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]
For the fiscal year ended October 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
Commission file Number 2-31520
KIT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
California 95-1525261
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 East Wardlow Road, Long Beach, California 90807
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(562) 595-7451
Securities registered pursuant to Section 12(b) of the Act:
Title of class: Common Stock, no par value
Name of each exchange on which registered: American Stock
Exchange
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. [X]
The approximate aggregate market value of voting stock held
by non-affiliates of Registrant was $1,131,909 as of February 5,
2002.
1,027,334
(Number of shares of Common Stock outstanding as of January 26,
2002)
Certain information called for by Parts I, II and IV is
incorporated by reference to the Registrant's Annual Report to
Shareholders for the fiscal year ended October 31, 2001 and the
information called for by Part III is incorporated by reference
to the Registrant's definitive proxy statement to be filed with
the Commission within 120 days after October 31, 2001.
The Index to Exhibits appears on page 17.
88 pages in total.
PART I
Item 1. Business
Introductory Note Regarding Forward Looking Statements
This Annual Report on Form 10-K ("Report") contains statements
which, to the extent they do not recite historical fact, may
constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as
amended. You can identify these statements by the use of words
such as "may," "will," "could," "should," "project," "believe,"
"anticipate," "expect," "plan," "estimate," "forecast,"
"potential," "intend," "continue" and variations of these words
or comparable words. Forward-looking statements do not guarantee
future performance and involve risks and uncertainties. Actual
results may differ substantially from the results that the
forward-looking statements suggest for various reasons, including
those discussed under the caption "Business" in Item 1 of this
Report and in KIT Manufacturing Company's ("Registrant's") Annual
Report to Shareholders for the fiscal year ended October 31, 2001.
These forward looking statements are made only as of the date of
this Report. The Registrant does not undertake to update or revise
the forward looking statements, whether as a result of new
information, future events or otherwise.
General
KIT Manufacturing Company was incorporated
in California in 1947, as the successor to a business founded in
1945. A description of Registrant's business during the last
fiscal year appears on page 3 of Registrant's Annual Report to
Shareholders for the fiscal year ended October 31, 2001, which is
incorporated herein by reference.
Principal Products Produced and Industry Segments
Registrant designs, manufactures and sells
manufactured homes, which are relocatable, factory-built
dwellings of single and multi-unit design. Constructed on wheel
undercarriages, they are towed by truck to locations where they
are set up and connected to utilities. Registrant also produces
recreational vehicles designed as short-period accommodations
for vacationers and travelers. These products are travel trailers
designed to be towed behind pickup trucks and fifth wheel travel
trailers designed to be towed behind and attached to special
couplers in the beds of pickup trucks.
Set forth below are the percentages of revenues
contributed by each class of similar products for the last three
fiscal years (see Note 9 of Notes to Consolidated Financial
Statements):
Products Class
Fiscal Year Manufactured Recreational
Ended October 31, Homes Vehicles
1999 49% 51%
2000 45% 55%
2001 50% 50%
Item 1. Continued
Certain information regarding industry segments is set
forth on page 13 of Registrant's Annual Report to Shareholders
for the fiscal year ended October 31, 2001, which is incorporated
herein by reference.
Method of Product Distribution
Registrant sells its products to approximately 91
dealers in 15 states, and 6 dealers in Canada. Exclusive dealerships
are not the pattern of the industry, and virtually all dealers
also sell competing products. Registrant generally produces
manufactured homes only against orders received from dealers.
Recreational vehicles are built for inventory, particularly during
the winter months in anticipation of increased demand during the
spring months. (See "Seasonal Considerations" below.) A significant
portion of the cost of Registrant's products is attributable to
charges incurred in their distribution. Specifically, distribution
charges are the function of several factors, including the
distance to the various markets and competitive conditions
within these markets. (See Item 2, "Properties," for the locations
of Registrant's principal plants.)
Registrant is not dependent upon a single customer or
a few customers and no dealer or group of dealers accounts for a
substantial amount of Registrant's total sales.
Competitive Conditions
The recreational vehicle and manufactured homes
industries are highly competitive. Registrant believes that the
principal methods of competition in these industries are based
upon quality, price, styling, warranty and service of products being
offered. Registrant also believes that it competes favorably
with respect to these factors in the manufactured homes group and the
recreational vehicle product line to ensure it remains
competitive in the marketplace. There are many firms
manufacturing and marketing products similar to those of Registrant
within the geographical area in which Registrant's products are
marketed. Several of the manufacturers within these industries are
larger than Registrant in terms of total revenue and resources.
Backlog
Registrant does not consider the existence and level
of backlog at any given date to be a significant factor affecting
its business, except in establishing its production schedules. This
is primarily due to the fact that orders may be cancelled up until
the time the dealer takes delivery, although such cancellations have
not been significant to date. The dollar amount of backlog, subject
to the above described cancellation provision, was approximately
$1,302,000 and $1,228,000 at October 31, 2001 and 2000, respectively.
The dollar amount of backlog, subject to the above described
cancellation provision, was approximately $1,305,000 at January
31, 2002. All of the backlog existing at October 31, 2001 is expected
to be filled within the current fiscal year.
Sources and Availability of Raw Materials
Registrant purchases raw materials and components from
a number of alternative sources and is not dependent upon any
particular supplier.
Patents
Although Registrant's products are marketed under
various trade names, Registrant does not believe that patents,
trademarks, licenses, franchises and concessions are of material
importance to its business.
Research and Development
Registrant periodically revises and redesigns its
models in response to consumer demand. These revisions and
redesigns can be extensive, if necessary, in order to obtain
market acceptance. Registrant manufactures and sells manufactured
homes and recreational vehicles only and does not engage in new
product development.
Number of Employees
On October 31, 2001, Registrant had 434 employees at
its manufacturing plants and executive offices.
Seasonal Considerations
Registrant's sales and production volume traditionally
increase during the second and third quarters of the fiscal
year.
During fiscal 2001, 2000 and 1999, 57%, 59% and 52% of sales,
respectively, were achieved during the second and third quarters
of their respective fiscal year. The Company expects this
moderate seasonality trend will remain consistent in future
years.
Government Regulation
The manufacture and distribution of Registrant's
manufactured homes and recreational vehicle products are subject
to governmental regulation in the United States and Canada at
the federal, state, provincial and local levels. Although no
assurances can be given, compliance with these governmental
regulations, including provisions regulating the discharge of
materials into the environment or otherwise relating to the
protection of the environment, is not currently expected to
have a material adverse effect on Registrant.
Item 1. Continued
Business Risks
Demand for Registrant's products is dependent upon
the availability and cost of gasoline, weather conditions,
available consumer credit and economic conditions. The
tenuous economy unfavorably affected dealers and retail
purchasers of Registrant's manufactured homes and recreational
vehicle products in fiscal 2001. Although the Registrant believes
that its 2002 recreational vehicle models have been well received
by dealers, uncertainty in the economy and lower consumer
confidence may slow sales of the Registrant's products in the
retail market.
Working Capital
Accounts receivable balances fluctuate generally with
the timing of shipments during the month because the majority of
sales are either on C.O.D. terms or are financed by dealers through
flooring arrangements with financial institutions. Recreational
vehicle finished goods inventory balances are subject to seasonal
variations. (See "Method of Product Distribution" and "Seasonal
Considerations" above.) A short delivery lead time exists for
the majority of recreational vehicle and manufactured home raw
material purchases, thereby allowing Registrant to maintain low
levels of raw materials inventory. Registrant is party to a
revolving credit agreement with a bank, collateralized by
certain of its assets, that provides financing of seasonal working
capital requirements.
Item 2. Properties
Registrant leases general executive and administrative
offices in Long Beach, California. The lease expires on May 14,
2002. Registrant also leases a retail sales facility in Nampa,
Idaho. The lease expires on March 31, 2003. Registrant owns an
11,160 square foot building, situated on 1.2 acres, housing
operational offices in Caldwell, Idaho. The following table
sets forth certain information about the property and facilities
utilized by Registrant for retail sales, manufacturing and plant
administrative purposes (all property is owned by Registrant
unless otherwise noted).
Approximate Approximate
Facility and Location Acres Square Feet
Recreational vehicle plants:
Caldwell, Idaho (R2) 15.7 55,200
Caldwell, Idaho (R1) 15.8 53,000
Caldwell, Idaho (RSA) 10.9 67,800(1)
Caldwell, Idaho (Chassis) .5 9,000
Manufactured home plants:
Caldwell, Idaho 9.5 99,100
Caldwell, Idaho 2.1 13,200(1)
Retail sales partnership locations:
Fruitland, Idaho 1.5 1,780
Nampa, Idaho - -
(1)This facility is part of an 81,000 square foot Production
Facility and is being utilized for both a recreational vehicles
plant and a manufactured housing plant.
Item 3. Legal Proceedings
On December 15, 1998, the Company was named as a defendant in a
lawsuit filed by one of its former dealers. A jury awarded the
plaintiff $370,000 in damages plus accrued interest thereon,
however, the verdict is currently under appeal with the Idaho
State Supreme Court. The outcome of the appeal is not known at
this time, but the Company intends to defend its position
vigorously.
In the ordinary course of business, Registrant is subject to
occasional lawsuits, investigations and claims. Although
Registrant cannot predict the ultimate resolution of lawsuits,
investigations and claims asserted against it, Registrant does
not believe that any currently pending legal proceeding
to which it is a party will have a material adverse effect on
its business, results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters
Information in response to this item is incorporated
by reference from the information appearing in
Registrant's Annual Report to Shareholders for the
fiscal year ended October 31, 2001, at page 16.
KIT has a recent history of not paying cash dividends on
its common stock. KIT currently anticipates retaining
future earnings, if any, for general working capital
purposes. Payment of dividends in the future, if at all,
will depend upon KIT's earnings and financial condition
and various other factors our directors may deem
appropriate at the time.
Item 6. Selected Financial Data
Information in response to this item is incorporated
by reference from the information appearing in
Registrant's Annual Report to Shareholders for the fiscal year ended
October 31, 2001, at page 15.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Information in response to this item is incorporated
by reference from the information appearing in
Registrant's Annual Report to Shareholders for the fiscal year ended
October 31, 2001, at pages 4 and 5.
Item 7A Quantitative and Qualitative Disclosures About
Market Risk
Registrant does not utilize interest rate swaps, forward
or option contracts on foreign currencies or
commodities, or other types of derivative financial
instruments. The Registrant's bank credit line is its
only asset or liability that is subject to risks from
interest rate changes. Registrant's bank credit line
incurs interest at the bank's prime rate. Registrant
does not believe that it is subject to material risks
from reasonably possible near-term changes in market
interest rates.
Item 8. Financial Statements and Supplementary Data
Information in response to this item is incorporated
by reference from the consolidated financial statements
and the notes to consolidated financial statements in Registrant's
Annual Report to Shareholders for the fiscal year ended October 31,
2001, at pages 6 through 13 and pages 15 and 16.
Item 9. Disagreements on Accounting and Financial
Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the
Registrant
Information with respect to this item is incorporated
by reference from Registrant's definitive Proxy Statement
to be filed with the Commission within 120 days after the end of
Registrant's 2001 fiscal year.
Item 11. Executive Compensation
Information with respect to this item is incorporated
by reference from Registrant's definitive Proxy Statement
to be filed with the Commission within 120 days after the end of
Registrant's 2001 fiscal year.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Information with respect to this item is incorporated
by reference from Registrant's definitive Proxy Statement
to be filed with the Commission within 120 days after the end of
Registrant's 2001 fiscal year.
Item 13. Certain Relationships and Related
Transactions
Information with respect to this item is incorporated
by reference from Registrant's definitive Proxy Statement
to be filed with the Commission within 120 days after the end of
Registrant's 2001 fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
(a) (1) Financial Statements
Annual Report
Page(s)
Consolidated Balance Sheets at October 31,
6 2001 and 2000
Consolidated Statements of Income for each
of the three years in the period ended
7 October 31, 2001
Consolidated Statements of Shareholders'
Equity for each of the three years in the
7 period ended October 31, 2001
Consolidated Statements of Cash Flows for
each of the three years in the period
8 ended October 31, 2001
9-13 Notes To Consolidated Financial Statements
14 Report of Independent Accountants
The Consolidated Financial Statements and Report of
Independent Accountants listed in the above index, which are included in
Registrant's Annual Report to Shareholders for the fiscal year
ended October 31, 2001, are hereby incorporated by reference. With
the exception of the items referred to above and in Items 1, 5, 6, 7
and 8, Registrant's Annual Report to Shareholders for the fiscal
year ended October 31, 2001 is not to be deemed filed as part of this
report.
Item 14. Continued
(a) (2) Financial Statement Schedule
Form 10-K Page
Report of Independent Accountants on
Consolidated Financial Statement
12 Schedule
Schedule:
For each of the three years in the
period ended October 31, 2001
VIII Valuation and Qualifying
13 Accounts
Schedules other than the one listed above are omitted
for the reason that they are not required or are not applicable, or
the required information is shown in the consolidated financial
statements or notes thereto. Columns omitted from the schedule
filed have been omitted because the information is not applicable.
(a) (3) Exhibits
(3) Articles of Incorporation and By-Laws adopted by
Registrant. (Incorporated by reference to
Exhibit 3 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended October
31, 1987)
(10) Material Contracts
1. Incentive Bonus Plan (Incorporated by
reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 2000)
2. Indemnification Agreement(Incorporated
by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 2000)
3. Schedule of Indemnification Agreements
(Incorporated by reference to Exhibit 10.3
to the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 2000)
4. Amended and Restated Credit Agreement
5. First Amendment to Amended and Restated Credit
Agreement
6. Second Amendment to Amended and Restated Credit Agreement
(13) Annual Report to Shareholders.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal
quarter ended October 31, 2001.
REPORT OF INDEPENDENT ACCOUNTANTS ON CONSOLIDATED FINANCIAL
STATEMENT SCHEDULE
To the Shareholders and Board of Directors
of KIT Manufacturing Company
Our audits of the consolidated financial statements
referred to in our report dated December 10, 2001, except for
the fifth paragraph of Note 1 and the third paragraph of Note 5,
as to which the date is February 12, 2002, appearing in
the 2001 Annual Report to Shareholders of KIT Manufacturing
Company (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K)
also included an audit of financial statement schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with
the related consolidated financial statements.
/s/PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
December 10, 2001
KIT MANUFACTURING COMPANY
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended October 31, 2001, 2000 And 1999
Col. A Col. B Col. C Col. D Col. E Col. F
Additions
(1) (2)
Charged To Charged To
Balance At Costs Other Balance At
Beginning Of And Accounts Deductions End Of
Description Period Expenses Describe Describe Period
Allowance for doubtful accounts:
Year ended October 31, 1999 $37,000 - - $2,000(A) $35,000
Year ended October 31, 2000 $35,000 - - $6,000(A) $29,000
Year ended October 31, 2001 $29,000 - - - $29,000
(A)Write-off of uncollectible accounts.
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.
KIT Manufacturing Company
By:/s/Dan Pocapalia
Dan Pocapalia
Chairman of the Board,
Chief Executive Officer
and President
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:
/s/Dan Pocapalia Feb. 13, 2002 /s/John W.H. Hinrichs Feb. 13, 2002
Dan Pocapalia John W.H. Hinrichs
Chairman of the Board, Director
Chief Executive Officer
and President (Principal
Executive Officer)
/s/John F. Zaccaro Feb. 13, 2002 /s/Frank S. Chan Feb. 13, 2002
John F. Zaccaro Frank S. Chan
Director Director
/s/Bruce K. Skinner Feb. 13, 2002 /s/Fred W. Chel Feb. 13, 2002
Bruce K. Skinner Fred W. Chel
Vice President and Treasurer Director
(Principal Financial and
Accounting Officer)
INDEX TO EXHIBITS
EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K
Sequential Page Number
(3) Articles of Incorporation and By-Laws adopted
by Registrant (Incorporated by reference to
Exhibit 3 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended October
31, 1987)
(10) Material Contracts
1. Incentive Bonus Plan (Incorporated by
reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K
for the fiscal year ended October
31, 2000)
2. Indemnification Agreement (Incorporated
by reference to Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K
for the fiscal year ended October
31, 2000)
3. Schedule of Indemnification Agreements
(Incorporated by reference to Exhibit
10.3 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended
October 31, 2000)
4. Amended and Restated Credit
Agreement 18
5. First Amendment to Amended
and Restated Credit Agreement 35
6. Second Amendment to Amended
and Restated Credit Agreement 48
(13) Annual Report to Shareholders
EXHIBIT 10.4
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AGREEMENT is entered into as of June 12, 2001, by and
between KIT MANUFACTURING COMPANY, a California corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
A. Borrower is currently indebted to Bank pursuant to the
terms and conditions of that certain Credit Agreement between
Borrower and Bank, dated October 5, 1998, as amended from time
to time (the -Prior Agreement').
B. Pursuant to the Prior Agreement, Borrower remains
indebted to Bank under a line of credit in the maximum principal
amount of Four Million Five Hundred Thousand Dollars
($4,500,000.00) (the 'Prior Line of Credit'), which is evidenced
by that certain promissory note dated April 3, 2000, as modified
from time to time (the 'Prior Line of Credit Note'). The Prior
Line of Credit Note is in default in that it matured on April 3,
2001 and the outstanding principal balance as of June 8, 2001
under the Prior Line of Credit was $3,109,796.00, plus accrued
but unpaid interest.
C. Borrower is additionally in default under the terms of
the Prior Agreement for the following as of the fiscal year
ending October 31. 2000: (1) failure to maintain a zero balance
on advances under the Prior Line of Credit for two clean-up
periods of at least thirty (30) consecutive days during the term
of the Prior Line of Credit, in violation of Section 1 _ 1 (d)
of the Prior Agreement; and (2) failure to maintain Tangible Net
Worth of at least $12,000,000.00 in violation of Section 4.8(b)
of the Prior Agreement (collectively. the `October Defaults').
Borrower is also in default under the terms of the Prior
Agreement for the following as of the first quarter ending
January 1, 2001: (1) failure to maintain Tangible Net Worth of
at least $12,000,000.00 m violation of Section 4_8(b) of the
Prior Agreement; and (2) failure to meet the net profit after
tax minimum of $50,000.00 in violation of Section 4.8(d) of the
Prior Agreement (the `January Defaults'). The October Defaults
and the January Defaults shall be collectively referred to
herein as the `Existing Defaults'.
D. Borrower has requested that bank extend the maturity
date of and restructure the Prior Line of Credit and waive the
Existing Defaults and Bank has agreed to the foregoing subject
to the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Bank and Borrower
hereby agree that all the terms and conditions of the Prior
Agreement and the Prior Line of Credit Note shall be and hereby
are amended, restated and superseded by the terms and conditions
of this Agreement; provided, however, that nothing herein shall
terminate any security interest in favor of Bank and all such
security interests shall remain in full force and effect; and
Bank and Borrower further agree as follows:
ARTICLE I
CREDIT TERMS
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit - Subject to the terms and conditions of
this Agreement, Bank hereby agrees to make advances to Borrower
from time to time up to and including .tune 30, 2002, not to
exceed at any time the aggregate principal amount of Six Million
Dollars ($6,000,000.00) (the "Line of Credit"), the proceeds of
which shall be used for Borrower's working capital requirements
Borrower's obligation to repay advances under the line of Credit
shall be evidenced by a promissory note substantially in the
form of Exhibit A attached hereto (the "Line of Credit Note"),
all terms of which are incorporated herein by this reference;
provided, however, that outstanding advances under the Prior
Line of Credit as of the Effective Date of this Agreement
(defined in Section 3.1. below) shall be deemed outstanding
advances under the Line of Credit.
(b) Limitation on Borrowings. Outstanding borrowings under
the Line of Credit, to a maximum of the principal amount set
forth above. Shall not at any time exceed the Collateral value
as defined herein. - `Collateral Value' shall equal the sum of
(i) seventy-five percent (75%) of Borrowers eligible accounts
receivable (the 'AIR Value') pursuant to the formula set forth
below; plus (ii) the Securities Value of certain marketable
securities and cash equivalents as more fully set forth in that
certain Security Agreement- Securities Account and Addendum
executed concurrently herewith (the "Securities Security
Agreement"). All of the foregoing shall be determined by Bank
upon receipt and review of all collateral reports and account
statements required hereunder and such other documents and
collateral information as Bank may from time to time require-
Borrower acknowledges that said borrowing base was established
by Bank with the understanding that, among other items, the
aggregate of all returns, rebates, discounts, credits and
allowances for the immediately preceding three (3) months at all
times shall be less than five percent (5%) of Borrower's gross
sales for said period. If such dilution of Borrower's accounts
for the immediately preceding three (3) months at any time
exceeds five percent (5%) of Borrowers gross sales for said
period, or if there at any time exists any other matters.
events, conditions or contingencies which Bank reasonably
believes may affect payment of any portion of Borrowers
accounts, Bank. in its sole discretion, may reduce the foregoing
advance fate against eligible accounts receivable to a
percentage appropriate to reflect such additional dilution
and/or establish additional reserves against Borrowers eligible
accounts receivable.
As used herein, "eligible accounts receivable" shall consist
solely of trade accounts created in the ordinary course of
Borrowers business, upon which Borrower's right to receive
payment is absolute and not contingent upon the fulfillment of
any condition whatsoever, and in which Bank has a perfected
security interest of first priority, and shall not include'.
(i)any account which is more than sixty (60) days past due;
(ii) that portion of any account for which there exists any
right of setoff, defense or discount (except regular discounts
allowed in the ordinary course of business to promote prompt
payment) or for which any defense or counterclaim has been
asserted;
(iii) any account which represents an obligation of any state or
municipal government or of the United States government or any
political subdivision thereof (except accounts which represent
obligations of the United States government and for
which the assignment provisions of the Federal Assignment of
Clams Act, as amended or recodified from time to time, have been
complied wish to Bank's satisfaction);
(iv) any account which represents an obligation of an account
debtor located in a foreign country:
(v)any account which arises from the sale or lease to or
performance of services for. or represents an obligation of, an
employee, affiliate, partner, member, parent or subsidiary of
Borrower;
(vi) that portion of any account, which represents interim or
progress billings or retention rights on the part of the account
debtor,
(vii) any account which represents an obligation of any account
debtor when twenty percent (2090) or more of Borrowers accounts
from such account debtor are not eligible pursuant to (i) above:
(viii) that portion of any account from an account debtor which
represents the amount by which Borrowers total accounts from
said account debtor exceeds twenty-five percent (25%) of
Borrower's total accounts;
(ix) any account deemed ineligible by Bank when Bank, in its
sole discretion, deems the creditworthiness or financial
condition of the account debtor, or the industry in which the
account debtor is engaged, to be unsatisfactory.
(c) Letter of Credit Subfeature. As a subfeature under
the Line of Credit. Bank agrees from time to time during the
term thereof to issue or cause an affiliate to issue standby
letters of credit for the account of Borrower to guarantee
performance (each, a "Letter of Credit" and collectively,
"Letters of Credit")-. provided however, that the aggregate
undrawn amount of all outstanding Letters of Credit shall not at
any time exceed Six Hundred Thousand Dollars ($600,000.00). The
form and substance of each Letter of Credit shall be subject to
approval by Bank, in its sole discretion. Each Letter of Credit
shall be issued for a term not to exceed three hundred
sixty-five (365) days, as designated by Borrower; provided
however, that no Letter of Credit shall have an expiration date
subsequent to , June 30, 2002. The undrawn amount of all Letters
of Credit shall be reserved under the Line of Credit and shall
not be available for borrowings thereunder. Each Letter of
Credit shall be subject to the additional terms and conditions
of the Letter of Credit agreements, applications and any related
documents required by Bank in connection with the issuance
thereof. Each draft paid under a Letter of Credit shall be
deemed an advance under the Line of Credit and shall be repaid
by Borrower in accordance with the terms and conditions of this
Agreement applicable to such advances; provided however, that if
advances under the Line of Credit are not available, for any
reason, at the time any draft is paid, then Borrower shall
immediately pay to Bank the full amount of such draft, together
with interest thereon from the date such draft is paid to the
date such amount is fully repaid by Borrower, at the rate of
interest applicable to advances under the Line of Credit. to
such event Borrower agrees that Bank, in as sole discretion, may
debit any account maintained by Borrower with Bank for the
amount of any such draft,
(d) Borrowing and Repayment. Borrower may from time to time
during the tern of the Line of Credit borrow, partially or
wholly repay its outstanding borrowings, and reborrow, subject
to all of the limitations, terms and conditions contained herein
or in the Line of Credit Note;
provided, however, that the total outstanding borrowings under
the Line of Credit shaft not at any time exceed the maximum
principal amount available thereunder, as set forth above.
Notwithstanding the foregoing, Borrower shall maintain a zero
balance on advances under the Line of Credit for two dean-up
periods of at least thirty (30) consecutive days each during the
term of the Line of Credit.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line
of Credit shall bear interest as set forth in the Line of Credit
Note
(b) Prime Rate. The term "Prime Rate" shall mean at any
time the rate of interest most recently announced within Bank at
its principal office as its Prime Rate, with the understanding
that the Prime Rate is one of Bank's base rates and serves as
the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by
the recording thereof in such internal publication or
publications as Bank may designate. Each change in the rate of
interest shall become effective on the date each Prime Rate
change is announced within Bank.
(c) Computation and Payment. Interest shall be computed on
the basis of a 364-day year, actual days elapsed. interest shall
be payable at the times and place set forth in each promissory
note or other instrument required hereby.
(d) Restructuring Fee. Borrower shall pay to Bank a
non-refundable restructuring fee for the Line of Credit equal
to, which fee shall be due and payable m full upon execution and
delivery of this Agreement to Bank by Borrower (the
"Restructuring Fee').
(e) Unused Commitment Fee. Borrower shall pay to Bank a fee
equal to one quarter of one percent (.25%) per annum (computed
on the basis of a 360-day year. actual days elapsed) on the
average daily unused amount of the Line of Credit, which fee
shall be calculated on a monthly basis by Bank arid shall be due
and payable by Borrower in arrears on the fifteenth (15th) day
of each month.
(f) Letter of Credit Fees. Borrower shall pay to Bank fees
upon the issuance of each Letter of Credit, upon the payment or
negotiation of each draft under any Letter of Credit and upon
the occurrence of any other activity with respect to any Letter
of Credit (including without limitation. the transfer, amendment
or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect
for such activity.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to
collect all interest and fees due under each credit subject
hereto by charging Borrower's deposit account number 4159-334887
with Bank, or any other deposit account maintained by Borrower
with Bank, for the full amount thereof. Should there be
insufficient funds in any such deposit account to pay all such
sums when due, the full amount of such deficiency shall be
immediately due and payable by Borrower
SECTION 1.4. COLLATERAL. As security for all indebtedness of
Borrower to Bank subject hereto, Borrower hereby reaffirms its
prior grant and continues to grant to Bank security interests of
first priority in all Borrower's accounts receivable and other
rights to payment, general intangibles and inventory.
As further security for all indebtedness of Borrower to Bank
subject hereto, Borrower hereby grants to Bank security
interests of first priority in all Borrowers financial assets
and other investment property or assets, and all replacements or
substitutions therefor, held in Borrower's Account No. 487049800
with Wells Fargo Investments, LLC or any successor account
thereof (the `Securities Account').
Ail of the foregoing shall be evidenced by and subject to the
terms of such security agreements, financing statements, deeds
of trust and other documents as Bank shall reasonably require,
all in form and substance satisfactory to Bank. Borrower shall
reimburse Bank immediately upon demand for all costs and
expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and
recording fees and costs of appraisals, audits and title
insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to
Bank, which representations and warranties shall survive the
execution of this Agreement and shall continue in full force and
effect until the full and final payment, and satisfaction and
discharge, of all obligations of Borrower to Bank subject to
this Agreement.
SECTION 2.1. LEGAL STATUS. Borrower is a corporation, duly
organized and existing and in good standing under the laws of
the State of California, and is qualified or licensed to do
business (and is in good standing as a foreign corporation, if
applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on
Borrower
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each
promissory note. contract. instrument and other document
required hereby or at any time hereafter delivered to Bank in
connection herewith (collectively, the "Loan Documents") have
been duly authorized, and upon their execution and delivery in
accordance with the provisions hereof will constitute legal,
valid and binding agreements and obligations of Borrower or the
party which executes the same, enforceable in accordance with
their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and
performance by Borrower of each of the Loan Documents do not
violate any provision of any law or regulation, or contravene
any provision of the Articles of Incorporation or By-Laws of
Borrower, or result in any breach of or default under any
contract, obligation, indenture or other instrument to which
Borrower is a party or by which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims,
investigations, suits or proceedings by or before any
governmental authority, arbitrator, court or administrative
agency which cold have a material adverse effect on the
financial condition or operation of Borrower other than those
disclosed by Borrower to Bank in writing prior to the date
hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of Borrower dated January 31, 2001, a true copy of
which has been delivered by Borrower to Bank prior to the date
hereof, (a) is complete and correct and presents fairly the
financial condition of Borrower, (b) discloses all liabilities
of Borrower that are required to be reflected or reserved
against under generally accepted accounting principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has
been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such
financial statement there has been no material adverse change in
the financial condition of Borrower, nor has Borrower mortgaged,
pledged, granted a security interest in or otherwise encumbered
any of its assets or properties except in favor of Bank or as
otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of
any pending assessments or adjustments of its income tax payable
with respect to any year
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which
Borrower may be bound that requires the subordination m right of
payment of any of Borrowers obligations subject to this
Agreement to any other obligation of Borrower
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses. and will
hereafter possess, all permits, consents, approvals, franchises
and licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable it to
conduct the business in which it is now engaged in compliance
with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material
respects with all applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended or recodified
from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as
defined in ERISA) maintained or contributed to by Borrower
(each, a "Plan"); no Reportable Event as defined in ERISA has
occurred and is continuing with respect to any Plan initiated by
Borrower: Borrower has met as minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to
fulfill its benefit obligations as they come due in accordance
with the Plan documents and under generally accepted accounting
principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on
any obligation for borrowed money, any purchase money obligation
or any other material lease. commitment, contract, instrument or
obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by
Borrower to Bank in writing prior to the date hereof, Borrower
is in compliance in all material respects with all applicable
federal or state environmental, hazardous waste, health and
safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations
and/or properties, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of
1986, the Federal Resource Conservation and Recovery Act of
1976, and the Federal Toxic Substances Control Act, as any of
the same may be amended, modified or supplemented from time to
time. None of the operations of Borrower is the subject of any
federal or state investigation evaluating whether any remedial
action involving a material expenditure is needed to respond to
a release of any toxic or hazardous waste or substance into the
environment. Borrower has no material contingent liability in
connection with any release of any toxic or hazardous waste or
substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT - This
Agreement and the Bank's obligation to grant any of the Credits
shall not be effective until the first business day that all of
the following conditions have been satisfied, as determined by
Bank in its sole discretion (the 'Effective Date'), which shall
occur no later than the dose of business on Friday, June 22,
2001:
(a) Approval of Bank Counsel. All legal matters incidental to
the extension of credit by Bank shall be satisfactory to Bank's
counsel.
(b) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly
executed.
This Agreement and the Line of Credit Note, Security Agreement,
Security Account and Addendum. Securities Account Control
Agreement. Such other documents as Bank may require under any
other Section of this Agreement.
(b) Restructuring Fee- Bank shall have received the
Restructuring Fee in immediately available funds, which shall be
deemed fully earned upon receipt.
(c) Securities Account. Borrower shall have opened the
Securities Account and shah have deposited marketable securities
and cash equivalents into the Securities Account such that the
Collateral Value is equal to or greater than one hundred percent
(100%) of the outstanding indebtedness under the Line of Credit
as of the Effective Date.
(d) Other Fees and Costs. In addition to Borrower's obligations
under the Agreement and the other Loan Documents, Borrower shall
reimburse Bank immediately upon demand for all costs and
expenses, including reasonable attorneys' fees (including the
allocated costs of Bank's in-house counsel) expended or incurred
by bank in connection with the negotiation and preparation of
this Agreement.
(e) Financial Condition. There shall have been no material
adverse change, as determined by Bank, in the financial
condition or business of Borrower, nor any material decline, as
determined by Bank, in the market value of any collateral
required hereunder or a substantial or material portion of the
assets of Borrower.
(f) Insurance. Borrower shall have delivered to Bank evidence
of insurance coverage on all Borrowers property, in form,
substance, amounts, covering risks and issued by companies
satisfactory to Bank, and where required by Bank, with loss
payable endorsements in favor of Bank
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested by
Borrower hereunder shall be subject to the fulfillment to Bank's
satisfaction of each of the following conditions:
(a) Compliance. The representations and warranties contained
herein and in each of the other Loan Documents shall be true on
and as of the date of the signing of this Agreement and on the
date of each extension of credit by Bank pursuant hereto, with
the same effect as though such representations and warranties
had been made on and as of each such date, and an each such
date, no Event of Default as defined herein, and no condition,
event or act which with the giving of notice or the passage of
time or both would constitute such an Event of Default, shall
have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional
documents which may be required in connection with such
extension of credit.
ARTICLE IV
AFFIRMATIVE COVERTS
Borrower covenants that so long as Bank remains committed to
extend credit to Borrower pursuant hereto, or any liabilities
(whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain
outstanding, and until payment in full of all obligations of
Borrower subject hereto, Borrower shall, unless Bank otherwise
consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan
Documents at the times and place and in the manner specified
therein. and immediately upon demand by Bank, the amount by
which the outstanding principal balance of any credit subject
hereto at any time exceeds any limitation on borrowings
applicable thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and
records in accordance with generally accepted accounting
principles consistently applied, and permit any representative
of Bank, at any reasonable time, to inspect, audit and examine
such books and records, to make copies of the same, and to
inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each
fiscal year, an audited consolidated financial statement of
Borrower, prepared by an independent certified public accountant
acceptable to Bank, to include a balance sheet, income
statement, statement of cash flow and application of funds
statement;
(b)not later than 60 days after and as of the end of each fiscal
year, an annual consolidating financial statement of Borrower,
prepared by Borrower, to include a balance sheet, income
statement, statement of cash flow and application of funds
statement.
(c)not later than 45 days after and as of the end of each
quarter, consolidated and consolidating financial statements of
Borrower, prepared by Borrower, to include a balance sheet and
income statement, together with a certificate of the president
or chief financial officer of Borrower which shall contain the
covenant calculations and a statement that said financial
statements are accurate and that there exists no default
hereunder nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute a
default;
(d) not later than 30 days prior to the commencement of each of
Borrowers fiscal years, annual financial projections, broken
down by month, prepared by Borrower;
(e) not later than 15 days after and as of the end of each
month, a borrowing base certificate, an inventory collateral
report, an aged listing of accounts receivable and accounts
payable, a reconciliation of accounts, and an account statement
for the Securities Account; and
(f)from time to time such other information as Bank may
reasonably request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and
franchises necessary for the conduct of its business, and comply
with the provisions of all documents pursuant to which Borrower
is organized and/or which govern Borrowers continued existence
and with the requirements of all laws, rules. regulations and
orders of any governmental authority applicable to Borrower
and/or its business
SECTION 4.5. INSURANCE- Maintain and keep in force insurance of
tire types and in amounts customarily carted in lines of
business similar to that of Borrower, including but not limited
to fire, extended coverage, public liability, Rood, property
damage and workers' compensation, with all such insurance
carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules
setting forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary
to Borrowers business in good repair and condition, and from
time to time make necessary repairs, renewals and replacements
thereto so that such properties shag be fully and efficiently
preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES- Pay and discharge when
due any and all indebtedness, obligations, assessments and
taxes, both real or personal, including without limitation
federal and state income taxes and state and local property
taxes and assessments, except such (a) as Borrower may in good
faith contest or as to which a bona fide dispute may arise, and
(b) for which Borrower has made provision, to Bank's
satisfaction, for eventual payment thereof in the event Borrower
is obligated to make such payment
SECTION 4.8. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting
principles consistently applied and used consistently with prior
practices (except to the extent modified by the definitions
herein)
(a) Current Ratio not at any time less than 1.1 to 1 .0, with
"Current Ratio" defined as total current assets divided by total
current liabilities
(b) Tangible Net Worth not at any time less than $9,000,000.00,
with "Tangible Net Worth" defined as the aggregate of total
stockholders' equity plus subordinated debt less any intangible
assets.
(c)Total Liabilities divided by Tangible Net Worth not at any
time greater than 2.0 to 1 .0, with "Total Liabilities" defined
as the aggregate of current liabilities and non-current
liabilities less subordinated debt, and with "Tangible Net
Worth" as defined above
SECTION 4.9 NOTICE TO BANK. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter)
give written notice to Bank in reasonable detail of: (a) the
occurrence of any Event of Default, or any condition, event or
act which with the giving of notice or the passage of time or
both would constitute an Event of Default; (b) any change in the
name or the organizational structure of Borrower; (c) the
occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency
with respect to any Plan; or (d) any termination or cancellation
of any insurance policy which Borrower is required to maintain,
or any uninsured or partially uninsured loss through liability
or property damage, or through fire, theft or any other cause
affecting Borrowers property.
ARTICLE V
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains
committed to extend credit to Borrower pursuant hereto, or any
liabilities (whether direct or contingent, liquidated or
unliquidated) of Borrower to Bank under any of the Loan
Documents remain outstanding, and until payment in full of all
obligations of Borrower subject hereto, Borrower will not
without Bank's prior written consent
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit
extended hereunder except for the purposes stated in Article I
hereof.
SECTION 5.2. OTHER INDEBTEDNESS. Create, incur, assume or permit
to exist any indebtedness or liabilities resulting from
borrowings, loans or advances, whether secured or unsecured,
matured or unmatured, liquidated or unliquidated, joint or
several, except (a) the liabilities of Borrower to Bank, and (b)
any other liabilities of Borrower existing as of, and disclosed
to Bank prior to, the date hereof.
SECTION 5.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge
into or consolidate with any other entity; make any substantial
change in the nature of Borrower's business as conducted as of
the date hereof, acquire all or substantially all of the assets
of any other entity; nor sell, lease, transfer or otherwise
dispose of all or a substantial or material portion of Borrowers
assets except fn the ordinary course of its business
SECTION 5.4. GUARANTIES. Guarantee or become liable in any way
as surety, endorser (other than as endorser of negotiable
instruments for deposit or collection in the ordinary course of
business), accommodation endorser or otherwise for, nor pledge
or hypothecate any assets of Borrower as security for, any
liabilities or obligations of any other person or entity, except
any of the foregoing in favor of Bank.
SECTION 5.5. LOANS, ADVANCES, INVESTMENTS. Make any loans or
advances to or investments in any person or entity. except any
of the foregoing existing as of, and disclosed to Bank prior to,
the date hereof
SECTION 5.6. DIVIDENDS, DISTRIBUTIONS. Declare or pay any
dividend or distribution either in cash, stock or any other
property on Borrower's stock now or hereafter outstanding, nor
redeem, retire, repurchase or otherwise acquire any shares of
any class of Borrower's stock now or hereafter outstanding. and
Borrower snail provide to Bank, upon request, any documentation
required by Bank to substantiate the appropriateness of amounts
paid or to be paid.
SECTION 5.7_ PLEDGE OF ASSETS- Mortgage, pledge, grant or permit
to exist a security interest in, or hen upon, all or any portion
of Borrowers assets now owned or hereafter acquired, except any
of the foregoing in favor of Bank or which is existing as of,
and disclosed to Bank in writing prior to, the date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest,
fees or other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by
Borrower or any other party under this Agreement or airy other
Loan Document shall prove to be incorrect- false or misleading
in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in
any other Loan Document (other than those referred to in
subsections (a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall
continue for a period of twenty (28) days from its occurrence.
(d) Any default in the payment or performance of any obligation,
or any defined event of default, under the terms of any contract
or instrument (other than any of the Loan Documents) pursuant to
which Borrower has incurred any debt or other liabilities to any
person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or
the recording of any abstract of judgment against Borrower in
any county in which Borrower has an interest in real property:
or the service of a notice of levy and/or of a writ of
attachment or execution, or other like process, against the
assets of Borrower, or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent
to or apply for the appointment of a receiver, trustee.
custodian or liquidator of itself or any of its property, or
shall generally fail to pay its debts as they become due. or
shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time ("Bankruptcy Code"). or
under any state or federal law granting relief to debtors,
whether now or hereafter in effect; or any involuntary petition
or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy,
reorganization or other relief for debtors is filed or commenced
against Borrower, or Borrower shall file an answer admitting the
jurisdiction of the court and the material allegations of any
involuntary petition: or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against
Borrower by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or federal law
relating to bankruptcy, reorganization or other relief for
debtors.
(g) There shall exist or occur any event or condition which Bank
in good faith believes impairs, or is substantially likely to
impair, the prospect of payment or performance by Borrower of
its obligations under any of the Loan Documents.
(h) The dissolution or liquidation of Borrower, or any of it
directors, stockholders or members shall take action seeking to
effect the dissolution or liquidation of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of
Default: (a) all indebtedness of Borrower under each of the Loan
Documents, any term thereof to the contrary notwithstanding,
shall at Bank's option and without notice become immediately due
and payable without presentment, demand, protest or notice of
dishonor, all of which are hereby expressly waived by each
Borrower; (b) the obligation, if any, of Bank to extend any
further credit under any of 'the Loan Documents shaft
immediately cease and terminate; and (c) Bank shall have all
rights, powers and remedies available under each of the Loan
Documents, or accorded by law, including without limitation the
right to resort to any or all security for any credit subject
hereto and to exercise any or all of the rights of a beneficiary
or secured party pursuant to applicable law All rights, powers
and remedies of Bank may be exercised at any time by Bank and
from time to time after the occurrence of aft Event of Default,
are cumulative and not exclusive, and shall be in addition to
any other rights, powers or remedies provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER- No delay, failure or discontinuance of
Bank in exercising any right, power or remedy under any of the
Loan Documents shall affect or operate as a waiver of such
right, power or remedy; nor shall any single or partial exercise
of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of
any other right, power of remedy. Any waiver, permit, consent or
approval of any kind by Bank of any breach of or default under
any of the Loan Documents must be in writing and shall be
effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which
any party is required or may desire to give to any other party
under any provision of this Agreement must be in writing
delivered to each party at the following address:
BORROWER: KIT MANUFACTURING COMPANY
530 E. Wardlow Road
Long Beach. CA 90801
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
333 So. Grand Avenue, 9th Floor
Los Angeles, CA 90071
Attention: Razia Damji, Vice President
or to such other address as any party may designate by written
notice to all other parties Each such notice, request and demand
shall be deemed given or made as follows: (a) if sent by hand
delivery, upon delivery; (b) if sent by mail, upon the earlier
of the date of receipt or three (3) days after deposit in the
U.S. mail, first class and postage prepaid: and (c) if sent by
telecopy, upon receipt
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall
pay to Bank immediately upon demand the full amount of all
payments, advances, charges, costs and expenses. Including
reasonable attorneys' fees (to include outside counsel fees and
all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and
preparation of this Agreement and the other Loan Documents,
Bank's continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto,
(b) the enforcement of Bank's rights and/or the collection of
any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in
arty way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred
at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in
connection with any bankruptcy proceeding (including without
limitation, any adversary probing. contested matter or motion
brought by Bank or any other person) relating to any Borrower or
any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of
the parties; provided however, that Borrower may not assign or
transfer its interest hereunder without Bank's prior written
consent. Bank reserves the right to sell. assign, transfer,
negotiate or grant participations in all or any part of, or any
interest in. Bank's rights and benefits under each of the Loan
Documents. In connection therewith, Bank may disclose all
documents and information which Bank now has or may hereafter
acquire relating to any credit subject hereto, Borrower or its
business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT: AMENDMENT. This Agreement and the
other Loan Documents constitute the entire agreement between
Borrower and Bank with respect to each credit subject hereto and
supersede all prior negotiations, communications. discussions
and correspondence concerning the subject matter hereof- This
Agreement may be amended or modified only in writing signed by
each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is
made and entered into for the sole protection and benefit of the
parties hereto and their respective permitted successors and
assigns, and no other person or entity shall be a third party
beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of tile
Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every
provision of this Agreement and each other of the Loan
Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS- if any provision of
this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity without invalidating
the remainder of such provision or any remaining provisions of
this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and
delivered shall be deemed to be an original, and all of which
when taken together shall constitute one and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of
California.
SECTION 7.11. ARBITRATION
(a) Arbitration. The pansies hereto agree, upon demand by
any party, to submit to binding arbitration all claims, disputes
and controversies between or among them (and their respective
employees, officers, directors, attorneys. and other agents),
whether in tort, contract or otherwise arising out of or
relating to in any way (i) the loan and related Loan Documents
which are the subject of this Agreement and its negotiation,
execution. collateralization. administration, repayment,
modification, extension, substitution, formation, inducement.
enforcement, default or termination; or (ii) requests for
additional credit.
(b) Governing Rules. Any arbitration proceeding will (i)
proceed in a location in California selected by the American
Arbitration Association ('AAA'); (ii) be governed by the Federal
Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any
of the documents between the parties; and (iii) be conducted by
the AAA. or such other administrator as the parties shall
mutually agree upon, in accordance with the AAA's commercial
dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration snail
tie conducted in accordance with the AAA's optional procedures
for large, complex commercial disputes (the commercial dispute
resolution procedures or the optional procedures for large,
complex commercial disputes to be referred to, as applicable, as
the 'Rules'). If there is any inconsistency between the terms
hereof and the Rules, the terms and procedures set forth herein
shall control. Any party who fails or refuses to submit to
arbitration following a demand by any other party shall bear all
costs and expenses incurred by such other party in compelling
arbitration of any dispute- Nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the
protections afforded to it under 12 U.S.C. 91 or any similar
applicable state law.
(c) No Waiver of Provisional Remedies, Said Help and
Foreclosure. The arbitration requirement does not limit the
right of any party to (i) foreclose against real or personal
property collateral; (ii) exercise self-help remedies relating
to collateral or proceeds of collateral such as setoff or
repossession; or (iii) obtain provisional or ancillary remedies
such as replevin, injunctive relief, attachment or the
appointment of a receiver, before during or after the pendency
of any arbitration proceeding. This exclusion does not
constitute a waiver of the right or obligation of any party to
submit any dispute to arbitration or reference hereunder,
including those arising from the exercise of the actions
detailed in sections (i), (ii) and (iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration
proceeding in which the amount in controversy is $5,000,000.00
or less will be decided by a single arbitrator selected
according to the Rules, and who shall not render an award of
greater than $5,000.000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority
vote of a panel of three arbitrators; provided however, that all
three arbitrators must actively participate in all hearings and
deliberations. The arbitrator will be a neutral attorney
licensed in the State of California or a neutral retired judge
of the state or federal judiciary of California, in either case
with a minimum of ten years experience in the substantive law
applicable to the subject matter of the dispute to be
arbitrated. The arbitrator will determine whether or not an
issue is arbitratable and will give effect to the statutes of
limitation in determining any claim. In any arbitration
proceeding the arbitrator will decade (by documents only or with
a hearing at the arbitrator's discretion) any pre-hearing
motions which are similar to motions to dismiss for failure to
state a claim or motions for summary adjudication. The
arbitrator shall resolve all disputes in accordance with the
substantive law of California and may grant any remedy or relief
that a court of such state could order or grant within the scope
hereof and such ancillary relief as is necessary to make
effective any award- The arbitrator shall also have the power to
award recovery of all costs and fees, to impose sanctions and to
take such other action as the arbitrator deems necessary to the
same extent a judge could pursuant to the Federal Rules of Civil
Procedure, the California Rules of Civic Procedure or other
applicable law. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction- The
institution and maintenance of an action for judicial relief or
pursuit of a provisional or ancillary remedy shall not
constitute a waiver of the right of any party, including the
plaintiff, to submit Me controversy or claim to arbitration if
any other party contests such action for judicial relief.
(e) Discovery. in any arbitration proceeding discovery will
be permitted in accordance with the Rules. Ail discovery shall
be expressly limited to matters directly relevant to the dispute
being arbitrated and must be completed no later than 20 days
before the hearing date and within 180 days of the filing of the
dispute with the AAA. Any requests for an extension of the
discovery periods, or any discovery disputes, will be subject to
final determination by the arbitrator upon a showing that the
request for discovery is essential for the party's presentation
and that no alternative means for obtaining information is
available.
(f) Class Proceedings and Consolidations. The resolution of
any dispute arising pursuant to the terms of this Agreement
shall be determined by a separate arbitration proceeding and
such dispute shall not be consolidated with other disputes or
included in any class proceeding.
(g) Payment Of Arbitration Costs And Fees. The arbitrator
shall award all costs arid expenses of the arbitration
proceeding.
(h) Real Property Collateral: Judicial Reference.
Notwithstanding anything herein to the contrary, no dispute
shall be submitted to arbitration if the dispute concerns
indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holier of the
mortgage, lien or security interest specifically elects in
writing to proceed with the arbitration, or (ii) all parties to
the arbitration waive any rights or benefits that might accrue
to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and
obligations of the parties. and all mortgages, liens and
security interests securing such indebtedness and obligations,
shall remain fully valid and enforceable. If any such dispute is
not submitted to arbitration, the dispute shall be referred to a
referee in accordance with California Code of Civil Procedure
Section 638 et seq., and this general reference agreement is
intended to be specifically enforceable in accordance with said
Section 638. A referee with the qualifications required herein
for arbitrators shall be selected pursuant to the AAA's
selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding
was commenced in accordance with California Code of Civil
Procedure Sections 644 and 645.
(i) Miscellaneous. To the maximum extent practicable, the
AAA, the arbitrators and the parties snail take all action
required to conclude any arbitration proceeding within 180 days
of the fling of the dispute with the AAA. No arbitrator or other
party to an arbitration proceeding may disclose the existence,
content or results thereof, except for disclosures of
information by a party required in the ordinary course of its
business or by applicable law or regulation. If more than one
agreement for arbitration by or between the parties potentially
applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the
dispute shall control. This arbitration provision shall survive
termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.
SECTION 7.12. GENERAL RELEASE. In consideration of the benefits
provided to Borrower under the terms and provisions hereof,
Borrower hereby agrees as follows ("General Release"):
(a)Borrower, for itself and on behalf of its successors and
assigns, does hereby release, acquit and forever discharge Bank,
all of Bank's predecessors in interest, and all of Bank's past
and present officers, directors, attorneys, affiliates,
employees and agents, of and from any and all claims, demands,
obligations, liabilities. indebtedness, breaches of contract,
breaches of duty or of any relationship, acts, omissions,
misfeasance, malfeasance, causes of action, defenses, offsets,
debts, sums of money, accounts, compensation. contracts,
controversies, promises. damages, costs, losses and expenses, of
every type, kind, nature, description or character, whether
known or unknown, suspected or unsuspected, liquidated or
unliquidated, each as though fully set forth herein at length
(each, a "Released Claim" and collectively, the "Released
Claims"), that Borrower now has or may acquire as of the later
of- (i) the date this Agreement becomes effective through the
satisfaction (or waiver by Bank) of all conditions hereto: (ii)
the date that Borrower has executed and delivered this Agreement
to Bank (hereafter, the "Release Date"), including without
limitation, those Released Claims in any way arising out of,
connected with or related to any and ail prior credit
accommodations, if any, provided by Bank, or any of Bank's
predecessors in interest, to Borrower, and any agreements, notes
or documents of any kind related thereto or the transactions
contemplated thereby or hereby, or any other agreement or
document referred to herein or therein.
(b)Borrower hereby acknowledges, represents and warrants to Bank
as follows:
(i)Borrower understands the meaning and effect of Section 1542
of the California
Civil Code which provides;
"Section 1542. GENERAL RELEASE. EXTENT. A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
(ii) With regard to Section 1542 of the California Civil Code.
Borrower agrees to assume the risk of any and all unknown,
unanticipated or misunderstood defenses and Released Claims
which are released by the provisions of this General Release in
favor of Bank, and Borrower hereby waives and releases all
rights and benefits which it might otherwise have under Section
1542 of the California Civil Code with regard to the release of
such unknown, unanticipated or misunderstood defenses and
Released Claims.
(c) Each person signing below on behalf of Borrower acknowledges
that he or she has read each of the provisions of this General
Release- Each such person fully understands that this General
Release has important legal consequences and each such person
realizes that they are releasing any and all Released Claims
that Borrower may have as of the Release Date. Borrower hereby
acknowledges that it has had an opportunity to obtain a lawyer's
advice concerning the legal consequences of each of the
provisions of this General Release
(d) Borrower hereby specifically acknowledges and agrees that:
(i) none of the provisions of this General Release shall be
construed as or constitute an admission of any liability on the
part of Bank: (ii) the provisions of this General Release snail
constitute an absolute tsar to any Released Claim of any kind,
whether any such Released Claim is based on contract, tort.
warranty, mistake or any other theory, whether legal, statutory
or equitable; and (iii) any attempt to assert a Released Claim
barred by the provisions of this General Release shall subject
Borrower to the provisions of applicable law setting forth the
remedies for the bringing of groundless, frivolous or baseless
claims or causes of action.
7. 13 WAIVER OF EXISTING DEFAULTS Subject to the terms and
conditions set forth in this Agreement, Bank hereby waives the
Existing Defaults. This waiver applies only to the Existing
Defaults. It is not a waiver of any subsequent breach of the
same provisions of this Agreement. nor is it a waiver of any
breach of any other provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the City arid year first written
above.
KIT MANUFACTURING COMPANY
By: /s/ Bruce K. Skinner
Title: Vice President and Treasurer
WELLS FARGO BANK,
NATIONAL ASSOCIATION,
By: /s/ Razia Damji
Title: Vice President/Principal
EXHIBIT A
REVOLVING LINE OF CREDIT NOTE
Long Beach. California
June 12, 2001
FOR VALUE RECEIVED, the undersigned KIT MANUFACTURING COMPANY
("Borrower") promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at 333 South Grand
Avenue, V Floor, Los Angeles, California, or at such other place
as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the
principal sum of Six Million Dollars ($6,000,000.00), or so much
thereof as may be advanced and be outstanding, with interest
thereon, to be computed on each advance from the date of it
disbursement as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this
Note shall bear interest (computed on the basis of a 360-day
year, actual days elapsed) at a rate per annum equal to the
Prime Rate in effect from time to time- The "Prime Rate" is a
base rate that Bank from time to time establishes arid which
serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto. Each change
in the rate of interest hereunder shall became effective on the
date each Prime Rate change is announced within Bank
(b) Payment of interest. Interest accrued on this Note
shall be payable on the 15th day of each month, commencing ,
June 15, 2001.
(c) Default Interest- From and after the maturity date of
this Note, or such earlier date as all principal owing hereunder
becomes due and payable by acceleration or otherwise, the
outstanding principal balance of this Note shall bear interest
until paid in full at an increased rate per annum (computed on
the basis of a 360-day year. actual days elapsed) equal to four
percent (4%) above the rate of interest from time to time
applicable to this Note
BORROWING AND REPAYMENT
(a) Borrowing and Repayment. Borrower may from time to
time during the term of this Note borrow, partially or wholly
repay its outstanding borrowings, and reborrow, subject to all
of the limitations, terms and conditions of this Note and of any
document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount
stated above. The unpaid principal balance of this obligation at
any time shall be the total amounts advanced hereunder by the
holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon
from time to time by the holder. The outstanding principal
balance of this Note shall be due and payable in full on June
30, 2002.
(b) Advances- Advances hereunder, to the total amount of
the principal sum stated above, may be made by the holder at the
oral or written request of (i) Bruce Skinner or Bill Morgan, any
one acting alone, who are authorized to request advances and
direct the disposition of any advances until written notice of
the revocation of such authority is received by the holder at
the office designated above, or (ii) arty person, with respect
to advances deposited to the credit of any deposit account of
any Borrower, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of
each Borrower regardless of the fact that persons other than
those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to
determine whether any person requesting an advance is or has
been authorized by any Borrower.
(c) Application of Payments. Each payment made on this
Note shall be credited first, to any interest then due and
second, to the outstanding principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and
conditions of that certain Amended and Restated Credit Agreement
between Borrower and Bank dated as of June 12. 2001, as amended
from time to tame (the "Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or any
defined event of default under the Credit Agreement, shall
constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default,
the holder of this Note, at the holder's option, may declare all
sums of principal and interest outstanding hereunder to tie
immediately due and payable without presentment. demand, notice
of nonperformance, notice of protest, protest or notice of
dishonor, all of which are expressly waived by each Borrower,
and the obligation, if any, of the holder to extend any further
credit hereunder shall immediately cease and terminate Each
Borrower shall pay to the holder immediately upon demand the
full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the holder's
in-Mouse counsel), expended or incurred by the holder in
connection with the enforcement of then holders rights and/or
the collection of any amounts which become due to the holder
under this Note, and the prosecution or defense of any action in
any way related to this Note, including without limitation, any
action for declaratory relief, whether incurred at the trial or
appellate level. in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation. any
adversary proceeding, contested matter or motion brought by Bank
or any other person) relating to any Borrower or any other
person or entity
(b) Obligations Joint and Several. Should more than one
person or entity sign this Note as a Borrower, the obligations
of each such Borrower shall be joint and several.
(c) Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of California
This Revolving Line of Credit Note replaces and supersedes in
its entirety that certain Revolving Line of Credit Note dated
April 2, 2000 in the maximum principal amount of $4,500.000.00.
EXHIBIT A
IN WITNESS WHEREOF, the undersigned has executed this Note as of
the date first written above.
KIT MANUFACTURING COMPANY
By: /s/ Bruce K. Skinner
Title: Vice President and Treasurer
(A) 5. Schedule of First Amendment to Amended and Restated
Credit Agreement
EXHIBIT 10.5
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is entered into as of July 10, 2001, by and
between KIT MANUFACTURING COMPANY, a California corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
A. Borrower is currently indebted to Bank pursuant to the
terms and conditions of that certain Amended and Restated Credit
Agreement between Borrower and Bank dated as of June 12, 2001
("Credit Agreement").
B. Borrower and Bank wish to amend the Credit Agreement
to correct certain typographical errors contained therein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree that the Credit Agreement shall be amended as follows;
provided, however, that nothing shall terminate any security
interests in favor of Bank and all such security interests shall
remain in full force and effect.
1. Amendment to Section 1.4. Section 1.4 of the Credit
Agreement is hereby amended by replacing "Borrower's Account No.
487049800" in paragraph 1 thereof with "Borrower's Account No.
4870-9800."
2. Conditions Precedent. The obligation of Bank to amend
the terms and conditions of the Credit Agreement as provided
herein, shall not occur until the first business day that all of
the following conditions are satisfied to Bank's satisfaction,
which shall in no event occur later than July 20, 2001:
(a) Documentation. Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly
executed:
This Amendment executed by Borrower. Security Agreement:
Securities Account and Addendum. Securities Account Control
Agreement. Such other documents as Bank may require under any
other section of this Amendment.
(b) Other Fees and Costs. In addition to Borrower's
obligations under the Credit Agreement and the other Loan
Documents, Borrower shall reimburse bank immediately upon demand
for all costs and expenses, including reasonable attorneys' fees
(including the allocated costs of Bank's in-house counsel)
expended or incurred by bank in connection with the negotiation
and preparation of this Amendment.
3. Miscellaneous. Except as specifically provided herein,
all terms and conditions of the Credit Agreement remain in full
force and effect, without waiver or modification. All terms
defined in the Credit Agreement shall have the same meaning when
used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
4. Reaffirmation; Certification. Borrower hereby remakes
all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment
there exists no Event of Default as defined in the Credit
Agreement, nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute any
such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the day and year first written
above.
KIT MANUFACTURING COMPANY
By: /s/Bruce K. Skinner
Title: Vice President & Treasurer
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Razia Damji
Title: Vice President/Principal
SECURITY AGREEMENT: SECURITIES ACCOUNT
1. GRANT OF SECURITY INTEREST. For valuable
consideration, the undersigned KIT MANUFACTURING COMPANY, or any
of them ("Debtor"), hereby grants and transfers to WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank") a security interest in (a)
Debtor's Brokerage Account No.4870-9800 (whether held in
Debtor's name or as a Bank collateral account for the benefit of
Debtor), and all replacements or substitutions therefor,
including any account resulting from a renumbering or other
administrative re-identification thereof (collectively, the
"Securities Account") maintained with Wells Fargo Investments,
LLC ("Intermediary"), (b) all financial assets credited to the
Securities Account, (c) all security entitlements with respect
to the financial assets credited to the Securities Account, and
(d) any and all other investment property or assets maintained
or recorded in the Securities Account (with all the foregoing
defined as "Collateral"), together with whatever is receivable
or received when any of the Collateral or proceeds thereof are
sold, collected, exchanged or otherwise disposed of, whether
such disposition is voluntary or involuntary, including without
limitation, (i) all rights to payment, including returned
premiums, with respect to any insurance relating to any of the
foregoing, (ii) all rights to payment with respect to any cause
of action affecting or relating to any of the foregoing, and
(iii) all stock rights, rights to subscribe, stock splits,
liquidating dividends, cash dividends, dividends paid in stock,
new securities or other property of any kind which Debtor is or
may hereafter be entitled to receive on account of any
securities pledged hereunder, including without limitation,
stock received by Debtor due to stock splits or dividends paid
in stock or sums paid upon or in respect of any securities
pledged hereunder upon the liquidation or dissolution of the
issuer thereof (hereinafter called "Proceeds"). Except as
otherwise expressly permitted herein, in the event Debtor
receives any such Proceeds, Debtor will hold the same in trust
on behalf of and for the benefit of Bank and will immediately
deliver all such Proceeds to Bank in the exact form received,
with the endorsement of Debtor if necessary and/or appropriate
undated stock powers duly executed in blank, to be held by Bank
as part of the Collateral, subject to all terms hereof. As used
herein, the terms "security entitlement," "financial asset" and
"investment property" shall have the respective meanings set
forth in the California Uniform Commercial Code.
2. OBLIGATIONS SECURED. The obligations secured hereby
are the payment and performance of: (a) all present and future
Indebtedness of Debtor to Bank; (b) all obligations of Debtor
and rights of Bank under this Agreement; and (c) all present and
future obligations of Debtor to Bank of other kinds. The word
"Indebtedness" is used herein in its most comprehensive sense
and includes any and all advances, debts, obligations and
liabilities of Debtor, or any of them, heretofore, now or
hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due,
absolute or contingent, liquidated or unliquidated, determined
or undetermined, and whether Debtor may be liable individually
or jointly with others, or whether recovery upon such
Indebtedness may be or hereafter becomes unenforceable.
3. TERMINATION. This Agreement will terminate upon the
performance of all obligations of Debtor to Bank, including
without limitation, the payment of all Indebtedness of Debtor to
Bank, and the termination of all commitments of Bank to extend
credit to Debtor, existing at the time Bank receives written
notice from Debtor of the termination of this Agreement.
4. OBLIGATIONS OF BANK. Bank shall have no duty to take
any steps necessary to preserve the rights of Debtor against
prior parties, or to initiate any action to protect against the
possibility of a decline in the market value of the Collateral
or Proceeds. Bank shall not be obligated to take any action with
respect to the Collateral or Proceeds requested by Debtor unless
such request is made in writing and Bank determines, in its sole
discretion, that the requested action would not unreasonably
jeopardize the value of the Collateral and Proceeds as security
for the Indebtedness.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and
warrants to Bank that: (a) Debtor is the sole owner of the
Collateral and Proceeds; (b) Debtor has the right to grant a
security interest in the Collateral and Proceeds; (c) all
Collateral and Proceeds are genuine, free from liens, adverse
claims, setoffs, default, prepayment, defenses and conditions
precedent of any kind or character, except the lien created
hereby or as otherwise agreed to by Bank, or heretofore
disclosed by Debtor to Bank, in writing; (d) all statements
contained herein and, where applicable, in the Collateral, are
true and complete in all material respects; (e) no financing
statement or control agreement covering any of the Collateral or
Proceeds, and naming any secured party other than Bank, exists
or is on file in any public office or remains in effect; (f) no
person or entity, other than Debtor, Bank and Intermediary, has
any interest in or control over the Collateral; and (g)
specifically with respect to Collateral and Proceeds consisting
of investment securities, instruments, chattel paper, documents,
contracts, insurance policies or any like property, (i) all
persons appearing to be obligated thereon have authority and
capacity to contract and are bound as they appear to be, and
(ii) the same comply with applicable laws concerning form,
content and manner of preparation and execution.
6. COVENANTS OF DEBTOR.
(a) Debtor agrees in general: (i) to pay Indebtedness
secured hereby when due; (ii) to indemnify Bank against all
losses, claims, demands, liabilities and expenses of every kind
caused by property subject hereto; (iii) to pay all costs and
expenses, including reasonable attorneys' fees, incurred by Bank
in the perfection and preservation of the Collateral or Bank's
interest therein and/or the realization, enforcement and
exercise of Bank's rights, powers and remedies hereunder; (iv)
to permit Bank to exercise its powers; (v) to execute and
deliver such documents as Bank deems necessary to create,
perfect and continue the security interests contemplated hereby;
and (vi) not to change its chief place of business (or personal
residence, if applicable) or the places where Debtor keeps any
of Debtor's records concerning the Collateral and Proceeds
without first giving Bank written notice of the address to which
Debtor is moving same.
(b) Debtor agrees with regard to the Collateral and
Proceeds, unless Bank agrees otherwise in writing: (i) not to
permit any security interest in or lien on the Collateral or
Proceeds, except in favor of Bank and except liens in favor of
Intermediary to the extent expressly permitted by Bank in
writing; (ii) not to hypothecate or permit the transfer by
operation of law of any of the Collateral or Proceeds or any
interest therein; (iii) to keep, in accordance with generally
accepted accounting principles, complete and accurate records
regarding all Collateral and Proceeds, and to permit Bank to
inspect the same and make copies thereof at any reasonable time;
(iv) if requested by Bank, to receive and use reasonable
diligence to collect Proceeds, in trust and as the property of
Bank, and to immediately endorse as appropriate and deliver such
Proceeds to Bank daily in the exact form in which they are
received together with a collection report in form satisfactory
to Bank; (v) in the event Bank elects to receive payments of
Proceeds hereunder, to pay all expenses incurred by Bank in
connection therewith, including expenses of accounting,
correspondence, collection efforts, filing, recording, record
keeping and expenses incidental thereto; (vi) to provide any
service and do any other acts which may be necessary to keep all
Collateral and Proceeds free and clear of all defenses, rights
of offset and counterclaims; and (vii) if the Collateral or
Proceeds consists of securities and so long as no Event of
Default exists, to vote said securities and to give consents,
waivers and ratifications with respect thereto, provided that no
vote shall be cast or consent, waiver or ratification given or
action taken which would impair Bank's interests in the
Collateral and Proceeds or be inconsistent with or violate any
provisions of this Agreement. Debtor further agrees that any
party now or at any time hereafter authorized by Debtor to
advise or otherwise act with respect to the Securities Account
shall be subject to all terms and conditions contained herein
and in any control, custodial or other similar agreement at any
time in effect among Bank, Debtor and Intermediary relating to
the Collateral.
7. POWERS OF BANK. Debtor appoints Bank its true
attorney in fact to perform any of the following powers, which
are coupled with an interest, are irrevocable until termination
of this Agreement and may be exercised from time to time by
Bank's officers and employees, or any of them, whether or not
Debtor is in default: (a) to perform any obligation of Debtor
hereunder in Debtor's name or otherwise; (b) to notify any
person obligated on any security, instrument or other document
subject to this Agreement of Bank's rights hereunder; (c) to
collect by legal proceedings or otherwise all dividends,
interest, principal or other sums now or hereafter payable upon
or on account of the Collateral or Proceeds; (d) to enter into
any extension, reorganization, deposit, merger or consolidation
agreement, or any other agreement relating to or affecting the
Collateral or Proceeds, and in connection therewith to deposit
or surrender control of the Collateral and Proceeds, to accept
other property in exchange for the Collateral and Proceeds, and
to do and perform such acts and things as Bank may deem proper,
with any money or property received in exchange for the
Collateral or Proceeds, at Bank's option, to be applied to the
Indebtedness or held by Bank under this Agreement; (e) to make
any compromise or settlement Bank deems desirable or proper in
respect of the Collateral and Proceeds; (f) to insure, process
and preserve the Collateral and Proceeds; (g) to exercise all
rights, powers and remedies which Debtor would have, but for
this Agreement, with respect to all Collateral and Proceeds
subject hereto; and (h) to do all acts and things and execute
all documents in the name of Debtor or otherwise, deemed by Bank
as necessary, proper and convenient in connection with the
preservation, perfection or enforcement of its rights hereunder.
To effect the purposes of this Agreement or otherwise upon
instructions of Debtor, or any of them, Bank may cause any
Collateral and/or Proceeds to be transferred to Bank's name or
the name of Bank's nominee. If an Event of Default has occurred
and is continuing, any or all Collateral and/or Proceeds
consisting of securities may be registered, without notice, in
the name of Bank or its nominee, and thereafter Bank or its
nominee may exercise, without notice, all voting and corporate
rights at any meeting of the shareholders of the issuer thereof,
any and all rights of conversion, exchange or subscription, or
any other rights, privileges or options pertaining to such
Collateral and/or Proceeds, all as if it were the absolute owner
thereof. The foregoing shall include, without limitation, the
right of Bank or its nominee to exchange, at its discretion, any
and all Collateral and/or Proceeds upon the merger,
consolidation, reorganization, recapitalization or other
readjustment of the issuer thereof, or upon the exercise by the
issuer thereof or Bank of any right, privilege or option
pertaining to any shares of the Collateral and/or Proceeds, and
in connection therewith, the right to deposit and deliver any
and all of the Collateral and/or Proceeds with any committee,
depository, transfer agent, registrar or other designated agency
upon such terms and conditions as Bank may determine. All of the
foregoing rights, privileges or options may be exercised without
liability on the part of Bank or its nominee except to account
for property actually received by Bank. Bank shall have no duty
to exercise any of the foregoing, or any other rights,
privileges or options with respect to the Collateral or Proceeds
and shall not be responsible for any failure to do so or delay
in so doing.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND
ASSESSMENTS. Debtor agrees to pay, prior to delinquency, all
insurance premiums, taxes, charges, liens and assessments
against the Collateral and Proceeds, and upon the failure of
Debtor to do so, Bank at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and
the amount necessary to discharge the same. Any such payments
made by Bank shall be obligations of Debtor to Bank, due and
payable immediately upon demand, together with interest at a
rate determined in accordance with the provisions of Section 15
hereof, and shall be secured by the Collateral and Proceeds,
subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the
following shall constitute an "Event of Default" under this
Agreement: (a) any default in the payment or performance of any
obligation, or any defined event of default, under (i) any
contract or instrument evidencing any Indebtedness, (ii) any
other agreement between any Debtor and Bank, including without
limitation any loan agreement, relating to or executed in
connection with any Indebtedness, or (iii) any control,
custodial or other similar agreement in effect among Bank,
Debtor and Intermediary relating to the Collateral; (b) any
representation or warranty made by any Debtor herein shall prove
to be incorrect, false or misleading in any material respect
when made; (c) any Debtor shall fail to observe or perform any
obligation or agreement contained herein; (d) any attachment or
like levy on any property of any Debtor; and (e) Bank, in good
faith, believes any or all of the Collateral and/or Proceeds to
be in danger of misuse, dissipation, commingling, loss, theft,
damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of
Default, Bank shall have the right to declare immediately due
and payable all or any Indebtedness secured hereby and to
terminate any commitments to make loans or otherwise extend
credit to Debtor. Bank shall have all other rights, powers,
privileges and remedies granted to a secured party upon default
under the California Uniform Commercial Code or otherwise
provided by law, including without limitation, the right to
contact Intermediary and to instruct Intermediary to deliver all
Collateral and/or Proceeds directly to Bank. All rights, powers,
privileges and remedies of Bank shall be cumulative. No delay,
failure or discontinuance of Bank in exercising any right,
power, privilege or remedy hereunder shall affect or operate as
a waiver of such right, power, privilege or remedy; nor shall
any single or partial exercise of any such right, power,
privilege or remedy preclude, waive or otherwise affect any
other or further exercise thereof or the exercise of any other
right, power, privilege or remedy. Any waiver, permit, consent
or approval of any kind by Bank of any default hereunder, or any
such waiver of any provisions or conditions hereof, must be in
writing and shall be effective only to the extent set forth in
writing. It is agreed that public or private sales, for cash or
on credit, to a wholesaler or retailer or investor, or user of
property of the types subject to this Agreement, or public
auction, are all commercially reasonable since differences in
the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and
credit risks of such sales. While an Event of Default exists:
(a) Debtor will not dispose of any of the Collateral or Proceeds
except on terms approved by Bank; (b) Bank may appropriate the
Collateral and apply all Proceeds toward repayment of the
Indebtedness in such order of application as Bank may from time
to time elect; (c) Bank may take any action with respect to the
Collateral contemplated by any control, custodial or other
similar agreement then in effect among Bank, Debtor and
Intermediary; and (d) at Bank's request, Debtor will assemble
and deliver all books and records pertaining to the Collateral
or Proceeds to Bank at a reasonably convenient place designated
by Bank. For any Collateral or Proceeds consisting of
securities, Bank shall have no obligation to delay a sale of any
portion thereof for the period of time necessary to permit the
issuer thereof to register such securities for public sale under
any applicable state or Federal law, even if the issuer thereof
would agree to do so.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the
transfer of all or any part of the Indebtedness, Bank may
transfer all or any part of the Collateral or Proceeds and shall
be fully discharged thereafter from all liability and
responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights
and powers of Bank hereunder with respect to any of the
foregoing so transferred; but with respect to any Collateral or
Proceeds not so transferred, Bank shall retain all rights,
powers, privileges and remedies herein given. Any proceeds of
any disposition of any of the Collateral or Proceeds, or any
part thereof, may be applied by Bank to the payment of expenses
incurred by Bank in connection with the foregoing, including
reasonable attorneys' fees, and the balance of such proceeds may
be applied by Bank toward the payment of the Indebtedness in
such order of application as Bank may from time to time elect.
12. STATUTE OF LIMITATIONS. Until all Indebtedness shall
have been paid in full and all commitments by Bank to extend
credit to Debtor have been terminated, the power of sale and all
other rights, powers, privileges and remedies granted to Bank
hereunder shall continue to exist and may be exercised by Bank
at any time and from time to time irrespective of the fact that
the Indebtedness or any part thereof may have become barred by
any statute of limitations, or that the personal liability of
Debtor may have ceased, unless such liability shall have ceased
due to the payment in full of all Indebtedness secured
hereunder.
13. MISCELLANEOUS. (a) The obligations of Debtor are
joint and several; (b) Debtor waives any right (i) to require
Bank to make any presentment or demand, or give any notice of
nonpayment or nonperformance, protest, notice of protest or
notice of dishonor hereunder, (ii) to direct the application of
payments or security for any Indebtedness of Debtor, or
indebtedness of customers of Debtor, or (iii) to require
proceedings against others or to require exhaustion of security;
and (c) Debtor hereby consents to extensions, forbearances or
alterations of the terms of Indebtedness, the release or
substitution of security, and the release of any guarantors;
provided however, that in each instance, Bank believes in good
faith that the action in question is commercially reasonable in
that it does not unreasonably increase the risk of nonpayment of
the Indebtedness to which the action applies. Until all
Indebtedness shall have been paid in full, no Debtor shall have
any right of subrogation or contribution, and each Debtor hereby
waives any benefit of or right to participate in any of the
Collateral or Proceeds or any other security now or hereafter
held by Bank.
14. NOTICES. All notices, requests and demands required
under this Agreement must be in writing, addressed to Bank at
the address specified in any other loan documents entered into
between Debtor and Bank and to Debtor at the address of its
chief executive office (or personal residence, if applicable)
specified below or to such other address as any party may
designate by written notice to each other party, and shall be
deemed to have been given or made as follows: (a) if personally
delivered, upon delivery; (b) if sent by mail, upon the earlier
of the date of receipt or three (3) days after deposit in the
U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
15. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay
to Bank immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel), expended or
incurred by Bank in exercising any right, power, privilege or
remedy conferred by this Agreement or in the enforcement
thereof, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the
foregoing incurred in connection with any bankruptcy proceeding
(including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person)
relating to Debtor or in any way affecting any of the Collateral
or Bank's ability to exercise any of its rights or remedies with
respect thereto. All of the foregoing shall be paid by Debtor
with interest from the date of demand until paid in full at a
rate per annum equal to the greater of ten percent (10%) or the
Prime Rate in effect from time to time.
16. SUCCESSORS; ASSIGNS; AMENDMENT. This Agreement shall
be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and
assigns of the parties, and may be amended or modified only in
writing signed by Bank and Debtor.
17. OBLIGATIONS OF MARRIED PERSONS. Any married person who
signs this Agreement as Debtor hereby expressly agrees that
recourse may be had against his or her separate property for all
his or her Indebtedness to Bank secured by the Collateral and
Proceeds under this Agreement.
18. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating
the remainder of such provision or any remaining provisions of
this Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of
California.
20. ADDENDUM. Additional terms and conditions relating to
the Securities Account are set forth in an Addendum attached
hereto and incorporated herein by this reference.
21. REPLACEMENT OF PRIOR SECURITY AGREEMENT. This
Agreement replaces and supercedes in its entirety that certain
Security Agreement: Securities Account with Addendum executed by
Borrower in favor of Bank as of June 12, 2001.
Debtor warrants that its chief executive office (or personal
residence, if applicable) is located at the following address:
530 East Wardlow Road, Long Beach, California 90807.
IN WITNESS WHEREOF, this Agreement has been duly executed as of
July 10, 2001.
KIT MANUFACTURING COMPANY
Name: /s/Bruce K. Skinner
Title: Vice President & Treasurer
ADDENDUM TO SECURITY AGREEMENT: SECURITIES ACCOUNT
THIS ADDENDUM is attached to and made a part of that certain
Security Agreement: Securities Account executed by KIT
MANUFACTURING COMPANY ("Debtor") in favor of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank"), dated as of July 10, 2001 (the
"Agreement").
The following provisions are hereby incorporated into the
Agreement:
1. Securities Account Activity. So long as no Event of
Default exists, Debtor, or any party authorized by Debtor to act
with respect to the Securities Account, may (a) receive payments
of interest and/or cash dividends earned on financial assets
maintained in the Securities Account, and (b) trade financial
assets maintained in the Securities Account. Without Bank's
prior written consent, except as permitted by the preceding
sentence, neither Debtor nor any party other than Bank may
withdraw or receive any distribution of any Collateral from the
Securities Account. The Collateral Value (as defined in that
certain Amended and Restated Credit Agreement between Borrower
and Bank of even date herewith, as such may be amended or
modified from time to time, as the sum of the Securities Value
plus the A/R Value) shall at all times be equal to or greater
than one hundred percent (100%) of the outstanding principal
balance of the Indebtedness secured hereby. In the event that
the Collateral Value, for any reason and at any time, is less
than the required amount, Debtor shall promptly make a principal
reduction on the Indebtedness or deposit additional assets of a
nature satisfactory to Bank into the Securities Account, in
either case in amounts or with values sufficient to achieve the
required Collateral Value.
2."Securities Value" means the percentage set forth below for
each type of investment property held in the Securities Account
at the time of computation:
(a) 100% of the face amount of cash and cash equivalents;
(b) 90% of the market value of obligations of the United States
of America, but not to exceed the face amount;
(c) 90% of the market value of commercial paper rated at least
A1 by a nationally recognized rating agency, but not to exceed
the face amount;
(d) 85% of the market value of corporate and municipal bonds
(excluding convertible bonds) rated at least AA by a nationally
recognized rating agency, but not to exceed the face amount;
(e) 75% of the market value of corporate and municipal bonds
(excluding convertible bonds and those described in (d) above)
rated at least BBB by a nationally recognized rating agency, but
not to exceed the face amount;
(f) 70% of the market value of mutual funds;
(g) 70% of the market value of stock traded on the New York
Stock Exchange;
(h) 70% of the market value of stock traded on the American
Stock Exchange;
(i) 50% of the market value of stock traded "over-the-counter;"
with market value, in all instances, determined by Bank in its
sole discretion, and excluding from such computation all Common
Trust Funds.
3. Exclusion from Collateral. Notwithstanding anything herein to
the contrary, the terms "Collateral" and "Proceeds" do not
include, and Bank disclaims a security interest in all Common
Trust Funds now or hereafter maintained in the Securities
Account.
4."Common Trust Funds" means common trust funds as described in
12 CFR 9.18 and includes, without limitation, common trust funds
maintained by Bank for the exclusive use of its fiduciary
clients.
IN WITNESS WHEREOF, this Addendum has been executed as of the
same date as the Agreement.
KIT MANUFACTURING COMPANY
By: /s/Bruce K. Skinner
Title: Vice President and Treasurer
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Razia Damji
Title: Vice President\Principal
SECURITIES ACCOUNT CONTROL AGREEMENT
(Wells Fargo Affiliate Intermediary)
THIS SECURITIES ACCOUNT CONTROL AGREEMENT (this "Agreement") is
entered into as of July 10, 2001, by and among KIT MANUFACTURING
COMPANY ("Customer"), WELLS FARGO INVESTMENTS, LLC
("Intermediary"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Secured Party").
RECITALS
A. Customer maintains that certain Brokerage Account No.
4870-9800 (the "Securities Account") with Intermediary pursuant
to that certain Client Account Agreement between Intermediary
and Customer dated as of May 17, 2001 and related documentation,
all governed by the laws of the State of California
(collectively, the "Account Agreement"), and Customer has
granted to Secured Party a security interest in the Securities
Account and all financial assets and other property now or at
any time hereafter held in the Securities Account.
B. Secured Party, Customer and Intermediary have agreed to
enter into this Agreement to perfect Secured Party's security
interests in the Collateral, as defined below.
NOW, THEREFORE, in consideration of their mutual covenants and
promises, the parties agree as follows:
1. DEFINITIONS. As used herein:
(a) the term "Collateral" shall mean: (i) the Securities
Account; (ii) all financial assets credited to the Securities
Account; (iii) all security entitlements with respect to the
financial assets credited to the Securities Account; (iv) any
and all other investment property or assets maintained or
recorded in the Securities Account; and (v) all replacements or
substitutions for, and proceeds of the sale or other disposition
of, any of the foregoing, including without limitation, cash
proceeds; and
(b) the terms "investment property," "entitlement order,"
"financial asset" and "security entitlement" shall have the
respective meanings set forth in the California Uniform
Commercial Code. The parties hereby expressly agree that all
property, including without limitation, cash, certificates of
deposit and mutual funds, at any time held in the Securities
Account is to be treated as a "financial asset."
2. AGREEMENT FOR CONTROL. Intermediary is authorized by
Customer and agrees to comply with all entitlement orders
originated by Secured Party with respect to the Securities
Account, and all other requests or instructions from Secured
Party regarding disposition and/or delivery of the Collateral,
without further consent or direction from Customer or any other
party.
CUSTOMER'S RIGHTS WITH RESPECT TO THE COLLATERAL.
(a) Until Intermediary is notified otherwise by Secured
Party: (i) Customer, or any party authorized by Customer to act
with respect to the Securities Account, may give trading
instructions to Intermediary with respect to Collateral in the
Securities Account; and (ii) Intermediary may distribute to
Customer or any other party in accordance with Customer's
directions that portion of the Collateral which consists of
interest and/or cash dividends earned on financial assets
maintained in the Securities Account.
(b) Without Secured Party's prior written consent, except to
the extent permitted by Section 3(a) hereof: (i) neither
Customer nor any party other than Secured Party may withdraw any
Collateral from the Securities Account; and (ii) Intermediary
will not comply with any entitlement order or request to
withdraw any Collateral from the Securities Account given by any
party other than Secured Party.
(c) Upon receipt of either written or oral notice from
Secured Party: (i) Intermediary shall promptly cease complying
with entitlement orders and other instructions concerning the
Collateral, including the Securities Account, from all parties
other than Secured Party; and (ii) Intermediary shall not make
any further distributions of
any Collateral to any party other than Secured Party, nor permit
any further voluntary changes in the financial assets.
4. INTERMEDIARY'S REPRESENTATIONS AND WARRANTIES.
Intermediary represents and warrants to Secured Party that:
(a) The Securities Account is maintained with Intermediary
solely in Customer's name.
(b) Intermediary has no knowledge of any claim to, security
interest in or lien upon any of the Collateral, except: (i) the
security interests in favor of Secured Party; and (ii)
Intermediary's liens securing fees and charges, or payment for
open trade commitments, as described in Section 4(c) hereof.
(c) Any claim to, security interest in or lien upon any of
the Collateral which Intermediary now has or at any time
hereafter acquires shall be junior and subordinate to the
security interests of Secured Party in the Collateral, except
for Intermediary's liens securing: (i) fees and charges owed by
Customer with respect to the operation of the Securities
Account; and (ii) payment owed to Intermediary for open trade
commitments for purchases in and for the Securities Account.
5. AGREEMENTS OF INTERMEDIARY AND CUSTOMER. Intermediary
and Customer agree that:
(a) Intermediary shall flag its books, records and systems
to reflect Secured Party's security interests in the Collateral,
and shall provide notice thereof to any party making inquiry as
to Customer's accounts with Intermediary to whom or which
Intermediary is legally required or permitted to provide
information.
(b) Intermediary shall send copies of all statements
relating to the Securities Account simultaneously to Customer
and Secured Party.
(c) Intermediary shall promptly notify Secured Party if any
other party asserts any claim to, security interest in or lien
upon any of the Collateral, and Intermediary shall not enter
into any control, custodial or other similar agreement with any
other party that would create or acknowledge the existence of
any such other claim, security interest or lien.
(d) Without Secured Party's prior written consent,
Intermediary and Customer shall not amend or modify the Account
Agreement, other than: (i) amendments to reflect ordinary and
reasonable changes in Intermediary's fees and charges for
handling the Securities Account; and (ii) operational changes
initiated by Intermediary as long as they do not alter any of
Secured Party's rights hereunder.
(e) Neither Intermediary nor Customer shall terminate the
Account Agreement without giving thirty (30) days' prior written
notice to Secured Party.
6. MISCELLANEOUS.
(a) This Agreement shall not create any obligation or duty
of Intermediary except as expressly set forth herein.
(b) As to the matters specifically the subject of this
Agreement, in the event of any conflict between this Agreement
and the Account Agreement or any other agreement between
Intermediary and Customer, the terms of this Agreement shall
control.
(c) All notices, requests and demands which any party is
required or may desire to give to any other party under any
provision of this Agreement must be in writing (unless otherwise
specifically provided) and delivered to each party at the
address or facsimile number set forth below its signature, or to
such other address or facsimile number as any party may
designate by written notice to all other parties. Each such
notice, request and demand shall be deemed given or made as
follows: (i) if sent by hand delivery, upon delivery; (ii) if
sent by facsimile, upon receipt; and (iii) if sent by mail, upon
the earlier of the date of receipt or three (3) days after
deposit in the U.S. mail, first class and postage prepaid.
(d) This Agreement shall be binding upon and inure to the
benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the panties; provided
however, that Intermediary may not assign its obligations
hereunder without Secured Party's prior written consent. This
Agreement may be amended or modified only in writing signed by
all parties hereto.
(e) This Agreement shall terminate upon: (i) Intermediary's
receipt of written notice from Secured Party expressly stating
that Secured Party no longer claims any security interest in the
Collateral; or (ii) termination of the Account Agreement
pursuant to Section 5(e) hereof and Intermediary's delivery of
all Collateral to Secured Party or its designee in accordance
with Secured Party's written instructions.
(f) This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
(g) This Agreement replaces and supercedes in its entirety
that certain Securities Account Control Agreement executed by
the parties hereto as of June 12, 2001.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first se: forth
above.
INTERMEDIARY: SECURED PARTY:
WELLS FARGO INVESTMENTS, LLC WELLS FARGO BANK,
By: NATIONAL ASSOCIATION,
Title: By: /s/ Razia Damji
Title: Vice
President/Principal
By:
Title: Address:
333 South Grand Avenue,
Suite 940
Address: Los Angeles, CA 90071
1036 Anacapa Street
Santa Barbara, CA 93101
Attn: John Bork
FAX No: (805) 238-2279
CUSTOMER:
KIT MANUFACTURING COMPANY
By: /s/Bruce K. Skinner
Title: Vice President & Treasurer
Address:
530 East Wardlow Road
Long Beach, CA 90807
Attn: Bruce Skinner, Vice President and Treasurer
FAX No: (562) 426-8463
EXHIBIT 10.6
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is entered into as of January 10, 2002, by
and between KIT MANUFACTURING COMPANY, a California corporation
("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
A. Borrower is currently indebted to Bank pursuant to the
terms and conditions of that certain Amended and Restated Credit
Agreement between Borrower and Bank dated as of June 12, 2001,
as amended from time to time ("Credit Agreement"). Capitalized
terms used herein without definition shall have the meanings
ascribed to them in the Credit Agreement.
B. Pursuant to the Credit Agreement, Borrower remains
indebted to Bank under a line of credit in the maximum principal
amount of Six Million Dollars ($6,000,000.00) (the "Prior Line
of Credit") which is evidenced by that certain promissory note
dated June 12, 2001, as modified from time to time (the "Prior
Line of Credit Note"). The Prior Line of Credit shall mature and
become due and payable in full on June 30, 2002 and the
outstanding principal balance as of the date hereof under the
Prior Line of Credit is $4,635,093.29, plus accrued but unpaid
interest.
C. Borrower has requested that Bank restructure the Prior
Line of Credit and Bank has agreed to do so, subject to the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree that the Amended and Restated Credit Agreement and the
Prior Line of Credit Note shall be amended as follows; provided,
however, that nothing herein shall terminate any security
interests in favor of Bank and all such security interests shall
remain in full force and effect:
1. Amendment to Section 1.1(a). Section 1.1 (a) of the
Credit Agreement is hereby deleted in its entirety, and the
following substituted therefor:
"(a) Line of Credit. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrower (i)
from time to time up to and including February 9, 2002, not to
exceed the aggregate principal amount of Seven Million Dollars
($7,000,000.00) and (ii) from time to time not to exceed any
time on or after February 10, 2002 and at all times thereafter,
the aggregate principal amount of Six Million Dollars
($6,000,000.00) ("Line of Credit"), provided, however, that on
June 30, 2002 the outstanding principal balance shall be due and
payable in full. The proceeds of the Line of Credit shall be
used for working capital purposes. Borrower's obligation to
repay advances under the Line of Credit shall be evidenced by a
promissory note substantially in the form of Exhibit A attached
hereto (the "Line of Credit Note"), all terms of which are
incorporated herein by this reference."
The foregoing change shall become effective upon the execution
and delivery to Bank of a promissory note substantially in the
form of Exhibit A attached hereto (which promissory note shall
replace and be deemed the Line of Credit Note defined in and
made pursuant to the Credit Agreement) and the satisfaction of
all other conditions precedent to the effectiveness of this
Amendment set forth in Paragraph 3 hereto; provided, however,
that outstanding advances under the Prior Line of Credit
heretofore provided to Borrower by Bank in connection with the
Prior Line of Credit shall be deemed outstanding advances under
the Line of Credit Note in effect hereby.
2. Restructuring Fee. Borrower shall pay to Bank a
non-refundable restructuring fee for the Line of Credit, equal
to Ten Thousand Dollars ($10,000.00) (the "Restructuring Fee"),
which shall be due and payable in full upon Borrower's execution
and delivery to Bank of this Amendment.
3. Conditions Precedent. The obligation of Bank to amend
the terms and conditions of the Credit Agreement as provided
herein, shall not occur until the first business day that all of
the following conditions are satisfied to Bank's satisfaction
(the "Effective Date"), which shall in no event occur later that
January 14, 2002:
(a) Documents. Bank shall have received, in form and
substance satisfactory to Bank, each of the following:
(i) This Amendment executed by Borrower.
(ii) Revolving Reducing Note executed by Borrower.
(iii) Such other documents as Bank may require under any
other Section of this Amendment.
(b) Restructuring Fee. Bank shall have received the
Restructuring Fee in immediately available funds.
(c) Fees and Costs. In addition to Borrower's obligations
under the Credit Agreement and the other Loan Documents,
Borrower shall reimburse Bank immediately upon demand for all
costs and expenses, including reasonable attorneys' fees
(including the allocated costs of Bank's in-house counsel)
expended or incurred by Bank in connection with the negotiation
and preparation of this Amendment.
4. General Release. In consideration of the benefits
provided to Borrower under the terms and provisions hereof,
Borrower hereunder hereby agree as follows ("General Release"):
(a) Borrower hereunder, for itself and on behalf of its
respective successors and assigns, do hereby release, acquit and
forever discharge Bank, all of Bank's predecessors in interest,
and all of Bank's past and present officers, directors,
attorneys, affiliates, employees and agents, of and from any and
all claims, demands, obligations, liabilities, indebtedness,
breaches of contract, breaches of duty or of any relationship,
acts, omissions, misfeasance, malfeasance, causes of action,
defenses, offsets, debts, sums of money, accounts, compensation,
contracts, controversies, promises, damages, costs, losses and
expenses, of every type, kind, nature, description or character,
whether known or unknown, suspected or unsuspected, liquidated
or unliquidated, each as though fully set forth herein at length
(each, a "Released Claim" and collectively, the "Released
Claims"), that Borrower hereunder now has or follows: may
acquire as of the later of: (i) the date this Amendment becomes
effective through the satisfaction (or waiver by Bank) of all
conditions hereto; or (ii) the date that Borrower hereunder have
executed and delivered this Amendment to Bank (hereafter, the
"Release Date"), including without limitation, those Released
Claims in any way arising out of, connected with or related to
any and all prior credit accommodations, if any, provided by
Bank, or any of Bank's predecessors in interest, to Borrower
hereunder, and any agreements, notes or documents of any kind
related thereto or the transactions contemplated thereby or
hereby, or any other agreement or document referred to herein or
therein.
(b) Borrower hereunder hereby acknowledge, represent and
warrant to Bank as
Borrower understand the meaning and effect of Section 1542 of
the California Civil Code which provides:
"Section 1542. GENERAL RELEASE: EXTENT. A GENERAL RELEASE DOES
NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
(ii) With regard to Section 1542 of the California Civil
Code, Borrower agree to assume the risk of any and all unknown,
unanticipated or misunderstood defenses and Released Claims
which are released by the provisions of this General Release in
favor of Bank, and Borrower hereby waive and release all rights
and benefits which they might otherwise have under Section 1542
of the California Civil Code with regard to the release of such
unknown, unanticipated or misunderstood defenses and Released
Claims.
(c) Each person signing below on behalf of Borrower
hereunder acknowledges that he or she has read each of the
provisions of this General Release. Each such person fully
understands that this General Release has important legal
consequences, and each such person realizes that they are
releasing any and all Released Claims that Borrower may have as
of the Release Date. Borrower hereunder hereby acknowledge that
each of them has had an opportunity to obtain a lawyer's advice
concerning the legal consequences of each of the provisions of
this General Release.
(d) Borrower hereunder hereby specifically acknowledge and
agree that: (i) none of the provisions of this General Release
shall be construed as or constitute an admission of any
liability on the part of Bank; (ii) the provisions of this
General Release shall constitute an absolute bar to any Released
Claim of any kind, whether any such Released Claim is based on
contract, tort, warranty, mistake or any other theory, whether
legal, statutory or equitable; and (iii) any attempt to assert a
Released Claim barred by the provisions of this General Release
shall subject Borrower hereunder to the provisions of applicable
law setting forth the remedies for the bringing of groundless,
frivolous or baseless claims or causes of action.
5. Miscellaneous. Except as specifically provided herein,
all terms and conditions of the Credit Agreement remain in full
force and effect, without waiver or modification. All terms
defined in the Credit Agreement shall have the same meaning when
used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
6. Reaffirmation: Certification. Borrower hereby remakes
all representations and warranties contained in the Credit
Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment
there exists no Event of Default as defined in the Credit
Agreement, nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute any
such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the day and year first written
above.
WELLS FARGO BANK, KIT MANUFACTURING COMPANY
NATIONAL ASSOCIATION
By: /s/Razia Damji By: /s/Bruce Skinner
Title: Vice President/Principal Title: Vice President and Treasurer
EXHIBIT A
REVOLVING REDUCING NOTE
$7,000,000.00
Los Angeles, California
January 10, 2002
FOR VALUE RECEIVED, the undersigned KIT MANUFACTURING COMPANY
("Borrower") promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at 333 So. Grand
Avenue, 9t" Floor., Los Angeles, California, or at such other
place as the holder hereof may designate, in lawful money of the
United States of America and in immediately available funds, the
principal sum of Seven Million Dollars ($7,000,000.00), or so
much thereof as may be advanced and be outstanding, with
interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this
Note shall bear interest (computed on the basis of a 360-day
year, actual days elapsed) at a rate per annum equal to the
Prime Rate in effect from time to time. The "Prime Rate" is a
base rate that Bank from time to time establishes and which
serves as the basis upon which effective rates of interest are
calculated for those loans making reference thereto. Each change
in the rate of interest hereunder shall become effective on the
date each Prime Rate change is announced within Bank.
(b) Payment of Interest. Interest accrued on this Note
shall be payable on the 15th day of each month, commencing
January 15, 2002.
(c) Default Interest. From and after the maturity date of
this Note, or such earlier date as all principal owing hereunder
becomes due and payable by acceleration or otherwise, the
outstanding principal balance of this Note shall bear interest
until paid in full at an increased rate per annum (computed on
the basis of a 360-day year, actual days elapsed) equal to four
percent (4%) above the rate of interest from time to time
applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to
time during the term of this Note borrow, partially or wholly
repay its outstanding borrowings, and reborrow, subject to all
of the limitations, terms and conditions of this Note and of any
document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under
this Note shall not at any time exceed the principal amount set
forth above or such lesser amount as shall at any time be
available hereunder. The unpaid principal balance of this
obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may
be endorsed hereon from time to time by the holder. The
outstanding principal balance of this Note shall be due and
payable in full on June 30, 2002.
(b) Reductions in Availability. Notwithstanding the
principal amount set forth above, the maximum principal amount
available under this Note shall be reduced automatically and
without further notice on February 10, 2002, by the amount of
One Million Dollars ($1,000,000.00). If the outstanding
principal balance of this Note on any such date is greater than
the new maximum principal amount then available hereunder,
Borrower shall make a principal reduction on this Note on such
date in an amount sufficient to reduce the then outstanding
principal balance hereof to an amount not greater than said new
maximum principal amount.
(c) Advances. Advances hereunder, to the total amount of
the principal sum stated above, may be made by the holder at the
oral or written request of (i) Bruce Skinner or Bill Morgan, any
one acting alone, who are authorized to request advances and
direct the disposition of any advances until written notice of
the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to
advances deposited to the credit of any deposit account of any
Borrower, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of
each Borrower regardless of the fact that persons other than
those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to
determine whether any person requesting an advance is or has
been authorized by any Borrower.
(d) Application of Payments. Each payment made on this
Note shall be credited first, to any interest then due and
second, to the outstanding principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and
conditions of that certain Amended and Restated Credit Agreement
between Borrower and Bank dated as of June 12, 2001, as amended
from time to time (the "Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or any
defined event of default under the Credit Agreement, shall
constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default,
the holder of this Note, at the holder's option, may declare all
sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, notice
of nonperformance, notice of protest, protest or notice of
dishonor, all of which are expressly waived by each Borrower,
and the obligation, if any, of the holder to extend any further
credit hereunder shall immediately cease and terminate. Each
Borrower shall pay to the holder immediately upon demand the
full amount of all payments, advances, charges, costs and
expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the holder's
in-house counsel), expended or incurred by the holder in
connection with the enforcement of the holder's rights and/or
the collection of any amounts which become due to the holder
under this Note, and the prosecution or defense of any action in
any way related to this Note, including without limitation, any
action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank
or any other person) relating to any Borrower or any other
person or entity.
(b) Obligations Joint and Several. Should more than one
person or entity sign this Note as a Borrower, the obligations
of each such Borrower shall be joint and several.
(c) Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of
California.
EXHIBIT A
This Note replaces and supersedes in its entirety that certain
Revolving Line of Credit Note dated June 12, 2001 in the maximum
principal amount of $6,000,000.00.
IN WITNESS WHEREOF, the undersigned has executed this Note as of
the date first
written above.
KIT MANUFACTURING COMPANY
By: /s/Bruce Skinner
Title: Vice President and Treasurer
KIT Manufacturing Company
2001 Annual Report
October 31, 2001
KIT Manufacturing Company
Financial Highlights
(Dollars in thousands except for share and per share amounts)
2001 2000 1999 1998 1997
Operating Results for the
Years Ended October 31,
Sales $47,717 $47,919 $63,251 $61,030 $76,465
Net (loss) income $(2,527) $(269)(1) $373 $(357) $(2,312)
Net (loss) income per share:
Basic and diluted ($2.46) ($0.25)(1) $0.34 ($0.32) ($2.08)
Weighted-average shares outstanding:
Basic and diluted 1,027,334 1,064,212 1,110,934 1,110,934 1,110,934
Working capital $3,499 $7,532 $7,476 $6,861 $7,215
(1) Includes gain on sale of business property in Chino, California
of $853,000, net of related income taxes, or $0.81 per share, and gain on
sale of business property in McPherson, Kansas of $402,000, net of related
income taxes, or $0.38 per share.
About the Company:
KIT Manufacturing Company produces manufactured
homes and recreational vehicles (towable trailers)
marketed by an independent dealer network in 21 states
in the West, Midwest, South and Southeast, and
Canada. KIT manufactured homes are permanent living
structures that are built utilizing materials similar to
conventional housing. KIT recreational vehicle products
are used primarily for camping or vacation travel and
provide a variety of living accommodations.
To Our Shareholders
The significant operating losses suffered by KIT during
fiscal 2001 were a direct reflection of the slumping national
economy. The overall decline in consumer confidence, brought on
by declining stock values from the failure of many "dot-com"
businesses, tightening consumer credit, high gasoline prices,
and the events of September 11, 2001, directly impacted sales of
many types of high-dollar durable goods. This slowdown in retail
purchases yielded poor financial performance in many sectors of
the American business landscape. Especially hard hit were
industries that focus on discretionary income spending such as
the recreational vehicle industries. Manufactured home sales
continue to be affected by the oversupply of finished product at
the retail level and a more restrictive retail financing
environment as lenders reacted to losses incurred from dealers
as their financial problems increased.
Despite the decline in the economy, the RV shows in Pomona,
California and the National RV show in Louisville, Kentucky,
held in September and November 2001, respectively, yielded
significant favorable results for the RV division. KIT's newest
product, a redesign of the Patio Hauler model, named the
Extreme, was received by the dealer body and the retail public
with considerable enthusiasm. This new model presented both
sellers and buyers with a product that had not been seen before
in a standard sport utility trailer. The styling, amenities, and
the overall look and feel of the product was so appealing that
the KIT RV sales department was overwhelmed with demand by
current and potential dealers and retail consumers for the
product. The dealer body agreed that the Extreme RV line, as
well as the revamping of other KIT models, has made the KIT RV
products more exciting and present a more attractive business
opportunity to potential and existing dealers. As a result of
the dealer shows in Pomona and Louisville, KIT has set up a
number of new dealers. These new dealer sets have increased
KIT's market share approximately 42%. Management is confident
that our continuing commitment to trouble-free quality standards
and high-value RV's will continue to reward the Company through
market expansion in meeting the demands of this highly
competitive business.
The manufactured homes division sales dollars decreased 3%,
from $21.7 million in fiscal 2000 to $21.0 million in fiscal
2001. The number of manufactured homes sold decreased 39% from
595 homes in fiscal 2000 to 362 homes in fiscal 2001. Industry-
wide, sales to dealers were down nearly 29% from 270,264 in 2000
to 192,050 homes in fiscal 2001. The overall industry sales
decline was due to the continuing oversupply of homes on the
market, as well as the tightening credit terms to potential
retail buyers.
The retail sales dealerships for the manufactured homes
division, located in Nampa and Fruitland, Idaho, were
consolidated with KIT Manufacturing through a buy-out of the
minority partner during fiscal 2001. The KIT Courtyard venture
continues to have a positive impact on the operations of KIT
from the standpoint of sustaining factory production of
manufactured homes. The retail outlets continue to market their
multi-sectional homes under "land package" deals. This technique
bundles the manufactured home with developed land in a
subdivision setting and allows the retail customer the option of
purchasing basically a "site" home. This makes the home and the
land under it eligible for a conventional real estate mortgage
loan in most states.
KIT had no long-term debt at the end of the year and it has secured
a commitment for additional funding for continued operations. Working capital
declined to $3.5 million, but management believes the existing
working capital and new line of credit are sufficient to provide
he Company with funds necessary for continued operational
maintenance and anticipated growth through fiscal 2002.
We anticipate the first three months of fiscal 2002, the
winter season, will be a difficult time for the manufactured
home industry, as the unfavorable market conditions are
improving very slowly. Management anticipates, however, that KIT
should perform better than the industry, to some degree, because
of the favorable results of the KIT Courtyard "land package"
marketing concept described above.
With respect to the recreational vehicle division, the
industry is "exciting new" product driven. Management feels the
newest product in the KIT line-up is generating considerable
excitement and should help lift the sales and profits of the
Company, even during the usual slow winter months. The Company
anticipates that dealers will be stocking up on this innovative
sport utility trailer and other redesigned KIT product in
anticipation of a more favorable spring selling season, as "pent-
up" demand from the retail buying public begins to affect the
marketplace. First quarter operations should see an improvement
over the prior years' normal seasonal slowdown. Your Company's
management believes the business and marketing strategies
described above will help give rise to profitable operations in
fiscal 2002.
Sincerely,
/s/Dan Pocapalia
Dan Pocapalia
Chairman of the Board, President and Chief Executive Officer
Recreational Vehicles
Having consistently produced and delivered high-quality, high-
value products to our customers for 56 years, KIT remains one
of the major manufacturers of towable travel trailers and
fifth-wheels in the United States. KIT products are well known
for their reliability and their retained value at "trade-in"
time. KIT RV's are in high demand for the second-time and
entry-level buyer, as well as the more knowledgeable buyer.
Over the past few years, the baby-boomer generation and younger
families have discovered the affordability and comfort of
recreational vehicle travel.
KIT's RV products incorporate high quality, reliable, name-brand
appliances, along with stylish interior components and
accessories. KIT produces a wide range of recreational vehicle
products at its manufacturing facilities in Caldwell, Idaho
under the brand names of Road Ranger, Companion, Millennium
and Patio Hauler. KIT RV's measure from 19 to 39 feet in length
and are more than eight feet wide and provide sleeping
accommodations for 2 to 10 persons.
With the onset of model-year 2001, the Company revamped its
product offering to respond to our customers' demands and
improve our competitive position in the marketplace. Road Ranger
and Companion products were divided into an entry-level and mid-
line series to meet the specific needs of buyers.
The entry-level Road Ranger and Companion, designated as the LE
series, included fourteen floor plans with basic interiors,
features and options. These products could be upgraded with a
deluxe interior package.
The mid-line Road Ranger and Companion, designated as the
Limited series, provided five floor plans - three 27 foot and
above travel trailers and two 27 foot and above fifth-wheels.
These larger units included deluxe interior packages and could
by upgraded with a specialized fiberglass package.
This year's Road Ranger and Companion products also offer two
"lite" floor plans and two sport utility trailers, called the
Sportster. These units cater to young families and outdoor
enthusiasts.
KIT's high-end unit, the Millennium, was updated to include a
fourth floor plan, which includes a full-kitchen slide-out. This
line was updated with four luxurious interiors, deluxe furniture
and even more cabinet space. We believe the dealer body has
responded with great enthusiasm for this moderately-priced, high-
end product.
As in past years, the Company's unique Patio Hauler continues to
generate interest with its cargo area for hauling off-road
vehicles and other sporting equipment. KIT is currently gearing
up for some exciting updates to this product line-up in the 2002
model year.
Retail prices for KIT floor plans range from $8,500 to $58,000.
This range covers approximately 80 percent of the travel trailer
and fifth-wheel market.
KIT distributes its Road Ranger and Companion recreational
vehicles to the retail consumer throughout the western United
States and Western Canada. The Millennium and Patio Hauler
models are retailed throughout 15 states in the continental
United States. KIT provides its dealer network system with
advertising, sales literature, a web site, training and other
special support programs, along with its national reputation for
product quality and service.
Manufactured Homes
Our manufactured homes division is currently experiencing
unfavorable economic factors that are also affecting the entire
manufactured homes industry. We have attempted to improve the
performance of this division with value pricing and marketing
innovations, coupled with a continuing emphasis on reducing
operating costs and trouble-free operation.
The manufactured homes division builds both single and
multi-sectioned dwellings designed to be transported to a
prepared home site. Multi-sectioned homes offer the appearance
and living space of traditional site-built homes and have become
the dominant portion of our sales. KIT homes are built in a
controlled environment, which minimizes the variables inherent
in outdoor construction. By standardizing construction methods,
we can build homes with greater efficiency and higher quality at
a lower cost than site-built homes with the same features. Our
28 and 32 foot multi-sectioned homes are creating excitement in
our market.
The manufactured homes division continues to aggressively
develop new products that incorporate innovative floor plans,
modern colors and functional design. KIT manufactured homes are
distributed from production facilities in Caldwell, Idaho
through a network of approximately 34 dealers located in nine
western states.
The manufactured homes division also continues to participate in
the retail sales partnership located in Nampa and Fruitland,
Idaho. These retail centers, known as KIT Courtyards, have had
a positive impact on the operations of KIT from the standpoint
of sustaining factory production of manufactured homes.
Additionally, the venture now markets their multi-sectional
homes under "land package" deals. This technique bundles the
manufactured home with developed land in a subdivision setting
and allows the retail customer the option of purchasing
basically a "site" home. This makes the manufactured home and
the land under it eligible for a conventional real estate
mortgage loan in most states.
KIT homes are marketed in four product lines. Our Cypress homes
offer the budget conscious entry-level buyer an ideal way to
purchase their first home. Our Sunrise residential series is
primarily for placement in sub-divisions and offers all of the
amenities of a site-built home without the site built costs.
More expansive and luxurious, our SierraXL homes provide a wide
array of styles and custom features, giving the discriminating
purchaser supreme comfort at an affordable price. Our true
top-of-the-line home, the Golden State, provides outstanding
value for individuals who place a premium on elegance and style.
We have 52 floor plans available, with living space ranging
from approximately 800 to more than 2,500 square feet. Retail
prices, exclusive of land costs, range from approximately
$25,000 to $135,000.
As the nation continues to search for solutions to the problem
of affordable, single-family housing, KIT stands ready to
provide attractive, trouble free, energy-efficient homes at
competitive prices.
KIT Manufacturing Company
Management's Discussion and Analysis of Results of Operations
and Financial Condition
Results of Operations
Fiscal 2001 Compared to Fiscal 2000
Sales declined 13% to $41.7 million compared to fiscal 2000 when
sales were $47.9 million. The net loss for the year was $2,527,000, or
$2.46 per share, in comparison to a net loss in fiscal 2000 of
$269,000, or $0.25 per share. Sales decreases in the RV division
have been significantly impacted from uncertainty in the economy
and lower consumer confidence. Sales of manufactured homes have
been impacted unfavorably by lenders' tightened credit standards
as well as industry-wide excess finished goods inventory levels.
Recreational vehicle division sales decreased 21% to $20.7
million in fiscal 2001 from sales of $26.2 million in fiscal
2000. The overall decrease in RV shipments was 30%, down from
1,816 units in fiscal 2000 to 1,280 units in fiscal 2001. This
decline consisted of a decrease in fifth-wheel model shipments
from 558 units in fiscal 2000 to 439 units in fiscal 2001 and a
decrease in travel trailer shipments from 1,258 units in fiscal
2000 to 841 units shipped in fiscal 2001. The model mix tended
toward higher priced units in fiscal 2001.
Manufactured homes sales decreased 3% to $21.0 million in fiscal
2001 from sales of $21.7 million in fiscal 2000. This decline
consisted of a 28% increase in shipments of single-section homes
from 53 units in fiscal 2000 to 68 units in fiscal 2001 and a
46% decrease in shipments of multi-section homes from 542 units
in fiscal 2000 to 294 units in fiscal 2001. Total unit shipments
decreased 39% from 595 homes in fiscal 2000 to 362 homes in
fiscal 2001. The significant reduction in unit shipments in the
current year was partially offset by a shift in product mix to
more expensive multi-sectioned homes that are now being bundled
with developed land in a subdivision setting, as an alternative
to traditional site built homes. The manufactured homes division
also implemented modest price increases in fiscal 2001 and
fiscal 2000 to counter increases in raw material costs. These
results were partially offset by the inclusion of $3,990,000 of
retail sales during the year ended October 31, 2001 as a result
of the consolidation of the retail sales partnership during this
period.
Gross profit as a percentage of sales decreased to 4% in fiscal
2001 in comparison to 7% in fiscal 2000. Although product margins for
both divisions were marginally lower to those in the prior year,
the disproportional reduction in gross profit compared to sales
was due principally to the under absorption of fixed overhead
costs brought about by the lower production and sales volumes.
The gross profit dollars decreased 54%, or $1,878,000, from
$3,447,000 in fiscal 2000 to $1,569,000 in fiscal 2001. This
decrease was due principally to the reduction of sales
attributed to the recreational vehicle division, partially
offset by $488,000 in gross profit recorded during the current
fiscal year in connection with the consolidation of the retail
sales partnership.
Selling, general and administrative expenses increased to 13% of
sales in fiscal 2001 compared to 11% of sales in fiscal 2000.
The selling, general and administrative dollars decreased 1%,
or $44,000, from $5,464,000 in fiscal 2000 to $5,420,000 in
fiscal 2001 due to operational cost cutting measures and
personal realignments, partially offset by the inclusion of
$971,000 of expenses from the consolidation of the retail sales
partnership for the year ended October 31, 2001.
In fiscal 2001, the Company assumed significantly all
responsibility in connection with the daily operations of the
retail sales partnership. Although the original partnership
agreement governing the relationship between the Company and the
minority interest holder provided participating rights to the
minority holder and thus precluded the Company from
consolidating the retail sales partnership, the partnership's
recurring losses and need for continued funding required the
Company's attention. The retail sales partnership commenced
operations in fiscal 1998 and has continued to perform
substantially below expectations with losses trending
significantly higher in each successive year. While lenders'
tightened credit policies and industry-wide excess inventory
levels were partially responsible for the partnership's poor
performance, the Company's management raised some concerns
regarding the minority interest holder's management of the
partnership's operations in accordance with the original
agreement. The partnership agreement specifically delegated day-
to-day operating responsibility and decision making authority to
the minority interest holder and it is management's belief that
such responsibilities could have performed at a higher level, as
evidenced by the poor operating results previously mentioned. As
a result, in fiscal 2001, the Company continued to fund 100% of
the partnership's working capital needs and also became
substantially involved in the decision making process and daily
operations of the partnership. Additionally, the Company
purchased the minority interest holder's 30% interest in the
partnership for $20,000 in cash and the assumption of $40,000 in
debt and has consolidated its investment effective the beginning
of fiscal 2001. In prior years, the Company accounted for this
investment under the equity method of accounting. However,
because the cumulative losses of the partnership exceeded the
minority interest holder's investment in fiscal 1999, the
Company began recording 100% of the equity in losses from that
point forward.
The condensed statements of operations information for the
retail sales partnership for the years ended October 31, 2001,
2000 and 1999 are disclosed in Note 2 of the Notes to
Consolidated Financial Statements. The condensed balance sheet
information for the retail sales partnership as of October 31,
2001 and 2000 is also disclosed in Note 2 of the Notes to
Consolidated Financial Statements.
Equity in the loss of the retail sales partnership decreased
from $651,000 in fiscal 2000 to $0 in fiscal 2001. The decrease is
due to the aforementioned consolidation of the retail sales
partnership in fiscal 2001, which had been accounted for under
the equity method of accounting in the prior year.
During February 2000, the Company sold land and buildings
located in Chino, California for consideration of $1,652,000,
resulting in a gain of $1,455,000. During June 2000, the Company
sold land and buildings located in McPherson, Kansas for
consideration of $1,187,000, resulting in a gain of $621,000.
Therefore, the total gain resulting from these two sales was
$2,076,000. There were no such material sales of land or
buildings in fiscal 2001.
Net interest expense of $248,000 in fiscal 2001, as compared to
net interest income of $61,000 in fiscal 2000, was the result of
higher average borrowings due principally to the inclusion of
such borrowings from the consolidation of the retail sales
partnership in fiscal 2001.
Fiscal 2000 compared to Fiscal 1999
Sales declined 24% to $47.9 million in fiscal 2000 compared to
fiscal 1999 when sales were $63.3 million. The net loss for the
period was $269,000, or $0.25 per share, in comparison to net
income in fiscal 1999 of $373,000, or $0.34 per share. Sales
decreases in the RV division were significantly impacted from
rising interest rates and higher fuel costs. Sales of
manufactured homes were impacted unfavorably by lenders'
tightened credit standards as well as industry-wide excess
finished goods inventory levels.
Recreational vehicle division sales decreased 19% to $26.2
million in fiscal 2000 from sales of $32.2 million in fiscal
1999. The overall decrease in RV shipments was 21%, down from
2,293 units in fiscal 1999 to 1,816 units in fiscal 2000. This
decline consisted of a decrease in fifth-wheel model shipments
from 788 units in fiscal 1999 to 558 units in fiscal 2000 and a
decrease in travel trailer shipments from 1,505 units in fiscal
1999 to 1,258 units in fiscal 2000. The model mix tended toward
higher priced units in fiscal 2000.
Manufactured homes sales decreased 30% to $21.7 million in
fiscal 2000 from sales of $31.1 million in fiscal 1999. This
decrease reflected a 36% decline in shipments of single-section
homes from 84 units in fiscal 1999 to 54 units in fiscal 2000
and a 33% decrease in shipments of multi-section homes from 774
units in fiscal 1999 to 522 units in fiscal 2000. Total unit
shipments decreased 33% from 858 homes in fiscal 1999 to 576
homes in fiscal 2000. The manufactured homes division
implemented modest price increases in fiscal 2000 and fiscal
1999 to counter increases in raw material costs.
Gross profit as a percentage of sales decreased to 7% in fiscal
2000 in comparison to 10% in fiscal 1999. Although product margins for
both divisions were marginally lower to those of the same period
in the prior year, the disproportional reduction in gross profit
compared to sales was due principally to the under absorption of
fixed overhead costs brought about by the lower production and
sales volumes. The gross profit dollars decreased 47%, or
$3,060,000, from $6,507,000 in fiscal 1999 to $3,447,000 in
fiscal 2000. This decrease was due principally to the reduction
of sales attributed to both divisions, as previously described.
Selling, general and administrative expenses increased to 11% of
sales in comparison to 9% of sales in fiscal 1999. The selling, general
and administrative dollars decreased 6%, or $373,000, from
$5,837,000 in fiscal 1999 to $5,464,000 in fiscal 2000 due to
continued planned reductions in marketing and administrative
costs.
Equity in the loss of the retail sales partnership increased
317% from $156,000 in fiscal 1999 to $651,000 in fiscal 2000.
The increase in losses was the result of the unfavorable
environment for the retail sales of manufactured homes that
existed during much of fiscal 2000.
During February 2000, the Company sold land and buildings
located in Chino, California for consideration of $1,652,000,
resulting in a gain of $1,455,000. During June 2000, the Company
sold land and buildings located in McPherson, Kansas for
consideration of $1,187,000, resulting in a gain of $621,000.
The total gain resulting from these two sales was $2,076,000.
There were no such material sales of land or buildings in fiscal
1999.
Net interest income of $61,000 in fiscal 2000, as compared to
net interest income of $58,000 in fiscal 1999, was the result of
higher average cash investments, partially offset by higher
average borrowings in fiscal 2000 as compared to fiscal 1999.
Liquidity and Capital Resources
In the current year, the Company has borrowed on its line of
credit, as amended, to increase its inventory levels at the end
of the year to provide for anticipated sales in 2002 and to
continue funding of the retail sales partnership. Although there
have been increases in the Company's cash and cash investments
($1,502,000), accounts receivable ($238,000) and inventory
($3,643,000) since October 31, 2000, working capital has
decreased by $4,033,000. This decrease in working capital is
primarily due to increases in the line of credit ($4,056,000),
accounts payable ($1,811,000), various accrued expenses
($1,100,000) and the inclusion of the retail flooring liability
($1,850,000) as a result of the consolidation of the retail
sales partnership (see Note 2 of the Notes to Consolidated
Financial Statements). It should also be noted that such
increases in the previously mentioned accounts, most notably
inventory and accounts payable, are also partially a result of
the consolidation of the retail sales partnership in fiscal
2001. The current ratio (i.e., the ratio of current assets to
current liabilities) decreased to 1.3:1 at October 31, 2001
compared to 2.9:1 at October 31, 2000.
The Company's liquidity position as reflected in the current
ratio, working capital, $2,494,000 available under its line of
credit and $114,000 available under the retail flooring
liability are considered adequate to meet present and reasonably
foreseeable working capital requirements over the next twelve
months. In January 2002, the Company amended its line of credit
with a commercial bank, which allowed the Company to borrow up
to $7,000,000 at the prime rate of interest (4.75 percent at
January 31, 2002). This line of credit is collateralized by the
Company's cash, accounts receivable and inventory, and expires
on June 30, 2002. The agreement requires that the Company pay
unused commitment fees equal to one quarter of one percent
(0.25%) per annum on the average daily unused amount of the line
of credit and also contains certain financial covenants
requiring, among other things, a minimum tangible net worth, and
current ratio.
The Company's consolidated financial statements have been
presented on the basis that it will continue as a going-concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company has suffered net losses of $2,527,000 and $269,000
and recorded net income of $373,000 for the years ended October
31, 2001, 2000 and 1999, respectively. The Company has used
cash from operating activities of $2,311,000, $1,720,000 and
provided cash from operating activities of $2,004,000 for the
years ended October 31, 2001, 2000 and 1999, respectively.
The Company has funded its financial needs primarily through
operations and its existing line of credit, as amended. At
October 31, 2001, the Company had cash and cash investments of
$5,991,000, which was restricted under its existing line of
credit, as amended, and working capital of $3,499,000. The
Company remains dependent upon its ability to obtain outside
financing either through the issuance of additional shares of
its common stock or through borrowings until it achieves
sustained profitability through increased sales and improved
product margins. The Company's business continues to focus on
the manufacturing, marketing and selling of its manufactured
homes and recreational vehicles.
In February 2002, management received a commitment from a bank
for a new $3,500,000 credit facility, collateralized
by substantially all of the Company's previously unencumbered
land and commercial buildings, as well as certain trade
receivables, inventories and equipment (see Note 5 of the Notes
to Consolidated Financial Statements). Until the new committment
is funded, the Company has obtained short-term funds of up to
$2.5 million collateralized by certain assests of the Chairman
of the Company. Concurrent with the Company's acceptance of this
new credit facility, the Company has paid off the existing line of
credit with available restricted cash and cash investments, as
allowed under the existing agreement. Management also plans to
continue its internal cost reduction initiatives that were
implemented in previous years. Additionally, management believes
that sales will increase and margins will improve, and with the
additional funding provided under a new long-term credit facility,
the Company should have sufficient capital resources to sustain
its operations through fiscal year 2002. Should the Company
require further capital resources during 2002, it would most
likely address such requirement through a combination of sales
of its products, sales of equity securities, and/or additional
debt financings. If circumstances changed, and additional capital
was needed, no assurance can be given that the Company would be
able to obtain such additional capital resources.
If unexpected events occur requiring the Company to obtain
additional capital and it is unable to do so, it then might
attempt to preserve its available resources by deferring the
creation or satisfaction of various commitments, deferring the
introduction of various products or entry into various markets,
or otherwise scaling back its operations. If the Company were
unable to raise such additional capital or defer certain costs
as described above, such inability would have an adverse effect
on the financial position, results of operations, cash flows and
prospects of the Company.
Common Stock Buyback Program
In September 1999, the Company approved the repurchase of up to
100,000 shares of the Company's common stock on the open market
during a period of not more than 12 months. The 100,000 common
shares authorized for repurchase represented 9% of the then
outstanding stock of the Company. During fiscal 2000, under this
program, the Company purchased 83,600 shares of common stock at
an average price of $5.98 per share, exclusive of fees and
commissions. No common shares were purchased in fiscal 2001.
KIT Manufacturing Company
Consolidated Balance Sheets
October 31, 2001 2000
ASSETS
Current Assets
Restricted cash and cash investments $5,991,000 $4,489,000
Accounts receivable, net of allowance for doubtful
accounts of $29,000 at October 31, 2001 and 2000 3,025,000 2,446,000
Accounts receivable from retail sales partnership - 341,000
Inventories 6,441,000 2,798,000
Prepaids and other assets 120,000 324,000
Deferred income taxes 930,000 1,025,000
Total Current Assets 16,507,000 11,423,000
Property, Plant and Equipment, at cost
Land 576,000 576,000
Buildings and improvements 7,172,000 6,779,000
Machinery and equipment 4,046,000 3,939,000
11,794,000 11,294,000
Less: accumulated depreciation (6,349,000) (5,657,000)
5,445,000 5,637,000
Deferred income taxes 180,000 -
Other assets 221,000 286,000
$22,353,000 $17,346,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Line of credit $4,056,000 $ -
Accounts payable 2,629,000 818,000
Retail flooring liability 1,850,000 -
Note payable 300,000 -
Accrued payroll and payroll related liabilities 1,344,000 903,000
Accrued marketing programs 727,000 471,000
Accrued expenses 2,102,000 1,699,000
Total Current Liabilities 13,008,000 3,891,000
Deferred income taxes - 1,487,000
Losses in excess of investments in and advances to
retail sales partnership - 96,000
13,008,000 5,474,000
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $1 par value; authorized 1,000,000
shares; none issued
Common stock, without par value; authorized 5,000,000
shares; issued and outstanding 1,027,334 shares
at October 31, 2001 and 2000 694,000 694,000
Additional paid-in capital 775,000 775,000
Retained earnings 7,876,000 10,403,000
Total Shareholders' Equity 9,345,000 11,872,000
$22,353,000 $17,346,000
The accompanying notes are an integral part of these consolidated financial statements.
KIT Manufacturing Company
Consolidated Statements of Income
For the Years Ended October 31, 2001 2000 1999
Sales $41,717,000 $46,391,000 $61,101,000
Sales to retail sales partnership - 1,528,000 2,150,000
41,717,000 47,919,000 63,251,000
Costs and expenses
Cost of sales 40,148,000 43,373,000 55,179,000
Cost of sales to retail sales
partnership - 1,099,000 1,565,000
Selling, general and admin. expenses 5,420,000 5,464,000 5,837,000
Equity in loss of retail sales
partnership - 651,000 156,000
45,568,000 50,587,000 62,737,000
Operating (loss) income (3,851,000) (2,668,000) 514,000
Other income (expense)
Gain on sale of property, plant
and equipment - 2,076,000 -
Interest income 298,000 246,000 165,000
Interest expense (546,000) (185,000) (107,000)
(Loss) income before income taxes (4,099,000) (531,000) 572,000
(Benefit) provision for income taxes (1,572,000) (262,000) 199,000
Net (loss) income $(2,527,000) $(269,000) $ 373,000
Net (loss) income per share:
Basic and diluted ($2.46) ($0.25) $0.34
Weighted-average shares outstanding:
Basic and diluted 1,027,334 1,064,212 1,110,934
Consolidated Statements of Shareholders' Equity
Common Stock Additional Retained
Shares Amount Paid-In Capital Earnings Total
Balance, October 31, 1998 1,110,934 $750,000 $842,000 $10,676,000 $12,268,000
Net income 373,000 373,000
Balance, October 31, 1999 1,110,934 750,000 842,000 11,049,000 12,641,000
Purchase of common stock (83,600) (56,000) (67,000) (377,000) (500,000)
Net loss (269,000) (269,000)
Balance, October 31, 2000 1,027,334 694,000 775,000 10,403,000 11,872,000
Net loss (2,527,000) (2,527,000)
Balance, October 31, 2001 1,027,334 $694,000 $775,000 $7,876,000 $9,345,000
The accompanying notes are an integral part of these consolidated financial statements.
KIT Manufacturing Company
Consolidated Statements of Cash Flows
For the Years Ended October 31, 2001 2000 1999
Cash Flows From Operating Activities:
Cash received from customers $ 43,329,000 $47,664,000 $62,344,000
Interest received 298,000 246,000 165,000
Income taxes received 133,000 -- 107,000
Cash paid to suppliers and employees (45,525,000) (49,367,000) (60,505,000)
Interest paid (546,000) (185,000) (107,000)
Income taxes paid -- (78,000) --
Net cash (used in) provided by operating
activities (2,311,000) (1,720,000) 2,004,000
Cash Flows From Investing Activities:
Purchase of property, plant and
equipment (70,000) (316,000) (455,000)
Proceeds from disposals of property,
plant and equipment 85,000 2,839,000 32,000
Investment in and advances to
retail sales partnership -- (545,000) (80,000)
Cash from consolidation of retail
sales partnership 94,000 -- --
Net cash provided by (used in) investing
activities 109,000 1,978,000 (503,000)
Cash Flows From Financing Activities:
Proceeds from short-term borrowings 18,174,000 16,806,000 14,693,000
Principal payments on short-term
borrowings (14,470,000) (16,806,000) (14,693,000)
Purchase of treasury stock -- (500,000) --
Net cash provided by (used in)
financing activities 3,704,000 (500,000) --
Net increase (decrease) in cash and
cash investments 1,502,000 (242,000) 1,501,000
Restricted cash and cash investments
at beginning of year 4,489,000 4,731,000 3,230,000
Restricted cash and cash investments
at end of year $5,991,000 $4,489,000 $4,731,000
Reconciliation of Net(Loss)Income to Net Cash (Used in) Provided by Operating Activities:
Net (loss) income $(2,527,000) $ (269,000) $373,000
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating activities:
Depreciation and amortization 566,000 465,000 609,000
Gain on sale of property, plant and
equipment -- (2,076,000) --
Deferred income taxes (1,572,000) (291,000) 168,000
Equity in loss of retail sales partnership -- 651,000 156,000
Changes in operating assets and liabilities:
Accounts receivable (344,000) 2,160,000 (906,000)
Inventories (1,379,000) (344,000) 2,367,000
Prepaids and other assets 278,000 (263,000) 103,000
Accounts payable and accruals 2,667,000 (1,753,000) (866,000)
Net cash (used in) provided by operating
activities $(2,311,000) $(1,720,000) $2,004,000
The accompanying notes are an integral part of these consolidated financial statements.
KIT Manufacturing Company
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Consolidating Principles
The accompanying consolidated financial statements
include the accounts of KIT Manufacturing Company and its wholly-
owned subsidiary, Housing Solutions, LLC (collectively, the
"Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Investments
The Company invests its cash in high quality financial
instruments, all of which are considered cash equivalents.
The Company considers all highly liquid financial instruments
with a maturity of three months or less at the
time of purchase to be cash equivalents. Cash equivalents are
carried at cost, which approximates market. The Company also
maintains deposits at financial institutions in amounts in
excess of federally insured limits.
Risks and Uncertainties
The Company's consolidated financial statements have been
presented on the basis that it will continue as a going-concern,
which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
The Company has suffered net losses of $2,527,000 and $269,000
and recorded net income of $373,000 for the years ended October
31, 2001, 2000 and 1999, respectively. The Company has used
cash from operating activities of $2,311,000, $1,720,000 and
provided cash from operating activities of $2,004,000 for the
years ended October 31, 2001, 2000 and 1999, respectively.
The Company has funded its financial needs primarily through
operations and its existing line of credit, as amended. At
October 31, 2001, the Company had cash and cash investments of
$5,991,000, which was restricted under its existing line of
credit, as amended, and working capital of $3,499,000. The
Company remains dependent upon its ability to obtain outside
financing either through the issuance of additional shares of
its common stock or through borrowings until it achieves
sustained profitability through increased sales and improved
product margins. The Company's business continues to focus on
the manufacturing, marketing and selling of its manufactured
homes and recreational vehicles.
In February 2002, management received a commitment from a bank
for a new $3,500,000 credit facility, collateralized
by substantially all of the Company's previously unencumbered
land and commercial buildings, as well as certain trade
receivables, inventories and equipment (see Note 5 of the Notes
to Consolidated Financial Statements). Until the new committment
is funded, the Company has obtained short-term funds of up to
$2.5 million collateralized by certain assests of the Chairman
of the Company. Concurrent with the Company's acceptance of this
new credit facility, the Company has paid off the existing line of
credit with available restricted cash and cash investments, as
allowed under the existing agreement. Management also plans to
continue its internal cost reduction initiatives that were
implemented in previous years. Additionally, management believes
that sales will increase and margins will improve, and with the
additional funding provided under a new long-term credit facility,
the Company should have sufficient capital resources to sustain
its operations through fiscal year 2002. Should the Company
require further capital resources during 2002, it would most
likely address such requirement through a combination of sales
of its products, sales of equity securities, and/or additional
debt financings. If circumstances changed, and additional capital
was needed, no assurance can be given that the Company would be
able to obtain such additional capital resources.
If unexpected events occur requiring the Company to obtain
additional capital and it is unable to do so, it then might
attempt to preserve its available resources by deferring the
creation or satisfaction of various commitments, deferring the
introduction of various products or entry into various markets,
or otherwise scaling back its operations. If the Company were
unable to raise such additional capital or defer certain costs
as described above, such inability would have an adverse effect
on the financial position, results of operations, cash flows and
prospects of the Company.
Valuation of Inventories
Inventories are stated at the lower of cost (last-in, first-
out for material and first-in, first-out for labor and overhead)
or market.
Investments
In fiscal year 2001, the Company maintained a 100%
interest in Housing Solutions LLC (the "retail sales
partnership") whose principal business is selling manufactured
homes to private individuals through its two retail dealerships.
The Company's relationship with each respective retail
dealership was governed by a 5 year operating agreement that
provided few protective and no participating rights to the
Company. Also in fiscal 2001, the Company negotiated the
termination of this operating agreement, purchased the minority
interest holder's 30% interest in the retail sales partnership
and assumed significantly all responsibility in connection with
its daily operations (refer to Note 2). As a result, the
Company has consolidated its investment effective the beginning
of fiscal 2001. In prior years, the Company accounted for this
investment under the equity method of accounting. However,
because the cumulative losses of the partnership exceeded the
minority interest holder's investment beginning in fiscal 1999,
the Company began recording 100% of the equity in losses from
that point forward.
Property, Plant and Equipment
For financial reporting purposes, depreciation and
amortization of property, plant and equipment is generally
provided for on a straight-line basis, using estimated useful
lives of 10 years for land improvements, 20 to 33-1/3 years for
buildings and improvements, 3 to 10 years for equipment and
lease terms for leasehold improvements. Upon sale or disposition
of assets, any gain or loss is included in operations.
Expenditures for maintenance, repairs and minor renewals are
charged to expense as incurred; expenditures
for betterments and major renewals are capitalized.
Assessments whether there has been a permanent impairment
in the value of property, plant and equipment are periodically
performed by considering factors such as expected future
operating income, trends and prospects, as well as the effects
of demand, competition and other economic factors.
Management believes no permanent impairment has occurred.
Revenue Recognition
Product sales and related cost of sales are recognized as
revenues provided the Company has received a purchase order, the
price is fixed or determinable, collectibility of the resulting
receivable is reasonably assured, returns are reasonably
estimable and there are no remaining obligations. For the
recreational vehicle division, shipping terms are FOB
destination. Title and risk of ownership are transferred when
the unit has been delivered to the customer/dealer, at which
time the sale is recognized as revenue. For the manufactured
homes division, shipping terms are FOB shipping point and title
and risk of ownership are transferred to the customer/dealer at
that time. Accordingly, sales are recognized as revenue at the
time units are shipped. The Company provides for estimated
future returns of inventory under the narrowly defined terms in
which the Company may be required to repurchase such inventory
(refer to Note 8) and the estimated costs of warranty at the
time of sale based on historical experience. Actual results
have been within management's expectations.
Income Taxes
The Company follows Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"),
which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that
have been included in the consolidated financial statements or
tax returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities
using enacted rates in effect for the
year in which the differences are expected to reverse. Valuation
allowances are established, when necessary, and after the
consideration of available tax strategies, to reduce deferred
tax assets to the amount expected to be realized.
Basic and Diluted Loss or Income Per Share
Basic loss or income per share is computed based on the
weighted-average number of shares outstanding during each year.
Diluted loss or income per share is computed based on the sum of
the weighted-average number of shares outstanding plus potential
common shares arising out of stock options,
unless the inclusion of such options would result in
antidilution. The Company's loss and income amounts used for per share
calculations are the same for both the basic and diluted methods.
There were no potential common shares included in the
calculation of diluted per share amounts for the years ended October 31, 2001,
2000 and 1999 because the effect would have been antidilutive.
Insurance
The Company is self-insured for workers' compensation for
its plant locations, officers' and directors' liability, and product
liability. The Company has recognized an estimated potential liability for
known claims and incurred but not reported claims.
Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Stock Options
The Company has adopted the disclosure-only provisions
under Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation ("SFAS No. 123").
Pro forma information is required by SFAS No.123, and has
been determined as if the Company accounted for stock options
under the fair value method as prescribed in the statement. The
Company computed the compensation expense of the option granted
using the methodology described in SFAS No. 123 and determined
the result to be immaterial.
Reclassifications
Certain amounts in the prior period financial statements
have been reclassified to conform to the current year's
presentation.
2. Investments
At October 31, 2000, the Company's investment in and advances to
the retail sales partnership, net of the Company's pro rata
share of cumulative equity in losses, was reflected as a
noncurrent liability totalling $96,000. Additionally, the
retail sales partnership reflected all advances from the Company
as a component of current liabilities equal to $625,000 at
October 31, 2000.
Effective November 1, 2000, the Company assumed significantly
all responsibility in connection with the daily operations of
the retail sales partnership. Although the original partnership
agreement governing the relationship between the Company and the
minority interest holder provided participating rights to the
minority holder and thus precluded the Company from
consolidating the retail sales partnership, the partnership's
recurring losses and need for continued funding required the
Company's attention. The retail sales partnership commenced
operations in fiscal 1998 and has continued to perform
substantially below expectations with losses trending
significantly higher in each successive year. While lenders'
tightened credit policies and industry-wide excess
inventory levels were partially responsible for the
partnership's poor performance, the Company's management raised
some concerns regarding the minority interest holder's
management of the partnership's operations in accordance with
the original agreement. The partnership agreement specifically
delegated day-to-day operating responsibility and decision
making authority to the minority interest holder and it is
management's belief that such responsibilities could have
performed at a higher level, as evidenced by the poor operating
results previously mentioned. As a result, in fiscal 2001, the
Company continued to fund 100% of the partnership's working
capital needs and also became substantially involved in the
decision making process and its daily operations. Additionally,
the Company purchased the minority interest holder's 30% interest
in the partnership for $20,000 in cash and the assumption of
$40,000 in debt and has consolidated its investment effective
the beginning of fiscal 2001. In prior years, the Company
accounted for this investment under the equity method of
accounting. However, because the cumulative losses of the
partnership exceeded the minority interest holder's investment
in fiscal 1999, the Company began recording 100% of the equity
in losses from that point forward.
The condensed financial information of the retail sales
partnership is as follows at October 31, 2001 and 2000, and for
each of the three years in the period ended October 31, 2001.
2001 2000 1999
Condensed Statement of Income Information:
Sales $ 3,990,000 $ 3,720,000 $3,912,000
Cost of sales 3,502,000 3,317,000 3,173,000
Selling, general and administrative
expenses 971,000 823,000 813,000
Interest expense 266,000 201,000 149,000
Net loss $(749,000) $(621,000) $(223,000)
Condensed Balance Sheet Information:
Current assets $2,128,000 $2,602,000
Noncurrent assets 334,000 389,000
$2,462,000 $2,991,000
Current liabilities $3,922,000 $3,681,000
Noncurrent liabilities 10,000 31,000
Members' deficit (1,470,000) (721,000)
$2,462,000 $2,991,000
3. Inventories
Inventories are summarized as follows:
October 31, 2001 2000
Raw material $1,810,000 $1,664,000
Work in process 1,336,000 597,000
Finished goods 3,295,000 537,000
$6,441,000 $2,798,000
The excess of current replacement cost over last-in, first-
out cost was $650,000 at October 31, 2001 and $649,000 at October 31,
2000.
4. Shareholders' Equity
Stock Options
In June 1994, the Company granted to five officers of the
Company, options to purchase up to 96,944 shares of the Company's
common stock, at 100% of the then fair value, or $10.38 per share.
Also in June 1994, the Company granted to one such officer an
additional option to purchase up to 35,056 shares of the Company's
common stock, at 110% of the then fair value, or $11.41 per share.
In June 1999, the Company granted to one officer of the Company,
options to purchase up to 40,000 shares of the Company's common
stock, at 100% of the then fair value, or $7.00 per share. Options
granted vest in four equal annual installments beginning one
year after the date of grant and remain outstanding (subject to
termination of employment, death or permanent disability of the
holder, as set forth in the option agreements) for a period of 7
years. Of the initial grants, options to purchase 55,000 shares
have been retired due to the termination of one grantee and the
death of a second grantee. The option to purchase the 35,056
additional shares of the Company's common stock was
also retired in June 1999. The option to purchase the 40,000
additional shares of the Company's common stock was also retired
due to the death of the grantee in April 2001. On October 31,
2001, 2000 and 1999, total unexercised options were 41,944, 81,944
and 81,944, of which 41,944, 51,944 and 41,944 options,
respectively, were exercisable.
Stock Repurchase
On September 14, 1999, the Board of Directors authorized
the Company to repurchase up to 100,000 common shares on the
open market during a period of not more than 12 months.
The 100,000 common shares authorized for repurchase represented
9% of the then outstanding common stock of the Company.
Through October 31, 2000, the Company, under the repurchase
plan, purchased 83,600 common shares. No common shares were
purchased in fiscal 2001.
5. Bank Credit Lines
At October 31, 2001 the Company is party to a $6,000,000
revolving credit agreement with a bank, which expires in June
2002, that provides financing of seasonal working capital
requirements. Major provisions of the agreement include interest
at the lesser of the bank's prime rate or market rate (5.5
percent at October 31, 2001), certain minimum requirements as to
the Company's working capital and debt-to-equity ratio and
minimum cash and cash investment deposit requirements with the
bank in an amount equal to or greater than the aggregate amount
borrowed against the line. At October 31, 2001, the balance on
the revolving credit line was $4,056,000, which was
collateralized by the Company's cash, accounts receivable, and
inventory. The agreement further required that the Company pay
unused commitment fees equal to one quarter of one percent
(0.25%) per annum on the average daily unused amount of the line
of credit. Interest costs charged to expense for the fiscal
years 2001, 2000 and 1999 were $280,000, $185,000 and $107,000,
respectively.
In January 2002, the Company amended its line of credit
with the bank to increase its permitted maximum borrowings to
$7,000,000, less commercial and standby letters of credit
totaling $450,000. All other terms and covenants, as described
above, were unchanged.
In February 2002, the Company was extended a commitment to
enter into a new $3,500,000 working capital credit facility from
a new bank. This new credit facility is due on demand, but only
after November 1, 2002, and if no demand, then on December 31,
2002, and bears interest at a variable rate, which is determined
as the greater of 7.5% or the bank's prime rate (4.75% in
February 2002) plus 1.5%. Collateral for the new credit
facility includes substantially all the Company's previously
unencumbered land and commercial buildings, as well as certain
trade receivables, inventories and equipment. There are no
unused commitment fees, prepayment penalties, borrowing
covenants or restrictions on cash and cash investments
associated with this new credit facility. Until the new committment
is funded, the Company has obtained short-term funds of up to
$2.5 million collateralized by certain assests of the Chairman
of the Company. Concurrent with the Company's acceptance of this
new credit facility, the Company has paid off the existing line of
credit with available restricted cash and cash investments, as
allowed under the existing agreement.
6. Retail Flooring Liability
Retail flooring liability represents borrowings from
various financial institutions by the Company's retail sales
partnership to finance inventory purchases of manufactured
homes. The amount outstanding of $1,850,000 at October 31,
2001, was financed under agreements with floor plan lenders that
provide for a security interest in the units financed and
repayment at the time the units are sold. There was $114,000 of
additional credit available under existing agreements with such
lenders at October 31, 2001. Substantially all amounts
outstanding bear interest at the prime rate (5.5% at October 31,
2001) plus one to three percent. Interest expense related to the
retail flooring liability for the year ended October 31, 2001
was $221,000.
7. Note Payable
Note payable consists of the following at October 31, 2001
Note payable to a bank bearing interest at the prime rate
plus 2.125%, interest payable in monthly instalments,
principal balance due on demand.
$300,000
8. Commitments and Contingencies
The Company was contingently liable at October 31, 2001 to
various financial institutions on repurchase agreements in
connection with wholesale inventory financing. In general,
inventory is repurchased by the Company at a moderate discount
upon customer default with a financing institution and then
resold through normal distribution channels. Historically, the
net gain or loss on such resales has not been significant. The
total selling value of finished units subject to such agreements
as of October 31, 2001 and 2000 was approximately $6,936,000 and
$7,715,000, respectively.
In addition, the Company is contingently liable to
financial institutions for standby letters of credit totaling
$450,000 and $153,000 as of October 31, 2001 and 2000,
respectively. These letters of credit were established to
satisfy the self-insured workers' compensation regulations of
the states in which the Company conducts manufacturing
operations.
On December 15, 1998, the Company was named as a defendant
in a lawsuit filed by one of its former dealers. A jury awarded the plaintiff
$370,000 plus accrued interest thereon in damages, however, the
verdict is currently under appeal with the Idaho State Supreme
Court. The outcome of the appeal is not known at this time, but
the Company intends to defend its position vigorously.
The Company, in its normal course of business is party to
other pending lawsuits or may be subject to other threatened lawsuits. While
the outcome of pending or threatened lawsuits cannot be predicted with
certainty, and an unfavorable outcome could have a negative impact on the
Company, at this time, in the opinion of management, the ultimate resolution
of these matters will not have a material effect on the Company's financial
position, results of operation or liquidity.
Management does not expect that losses, if any, from the
contingencies described above will be of material importance to
the financial condition or future earnings of the Company.
9. Income Taxes
The components of the provision (benefit) for income taxes are as
follows:
For the year ended October 31, 2001 2000 1999
Current:
Federal $ - $(1,000) $26,000
State - 30,000 5,000
- 29,000 31,000
Deferred:
Federal (1,372,000) (242,000) 125,000
State (199,000) (49,000) 43,000
(1,571,000) (291,000) 168,000
$(1,571,000) $(262,000) $ 199,000
The sources of deferred taxes were as follows:
October 31, 2001 2000 1999
Inventory cost capitalization $ (22,000) $(162,000) $77,000
Sales to retail sales partnership 32,000 (22,000) (63,000)
Accrued warranty costs (44,000) (24,000) 68,000
Workers' compensation reserves (74,000) 53,000 78,000
Non-deductible reserve 3,000 (148,000) -
State income and franchise taxes 78,000 64,000 (11,000)
Net operating loss carryforwards (1,449,000) - 19,000
Product liability reserves (25,000) (44,000) -
Depreciation (70,000) (8,000) -
$(1,571,000) $ (291,000) $168,000
Reconciliation of the effective tax rates and the U.S. statutory tax
rate is summarized as follows:
October 31, 2001 2000 1999
Statutory tax rate (34.0%) (34.0%) 34.0%
Tax exempt interest (1.3) (16.6) (7.2)
State tax provision, net of federal tax effect (3.2) (2.4) 5.5
Business meals and entertainment 0.2 1.6 1.9
Officer's life insurance - 1.0 -
Other - 1.1 0.6
(38.3%) (49.3%) 34.8%
The components of the deferred tax asset and liability are as
follows :
October 31, 2001 2000
Deferred tax asset:
Allowance for doubtful accounts $ 12,000 $ 15,000
Inventory cost capitalization 184,000 162,000
Sales to retail sales partnership 89,000 122,000
Accrued warranty costs 263,000 218,000
Workers' compensation reserves 214,000 140,000
Non-deductible reserve 234,000 148,000
State income and franchise taxes 112,000 -
Net operating loss carryforwards 1,449,000 165,000
Other 55,000 55,000
$2,613,000 $1,025,000
Deferred tax liability:
State income and franchise taxes $107,000 $ 21,000
Accelerated depreciation 300,000 371,000
Involuntary conversion of plant
facility and equipment 1,502,000 1,095,000
$1,503,000 $1,487,000
At October 31, 2001, the Company has net operating loss carryforwards for
federal and state tax purposes of approximately $3,790,000 and $4,050,000,
respectively, which begin to expire in 2021 and 2002, respectively. Ultimate
realization of the deferred tax assets is dependent upon the Company generating
sufficient taxable income prior to expiration of the loss carryforwards.
Although realization is not assured, management believes it is more likely
than not that the net deferred tax assets will be realized. The amount of
the deferred tax assets considered realizable, however, could be reduced in
the future if estimates of future taxable income during the carryforward
period are reduced.
10. Segment Information
The Company designs, manufactures and sells manufactured homes, which
are relocatable, factory-built dwellings of single and multi-unit design.
The Company also produces recreational vehicles designed as short-period
accommodations for vacationers and truckers. As such, the Company's
reportable segments are based on product lines. The accounting policies of
the reportable segments are the same as those described in Note 1. The
Company evaluates the performance of its operating segments based on
operating income or losses. Each segment records expenses related and
allocable to its employees and its operations. The Company does not
allocate income taxes, interest income, interest expense or gains or losses
on the sales of plant facilities to operating segments. Identifiable assets
are primarily those directly used in the operations of each segment. No
individual customer accounted for greater than 10% of net sales or accounts
receivable for any year or year-end presented.
October 31, 2001 2000 1999
(Dollars in thousands)
SALES
Manufactured homes $21,047 $21,672 $31,088
Recreational vehicles 20,670 26,247 32,163
Total sales $41,717 $47,919 $63,251
(LOSS) INCOME BEFORE INCOME TAXES
Operating (loss) income
Manufactured homes $ (739) $ (1,375) $2,445
Recreational vehicles (3,112) (1,293) (1,931)
Total operating (loss) income (3,851) (2,668) 514
Gain on sale of property, plant
and equipment - 2,076 -
Interest income 298 246 165
Interest expense (546) (185) (107)
(Loss) income before income taxes $(4,099) $ (531) $572
IDENTIFIABLE ASSETS
Manufactured homes $9,275 $9,849 $9,916
Recreational vehicles 13,078 7,497 9,845
Total assets $22,353 $17,346 $19,761
DEPRECIATION AND AMORTIZATION
Manufactured homes $219 $276 $308
Recreational vehicles 347 189 301
Total depreciation and amortization $566 $465 $609
Report of Independent Accountants
To the Shareholders and Board of Directors
KIT Manufacturing Company
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, shareholders'
equity and cash flows present fairly, in all material respects,
the financial position of KIT Manufacturing Company and its
subsidiary at October 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three
years in the period ended October 31, 2001 in conformity with
accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of
the Company's management; our responsibility is to express an
opinion on these financial statements 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.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
December 10, 2001, except for the fifth paragraph of Note 1 and
the third paragraph Note 5, as to which the date is February 12, 2002
KIT Manufacturing Company
Selected Financial Data
October 31, 2001 2000 1999 1998 1997
(Dollars in thousands
except per share amounts)
FISCAL YEAR
Sales $41,717 $47,919 $63,251 $61,030 $76,465
Net (loss) income $(2,527) $(269)(1) $373 $(357) $(2,312)
Cash dividends paid $ 0 $ 0 $ 0 $ 0 $ 0
Capital expenditures $ 70 $316 $455 $578 $1,227
Depreciation $ 566 $465 $609 $639 $677
AT YEAR-END
Working capital $3,499 $7,532 $7,476 $6,861 $7,215
Current ratio 1.3:1 2.9:1 2.3:1 2.0:1 2.0:1
Ppty, plnt & equip, net $5,445 $5,637 $6,549 $6,735 $6,844
Total assets $22,353 $17,346 $19,761 $20,351 $21,137
Long-term obligations $0 $0 $0 $0 $0
Shareholders' equity $9,345 $11,872 $12,641 $12,268 $12,625
PER SHARE
Basic and diluted net
(loss) income $(2.46) $(0.25)(1) $0.34 $(0.32) $(2.08)
Shareholders' equity $ 9.10 $11.16 $11.38 $11.04 $11.36
(1) Includes gain on sale of business property in Chino, California of
$853,000, net of related income taxes, or $0.81 per share, and gain on
sale of business property in McPherson, Kansas of $402,000, net of related
income taxes, or $0.38 per share.
KIT Manufacturing Company
Quarterly Statistics
(Dollars in thousands except per share amounts)
(Unaudited)
Fiscal 2001 First Quarter Second Quarter Third Quarter Fourth Quarter
Sales $ 6,753 $12,154 $11,449 $11,361
Gross (loss) profit (306) 571 579 725
Loss before income taxes (1,456) (1,079) (989) (575)
Net loss (866) (643) (614) (404)
Basic and diluted net loss
per share ($0.84) ($0.63) ($0.60) ($0.39)
Fiscal 2000
Sales $10,966 $14,908 $13,559 $ 8,486
Gross profit (loss) 1,348 1,224 974 (99)
Income (loss) before income taxes 273 1,476 91 (2,371)
Net income (loss) 177 865 53 (1,364)
Basic and diluted net income (loss)
per share $0.16 $0.80 $0.05 ($1.26)
Market Prices of Common Stock
Fiscal 2001 First Quarter Second Quarter Third Quarter Fourth Quarter
High $3.60 $3.21 $3.20 $2.60
Low $3.125 $3.10 $2.90 $2.54
Dividends 0 0 0 0
Fiscal 2000
High $5.625 $6.875 $7.1875 $6.75
Low $4.25 $5.25 $6.375 $4.875
Dividends 0 0 0 0
KIT common stock is traded on the American Stock Exchange. The above table reflects
the high and low sales prices for each quarterly fiscal period in the past two years.
There were approximately 346 shareholders of record on January 5, 2002.
Corporate Information
Directors Stock Registrar and Transfer Agent
Dan Pocapalia ChaseMellon Shareholder Services,
Chairman of the Board, L.L.C., Ridgefield Park, New Jersey
Chief Executive Officer,
President of KIT
Fred W. Chel Legal Counsel
Business Consultant, O'Melveny & Myers, LLP
Custom Fibreglass Los Angeles, California
Manufacturing Company
Frank S. Chan, Jr.
Certified Public Accountant, Accountants
Partner, Frank S. Chan & Company PricewaterhouseCoopers LLP
Los Angeles, California
John W. H. Hinrichs
Senior Vice President & Cashier,
Farmers & Merchants Bank
of Long Beach Form 10-K
A copy of the Company's current annual
John F.Zaccaro report filed with the Securities and
President Academy of Medical Exchange Commission(SEC)on Form 10-K,
Films since 1991. exclusive of exhibits,will be furnish-
ed to shareholders without charge upon
written request to Marlyce A.Faldetta,
Corporate Secretary, KIT Manufacturing
Officers Company, Post Office Box 848, Long
Dan Pocapalia Beach, California 90801.
Chairman of the Board,
Chief Executive Officer,
and President Executive Offices
KIT Manufacturing Company
Bruce K. Skinner 530 East Wardlow Road, P.O. Box 848
Vice President and Treasurer Long Beach, California 90801
(562) 595-7451
Matthew S. Pulizzi Website: www.kitmfg.com
Vice President - Customer Relations
Annual Meeting of Shareholders
Marlyce A. Faldetta Tuesday, March 12, 2002, 9:00 A.M.
Corporate Secretary Long Beach Marriott
4700 Airport Plaza Drive
Long Beach, California
February 13, 2002
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
Attached is the EDGAR submission of Form 10-K for KIT
Manufacturing Company for the fiscal year ended October 31,
2001, as required by the Securities and Exchange Act of 1934.
Sincerely,
/s/Bruce K. Skinner
Bruce K. Skinner
Vice President & Treasurer
BKS/s
Enc.