-----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, RmfFJBK90/35PuVNoj/dCLMs/wa1R233UV7UhxML8jbmuE57m9SFf73Qv9wWCKUF EEgytGVVoZMSwKrnyc9r1g== 0000910655-01-500002.txt : 20010409 0000910655-01-500002.hdr.sgml : 20010409 ACCESSION NUMBER: 0000910655-01-500002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL RV HOLDINGS INC CENTRAL INDEX KEY: 0000910655 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR HOMES [3716] IRS NUMBER: 330371079 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12085 FILM NUMBER: 1588649 BUSINESS ADDRESS: STREET 1: 3411 N PERRIS BLVD CITY: PERRIS STATE: CA ZIP: 92571 BUSINESS PHONE: 9099436007 MAIL ADDRESS: STREET 1: 3411 N PERRIS BLVD CITY: PERRIS STATE: CA ZIP: 92571 10-K 1 a10k-2000.txt MAIN DOCUMENT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED); OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the year ended December 31, 2000 Commission file number 0-22268 NATIONAL R.V. HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware No. 33-0371079 (State or other jurisdiction of (I.R.S.Employer Identification No.) incorporation or organization) 3411 N. Perris Blvd., Perris, California 92571 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (909) 943-6007 Securities registered pursuant to Section 12(b) of the Act: Common Stock, par value $.01 per share New York Stock Exchange - -------------------------------------- ----------------------------------- (Title of class) (Name of each Exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 (based upon the closing sale price) of the voting stock held by nonaffiliated stockholders of Registrant as of March 27, 2001 was approximately $64,860,000. The number of shares outstanding of the Registrant's common stock, as of March 27, 2001, was 10,595,536. Documents Incorporated by Reference: Part III incorporates by reference portions of the National R.V. Holdings, Inc. Proxy Statement for the 2001 Annual Meeting of Stockholders. 1 TABLE OF CONTENTS PART I........................................................................3 Item 1. Business of the Registrant.........................................3 Item 2. Properties........................................................14 Item 3. Legal Proceedings.................................................15 Item 4. Submission of Matters to a Vote of Security Holders...............15 PART II......................................................................16 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................................................16 Item 6. Selected Financial Data............................................17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..............................................18 Item 7A.Quantitative and Qualitative Disclosures About Market Risk.........23 Item 8. Financial Statements and Supplementary Data........................23 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...............................................23 PART III.....................................................................24 Item 10. Directors and Officers of the Registrant..........................24 Item 11. Executive Compensation............................................24 Item 12. Security Ownership of Certain Beneficial Owners and Management....24 Item 13. Certain Relationships and Related Party Transactions..............24 PART IV......................................................................25 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...25 SIGNATURES.................................................................26 2 PART I Item 1. Business of the Registrant General National R.V. Holdings, Inc. (the "Company") is one of the nation's leading manufacturers of Class A motorhomes. From its Perris, California facility, the Company designs, manufactures and markets National R.V., Inc. ("NRV") Class "A" motor homes under brand names including Tradewinds, Dolphin, Tropi-Cal, Sea Breeze, Marlin, Islander, Sea View, Surf Side, and Caribbean, and travel trailers under brand names including Sea Breeze, Palisades, Splash and Rage'n. From its Junction City facility, the Company designs, manufactures and markets Country Coach, Inc. ("CCI") high-end (Highline) Class "A" motorhomes and bus conversions under brand names including Affinity, Allure, Intrigue and Magna. The Company, which began manufacturing recreational vehicles ("RVs") in 1964, is the fifth largest domestic manufacturer of Class A motorhomes and sells its motorhomes through a network of approximately 230 dealer locations in 38 states and Canada. The Company was incorporated in Delaware in 1988. NRV's predecessor was organized in 1963. CCI's predecessor was organized in 1973. As used herein, the term "Company" refers to National R.V. Holdings, Inc., NRV and CCI unless the context otherwise requires. The Company's headquarters are located at 3411 N. Perris Blvd., Perris, California 92571, and its telephone number is (909) 943-6007. Recreational Vehicle Industry Overview Products Based upon standards established by the Recreational Vehicle Industry Association (the "RVIA"), RVs are commonly classified into three main categories: (i) motorhomes, composed of Class A, B and C types; (ii) towables, composed of fifth-wheel travel trailers, conventional travel trailers, truck campers and folding camping trailers, and (iii) van conversions. Motorhomes: Motorhomes are self-powered RVs built on a motor vehicle chassis. The interior typically includes a driver's area and kitchen, bathroom, dining and sleeping areas. Motorhomes are self-contained, with their own power generation, heating, cooking, refrigeration, sewage holding and water storage facilities, so that they can be lived in without being attached to utilities. Motorhomes are generally categorized into A, B and C classes. Class A motorhomes are constructed on a medium-duty truck chassis, which includes the engine, drive train and other operating components. Retail prices for Class A motorhomes generally range from $40,000 to $200,000. Highline motorhomes, which are a subset of Class A motorhomes, generally range in retail price from $200,000 to $1,000,000. Class C motorhomes are built on a van or pick-up truck chassis, which includes an engine, drive-train components and a finished cab section, and generally range in retail price from $40,000 to $70,000. Class B motorhomes are van campers, which generally contain fewer features than Class A or Class C motorhomes. 3 Towables: Towables are non-motorized RVs. Fifth-wheel travel trailers, similar to motorhomes in features and use, are constructed with a raised forward section that attaches to the bed of a pick-up truck. This allows a bi-level floor plan and generally more living space than conventional travel trailers. Fifth-wheel travel trailers are typically less expensive than motorhomes and range in retail price from $15,000 to $80,000. Conventional travel trailers are similar to fifth-wheel travel trailers but do not have the raised forward section. Truck campers have many of the amenities found on travel trailers and slide into the bed of a pickup truck. Folding camping trailers contain fewer features than other towables and are constructed with collapsible "tent" sidewalls that fold for easy towing. Van Conversions: Van conversions are automotive vans converted by van upfitters to include such features as entertainment centers, comfortable seating, window treatments and lighting. Trends and Demographics According to the RVIA's wholesale statistics, RV unit sales (excluding van conversions) in 2000 decreased 6.6% to 300,100 from 321,200 in 1999. The aggregate wholesale value of these 2000 shipments was approximately $7.6 billion, with Class A motorhomes comprising $3.9 billion or 51% of the total and travel trailers comprising $2.7 billion or 36% of the total. Unit shipments of Class A motorhomes in 2000 decreased 17.0% to 41,000 from 49,400 in 1999. The average wholesale price of Class A motorhomes increased 5.7% in 2000 to $94,003 from $88,962 in 1999. Unit shipments of travel trailers decreased 0.7% in 2000 to 176,800 from 178,000 in 1999. The average wholesale price of conventional travel trailers increased 2.4% in 2000 to $11,763 from $11,488 in 1999, while the average wholesale price of fifth-wheel travel trailers decreased 6.2% to $19,032 in 2000 from $20,284 in 1999. While overall unit shipments have increased over the past five years, the RV industry's manufacturing base has undergone a consolidation. Between 1992 and 2000, the number of Class A motorhome manufacturers declined from 45 to 29. In addition, during this period, the aggregate retail market share of the ten largest Class A motorhome manufacturers increased from 82.5% to 90.6%. RVs are purchased for a variety of purposes, including camping, visiting family and friends, sightseeing, vacationing and enjoying outdoor activities and sporting events. According to a University of Michigan study, approximately 8.6 million households (or 9.8% of all households) in the United States owned RVs in 1997, up from 8.2 million in 1993, 7.7 million in 1988 and 5.8 million in 1980. In addition, the study indicated that 67% of all current RV owners and 25% of all former RV owners plan to purchase another RV in the future. This study further indicated that 65% of RVs purchased are used (RVIA and market share statistics reflect new product sales only) with more than 34% of these used RVs older than 15 years. The eventual scrappage of these older units is expected to result in an increasing proportion of new product sales over the next ten years. 4 Ownership of RVs reaches its highest level among those Americans aged 55 to 64, with 16.4% of households in this category owning RVs. The number of households in this group, which constitutes the Company's primary target market, is projected to grow by 8.0 million households, or 63% from 1997 to 2010 as compared to total growth of 14.9 million households, or 14.9%. Baby Boomers are defined as those born between the years 1946 and 1964, and thus the leading edge of the Baby Boomer generation began turning 50 in 1996. This generation is expected to be more affluent and retire earlier than past generations. As Baby Boomers enter and travel through the important 50 to 65 age group for RV sales, they represent the potential for a secular uptrend in the RV industry. As motorhomes have increased in popularity due, in part, to the entry of the Baby Boomer generation into the target market, the purchasers of these products have grown more sophisticated in their tastes. The Company believes that as a result, customers have demanded more value for their money, and brand recognition and loyalty have become increasingly important. These trends have favored companies that can deliver quality, value and reliability on a sustained basis. Business Development and Strategy The Company's business development and operating strategy is to deliver high quality, innovative products that offer superior value to enhance the Company's position as one of the nation's leading manufacturers of RVs. This strategy focuses on the following key elements: (i) building upon and exploiting recognition of the Company's brand names; (ii) offering the highest value products at multiple price points to appeal to first time and repeat buyers; (iii) expanding its manufacturing capacity and continuing to utilize vertically integrated manufacturing processes; and (iv) capitalizing on the Company's reputation to expand its presence in the Highline market. Building upon and Exploiting Recognition of the Company's Brand Names. The Company believes that its brand names and reputation for manufacturing quality products with excellent value have fostered strong consumer awareness of the Company's products and have contributed to the growth of its net sales and market share. The Company intends to capitalize on its brand name recognition in order to increase its sales and market share, facilitate the introduction of new products and enhance its dealer network. Offering the Highest Value Products at Multiple Price Points to Appeal to First Time and Repeat Buyers. The Company currently offers seventeen distinct lines of RVs, which are available in a variety of lengths, floorplans, color schemes and interior designs and range in suggested retail price from $10,000 to $1,200,000. Each model is intended to attract customers seeking an RV within their price range by offering value superior to competitive products from other manufacturers. RVIA data indicates that most motorhome purchasers have previously owned a recreational vehicle, and the Company's models are positioned to address the demands of these repeat customers as well as first time buyers. 5 Expanded Manufacturing Capacity and Vertically Integrated Manufacturing Processes. The Company has expanded its manufacturing facilities in order to increase its production flexibility and substantially increase overall production volume to meet demand and anticipated growth. The Company designs and manufactures a significant number of the components used in the assembly of its products, rather than purchasing them from third parties. The Company believes that its vertically integrated manufacturing processes allow it to achieve cost savings and better quality control. The Company's in-house research and development staff and on-site component manufacturing departments enable the Company to ensure a timely supply of necessary products and to respond rapidly to market changes. Capitalizing on the Company's Reputation to Expand its Presence in the Highline Market. The Company's Country Coach product offerings focus exclusively on the Highline segment of the Class A motorhome market. The Company has a strong market share in the Highline segment. For the twelve months ended December 31, 2000, the Company was the third largest manufacturer of Highline motorhomes, with approximately 16.4% of this market, up from 15.6% in 1999. The Company is actively seeking to expand its share of this market by capitalizing on its established reputation, continuing to offer superior products and expanding its production capacity in order to target the market's growing population and satisfy the desire of many current RV owners to purchase more upscale vehicles. Business Products The Company's product strategy is to offer the highest value RVs across a wide range of retail prices to appeal to a broad range of potential customers and to capture the business of brand-loyal repeat purchasers who tend to trade up with each new purchase. National RV currently manufactures Class A motorhomes under Islander, Tradewinds, Marlin, Caribbean, Tropi-Cal, Dolphin, Sea Breeze, Sea View and Surf Side brand names and travel trailers under the Sea Breeze, Palisades, Splash, and Rage'n brand names. Country Coach currently manufactures Highline motorhomes under the Affinity, Magna, Intrigue and Allure brand names and bus conversions under the Country Coach Prevost Conversion brand name. The Company's products are offered with a wide range of accessories and options and manufactured with high-quality materials and components. Certain of the Company's Highline motorhomes can be customized to a particular purchaser's specifications. Each vehicle is equipped with a wide range of kitchen and bathroom appliances, audio and video electronics, communication devices, furniture, climate control systems and storage spaces. Country Coach Prevost XLII Conversion. This completely customized bus, billed as the ultimate in mobile livability, is built on the 40' and 45' LeMirage XLII Prevost chassis. Fully custom interiors are equalled by multi-color custom exterior graphics with clear coat. The coach offers computerized touch pad switching, computerized air leveling, a voice synthesized monitoring system, a sophisticated Infotronics control system, and a 42" big screen that folds neatly away into the ceiling when not in use. Slide room floorplans expand the interior livability factor even more. Suggested retail prices for the XLII start at $715,000. The Country Coach Prevost Conversion was introduced in 1979. 6 Affinity. The 40' and 42' Affinity is powered by the Caterpillar 455 hp engine (or optional 505 hp) teamed with Allison's 4000MH transmission. This engine has a mighty 1550 lbs of torque ripping out of its cylinders. Built on the DynoMax chassis, the all fiberglass coach has a longer wheelbase (which equates to enhanced driveability), shorter front and rear overhang and a low center of gravity. Exterior color combinations (or select your own custom colors) and custom graphic packages ensure a one-of-a-kind type exterior. An interducted triple roof air system, a 12.5kw diesel generator on roll-out tray, voice synthesized monitoring system, and over-the-road air conditioning are among the many special features. Six color coordinated interior packages (or completely customize) and floor plan combinations which include single and dual slide out options offer carte blanche for personalization. Suggested retail prices for the Affinity start at $447,000. The Affinity was introduced in 1991. Magna. Available in 36' and 40' lengths, this wide-body motorcoach is built on the DynoMax chassis and is powered by the Caterpillar C10 385HP diesel engine teamed with Allison's 3000MH transmission. Six designer coordinated interior packages (buyers may also modify a standard scheme or completely customize) complement the fiberglass exterior with custom graphics packages. Floor plan combinations include non-slide, single and double slide room offerings. A voice synthesized monitoring system, over-the-road air conditioning, an interducted roof air system, and a diesel generator on a convenient roll-out tray are among the special features. Suggested retail prices for the Magna start at $331,700. Intrigue. Built on the DynoMax chassis, the Intrigue is available in 32', 36' and 40' lengths. The widebody diesel pusher is powered by the Cummins 330 or optional 350 or 370 horsepower engine teamed with Allison's 3000MH transmission. The fiberglass exterior with its one-piece fiberglass roof cap features painted exterior graphics with complete clear coat protection. Custom crafted cabinetry in a choice of natural hardwoods combine with three color coordinated interior packages. Non-slide, single and dual slide out editions afford maximized living space. Suggested retail prices for the Intrigue start at $218,100. The Intrigue was introduced in 1994. Allure. Available in 32', 36' and 40' lengths, this widebody diesel pusher motorcoach is built on the DynoMax chassis. It is powered by the Cummins 330 horsepower engine teamed with Allison's 3000 MH transmission. The fiberglass exterior with a one-piece fiberglass roof cap, painted graphics with clear coat and bus-style aerodynamics is complemented by three designer coordinated interior packages and floor plan combinations which include non-slide, single slide and dual slide arrangements. Suggested retail prices for the Allure start at $194,700. The Allure was introduced in 1995. Islander. The Islander is a luxury, bus-style diesel pusher built on a semi-monocoque chassis manufactured by CCI. Available in two 40' floorplans, the Islander features large double slide rooms that add approximately 45 square feet of additional living space. Suggested retail prices for the Islander start at $215,000. The Islander product debuted in 1999. 7 Tradewinds LTC. The Tradewinds LTC is available in three floorplans on a diesel-powered chassis. The Tradewinds LTC (Luxury Touring Class) features an extensively upgraded diesel chassis from its sister product, the Tradewinds. These upgrades include a more powerful engine, greater storage space and independent front suspension. Each model is a full-basement wide-body, bus-style motorhome. All models have automatic double slide-out features that expand the interior of the motorhome to add additional living space. Models are produced in 36-39 foot lengths and are available with a choice of oak, walnut or maple interiors. Suggested retail prices for the LTC start at $177,000. The Tradewinds LTC was introduced in 2000. Tradewinds. The Tradewinds is available in five floorplans on a diesel-powered chassis. These models are full-basement wide-body, bus-style motorhomes. All models have automatic slide-out features that expand the interior of the motorhomes and add approximately 36 square feet of additional living space. Models are produced in 35-38 foot lengths and are available with a choice of oak or walnut interiors. Suggested retail prices for the Tradewinds start at $152,000. The Tradewinds was introduced in 1997. Marlin. The Marlin is available in three floorplans on a diesel-powered chassis. The Marlin features an extensively upgraded diesel chassis when compared to other products in its price range. These upgrades include a raised rail chassis and independent front suspension. Each model is a full-basement wide-body, bus-style motorhome. All models have automatic slide-out features that expand the interior of the motorhomes to add additional living space. Models are produced in 35-39 foot lengths and are available with a choice of oak or maple interiors. Suggested retail prices for the Marlin start at $139,000. The Marlin was introduced in 2000. Caribbean. The Caribbean is a compact, luxury, bus-style, diesel pusher that represents a newer market segment that has emerged. Featuring one floorplan of 34 feet in length with a slide-out room, the Caribbean is designed to appeal to consumers looking for a luxury product that is easier to drive and handle than conventional luxury bus-style products. Suggested retail prices for the Caribbean start at $138,000. The Caribbean was introduced in 1999. Tropi-Cal. The Tropi-Cal is a wide-body bus-style motorhome outfitted similar to the Dolphin with certain distinct features, exterior styling and floorplans. The Tropi-Cal is available in seven floorplans on a gas-powered chassis and produced in 33 to 37 foot lengths. All models have an automatic slide-out feature that expands the interior of the motorhome and adds approximately 36 square feet of additional living space. Suggested retail prices for the Tropi-Cal $101,000. The Tropi-Cal was introduced in 1993. Dolphin. The Dolphin is available in eight floorplans on a gas-powered chassis. These models are full-basement wide-body, bus-style motorhomes. All models have automatic slide-out features that expand the interior of the motorhomes and add approximately 36 square feet of additional living space. The Dolphin models are produced in 33 to 37 foot lengths. Suggested retail prices start at $95,000. The Class A Dolphin motorhome was introduced in 1985. 8 Sea View. The Sea View is available in five floorplans on a gas-powered chassis. These models are full-basement wide-body, bus-style motorhomes. All models have automatic slide-out features that expand the interior of the motorhomes and add approximately 36 square feet of additional living space. The Sea View models are produced in 31 to 34 foot lengths. Suggested retail prices start at $85,000. The Sea View was introduced in 1997. Sea Breeze. The Sea Breeze is a moderately priced, bus-style motorhome, built on a gas-powered chassis. The Sea Breeze is a low profile motorhome, offering partial basement storage. The Sea Breeze features Corian(R) countertops, power heated side-view mirrors, deluxe trim and heated water and waste holding tanks. The Sea Breeze features four floorplans between 30 and 34 feet in length. Suggested retail prices start at $72,000. The Class A Sea Breeze product was introduced in 1992. Surf Side. The Surf Side is available in three floorplans on a gas-powered chassis. This full-basement wide-body, bus-style motorhome is offered in 30 and 31 foot lengths. Suggested retail prices start at $68,000. The Surf Side was introduced in 1999. Palisades Fifth-Wheel Travel Trailer. The Palisades fifth-wheel travel trailer comes in five, triple-slide floorplans ranging from 32 to 37 feet in length. All floorplans feature standard dark walnut interiors, and many other amenities. Suggested retail prices start at $58,000. The Palisades was introduced in 1999. Sea Breeze Fifth-Wheel Travel Trailer. The Sea Breeze fifth-wheel travel trailer comes in five floorplans equipped similar to a Sea Breeze motorhome. All floorplans feature standard living room and bedroom slide-out sections and are produced in 30 to 37 foot lengths. Suggested retail prices start at $45,000. The Sea Breeze fifth-wheel trailer was introduced in 1995. Rage'n Travel Trailer. The Rage'n is a ramp travel trailer with both conventional and fifth-wheel floorplans and contains cargo capacity for hauling ATVs or small watercraft. Suggested retail prices for the Rage'n start at $18,000. The product was introduced in 2000. Splash Travel Trailer. The Splash is an entry-level travel trailer with both conventional and fifth-wheel floorplans. When complete, it will be available in approximately 20 floorplans. Suggested retail prices for the Splash start at $11,000. The product line debuted in October of 2000. 9 Planned Product Introductions During 2001, the Company plans to continue to introduce new floorplans in its existing products as well as additional new towable brands to round out its offering of towable products. Distribution and Marketing The Company markets NRV products through a network of 170 class A and approximately 55 towable dealer locations in 38 states and Canada. These dealers generally carry all or a portion of NRV's product lines along with competitors' products. The Company markets CCI products through 22 dealer locations. CCI utilizes a limited dealer network for its Highline motorhomes due to the selling expertise required and the tendency of Highline customers to make destination-type purchases. The Company believes that each of the CCI dealers has significant experience with top-of-the-line products and has demonstrated high standards for service. The Company generally promotes its products through visits to dealers, attendance at industry shows, direct mail promotions, corporate newsletters, press releases, trade and consumer magazine advertising and RV owner rallies. From time to time, the Company also offers dealer or consumer incentives. In addition, to help promote customer satisfaction and brand loyalty, the Company sponsors Dolphin and Country Coach International clubs for owners of the Company's products. The clubs publish newsletters and magazines on a monthly or quarterly basis and organize RV rallies and other activities. The Company continually seeks consumer preference input from several sources, including dealers, RV owners and the Company's sales representatives and, in response, the Company implements changes in the design, decor and features of its products. Substantially all of the Company's motorhome sales are made on terms requiring payment within 15 days or less of the dealer's receipt of the unit. Most dealers finance all, or substantially all, of the purchase price of their inventory under "floor plan" arrangements with banks or finance companies under which the lender pays the Company directly. Dealers typically are not required to commence loan repayments to such lenders for a period of at least six months. The loan is collateralized by a lien on the vehicle. Consistent with industry practice, the Company has entered into repurchase agreements with these lenders. In general, the repurchase agreements provide that the Company is required to repurchase a unit after the unit is financed and if the "floor plan" lender has repossessed the unit. Certain of these agreements limit the Company's liability to 12 to 18 months after the date of invoice of the unit. At December 31, 2000, the Company's contingent liability under these agreements was approximately $99.3 million. The risk of loss under such agreements is spread over numerous dealers and lenders and is further reduced by the resale value of the motorhomes the Company would be required to repurchase. The Company's losses under these agreements have not been material in the past. 10 Many finance companies and banks provide retail financing to purchasers of RVs. Certain provisions of the U.S. tax laws applicable to second residences, including the deductibility of mortgage interest and the deferral of gain on a qualifying sale, currently apply to motorhomes and travel trailers used as qualifying residences. Manufacturing Facilities and Production The Company owns and operates manufacturing facilities in Perris, California, and Junction City, Oregon. In January 2001, NRV completed the acquisition of a 15-bay service and parts distribution center in Lakeland, Florida. NRV products are designed and manufactured in facilities encompassing 610,000 square feet located on approximately 49 acres in Perris. CCI products are designed and manufactured in facilities encompassing 386,000 square feet located on approximately 56 acres in Junction City. The Company also owns 12 acres of undeveloped land in Florida, which is currently being marketed for sale. The Company's vehicles are built by integrating manufacturing and assembly line processes. The Company has designed and built its own fabricating and assembly equipment and molds for a substantial portion of its manufacturing processes. The Company believes that its vertically integrated manufacturing systems and processes, which it has developed, enable it to efficiently produce high-quality products. Among other items, the Company fabricates, molds and finishes fiberglass to produce its front and rear-end components, manufactures its own walls and roofs, assembles sub-floors and molds plastic components. In addition to assembling its vehicles and installing various options and accessories, the Company manufactures the majority of the installed amenities such as cabinetry, draperies, showers and bathtubs. After purchasing the basic chair and sofa frames, the Company also manufactures most of the furniture used in its motorhomes. The Company believes that by manufacturing these components on site, rather than purchasing them from third parties, the Company achieves cost savings, better quality control and timely supply of necessary components. Chassis, plumbing fixtures, floor coverings, hardware and appliances are purchased in finished form from various suppliers. Due to California environmental emission restrictions on the amount of fiberglass that the Company can fabricate, third parties manufacture certain fiberglass parts using the Company's molds. The Company currently operates one production shift. The Company purchases the principal raw materials and certain other components used in the production of its RVs from third parties. Other than the chassis, these components and raw materials typically have short delivery lead times. With the exception of the chassis, these materials, including plywood, lumber and plastic, are generally available from numerous sources, and the Company has not experienced any significant shortages of raw materials or components. 11 Product Development The Company utilizes research and development staff who concentrate on product development and enhancements. New ideas are presented to the staff from management and are derived from a variety of sources, including sales representatives, dealers and consumers. The staff utilizes computer-aided design equipment and techniques to assist in the development of new products and floor plans and to analyze suggested modifications of existing products and features. After the initial step of development, prototype models for new products are constructed and refined. In the case of modifications to certain features, new molds for various parts, such as front-end caps and storage doors, are produced and tested. Upon completion and acceptance of the prototypes, the new products or components are integrated into the production process. The Company believes that the maintenance of an in-house research and development staff enables the Company to respond rapidly to ongoing shifts in consumer tastes and demands. Research and development expenses were $5,973,000 $4,087,000, and $3,050,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Arrangements with Chassis Suppliers The Company's NRV subsidiary purchases gasoline-powered chassis' that are manufactured by Ford Motor Company and Workhorse Custom Chassis, and rear engine diesel-powered chassis' from Freightliner Custom Chassis Corporation, Spartan Motor Corporation, and from CCI. The Company's CCI subsidiary manufactures its own chassis, the DynoMax, which is used as the base upon which all CCI motorhomes are built, except for the Prevost Conversions, which utilize a Prevost bus shell. The Company takes advantage of cash discounts, for payment upon delivery, which are generally provided for in the purchase agreements with these manufacturers. Such agreements generally provide that the Company must pay for a chassis in full prior to making any alterations or additions to the chassis. The agreements further provide that either party may terminate the agreement at any time. In the event of such termination, the Company may incur certain financing and other costs in order to maintain an adequate supply of chassis. The Company generally maintains a one to two month production supply of a chassis in inventory. If any of the Company's present chassis manufacturers were to cease manufacturing or otherwise reduce the availability of their chassis, the business of the Company could be adversely affected. The industry, as a whole, from time to time experiences short-term shortages of chassis. Backlog The Company's backlog of orders was $62.3 million as of February 28, 2001 and $64.0 million as of February 29, 2000. All backlog orders are subject to cancellation or postponement. To the extent not canceled or postponed, the Company expects that its backlog as of February 28, 2001 will be filled within 60-90 days. Competition The motorhome market is intensely competitive, with a number of other manufacturers selling products that compete with those of the Company. According to Statistical Surveys, Inc., the three leading manufacturers accounted for approximately 52.7% and 51.8% of total retail units sold in the Class A motorhome market during 2000 and 1999, respectively. These companies and certain other competitors have substantially greater financial and other resources than the Company. Sales of used motorhomes also compete with the Company's products. The Company competes on the basis of value, quality, price and design. According to Statistical Surveys, Inc., the Company's Class A retail market share of new product sales increased from 1.9% in 1992 to 3.4% in 1993, 4.0% in 1994, 4.2% in 1995, 6.1% in 1996, 7.8% in 1997, 8.2% in 1998, 8.2% in 1999, and decreased to 7.4% in 2000. 12 Regulation The Company is subject to federal, state and local regulations governing the manufacture and sale of their products, including the provisions of the National Traffic and Motor Vehicle Safety Act (the "Motor Vehicle Act") and the safety standards for RVs and components which have been promulgated thereunder by the Department of Transportation. The Motor Vehicle Act authorizes the National Highway Traffic Safety Administration ("NHTSA") to require a manufacturer to recall and repair vehicles which contain certain hazards or defects. The Company has from time to time instituted voluntary recalls of certain motorhome units, none of which has had a material adverse effect on the Company. Future recalls of the Company's vehicles, voluntary or involuntary, however, could have a material adverse effect on the Company. The Company is also subject to federal and numerous state consumer protection and unfair trade practice laws and regulations relating to the sale, transportation and marketing of motor vehicles, including so-called "Lemon Laws." Federal and state laws and regulations also impose upon vehicle operators various restrictions on the weight, length and width of motor vehicles, including trucks and motorhomes, that may be operated in certain jurisdictions or on certain roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding length restrictions. Amendments and changes in enforcement with respect to these laws and regulations and the implementation of new laws and regulations could significantly increase the costs of manufacturing, purchasing, operating or selling the Company's products and could have a material adverse effect on the Company's business, results of operations and financial condition. The Company relies upon certifications from chassis manufacturers with respect to compliance of the Company's vehicles with all applicable emission control standards. The RVIA, of which the Company is a member, has promulgated stringent standards for quality and safety. Each of the units manufactured by the Company has a RVIA seal placed upon it to certify that such standards have been met. Federal and state authorities have various environmental control standards relating to air, water, noise pollution and hazardous waste generation and disposal which affect the business and operations of the Company. California environmental emission regulations limit the amount of fiberglass production that the Company may fabricate. The Company believes that its facilities and products comply in all material respects with applicable environmental regulations and standards. The Company is also subject to the regulations promulgated by the Occupational Safety and Health Administration ("OSHA"), which regulates workplace health and safety. Representatives of OSHA and the RVIA periodically inspect the Company's plant. 13 Product Warranty The Company provides retail purchasers of its motorhomes with a limited warranty against defects in materials and workmanship. Excluded from the Company's warranties are chassis manufactured by third parties and certain other specified components that are warranted by the Company's suppliers of these items. Service covered by warranty must be performed at either the Company's in-house service facility or any of its dealers or other authorized service centers. The warranty period covers the lesser of one year or 18,000 miles. The Company's warranty reserve was $9.9 million at December 31, 2000, which the Company believes is sufficient to cover warranty claims. Trademarks NRV's Dolphin, Tropi-Cal, Sea Breeze, Tradewinds, Sea View and DuraFrame trademarks, and CCI's Affinity, Magna, Intrigue, Allure, and Great Room trademarks are registered with the United States Patent and Trademark Office and are material to the Company's business. The Company does not rely upon any material patents or licenses in the conduct of its business. Legal Proceedings and Insurance From time to time, the Company is involved in certain litigation arising out of its operations in the normal course of business. Accidents involving personal injuries and property damage occur from time to time in the use of RVs. The Company maintains product liability insurance in amounts deemed adequate by management. To date, aggregate costs to the Company for product liability actions have not been material. The Company believes that there are no claims or litigation pending, the outcome of which could have a material adverse effect on the financial position of the Company. Employees As of February 28, 2001, the Company employed a total of 1,969 people, of which 1,777 were involved in manufacturing, 42 in administration, 79 in research and development and 71 in sales and marketing. None of the Company's personnel are represented by labor unions. The Company considers its relations with its personnel to be good. Item 2. Properties The Company owns and operates manufacturing facilities in Perris, California, and Junction City, Oregon. In January 2001, NRV completed the acquisition of a 15-bay service and parts distribution center in Lakeland, Florida. NRV products are designed and manufactured in facilities encompassing 610,000 square feet located on approximately 49 acres in Perris. CCI products are designed and manufactured in facilities encompassing 386,000 square feet located on approximately 56 acres in Junction City. A portion of CCI's facilities representing 276,000 square feet is being leased under an agreement expiring in October 2005 (renewable in two separate five-year increments at fair market values). Construction plans on an additional 150,000 square foot manufacturing building at the Junction City facility are being developed, but no actual date is currently set for construction to begin. The Company also owns 12 acres of undeveloped land in Florida, which is currently being marketed for sale. 14 The Company believes that present facilities are well maintained and in good condition. The plants are currently operating at approximately 60% capacity. Item 3. Legal Proceedings The Company is invloved in litigation and claims arising in the ordinary course of business. The Company believes that these matters will not have a material adverse effect on the Company's financial position or results of operations. Item 4. Submission of Matters to a Vote of Security Holders None. 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The Company's Common Stock, par value $.01 per share (the "Common Stock"), has been trading on the New York Stock Exchange under the symbol NVH since December 14, 1998. From September 30, 1993 to December 13, 1998, the stock traded on the Nasdaq National Market under the symbol NRVH. Prior to that time, there was no public market for the Common Stock. 2000 High Low ---- ---- --- First Quarter $ 19.63 $ 12.63 Second Quarter 16.31 8.13 Third Quarter 10.75 8.00 Fourth Quarter 11.69 7.75 1999 High Low ---- ---- --- First Quarter $ 26.88 $ 20.56 Second Quarter 29.50 21.88 Third Quarter 27.31 19.13 Fourth Quarter 21.25 16.25 On March 27, 2001, the last reported sales price for the Common Stock quoted on the New York Stock Exchange was $8.50 per share. As of March 27, 2001, there were approximately 81 record holders of Common Stock. Such number does not include persons whose shares are held of record by a bank, brokerage house or clearing agency, but does include such banks, brokerage houses and clearing agencies. Dividends The Company has not paid any cash dividends or distributions on its Common Stock and has no intention to do so in the foreseeable future. The Company presently intends to retain earnings for general corporate purposes, including business expansion, capital expenditures and possible acquisitions. The declaration and payment of future dividends will be at the sole discretion of the Board of Directors and will depend on the Company's profitability, financial condition, capital needs, future prospects and other factors deemed relevant by the Board of Directors. The ability of the Company to declare and pay dividends is restricted by the Revolving Credit Agreement, dated as of March 11, 1999, between the Company and Bank of America NT&SA, which prohibits the payment of dividends in cash or property unless the Company satisfies certain financial tests set forth therein. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." 16 Item 6. Selected Financial Data The following selected consolidated financial data are qualified by reference to, and should be read in conjunction with, the Company's Consolidated Financial Statements and the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained elsewhere herein. The selected income statement data for the years ended December 31, 1998, 1999 and 2000 and the selected balance sheet data as of December 31, 1999 and 2000 are derived from the Company's audited consolidated financial statements that are included elsewhere herein. The selected income statement data for the year ended December 31, 1996 and 1997 along with the balance sheet data as of December 31, 1996, 1997 and 1998 are derived from the audited consolidated financial statements of the Company which are not included herein. SELECTED CONSOLIDATED FINANCIAL INFORMATION (In thousands, except per share and unit amounts) December 31, ----------------------------------------------------- 2000 1999 1998 1997 1996 (1) ------ ------ ------ ------ -------- Operations Data: Net sales ............. $ 348,846 $ 419,421 $ 360,326 $ 285,951 $ 137,101 Cost of sales ......... 308,216 348,592 302,098 245,763 118,643 Gross profit ........ 40,630 70,829 58,228 40,188 18,458 Selling expenses ...... 14,111 11,437 11,154 9,518 4,209 General and admin- istrative expenses .. 9,138 7,214 6,586 5,649 2,899 Amortization of intangibles ......... 413 413 413 413 80 Operating income .... 16,968 51,765 40,075 24,608 11,270 Interest (income) expense, net ........ (1,200) (1,379) (280) 222 111 Other financing related costs ....... -- -- 213 113 149 Loss (gain) on disposal of land and equipment ....... 135 (432) -- -- -- Income before income taxes and cumulative effect of change in accounting method .............. 18,033 53,576 40,142 24,273 11,010 Provision for income taxes ............... 6,864 20,625 16,033 9,767 4,405 Net income before cumulative effect of change in accounting method .. 11,169 32,951 24,109 14,506 6,605 Cumulative effect of change in accounting method .............. (1,213) -- -- -- -- Net income .......... $ 9,956 $ 32,951 $ 24,109 $ 14,506 $ 6,605 Basic earnings per common share: Income before extraordinary items .............. $ 1.14 $ 3.16 $ 2.35 $ 1.55 $ 0.92 Cumulative effect of change in accounting method .. (0.12) -- -- -- -- Net income ........ $ 1.02 $ 3.16 $ 2.35 $ 1.55 $ 0.92 Diluted earnings per common share: Income before extraordinary items .............. $ 1.11 $ 2.95 $ 2.11 $ 1.40 $ 0.84 Cumulative effect of change in accounting method .. (0.12) -- -- -- -- Net income ........ $ 0.99 $ 2.95 $ 2.11 $ 1.40 $ 0.84 Weighted average number of common shares outstanding: Basic ............... 9,743 10,430 10,263 9,365 7,190 Diluted ............. 10,086 11,178 11,423 10,390 7,887 Other Data: Class A units sold .... 2,852 3,951 3,652 3,039 2,042 Travel Trailers sold .. 553 431 410 258 210 Balance Sheet Data: Total assets .......... $ 155,674 $ 159,214 $ 117,739 $ 87,204 $ 68,050 Working capital ....... 76,063 91,916 63,480 39,271 29,553 Long-term debt ........ 64 84 1,700 6,703 7,272 Stockholders' equity .. 125,293 130,566 94,489 60,958 45,532 Pro forma amounts assuming new revenue recognition principle is applied retroactively: Net income .......... $ 11,169 $ 32,492 $ 23,810 $ 14,368 $ 6,646 Basic earnings per common share ....... $ 1.14 $ 3.12 $ 2.32 $ 1.53 $ 0.92 Diluted earnings per common share ... $ 1.11 $ 2.91 $ 2.08 $ 1.38 $ 0.84 (1) Reflects the acquisition of Country Coach in November of 1996 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. This analysis of the Company's financial condition and operating results should be read in conjunction with the accompanying consolidated financial statements including the notes thereto. Results of Operations The following table sets forth for the periods indicated the percentage of net sales represented by certain items reflected in the Company's Consolidated Statement of Income: Percentage of Net Sales Years Ended December 31, ---------------------------- 2000 1999 1998 -------- -------- -------- Net sales .................................. 100.0% 100.0% 100.0% Cost of sales .............................. 88.4 83.1 83.8 ----- ----- ----- Gross profit ............................... 11.6 16.9 16.2 Selling .................................... 4.0 2.8 3.1 General and administrative ................. 2.6 1.7 1.9 Amortization of intangibles ................ 0.1 0.1 0.1 ----- ----- ----- Operating income ........................... 4.9 12.3 11.1 Interest (income) expense, net ............. (0.3) (0.3) (0.1) Other ...................................... 0.0 (0.2) 0.1 ----- ----- ----- Income before income taxes and cumulative effect of change in accounting method ...... 5.2 12.8 11.1 Provision for income taxes ................. 2.0 4.9 4.4 ----- ----- ----- Income before cumulative effect of change in accounting method .......................... 3.2 7.9 6.7 Cumulative effect of change in accounting method ..................................... (0.3) -- -- ----- ----- ----- Net income ................................. 2.9 7.9 6.7 ----- ----- ----- Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 Net sales in 2000 decreased by $70.6 million to $348.8 million, or 16.8%, from $419.4 million in 1999. The decline in sales reflects an industry-wide slowdown in consumer demand for recreational vehicles. NRV's sales of Class A motorhomes decreased 1,054 units, or 32%, in 2000 to 2,281 units compared to 3,333 units in 1999, and the average sales price increased 7% reflecting a shift in demand to higher-priced motorhomes with slide-out rooms and more diesel-pusher motorhome sales. CCI's unit sales decreased 47 units, or 8%, in 2000 to 571 units compared to 618 units in 1999, while the average price of these units increased just 1%. Sales of travel trailers increased 123 units, or 29%, in 2000 to 553 units compared to 431 units in 1999, while the average sales price of these travel trailers decreased 20%. The increase in unit sales and decrease in average price reflects NRV's entry into the entry-level towable market in 2000. 18 Cost of goods sold in 2000 decreased by $40.4 million to $308.2 million, or 11.6%, from $348.6 million in 1999 resulting primarily from decreased net sales. Gross profit margin was 11.6% in 2000 compared to 16.9% in 1999. The decrease was primarily due to a high discounts and rebates as manufacturers and dealers endeavored to adjust inventory levels to lower levels of sales, and to manufacturing inefficiencies attributable to operating at reduced production levels. Selling expenses in 2000 increased by $2.7 million to $14.1 million, or 23%, from $11.4 million in 1999 primarily due to the increased promotional costs. As a percentage of net sales, selling expenses increased to 4.0% in 2000 from 2.8% in 1999. General and administrative expenses in 2000 increased by $1.9 million to $9.1 million, or 27%, from $7.2 million in 1999. The increase was primarily due to an increase in administrative and technology costs. As a percentage of net sales, general and administrative expenses increased to 2.6% in 2000 from 1.7% in 1999. Amortization of intangibles was $0.4 million in 2000 and 1999. As a result of the foregoing, operating income in 2000 decreased by $34.8 million, or 67.2%, to $17.0 million from $51.8 million in 1999. As a percentage of net sales, operating income decreased to 4.9% in 2000 from 12.3% in 1999. Other income, which includes net interest income and other financing related costs, decreased by $0.7 million to $1.1 million in 2000 from $1.8 million in 1999. Provision for income taxes in 2000 and 1999 was $6.9 million and $20.6 million, respectively, representing a $13.7 million decrease. The effective tax rate in 2000 was 38.1% compared to 38.5% in 1999. The Company recorded a one-time adjustment for the cumulative effect of change in accounting method on prior years' earnings related to the timing of revenue recognition. The impact of this adjustment on 2000 earnings was $1.2 million. Based on the above, net income decreased $23.0 million, or 69.8%, to $9.7 million from $33.0 million in 1999. As a percentage of net sales, net income decreased to 2.9% from 7.9% in 1999. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Net sales in 1999 increased by $59.1 million to $419.4 million, or 16.4%, from $360.3 million in 1998. NRV's sales of Class A motorhomes increased 236 units, or 7.6%, in 1999 to 3,333 units compared to 3,097 units in 1998, and the average sales price increased 5.5% reflecting strong demand for higher-priced motorhomes with slide-out rooms and more diesel-pusher motorhome sales. CCI's unit sales increased 63 units, or 11.4%, in 1999 to 618 units compared to 555 units in 1998. Sales of fifth-wheel travel trailers increased 21 units, or 5.1%, in 1999 to 431 units compared to 410 units in 1998. 19 Cost of goods sold in 1999 increased by $46.5 million to $348.6 million, or 15.4%, from $302.1 million in 1998 resulting primarily from increased net sales. Gross profit margin was 16.9% in 1999 compared to 16.2% in 1998. Selling expenses in 1999 increased by $0.3 million to $11.4 million, or 2.5%, from $11.1 million in 1998 primarily due to the increase in net sales. As a percentage of net sales, selling expenses decreased to 2.8% in 1999 from 3.1% in 1998. General and administrative expenses in 1999 increased by $0.6 million to $7.2 million, or 9.5%, from $6.6 million in 1998. As a percentage of net sales, general and administrative expenses decreased to 1.7% in 1999 from 1.9% in 1998. Amortization of intangibles was $0.4 million in 1999 and 1998. As a result of the foregoing, operating income in 1999 increased by $11.7 million, or 29.2%, to $51.8 million from $40.1 million in 1998. As a percentage of net sales, operating income increased to 12.3% in 1999 from 11.1% in 1998. Other income, which includes net interest income and other financing related costs, increased by $1.7 million to $1.8 million in 1999 from $0.1 million in 1998. The change was primarily due to a $1.0 million increase in interest income resulting from increased cash balances. Provision for income taxes in 1999 and 1998 was $20.6 million and $16.0 million, respectively, representing a $4.6 million increase. The effective tax rate in 1999 was 38.5% compared to 39.9% in 1998. The decrease was due to a reduction in state income taxes resulting from state tax planning. Net income increased $8.8 million, or 36.7%, to $33.0 million from $24.1 million in 1998. As a percentage of net sales, net income increased to 7.9% from 6.7% in 1998. Liquidity and Capital Resources During 2000, the Company financed its operations primarily through its existing cash and income from operations. At December 31, 2000, the Company had working capital of $76.1 million compared to $91.9 million at December 31, 1999. This decrease of $15.8 million was primarily due to a $3.6 million decrease in cash, $7.4 million decrease in accounts receivable, and a $4.5 million increase in inventory, partially offset by a $1.4 million increase in accounts payable. Net cash provided by operating activities was $26.3 million for the year ended December 31, 2000. During the year ended December 31, 2000, net cash used in investing activities was $14.7 million related almost entirely to capital expenditures, with approximately $10 million of the total relating to the new travel trailer manufacturing plant and the new parts and service center in Perris, California. 20 During the twelve months ended December 31, 2000, net cash used in financing activities was $15.2 million due to the $15.3 million purchase of treasury stock. As of December 31, 2000, the Company had short-term debt of $20,000 and long-term debt of $64,000. The Company has a revolving credit facility of $40 million with Bank of America National Trust and Savings Association expiring May 31, 2001. The revolving credit facility is available for general corporate and working capital needs and capital expenditures. A separate term facility of $20 million exists for acquisitions. Amounts borrowed under the term facility reduce the amount available under the revolving credit facility. Amounts borrowed under the credit facilities bear interest at the bank's reference rate or at a LIBOR-based rate plus an applicable amount. The facilities contain, among other provisions, certain financial covenants, including net worth and debt ratios. At December 31, 2000, no amounts were outstanding under these revolving credit facilities. The above credit facilities with Bank of America expire on April 1, 2000; however, the Company has entered into an agreement to extend the revolving credit facility of $20 million through June 1, 2001. The Company believes that the combination of internally generated funds, existing capital and funds available from its existing credit facilities, will be sufficient to meet the Company's planned capital and operational requirements for at least the next 24 months. Effects of Inflation Management does not believe that inflation has had a significant impact on the Company's results of operations for the periods presented. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The new rules will be effective the first quarter of 2001. The Company does not believe that the new standard will have any impact on the Company's consolidated financial statements, as the Company holds no derivatives. 21 Forward Looking Statements Statements contained in this Form 10-K that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results may differ materially from that projected or suggested herein due to certain risks and uncertainties including, without limitation, the cyclical nature of the recreational vehicle industry; seasonality and potential fluctuations in the Company's operating results; the Company's dependence on chassis suppliers; potential liabilities under repurchase agreements; competition; government regulation; warranty claims; product liability; dependence on certain dealers and concentration of dealers in certain regions; and the California energy crisis. Certain risks and uncertainties that could cause actual results to differ materially from that projected or suggested are set forth in Exhibit 99.1 hereto. Additional information concerning risks and uncertainties may be identified from time to time in the Company's filings with the Securities and Exchange Commission (SEC) and the Company's public announcements, copies of which are available from the SEC or from the Company upon request. 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company has no significant financial instruments. The Company has not entered into any derivative financial instruments. The Company does not have any significant foreign currency exposure because it does not transact business in foreign currencies. Item 8. Financial Statements and Supplementary Data The information required by this item is contained in the financial statements listed in Item 14(a) under the caption "Consolidated Financial Statements" and commencing on page F-1 of this Report. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. Not applicable 23 PART III Item 10. Directors and Officers of the Registrant. The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2000, which information is incorporated herein by reference. Item 11. Executive Compensation The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2000, which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2000, which information is incorporated herein by reference. Item 13. Certain Relationships and Related Party Transactions. The information required for this Item will be set forth in the Company's definitive Proxy Statement for its 2001 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2000, which information is incorporated herein by reference. 24 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) List of Documents filed as part of this Report 1. Financial Statements: Report of Independent Accountants...............................27 Consolidated Balance Sheets.....................................28 Consolidated Statements of Income...............................29 Consolidated Statements of Cash Flows...........................30 Consolidated Statements of Stockholders' Equity.................31 Notes to Consolidated Financial Statements......................32 2. Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts.................41 3. Exhibits (a) Exhibit Index..............................................42 (b) Reports on Form 8-K: None 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NATIONAL R.V. HOLDINGS, INC. Dated: March 27, 2001 By /s/ Wayne M. Mertes -------------------------------- Wayne M. Mertes, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity in Which Signed Date /s/ Gary N. Siegler Chairman of the Board March 27, 2001 - -------------------------- and Co-Chief Executive Gary N. Siegler Officer /s/ Wayne M. Mertes Co-Chief Executive Officer, March 27, 2001 - -------------------------- President and Director Wayne M. Mertes (Principal Executive Officer) /s/ Robert B. Lee Director and Co-Chief March 27, 2001 - -------------------------- Executive Officer Robert B. Lee /s/ Bradley C. Albrechtsen Chief Financial Officer March 27, 2001 - -------------------------- (Principal Accounting and Bradley C. Albrechtsen Financial Officer) /s/ Stephen M. Davis Director and Secretary March 27, 2001 - -------------------------- Stephen M. Davis /s/ Neil H. Koffler Director March 27, 2001 - -------------------------- Neil H. Koffler /s/ Doy B. Henley Director March 27, 2001 - -------------------------- Doy B. Henley /s/ Greg McCaffery Director March 27, 2001 - -------------------------- Greg McCaffery 26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of National R.V. Holdings, Inc. In our opinion, the consolidated financial statements and financial statement schedule listed in the index appearing under Item 14(a)(1) on page 25 present fairly, in all material respects, the financial position of National R.V. Holdings, Inc. and its subsidiaries at December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2) on page 25 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 1, the Company changed its method of recording sales revenue for the year 2000. /s/ PricewaterhouseCoopers Los Angeles, CA February 2, 2001 27 NATIONAL R.V. HOLDINGS, INC. CONSOLIDATED BALANCE SHEET (in thousands) December 31, 2000 1999 --------- ---------- ASSETS Current assets: Cash and cash equivalents ........................ $ 16,696 $ 20,301 Receivables, less allowance for doubtful accounts ($321 and $199, respectively) ......... 15,109 22,473 Inventories ...................................... 63,639 68,187 Deferred income taxes ............................ 6,035 5,610 Prepaid expenses ................................. 2,100 1,439 --------- --------- Total current assets ........................... 103,579 118,010 Goodwill, net ........................................ 6,539 6,952 Property, plant and equipment, net ................... 44,460 33,167 Other ................................................ 1,096 1,085 --------- --------- $ 155,674 $ 159,214 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ................ $ 20 $ 20 Accounts payable ................................. 12,550 11,166 Accrued expenses ................................. 14,946 14,908 --------- --------- Total current liabilities ...................... 27,516 26,094 Deferred income taxes ................................ 2,801 2,470 Long-term debt ....................................... 64 84 Commitments and contingencies Stockholders' equity: Preferred Stock, $.01 par value, 5 shares authorized, 4 issued and outstanding ........... -- -- Common Stock, $.01 par value, 25,000 shares authorized, 10,596 and 10,589 issued and outstanding, respectively....................... 106 106 Additional paid-in capital ....................... 47,800 47,768 Retained earnings ................................ 92,648 82,692 Less cost of treasury stock - 933 shares ......... (15,261) -- --------- --------- Total stockholders' equity ..................... 125,293 130,566 --------- --------- $ 155,674 $ 159,214 ========= ========= See Notes to Consolidated Financial Statements 28 NATIONAL R.V. HOLDINGS, INC. CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share amounts) Year Ended December 31, ----------------------------------- 2000 1999 1998 --------- --------- --------- Net sales ............................. $ 348,846 $ 419,421 $ 360,326 Cost of goods sold .................... 308,216 348,592 302,098 --------- --------- --------- Gross profit ...................... 40,630 70,829 58,228 Selling expenses ...................... 14,111 11,437 11,154 General and administrative expenses ... 9,138 7,214 6,586 Amortization of intangibles ........... 413 413 413 --------- --------- --------- Total operating expenses .......... 23,662 19,064 18,153 --------- --------- --------- Operating income .................. 16,968 51,765 40,075 Other expenses (income): Interest income ................... (1,206) (1,408) (434) Interest expense .................. 6 29 154 Other ............................. 135 (432) 213 --------- --------- --------- Total other expenses (income) ... (1,065) (1,811) (67) --------- --------- --------- Income before income taxes and cumulative effect of change in accounting principle ............ 18,033 53,576 40,142 Provision for income taxes ............ 6,864 20,625 16,033 --------- --------- --------- Income before cumulative effect of accounting change ............... 11,169 32,951 24,109 Cumulative effect on prior years of change in accounting principle, net of tax .......................... (1,213) -- -- --------- --------- --------- Net income .................... $ 9,956 $ 32,951 $ 24,109 ========= ========= ========= Earnings per common share: Basic: Income before cumulative effect of accounting change ............ $ 1.14 $ 3.16 $ 2.35 Cumulative effect of accounting change .......................... (0.12) -- -- --------- --------- --------- Net income ........................ $ 1.02 $ 3.16 $ 2.35 ========= ========= ========= Weighted average number of shares 9,743 10,430 10,263 ========= ========= ========= Diluted: Income before cumulative effect of accounting change ............ $ 1.11 $ 2.95 $ 2.11 Cumulative effect of accounting change .......................... (0.12) -- -- --------- --------- --------- Net income ........................ $ 0.99 $ 2.95 $ 2.11 ========= ========= ========= Weighted average number of shares 10,086 11,178 11,423 ========= ========= ========= See Notes to Consolidated Financial Statements 29 NATIONAL R.V. HOLDINGS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) Year Ended December 31, -------------------------------- 2000 1999 1998 -------- -------- -------- Cash flows from operating activities: Net income ............................. $ 9,956 $ 32,951 $ 24,109 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation ....................... 3,247 2,463 1,880 Amortization of intangibles ........ 413 413 413 Loss (gain) on asset disposal ...... 136 (463) -- Tax benefit related to exercise of stock options ................. -- 1,263 6,021 Changes in assets and liabilities: Decrease (increase) in trade receivables .................... 7,364 (1,754) (9,331) Decrease (increase) in inventories 4,548 (21,355) (9,289) (Increase) decrease in prepaid expenses ....................... (661) (630) 566 Increase (decrease) in accounts payable ........................ 1,383 2,395 (235) Increase in accrued expenses ..... 38 4,636 2,514 Increase in net deferred income taxes .......................... (94) (1,598) (1,026) -------- -------- -------- Net cash provided by operating activities ........................ 26,330 18,321 15,622 Cash flows from investing activities: Increase in other assets ............... (11) (292) (324) Capital expenditures ................... (14,675) (11,260) (6,404) Return of investment in Dune Jet Services, LLP ........................ -- 2,985 -- -------- -------- -------- Net cash used in investing activities (14,686) (8,567) (6,728) Cash flows from financing activities: Principal payments on long-term debt ... (20) (1,762) (5,391) Proceeds from issuance of common stock . 32 1,863 3,401 Purchase of treasury stock ............. (15,261) -- -- -------- -------- -------- Net cash (used in) provided by financing activities .............. (15,249) 101 (1,990) -------- -------- -------- Net (decrease) increase in cash ........ (3,605) 9,855 6,904 Cash, beginning of year ................ 20,301 10,446 3,542 -------- -------- -------- Cash, end of year ...................... $ 16,696 $ 20,301 $ 10,446 ======== ======== ======== See Notes to Consolidated Financial Statements 30 NATIONAL R.V. HOLDINGS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (in thousands)
Common Stock Treasury Stock Preferred --------------------- Paid-In Retained ------------------- Stock Shares Amount Capital Earnings Shares Amount Total -------- --------- -------- ----------- -------- -------- ----------- --------- Balance, Dec. 31, 1997 $ -- 9,467 $ 63 $ 35,263 $ 25,632 -- $ -- $ 60,958 Stock split - 3-for-2 31 (31) -- Common stock issued under option plan . 798 8 3,158 3,166 Common stock issued upon exercise of warrants .......... 58 1 234 235 Tax benefit related to exercise of stock options ..... 6,021 6,021 Net income .......... 24,109 24,109 -------- -------- -------- -------- -------- -------- -------- -------- Balance, Dec. 31, 1998 -- 10,323 103 44,645 49,741 -- -- 94,489 Common stock issued under option plan .. 266 3 1,857 1,860 Common stock issued upon exercise of warrants ........... -- -- 3 3 Tax benefit related to exercise of stock options ...... 1,263 1,263 Net income .......... 32,951 32,951 -------- -------- -------- -------- -------- -------- -------- -------- Balance, Dec. 31, 1999 -- 10,589 106 47,768 82,692 -- -- 130,566 Common stock issued under option plan .. 7 -- 32 32 Purchase of treasury stock .............. -- (933) (15,261) (15,261) Net income .......... 9,956 9,956 -------- -------- -------- -------- -------- -------- -------- -------- Balance, Dec. 31, 2000 $ -- 10,596 $ 106 $ 47,800 $ 92,648 (933) $(15,261) $125,293 ======== ======== ======== ======== ======== ======== ======== ========
See Notes to Consolidated Financial Statements 31 NATIONAL R.V. HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies National R.V. Holdings, Inc. (the Company) manufactures recreational vehicles ("RVs") through its wholly-owned subsidiaries, National R.V., Inc. (NRV) and Country Coach, Inc. (CCI). The RVs are marketed primarily in the United States by NRV under the Dolphin, Islander, Palisades, Sea Breeze, Sea View, Surf Side, Tradewinds, Marlin, Caribbean, Splash, Rage'n and Tropi-Cal brand names and by CCI under brand names including Affinity, Allure, Intrigue, Magna and Prevost by Country Coach. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Management believes that the estimates included in the financial statements are reasonable based on the facts and circumstances known to them at the time of preparation. CONSOLIDATION The consolidated financial statements of the Company include the accounts of National R.V Holdings, Inc., NRV, and CCI. All significant intercompany transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS Cash and cash equivalents include deposits in banks and short-term investments with original maturities of three months or less. INVENTORIES Inventories are stated at the lower of cost or market, with cost generally determined by the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets ranging from 31 to 39 years for buildings and 5 to 7 years for machinery and equipment. REVENUE RECOGNITION During 2000, sales were recorded by the Company when accepted by the customer rather than at the time of shipment as in prior years. This change in accounting principle was made to fully implement recent guidance issued by the Securities & Exchange Commission. Had the new method been used in prior years, net income would have been reduced to $32,492,000 and $23,810,000 in 1999 and 1998, representing diluted per share amounts of $2.91 and $2.08, respectively. AMORTIZATION OF INTANGIBLE ASSETS Goodwill related to the acquisition of CCI during 1996 is being amortized on the straight-line basis over a twenty-year period. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses are charged to operations as incurred and are included in cost of goods sold. Research and development expenses were $5,973,000, $4,087,000 and $3,050,000 for the years ended December 31, 2000, 1999 and 1998, respectively. 32 1. Summary of Significant Accounting Policies (continued) INCOME TAXES The Company provides for income taxes using an asset and liability approach. Under this method deferred tax assets and liabilities are computed using statutory rates for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. SEGMENTS The Company operates in one reportable segment: the manufacturing, wholesale distribution, and service of recreational vehicles. The Company does not have operations outside the United States. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives will be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The new rules will be effective the first quarter of 2001. The Company does not believe that the new standard will have any impact on the Company's consolidated financial statements, as the Company holds no derivatives. INCOME PER SHARE Basic earnings per share is based upon the weighted average number of common shares outstanding during a period. Diluted earnings per share is based upon the weighted average number of common shares plus the incremental dilutive effect of the securities convertible to Common Stock. The difference in the shares used to determine basic and diluted EPS is as follows: December 31, (in thousands) -------------------------- 2000 1999 1998 ------ ------ ------ Shares used for basic . 9,743 10,430 10,263 Dilutive effect of: Stock options ...... 342 743 1,152 Warrants ........... 1 5 8 ------ ------ ------ Shares used for diluted 10,086 11,178 11,423 ====== ====== ====== 2. Inventories Inventories consist of the following: December 31, (in thousands) --------------------- 2000 1999 --------- --------- Finished goods ............... $ 15,989 $ 12,315 Work-in-process .............. 19,233 18,274 Raw materials ................ 12,927 14,027 Chassis ...................... 15,490 23,571 --------- --------- $ 63,639 $ 68,187 ========= ========= 33 3. Property, Plant and Equipment Major classes of property, plant and equipment consist of the following: December 31, (in thousands) ------------------------ 2000 1999 ---------------------- Land ......................... $ 6,885 $ 6,360 Buildings .................... 26,593 17,441 Machinery and equipment ...... 15,529 13,558 Office equipment ............. 7,144 4,889 --------- --------- 56,151 42,248 Less accumulated depreciation (11,691) (9,081) --------- --------- Property, plant and equipment, net $ 44,460 $ 33,167 ========= ========= 4. Accrued Expenses Accrued expenses consist of the following: December 31, (in thousands) -------------------------- 2000 1999 --------- --------- Workers' compensation self-insurance reserve ..... $ 3,128 $ 2,428 Motorhome warranty reserve ... 9,861 7,754 Payroll and other accrued expense .................... 3,921 3,980 Income taxes ................. (1,964) 746 --------- --------- $ 14,946 $ 14,908 ========= ========= 5. Debt and Credit Agreements - ------------------------------ Debt consists of the following: December 31, (in thousands) --------------------------- 2000 1999 --------- --------- Note payable - City of Junction City, Oregon, 3% paid monthly through October 2004 ............... $ 84 104 --------- --------- 84 104 Less payments due within one year ................... 20 20 --------- --------- $ 64 $ 84 ========= ========= The Company has a revolving credit facility of $40 million with Bank of America National Trust and Savings Association. The revolving credit facility is available for general corporate and working capital needs and capital expenditures. A separate term facility of $20 million exists for acquisitions. Amounts borrowed under the term facility reduce the amount available under the revolving credit facility. Amounts borrowed under the revolving credit facility and the term facility bear interest, at the Company's election, at the bank's reference rate or at a LIBOR-based rate plus an applicable amount. The credit facilities contain, among other provisions, certain financial covenants, including net worth and debt ratios. At December 31, 2000, no amounts were outstanding under these facilities. Unless otherwise extended, the Company's credit facilities with Bank of America expire on April 1, 2001. Debt maturities over the next five years are $21,000 in 2001, $22,000 in 2002, $22,000 in 2003 and $19,000 in 2004. 34 6. Income Taxes The components of the provision for income taxes were as follows: December 31, (in thousands) ----------------------------------- 2000 1999 1998 --------- --------- --------- Currently Payable: Federal ................... $ 5,155 $ 18,942 $ 13,837 State ..................... 1,803 3,281 3,173 --------- --------- --------- 6,958 22,223 17,010 Deferred: .................... -- -- Federal ................... (216) (1,456) (750) State ..................... 122 (142) (227) --------- --------- --------- (94) (1,598) (977) --------- --------- --------- Total provision for income taxes .............. $ 6,864 $ 20,625 $ 16,033 ========= ========= ========= Deferred income taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. Temporary differences that give rise to deferred income tax assets and liabilities at December 31, 2000 and 1999 were as follows: December 31, (in thousands) --------------------- 2000 1999 --------- --------- Accrued expenses ............. $ 5,583 $ 4,390 State income taxes ........... 452 1,220 --------- --------- Deferred income tax assets ............. $ 6,035 $ 5,610 ========= ========= Fixed assets ................. $ 2,272 $ 1,922 Other ........................ 529 548 --------- --------- Deferred income tax liabilities ........ $ 2,801 $ 2,470 ========= ========= A reconciliation of the statutory U.S. federal income tax rate to the Company's effective income tax rate is as follows: December 31, ----------------------------------- 2000 1999 1998 ------- ------- ------- Statutory rate ............... 35.0% 35.0% 35.0% State taxes, net of federal benefit .................... 2.3 3.8 4.7 Amortization of intangibles not deductible for income tax purposes ........ 2.3 0.7 1.0 Other ........................ (1.5) (1.0) (0.8) ---- ---- ---- 38.1% 38.5% 39.9% ==== ==== ==== Cash paid for income taxes was $8.9 million, $20.1 million and $16.1 million for the years ended December 31, 2000, 1999 and 1998, respectively. 7. Recourse on Dealer Financing As is customary in the industry, the Company generally agrees with its dealers' lenders to repurchase any unsold RVs if the dealers become insolvent within one year of the purchase of such RVs. Although the total contingent liability under these agreements approximates $99.3 million at December 31, 2000, as with accounts receivable, the risk of loss is spread over numerous dealers and lenders and is further reduced by the resale value of the RVs which the Company would be required to repurchase. Losses under these agreements have been negligible in the past and management believes that any future losses under such agreements will not have a significant effect on the consolidated financial position or results of operations of the Company. 35 8. Commitments and Contingencies The Company is involved in litigation and claims arising in the ordinary course of business. In the opinion of management, based in part on the advice of outside counsel, these matters will not have a material adverse effect on the Company's financial position or results of operations. The Company has commitments under certain non-cancelable operating leases as follows (in thousands): 2001 .................. $ 1,368 2002 .................. 1,387 2003 .................. 1,386 2004 .................. 1,399 2005 and thereafter.... 1,195 --------- $ 6,735 ========= 9. Stock Options and Warrants The Company has six fixed option plans that reserve shares of common stock for issuance to executives, key employees and directors. The Company has also issued fixed options outside of such plans pursuant to individual stock option agreements. Options granted to non-employee and employee directors generally vest immediately upon grant and expire five to ten years from the date of grant. Options granted to employees vest in three equal annual installments and expire five years from the date of grant. The price of the options granted pursuant to these plans will not be less than 100 percent of the market value of the shares on the date of grant. The exercise of certain of these stock options represents a tax benefit for the Company which has been reflected as a reduction of income taxes payable and an increase to additional paid-in-capital amounting to $1.3 million in 1999 and $6.0 million in 1998. No compensation cost has been recognized for these fixed options in the financial statements. Had compensation cost for the Company's stock option plans and individual option agreements been determined based on the fair value rather than market value at the grant date for awards under those plans and agreements, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: Year Ended December 31, (in thousands, except per share) ----------------------------------- 2000 1999 1998 --------- ---------- ---------- Net income As reported .............. $ 9,956 $ 32,951 $ 24,109 Pro forma ................ 8,597 32,309 23,439 Basic earnings per share As reported .............. 1.02 3.16 2.35 Pro forma ................ 0.88 3.10 2.28 Diluted earnings per share As reported .............. 0.99 2.95 2.11 Pro forma ................ 0.85 2.89 2.04 36 9. Stock Options and Warrants (continued) The fair value of options granted during 1999 and 2000 were estimated on the date of grant using Black-Scholes option-pricing model with the following weighted-average assumptions used for grants: Year Ended December 31, --------------------- 2000 1999 -------- ------- Dividend yield ............... 0% 0% Expected volatility .......... 44.3% 44.3% Risk-free interest rate ...... 6.1% 5.6% Expected lives ............... 4 years 5 years Information regarding these option plans and option agreements for 2000, 1999 and 1998 is as follows: Options Weighted Outstanding Average (in thousands) Exercise Price ------------- ------------- Outstanding at December 31, 1997 2,693 7.31 Granted ..................... -- -- Expired or canceled ......... -- -- Exercised ................... (856) 5.55 ------ ------- Outstanding at December 31, 1998 1,837 8.16 Granted ..................... 442 24.94 Expired or canceled ......... (26) 9.33 Exercised ................... (266) 8.61 ------ ------- Outstanding at December 31, 1999 1,987 11.85 Granted ..................... 403 8.50 Expired or canceled ......... (26) 21.11 Exercised ................... (7) 4.67 ------ ------- Outstanding at December 31, 2000 2,357 $ 11.17 ====== ======= The following table summarizes information concerning currently outstanding and exercisable stock options as of December 31, 2000: Options Outstanding Options Exercisable ------------------------------------ -------------------- Weighted Number Average Weighted Number Weighted Outstanding Remaining Average Exercisable Average Range of (in thous- Contractual Exercise (in Exercise Exercise Prices ands) Life Price thousands) Price -------------------------------------------------------------------------- $ 2.67 - $ 4.61 446 3.47 $ 3.48 446 $ 3.47 $ 8.50 - $ 9.33 688 4.90 8.85 295 9.31 $10.08 - $10.73 801 4.60 10.16 801 10.16 $24.94 - $26.81 422 3.55 24.99 148 25.09 ------- ------- ------- ------ ------- 2,357 4.29 $ 11.17 1,690 $ 9.56 ======= ======= ======= ====== ======= 37 9. Stock Options and Warrants (continued) The weighted average fair value of options granted during 2000 and 1999 was $3.57 and $10.04, respectively. At December 31, 2000, there were 15,344 warrants outstanding to a financial advisor at a price of $10.73. The warrants are due to expire on December 2, 2001. 10. Related Party Transactions Mr. Robert B. Lee, a director of the Company is a partner in a joint venture that is a party to a lease agreement with the Company. Pursuant to the agreement, The Company leases from the joint venture a parcel of property constituting a majority of CCI's manufacturing facilities. During the years ended December 31, 2000, 1999, and 1998, the Company paid $1.20 million, $1.16 million, and $1.14 million, respectively, under the lease agreement. The lease agreement calls for future payments totaling $6.5 million through October 31, 2005. In addition, Mr. Lee is a partner in another joint venture, which in 1998 leased to CCI a separate parcel containing manufacturing facilities used by CCI (the "Acquired Property"). On October 8, 1998, the Company purchased the Acquired Property from Mr. Lee's joint venture for $2,100,000 pursuant to the exercise of a purchase option contained in the lease agreement for such property. In September 1998, the Company acquired, for $2.75 million, a limited partnership interest in Dune Jet Services, L.P. (the "Partnership"), a Delaware limited partnership formed for the purposes of acquiring and operating an airplane for the partners' business uses and for third-party charter flights (the "Aircraft"). The general partner of the Partnership was Dune Jet Services, Inc. ("DJ Services"), a Delaware corporation, the sole stockholder of which is the Company's Chairman, Mr. Siegler. DJ Services contributed $1.55 million for its general partnership interest and an additional $3.25 million for a separate limited partnership interest. During 1999 the Aircraft was sold and the Partnership was liquidated. The Company received $2,985,000 in the aggregate from the Partnership representing a return of its capital plus its share of the gain on the sale of the Aircraft, after expenses of the Partnership were allocated. Through December 31, 1998, the Company was a party to a financial advisory agreement dated January 23, 1998 (the "Advisory Agreement") with 712 Advisory Services, Inc., an affiliate (the "Affiliate") of the Chairman of the Company, Mr. Gary N. Siegler. Mr. Neil H. Koffler, a director of the Company, was also an employee of the Affiliate. The Advisory Agreement terminated effective December 31, 1998. Pursuant to the Advisory Agreement, the Affiliate agreed to provide advice and consultation concerning financial and related matters, including, among other things, with respect to private financings, public offerings, acquisitions, commercial banking relations and other business ventures. Fees incurred under the Advisory Agreement in 1998 between the Company and the Affiliate totaled $231,000. Heller Ehrman White & McAuliffe, a law firm in which Mr. Stephen M. Davis, the Secretary and a director of the Company, is a partner, performed legal services for the Company. Fees paid the law firm were $112,000, $127,000, and $124,000 during the years ended December 31, 2000, 1999, and 1998, respectively. 11. Repurchases of Common Stock In January 2000, the Company's board of directors approved and implemented a plan to repurchase up to one million shares of the Company's common stock. The Company repurchased 932,900 shares at an average price of $16.36 per share. 38 12. Quarterly Consolidated Financial Data As discussed in Note 1, during the fourth quarter of 2000, the Company implemented Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." Effective January 1, 2000, the Company recorded the cumulative effect of the accounting change and, accordingly, the quarterly information for the first three quarters of 2000, which had been previously reported, has been restated.
Quarter ended (in thousands except share data) ------------------------------------------------------------------------------------------ March 31 June 30 September 30 ----------------------- ------------------------ ------------------------- 4th Quarter As previously As As previously As As previously As As Reported Restated Reported Restated Reported Restated Reported ----------- ---------- ----------- --------- ------------ --------- ----------- Net sales.............. $ 105,255 $ 106,840 $ 74,524 $ 77,726 $ 86,652 $ 83,962 $ 80,318 Gross profit........... 16,077 16,267 7,453 8,236 10,192 9,764 6,363 Income before cumulative effect of accounting change 6,496 6,682 1,193 1,663 2,733 2,473 351 Cumulative effect of accounting change... -- (1,213) -- -- -- -- -- --------- --------- --------- ---------- ---------- ---------- ----------- Net income............. $ 6,496 $ 5,469 $ 1,193 $ 1,663 $ 2,733 $ 2,473 $ 351 ========= ========= ======= ========== ========== ========== =========== Earnings per common share: Basic: Income before cumulative effect of accounting change $ 0.79 $ 0.67 $ 0.12 $ 0.17 $ 0.29 $ 0.26 $ 0.04 Cumulative effect of accounting change... -- (0.12) -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Net income............. $ 0.79 $ 0.55 $ 0.12 $ 0.17 $ 0.29 $ 0.26 $ 0.04 ====== ====== ====== ====== ====== ====== ====== Diluted: Income before cumulative effect of accounting change $ 0.75 $ 0.63 $ 0.12 $ 0.17 $ 0.28 $ 0.25 $ 0.04 Cumulative effect of accounting change... -- (0.11) -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Net income............. $ 0.75 $ 0.52 $ 0.12 $ 0.17 $ 0.28 $ 0.25 $ 0.04 ====== ====== ====== ====== ====== ====== ====== Weighted average number of shares: Basic................ 10,034 10,034 9,657 9,657 9,585 9,585 9,663 Diluted.............. 10,544 10,544 10,044 10,044 9,847 9,847 9,859
1999 Quarter ended (in thousands except share data) ----------------------------------------- March 31 June 30 Sept. 30 Dec. 31 -------- ------- -------- -------- Net sales $ 102,982 $ 105,338 $ 108,947 $ 102,154 Gross profit 16,754 17,379 19,614 17,082 Net income 7,321 8,261 9,020 8,349 Earnings per common share-basic $ 0.71 $ 0.80 $ 0.86 $ 0.80 Earnings per common share-Diluted$ 0.64 $ 0.74 $ 0.82 $ 0.75 Weighted average number of shares: Basic 10,347 10,378 10,448 10,448 Diluted 11,522 11,189 11,054 11,149
Had the new method of revenue recognition under SAB 101 been used in prior years, net sales and net income for the fourth quarter of 1999 would have been $96,357,000 and $7,640,000, respectively, and basic and diluted EPS would have been $0.72 and $0.69, respectively. 39 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years ended December 31, 2000, 1999 and 1998 Additions Balance at charged to Balance at beginning costs end of of period and expenses Deductions Period ---------- ----------- ----------- ----------- Twelve months ended December 31, 2000 Allowance for doubtful accounts ....... $ 199,000 $ 265,000 $ 143,000 $ 321,000 Workers' compensation self-insurance reserve.. 2,428,000 3,259,000 2,559,000 3,128,000 Motorhome warranty reserve................. 7,754,000 17,521,000 15,414,000 9,861,000 ----------- ----------- ----------- ----------- $10,381,000 $21,045,000 $18,116,000 $13,310,000 Twelve months ended December 31, 1999 Allowance for doubtful accounts....... $ 188,000 $ 24,689 $ 13,689 $ 199,000 Workers' compensation self-insurance reserve.. 1,494,000 3,394,969 2,460,969 2,428,000 Motorhome warranty reserve................. 5,824,000 13,325,525 11,395,525 7,754,000 ----------- ----------- ----------- ----------- $ 7,506,000 $16,745,183 $13,870,183 $10,381,000 Twelve months ended December 31, 1998 Allowance for doubtful accounts....... $ 180,000 $ 19,664 $ 11,664 $ 188,000 Workers' compensation self-insurance reserve.. 402,000 3,608,907 2,516,907 1,494,000 Motorhome warranty reserve................. 4,036,000 10,018,529 8,230,529 5,824,000 ----------- ----------- ----------- ----------- $ 4,618,000 $13,647,100 $10,759,100 $ 7,506,000 40 INDEX OF EXHIBITS Designation of Exhibit Description of Exhibit 3.1 The Company's Restated Certificate of Incorporation. (2) 3.2 The Company's By-laws. (2) 4.1 Specimen-Certificate of Common Stock. (1) 10.1 National R.V. Holdings, Inc. 1993 Stock Option Plan. (1) 10.2 National R.V. Holdings, Inc. 1993 Option Plan. (2) 10.3 1995 Stock Option Plan. (3) 10.4 Rights Plan Agreement with Continental Stock Transfer & Trust Company. (4) 10.5 1996 Stock Option Plan. (5) 10.6 1997 Stock Option Plan. (6) 10.7 1999 Stock Option Plan, as amended. 10.8 Amendment to Employment Agreement dated March 16, 2001 between the Company and Wayne Mertes. 10.9 Employment Agreement dated August 6, 1999 between the Company and Brad Albrechtsen. (7) 10.10 Employment Agreement dated January 31, 2000 between the Company and Wayne Mertes. (7) 10.11 Employment Agreement dated January 31, 2000 between the Company and Bob Lee. (7) 21.1 List of Subsidiaries. (6) 23.1 Consent of PricewaterhouseCoopers LLP 99.1 Risk Factors - --------------- (1) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 filed on August 16, 1993 (File No. 33-67414) as amended by Amendment No. 1 thereto filed on September 22, 1993 and Amendment No. 2 thereto filed on September 29, 1993. (2) Previously filed as an exhibit to the Company's Registration Statement on Form S-1 filed on December 15, 1993 (File No. 33-72954). (3) Previously filed as an exhibit to the Company's Form 10-K for the seven months ended December 31, 1995 filed on March 27, 1996. (4) Incorporated by reference from Form 8-A declared effective on August 26, 1996. (5) Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1996. (6) Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1997. (7) Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1999. 41 EX-10 2 ex-107.txt 1999 EMPLOYEE STOCK OPTION PLAN AS AMENDED Exhibit 10.7 - 1999 STOCK OPTION PLAN AS AMENDED 1. Purpose. The purpose of this Plan is to strengthen National R.V. Holdings, Inc. by providing an incentive to its employees, consultants and directors, encouraging them to devote their abilities to the success of the Company. It is intended that this purpose be achieved by extending to employees, consultants and directors of the Company or any subsidiary an added long-term incentive for high levels of performance and exceptional efforts through the grant of options to purchase shares of the Company's common stock under this National R.V. Holdings, Inc. Amended and Restated 1999 Stock Option Plan. 2. Definitions. For purposes of the Plan: 2.1. "Agreement" means the written agreement between the Company and an Optionee evidencing the grant of an Option and setting forth the terms and conditions thereof. 2.2. "Board" means the Board of Directors of the Company. 2.3. "Cause" means with respect to an Eligible Employee, including an Eligible Employee who is a director of the Company, (i) the voluntary termination of employment by such Eligible Employee, (ii) intentional failure to perform, or habitual neglect of, reasonably assigned duties, (iii) dishonesty or willful misconduct in the performance of an Optionee's duties, (iv) an Optionee's engaging in a transaction in connection with the performance of such Optionee's duties to the Company or any of its Subsidiaries thereof which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit to the Optionee, (v) willful violation of any law, rule or regulation in connection with the performance of an Optionee's duties, (vi) willful violation of any policy adopted by the Company relating to the performance or behavior of employees or (vii) acts of carelessness or misconduct which have in the reasonable judgment of the Company's Board of Directors, an adverse effect on the Company. 2.4. "Change in Capitalization" means any increase or reduction in the number of Shares, or any change (including, but not limited to, a change in value) in the Shares or exchange of Shares for a different number or kind of shares or other securities of the Company, by reason of a reclassification, recapitalization, merger, consolidation, reorganization, spin-off, split-up, issuance of warrants or rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares, public offering, private placement, change in corporate structure or otherwise. 2.5. "Code" means the Internal Revenue Code of 1986, as amended. 2.6. "Committee" shall mean a committee of the Board of Directors consisting of no fewer than two (2) persons who are (i) "nonemployee directors" within the meaning of Rule 16b-3 under the Exchange Act, or any successor rule or regulation and (ii) "outside directors" within the meaning of Section 162(m) of the Code; provided however, that clause (ii) shall apply only with respect to grants of Options intended by the committee to qualify as "performance-bases compensation" under Section 162(m) of the Code. 2.7. "Company" means National R.V. Holdings, Inc. 2.8. "Consultant Option" means an Option granted to a consultant pursuant to Section 7. 2.9. "Director Option" means an Option granted to a Nonemployee Director pursuant to Section 5. 2.10. "Disability" means a physical or mental infirmity which impairs the Optionee's ability to perform substantially his or her duties for a period of sixty (60) consecutive days. 2.11. "Eligible Employee" means any officer or other employee of the Company or a Subsidiary who is designated by the Committee as eligible to receive Options subject to the conditions set forth herein. 2.12. "Employee Options" means an Option granted to an Eligible Employee pursuant to Section 6. 2.13. "Exchange Act" means the Securities Exchange Act of 1934, as amended. 2.14. "Fair Market Value" on any date means the average of the high and low sales prices of the Shares on such date on the principal national securities exchange on which such Shares are listed or admitted to trading, or if such Shares are not so listed or admitted to trading, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System or such other market in which such prices are regularly quoted, or, if there have been no published bid or asked quotations with respect to Shares on such date, the Fair Market Value shall be the value established by the Board in good faith and in accordance with Section 422 of the Code. 2.15. "Immediate Family" means the Optionee or the Optionee's spouse, parents, children, step-children, brothers, sisters and grandchildren. 2.16. "Incentive Stock Option" means an Option satisfying the requirements of Section 422 of the Code and designated by the Committee as an Incentive Stock Option. 2.17. "Nonqualified Stock Option" means an Option which is not an Incentive Stock Option. 2.18. "Nonemployee Director" means a director of the Company who is not a full- time employee of the Company or any Subsidiary. 2.19. "Option" means an Employee Option, a Director Option, a Consultant Option or any or all of them. 2.20. "Optionee" means a person to whom an Option has been granted under the Plan. 2.21. "Parent" means any corporation which is a parent corporation (within the meaning of Section 424(e) of the Code) with respect to the Company. 2.22. "Plan" means the National R.V. Holdings, Inc. Amended and Restated 1999 Stock Option Plan. 2.23. "Shares" means the common stock, par value $.01 per share, of the Company. 2.24. "Subsidiary" means any corporation which is a subsidiary corporation (within the meaning of Section 424(f) of the Code) with respect to the Company. 2.25. "Successor Corporation" means a corporation, or a parent or subsidiary thereof within the meaning of Section 424(a) of the Code, which issues or assumes a stock option in a transaction to which Section 424(a) of the Code applies. 2.26. "Ten-Percent Stockholder" means an Eligible Employee or other eligible Plan participant, who, at the time an Incentive Stock Option is to be granted to him or her, owns (within the meaning of Section 422(b)(6) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, or of a Parent or a Subsidiary. 3. Administration. -------------- 3.1. The Plan shall be administered by the Committee which shall hold meetings at such times as may be necessary for the proper administration of the Plan. The Committee shall keep minutes of its meetings. A quorum shall consist of not less than a majority of the Committee and a majority of a quorum may authorize any action. Any decision or determination reduced to writing and signed by a majority of all of the members of the Committee shall be as fully effective as if made by a majority vote at a meeting duly called and held. No member of the Committee shall be liable for any action, failure to act, determination or interpretation made in good faith with respect to this Plan or any transaction hereunder, except for liability arising from his or her own willful misfeasance, fraud or bad faith. The Company hereby agrees to indemnify each member of the Committee for all costs and expenses and, to the extent permitted by applicable law, any liability incurred in connection with defending against, responding to, negotiation for the settlement of or otherwise dealing with any claim, cause of action or dispute of any kind arising in connection with any action or failure to act in administering this Plan or in authorizing or denying authorization to any transaction hereunder. 3.2. Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time to determine those Optionees to whom Options shall be granted under the Plan and the number of Incentive Stock Options and/or Nonqualified Stock Options to be granted to such Optionee and to prescribe the terms and conditions (which need not be identical) of each Option, including the purchase price per Share subject to each Option, and make any amendment or modification to any Agreement consistent with the terms of the Plan. 3.3. Subject to the express terms and conditions set forth herein, the Committee shall have the power from time to time: (a) to construe and interpret the Plan and the Options granted thereunder and to establish, amend and revoke rules and regulations for the administration of the Plan, including, but not limited to, correcting any defect or supplying any omission, or reconciling any inconsistency in the Plan or in any Agreement, in the manner and to the extent it shall deem necessary or advisable to make the Plan fully effective, and all decisions and determinations by the Committee in the exercise of this power shall be final, binding and conclusive upon the Company, its Subsidiaries, the Optionees and all other persons having any interest therein; (b) to determine the duration and purposes for leaves of absence which may be granted to an Optionee on an individual basis without constituting a termination of employment or service for purposes of the Plan; (c) to exercise its discretion with respect to the powers and rights granted to it as set forth in the Plan; (d) generally, to exercise such powers and to perform such acts as are deemed necessary or advisable to promote the best interests of the Company with respect to the Plan. 4. Stock Subject to Plan. --------------------- 4.1. The maximum number of Shares that may be made the subject of Options granted under the Plan is 800,000 Shares (or the number and kind of shares of stock or other securities to which such Shares are adjusted upon a Change in Capitalization pursuant to Section 9) and the Company shall reserve for the purposes of the Plan, out of its authorized but unissued Shares or out of Shares held in the Company's treasury, or partly out of each, such number of Shares as shall be determined by the Committee. During any calendar year no person may be granted Options with respect to more than 100,000 Shares. 4.2. Whenever any outstanding Option or portion thereof expires, is canceled or is otherwise terminated for any reason, the Shares allocable to the canceled or otherwise terminated Option or portion thereof may again be the subject of Options granted hereunder. 5. Option Grants for Nonemployee Directors. --------------------------------------- 5.1. Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Nonemployee Directors who will receive Director Options, the terms and conditions of which shall be set forth in an Agreement. 5.2. Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Director Option shall be determined by the Committee and set forth in the Agreement evidencing the Option, provided that the purchase price per Share under each Director Option shall be not less than the Fair Market Value of a Share on the date the Director Option is granted. 5.3. Duration. Director Options shall be for a term to be designated by the Committee and set forth in the Agreement evidencing the Option. 5.4. Vesting. Each Director Option shall, commencing not earlier than the date of its grant, become exercisable in such installments (which need not be equal or may be one installment) and at such times as may be designated by the Committee and set forth in the Agreement evidencing the Option. To the extent not exercised, installments shall accumulate and be exercisable, in whole or part, at any time after becoming exercisable, to not later than the date the Director Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. 6. Option Grants for Eligible Employees. ------------------------------------ 6.1. Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those Eligible Employees who will receive Employee Options, the terms and conditions of which shall be set forth in an Agreement; provided, however, that no Eligible Employee shall receive an Incentive Stock Option unless he is an employee of the Company, a Parent or a Subsidiary at the time the Incentive Stock Option is granted. 6.2. Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Employee Option shall be determined by the Committee and set forth in the Agreement evidencing the Option, provided that the purchase price per Share under each Employee Option shall be (i) except as provided in clause (ii) of this Section 6.2, not less than the Fair Market Value of a Share on the date the Employee Option is granted; and (ii) with respect to any Incentive Stock Option granted to a Ten Percent Stockholder, not less than 110% of the Fair Market Value of a Share on the date the Option is granted. 6.3. Duration. Employee Options granted hereunder shall be for such term as the Committee shall determine, provided that no Employee Option shall be exercisable after the expiration of ten (10) years from the date it is granted (five (5) years in the case of an Incentive Stock Option granted to a Ten-Percent Stockholder). The Committee may, subsequent to the granting of any Employee Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. 6.4. Vesting. Each Employee Option shall, commencing not earlier then the date of its grant, become exercisable in such installments (which need not be equal or may be in one installment) and at such times as may be designated by the Committee and set forth in the Agreement evidencing the Option. To the extent not otherwise provided by the Committee, Employee Options shall be exercisable in three (3) equal installments each equal to one-third of the entire Option granted, the first of which shall become exercisable on the first anniversary of the date of the grant of the Employee Option, the second installment of which shall become exercisable on the second anniversary of the date of grant of the Employee Option, and the final installment of which shall become exercisable on the third anniversary of the date of grant. To the extent not exercised, installments shall accumulate and be exercisable, in whole or part, at any time after becoming exercisable, to not later than the date the Employee Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. 6.5. $100,000 Per Year Limitation for Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of Shares for which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company and its Subsidiaries) exceeds $100,000, such excess Incentive Stock Options shall be treated as Nonqualified Stock Options. 7. Option Grants for Consultants. ----------------------------- 7.1. Authority of Committee. Subject to the provisions of the Plan, the Committee shall have full and final authority to select those consultants to the Company or a Subsidiary who will receive Consultant Options, the terms and conditions of which shall be set forth in an Agreement. An employee or officer of the Company shall not be deemed a consultant. 7.2. Purchase Price. The purchase price or the manner in which the purchase price is to be determined for Shares under each Consultant Option shall be determined by the Committee and set forth in the Agreement evidencing the Option, provided that the purchase price per Share under each Consultant Option shall be not less than the Fair Market Value of a Share on the date the Consultant Option is granted. 7.3. Duration. Consultant Options granted hereunder shall be for such term as the Committee shall determine, provided that no Consultant Option shall be exercisable after the expiration of ten (10) years from the date it is granted. The Committee may, subsequent to the granting of any Consultant Option, extend the term thereof but in no event shall the term as so extended exceed the maximum term provided for in the preceding sentence. 7.4. Vesting. Each Consultant Option shall, commencing not earlier then the date of its grant, become exercisable in such installments (which need not be equal or may be in one installment) and at such times as may be designated by the Committee and set forth in the Agreement evidencing the Option. To the extent not otherwise provided by the Committee, Consultant Options shall be exercisable in three (3) equal installments each equal to one-third of the entire Option granted, the first of which shall become exercisable on the first anniversary of the date of grant of the Consultant Options, the second installment of which shall become exercisable on the second anniversary of the date of grant, and the final installment of which shall become exercisable on the third anniversary of the date of grant. To the extent not exercised, installments shall accumulate and be exercisable, in whole or part, at any time after becoming exercisable, to not later than the date the Consultant Option expires. The Committee may accelerate the exercisability of any Option or portion thereof at any time. 8. Terms and Conditions Applicable to All Options 8.1. Transferability. No Option granted hereunder shall be transferable by the Optionee to whom granted other than (1) by will or the laws of descent and distribution or (2) to the extent permitted by applicable law and regulations and for no consideration, to or for the benefit of the Optionee's Immediate Family, or to a partnership or limited liability company for one or more members of the Optionee's Immediate Family, subject to such limits as the Compensation Committee may establish, if any. Except as otherwise provided herein, an Option may be exercised during the lifetime of such Optionee only by the Optionee or his or her guardian or legal representative. The terms of each Option shall be final, binding and conclusive upon the transferees, beneficiaries, executors, administrators, heirs and successors of the Optionee. 8.2. Method of Exercise. The exercise of an Option shall be made only by a written notice delivered in person or by mail to the Chief Financial Officer of the Company at the Company's principal executive office, specifying the number of Shares to be purchased and accompanied by payment therefor and otherwise in accordance with the Agreement pursuant to which the Option was granted. The purchase price for any Shares purchased pursuant to the exercise of an Option shall be paid in full upon such exercise, as determined by the Committee in its discretion, by any one or a combination of the following: (i) cash, (ii) transferring Shares to the Company upon such terms and conditions as determined by the Committee; or (iii) as otherwise determined by the Committee. At the Optionee's request and subject to the consent of the Committee, Shares to be acquired upon the exercise of a portion of an Option will be applied automatically to pay the purchase price in connection with the exercise of additional portions of the Option then being exercised. The written notice pursuant to this Section 8.2 may also provide instructions from the Optionee to the Company that upon receipt of the purchase price in cash from the Optionee's broker or dealer, designated as such on the written notice, in payment for any Shares purchased pursuant to the exercise of an Option, the Company shall issue such Shares directly to the designated broker or dealer. Any Shares transferred to the Company as payment of the purchase price under an Option shall be valued at their Fair Market Value on the day preceding the date of exercise of such Option. If requested by the Committee, the Optionee shall deliver the Agreement evidencing the Option to the Chief Financial Officer of the Company who shall endorse thereon a notation of such exercise and return such Agreement to the Optionee. No fractional shares (or cash in lieu thereof) shall be issued upon exercise of an Option and the number of Shares that may be purchased upon exercise shall be rounded to the nearest number of whole Shares. 8.3. Rights of Optionees. No Optionee shall be deemed for any purpose to be the owner of any Shares subject to any Option unless and until (i) the Option shall have been exercised pursuant to the terms thereof, (ii) the Company shall have issued and delivered the Shares to the Optionee and (iii) the Optionee's name shall have been entered as a stockholder of record on the books of the Company. Thereupon, the Optionee shall have full voting, dividend and other ownership rights with respect to such Shares. 8.4. Termination of Employment or Services. Unless otherwise provided in the Agreement evidencing the Option, an Option (other than an Option granted to a consultant or a Nonemployee Director) shall terminate upon an Optionee's termination of employment (or similar arrangement) with the Company and its Subsidiaries as follows: (a) in the event the Optionee's employment terminates as a result of Disability, the Optionee may at any time within three (3) months after such event exercise the Option or portion thereof that was exercisable on the date of such termination; (b) if an Optionee's employment terminates for Cause, the Option shall terminate immediately and no rights thereunder may be exercised; (c) if an Optionee's employment terminates without Cause, the Optionee may at any time within one (1) month after such event exercise the Option or portion thereof that was exercisable on the date of such termination; and (d) if an Optionee dies while an employee of the Company or any Subsidiary or within six (6) months after termination as a result of Disability as described in clause (a) of this Section 8.4, the Option may be exercised at any time within six (6) months after the Optionee's death by the person or persons to whom such rights under the Option shall pass by will or by the laws of descent and distribution; provided, however, that an Option may be exercised to the extent, and only to the extent, that the Option or portion thereof was exercisable on the date of death or earlier termination. Notwithstanding the foregoing, in no event may any Option be exercised by anyone after the expiration of the term of the Option. 8.5. Termination of Nonemployee Director Options and Consultant Options. Nonemployee Director Options and Consultant Options granted to Nonemployee Directors and consultants to the Company or a Subsidiary shall terminate under such circumstances as are provided in the Agreement evidencing the Option, and if not expressly specified, as of the close of business on the last day of the term of the Option, but in no event may such an Option be exercised by anyone after the expiration of the term of the Option. 8.6. Modification or Substitution. The Committee may, in its discretion, modify outstanding Options or accept the surrender of outstanding Options (to the extent not exercised) and grant new Options in substitution for them. Notwithstanding the foregoing, no modification of an Option shall adversely alter or impair any rights or obligations under the Option without the Optionee's consent. 9. Adjustment Upon Changes in Capitalization. ----------------------------------------- 9.1. Subject to Section 10, in the event of a Change in Capitalization, the Committee shall conclusively determine the appropriate adjustments, if any, to the maximum number or class of Shares or other stock or securities with respect to which Options may be granted under the Plan, the number and class of Shares or other stock or securities which are subject to outstanding Options granted under the Plan, and the purchase price therefor, if applicable. 9.2. Any such adjustment in the Shares or other stock or securities subject to outstanding Incentive Stock Options (including any adjustments in the purchase price) shall be made in such manner as not to constitute a modification as defined by Section 424(h)(3) of the Code and only to the extent otherwise permitted by Sections 422 and 424 of the Code. 9.3. If, by reason of a Change in Capitalization, an Optionee shall be entitled to exercise an Option with respect to new, additional or different shares of stock or securities, such new, additional or different shares shall thereupon be subject to all of the conditions which were applicable to the Shares subject to the Option, as the case may be, prior to such Change in Capitalization. 10. Effect of Certain Transactions. ------------------------------ In the event of (i) the liquidation or dissolution of the Company or (ii) a merger or consolidation of the Company (a "Transaction"), the Plan and the Options issued hereunder shall continue in effect in accordance with their respective terms and each Optionee shall be entitled to receive in respect of each Share subject to any outstanding Options, as the case may be, upon exercise of any Option, the same number and kind of stock, securities, cash, property, or other consideration that each holder of a Share was entitled to receive in the Transaction in respect of a Share. In the event that, after a Transaction, there occurs any change of a type described in Section 2.4 hereof with respect to the shares of the surviving or resulting corporation, then adjustments similar to, and subject to the same conditions as, those in Section 9 hereof shall be made by the Committee. 11. Termination and Amendment of the Program. ---------------------------------------- 11.1. The Plan shall terminate on the day preceding the tenth anniversary of the date of its adoption by the Board and no Option may be granted thereafter. The Board may sooner terminate or amend the Plan at any time and from time to time; provided, however, that to the extent necessary under Section 16(b) of the Exchange Act and the rules and regulations promulgated thereunder or other applicable law, no amendment shall be effective unless approved by the stockholders of the Company in accordance with applicable law and regulations at an annual or special meeting held within twelve (12) months after the date of adoption of such amendment. 11.2. Except as provided in Sections 9 and 10 hereof, rights and obligations under any Option granted before any amendment or termination of the Plan shall not be adversely altered or impaired by such amendment or termination, except with the consent of the Optionee, nor shall any amendment or termination deprive any Optionee of any Shares which he may have acquired through or as a result of the Plan. 12. Non-Exclusivity of the Plan. The adoption of the Plan by the Board shall not be construed as amending, modifying or rescinding any previously approved incentive arrangement or as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either applicable generally or only in specific cases. 13. Limitation of Liability. As illustrative of the limitations of liability of the Company, but not intended to be exhaustive thereof, nothing in the Plan shall be construed to: (i) give any person any right to be granted an Option other than at the sole discretion of the Committee; (ii) give any person any rights whatsoever with respect to Shares except as specifically provided in the Plan; (iii) limit in any way the right of the Company to terminate the employment of any person at any time; or (iv) be evidence of any agreement or understanding, expressed or implied, that the Company will employ any person at any particular rate of compensation or for any particular period of time. 14. Regulations and Other Approvals; Governing Law. ---------------------------------------------- 14.1. This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Delaware. 14.2. The obligation of the Company to sell or deliver Shares with respect to Options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Committee. 14.3. The Plan is intended to comply with Rule 16b-3 promulgated under the Exchange Act and the Committee shall interpret and administer the provisions of the Plan or any Agreement in a manner consistent therewith. Any provisions inconsistent with such Rule shall be inoperative and shall not affect the validity of the Plan. 14.4. The Board may make such changes as may be necessary or appropriate to comply with the rules and regulations of any government authority, or to obtain for Eligible Employees granted Incentive Stock Options the tax benefits under the applicable provisions of the Code and regulations promulgated thereunder. 14.5. Each Option is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the grant of an Option or the issuance of Shares, no Options shall be granted or payment made or Shares issued, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions, or as otherwise determined to be acceptable to the Committee. 14.6. Notwithstanding anything contained in the Plan to the contrary, in the event that the disposition of Shares acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act of 1933, as amended, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required by the Securities Act of 1933, as amended, and Rule 144 or other regulations thereunder. The Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares upon exercise of an Option, to represent and warrant to the Company in writing that the Shares acquired by such individual are acquired without a view to any distribution thereof and will not be sold or transferred other than pursuant to an effective registration thereof under said act or pursuant to a exemption applicable under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. The certificates evidencing any of such Shares shall be appropriately amended to reflect their status as restricted securities as aforesaid. 15. Miscellaneous. ------------- 15.1. Multiple Agreements. The terms of each Option may differ from other Options granted under the Plan at the same time, or at some other time. The Committee may also grant more than one Option to a given Eligible Employee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Eligible Employee. 15.2. Withholding of Taxes. (a) The Company shall have the right to deduct from any distribution of cash to any Optionee, an amount equal to the federal, state and local income taxes and other amounts as may be required by law to be withheld (the "Withholding Taxes") with respect to any Option. If an Optionee is entitled to receive Shares upon exercise of an Option, the Optionee shall pay the Withholding Taxes to the Company prior to the issuance of such Shares. In satisfaction of the Withholding Taxes, the Optionee may make a written election (the "Tax Election"), which may be accepted or rejected in the discretion of the Committee, to have withheld a portion of the Shares issuable to him or her upon exercise of the Option having an aggregate Fair Market Value, on the date preceding the date of exercise, equal to the Withholding Taxes, provided that in respect of an Optionee who may be subject to liability under Section 16(b) of the Exchange Act either (i) (A) the Optionee makes the Tax Election at least six (6) months after the date the Option was granted, (B) the Option is exercised during the ten day period beginning on the third business day and ending on the twelfth business day following the release for publication of the Company's quarterly or annual statements of earnings (a "Window Period") and (C) the Tax Election is made during the Window Period in which the Option is exercised or prior to such Window Period and subsequent to the immediately preceding Window Period or (ii) (A) the Tax Election is made at least six months prior to the date the Option is exercised and (B) the Tax Election is irrevocable with respect to the exercise of all Options which are exercised prior to the expiration of six months following an election to revoke the Tax Election. Notwithstanding the foregoing, the Committee may, by the adoption of rules or otherwise, (i) modify the provisions in the preceding sentence or impose such other restrictions or limitations on Tax Elections as may be necessary to ensure that the Tax Elections will be exempt transactions under Section 16(b) of the Exchange Act, and (ii) permit Tax Elections to be made at such other times and subject to such other conditions as the Committee determines will constitute exempt transactions under Section 16(b) of the Exchange Act. (b) If an Optionee makes a disposition, within the meaning of Section 424(c) of the Code and regulations promulgated thereunder, of any Share or Shares issued to such Optionee pursuant to the exercise of an Incentive Stock Option within the two-year period commencing on the day after the date of transfer of such Share or Shares to the Optionee pursuant to such exercise, the Optionee shall, within ten (10) days of such disposition, notify the Company thereof, by delivery of written notice to the Company at its principal executive office, and immediately deliver to the Company the amount of Withholding Taxes. 15.3. Designation of Beneficiary. Each Optionee may designate a person or persons to receive in the event of his or her death, any Option or any amount payable pursuant thereto, to which he or she would then be entitled. Such designation will be made upon forms supplied by and delivered to the Company and may be revoked in writing. If an Optionee fails effectively to designate a beneficiary, then his or her estate will be deemed to be the beneficiary. 16. Effective Date. The effective date of the Plan shall be the date of its adoption by the Board, subject only to the approval by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting of stockholders duly held in accordance with the applicable laws of the State of Delaware within twelve (12) months of such adoption. EX-10 3 ex-108.txt AMENDMENT TO EMPLOYMENT AGREEMENT - WAYNE MERTES Exhibit 10.8 - AMENDMENT TO EMPLOYMENT AGREEMENT This Amendment to Employment Agreement is made and entered into as of this 29th day of March, 2001, by and between National R.V. Holdings, Inc., a Delaware Corporation (the "Company" or "NRVH"), and Wayne Mertes, an individual ("Executive"). RECITALS A. Executive and National R.V., Inc., a California corporation and a wholly-owned subsidiary of the Company ("NRV"), have previously entered into a series of employment agreements and amendments to employment agreements, the most recent being the Employment Agreement made and entered into as of January 31, 2000 ("the Current Employment Agreement"), whereby the Company has employed Executive as President and Chief Executive Officer of the Company. B. The Executive and the Company wish to amend the Current Employment Agreement to reflect their agreement regarding a change in the Executive's title and duties. AGREEMENT NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions hereinafter set forth, the parties hereto do hereby agree as follows: 1. Section 1 (Employment) of the Current Employment Agreement is amended to read: "The Company hereby employs Executive as Co-Chief Executive Officer of the Company, to serve in conjunction with two other Co-Chief Executive Officers appointed by the Board of Directors of NRVH. In addition, Executive also agrees to serve as interim President of National R.V. Inc. until such time as a successor is duly approved." 2. Section 4.1 (Assignment of Duties) of the Current Employment Agreement is amended to read: "Executive shall have such duties as are commensurate with his position described in Section 1 above. Such duties shall be exercised subject to the control, supervision and direction of the Board of Directors of NRVH." 3. Section 9.5 (Entire Agreement) of the Current Employment Agreement wis amended to read: "This Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral or written agreements, arrangements and understandings with respect thereto, with the exception of the Current Employment Agreement, which remains in full force and effect except as expressly amended by this Amendment to Employment Agreement. No representation, promises, inducement, statement or intention has been made by any party hereto that is not embodied herein, and no party shall be bound by or liable for any alleged representation, promise, inducement or statement not so set forth herein." IN WITNESS WHEREOF, the parties hereto have caused this Amendment to Employment Agreement to be executed as of the date first set forth above. NATIONAL R.V. HOLDINGS, INC. By: /s/ Bradley C. Albrechtsen ---------------------------- Name: Bradley C Title: _____________________ ------------------------- Executive EX-23 4 ex-231.txt ACCOUNTANT'S CONSENT Exhibit 23.1 - CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-41905) of National R.V. Holdings, Inc. of our report dated February 2, 2001 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. PricewaterhouseCoopers LLP Los Angeles, California March 29, 2001 EX-99 5 ex-991.txt FACTORS AFFECTING FUTURE OPERATING RESULTS Exhibit 99.1 - FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS POTENTIAL FLUCTUATIONS IN OPERATING RESULTS The Company's net sales, gross margin and operating results may fluctuate significantly from period to period due to factors such as the mix of products sold, the ability to utilize and expand manufacturing resources efficiently, material shortages, the introduction and consumer acceptance of new models offered by the Company, competition, the addition or loss of dealers, the timing of trade shows and rallies, and factors affecting the recreational vehicle industry as a whole, such as cyclicality and seasonality. In addition, the Company's overall gross margin on its products may decline in future periods to the extent the Company increases its sales of lower gross margin towable products or if the mix of motor coaches sold shifts to lower gross margin units. Due to the relatively high selling prices of the Company's products (in particular, its High-Line Class A motor coaches), a relatively small variation in the number of recreational vehicles sold in any quarter can have a significant effect on sales and operating results for that quarter. CYCLICALITY AND SEASONALITY The RV industry has been characterized by cycles of growth and contraction in consumer demand, reflecting prevailing economic conditions which affect disposable income for leisure-time activities. Concerns about the availability and price of gasoline, decreases in consumer confidence, increases in interest rates and reductions in available financing have had, and may in the future have, an adverse impact on RV sales. Seasonal factors, over which the Company has no control, also have an effect on the demand for the Company's products. Demand in the RV industry declines over the winter season, while sales are generally highest during the spring and summer months. DEPENDENCE ON CERTAIN DEALERS; CONCENTRATION OF DEALERS IN CERTAIN REGIONS Although no one dealer accounted for more than 10% of the Company's net sales during the year ended December 31, 1999, the Company's top ten dealers accounted for approximately 44% and 43% of the Company's sales during the years ended December 31, 2000 and 1999, respectively. The loss by the Company of one or more of these dealers could have a material adverse effect on the Company's financial condition and results of operations. In addition, a significant portion of the Company's sales is from dealers located in states in the western part of the United States. Consequently, a general downturn in economic conditions or other material events in such region could materially adversely affect the Company's sales. DEPENDENCE ON CHASSIS SUPPLIERS One of the principal components used in the manufacture of motorhomes and bus conversions is the chassis and bus shell, respectively, which include the engine, drive train and other operating components. Although Country Coach manufactures chassis used in certain of its products, the Company obtains the required chassis for most of its Class A motorhomes from a limited number of manufacturers and the required bus shells from Prevost Corporation. Prevost is the only manufacturer of bus shells used in the Company's bus conversions and there is only one other manufacturer of bus shells in North America. As is standard in the industry, arrangements with such suppliers permit them to terminate their relationship with the Company at any time. Lead times for the delivery of chassis frequently exceed five weeks, and the RV industry as a whole has from time to time experienced temporary shortages of chassis. If any of the Company's suppliers were to discontinue the manufacture of chassis utilized by the Company in the manufacture of its Class A motorhomes, materially reduce their availability to the RV industry in general or limit or terminate their availability to the Company in particular, the business and financial condition of the Company could be materially and adversely affected. POTENTIAL LIABILITIES UNDER REPURCHASE AGREEMENTS As is common in the industry, the Company enters into repurchase agreements with the financing institutions used by its dealers to finance their purchases. These agreements obligate the Company to purchase a dealer's inventory under certain circumstances in the event of a default by the dealer to its lender. The risk of loss, however, is spread over many dealers and is further reduced by the resale value of the RVs that the Company would be required to repurchase. Although losses under these agreements have not been significant in the past, if the Company were obligated to repurchase a significant number of RVs in the future, it could result in losses and a reduction in new RV sales. The Company's contingent obligations under repurchase agreements vary from period to period and totaled approximately $99.3 million as of December 31, 2000. COMPETITION The Company competes with numerous manufacturers, many of which have multiple product lines of RVs, are larger and have substantially greater financial and other resources than the Company. According to an industry source, the two largest motorhome manufacturers had sales aggregating 37.8% of industry-wide retail unit sales of Class A motorhomes for the year ended December 31, 2000. In addition, sales of used RVs provide competition to RV manufacturers. GOVERNMENT REGULATION The Company is subject to federal, state and local regulations governing the manufacture and sale of their products, including the provisions of the National Traffic and Motor Vehicle Safety Act (the "Motor Vehicle Act") and the safety standards for RVs and components which have been promulgated thereunder by the Department of Transportation. The Motor Vehicle Act authorizes the National Highway Traffic Safety Administration ("NHTSA") to require a manufacturer to recall and repair vehicles which contain certain hazards or defects. The Company has from time to time instituted voluntary recalls of certain motorhome units, none of which has had a material adverse effect on the Company. Future recalls of the Company's vehicles, voluntary or involuntary, however, could have a material adverse effect on the Company. The Company is also subject to federal and numerous state consumer protection and unfair trade practice laws and regulations relating to the sale, transportation and marketing of motor vehicles, including so-called "Lemon Laws." Federal and state laws and regulations also impose upon vehicle operators various restrictions on the weight, length and width of motor vehicles, including trucks and motorhomes, that may be operated in certain jurisdictions or on certain roadways. As a result of these restrictions, certain models of motorhomes manufactured by the Company's Country Coach subsidiary may not be legally operated in certain jurisdictions or on certain roadways. Certain jurisdictions also prohibit the sale of vehicles exceeding length restrictions. Enforcement of these laws and related customer complaints to date has been limited. The Company is unable to predict reliably the extent of future enforcement of these laws, the extent future enforcement might lead to customer complaints, or the extent to which Country Coach may choose or be required to provide some customer remedy, such as repurchasing or exchanging motorhomes, as a result of such complaints. If current enforcement efforts and related complaints were to increase significantly from their current levels, the cost of resolving such complaints, particularly should the resolution of complaints require repurchasing, refurbishing, and reselling of motorhomes, could have a material financial effect on the Company. Amendments and changes in enforcement with respect to these laws and regulations and the implementation of new laws and regulations could significantly increase the costs of manufacturing, purchasing, operating or selling the Company's products and could have a material adverse effect on the Company's business, results of operations and financial condition. The failure of the Company to comply with these present or future laws or regulations could result in fines imposed on the Company, civil and criminal liability, or suspension of operations, any of which could have a material adverse effect on the Company. The Company's manufacturing operations are subject to a variety of federal and state environmental regulations relating to the use, generation, storage, treatment, emissions, and disposal of hazardous materials and wastes and noise pollution. Such laws and regulations are becoming more stringent, and it is likely that future amendments to these environmental statutes and additional regulations promulgated thereunder will be applicable to the Company, its manufacturing operations and its products in the future. The failure of the Company to comply with present or future regulations could result in fines being imposed on the Company, civil and criminal liability, suspension of operations, alterations to the manufacturing process or costly cleanup or capital expenditures. WARRANTY CLAIMS The Company is subject to warranty claims in the ordinary course of its business. Although the Company maintains reserves for such claims, which to date have been adequate, there can be no assurance that warranty expense levels will remain at current levels or that such reserves will continue to be adequate. A large number of warranty claims exceeding the Company's current warranty expense levels could have a material adverse effect on the Company's results of operations and financial condition. PRODUCT LIABILITY The Company maintains product liability insurance with coverage in amounts which management believes is reasonable. To date, the Company has been successful in obtaining product liability insurance on terms the Company considers acceptable. Given the nature of the Company's business, product liability in excess of the Company's insurance coverage, if incurred, could have a material adverse effect on the Company. THE CALIFORNIA ENERGY CRISIS NRV's manufacturing facilities are located in Southern California. California has been experiencing an energy crisis that has resulted in disruptions in power supply and increases in utility costs to consumers and businesses throughout the State. Should the energy crisis continue, NRV may experience power interruptions and shortages and be subject to costs and manufacturing inefficiencies associated with temporarily shutting down production. Although NRV has not experienced any material disruption to its business to date, if the energy crisis continues and power interruptions or shortages occur in the future, they may adversely affect the Company's business. ANTITAKEOVER PROVISIONS Certain provisions of the Company's Certificate of Incorporation, as well as Delaware corporate law and the Company's Stockholder Rights Plan (the "Rights Plan"), may be deemed to have anti-takeover effects and may delay, defer or prevent a takeover attempt that a stockholder might consider in its best interest. Such provisions also may adversely affect prevailing market prices for the Common Stock. Certain of such provisions allow the Company's Board of Directors to issue, without additional stockholder approval, preferred stock having rights senior to those of the Common Stock. In addition, the Company is subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which prohibits the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed matter. In August 1996, the Company adopted the Rights Plan, pursuant to which holders of the Common Stock received a distribution of rights to purchase additional shares of Common Stock, which rights become exercisable upon the occurrence of certain events. -----END PRIVACY-ENHANCED MESSAGE-----