SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended March 31, 1997 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-18607
ARCTIC CAT INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1443470
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
601 Brooks Avenue South, Thief River Falls, Minnesota 56701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (218)681-8558
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value. Preferred Stock Purchase Rights.
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of June 20, 1997 (based on the closing sale price of the Common
Stock on such date) was approximately $222,994,262.
At June 20, 1997, 21,628,649 shares of Common Stock and 7,560,000 shares of
Class B Common Stock of the Registrant were outstanding.
Documents Incorporated by Reference:
Portions of the Company's Proxy Statement for its Annual Meeting of
Shareholders currently scheduled to be held on August 14, 1997 is
incorporated by reference into Part III of this Form 10-K.
PART I
Item 1.Business
Arctic Cat Inc., based in Thief River Falls, Minnesota, designs, engineers
, manufactures and markets snowmobiles and all-terrain vehicles (ATVs) under
the Arctic Cat brand name, and personal watercraft (PWC) under the Tigershark
brand name, as well as related parts, garments and accessories. The Company
markets its products through a network of independent dealers located
throughout the contiguous United States and Canada, and through distributors
representing dealers in Alaska, Europe, the Middle East, Asia and other
international markets. The Arctic Cat brand name has existed for more than 30
years and is among the most widely recognized and respected names in the
snowmobile industry. The Company trades on the Nasdaq Stock Market under the
symbol ACAT.
Industry Background
Snowmobiles. The snowmobile, developed in the 1950's, was originally
intended to be used as a utility vehicle, but today the overwhelming majority
of the industry's sales are for recreational use. Between the late 1950's and
early 1970's, the industry expanded dramatically reaching a peak of over 100
manufacturers and a high of almost 495,000 units sold to retail customers in
North America in 1971. Gasoline shortages, significant gasoline price
increases, high interest rates and recessions in the middle to late 1970's
through the early 1980's contributed to a significant industry downsizing.
Today the number of major industry participants has decreased to four.
Since 1983, snowmobile sales to retail customers in North America have
grown to approximately 243,000 units for the 1997 model year. The Company
believes this growth was due, in part, to a number of factors such as an
expanded system of public and private snowmobile trails, a rapidly growing
market among the "baby boomer" generation, product innovations that have
improved ride, performance and handling, organized snowmobile clubs which
promote the sport and ongoing snowmobile replacement. Since 1971,
approximately 5,300,000 snowmobiles have been sold in North America, and the
Company estimates that over 85 percent of current industry sales are to retail
customers who own, or previously owned, a snowmobile.
The industry consolidation that occured in the mid-1970's through the
early 1980's has left four major participants in the North American market:
Arctic Cat, Bombardier (Ski-Doo), Polaris and Yamaha. The Company believes the
industry consolidation has contributed to improved industry profit margins and
closer monitoring of industry inventory levels. The Company believes there are
currently more significant barriers to entry into the snowmobile market than
existed in the 1970's. These barriers include increased brand loyalty,
long-standing dealer and distributor networks and relationships, limited engine
sources, manufacturing and engineering expertise and higher initial start-up
costs.
Information in this document regarding the worldwide and North American
snowmobile market is derived from independent sources. Non-North American
sales for the industry are estimated to account for less than 6% of worldwide
sales; specific yearly information, with respect to worldwide sales, is not
considered by the Company as sufficiently consistent or reliable for
presentation in this report. All industry information is based on a model year
ending March 31, which is the same as the Company's fiscal year-end, unless
otherwise stated.
Personal Watercraft (PWC). The PWC and the related industry evolved from
the one person stand-up craft that was developed in the mid 1960's to the two
and three person sit-down models that are most popular today. PWC are craft of
up to ten feet in length that are propelled by jet pumps. They are ridden for
leisure on lakes, rivers, oceans and major waterways. In 1996, U. S. retail
sales were approximately 191,000 units, with the popularity of PWC continuing
to rise both in North America and internationally. The most rapidly growing
segment of personal watercraft models are the 3-person models, designed to
accomodate a driver and up to two passengers. These PWC can pull skiers or
water toys. Currently the two-person watercraft is still the most widely owned
model type comprising of approximately 56 percent of the market. The three-
person watercraft and one person watercraft comprise approximately 42 percent
and 2 percent of the market, respectively. Major competitors in the industry
include Yamaha, Bombardier (Sea-Doo), Polaris and Kawasaki.
All-Terrain Vehicles (ATVs). The ATV industry evolved from the
three-wheel model that was developed in the early 1970s to the four-wheel
models that are sold today. ATVs are one person vehicles with oversized tires
used for a variety of off-road uses. The most popular ATV use is general
recreation, followed by hunting/fishing, farm/ranch use, hauling/towing,
transportation, and commercial uses. From 1970 to 1986, the number of three
and four-wheel ATVs sold in the United States continued to grow until peaking
in 1986 with approximately 535,000 units sold during that calendar year. From
1987 to 1991, the number of ATVs sold declined to a low of approximately
151,000 units. Since 1992, sales have gradually climbed until reaching
approximately 318,000 units in 1996. Major competitors in the industry
include Honda, Yamaha, Kawasaki, Polaris and Suzuki.
Products
Snowmobiles. The Company produces a full line of snowmobiles, currently
consisting of 34 models, all marketed under the Arctic Cat brand name, and
designed to satisfy various market niches. The 1997 Arctic Cat models carry
suggested U.S. retail prices ranging from $3,249 to $9,399, excluding a
children's model which is sold at a suggested U.S. retail price of $1,269.
Arctic Cat snowmobiles are sold in the United States, Canada, Scandinavia and
other international markets.
The Company's snowmobiles are categorized as High Performance, Trail
Performance, Mountain Performance, Family/Touring and Utility. The Company
markets: High Performance Arctic Cat snowmobiles under the names Thundercat,
ZRT, ZR, ZL and Z; Trail Performance Arctic Cat snowmobiles under the names
EXT and Cougar; Mountain Performance Arctic Cat snowmobiles under the names
Powder Extreme, Powder Special, Thundercat Mountain Cat and Cougar Mountain Cat
; Family/Touring models under the names EXT, Panther, Pantera and Jag; and
Utility models under the name Bearcat. In addition, to encourage family
involvement in snowmobiling, the Company offers the only snowmobile in the
industry designed especially for small children, marketed under the Kitty Cat
name.
The Company believes the Arctic Cat brand name enjoys a premier image among
snowmobile enthusiasts and that its snowmobiles have a long-standing reputation
for quality, performance, style, comfort, ride and handling. Arctic Cat
snowmobiles offer a wide range of standard and optional features which enhance
the operation, riding comfort and performance. Such features include
hydraulic disc brakes, a technologically advanced front suspension, and an
electronic fuel injection (EFI) system. Additional features on certain models
include electronic engine gauges and indicator lights, electric starters,
handlebar and thumb warmers, reverse gears, 2-up seats, mirrors, custom
windshields, hitches and luggage racks as well as other features. These
features may also be purchased separately from independent Arctic Cat dealers
as accessories.
Arctic Cat's on-going commitment to both high performance and
its customers has led the Company in a series of "firsts." In 1988, the
Company and Suzuki introduced a new line of compact, lightweight, liquid-cooled
twin cylinder engines. In 1990, the Prowler was the first snowmobile to offer
a new double-wishbone suspension. With its high performance 1991 Wildcat model,
the Company became the first in the industry to offer a 700cc electronic fuel
injection engine. In 1992, the Arctic FasTrack, extra-long travel rear
suspension was introduced on several high performance models. In 1993, the
Company became the first to offer a 900cc, 3 cylinder snowmobile, called the
Thundercat. In 1997, Arctic Cat offered the first batteryless EFI system.
Arctic Cat believes that its leadership in innovation, technology, style and
performance has been demonstrated by its models being voted "Snowmobile of the
Year" with respect to the El Tigre 6000 in 1984, the Wildcat 650 in 1988, the
Prowler in 1990, the EXT Special in 1991, the ZR 440 in 1994, and the Powder
Special EFI in the 1998 model year.
Arctic Cat believes that it has been able to grow in the worldwide
snowmobile retail sales due to a Company emphasis on new product development.
A new model has been introduced by the Company nearly each year since its
formation, and in recent years new models have been among the Company's best
sellers. In the 1997 model year, approximately 85 percent of the Company's
snowmobiles sales were from models or model variations not available three
years earlier.
Personal Watercraft (PWC). Similar to Arctic Cat snowmobiles, Tigershark
PWC are a blend of performance, durability and style, with attention to comfort
and economy. In fiscal 1997, the Company offered seven models to cover major
market segments in the current PWC market ranging in price from $4,499 to
$7,599. For the high performance market, the Company offers the Daytona 1000
and Daytona 770, two-passenger models designed for superior performance and
optimum power. Three family touring models are available, including the Monte
Carlo 1000, Monte Carlo 770 and Monte Carlo 640, three-passenger machines
designed for ample power and handling with the capacity to tow skiers or water
toys. For the economy market the Company offers the Montego and Montego Deluxe
both two-passenger machines built for exceptional quality and stability.
The Company believes Tigersharks have been well received in the market and
believes the Tigershark brand continues to maintain its reputation as the
dry, stable ride. Watercraft World has, on numerous occasions, recognized the
Tigershark by selecting the 1993 Tigershark and the 1994 and 1995 Montego
Deluxe as the "Best Buy" in the Recreational Runabout category and by naming
the Daytona 770 as the "Editors Choice Award" in 1996.
All-Terrain Vehicles (ATV). In December 1995, the Company introduced its
first ATV, the Bearcat 454 4X4, which provided many industry-leading features
such as exclusive rocker-shifter, full floor boards, and a 50-inch wheelbase.
Since that time, the Arctic Cat ATV line has grown to include four models: the
Arctic Cat 454 4x4, Arctic Cat 454 2x4, Arctic Cat 300 4x4 and Arctic Cat 300
2x4. Arctic Cat ATVs are designed for the utility, farming/ranching and
hunting/fishing markets. These heavy duty machines feature aspects ensuring
ease of handling and agility over rough terrain. Features like hydraulic disc
brakes, hi-low range and a plentiful 4.25 gallon fuel tank, all make Arctic Cat
ATVs consumer friendly.
Parts, Garments and Accessories. The Company is the exclusive provider of
genuine Arctic Cat snowmobile, Tigershark, and Arctic Cat ATV parts, garments
and accessories. Included are replacement parts for Arctic Cat snowmobiles,
items to upgrade a snowmobile such as an electric start kit, a reverse gear kit
and a two-speed transmission kit, as well as accessories such as mirrors,
windshields, luggage racks, backrests, two-person seats, saddlebags, bumpers,
gauges, tail light protectors and snowmobile covers. Other items include
maintenance supplies such as oil and fuel additives, clutch and carburetor
parts, track studs and carbide runners, shocks and springs, accessory fuel
tanks, vinyl protectant, touch-up paint, hood and windshield cleaners,
windshield defogger and engine storage preservers. Tigershark parts and
accessories include impellers, grates, bilge pumps, batteries, covers, mirrors,
oil and beach dollies. Arctic Cat ATV parts and accessories include winch kits
, plow kits, portable lights, utility bags as well as maintenance supplies such
as brake fluid, fuel de-icer, anti-freeze, and fuel stabilizers. The Company
also sells generators under the Arctic Power label.
The Company offers snowmobile garments for adults and children under the
"Arcticwear" label. Suits, jackets, pants and accessory garments are offered
in a wide variety of styles and sizes combining fashion with functional utility
designed for the demands of snowmobiling and other winter activities. The
Arcticwear line of clothing also includes crew neck sweaters, pull-overs,
riding gloves, hats, fog-resistant face shields, helmets, boots, duffel bags,
jerseys and T-shirts. The colors and designs of many of these items are
coordinated with specific Arctic Cat snowmobile models.
The Company offers Tigershark garments under the "Sharkwear" label.
Included in the stylish line are neoprene and lycra wet suits, goggles,
sunglasses, coolers, duffle bags, water shoes and gloves, T-shirts,
sweatshirts, jackets, golf shirts, shorts and towels.
The Company offers ATV garments under the "Arcticwear ATV Gear" label.
This line of clothing is geared toward function and comfort and includes suits,
jackets, gloves, boots, helmets, sweatshirts, t-shirts, and caps.
The Company has in the past, and may in the future, consider adding other
products consistent with its manufacturing and marketing expertise.
Manufacturing and Engineering
Arctic Cat snowmobiles and ATVs and Tigershark PWC are manufactured at
the Company's facilities in Thief River Falls, Minnesota. The Company
produces and/or paints hoods and other parts for its Arctic Cat snowmobiles and
PWC in adison, South Dakota. The Company also has a facility in Bucyrus, Ohio
which houses its service parts, garments and accessories distributor
operations. The Company has chosen to rely on outside vendors for some
component parts and is vertically integrated in other phases of its
manufacturing process. The Company has developed relationships with selected
high quality vendors in order to obtain access to particular capabilities and
technologies outside the scope of the Company's expertise. The Company designs
component parts, contracts with the vendors for the development of tooling, and
then enters into agreements to purchase component parts manufactured utilizing
the tooling. In its vertically integrated operations, the Company manufactures
hoods, hulls, decks, foam seats and seat covers and the Company machines, welds
and paints other components. The Company then completes the total assembly of
its products at its facilities in Thief River Falls. Manufacturing operations
include digital and computer-automated equipment to speed production, reduce
costs and improve the quality, fit and finish of every product. The Company
believes that all raw materials used in its manufacturing process and all
component parts, with the exception of engines and carburetors, are available
from multiple alternative vendors on short notice at competitive prices.
Since the Company's inception, its snowmobile engines have been
manufactured by Suzuki Motor Corporation ("Suzuki") pursuant to a supply
agreement which is automatically renewed annually unless terminated. While
notice of termination of the supply agreement may be given annually, effective
cessation of supply would take at least one model year due to the contractual
notice requirement. The Company's PWC and ATV models also incorporate engines
manufactured by Suzuki pursuant to separate agreements which have similar
termination provisions as the snowmobile agreement.
The Company and Suzuki have enjoyed an excellent relationship since the
Company's inception. Suzuki purchased approximately 31% of the Company's then
outstanding capital stock in July 1988, prior to the Company's initial public
offering, and is currently the Company's largest shareholder with approximately
25% of the Company's outstanding capital stock. If Suzuki were ever to cease
supplying engines to the Company, such an interruption could materially and
adversely affect production. The Company believes it could take up to two
model years for a new engine supplier to be in a position to manufacture the
Company's specially designed engines.
Since the Company began production, it has followed a build-to-order
policy to control snowmobile, PWC, and ATV inventory levels. Under this
policy, the Company only manufactures a number of machines equivalent to the
orders received from its dealers and distributors, plus a small number of
uncommitted machines used for new dealer development, in-house testing and
miscellaneous promotional purposes. Speculative production and excessive
inventories in certain periods during the 1970's and early 1980's contributed
to significant price discounting in the snowmobile industry. Since the
consolidation of the snowmobile industry in the mid-1970's through the early
1980's, speculative production in the industry has been reduced and dealer
inventories have remained consistently below historic peak levels. The Company
believes dealer inventory levels of non-current Arctic Cat model snowmobiles,
PWC and ATVs have regularly been and are currently among the lowest in the
industry.
Most sales of snowmobiles to retail customers begin in the early fall and
continue during the winter. Orders by dealers and distributors for each year's
production are placed in the spring following a series of dealer and
distributor meetings. Snowmobiles are build-to-order commencing in
approximately late February and continuing through December. Since its
inception, the Company has experienced a low level of snowmobile order
cancellation. Approximately 30% to 40% of the Company's snowmobiles have
historically been sold to retail customers prior to the end of October, long
before the season's snow conditions are known.
Sales of PWC to retail customers generally begin in the spring and
continue during the summer. Orders by dealers and distributors for the
Company's 1998 model line will be placed in the fall, following a series of
dealer and distributor meetings. The PWC are then built to order commencing
in the fall and continuing through the early spring.
Retail sales of ATVs occur throughout the year with seasonal highs
occurring in the spring and fall. As with the snowmobiles and PWC, the Company
will produce ATV units on a build-to-order basis. The Company believes ATVs
will be built throughout the year to coincide with dealer and consumer demands.
The Company is committed to an ongoing engineering program dedicated to
innovation and to continued improvements in the quality and performance of its
products. The Company currently employs 127 individuals in the design and
development of new and existing products, with an additional 32 individuals
directly involved in the testing of snowmobiles, PWC, and ATVs in normal and
extraordinary conditions at the Company's test track and test facility in Thief
River Falls as well as surrounding waterways. In addition, snowmobiles, PWC,
and ATVs are tested in conditions and locations similar to those in which they
are used. The Company uses computer-aided design and manufacturing systems to
shorten the time between initial concept and final production. For 1995, 1996
and 1997, the Company spent approximately $7,207,000, $9,317,000, and
$9,911,000, or 2.0%, 2.3%, and 2.1%, of net sales for the year, on engineering,
research and development, all of which was Company sponsored. In addition,
utilizing their particular expertise, the Company's vendors regularly test and
apply new technologies to the design and production of component parts.
Sales and Marketing
The Company's products are currently sold through an extensive network of
independent dealers located throughout the contiguous United States and Canada,
and through distributors representing dealers in Alaska, Europe, the Middle
East, Asia and other international markets. To promote new dealerships and to
service its existing dealer network, the Company also contracts on an
independent basis with sales representatives throughout the United States and
Canada to represent the Company and its products.
The Company's dealers enter into an annual renewable contract and are
required to maintain status as an authorized dealer in order to continue
selling the Company's products. To obtain and maintain such status, dealers
are required to order a sufficient number of snowmobiles, PWC, and/or ATVs to
service their market area adequately. In addition, the dealers must perform
service on these units and maintain satisfactory service performance levels,
and their mechanics must complete special training provided by the Company.
Dealers are also required to carry an inventory of genuine Arctic Cat and/or
Tigershark parts and accessories. As is typical in the industry, most of the
Company's dealers also sell some combination of motorcycles, marine products,
lawn and garden products and other related products. Approximately 50% of the
Company's dealers sell only Arctic Cat snowmobiles, versus multiple brands of
snowmobiles. Relations with dealers are generally considered excellent.
The Company utilizes exclusive distributors outside the United States and
Canada to take advantage of their knowledge and experience in their respective
markets and to increase market penetration of the Company's products. Each
distributor is subject to a distribution agreement which stipulates an
exclusive territory for a term ranging from one to three years with specified
minimum sales and service requirements for their territory. In fiscal 1997,
the Company began marketing its complete product lines to Canadian dealers.
The Company believes that marketing directly through dealers brings the Company
closer to its Canadian customers, which enables improved service and more
competitive prices on snowmobiles, PWC, ATVs and parts, garments and
accessories. Canadian sales are made in Canadian dollars, a major portion of
which is financed through certain Canadian financial institutions. Sales
outside North America are made in U.S. dollars and supported by irrevocable
letters of credit.
The Company's marketing efforts are comprised of dealer, distributor
and customer promotions, advertising and cooperative programs with its dealers
and distributors. Each year, the Company and its distributors conduct dealer
shows in order to introduce the upcoming year's models and to promote dealer
orders. Marketing activities are also designed to promote directly to
consumers. Products are advertised by the Company in consumer magazines and
through other media. In addition, the Company engages in extensive dealer
cooperative advertising, on a local and national level, whereby the Company and
its dealers share advertising costs. Each season the Company produces
promotional films, product brochures, point of purchase displays, leaflets,
posters and banners, and other promotional items for use by dealers. The
Company also participates in consumer shows and rallies with dealers and
sponsors independent drivers who participate in races throughout the world.
The Company publishes and mails, four times a year, the Pride magazine to all
registered owners of Arctic Cat snowmobiles, registered owners of its products.
The Company places strong emphasis on identifying and addressing the
specific needs of its customers by periodically conducting dealer and consumer
focus group meetings and surveys.
The Company warrants its snowmobiles, PWC, and ATVs under a limited
warranty against defects in materials and workmanship for a period ranging from
six months to one year from the date of retail sale or for a period of 90 days
from the date of commercial or rental use. Repairs or replacements under
warranty are administered through the Company's dealers and distributors and
have not had a material effect on the Company's business.
Since 1985, the Company has entered into an annual arrangement with certain
financial institutions to provide floor plan financing for the Company's North
American dealers. These agreements improve the Company's liquidity by
financing dealer purchases of products without requiring substantial use of the
Company's working capital. The Company is paid by the floorplan companies
within thirty days of shipment and as part of its marketing program the Company
pays the floor plan financing of its dealers for certain fixed time periods
depending on the size of a dealer's order. The financing agreements require
repurchase of repossessed new and unused units and set limits upon the
Company's potential liability for annual repurchases, such aggregate potential
liability being approximately $6,600,000 at March 31, 1997. No material losses
have been incurred by the Company under these agreements, which are terminable
by either party upon 30 days' notice.
Competition
The snowmobile, PWC, and ATV markets are highly competitive, with
competition based on a number of factors, including performance, styling, fit
and finish, brand loyalty, reliability, durability and price. The Company
believes Arctic Cat snowmobiles and ATVs and Tigershark PWC are highly
regarded by consumers in all of these competitive categories. Certain of the
Company's competitors are more diversified and have financial and marketing
resources which are substantially greater than those of the Company.
Regulation
Both federal and state authorities have vigorous environmental control
requirements relating to air, water and noise pollution that affect the
manufacturing operations of the Company. The Company endeavors to insure that
its facilities comply with applicable environmental regulations and standards.
Various states and other governmental agencies have also promulgated safety
regulations regarding the use of snowmobiles, PWC and ATVs.
Certain materials used in snowmobile, PWC, and ATV manufacturing that are
toxic, flammable, corrosive or reactive are classified by the federal and state
governments as "hazardous materials." Control of these substances is regulated
by the Environmental Protection Agency and various state pollution control
agencies which require reports and inspect facilities to monitor compliance.
The Company's cost of compliance with environmental regulations has not been,
and is not expected to be, material. The Company's manufacturing facilities
are subject to the regulations promulgated by, and may be inspected by, the
Occupational Safety and Health Administration.
The Company is a member of the International Snowmobile Manufacturers
Association (ISMA), a trade association formed to promote safety in the
manufacture and use of snowmobiles, among other things. The ISMA is currently
made up of Arctco, Bombardier (Ski-Doo), Yamaha, and Polaris. The ISMA
members are also members of the Snowmobile Safety and Certification Committee
(SSCC), which promulgated voluntary safety standards for snowmobiles. The SSCC
standards, which require testing and evaluation by an independent testing
laboratory of each model produced by participating snowmobile manufacturers,
have been adopted by the Canadian Department of Transport. Following the
development of the SSCC standards, the U.S. Consumer Products Safety
Commission denied a petition to develop a mandatory federal safety standard for
snowmobiles in light of the high degree of adherence to the SSCC standards in
the United States. Since the Company's inception, all of its models have
complied with the SSCC standards.
The Company is a member of National Marine Manufacturers Association
(NMMA) and the Personal Watercraft Industry Association (PWIA). Tigershark
personal watercraft conform to applicable United States Coast Guard (USCG)
standards and Society of Automobile Engineer (SAE) recommended practices.
The Company is a member of the Specialty Vehicle Institute of America
(SVIA), a trade association organized to foster and promote the safe and
responsible use of specialty vehicles manufactured and/or distributed
throughout the United States of America. The Company is also a member of the
Canadian All-Terrain Vehicle Distributors Council (CATV), a council of similar
function. In addition, the Arctic Cat ATV conforms to certain U.S. Consumer
Product Safety Commission standards.
Governmental bodies have proposed legislation involving more stringent
emissions standards for two-cycle engines. Such engines are used on the
Company's snowmobiles and PWC. The Company currently is unable to predict
whether such legislation will be enacted and, if so, the ultimate impact on the
Company and its operations. However, the Company is currently evaluating
several alternatives to comply with the proposed legislation.
Employees
During fiscal 1997, the Company had peak employment of approximately 1,722
employees, including 238 salaried and 1,484 hourly and production personnel.
Due to the seasonal nature of sales and the Company's production schedules,
prior to the introduction of the PWC, approximately 60% of hourly personnel
worked only during the spring through the late fall production period.
However, during the past four fiscal years, most employees remained employed
throughout the year to produce the Tigershark PWC and Arctic Cat ATV. The
Company's employees are not represented by a union or subject to a collective
bargaining agreement. The Company has never experienced a strike or work
stoppage and considers its relations with its employees to be excellent.
Intellectual Property
The Company makes an effort to patent all significant innovations that it
considers patentable and owns numerous patents and know-how which relate to
production of its snowmobiles, PWC, ATVs and other products. Trademarks are
important to the Company's snowmobile, PWC, ATVs and related parts, garments
and accessories business activities. While from time to time the Company
becomes aware of the unauthorized use of its trademarks, particularly in the
sale of promotional items, the Company has a vigorous program of trademark
enforcement to eliminate the unauthorized use of its trademarks, thereby
strengthening the value of its trademarks and improving its image and customer
goodwill. The Company believes that its "Arctic Cat " registered United States
trademark is its most significant trademark. Additionally, the Company has
numerous registered trademarks, trade names and logos, both in the United
States and internationally.
Item 2. Properties
The Company owns its manufacturing facilities and executive offices in
Thief River Falls, Minnesota. The facilities consist of approximately 488,000
square feet of manufacturing, office and warehouse space on 49.5 acres,
including approximately 417,000 square feet devoted to manufacturing, and
approximately 71,000 square feet devoted to office and administrative uses.
The Company also owns a separate building on land contiguous to the
manufacturing facilities and executive offices. The building consists of
approximately 60,000 square feet on two floors of which the Company utilizes
approximately two-thirds for its sewing production of Arcticwear garments and
snowmobile seats. In addition, the Company also owns three separate parcels of
undeveloped land adjacent to its property totaling approximately 94.8 acres.
This property is used by the Company in some of its testing activities and
remains available for future expansion. The Company owns all the tooling used
in the manufacture of its products and the machinery located at its plant in
Thief River Falls, Minnesota.
During fiscal 1997, the Company purchased the 37,000 square foot building
located in Madison, South Dakota, that it had leased since 1992. This facility
is used to produce and/or paints hoods and other parts for the Company's Arctic
Cat snowmobiles and PWC.
Also during fiscal 1997, the Company constructed a 220,000 square foot
facility in Bucyrus, Ohio, to house its service parts, garments and accessories
distribution operations. The Company believes the Bucyrus facility's proximity
to central shipping hubs and close access to Canada will allow decreased
delivery times to the majority of its dealers.
Item 3. Legal Proceedings
Accidents involving personal injury and property damage occur in the use
of snowmobiles, PWC, and ATVs. Claims have been made against the Company from
time to time. It is the Company's policy to vigorously defend against these
actions. The Company believes that the cases in discovery are adequately
covered by product liability insurance. Although the Company from time to time
has been named as a defendant in lawsuits involving product liability claims
against Arctic Enterprises, Inc. on the theory that the Company is a successor
of Arctic Enterprises, Inc., the Company is not a successor of Arctic
Enterprises, Inc. and has never been found liable in any such lawsuits. The
Company is not involved in any other legal proceedings which are considered to
have the potential for a materially adverse impact on the Company's business or
financial condition.
Product liability insurance is presently maintained by the Company on a
"per occurrence" basis (with coverage being provided in respect of accidents
which occurred during the policy year, regardless of when the related claim is
made) in the amount of $5,000,000 in the aggregate, in addition to a $1,000,000
self-insured retention. The Company believes such insurance is adequate.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 4. (A) Executive Officers of Registrant
Name Age Position
______ _____ __________
William G. Ness 59 Chairman of the Board of Directors
Christopher A. Twomey 49 President and Chief Executive Officer
Bryce D. Abrahamson 43 Vice President--Materials
Mark E. Blackwell 44 Vice President--Marketing
Terry J. Blount 54 Vice President--Human Resources
Timothy C. Delmore 43 Chief Financial Officer and Secretary
Ronald G. Ray 48 Vice President--Manufacturing
Roger H. Skime 54 Vice President--Research & Development
Ole E. Tweet 50 Vice President--New Product Development
Mr. Ness has been Chairman of the Board of Directors of the Company
since its inception in 1983. He is also co-owner and a Vice President of
Northern Woodwork (specialty furniture manufacturer), Thief River Falls,
Minnesota and a director of Northern State Bank.
Mr. Twomey has been President and Chief Executive Officer of the
Company since January 1986 and a director since 1987. He has held various
executive officer positions with the Company since 1983. Mr. Twomey is also a
Community Board Member of Norwest Bank Minnesota West, N.A.
Mr. Abrahamson has been Vice President--Materials of the Company since
1988. He has been with the Company since its inception in 1983, serving as
Purchasing Agent prior to being named to his present post. Mr. Abrahamson has
been employed in the snowmobile industry for 23 years.
Mr. Blackwell has been Vice President--Marketing since May of 1992 and
has over 15 years of marketing experience in the recreational vehicle field.
Previously he served for five years as Marketing Director for American Suzuki
Motor Corporation. His responsibilities have included the motorcycle and marine
divisions.
Mr. Blount has been Vice President--Human Resources since June of 1996.
Mr. Blount has over 28 years of Human Resource experience in the manufacturing
field. Prior to joining the Company, Mr. Blount worked as Vice President-
Human Resources at Washington Scientific Industries since 1981.
Mr. Delmore has been Chief Financial Officer of the Company since 1986
and has been Corporate Secretary of the Company since 1989. Mr. Delmore, a CPA
with seven years of prior public accounting experience, joined the Company in
1985 as Controller.
Mr. Ray has been Vice President-Manufacturing since April of 1992 and
has over 27 years of manufacturing experience. Before joining Arctic Cat he
served eight years as Vice President of Manufacturing for a Minnesota based
company.
Mr. Skime has been Vice President--Research and Development of the
Company since its inception in 1983 and has been employed in the snowmobile
industry for 36 years.
Mr. Tweet, Vice President of New Product Development and General
Manager of the Marine Division, had been the Company's Vice President-
Marketing since its inception in 1983 and has been employed in the snowmobile
industry for 32 years.
(This space intentionally left blank.)
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's common stock is traded on the Nasdaq National Market
under the Nasdaq symbol "ACAT". Quotations below represent the high and low
closing sale prices as reported by Nasdaq. The Company's stock began trading
on the Nasdaq National Market on June 26, 1990.
Years Ended
March 31, 1997 March 31, 1996
Quarterly Prices High Low High Low
First Quarter $12.50 $ 9.50 $15.88 $10.98
Second Quarter $12.25 $ 8.88 $14.50 $11.00
Third Quarter $10.75 $ 9.00 $14.13 $11.00
Fourth Quarter $11.00 $ 9.44 $13.13 $ 9.50
As of June 20, 1997, the Company had approximately 779 stockholders of
record, including the nominee of Depository Trust Company which held 17,681,392
shares of common stock.
On March 2, 1992, the Company initiated a $0.0267 per share regular
quarterly dividend. The quarterly dividend was increased to $0.0355 per
share on March 2, 1993 and subsequently increased to $0.0467 per share on March
2, 1994. On February 2, 1995, the Company increased the quarterly dividend to
$0.06 per share. All dividends have been adjusted for stock-splits.
(This space intentionally left blank.)
Item 6. Selected Financial Data
Years Ended March 31,
(in thousands, except per share amounts)
1997 1996 1995 1994 1993
____ ____ ____ ____ ____
Income Statement Data:
Net sales $468,595 $404,996 $367,144 $268,057 $184,720
Cost of goods sold 351,249 308,946 267,210 190,972 132,950
_______ _______ _______ _______ _______
Gross profit 117,346 96,050 99,934 77,085 51,770
Selling, general and
administrative expenses 83,282 72,473 50,939 36,906 26,196
______ ______ ______ ______ _______
Operating profit 34,064 23,577 48,995 40,179 25,574
Interest income 1,798 2,228 2,383 1,595 1,533
Interest expense (109) - (17) (98) (184)
------ ------ ------ ------ ------
Earnings before income taxes 35,753 25,805 51,361 41,676 26,923
Income taxes 12,692 9,159 17,976 14,170 8,912
______ ______ ______ ______ ______
Net earnings $ 23,061 $ 16,646 $ 33,385 $ 27,506 $ 18,011
====== ====== ====== ====== ======
Net earnings per share $ 0.78 $ 0.56 $ 1.13 $ 0.94 $ 0.62
====== ====== ====== ====== ======
Cash dividends per share $ 0.24 $ 0.24 $ 0.21 $ 0.15 $ 0.12
====== ====== ====== ====== ======
Average shares
outstanding 29,476 29,661 29,495 29,267 29,078
====== ====== ====== ====== ======
_______________________________________________________________________________
As of March 31, 1997 1996 1995 1994 1993
Balance Sheet Data (in thousands)
Cash & short-term investments $ 50,740 $ 44,002 $ 65,241 $ 59,923 $ 54,812
Working capital 131,604 130,142 128,845 104,885 83,878
Total assets 217,967 207,996 183,996 154,980 122,149
Long-term debt -- -- -- -- 581
Shareholders' equity 166,738 156,193 147,067 118,203 94,301
_______________________________________________________________________________
QUARTERLY FINANCIAL DATA (unaudited)
(in thousands, except per share amounts)
Total First Second Third Fourth
Year Quarter Quarter Quarter Quarter
Net Sales ______ ______ ______ ______ ______
1997 $468,595 89,126 177,925 133,877 67,667
1996 404,996 61,759 166,059 123,623 53,555
1995 367,144 56,007 149,204 112,844 49,089
Gross Profit
1997 $117,346 18,539 49,389 35,715 13,703
1996 96,050 11,806 43,295 31,792 9,157
1995 99,934 13,741 41,845 32,940 11,408
Net Earnings (Loss)
1997 $ 23,061 1,002 18,587 6,020 (2,548)
1996 16,646 (4,268) 17,888 6,015 (2,989)
1995 33,385 3,583 18,959 10,761 82
Net Earnings (Loss) Per Share
1997 $ 0.78 0.03 0.63 0.20 (0.09)
1996 0.56 (0.14) 0.60 0.20 (0.10)
1995 1.13 0.12 0.64 0.36 0.00
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Fiscal 1997 was a successful, record breaking sales year for Arctic Cat Inc.
The Company also achieved record retail sales of Arctic Cat snowmobiles for the
fourteenth consecutive year. Dealer and customer reception of the Arctic Cat
all-terrain vehicle (ATV) continues to be encouraging after completing its
first year in this strategic market. The Company's continued growth in this
$1.2 billion market will be enhanced by the introduction of new models which
will occur during our next fiscal year.
Financial Data
(in thousands, except per share data)
Years ended March 31,
1997 1996 1995
Net Sales $468,595 $404,996 $367,144
Net Earnings $ 23,061 $ 16,646 $ 33,385
Net Earnings Per Share $0.78 $0.56 $1.13
Cash & Short-Term Investments $ 50,740 $ 44,002 $ 65,241
Sales by Product Line (In %)
Snowmobiles 58% 66% 65%
PWC 15% 14% 18%
ATVs 11% 3% -
Parts, Garments & Accessories 16% 17% 17%
Results of Operations
1997 vs. 1996
Net sales increased 15.7% in 1997 to $468,595,000 from $404,996,000 in 1996
due to a 2.0% increase in snowmobile sales, on flat unit volume, an 8.9%
increase in parts, garments and accessories sales, and $50.7 million of ATV
sales as the Company completed its first full year in the ATV market. PWC
unit volume increased 17.8%. The Company believes the increases in snowmobile
parts and accessory sales were driven by increased demand for the Company's
products as well as by excellent winter conditions in the midwest and western
United States and Canada. PWC sales increases resulted from late shipments of
models for the 1996 summer season that were shipped in the first quarter ended
June 30, 1996 and the earlier shipment of models for the 1997 summer season
occurring in the fourth quarter.
Gross profit increased 22.2% to $117,346,000 in 1997 from $96,050,000 in
1996. Gross profit as a percent of net sales was 25.0% in 1997 compared to
23.7% in 1996. The increase in the gross profit percentage was primarily due
to the positive fluctuation in the exchange rates between the U.S. dollar and
the Japanese yen. The Company shares exchange rate fluctuations with Suzuki
Motor Corporation, its engine supplier. These fluctuations affected all three
product lines and increased gross profit by approximately $5,500,000 over
fiscal 1996 (see Inflation and Exchange Rates). Also improving the gross
profit percentage were Canadian dealer direct snowmobile and accessory
shipments which yielded higher margins than the prior years shipments to
Canadian distributors. These factors were mitigated by a larger percentage of
ATVs and PWC in the sales mix which yield lower margins than snowmobiles.
Selling, general and administrative expenses increased 14.9% to $83,282,000
in 1997 from $72,473,000 in 1996. The increase is principally attributable to
increased selling and administrative expenses associated with increased ATV
sales and increased expenses due to selling directly to dealers in Canada.
As a percent of net sales, selling, general and administrative expenses were
17.8% in 1997 compared to 17.9% in 1996.
Operating profits increased 44.5% to $34,064,000 in 1997 from $23,577,000
in 1996. As a percent of net sales, operating profits increased to 7.3% in
1997 from 5.8% in 1996 (see gross profit and operating expense discussion).
Net earnings increased 38.5% to $23,061,000 in 1997 from $16,646,000 in
1996. Net earnings as a percent of net sales were 4.9% and 4.1% in 1997 and
1996 respectively. Net earnings per share were $0.78 in 1997 compared to $0.56
in 1996.
1996 vs. 1995
Net sales increased 10.3% in 1996 to $404,996,000 from $367,144,000 in 1995
due to a 6.5% increase in snowmobile unit volume, a 14.3% increase of parts,
garments and accessories sales, and $12,763,000 of ATV sales as the Company
entered the ATV market during the fourth quarter. PWC unit volume decreased
14.2% as shipments of certain new models were shifted to the first quarter of
fiscal 1997. The Company believes the increases in snowmobile and accessory
sales were driven by increased demand for the Company's products as well as by
growth in the North American snowmobile market.
Gross profit decreased 3.9% to $96,050,000 in 1996 from $99,934,000 in 1995.
Gross profit as a percent of net sales was 23.7% in 1996 compared to 27.2% in
1995. The decrease in the gross profit percentage is due principally to the
fluctuation in the exchange rates between the U.S. dollar and the Japanese yen,
as well as lower margins on PWC compared to last year. The Company shares
exchange rate fluctuations with Suzuki Motor Corporation, its engine supplier.
These fluctuations, which mainly affected the snowmobile and PWC product lines,
decreased gross profit by approximately $4,000,000 over fiscal 1995 (see
Inflation and Exchange Rates).
Selling, general and administrative expenses increased 42.3% to $72,473,000
in 1996 from $50,939,000 in 1995. The increase is principally attributable to
increased selling and administrative expenses related to the 10.3% increase in
net sales, factory-to-dealer incentives for the PWC line, and to a much
lesser extent, expenses related to the change in Canadian distribution and
increased marketing and development costs for the PWC and ATV product lines.
As a percent of net sales, selling, general and administrative expenses were
17.9% in 1996 compared to 13.9% in 1995.
Operating profits decreased 51.9% to $23,577,000 in 1996 from $48,995,000 in
1995. As a percent of net sales, operating profits decreased to 5.8% in 1996
from 13.3% in 1995 (see gross profit and operating expense discussion).
Net earnings decreased 50.1% to $16,646,000 in 1996 from $33,385,000 in
1995. Net earnings as a percent of net sales were 4.1% and 9.1% in 1996 and
1995, respectively. Net earnings per share were $0.56 in 1996 compared to
$1.13 in 1995.
Liquidity and Capital Resources
The seasonality of the Company's snowmobile production cycle and the lead
time between the commencement of production in late February and commencement
of shipments late in the first quarter have resulted in significant
fluctuations in the Company's working capital requirements during the year.
Historically, the Company has financed its working capital requirements out of
available cash balances at the beginning and end of the production cycle and
with short-term bank borrowings during the middle of the cycle.
Cash and Short-Term Investments
Cash and short-term investments were $50,740,000 at March 31, 1997
compared to $44,002,000 at March 31, 1996. The Company's cash balances
traditionally peak early in the fourth quarter and then decrease as working
capital requirements increase when the Company's snowmobile production cycle
begins. The Company's investment objectives are first, safety of principal and
second, rate of return.
Working Capital
The Company has an unsecured credit agreement with a bank for the issuance
of up to $30,000,000 of documentary and stand-by letters of credit. The total
letters of credit issued at March 31, 1997 were $19,888,000, of which
$16,639,000 was issued to Suzuki Motor Corporation for engine purchases.
During fiscal 1996, the Company's Board of Directors authorized the repurchase
of up to 1,500,000 shares of common stock. During 1997 and 1996, the Company
invested $5,858,000 and $672,000 to repurchase and cancel 596,500 and 66,000
shares. In 1997, the Company invested $21,270,000 in capital expenditures
including approximately $6,000,000 for a parts, garments and accessory
distribution facility in Bucyrus, Ohio. The Company expects that for fiscal
1998 capital expenditures, including tooling, will approximate $17,000,000.
The Company believes that cash generated from operations will be sufficient to
meet its working capital, regular quarterly dividend, share repurchase program
and capital expenditure requirements for the foreseeable future.
The Company does not provide financing for the purchase of snowmobiles,
ATVs or PWC by its retail customers. The Company has agreements with certain
finance companies to provide floor plan financing for the Company's North
American dealers. These agreements improve the Company's liquidity by financing
dealer purchases of products without requiring substantial use of the Company's
working capital. The Company is paid by the floor plan companies within thirty
days of shipment and as part of its marketing program the Company pays the
floor plan financing of its dealers for certain set time periods depending on
the size of a dealer's order. The financing agreements require repurchase of
repossessed new and unused units and sets limits upon the Company's potential
liability for annual repurchases. The aggregate potential liability was
approximately $6,600,000 at March 31, 1997. No material losses have been
incurred by the Company under these agreements, which are terminable by either
party upon 30 days notice.
Inflation and Exchange Rates
Inflation is not expected to have a significant impact on the Company's
business. The Company generally has been able to offset the impact of
increasing costs through a combination of productivity gains and price
increases.
The relationship of the U.S. dollar to the Canadian dollar and Japanese
yen may have a significant impact on the Company's business. Two of the
Company's principal competitors are based in Japan and Canada. Also, the
Company purchases its snowmobile, ATV and PWC engines and related parts from
Suzuki Motor Corporation and sells a full line of products to Canadian dealers.
All purchase and sales prices are determined annually. The Company has
agreements with Suzuki Motor Corporation, that renew annually, to share the
impact of fluctuations in the exchange rate between the U.S. dollar and
Japanese yen, above and below a fixed range contained in the agreements for
snowmobile and PWC engines. The Company has in the past, in the case of the
Japanese yen, and may in the future enter into foreign exchange contracts for
both the Japanese yen and the Canadian dollar to minimize the impact of
exchange rate fluctuations (see gross profit discussion).
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for certain forward-looking statements. This Report on Form 10-K, as
well as the Company's Annual Report and future filings with the Securities and
Exchange Commission, the Company's press releases and oral statements made with
the approval of an authorized executive officer, contains forward-looking
statements that reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from historical results or those anticipated. The words "aim,"
"believe," "expect," "anticipate," "intend," "estimate" and other expressions
that indicate future events and trends identify forward-looking statements.
Actual future results and trends may differ materially from historical results
or those anticipated depending on a variety of factors, including, but not
limited to: product mix; competitive pressure on sales and pricing; increase in
material or production cost which cannot be recouped in product pricing;
changes in the sourcing of engines from Suzuki; warranty expenses; foreign
currency exchange rate fluctuations; product liability claims and other legal
proceedings in excess of insured amounts; environmental and product safety
regulatory activity; effects of the weather; and overall economic conditions
and consumer confidence.
Item 8. Financial Statements and Supplementary Data
Financial Statements and Notes appear on pages F-1 through F-11.
Quarterly financial data appears in Item 6.
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information included under the heading "Election of Directors" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held August 14, 1997, is incorporated herein by reference.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, information as
to executive officers of the Company is set forth in Item 4(A) of this Form
10-K.
Item 11. Executive Compensation
The information included under the heading "Executive Compensation and
Other Information" in the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders currently scheduled to be held August 14, 1997, is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information included under the heading "Beneficial Ownership of
Capital stock" in the Company's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held August 14, 1997, is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to certain relationships and related
transactions, appearing under the heading "Executive Compensation and
Other Information- Certain Transactions" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held on August 14, 1997,
is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of report
1. Financial Statements.
The following consolidated financial statements of the
Company and its subsidiaries are filed as part of Form 10-K:
Form 10-K
Page Reference
(i) Consolidated Balance Sheets F-1
as of March 31, 1997 and 1996
(ii) Consolidated Statements of Earnings F-2
for the three years ended March 31, 1997,
1996 and 1995
(iii) Consolidated Statements of Shareholders' F-3
Equity for the three years ended March 31,
1997, 1996 and 1995
(iv) Consolidated Statements of Cash Flows F-4
for the three years ended March 31, 1997,
1996 and 1995
(v) Notes to Consolidated Financial F-5 to
Statements F-11
(vi) Report of Independent Certified Public F-12
Accountants
2. Schedules filed as part of Form 10-K:
(i) Schedule II - Valuation and Qualifying Accounts F-13
3. Exhibits Method of Filing
3(a) Amended and Restated Articles of Incorporation (2)
of Company
3(b) Restated By-Laws of the Company (1)
4(a) Form of specimen Common Stock Certificate (1)
10(a) 1989 Stock Option Plan, as amended (2)
10(b) 1995 Stock Option Plan, as amended (2)
10(c) Purchase/Supply Agreement dated as of (1)
March 1, 1985 between Suzuki Motor Co.,
Ltd. and the Company, and related Agreement
on Implementation of Warranty Provision.
10(d) Form of Employment Agreement between the (1)
Company and each of its executive officers
10(e) Floorplan Repurchase Agreement dated (1)
July 13, 1984, between the Company
and ITT Commercial Finance Corp.
10(f) Floorplan Repurchase Agreement dated as (1)
of June 15, 1988, between the Company
And ITT Commercial Finance, a division
Of ITT Industries of Canada, Ltd.
10(g) Discretionary Revolving Credit Facility, (2)
dated as of June 6, 1997, between the Company
and Norwest Bank Minnesota, National Association.
21 Subsidiaries of the Registrant (2)
23 Consent of Independent Certified Public Accountants (2)
27 Financial Data Schedule (2)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three
months ended March 31, 1997.
(c) Exhibits
Reference is made to Item 14(a) 3.
(d) Schedules
None
--------------------------------------
(1) Incorporated herein by reference to the Company's Form
S-1 Registration Statement (File Number 33-34984).
(2) Filed with this Form 10-K.
(This space intentionally left blank.)
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 the 27th day
of June, 1997.
ARCTIC CAT INC.
/s/Christopher A. Twomey
_________________________________
Christopher A. Twomey
President, Chief Executive Officer
and Director
(Principle Executive Officer
and Director)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/William G. Ness June 27, 1997
___________________________ ___________________
William G. Ness
Chairman of the Board and Director
/s/Christopher A. Twomey June 27, 1997
___________________________ ___________________
Christopher A. Twomey
President, Chief Executive Officer
and Director
(Principle Executive Officer)
/s/Timothy C. Delmore June 27, 1997
___________________________ ___________________
Timothy C. Delmore
Chief Financial Officer
(Principle Financial and Accounting Officer)
/s/Robert J. Dondelinger June 27, 1997
___________________________ ___________________
Robert J. Dondelinger, Director
/s/William I. Hagen June 27, 1997
__________________________ ___________________
William I. Hagen, Director
__________________________ ___________________
Takeshi Natori, Director
/s/Lowell T. Swenson June 27, 1997
__________________________ ___________________
Lowell Swenson, Director
/s/Gregg A. Ostrander June 27, 1997
__________________________ ___________________
Gregg A. Ostrander, Director
__________________________ ___________________
Kenneth J. Roering, Director
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS 1997 1996
____ ____
CURRENT ASSETS
Cash and equivalents $ 5,540,000 $ 9,032,000
Short-term investments 45,200,000 34,970,000
Accounts receivable, less allowances 27,393,000 36,465,000
Inventories 86,502,000 86,618,000
Prepaid expenses 1,618,000 2,404,000
Income taxes receivable 3,838,000 -
Deferred income taxes 8,369,000 8,920,000
___________ ___________
Total current assets 178,460,000 178,409,000
PROPERTY, PLANT AND EQUIPMENT - (at cost)
Machinery, equipment and tooling 60,534,000 55,118,000
Buildings and improvements 11,244,000 6,191,000
Land 527,000 192,000
__________ __________
72,305,000 61,501,000
Less accumulated depreciation 32,798,000 31,914,000
__________ __________
39,507,000 29,587,000
__________ __________
$217,967,000 $207,996,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 21,586,000 $ 23,947,000
Accrued expenses 25,270,000 24,320,000
__________ __________
Total current liabilities 46,856,000 48,267,000
DEFERRED INCOME TAXES 4,373,000 3,536,000
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00;
2,300,000 shares authorized; none issued - -
Preferred stock - Series A Junior
Participating, par value $1.00;
450,000 shares authorized; none issued - -
Common stock, par value $.01; 37,440,000
shares authorized; shares issued and
outstanding, 21,533,136 in 1997;
22,055,971 in 1996 215,000 221,000
Class B common stock, par value $.01;
7,560,000 shares authorized, issued,
and outstanding 76,000 76,000
Additional paid-in capital 17,069,000 22,502,000
Retained earnings 149,378,000 133,394,000
___________ ___________
166,738,000 156,193,000
___________ ___________
$217,967,000 $207,996,000
============ ============
F-1
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended March 31,
1997 1996 1995
____ ____ ____
Net sales $468,595,000 $404,996,000 $367,144,000
Cost of goods sold 351,249,000 308,946,000 267,210,000
___________ ___________ ___________
Gross profit 117,346,000 96,050,000 99,934,000
Selling, general and
administrative expenses 83,282,000 72,473,000 50,939,000
___________ ___________ ___________
Operating profit 34,064,000 23,577,000 48,995,000
Other income (expense)
Interest income 1,798,000 2,228,000 2,383,000
Interest expense (109,000) - (17,000)
___________ ___________ ___________
1,689,000 2,228,000 2,366,000
___________ ___________ ___________
Earnings before income taxes 35,753,000 25,805,000 51,361,000
Income tax expense 12,692,000 9,159,000 17,976,000
___________ ___________ ___________
Net earnings $ 23,061,000 $ 16,646,000 $ 33,385,000
========== ========== ==========
Net earnings per share $0.78 $0.56 $1.13
=== === ====
Weighted average common and
common equivalent shares 29,476,000 29,661,000 29,495,000
outstanding ========== ========== ==========
F-2
<TABLE>
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended March 31,
<CAPTION>
Class B Additional
Common Stock Common Stock Paid-in Retained
Shares Amount Shares Amount Capital Earnings Total
______ ______ ______ ______ __________ __________
_________
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1, 1994 21,770,386 $218,000 7,560,000 $76,000 $21,521,000 $
96,388,000 $118,203,000
Contribution to retirement
savings plan 4,197 - - - 77,000 - 77,000
Exercise of stock options 375,212 4,000 - - 1,947,000 - 1,951,000
Tax benefits from
stock option exercises - - - - 914,000 - 914,000
Common stock retired (79,382) (1,000) - - (1,556,000) -
(1,557,000)
Cash dividends ($.21 per share) - - - - - (5,906,000) (5,906,000)
Net earnings - - - - - 33,385,000 33,385,000
__________ _______ _________ ______ __________ __________
___________
Balances at March 31, 1995 22,070,413 221,000 7,560,000 76,000 22,903,000
123,867,000 147,067,000
Exercise of stock options 58,786 1,000 - - 302,000 - 303,000
Tax benefits from
stock option exercises - - - - 62,000 - 62,000
Common stock retired (73,228) (1,000) - - (765,000) - (766,000)
Cash dividends ($.24 per share) - - - - - (7,119,000) (7,119,000)
Net earnings - - - - - 16,646,000 16,646,000
__________ _______ _________ ______ __________ __________
___________
Balances at March 31, 1996 22,055,971 221,000 7,560,000 76,000 22,502,000
133,394,000 156,193,000
Exercise of stock options 83,238 - - - 464,000 - 464,000
Tax benefits from
stock option exercises - - - - 62,000 - 62,000
Common stock retired (606,073) (6,000) - - (5,959,000) -
(5,965,000)
Cash dividends ($.24 per share) - - - - - (7,077,000) (7,077,000)
Net earnings - - - - - 23,061,000 23,061,000
__________ _______ _________ ______ __________ __________
___________
Balances at March 31, 1997 21,533,136 $215,000 7,560,000 $76,000 $17,069,000
$149,378,000 $166,738,000
========== ======= ========= ======= ==========
=========== ===========
</TABLE> F-3
Arctic Cat Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31,
1997 1996 1995
Cash flows from operating activities
Net earnings $ 23,061,000 $ 16,646,000 $ 33,385,000
Adjustments to reconcile net earnings
to net cash provided by operating
activities
Depreciation 11,350,000 7,646,000 5,448,000
Deferred income taxes 1,388,000 (2,481,000) (127,000)
Contribution to retirement
savings plan - - 77,000
Changes in operating assets
and liabilities:
Trading securities (12,476,000) 25,280,000 (12,603,000)
Accounts receivable 9,072,000 (17,099,000) (4,353,000)
Inventories 116,000 (16,692,000) (10,030,000)
Prepaid expenses 786,000 (400,000) (1,265,000)
Accounts payable (2,229,000) 7,957,000 (3,308,000)
Accrued expenses 950,000 5,237,000 2,599,000
Income taxes (3,908,000) 2,684,000 (1,481,000)
__________ __________ __________
Net cash provided by
operating activities 28,110,000 28,778,000 8,342,000
Cash flows from investing activities
Additions to property, plant and
equipment (21,270,000) (17,155,000) (10,664,000)
Sales and maturities of
available-for-sale securities 4,500,000 2,292,000 2,669,000
Purchases of available-for-sale
securities (2,254,000) (2,933,000) (4,032,000)
__________ __________ _________
Net cash used in
investing activities (19,024,000) (17,796,000) (12,027,000)
Cash flows from financing activities
Dividends paid (7,077,000) (7,119,000) (5,906,000)
Proceeds from issuance of common stock 357,000 209,000 943,000
Common stock retired (5,858,000) (672,000) -
__________ __________ _________
Net cash used in
financing activities (12,578,000) (7,582,000) (4,963,000)
__________ __________ _________
Net increase (decrease) in cash
and equivalents (3,492,000) 3,400,000 (8,648,000)
Cash and equivalents at beginning
of year 9,032,000 5,632,000 14,280,000
__________ __________ _________
Cash and equivalents at end of year $ 5,540,000 $ 9,032,000 $ 5,632,000
========== ========== ==========
Supplemental disclosure of cash
payments for income taxes $ 15,212,000 $ 10,869,000 $ 19,584,000
========== ========== ==========
Supplemental disclosure of non-cash financing activities:
During 1997, 1996 and 1995, common stock with a fair market value of
$107,000, $94,000 and $1,557,000 was canceled as settlement for the
exercise of certain stock options and associated payroll taxes.
Tax benefits derived from the exercise of stock options reduced income tax
obligations and increased additional paid-in capital in the amount of
$62,000, $62,000 and $914,000 during 1997, 1996 and 1995.
F-4
Arctic Cat Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Arctic Cat Inc. and Subsidiaries (the "Company") design, engineer,
manufacture and market snowmobiles and all-terrain vehicles (ATVs) under
the Arctic Cat brand name, and personal watercraft under the Tigershark brand
name, as well as related parts, garments and accessories, principally through
its facilities in Thief River Falls, Minnesota. Principal products, as a
percentage of 1997 sales, are: snowmobiles - 58%, personal watercraft - 15%,
ATVs - 11%, and parts, garments and accessories - 16%. The Company operates
in a single industry segment and its products are sold through a network of
independent dealers located throughout the United States, Canada, Scandinavia
and other international markets.
Use of Estimates:
Preparation of the Company's consolidated financial statements requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and related revenues and expenses. Actual results
could differ from those estimates.
Principles of Consolidation:
The consolidated financial statements include the accounts of Arctic Cat Inc.
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Equivalents:
The Company considers all highly liquid temporary investments with an
original maturity of three months or less to be cash equivalents. Cash
equivalents totaled $10,109,000 and $12,582,000 at March 31, 1997 and 1996,
are stated at cost, which approximates market value based upon quoted market
prices, and were principally invested in three issuers' and two issuers' put
bonds in 1997 and 1996.
Short-Term Investments:
Short-term investments include trading securities with unrealized gains and
losses included in net earnings and available-for-sale securities with
unrealized gains and losses reported within shareholders' equity using the
specific identification method. Short-term investments are reported at cost,
which approximates market value based upon quoted market prices.
Inventories:
Inventories are stated at the lower of cost or market with cost determined
using the first-in, first-out method.
Property, Plant and Equipment:
Depreciation is provided to relate the cost of depreciable assets to
operations over their estimated service lives principally on a straight-line
basis. Estimated service lives range from 15-25 years for buildings and
improvements and 3-7 years for machinery, equipment and tooling. Accelerated
and straight-line methods are used for income tax reporting.
Product Warranties:
The Company provides for estimated warranty costs at the time of sale and
accrues for specific items at the time their existence and amounts are known
following the sale. Warranty costs on certain parts and components are
reimbursed to the Company by supplying vendors.
F-5
Insurance:
The Company is self-insured for employee medical, workers' compensation and
product liability claims. Specific stop loss coverages are provided for
catastrophic claims. Losses and claims are charged to operations when it is
probable a loss has been incurred and the amount can be reasonably estimated.
Revenue Recognition:
The Company recognizes revenue when products are shipped to dealers.
Research and Development:
The Company expenses research and development costs as a component of selling
, general and administrative expenses as incurred. Research and development
expense was $9,911,000, $9,317,000 and $7,207,000 during 1997, 1996 and 1995.
Advertising:
The Company expenses advertising costs as incurred. Advertising expense was
$17,049,000, $12,296,000 and $8,903,000 during 1997, 1996 and 1995.
Stock-Based Compensation:
The Company utilizes the intrinsic value method of accounting for its
employee stock-based compensation plans. Pro forma information related to
the fair value based method of accounting is contained in Note 1.
Net Earnings Per Share:
Net earnings per share is computed by dividing net earnings by the weighted
average outstanding common shares and common share equivalents, when
dilutive.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, Earnings Per Share, which is effective for
financial statements issued after December 15, 1997. Early adoption of the
new standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share together with disclosure of how the per share amounts were
computed. The effect of adopting this new standard would not be material for
1997, 1996 or 1995.
Foreign Currency:
Effective April 1, 1996, the Company began marketing its products directly to
Canadian dealers in Canadian currency. The Company's Canadian operations use
the U.S. dollar as the functional currency. Canadian assets and liabilities
are translated at the foreign exchange rates in effect at the balance sheet
date. Revenues and expenses are translated at the average foreign exchange
rate in effect. Translation and exchange gains and losses are reflected in
the results of operations.
The Company enters into foreign exchange forward contracts to hedge purchase
commitments denominated in Japanese yen. Gains and losses on the foreign
exchange contracts are deferred and included in the determination of the
related foreign currency transaction. At March 31, 1997, the Company had
open Japanese yen forward purchase contracts with notional amounts totaling
$13,993,000.
NOTE B - SHORT-TERM INVESTMENTS
Short-term investments consist primarily of a diversified portfolio of tax
exempt municipal bonds and municipal bond mutual funds and are classified as
follows at March 31:
1997 1996
____ ____
Trading securities $32,490,000 $20,014,000
Available-for-sale debt securities 12,710,000 14,956,000
__________ __________
$45,200,000 $34,970,000
========== ==========
F-6
The contractual maturities of available-for-sale debt securities at March 31,
1997, are as follows: $500,000 within one year, $3,090,000 from one year
through five years, and $9,120,000 from five years through ten years. Gross
realized and unrealized gains and losses related to available-for-sale
securities were not material.
NOTE C -INVENTORIES
Inventories consist of the following at March 31:
1997 1996
____ ____
Raw materials and sub-assemblies $32,784,000 $39,027,000
Finished goods 32,573,000 22,727,000
Parts, garments and accessories 21,145,000 24,864,000
__________ __________
$86,502,000 $86,618,000
========== ==========
NOTE D - ACCRUED EXPENSES
Accrued expenses consist of the following at March 31:
1997 1996
____ ____
Compensation $ 7,952,000 $ 5,892,000
Warranty 7,971,000 7,939,000
Self-insured retentions 3,391,000 3,185,000
Other 5,956,000 7,304,000
__________ __________
$25,270,000 $24,320,000
========== ==========
NOTE E - RETIREMENT SAVINGS PLAN
The Company's 401(k) retirement savings plan covers substantially all
eligible employees. Employees may contribute up to 20% of their compensation
with the Company matching 100% of the employee contributions, up to a maximum
of 3% of the employee's compensation. The Company can elect to make
additional contributions at its discretion. Total Company contributions were
$773,000, $724,000 and $579,000 in 1997, 1996 and 1995.
NOTE F - RELATED PARTY TRANSACTIONS
The Company purchases engines and related parts, which are manufactured in
Japan, from Suzuki Motor Corporation (Suzuki) (see Note I). Such purchases
totaled $103,285,000, $95,619,000 and $77,005,000 in 1997, 1996 and 1995.
The purchase price of engines and related parts is determined annually. The
Company has an agreement with Suzuki, which renews annually, to share the
impact of fluctuations in the exchange rate between the U.S. dollar and the
Japanese yen above and below a fixed range contained in the agreement for
snowmobile and watercraft engine purchases. Foreign currency exchange losses
under this agreement were not material during the periods presented.
F-7
As described above, and in Note I, the Company is dependent on Suzuki for the
near term supply of its engines and related parts. An interruption of this
supply could have a material adverse effect on the Company's operations.
Freight services and certain raw materials are purchased from companies where
certain of the Company's directors are officers or significant shareholders.
In 1997, 1996 and 1995, these transactions aggregated $7,699,000, $6,255,000
and $4,961,000.
NOTE G - INCOME TAXES
Income tax expense consists of the following for the years ended March 31:
1997 1996 1995
____ ____ ____
Current -Federal $9,767,000 $10,375,000 $16,227,000
-State 1,537,000 1,265,000 1,876,000
Deferred 1,388,000 (2,481,000) (127,000)
__________ __________ __________
$12,692,000 $9,159,000 $17,976,000
========== ========== ==========
The cumulative temporary differences between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes are
as follows at March 31:
1997 1996
____ ____
Deferred income taxes assets
Accrued warranty $2,989,000 $2,977,000
Inventory capitalization and reserves 1,827,000 2,317,000
Other 3,553,000 3,626,000
_________ _________
$8,369,000 $8,920,000
========= =========
Deferred income taxes - liabilities
Depreciation $2,683,000 $2,057,000
Other 1,690,000 1,479,000
_________ _________
$4,373,000 $3,536,000
========= =========
The following is a reconciliation of the Federal statutory income tax rate to
the effective tax rate for the years ended March 31:
1997 1996 1995
____ ____ ____
Statutory income tax rate 35.0% 35.0% 35.0%
State taxes 2.3 3.2 2.4
Tax exempt interest (1.3) (2.9) (1.6)
Foreign sales corporation (1.5) (2.0) (1.0)
Other 1.0 2.2 .2
____ ____ ____
35.5% 35.5% 35.0%
==== ==== ====
F-8
NOTE H - COMMITMENTS AND CONTINGENCIES
Letters of Credit:
At March 31, 1997, the Company had an unsecured credit agreement with a bank
for the issuance of up to $30,000,000 of documentary and stand-by letters of
credit. The total letters of credit issued at March 31, 1997, were
$19,888,000, of which $16,639,000 were issued to Suzuki for engine purchases
(see Note F). The letters of credit expire through September 1997.
Dealer Financing:
Finance companies provide certain of the Company's dealers and distributors
with financing. The Company has agreements to repurchase certain repossessed
products sold to its dealers and reimburse the finance companies for losses
up to specified limits. At March 31, 1997, the Company was contingently
liable under these agreements for a maximum repurchase amount of
approximately $6,600,000. No material losses have been incurred under these
agreements during the periods presented.
The Company pays a specified portion of the floor plan interest payable to
finance companies for certain of its dealers who qualify under various
marketing programs. Total payments under these programs were $10,506,000,
$7,416,000 and $4,881,000 in 1997, 1996 and 1995 and are included in selling,
general and administrative expenses.
Litigation:
The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the ultimate
outcome of these matters will not be material to the Company's cash flow or
consolidated financial statements.
NOTE I - SHAREHOLDERS' EQUITY
Stock Plan Options:
The Company has stock option plans that provide for incentive and
non-qualified stock options to be granted to directors, officers and other
key employees or consultants. The stock options granted generally have a
five to ten year life, vest over a period of one to three years, and have an
exercise price equal to the fair market value of the stock at the date of
grant. At March 31, 1997, the Company had 1,090,300 shares of common stock
available for issue under the plans.
Transactions under the plans during each of the three years in the period
ended March 31, 1997 are summarized as follows:
F-9
Number of Weighted
shares under average
option exercise price
_______ ________________
Outstanding at April 1, 1994 1,162,526 $ 6.57
Granted 241,471 16.64
Exercised (375,213) 5.20
__________ _______
Outstanding at March 31, 1995 1,028,784 9.44
Granted 255,000 11.25
Exercised (58,786) 5.15
__________ _______
Outstanding at March 31, 1996 1,224,998 10.02
Granted 602,752 10.25
Exercised (83,238) 5.59
__________ _______
Outstanding at March 31, 1997 1,744,512 $10.31
========= =======
Options exercisable at March 31:
1995 265,019 $ 7.15
--------------------------------------------------------------------------
1996 475,831 $ 7.62
--------------------------------------------------------------------------
1997 751,180 $ 8.94
--------------------------------------------------------------------------
The following tables summarize information concerning currently outstanding
and exercisable stock options:
Options Outstanding Weighted
Average Weighted
Range of Number Remaining Average
Exercise Prices Outstanding Contractual Life Exercise Price
----------------------------------------------------------------------------
$ 5.95-$ 8.03 431,820 5 months $ 5.99
9.50- 13.33 1,071,221 4.5 years 10.63
16.33- 19.75 241,471 2.2 years 16.64
----------------------------------------------------------------------------
1,744,512
____________________________________________________________________________
Options Exercisable
Weighted
Range of Number Average
Exercise Prices Exercisable Exercise Price
----------------------------------------------------------------------------
$ 5.95-$ 8.03 386,820 $ 5.99
9.50- 13.33 305,463 11.03
16.33- 19.75 58,897 17.52
----------------------------------------------------------------------------
751,180
____________________________________________________________________________
The Company's 1997 and 1996 pro forma net earnings and net earnings per share
would have been $22,290,000 and $16,450,000, or $0.76 and $0.55 per share had
the fair value method been used for valuing options granted during 1997 and
1996. The impact on net earnings may differ in future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1996. The weighted average fair value of options granted in 1997
and 1996 was $3.40 and $3.84, computed by applying the following weighted
average assumptions to the binomial options pricing model: dividend yield of
2%; risk-free rate of return of 6.6% and 6.2%; volatility of 35%; and an
average term of 4.7 and 5 years for 1997 and 1996.
Class B Common Stock:
Suzuki owns all outstanding shares of the Company's Class B common stock. At
the option of Suzuki, the Class B common stock is convertible into an equal
number of shares of the Company's common stock. The Class B shareholder is
entitled to elect one member of the Company's Board of Directors but cannot
vote for the election of other directors of the Company. The Class B
shareholder can vote on all other matters submitted to the common
shareholders. The Class B common stock participates equally with the common
stock in all dividends and other distributions duly declared by the Company's
Board of Directors. The Class B common shares are converted into an equal
number of shares of common stock if: Suzuki owns less than 15% of the
aggregate number of outstanding common and Class B common shares;
the Company becomes a non-surviving party due to a merger, recapitalization,
or the Company sells substantially all of its assets; or due to the transfer
of Class B common stock by Suzuki to any person.
In addition, the Company has a Stock Purchase Agreement with Suzuki that
prohibits the purchase of additional shares of the Company's common stock
unless, following such purchase, Suzuki's ownership is less than or equal to
32% of the aggregate outstanding shares of common and Class B common stock.
The Company has the first right of refusal to purchase any shares Suzuki
intends to sell. Suzuki has agreed not to compete in the manufacture of
snowmobiles or related parts so long as it supplies engines to the Company or
owns at least 10% of the aggregate common and Class B common shares
outstanding.
Preferred Stock:
The Company's Board of Directors is authorized to issue 2,300,000 shares of
$1.00 par value preferred stock in one or more series. The board can
determine voting, conversion, dividend and redemption rights and other
preferences of each series. No shares have been issued.
F-10
Shareholders' Rights Plan:
In connection with the adoption of a Shareholders' Rights Plan, the Company
created a Series A Junior Participating preferred stock. Under terms of the
Company's Shareholder Rights Plan, upon the occurrence of certain events,
registered holders of common stock and Class B common stock are entitled to
purchase one-hundredth of a share of Series A Junior Participating preferred
stock at a stated price, or to purchase either the Company's common shares or
common shares of an acquiring entity at half their market value. The Rights
related to this plan expire September 5, 2001.
Share Repurchase Authorization:
The Company's Board of Directors has authorized the repurchase of up
to 1,500,000 shares of common stock. During 1997 and 1996, the Company
invested $5,858,000 and $672,000 to repurchase and cancel 596,500 and
66,000 shares.
NOTE J - EXPORT SALES AND MAJOR CUSTOMER
Prior to March 31, 1996, the Company marketed its products to Canadian
dealers through two distributors serving eastern and western Canada. Sales
to one of these distributors amounted to $29,437,000 and $40,175,000 during
1996 and 1995. Effective April 1, 1996, the Company began marketing all of
its products directly to Canadian dealers.
Sales to foreign customers, located primarily in Canada, amounted to
$94,468,000, $73,964,000 and $74,136,000 in 1997, 1996 and 1995.
F-11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Arctic Cat Inc.
We have audited the accompanying consolidated balance sheets of Arctic
Cat Inc. (f/k/a Arctco, Inc.) and Subsidiaries as of March 31, 1997 and 1996,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended March 31, 1997.
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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Arctic Cat Inc
. and Subsidiaries as of March 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended March 31, 1997, in conformity with generally accepted accounting
principles.
We have also audited Schedule II of Arctic Cat Inc. and Subsidiaries for
each of the three years in the period ended March 31, 1997. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
/s/Grant Thornton LLP
______________________
Minneapolis, Minnesota
May 9, 1997
F-12
<TABLE>
ARCTIC CAT INC. AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFING ACCOUNTS
THREE YEARS ENDED MARCH 31, 1997
<CAPTION>
Balance at Charged to Charged to
Beginning Costs and Other Accounts Deductions- Balance at end
Description of Period Expenses -Describe Describe of Period
___________ __________ ___________ ______________ ___________ ________________
<S> <C> <C> <C> <C> <C>
Warranty Reserve
Year ended March 31, 1997 $7,939,000 $13,915,000 - $13,883,000 (a) $7,971,000
Year ended March 31, 1996 6,012,000 14,354,000 - 12,427,000 (a) 7,939,000
Year ended March 31, 1995 5,518,000 9,638,000 - 9,144,000 (a) 6,012,000
Self-insured Retentions:
Year ended March 31, 1997 3,185,000 4,371,000 - 4,165,000 (b) 3,391,000
Year ended March 31, 1996 2,504,000 3,777,000 - 3,096,000 (b) 3,185,000
Year ended March 31, 1995 2,449,000 2,432,000 - 2,377,000 (b) 2,504,000
Other:
Year ended March 31, 1997 3,037,000 - - - 3,190,000
Year ended March 31, 1996 1,608,000 - - - 3,037,000
Year ended March 31, 1995 1,683,000 - - - 1,608,000
(a) Warranty claims paid less vendor reimbursements.
(b) Health and workers' comp claims and expenses paid.
</TABLE>
F-13
ARCTIC CAT INC.
EXHIBIT INDEX
Exhibit Number
3(a) Amended and Restated Arcticles of Incorporation
of Company
10(a) 1989 Stock Option Plan, as amended
10(b) 1995 Stock Option Plan, as amended
10(g) Discretionary Revolving Credit Facility,
dated as of June 6, 1997, between the Company
and Norwest Bank Minnesota, National Association.
21 Subsidiaries of Registrant
23 Consent of Independent Certified Public
Accountants
27 Financial Data Schedule
Exhibit 3(a)
RESTATED ARTICLES OF INCORPORATION
OF
ARCTIC CAT INC.
Pursuant to the provisions of Chapter 302A of the Minnesota Statutes,
known as the Minnesota Business Corporation Act, and laws amendatory thereof
and supplementary thereto, the following Restated Articles of Incorporation are
adopted and shall supersede and take the place of the existing Restated
Articles of Incorporation and any amendments thereto.
ARTICLE I.
The name of this Corporation shall be Arctic Cat Inc.
ARTICLE II.
The address of the registered office of the Corporation shall be 600
Brooks Avenue South, P.O. Box 810, Thief River Falls, Minnesota, 56701.
ARTICLE III.
SECTION 1. The authorized capital stock of this Corporation shall
consist of 47,500,000 shares which shall be 45,000,000 shares of common stock
of the par value of one cent ($.01) per share (the "Common Stock") and
2,500,000 shares of preferred stock of the par value of One Dollar ($1.00) per
share (the "Preferred Stock"). The designations and the powers, preferences
and rights, and the qualifications, limitations or restrictions of the shares
of each class of stock shall be as follows:
SECTION 2. Preferred Stock. The Preferred Stock may be issued from
time to time by the Board of Directors as shares of one or more series.
Subject to the provisions hereof and the limitations prescribed by law,
the Board of Directors is expressly authorized by adopting resolutions
providing for the issuance of shares of any particular series and, if and
to the extent from time to time required by law, by filing with the
Minnesota Secretary of State a statement with respect to the adoption of
the resolutions pursuant to the Minnesota Business Corporation Act (or
other law hereafter in effect relating to the same or substantially
similar subject matter), to establish the number of shares to be included
in each such series and to fix the designation and relative powers,
preferences and rights and the qualifications, limitations or restrictions
thereof relating to the shares of each such series. The authority of the
Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) the distinctive serial designation of such series and the number
of shares constituting such series, provided that the aggregate number of
shares constituting all series of Preferred Stock shall not exceed
2,500,000;
(b) the annual dividend rate on shares of such series, if any,
whether dividends shall be cumulative and, if so, from which date or
dates;
(c) whether the shares of such series shall be redeemable and, if so
, the terms and conditions of such redemption, including the date or dates
upon and after which such shares shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to retire shares of
such series pursuant to a sinking fund;
(e) whether shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or classes and, if so
, the terms and conditions of such conversion or exchange, including the
price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights;
(g) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(h) any other relative rights, powers, preferences, qualifications,
limitations or restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with each
other in all respects except as to the dates from and after which dividends
thereon shall cumulate, if cumulative.
SECTION 4. Common Stock. Subject to all of the rights of the
Preferred Stock, and except as may be expressly provided with respect to the
Preferred Stock herein, by law or by the Board of Directors pursuant to this
Article III:
(a) dividends may be declared and paid or set apart for payment upon
the Common Stock out of any assets or funds of the Corporation legally
available for the payment of dividends;
(b) the holders of Common Stock shall have the right to vote for the
election of directors and on all other matters requiring stockholder
action , each share being entitled to one vote;
(c) upon the voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock in accordance with
their respective share ownership; and
(d) the Board of Directors may, from time to time, establish by
resolution different classes or series of shares and may fix the rights
and preferences of said shares in any class or series; and the Board of
Directors shall have the authority to issue shares of a class or series to
holders of shares of another class or series to effectuate share dividends
, splits, or conversion of its outstanding shares.
ARTICLE IV.
Any action required or permitted to be taken at a Board of Directors'
meeting may be taken by written action signed by the number of directors that
would be required to take the same action at a meeting of the Board of
Directors at which all directors were present. The written action is effective
when signed by the required number of directors unless a different effective
time is provided in the written action.
ARTICLE V.
SECTION 1. Number and Tenure. The business and affairs of this
Corporation shall be managed by or under the direction of a Board of Directors
consisting of not less than three (3) or more than nine (9) directors. The
directors shall be divided into three (3) classes, as nearly equal in number
as the then total number of directors constituting the whole Board permits,
with the term of office of one class expiring each year. Except as otherwise
provided in this Article V, each director shall be elected by the shareholders
to hold office for a term expiring at the third succeeding regular meeting of
shareholders following the regular meeting at which such director was elected.
Each director shall serve until his or her successor has been duly elected and
qualified, unless he or she shall retire, resign, die or be removed.
SECTION 2. Vacancies. Any vacancies occurring in the Board of
Directors for any reason, and any newly created directorships resulting from an
increase in the number of directors, may be filled by a majority of the
directors in office. Any directors so chosen shall hold office until the next
election of the class for which such directors shall have been chosen and until
their successors shall be elected and qualified, subject, however, to prior
retirement, resignation, death or removal from office. Any newly created
directorships resulting from an increase in the authorized number of directors
shall be apportioned by the Board of Directors among the three classes of
directors so as to maintain such classes as nearly equal in number as possible.
SECTION 3. Quorum. A majority of the members of the Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, but if less than such a majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice. The directors present at a duly organized
meeting may continue to transact business until adjournment notwithstanding the
withdrawal of enough directors to leave less than a quorum.
SECTION 4. Removal. Any director may be removed from office, with or
without cause, only by the affirmative vote of the holders of at least seventy
percent (70%) of the voting power of the then outstanding shares of Capital
Stock entitled to vote generally in the election of directors.
SECTION 5. Election. Notwithstanding any other provision of this
Article V, and except as otherwise provided by law, whenever the holders of
any one or more class or series of Common Stock or Preferred Stock shall have
the right, voting separately as a class or series, to elect one or more
directors of this Corporation, the term of office, the filling of vacancies and
other features of such directorships shall be governed by the terms of these
Restated Articles of Incorporation applicable thereto, and such directors so
elected shall not be classified pursuant to this Article V unless expressly
provided by such terms.
SECTION 6. Nomination. Advance notice of nominations for the election
of directors, other than by the Board of Directors or a committee thereof,
shall be given within the time and in the manner provided in the Bylaws.
ARTICLE VI.
In addition to any affirmative vote of the directors or shareholders of
the Corporation required by law or by or pursuant to any other Article of the
Restated Articles of Incorporation, any Business Transaction with an Interested
Shareholder, which Business Transaction has not been approved by the
affirmative vote of a majority of the Continuing Directors, shall require the
affirmative vote of the holders of at least 70% of the outstanding shares of
Common Stock not held by such Interested Shareholder. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or
that a lesser percentage may be specified, by law or any agreement with any
national securities exchange, or otherwise. The provisions of this Article
shall not be applicable to any Stock Repurchase by the Corporation of shares
of Common Stock from an Interested Shareholder.
ARTICLE VII.
A majority of the Continuing Directors of the Corporation (and only such
majority) shall have the power to determine the application of or compliance
with Articles VI, VII, VIII and IX of these Restated Articles of Incorporation,
including, without limitation (a) whether a person is an Interested Shareholder
or an affiliate or association of another; (b) whether Article VI is or has
become applicable with respect to a proposed transaction; and (c) whether a
person has become a beneficial owner of any shares of Common Stock. Any
determination or construction by the Continuing Directors with respect to
Articles VI, VII, VIII and IX shall be within their absolute discretion and
shall be conclusive and binding except in circumstances involving bad faith.
ARTICLE VIII.
For the purposes of Articles VI, VII, VIII and IX:
SECTION 1. Business Transaction. The term "Business Transaction"
shall mean: (a) any merger or consolidation of the Corporation or a
Subsidiary with (i) an Interested Shareholder or (ii) any other Corporation
(whether or not itself in Interested Shareholder) which is or after such merger
or consolidation would be an affiliate or associate of an Interested
Shareholder ; (b) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) with any
Interested Shareholder or any affiliate or associate of any Interested
Shareholder involving any Substantial Portion of assets or securities of the
Corporation, any Subsidiary or any Interested Shareholder or any affiliate or
associate of any Interested Shareholder; (c) the issuance of any securities of
an Interested Shareholder or any affiliate or associate of any Interested
Shareholder in exchange for stock of the Corporation or any Subsidiary; (d) any
recapitalization of the Corporation that would have the effect, directly or
indirectly, of increasing the voting power of an Interested Shareholder or any
affiliate or associate of any Interested Shareholder, (e) any plan or proposal
for the liquidation or dissolution of the Corporation proposed by or on behalf
of an Interested Shareholder or any affiliate or associate of any Interested
Shareholder; and (f) any agreement, contract or other arrangement providing
for any one or more of the actions specified in the foregoing clauses (a)
through (e).
SECTION 2. Continuing Director. The term "Continuing Director" shall
mean a director who was a member of the Board of Directors of the Corporation
on July 7, 1986, and those members of the Board of Directors prior to the time
the Interested Shareholder in question became an Interested Shareholder and who
was not proposed for election as a director by or on behalf of such Interested
Shareholder, and any successor of a Continuing Director who is not an affiliate
or associate or representative of such Interested Shareholder and is
recommended to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board of Directors of the Corporation.
SECTION 3. Fair Market Value. The term "Fair Market Value" shall mean
, with respect to the Common Stock, the Fair Market Value, on the date in
question of a share of such stock as determined in good faith by a majority of
the Continuing Directors, and shall mean, with respect to property other than
Common Stock, the Fair Market Value of such property on the date in question as
determined in good faith by a majority of the Continuing Directors.
SECTION 4. Interested Shareholder. The term "Interested Shareholder"
shall mean and include an individual, Corporation, partnership, or other person
or entity (other than this Corporation or any Subsidiary or any employee
benefit plan of either this Corporation or any Subsidiary or any trustee or
fiduciary with respect to any such plan when acting in such capacity) which,
together with its "affiliates" and "associates" (as defined pursuant to Rule
12b-2 under the Securities Exchange Act of 1934), was the "beneficial owner"
(as defined pursuant to Rule 13d-3 under such Act) of more than ten percent
(10%) of the outstanding shares of Common Stock, and any affiliate or
associate of any such individual, Corporation, partnership or other person or
entity, or which was the beneficial owner at any time within the two-year
period immediately preceding the time in question of more than ten percent
(10%) of the outstanding Common Stock, and any affiliate or associate of any
such individual , Corporation, partnership or other person or entity.
SECTION 5. Subsidiary. The term "Subsidiary" shall mean a Corporation
with respect to which the Corporation is the beneficial owner of the majority
of each class of voting securities.
SECTION 6. Stock Repurchase. The term "Stock Repurchase" shall mean
any repurchase, directly or indirectly by the Corporation or any Subsidiary of
any shares of Common Stock at a price greater than the then Fair Market Value
for such shares.
SECTION 7. Substantial Portion. The term "Substantial Portion" shall
mean assets having a Fair Market Value of fifty percent (50%) or more of the
total assets of the Corporation or any Subsidiary or such Interested
Shareholder as the case may be, as of the date of the most recent balance sheet
available on the record date of the stockholder meeting or consent (in the case
of an Interested Shareholder) relating to approval of a Business Transaction
involving assets constituting a Substantial Portion.
ARTICLE IX.
SECTION 1. Articles of Incorporation. Notwithstanding any other
provisions of these Restated Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law, these Restated Articles of Incorporation or the Bylaws of the
Corporation), the amendment or repeal of Articles V, VI, VII, VIII, or IX of
these Restated Articles of Incorporation, or the adoption of any provisions
inconsistent therewith, shall require the approval of the holders of shares
representing at least 70% of the outstanding shares of Common Stock.
SECTION 2. Bylaws. Except as otherwise provided in Section 3 of this
Article IX, Bylaws may be adopted, altered, amended or repealed or new Bylaws
enacted by the affirmative vote of a majority of the entire Board of Directors
(if notice thereof is contained in the notice of the meeting at which such vote
is taken or if all directors are present) or at any regular meeting of the
shareholders (or at any special meeting thereof duly called for that purpose)
by the affirmative vote of a majority of the shares represented and entitled to
vote at such meeting (if notice thereof is contained in the notice of such
meeting).
SECTION 3. Change of Bylaws. Notwithstanding anything contained in
Section 2 of this Article IX to the contrary, either (i) the affirmative vote
of the holders of at least 70% of the votes entitled to be cast by the holders
of all shares of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, or (ii) the affirmative vote of
a majority of the entire Board of Directors with the concurring vote of a
majority of the Continuing Directors, voting separately and as a subclass of
directors, shall be required to alter, amend or repeal, or adopt any provision
inconsistent with, Article II, Section 10, and Article III, Sections
2, 3, 4, 5, 6 and 7 of the Bylaws of the Corporation.
ARTICLE X.
No shareholder of this Corporation shall have any preemptive rights to
subscribe for, purchase, or acquire any shares of the Corporation of any class,
whether unissued now or hereafter authorized, or any obligations or other
securities convertible into or exchangeable for such shares.
ARTICLE XI.
No holder of any shares of the Corporation shall have the right to
cumulative votes for the election of directors and there shall be no cumulative
voting for any purpose whatsoever.
ARTICLE XII.
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its shareholders; (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law; (iii) under sections 302A.559 or 80A.23 of the Minnesota
Statutes; (iv) for any transaction from which the director derived any improper
personal benefit; or (v) for any action or omission occurring prior to the date
when this provision becomes effective.
The provisions of this Article XII shall not be deemed to limit or
preclude indemnification of a director by the Corporation for any liability of
a director which has not been eliminated by the provisions of this Article XII.
If the Minnesota Statutes hereafter are amended to authorize the further
eliminations or limitation of the liability of directors, then the liability of
a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Minnesota Statutes, as so amended.
Exhibit 10(a)
ARCTIC CAT INC.
1989 STOCK OPTION PLAN
1. Purpose. The purpose of the Arctic Cat, Inc. 1989 Stock Option Plan
is to promote the success of Arctic Cat, Inc. (the "Corporation") and of any
subsidiary of the Corporation (a "Subsidiary") by facilitating the employment
and retention of key personnel and by furnishing continuing, long-term
incentive to officers, other key employees and Directors upon whose efforts the
success of the Corporation depends to a large degree. In addition, the Plan is
intended to provide key employees on whom rests the major responsibility for
the present and future success of the Corporation with an opportunity to
acquire a proprietary interest in the Corporation and thereby to develop a
stronger incentive to expend maximum effort for the continued success and
growth of the Corporation.
2. Definitions. The following words and phrases as used herein shall
have the meanings set forth below:
2.1 "Board" shall mean the Board of Directors of the Corporation.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.3 "Committee" shall mean a committee of the Board as may be designated
by the Board, from time to time, for the purpose of administering this plan as
contemplated by Article 4 hereof.
2.4 "Common Stock" shall mean the common stock, $0.01 par value, of the
Corporation.
2.5 "Corporation" shall mean Arctic Cat, Inc., a Minnesota corporation.
2.6 "Director" shall mean any member of the Board.
2.7 "Fair Market Value" of any security on any given date shall be
determined by the Committee as follows: (a) if the security is listed for
trading on one or more national securities exchanges (including the NASDAQ
National Market), the reported last price on the principal such exchange on the
date in question, or if such security shall not have been traded on such
exchange on such date, the reported last price on such exchange on the first
day prior thereto on which such security was so traded; or (b) if the security
is not listed for trading on a national securities exchange (including the
NASDAQ National Market) but is traded in the over-the-counter market, the mean
of the highest and lowest bid prices for such security on the date in question,
or if there are no such bid prices for such security on such date, the mean of
the highest and lowest bid prices on the first day prior thereto on which such
prices existed; or (c) if neither (a) nor (b) is applicable, by any means
deemed fair and reasonable by the Committee, which determination shall be final
and binding on all parties.
2.8 "ISO" shall mean any stock option granted pursuant to this Plan as an
"incentive stock option" within the meaning of Section 422 of the Code.
2.9 "Non-Employee Director" shall mean a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange Act of 1934, as
amended, or any successor rule.
2.10 "NQO" shall mean any stock option granted pursuant to this Plan which
is not an ISO.
2.11 "Option" shall mean any stock option granted pursuant to this Plan,
whether an ISO or an NQO.
2.12 "Optionee" shall mean any person who is the holder of an Option
granted pursuant to this Plan.
2.13 "Outside Director" means a Director who (a) is not a current employee
of the Corporation or any member of an affiliated group which includes the
Corporation; (b) is not a former employee of the Corporation who receives
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the taxable year; (c) has not been an officer of the
Corporation; (d) does not receive remuneration from the Corporation, either
directly or indirectly, in any capacity other than as a Director, except as
otherwise permitted under Code Section 162(m) and regulations thereunder. For
this purpose, remuneration includes any payment in exchange for goods or
services. This definition shall be further governed by the provisions of Code
Section 162(m) and regulations promulgated thereunder.
2.14 "Plan" shall mean this 1989 Stock Option Plan of the Corporation.
2.15 "Subsidiary" shall mean any corporation which at the time qualifies
as a subsidiary of the Corporation under Section 425 (f) of the Code.
3. Shares Available Under Plan. The number of shares which may be
issued pursuant to Options granted under this Plan shall not exceed 700,000
shares of the Common Stock of the Corporation; provided, however, that shares
which become available as a result of cancelled, unexercised, lapsed or
terminated Options granted under this Plan shall be available for issuance
pursuant to Options subsequently granted under this Plan. The shares issued
upon exercise of Options granted under this Plan may be authorized and unissued
shares or shares previously acquired or to be acquired by the Corporation.
4. Administration.
4.1 The Plan will be administered by the Board, or at the Board's
discretion, by a Committee of at least two Directors, all of whom shall be
Outside Directors and Non-Employee Directors. Other than references in this
Section 4.1, references to the "Committee" in this Plan shall be deemed to
refer to the Board where the Board has not designated a Committee to administer
the Plan.
4.2 The Committee will have plenary authority, subject to provisions of
the Plan, to determine when and to whom Options will be granted, the term of
each Option, the number of shares covered by it, the participation by the
Optionee in other plans, and any other terms or conditions of each Option. The
Committee shall determine with respect to each grant of an Option whether a
participant shall receive an ISO or an NQO. The number of shares, the term and
the other terms and conditions of a particular kind of Option need not be the
same, even as to Options granted at the same time. The Committee's
recommendations regarding Option grants and terms and conditions thereof will
be conclusive.
4.3 The Committee will have the sole responsibility for construing and
interpreting the Plan, for establishing and amending any rules and regulations
as it deems necessary or desirable for the proper administration of the Plan,
and for resolving all questions arising under the Plan. Any decision or action
taken by the Committee arising out of or about the construction, administration
, interpretation and effect of the Plan and of its rules and regulations will,
to the extent permitted by law, be within its absolute discretion, except as
otherwise specifically provided herein, and will be conclusive and binding on
all Optionees, all successors, and any other person, whether that person is
claiming under or through any Optionee or otherwise.
4.4 No member of the Committee will be liable, in the absence of bad
faith, for any act or omission with respect to his services on the Committee.
Service on the Committee will constitute service as a member of the Board, so
that the members of the Committee will be entitled to indemnification and
reimbursement as Board members pursuant to its Bylaws.
4.5 The Committee will regularly inform the Board as to its actions with
respect to all Options granted under the Plan and the terms and conditions and
any such Options in a manner, at any times, and in any form as the Board may
reasonably request.
5. Participants.
5.1 Participation in this Plan shall be limited to key personnel of the
Corporation or of a Subsidiary, who are salaried employees of the Corporation
or of a Subsidiary, and to Directors of the Corporation.
5.2 Subject to other provisions of this Plan, Options may be granted to
the same participants on more than one occasion.
5.3 The Committee's determination under the Plan including, without
limitation, determination of the persons to receive Options, the form, amount
and type of such Options, and the terms and provisions of Options need not be
uniform and may be made selectively among otherwise eligible participants,
whether or not the participants are similarly situated.
5.4 No person shall receive Options under this Plan which exceed 250,000
shares during any fiscal year of the Corporation.
6. Terms and Conditions.
6.1 Each Option granted under the Plan shall be evidenced by a written
agreement, which shall be subject to the provisions of this Plan and to such
other terms and conditions as the Corporation may deem appropriate.
6.2 Each Option agreement shall specify the period for which the Option
thereunder is granted (which in no event shall exceed ten years from the date
of the grant for any NQO or any ISO subject to the pricing requirements of
Section 6.3(a) hereof and five years from the date of grant for any ISO subject
to the pricing requirements of Section 6.3(b) hereof) and shall provide that
the Option shall expire at the end of such period.
6.3 The exercise price per share shall be determined by the Committee at
the time any Option is granted and shall be determined as follows:
(a) For employees who do not own stock possessing more than ten
percent (10%) of the total combined voting power of all classes of
stock of the Corporation or of any Subsidiary, the ISO exercise price
per share shall not be less than one hundred percent (100%) of Fair
Market Value of the Common Stock of the Corporation on the date the
Option is granted, as determined by the Committee.
(b) For employees who own stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of
the Corporation or of any Subsidiary, the ISO exercise price per
share shall not be less than one hundred ten percent (110%) of the
Fair Market Value of the Common Stock of the Corporation on the date
the Option is granted, as determined by the Committee.
(c) Unless approved by a majority of the Board, the NQO exercise
price per share shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock of the Corporation on the
date the Option is granted, as determined by the Committee.
6.4 The aggregate Fair Market Value (determined as of the time the Option
is granted) of the Common Stock with respect to which an ISO under this Plan or
any other plan of the Corporation or its Subsidiaries is exercisable for the
first time by an Optionee during any calendar year shall not exceed $100,000.
6.5 An Option shall be exercisable at such time or times, and with
respect to such minimum number of shares, as may be determined by the Committee
at the time of the grant; provided, however, that the Committee may, in its
discretion, accelerate the exercise date for any unexercisable Options when the
Committee deems such action to be appropriate under the circumstances. The
Option agreement may require, if so determined by the Committee, that no part
of the Option may be exercised until the Optionee shall have remained in the
employ of the Corporation or of a Subsidiary for such period after the date of
the Option as the Committee may specify. Notwithstanding the foregoing and
subject to the discretionary acceleration rights of the Committee, an Option
granted to a Director, officer or 10% shareholder of the Corporation shall not
be exercisable for a period of six (6) months after the date of grant unless
the Option has been approved by the Board, the Committee or the shareholders of
the Corporation.
6.6 The Corporation may prescribe the form of legend which shall be
affixed to the stock certificate representing shares to be issued and the
shares shall be subject to the provisions of any repurchase agreement or other
agreement restricting the sale or transfer thereof. Such agreements or
restrictions shall be noted on the certificate representing the shares to be
issued.
7. Exercise of Option.
7.1 Each exercise of an Option granted hereunder, whether in whole or in
part, shall be by written notice thereof, delivered to the Chief Financial
Officer of the Corporation (or such other person as he may designate). The
notice shall state the number of shares with respect to which the Options are
being exercised and shall be accompanied by payment in full for the number of
shares so designated. Shares shall be registered in the name of the Optionee
unless the Optionee otherwise directs in his or her notice of election.
7.2 Payment shall be made to the Corporation either (i) in cash,
including check, bank draft or money order as authorized by the Corporation, or
(ii) at the discretion of the Corporation, by delivering Corporation Common
Stock already owned by the participant or a combination of Common Stock and
cash. With respect to (ii), the Fair Market Value of stock so delivered shall
be determined as of the date immediately preceding the date of exercise.
7.3 Upon notification of the amount due and prior to or concurrently
with, the delivery to the Optionee of a certificate representing any shares
purchased pursuant to the exercise of an Option, the Optionee shall promptly
pay to the Corporation any amount necessary to satisfy applicable federal,
state or local withholding tax requirements.
7.4 If the terms of an Option so permit but subject to the approval of
the Committee, an Optionee may elect by written notice to the Chief Financial
Officer of the Corporation (or such other person as he may designate), to
satisfy the withholding tax requirements associated with the exercise of an
Option by (i) authorizing the Corporation to retain from the number of shares
of Common Stock that would otherwise be deliverable to the Optionee, or (ii)
delivering to the Corporation from shares of Common Stock already owned by the
Optionee, that number of shares having an aggregate Fair Market Value equal to
the tax payable by the Optionee under Section 7.3. Any such election shall be
in accordance with, and subject to, applicable tax and securities laws,
regulations and rulings.
8. Extraordinary Corporate Transactions. New Options may be substituted
for the Options granted under the Plan, or the Corporation's duties as to
Options outstanding under the Plan may be assumed, by a corporation other than
the Corporation, or by a parent or subsidiary of the Corporation or such
corporation, in connection with any merger, consolidation, acquisition,
separation, reorganization, liquidation or like occurrence in which the
Corporation is involved. Notwithstanding the foregoing or the provisions of
Section 9 hereof, in the event such corporation, or parent or subsidiary of the
Corporation or such corporation, does not substitute new Options for, and
substantially equivalent to, the Options granted hereunder, or assume the
Options granted hereunder, the Options granted hereunder shall terminate and
thereupon become null and void (i) upon dissolution or liquidation of the
Corporation, or similar occurrence, (ii) upon any merger, consolidation,
acquisition, separation, reorganization, or similar occurrence, where the
Corporation will not be a surviving entity or (iii) upon a transfer of
substantially all of the assets of the Corporation or more than 80% of the
outstanding Common Stock; provided, however, that each Optionee shall have the
right within a 30-day period prior to or concurrently with such dissolution,
liquidation, merger, consolidation, acquisition, separation, reorganization or
similar occurrence, to exercise any unexpired Option granted hereunder without
regard to any installment exercise restrictions.
9. Changes in Corporation's Capital Structure. The existence of
outstanding Options shall not affect in any way the right or power of the
Corporation or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Corporation's
capital structure or its business, or any merger or consolidation of the
Corporation, or any issuance of Common Stock or subscription rights thereto,
or any merger or consolidation of the Corporation, or any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting the
Common Stock or the rights thereof, or the dissolution or liquidation of the
Corporation, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise; provided, however, that if the outstanding shares of
Common Stock of the Corporation shall at any time be changed or exchanged by
declaration of a stock dividend, stock split, combination of shares or
recapitalization, the number and kind of shares subject to the Plan or subject
to any Options theretofore granted, and the option exercise prices, shall be
appropriately and equitably adjusted so as to maintain the proportionate number
of shares without changing the aggregate option exercise price.
10. Assignments. Any Option granted under this Plan shall be exercisable
only by the Optionee to whom granted during his or her lifetime and shall not
be assignable or transferable otherwise than by will or by the laws of descent
an distribution, or pursuant to a qualified domestic relations order as defined
by the Code or Title I of the Employee Retirement Income Security Act or the
rules thereunder.
11. Severance; Death; Disability. An Option shall terminate, and no
rights thereunder may be exercise, if the person to whom it is granted ceases
to be employed by the Corporation or by a Subsidiary except that:
11.1 If the employment of the Optionee is terminated by any reason other
than his or her death or disability, all rights under the Option shall
terminate and expire upon such termination.
11.2 If the Optionee dies while in the employ of the Corporation or a
Subsidiary, or within not more than one month after termination of his or her
employment, the Optionee's rights under the Option may be exercised in whole or
in part, without regard to any installment exercise restrictions, at any time
within six months following such death by his or her personal representative or
by the person or persons to whom such rights under the Option shall pass by
will or by the laws of descent and distribution.
11.3 If the employment of the Optionee is terminated because of permanent
disability, the Optionee, or his or her legal representative, may at any time
within not more than six months after termination of his or her employment,
exercise his or her Option rights in whole or in part, without regard to any
installment exercise restrictions.
11.4 Notwithstanding anything contained in Sections 11.1, 11.2 and 11.3 to
the contrary, no Option rights shall be exercisable by anyone after the
expiration of the term of the Option.
11.5 Transfers of employment between the Corporation and a Subsidiary, or
between Subsidiaries, will not constitute termination of employment for
purposes of any Option granted under this Plan. The Committee may specify in
the terms and conditions of an Option whether any authorized leave of absence
or absence for military or government service or for any other reasons will
constitute a termination of employment for purposes of the Option and the Plan.
12. Rights of Participants. Neither the participant nor the personal
representatives, heirs, or legatees of such participant shall be or have any of
the rights or privileges of a shareholder of the Corporation in respect of any
of the shares issuable upon the exercise of an Option granted under this Plan
unless and until certificates representing such shares shall have been issued
and delivered to the participant or to such personal representatives, heirs or
legatees.
13. Securities Registration. If any law or regulation of the Securities
and Exchange Commission or of any other body having jurisdiction shall require
the Corporation or the participant to take any action in connection with the
exercise of an Option, then notwithstanding any contrary provision of an Option
agreement or this Plan, the date for exercise of such Option and the delivery
of the shares purchased thereunder shall be deferred until the completion of
the necessary action. In the event that the Corporation shall deem it
necessary, the Corporation may condition the grant or exercise of an Option
granted under this Plan upon the receipt of a satisfactory certificate that the
Optionee is acquiring the Option or the shares obtained by exercise of the
Option for investment purposes and not with the view or intent to resell or
otherwise distribute such Option or shares. In such event, the stock
certificate evidencing such shares shall bear a legend referring to applicable
laws restricting transfer of such shares. In the event that the Corporation
shall deem it necessary to register under the Securities Act of 1933, as
amended , or any other applicable statute, any Options or any shares with
respect to which an Option shall have been granted or exercised, then the
participant shall cooperate with the Corporation and take such action as is
necessary to permit registration or qualification of such Options or shares.
14. Duration and Amendment.
14.1 There is no express limitation upon the duration of the Plan, except
for the requirement of the Code that all ISOs must be granted within ten years
from the date the Plan is approved by the shareholders.
14.2 The Board may terminate or may amend the Plan at any time, provided,
however, that the Board may not, without approval of the shareholders of the
Corporation, (i) increase the maximum number of shares as to which Options may
be granted under the Plan, (ii) permit the granting of ISOs at less than 100%
of Fair Market Value at time of grant, or (iii) change the class of employees
eligible to receive Options under the Plan.
15. Granting of Options to Non-Employee Directors. [Replaced by Section
5(k) of the Corporation's 1995 Stock Plan.]
16. Approval of Shareholders. This Plan expressly is subject to approval
of holders of a majority of the outstanding shares of Common Stock of the
Corporation, and if it is not so approved on or before one year after the date
of adoption of this Plan by the Board, the Plan shall not come into effect, and
any Options granted pursuant to this Plan shall be deemed cancelled.
17. Conditions of Employment. The granting of an Option to a participant
under this Plan who is an employee shall impose no obligation on the
Corporation to continue the employment of any participant and shall not lessen
or affect the right of the Corporation to terminate the employment of the
participant.
Adopted by the Board of Directors on June 22, 1989; amended by the Board
of Directors on December 12, 1996.
Exhibit 10(b)
ARCTIC CAT INC.
1995 STOCK PLAN
SECTION CONTENTS PAGE
1. General Purpose of Plan; Definitions 1
2. Administration 3
3. Stock Subject to Plan 4
4. Eligibility 4
5. Stock Options 5
6. Restricted Stock 9
7. Transfer, Leave of Absence, etc. 12
8. Amendments and Termination 12
9. Unfunded Status of Plan 12
10. General Provisions 13
11. Effective Date of Plan 14
ARCTIC CAT INC.
1995 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the Arctic Cat Inc. 1995 Stock Plan
(the "Plan"). The purpose of the Plan is to enable Arctic Cat Inc.
(the "Company") and its Subsidiaries to retain and attract
executives, other key employees, consultants and directors who
contribute to the Company's success by their ability, ingenuity and
industry, and to enable such individuals to participate in the
long-term success and growth of the Company by giving them a
proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined
as set forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a
felony, or a participant's misconduct or dishonesty, any
of which is harmful to the business or reputation of the
Company.
c. "Code" means the Internal Revenue Code of 1986, as
amended.
d. "Committee" means the Committee referred to in Section 2
of the Plan. If at any time no Committee shall be in
office, then the functions of the Committee specified in
the Plan shall be exercised by the Board.
e. "Company" means Arctic Cat Inc., a corporation organized
under the laws of the State of Minnesota (or any
successor corporation).
f. "Disability" means permanent and total disability as
determined by the Committee.
g. "Early Retirement" means retirement, with consent of the
Committee at the time of retirement, from active
employment with the Company and any Subsidiary or Parent
Corporation of the Company.
h. "Fair Market Value" means the value of the Stock on a
given date as determined by the Committee in accordance
with Section 422 of the Code and any applicable Treasury
Department regulations with respect to "incentive stock
options."
i. "Incentive Stock Option" means any Stock Option intended
to be and designated as an "Incentive Stock Option"
within the meaning of Section 422 of the Code.
j. "Non-Employee Director" means a "Non-Employee Director"
within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any
successor rule.
k. "Non-Qualified Stock Option" means any Stock Option that
is not an Incentive Stock Option, and is intended to be
and is designated as a "Non-Qualified Stock Option."
l. "Normal Retirement" means retirement from active employ-
ment with the Company and any Subsidiary or Parent
Corporation of the Company on or after age 65.
m. "Outside Director" means a director who (a) is not a
current employee of the Company or any member of an
affiliated group which includes the Company; (b) is not
a former employee of the Company who receives
compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the taxable
year; (c) has not been an officer of the Company; (d)
does not receive remuneration from the Company, either
directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code
Section 162(m) and regulations thereunder. For this
purpose, remuneration includes any payment in exchange
for goods or services. This definition shall be further
governed by the provisions of Code Section 162(m) and
regulations promulgated thereunder.
n. "Parent Corporation" means any corporation (other than
the Company) in an unbroken chain of corporations ending
with the Company if each of the corporations (other than
the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in
one of the other corporations in the chain.
o. "Restricted Stock" means an award of shares of Stock that
are subject to restrictions under Section 6 below.
p. "Retirement" means Normal Retirement or Early Retirement.
q. "Stock" means the Common Stock, $.01 par value per share,
of the Company. Class B Common Stock of the Company
shall be considered Stock hereunder only following
conversion to Common Stock of the Company
r. "Stock Option" means any option to purchase shares of
Stock granted pursuant to Section 5 below.
s. "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning
with the Company if each of the corporations (other than
the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power
of all classes of stock in one of the other corporations
in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board or by a Committee
appointed by the Board consisting of at least two directors, all of
whom shall be Outside Directors and Non-Employee Directors, and who
shall serve at the pleasure of the Board. The Committee may be a
subcommittee of the Compensation Committee of the Board.
The Committee shall have the power and authority to grant to
eligible employees, consultants and directors pursuant to the terms
of the Plan: (i) Stock Options and (ii) Restricted Stock.
In particular, the Committee shall have the authority:
(i) to select the officers, other key employees, directors
and consultants of the Company and its Subsidiaries to
whom Stock Options and/or Restricted Stock awards may
from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, or Restricted Stock
awards, or a combination of the foregoing, are to be
granted hereunder;
(iii) to determine the number of shares to be covered by each
such award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted
hereunder (including, but not limited to, any restriction
on any Stock Option or other award and/or the shares of
Stock relating thereto); and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with
respect to an award under this Plan shall be deferred
either automatically or at the election of the
participant.
The Committee shall have the authority to adopt, alter and
repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from time to time, deem advisable;
to interpret the terms and provisions of the Plan and any award
issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan. The Committee
may delegate its authority to officers of the Company for the
purpose of selecting employees who are not officers of the Company
for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including
the Company and Plan participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 1,800,000. Such shares may
consist, in whole or in part, of authorized and unissued shares.
If any shares that have been optioned cease to be subject to
Stock Options, or if any shares subject to any Restricted Stock
award granted hereunder are forfeited or such award otherwise
terminates without a payment being made to the participant, such
shares shall again be available for distribution in connection with
future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate
structure affecting the Stock, or spin-off or other distribution of
assets to shareholders, such substitution or adjustment shall be
made in the aggregate number of shares reserved for issuance under
the Plan, in the number and option price of shares subject to
outstanding Stock Options granted under the Plan, and in the number
of shares subject to Restricted Stock awards granted under the Plan
as may be determined to be appropriate by the Committee, in its
sole discretion, provided that the number of shares subject to any
award shall always be a whole number.
SECTION 4. Eligibility.
Officers, other key employees, consultants and members of the
Board of the Company and Subsidiaries who are responsible for or
contribute to the management, growth and/or profitability of the
business of the Company and its Subsidiaries are eligible to be
granted Stock Options or Restricted Stock awards under the Plan.
The optionees and participants under the Plan shall be selected
from time to time by the Committee, in its sole discretion, from
among those eligible, and the Committee shall determine, in its
sole discretion, the number of shares covered by each award.
Notwithstanding the foregoing, no person shall receive grants
of Stock Options and Restricted Stock awards under this Plan which
exceed 250,000 shares during any fiscal year of the Company.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form
as the Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types:
(i) Incentive Stock Options and (ii) Non-Qualified Stock Options.
No Incentive Stock Options shall be granted under the Plan after
April 21, 2005.
The Committee shall have the authority to grant any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types
of options. To the extent that any option does not qualify as an
Incentive Stock Option, it shall constitute a separate Non-Qualified Stock
Option.
Anything in the Plan to the contrary notwithstanding, no term
of this Plan relating to Incentive Stock Options shall be
interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to
disqualify either the Plan or any Incentive Stock Option under
Section 422 of the Code. The preceding sentence shall not preclude
any modification or amendment to an outstanding Incentive Stock
Option, whether or not such modification or amendment results in
disqualification of such Stock Option as an Incentive Stock Option,
provided the optionee consents in writing to the modification or
amendment.
Options granted under the Plan shall be subject to the
following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan,
as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the
Committee at the time of grant. In no event shall the option price
per share of Stock purchasable under an Incentive Stock Option be
less than 100% of the Fair Market Value of the Stock on the date of
the grant of the Stock Option. If an employee owns or is deemed to
own (by reason of the attribution rules applicable under Section
424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Company or any Parent Corporation or
Subsidiary and an Incentive Stock Option is granted to such
employee, the option price shall be no less than 110% of the Fair
Market Value of the Stock on the date the option is granted.
(b) Option Term. The term of each Stock Option shall be
fixed by the Committee, but no Incentive Stock Option shall be
exercisable more than ten years after the date the option is
granted. If an employee owns or is deemed to own (by reason of the
attribution rules of Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or
any Parent Corporation or Subsidiary and an Incentive Stock Option
is granted to such employee, the term of such option shall be no
more than five years from the date of grant.
(c) Exercisability. Stock Options shall be exercisable at
such time or times as determined by the Committee at or after
grant. If the Committee provides, in its discretion, that any
option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time, provided,
however, that unless the Stock Option has been approved by the
Board, the Committee or the shareholders of the Company, a Stock
Option to a director, officer or a 10% shareholder of the Company
or its Subsidiaries shall not be exercisable for a period of six
(6) months after the date of grant. Notwithstanding the foregoing,
unless the Stock Option Agreement provides otherwise, any Stock
Option granted under this Plan shall be exercisable in full,
without regard to any installment exercise or vesting provisions,
for a period specified by the Board, but not to exceed sixty (60)
days nor be less than seven (7) days, prior to the occurrence of
any of the following events: (i) dissolution or liquidation of the
Company other than in conjunction with a bankruptcy of the Company
or any similar occurrence, (ii) any merger, consolidation,
acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the
transfer of substantially all of the assets of the Company or 75%
or more of the outstanding Stock of the Company.
(d) Method of Exercise. Stock Options may be exercised in
whole or in part at any time during the option period by giving
written notice of exercise to the Company specifying the number of
shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price, either by certified or bank
check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose
and applicable law, including promissory notes or a properly
executed exercise notice together with irrevocable instructions to
a broker acceptable to the Company to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise
price. As determined by the Committee, in its sole discretion,
payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or Restricted
Stock subject to an award hereunder (based on the Fair Market Value
of the Stock on the date the option is exercised, as determined by
the Committee); provided, however, that in the event payment is
made in the form of shares of Restricted Stock, the optionee will
receive a portion of the option shares in the form of, and in an
amount equal to, the Restricted Stock award tendered as payment by
the optionee. If the terms of an option so permit, or the
Committee, in its sole discretion, so permits, an optionee may
elect to pay all or part of the option exercise price by having the
Company withhold from the shares of Stock that would otherwise be
issued upon exercise that number of shares of Stock having a Fair
Market Value equal to the aggregate option exercise price for the
shares with respect to which such election is made. No shares of
Stock shall be issued until full payment therefor has been made. An
optionee generally shall have the rights to dividends and other
rights of a shareholder with respect to shares subject to the
option when the optionee has given written notice of exercise, has
paid in full for such shares, and, if requested, has given the
representation described in paragraph (a) of Section 10.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws
of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title 1 of the Employee
Retirement Income Security Act, or the rules thereunder, and all
Stock Options shall be exercisable, during the optionee's lifetime,
only by the optionee.
(f) Termination by Death. If an optionee's employment by the
Company and any Subsidiary or Parent Corporation terminates by
reason of death, the Stock Option may thereafter be immediately
exercised, to the extent then exercisable (or on such accelerated
basis as the Committee shall determine at or after grant), by the
legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of twelve
months (or such shorter period as the Committee shall specify at
grant) from the date of such death or until the expiration of the
stated term of the option, whichever period is shorter.
(g) Termination by Reason of Disability. If an optionee's
employment by the Company and any Subsidiary or Parent Corporation
terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised, to the extent it was
exercisable at the time of termination due to Disability (or on
such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after twelve months (or such
shorter period as the Committee shall specify at grant) from the
date of such termination of employment or the expiration of the
stated term of the option, whichever period is shorter.
(h) Termination by Reason of Retirement. Unless otherwise
determined by the Committee, if an optionee's employment by the
Company and any Subsidiary or Parent Corporation terminates by
reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised to the extent it was exercisable at the
time of such Retirement, but may not be exercised after three
months (or such shorter period as Committee shall specify at grant)
from the date of such termination of employment or the expiration
of the stated term of the option, whichever period is shorter. In
the event of termination of employment by reason of Retirement, if
an Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the
Code, the option will thereafter be treated as a Non-Qualified
Stock Option.
(i) Other Termination. Unless otherwise determined by the
Committee, if an optionee's employment by the Company and any
Subsidiary or Parent Corporation terminates for any reason other
than Cause, death, Disability or Retirement, the Stock Option may
be exercised to the extent it was exercisable at such termination
for the lesser of one month or the balance of the option's term.
If the Optionee's employment by the Company and any Subsidiary or
Parent Corporation terminates for Cause, the Stock Option may be
exercisable to the extent it was then exercisable no later than the
date of such termination.
(j) Annual Limit on Incentive Stock Options. The aggregate
Fair Market Value (determined as of the time the Option is granted)
of the Common Stock with respect to which an Incentive Stock Option
under this Plan or any other plan of the Company and any Subsidiary
or Parent Corporation is exercisable for the first time by an
optionee during any calendar year shall not exceed $100,000.
(k) Directors Who Are Not Employees. Each person who is not
an employee of the Company or its Subsidiaries and who on and after
the date this Plan is approved by the shareholders of the Company
is, or within the prior two (2) years has been, elected or
reelected as a director of the Company at any annual or special
meeting of the shareholders of the Company or appointed as a
director of the Company by action of the Board during the period
between shareholder meetings, shall (i) as of the date of such
election, reelection or action and (ii) as of the date of each
subsequent annual or special meeting of the shareholders of the
Company at which action is taken to elect any director and such
director who is not an employee (A) has served as a director for at
least six (6) months and (B) is serving an unexpired term as a
director, automatically be granted a Stock Option to purchase 6,000
shares of the Company's Stock at an exercise price per share equal
to 100% of the Fair Market Value of a share of the Company's Stock
on the date of the grant of the Stock Option. All such options
shall be designated as Non-Qualified Stock Options and shall be
subject to the same terms and provisions as are then in effect with
respect to the grant of Non-Qualified Stock Options to officers and
key employees of the Company, except that the term of each such
Stock Option shall expire five years following the termination of the
director's services as a director to the Company. In the event
discretionary Stock Options are granted to members of the Committee,
such Stock Options shall be granted by the Board. This Section 5(k)
shall supercede and replace the provisions of the Company's 1989 Stock
Option Plan granting options to Non-Employee Directors.
SECTION 6. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued
either alone or in addition to other awards granted under the Plan.
The Committee shall determine the officers and key employees of the
Company and Subsidiaries to whom, and the time or times at which,
grants of Restricted Stock will be made, the number of shares to be
awarded, the time or times within which such awards may be subject
to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the
attainment of specified performance goals. The provisions of
Restricted Stock awards need not be the same with respect to each
recipient. In the event that Restricted Stock Awards are granted
to members of the Committee, such awards shall be granted by the
Board.
(b) Awards and Certificates. The prospective recipient of an
award of shares of Restricted Stock shall not have any rights with
respect to such award, unless and until such recipient has executed
an agreement evidencing the award and has delivered a fully
executed copy thereof to the Company, and has otherwise complied
with the then applicable terms and conditions.
(i) Each participant shall be issued a stock
certificate in respect of shares of Restricted
Stock awarded under the Plan. Such certificate
shall be registered in the name of the participant,
and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable
to such award, substantially in the following form:
"The transferability of this
certificate and the shares of stock
represented hereby are subject to the
terms and conditions (including
forfeiture) of the Arctic Cat Inc.
1995 Stock Plan and an Agreement
entered into between the registered
owner and Arctic Cat Inc. Copies of
such Plan and Agreement are on file
in the executive offices of Arctic
Cat Inc.
(ii) The Committee shall require that the
stock certificates evidencing such shares be held
in custody by the Company until the restrictions
thereon shall have lapsed, and that, as a condition
of any Restricted Stock award, the participant
shall have delivered a stock power, endorsed in
blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to the Plan shall be subject to the
following restrictions and conditions:
(i) Subject to the provisions of this Plan
and the award agreement, during a period set by the
Committee commencing with the date of such award
(the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or
assign shares of Restricted Stock awarded under the
Plan. Within these limits, the Committee may
provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of
this Section 6, the participant shall have, with
respect to the shares of Restricted Stock, all of
the rights of a shareholder of the Company,
including the right to vote the shares and the
right to receive any cash dividends. The
Committee, in its sole discretion, may permit or
require the payment of cash dividends to be
deferred and, if the Committee so determines,
reinvested in additional shares of Restricted Stock
(to the extent shares are available under Section 3
and subject to paragraph (f) of Section 10).
Certificates for shares of Unrestricted Stock shall
be delivered to the grantee promptly after, and
only after, the period of forfeiture shall have
expired without forfeiture in respect of such
shares of Restricted Stock.
(iii) Subject to the provisions of the award
agreement and paragraph (c)(iv) of this Section 6,
upon termination of employment for any reason
during the Restriction Period, all shares still
subject to restriction shall thereupon be forfeited
by the participant.
(iv) In the event of special hardship
circumstances of a participant whose employment is
terminated (other than for Cause), including death,
Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in
service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best
interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to
such participant's shares of Restricted Stock.
(v) All restrictions with respect to any
participant's shares of Restricted Stock shall
lapse or be deemed to have lapsed or been
terminated on the tenth (10th) business day prior
to the occurrence of any of the following events:
(i) dissolution or liquidation of the Company,
other than in conjunction with a bankruptcy of the
Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation,
reorganization or similar occurrence, where the
Company will not be the surviving entity or (iii)
the transfer of substantially all of the assets of
the Company or 75% or more of the outstanding Stock
of the Company.
SECTION 7. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be
deemed a termination of employment:
(a) a transfer of an employee from the Company to a Parent
Corporation or Subsidiary, or from a Parent Corporation or
Subsidiary to the Company, or from one Subsidiary to another;
(b) a leave of absence, approved in writing by the
Committee, for military service or sickness, or for any other
purpose approved by the Company if the period of such leave does
not exceed ninety (90) days (or such longer period as the Committee
may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days,
approved in writing by the Committee, but only if the employee's
right to reemployment is guaranteed either by a statute or by
contract, and provided that, in the case of any leave of absence,
the employee returns to work within 30 days after the end of such
leave.
SECTION 8. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made (i) which
would impair the rights of an optionee or participant under a Stock
Option or Restricted Stock award theretofore granted, without the
optionee's or participant's consent, or (ii) which without the
approval of the stockholders of the Company would cause the Plan to
no longer comply with Rule 16b-3 under the Securities Exchange Act
of 1934, Section 422 of the Code or any other regulatory
requirements. Further, paragraph k of Section 5 shall not be
amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act,
or the rules thereunder.
The Committee may amend the terms of any award or option
theretofore granted, prospectively or retroactively, but, subject
to Section 3 above, no such amendment shall impair the rights of
any holder without his consent. The Committee may also substitute
new Stock Options for previously granted options, including
previously granted options having higher option prices.
SECTION 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments
not yet made to a participant or optionee by the Company, nothing
contained herein shall give any such participant or optionee any
rights that are greater than those of a general creditor of the
Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or
with respect to awards hereunder; provided, however, that the
existence of such trusts or other arrangements is consistent with
the unfunded status of the Plan.
SECTION 10. General Provisions.
(a) The Committee may require each person purchasing shares
pursuant to a Stock Option under the Plan to represent to and agree
with the Company in writing that the optionee is acquiring the
shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan
pursuant to any Restricted Stock awards shall be subject to such
stock-transfer orders and other restrictions as the Committee may
deem advisable under the rules, regulations, and other requirements
of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state
securities laws, and the Committee may cause a legend or legends to
be put on any such certificates to make appropriate reference to
such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted
Stock awards under the Plan (not including Stock Options) are not
required to make any payment or provide consideration other than
the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of
Directors from adopting other or additional compensation
arrangements, subject to stockholder approval if such approval is
required; and such arrangements may be either generally applicable
or applicable only in specific cases. The adoption of the Plan
shall not confer upon any employee of the Company or any subsidiary
any right to continued employment with the Company or a Subsidiary,
as the case may be, nor shall it interfere in any way with the
right of the Company or a Subsidiary to terminate the employment of
any of its employees at any time.
(d) Each participant shall, no later than the date as of
which any part of the value of an award first becomes includable as
compensation in the gross income of the participant for Federal
income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of, any Federal,
state, or local taxes of any kind required by law to be withheld
with respect to the award. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements and
the Company and Subsidiaries shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment of any
kind otherwise due to the participant. With respect to any award
under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all
of the withholding tax requirements associated with the award by
(i) authorizing the Company to retain from the number of shares of
Stock that would otherwise be deliverable to the participant, or
(ii) delivering to the Company from shares of Stock already owned
by the participant, that number of shares having an aggregate Fair
Market Value equal to part or all of the tax payable by the
participant under this Section 10(d). Any such election shall be
in accordance with, and subject to, applicable tax and securities
laws, regulations and rulings.
(e) At the time of grant, the Committee may provide in
connection with any grant or award made under this Plan that the
shares of Stock received as a result of such grant shall be subject
to a repurchase right in favor of the Company, pursuant to which
the participant shall be required to offer to the Company upon
termination of employment for any reason any shares that the
participant acquired under the Plan, with the price being the then
Fair Market Value of the Stock or, in the case of a termination for
Cause, an amount equal to the cash consideration paid for the
Stock, subject to such other terms and conditions as the Committee
may specify at the time of grant. The Committee may, at the time
of the grant of an award under the Plan, provide the Company with
the right to repurchase, or require the forfeiture of, shares of
Stock acquired pursuant to the Plan by any participant who, at any
time within two years after termination of employment with the
Company, directly or indirectly competes with, or is employed by a
competitor of, the Company.
(f) The reinvestment of dividends in additional Restricted
Stock at the time of any dividend payment shall only be permissible
if the Committee (or the Company's chief executive or chief
financial officer) certifies in writing that under Section 3
sufficient shares are available for such reinvestment (taking into
account then outstanding Stock Options and other Plan awards).
SECTION 11. Effective Date of Plan.
The Plan was approved by the Board and became effective on
April 21, 1995 and it was approved by the shareholders on August 3,
1995. The Plan was further amended by the Board on December 12,
1996.
Exhibit 10(g)
CREDIT AGREEMENT
between
ARCTIC CAT INC.
and
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
Closing Date: June 6, 1997
$75,000,000 Revolving Credit Facility
TABLE OF CONTENTS
ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . .-1-
Section 1.1 Definitions. . . . . . . . . . . . . . . . .-1-
ARTICLE II Amount and Terms of the Loans; Letters of Credit .-7-
Section 2.1 Facilities . . . . . . . . . . . . . . . . .-7-
Section 2.2 Procedures Applicable to Advances. . . . . .-8-
Section 2.3 Procedures Applicable to Letters of Credit .-9-
Section 2.4 Interest . . . . . . . . . . . . . . . . . -10-
Section 2.5 Termination of the Facilities. . . . . . . -11-
Section 2.6 Voluntary Prepayments. . . . . . . . . . . -11-
Section 2.7 Computation of Interest and Fees . . . . . -11-
Section 2.8 Payment. . . . . . . . . . . . . . . . . . -11-
Section 2.9 Payment on Nonbusiness Days. . . . . . . . -11-
Section 2.10 Fees on Fixed Rate Advances and Indemnity -11-
ARTICLE III Documents . . . . . . . . . . . . . . . . . . . -12-
Section 3.1 Documents. . . . . . . . . . . . . . . . . -12-
ARTICLE IV Representations and Warranties . . . . . . . . . -13-
Section 4.1 Corporate Existence and Power. . . . . . . -13-
Section 4.2 Authorization of Borrowing; No Conflict as -13-
to Law or Agreements
Section 4.3 Legal Agreements . . . . . . . . . . . . . -13-
Section 4.4 Subsidiaries . . . . . . . . . . . . . . . -13-
Section 4.5 Financial Condition. . . . . . . . . . . . -14-
Section 4.6 Adverse Change . . . . . . . . . . . . . . -14-
Section 4.7 Litigation . . . . . . . . . . . . . . . . -14-
Section 4.8 Hazardous Substances . . . . . . . . . . . -14-
Section 4.9 Regulation U . . . . . . . . . . . . . . . -14-
Section 4.10 Taxes . . . . . . . . . . . . . . . . . . -14-
Section 4.11 Titles and Liens. . . . . . . . . . . . . -15-
Section 4.12 ERISA . . . . . . . . . . . . . . . . . . -15-
ARTICLE V Affirmative Covenants . . . . . . . . . . . . . . -15-
Section 5.1 Financial Statements . . . . . . . . . . . -15-
Section 5.2 Books and Records; Inspection and Examination-17-
Section 5.3 Compliance with Laws . . . . . . . . . . . -17-
Section 5.4 Payment of Taxes and Other Claims. . . . . -17-
Section 5.5 Maintenance of Properties. . . . . . . . . -17-
Section 5.6 Insurance. . . . . . . . . . . . . . . . . -18-
Section 5.7 Preservation of Corporate Existence. . . . -18-
Section 5.8 Interest Coverage Ratio. . . . . . . . . . -18-
Section 5.9 Leverage Ratio . . . . . . . . . . . . . . -18-
Section 5.10 Tangible Net Worth. . . . . . . . . . . . -18-
ARTICLE VI Negative Covenants . . . . . . . . . . . . . . . -18-
Section 6.1 Liens. . . . . . . . . . . . . . . . . . . -18-
Section 6.2 Indebtedness . . . . . . . . . . . . . . . -19-
Section 6.3 Guaranties . . . . . . . . . . . . . . . . -20-
Section 6.4 Investments. . . . . . . . . . . . . . . . -20-
Section 6.5 Sale of Assets . . . . . . . . . . . . . . -21-
Section 6.6 Restrictions on Issuance and Sale of Subsidiary Stock-21-
Section 6.7 Consolidation and Merger . . . . . . . . . -21-
Section 6.8 Sale and Leaseback . . . . . . . . . . . . -21-
Section 6.9 Hazardous Substances . . . . . . . . . . . -22-
Section 6.10 Restrictions on Nature of Business. . . . -22-
ARTICLE VII Critical Events; Rights and Remedies. . . . . . -22-
Section 7.1 Critical Events. . . . . . . . . . . . . . -22-
Section 7.2 Rights and Remedies. . . . . . . . . . . . -23-
Section 7.3 Pledge of L/C Cash Collateral Account. . . -24-
ARTICLE VIII Miscellaneous. . . . . . . . . . . . . . . . . -24-
Section 8.1 No Waiver; Cumulative Remedies . . . . . . -24-
Section 8.2 Amendments, Etc. . . . . . . . . . . . . . -24-
Section 8.3 Notice . . . . . . . . . . . . . . . . . . -24-
Section 8.4 Participations . . . . . . . . . . . . . . -25-
Section 8.5 Disclosure of Information. . . . . . . . . -25-
Section 8.6 Costs and Expenses . . . . . . . . . . . . -25-
Section 8.7 Indemnification by Borrower. . . . . . . . -25-
Section 8.8 Execution in Counterparts. . . . . . . . . -26-
Section 8.9 Binding Effect, Assignment . . . . . . . . -26-
Section 8.10 Governing Law . . . . . . . . . . . . . . -26-
Section 8.11 Waiver of Jury Trial. . . . . . . . . . . -26-
Section 8.12 Severability of Provisions. . . . . . . . -26-
Section 8.13 Prior Agreements. . . . . . . . . . . . . -26-
Section 8.14 Headings. . . . . . . . . . . . . . . . . -27-
CREDIT AGREEMENT
Dated as of June 6, 1997
Arctic Cat Inc., a Minnesota corporation (the "Borrower"), and Norwest
Bank Minnesota, National Association, a national banking association (the
"Bank"), agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this Agreement, except
as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
"Advance" means an advance by the Bank to the Borrower pursuant to
Article II.
"Agreement" means this Credit Agreement.
"Bank Business Day" means a day other than a Saturday, Sunday, United
States national holiday or other day on which banks in Minnesota or New
York are permitted or required by law to close.
"Base Rate" means the rate of interest publicly announced from time
to time by the Bank as its "prime" or "base" rate or, if the Bank ceases
to announce a rate so designated, any similar successor rate designated by
the Bank.
"Compliance Certificate" means a certificate in substantially the
form of Exhibit B, or such other form as the Borrower and the Bank may
from time to time agree upon in writing, executed by the chief financial
officer of the Borrower, stating (i) that any financial statements
delivered therewith have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with the
accounting practices reflected in the annual financial statements referred
to in Section 4.5, subject to year-end adjustments, (ii) whether or not
such officer has knowledge of the occurrence of any Critical Event not
theretofore reported and remedied and, if so, stating in reasonable detail
the facts with respect thereto and (iii) if such statements are made as of
the end of a fiscal quarter of the Borrower, all relevant facts in
reasonable detail to evidence, and the computations as to, whether or not
the Borrower is in compliance with the Financial Covenants.
"Covenant Termination Date" means the later of (i) the Facility
Termination Date, or (ii) the date on which no indebtedness remains
outstanding under the Note and no Facility A Documentary L/C Outstandings,
Facility A Standby L/C Outstandings or Facility B Standby L/C Outstandings
remain outstanding.
"Critical Event" has the meaning specified in Section 7.1.
"Dealer Finance Agreements" means (i) the Retail Financing Program
Agreement dated May 12, 1997 among the Borrower, the Guarantor and General
Electric Capital Corporation, and (ii) the Consumer Credit Card Program
Agreement dated May 12, 1997 among the Borrower, the Guarantor and
Monogram Credit Card Bank of Georgia, but not amendment to or restatement
of such agreements entered into without the prior written consent of the
Bank if such amendment or restatement would change the nature of the
obligations of the Borrower or any Subsidiary thereunder in a manner
adverse to the Borrower or such Subsidiary.
"EBIT" means, as of any date, pre-tax net income during the one-year
period ending on that date, excluding extraordinary items, together with
all Interest Expense recognized by the Borrower with respect to that
period and deducted in determining the Borrower s net income, all
determined with respect to the Borrower and its Subsidiaries on a
consolidated basis in accordance with generally accepted accounting
principles consistently applied.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is, along with the Borrower, a member of a controlled
group of corporations or a controlled group of trades or businesses, as
described in sections 414(b) and 414(c), respectively, of the Internal
Revenue Code of 1986, as amended.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. 9601 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. 1802 et seq., the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. 1252 et seq., the Clean Water Act, 33
U.S.C. 1321 et seq., the Clean Air Act, 42 U.S.C. 7401 et seq., and
any other federal, state, county, municipal, local or other statute, law,
ordinance or regulation which may relate to or deal with human health or
the environment, all as may be from time to time amended.
"Facility A" means the revolving credit facility established under
Section 2.1(a).
"Facility A Amount" means $30,000,000, unless said amount is reduced
pursuant to Section 2.5, in which event it means the amount to which said
amount is reduced.
"Facility A Documentary L/C Outstandings" means the sum of (i) the
aggregate face amount of all issued and outstanding documentary Facility
A Letters of Credit, and (ii) amounts drawn under documentary Facility A
Letters of Credit for which the Bank has neither been reimbursed nor made
any Advance.
"Facility A Letter of Credit" means a Letter of Credit issued
pursuant to Section 2.1(b).
"Facility A Note" means the Borrower s promissory note in the form of
Exhibit A.
"Facility A Outstandings" means the sum of (i) the principal balance
of the Facility A Note, (ii) the aggregate face amount of all issued and
outstanding Facility A Letters of Credit, and (iii) amounts drawn under
Facility A Letters of Credit for which the Bank has neither been
reimbursed nor made any Advance.
"Facility A Standby L/C Outstandings" means the sum of (i) the
aggregate face amount of all issued and outstanding standby Facility A
Letters of Credit, and (ii) amounts drawn under standby Facility A Letters
of Credit for which the Bank has neither been reimbursed nor made any
Advance.
"Facility B" means the revolving documentary letter of credit
facility established under Section 2.1(b).
"Facility B Amount" means $45,000,000, unless said amount is reduced
pursuant to Section 2.5, in which event it means the amount to which said
amount is reduced.
"Facility B Letter of Credit" means a Letter of Credit issued
pursuant to Section 2.1(b).
"Facility B Outstandings" means the sum of (i) the aggregate face
amount of all issued and outstanding Facility B Letters of Credit, and
(ii) amounts drawn under Facility B Letters of Credit for which the Bank
has neither been reimbursed nor made any Advance.
"Facility Termination Date" means July 31, 1998, or the earlier date
of the termination of the Facilities pursuant to Section 2.5 or 7.2.
"Federal Funds Rate" means at any time an interest rate per annum
equal to the weighted average of the rates for overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which
is a Bank Business Day, the average of the quotations for such day for
such transactions received by the Bank from three federal funds brokers of
recognized standing selected by it, it being understood that the Federal
Funds Rate for any day which is not a Bank Business Day shall be the
Federal Funds Rate for the next preceding Bank Business Day.
"Financial Covenant" means any of the Borrower s obligations set
forth in Sections 5.8, 5.9 and 5.10 of this Agreement
"Floating Rate" means , at any time, an annual rate equal to the
greater of:
(i) the Base Rate; or
(ii) the Federal Funds Rate, plus 50 basis points (0.50%).
The Floating Rate shall change when and as the Base Rate or Federal Funds
Rate changes.
"Fixed Rate" means the annual rate equal to the sum of (i) the rate
determined by the Bank, in its sole and absolute discretion, to be its
cost of funds with respect to a hypothetical borrowing in an amount
approximately equal to the amount for which a Fixed Rate quotation has
been requested under Section 2.4(b) to be issued on the day specified by
the Borrower in its request for such quotation and maturing at the end of
the Interest Period specified in such quotation, and (iii) one and one-
quarter percent (1.25%).
"Fixed Rate Amount" means any portion of the principal balance of the
Note bearing interest at a Fixed Rate.
"Funded Debt" means (without duplication) (i) all indebtedness of the
Borrower or any Subsidiary for borrowed money; (ii) the deferred and
unpaid balance of the purchase price owing by the Borrower or any
Subsidiary on account of any goods or services purchased (other than trade
payables and other accrued liabilities incurred in the ordinary course of
business that are not more than 60 days past due) if such purchase price
is (A) due more than 60 days from the date of incurrence of the obligation
in respect thereof or (B) evidenced by a note or a similar written
instrument; (iii) all capitalized lease obligations; (iv) all indebtedness
secured by a Lien on any property owned by the Borrower or any Subsidiary,
whether or not such indebtedness has been assumed by the Borrower or any
Subsidiary or is nonrecourse to the Borrower or any Subsidiary; (v) notes
payable and drafts accepted representing extensions of credit, whether or
not representing obligations for borrowed money (other than such notes or
drafts for the deferred purchase price of assets or services to the extent
such purchase price is excluded from clause (ii) above); (vi) indebtedness
evidenced by bonds, notes or similar written instrument; (vii) the face
amount of all letters of credit and bankers acceptances issued for the
account of the Borrower or any Subsidiary, and without duplication, all
drafts drawn thereunder (other than such letters of credit, bankers
acceptances and drafts for the deferred purchase price of assets or
services to the extent such purchase price is excluded from clause (ii)
above); (viii) all net obligations of the Borrower or any Subsidiary under
interest rate agreements or currency agreements; (ix) guaranty obligations
of the Borrower or any Subsidiary with respect to indebtedness for
borrowed money of another person or entity (including affiliates), all
determined on a consolidated basis in accordance with generally accepted
accounting principles consistently applied.
"Guarantor" means Arctic Cat Sales Inc., a Minnesota corporation.
"Guaranty" means a guaranty agreement of the Guarantor, acceptable to
the Bank in form and substance, guarantying all present and future debt of
the Borrower to the Bank.
"Hazardous Substance" means any asbestos, urea-formaldehyde,
polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical
waste, radioactive material, explosives, known carcinogens, petroleum
products and by-products and other dangerous, toxic or hazardous
pollutants, contaminants, chemicals, materials or substances listed or
identified in, or regulated by, any Environmental Law.
"Interest Coverage Ratio" means, as of the end of any fiscal quarter
of the Borrower, the ratio of (i) EBIT of the Borrower and its
Subsidiaries during the four-quarter period ending on that quarter-end, to
(ii) Interest Expense of the Borrower and its Subsidiaries during the
four-quarter period ending on that quarter-end, all determined on
a consolidated basis in accordance with generally accepted accounting
principles consistently applied.
"Interest Expense" means, for any period of calculation and without
duplication, all interest, whether paid in cash, accrued as a liability or
capitalized, on indebtedness during such period, all calculated for such
period for the Borrower and its Subsidiaries on a consolidated basis in
accordance with generally accepted accounting principles consistently
applied.
"Interest Period" means a period of not less than 1 day and not more
than 30 days.
"L/C Cash Collateral Account" means an account maintained with the
Bank in which funds are deposited pursuant to Section 2.3(e) or Section
7.2.
"Letter of Credit" means a standby or documentary letter of credit
issued for the account of the Borrower pursuant to this Agreement. For
purposes of this Agreement, the term "Letter of Credit" shall also include
all letters of credit issued by the Bank for the account of the Borrower
on or before the date hereof and outstanding on the date hereof.
"Leverage Ratio" means, at any time, the ratio of Funded Debt to
Total Capital, all determined with respect to the Borrower and its
Subsidiaries on a consolidated basis in accordance with generally accepted
accounting principles consistently applied.
"Lien" means any mortgage, deed of trust, lien, pledge, security
interest or other charge or encumbrance, of any kind whatsoever, including
but not limited to the interest of the lessor or titleholder under any
capitalized lease, title retention contract or similar agreement.
"Loan Documents" means this Agreement and the Note.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Note" has the meaning set forth in Section 2.1.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of the Borrower or any Subsidiary or ERISA Affiliate and covered
by Title IV of ERISA.
"Reportable Event" means (i) a "reportable event" described in
Section 4043 of ERISA and the regulations issued thereunder, (ii) a
withdrawal from any Plan, as described in Section 4063 of ERISA, (iii) an
action to terminate a Plan for which a notice is required to be filed
under Section 4041 of ERISA, (iv) any other event or condition that might
constitute grounds for termination of, or the appointment of a trustee to
administer, any Plan, or (v) a complete or partial withdrawal from a
Multiemployer Plan as described in Sections 4203 and 4205 of ERISA.
"Subsidiary" means (i) any corporation of which more than 50% of the
outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of
such corporation, irrespective of whether or not at the time stock of
any other class or classes shall have or might have voting power by reason
of the happening of any contingency, is at the time directly or indirectly
owned by the Borrower, by the Borrower and one or more other Subsidiaries,
or by one or more other Subsidiaries, (ii) any partnership of which 50% or
more of the partnership interests therein are directly or indirectly owned
by the Borrower, by the Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries, and (iii) any limited liability company or
other form of business organization the effective control of which is held
by the Borrower, the Borrower and one or more other Subsidiaries, or by
one or more other Subsidiaries.
"Tangible Net Worth" means stockholders equity, less intangible
assets included in calculating such stockholders equity, all determined
with respect to the Borrower and its Subsidiaries on a consolidated basis
in accordance with generally accepted accounting principles consistently
applied. For purposes of the foregoing calculation, intangible assets
shall include but not be limited to the value of patents, trademarks,
trade names, copyrights, licenses, goodwill, prepaid expenses and deferred
charges.
"Total Capital" means the sum of retained earnings, stockholders
equity (including preferred stock), and Funded Debt, all determined with
respect to the Borrower and its Subsidiaries on a consolidated basis in
accordance with generally accepted accounting principles consistently
applied.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of
ERISA.
ARTICLE II
Amount and Terms of the Loans; Letters of Credit
Section 2.1 Facilities.
(a) Facility A. The Bank shall consider making Advances to the
Borrower and issuing documentary and standby Letters of Credit for the
account of the Borrower from the date hereof through the Facility
Termination Date. The credit facility established under this paragraph
(a) is revolving; subject always to the Bank s discretion and the limits
set forth below, the Borrower may continue to request Advances and Letters
of Credit through the Facility Termination Date so long as no Advance or
Letter of Credit causes the dollar limits set forth below to be exceeded.
The Borrowers obligation to repay Advances made under this paragraph will
be evidenced by and payable on demand with interest in accordance with the
Borrower s promissory note in the form of Exhibit A hereto (the "Note").
(b) Facility B. The Bank shall consider issuing documentary Letters
of Credit for the account of the Borrower from the date hereof through the
Facility Termination Date. The credit facility established under this
paragraph (b) is revolving; subject always to the Banks discretion and the
limits set forth below, the Borrower may continue to request Letters of
Credit through the Facility Termination Date so long as no Letter of
Credit causes the dollar limits set forth below to be exceeded.
(c) Limitations. In no event shall:
(i) The Facility A Outstandings at any one time exceed the Facility
A Amount.
(ii) The Facility A Standby L/C Outstandings at any one time exceed
$5,000,000.
(iii) The Facility B Outstandings at any one time exceed the
Facility B Amount.
(d) Discretion. The decision to make each individual Advance and
issue each Letter of Credit hereunder will always be at the sole
discretion of the Bank. Nothing herein should be interpreted as a promise
to make any one or more Advances or to issue any one or more Letters of
Credit.
(e) Purpose. The Borrower may use up to $10,000,000 in Advances for
the repurchase or redemption of the Borrower s stock. The proceeds of all
other Advances, and each Letter of Credit, shall be used by the Borrower
for the Borrower s general corporate purposes.
(f) Representations. Any request for an Advance or a Letter of
Credit, whether written or telephonic, shall be deemed to be a
representation that, as of the date of such Advance or Letter of Credit:
(i) the representations and warranties contained in Article IV are
correct on and as of the date of such Advance or Letter of
Credit as though made on and as of such date, except to the
extent that such representations and warranties relate solely to
an earlier date; and
(ii) no event has occurred and is continuing, or would result from
such Advance or Letter of Credit, which constitutes a Critical
Event.
Section 2.2 Procedures Applicable to Advances. The Borrower shall
request each Advance by written notice from the Borrower to the Bank or
telephonic request from any person purporting to be authorized to request
Advances on behalf of the Borrower, which notice or request shall specify the
date of the requested Advance and the amount thereof. Each Advance shall be in
the amount of $100,000 or a multiple thereof. If the Bank (in its sole
discretion) elects to make such Advance, the Bank shall disburse the amount
of the requested Advance by crediting the same to the Borrower s demand deposit
account maintained with the Bank or in such other manner as the Bank and the
Borrower may from time to time agree. The Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an appropriate
confirmation certificate to the Bank. The Borrower shall be obligated to repay
all Advances notwithstanding the failure of the Bank to receive such
confirmation and notwithstanding the fact that the person requesting same was
not in fact authorized to do so.
Section 2.3 Procedures Applicable to Letters of Credit.
(a) Procedures; Governing Documents. The Borrower shall request
each Letter of Credit on at least five Bank Business Days prior written
notice from the Borrower to the Bank. All decisions as to whether to issue
any Letter of Credit, the form of any Letter of Credit and the term of any
Letter of Credit shall be made by the Bank in its sole discretion. Prior
to the issuance of any Letter of Credit, the Borrower will execute such
letter of credit applications and other documents as the Bank deems
necessary. The rights and obligations of the Borrower and the Bank with
respect to each Letter of Credit shall be governed by (among other things)
(i) this Credit Agreement, (ii) any such separate letter of credit
application, and (iii) the Master Security Agreement for Irrevocable
Documentary Letters of Credit dated September 1, 1993, executed by the
Borrower, or the Master Security Agreement for Irrevocable Standby Letter
of Credit dated September 1, 1993, executed by the Borrower, as the case
may be. To the extent that the terms of this Agreement are different from
or in addition to the terms of any other document identified in the
preceding sentence, the terms of this Agreement shall govern.
(b) Applicable Facility. All standby Letters of Credit issued
hereunder shall be deemed to be Facility A Letters of Credit. All
documentary Letters of Credit issued hereunder shall be deemed Facility A
Letters of Credit or Facility B Letters of Credit by the Bank in its sole
discretion.
(c) Fees.
(i) Standby Letters of Credit. An issuance fee shall be due and
payable in connection with the issuance of any standby Letter of
Credit. Such fee shall be calculated at the rate of one and
one-quarter percent (1.25%) per annum on the face amount of such
standby Letter of Credit. Such fee shall be paid in full in
advance upon issuance of any standby Letter of Credit maturing
90 days or less after its issuance. In all other cases, the
amount of such fee accruing through the end of the fiscal
quarter in which the standby Letter of Credit is issued shall be
paid in advance upon issuance of such Letter of Credit, and the
remainder of the fee shall be paid quarterly in advance
thereafter. In no event shall the issuance fee be less than
$250 with respect to any standby Letter of Credit.
(ii) Documentary Letters of Credit. An examination fee shall be due
and payable upon any draw under any documentary Letter of Credit
. The examination fee shall be equal to one-eighth of one
percent of the amount so drawn, except that in no event shall
such examination fee be less than $50 or greater than $2,500.
(iii) Discretion to Change Fees. The Bank reserves the right, in
its sole discretion, to increase or decrease the amount of
its issuance fees and examination fees at any time and from
time to time upon reasonable notice to the Borrower.
(d) Obligation of Reimbursement. The Borrower shall pay the amount
of each draft drawn under any Letter of Credit to the Bank on demand,
together with interest at the Floating Rate from the date that such draft
is paid by the Bank until payment of such amount in full. The Bank may
(at its option) charge any deposit account maintained by the Borrower with
the Bank for the amount of any draft drawn under a Letter of Credit or
make an Advance under Facility A in the amount of the draft and apply such
Advance to satisfy the Borrower s obligation to reimburse the Bank on
account of such draft, all without notice to or consent of the Borrower.
(e) Term; L/C Cash Collateral Account. Unless otherwise approved by
the Bank, no Letter of Credit shall have an initial or any renewal term of
more than one year or a term (including renewals thereof) extending beyond
the Facility Termination Date. Unless otherwise agreed by the Bank in
writing, the Borrower shall deposit in the L/C Cash Collateral Account, on
the Facility Termination Date, an amount equal to the aggregate face
amount of all Letters of Credit then outstanding, less the balance (if
any) then outstanding in the L/C Cash Collateral Account.
Section 2.4 Interest.
(a) Floating Rate. Unless the Borrower elects a Fixed Rate pursuant
to this Section, the principal balance of the Note shall bear interest at
the Floating Rate.
(b) Fixed Rates. On any Bank Business Day between 8:30 a.m. and
2:00 p.m., the Borrower may request telephonically that the Bank quote the
Fixed Rate that would be applicable to the Fixed Rate Amount and for the
Interest Period specified in such request. Each Fixed Rate Amount must be
equal to $100,000 or an integral multiple thereof. The Bank may, in its
sole discretion, choose to quote such a Fixed Rate to the Borrower.
Immediately upon receipt of such quotation from the Bank, the Borrower may
telephonically accept the Fixed Rate, whereupon the Fixed Rate Amount
shall from the date the quotation is made bear interest at the Fixed Rate
so selected (and the remaining part of the principal balance of the Note,
if any, shall continue to bear interest at the rate or rates previously
applicable to such amounts). Acceptance of any Fixed Rate quotation
shall be irrevocable. Failure immediately to accept such a quotation
shall be deemed to be a rejection of such quotation. At the termination
of each Interest Period, the interest rate with respect to the applicable
Fixed Rate Amount shall revert to the Floating Rate unless a new Fixed
Rate quotation is requested and accepted by the Borrower. Absent manifest
error, the records of the Bank shall be conclusive as to any Fixed Rate
Amount and the Fixed Rate and Interest Period applicable thereto.
Section 2.5 Termination of the Facilities. The Borrower may at any
time and from time to time upon three Bank Business Days prior notice to the
Bank permanently terminate the Facilities in whole, without penalty or premium
, provided that the Facilities may not be terminated while any Advance or
Letter of Credit remains outstanding.
Section 2.6 Voluntary Prepayments. The Borrower may prepay the Note
in whole or in part, without penalty or premium, at any time and from time to
time; provided that (i) no prepayment may be applied to any portion of the
principal balance of the Note which, at the time of such prepayment, bears
interest at a Fixed Rate, and (ii) each partial prepayment of the Note shall
be in the principal amount of $100,000 or a multiple thereof.
Section 2.7 Computation of Interest and Fees. Interest under the
Note and the fees hereunder shall be computed on the basis of actual number of
days elapsed in a year of 360 days.
Section 2.8 Payment. All payments of principal and interest under
the Note and of the fees hereunder shall be made to the Bank in immediately
available funds. Payments received after noon on any day shall be deemed
received on the next succeeding Bank Business Day. The Borrower agrees that
the amount shown on the books and records of the Bank as being the principal
balance of the Note shall be prima facie evidence of such principal amount.
The Borrower hereby authorizes the Bank to charge against the Borrower share
account with the Bank an amount equal to the accrued interest and fees from
time to time due and payable to the Bank under the Note or hereunder, or (at
the option of the Bank) to make an Advance in such amount, all without receipt
of any request for such charge or Advance.
Section 2.9 Payment on Nonbusiness Days. Whenever any payment to be
made hereunder or under the Note shall be stated to be due on a day other than
a Bank Business Day, such payment may be made on the next succeeding Bank
Business Day, and such extension of time shall in each case be included in the
computation of payment of interest on such Note or the fees hereunder, as the
case may be.
Section 2.10 Fees on Fixed Rate Advances and Indemnity. In addition
to any interest payable on Advances made hereunder and any fees or other
amounts payable hereunder, the Borrower shall compensate the Bank, upon written
request by the Bank (which request shall set forth the basis for requesting
such amounts), for all losses and expenses in respect of any interest or other
consideration paid by the Bank to lenders of funds borrowed by it or deposited
with it to maintain any Fixed Rate Amount at a Fixed Rate which the Bank may
sustain to the extent not otherwise compensated for hereunder and not mitigated
by the reemployment of such funds if any prepayment of any such Fixed Rate
Amount occurs on a date that is not the expiration date of the applicable
Interest Period. A certificate as to any such loss or expense (including
calculations, in reasonable detail, showing how the Bank computed such loss or
expense) shall be promptly submitted by the Bank to the Borrower and shall, in
the absence of manifest error, be conclusive and binding as to the amount
thereof.
ARTICLE III
Documents
Section 3.1 Documents. On or before the date of the first Advance or
Letter of Credit, the Borrower shall deliver to the Bank each of the following,
each in form and substance satisfactory to the Bank:
(a) The Note, properly executed on behalf of the Borrower.
(b) Current searches of appropriate filing offices showing that (i)
no state or federal tax liens have been filed and remain in effect against
the Borrower or any Subsidiary, and (ii) no financing statements have been
filed and remain in effect against the Borrower or any Subsidiary except
financing statements perfecting only Liens permitted under Section 6.1.
(c) The Guaranty, duly executed by the Guarantor.
(d) A certificate of the secretary of the Borrower and each
Subsidiary (i) certifying that the execution, delivery and performance of
the Loan Documents and other documents contemplated hereunder to which
such corporation is a party have been duly approved by all necessary
action of the Board of Directors of the Borrower or such Subsidiary, as
the case may be, and attaching true and correct copies of the applicable
resolutions granting such approval, (ii) certifying that attached to such
certificate are true and correct copies of the articles of incorporation
and bylaws of the Borrower or such Subsidiary, as the case may be,
together with such copies, and (iii) certifying the names of the officers
of the Borrower and its Subsidiaries that are authorized to sign the Loan
Documents and other documents contemplated hereunder, including requests
for Advances, together with the true signatures of such officers. The Bank
may conclusively rely on such certificate until it receives a further
certificate of the Secretary or Assistant Secretary of the Borrower
canceling or amending the prior certificate and submitting the signatures
of the officers named in such further certificate.
(e) Certificates of good standing of the Borrower and its
Subsidiaries, dated not more than ten days before such date.
(f) A signed copy of an opinion of counsel for the Borrower,
addressed to the Bank as to matters referred to in Sections 4.1, 4.2, 4.3
and 4.7, and as to such other matters as the Bank may reasonably request,
with that opinion being acceptable to the Bank s counsel. In the case of
Section 4.7, the opinion may be to the best knowledge of such counsel and
may be made without regard to products liability and intellectual property
litigation, and, in the case of Section 4.3, insofar as it relates to
enforcement of remedies, it may be subject to applicable bankruptcy,
insolvency, reorganization or similar laws affecting the rights of
creditors generally from time to time, and to usual equity principles.
ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to the Bank as follows:
Section 4.1 Corporate Existence and Power. The Borrower and its
Subsidiaries are each corporations duly incorporated, validly existing and in
good standing under the laws of their respective jurisdictions of incorporation
, and are each duly licensed or qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by them makes such licensing or qualification
necessary. The Borrower has all requisite power and authority, corporate or
otherwise, to conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under, the Loan Documents.
Section 4.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the
Loan Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i)
require any consent or approval of the stockholders of the Borrower, or any
authorization, consent or approval by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) violate any
provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Articles of Incorporation or Bylaws of the Borrower,
(iii) result in a breach of or constitute a default under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected, or (iv) result in, or require, the creation or imposition of any Lien
or other charge or encumbrance of any nature upon or with respect to any
of the properties now owned or hereafter acquired by the Borrower.
Section 4.3 Legal Agreements. This Agreement and the other Loan
Documents constitute, the legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective terms.
Section 4.4 Subsidiaries. Schedule 4.4 hereto is a complete and
correct list of all present Subsidiaries and of the percentage of the ownership
of the Borrower or any other Subsidiary in each as of the date of this
Agreement. Except as otherwise indicated in that Schedule, all shares of each
Subsidiary owned by the Borrower or by any such other Subsidiary are validly
issued and fully paid and nonassessable.
Section 4.5 Financial Condition. The Borrower has heretofore
furnished to the Bank its audited financial statement as of March 31, 1996, and
its unaudited interim financial statement as of March 31, 1997. Those
financial statements fairly present the financial condition of the Borrower and
its Subsidiaries on the dates thereof and the results of their operations and
cash flows for the periods then ended, and were prepared in accordance with
generally accepted accounting principles.
Section 4.6 Adverse Change. There has been no material adverse
change in the business, properties or condition (financial or otherwise) of the
Borrower or any Subsidiary since the date of the latest financial statement
referred to in Section 4.5.
Section 4.7 Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any Subsidiary or the properties of the Borrower or any
Subsidiary before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or that Subsidiary, would have a material adverse
effect on the financial condition, properties, or operations of the Borrower or
any Subsidiary.
Section 4.8 Hazardous Substances. To the best of the Borrower s
knowledge after reasonable inquiry, neither the Borrower nor any Subsidiary nor
any other Person has ever caused or permitted any Hazardous Substance to be
disposed of in any manner which might result in any material liability to the
Borrower or any Subsidiary on, under or at any real property which is operated
by the Borrower or any Subsidiary or in which the Borrower or any Subsidiary
has any interest; and no such real property has ever been used (either by the
Borrower, by any Subsidiary or by any other Person) as a dump site or permanent
or temporary storage site for any Hazardous Substance (other than the temporary
storage of products used or consumed in the ordinary course of the Borrower s
business in accordance with all applicable Environmental Laws).
Section 4.9 Regulation U. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of any Advance will be
used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
Section 4.10 Taxes. The Borrower and its Subsidiaries have each
paid or caused to be paid to the proper authorities when due all federal, state
and local taxes required to be withheld by them. The Borrower and its
Subsidiaries have each filed all federal, state and local tax returns which to
the knowledge of the officers of the Borrower are required to be filed, and
the Borrower and its Subsidiaries have each paid or caused to be paid to the
respective taxing authorities all taxes as shown on said returns or on any
assessment received by them to the extent such taxes have become due, other
than taxes whose amount, applicability or validity is being contested in good
faith by appropriate proceedings and for which the Borrower or the applicable
Subsidiary has provided adequate reserves in accordance with generally accepted
accounting principles.
Section 4.11 Titles and Liens. The Borrower or one of its
Subsidiaries has good title to each of the properties and assets reflected in
the latest balance sheet referred to in Section 4.5 (other than any sold, as
permitted by Section 6.5), free and clear of all Liens and encumbrances, except
for Liens permitted by Section 6.1 and covenants, restrictions, rights,
easements and minor irregularities in title which do not materially interfere
with the business or operations of the Borrower or such Subsidiary as presently
conducted. No financing statement naming the Borrower or any Subsidiary as
debtor is on file in any office except to perfect only Liens permitted by
Section 6.1.
Section 4.12 ERISA. No Plan established or maintained by the
Borrower, any Subsidiary or any ERISA Affiliate that is subject to Part 3 of
Subtitle B of Title I of ERISA had an accumulated funding deficiency (as such
term is defined in Section 302 of ERISA) in excess of $1,000,000 as of the last
day of the most recent fiscal year of such Plan ended prior to the date hereof,
and no liability to the Pension Benefit Guaranty Corporation or the Internal
Revenue Service in excess of such amount has been, or is expected by the
Borrower, any Subsidiary or any ERISA Affiliate to be, incurred with respect
to any Plan of the Borrower, any Subsidiary or any ERISA Affiliate. The
Borrower has no contingent liability with respect to any post-retirement
benefit under a Welfare Plan, other than liability for continuation coverage
described in Part 6 of Subtitle B of Title I of ERISA.
ARTICLE V
Affirmative Covenants
At all times through and including the Covenant Termination Date, the
Borrower will comply with the following requirements, unless the Bank shall
otherwise consent in writing:
Section 5.1 Financial Statements. The Borrower will deliver to the
Bank:
(a) As soon as available, and in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the annual audit
report of the Borrower prepared on a consolidated basis with the
unqualified opinion of independent certified public accountants
selected by the Borrower and acceptable to the Bank, which annual
report shall include the consolidated balance sheet of the Borrower
and its Subsidiaries as at the end of such fiscal year and the
related consolidated statements of income, shareholders equity and
cash flows of the Borrower and its Subsidiaries for the fiscal year
then ended, all in reasonable detail and all prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with the accounting practices applied in the annual
financial statements referred to in Section 4.5, together with a
copy of such accountants management letter issued to the Borrower for
such year.
(b) As soon as available and in any event within 45 days after the
end of each fiscal quarter of the Borrower, consolidated balance sheets of
the Borrower and its Subsidiaries as at the end of such quarter and
related consolidated statements of earnings and cash flows of the Borrower
and its Subsidiaries for such quarter and for the year to date, in
reasonable detail and stating in comparative form the figures for the
corresponding date and period in the previous year, all prepared in
accordance with generally accepted accounting principles applied on a
basis consistent with the accounting practices reflected in the annual
financial statements referred to in Section 4.5, and certified by the
chief financial officer of the Borrower, subject to year-end audit
adjustments.
(c) Concurrent with the delivery of any financial statements under
paragraph (a) or (b), a Compliance Certificate, duly executed by the chief
financial officer of the Borrower.
(d) Promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower or any
Subsidiary shall have sent to its stockholders.
(e) Promptly after the sending or filing thereof, copies of all
regular and periodic financial reports which the Borrower or any
Subsidiary shall file with the Securities and Exchange Commission or any
national securities exchange.
(f) Immediately after the commencement thereof, notice in writing of
all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower or any Subsidiary of the type
described in Section 4.7.
(g) As promptly as practicable (but in any event not later than five
business days) after the chief executive officer or the chief financial
officer of the Borrower obtains knowledge of the occurrence of any
Critical Event, notice of such occurrence, together with a detailed
statement by a responsible officer of the Borrower or the appropriate
Subsidiary of the steps being taken by the Borrower or the appropriate
Subsidiary to cure the effect of such event.
(h) Promptly upon becoming aware of any Reportable Event or any
prohibited transaction (as defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA) in connection with any Plan or any trust
created thereunder, a written notice specifying the nature thereof, what
action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal
Revenue Service, the Pension Benefit Guaranty Corporation or the
Department of Labor with respect thereto.
(i) Promptly upon their receipt or filing, copies of (i) all notices
received by the Borrower, any Subsidiary or any ERISA Affiliate of the
Pension Benefit Guaranty Corporation s intent to terminate any Plan or to
have a trustee appointed to administer any Plan, and (ii) all notices
received by the Borrower, any Subsidiary or any ERISA Affiliate from a
Multiemployer Plan concerning the imposition or amount of withdrawal
liability pursuant to Section 4202 of ERISA.
(j) Upon request of the Bank, copies of the most recent annual
report (Form 5500 Series), including any supporting schedules, filed by
the Borrower, any Subsidiary or any ERISA Affiliate with the Internal
Revenue Service with respect to any Plan.
(k) Such other information respecting the financial condition and
results of operations of the Borrower or any Subsidiary as the Bank may
from time to time reasonably request.
Section 5.2 Books and Records; Inspection and Examination. The
Borrower will keep, and will cause each Subsidiary to keep, accurate books of
record and account for itself in which true and complete entries will be made
in accordance with generally accepted accounting principles consistently
applied and, upon request of the Bank, will give any representative of the
Bank access to, and permit such representative to examine, copy or make
extracts from, any and all books, records and documents in its possession, to
inspect any of its properties and to discuss its affairs, finances and accounts
with any of its principal officers, all at such times during normal business
hours and as often as the Bank may reasonably request.
Section 5.3 Compliance with Laws. The Borrower will, and will cause
each Subsidiary to, comply with the requirements of applicable laws and
regulations, the noncompliance with which would materially and adversely affect
its business or the consolidated financial condition of the Borrower and its
Subsidiaries.
Section 5.4 Payment of Taxes and Other Claims. The Borrower will
pay or discharge, and will cause each Subsidiary to pay or discharge, when due,
(a) all taxes, assessments and governmental charges levied or imposed upon it
or upon its income or profits, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, (b) all federal, state and local
taxes required to be withheld by it, and (c) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a Lien or charge
upon any properties of the Borrower or any Subsidiary; provided, that neither
the Borrower nor any Subsidiary shall be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings and for which the Borrower
or such Subsidiary has provided adequate reserves in accordance with generally
accepted accounting principles.
Section 5.5 Maintenance of Properties. The Borrower will keep and
maintain, and will cause each Subsidiary to keep and maintain, all of its
properties necessary or useful in its business in good condition, repair and
working order; provided, however, that nothing in this Section shall prevent
the Borrower or any Subsidiary from discontinuing the operation and
maintenance of any of its properties if such discontinuance is, in the
judgment of the Borrower or the appropriate Subsidiary, desirable in the
conduct of its business and not disadvantageous in any material respect to the
Bank as holder of the Note.
Section 5.6 Insurance. The Borrower will, and will cause each
Subsidiary to, obtain and maintain insurance with insurers believed by the
Borrower to be responsible and reputable, in such amounts and against such
risks as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower or such
Subsidiary operates.
Section 5.7 Preservation of Corporate Existence. The Borrower will,
and will cause each Subsidiary to, preserve and maintain its corporate
existence and all of its rights, privileges and franchises; provided, however,
that neither the Borrower nor any Subsidiary shall be required to preserve any
of its rights, privileges and franchises if its Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct
of the business of the Borrower or the appropriate Subsidiary and that the loss
thereof is not disadvantageous in any material respect to the Bank as a holder
of the Note.
Section 5.8 Interest Coverage Ratio. The Borrower will at all times
maintain its Interest Coverage Ratio, determined at the end of each fiscal
quarter of the Borrower, at not less than 6.00 to 1.
Section 5.9 Leverage Ratio. The Borrower will at all times maintain
its Leverage Ratio, determined as at the end of each fiscal quarter of the
Borrower, at not more than 0.30 to 1.
Section 5.10 Tangible Net Worth. The Borrower will maintain
Consolidated Tangible Net Worth at all times in an amount not less than
$120,000,000.
ARTICLE VI
Negative Covenants
At all times through and including the Covenant Termination Date, the
Borrower agrees that, without the prior written consent of the Bank:
Section 6.1 Liens. The Borrower will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any Lien or other
charge or encumbrance of any nature on any of its assets, now owned or
hereafter acquired, or assign or otherwise convey any right to receive income
or give its consent to the subordination of any right or claim of the Borrower
or any Subsidiary to any right or claim of any other Person; excluding,
however, from the operation of the foregoing:
(a) Liens for taxes or assessments or other governmental charges to
the extent not required to be paid by Section 5.4.
(b) Materialmen s, merchants , carriers worker s, repairer s, or
other like liens arising in the ordinary course of business to the extent
not required to be paid by Section 5.4.
(c) Pledges or deposits to secure obligations under worker s
compensation laws, unemployment insurance and social security laws, or to
secure the performance of bids, tenders, contracts (other than for the
repayment of borrowed money) or leases or to secure statutory obligations
or surety or appeal bonds, or to secure indemnity, performance or other
similar bonds in the ordinary course of business.
(d) Zoning restrictions, easements, licenses, restrictions on the
use of real property or minor irregularities in title thereto, which do not
materially impair the use of such property in the operation of the business of
the Borrower or any Subsidiary or the value of such property for the purpose of
suchbusiness.
(e) Purchase money Liens, so long as the aggregate amount of all
debts secured by such mortgages, liens or security interests (including
capitalized leases) does not exceed $500,000 at any one time outstanding.
(f) Liens created by any Subsidiary as security for debt owing to
the Borrower or to another Subsidiary.
(g) Liens on any property of the Borrower or any Subsidiary (other
than those described in subsection (e) and (f)) securing any indebtedness for
borrowed money in existence on the date hereof and listed in Schedule 6.1
hereto.
(h) Liens granted under the Dealer Finance Agreements to General
Electric Capital Corporation and Monogram Credit Card Bank of Georgia, but only
so long as (i) such Liens secure only obligations described in and permitted
under Sections 6.2(e) and 6.3(c), and (ii) such Liens cover only the right,
title and interest (if any) of the Borrower and the Guarantor in the
obligations of purchasers of the Borrower s products which obligations are
acquired or held by General Electric Capital Corporation or Monogram Credit
Card Bank of Georgia pursuant to the Dealer Finance Agreements.
Section 6.2 Indebtedness. The Borrower will not, and will not
permit any Subsidiary to, incur, create, assume or permit to exist any
indebtedness or liability on account of deposits or advances or any
indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures or similar obligations, except:
(a) Indebtedness to the Bank.
(b) Indebtedness of the Borrower or any Subsidiary in existence on
the date hereof and listed in Schedule 6.2 hereto, but not including any
extensions or renewals thereof.
(c) Indebtedness of a Subsidiary to the Borrower or another
Subsidiary on account of borrowings, or indebtedness of the Borrower to a
Subsidiary on account of borrowings from that Subsidiary.
(d) Purchase money indebtedness of the Borrower or any Subsidiary
secured by Liens permitted by subsection 6.1(e).
(e) Obligations of the Borrower and the Guarantor under the Dealer
Finance Agreements.
Section 6.3 Guaranties. The Borrower will not, and will not permit
any Subsidiary to, assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any other Person,
except:
(a) The endorsement of negotiable instruments by the Borrower or any
Subsidiary for deposit or collection or similar transactions in the ordinary
course of business.
(b) Guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in existence on
the date hereof and listed in Schedule 6.3 hereto.
(c) Obligations of the Borrower and the Guarantor under the Dealer
Finance Agreements.
Section 6.4 Investments. The Borrower will not, and will not permit
any Subsidiary to, purchase or hold beneficially any stock or other securities
or evidence of indebtedness of, make or permit to exist any loans or advances
to, or make any investment or acquire any interest whatsoever in, any other
Person, except:
(a) Investments in (i) direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States of America, (ii)
commercial paper issued by U.S. corporations rated "A-1" by Standard & Poors
Corporation or "P1" by Moody s Investors Service, (iii) certificates of deposit
or bankers acceptances having a maturity of one year or less issued by members
of the Federal Reserve System having deposits in excess of $100,000,000, or
(iv) tax exempt securities rated A or better by Standard & Poors Corporation or
M1G1 by Moody s Investors Service.
(b) Any existing investment by the Borrower or any other Subsidiary
in the stock of any Subsidiary.
(c) Travel advances to officers and employees of the Borrower or any
Subsidiary in the ordinary course of business.
(d) Advances in the form of progress payments, prepaid rent or
security deposits.
Section 6.5 Sale of Assets. The Borrower will not, and will not
permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of
all or a substantial part of its assets (whether in one transaction or in a
series of transactions) to any other Person other than in the ordinary course
of business, except for the sale of inventory in the ordinary course of the
Borrower s business. For purposes of this Section, "substantial part" means 10%
or more of the assets of the Borrower, as determined in accordance with
generally accepted accounting principles.
Section 6.6 Restrictions on Issuance and Sale of Subsidiary Stock.
The Borrower will not:
(a) permit any Subsidiary to issue or sell any shares of stock of
any class of such Subsidiary to any other Person (other than the Borrower or a
wholly-owned Subsidiary of the Borrower), except for the purpose of qualifying
directors or of satisfying pre-emptive rights or of paying a common stock
dividend on, or splitting, common stock of such Subsidiary; or
(b) sell, transfer or otherwise dispose of any shares of stock of any
class (except to a wholly-owned Subsidiary of the Borrower) of any Subsidiary
or permit any Subsidiary to sell, transfer or otherwise dispose of (except to
the Borrower or a wholly-owned Subsidiary of the Borrower or for the purpose of
qualifying directors) any shares of stock of any class of any other Subsidiary.
Section 6.7 Consolidation and Merger. The Borrower will not, and
will not permit any Subsidiary to, consolidate with or merge into any Person,
or permit any other Person to merge into it, or acquire (in a transaction
analogous in purpose or effect to a consolidation or merger) all or
substantially all of the assets of any other Person; provided, however, that
the restrictions contained in this Section shall not apply to or prevent the
consolidation or merger of a Subsidiary with, or a conveyance or transfer of
its assets to, the Borrower (if the Borrower shall be the continuing or
surviving corporation) or another then-existing wholly-owned Subsidiary of the
Borrower.
Section 6.8 Sale and Leaseback. The Borrower will not, and will not
permit any Subsidiary to, enter into any arrangement, directly or indirectly,
with any other Person whereby the Borrower or such Subsidiary shall sell or
transfer any real or personal property, whether now owned or hereafter
acquired, and then or thereafter rent or lease as lessee such property or any
part thereof or any other property which the Borrower or such Subsidiary, as
the case may be, intends to use for substantially the same purpose or purposes
as the property being sold or transferred.
Section 6.9 Hazardous Substances. The Borrower will not, and will
not permit any Subsidiary to, cause or permit any Hazardous Substance to be
disposed of, in any manner which might result in any material liability to the
Borrower or any Subsidiary, on, under or at any real property which is operated
by the Borrower or any Subsidiary or in which the Borrower or any Subsidiary
has any interest.
Section 6.10 Restrictions on Nature of Business. The Borrower will
not, and will not permit any Subsidiary to, engage in any line of business
materially different from that presently engaged in by the Borrower or such
Subsidiary.
ARTICLE VII
Critical Events; Rights and Remedies
Section 7.1 Critical Events. "Critical Event", wherever used
herein, means any one of the following events:
(a) Failure to make any scheduled payment of interest on the Note
when the same becomes due and payable.
(b) Default in the performance, or breach, of any covenant or
agreement on the part of the Borrower contained in this Agreement.
(c) A default under any bond, debenture, note or other evidence of
indebtedness of the Borrower or under any indenture or other instrument under
which any such evidence of indebtedness has been issued or by which it is
governed and the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture or other instrument.
(d) A petition naming the Borrower or the Guarantor as debtor shall
be filed by or against the Borrower or the Guarantor under the United
States Bankruptcy Code.
(e) A writ of attachment, garnishment, levy or similar process shall
be issued against or served upon the Bank with respect to any property of
the Borrower in the possession of the Bank or any indebtedness of the Bank
to the Borrower having a value in excess of $250,000.
(f) The Guarantor shall repudiate, purport to revoke, or fail to
perform any of that Guarantor s obligations under his Guaranty.
(g) Any Plan shall have been terminated, or a trustee shall have
been appointed by an appropriate United States District Court to
administer any Plan, or the Pension Benefit Guaranty Corporation shall
have instituted proceedings to terminate any Plan or to appoint a trustee
to administer any Plan, or withdrawal liability shall have been asserted
against the Borrower, any Subsidiary or any ERISA Affiliate by a
Multiemployer Plan; or the Borrower, any Subsidiary or any ERISA Affiliate
shall have incurred liability to the Pension Benefit Guaranty Corporation,
the Internal Revenue Service, the Department of Labor or Plan participants
in excess of $1,000,000 with respect to any Plan; or any Reportable Event
that the Bank may determine in good faith might constitute grounds for the
termination of any Plan, for the appointment by the appropriate United
States District Court of a trustee to administer any Plan or for the
imposition of withdrawal liability with respect to a Multiemployer Plan,
shall have occurred and be continuing 30 days after written notice to such
effect shall have been given to the Borrower by the Bank.
Section 7.2 Rights and Remedies. At any time and for any reason,
whether arising before, on or after the date hereof, whether or not the
Borrower is in compliance with the covenants contained herein, and whether or
not a Critical Event has occurred hereunder, or for no reason at all, the Bank
may (i) demand payment of the Note, and/or (ii) require the Borrower to deposit
in the L/C Cash Collateral Account immediately available funds equal to the sum
of the Facility A Standby L/C Outstandings, the Facility A Documentary L/C
Outstandings and the Facility B Outstandings. Upon the failure of the Borrower
to pay the Note or make such deposit in full on the date set forth in the
applicable notice of demand, or at any time thereafter until such payment and
deposits are made, the Bank may exercise any or all of the following rights and
remedies:
(a) The Bank may, by notice to the Borrower, declare the Facilities
to be terminated, whereupon the same shall forthwith terminate.
(b) The Bank may, without notice to the Borrower and without further
action, apply any and all money owing by the Bank to the Borrower to the
payment of the Note, including interest accrued thereon, and of all other
sums then owing by the Borrower hereunder, including the deposits required
to be made under Section 7.3.
(c) The Bank may exercise any other rights and remedies available to
it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of a Critical Event
described in Section 7.1(d) hereof, the entire unpaid principal amount of the
Note, all interest accrued and unpaid thereon, and all other amounts payable
under this Agreement shall be immediately due and payable without presentment,
demand, protest or notice of any kind.
Section 7.3 Pledge of L/C Cash Collateral Account. The Borrower
hereby pledges, and grants the Bank a security interest in, all sums held in
the L/C Cash Collateral Account from time to time and all proceeds thereof as
security for the payment of all amounts due and to become due from the Borrower
to the Bank pursuant to this Agreement, including but not limited to both
principal of and interest on the Note and all renewals, extensions and
modifications thereof and any notes issued in substitution therefor, and
specifically including the Borrower s obligation to reimburse the Bank for any
amount drawn under any Letter of Credit, whether such reimbursement obligation
arises directly under this Agreement or under a separate reimbursement
agreement. Upon request of the Borrower, the Bank shall permit the Borrower
to withdraw from the L/C Cash Collateral Account the lesser of (i) the amount
by which the balance of the L/C Cash Collateral Account exceeds the aggregate
amount secured by the sums held in the L/C Cash Collateral Account, or (ii) the
balance of the L/C Cash Collateral Account. The Bank shall have full ownership
and control of the L/C Cash Collateral Account, and, except as set forth above,
the Borrower shall have no right to withdraw the funds maintained in the L/C
Cash Collateral Account.
ARTICLE VIII
Miscellaneous
Section 8.1 No Waiver; Cumulative Remedies. No failure or delay on
the part of the Bank in exercising any right, power or remedy under the Loan
Documents shall operate as a waiver thereof; nor shall the Bank s acceptance of
payments following any demand for payment of the Note or for a deposit in the
L/C Cash Collateral Account operate as a waiver of such demand, or any right,
power or remedy under the Loan Documents; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy under
the Loan Documents. The remedies provided in the Loan Documents are cumulative
and not exclusive of any remedies provided by law.
Section 8.2 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or consent to any
departure by the Borrower therefrom shall be effective unless the same shall be
in writing and signed by the Bank and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on the Borrower in any case shall entitle the
Borrower to any other or further notice or demand in similar or other
circumstances.
Section 8.3 Notice. Except as otherwise expressly provided herein,
all notices and other communications hereunder shall be in writing and shall be
(i) personally delivered, (ii) transmitted by registered mail, postage
prepaid, (iii) sent by Federal Express or similar expedited delivery service,
or (iv) transmitted by telecopy, in each case addressed to the party to whom
notice is being given at its address as set forth by its signature below, or,
if telecopied, transmitted to that party at its telecopier number set forth by
its signature below; or, as to each party, at such other address or telecopier
number as may hereafter be designated in a notice by that party to the other
party complying with the terms of this Section. All such notices or other
communications shall be deemed to have been given on (i) the date received if
delivered personally or by mail, (ii) the date of receipt, if delivered by
Federal Express or similar expedited delivery service, or (iii) the date of
transmission if delivered by telecopy, except that notices or requests to the
Bank pursuant to any of the provisions of Article II shall not be effective
until received.
Section 8.4 Participations. The Bank may grant participations in
the Facilities to any institutional investor without the consent of the
Borrower. The Borrower shall assist the Bank in granting any such
participations.
Section 8.5 Disclosure of Information. The Borrower authorizes the
Bank to disclose to any participant or assignee (each, a "Transferee") and any
prospective Transferee any and all financial and other information in the Bank
s possession concerning the Borrower which has been delivered to the Bank by
the Borrower pursuant to this Agreement or which has been delivered to the
Bank by the Borrower in connection with the Bank s credit evaluation of the
Borrower before entering into this Agreement; provided, however, that prior to
disclosing such information to a Transferee or prospective Transferee, the Bank
shall obtain from such Transferee or prospective Transferee a confidentiality
agreement agreeing that such information shall be used only in connection with
such Person s evaluation and, if applicable, administration of its interest in
this Agreement and the loans hereunder, and shall not be disclosed to any other
person, subject to exceptions permitting disclosure to regulators and auditors,
disclosure as required by law or judicial process, and disclosure under such
other limited circumstances as the Bank and such Transferee or prospective
Transferee may reasonably agree.
Section 8.6 Costs and Expenses. The Borrower agrees to pay on
demand all reasonable costs and expenses incurred by the Bank in connection
with the negotiation, preparation, execution, administration, amendment or
enforcement of the Loan Documents and the other instruments and documents to
be delivered hereunder and thereunder, including the reasonable fees and
reasonable out-of-pocket expenses of counsel for the Bank with respect thereto,
whether paid to outside counsel or allocated to the Bank by in-house counsel.
The Borrower also agrees to pay and reimburse the Bank for all of its out-of
- -pocket and allocated costs incurred in connection with each audit or
examination conducted by the Bank, its employees or agents, which audits and
examinations shall be for the sole benefit of the Bank.
Section 8.7 Indemnification by Borrower. The Borrower hereby agrees
to indemnify the Bank and each officer, director, employee and agent thereof
(herein individually each called an "Indemnitee" and collectively called the
"Indemnitees") from and against any and all losses, claims, damages, reasonable
expenses (including, without limitation, reasonable attorneys fees) and
liabilities (all of the foregoing being herein called the "Indemnified
Liabilities") incurred by an Indemnitee in connection with or arising out of
the execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the use of the proceeds of any Advance or Letter of
Credit hereunder (including but not limited to any such loss, claim, damage,
expense or liability arising out of any claim in which it is alleged that any
Environmental Law has been breached with respect to any activity or property of
the Borrower), except for any portion of such losses, claims, damages, expenses
or liabilities incurred solely as a result of the gross negligence or willful
misconduct of the applicable Indemnitee. If and to the extent that the
foregoing indemnity may be unenforceable for any reason, the Borrower hereby
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law. All
obligations provided for in this Section shall survive any termination of this
Agreement.
Section 8.8 Execution in Counterparts. This Agreement and the other
Loan Documents may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which counterparts of this Agreement or such other Loan Document, as the case
may be, taken together, shall constitute but one and the same instrument.
Section 8.9 Binding Effect, Assignment. The Loan Documents shall be
binding upon and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights thereunder or any interest therein without the prior
written consent of each of the Bank.
Section 8.10 Governing Law. The Loan Documents shall be governed by
, and construed in accordance with, the laws of the State of Minnesota.
Section 8.11 Waiver of Jury Trial. THE BORROWER AND THE BANK
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS AGREEMENT AND THE NOTE OR THE
RELATIONSHIPS ESTABLISHED HEREUNDER.
Section 8.12 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 8.13 Prior Agreements. This Agreement and the other Loan
Documents and related documents described herein restate and supersede in their
entirety any and all prior agreements and understandings, oral or written,
between the Bank and the Borrower.
Section 8.14 Headings. Article and Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
Address:
Post Office Box 810
Thief River Falls, Minnesota 56701
Attention: Timothy C. Delmore
Telecopier: 218-681-5972
ARCTIC CAT INC.
By____________________________
Its______________________
Address:
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0085
Attention: Mary D. Falck
Telecopier: 612-667-4145
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By_____________________
Mary D. Falck
Its Vice President
EXHIBITS AND SCHEDULES
Exhibit A Note
Exhibit B Form of Compliance Certificate
------------------------------
Schedule 4.4 Subsidiaries
Schedule 6.1 Permitted Liens
Schedule 6.2 Permitted Indebtedness
Schedule 6.3 Permitted Guaranties
<PAGE>
REVOLVING NOTE
$30,000,0000
Minneapolis, Minnesota
June 6, 1997
For value received, Arctic Cat Inc., a Minnesota corporation (the
"Borrower"), promises to pay to the order of Norwest Bank Minnesota, National
Association, a national banking association (the "Bank"), at its main office
in Minneapolis, Minnesota, ON DEMAND, the principal sum of Thirty Million
Dollars ($30,000,000), or, if less, the aggregate unpaid principal amount of
all advances made by the Bank to the Borrower pursuant to Section 2.1(a) of
the Credit Agreement dated June 6, 1997 between the Borrower and the Bank
(together with all amendments, modifications and restatements thereof, the
"Credit Agreement"), and to pay interest on the principal balance of this
Note outstanding from time to time at the rate or rates determined pursuant
to the Credit Agreement.
Terms defined in the Credit Agreement and not otherwise defined herein
shall have the meanings given them in the Credit Agreement.
Interest accruing on the principal balance of this Note each month at the
Floating Rate shall be due and payable on the last day of each month,
commencing on the last day of the month hereof, and on demand. Interest
accruing on any Fixed Rate Amount shall be due and payable on the last day of
the Interest Period applicable thereto.
This Note is issued pursuant to, and is subject to, the Credit Agreement.
The Borrower shall pay all costs of collection, including reasonable
attorneys fees and legal expenses, if this Note is not paid when due, whether
or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
The Borrower acknowledges that in accepting this Note the Bank has not
undertaken any obligation to make any advance to the Borrower and that the
Bank may refuse to make any advance requested by the Borrower and may demand
payment of advances that it has made under this Note at any time, with or
without notice (except as expressly provided in the Credit Agreement) and for
any reason, whether arising before, on or after the date hereof, whether or
not the Borrower is in compliance with the terms of this Note and the Credit
Agreement, or for no reason at all.
ARCTIC CAT INC.
By________________________
Its__________________
COMPLIANCE CERTIFICATE
__________________________, ______
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0085
Compliance Certificate
Ladies and Gentlemen:
Reference is made to the Credit Agreement (the "Credit Agreement")
dated June 6, 1997 entered into between Norwest Bank Minnesota, National
Association and Arctic Cat Inc. (the "Borrower").
All terms defined in the Credit Agreement and not otherwise defined
herein shall have the meanings given them in the Credit Agreement.
This is a Compliance Certificate submitted in connection with the
Borrower s financial statements (the "Statements") as of _____________________,
_______ (the "Effective Date").
I hereby certify to you as follows:
1. I am the _________________________ of the Borrower, and I am familiar
with the financial statements and financial affairs of the Borrower.
2. The Statements, and the computations below, have been prepared in
accordance with generally accepted accounting principles applied on a
basis that is consistent with the accounting practices reflected in
the annual financial statements of the Borrower previously delivered
to you.
3. If the Effective Date is the last day of a fiscal quarter of the
Borrower, the following computations set forth the Borrower s
compliance or non-compliance with the requirements set forth in
Sections 5.8, 5.9 and 5.10 of the Credit Agreement as of the
Effective Date:
Actual Required
INTEREST COVERAGE RATIO
EBIT $___________
$___________
Interest Expense
EBIT:Interest Expense __________________ >= 6.00:1
LEVERAGE RATIO
Indebtedness $__________
+ Letters of $__________
Credit
= Funded Debt $__________
Funded Debt $__________
+ Equity $__________
= Total Capital $__________
Funded Debt : Total Capital __________________ <= 0.30:1
Tangible Net Worth
Equity
- - Intangible $__________
Assets $__________
Tangible Net
Worth $_________________ >= $120,000,000
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of, the financial covenants referred to above.
4. I have no knowledge of the occurrence of any breach of the Credit
Agreement or other Critical Event, except as set forth in the attachments, if
any, hereto.
Very truly yours,
ARCTIC CAT INC.
By________________________
Its_______________________
Exhibit 21
ARCTIC CAT INC.
Subsidiaries of the Company
Arctic Cat Sales Inc.
organized under the laws
of the State of Minnesota
100% of common stock owned by parent
Arctco FSC, Inc.
(a foreign sales corporation)
Organized under the laws of the
United States Virgin Islands
100% of common stock owned by parent
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 9, 1997, accompanying the consolidated
financial statements and schedule included in the Annual Report on Form 10-K
of Arctic Cat Inc. for the year ended March 31, 1997. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
Arctic Cat Inc. on Forms S-8 (File No. 33-37065, effective October 1, 1990,
File No. 33-69916, effective October 4, 1993, and File No. 33-97244, effective
September 22, 1995).
/s/Grant Thornton LLP
______________________
Minneapolis, Minnesota
June 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,540,000
<SECURITIES> 45,200,000
<RECEIVABLES> 27,893,000
<ALLOWANCES> (500,000)
<INVENTORY> 86,502,000
<CURRENT-ASSETS> 178,460,000
<PP&E> 72,305,000
<DEPRECIATION> 32,798,000
<TOTAL-ASSETS> 217,967,000
<CURRENT-LIABILITIES> 48,856,000
<BONDS> 0
0
0
<COMMON> 291,000
<OTHER-SE> 166,447,000
<TOTAL-LIABILITY-AND-EQUITY> 217,967,000
<SALES> 468,595,000
<TOTAL-REVENUES> 468,595,000
<CGS> 351,249,000
<TOTAL-COSTS> 351,249,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 351,000
<INTEREST-EXPENSE> 109,000
<INCOME-PRETAX> 35,753,000
<INCOME-TAX> 12,692,000
<INCOME-CONTINUING> 23,061,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,061,000
<EPS-PRIMARY> .78
<EPS-DILUTED> 0
</TABLE>
