Company and shall not be used by him in any way adverse to the Company's interests. Executive shall not deliver, reproduce or in any way allow such documents or things to be delivered or used by any third party without specific direction or consent by the Board of Directors of the Company. Executive hereby assigns to the Company any rights which he may have in any such trade secret or proprietary information.
6. Termination.
6.1. Bases for Termination.
(1) Executive's employment hereunder may be terminated at any time by mutual agreement of the parties.
(2) This Agreement shall automatically terminate upon the Executive's death or incapacity. "Incapacity," as used herein, shall mean mental or physical incapacity, or both, reasonably determined by the Company's Board of Directors based upon a certification of such incapacity by, in the discretion of the Company's Board of Directors, either Executive's regularly attending physician or a duly licensed physician selected by the Company's Board of Directors, rendering Executive unable to perform substantially all of his duties hereunder and which appears reasonably certain to continue for at least 60 consecutive days without substantial improvement. Executive shall be deemed to have "become incapacitated" on the date the Company's Board of Directors has determined that Executive is incapacitated and so notifies Executive.
(3) Executive's employment may be terminated by the Company "with cause," effective upon delivery of written notice to Executive given at any time (without any necessity for prior notice) upon the occurrence of (i) a felony criminal conviction or any other criminal conviction involving Executive's lack of honesty or Executive's moral turpitude; (ii) drug or alcohol abuse; (iii) acts of dishonesty, gross carelessness or negligence or gross misconduct which have, in the reasonable judgment of the Company's Board of Directors, a material adverse effect on the Company; or (iv) material breach of any provision of this Agreement.
(4) Executive's employment may be terminated by the Company "without cause" (for any reason or no reason at all) at any time by giving Executive three days prior written notice of termination, which termination shall be effective on the fourth day following such notice.
(5) Executive may terminate this Agreement immediately upon a "Change in Control." "Change in Control," as used herein, shall mean any of the following: (1) the sale by NRVH of substantially all of the stock, business operations, or assets of NRVH, (2) the merger of NRVH with or into another corporation or consolidation into another corporation in which the shareholders of NRVH are not majority shareholders or voting equity holders in the combined or successor entity, or (3) the acquisition by any person of more than fifty percent of the stock of NRVH. If Executive terminates his employment pursuant to this paragraph, Executive is no longer bound by the terms of Section 7.1 (Non-Competition) or Section 7.2 (Non-Interference) below.
6.2. Payment Upon Termination.
(1) If Executive's employment under this Agreement is terminated under Paragraph 6.1(4) herein, the Company shall pay to Executive, in the manner set forth below, an amount equal to the sum of (a) Executive's Base Salary through the remaining portion of the Term, less any compensation actually earned or accrued by Executive for services rendered elsewhere to himself or any other person or entity; plus (b) any unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein. After the Company's termination of Executive under this provision, the Company shall not be obligated to provide the benefits to Executive described in Section 3.3 (except as may be required by law). Payments made above shall be made in equal installments over such period of time on regularly scheduled Company paydays.
(2) Upon termination under Paragraphs 6.1(1), (2) or (3), the Company shall not be obligated to compensate Executive, his estate or representatives, except for unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein, nor provide the benefits to Executive described in Section 3.3 (except as provided by law).
(3) Upon termination under Paragraph 6.1(5), the Company shall pay Executive only his Base Salary through the date of termination, any benefits under any Plan of the Company in which the Executive is a participant to the full extent of Executive's rights under such plans, any accrued vacation, and any unpaid out-of-pocket expenses incurred by the Executive prior to the date of termination which are reimbursable pursuant to Section 3.4 herein.
6.3. Dismissal from Premises. At the Company's option, Executive shall immediately leave the Company's premises on the date notice of termination is given by the Company.
6.4. Resignation as Director. Executive agrees that if he leaves the employ of the Company, for whatever reason whatsoever, Executive shall immediately resign as a director of NRVH and CCI.
7. Non-Competition/Non-Interference.
7.1. Non-Competition.
(1) Executive covenants and agrees that during the term of this Agreement (the "Restricted Period"), neither the Executive nor any entity of which 5% or more of the beneficial ownership is held or owned directly or indirectly by the Executive or controlled directly or indirectly by the Executive ("Executive Entity") will, anywhere in the Market, directly or indirectly own, manage, operate, advise (whether or not for compensation), control, invest or acquire an interest in, or otherwise engage or participate in, whether as a proprietor, partner, stockholder, director, officer, "Key Employee" (defined herein to include any person who is employed in a management, executive, supervisory, marketing or sales capacity for another person), joint venturer, lender, investor or other participant, in any business which competes, directly or indirectly, with the Business ("Competitive Business") without regard to (X) whether the Competitive Business has its office, manufacturing or other business facilities within or without the Market, (Y) whether any of the activities of the Executive referred to above occur or are performed within or without the Market or (Z) whether the Executive resides, or reports to an office, within or without the Market.
(2) For purposes of this Agreement, (A) the "Business" refers to any business conducted by the Company prior to the date of this Agreement or by the Company during the Term, and (B) the "Market" refers to any and every state in the United States of America or in any similar jurisdiction of any foreign country in which the Business is so conducted.
7.2. Non-Interference.
(1) In consideration of all of the payments due to him hereunder, Executive covenants and agrees that during the Restricted Period, neither the Executive nor any Executive Entity will directly or indirectly solicit, induce or influence any customer, supplier, lender, lessor or any other person which has a business relationship with the Company or which had on the date of the end of the Term a business relationship with the Company to discontinue or reduce the extent of such relationship with the Company or its subsidiaries, if any.
(2) In consideration of all of the payments due to him hereunder, Executive covenants and agrees that during the Restricted Period, neither the Executive nor any Executive Entity will (A) directly or indirectly recruit, solicit or otherwise induce or influence any employee or sales agent of the Company to discontinue such employment or agency relationship with the Company, or (B) employ or seek to employ, or cause or permit any Competitive Business to employ or seek to employ for any Competitive Business, any person who is then (or was at any time within six months prior to the date the Executive or the Competitive Business employs or seeks to employ such person) employed by the Company. Nothing herein shall prevent the Executive from providing a letter of recommendation to an employee with respect to a future employment opportunity.
8. Injunctive Relief; Independence and Severability of Covenants.
8.1. Injunctive Relief. Executive acknowledges and agrees that, in the event of any breach or likely breach of any of the covenants of Sections 5 and 7 herein, the Company and any relevant affiliate(s) would incur damages in an amount difficult to ascertain and/or be irreparably harmed and could not be made whole solely by monetary damages. It is accordingly agreed that such persons, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to injunctive relief in respect of such breach or likely breach as may be ordered by any court of competent jurisdiction including, but not limited to, an injunction restraining any violation of Sections 5 and 7 herein and without the proof of actual damages. It is intended to grant full third party rights under this provision.
8.2. Independence and Severability of Covenants. Executive acknowledges and agrees that the covenants and other provisions set forth in Sections 5 and 7 herein and in this Section 8 are reasonable, including with respect to duration and subject matter, and that he is receiving valuable and adequate consideration for such covenants under this Agreement. The parties acknowledge that it is their intention that all such covenants and provisions be enforceable to the fullest extent possible under applicable law. If any of the provisions set forth in Sections 5 or 7 and or in this Section 8 is found to be in unenforceable in any instance, such finding shall not preclude any other enforcement of such provisions and reference is made to Section 9.2. If any of the provisions set forth in Sections 5 or 7 or in this Section 8 is found to be invalid, such finding or invalidity shall not affect the validity of the remaining provisions and the provisions of Section 10.2 will apply.
9. Voting. NRVH agrees that while this Agreement is in effect and Executive is an employee of the Company, it will nominate and use its best efforts to elect the Executive as a director of NRVH and, with respect to the election of directors of NRVH, Executive will vote all shares of NRVH beneficially owned by him, or cause such shares to be voted, for the management slate of directors proposed by NRVH.
10. Miscellaneous.
10.1. Transfer and Assignment. This Agreement is personal as to Executive and shall not be assigned or transferred by Executive without the prior written consent of the Company. This Agreement shall be binding upon, and inure to, the benefit of all of the parties hereto and their respective permitted heirs, personal representatives, successors and assigns.
10.2. Severability. Nothing contained herein shall be construed to require the commission of any act contrary to law. Should there be any conflict between any provisions hereof and any present or future statute, law, ordinance, regulation, or other pronouncement having the force of law, the latter shall prevail, but the provision of this Agreement affected thereby shall be curtailed and limited only to the extent necessary to bring it within the requirements of the law, and the remaining provisions of this Agreement shall remain in full force and effect.
10.3. Governing Law. This Agreement is made under and shall be construed pursuant to the laws of the State of Oregon.
10.4. Counterparts. This Agreement may be executed in several counterparts and all documents so executed shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties did not sign the original or the same counterparts,
10.5. Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, arrangements and understandings with respect thereto. No representation, promises, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein.
10.6. Modification. This Agreement may be modified, amended, superseded or cancelled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by written instrument executed by the party or parties to be bound by any such modification, amendment, supersession, cancellation or waiver.
10.7. Waiver. The waiver by either of the parties, express or implied, of any right under this Agreement or any failure to perform under this Agreement by the other party, shall not constitute or be deemed as a waiver of any other right under this Agreement or of any other failure to perform under this Agreement by the other party, whether of a similar or dissimilar nature.
10.8. Cumulative Remedies. Each and all of the several rights and remedies provided in this Agreement, or by law or in equity, shall be cumulative, and no one of them shall be exclusive of any other right or remedy, and the exercise of any one or such rights or remedies shall not be deemed a waiver of, or an election to exercise, any other such right or remedy.
10.9. Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning and interpretation of this Agreement.
10.10. Notices. Any notice under this Agreement must be in writing, may be telecopied, sent by express 24-hour guaranteed courier, or hand-delivered, or may be served by depositing the same in the United States mail, addressed to the party to be notified, postage-prepaid and registered or certified with a return receipt requested. The addresses of the parties for the receipt of notice shall be as follows:
If to CCI:
Country Coach, Inc. 135 East First Street Junction City, Oregon 97448
with a copy to NRVH:
National R.V. Holdings, Inc. 3411 N. Perris Blvd. Perris, California 92571 Attention: Chief Executive Officer
If to Executive:
Robert B. Lee 1021 Quince Drive Junction City, OR 97448
Each notice given by registered or certified mail shall be deemed delivered and effective on the date of delivery as shown on the return receipt, and each notice delivered in any other manner shall be deemed to be effective as of the time of actual delivery thereof. Each party may change its address for notice by giving notice thereof in the manner provided above.
10.11. Survival. Any provision of this Agreement which imposes an obligation after termination or expiration of this Agreement shall survive the termination or expiration of this Agreement and be binding on Executive and the Company.
IN WITNESS WHEREOF, the parties hereto have caused this Employment Agreement to be executed as of the date first set forth above.
COUNTRY COACH, INC.
By: ______________________________ Name: Title:
Executive
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-41905) of National R.V. Holdings, Inc. of our report dated February 11, 2000 relating to the financial statements and financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Los Angeles, California March 27, 2000
Exhibit 99.1
Factors that May Affect Future Operating Results
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS The Company's net sales, gross margin and operating results may fluctuate significantly from period to period due to factors such as the mix of products sold, the ability to utilize and expand manufacturing resources efficiently, material shortages, the introduction and consumer acceptance of new models offered by the Company, competition, the addition or loss of dealers, the timing of trade shows and rallies, and factors affecting the recreational vehicle industry as a whole. In addition, the Company's overall gross margin on its products may decline in future periods to the extent the Company increases its sales of lower gross margin towable products or if the mix of motor coaches sold shifts to lower gross margin units. Due to the relatively high selling prices of the Company's products (in particular, its High-Line Class A motor coaches), a relatively small variation in the number of recreational vehicles sold in any quarter can have a significant effect on sales and operating results for that quarter.
CyclicalITY AND Seasonality The RV industry has been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic conditions which affect disposable income for leisure-time activities. Concerns about the availability and price of gasoline, decreases in consumer confidence, increases in interest rates and reductions in available financing have had, and may in the future have, an adverse impact on RV sales. Seasonal factors, over which the Company has no control, also have an effect on the demand for the Company's products. Demand in the RV industry declines over the winter season, while sales are generally highest during the spring and summer months.
Integration of Acquired Businesses; Management of Growth One of the Company's objectives is to acquire businesses in the RV industry or related areas. Successfully accomplishing this goal depends upon a number of factors, including the Company's ability to find suitable acquisition candidates, negotiate acquisitions on acceptable terms, retain key personnel of the acquired entities, hire and train other competent managers, and effectively and profitably integrate the operations of the acquired businesses into the Company's existing operations. The process of integrating acquired businesses may require a significant amount of resources and management attention, which could temporarily detract attention from the day-to-day business of the Company. The Company's ability to manage its growth effectively will require it to continue to improve its operational, financial and management information systems and controls, and to attract, retain, motivate and manage employees effectively. The failure of the Company to manage growth in its business effectively could have a material adverse effect on the financial condition and results of operations of the Company.
Expansion of Manufacturing Facilities In 1999, the Company purchased additional land in Perris, California, Junction City, Oregon, and Hillsborough County, Florida for planned expansion of manufacturing and service facilities. There can be no assurance that such facilities or future additional facilities will be able to meet the manufacturing needs of the Company or that the Company will be able to attract and retain qualified technical, supervisory and manufacturing personnel required in order to operate such facilities in an effective and efficient manner.
Dependence on Certain Dealers; Concentration of Dealers in Certain Regions Although no one dealer accounted for more than 10% of the Company's net sales during the year ended December 31, 1999, the Company's top ten dealers accounted for approximately 43% and 44% of the Company's sales during the years ended December 31, 1999 and 1998, respectively. The loss by the Company of one or more of these dealers could have a material adverse effect on the Company's financial condition and results of operations. In addition, a significant portion of the Company's sales is from dealers located in states in the western part of the United States. Consequently, a general downturn in economic conditions or other material events in such region could materially adversely affect the Company's sales.
Dependence on Chassis Suppliers One of the principal components used in the manufacture of motorhomes and bus conversions is the chassis and bus shell, respectively, which include the engine, drive train and other operating components. Although Country Coach manufactures chassis used in certain of its products, the Company obtains the required chassis for most of its Class A motorhomes from a limited number of manufacturers and the required bus shells from Prevost Corporation. Prevost is the only manufacturer of bus shells used in the Company's bus conversions and there is only one other manufacturer of bus shells in North America. As is standard in the industry, arrangements with such suppliers permit them to terminate their relationship with the Company at any time. Lead times for the delivery of chassis frequently exceed five weeks, and the RV industry as a whole has from time to time experienced temporary shortages of chassis.
In the second quarter of 1999, Ford announced a temporary reduction in the availability of a particular chassis that the Company uses in several of its current models. During the fourth quarter, Ford clarified their position by stating that they were going to allocate their chassis to the manufacturers based on market share and imposed additional reporting requirements on them. Furthermore, Ford transferred the production of its chassis from Mexico to Michigan and encountered start-up problems in the new facility. The Company has a good supply of Ford chassis on hand and is anticipating that said supply will adequately see it through Ford's production challenges. The Company presently believes that its expected allocation of chassis is sufficient to enable the growth planned for these models and does not presently foresee operating difficulties with respect to this issue.
If any of the Company's suppliers were to discontinue the manufacture of chassis utilized by the Company in the manufacture of its Class A motorhomes, materially reduce their availability to the RV industry in general or limit or terminate their availability to the Company in particular, the business and financial condition of the Company could be materially and adversely affected.
Potential Liabilities Under Repurchase Agreements As is common in the industry, the Company enters into repurchase agreements with the financing institutions used by its dealers to finance their purchases. These agreements obligate the Company to purchase a dealer's inventory under certain circumstances in the event of a default by the dealer to its lender. The risk of loss, however, is spread over many dealers and is further reduced by the resale value of the RVs that the Company would be required to repurchase. Although losses under these agreements have not been significant in the past, if the Company were obligated to repurchase a significant number of RVs in the future, it could result in losses and a reduction in new RV sales. The Company's contingent obligations under repurchase agreements vary from period to period and totaled approximately $104.5 million as of December 31, 1999.
Competition The Company competes with numerous manufacturers, many of which have multiple product lines of RVs, are larger and have substantially greater financial and other resources than the Company. According to an industry source, the two largest motorhome manufacturers had sales aggregating 39.8% of industry-wide retail unit sales of Class A motorhomes for the year ended December 31, 1999. In addition, sales of used RVs provide competition to RV manufacturers.
Government Regulation The Company is subject to the provisions of the National Traffic and Motor Vehicle Safety Act (the "Motor Vehicle Act") and the safety standards for RVs and components which have been promulgated thereunder by the Department of Transportation. The Motor Vehicle Act authorizes the National Highway Traffic Safety Administration ("NHTSA") to require a manufacturer to recall and repair vehicles which contain certain hazards or defects. The Company has from time to time instituted voluntary recalls of certain motorhome units, none of which has had a material adverse effect on the Company.
In March, 2000, the Company's Country Coach subsidiary received a notice from NHTSA which indicated that NHTSA is conducting a review of a safety recall by Country Coach in 1999 concerning certain motorhomes equipped with a slide galley option and requested certain information about motorhomes with slide out sections manufactured by Country Coach. Country Coach intends to respond fully to NHTSA's request. At this time, it is not possible to ascertain what action NHTSA may take with respect to such a review, or what impact, if any, that the review may have on the Company's financial condition or results of operations. Future recalls of the Company's vehicles, voluntary or involuntary, however, could have a material adverse effect on the Company. The Company is also subject to numerous state consumer protection laws and regulations relating to the operation of motor vehicles, including so-called "Lemon Laws."
The Company's manufacturing operations are subject to a variety of federal and state environmental regulations relating to the use, generation, storage, treatment, emissions, and disposal of hazardous materials and wastes and noise pollution. Such laws and regulations are becoming more stringent, and it is likely that future amendments to these environmental statutes and additional regulations promulgated thereunder will be applicable to the Company, its manufacturing operations and its products in the future. The failure of the Company to comply with present or future regulations could result in fines being imposed on the Company, potential civil and criminal liability, suspension of production or operations, alterations to the manufacturing process or costly cleanup or capital expenditures.
Product Liability The Company maintains product liability insurance with coverage in amounts which management believes is reasonable. To date, the Company has been successful in obtaining product liability insurance on terms the Company considers acceptable. Given the nature of the Company's business, product liability in excess of the Company's insurance coverage, if incurred, could have a material adverse effect on the Company.
Antitakeover Provisions Certain provisions of the Company's Certificate of Incorporation, as well as Delaware corporate law and the Company's Stockholder Rights Plan (the "Rights Plan"), may be deemed to have anti-takeover effects and may delay, defer or prevent a takeover attempt that a stockholder might consider in its best interest. Such provisions also may adversely affect prevailing market prices for the Common Stock. Certain of such provisions allow the Company's Board of Directors to issue, without additional stockholder approval, preferred stock having rights senior to those of the Common Stock. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed matter. In August 1996, the Company adopted the Rights Plan, pursuant to which holders of the Common Stock received a distribution of rights to purchase additional shares of Common Stock, which rights become exercisable upon the occurrence of certain events.