<PAGE>
FORM 10-KA
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998
OR
/ / TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-13746
FIREPLACE MANUFACTURERS, INC.
(Exact Name of Registrant as specified in its charter)
California 95-3244946
- ---------------------------------------------- -----------------------------
(State or other jurisdiction of Incorporation) (I.R.S. Employer I.D. No.)
2701 South Harbor Boulevard, Santa Ana, California 92704
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 549-7782
---------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
<PAGE>
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 than 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 filer's 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 aggregate market value of the Registrant's Common Stock held by
non-affiliates based on the average bid and asked prices of such stock, as of
May 15, 1998 was $18,297,000 and $19,528,000, respectively.
The number of shares outstanding of each of the Registrant's classes of Common
Stock as of May 15, 1998, was as follows:
Common Stock, $0.01 Par Value per share - 3,326,775
Documents incorporated by reference. None
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PART I
ITEM 1 BUSINESS
Fireplace Manufacturers, Inc. ("FMI" or "the Company") was incorporated in 1976
and is engaged in the manufacture and sale of factory-built metal fireplace
systems and gas fireplace appliances.
RECENT SIGNIFICANT DEVELOPMENTS The company entered into an Agreement and
Plan of Reorganization with DESA International on May 13, 1998 in which the
Company will be merged with and into DESA International. As part of such
merger the Company's common stock will be exchanged for $7.14 per share, not
to exceed $23,750,000. Upon consummation of the merger, all outstanding
stock options, subject to possible adjustment, will be canceled and all
existing employment agreements and severance compensation agreements will be
terminated. Upon closing, three members of the executive management team
will enter into three year non-compete agreements with the buyer.
Consummation of the merger is dependent upon certain regulatory clearance and
the approval of the shareholders at a special meeting scheduled to be held in
August 1998. No assurances can be given that the merger will be consummated.
METAL FIREPLACE SYSTEMS AND RELATED PRODUCTS
Fireplace Manufacturers, Inc., designs, manufacturers, and sells factory-built,
energy-efficient metal fireplace systems. The Company currently produces
wood-burning metal fireplaces, decorative gas appliances with refractory-lined
fireboxes, horizontal/vertical gravity direct vent wall furnaces, and related
chimney flues. Optional features of the fireplaces include the ability to
accept natural gas, glass doors, decorative facings, outside air intakes, and
electrical fans. The fireplaces are used in single-family homes, condominiums,
apartments, other multiple-family dwellings, and in manufactured housing. They
can be used as part of a wall, in a corner, or as a room divider. Fireplaces
are sold mainly to one and two step distributors who install the system for home
builders in new construction and to retail distributors.
Each fireplace consists of an inner sheet metal firebox, which is lined with an
insulating brick-textured refractory material, and an outer sheet metal shell
separated from the heat-bearing box. Chimney components, which are attached to
the firebox in accordance to the height of the dwelling, are of double-wall
construction so that the outer wall may be installed within two inches (2") of
the combustible building materials. The firebox has specifically designed
vents, which permits convection flow to recirculate warm air heated in that
chamber into the room where the fireplace is installed. All fireplaces are
finished with a durable powder coat spray finish which resists scuffing,
scraping and fading.
The Company currently produces forty eight models of fireplaces, varying in size
and shape with slightly different grillwork styles. The fireplace units are
generally sold to distributors at competitive prices. The distributors sell the
fireplaces to builders at prices from $400 to $4,000. Twenty-nine of these
fireplaces are gas-only models.
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FMI has developed a line of ventfree fireplaces and gas log heaters that have
grown in popularity over the last five (5) years. The Company expects the
ventfree product to gain popularity in the near future, although it lacks
approval in various states.
Also added to the product line is free standing stoves and a series of vented
and ventfree gas log sets:
FREE STANDING STOVES
Free standing stoves have a powder coated spray finish which resists scuffing,
scraping and fading. They can be easily placed in a corner or next to a wall
with no chimney or ductwork. The free standing stoves use natural or propane
fuel.
VENTED AND VENTFREE GAS LOG SETS
The vented gas log sets have the ambiance of a wood fire with the convenience of
simple ignition or the flip of a switch. The log kits come complete in 16",
18", and 24", with a burner grate, connector, volcanic rock, and rock wool.
Ventfree gas logs can be installed in any FMI vented or ventfree fireplace,
masonry fireplaces, as well as other zero clearance manufactured boxes that have
approval with FMI ventfree log sets. The log sets can be produced as either
round oak or split oak and range in size from 18" to 24". For safety, the ODS
(oxygen depletion sensor) will shut the gas logs off if oxygen is depleted or
fuel is interrupted in the room.
CUSTOMERS AND MARKETING
The Company has developed three distribution markets for its products:
HOME BUILDERS
This market is the largest and has been a focus for FMI throughout its 20 year
history. FMI sells directly to fireplace distributors or "jobbers" who sell,
service, and install the fireplaces.
RETAIL
FMI has turned its focus toward the two-step distribution process in marketing
to fireplace centers.
MANUFACTURED HOUSING
Growth in this market has been at approximately 10% annually, and the
competition is substantial. FMI sells to the Evcon Group, a national
distributor of furnaces and fireplaces to the manufactured housing industry.
Eighteen percent of the manufactured housing manufactured each year have a
fireplace.
The Company has an agreement with the Evcon Group to provide fireplaces for the
manufactured housing industry. This agreement provides for the Evcon Group to
be the distributor to the manufactured housing industry for the Company's
products. This agreement is renewable annually.
The Company also sells in limited international markets: Japan, Canada, Norway,
Holland, England and Saudi Arabia. Total sales to all foreign markets are less
than 5%.
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The sales and marketing functions are currently managed by FMI's Vice President
of Sales and Marketing. FMI employs three regional sales managers. Each
manager covers a multi-state region, selling through independent representative
agencies. The Company's regional sales managers are based in Campbell,
California; Poway, California; and Fredericksburg, Virginia.
For the fiscal year ended March 31, 1998, sales to the Evcon Group accounted for
23% of FMI sales. Sales to Quality Insulation accounted for 12% of FMI sales.
Except for these customers, no other customer accounted for more than 10 percent
of metal fireplace sales. The total number of customers is 220.
The loss of the relationship of any major distributor could have an adverse
effect on FMI, at least until FMI could establish a new distributor for the
area.
As of March 31, 1998, the backlog of firm orders for the metal fireplace systems
was not significant. Backlogs typically only represent approximately one or two
weeks of sales since products are usually shipped within a few days of an order.
PATENTS TRADEMARKS AND TRADENAMES
The Company does not own any material patents. The Company filed a trademark
application on October 3, 1997 with the U.S. Patent and Trademark Office and
anticipates final approval during 1998. The trademarked name is Universal
Ventfree Fireplace.
FABRICATION OF FIREPLACES
The fireplaces are produced at FMI's plant in Santa Ana, California. Metal
forming presses and related equipment are utilized to cut, bend, weld, and rivet
a fireplace's component parts. After assembly, the fireboxes are lined with
refractory material and painted. As of March 31, 1998, FMI was producing over
400 fireplaces per day.
FMI's fireplaces go through approximately seven inspections before shipment. In
addition, prototype models and samples are periodically tested by independent
testing laboratories. FMI also has a fully equipped sealed room testing
facility for assessing various characteristics of the component parts of its
metal fireplace systems. The line of fireplaces manufactured by the Company has
been successfully listed to U.S., Canadian and European Standards by independent
agencies which include INCHSCAPE, American Gas Association and Underwriters
Laboratories.
SUPPLIES AND RAW MATERIALS
The major materials used in the production of the fireplaces are galvanized,
aluminized and stainless steel, refractory concrete, and fiberglass insulation.
These materials are generally available at competitive prices and are purchased
from more than one supplier.
BUILDING CODES
The metal fireplaces are subject to the requirements of local building codes and
have been listed by Underwriters Laboratories. FMI's fireplace systems meet the
requirements of the Veterans Administration and Federal Housing Administration
programs, and certain models of FMI fireplaces are approved for manufactured
housing.
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Pending legislation in several states and major cities for clean air to meet
Environmental Protection Agency requirements has resulted in FMI developing
clean-burning appliances, the emphasis being on gas-burning appliances. While
continuing to manufacture wood burning fireplaces, FMI has added four
gas-burning appliances to the product line, making a total of twenty-nine
gas-burning models in their line.
RESEARCH AND DEVELOPMENT
The Company incurs research and development costs on new product development,
improvement of existing products, and product line extension. During 1998, 1997
and 1996, the Company investment in research and development totaled $766,000,
$607,000, and $586,000 respectively.
COMPETITION
There are eight well-established US companies manufacturing metal fireplaces,
which are sold on a nationwide basis through a number of distributors and
dealers. Since these competitors are primarily privately-held companies or
divisions of larger companies, precise financial information as to their
competitive impact on FMI is not available. FMI competes, based on lower cost
of its units, design innovations, and ease of installation of its fireplace
systems.
FMI also competes with masons who hand build fireplaces. Hand built masonry
fireplaces take longer to install and require on-site preparation of the
building. Metal fireplaces require no on-site preparation.
EMPLOYEES
As of March 31, 1998, FMI employed 200 persons, including approximately 175 in
fabrication and a staff of 25 sales, office, engineering, and administrative
personnel. None of these employees are covered by collective bargaining
agreements, and FMI considers its employee relations to be satisfactory.
ITEM 2 PROPERTIES
FMI leases a facility in Santa Ana, California, comprising approximately 104,000
square feet. Effective May 1, 1994, FMI entered into a five-year lease for such
facility with monthly rentals of $29,000.
ITEM 3 LEGAL PROCEEDINGS
A claim was asserted against the Company alleging infringement of a company's
patent. The original claim was for $50 per unit sold that infringed upon the
patent (management estimated the potential claim at approximately
$1,000,000). The district court granted the Company's motion for summary
judgment and held that the Company's products do not infringe the patent at
issue, either literally or by operation of the doctrine of equivalents. The
summary judgment has been appealed. The Company's independent counsel is
unable to express an opinion as to the probably outcome of the action and
therefore no estimate can be made of a range of amount of loss, if any, that
is reasonably possible. No amounts have been accrued in regards to this
matter and it is reasonably possible that a change in the estimate will occur
in the near term.
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ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered
by this form 10-K to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRICE RANGE OF COMMON STOCK
The following table shows the high and low bid prices for the Common Stock in
the over-the-counter market for the fiscal quarters indicated. The Common Stock
is quoted on the NASQ's Electronic Bulletin Board under the symbol: FPMI. The
quotations were obtained from the National Quotation Bureau Incorporated and
represent prices in the over-the-counter market between dealers in securities.
They do not include retail mark-ups, mark-downs, or commissions, and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Quarter Common Stock Bid Prices
Ended High Low
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<S> <C> <C> <C>
1996 March 31 $.78 $.40
June 30 .93 .81
September 30 .93 .37
December 31 .93 .53
1997 March 31 1.12 .75
June 30 1.69 1.12
September 30 2.88 1.56
December 31 3.25 2.75
1998 March 31 5.88 2.56
</TABLE>
In view of the limited market for and the sporadic trading of the Common Stock,
the above prices are not considered a reliable indicator of fair market value.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS:
<TABLE>
<CAPTION>
Approximate Number of
Record Holders
Title of Class As of May 19, 1998
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<S> <C>
Common Stock, $0.01 815 (1)
par value
</TABLE>
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(1) Included in number of record holders are shares held in "nominee" or
"street names".
DIVIDENDS
The Company has not paid cash dividends on its common stock and does not intend
to pay cash dividends in the foreseeable future. It is the present policy of
the Board of Directors to retain all earnings, if any, to provide funds for the
growth of the Company. Payment of cash dividends in the future will rest within
the discretion of the Board of Directors and will depend, among other things,
upon the Company's future earnings, capital requirements, and financial
condition. Currently, the Company's loan agreement prohibits the payment of
dividends. See Note 4 of the Notes to Financial Statements. In addition,
California state law may prevent the Company from declaring any dividends if it
does not have retained earnings or meet certain ratio tests after the payment
of such dividends.
ISSUANCE OF UNREGISTERED SHARES OF COMMON STOCK
On July 22,1997 the Board of Directors approved and on January 19, 1998 the
Company issued to the following members of the Board of Directors and executive
officers the following shares of the Company's common stock. The shares were
issued as part of their 1998 compensation.
<TABLE>
<CAPTION>
Number
Name and Principal Position of Shares Amount
--------------------------- --------- ------
<S> <C> <C>
Willard V. Harris, Jr., Chairman of the Board 15,000 $ 24,450
Willard P. Harris, President, Chief Executive 15,000 $ 24,450
John D. Hornsby, Chief Operating Officer 15,000 $ 24,450
James L. Behrens, Vice President of Sales & Marketing 63,000 $ 102,690
Jane A. Iovine, Vice President of Finance 11,000 $ 17,930
</TABLE>
On March 25 1997, the Company issued the following members of the Board of
Directors and executive officers the following shares of the Company's common
stock. The shares were issued as part of their 1997 compensation.
<TABLE>
<CAPTION>
Number
Name and Principal Position of Shares Amount
--------------------------- --------- ------
<S> <C> <C>
Willard V. Harris, Jr., Chairman of the Board 50,000 $ 38,000
Willard P. Harris, President, Chief Executive 50,000 $ 38,000
John D. Hornsby, Chief Operating Officer 50,000 $ 38,000
James L. Behrens, Vice President of Sales & Marketing 38,252 $ 29,072
Jane A. Iovine, Vice President of Finance 5,000 $ 3,800
</TABLE>
The shares were issued under an exemption from registration provided by Section
4(2) of the Securities Act of 1933.
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ITEM 6 SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements of the Company and the notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations included herein.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNT)
<S> <C> <C> <C> <C> <C>
Net sales $28,999 $31,844 $28,729 $26,705 $19,813
Net income $ 1,321 $ 994 $ 44 $ 457 $ 43
Average shares
outstanding, basic 3,400 3,323 3,536 3,553 3,553
Net Income $ 0.39 $ 0.30 $ 0.01 $ 0.13 $ 0.01
per common share, basic
Total assets $ 6,647 $ 6,937 $ 8,832 $ 8,988 $ 6,379
Total long-term
obligations (excluding
current portion) $ 0 $ 235 $ 904 $ 998 $ 732
Cash dividends
per share N/A N/A N/A N/A N/A
</TABLE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
LIQUIDITY AND CAPITAL RESOURCES
The Company has a line of credit with a bank for an aggregate $4,000,000 with an
interest rate of .50 percent above prime, payable monthly. At March 31, 1998,
and 1997 there were no amounts outstanding under the line of credit. The net
availability remaining under this revolving line of credit is $1,663,000 at
March 31, 1998. The line of credit agreements contain restrictive covenants
which require maintenance of working capital and other financial ratios,
prohibit the payment of dividends and have certain other limitations. The line
of credit is subject to renewal on August 3, 1998. The Company does not
anticipate the need to renew this line of credit.
The Company also has available a $500,000 equipment line of credit which
converts to a forty-eight month term loan on August 1, 1998. The borrowings
under the line bear interest at the bank's prime rate plus .75%. The line is
subject to the same covenants as the line of credit. At March 31, 1998, there
were no amounts outstanding under this agreement.
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Accounts receivable (before allowances for doubtful accounts) at March 31,
1998 were $2,063,000, compared to $2,579,000 at March 31, 1997. The 20%
decrease is primarily attributed to improved credit collections. Days sales
outstanding at March 31, 1998 was 25 compared to 28 at March 31, 1997. In
1996, the Company began to utilize an agreement with a finance company
whereby the finance company, with the approval of the customer, will purchase
receivables from the Company. Under the first program the invoice is paid
within 15 days at a discount of 2.25%. Under the second program the invoice
is paid within 30 days at a discount of 1.75%. The agreement contains a
clause whereby if the finance company repossess' any inventory of the
customer, the Company is obligated to repurchase the repossessed inventory.
There have not been and the Company does not anticipate any material
repurchases of inventory. The Company accounts for this arrangement as a
sale of receivable. During 1998 and 1997, the Company sold receivables of
approximately $4,267,000 and $2,400,000. The balance sheet at March 31, 1998
includes approximately $150,000 due from the finance company. At March 31,
1998 and 1997 the amount of receivables sold to but not collected by the
finance company was approximately $722,000 and $610,000 respectively. The
impact of the sales of receivables on the days sales outstanding was to
reduce the days sales outstanding by 10 and 9 days at March 31, 1998 and 1997
respectively. The allowances for doubtful accounts decreased for the year
$11,000 from $272,000 to $261,000 at March 31, 1998. The decreased reserve
is related to the lower accounts receivable balance.
The current ratio increased by 29.4% during fiscal year 1998. At March 31, 1998
the current ratio was 1.76:1 as compared to 1.36:1 at March 31, 1997. The
Company benefited from higher margins and reductions in accounts payable
balances.
Inventories decreased $276,000 to $1,571,000 at March 31, 1998 from $1,847,000
at March 31, 1997. The purchased parts inventory was responsible for the
majority of this decrease due to an improved purchasing approach that allows for
shorter lead time and smaller quantity purchased per transaction.
The Company has made equipment additions of $243,000 and $345,000 for 1998 and
1997 respectively. Purchases of fixed assets are anticipated to increase for
the fiscal year ended March 31, 1999 although no specific budget has been
established at this time. If required, financing for equipment purchases are
available from financial institutions.
The Company's Board of Directors approved the repurchase of up to 500,000
shares of common stock from time to time. At various times throughout 1998
240,275 shares were repurchased for $644,000. As required by California law
all repurchased shares were retired. The Company has suspended the
repurchase of stock due to the pending acquisition discussed in Item 1.
Business - Recent Significant Developments. On July 21, 1997 the Company
issued 119,100 shares valued at $194,133 using the bid price per share on
that date, as compensation to the Board of Directors and executive officers.
RESULTS OF OPERATIONS 1998 COMPARED TO 1997
Sales for the fiscal year 1998 decreased 8.9% from fiscal year 1997. The
decrease in sales is attributed to a 12.0% decrease in unit sales offset by a
3.6% increase in average selling price. Decreased unit sales are primarily
attributable to a decrease in the manufactured housing industry unit sales
during fiscal year 1998. Based on present market conditions, the Company
believes sales will remain constant for fiscal year 1999 although there can be
no assurances in that regard.
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Cost of sales for fiscal year 1998 were 75.1% of sales as compared with 79.1% of
sales in fiscal year 1997. This decrease is attributed to the 3.6% increase in
average selling price along with savings on materials costs through improved
purchasing techniques. Management's goal is to continue to improve this
percentage in fiscal year 1999 although there can be no assurances in this
regard.
Selling, general and administrative expenses increased as a percent of sales by
1.5% to 17.9% of sales in fiscal 1998 compared to 16.4% in fiscal 1997. This
increase is attributed to higher bonus expense calculated on the higher 1998 net
profit. The Company anticipates a decrease in this percentage in fiscal year
1999 due to the lower bonus rates which were announced for the new year.
Interest expense decreased in 1998 by 0.7% as a percent of sales over the fiscal
year 1997 expense. This decrease is due to interest calculated on lower
borrowings. The Company expects interest expense to continue to decrease for
1999 although there can be no assurances in this regard.
During the fiscal year 1998, the Company generated $241,000 in tax credits
that can be used to offset State of California income taxes. The Company had
$155,000 of tax credit carryforwards available at March 31, 1997. The Company
was able to realize only $92,000 of these credits on its March 31, 1998
income tax return resulting in $292,000 carryforward to future years. The
Company's policy is to record a valuation allowance on tax credits that are
not expected to be realized within two years even though the statutory
expiration date may be longer. Accordingly, the Company has recorded a
valuation allowance of $100,000 at March 31, 1998 on the deferred tax assets
relating to tax credit carryforwards. The Company did not record a valuation
alowance at March 31, 1997 because the tax credit carryforwards of $155,000
were expected to be utilized within two years.
The Company's 1998 net income as a percent of sales increased 1.5% from 1997.
Management believes that continued cost cutting efforts, lower bonuses and
better market penetration will allow the Company to remain profitable in 1999
although there can be no assurances in this regard.
RESULTS OF OPERATIONS 1997 COMPARED TO 1996
Sales for the fiscal year 1997 increased 10.8% from fiscal year 1996. The
increase in sales is attributed to a 5.5% increase in selling price. The
remaining increase is attributable to an increase in the number of units sold.
A number of factors affected the selling price, the Company decreased the number
of special discounts available to customers, raised the price of the products
and increased sales of non fireplace items such as pipe, accessories and log
sets. The increase in units sold is explained by a surge in the manufactured
housing industry.
Cost of sales for fiscal year 1997 were 79.1% of sales as compared with 83.2% of
sales in fiscal year 1996. This decrease is attributed to the 5.5% increase in
average selling price along with a 1.5% increase in plant variable costs.
Selling, general and administrative expenses increased by 0.90% to 16.4% of
sales in fiscal 1997 compared to 15.5% in fiscal 1996. This slight increase is
attributed to higher bonus expense which reflects the higher 1997 net profit.
The Company analyzes all costs in these areas on an individual basis for
necessity and impact on the overall profitability of the Company.
Interest expense decreased in 1997 by 0.5% as a percent of sales over the fiscal
year 1996 expense. This decrease is due to interest calculated on lower
borrowings.
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Management estimates no valuation allowance on deferred tax assets is needed
because expected future taxable income will be adequate to realize the deferred
tax assets.
The Company's 1997 net income as a percent of sales increased 3.0% from 1996.
The increase is due to lower cost of sales offset by slightly higher selling,
general and administrative expenses.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive Income and
SFAS No. 131 Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 requires an enterprise to report, by major components
and as a single total, the change in its net assets during the period from
nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.
YEAR 2000
The Company's computer systems are not compliant with the year 2000
requirements. At this time Management is considering several options to gain
compliance with prices ranging from $150,000 to $250,000. Price differences
would allow for other system upgrades to be implemented simultaneously with the
year 2000 solution.
FORWARD LOOKING STATEMENTS
Statements regarding the Company's expectations as to demand for its products in
fiscal 1999, the operating efficiencies from operation of the Fireplace
business, and revenue generation from existing or future contracts and certain
other information presented in this report constitute forward looking statements
within the meaning of the Federal Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations with respect to the
future are based on reasonable assumptions within the bounds of its knowledge of
its business and operations, there can be no assurance that actual results will
not differ materially from its expectations. In addition to matters affecting
the economy and the Company's industry generally, factors which could cause
actual results to differ from expectations include the following:
- - Loss of one or more significant customers
- - Reduction in gross profit margins due to competitive pricing pressures
- - Changes in governmental regulation or failure to comply with existing
regulation
- - Changes in the cost or availability of purchased parts
- - Inability to obtain needed additional capital on terms acceptable to the
Company
- - Inability to reduce costs while maintaining customer service
- - Potential default under line of credit or other material contracts
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ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISKS
Not applicable.
ITEM 8 FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
The Company's financial statements are attached herein.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of Fireplace Manufacturers, Inc. are as
follows:
<TABLE>
<CAPTION>
NAME POSITION AGE
- ---- -------- ---
<S> <C> <C>
WILLARD V. HARRIS, JR. Chairman of the Board of Directors 64
WILLARD P. HARRIS President, Chief Executive Officer, and Director 42
JOHN D. HORNSBY Chief Operating Officer, Secretary, and Director 44
JAMES L. BEHRENS Vice President of Sales and Marketing 43
JANE A. IOVINE Vice President of Finance 36
GERARDO C. LOZANO Vice President of Manufacturing 37
</TABLE>
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WILLARD V. HARRIS, JR., has been Chairman of the Board of Directors since March
1978. He was also President and Chief Executive Officer of the Company between
March 1978 and February 1983. Mr. Harris is a trustee of the University of
LaVerne and Whittier College.
WILLARD P. HARRIS has been President, Chief Executive Officer, and Director of
the Company since February 1983. From June 1980 to February 1983, he held
positions from Regional Sales Manager to General Sales Manager of the Company.
Willard P. Harris is the son of Willard V. Harris, Jr.
JOHN D. HORNSBY was named Chief Operating Officer in April 1987, and has been
Secretary-Director of the Company since February 1983. He joined the Company in
May 1978 as a manager trainee and became Operations Manager in 1979.
JAMES L. BEHRENS was named Vice President of Sales and Marketing in February
1996. Mr. Behrens worked as a consultant for a fireplace distributor for four
years prior to joining FMI. He has over 15 years of experience in the fireplace
industries.
JANE A. IOVINE was named Vice President of Finance in July of 1995, she has been
with the Company since March of 1994. Ms. Iovine is a graduate of San Diego
State University and has been a CPA since May of 1990.
GERARDO C. LOZANO was named Vice President of Manufacturing in 1993, he started
at FMI as a trainee in 1983 and has served in various positions since that time.
The above directors and officers have had no prior convictions or bankruptcies.
The terms of office for the Board of Directors are extended annually unless the
Board of Directors elects, at the director's meeting following the annual
stockholders' meeting, not to extend the relationship. Officers serve at the
pleasure of the Board of Directors.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
There have been no failures to timely file forms 3, 4 or 5.
14
<PAGE>
ITEM 11 EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information concerning the compensation of the
Chief Executive Officer and the three other executive officers of the Company
whose total salary and bonus for the year ended March 31, 1998 exceeded $100,000
for services in all capacities to the Company and its subsidiaries during such
fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
-----------------------------------------------------
Name and Principal Other Annual
Position Year Salary (1) Bonus (2) Compensation
- ------------------ ---- ---------- --------- ------------
<S> <C> <C> <C> <C>
Willard V. Harris, Jr. (4) (5) 1998 $190,956 $ 89,835 (7) $137,585 (3)
Chairman of the Board 1997 $220,720 $ 45,500 (6) $ 38,294 (3)
1996 $112,000 $ 55,000 $ 0
Willard P. Harris (4) (5) 1998 $209,790 $206,808 (7) $ 0
President, Chief Executive 1997 $212,380 $ 63,000 (6) $ 75,435 (3)
Officer, Director 1996 $195,000 $ 69,000 $ 37,000 (3)
John D. Hornsby (4) (5) 1998 $199,920 $203,539 (7) $ 0
Chief Operating Officer 1997 $196,680 $ 63,000 (6) $ 35,549 (3)
1996 $152,000 $ 64,000 $ 19,000 (3)
James L. Behrens (5) 1998 $ 75,000 $230,929 (7) $ 0
Vice President of Sales & 1997 $ 75,000 $ 31,032 (6) $ 0
Marketing 1996 $ 7,212 $ 0 $ 0
</TABLE>
(1) FMI's audit committee uses the Employers Group Executive Salary Survey as a
tool in approving salary and bonuses. The Employers Group Executive Salary
Survey is a comprehensive study of executive compensation in California,
published annually for the last 40 years. Participants in this survey include a
wide variety of types and sizes of business organizations.
(2) Bonus earnings are reported on a cash basis for individuals, consequently
bonus' paid for the prior fiscal year are shown here as compensation in the
subsequent fiscal year. On the financial statements, bonuses are accrued
during the period earned.
(3) This additional compensation was used to decrease notes receivable from
officers due to the Company during 1996 and 1997. In 1998 W.V. Harris used
additional compensation to repay debt of Rampart Inc. a previously related
party.
15
<PAGE>
(4) The Company entered into a severance agreement with the three Board of
Directors which expires on the earliest of the following dates: five years
expiring in May 2001; termination of the executive's employment based on death,
disability, retirement, or cause or by the executive other than for good reason;
one year from the date of a change in control if the Director has not terminated
his employment for good reason. The terms of the agreement require severance
compensation equal to 299% of the Director's average annualized compensation
includable in his gross income for the five taxable years immediately preceding
the date of the change in control.
(5) Additional annual compensation did not exceed the lesser of either $50,000
or 10% of the total salary as disclosed in the summary compensation table.
(6) Includes the following stock bonuses; W. V. Harris 50,000 shares ($38,000);
W. P. Harris 50,000 shares ($38,000); J. D. Hornsby 50,000 shares ($38,000); and
J. L. Behrens 38,252 shares ($29,072).
(7) Includes the following stock bonuses; W. V. Harris 15,000 shares ($24,450);
W. P. Harris 15,000 shares ($24,450); J. D. Hornsby 15,000 shares ($24,450); and
J. L. Behrens 63,000 shares ($102,690) plus automobiles transferred at blue book
value to W.V. Harris at $8,632; W.P. Harris $23,950; and J.D. Hornsby $25,027.
None of the Board of Directors or executive officers have an employment contract
with the Company.
16
<PAGE>
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1998, the information with
respect to Common Stock ownership of each person known by the Company to
beneficially own more than five percent of the outstanding Common Stock, by each
director who beneficially owns any Common Stock and by any Executive Officer
named in response to Item 11, and by all directors and officers as a group.
<TABLE>
<CAPTION>
Amount
Name and Address Beneficially Percent
of Beneficial Owner Owned of Class
- ------------------- ------------------ ---------
<S> <C> <C>
DESA International Inc. 249,300 7.5%
2701 Industrial Drive
Bowling Green, KY 47102
Benjamin C. Harris 259,250 7.8%
2701 S. Harbor Blvd.
Santa Ana, CA 92407
Willard V. Harris Jr. 368,780 11.1%
2701 S. Harbor Blvd.
Santa Ana, CA 92407
Willard P. Harris 413,392 12.4%
2701 S. Harbor Blvd.
Santa Ana, CA 92407
John D. Hornsby 480,748 14.5%
2701 S. Harbor Blvd.
Santa Ana, CA 92407
James L. Behrens 101,252 3.0%
2701 S. Harbor Blvd.
Santa Ana, CA 92407
All Directors & Officers 1,380,172 41.5%
as a group (6 persons)
</TABLE>
17
<PAGE>
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended March 31, 1994, the Company ceased selling to Rampart
General Inc. a company partially owned by the Chairman of the Board of Directors
and a stockholder of the Company, Willard V. Harris, Jr. The unpaid balance due
the Company at March 31, 1995 of $645,000 was determined to be uncollectable and
was written off in 1993. In 1993, in partial settlement of this account,
Willard V. Harris, Jr. transferred a 26.25% limited partnership interest in
California Real Estate Partners with a capital account of approximately $500,000
to FMI as partial payment of its indebtedness. The current capital account is
approximately $75,000. Because of the limited value of this interest in the
partnership no value was recorded in the financial statements. During 1997, a
four year repayment schedule has been established for the remaining balance of
$162,585 which includes a 10% interest rate beginning on September 1, 1996. As
of March 31, 1998, the entire amount was paid. Amounts received are recorded as
a reduction of bad debt expense in the year the cash is collected.
The Company has two monthly operating leases of equipment with H&H Equities
Incorporated. H&H Equities Incorporated is wholly owned by Willard P. Harris
and John D. Hornsby, officers of the Company and members of the Company's Board
of Directors. The monthly lease payments are $7,119 and totaled $85,428 in
fiscal year 1998.
PART IV
ITEM 14 EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets at March 31, 1998 and 1997 F-2
Consolidated Statements of Income for the
years ended March 31, 1998, 1997, and 1996 F-3
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1998, 1997, and 1996 F-4
Consolidated Statements of Cash Flows for
the years ended March 31, 1998, 1997, and 1996 F-5
Notes to Consolidated Financial Statements F-6 to F-16
</TABLE>
18
<PAGE>
REPORTS ON FORM 8-K
A Report on Form 8-K item 5 was filed on April 2, 1998 regarding the merger of
the Company and DESA International.
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
3.1 Articles of Incorporation, as amended incorporated by reference to the
identically numbered exhibit in the 1997 10-K.
3.2 By-laws as amended incorporated by reference to the identically
numbered exhibit in the 1997 10-K.
10.3 Severance Compensation Agreements incorporated by reference to the
identically numbered exhibit in the 1997 10-K.
10.4 Plan and Agreement of Reorganization with DESA International, Inc. (1)
10.5 Voting and Option Agreement with DESA International, Inc. (1)
20.1 Agreement with EVCON Inc.
20.3 Lease with SPS Technologies
20.5 Manufacturer's Repurchase Agreement with TFC Textron
20.7 Promissory Note Equipment Line of Credit
20.9 Promissory Note Receivables Line of Credit, with Change of Terms
Extension
</TABLE>
Footnote (1): Incorporated by reference to Amendment No. 3 to Schedule 13D
filed by DESA International, Inc. on June 5, 1998.
19
<PAGE>
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 on August 3, 1998.
FIREPLACE MANUFACTURERS, INC.
/s/ WILLARD P. HARRIS
------------------------------
By: Willard P. Harris
President and
Chief Executive Officer
/s/ JANE ANN IOVINE
------------------------------
By: Jane Ann Iovine
Vice President
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
signed below by the following persons on behalf of the Registrants and in the
capacities and on the dates indicated.
/s/ WILLARD V. HARRIS
- -----------------------------------
Willard V. Harris
Chairman of the Board Date: August 3, 1998
/s/ WILLARD P. HARRIS
- -----------------------------------
Willard P. Harris, Director Date: August 3, 1998
/s/ JOHN D. HORNSBY
- -----------------------------------
John D. Hornsby, Director Date: August 3, 1998
/s/ JANE A. IOVINE
- -----------------------------------
Jane A. Iovine, Vice President
Chief Financial Officer Date: August 3, 1998
20
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Fireplace Manufacturers, Inc.
Santa Ana, California
We have audited the accompanying consolidated balance sheets of Fireplace
Manufacturers, Inc. and Subsidiary as of March 31, 1998 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended March 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fireplace
Manufacturers, Inc. and Subsidiary as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1998 in conformity with generally accepted accounting
principles.
MCGLADREY & PULLEN, LLP
Anaheim, California
May 7, 1998
F-1
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 1,232,000 $ 333,000
Trade accounts receivable, less allowance for doubtful
accounts of $261,000 in 1998 and $272,000 in 1997 1,802,000 2,307,000
Inventories 1,571,000 1,847,000
Prepaid expenses and other 74,000 118,000
Deferred taxes 411,000 421,000
---------------------------
TOTAL CURRENT ASSETS 5,090,000 5,026,000
Equipment and Leasehold Improvements, net 1,339,000 1,761,000
Other Assets 218,000 150,000
---------------------------
$ 6,647,000 $ 6,937,000
---------------------------
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------
Current Liabilities
Accounts payable $ 1,163,000 $ 2,042,000
Accrued liabilities 1,719,000 1,454,000
Current portion of long-term debt - 212,000
---------------------------
TOTAL CURRENT LIABILITIES 2,882,000 3,708,000
---------------------------
Long-Term Debt, less current portion - 235,000
---------------------------
Deferred Taxes 181,000 281,000
---------------------------
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $1 par value; authorized shares
1,000,000; issued and outstanding shares - none - -
Common stock, $.01 par value; authorized shares
10,000,000; issued and outstanding shares 1998
3,326,775 and 1997 3,447,950 33,000 35,000
Additional paid-in capital - 248,000
Retained earnings 3,551,000 2,430,000
---------------------------
3,584,000 2,713,000
---------------------------
$ 6,647,000 $ 6,937,000
---------------------------
---------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 28,999,000 $ 31,844,000 $ 28,729,000
Cost of Sales (including $85,000, $63,000 and
$31,000 of rent to officers) 21,783,000 25,186,000 23,903,000
--------------------------------------------------------
GROSS MARGIN 7,216,000 6,658,000 4,826,000
Selling, General and Administrative Expenses 5,179,000 5,223,000 4,450,000
--------------------------------------------------------
OPERATING INCOME 2,037,000 1,435,000 376,000
Interest Expense (37,000) (269,000) (375,000)
Other Income - 29,000 44,000
--------------------------------------------------------
INCOME BEFORE INCOME TAXES 2,000,000 1,195,000 45,000
Provision for Income Taxes 679,000 201,000 1,000
--------------------------------------------------------
NET INCOME $ 1,321,000 $ 994,000 $ 44,000
--------------------------------------------------------
--------------------------------------------------------
Earnings per share
Basic $ 0.39 $ 0.30 $ 0.01
--------------------------------------------------------
--------------------------------------------------------
Diluted $ 0.38 $ 0.30 $ 0.01
--------------------------------------------------------
--------------------------------------------------------
Weighted-average number of common
shares outstanding
Basic 3,399,632 3,323,173 3,536,287
--------------------------------------------------------
--------------------------------------------------------
Diluted 3,456,545 3,323,173 3,536,287
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-In Retained
Shares Amount Capital Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1995 3,552,500 $ 36,000 $ 353,000 $ 1,392,000 $ 1,781,000
Issuance of stock for
services 10,000 - 5,000 - 5,000
Repurchase of common
stock for retirement (87,050) (1,000) (49,000) - (50,000)
Net income - - - 44,000 44,000
------------------------------------------------------------------------------------
Balance, March 31, 1996 3,475,450 35,000 309,000 1,436,000 1,780,000
Issuance of stock for
services 193,252 2,000 145,000 - 147,000
Repurchase of common
stock for retirement (220,752) (2,000) (206,000) - (208,000)
Net income - - - 994,000 994,000
------------------------------------------------------------------------------------
Balance, March 31, 1997 3,447,950 35,000 248,000 2,430,000 2,713,000
Issuance of stock for
services 119,100 1,000 193,000 - 194,000
Repurchase of common (240,275) (3,000) (441,000) (200,000) (644,000)
stock for retirement
Net income - - - 1,321,000 1,321,000
------------------------------------------------------------------------------------
Balance, March 31, 1998 3,326,775 $ 33,000 $ - $ 3,551,000 $ 3,584,000
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,321,000 $ 994,000 $ 44,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 583,000 618,000 558,000
Deferred income taxes (90,000) (195,000) (11,000)
Compensation applied to notes receivable - 132,000 56,000
Other 29,000 47,000 -
Bad debt expense 39,000 142,000 272,000
Issuance of common stock for services 194,000 147,000 5,000
Changes in working capital components:
(Increase) decrease in:
Trade accounts receivable 464,000 824,000 (1,084,000)
Inventories 276,000 888,000 767,000
Prepaid expenses and other assets 46,000 (33,000) 41,000
Increase (decrease) in accounts payable
and accrued liabilities (614,000) 132,000 (775,000)
------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,248,000 3,696,000 (127,000)
------------------------------------------------------
Cash Flows From Investing Activities
Purchases of equipment and leasehold improvements (243,000) (345,000) (479,000)
Other 53,000 23,000 -
Increase in other assets (68,000) (14,000) (86,000)
Payments on notes receivable from officers/
stockholders - - 16,000
------------------------------------------------------
NET CASH (USED IN) INVESTING ACTIVITIES (258,000) (336,000) (549,000)
------------------------------------------------------
Cash Flows From Financing Activities
Proceeds from long-term debt - - 146,000
Payments on long-term debt (447,000) (692,000) (121,000)
Net proceeds from (payments on) revolving
line of credit - (2,263,000) 720,000
Repurchase of common stock for retirement (644,000) (208,000) (50,000)
------------------------------------------------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (1,091,000) (3,163,000) 695,000
------------------------------------------------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 899,000 197,000 19,000
Cash and Cash Equivalents
Beginning of year 333,000 136,000 117,000
------------------------------------------------------
End of year $ 1,232,000 $ 333,000 $ 136,000
------------------------------------------------------
------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
Fireplace Manufacturers, Inc. (the Company) designs, manufactures and sells
factory-built, energy-efficient metal fireplace systems to customers throughout
the United States and Canada on terms established by the Company. The
fireplaces are used in single-family homes, condominiums, apartments, other
multiple-family dwellings and in manufactured housing. They can be used as part
of a wall, in a corner or as a room divider. Fireplaces are sold mainly to
homebuilders who install the system in new construction, and to retail
distributors. Pending legislation in several states and major cities for clean
air to meet Environmental Protection Agency requirements has resulted in the
Company developing clean-burning appliances, the emphasis being on gas-burning
appliances. While continuing to manufacture wood burning fireplaces, the
Company has added gas-burning appliances to the product line. Also added to the
product line are decorative gas log sets to retro-fit existing fireplaces in
communities that have restricted the burning of wood.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
USE OF ESTIMATES:
The preparation of financial statements in conformity 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 those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its inactive, wholly-owned subsidiary, Fireplace Industries of California, Inc.
There have been no material intercompany transactions.
CREDIT RISK AND SIGNIFICANT CUSTOMERS:
The Company sells its products to customers throughout the United States and
Canada. Management performs regular evaluations concerning the ability of its
customers to satisfy their obligations and records a provision for doubtful
accounts based upon these evaluations. The Company's credit losses for the
periods presented have not exceeded management's estimates.
One major customer represented 23% of total net sales for 1998, 1997, and 1996.
Accounts receivable from this customer totaled approximately $450,000 and
$503,000 at March 31, 1998 and 1997, respectively. In addition, another
customer represented 12% of total net sales for both 1998 and 1997 and 11% for
1996. Accounts receivable from this customer were approximately $348,000 and
$279,000 at March 31, 1998 and 1997, respectively. There were no other
customers who represented greater than 10% of net sales.
F-6
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
The Company periodically throughout the year has amounts on deposit at a
financial institution that exceed the Federal Deposit Insurance Corporation
limit.
INVENTORIES:
Inventories are generally valued at the lower of cost (first-in, first-out
method) or market.
ADVERTISING:
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $279,000,
$464,000 and $396,000 during 1998, 1997 and 1996, respectively.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Equipment and leasehold improvements are recorded at cost and are depreciated
using the straight-line method over useful lives ranging from 3 to 15 years for
machinery and equipment, transportation equipment and furniture and fixtures,
and 8 years or the term of the lease, whichever is shorter, for leasehold
improvements.
INCOME TAXES:
Deferred income taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and operating loss
and tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
RESEARCH AND DEVELOPMENT:
The Company incurs research and development costs in developing new products.
During 1998, 1997 and 1996, the Company expensed approximately $766,000,
$607,000 and $586,000, respectively.
F-7
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE:
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 EARNINGS PER SHARE
(EPS). SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on
the face of all income statements issued after December 15, 1997 for all
entities with complex capital structures. Basic EPS is computed as net income
divided by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options (56,913 shares in the year ended
March 31, 1998 and none in the fiscal years ended March 31, 1997 and 1996). The
adoption of SFAS No. 128 had no effect on the prior years presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and notes payable. The book value of these instruments are
considered to be representative of their fair value.
The fair value estimates presented herein are based on pertinent information
available to management as of March 31, 1998 and 1997. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date.
STOCK-BASED COMPENSATION:
The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
require compensation to be recorded if the consideration to be received is at
least equal to the intrinsic value at the measurement date. Nonemployee
stock-based transactions are accounted for under the requirements of SFAS No.
123 ACCOUNTING FOR STOCK BASED COMPENSATION which requires compensation to be
recorded based on the fair value of the securities issued or the services
received, whichever is more reliably measurable.
Note 2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,032,000 $ 1,254,000
Work-in-process 239,000 265,000
Finished goods 300,000 328,000
---------------------------
$ 1,571,000 $ 1,847,000
---------------------------
---------------------------
</TABLE>
F-8
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $ 2,889,000 $ 2,982,000
Tools, dies and molds 1,389,000 1,322,000
Furniture, fixtures and vehicles 352,000 629,000
Leasehold improvements 60,000 64,000
Research and development equipment 256,000 279,000
-----------------------------
4,946,000 5,276,000
Less accumulated depreciation and amortization 3,607,000 3,515,000
-----------------------------
$ 1,339,000 $ 1,761,000
-----------------------------
-----------------------------
</TABLE>
NOTE 4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Compensation $ 1,344,000 $ 841,000
Income taxes payable 10,000 136,000
Warranty 138,000 148,000
Other 227,000 329,000
-----------------------------
$ 1,719,000 $ 1,454,000
-----------------------------
-----------------------------
</TABLE>
NOTE 5. LINE OF CREDIT
The Company may borrow up to $4,000,000 against eligible accounts receivable and
inventories under terms of an accounts receivable and inventory line of credit
agreement with a bank. Borrowings under this line of credit bear interest at
the bank's prime rate (8.5% at March 31, 1998) plus .5%, with interest payable
monthly. Advances are limited to 80% of eligible accounts receivable; plus 40%
of eligible inventories (inventory advances are not to exceed $500,000). The
line of credit expires on August 3, 1998. Borrowings under this line of credit
agreement are collateralized by substantially all of the Company's assets. The
line of credit contains restrictive covenants that require maintenance of
working capital and other financial ratios, prohibit payment of dividends and
have certain other limitations. At March 31, 1998, there were no amounts
outstanding under this agreement and approximately $1,663,000 of availability.
F-9
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. LINE OF CREDIT (CONTINUED)
The Company also has available a $500,000 equipment line of credit which
converts to a forty-eight month term loan on August 1, 1998. The line bears
interest at the bank's prime rate plus .75%. The line is subject to the same
covenants as the line of credit. At March 31, 1998, there were no amounts
outstanding under this agreement.
NOTE 6. LONG-TERM DEBT
As of March 31, 1998, the Company has no long-term debt outstanding. The
long-term debt outstanding as of March 31, 1997 totaled $447,000, consisted
primarily of equipment loans and was paid-off during 1998.
NOTE 7. STOCK OPTIONS
The Company has reserved 835,000 shares for issuance under the Company's 1997
Stock Option Plan. In the year ended March 31, 1998, the Company granted
options to acquire 835,000 shares at a price of $2.88 per share. The options
vest 20% on the date of grant and 20% on the anniversary of the date of grant
thereafter. The options expire five years after the date of grant.
As permitted under generally accepted accounting principles, grants under these
plans are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the stock option plan. Had compensation cost been determined based
on the fair value method prescribed in SFAS No. 123, reported net income and
basic and diluted earnings per share would have been reduced to $992,000, $0.29
and $0.28, respectively. In determining the amounts above, the value of each
grant is estimated at the grant date using the Black-Scholes option-pricing
model with the following weighted-average assumptions for grants in fiscal year
1998: no dividends, risk-free interest rate of 5.86%, price volatility of 79%,
expected lives of five years and expected exercise rate of 100%. The
weighted-average fair value of the options granted in fiscal year 1998 was $1.94
per share.
The above options, vested and unvested, will terminate upon consummation of the
anticipated sale of the Company disclosed in Note 15.
F-10
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 769,000 $ 396,000 $ 12,000
Deferred (90,000) (195,000) (11,000)
------------------------------------
$ 679,000 $ 201,000 $ 1,000
------------------------------------
------------------------------------
</TABLE>
A reconciliation of income tax expense to the amount computed by applying
statutory income tax rates to income before income taxes:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax $ 700,000 $ 418,000 $ 16,000
State income tax, net of federal benefit 106,000 72,000 3,000
Federal and state income tax credits
generated (241,000) (114,000) (15,000)
Change in valuation allowance 100,000 (192,000) 15,000
Officers' life insurance - 11,000 (30,000)
Prior year state taxes assessment - - 13,000
Other 14,000 6,000 (1,000)
------------------------------------
$ 679,000 $ 201,000 $ 1,000
------------------------------------
------------------------------------
</TABLE>
F-11
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities as
of March 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets
Tax credit carryforward $ 292,000 $ 155,000
Bad debt reserve 102,000 109,000
Accrued expenses - 33,000
Warranty reserve 54,000 59,000
Other reserves 63,000 65,000
Valuation allowance for deferred tax assets (100,000) -
-----------------------
TOTAL DEFERRED TAX ASSETS, NET 411,000 421,000
Deferred Tax Liability, accumulated depreciation (181,000) (281,000)
-----------------------
$ 230,000 $ 140,000
-----------------------
-----------------------
</TABLE>
Management has recorded a valuation allowance on deferred tax assets relating to
tax credit carryforwards which are not expected to be realized within two years.
The components giving rise to the net deferred assets (liabilities) described
above have been included in the accompanying consolidated balance sheets as of
March 31, 1998 and 1997 as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 411,000 $ 421,000
Noncurrent (liabilities) (181,000) (281,000)
------------------------
$ 230,000 $ 140,000
------------------------
------------------------
</TABLE>
Business enterprise zone credit carryforwards as of March 31, 1998 expire as
follows: 2012 $85,000; 2013 $207,000 (total $292,000).
F-12
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. RELATED PARTY TRANSACTIONS
At March 31, 1996, advances to officers/stockholders totaled $132,000. These
amounts originated by cash advances which were to be repaid in 1992 and 1994.
On March 31, 1992, terms related to the repayment of these advances were
modified. Under the terms of the revised agreements, principal payments on the
advances were due in semiannual installments over the next five years, with the
notes bearing interest at rates ranging from 8% to 10%. In the event that the
required cash payments were not made, the principal and interest due were to be
offset against compensation otherwise due these individuals. The compensation
used to repay these notes was determined annually based on merit, Company
profits and reasonable business practices. In 1996, the Company determined the
most likely method of collection was through future compensation or bonuses and,
accordingly, reclassified the receivables as a reduction of stockholders'
equity.
Prior to March 31, 1994, the Company had sales to Rampart General Inc.
(Rampart), a company partially owned by the Chairman of the Board of
Directors and a stockholder of the Company, Willard V. Harris, Jr. The unpaid
balance due the Company at March 31, 1993 of approximately $645,000 was
determined to be uncollectable and was written off as a charge to bad debt
expense in 1993. In 1993, Willard V. Harris, Jr. transferred a 26.25% limited
partnership interest in California Real Estate partners with a capital
account of approximately $500,000 at that time to the Company as partial
payment of the indebtedness leaving a balance due from Rampart at March 31,
1993 of approximately $145,000. Because of the uncertainty of the value of
this interest in the partnership, no recovery of the amount written off has
been recorded in the financial statements. During fiscal 1997, a four year
repayment schedule was established for the remaining balance of approximately
$163,000, which included accrued interest. During fiscal year 1998, the
Company paid a cash bonus to Willard V. Harris which he directed that the
Company apply a portion of to the remaining unpaid balance due from Rampart.
This bonus was recorded as compensation expense. Since the original amount
due from Rampart was charged to bad debt expense, the recovery of this amount
was recorded as a reduction of bad debt expense.
NOTE 10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES:
The Company's operations are conducted at facilities under an operating lease
expiring April 30, 1999 and requiring monthly payments of approximately $29,000.
The Company also leases equipment under three long-term agreements. Two of the
long-term agreements are with a company which is wholly-owned by two
officers/stockholders of the Company. These agreements require monthly payments
of approximately $7,000 and expire in July 2000 and November 2000 with a total
commitment of approximately $212,000.
The future rental commitments on all leases at March 31, 1998 are as follows:
1999 $433,000; 2000 $124,000; 2001 $52,000; 2002 $6,000 (total $615,000).
Rent expense was $438,000, $382,000 and $294,000 during 1998, 1997 and 1996,
respectively.
F-13
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
ROYALTY AGREEMENTS:
The Company has an agreement which expires in the year 2009, to pay royalties on
the sale of certain ceramic fiber log sets. The agreement requires a royalty
payment of $2.25 per log set sold for the first five years and $1.50 per log set
sold in years six through fifteen with a minimum of $1,500 per month in years
six through fifteen. Total royalty expense under the agreement was
approximately $77,000 during 1998.
The Company entered into a nonexclusive license agreement which expired in March
1996. Total royalty expense under the agreement was approximately $207,000
during 1996.
SEVERANCE COMPENSATION AGREEMENT:
The Company has entered into a severance compensation agreement with three of
the Company's officers which expires on the earliest of the following dates:
five years expiring in May 2001; termination of the executive's employment based
on death, disability, retirement or cause or by the executive other than for
good reason; one year from the date of a change in control if the executive has
not terminated his employment for good reason. The terms of the agreement
require severance compensation equal to 299% of the executive's average
annualized compensation includable in his gross income for the five taxable
years immediately preceding the date of the change in control. The severance
compensation agreement will be terminated upon consummation of the anticipated
sale of the Company disclosed in Note 15.
SALE OF TRADE RECEIVABLES:
The Company began to utilize an agreement with a finance company whereby the
finance company, with the approval of the customer, will purchase receivables
from the Company. The finance company then pays the Company for the invoiced
purchase under two programs. Under the first program the invoice is paid
within 15 days at a discount of 2.25%. Under the second program the invoice
is paid within 30 days at a discount of 1.75%. The agreement contains a
clause whereby if the finance company repossesses any inventory, the Company
is obligated to buy back the repossessed inventory. During 1998 and 1997,
the Company sold receivables of approximately $4,267,000 and $2,400,000. The
balance sheets at March 31, 1998 and 1997 include approximately $151,000 and
$150,000 due from the finance company. At March 31, 1998 and 1997, the
amount of receivables sold to, but not collected by, the finance company was
approximately $722,000 and $610,000 respectively. Management estimates that
there will be no amounts of inventory repurchased under this agreement and,
accordingly, no reserve has been recorded for the recourse provision.
YEAR 2000:
Based on a preliminary study by management, the Company expects to incur
approximately $150,000 to $250,000 to modify its information systems to
accurately process information in the year 2000 and beyond. The Company
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized.
F-14
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONTINGENCY:
A claim was asserted against the Company alleging infringement of a company's
patent. The original claim was for $50 per unit sold that infringed upon the
patent (management estimated the potential claim at approximately
$1,000,000). The district court granted the Company's motion for summary
judgment and held that the Company's products do not infringe the patent at
issue, either literally or by operation of the doctrine of equivalents. The
summary judgment has been appealed. The Company's independent counsel is
unable to express an opinion as to the probable outcome of the action and
therefore no estimate can be made of a range of amount of loss, if any, that
is reasonably possible. No amounts have been accrued in regards to this
matter and it is reasonable possible that a change in the estimate will occur
in the near term.
NOTE 11. RETIREMENT SAVINGS PLAN
The Company has a defined contribution 401(k) savings plan (Plan) which covers
all employees meeting minimum age and service requirements. The Company
provides a matching contribution of 25% of the first 3% saved by the employee.
Total contributions to the Plan were $11,000, $13,000 and $11,000 during 1998,
1997 and 1996, respectively.
NOTE 12. DISCRETIONARY BONUSES
The Company pays discretionary bonuses to its officers and key employees. The
amounts of these bonuses charged to expense were as follows:
<TABLE>
<CAPTION>
Paid or Reduction
Payable of Notes Common
in Cash Receivable Stock Automobiles Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Officers $ 779,000 $ 138,000 $ 194,000 $ 58,000 $ 1,169,000
Key employees 540,000 - - - 540,000
1997
Officers $ 260,000 $ 149,000 $ 147,000 $ - $ 556,000
Key employees 281,000 - - - 281,000
1996
Officers $ 64,000 $ 56,000 $ - $ - 120,000
Key employees 10,000 - - - 10,000
</TABLE>
F-15
<PAGE>
FIREPLACE MANUFACTURERS, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash payments for:
Interest $ 37,000 $ 290,000 $ 370,000
-------------------------------------
-------------------------------------
Income taxes $ 895,000 $ 189,000 $ 85,000
-------------------------------------
-------------------------------------
</TABLE>
NOTE 14. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME and
SFAS No. 131 DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 130 requires an enterprise to report, by major components
and as a single total, the change in its net assets during the period from
nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.
NOTE 15. SUBSEQUENT EVENTS
ANTICIPATED SALE OF THE COMPANY:
The Company has signed a letter of intent to merge with another company. The
Company's common stock will be exchanged for $7.14 per share, not to exceed
$23,750,000. Upon consummation of the merger, all outstanding stock options
will be canceled and all existing employment agreements will be terminated.
Upon closing, three members of the executive management team will enter into
three year noncompete agreements with the buyer, each providing for one-time
payments of $1,000,000. In addition, one additional member of the executive
team will enter into a three year noncompete agreement providing for a one-time
payment of $250,000. The financial statements do not reflect any adjustment
which may be necessary as a result of this transaction.
1999 PROFIT SHARING PLAN:
The Company has adopted the 1999 profit sharing plan for all employees which
provides for the following profit sharing rates: 0% on the first $1,000,000 of
pre-tax income, approximately 22% of pre-tax income over $1,000,000 and up to
$2,000,000, approximately 33% of pre-tax income over $2,000,000 and up to
$3,000,000 and approximately 44% of pre-tax income over $3,000,000.
F-16
<PAGE>
EXHIBIT 20.1
AGREEMENT
This Agreement is entered into and made effective as of the date of the
last signature hereto by and between Evcon Industries, Inc. (hereinafter
referred to as "Evcon") and Fireplace Manufacturer's Inc. (hereinafter
referred to as "FMI").
BACKGROUND
FMI has special expertise in the design and manufacture of solid fuel
burning heaters commonly known as fireplaces and accessories herefor, and;
Evcon is a diversified marketer of comfort control equipment for
manufactured housing use with an established reputation and with an
established distribution and marketing system in the United States and
Canada, and;
FMI desires to expand its sales of fireplaces to the Manufactured
Housing Industry by taking advantage of the reputation, distribution, and
marketing system of Evcon, and;
Evcon desires to obtain fireplaces for distribution to manufacturers and
owners of manufactured homes and to be the sole distributor of FMI products
to the Manufactured Housing Industry, and;
FMI is willing to sell its fireplace products and accessories to Evcon
on an exclusive basis in the United States of America for resell to the
Manufactured Housing Industry and to refrain itself from selling the
aforesaid products to the Manufactured Housing Industry.
In view of the preceding Background, the parties agree as follows:
1. DEFINITIONS
1.1 "Manufactured Housing" means any structure, all or a substantial
part of which is built in a production facility, and does not
include conventional on-site construction.
1.2 "Manufactured Housing Industry" shall include manufacturers of
Manufactured Housing, distributors engaged principally in the sale
of equipment for installation in Manufactured Housing, service
centers engaged in the servicing of Manufactured Housing, and retail
establishments catering principally to the owners of Manufactured
Housing.
<PAGE>
1.3 "Products" means FMI produced fireplaces and fireplace accessories
and repair parts therefor.
2. GRANT
2.1 FMI hereby grants to Evcon for the term of this Agreement the
exclusive right to sell the Products within the Territory to the
Manufactured Housing Industry.
3. TERM
3.1 This Agreement shall have an indefinite term which shall continue
until six (6) months after notice of intent to cancel is provided in
writing by one party to the other party (the "Term"). The form and
manner of such notice shall be as recited in paragraph 15.
4. NONCOMPETITION
4.1 FMI shall not during the Term sell the Products or products
competitive to the Products to the Manufactured Housing Industry.
4.2 In the event that either party cancels this Agreement for any reason
(except as recited in paragraph 7), the cancelling party shall not,
for a period of one (1) year subsequent to such cancellation, engage
in the sale or distribution to or manufacture for Evcon manufactured
housing dealers, Evcon manufactured housing distributors, or Evcon
manufactured housing OEM customers of the Products or of products
which are competitive with the Products.
5. TRADEMARK AND TRADE NAMES
5.1 The Products and literature related to the Products shall bear the
trademarks FMI and/or "Full View" and shall not bear any trademark
owned by Evcon. The literature related to the Products may use the
Evcon trade name to identify Evcon as the seller of the Products.
6. REQUIREMENTS, SHIPMENT, AND RETURN
6.1 FMI shall provide the Products in the quantity ordered by Evcon
F.O.B. at the FMI factory in Santa Ana, California within ten (10)
days of receipt of an order from Evcon, provided Evcon's payables
net of returns to FMI are current.
6.2 Evcon shall within thirty (30) days of the effective date of this
Agreement, provide to FMI a forecast of Product needs for the
following six (6) months based upon
2
<PAGE>
projected sales. Five (5) months subsequent to the effective date
of this Agreement and on each six (6) month anniversary thereafter,
Evcon shall provide to FMI updated forecasts of Product needs.
6.3 FMI shall issue full credit for all Products, parts, and/or
accessories returned to FMI by Evcon freight prepaid at the FMI
factory in Santa Ana, California in original condition and properly
packaged for resale.
7. RELEASE FROM CONTRACTUAL OBLIGATIONS
7.1 Force Majeure
7.1.1 Except as recited in paragraph 23, FMI shall be released
from its obligations under this Agreement in the event that
governmental regulations or other causes arising out of a
state of national emergency or war or causes beyond the
control of FMI including civil disobedience, labor strife,
fire, or natural disasters render performance by FMI
impossible. FMI's release of obligations pursuant to the
provisions of this paragraph shall be limited to a delay in
time for FMI to meet its obligations for a period not to
exceed two (2) months, and if FMI fails to meet such
obligations after such two (2) month period, Evcon shall
have the absolute right to terminate this Agreement upon
ten (10) days' notice in writing to FMI, which notice of
termination shall become effective unless FMI shall
completely meet all of its obligations under this Agreement
within said ten (10) day period and satisfy Evcon that all
of said obligations have been met.
7.2 Nonperformance by Evcon
7.2.1 Except as recited in paragraph 23, in the event of
unsatisfactory sales performance by Evcon, FMI may be
released from its obligations under this Agreement. For
quantifiable numbers to be set forth is futile, due to
unforseen variables. Suffice it to say that Evcon shall
expend sufficient energies and at "reasonable rates of
profit" to make this Agreement a growing endeavor in terms
of volume and profit.
7.3 Evcon shall be released from all obligations under this Agreement
(except for the duty to pay for acceptable Products not returned) in
the event of nonperformance by FMI.
3
<PAGE>
7.3.1 Nonperformance by FMI shall include, but not be limited to
any one of the following
7.3.1.1 Defects in design, manufacture, component
selection or otherwise which render significant
numbers of the Products unsafe or unsuitable
for any reason for installation in Manufactured
Housing and/or which serve to depreciate the
reputation and goodwill of Evcon and its trade
name in the Manufactured Housing Industry.
7.3.1.2 Failure to supply an adequate number of Products
to keep Evcon OEM customer(s) production lines
running if such failure occurs after Evcon shall
have supplied with reasonable lead time, a
sales forecast of requirements at least equal to
the said required number of Products.
7.3.1.3 FMI commits, in the good faith opinion of Evcon,
an act of fraud, deceit, dishonesty or any
criminal conduct.
7.3.1.4 FMI breaches any other obligations under the term
of this Agreement, which breach is not otherwise
cured within any time period provided for in this
Agreement.
8. ADVERTISING AND PROMOTION
8.1 Literature
8.1.1 Evcon shall produce such advertising materials at its cost
as it deems necessary to adequately promote and market the
Products in the Manufactured Housing Industry and shall
arrange and pay for all trade promotion activities including
but not limited to trade advertising and trade shows. FMI
shall design and provide all labels and literature packed
in or attached to the Products and shall design and provide
camera ready art work of Product photographs and advertising
materials to be produced by Evcon.
8.2 Samples
8.2.1 FMI shall provide at no charge to Evcon twelve (12)
demonstration samples of the products to be used for
engineering evaluation by Manufactured Housing manufacturer
customers, for trade show
4
<PAGE>
use and for other similar advertising and promotional
activities.
9. PRICE
9.1 The prices for each of the Products to Evcon shall not be increased
from the previously agreed upon prices through the end of the
calendar year. No later than three (3) months prior to the end of
the calendar year or any subsequent calendar year of this Agreement,
the parties shall agree upon a firm price to remain in effect as to
each fireplace, accessory, and part for the subsequent calendar
year. The maximum price increase which may be negotiated by the
parties at such time shall be equal to the price for the prior
twelve (12) month period multiplied by the factor (one (1) plus
the increase in the "Producer Price Index" (as published by the
United States federal government) for the prior twelve month
calendar period).
9.2 In the case of new models of the Product subsequently offered to
Evcon by FMI, the parties shall agree upon a reasonable price
therefor which shall remain firm through the end of the then
calendar year.
10. PAYMENT AND TERMS
10.1 The Products shall be paid for in United States dollars with payment
being made to FMI within thirty (30) days after the date of tender
of merchandise to the carrier for shipment F.O.B. Santa Ana,
California. Invoices received from the 1st through the 15th of the
month and paid on or before the 25th of that month (or on the next
following business day should the 25th fall on a weekend or holiday)
and invoices received from the 16th of the month through the end of
the month and paid on or before the 10th of the following month
(or on the next following business day should the 10th fall on a
weekend or holiday) shall be subject to a two percent (2%) discount
on the price shown on the invoice.
11. WARRANTY - PARTS AVAILABILITY - SERVICE DOCUMENTATION
11.1 The Products sold pursuant to this Agreement shall be subject to a
consumer Limited Warranty containing the terms and conditions
recited in Attachment "A." Evcon will arrange for service under the
consumer warranty through certain of its Authorized Service Centers.
No terms or conditions may be added to the recited terms and
conditions in Attachment "A" without written approval of Evcon.
5
<PAGE>
11.2 All parts, labor, transportation, and other charges directly
allocable to claims made under the consumer Limited Warranty shall
be reimbursed by FMI to Evcon within thirty (30) days of the
receipt by it of appliable debit memos issued by Evcon.
11.3 For a period of fifteen (15) years from the date of sale of a
Product by FMI to Evcon pursuant to this Agreement, FMI shall make
available for purchase by Evcon sufficient quantities of
repair parts so as to facilitate servicing of the Products.
11.4 FMI shall design, produce, and supply to Evcon, sufficient
quantities of service documentary materials as are reasonably
required by Evcon and its authorized service centers to provide
warranty service.
12. CODES AND STANDARDS
12.1 FMI hereby certifies that all Products, including all accessories
and parts related thereto, supplied by FMI comply with all
federal, state, and local laws, regulations, codes, and standards.
As applicable, third party laboratory certificates or listings
acceptable to the U.S. Department of Housing and Urban Development
evidencing compliance with the aforesaid shall be provided to the
Manufactured Housing Division of Evcon prior to delivery of any
Product.
13. CONFIDENTIALITY
13.1 For a period of two (2) years after receipt, Evcon and FMI shall
treat as confidential any and all information disclosed or
transmitted from one party to the other pursuant to or in connection
with this Agreement and will not divulge any such information to
third parties without the prior written consent of the other party.
Evcon and FMI shall take all reasonable precautions to assure that
they and any of their employees receiving information disclosed by
the other party pursuant to this Agreement will maintain the
confidentiality thereof.
13.2 It is agreed, however, that such information:
13.2.1 which was in the possession of any party prior to receipt of
the information from the other party pursuant to this
Agreement;
13.2.2 which is or lawfully becomes part of the public knowledge or
literature; or
6
<PAGE>
13.2.3 which otherwise lawfully shall become available to any party
from sources other than the other party
shall not be subject to the provisions of this paragraph.
14. USE OF EVCON TRADEMARKS
14.1 FMI acknowledges that Evcon is the owner of the Coleman -Registered
Trademark- Evcon logo and Evcon trademarks and agrees not to use
them or any logo and trademarks which may be confusingly similar.
14.2 Evcon acknowledges that FMI is the owner of the trademarks "FMI" and
"Full-View" and agrees not to use the aforesaid trademarks or any
trademarks which may be confusingly similar to the aforesaid
trademarks anywhere in the world, except as may be permitted
pursuant to this Agreement.
15. NOTICES
15.1 Except as may be provided elsewhere in this Agreement, any notice or
other communication required to be made or given to either party
shall be deemed duly given and received if hand delivered; by Fax to
the number below, which receipt must be confirmed by phone, or sent
certified, express mail, return receipt requested to the noticed
party at the address set forth below:
Evcon Industries, Inc.
P.O. Box 19014
Wichita, Kansas 67204-9014
Attn: Mike Burlingame
Fax No.: (316) 832-6401
Confirmation No.: (316) 832-6514
Fireplace Manufacturer's Inc.
2701 South Harbor Boulevard
Santa Ana, California 92704
Attn: President
Fax No.: (714) 549-4723
Confirmation No.: (714) 549-7782
or to such address as either of the parties may hereafter
furnish to the other as provided in this paragraph. Any notice given
pursuant to this paragraph shall be effective as of delivery, if hand
delivered; as of the date of delivery shown on the return receipt if
7
<PAGE>
delivery is by certified, express mail, or as of the date received
if by Fax.
16. APPLICABLE LAW
16.1 This Agreement shall be construed and enforced in accordance with
the laws of the State of Kansas, with the proper form for
enforcement being any court with proper jurisdiction over the
subject matter and parties.
17. INDEPENDENT CONTRACTOR - NO AGENCY
17.1 Neither party is the agent of the other party but each party is
instead an independent contractor. No party shall take any action
nor incur any obligation on behalf of the other nor do anything or
make any representation to any person or third party or parties or
take any action or refrain from taking any action which would or
might imply the existence of agency or the existence of the ability
of either party to control the action or conduct of the other party.
18. ENTIRE AGREEMENT - AMENDMENT
18.1 This Agreement is intended to be the sole and complete statement of
the rights and obligations of the parties hereto relating to the
subject matter hereof and supersedes all previous understandings,
letters of intent, agreements, negotiations, and proposals as to
the subject matter.
18.2 No provision of this Agreement shall be deemed waived, amended, or
modified by either party unless such waiver, amendment, or
modification shall be in writing and signed by a person authorized
by the party against whom the waiver, amendment, or modification is
sought to be enforced.
19. SUCCESSORS AND ASSIGNS
19.1 This Agreement shall be binding upon the parties and their
respective successors and assigns. FMI shall have no right without
Evcon's prior written consent to assign any rights or obligations
hereunder.
20. HOLD HARMLESS/INDEMNITY
20.1 FMI agrees to indemnify and hold harmless Evcon and its affiliates
including its and their directors, officers, and employees harmless
from ANY AND ALL claims or litigation for loss or damage (whether
actual, punitive, or exemplary) and expenses (including but not
limited to
8
<PAGE>
investigative expenses and attorneys' fees and court costs) in
connection with any damage or injury to persons or property whether
actual or alleged and/or from any and all claims for infringement of
the intellectual or industrial property rights of others whether
actual or alleged arising out of or in connecting with the design,
manufacture and/or sale of the Products by FMI or Evcon. This
paragraph shall not apply to claims or litigation arising solely
from the negligent or other wrongful conduct of Evcon or of Evcon's
officers, employees, agents, and/or servants.
20.2 If any person or entity not a party to this agreement shall assert
any claim against FMI which might also give rise to a claim against
Evcon, Evcon shall have the right to participate in the defense
thereof and to be represented, at the expense of FMI, by advisory
counsel to be selected by Evcon. FMI agrees not to compromise or
settle such claim without the consent of Evcon (which consent shall
not be unreasonably withheld). FMI shall include Evcon on any
release whether a claim is settled with or without Evcon's
knowledge. Upon Evcon's request, FMI shall provide Evcon with any
information known by FJ4I which would be relevant to Evcon's defense
of any claim described above.
21. INSURANCE
21.1 FMI agrees to secure and maintain current at all times during the
term of this Agreement a comprehensive general liability insurance
policy, with coverages including products liability, with annual
personal injury limits in the amount of $1,000,000 per occurrence
and $5,000,000 in the aggregate and annual property damage limits
in the amount of $500,000 per occurrence and $1,000,000 in the
aggregate, issued by an insurance company licensed in the United
States acceptable to Evcon and which may not be cancelled without
thirty (30) days prior notice to Evcon. FMI agrees to have Evcon
named in said policy as an additional named insured pursuant to a
broad form vendors endorsement ard to submit a certificate to Evcon
from the insurer reflecting the requirements of this paragraph within
ten (10) days of the date of this Agreement.
22. REPURCHASE
22.1 In the event FMI terminates this Agreement under the provisions of
paragraphs 3.1, 7.1, 7.2 or 7.3, FMI agrees to repurchase within 30
days after termination and upon receipt of request by Evcon, Evcon's
currently existing inventory of Products, including repair parts,
9
<PAGE>
at the time of termination. This repurchase will be at Evcon's
landed cost less any monies due or about to be due FMI. FMI will
be responsible for all freight charges, but not for loading,
handling, etc. at Evcon's place of business. All inventory must be
new, unused, undamaged, in its original carton, and which is in
current production by FMI.
23. SEVERABILITY
23.1 In the event that any provision of this Agreement is held invalid or
unenforceable, that provision shall be severed and all remaining
provisions shall continue unimpaired and in full force and effect.
24. SURVIVAL
24.1 The duties of FMI pursuant to paragraphs 6.3 (Return of Products),
11 (Warranty and Parts Availability), 13 (Confidentiality), 14
(Use of Evcon Trademarks), 20 (Hold Harmless/Indemnity), and 21
(Repurchase) shall survive any termination or cancellation of this
Agreement.
In execution hereof, the parties sign as follows:
EVCON INDUSTRIES, INC.
By: /s/ Mike Burlingame
--------------------------------------------------
Mike Burlingame
Date: 9/1/93
---------------------------------------------
FIREPLACE MANUFACTURER'S INC.
By: /s/ Bill Harris
--------------------------------------------------
Bill Harris
Date:
---------------------------------------------
10
<PAGE>
EXHIBIT 20.3
MASTER LEASE AGREEMENT
This lease dated May 1, 1994, between SPS Technologies, located at 2701
S. Harbor Boulevard, Santa Ana, California (hereinafter called "Lessor"), and
Fireplace Manufacturers Incorporated, with principal offices located at 2701 S.
Harbor Boulevard, Santa Ana, California (hereinafter called "Lessee").
Whereas, Lessor is the owner of land and/or buildings located at 2701
S. Harbor Boulevard, Santa Ana, California; and
Whereas, Lessee desires to lease industrial space upon Lessor's
premises, more fully described herein, from Lessor for the purpose of
manufacturing fireplaces.
Whereas, Lessor is willing to lease to Lessee such premises on the
terms and conditions set forth herein.
Now, therefore, in consideration of the covenants and agreements herein
contained, the parties do hereby agree as follows:
1. Lessor leases to Lessee and Lessee takes from Lessor certain
premises situated at 2701 S. Harbor Boulevard, Santa Ana, California, and more
particularly described and identified as follows: 4,000 square feet of office
space; 75,600 square feet of manufacturing space; and 5,700 square feet of
<PAGE>
storage space, for a total of approximately 85,300 square feet of space, as
represented on Exhibit "A".
2.A. The terms of this lease shall commence on May 1, 1994, and
continue for a 5 (five) year period unless sooner terminated in accordance with
the terms hereof.
B. Option to extend - there is no option to extend this lease.
C. Should the lessee or lessor wish to negotiate a new lease then
that party must notify the other party of its intention between the dates of May
1, 1998 and November 1, 1998.
3.A. Effective May 1, 1994, Lessee agrees to pay Lessor a monthly
rental amount of Twenty Two Thousand Seven Hundred and Sixty Eight Dollars
($22,768.00) in advance on the first day of each month.
B. Notwithstanding the monthly rental amount specific in subsection
A above, the monthly rental amount shall be adjusted upward on each anniversary
of the beginning of the lease term by an amount equal to the percentage increase
in the Consumer Price Index (CPI) for the State of California during the
previous calendar year, but in no even less than two percent (2%) or more than
five percent (5%). Such increases shall be
2
<PAGE>
computed based upon the monthly rental amount in effect on each anniversary
date.
C. For the first twenty four months of the lease term ONLY, the
monthly rental amount determined in accordance with the provisions of
subsections A and B above, shall be reduced by Four Thousand Seven Hundred
Ninety One Dollars ($4791.00) to a monthly rental amount of Seventeen Thousand
Nine Hundred Seventy Seven Dollars ($17,977.00).
D. All rent shall be payable to Lessor at: SPS Technologies,
Inc. Jenkintown Plaza, 101 Greenwood Avenue, Suite 470, Jenkintown, PA 19046,
Attention: John McGrath, or at such other place as Lessor may from time to time
designate in writing.
E. Although the lease area (85,300 square feet) is considered to
be approximately accurate, both the lessor and lessee reserve the right to have
the rental amount adjusted using the agreed rate of $.2669 per square foot per
month on the area occupied which will be measured after the Lessee has completed
the move of its office and equipment.
4.A. Lessee agrees to defend, indemnify and hold harmless
Lessor, its officers, agents and employees, from and against all claims,
damages, losses and expenses, including attorneys' fees, for personal injury to
or death of any person or
3
<PAGE>
loss or damage to property of any person arising as a result of the condition of
the leased premises, and from and against all claims, damages, losses and
expenses, including attorneys' fees, for personal injury to or death of any
person, including employees of Lessor, or loss of or damage to property of
Lessor or any person, including employees of Lessor, arising as a result of
Lessee's use and occupancy of the leased premises or its use and occupancy of
other land or building owned by Lessor, howsoever occurring. This paragraph and
the obligations contained therein shall not apply to any negligence of Lessor,
whether active or passive.
B. Lessee agrees to defend, indemnify and hold harmless Lessor, its
officers, agents and employees, from and against all claims, damages, losses,
liabilities and expenses, including attorneys' fees, arising out of or in
connection with the storage, handling, disposal or discharge of oil, chemicals
and/or hazardous wastes or substances. This paragraph and the obligations
contained therein shall not apply to any negligence of Lessor, whether active or
passive.
5.A. Lessee intends to use the leased premises for the purpose of
manufacturing fireplaces. Lessor hereby authorizes the use of the leased
premises for such purpose. Lessee agrees that it will not use, or permit the
leased premises to be used, for purposes other than those authorized herein.
B. Lessee agrees that it will so supervise its personnel that their
activities will be limited to the leased premises, and they will not be
permitted to enter upon other
4
<PAGE>
areas of or buildings owned by Lessor.
C. Lessee agrees that it will conform to and obey all present and
future laws and ordinances, and all rules, regulations, requirements and orders
of all governmental authorities or agencies, respecting the use and occupancy of
the leased premises.
D. Lessee agrees that it will comply with all requirements of
Lessor's insurance carriers regarding employee safety, building, or equipment
exposure. All expenses related to such compliance shall be at Lessees' sole
cost.
6. Lessor reserves the right, for itself and its employees, agents
or contractors, and Lessee agrees to permit Lessor, its employees, agents or
contractors, to enter any and all portions of the leased premises at any and all
reasonable times, after reasonable notice, for the purpose of performing
inspection, maintenance, repairs, or showing for sale or for lease.
7.A. Lessor shall pay general real property taxes, and all other
taxes and assessments imposed on or against the land and the building.
B. Lessee shall pay for the cost of electricity, gas, water,
telephone and other utilities and services supplied to the leased premises
together with any taxes thereon and personal
5
<PAGE>
property taxes due as a result of the personal property valuation of the assets
of the Lessee. If any such services are not separately metered to Lessee, Lessee
shall pay a reasonable proportion, to be determined by Lessor, of all charges
jointly metered with other premises. The amounts billed by Lessor to Lessee for
utilities shall be considered as additional rent hereunder by Lessor with an
accounting provided by Lessor to Lessee. Lessee shall have option to audit all
records relating to.
C. Lessor shall contract for and obtain security guard service or
the building Lessee shall reimburse Lessor for the cost billed by the security
guard service to Lessor for the North Gate. The amounts billed by Lessor to
Lessee for security guard service shall be considered as additional rent
hereunder. Any amount billed to Lessee hereunder shall be approved by Lessee in
advance of contract.
8. Lessee agrees that it will make no alterations to or
improvements in or to the leased premises, including the utility systems
therein, without the prior written consent of the Lessor. It is further agreed
that any alterations or improvements which are approved by Lessor and which are
made by Lessee shall be at Lessee's expense and, at the end of the term hereby
granted, Lessor, if it so desires, shall have the right to purchase the
alterations or improvements, provided the parties can agree on a price. In the
event the parties cannot agree on a price, or Lessor shall not desire to
purchase the alterations or
6
<PAGE>
improvements, Lessee shall restore the leased premises to the condition as
originally leased. Should Lessee fail to remove such alterations or
improvements, title to such alterations or improvements shall pass to Lessor,
who may remove or repair such alterations or improvements at Lessee's expense.
Lessor's removal and/or Lessee's failure to remove such alterations or
improvements shall not release Lessee from its obligation to restore the leased
premises to the condition as originally leased.
9.A. Lessor shall and will, during the term of this lease, keep in
effect fire insurance coverage on the premises; however, Lessee agrees that all
of its property, equipment and supplies located on the premises shall be insured
by Lessee at its own expense.
B. Lessee shall, at all times during the term of the lease, keep
in effect with reputable carriers, Workmen's Compensation and Comprehensive
General and Liability Insurance in the following minimum limits:
Workmen's Compensation Statutory
Employer's Liability $500,000
Comprehensive General Liability Bodily Injury & Property
including Contractual Liability Damage $2,000,000 combined
single limit
Comprehensive Automobile Liability Bodily Injury &
7
<PAGE>
Property Damage $2,000,000 combined
single limit
C. The insurance policy(ies) providing the required
coverage shall contain endorsements providing for Contractual Liability
Insurance specifically insuring the obligations contained in Article 4 of this
lease agreement.
D. Lessee will furnish Lessor with certificates of
insurance evidencing the above-specified coverage. Such certificates shall
provide for thirty (30) days notice to Lessor in the event of cancellation or
other termination of such insurance.
E. In the event Lessee obtains Lessor's approval to have
work performed on the leased premises by others, Lessee shall assure that its
contractors will comply with the provisions of this lease including, but without
limitation, provisions relative to safety, security, insurance and use.
F. Anything in this lease to the contrary
notwithstanding, Lessor and Lessee each waive any rights of recovery against the
other or against employees of the other who may be responsible for a loss to
property covered or intended to be covered under a fire insurance policy or
policies, including the perils of the extended coverage endorsement, vandalism
and malicious mischief.
8
<PAGE>
10. Lessee shall, at the expiration or termination of this
lease, vacate the premises in as good a condition as they were at the time of
entry thereon by Lessee, except for reasonable wear and tear.
11. Lessee agrees to comply with all reasonable safety,
security and parking rules and regulations that have been or may be promulgated
by Lessor.
12. Lessee shall not cause or permit any liens or encumbrances
to be placed upon the leased premises.
13. Lessee shall not assign this lease or any interest
thereunder or sublet the premises or any part thereof without the prior written
consent of Lessor.
14. The covenants and agreements contained in this lease shall
apply and inure to the benefit of and be binding upon the parties hereto and
upon their successors in interest, legal representatives and assigns, except as
otherwise hereinbefore provided in the immediately preceding paragraph.
15. All notice to be given hereunder shall be sent by
certified mail, return receipt requested, properly addressed and with postage
prepaid. If sent to Lessor, said notice shall be to:
9
<PAGE>
SPS Technologies, Inc.
Jenkintown Plaza
101 Greenwood Avenue
Suite 470
Jenkintown, PA 19046
Attention: John P. McGrath
Vice President,
Corporate Services
If sent to Lessee, said notice shall be
sent to:
Fireplace Manufacturers Incorporated
2701 S. Harbor Blvd.
Santa Ana, California 92702-1259
10
<PAGE>
16. This lease contains all representations and agreements of
and between the parties hereto and supersedes any prior leases, agreements,
negotiations or representations by or between the parties. It shall not be
modified or amended except by a written instrument duly executed by all parties.
Addendum 1 is incorporated herein by reference.
With Modifications to 5A and B
Witness the due execution hereof the day and year first above written.
SPS Technologies, Inc.
Executed at Jenkintown, PA By: /s/ John P. McGrath
---------------------------- --------------------------------
John P. McGrath
Date 5/13/94 Vice President,
------------------------------------ Corporate Services
"Lessor"
Fireplace Manufacturers Inc.
Executed at Santa Ana, CA By: /s/ John D. Hornsby
---------------------------- --------------------------------
Date 5/26/94 Title: COO FMI
----------------------------------- ----------------------------
"Lessee"
11
<PAGE>
ADDENDUM TO LEASE
Dated 5/13/94
----------
Between SPS Technologies, Inc. and Fireplace Manufacturers, Inc.
1. Lessee's use of the leased premises shall be further restricted in that
Lessee's storage of any and all products, materials, tools, equipment and other
items shall comply with the maximum height restrictions hereinafter set forth:
<TABLE>
<CAPTION>
Maximum Height Restrictions
---------------------------
Palletized Storage Rack Storage
------------------ ------------
<S> <C> <C>
Metal 15' 12'
Flood & Cardboard 6' 6'
Plastics 8' 8'
Chemicals Each situation must be reviewed by Lessor's
insurer, Industrial Risk Insurers
</TABLE>
2. Lessor is to provide fencing around the perimeter of the leased space at
Lessee's cost and expense.
3. Without limiting the provisions of paragraph 8, Lessee hereby agrees that
it will dismantle and remove the four (4) story test tower facility prior to
vacating the premises at the expiration of the term of this lease. Lessee
further agrees to repair and/or replace the roof area of the building over the
test tower facility to its original condition prior to placement of
12
<PAGE>
the test tower facility, or better. The reconstructed roof area shall match the
existing quality of the crane bay roof.
7. Lessor shall continue to hold the $16,835 security deposit formerly paid by
Less.
5. Relocation Breach -
A. It is expressly understood that the Lessee (i) will relocate
their existing offices area to the office area previously occupied by Lessor
(approximately 4,000 feet); (ii) will relocate the brick manufacturing
operation to the maintenance area previously occupied by the lessor; and,
(iii) will realign the manufacturing area through the HIGH BAY AREA of the
plant in accordance with the following timetable:
(a) complete the relocation of offices "within thirty days (30) after the
office complete and ready to be executed by Lessee" 5/26/94
(b) complete the relocation of the brick manufacturing facility "within thirty
days after Lessee has completely removed equipment, structures and property from
the maintenance." 5/26/94
(c) complete the realignment of fireplace manufacturing into the HIGH BAY AREA
within 120-180 days after the Lessor has constructed the new dock area for the
Lessee.
B. Should the lessee fail to meet the above schedule or not making
sufficient progress to meet the above schedule, Lessor may notify Lessee in
writing that a breech of this provision has occurred. Upon receipt of this
notice Lessee shall cure such breach within 14 days and notify Lessor in writing
of such cure. Should the Lessee fail to cure the breech, the Lessor may
terminate the Master Lease Agreement in its entirety upon 30 days written
notice.
6. Relocation Option -
Lessor may at Lessor's sole expense require Lessee to relocate its
office/manufacturing area in whole or in part in order to permit the vacant
space in the building to be leased.
SPS Technologies, Inc.
Executed at Jenkintown, PA By: /s/ John P. McGrath
---------------------------
Date: 5/15/94 John P. McGrath
Vice President
Corporate Services
"Lessor"
13
<PAGE>
Fireplace Manufacturers Inc.
Executed at SANTA ANA, CA. BY: /s/ John D. Hornsby
--------------------------- ---------------------------
Date 5/4/94 Title: COO
----------------------------------- -----------------------
"Lessee"
14
<PAGE>
EXHIBIT 20.5
TFC TEXTRON
Textron Financial Corporation, Subsidiary of Textron Inc.
MANUFACTURER'S REPURCHASE AGREEMENT
This Manufacturer's Repurchase Agreement (this "Agreement") in entered into
between the undersigned manufacturer ("Manufacturer") and Textron Financial
Corporation ("TFC").
RECITALS
A. Manufacturer sells various goods ("Goods") to retail dealers and
wholesale distributors (in either case, "Dealers") who frequently desire to
finance such purchases; and
B. TFC is in the business of financing the acquisition of various goods
by dealers and distributors generally.
AGREEMENT
In order to induce TFC to finance the acquisition of Goods by a Dealer
and/or to induce TFC to refinance Goods already in the possession of a Dealer,
Manufacturer agrees with TFC as follows:
1. SALE OF GOODS; WARRANTIES OF MANUFACTURER. When a Dealer orders Goods
from Manufacturer and requests that TFC finance the acquisition of such Goods,
Manufacturer shall deliver to TFC an invoice identifying such Goods (the
"Invoice") and the cost thereof to the purchasing Dealer (the "Invoice Cost").
By delivery of such Invoice to TFC, Manufacturer shall represent and warrant to
TFC that:
(a) Manufacturer has good title to such Goods and will, upon payment
by TFC of the Net Invoice Cost therefor (as hereinafter defined), transfer
title to such Goods to such Dealer free and clear of liens and
encumbrances;
(b) Such Goods are current models, are in unused condition and are
free of defects;
(c) The Invoice Cost of such Goods reflects a reduction for any
applicable rebate or discount to such Dealer or Distributor and represents
the true cost of such Goods to such Dealer;
(d) Such Goods were ordered by such Dealer from Manufacturer (the
"Order"), the Order was accepted by Manufacturer and such Dealer requested
that TFC finance its acquisition of such Goods; and
(e) Such Goods conform in all respects to the Order and will not be
shipped to such Dealer prior to TFC's approval of such Invoice for payment.
In the event that TFC, with the approval of Manufacturer, refinances Goods
already in the possession of a Dealer, Manufacturer shall reinvoice such Dealer
for such Goods. Each such reissued invoice shall be considered an "Invoice" for
purposes of this Agreement. By delivery of such an Invoice to TFC, Manufacturer
shall make to TFC the representations and warranties set forth in Subparagraphs
(b) and (c) of this Paragraph with respect to the Goods identified thereon, and
shall further represent and warrant to TFC that such Goods, as of the time of
the reissuance of such Invoice, are free and clear of liens and encumbrances of
all parties other than TFC.
2. PAYMENT OBLIGATIONS. TFC will establish a credit limit for each
Dealer approved by TFC for the extension of credit. Such credit limit shall NOT
constitute a committed line of credit and TFC shall not be bound to finance any
particular Goods. TFC shall be obligated to pay the Invoice Cost, less any
discount applicable to TFC from time to time (the "Net Invoice Cost"), only for
Invoices which TFC approves for payment.
3. REPURCHASE OBLIGATIONS OF MANUFACTURER. Should TFC at any time
repossess or otherwise come into possession of any Goods financed or refinanced
by TFC for any Dealer (whether acquired by such Dealer from Manufacturer or from
a distributor of such Goods), Manufacturer shall repurchase such Goods from TFC
upon the following terms and conditions:
(a) Manufacturer shall repurchase such Goods from TFC immediately
upon receipt of notice from TFC that such Goods are in TFC's possession,
wherever located and in whatever condition, without any express or implied
warranties as to merchantability or fitness for a particular purpose;
(b) The repurchase price for such Goods (the "Repurchase Price")
shall be equal to: (i) the outstanding principal, owing to TFC by the
applicable Dealer with respect to such Goods, plus (ii) all reasonable
expenses incurred by TFC in connection with the repossession and/or storage
of such Goods subject to a limit of $10.00 per unit of such Goods, minus
(iii) amounts incurred by Manufacturer, if any, to
<PAGE>
FIREPLACE MANUFACTURERS, INC. PROGRAM PROPOSAL
TFC is prepared to provide Fireplace Manufacturers, Inc. the following program
for it's U.S. dealer base.
ALL FMI PROGRAMS
PRODUCT TYPE: Fireplaces.
TITLE: New Inventory Financing.
TERM: PAY AS SOLD PROGRAM (PAS) will be twelve
months (360 days) and the SCHEDULED
PAYMENT PROGRAM (SPP) will be three
months (90 days).
FINANCED AMOUNT: 100% of invoice including freight. On
PAS program the freight is due at the
first floorcheck or the first billing,
whichever occurs first.
REPAYMENT TERMS: PAY AS SOLD, with payments remittances
weekly on principal amounts as units are
sold. SCHEDULED PAYMENT PROGRAM will be
billed in equal monthly payments with
the first payment due on the 15th of the
month following the month of invoice
purchase.
INVOICE PROCESSING: TFC will process invoices on a daily
basis. Proceeds will be within THE
CHOSEN CHECKHOLD AS OUTLINED BELOW FROM
THE INVOICE DATE or 3 days from invoice
receipt, whichever is longer. Method of
payment will be a TFC company check.
FMI FREE FLOORING PAS PROGRAM
PREPAID PERIOD: 90 days prepaid no interest to dealer.
MANUFACTURER DISCOUNT
OF PROCEEDS: A discount will be taken from the
proceeds amount to pay for the first 90
days of free flooring. The discount
will be determined by the checkhold
option chosen below:
Discount Days Free Checkhold
-------- --------- ---------
2.25% 90 days 30 days
Page 1 of 3
<PAGE>
FMI FREE FLOORING PAS PROGRAM CONTINUED
DEALER ADB RATE: Beginning on the 91st day through the
360th day dealer will be billed monthly
at the annual ADB rate of Actual Prime
plus 5.50%.
FMI FREE FLOORING SPP PROGRAM
PREPAID PERIOD: 90 days prepaid no interest to dealer.
MANUFACTURER DISCOUNT
OF PROCEEDS: A discount will be taken from the
proceeds amount to pay for the 90 days
of free flooring. The discount will be
determined by the checkhold option
chosen below:
Discount Days Free Checkhold
-------- --------- ---------
1.75% 90 days 15 days
NO FREE FLOORING PAS OR SPP PROGRAM
DEALER RATE: Beginning on the invoice date through
the 360th day dealer will be billed
monthly at the annual ADB rate of Actual
Prime plus 6.50%.
PROGRAM CONDITIONS
(APPLICABLE TO BOTH PROGRAMS)
PROGRAM MATURITY: PAS is due in full on the 361st day if
not sold and paid previously. SPP is
due in full on the 91st day.
DEALER MATURITY RATE: If not paid in full on the maturity date
the dealer interest rate will increase
to the annual ADB rate of Actual Prime
plus 8.50%.
DEALER DEFAULT RATE: 21.00%.
PRIME: As quoted in the Wall Street Journal,
however if Actual Prime falls below
8.00%, TFC reserves the right to review
the program.
This proposal is conditional upon approval by Fireplace Manufacturers, Inc.
Page 2 of 3
<PAGE>
TFC anticipates that the foregoing program, once approved and established, will
continue on the same terms and conditions. However, factors internal and
external to TFC sometimes require modification of a program or its
discontinuance. If TFC determines that this program must be modified or
discontinued, TFC will endeavor to provide Fireplace Manufacturers, Inc. with
sufficient notice in order to avoid any undue inconvenience to Fireplace
Manufacturers, Inc. or its dealers.
ACKNOWLEDGED AND ACCEPTED:
FIREPLACE MANUFACTURERS, INC.
/s/ Jane Ann Iovine
- -----------------------------------
Print Name: Jane Ann Iovine
------------------------
Print Title: V.P. Finance
-----------------------
Date: 11/19/96
------------------------------
(11/18/96)
Page 3 of 3
<PAGE>
[LOGO]
EXHIBIT 20.7
PROMISSORY NOTE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Borrower: Fireplace Manufacturers, Inc. Lender: California United Bank
2701 South Harbor Blvd. San Gabriel Commercial
Santa Ana, CA 92704 Loan Center
16030 Ventura Boulevard
Encino, CA 91436
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $500,000.00 INITIAL RATE: 9.250% DATE OF NOTE: AUGUST 6,
1997
PROMISE TO PAY. FIREPLACE MANUFACTURERS, INC. ("BORROWER") PROMISES TO PAY TO
CALIFORNIA UNITED BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED
STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FIVE HUNDRED THOUSAND & 00/100
DOLLARS ($500,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE
CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN
ACCORDANCE WITH THE FOLLOWING PAYMENT SCHEDULE:
TWELVE (12) CONSECUTIVE MONTHLY PAYMENTS OF INTEREST BEGINNING SEPTEMBER 1,
1997 UNTIL AND INCLUDING AUGUST 3,1998 (THE "CONVERSION DATE"). ON THE
CONVERSION DATE, THE OUTSTANDING PRINCIPAL HEREUNDER SHALL BE FULLY
AMORTIZED OVER A PERIOD OF FORTY-EIGHT (48) MONTHS, AND SHALL THEREAFTER BE
PAYABLE IN EQUAL MONTHLY PRINCIPAL INSTALLMENTS, PLUS ACCRUED INTEREST, ON
THE FIRST DAY OF EACH MONTH, COMMENCING WITH THE MONTH FOLLOWING THE
CONVERSION DATE, AND CONCLUDING ON THE MATURITY DATE (AUGUST 3, 2002), ON
WHICH DATE ALL UNPAID PRINCIPAL AND ACCRUED UNPAID INTEREST SHALL BE DUE
AND PAYABLE IN FULL. LENDER WILL NOTIFY BORROWER OF THE AMOUNT OF THE
REQUIRED MONTHLY PRINCIPAL PAYMENTS, AND THE DATE OF THE FIRST AND LAST
SUCH PAYMENTS, ON OR ABOUT THE CONVERSION DATE. FOLLOWING THE CONVERSION
DATE, BORROWER MAY PREPAY ALL OR ANY PORTION OF THIS NOTE AT ANY TIME,
WITHOUT PREMIUM OR PENALTY. ALL PREPAYMENTS SHALL BE APPLIED TO PAYMENTS
DUE HEREUNDER IN INVERSE ORDER OF MATURITY.
The annual interest rate for this Note is computed on a 365/360 basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal. The receipt of any wire
transfer of funds, check or other item of payment by the bank shall be
immediately applied to conditionally reduce Borrower's obligations, but shall
not be considered a payment on account unless such wire transfer is of
immediately available federal funds and is made to the appropriate deposit
account of Bank or unless and until such check or other item of payment is
honored when presented for payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the prime rate
published on a daily basis in the "Money Rates" Section of the Western Edition
of The Wall Street Journal (the "Index"). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable
during the term of this loan, Lender may designate a substitute index after
notice to Borrower. Lender will tell Borrower the current Index rate upon
Borrower's request. Borrower understands that Lender may make loans based on
other rates as well. The interest rate change will not occur more often than
each day. THE INDEX CURRENTLY IS 8.500%. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 0.750 PERCENTAGE
POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 9.250%. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum rate
allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a MINIMUM INTEREST
CHARGE OF $250.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by Lender in
writing, relieve Borrower of Borrower's obligation to continue to make payments
of accrued unpaid interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to
pay all amounts declared due pursuant to this section including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 5.750 percentage points over the Index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any
increased rate). Lender may hire or pay someone else to help collect this
Note if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law. THIS NOTE HAS
BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA.
IT THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA.
SUBJECT TO THE PROVISIONS ON ARBITRATION, THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
<PAGE>
PROMISSORY NOTE PAGE 2
LOAN NO 5668 (CONTINUED)
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RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone also and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a straight line of credit. Once the total
amount of principal has been advanced, Borrower is not entitled to further
loan advances. Advances under this Note may be requested orally by Borrower
or as provided in this paragraph. Lender may, but need not, require that all
oral requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. The following party or parties are authorized as provided
in this paragraph to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: WILLARD P. HARRIS, PRESIDENT; JOHN D. HORNSBY,
SECRETARY; AND JANE ANN IOVINE, VICE PRESIDENT. EACH ADVANCE UNDER THIS NOTE
SHALL BE AVAILABLE UP TO A MAXIMUM OF SEVENTY-FIVE PERCENT (75.000%) OF THE
COSTS OF NEW EQUIPMENT BEING PURCHASED EXCLUDING ALL SOFT COSTS, SUCH AS
FREIGHT AND DELIVERY, SALES TAX AND INSTALLATION COSTS, AS DETERMINED SOLELY
BY LENDER UPON RECEIPT AND REVIEW OF APPLICABLE INVOICES. Borrower agrees to
be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records including daily computer print-outs. Lender will have no obligation
to advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Note or any other
loan with Lender; (d) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement
between Lender and Borrower.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS NOTE OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT
AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement.
This includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right concerning any collateral securing this Note, including
any claim to rescind, reform, or otherwise modify any agreement relating to
the collateral securing this Note, shall also be arbitrated, provided however
that no arbitrator shall have the right or the power to enjoin or restrain
any act of any party. Lender and Borrower agree that in the event of an
action for judicial foreclosure pursuant to California Code of Civil
Procedure Section 726, or any similar provision in any other state, the
commencement of such an action will not constitute a waiver of the right to
arbitrate and the court shall refer to arbitration as much of such action,
including counterclaims, as lawfully may be referred to arbitration. Judgment
upon any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Note shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the construction, interpretation,
and enforcement of this arbitration provision.
COLLATERAL. This Note is secured by the Collateral as described in that certain
Commercial Security Agreement, dated as of July 31, 1996, as it may be amended,
modified, supplemented, replaced, or restated, from time to time, executed by
Grantor in favor of Lender.
LOAN AGREEMENT. Reference is hereby made to that certain Loan Agreement,
dated as of February 1, 1995, as it may be amended, modified, supplemented,
replaced, or restated, from time to time, for additional terms and conditions.
RESTATEMENT OF ORIGINAL NOTE. This Note has been issued in order to amend and
restate, and in substitution for, that certain Promissory Note dated as of July
31, 1996, in the original principal amount of $500,000.00, executed by Borrower
in favor of Lender.
ADDITIONAL MATTERS. Lender reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in
Lender's rights and benefits hereunder. In connection therewith, Lender may
disclose all documents and information which Lender now or hereafter may have
relating to Borrower.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive any applicable statute of limitations,
presentment, demand for payment, protest and notice of dishonor. Upon any
change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability. All such
parties agree that Lender may renew or extend (repeatedly and for any length
of time) this loan, or release any party or guarantor of collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the
party with whom the modification is made.
INTEGRATION; AMENDMENT. This Note and the other written documents and
Instruments between Borrower and Lender set forth in full the terms of
agreement between the parties and are intended as the full, complete and
exclusive agreement governing the relationship between the parties. This Note
supersedes all prior discussions, promises, representations, warranties,
agreements and understandings between the parties. This Note may not be
modified or amended, nor may any rights hereunder be waived, except in a
writing signed by the party against whom enforcement of the modification,
amendment or waiver is sought. No course of dealing between the parties, no
usage of trade, and no parol or extrinsic evidence of any nature shall be
used or be relevant to supplement, explain or modify any term or provision of
this Note or any supplement or amendment hereto. There are no oral agreements
or understandings between Borrower and Lender regarding any extension of the
maturity of this Note or making any modifications to this Note, or regarding
any other matter.
MUTUAL WAIVER OF RIGHT TO JURY TRIAL. Lender and Borrower each hereby waive
the right to trial by jury in any action or proceeding based upon, arising
out of, or in any way relating to: (i) this Note; or (ii) any other present
or future instrument or agreement between Lender and Borrower; or (iii) any
conduct, acts or omissions of Lender or Borrower or any of their directors,
officers, employees, agents, attorneys or any other persons affiliated with
Lender or Borrower; in each of the foregoing cases, whether sounding in
contract or tort or otherwise.
<PAGE>
PROMISSORY NOTE PAGE 3
LOAN NO 5668 (CONTINUED)
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PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Fireplace Manufacturers, Inc.
By: /s/ Willard P. Harris
--------------------------------
Willard P. Harris, President
LENDER:
California United Bank
By:
--------------------------------
Authorized Officer
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<PAGE>
EXHIBIT 20.9
[LOGO]
PROMISSORY NOTE
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BORROWER: FIREPLACE MANUFACTURERS, INC. LENDER: CALIFORNIA UNITED BANK, N.A.
2701 SOUTH HARBOR BLVD. SAN GABRIEL REGIONAL OFFICE
SANTA ANA, CA 92704 16030 VENTURA BOULEVARD
ENCINO, CA 91436
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PRINCIPAL AMOUNT: $4,000,000.00 INITIAL RATE: 9.000% DATE OF NOTE: JULY 31, 1996
PROMISE TO PAY. FIREPLACE MANUFACTURERS, INC. ("BORROWER") PROMISES TO PAY
TO CALIFORNIA UNITED BANK, N.A. ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE
UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF FOUR MILLION & 00/100
DOLLARS ($4,000,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST
ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL
BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
AUGUST 1, 1997. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING SEPTEMBER 1, 1996, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this
Note is computed on a 365/360 simple interest basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any unpaid collection costs and any late charges, then to any unpaid
interest, and any remaining amount to principal. The receipt of any wire
transfer of funds, check or other item of payment by the bank shall be
immediately applied to conditionally reduce Borrower's obligations, but shall
not be considered a payment on account unless such wire transfer is of
immediately available federal funds and is made to the appropriate deposit
account of Bank or unless and until such check or other item of payment is
honored when presented for payment.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the prime
rate published on a daily basis in the "Money Rates" Section of the Western
Edition of the Wall Street Journal (the "Index"). The Index is not necessarily
the lowest rate charged by Lender on its loans. If the Index becomes
unavailable during the term of this loan, Lender may designate a substitute
index after notice to Borrower. Lender will tell Borrower the current Index
rate upon Borrower's request. Borrower understands that Lender may make loans
based on other rates as well. The interest rate change will not occur more
often than each day. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST
RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A
RATE OF 0.750 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF
9.000% PER ANNUM. NOTICE: Under no circumstances will the interest rate of
this Note be more than the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is entitled
to a MINIMUM INTEREST CHARGE OF $250.00 Other than Borrower's obligation to pay
any minimum interest charge, Borrower may pay without penalty all or a portion
of the amount owed earlier than it is due. Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments of accrued unpaid interest. Rather, they will reduce
the principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligation under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any of Borrower's accounts
with Lender. (g) Any guarantor dies or any of the other events described in
this default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is impaired.
(i) Lender in good faith deems itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate
on this Note to 5.750 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER
IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON
LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES
COUNTY, THE STATE OF CALIFORNIA SUBJECT TO THE PROVISIONS ON ARBITRATION, THIS
NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF CALIFORNIA.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's
accounts with Lender (whether checking, savings, or some other account),
including without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all IRA and
Keogh accounts, and all trust accounts for which the grant of a security
interest would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on
this Note against any and all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or as provided in
<PAGE>
PROMISSORY NOTE
(CONTINUED) PAGE 2
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this paragraph. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized as provided in this
paragraph to request advances under the line of credit until Lender receives
from Borrower at Lender's address shown above written notice of revocation of
their authority: WILLARD P. HARRIS, JOHN D. HORNSBY AND JANE ANN IOVINE.
ADVANCES MADE UNDER THIS NOTE ARE SUBJECT TO THE BORROWING BASE AS DEFINED IN
THAT CERTAIN LOAN AGREEMENT, DATED AS OF FEBRUARY 1, 1995, AS IT MAY BE
AMENDED FROM TIME TO TIME, BY AND BETWEEN BORROWER AND LENDER. Borrower
agrees to be liable for sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lenders' internal
records, including daily computer print-outs. Lender will have no obligation
to advance funds under this Note if: (a) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to
limit, modify or revoke such guarantor's guarantee of this Note or any other
loan with Lender; (d) Borrower has applied funds provided pursuant to this
Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement
between Lender and Borrower.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS NOTE OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT AND
TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or
dispose of any collateral securing this Note shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any
rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right, concerning
any collateral securing this Note, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral securing this Note,
shall also be arbitrated, provided however that no arbitrator shall have the
right or the power to enjoin or restrain any act of any party. Lender and
Borrower agree that in the event of an action for judicial foreclosure pursuant
to California Code of Civil Procedure Section 726, or any similar provision in
any other state, the commencement of such an action will not constitute a waiver
of the right to arbitrate and the court shall refer to arbitration as much of
such action, including counterclaims, as lawfully may be referred to
arbitration. Judgement upon any award rendered by any arbitrator may be entered
in any court having jurisdiction. Nothing in this Note shall preclude any party
from seeking equitable relief from a court of competent jurisdiction. The
statute of limitations, estoppel, waiver, laches, and similar doctrines which
would otherwise be applicable in an action brought by a party shall be
applicable in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply to the construction, interpretation, and
enforcement of this arbitration provision.
COLLATERAL. This Loan is secured by the Collateral as described in that certain
Commercial Security Agreement, dated as of July 31, 1996, as it may be amended,
modified or replaced from time to time, executed by Grantor in favor of Lender.
LOAN AGREEMENT. Reference is hereby made to that certain Loan Agreement, dated
as of February 1, 1995, as it may be amended, modified or replaced from time to
time, for additional terms and conditions.
BORROWER'S ACKNOWLEDGMENT. Borrower hereby acknowledges that this is an
increased renewal of Note Number 5134 as evidenced by that certain Promissory
Note dated as of February 1, 1995, in the original principal amount of
$3,500,000.00, executed by Borrower in favor of Lender.
ADDITIONAL MATTERS. Lender reserves the right to sell, assign, transfer,
negotiate or grant participation in all or any part of, or any interest in
Lender's rights and benefits hereunder. In connection therewith, Lender may
disclose all documents and information which Lender now or hereafter may have
relating to Borrower.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
INTEGRATION; AMENDMENT. This Note and the other written documents and
instruments between Borrower and Lender set forth in full the terms of agreement
between the parties and are intended as the full, complete and exclusive
agreement governing the relationship between the parties. This Note supersedes
all prior discussions, promises, representations, warranties, agreements and
understandings between the parties. This Note may not be modified or amended,
nor may any rights hereunder be waived, except in a writing signed by the party
against whom enforcement of the modification, amendment or waiver is sought. No
course of dealing between the parties, no usage of trade, and no parol or
extrinsic evidence of any nature shall be used or be relevant to supplement,
explain or modify any term or provision of this Note or any supplement or
amendment hereto. There are no oral agreements or understandings between
Borrower and Lender regarding any extension of the maturity of this Note or
making any modifications to this Note, or regarding any other matter.
MUTUAL WAIVER OF RIGHT TO JURY TRAIL. Lender and Borrower each hereby waive the
right to trial by jury in any action or proceeding based upon, arising out of,
or in any way relating to: (i) this Note: or (ii) any other present or future
instrument or agreement between Lender and Borrower; or (iii) any conduct, acts
or omissions of Lender or Borrower or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with Lender or
Borrower; in each of the foregoing cases, whether sounding in contract or tort
or otherwise.
<PAGE>
PROMISSORY NOTE
(CONTINUED) PAGE 3
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
FIREPLACE MANUFACTURERS, INC.
BY: /s/ Willard P. Harris
------------------------------------
WILLARD P. HARRIS, PRESIDENT
LENDER:
CALIFORNIA UNITED BANK, N.A.
BY:
------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[LOGO]
CHANGE IN TERMS AGREEMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BORROWER: FIREPLACE MANUFACTURERS, INC. LENDER: CALIFORNIA UNITED BANK,
2701 SOUTH HARBOR BLVD. SAN GABRIEL COMMERCIAL LOAN
SANTA ANA, CA 92704 CENTER
16030 VENTURA BOULEVARD
ENCINO, CA 91436
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PRINCIPAL AMOUNT: $4,000,000.00 DATE OF AGREEMENT: AUGUST 6, 1997
DESCRIPTION OF EXISTING INDEBTEDNESS. A Promissory Note dated as of July 31,
1996 in the original principal amount of $4,000,000.00 executed by Borrower in
favor of Lender, as amended by that certain Change in Terms Agreement dated as
of December 19, 1996.
DESCRIPTION OF COLLATERAL. This Note is secured by the Collateral as described
in that certain Commercial Security Agreement dated as of July 31, 1996, as it
may be amended, modified, supplemented, replaced, or restated, from time to
time, executed by Grantor in favor of Lender.
DESCRIPTION OF CHANGE IN TERMS. The maturity date is amended from August 1,
1997 to August 3, 1998. Regularly scheduled monthly interest payments shall
continue to be due and payable as provided in said Note, beginning with the
payment due on September 1, 1997.
ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT
AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act to take or
dispose of any collateral securing this Agreement shall constitute a waiver of
this arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any
rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act, or exercise of any right, concerning
any collateral securing this Agreement, including any claim to rescind, reform,
or otherwise modify any agreement relating to the collateral securing this
Agreement, shall also be arbitrated, provided however that no arbitrator shall
have the right or the power to enjoin or restrain any act of any party. Lender
and Borrower agree that in the event of an action for judicial foreclosure
pursuant to California Code of Civil Procedure Section 726, or any similar
provision in any other state, the commencement of such an action will not
constitute a waiver of the right to arbitrate and the court shall refer to
arbitration as much of such action, including counterclaims, as lawfully may be
referred to arbitration Judgment upon any award rendered by any arbitrator may
be entered in any court having jurisdiction. Nothing is this Agreement shall
preclude any party from seeking equitable relief from a court of competent
jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar
doctrines which would otherwise be applicable in an action brought by a party
shall be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for these
purposes. The Federal Arbitration Act shall apply to the construction
interpretation, and enforcement of this arbitration provision.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms
of the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a
satisfaction of the obligation(s). It is the intention of Lender to retain as
liable parties all makers and endorsers of the original obligation(s) including
accommodation parties, unless a party is expressly released by Lender in
writing. Any maker or endorser, including accommodation makers will not be
released by virtue of this Agreement. If any person who signed the original
obligation does not sign this Agreement below, then all persons signing below
acknowledge that this Agreement is given conditionally, based on the
representation to Lender that the non-signing party consents to the changes and
provisions of this Agreement or otherwise will not be released by it. This
waiver applies not only to any initial extension, modification of release, but
also to all such subsequent actions.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT AND
ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE AGREEMENT.
BORROWER:
FIREPLACE MANUFACTURERS, INC.
BY: /s/ Willard P. Harris, President
------------------------------------
Willard P. Harris, President
LENDER:
CALIFORNIA UNITED BANK
BY:
------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,232,000
<SECURITIES> 0
<RECEIVABLES> 1,802,000
<ALLOWANCES> 261,000
<INVENTORY> 1,571,000
<CURRENT-ASSETS> 5,090,000
<PP&E> 1,339,000
<DEPRECIATION> 3,607,000
<TOTAL-ASSETS> 6,647,000
<CURRENT-LIABILITIES> 2,882,000
<BONDS> 0
0
0
<COMMON> 33,000
<OTHER-SE> 3,551,000
<TOTAL-LIABILITY-AND-EQUITY> 6,647,000
<SALES> 28,999,000
<TOTAL-REVENUES> 28,999,000
<CGS> 21,783,000
<TOTAL-COSTS> 26,962,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,000
<INCOME-PRETAX> 2,000,000
<INCOME-TAX> 679,000
<INCOME-CONTINUING> 1,321,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,321,000
<EPS-PRIMARY> .39
<EPS-DILUTED> .38
</TABLE>
