-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O0YXtjaJ85wxDRm0Lc6w//dekUdbBJt69cY3/aQSd32W0rl6DQTtZeMctJsXg/wM oFWSrX4Zi+C7W49RDalnxA== 0001005477-97-000906.txt : 19970329 0001005477-97-000906.hdr.sgml : 19970329 ACCESSION NUMBER: 0001005477-97-000906 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: DREW INDUSTRIES INCORPORATED CENTRAL INDEX KEY: 0000763744 STANDARD INDUSTRIAL CLASSIFICATION: METAL DOORS, SASH, FRAMES, MOLDING & TRIM [3442] IRS NUMBER: 133250533 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13646 FILM NUMBER: 97567110 BUSINESS ADDRESS: STREET 1: 200 MAMARONECK AVE CITY: WHITE PLAINS STATE: NY ZIP: 10601 BUSINESS PHONE: 9144289098 MAIL ADDRESS: STREET 1: 200 MAMARONECK AVE CITY: WHITE PLAINS STATE: NY ZIP: 10601 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Year End Commission File Number December 31, 1996 0-13646 DREW INDUSTRIES INCORPORATED (Exact Name of Registrant as Specified in its Charter) Delaware 13-3250533 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 200 Mamaroneck Avenue, White Plains, N.Y. 10601 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number including Area Code: (914) 428-9098 Securities Registered pursuant to Section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Check mark indicates whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| Aggregate market value of voting stock (Common Stock, $.01 par value) held by non-affiliates of Registrant (computed by reference to the closing price as of March 17, 1997) was $88,441,534. The number of shares outstanding of the Registrant's Common Stock, as of the latest practicable date (March 17, 1997) was 9,151,171 shares of Common Stock, adjusted for two-for-one split payable March 21, 1997. Documents Incorporated by Reference Annual Report to Stockholders for year ended December 31, 1996 is incorporated by reference into Items 6, 7 and 8 of Part II. Proxy Statement with respect to Annual Meeting of Stockholders to be held on May 13, 1997 is incorporated by reference into Part III. ================================================================================ Item 1. BUSINESS Introduction Drew Industries Incorporated ("Drew" or the "Company"), through its wholly-owned subsidiaries, Kinro, Inc., ("Kinro"), manufactures and markets aluminum and vinyl windows for manufactured homes, and aluminum windows and doors for recreational vehicles; and through its wholly-owned subsidiary, Shoals Supply, Inc. ("Shoals"), manufactures and distributes new axles and chassis parts, and distributes refurbished axles and new and refurbished tires, for the manufactured housing industry. The Company was incorporated under the laws of Delaware on March 20, 1984, and is the successor to Drew National Corporation, which was incorporated under the laws of Delaware in 1962. The Company's principal executive and administrative offices are located at 200 Mamaroneck Avenue, White Plains, New York 10601; telephone number (914) 428-9098. In connection with the spin-off of Leslie Building Products, Inc., and its wholly owned subsidiary, Leslie-Locke, Inc. ("Leslie-Locke"), by the Company, which was effective on July 29, 1994, the Company and Leslie Building Products entered into a Shared Services Agreement. Pursuant to the Shared Services Agreement, the Company and Leslie Building Products agreed to share certain administrative functions and employee services, such as management overview and planning, tax preparation, financial reporting, coordination of independent audit, stockholder relations, and regulatory matters. The Company is reimbursed by Leslie Building Products for the fair market value of such services. The Shared Services Agreement expires on December 31, 1997 but may be extended. BUSINESS OF THE COMPANY Kinro, acquired by the Company in October 1980, initially manufactured only aluminum primary and storm windows for the manufactured housing industry. Since 1982, Kinro acquired additional manufacturers of aluminum windows for manufactured housing and manufacturers of doors and windows for recreational vehicles, and developed its own capacity to manufacture screens for its window products, and to a lesser extent, manufactures windows for mini buses. In 1993, Kinro commenced production of vinyl windows in addition to aluminum windows. Each of the businesses acquired by Kinro expanded Kinro's geographic market and product line, and, in certain instances, added manufacturing facilities. All manufacturing, distribution and administrative functions of the acquired businesses were integrated with those of Kinro. Although definitive information is not readily available, the Company believes that the two leading manufacturers of windows for manufactured housing within the United States are Kinro and Philips Industries, Inc., and that there are approximately 10 significant suppliers of windows and doors for the recreational vehicle industry, several of which are substantially larger than Kinro. Raw materials used by Kinro, consisting of extruded aluminum, glass, vinyl and various adhesive and insulating components, are readily available from a number of sources. Kinro, through the Company, maintains an aluminum hedging program under which it purchases futures contracts on the London Metals Exchange to hedge the prices of a portion of its anticipated aluminum requirements. Kinro's operations consist primarily of fabricating and assembling the components into the finished windows, doors and screens. Kinro also tempers glass for use in its own windows and for sale to other window manufacturers. Kinro's line of products is sold by eleven sales personnel, working exclusively for Kinro and Shoals, to major builders of manufactured housing, such as Clayton Homes, Inc., Oakwood Homes Corporation and Redman Page -2- Industries, Inc., and to major manufacturers of recreational vehicles such as Fleetwood Enterprises, Inc., Thor Industries, Inc., and Skyline Corporation. Kinro's operations are conducted at ten manufacturing and warehouse facilities located in Mansfield, Texas; Double Springs, Alabama; Liberty, North Carolina; Thomasville, Georgia; Morraine, Ohio; Goshen (two facilities) and Elkhart, Indiana; Fontana, California; and Dayton, Tennessee; as well as a Maquilodora operation in Juarez, Mexico. In addition, Kinro is currently constructing a third facility in Goshen, Indiana. Shoals, acquired by the Company in February 1996, manufactures and distributes new axles and chassis parts, and distributes refurbished axles and new and refurbished tires, for the manufactured housing industry. Manufactured homes are transported by producers to dealers via roadway on steel chassis which are fitted with axles and tires sufficient in number to support the weight of the home. When the home is installed at the site, the axles and tires are removed by the dealer. Regulations promulgated by the United States Housing and Urban Development Authority ("HUD") require the axles to be inspected after each use and refurbished or, if necessary, replaced. Shoals purchases from dealers, and repairs and refurbishes, used axles and tires, and markets the reconditioned axles and tires to producers of manufactured homes. In addition, Shoals manufactures and distributes new axles and chassis parts, and distributes new tires, to producers of manufactured homes. Shoals competes with a number of regional suppliers of refurbished axles and tires, as well as several manufacturers of new axles, certain of which are larger than Shoals. Although definitive information is not readily available, the Company believes that Shoals is among the three largest suppliers of refurbished axles within the United States. Shoals competes on the basis of price, customer service, product quality, and reliability. Raw materials used by Shoals, consisting primarily of fabricated steel parts for new axles and chassis parts, are either fabricated by Shoals or purchased from suppliers. Fabricated parts and new tires are readily available from a number of sources. Used axles and tires, which are refurbished by Shoals, are purchased from dealers of manufactured homes, and their availability is subject to competitive pricing. Shoals products are sold by one sales person, working exclusively for Shoals, and five of Kinro's sales personnel, to major producers of manufactured homes in the southeastern and southcentral United States, such as Fleetwood Enterprises, Inc., Oakwood Homes Corporation and Clayton Homes, Inc. Shoals operations are conducted at five facilities located in Bear Creek and Phil Campbell, Alabama; Rockwell, North Carolina; Elm Mott, Texas; and Maynardsville, Tennessee. In accordance with regulations promulgated by HUD, refurbished axle assemblies distributed by Shoals are reconditioned in accordance with a detailed Quality Control Program formulated by an independent inspection agency. Shoals' compliance with the Quality Control Program is monitored by the inspection agency on a monthly basis. All expenses of formulating the program, inspection, and monitoring are paid for by Shoals. In addition, new and refurbished tires distributed by Shoals are subject to regulations promulgated by the United States Department of Transportation Federal Highway Administration and by HUD relating to weight tolerance, maximum speed, size, and components. Kinro's and Shoals' operations are also subject to certain federal, state and local regulatory requirements relating to the use, storage, discharge and disposal of hazardous chemicals used during their manufacturing processes. The Company believes that Kinro and Shoals are currently operating in compliance with applicable laws and regulations, and does not believe that the expense of compliance with these laws and regulations, as currently in effect, will have a material effect on Kinro's or Shoals' capital expenditures, earnings or competitive position. Page -3- Recent Events On February 13, 1997, the Company's Board of Directors approved a two-for-one stock split by means of 100% stock dividend on its Common Stock. The stock split was effective on March 21, 1997, for stockholders of record on March 4, 1997. Assuming the exercise of all options, prior to the stock split and the purchase of shares from Edward W. Rose, III discussed below, the Company had approximately 5,676,000 shares outstanding, and following the stock split and purchase of shares, the Company has approximately 9,752,000 shares outstanding. On February 13, 1997, the Company announced that it would purchase from Edward W. Rose, III, Chairman of the Board of the Company, 800,000 shares of the Company's Common Stock, representing approximately 15% of the Company's outstanding stock and 50% of the Company's shares owned by Mr. Rose, at a price of $26 per share. The purchase price was paid by a short-term promissory note of the Company in the amount of $20.8 million bearing interest at 7% per annum (the "Purchase Note"). Before giving effect to the purchase, Mr. Rose owned beneficially and of record 1,641,740 pre-split shares of the Company's Common Stock, and owned beneficially a partial interest in an additional 86,200 pre-split shares held in retirement accounts, representing an aggregate of 32.2% of the Company's outstanding shares. After giving effect to the purchase and the stock split, Mr. Rose continues to own beneficially and of record 1,683,480 shares, and continues to beneficially own a partial interest in the additional 172,400 shares, representing an aggregate of 20.3% of the Company's outstanding shares. Members of Mr. Rose's immediate family continue to beneficially own an additional 258,000 shares, in which Mr. Rose disclaims any beneficial interest. Mr. Rose intends to remain active in management of the Company and to continue as Chairman of the Board. Mr. Rose's decision to sell a portion of his shares was motivated by his interest to diversify his investments. The long-term increase in the price of the Company's stock resulted in Mr. Rose's investment in the Company constituting a disproportionate share of his net assets. Purchase of Mr. Rose's shares was advantageous to the Company because the purchase price was below the market price, and the repurchase was accretive to earnings per share. The Company has received a commitment letter from Chase Manhattan bank to increase Drew's line of credit to $40 million, of which approximately $21 million will be utilized to repurchase Mr. Rose's shares and the balance will be used for potential acquisitions and working capital. Employees The approximate number of persons employed full-time by the Company at December 31, 1996 was as follows: Drew....................... 6 Kinro...................... 1,031 Shoals..................... 275 ----- Total.................. 1,312 ===== None of the Company's or its subsidiaries' employees are represented by a union. The Company and its subsidiaries believe that relations with its employees are good. Page -4- Item 2. PROPERTIES Drew leases its principal executive offices in White Plains, New York, consisting of approximately 2,800 square feet of office space. Kinro owns four and leases six manufacturing and warehouse facilities consisting of an aggregate of approximately 725,000 square feet, in Mansfield, Texas; Double Springs, Alabama; Liberty, North Carolina; Thomasville, Georgia; Morraine, Ohio; Goshen (two facilities) and Elkhart, Indiana; Fontana, California; and Dayton, Tennessee; and leases its corporate offices in Arlington, Texas consisting of approximately 8,500 square feet of office space. Kinro is currently constructing a third manufacturing and warehouse facility, consisting of 104,000 square feet, on land owned by Kinro in Goshen, Indiana. Shoals owns one and leases four manufacturing and warehouse facilities consisting of an aggregate of approximately 200,000 square feet in Bear Creek and Phil Campbell, Alabama; Rockwell, North Carolina; Elm Mott, Texas; and Maynardsville, Tennessee. See Note 10 of Notes to Consolidated Financial Statements with respect to the Company's lease obligations as of December 31, 1996. Item 3. LEGAL PROCEEDINGS The Company is not a party to any legal proceedings which, in the opinion of Management, could have a material adverse effect on the Company or its consolidated financial position. See Note 6 of Notes to Consolidated Financial Statements with respect to certain product liability claims pending against White Metal Rolling and Stamping Corp. ("White Metal"), a subsidiary of Leslie-Locke, arising in connection with the ladder manufacturing business formerly conducted by White Metal. Although the Company was named as a defendant in certain actions commenced in connection with these claims, the Company has not been held responsible, and the Company disclaims any liability for the obligations of White Metal. See Note 6 of Notes to Consolidated Financial Statements with respect to the filing by White Metal, on September 30, 1994, of a voluntary petition seeking liquidation under the provisions of chapter 7 of the United States Bankruptcy Code. On May 7, 1996, the Company and its subsidiary, Kinro, Inc., and Leslie Building Products, Inc. and its subsidiary, Leslie-Locke, were served with a summons and complaint in an adversary proceeding commenced by the chapter 7 trustee of White Metal. The complaint, which appears to allege several duplicate claims, seeks damages in the aggregate amount of $10.6 million plus attorneys fees, of which up to approximately $8.4 million is sought, jointly and severally, from the Company, Kinro, Leslie Building Products and Leslie-Locke. The proceeding is based principally upon the trustee's allegations, previously disclosed by the Company, that the Company and its affiliated companies obtained tax benefits attributable to the use of White Metal's net operating losses. The trustee seeks to recover the purported value of the tax savings achieved, which appears to be approximately $7.5 million. Management believes that the trustee's allegations are without merit and have no basis in fact. In addition, the trustee alleges that White Metal made certain payments to the Company which were preferential and are recoverable by White Metal, in the approximate amount of $900,000. The Company denies liability for any such amount and is vigorously defending against the allegations. However, an estimate of potential loss, if any, cannot be made at this time. The Company believes that it has sufficient accruals for the defense of this proceeding and that such defense will not have a material adverse impact on the Company's financial condition or results of operations. Page -5- Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following tables set forth certain information with respect to the Directors and Executive Officers of the Company as of December 31, 1996. Name Position Leigh J. Abrams President, Chief Executive Officer and Director of (Age 54) the Company since March 1984. Edward W. Rose, III Chairman of the Board of Directors of the Company (Age 55) since March 1984. David L. Webster Director of the Company since March 1984. (Age 61) James F. Gero Director since May 1992. (Age 51) Gene H. Bishop Director since June 1995. (Age 67) Fredric M. Zinn Chief Financial Officer of the Company since (Age 45) January 1986. Harvey J. Kaplan Secretary and Treasurer of the Company since (Age 62) March 1984. LEIGH J. ABRAMS has also been President, Chief Executive Officer and a Director of Leslie Building Products since July 1994. EDWARD W. ROSE, III, for more than the past five years, has been President and principal stockholder of Cardinal Investment Company, Inc., an investment firm. Mr. Rose also serves as Co-Managing General Partner of the Texas Rangers Baseball Team and as a director of the following public companies: Osprey Holding, Inc., previously engaged in selling computer software for hospitals; and ACE Cash Express, Inc. engaged in check cashing services. Since July 1994, Mr. Rose has been Chairman of the Board of Leslie Building Products. DAVID L. WEBSTER, since November 1980, has been President and Chief Executive Officer of Kinro, Inc., a subsidiary of the Company, and Chairman of Kinro, Inc. since November 1984. Mr. Webster has also been President and Chief Executive Officer of Shoals Supply, Inc., a subsidiary of the Company, since its acquisition in February 1996. JAMES F. GERO, since March 1992, has been Chairman and Chief Executive Officer of Sierra Technologies, Inc., a manufacturer of defense systems technologies. From July 1987 to October 1989, Mr. Gero was Chairman and Chief Executive Officer of Varo, Inc., a manufacturer of defense electronics, and from 1985 to 1987, Mr. Gero was President and Chief Executive Officer of Varo, Inc. Mr. Gero also serves as a director of the following public Page -6- companies: Recognition Equipment, Inc., engaged in providing hardware, software and services to automate work processing systems; American Medical Electronics, Inc., engaged in manufacturing and distributing orthopedic and neurosurgical medical devices; and Spar Aerospace Ltd., engaged in space robotics, communications equipment and aerospace products and services. Since July 1994, Mr. Gero has been a Director of Leslie Building Products. GENE H. BISHOP, from March 1975 until July 1990, was Chief Executive Officer of MCorp, a bank holding company, and from October 1990 to November 1991, was Vice Chairman and Chief Financial Officer of Lomas Financial Corporation, a financial services company. From November 1991 until his retirement in October 1994, Mr. Bishop served as Chairman and Chief Executive Officer of Life Partners Group, Inc., a life insurance holding company, of which he continues to serve as a director. Mr. Bishop also serves as a director of the following publicly-owned companies: First USA, Inc., engaged in the credit card business; Liberte-Investors, engaged in real estate loans and investments; Southwest Airlines Co., a regional airline; and Southwestern Public Service Company, a public utility. FREDRIC M. ZINN has also been Chief Financial Officer of Leslie Building Products since July 1994. Mr. Zinn is a Certified Public Accountant. HARVEY J. KAPLAN has also been Secretary and Treasurer of Leslie Building Products since July 1994. Mr. Kaplan is a Certified Public Accountant. Compliance with Section 16(a) of the Securities Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers and directors, and persons who beneficially own more than ten percent of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the American Stock Exchange. Officers, directors and greater than ten-percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on its review of the copies of such forms received by it, the Company believes that during 1996 all such filing requirements applicable to its officers and directors (the Company not being aware of any ten percent holder during 1995 other than Edward W. Rose, III a Director) were complied with, except that Gene H. Bishop, a director of the Company, inadvertently filed late with respect to an aggregate of 800 shares of the Common Stock of the Company purchased for his children. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Per Share Market Price Information The Common Stock of the Company is traded on the American Stock Exchange (symbol: DW). On February 26, 1997, there were 2,369 holders of record of the Common Stock. The Company estimates that 2,000 to 4,000 additional stockholders own shares of its Common Stock held in the name of Cede & Co. and other broker and nominee names. The table below sets forth, for the periods indicated, the range of high and low closing prices per share for the Common Stock as reported by the American Stock Exchange since February 8, 1995, and by the National Association of Securities Dealers ("NASD") prior to February 8, 1995. The prices set forth below for the period prior to February Page -7- 8, 1995 represent quotations between dealers, without adjustment for retail mark-up, mark-down or commissions, and do not necessarily represent actual transactions. High Low Calendar 1995 Quarter ended March 31......................... $ 5.25 $ 4.19 Quarter ended June 30.......................... $ 6.56 $ 5.19 Quarter ended September 30..................... $ 6.94 $ 5.75 Quarter ended December 31...................... $ 8.19 $ 6.32 Calendar 1996 Quarter ended March 31 ........................ $ 8.00 $ 6.75 Quarter ended June 30.......................... $ 9.25 $ 7.32 Quarter ended September 30..................... $12.32 $ 8.38 Quarter ended December 31...................... $13.62 $10.62 The closing price per share for the Common Stock on February 26, 1997 was $13.62. All of the above prices have been retroactively adjusted to reflect the two-for-one split effective March 21, 1997 to stockholders of record on March 4, 1997. Dividend Information The Company has not paid any cash dividends on its Common Stock. Future dividend policy with respect to the Common Stock will be determined by the Board of Directors of the Company in light of prevailing financial needs and earnings of the Company and other relevant factors. The Company's dividend policy is subject to restrictions contained in financing agreements relating to its secured line of credit, which provide that dividends upon the Common Stock may be payable only with the consent of the lender. See Note 8 of Notes to Consolidated Financial Statements. On February 13, 1997, the Company declared a two-for-one stock split by means of a 100% stock dividend, payable on March 21, 1997 to stockholders of record on March 4, 1997. Item 6. SELECTED FINANCIAL DATA, Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, and Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, are incorporated by reference to Selected Financial Data, Financial Review, and Consolidated Financial Statements and Notes to Consolidated Financial Statements, respectively, in the Company's Annual Report to Stockholders for the year ended December 31, 1996. Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III Part III of Form 10-K is incorporated by reference to the Company's Proxy Statement with respect to its Annual Meeting of Stockholders to be held on May 13, 1997. Page -8- PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES and REPORTS ON FORM 8-K (a) Documents Filed (1) Financial Statements. The Consolidated Financial Statements of the Company and its subsidiaries are incorporated by reference to the Consolidated Financial Statements and Notes to Consolidated Financial Statements in the Company's Annual Report to Stockholders for the year ended December 31, 1996. (2) Schedules. Schedule II - Valuation and Qualifying Accounts. (3) Exhibits. See "List of Exhibits" at the end of this report incorporated herein by reference. (b) Reports on Form 8-K No Current Reports on Form 8-K were filed during the quarter ended December 31, 1996. Page -9- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. DREW INDUSTRIES INCORPORATED Date: March 24, 1997 By: /s/Leigh J. Abrams ----------------------------------- Leigh J. Abrams, President Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and dates indicated. Each person whose signature appears below hereby authorizes Leigh J. Abrams and Harvey J. Kaplan, or either of them, to file one or more amendments to the Annual Report on Form 10-K which amendments may make such changes in such Report as either of them deems appropriate, and each such person hereby appoints Leigh J. Abrams and Harvey J. Kaplan, or either of them, as attorneys-in-fact to execute in the name and on behalf of each such person individually, and in each capacity stated below, such amendments to such Report. Date Signature Title - ---- --------- ----- March 24, 1997 By:/s/Leigh J. Abrams Director, President and Chief --------------------- Executive Officer (Leigh J. Abrams) March 24, 1997 By:/s/Harvey J. Kaplan Secretary and Treasurer --------------------- (Harvey J. Kaplan) March 24, 1997 By:/s/Fredric M. Zinn Chief Financial Officer --------------------- (Fredric M. Zinn) March 24, 1997 By:/s/John F. Cupak Controller --------------------- (John F. Cupak) March 24, 1997 By:/s/Edward W. Rose, III Director --------------------- (Edward W. Rose, III) March 24, 1997 By:/s/David L. Webster Director --------------------- (David L. Webster) March 24, 1997 By:/s/James F. Gero Director --------------------- (James F. Gero) March 24, 1997 By:/s/Gene H. Bishop Director --------------------- (Gene H. Bishop) Page -10- Report of Independent Auditors The Board of Directors Drew Industries Incorporated Under date of February 12, 1997, except for the first paragraph of Note 14, which is as of March 21, 1997, we reported on the consolidated balance sheets of Drew Industries Incorporated and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, as contained on pages 10 through 19 in the 1996 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedule as listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Stamford, Connecticut February 12, 1997 Page -11- DREW INDUSTRIES INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- -------- ----------------------- -------- -------- Additions ----------------------- Balance At Charged To Charged To Balance At Beginning Costs and Other End Of Period Expenses Accounts Deductions Of Period - ------------------------------------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, 1996: Allowance for doubtful accounts receivable, trade $ 266 $23 $30(a) $ 11(b) $308 Reserve for liquidation losses - disposal of businesses 9 9 Reserve for revaluation of loans 334 27 361 Reserve for notes receivable 692 (321) (127)(c) 498 YEAR ENDED DECEMBER 31, 1995: Allowance for doubtful accounts receivable, trade $ 197 $74 $ 5(b) $266 Reserve for liquidation losses - disposal of businesses 9 9 Reserve for revaluation of loans 319 15 334 Reserve for notes receivable 533 46 (113)(c) 692 YEAR ENDED DECEMBER 31, 1994: Allowance for doubtful accounts receivable, trade $ 177 $17 $ (3)(b) $197 Reserve for liquidation losses - disposal of businesses 9 9 Reserve for revaluation of loans 304 15 319 Reserve for notes receivable 564 144 175(c) 533
(a) Represents balance at date of acquisition of Shoals Supply, Inc. (b) Represents accounts written-off net of recoveries. (c) Represents write-off of uncollectible portion of notes, net of recoveries. Page -12- EXHIBIT INDEX Exhibit Sequentially Number Description Numbered Page 3. Articles of Incorporation and By-laws. 3.1 Drew Industries Incorporated Restated Certificate of Incorporation. 3.2 Drew Industries Incorporated By-laws, as amended. Exhibit 3.1 is incorporated by reference to Exhibit III to the Proxy Statement-Prospectus constituting Part I of the Drew National Corporation and Drew Industries Incorporated Registration Statement on Form S-14 (Regis tration No. 2-94693). Exhibit 3.2 is incorporated by reference to the Exhibit bearing the same number included in the Annual Report of Drew Industries Incorporated on Form 10-K for the fiscal year ended August 31, 1985. 10 Material Contracts. 10.27 Lease between Kinro, Inc. and Robert A. White and Larry B. White, dated June 1, 1979, as amended. 10.39 Leases between Robert A. White, Larry B. White and Kinro, Inc. dated July 25, 1983, as amended. 10.47 Registration Agreement among Drew Industries Incorporated and the Leslie-Locke Shareholders dated August 28, 1985. 10.49 Loan and Pledge Agreements between Drew Industries Incorporated and Robert S. Sandlin, Ralph C. Pepper and James S. Roach, respectively, dated August 28, 1985. 10.56 Agreement by and between Drew Industries Incorporated and Invest, Inc., dated October 16, 1986. 10.57 Security Agreement by and among Drew Industries Incorporated, Invest, Inc. and Carsons of Atlanta, Inc., dated October 16, 1986. 10.58 Pledge and Security Agreement by and between Drew Industries Incorporated and Invest, Inc., dated October 16, 1986. 10.59 Secured Promissory Note in the amount of $795,000 of Invest, Inc., dated October 16, 1986. 10.66 Employment Agreement by and between Kinro, Inc. and David L. Webster, dated March 31, 1996. 10.91 Lease between Kinro, Inc. and 1700 Industry Associates, dated April 30, 1987. 10.100 Drew Industries Incorporated Stock Option Plan. Page -13- 10.122 Guaranty and Non-competition Agreement given by Drew Industries Incorporated and Leslie-Locke, Inc., in favor of R.D. Werner Co., Inc., dated as of November 23, 1990. 10.134 Letter, dated April 28, 1988, from Drew Industries Incorporated to Leigh J. Abrams confirming compensation arrangement. 10.135 Description of split-dollar life insurance plan for certain executive officers. 10.139 Guaranty Agreement between Drew Industries, Inc. and BBT dated June 21, 1993. 10.140 Credit Agreement dated as of July 30, 1993 among Drew Industries Incorporated, Kinro, Inc., Leslie-Locke, Inc. and Chemical Bank. 10.141 $15,000,000 Revolving Note of Kinro, Inc. to Chemical Bank dated July 30, 1993. 10.142 $15,000,000 Revolving Note of Leslie-Locke, Inc. to Chemical Bank dated July 30, 1993. 10.143 Pledge and Security Agreement dated as of July 30, 1993 between Drew Industries Incorporated and Chemical Bank. 10.144 Patent and Trademark Security Assignment (As Collateral) dated as of July 30, 1993 between Kinro, Inc. and Chemical Bank. 10.145 $15,000,000 Intercompany Notes from Drew Industries Incorporated to Kinro, Inc. and Leslie-Locke, Inc., and from Kinro, Inc. and Leslie-Locke, Inc. to Drew Industries Incorporated dated July 30, 1993. 10.146 Form of Plan and Agreement of Distribution between Leslie Building Products, Inc. and Drew Industries Incorporated dated July 29, 1994. 10.147 Form of Shared Services Agreement between Leslie Building Products, Inc. and Drew Industries Incorporated dated July 29, 1994. 10.148 Form of Tax Matters Agreement between Leslie Building Products, Inc. and Drew Industries Incorporated dated July 29, 1994. 10.149 Credit Agreement dated July 29, 1994 among Drew Industries Incorporated, Kinro, Inc. and Chemical Bank. 10.150 Pledge Agreement dated as of July 29, 1994 made by Drew Industries Incorporated in favor of Chemical Bank. 10.151 Asset Purchase Agreement, dated February 15, 1996, by and among Shoals Supply, Inc., Lecil V. Thomas, and Drew Industries Incorporated. 10.152 Non-Negotiable Promissory Note, dated February 15, 1996, of Shoals Acquisition Corp., to the order of Shoals Supply, Inc. in the principal amount of $760,000, guaranteed by Drew Industries Incorporated. 10.153 Bill of Sale, dated February 15, 1996 by and between Shoals Supply, Inc. and Drew Industries Incorporated. 10.154 Registration Rights Agreement, dated February 15, 1996, by and among Drew Industries Incorporated, Shoals Supply, Inc., and Lecil V. Thomas. Page -14- 10.155 Consulting and Non-Competition Agreement, dated February 15, 1996, by and between Drew Industries Incorporated and Lecil V. Thomas. 10.156 Leases, dated February 15, 1996, between Thomas Family Partnership, Ltd. and Shoals Acquisition Corp. 10.157 Employment Bonus Agreements, dated February 15, 1996, by and between Shoals Supply, Inc. and the employees named therein. 10.158 Assignment, dated February 15, 1996, by and among Shoals Supply, Inc., Lecil V. Thomas and Drew Industries Incorporated. 10.159 Stock Purchase and Pledge Agreement and Non-Negotiable Promissory Note, dated March 7, 1997 by and between Drew Industries Incorporated and Edward W. Rose, III. Exhibit 10.27 is incorporated by reference to the Exhibits bearing the same number indicated on the Registration Statement of Drew National Corporation on Form S-1 (Registration No. 2-72492). Exhibit 10.39 is incorporated by reference to the Exhibit included in the Annual Report of Drew National Corporation on Form 10-K for the fiscal year ended August 31, 1983. Exhibits 10.47 and 10.49 are incorporated by reference to the Exhibits included in the Company's Current Report on Form 8-K dated September 6, 1985. Exhibits 10.56-10.59 are incorporated by reference to the Exhibits bearing the same numbers included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1987. Exhibit 10.66 is filed herewith. Exhibit 10.91 is incorporated by reference to the Exhibits bearing the same numbers included in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1987. Exhibit 10.100 is incorporated by reference to Exhibit A to the Proxy Statement of the Company dated May 10, 1995. Exhibit 10.122 is incorporated by reference to the Exhibits included in the Company's Current Report on Form 8-K, dated November 28, 1990. Exhibits 10.123-10.130 are incorporated by reference to the Exhibits included in the Company's Current Report on Form 8-K dated December 23, 1991. Exhibits 10.131 and 10.132 are incorporated by reference to the Exhibits included in Amendment No. 5 on Form 8, dated October 20, 1992, to the Company's Current Report on Form 8-K dated January 9, 1987. Exhibit 10.134 is incorporated by reference to the Exhibit bearing the same number included in the Company's Transition Report on Form 10-K for the period September 1, 1992 to December 31, 1993. Exhibit 10.135 is incorporated by reference to the Exhibit bearing the same number included in the Company's Transition Report on Form 10-K for the period September 1, 1992 to December 31, 1993. Exhibits 10.139-10.145 are incorporated by reference to the Exhibits bearing the same number included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993. Page -15- Exhibits 10.146-10.148 are incorporated by reference to the Exhibits bearing numbers 10.1, 10.3 and 10.4, respectively, included in Post-Effective amendment No. 1 on Form 10/A, dated August 30, 1994, to the Registration Statement of Leslie Building Products, Inc. on Form 10 (Registration No. 0-24094). Exhibits 10.149 and 10.150 are incorporated by reference to the Exhibits bearing the same numbers included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Exhibits 10.151 - 10.158 are incorporated by reference to the Exhibits included in the Company's Current Report on Form 8-K dated February 29, 1996. Exhibit 10.159 is filed herewith. 13. 1996 Annual Report to Stockholders. Exhibit 13 is filed herewith. 21. Subsidiaries Exhibit 21 is filed herewith. 23. Consent of Independent Auditors. Exhibit 23 is filed herewith. 24. Powers of Attorney. Powers of Attorney of persons signing this Report are included as part of this Report. Page -16- EX-13 2 ANNUAL REPORT DREW 1996 ANNUAL REPORT Quality Products for Manufactured Homes and RV's [Photograph] Windows and Doors for RV's [Photograph] Windows, axles, tires and chassis parts for Manufactured Homes [Photograph] [MAP] Company Profile - -------------------------------------------------------------------------------- "Drew has committed its financial and managerial resources to maximizing shareholder value. Our long standing policy of rewarding all levels of management through incentives based upon operating results sparks the entrepreneurial spirit that, we believe, is responsible for Drew's record results and outstanding returns to shareholders." Drew, through its subsidiaries, Kinro, Inc., and Shoals Supply, Inc., is a nationwide supplier to the manufactured housing and recreational vehicle ("RV") industries. Kinro is a leading producer of aluminum and vinyl windows for manufactured homes, as well as windows and doors for RV's. Many of the producers of manufactured homes to whom Kinro sells windows also manufacture RV's. Kinro has ten domestic manufacturing plants in eight states, and has an eleventh plant under construction, located in geographic areas which provide access to its major markets. Shoals, under the management umbrella of Kinro, is a supplier of products used to transport manufactured homes. Shoals manufactures new axles and chassis parts, refurbishes used axles, and distributes new and refurbished tires. Shoals operates four plants in four states. Financial Highlights 1996 1995 1994 - -------------------------------------------------------------------------------- (In thousands, except per share amounts) - -------------------------------------------------------------------------------- Net Sales $168,151 $100,084 $ 82,965 - -------------------------------------------------------------------------------- Income From Continuing Operations (a) $ 13,386 $ 7,822 $ 5,570 - -------------------------------------------------------------------------------- Income Per Common Share from Continuing Operations (a),(b) $ 1.25 $ .79 $ .57 - -------------------------------------------------------------------------------- Working Capital (a) $ 16,124 $ 8,820 $ 6,017 - -------------------------------------------------------------------------------- Stockholders' Equity (a) $ 34,765 $ 16,002 $ 8,072 - -------------------------------------------------------------------------------- Book Value Per Common Share (a),(b) $ 3.24 $ 1.61 $ .82 - -------------------------------------------------------------------------------- (a) On July 29, 1994, the Company spun off to stockholders its wholly-owned subsidiary, Leslie Building Products. The results of Leslie Building Products prior to the Spin-off are reflected as discontinued operations in the accompanying Consolidated Financial Statements. On the date of the Spin-off the net assets of Leslie Building Products was $20.3 million. Accordingly, upon the Spin-off the Company's equity was reduced by $20.3 million. (b) Adjusted retroactively to give effect to two-for-one stock split effective March 21, 1997. [The following table was represented by bar graphs in the printed material.] INCOME FROM CONTINUING EARNINGS NET SALES OPERATIONS PER SHARE (MILLIONS) (MILLIONS) (DOLLARS) ---------- ---------- ---------- 1994 $ 83.0 $ 5.6 $0.57 1995 $100.1 $ 7.8 $0.79 1996 $168.2 $13.4 $1.25 DREW INDUSTRIES 1 Letter to Stockholders - -------------------------------------------------------------------------------- "Our outstanding results were attained only through the extraordinary efforts of our dedicated employees and the entrepreneurial spirit at all levels of our Company. With this in sight, we look optimistically to 1997." We are pleased to report that 1996 was another outstanding year for Drew: o Record sales of $168 million - up 68% from 1995. o Record net income of $13.4 million - up 71% from last year. o Record per share net income of $1.25 compared with $.79 for last year. o Return on equity of 53%. o The acquisition of Shoals Supply in February 1996. o Bank debt of $3 million at December 31, 1996 despite spending cash of $13 million related to the Shoals Supply acquisition and $6 million for capital improvements. o A 95% increase in the price of the Company's common stock to $27.25 (pre-split) on February 26, 1997 from $14.00 at the beginning of 1996. If this looks similar to last year's letter, it is - except the numbers are better. [Photograph] [Photograph] Shoals Supply, under the management umbrella of Kinro, is included in our results for ten and-a-half months and performed better than anticipated. The acquisition of Shoals helped Drew in several ways: first, Shoals has a strong earnings capacity, second, the new products strengthen our importance as a supplier to our customers, and third, the new products provide new sources of growth. The axle business is highly fragmented and Kinro will introduce Shoals' products to Kinro's wider distribution network and customer base. As Shoals' manufacturing capacity is expanded, we look for significant growth. Kinro had outstanding 1996 results - again. Profits and cash flow were at record levels. Two new factories were built, providing greater capacity and permitting the introduction of new manufacturing processes. Kinro is now producing [Photograph] its own tempered glass and has expanded its vinyl window production with a "state of the art" vinyl line. Kinro's 11% sales growth came from both the manufactured housing and RV divisions. Kinro continues to produce quality products at reasonable prices, and to provide its customers with superior service. As a result, Kinro enjoys significant market share for each of its products. On February 13, 1997 we announced that the Company will split its stock two-for-one effective March 21, 1997, and that the Company had acquired 800,000 pre-split Drew shares from our Chairman, Edward W. Rose III, at $26 per share, which was below the market price. Mr. Rose will continue to own 20.3 percent of the Company's stock and he intends to remain active and to continue as Chairman. The buyback will be accretive to earnings per share. We're satisfied - in fact, we're delighted - with our current status. Basic operations remain strong, our management is the best in the industry, and we are poised for expansion through internal growth and acquisitions. We will continue our search for other companies that fit our strategic plans. We've saved the best for last. Our outstanding results were attained only through the extraordinary efforts of our dedicated employees and the entrepreneurial spirit at all levels of our Company. With this in sight, we look optimistically to 1997. /s/ Edward W. Rose, III Edward W. Rose, III Chairman of the Board /s/ Leigh J. Abrams Leigh J. Abrams President and Chief Executive Officer DREW INDUSTRIES 3 About the Company Drew, through its subsidiaries, Kinro, and Shoals, is a leading supplier of windows, axles, tires and chassis parts for manufactured homes (81 percent of sales), as well as windows and doors for recreational vehicles ("RV's") and windows for mini-buses (19 percent of sales). Both manufactured housing and recreational vehicles are expected to be solid growth industries in the years ahead. [The following table was represented as a pie graph in the printed material.] 1996 Product Sales MFG. HOUSING - WINDOWS 47% MFG. HOUSING - AXLES, TIRES AND OTHER 34% RV AND OTHER - WINDOWS AND DOORS 19% TOTAL 100% Drew's record of growth, profitability and strong cash flow results from the ability to supply quality products and superior service while maintaining the most efficient and lowest cost production techniques. Drew's strong balance sheet, the result of both cash flow from operations and asset management, should enable it to take advantage of future growth opportunities. Manufactured Housing Industry A modern manufactured home is an affordable, single family, factory-built structure, transportable in one or more sections, which bears little resemblance to the old "trailer" or "mobile home." Single section homes average 1,100 sq. ft. and multi-section homes over 1,600 sq. ft. Sales of factory-built homes have steadily taken market share from site-built homes because they represent the most affordable choice of quality single family homes. Financing alternatives for buyers, and zoning regulations are becoming more favorable. Manufactured homes, which cost an average of $36,000 (excluding land) are built to a stringent national building code. In 1996 the industry shipped 363,400 homes, up 7 percent from 1995 and 112 percent from 1991. In 1997 shipments are expected to grow to about 380,000 homes, more than 25 percent of single-family housing starts. Growth of Drew's business is augmented by the continuing trend towards multi-section homes, which require more windows, axles and tires. Multi-section homes represented 54 percent of 1996 production, versus 47 percent in 1991. Recreational Vehicle Industry An RV is, in effect, a traveling home which affords the owner the mobility to enjoy travel while providing many of the comforts of home. Industry sales of RV's were 247,500 units in 1996, equal to 1995 and 58 percent above 1991. Demographic trends continue to favor growth in the RV industry, since typical first-time RV buyers are in their late 40's or early 50's, the fastest growing segment of the population. The industry has also recently begun to promote RV's to younger adults. [The following table was represented by a bar graph in the printed material.] Industry Shipments of Mfg. Homes & RV's (In Thousands) MFG. HOUSING RV'S ------------ ---- 1991 170.7 163.3 1992 210.8 203.4 1993 254.3 227.8 1994 303.9 259.2 1995 339.6 247.0 1996 363.4 247.5 Our Divisions - -------------------------------------------------------------------------------- "Drew's record of growth, profitability and strong cash flow results from the ability to supply quality products and superior service while maintaining the most efficient and lowest cost production techniques." Kinro Kinro's ten strategically located factories supply windows for manufactured homes, windows and doors for RV's and windows for mini-buses. Kinro's high market share demonstrates its ability to respond quickly to the demands of its customers. As a result, Kinro has received numerous awards of excellence from its customers in recognition of its superior service. Through internal growth and a series of successful acquisitions, Kinro has expanded its product line and broadened its geographic territory, enabling it to increase sales from $10 million in 1980 to over $110 million in 1996. [Photograph] Kinro's highly experienced and knowledgeable operating management, participates in profit incentive plans and a company-wide stock option plan, which ensure incentive to maximize shareholder value. Shoals [Photograph] Shoals, a supplier of products used to transport manufactured homes, was acquired in February 1996. Shoals manufactures new axles and chassis parts, refurbishes used axles, and distributes new and refurbished tires. Shoals increases the Company's presence in the manufactured housing industry, making it an even more essential supplier to its customers. The Company intends to expand Shoals' geographic territory, now primarily in the south eastern and south central states, both internally and through strategically selected acquisitions. Shoals' first year of operations after its acquisition was more successful than anticipated. With the help of Kinro's management team, sales force and engineering capabilities, Shoals' sales and profits are expected to continue to grow. [Photograph] DREW INDUSTRIES 5 Drew Industries Incorporated Financial Review The Company, through its wholly-owned subsidiaries Kinro, Inc. ("Kinro") and Shoals Supply, Inc. ("Shoals") manufactures and markets (i) windows, axles, tires and chassis parts for manufactured housing (81% of sales), (ii) windows and doors for recreational vehicles ("RV's") (18% of sales) and (iii) to a lesser extent, windows for mini-buses (1% of sales). Kinro is one of the leading producers of windows for manufactured homes in the United States. Kinro also manufactures windows and doors for RV's. Many of the producers of manufactured homes, to whom Kinro sells windows, also manufacture RV's. Kinro's products are manufactured in ten domestic plants which provide it with access to its major markets. An eleventh plant is currently under construction. Shoals, which was acquired by the Company on February 15, 1996, and is under the management umbrella of Kinro, is a supplier of products used to transport manufactured homes. Shoals manufactures new axles and chassis parts, refurbishes used axles, and distributes new and refurbished tires. Shoals operates four domestic factories located in four states. Results of Operations Net sales, gross margin and operating profit are (in thousands): Year Ended December 31, - -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Net sales $168,151 $100,084 $82,965 Gross profit $ 42,759 $ 27,482 $22,436 Operating profit $ 22,329 $ 12,791 $ 9,149 - -------------------------------------------------------------------------------- Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 Net sales for the year ended December 31, 1996 increased 68% over last year. Sales for the current year include Shoals' sales from February 15, 1996, the date that Shoals was acquired by the Company. Excluding Shoals, the Company's sales (consisting of Kinro's sales) increased 11% for the year. The increase in Kinro's net sales resulted both from the sales of manufactured housing products, which increased 14%, and sales of RV products which increased 5% for the year. Such increases, which exceed the industry-wide increases in shipments of manufactured homes and RV's, are volume related. 1996 industry-wide shipments of manufactured homes were 7% higher than last year and shipments of RV's of the types supplied by Kinro were 1% higher than last year. Operating profit increased 75% to $22,329,000 for 1996. Included in the current year's operating profit are the results of Shoals since the date that it was acquired by the Company. Excluding Shoals, operating profit increased approximately 40% for 1996 as a result of the 11% increase in net sales and an improvement in gross profit as a percent of sales. The increase in gross profit percentage resulted from lower aluminum prices, which have been volatile and, to a lesser extent, a reduction in labor and overhead costs. Aluminum prices have increased subsequent to the end of the year. The Company has been purchasing aluminum futures on the London Metal Exchange to hedge against potential price increases. Selling, general and administrative expenses, again excluding Shoals, increased 20% for 1996 as a result of the increased sales as well as increased profits upon which incentive compensation is based. Shoals' contribution to the Company's operating profit was $4.4 million on net sales of $57 million for the 10 1/2 months since its acquisition. Year Ended December 31, 1995 Compared to Year Ended December 31, 1994 Net sales for the year ended December 31, 1995 increased 21% over 1994, resulting from a 35% increase in the sales of manufactured housing products. Such increase is primarily volume related including the growth in sales of Kinro's new vinyl window along with greater demand for storm windows. To a lesser extent, price increases contributed to the sales growth. Industry-wide shipments of manufactured homes increased 12% in 1995. Kinro's net sales of RV products decreased 4% for the year, despite price increases, following the trend of industry-wide shipments of RV's, which were down approximately 5% for the year. Operating profit increased 40% to $12,791,000 for 1995. While material costs as a percentage of sales were higher in 1995 than in 1994, higher sales and improved operating efficiencies resulted in a slight improvement in gross profit percentage. Selling, general and administrative expenses for 1994 included $462,000 of costs relating to the Spin-off of Leslie Building Products on July 29, 1994. Excluding these costs, selling, general and administrative expenses for 1995 increased 15% which is less than the increase in sales since a substantial portion of these expenses are fixed costs which do not fluctuate with sales. Shared Services Agreement Pursuant to a Shared Services Agreement, following the Spin-off by the Company of Leslie Building Products, Inc. on July 29, 1994, the Company and Leslie Building Products have shared certain administrative functions and employee services, such as management overview and planning, tax preparation, financial reporting, coordination of independent audit, stockholder relations, and 6 regulatory matters. The Company has been reimbursed by Leslie Building Products for the fair market value of such services. This Agreement expires on December 31, 1997 and may be extended. The Company charged fees to Leslie Building Products of $509,000 during 1996, $588,000 during 1995 and $889,000 during 1994 including $340,000 pursuant to the Shared Services Agreement for the five months subsequent to the Spin-off. These fees are included in selling, general and administrative expenses. Interest (Expense) Income Net Net interest expense increased by $460,000 for 1996 from 1995 primarily as a result of debt incurred for the acquisition of Shoals and the $2.8 million purchase of treasury stock. Such debt, and the resulting interest costs, were partially offset by cash flow from operations. Net interest income increased by $147,000 for 1995 from 1994 primarily as a result of operating cash flow. Interest expense on the Company's debt to its secured lender was $81,000 compared to $141,000 for 1994. Such debt was paid off on June 1, 1995 and subsequent cash flow from operations was invested in short-term investments resulting in interest income of $144,000 during 1995. The Company earned additional interest income of $134,000 for 1995 and $251,000 for 1994 primarily from the notes receivable and the related cash collateral account arising from the Company's 1986 sales of its direct-to-consumer merchandising operations. Accounting Changes In 1996 the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which permits companies either to adopt a new method of accounting for employee stock options and similar equity instruments or to continue following the historical accounting method with supplemental pro forma disclosures. The Company is continuing its historical practice, and provides the necessary additional information in footnote disclosure. For 1995 and 1996 the effect of the adoption was immaterial. Liquidity and Capital Resources The Company has a $6 million credit agreement with Chase Manhattan Bank which matures on January 31, 1999 and is secured by the accounts receivable of the Company. At December 31, 1996, there were outstanding borrowings of $3,150,000 under the line of credit and available additional borrowings for general corporate purposes under this line of credit was $2.8 million. As discussed further below, subsequent to December 31, 1996 the Company received a commitment to increase the line of credit. Interest is payable at .25% over the prime rate. In addition, the Company has the option to either fix the rate or convert a portion of the loan to a Eurodollar loan at 2.25% over the LIBO rate. The interest rate is subject to reduction if certain financial targets are achieved. The Statements of Cash Flows reflect the following: Year Ended December 31, - -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Net cash flows provided by continuing operations $ 11,927 $ 9,593 $ 6,475 Net cash flows (used for) investment activities $(14,948) $(1,941) $(8,548) Net cash flows provided by (used for) financing activities $ 538 $(4,093) $ 2,392 - -------------------------------------------------------------------------------- Net cash provided by operating activities from continuing operations for 1996, which does not include the balance of the assets and liabilities of Shoals on February 15, 1996, the date of the acquisition of Shoals, was $11.9 million compared to $9.6 million for 1995. Accounts receivable decreased $2.2 million in 1996 and increased $1.1 million in 1995 resulting primarily from the timing of customer payments in late December. Inventories increased $4.6 million in 1996 compared to $.5 million for 1995. Part of the increase in inventories in 1996 was due to a build up in tire purchases. Payables decreased $.3 million and increased $2.4 million in 1996 and 1995, respectively. Cash flows used for investing activities in 1996 are primarily the $10 million cost of the Shoals acquisition, as well as capital expenditures. Capital expenditures approximated $5.8 million in 1996, $1.9 million in 1995 and $1.2 million for 1994. Capital expenditures for 1996 were primarily for the construction of two new plants and the purchase of related machinery and equipment. Construction began recently on another plant in Goshen, Indiana which will be completed in mid 1997. Capital expenditures for 1997 are expected to range from $4 million to $8 million depending upon expansion projects currently under review. Such capital expenditures are being funded from borrowings under the line of credit and cash flow from operations. Cash flows used for investing activities in 1994 includes Drew's funding of Leslie Building Products of $7.5 million. Leslie Building Products was spun off to the Company's stockholders as of July 29, 1994. Cash flows provided by financing activities in 1996 includes the borrowing of $6 million for the acquisition of Shoals and $.8 million from the exercise of employee 7 stock options and the income tax benefits resulting therefrom. These funds provided were offset by $2.8 million used to reacquire 400,000 shares of treasury stock and $3.5 million to pay down the Company's loan under its revolving line of credit. The reacquired shares were originally issued in connection with the acquisition of Shoals. On September 30, 1994, White Metal Rolling and Stamping Corp. ("White Metal"), Leslie-Locke's discontinued ladder manufacturing subsidiary, filed a voluntary petition seeking liquidation under the provisions of chapter 7 of the United States Bankruptcy Code. The net liabilities of White Metal of $3.5 million are substantially all accrued product liability costs. While Drew was named as a defendant in certain actions commenced in connection with these claims, Drew has not been held responsible, and Drew disclaims any liability for the obligations of White Metal. On May 7, 1996, the Company and its subsidiary, Kinro, Inc., and Leslie Building Products, Inc. and its subsidiary, Leslie-Locke, were served with a summons and complaint in an adversary proceeding commenced by the chapter 7 trustee of White Metal. The complaint, which appears to allege several duplicate claims, seeks damages in the aggregate amount of $10.6 million plus attorneys fees, of which up to approximately $8.4 million is sought, jointly and severally, from the Company, Kinro, Leslie Building Products and Leslie-Locke. The proceeding is based principally upon the trustee's allegations, previously disclosed by the Company, that the Company and its affiliated companies obtained tax benefits attributable to the use of White Metal's net operating losses. The trustee seeks to recover the purported value of the tax savings achieved, which appears to be approximately $7.5 million. Management believes that the trustee's allegations are without merit and have no basis in fact. In addition, the trustee alleges that White Metal made certain payments to the Company which were preferential and are recoverable by White Metal, in the approximate amount of $900,000. The Company denies liability for any such amount and is vigorously defending against the allegations. However, an estimate of potential loss, if any, cannot be made at this time. The Company believes that it has sufficient accruals for the defense of this proceeding and that such defense will not have a material adverse impact on the Company's financial condition or results of operations. Inflation The prices of raw materials, consisting primarily of aluminum, steel, glass and tires, are influenced by demand and other factors specific to these commodities rather than being directly affected by inflationary pressures. Prices of certain of these commodities have historically been volatile. In order to hedge the impact of future price fluctuations on a portion of its future aluminum raw material requirements, the Company periodically purchases aluminum futures contracts on the London Metal Exchange. At December 31, 1996 the Company had no futures contracts outstanding, however, in January 1997 the Company purchased futures contracts to hedge a portion of its 1997 aluminum requirements. Subsequent Event On February 13, 1997, the Board of Directors declared a two-for-one split of its Common Stock, payable in the form of a 100 percent stock dividend on March 21, 1997 to stockholders of record on March 4, 1997. Simultaneously, the Company announced that it will purchase from Edward W. Rose, III, Chairman of the Board of Drew, 800,000 pre-split shares of Drew Common Stock, representing approximately 15 percent of Drew stock outstanding and 50 percent of Drew shares owned by Mr. Rose, at a purchase price of $26 per share for an aggregate consideration of $20.8 million. The closing market price of Drew Common Stock on the American Stock Exchange on February 12, 1997 was $26.375. The Company has received a commitment letter from Chase Manhattan Bank to increase Drew's line of credit to $40 million, of which approximately $21 million will be utilized to repurchase Mr. Rose's shares, and the balance will be used for potential acquisitions and working capital. 8 Drew Industries Incorporated Selected Financial Data The following selected financial data should be read in conjunction with the consolidated financial statements and related notes thereto included herein (in thousands, except per share amounts):
Fiscal Year Four Months Ended Ended Year Ended December 31, August 31, December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1992(a) - ----------------------------------------------------------------------------------------------------------------------------------- Operating Data Net sales $ 168,151 $ 100,084 $ 82,965 $ 67,065 $ 50,703 $ 20,158 =================================================================================================================================== Operating profit $ 22,329 $ 12,791 $ 9,149 $ 7,880 $ 4,679 $ 1,818 =================================================================================================================================== Income from continuing operations before income taxes and cumulative effect of change in accounting methods $ 22,003 $ 12,925 $ 9,136 $ 8,519(b) $ 4,327 $ 1,744 Provision for income taxes 8,617 5,103 3,566 2,151(b) 382(c) 699 - ----------------------------------------------------------------------------------------------------------------------------------- Income from continuing operations before cumulative effect of change in accounting methods 13,386 7,822 5,570 6,368 3,945 1,045 Discontinued operations, net (d) (111) (726) (193) (174) Cumulative effect of change in accounting methods 702(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 13,386 $ 7,822 $ 5,459 $ 5,642 $ 3,752 $ 1,573 =================================================================================================================================== Income per common share (f): Income from continuing operations before cumulative effect of change in accounting methods $ 1.25 $ .79 $ .57 $ .67 $ .42 $ .11 Discontinued operations, net (.01) (.08) (.02) (.02) Cumulative effect of change in accounting methods .08(e) - ----------------------------------------------------------------------------------------------------------------------------------- Net income per common share $ 1.25 $ .79 $ .56(b) $ .59 $ .40 $ .17 =================================================================================================================================== Financial Data Working capital $ 16,124 $ 8,820 $ 6,017 $ 17,706 $ 11,948 $ 12,362 Total assets $ 55,260 $ 28,231 $ 22,082 $ 31,664 $ 24,253 $ 24,489 Long-term obligations (g) $ 4,938 $ 311 $ 3,939 $ 2,513 $ 3,569 $ 2,602 Stockholders' equity (h) $ 34,765 $ 16,002 $ 8,072 $ 22,376 $ 14,164 $ 15,751 - -----------------------------------------------------------------------------------------------------------------------------------
(a) Effective December 31, 1992, the Company changed its fiscal year end from August 31 to December 31. (b) In 1993 the Company received Federal income tax refunds of $1,142,000, as well as interest thereon of $745,000. (c) Under the provisions of Statement of Financial Accounting Standards No. 96 ("Statement 96"), the classification of the tax benefit of a net operating loss carryforward was based on the source of income in the current year that is offset by the carryforward. Accordingly, in fiscal 1992, the Company's net operating loss carryforward was used to entirely offset its provision for Federal income taxes, subject to the limitations of the alternative minimum tax. (d) See Note 6 of Notes to Consolidated Financial Statements. (e) Represents cumulative adjustments to give effect to the adoption of the following Statement(s) of Financial Accounting Standards ("SFAS") as of September 1, 1992: SFAS No. 106 (Postretirement benefits) $ (46,000) SFAS No. 109 (Income taxes) 748,000 --------- Total cumulative effect of change in accounting methods $ 702,000 ========= (f) Adjusted to give effect to two-for-one stock split effective March 21, 1997. (g) Includes long-term indebtedness, as well as long-term portion of obligations under capital leases and long-term portion of postretirement obligations. (h) On July 29, 1994, the date of the Spin-off of Leslie Building Products, Inc., (see Note 6 of Notes to Consolidated Financial Statements), the net assets of Leslie Building Products were $20.3 million. Accordingly, upon the Spin-off the Company's equity was reduced by $20.3 million. 9 Drew Industries Incorporated Consolidated Statements of Income
Year Ended December 31, - ---------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- (In thousands, except per share amounts) Net sales (Note 12) $ 168,151 $100,084 $ 82,965 Cost of sales 125,392 72,602 60,529 - ---------------------------------------------------------------------------------------------------- Gross profit 42,759 27,482 22,436 Selling, general and administrative expenses 20,430 14,691 13,287 - ---------------------------------------------------------------------------------------------------- Operating profit 22,329 12,791 9,149 Interest (expense) income, net (326) 134 (13) - ---------------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 22,003 12,925 9,136 Provision for income taxes (Note 9) 8,617 5,103 3,566 - ---------------------------------------------------------------------------------------------------- Income from continuing operations 13,386 7,822 5,570 Discontinued operations, net (Notes 6 and 9) (111) - ---------------------------------------------------------------------------------------------------- Net income $ 13,386 $ 7,822 $ 5,459 ==================================================================================================== Income per common share (Note 11): Income from continuing operations $ 1.25 $ .79 $ .57 Discontinued operations, net (.01) - ---------------------------------------------------------------------------------------------------- Net income per common share $ 1.25 $ .79 $ .56 ====================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 10 Drew Industries Incorporated Consolidated Balance Sheets
December 31, - ---------------------------------------------------------------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- (In thousands, except shares and per share amounts) ASSETS Current assets Cash and short term investments $ 1,545 $ 4,028 Accounts receivable, trade, less allowances of $308 in 1996 and $266 in 1995 (Note 8) 4,924 4,165 Inventories (Note 3) 22,663 11,024 Prepaid expenses and other current assets (Note 9) 2,549 1,521 - ---------------------------------------------------------------------------------------------------------------------- Total current assets 31,681 20,738 Fixed assets, net (Note 4) 10,865 5,594 Goodwill, net (Note 2) 11,582 319 Other assets (Note 9) 1,132 1,580 - ---------------------------------------------------------------------------------------------------------------------- Total assets $ 55,260 $ 28,231 ====================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable, including current maturities of long-term indebtedness and obligations under capital leases (Notes 8 and 10) $ 276 $ 128 Accounts payable, trade 3,958 3,511 Accrued expenses and other current liabilities (Note 5) 11,323 8,279 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 15,557 11,918 Long-term indebtedness (Note 8) 3,652 Other long-term liabilities (Notes 9 and 10) 1,286 311 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 20,495 12,229 - ---------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Notes 6 and 10) Stockholders' equity (Notes 11 and 14) Common stock, par value $.01 per share: authorized 20,000,000 shares; issued 11,202,946 shares in 1996 and 9,999,288 shares in 1995 112 100 Paid-in capital 17,218 9,053 Retained earnings 20,583 7,197 - ---------------------------------------------------------------------------------------------------------------------- 37,913 16,350 Treasury stock, at cost - 479,770 shares in 1996 and 79,750 shares in 1995 (3,148) (348) - ---------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 34,765 16,002 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 55,260 $ 28,231 ======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 11 Drew Industries Incorporated Consolidated Statements of Cash Flows
Year Ended December 31, - ---------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- (In thousands) Cash flows from operating activities: Income from continuing operations $ 13,386 $ 7,822 $ 5,570 Adjustments to reconcile income from continuing operations to cash flows provided by operating activities: Depreciation and amortization 1,712 797 710 Deferred taxes (297) (259) (316) Gain on disposal of fixed assets (37) (3) (1) Changes in assets and liabilities: Accounts receivable, net 2,188 (1,069) (361) Inventories (4,623) (515) (2,907) Prepaid expenses and other assets (74) 400 937 Accounts payable, accrued expenses and other current liabilities (328) 2,420 2,843 - ---------------------------------------------------------------------------------------------------------------------- Net cash flows provided by operating activities from continuing operations 11,927 9,593 6,475 Net loss from discontinued operations (111) - ---------------------------------------------------------------------------------------------------------------------- Net cash flows provided by operating activities 11,927 9,593 6,364 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (5,841) (1,944) (1,152) Acquisition of net assets and business of Shoals Supply, Inc. (9,941) Proceeds from sales of fixed assets 834 3 142 Net transferred to discontinued operations (7,538) - ---------------------------------------------------------------------------------------------------------------------- Net cash flows used for investing activities (14,948) (1,941) (8,548) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Acquisition loan from Chase Manhattan Bank 5,982 Proceeds under line of credit with Chase Manhattan Bank and other borrowings 23,737 9,450 29,480 Repayments under line of credit with Chase Manhattan Bank and other borrowings (27,228) (13,651) (27,601) Acquisition of treasury stock (2,800) (333) (15) Exercise of stock options and other 847 441 528 - ---------------------------------------------------------------------------------------------------------------------- Net cash flows provided by (used for) financing activities 538 (4,093) 2,392 - ---------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash (2,483) 3,559 208 Cash and short term investments at beginning of year 4,028 469 261 - ---------------------------------------------------------------------------------------------------------------------- Cash and short term investments at end of year $ 1,545 $ 4,028 $ 469 ====================================================================================================================== Supplemental disclosure of cash flows information: Cash paid during the year for: Interest on debt $ 285 $ 132 $ 255 Income taxes, net of refunds $ 7,986 $ 4,856 $ 3,750 - ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 12 Drew Industries Incorporated Consolidated Statements of Stockholders' Equity
Retained Total Common Treasury Paid-in Earnings Stockholders' Stock Stock Capital (Deficit) Equity =============================================================================================================================== (In thousands, except shares) Balance - December 31, 1993 $ 97 $ 28,363 $(6,084) $ 22,376 Net income 5,459 5,459 Issuance of 154,994 shares of common stock pursuant to stock option plan 2 385 387 Income tax benefit relating to issuance of common stock pursuant to stock option plan 141 141 Acquisition of 20,000 shares of treasury stock $ (15) (15) Spin-off of Leslie Building Products, Inc. common stock to stockholders as of July 29, 1994 (20,276) (20,276) - ------------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1994 99 (15) 8,613 (625) 8,072 Net income 7,822 7,822 Issuance of 114,536 shares of common stock pursuant to stock option plan 1 289 290 Income tax benefit relating to issuance of common stock pursuant to stock option plan 151 151 Acquisition of 59,750 shares of treasury stock (333) (333) - ------------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1995 100 (348) 9,053 7,197 16,002 Net income 13,386 13,386 Issuance of 113,740 shares of common stock pursuant to stock option plan 1 427 428 Income tax benefit relating to issuance of common stock pursuant to stock option plan 249 249 Issuance of 1,089,918 shares of common stock in connection with the acquisition of the assets and business of Shoals Supply, Inc. 11 7,489 7,500 Purchase of 400,020 shares of treasury stock (2,800) (2,800) - ------------------------------------------------------------------------------------------------------------------------------- Balance - December 31, 1996 $112 $(3,148) $ 17,218 $20,583 $ 34,765 ===============================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 13 Drew Industries Incorporated Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements include the accounts of Drew Industries Incorporated and its subsidiaries. Drew's active subsidiaries are Kinro, Inc. and its subsidiaries ("Kinro"), and Shoals Supply, Inc. and its subsidiaries ("Shoals"). Kinro manufactures and markets windows for the manufactured housing industry, and windows and doors for the recreational vehicle ("RV") industry. Shoals manufactures new axles and chassis parts, refurbishes used axles, and distributes new and refurbished tires, all of which are used to transport manufactured homes. All significant intercompany balances and transactions have been eliminated. On February 13, 1997 the Board of Directors declared a two-for-one split of its Common Stock, payable in the form of a 100 percent stock dividend on March 21, 1997 to stockholders of record on March 4, 1997. Where appropriate, all share and per share amounts included in the consolidated financial statements and notes thereto have been adjusted retroactively to give effect to the stock split. Inventories Inventories are stated at the lower of cost (using the last-in, first-out method for Kinro and the first-in, first-out method for Shoals) or market. Cost includes material, labor and overhead; market is replacement cost or realizable value after allowance for costs of distribution. The Company periodically purchases commodity futures to hedge the impact of future price fluctuations on a portion of its aluminum raw material requirements. Gains and losses on such futures contracts are deferred until recognized in income as a component of cost of sales when the finished products are sold. Cash flow from such futures contracts are included in operating activities in the Consolidated Statements of Cash Flows. Fixed Assets Fixed assets are depreciated principally on a straight-line basis over the estimated useful lives of properties and equipment. Leasehold improvements and leased equipment are amortized over the shorter of the lives of the leases or the underlying assets. Amortization of assets recorded under capital leases is included in depreciation expense. Maintenance and repairs are charged to operations as incurred; significant betterments are capitalized. Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return. The Company's subsidiaries generally file separate state income tax returns on the same basis as the Federal income tax return. Accounting Changes In 1996, the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which permits companies either to adopt a new method of accounting for employee stock options and similar equity instruments or to continue following the historical accounting method with supplemental pro forma disclosures. The Company is continuing its historical practice, and provides the necessary additional information in footnote disclosure. Goodwill Goodwill is the excess of cost over the fair value of net tangible assets acquired and is amortized on a straight-line basis primarily over thirty years. The balance of goodwill at December 31, 1996 primarily relates to the acquisition of Shoals Supply, Inc. on February 15, 1996. The Company periodically reviews the value of its goodwill to determine if an impairment has occurred. The Company measures the potential impairment of recorded goodwill by the undiscounted value of expected future operating cash flows in relation to its net capital investment in the subsidiary. Based on its review, the Company does not believe that an impairment of its goodwill has occurred. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 2. Acquisition On February 15, 1996, the Company acquired the assets and business of Shoals Supply, Inc., ("Shoals"), a privately-owned Alabama corporation which is a supplier of products used to transport manufactured homes. Shoals manufactures new axles and chassis parts, refurbishes used axles, and distributes new and refurbished tires. Shoals had 1995 net sales of approximately $56 million. The consideration for the acquisition was 1,089,918 shares of common stock of the Company having a value of $7.5 million, cash of $1.6 million and a note for $760,000 payable over 5 years. In addition, the Company assumed $7.5 million of Shoals' bank debt and certain operating liabilities. The acquisition was financed primarily with $3.2 million of the Company's short-term investments and a $6 million acquisition loan from Chase Manhattan Bank (formerly Chemical Bank). On June 28, 1996, the Company paid $2.8 million for the repurchase of 400,000 shares of its Common Stock issued in connection with the acquisition. The acquisition has been accounted for as a purchase. The aggregate purchase price has been allocated to the underlying assets and liabilities based upon their respective estimated fair values at the date of acquisition. The excess of purchase price over the fair value of the net assets acquired ("goodwill") is $11,757,000, which is being amortized over 30 years. The results of the acquired business have been included in the Company's consolidated statements of income beginning February 16, 1996. The following pro forma condensed 14 consolidated results of operations, however, assumes that the acquisition had occurred at the beginning of 1995. The unaudited pro forma data below is not necessarily indicative of the future results of operations of the combined operations (in thousands, except per share amounts): Pro Forma Year End December 31, -------------------------- 1996 1995 (unaudited) - -------------------------------------------------------------------------------- Net sales $175,861 $155,827 ================================================================================ Net income $ 13,553 $ 9,425 ================================================================================ Net income per common share $ 1.25 $ .86 ================================================================================ Average common shares outstanding 10,856 10,984 ================================================================================ 3. Inventories Inventories consist of the following (in thousands): December 31, -------------------------- 1996 1995 - -------------------------------------------------------------------------------- Finished goods $ 6,045 $ 2,147 Work in process 1,810 1,076 Raw materials 14,831 9,163 - -------------------------------------------------------------------------------- 22,686 12,386 Adjustment to LIFO cost basis (23) (1,362) - -------------------------------------------------------------------------------- Total $ 22,663 $ 11,024 ================================================================================ 4. Fixed Assets Fixed assets, at cost, consist of the following (in thousands): December 31, Estimated ------------------------ Useful Life 1996 1995 In Years - -------------------------------------------------------------------------------- Land $ 479 $ 372 Buildings and improvements 2,964 2,099 8 to 45 Leasehold improvements 745 686 5 to 25 Machinery and equipment 7,943 6,038 5 to 8 Automotive equipment 420 283 2 to 3 Furniture and fixtures 1,019 920 3 to 8 Capitalized real estate leases 925 925 15 Construction in progress 3,078 15 - ---------------------------------------------------------- 17,573 11,323 Less accumulated depreciation and amortization 6,708 5,729 - ---------------------------------------------------------- Fixed assets, net $10,865 $ 5,594 ========================================================== Depreciation and amortization of fixed assets consists of (in thousands): Year Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Charged to cost of sales $ 908 $554 $472 Charged to selling, general and administrative expenses 203 116 114 - -------------------------------------------------------------------------------- $1,111 $670 $586 ================================================================================ 5. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): December 31, ------------------------ 1996 1995 - -------------------------------------------------------------------------------- Accrued employee compensation $ 3,063 $1,974 Accrued employee benefits 2,291 1,702 Accrued workmen's compensation and other insurance 2,128 2,039 Income taxes 1,619 940 Accrued expenses and other 2,222 1,624 - -------------------------------------------------------------------------------- Total $11,323 $8,279 ================================================================================ 6. Discontinued Operations On April 19, 1994, the Board of Directors of the Company approved a plan to transfer the stock of Leslie-Locke, Inc. ("Leslie-Locke"), its home improvement building products segment, to Leslie Building Products, Inc. ("Leslie Building Products"), Drew's newly formed subsidiary, and to spin off Leslie Building Products common stock to stockholders on a one-for-one basis (the "Spin-off"). The transfer of the stock of Leslie-Locke to Leslie Building Products became effective May 10, 1994 and the Spin-off of Leslie Building Products common stock to stockholders became effective July 29, 1994. Thereafter Leslie Building Products became a stand-alone company whose common shares are publicly traded. Pursuant to a Shared Services Agreement, following the Spin-off, the Company and Leslie Building Products have shared certain administrative functions and employee services, such as management overview and planning, tax preparation, financial reporting, coordination of independent audit, stockholder relations, and regulatory matters. The Company has been reimbursed by Leslie Building Products for the fair market value of such services. This Agreement expires on December 31, 1997 and may be extended. The Company charged fees to Leslie Building Products of $509,000 during 1996, $588,000 during 1995 and $889,000 during 1994 including $340,000 pursuant to the Shared Services Agreement for the five months subsequent to the Spin-off. As a result of the spin-off, the operating results of Leslie Building Products and its subsidiaries prior to July 29, 1994 are shown as discontinued operations in the accompanying Consolidated Financial Statements. 15 On the date of the Spin-off the Company assumed approximately $5 million of Leslie-Locke's debt. Subsequent to the assumption of debt by the Company, the net assets of Leslie Building Products were $20.3 million. Accordingly, upon the Spin-off the Company's equity was reduced by $20.3 million. Net sales of Leslie Building Products prior to the Spin-off were $44,639,000 for the seven months ended July 29, 1994. On September 30, 1994, White Metal Rolling and Stamping Corp. ("White Metal"), Leslie-Locke's discontinued ladder manufacturing subsidiary, filed a voluntary petition seeking liquidation under the provisions of chapter 7 of the United States Bankruptcy Code. The net liabilities of White Metal of $3.5 million are substantially all accrued product liability costs. While Drew was named as a defendant in certain actions commenced in connection with these claims, Drew has not been held responsible, and Drew disclaims any liability for the obligations of White Metal. On May 7, 1996, the Company and its subsidiary, Kinro, Inc., and Leslie Building Products, Inc. and its subsidiary, Leslie-Locke, were served with a summons and complaint in an adversary proceeding commenced by the chapter 7 trustee of White Metal. The complaint, which appears to allege several duplicate claims, seeks damages in the aggregate amount of $10.6 million plus attorneys fees, of which up to approximately $8.4 million is sought, jointly and severally, from the Company, Kinro, Leslie Building Products and Leslie-Locke. The proceeding is based principally upon the trustee's allegations, previously disclosed by the Company, that the Company and its affiliated companies obtained tax benefits attributable to the use of White Metal's net operating losses. The trustee seeks to recover the purported value of the tax savings achieved, which appears to be approximately $7.5 million. Management believes that the trustee's allegations are without merit and have no basis in fact. In addition, the trustee alleges that White Metal made certain payments to the Company which were preferential and are recoverable by White Metal, in the approximate amount of $900,000. The Company denies liability for any such amount and is vigorously defending against the allegations. However, an estimate of potential loss, if any, cannot be made at this time. The Company believes that it has sufficient accruals for the defense of this proceeding and that such defense will not have a material adverse impact on the Company's financial condition or results of operations. 7. Retirement and Other Benefit Plans The Company has a discretionary defined contribution profit sharing plan covering substantially all eligible employees. The Company contributed $206,000, $92,000, and $91,000 to this Plan during the years ended December 31, 1996, 1995 and 1994, respectively. 8. Long-term Indebtedness The Company has a $6 million credit agreement with Chase Manhattan Bank which matures on January 31, 1999 and is secured by the accounts receivable of the Company. At December 31, 1996, there were outstanding borrowings of $3,150,000 under the line of credit and available additional borrowings for general corporate purposes under this line of credit was $2.8 million. Interest is payable at .25% over the prime rate. In addition, the Company has the option to either fix the rate or convert a portion of the loan to a Eurodollar loan at 2.25% over the LIBO rate. The interest rate on such borrowings at December 31, 1996 was 8.5%. The interest rate is subject to reduction after one year if certain financial targets are achieved. Pursuant to the Agreement, the Company is required to maintain minimum net worth, working capital, and income levels, and meet certain other financial requirements typical to secured borrowing arrangements. In addition, for the term of the loan, the Company will be prohibited from declaring or paying dividends without the prior written consent of the lender. Long-term indebtedness consists of the following (in thousands): December 31, ------------------------ 1996 1995 - -------------------------------------------------------------------------------- Notes payable pursuant to a credit agreement expiring January 31, 1999 consisting of revolving loan, not to exceed $6,000 $3,150 Acquisition note payable to seller of Shoals, payable in quarterly installments of $44 until February 15, 2001 with interest imputed at 8% per annum 632 - -------------------------------------------------------------------------------- 3,782 Less current portion 130 - -------------------------------------------------------------------------------- Total long-term indebtedness $3,652 $ -- ================================================================================ 9. Income Taxes The income tax provision (benefit) in the Consolidated Statements of Income is as follows (in thousands): Year Ended December 31, -------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Continuing operations: Current: Federal $ 7,429 $ 4,462 $ 3,324 State 1,485 900 558 Deferred: Federal (200) (245) (233) State (97) (14) (83) Total income tax provision for continuing operations $ 8,617 $ 5,103 $ 3,566 ================================================================================ Discontinued operations $ -- $ -- $ 234 ================================================================================ 16 The provision for income taxes differs from the amount computed by applying the Federal statutory rate to income before income taxes for the following reasons (in thousands): Year Ended December 31, -------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Income tax at Federal statutory rate $7,701 $4,524 $3,106 State income taxes, net of Federal income tax benefit 902 576 314 Other 14 3 146 - -------------------------------------------------------------------------------- Provision for income taxes $8,617 $5,103 $3,566 ================================================================================ The significant components of deferred income taxes are as follows (in thousands): Year Ended December 31, ------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Asset valuation allowances $ 43 $ (29) $ 57 Depreciation 77 43 8 Inventory (159) (51) (36) Change in accruals not currently deductible (368) (359) (452) Other 110 137 107 - -------------------------------------------------------------------------------- Total $(297) $(259) $(316) ================================================================================ The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are as follows (in thousands): December 31, ----------------------- 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets: Accounts receivable $ 115 $ 97 Inventories 371 200 Capital leases 61 89 Other asset valuation allowances 139 247 Employee benefits other than pensions 28 27 Vacation and holiday pay 264 268 Other accruals 1,196 811 - -------------------------------------------------------------------------------- Total deferred tax assets 2,174 1,739 - -------------------------------------------------------------------------------- Deferred tax liabilities: Fixed assets 309 256 Long-term obligations 64 - -------------------------------------------------------------------------------- Total deferred tax liabilities 373 256 - -------------------------------------------------------------------------------- Net deferred tax asset $1,801 $1,483 ================================================================================ The Company concluded that it is more likely than not that the deferred tax assets at December 31, 1996 will be realized in the ordinary course of operations based on scheduling of deferred tax liabilities and income from operating activities. Net current deferred income tax assets of $1,946,000 are included in prepaid expenses and other current assets and net non-current deferred tax liabilities of $145,000 are included in other long-term liabilities in the Consolidated Balance Sheet at December 31, 1996. At December 31, 1995, net current deferred income tax assets of $1,376,000 were included in prepaid expenses and other current assets and net non-current deferred tax assets of $107,000 were included in other assets in the Consolidated Balance Sheet. 10. Commitments and Contingencies Leases The Company's lease commitments are primarily for real estate and vehicles. The significant real estate leases provide for renewal options and periodic rental adjustments to reflect price index changes and require the Company to pay for property taxes and all other costs associated with the leased property. The interest rate on the capital leases is 13.5%. Most vehicle leases provide for contingent payments based upon miles driven and other factors. Future minimum lease payments under capital and operating leases at December 31, 1996 are summarized as follows (in thousands): Years Capital Operating - -------------------------------------------------------------------------------- 1997 $170 $2,134 1998 99 1,761 1999 1,600 2000 1,509 2001 1,178 Thereafter 758 - -------------------------------------------------------------------------------- Total lease obligations 269 $8,940 ====== Less amount representing interest 29 - ---------------------------------------------------------------- Present value of net minimum lease payments (includes $146 payable within one year) $240 ================================================================ Rent expense was $2,522,000, $1,760,000 and $1,621,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Other In order to hedge the impact of future price fluctuations on a portion of its aluminum raw material requirements, the Company periodically purchases aluminum futures contracts on the London Metal Exchange. At December 31, 1996, the Company had no futures contracts outstanding. The Company has an employment contract with one of its employees which expires on December 31, 2001. The minimum commitments under this contract is $400,000 per annum. In addition, an arrangement with another employee of the Company provides for incentives to be paid, based on a percentage of profits as defined. 17 11. Stockholders' Equity Stock Options and Warrants In June 1995, the stockholders approved amendments to the Drew Industries Incorporated 1988 Non-Qualified Stock Option Plan and restated it as the Drew Industries Incorporated Stock Option Plan (the "Plan"). Pursuant to the Plan, the Company may grant its directors and/or key employees options to purchase Drew Common Stock. The Plan provides for the grant of stock options that qualify as incentive stock options ("ISO") under Section 422 of the Code and non-qualified stock options ("NQSOs"). Under the Plan, since 1988 Drew's Stock Option Plan Committee has been authorized to grant options to purchase up to an aggregate of 1,560,000 shares of Drew's Common Stock, of which options for 177,324 shares have not yet been granted. The Committee will determine the period for which each stock option may be exercisable, but in no event may a stock option be exercisable more than 10 years from the date of grant thereof. The number of shares available under the Plan, and the exercise price of options granted under the Plan, are subject to adjustments that may be made by the Committee to reflect stock splits, stock dividends, recapitalization, mergers, or other major corporate action. The exercise price for options granted under the Plan shall be determined by the Committee in its sole discretion; provided, however, in the case of an ISO granted to an optionee, the exercise price shall be at least equal to 100% of the fair market value of the shares subject to such option on the date of grant. The exercise price may be paid in cash or in shares of Drew Common Stock. Options granted under the Plan become exercisable in annual installments as determined by the Committee. Under the terms of the Plan, the number of shares that each holder of options was entitled to purchase as well as the option price was adjusted to reflect the dilution of the shares resulting from the Spin-off of Leslie Building Products, as of July 29, 1994, as well as the two-for-one stock split effective March 21, 1997. Transactions in stock options under this plan are summarized as follows: Number Of Shares Option Price - -------------------------------------------------------------------------------- Outstanding at December 31, 1993 343,750 $1.44-$ 4.19 Granted 420,000 $4.25-$ 4.94 Replaced in connection with spin-off (629,600) $1.44-$ 4.94 Granted as replacement of shares canceled in connection with spin-off 729,042 $1.24-$ 4.27 Exercised (154,994) $1.24-$ 3.50 Canceled (464) $3.03 - ----------------------------------------------------------- Outstanding at December 31, 1994 707,734 $1.24-$ 4.94 Granted 10,000 $7.35 Exercised (114,536) $1.24-$ 4.27 - ----------------------------------------------------------- Outstanding at December 31, 1995 603,198 $1.24-$ 7.35 Granted 169,140 $6.94-$10.75 Exercised (113,740) $1.24-$ 4.27 Canceled (15,442) $3.03-$ 6.94 - ----------------------------------------------------------- Outstanding at December 31, 1996 643,156 =========================================================== Exercisable at December 31, 1996 499,826 $1.24-$10.75 =========================================================== Options available for grant at December 31, 1996 177,324 =========================================================== The Company adopted the disclosure-only option under SFAS No.123, Accounting for Stock-Based Compensation ("FAS 123"), as of December 31, 1996. If the accounting provisions of FAS 123 had been adopted as of the beginning of 1996, the effect on 1996 net income and earnings per share would have been immaterial. 18 The following table summarizes information about stock options outstanding at December 31, 1996 (shares in thousands): Average Remaining Exercise Shares Life Shares Price Outstanding (Years) Exercisable - -------------------------------------------------------------------------------- $ 1.24 3,474 .1 3,474 $ 3.02 49,338 1.0 49,338 $ 3.62 23,160 2.0 23,160 $ 3.67 69,480 2.1 69,480 $ 4.26 329,374 2.3 329,374 $ 6.94 143,330 4.1 0 $ 7.35 10,000 4.0 10,000 $10.75 15,000 5.0 15,000 - -------------------------------------------------------------------------------- 643,156 499,826 ================================================================================ Stock options expire in five years from the date they are granted; options vest over service periods that range from zero to five years. Weighted Average Common Shares Outstanding Net income per common share is based on 10,688,552 shares, 9,894,810 shares and 9,761,418 shares for the years ended December 31, 1996, 1995 and 1994, respectively, the weighted average of common shares outstanding after giving effect to the stock split effective March 21, 1997. Fully diluted earnings per share is not presented as there are no outstanding securities of the Company that have not been considered in the calculation of primary earnings per share. 12. Significant Customers One customer accounted for 17%, 10%, and 14% of the Company's net sales in the years ended December 31, 1996, 1995 and 1994, respectively. 13. Quarterly Results of Operations (Unaudited) Interim unaudited financial information follows (in thousands, except per share amounts):
First Second Third Fourth Quarter Quarter Quarter Quarter Year - ----------------------------------------------------------------------------------------------------------- Year Ended December 31, 1996 (a) Net sales $34,114 $48,330 $44,815 $40,892 $168,151 Gross profit 8,784 11,932 11,127 10,916 42,759 Net income 2,666 3,815 3,680 3,225 13,386 Net income per common share $ .25 $ .35 $ .34 $ .30 $ 1.25 Year Ended December 31, 1995 Net sales $25,363 $25,430 $24,747 $24,544 $100,084 Gross profit 7,116 6,885 6,634 6,847 27,482 Net income 2,069 2,010 1,918 1,825 7,822 Net income per common share $ .21 $ .20 $ .19 $ .18 $ .79 - -----------------------------------------------------------------------------------------------------------
(a) Includes results of operations of Shoals Supply, Inc. since its acquisition by the Company on February 15, 1996. 14. Subsequent Event On February 13, 1997, the Board of Directors declared a two-for-one split of its Common Stock, payable in the form of a 100 percent stock dividend on March 21, 1997 to stockholders of record on March 4, 1997. All share amounts in this report have been adjusted to reflect this stock split. Simultaneously, the Company announced that it will purchase from Edward W. Rose, III, Chairman of the Board of Drew, 800,000 pre-split shares of Drew Common Stock, representing approximately 15 percent of Drew stock outstanding and 50 percent of Drew shares owned by Mr. Rose, at a purchase price of $26 per share for an aggregate consideration of $20.8 million. The closing market price of Drew Common Stock on the American Stock Exchange on February 12, 1997 was $26.375 (pre-split). The Company has received a commitment letter from Chase Manhattan Bank to increase Drew's line of credit to $40 million, of which approximately $21 million will be utilized to repurchase Mr. Rose's shares, and the balance will be used for potential acquisitions and working capital. 19 Independent Auditors' Report The Board of Directors and Stockholders Drew Industries Incorporated: We have audited the accompanying consolidated balance sheets of Drew Industries Incorporated and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Drew Industries Incorporated and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP Stamford, Connecticut February 12, 1997, except for the first paragraph of Note 14, which is as of March 21, 1997* Drew Industries Incorporated Management's Responsibility for Financial Statements The management of the Company has prepared and is responsible for the consolidated financial statements and related financial information included in this report. These consolidated financial statements were prepared in accordance with generally accepted accounting principles which are consistently applied and appropriate in the circumstances. These consolidated financial statements necessarily include amounts determined using management's best judgements and estimates. The Company maintains accounting and other control systems which provide reasonable assurance that assets are safeguarded and that the books and records reflect the authorized transactions of the Company. Although accounting controls are designed to achieve this objective, it must be recognized that errors or irregularities may occur. In addition, it is necessary to assess and consider the relative costs and the expected benefits of the internal accounting controls. The Company's independent auditors, KPMG Peat Marwick LLP, provide an independent, objective review of the consolidated financial statements and underlying transactions. They perform such tests and other procedures as they deem necessary to express an opinion on the financial statements. The report of KPMG Peat Marwick LLP accompanies the consolidated financial statements. /s/ Leigh J. Abrams Leigh J. Abrams President and Chief Executive Officer /s/ Fredric M. Zinn Fredric M. Zinn Chief Financial Officer -------------------------------- Per Share Market Price Range(1) A summary of the high and low closing prices of the Company's common stock on the American Stock Exchange is as follows: 1996 1995 - -------------------------------------------------------------------------------- High Low High Low Quarter Ended March 31 $ 8.00 $ 6.75 $ 5.25 $ 4.19 Quarter Ended June 30 $ 9.25 $ 7.32 $ 6.56 $ 5.19 Quarter Ended September 30 $12.32 $ 8.38 $ 6.94 $ 5.75 Quarter Ended December 31 $13.62 $10.62 $ 8.19 $ 6.32 - -------------------------------------------------------------------------------- (1) Adjusted retroactively to give effect to a two-for-one stock split effective March 21, 1997 to holders of record on March 4, 1997. The closing price per share for the common stock on February 26, 1997 was $13.62 and there were 2,369 holders of Drew Common Stock, not including beneficial owners of shares held in broker and nominee names. Dividend Information Drew has not paid any cash dividends on its outstanding shares of Common Stock. On February 13, 1997, Drew declared a two-for-one stock split by means of a 100 percent stock dividend, payable on March 21, 1997 to stockholders of record on March 4, 1997. 20 Drew Industries Incorporated Corporate Information Board of Directors Edward W. Rose, III Chairman of the Board of Drew Industries Incorporated President of Cardinal Investment Company James F. Gero Chairman and Chief Executive Officer of Sierra Technologies, Inc. Gene Bishop Retired Bank Executive Leigh J. Abrams President and Chief Executive Officer of Drew Industries Incorporated David L. Webster President and Chief Executive Officer of Kinro, Inc. and Shoals Supply, Inc. Audit Committee of the Board of Directors Edward W. Rose, III, Chairman James F. Gero Gene Bishop Compensation Committee of the Board of Directors Edward W. Rose, III James F. Gero Gene Bishop Corporate Officers Leigh J. Abrams President and Chief Executive Officer Fredric M. Zinn Chief Financial Officer Harvey J. Kaplan Treasurer and Secretary John F. Cupak Controller General Counsel Harvey F. Milman, Esq. Berlack, Israels & Liberman LLP 120 West 45th Street New York, NY 10036 Independent Certified Public Accountants KPMG Peat Marwick LLP Stamford Square 3001 Summer Street Stamford, CT 06905 Transfer Agent and Registrar Chase Mellon Shareholder Services 450 West 33rd Street New York, NY 10001 Executive Offices 200 Mamaroneck Avenue White Plains, NY 10601 (914) 428-9098 Kinro, Inc. Shoals Supply, Inc. David L. Webster President and Chief Executive Officer Corporate Headquarters 4381 Green Oaks Boulevard West Arlington, TX 76016 (817) 483-7791 Form 10-K A copy of the Annual Report on Form 10-K as filed by the Corporation with the Securities and Exchange Commission is available upon request, without charge, by writing to: Treasurer Drew Industries Incorporated 200 Mamaroneck Avenue White Plains, NY 10601 Designed by Curran & Connors, Inc. DREW DREW INDUSTRIES INCORPORATED 200 Mamaroneck Avenue White Plains, NY 10601 EX-10.66 3 EMPLOYMENT AGREEMENT Exhibit 10.66 - EMPLOYMENT AGREEMENT AGREEMENT made the 31st day of March, 1996, effective as of January 1, 1996, by and between KINRO, Inc. (the "Corporation") and DAVID L. WEBSTER (the "Executive"). W I T N E S S E T H: WHEREAS, the Executive is and has been President, Chief Executive Officer and a Director of the Corporation and of Shoals Supply, Inc., an affiliate of the Corporation ("Shoals"), and WHEREAS, it is in the best interests of the Corporation to assure the continued relationship between the Executive and the Corporation and Shoals for an extended period of years, and WHEREAS, the Executive's current Employment Agreement with the Corporation expires on August 31, 1996 and will be superseded by this Agreement, NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, it is agreed as follows: FIRST: The Corporation hereby employs the Executive and the Executive hereby agrees to serve the Corporation and Shoals as President and Chief Executive Officer of the Corporation and Shoals or in such other office or capacity with the Corporation and with Shoals, or any subsidiary or affiliate of the Corporation and Shoals, of substantially equivalent responsibility, dignity and function as the Board of Directors of the Corporation may direct, under the terms and conditions of this Agreement. The Executive agrees to continue to devote substantially all of his time, attention, skills and efforts to the performance of his duties on behalf of the Corporation, and their subsidiaries and affiliates, at the principal executive offices of the Corporation in the State of Texas, provided, however, that the Executive shall at no time be required to change his residence without his consent. SECOND: The term of this Agreement shall commence as of January 1, 1996 and shall terminate on December 31, 2001. THIRD: During the term of this Agreement the Executive shall exert his best efforts, and, subject to the terms and provisions hereof, shall devote substantially all of his business time and attention to the business and affairs of the Corporation, Shoals, and their subsidiaries and affiliates, and will use his best efforts to promote the interests thereof. Consistent with the foregoing, the Executive shall not be precluded from giving appropriate attention to his personal and financial affairs. The Executive shall act in accordance with the policies of the Corporation and Shoals as determined from time to time by the Boards of Directors of the Corporation and Shoals, and shall perform such services as the Boards of Directors may from time to time direct consistent with this Agreement. FOURTH: The Corporation agrees to pay the Executive for his services to the Corporation and Shoals a salary of not less than four hundred thousand ($400,000) dollars per annum, payable according to the customary payroll practice of the Corporation. FIFTH: In addition to the salary provided for in Paragraph FOURTH hereof, and subject to the approval of the Compensation Committee of the Board of Directors, and the stockholders, of Drew Industries Incorporated, parent of the Corporation ("Drew"), the Executive shall be entitled to receive, for each year during the term hereof commencing with the year ending December 31, 1996, performance-based incentive compensation (the "Bonus"), equal to seven and three-tenths percent (7.3%) of the amount by which the aggregate earnings before interest and taxes (without deduction for costs of parent-company administration or amortization of goodwill) of the Corporation Page -17- and of Shoals exceeds ten million ($10,000,000) dollars; provided, however, that if, after the date hereof, Drew, Kinro or Shoals acquire additional business operations, the performance goals pursuant to which the Bonus is paid may be modified upon agreement between the Executive and the Corporation and subject to approval of the stockholders of Drew. SIXTH: Nothing in this Agreement, nor any fixing of compensation in the form of salary, deferred compensation, securities or otherwise, shall prevent the Compensation Committee of the Board of Directors from granting to the Executive (i) payments pursuant to the Drew's discretionary retirement bonus program, and (ii) additional compensation in the form of cash, salary increases, deferred compensation, securities or otherwise, subject, however, to the approval of the stockholders of Drew to the extent that total compensation exceeds $1,000,000. SEVENTH: The Executive and his family shall continue to receive medical coverage at least equivalent, in nature and extent, to the medical coverage presently in effect, and such other reasonable benefits which he has received from the Corporation prior to the date hereof. The Executive agrees to have an annual comprehensive physical examination at the expense of the Corporation. The Executive shall be eligible to participate in any pension, retirement or profit-sharing plan adopted by the Corporation for the benefit of its Executives. The Executive shall also be entitled to a vacation in each year during the term hereof of not less than three weeks. The Corporation agrees to maintain, at no cost to the Executive, disability insurance providing for weekly payments to the Executive, in the event the Executive shall fail or be unable to perform his obligations hereunder, in the amount of not less than $120,000 per year, and up to $240,000 per year if available at reasonable cost to the Corporation. Such payments shall commence upon termination of salary payments in accordance with Paragraph NINTH hereof and shall continue for the maximum available term after the commencement of disability. During the period of employment hereunder, the Corporation, at its expense, will make available to the Executive an automobile, together with gasoline credit cards, to be used in connection with the business of the Corporation. The Corporation will pay for all maintenance and parking of such automobile. EIGHTH: All travel and other expenses incident to the rendering of services by the Executive hereunder will be paid by the Corporation. If any such expenses are paid in the first instance by the Executive, the Corporation will reimburse him therefor on presentation of expense vouchers. NINTH: If, on account of physical or mental disability, the Executive shall fail or be unable to fully perform this Agreement for a continuous period of six (6) months, the Corporation may, at its option, at any time thereafter, upon thirty (30) days written notice to the Executive, terminate this Agreement and this Agreement shall come to an end at the end of said notice period as if such date were the termination date of this Agreement. Notwithstanding the termination of the period of employment as aforesaid, the Corporation shall (i) continue to make salary payments provided for in Paragraph FOURTH of this Agreement to the Executive for a period of six (6) months from said date of termination; and (ii) pay the Bonus to the Executive proportionately with respect to the period prior to the date of termination. In the event of the death of the Executive during the term hereof, the term of this Agreement shall terminate on the date of death. In such case, the Corporation shall continue to pay to the heir or designee of the Executive (i) the salary payments provided for in Paragraph FOURTH hereof which the Executive would have been entitled to receive for a period of six (6) months from the date of death of the Executive, (ii) the Bonus, proportionately, with respect to the period prior to the date of termination. The Corporation agrees to maintain, at no cost to the Executive, a term life insurance policy or policies on the life of the Executive during the period of employment hereunder providing death benefits of at least $500,000, the proceeds of which insurance shall be payable to beneficiaries designated by the Executive. The Corporation shall have the right to terminate this Agreement at any time upon ten (10) days written notice to the Executive in the event that (i) the Executive has committed a willful material breach of the Page -18- terms of this Agreement, or (ii) the Executive is convicted of any crime involving moral turpitude. In such event, this Agreement shall come to an end as of the end of such notice period as if such date were the termination date of this Agreement. TENTH: For the term of this Agreement and for a period of eighteen (18) months after the termination hereof, the Executive shall not (i) directly or indirectly, undertake or perform any services in or for any other enterprises that may or would interfere with the due performance of his duties hereunder, or render services to, engage or participate in, or have any financial interest in, any business competitive to that of the Corporation or its affiliates or subsidiaries, nor (ii) divulge to any person, firm, corporation or other entity any information with respect to the business of the Corporation or its affiliates or subsidiaries that he may acquire in connection with the performance of his duties hereunder or may have acquired prior hereto, including, but not limited to, production methods, manufacturing methods, arrangements or processes, sales methods or arrangements, customer's lists, technical data, know-how and other information, whether or not commonly regarded as proprietary information or trade secrets. For the purposes hereof, a business shall be deemed competitive if it is conducted in any geographic market area in which the Corporation or its affiliates or subsidiaries is engaged in business and involves the sale or distribution of any products or service sold or offered by the Corporation or its affiliates or subsidiaries or any products or services similar to, or derived from, the products or services sold or offered by the Company or its affiliates or subsidiaries. The Executive agrees that for the duration of this Agreement and for a period of eighteen (18) months after termination hereof, he shall not directly or indirectly engage in any business which is competitive with the business of the Corporation or its affiliates or subsidiaries. For the purposes hereof, a business shall be deemed competitive if it is conducted in any geographic market area in which the Corporation or its affiliates or subsidiaries is engaged in business and involves the sale or distribution of any products or service sold or offered by the Corporation or its affiliates or subsidiaries, or any products or services similar to, or derived from, the products or services sold or offered by the Corporation or its affiliates or subsidiaries on the date of such termination; and the Executive shall be deemed directly or indirectly to engage in such business if he participates in such business, or in any entity engaged in or which owns such business, as an officer, director, employee, consultant, partner, individual proprietor, manager or as an investor who has made any loans, contributed to capital stock or purchased any stock. The foregoing, however, shall not be deemed to prevent the Executive from investing in securities if such class of securities in which the investment is so made is listed on a national securities exchange or is of a company registered under Section 12(g) of the Securities Exchange Act of 1934, and does not represent in excess of one (1%) per cent of the outstanding securities of said class. ELEVENTH: All notices, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to have been given at the time when mailed at any general or branch United States Post Office, enclosed in a registered or certified postpaid envelope addressed to the address of the respective parties stated below, or to such changed address as such parties may have fixed by notice: To the Corporation: Kinro, Inc. c/o Drew Industries Incorporated 200 Mamaroneck Avenue White Plains, N.Y. 10601 -with copy to- Harvey F. Milman, Esq. Berlack, Israels & Liberman 120 West 45th Street New York, New York 10036 Page -19- To the Executive: David L. Webster 3112 Collard Road Arlington, Texas 76017 TWELFTH: This Agreement constitutes the whole Agreement between the parties, and there are no terms other than those contained herein. No variation hereof shall be deemed valid unless in writing and signed by the parties hereto, and no discharge of the terms hereof shall be deemed valid unless by full performance by the parties hereto, or by a writing signed by the parties hereto. This Agreement shall supersede all other Employment Agreements between the Executive and the Corporation. THIRTEENTH: This Agreement shall inure to the benefit of and be binding upon the Corporation, its successors and assigns, and the Executive, his heirs, executors, administrators and legal representatives. FOURTEENTH: This Agreement shall not be terminated, voluntarily or involuntarily, by the liquidation or dissolution of the Corporation or by the merger or consolidation of the Corporation with or into another Corporation. IN WITNESS WHEREOF, the Corporation has caused these presents to be signed by its duly authorized officer, and its corporate seal to be hereunto affixed, and the Executive has hereunto set his hand the day and year first above written. ATTEST: KINRO, INC. _________________________ By:_______________________________ WITNESS: - ------------------------- ---------------------------------- David L. Webster Page -20- EX-10.159 4 STOCK PURCHASE AND PLEDGE AGREEMENT Exhibit 10.159 - STOCK PURCHASE AND PLEDGE AGREEMENT THIS STOCK PURCHASE AND PLEDGE AGREEMENT ("Agreement") is made and entered into this 7th day of March 1997, by and among Edward W. Rose, III ("Seller") and Drew Industries Incorporated, a Delaware corporation (the "Company"). WHEREAS, Seller is a Director and Chairman of the Board of Directors of the Company; and WHEREAS, Seller owns and desires to sell to the Company Eight Hundred Thousand (800,000) pre-split shares (the "Shares") of the Common Stock, par value $.01, of the Company and the Company desires to purchase the Shares from Seller. NOW, THEREFORE, in consideration of the premises and the representations, warranties and covenants contained herein, the receipt and sufficiency of which are hereby acknowledged, Seller and the Company hereby agree as follows: 1. PURCHASE AND SALE OF THE SHARES 1.1 Transfer. On and subject to the terms and conditions set forth herein, and in reliance on the respective representations, warranties and covenants of the parties contained herein, Seller hereby sells, assigns, transfers, conveys and delivers the Shares to the Company, and the Company hereby purchases and acquires the Shares from Seller, for the consideration set forth in paragraph 1.2 hereof. 1.2 Delivery of the Shares and Purchase Price. (a) The purchase price for the Shares is Twenty Six ($26.00) Dollars per pre-split share or an aggregate of Twenty Million Eight Hundred Thousand ($20,800,000) Dollars, payable as set forth herein. (b) Simultaneously with the execution and delivery of this Agreement, Seller has delivered to Larry L. Schoenbrun, Esq., Gardere & Wynne L.L.P., 1601 Elm Street, Suite 3000, Dallas, Texas 75201, as agent for Seller solely for purposes of holding and delivering the Shares in accordance with this Agreement (the "Agent"), a certificate or certificates representing the Shares owned by Seller accompanied by an irrevocable stock power relating to the Shares duly executed by Seller in blank with Seller's signature thereon guaranteed. (c) Simultaneously with the execution and delivery of this Agreement, the Company has delivered to Seller a non-negotiable promissory note of the Company to the order of Seller in the principal amount of Twenty Million Eight Hundred Thousand ($20,800,000) Dollars in the form annexed hereto as Exhibit "A" (the "Note"). (d) Payment of the Note shall be secured by a lien on, and security interest in, the Shares as provided in Section 2 hereof. (e) Seller will promptly notify the Agent upon receipt of payment of the Note, and thereupon the Agent will promptly deliver to the Company's transfer agent, Chase Mellon Shareholder Services L.L.C., Company Items, 85 Challenger Road, Richfield Park, N.J. 07660, Attention: Agnes Martin, telephone: (201) 296-4266, copy to Nathan Hill via telecopy to (212) 947-7628 or 947-7629, all the Pledged Collateral (as defined in Section 2 hereof) with instructions to reissue to the Company a certificate or certificates representing the Shares purchased hereunder, and to reissue to Seller a certificate representing the remaining shares of the Company's Common Stock registered in the name of Seller. Page -21- 2. SECURITY INTEREST 2.1 Secured Obligations. The Company hereby pledges to Seller, and grants to Seller a first priority security interest in, and lien on the following property (the "Pledged Collateral") to secure the prompt payment and performance in full when due, whether at stated maturity, by acceleration or otherwise, of the Note and all obligations of the Company existing under the Note and this Agreement (the "Secured Obligations"): (a) the Shares and the certificates representing the Shares and any interest of the Company pertaining to the Shares and all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Shares; (b) all additional shares of stock issuable upon or with respect to the Shares (which shares shall be deemed to be part of the Shares), and the certificates representing or evidencing such additional shares and any interest of the Company in such additional shares, and all dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; and (c) all proceeds of the property described in clauses (a) and/or (b). (d) concurrently with the execution hereof, the Company shall execute and deliver to Seller UCC-1 financing statements in form satisfactory to Seller to reflect such pledge. 2.2 Voting Rights; Dividends; etc. (a) As long as no Event of Default (as defined in Section 3 hereof) shall have occurred and be continuing, Seller shall not be entitled to exercise any voting and other consensual rights pertaining to the Shares or any part thereof for any purpose. (b) (i) any and all stock dividends or instruments and other property received, receivable or otherwise distributed in exchange for any of the Shares and (ii) any liquidating dividend in respect of the Shares or any other distribution or other property received or receivable in respect of a distribution in liquidation, or upon a merger or consolidation, or in respect of a disposition of assets other than in the ordinary course of business, or in connection with any insolvency proceeding, shall be, and shall be forthwith delivered to the Agent to hold as Pledged Collateral and shall, if received by the Company, be received in trust for the benefit of Seller, be segregated from the other property or funds of the Company, and be forthwith delivered to the Agent as Pledged Collateral in the same form as so received (in the case of instruments, securities or similar property, together with any necessary endorsement, stock power or other instrument of transfer). 2.3 Event of Default. Upon exercise by Seller of his remedies provided in this Agreement following the occurrence and continuation of an Event of Default, all rights to exercise the voting and other consensual rights the Company would otherwise be entitled to exercise shall thereupon become vested in Seller and Seller shall thereupon have the sole right to exercise such voting and other consensual rights during the continuance of such Event of Default. 2.4 Transfer and Other Liens; Additional Shares. The Company agrees that it will not (i) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Pledged Collateral or (ii) create or permit to exist any lien upon or with respect to any of the Pledged Collateral, except for the lien and security interest created by this Agreement. 2.5 Remedies. If an Event of Default shall have occurred and be continuing, then: Page -22- (a) Seller may exercise in respect of the Pledged Collateral, in addition to other rights and remedies provided for herein or otherwise available to Seller, all the rights and remedies of a secured party on default under the Uniform Commercial Code in effect in the State of Texas at that time, and Seller may also without notice except as specified below, in his sole discretion, sell the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker's board or at any of Seller's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Seller may deem commercially reasonable, irrespective of the impact of any such sales on the market price of the Pledged Collateral. Seller may be the purchaser of any or all of the Pledged Collateral at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Pledged Collateral sold at such sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price of any Pledged Collateral payable at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part for the Company, and the Company hereby waives (to the fullest extent permitted by law) all rights of redemption, stay and/or appraisal that it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Company agrees that, to the extent notice of sale shall be required by law, ten (10) days notice to the Company of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notice. Seller shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. Seller may adjourn any public or private sale from time to time by announcement at the time and place fixed therefore, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Company hereby waives any claims against Seller arising by reason of the fact that the price at which any Pledged Collateral may have been sold at such a private sale was less than the price that might have been obtained at a public sale, even if Seller accepts the first offer received and does not offer such Pledged Collateral to more than one offeree. (b) The Company recognizes that, by reason of certain prohibitions contained in applicable federal and state securities laws, Seller may be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. The Company acknowledges that any such private sales may be at prices and on terms less favorable to the Company than those obtainable through a public sale without such restrictions (including, without limitation, a public offering made pursuant to registration under the Securities Act of 1933, as amended (the "Securities Act"), and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Seller shall have no obligation to engage in public sales and no obligation to delay the sale of any Pledged Collateral for the period of time necessary to permit the Company to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if the Company would agree to do so. (c) If Seller determines to exercise its right to sell any or all of the Pledged Collateral, then upon written request, the Company shall from time to time furnish to Seller all such information as Seller may request (A) in order to determine the number of shares and other instruments included in the Pledged Collateral that may be sold by Seller as exempt transactions or exempt securities under the Securities Act and the rules of the Securities and Exchange Commission thereunder, or under applicable state laws, as the same are from time to time in effect and (B) in order to otherwise facilitate any such sale. 2.6 Application of Proceeds. Any cash held by Seller as Pledged Collateral and all cash proceeds received by Seller in respect of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral pursuant to the exercise by Seller of his remedies as a secured creditor as provided in this Agreement shall be applied promptly from time to time by Seller (in such order as Seller shall in his sole discretion determine) to the payment of the reasonable fees and expenses of Seller incurred pursuant to this Agreement and to the payment of the Secured Obligations. Any amounts remaining after such applications shall be remitted to the Company or as a court of competent jurisdiction may otherwise direct. If the proceeds of the sale, collection or other realization of Page -23- or upon the Pledged Collateral are insufficient to cover the cost and expenses of such sale, collection or realization after the payment in full of the Secured Obligations, the Company shall remain liable for any deficiency. 2.7 Expenses. Upon exercise by Seller of his remedies provided in this Agreement following the occurrence and continuation of an Event of Default, the Company will upon demand pay to Seller the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Seller may incur in connection with (i) the custody of preservation of, or the sale of, collection from or other realization upon, any of the Pledged Collateral, (ii) the preservation, exercise or enforcement of any of the rights of Seller hereunder or (iii) the failure of the Company to perform or observe any of the provisions hereof. 2.8 Security Interest Absolute. All rights of and Seller's lien and security interest hereunder, and all obligations of the Company hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of this Agreement or the Note; or (b) any change in the amount, time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Agreement or the Note. 2.9 Further Obligations. The Company agrees that at any time and from time to time, at its expense, the Company will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or that Seller may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Seller to exercise and enforce its rights and remedies hereunder with respect to the Shares. 2.10 Attorney-in-fact. The Company hereby appoints Seller as the Company's attorney-in-fact, with full authority in the place and stead of the Company and in the name of the Company or otherwise, from time to time in the discretion of Seller, to take any action and to execute any instrument which Seller may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Company representing any dividend, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same. If the Company fails to perform any agreement contained herein, Seller may perform, or cause performance of, such agreement, and the expenses of Seller incurred in connection therewith shall be payable by the Company. 2.11 Seller's Duty of Care. Other than the exercise of reasonable care in the physical custody of the Pledged Collateral while held by the Secured Party (or the Agent) hereunder, neither, Seller nor the Agent shall have any responsibility for, or obligation or duty with respect to, all or any part of the Pledged Collateral or any matter or proceeding arising out of or relating thereto, including, without limitation, any obligation or duty to collect any sums due with respect thereto or to protect or preserve any rights against prior parties or any other rights pertaining thereto, it being understood and agreed that the Company shall be responsible for preservation of all rights in the Pledged Collateral. Without limiting the generality of the foregoing, Seller shall be conclusively deemed to have exercised reasonable care in the custody of the Pledged Collateral, if it takes such action, for purposes of preserving rights in the Pledged Collateral, as the Company may reasonably request in writing; provided, however, that no refusal failure, omission or delay by Seller in complying with any such request shall be deemed to be a failure to exercise reasonable care. 2.12 Distributions. The Company covenants and agrees that the Pledged Collateral will be treated the same as outstanding shares of capital stock of the Company with respect to any dividends, cash, options, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the outstanding capital stock of the Company (i.e., it will treat the Shares as if they were still outstanding). Page -24- 3. EVENTS OF DEFAULT. The term "Events of Default" shall mean any of the following events: (a) any representations or warranty made by the Company in or in connection with this Agreement shall prove to have been false or misleading in any material respect when made; or (b) default shall be made in the payment of principal or interest as provided in the Note, or other amount payable hereunder, when and as the same shall become due and payable, whether at the scheduled due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; or (c) (i) any pledge or security interest in favor of Seller granted hereunder, no longer provides the lien or priority contemplated herein or (ii) the Company (or any successor thereto or representative thereof) shall claim or assert that any other right or remedy of Seller hereunder shall not be enforceable in accordance with its terms, or (iii) default shall be made in the due observance or performance of any covenant, condition or agreement hereunder or under the Note; provided, however, a default in the due observation or performance of a non-monetary covenant, condition or agreement hereunder or under the Note shall not be considered to be an Event of Default until and unless Seller shall have given fifteen (15) days' notice of such default to the Company and such default shall remain uncurred at the end of such 15 day period; (d) the Company shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) admit in writing its inability, or be generally unable, to pay its debts as such debts become due, (iii) make a general assignment for the benefit of its creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code (as now or hereafter in effect), (v) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, (vi) fail to have vacated or discontinued in a period of sixty (60) days, or acquiesce in writing to, any petition filed against it in an involuntary case under such Bankruptcy Code or (vii) take any action for the purpose of effecting any of the foregoing; or (e) a proceeding or case shall be commenced in any court of competent jurisdiction, seeking (or in any case previously commenced there shall be sought) (i) the liquidation, reorganization, dissolution, winding-up, or composition or readjustment of debts, of the Company, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company or of all or any substantial part of its assets, (iii) similar relief in respect of the Company or all or any substantial part of its assets under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, including, without limitation, under the Federal Bankruptcy Code, without the consent of the Company and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty (60) days, or an order for relief against the Company shall be entered in an involuntary case under such Federal Bankruptcy Code. 4. REPRESENTATIONS AND WARRANTIES. 4.1 Representations and Warranties of Seller. Seller represents and warrants to, and agrees with, the Company as follows: (a) Seller has all necessary power and authority to execute, deliver and perform this Agreement. Neither the execution, delivery or performance of this Agreement will violate (with or without the giving of notice or the lapse of time or both) any contract to which Seller is bound or any order, writ, injunction, judgment or decree to which Seller is a party. (b) Seller owns the Shares beneficially and of record free and clear of all mortgages, claims, liens, rights of first refusal or similar rights, security interests, options, pledges or encumbrances of any kind whatsoever. Page -25- (c) Seller has had access to all of the information with respect to the Shares that he deems necessary to make a complete evaluation thereof, and has had the opportunity to question the management of the Company and persons acting on their behalf concerning the Shares. (d) Seller acknowledges that the consideration to be paid by the Company for the Shares hereunder represents a "discount" from the current market price of the Shares and that the market price for the Shares could increase substantially. (e) Seller acknowledges that the Company has relied on the foregoing representations and warranties and, but for such representations and warranties, no purchase of the Shares would be made by the Company from Seller. 4.2 Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, Seller as follows: (a) The Company has all necessary power and authority to execute, deliver and perform this Agreement, the Note, and to consummate the transactions contemplated hereby and thereby. Neither the execution, delivery or performance of this Agreement will violate (with or without the giving of notice or the lapse of time or both) the Articles of Incorporation or By-laws of the Company or any contract to which the Company is bound or any order, writ, injunction, judgment or decree to which the Company is a party, nor does the execution, delivery or performance of this Agreement require the consent or approval of any third party or governmental authority; (b) The Company is acquiring the Shares not with a view to, or in connection with, any offering, resale, disposition or any distribution thereof within the meaning of the Securities Act, or any rule or regulation thereunder (collectively the "Rules"), which offering, resale, disposition or distribution would be in violation of the Act or any of the Rules; (c) This Agreement and the Note have been duly authorized, executed and delivered by the Company, and are the binding and enforceable obligations of the Company enforceable against it in accordance with their terms; (d) The Board of Directors of the Company has authorized the reissuance of the shares of capital stock comprising the Pledged Collateral upon Seller's exercise of its rights in respect to the Pledged Collateral in accordance with Section 2.5 hereof. If such Pledged Collateral is sold pursuant thereto, the shares of capital stock of the Company that constitute all or a portion of the Pledged Collateral shall be duly and validly authorized, issued and outstanding, and will be fully paid and non-assessable; and (e) The pledge by the Company of the Pledged Collateral pursuant to this Agreement creates a valid and perfected first lien security interest in the Pledged Collateral, securing the payment and performance of the Secured Obligations. (f) The Company acknowledges that Seller has relied on the foregoing representations and warranties and, but for such representations and warranties, no sale of the Shares would be made by Seller to the Company. 4.3 Survival of Representations. All representations and warranties made herein by Seller and by the Company shall survive the purchase and delivery of the Shares. Page -26- 5. NOTICES. All notices and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, telegram, telex, facsimile or other standard form of telecommunication, or by registered or certified post-paid mail, return receipt requested, and addressed as follows, or to such other address as any party may notify the other in accordance with the provisions hereof: Seller: Edward W. Rose, III Cardinal Investment Company, Inc. 500 Crescent Court, Suite 250 Dallas, Texas 75201 - copy to - Gardere & Wynne, L.L.P. 1601 Elm Street, Suite 3000 Dallas, Texas 75201 Attention: Larry L. Schoenbrun, Esq. The Company: Drew Industries Incorporated 200 Mamaroneck Avenue White Plains, New York 10601 Attention: Leigh J. Abrams, President and Chief Executive Officer - copy to - Harvey F. Milman, Esq. Berlack, Israels & Liberman LLP 120 W. 45th Street New York, New York 10036 or to such other address as any party shall have specified by notice given in compliance with this Section 5, and shall be effective upon receipt. 6. ENTIRE AGREEMENT. This Agreement and the Note constitute the entire agreement between the parties with respect to the subject matter hereof and can be amended, supplemented or changed only by a written instrument making specific reference to this Agreement and duly executed by the party to be bound thereby. This Agreement supersedes all prior agreements and understandings among the parties with respect to the transactions contemplated hereby. 7. BINDING EFFECT; BENEFIT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. Nothing contained in this Agreement, express or implied, is intended to confer on any person other than the parties hereto or their respective heirs, legal representatives, successors and assigns, any rights, remedies or obligations or liabilities under or by reason of this Agreement. Page -27- 8. ASSIGNABILITY. Neither this Agreement nor any of the rights or obligations hereunder may be assigned without the prior written consent of the parties hereto and any attempt to do so shall be of no force or effect. 9. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without regard to the conflict of law principles thereof. The Company hereby irrevocably submits, in any suit, action or proceeding arising out of or relating to this Agreement or the Note or any of the transactions contemplated hereby or thereby, to the jurisdiction of the United States District Court for the Northern District of Texas and the jurisdiction of any court of the State of Texas located in Dallas and waives any and all objections to jurisdiction that it may have under the laws of the State of Texas or the United States. 10. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. Executed signature pages to any counterpart instrument may be detached and affixed to a single counterpart, which single counterpart with multiple executed signature pages affixed thereto shall constitute the original counterpart instrument. All of those counterpart pages shall be read as though one, and they shall have the same force and effect as if all the signers had executed a single signature page. 11. TAXES The Company shall pay stock transfer taxes, if any, resulting from the transaction contemplated herein. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. SELLER: ______________________________ Edward W. Rose, III THE COMPANY: DREW INDUSTRIES INCORPORATED By:___________________________ Leigh J. Abrams, President and Chief Executive Officer Page -28- NON-NEGOTIABLE PROMISSORY NOTE $20,800,000 March 7, 1997 FOR VALUE RECEIVED, the undersigned, Drew Industries Incorporated, a Delaware corporation with principal offices at 200 Mamaroneck Avenue, White Plains, New York 10601 (the "Payor") promises to pay to Edward W. Rose, III (the "Payee") at the address of the Payee or at such other place as the Payee may designate in writing, the principal sum of Twenty Million Eight Hundred Thousand ($20,800,000) Dollars, together with interest provided herein. Payor promises to pay interest from February 14, 1997 on the outstanding principal balance hereof and on any past due interest at the lesser of (i) the rate of seven (7%) percent per annum (computed on the basis of the actual number of days elapsed over a year of 360 days), or (ii) the maximum rate permitted by law from time to time. Principal and interest hereunder shall be due and payable on April 14, 1997; provided, however, that the Payor shall have the right, upon written notice to the Payee, to extend said date to May 14, 1997 if the Payor is engaged in good faith best efforts to consummate financing with Chase Manhattan Bank, the proceeds of which will be applied to pay all principal and interest due hereunder. All payments of principal and interest shall be made in U.S. Dollars and in immediately available funds. This Note may be prepaid in whole or in part by the Payor at any time without premium or penalty of any kind. Prepayments shall be applied first to accrued but unpaid interest and then to principal. The Payee shall have the right upon the occurrence of an Event of Default (as hereafter defined), to accelerate this Note and to declare the entire unpaid balance hereof and the obligation evidenced hereby, together with interest to the date of acceleration, immediately due and payable. No delay or failure on the part of the Payee to exercise any power or right shall operate as a waiver thereof and such rights and powers shall be deemed continuous, nor shall failure to exercise any such power or right subject the Holder to any liability. The Payor waives grace, presentment for payment, demand, notice of non-payment of this Note, protest and notice of protest, notice of intention to accelerate, notice of acceleration, any other notice and diligence in collecting and bringing suit, and consents that the Payee may extend the time for payment of any part or the whole of the debt at any time without affecting the rights of the Payee against the Payor. All agreements between the Payor and the holder hereof, whether now existing or hereafter arising and whether written or oral, are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of the maturity hereof, or otherwise, shall the amount paid, or agreed to be paid, to the holder hereof for the use, forbearance or detention of the funds advanced pursuant to this Note, or otherwise, or for the payment or performance of any covenant or obligation contained herein or in any other document or instrument evidencing, securing or pertaining to this Note exceed the maximum amount permissible under applicable law. If from any circumstances whatsoever fulfillment of any provisions hereof or any other document or instrument exceeds the maximum amount of interest prescribed by law, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances the holder hereof shall ever receive anything of value deemed interest by applicable law, which would exceed interest at the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance of this Note or on account of any other principal indebtedness of the Payor to the holder hereof, and not to the payment of interest, or if such excessive interest exceeds the unpaid principal balance of this Note and such other indebtedness, such excess shall be refunded to the Payor. All sums paid, or agreed to be paid, by the Payor for the use, forbearance or detention of Page -29- the indebtedness of the Payor to the holder of this Note shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such indebtedness until payment in full so that the actual rate of interest on account of such indebtedness is uniform throughout the term hereof. The terms and provisions of this paragraph shall control and supersede every other provision of all agreements between the Payor and the holder hereof. This Note is subject in all respects to the terms and provisions of the Stock Purchase and Pledge Agreement, dated the date hereof, between the Payor and the Payee (the "Agreement"), which Agreement contains, among other things, provisions for the acceleration of the maturity hereof upon the happening of certain Events of Default (as defined therein), and the granting of a security interest to secure the Payor's obligations hereunder. This Note may not be negotiated, transferred or assigned without the prior written consent of the Payor. If the holder of this Note retains an attorney in connection with any default or to collect, enforce or defend this Note or the Agreement in any lawsuit or in reorganization, bankruptcy or other proceedings, or if Payor sues any holder in connection with this Note or the Agreement and does not prevail, the Payor agrees to pay to the Payee, in addition to any principal and interest due and unpaid, all reasonable costs and expenses of such proceedings, including reasonable attorney's fees. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT BY LAWS. PAYOR HEREBY IRREVOCABLY SUBMITS IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS AND THE JURISDICTION OF ANY COURT OF THE STATE OF TEXAS LOCATED IN DALLAS AND WAIVES ANY AND ALL OBJECTIONS TO JURISDICTION THAT IT MAY HAVE UNDER THE LAWS OF THE STATE OF TEXAS OR THE UNITED STATES. IN WITNESS WHEREOF, and intending to be legally bound, the Payor has caused this Note to be signed by its President and Chief Executive Officer pursuant to order of the Board of Directors. DREW INDUSTRIES INCORPORATED By:_______________________________ Leigh J. Abrams President and Chief Executive Officer Page -30- EX-21 5 ACTIVE SUBSIDIARIES OF REGISTRANT EXHIBIT 21-Active Subsidiaries of Registrant State of Name Incorporation ---- ------------- Kinro, Inc. Ohio Kinro Manufacturing, Inc. Delaware Kinro Holding, Inc. New York Shoals Supply, Inc. Delaware Shoals Supply Holding, Inc. New York Kinro Texas Limited Partnership Texas Partnership Kinro Tennessee Limited Partnership Tennessee Partnership Shoals Supply Texas Limited Partnership Texas Partnership Shoals Supply Tennessee Limited Partnership Tennessee Partnership Page -31- EX-23 6 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 - Consent of Independent Auditors The Board of Directors Drew Industries Incorporated We consent to incorporation by reference in the registration statements (Nos. 33-26260, 33-2052, and 33- 4957) on Form S-3 and (No. 33-88582) on Form S-8 of Drew Industries Incorporated of our reports dated February 12, 1997, except for the first paragraph of Note 14, which is as of March 21, 1997, related to the consolidated balance sheets of Drew Industries Incorporated and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, and related financial statement schedule, appearing and incorporated by reference, in the December 31, 1996, annual report on Form 10-K of Drew Industries Incorporated. KPMG Peat Marwick LLP Stamford, Connecticut March 28, 1997 Page -32- EX-27 7 FDS
5 1000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1,545 0 5,232 308 22,663 31,681 17,573 6,708 55,260 15,557 0 0 0 112 34,653 55,260 168,151 168,151 125,392 145,822 0 0 326 22,003 8,617 13,386 0 0 0 13,386 1.25 1.25
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