<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 4, 1998
REGISTRATION NO. 333-57949
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ISSUER OF SENIOR NOTES REGISTERED HEREBY
OUTBOARD MARINE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3519 36-1589715
3732
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OMC FISHING BOAT GROUP, INC. DELAWARE 36-3516449
OMC ALUMINUM BOAT GROUP, INC. DELAWARE 36-3675740
OMC RECREATIONAL BOAT GROUP, INC. DELAWARE 36-3913531
RECREATIONAL BOAT GROUP LIMITED PARTNERSHIP DELAWARE 36-3925608
OMC LATIN AMERICA/CARIBBEAN, INC. DELAWARE 36-25366154
(EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
100 SEA HORSE DRIVE
WAUKEGAN, ILLINOIS 60085
(847) 689-6200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT S. ROMANO, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
100 SEA HORSE DRIVE
WAUKEGAN, ILLINOIS 60085
(847) 689-6200
(NAME AND ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES OF COMMUNICATIONS TO:
DAVID E. ZELTNER, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
(212) 310-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 4, 1998
PROSPECTUS
OUTBOARD MARINE CORPORATION
OFFER TO EXCHANGE ITS 10 3/4% SENIOR NOTES
DUE 2008, SERIES B, FOR ANY AND ALL OF ITS OUTSTANDING
10 3/4% SENIOR NOTES DUE 2008, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
Outboard Marine Corporation, a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 10 3/4%
Senior Notes due 2008, Series B (the "Exchange Notes"), registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this prospectus is a part, for each $1,000
principal amount of its outstanding 10 3/4% Senior Notes due 2008 (the "Old
Notes"), of which $160,000,000 principal amount is outstanding. The form and
terms of the Exchange Notes are the same as the form and terms of the Old Notes
except that (i) the Exchange Notes will bear a Series B designation, (ii) the
Exchange Notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (iii)
holders of the Exchange Notes will not be entitled to registration rights
(including provision for payment of Liquidated Damages (as defined) in certain
events) of holders of Old Notes under the Registration Rights Agreement (as
defined). The Old Notes and the Exchange Notes are referred to herein
collectively as the "Notes." The Exchange Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under and be entitled to
the benefits of the Indenture dated as of May 27, 1998 (the "Indenture") by and
among the Company, the Subsidiary Guarantors (as defined) and State Street Bank
and Trust Company, as trustee, governing the Notes. See "The Exchange Offer" and
"Description of the Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on , 1998, or
such later date not more than 10 business days thereafter to which it may be
extended by the Company (as so extended, the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date.
The Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer."
The Old Notes were sold by the Company on May 27, 1998 to Donaldson, Lufkin
& Jenrette Securities Corporation and Bear, Stearns & Co. Inc. (together, the
"Initial Purchasers") in a transaction not registered under the Securities Act
in reliance upon an exemption under the Securities Act (the "Initial Offering").
The Initial Purchasers subsequently resold the Old Notes to qualified
institutional buyers in reliance on Rule 144A under the Securities Act.
Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred
in the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Company and the Subsidiary Guarantors under the
Registration Rights Agreement entered into by the Company, the Subsidiary
Guarantors and the Initial Purchasers in connection with the Initial Offering
(the "Registration Rights Agreement"). See "The Exchange Offer."
Interest on the Notes is payable semi-annually on June 1 and December 1 of
each year, commencing December 1, 1998. The Notes will be redeemable at the
option of the Company, in whole or in part, at any time on or after June 1, 2003
in cash at the redemption prices set forth herein, plus accrued and unpaid
interest and Liquidated Damages (as defined), if any, thereon to the date of
redemption. In addition, at any time prior to June 1, 2001, the Company may on
any one or more occasions redeem up to an aggregate of 35% of the original
aggregate principal amount of Notes at a redemption price of 110.750% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Equity Offerings (as defined); provided that at least 65% of the
aggregate principal amount of Notes originally issued remains outstanding
immediately after the occurrence of any such redemption; and provided, further,
that any such redemption shall occur within 60 days of the date of the closing
of any such offering. See "Description of Notes--Optional Redemption."
The Notes will be senior unsecured obligations of the Company (except as
provided with respect to the applicable Interest Reserve Account (as defined))
and will rank pari passu in right of payment with all existing and future
unsubordinated indebtedness of the Company and senior in right of payment to all
existing and future subordinated indebtedness of the Company. The Notes will be
fully and unconditionally guaranteed (the "Subsidiary Guarantees") on a joint
and several basis by each of the Company's principal domestic operating
subsidiaries (the "Subsidiary Guarantors"). The Subsidiary Guarantees will be
general unsecured obligations of the Subsidiary Guarantors (except as provided
with respect to the applicable Interest Reserve Account) and will rank pari
passu in right of payment with all existing and future unsubordinated
indebtedness of the Subsidiary Guarantors and senior in right of payment to all
existing and future subordinated indebtedness of the Subsidiary Guarantors. The
Notes and the Subsidiary Guarantees, however, will be effectively subordinated
to secured obligations of the Company and the Subsidiary Guarantors,
respectively (including the Company's and the Subsidiary Guarantors' obligations
under the Credit Agreement (as defined), to the extent of the assets securing
such obligations) and to all indebtedness and other obligations of each
Subsidiary that is not a Subsidiary Guarantor (the "Non-Guarantor
Subsidiaries"). As of June 30, 1998, the Notes and the Subsidiary Guarantees
would have been effectively subordinated to approximately $61.9 million of
secured obligations of the Company and the Subsidiary Guarantors (including an
aggregate of $18.8 million of letter of credit obligations under the Credit
Agreement) and $24.9 million of indebtedness and other obligations of the
Non-Guarantor Subsidiaries. See "Risk Factors--Substantial Leverage and Debt
Service."
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
(cover page continued)
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain no-action letters issued to
third parties, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has no
arrangement or understanding with any person to participate in the distribution
of such Exchange Notes. See "The Exchange Offer--Resale of the Exchange Notes."
Holders of Old Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Registration Rights Agreement, that such conditions
have been met. Each broker-dealer (a "Participating Broker-Dealer") that
receives Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 270 days
after the Expiration Date, it will make this Prospectus available to any
Participating Broker-Dealer for use in connection with any such resale. See
"Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer. Holders of Old Notes not
tendered and accepted in the Exchange Offer will continue to hold such Old Notes
and will be entitled to all the rights and benefits and will be subject to the
limitations applicable thereto under the Indenture and with respect to transfer
under the Securities Act. See "The Exchange Offer."
There has not previously been any public market for the Old Notes or the
Exchange Notes. The Company does not intend to list the Exchange Notes on any
securities exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market for the
Exchange Notes will develop. See "Risk Factors--Absence of a Public Market Could
Adversely Affect the Value of Exchange Notes." Moreover, to the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THE EXCHANGE OFFER), ALL
DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THE EXCHANGE NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM.
EXCEPT AS DESCRIBED UNDER "BOOK-ENTRY; DELIVERY AND FORM," THE COMPANY EXPECTS
THAT THE EXCHANGE NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
REPRESENTED BY A GLOBAL NOTE (AS DEFINED), WHICH WILL BE DEPOSITED WITH, OR ON
BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC") AND REGISTERED IN ITS NAME OR IN
THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL NOTE
REPRESENTING THE EXCHANGE NOTES
i
<PAGE> 4
(cover page continued)
WILL BE SHOWN ON, AND TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS
MAINTAINED BY DTC AND ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE GLOBAL
NOTE, NOTES IN CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE
ONLY UNDER LIMITED CIRCUMSTANCES AS SET FORTH IN THE INDENTURE. SEE "BOOK-ENTRY;
DELIVERY AND FORM."
------------------------
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS," WITHIN THE MEANING
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT")). THE COMPANY WISHES TO ENSURE THAT ALL SUCH
FORWARD-LOOKING STATEMENTS ARE ACCOMPANIED BY MEANINGFUL CAUTIONARY STATEMENTS
PURSUANT TO THE SAFE HARBOR ESTABLISHED IN SUCH ACT. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, THE "PROJECTED FINANCIAL INFORMATION" CONTAINED IN APPENDIX A AND
CERTAIN COST-SAVING AND INDUSTRY GROWTH FORECASTS AND OTHER STATEMENTS MADE
HEREIN, INCLUDING IN THE "SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" SECTIONS, MAY
CONSTITUTE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE
INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND MEMBERS OF ITS SENIOR
MANAGEMENT TEAM. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN AS THEY
ARE BASED ON VARIOUS EXPECTATIONS AND ASSUMPTIONS CONCERNING FUTURE EVENTS AND
THEY ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES WHICH
COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED.
DUE TO THOSE UNCERTAINTIES AND RISKS, PROSPECTIVE PURCHASERS OF THE NOTES ARE
URGED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS CONTAINED
IN THIS PROSPECTUS. WHILE THE COMPANY BELIEVES THESE STATEMENTS ARE REASONABLE,
PROSPECTIVE PURCHASERS OF THE NOTES SHOULD BE AWARE THAT ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED BY SUCH FORWARD-LOOKING STATEMENTS AS A
RESULT OF THE RISK FACTORS SET FORTH IN THIS PROSPECTUS OR OTHER FACTORS,
INCLUDING THE IMPACT OF COMPETITION, PRODUCT DEMAND AND MARKET ACCEPTANCE, NEW
PRODUCT DEVELOPMENT AND GENERAL ECONOMIC CONDITIONS. PROSPECTIVE PURCHASERS OF
THE NOTES SHOULD CONSIDER CAREFULLY THE RISK FACTORS AS WELL AS THE OTHER
INFORMATION AND DATA INCLUDED IN THIS PROSPECTUS IN EVALUATING AN INVESTMENT IN
THE NOTES. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT THE LIST OF RISK
FACTORS SET FORTH HEREIN MAY NOT BE EXHAUSTIVE AND THAT THESE OR OTHER FACTORS
COULD HAVE AN ADVERSE EFFECT ON THE ABILITY OF THE COMPANY TO SERVICE ITS
INDEBTEDNESS, INCLUDING PRINCIPAL AND INTEREST PAYMENTS ON THE NOTES. SEE "RISK
FACTORS."
ii
<PAGE> 5
AVAILABLE INFORMATION
The Company's outstanding 7% Convertible Subordinated Debentures due 2002
are registered under the Exchange Act pursuant to Section 12(b) thereof.
Accordingly, the Company is subject to the information and reporting
requirements of the Exchange Act. Filings made by the Company with the
Commission may be inspected at the public reference facilities of the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the
following regional offices of the Commission: New York Regional Office, Seven
World Trade Center, New York, New York 10048, and Chicago Regional Office, 500
West Madison Street, Chicago, Illinois 60661. Copies of the material contained
therein may be obtained at prescribed rates from the Commission's public
reference facilities in Washington, D.C. The Commission also maintains a Web
site that contains reports, proxy and other information statements and other
materials that are filed through the Commission's Electronic Data Gathering,
Analysis, and Retrieval System. This Web site can be accessed at
http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the Securities
Act, and the rules and regulations promulgated thereunder, covering the Exchange
Notes being offered hereby. This Prospectus does not contain all the information
set forth in the Exchange Offer Registration Statement. For further information
with respect to the Company and the Exchange Offer, reference is made to the
Exchange Offer Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission all
quarterly and annual financial information that would be required to be filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provision thereto.
------------------------
OMC, FICHT, JOHNSON, EVINRUDE, FOUR WINNS, SEASWIRL, STRATOS, JAVELIN,
HYDRA-SPORTS, LOWE, PRINCECRAFT, QUEST, ROUGHNECK, SEA HORSE, SEA NYMPH and
SUNCRUISER are registered trademarks of the Company. FFI is a trademark of the
Company for which a trademark registration application is currently pending. The
Company licenses from Chris Craft Industries, Inc. the CHRIS CRAFT trade name
and trademark for use with respect to certain boats and boat accessory products.
The Company licenses from Northrop Grumman Corporation the GRUMMAN trade name
and trademark for use with respect to certain boat products. All other
trademarks appearing in this Prospectus are the property of their respective
holders.
iii
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements of the Company, together with the notes thereto, included elsewhere
in this Prospectus. Unless the context otherwise requires, all references to the
"Company" or "OMC" in this Prospectus shall mean Outboard Marine Corporation and
its consolidated subsidiaries. Unless otherwise indicated, all domestic industry
statistics referenced herein are derived from data published by the National
Marine Manufacturers' Association ("NMMA"), which the Company has not
independently verified but believes to be reliable. All foreign industry data
referenced herein are estimates prepared internally by the Company based in part
on publicly-available sources, which the Company has not independently verified
but believes to be reliable. The Company's fiscal year ends each September 30;
therefore, for example, references to "fiscal 1997" refer to the Company's
fiscal year ended September 30, 1997. However, effective October 1, 1998, the
Company's fiscal year-end will change from September 30 to December 31. A
glossary of certain technical terms used herein is included for the convenience
of the reader on page 119.
THE COMPANY
OMC believes it is the world's largest dedicated manufacturer of outboard
marine engines and boats. The Company has an approximate 35% share of the United
States outboard marine engine market and believes it has an approximate 25%
share of the worldwide market. Sold under the Johnson and Evinrude brand names,
the Company offers one of the industry's widest ranges of outboard engines, with
models from two to 250-horsepower. The Company's boat brands are also among the
most recognized in the industry and are market leaders in several categories,
including the fishing, aluminum and recreational boat segments. OMC's primary
boat brands include Chris Craft, Four Winns, Seaswirl, Stratos, Javelin,
Hydra-Sports, Lowe and Princecraft. The Company also generates a significant,
recurring stream of revenue in replacement parts and accessories from its large
installed base of over seven million engines. The Company believes that its
marine dealer network of approximately 6,500 independent authorized dealers
worldwide, approximately 4,300 of which are located in North America, is one of
the largest marine dealer networks in the world.
The Company owns a majority interest in FICHT GmbH & Co. KG, which has
developed a patented, highly innovative fuel-injection technology designed for
two-stroke engines. The FICHT fuel-injection technology utilizes advanced
electronic microprocessors to directly inject high-pressure fuel into a sealed
combustion chamber, eliminating the escape of any unburned fuel. The FICHT
fuel-injection system uses fewer mechanical parts, is smaller and, the Company
believes, more reliable than any other low-emission engine system. The FICHT
fuel-injection technology possesses several advantages over standard two-stroke
engines, including smoother and quieter operation, 35% better fuel economy on
average, up to 80% reduction in hydrocarbon emissions and virtually no smoke on
start-up. In addition, two-stroke engines based on the FICHT fuel-injection
technology offer several benefits relative to four-stroke engines, including
increased low-end power, lighter weight and smaller size. Furthermore, the FICHT
fuel-injection technology meets emissions standards mandated by the EPA set for
the Year 2006. The Company has already introduced outboard engines incorporating
the FICHT fuel-injection technology in six separate horsepower categories. To
date, the Company has received several awards relating to its FICHT
fuel-injection technology, including the 1996 Popular Mechanics Design &
Engineering Award for marine engines, the 1997 International Marine Trades
Exposition and Conference Innovation Award and the 1997 Motor Boating and
Sailing Magazine Innovation Award.
In September 1997, the Company was acquired by an affiliate of Greenway
Partners, L.P. and entities affiliated with Soros Fund Management LLC. Since the
acquisition, the Company has assembled a new, highly experienced senior
management team led by David D. Jones, Jr. as President and Chief Executive
Officer. Mr. Jones was previously President of the Mercury Marine Division of
Brunswick Corporation, where, under his direction, the division gained
substantial market share in several key marine segments. Mr. Jones has more than
twenty years of experience in the marine industry. Also as part of the new
management team, Andrew P. Hines joined the Company as Executive Vice President
and Chief Financial Officer. Mr. Hines has extensive experience in turnaround
situations. In addition, the Company has added 27 other new members to
1
<PAGE> 7
its management team to fill key operational and administrative positions,
including new heads of most of its boat divisions, its engine manufacturing
operations, its purchasing and supply operations, and its sales, marketing and
advertising operations. The new management team is complemented by a highly
experienced and skilled workforce. In its engine manufacturing operations, where
skill, experience and training represent a significant competitive advantage,
the Company's salaried and hourly employees have an average tenure with the
Company of approximately 16 and 14 years, respectively.
BUSINESS STRATEGY
The Company's new senior management team has developed a turnaround
strategy designed to capitalize on its strong market position and leading,
well-recognized brand names and to take advantage of the continued anticipated
growth in the recreational marine industry. Specifically, the Company's business
strategy combines the following elements:
- RATIONALIZE BRANDS AND PRICING. The Company has repositioned and
realigned its engine and boat brands to lower its manufacturing costs by
better focusing each of its brands on a particular niche in the outboard
marine engine and boating markets, thereby reducing competition among
its own brands. Pricing will be reset to better reflect the particular
image and the value added by each brand. To further support this
strategy, the Company is refocusing its marketing efforts and
expenditures to emphasize and reinforce its brands as they are
repositioned.
- AGGRESSIVELY REDUCE OPERATING COSTS. The Company's new management team
has identified several cost reduction opportunities that management
believes could reduce overall manufacturing costs. The Company's cost
reduction strategy includes the following elements: (i) reduce
purchasing costs by consolidating purchasing across vendors, integrating
suppliers into the product design process at an early stage, and
designing products for lower cost; (ii) rationalize boat manufacturing
operations by reviewing the size and location of the facilities relative
to the products manufactured there and the market for those products,
and consolidate the number of boat manufacturing facilities to improve
manufacturing efficiencies and unit costs; (iii) improve operating
efficiency by improving factory layout and workflows, standardizing
manual labor inputs, stabilizing machining and casting, and improving
quality control; and (iv) increase outsourcing of non-core capabilities
from approximately 40% of the value of the Company's engines to 65%. In
furtherance of these initiatives, the Company has already:
- closed a boat manufacturing plant;
- closed a research and development facility;
- substantially completed its announced 540 employee
workforce reduction (representing an approximate 8%
reduction in its workforce);
- implemented the first phase of its purchasing initiative,
which includes efforts to reduce the cost of purchasing
raw materials, components and subassemblies; and
- implemented the first and second phases of its lean
manufacturing realignment at its main outboard engine
manufacturing and assembly facility and at certain of its
sub-assembly facilities.
The Company expects to generate approximately $21.0 million in annual
savings from the measures that have already been put in place.
- CAPITALIZE ON FICHT TECHNOLOGY. The Company plans to exploit its
innovative FICHT technology by expanding its application to a wider
range of engine models. Since the Company's introduction of the FICHT
technology in its 150-horsepower Johnson and Evinrude models released in
January 1997, the Company has introduced 90-horsepower, 115-horsepower,
175-horsepower, 200-horsepower and 225-horsepower Evinrude models.
- STRENGTHEN CONTINUOUS QUALITY IMPROVEMENT PROGRAMS. Management believes
that the quality of the Company's products represents a key competitive
factor. The Company maintains rigid quality controls and extensively
tests its products and components in each of its manufacturing and
assembly
2
<PAGE> 8
facilities. In addition to on-site testing, the Company maintains
year-round, on-water testing facilities in Illinois and Florida. The
Company continually monitors its quality assurance programs and intends
to expand these programs and further motivate its workforce towards
achieving increasing quality standards.
- STRENGTHEN DEALER NETWORK. The Company has implemented a number of
initiatives to strengthen its dealer network. In fiscal 1997, the
Company managed a program to substantially reduce dealer inventory of
outboard engines, which helped strengthen the viability of the dealer
network by reducing dealer inventory costs. The Company is also
participating in industry association initiatives to strengthen the
marine industry's retailer network. These initiatives have been
spearheaded by a joint task force, including the NMMA, the Marine
Retailers Association of America ("MRAA") and other marine industry
leaders, including the Company. The initiatives include dealership
educational programs to improve dealer servicing standards and customer
relationships.
- EXPAND PARTS AND ACCESSORIES BUSINESS. The Company plans to strengthen
its parts and accessories business, which generates a recurring stream
of high-margin sales. The Company's initiatives to strengthen its parts
and accessories business include redesigned packaging and an advertising
program that will provide a consistent brand image and clearer product
descriptions.
- STRENGTHEN MARKET-DRIVEN PRODUCT DEVELOPMENT EFFORTS. The Company has
developed a reputation as a leader in marine engineering capabilities.
Since the Company's founding in 1936, the Company has continually
introduced advanced engineering designs, applications and technologies
to the marine industry. Management plans to make better use of the
Company's superior engineering capabilities by focusing the Company's
product development efforts on the features and capabilities most
demanded by customers and on product designs that maximize the cost
effectiveness of its manufacturing operations. Management believes that
its development of the FICHT fuel-injection technology is a result of
this market-driven product development initiative, and that this
initiative should help the Company increase market share among all of
its product lines.
INDUSTRY
The Company believes that the recreational boating industry possesses
favorable market dynamics. The recreational boating industry generated
approximately $19.3 billion in domestic retail sales in 1997, including
approximately $8.8 billion in sales of boats, engines, trailers and accessories.
In addition, according to statistics compiled by the U.S. Department of
Commerce, recreational products and services represent one of the fastest
growing segments of U.S. expenditures. Although unit sales in the marine
industry in recent years have been declining or flat, the Company expects to
benefit from recent industry-wide efforts in the U.S. designed to increase the
share of recreational expenditures related to boating. The NMMA, MRAA and other
marine industry leaders, including the Company, have formed a joint task force
to implement initiatives to improve the quality of the industry's marine dealer
network, improve the overall boating experience for consumers and enhance the
awareness of boating as a recreational activity through various advertising
programs. The Company believes that the overall shift in spending of
discretionary income towards recreational products and services and recent
efforts to increase the share of recreational expenditures directed towards
boating will contribute to growth in the recreational boating industry over the
next several years. Industry observers project that consumer spending on
recreational marine products and services will grow by approximately 5.6%
annually from 1997 to 2002.
The Company believes it is well positioned within the recreational boating
industry. The Company is one of only two domestic manufacturers of both marine
engines and boats. The Company believes that this combination is a competitive
advantage as the industry continues to trend towards sales of boat and engine
packages. Also, the capital investment and technological expertise required in
manufacturing marine engines create high barriers to entry. As a result, the
marine engine market is concentrated and the Company is one of only two domestic
and a total of five significant worldwide manufacturers of outboard marine
engines. Although the recreational boat market is fragmented, the top four boat
builders (including the Company) accounted for approximately 45% of the U.S.
market in 1997 in terms of unit sales.
3
<PAGE> 9
THE GREENMARINE ACQUISITION
On September 12, 1997, Greenmarine Holdings LLC ("Greenmarine Holdings")
acquired control of the Company through a tender for the common stock of the
Company. Greenmarine Holdings beneficially owned approximately 9.9% of OMC's
outstanding common stock prior to the tender offer. The acquisition was
completed for an aggregate equity purchase price of $373.0 million (including
Greenmarine Holdings' initial share holdings). At the time of Greenmarine
Holdings's acquisition of all shares of the Company's common stock, the Company
had approximately $272.7 million of indebtedness and $54.4 million of cash. The
investors in Greenmarine Holdings include an entity affiliated with Alfred D.
Kingsley and Gary K. Duberstein of Greenway Partners, L.P., and two entities
affiliated with Soros Fund Management LLC. The acquisition and related debt
redemption were funded with approximately $277 million of equity and $150
million of debt financing. See "The Greenmarine Acquisition."
------------------------------
The Company was incorporated under the laws of the State of Delaware in
1936. The principal executive offices of OMC are located at 100 Sea Horse Drive,
Waukegan, Illinois 60085, and its telephone number is (847) 689-6200.
4
<PAGE> 10
THE INITIAL OFFERING
The Initial Offering....... The Old Notes were sold by the Company on May 27,
1998 (the "Initial Offering") to Donaldson, Lufkin
& Jenrette Securities Corporation and Bear, Stearns
& Co. Inc. (together, the "Initial Purchasers")
pursuant to a Purchase Agreement dated May 21, 1998
(the "Purchase Agreement"). The Initial Purchasers
subsequently resold all of the Old Notes to
qualified institutional buyers in reliance on Rule
144A under the Securities Act.
Registration Rights
Agreement................ Pursuant to the Purchase Agreement, the Company,
the Subsidiary Guarantors and the Initial
Purchasers entered into a Registration Rights
Agreement dated as of May 27, 1998 (the
"Registration Rights Agreement"), which grants the
holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange and registration rights
which terminate upon the consummation of the
Exchange Offer.
THE EXCHANGE OFFER
Securities Offered......... $160,000,000 aggregate principal amount of 10 3/4%
Senior Notes due 2008, Series B, of the Company
(the "Exchange Notes").
The Exchange Offer......... The Company is offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Old Notes that are properly
tendered and accepted. As of the date hereof,
$160,000,000 aggregate principal amount of Old
Notes are outstanding. The Company will issue the
Exchange Notes to holders on or promptly after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act;
provided, that such Exchange Notes are acquired in
the ordinary course of such holder's business and
that such holder does not intend to participate and
has no arrangement or understanding with any person
to participate in the distribution of such Exchange
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of
market-making activities or other trading
activities may be a statutory underwriter. Each
Participating Broker-Dealer that receives Exchange
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such
Exchange Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of
Exchange
5
<PAGE> 11
Notes received in exchange for Old Notes where such
Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making
activities or other trading activities. The Company
has agreed that, for a period of 270 days after the
Expiration Date, they will make this Prospectus
available to any Participating Broker-Dealer for
use in connection with any such resale. See "Plan
of Distribution."
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure to
comply with such requirements in such instance may
result in such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
Expiration Date............ 5:00 p.m., New York City time, on ,
1998, or such later date not more than 10 business
days thereafter to which it may be extended by the
Company, in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the
Old Notes................ Each Exchange Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest thereon to, but not including, the
issuance date of the Exchange Notes. Such interest
will be paid with the first interest payment on the
Exchange Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of
the Exchange Notes.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions."
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsimile
thereof (or, in the case of a book-entry transfer,
transmit an Agent's Message (as defined) in lieu
thereof), in accordance with the instructions
contained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile (or Agent's message), together with the
Old Notes and any other required documentation to
the Exchange Agent (as defined) at the address set
forth herein. By executing the Letter of
Transmittal (or transmitting an Agent's Message),
each holder will represent to the Company that,
among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person
receiving such Exchange Notes, whether or not such
person is the holder, that neither the holder nor
any such other person has any arrangement or
understanding with any person to participate in the
distribution of such Exchange Notes and that
neither the holder nor any such other person is an
"affiliate," as defined under Rule 405 of the
Securities Act, of the
6
<PAGE> 12
Company. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--Procedures for
Tendering."
Untendered Old Notes....... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange or registration rights and such
Old Notes will continue to be subject to certain
restrictions on transfer. Accordingly, the
liquidity of the market for such Old Notes could be
adversely affected. See "Risk Factors--Absence of
Public Market Could Adversely Affect the Value of
Exchange Notes" and "--Failure to Exchange Old
Notes."
Consequences of Failure
to Exchange.............. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may be
resold only (i) to the Company, (ii) pursuant to
Rule 144A or Rule 144 under the Securities Act or
pursuant to some other exemption under the
Securities Act, (iii) outside the United States to
a foreign person pursuant to the requirements of
Rule 904 under the Securities Act, or (iv) pursuant
to an effective registration statement under the
Securities Act. See "The Exchange
Offer--Consequences of Failure to Exchange."
Shelf Registration
Statement.................. If (i) the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) if any
holder of the Old Notes shall notify the Company
that (A) such holder was prohibited by law or
Commission policy from participating in the
Exchange Offer or (B) such holder may not resell
the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus
and this Prospectus is not appropriate or available
for such resales by such holder or (C) such holder
is a broker-dealer and holds Old Notes acquired
directly from the Company or any of its
"affiliates" within the meaning of Rule 405 under
the Securities Act, and such holder has satisfied
certain conditions relating to the provision of
information to the Company for use therein, the
Company and the Subsidiary Guarantors have agreed
to register the Old Notes on a shelf registration
statement (the "Shelf Registration Statement") and
to use their best efforts to cause it to be
declared effective by the Commission. The Company
and Subsidiary Guarantors have agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Old
Notes held by any such holders.
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes
in such owner's name or obtain a properly completed
bond power from the registered holder. The transfer
of registered ownership may take considerable time.
7
<PAGE> 13
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes (or
comply with the procedures for book-entry
transfer), the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent (or transmit an Agent's message
in lieu thereof) prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes
and Delivery of
Exchange Notes........... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Certain Federal Income
Tax Considerations....... For a discussion of material U.S. federal income
tax considerations relating to the exchange of the
Exchange Notes for the Old Notes, see "Certain
Federal Income Tax Considerations."
Use of Proceeds............ There will be no cash proceeds to the Company from
the issuance of the Exchange Notes pursuant to the
Exchange Offer. See "Use of Proceeds."
Exchange Agent............. The Exchange Agent is State Street Bank and Trust
Company. The address and telephone and facsimile
numbers of the Exchange Agent are set forth under
"The Exchange Offer--Exchange Agent" and in the
Letter of Transmittal.
SUMMARY OF THE TERMS OF THE NOTES
The Exchange Offer applies to the Old Notes. The form and terms of the
Exchange Notes are identical in all material respects to the form and terms of
the Old Notes, except that (i) the Exchange Notes will bear a Series B
designation, (ii) the Exchange Notes will have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof and (ii) holders of the Exchange Notes will not be entitled to
registration rights (including provision for payment of Liquidated Damages (as
defined) in certain events) of holders of Old Notes under the Registration
Rights Agreement, which rights will terminate upon consummation of the Exchange
Offer. The Exchange Notes will evidence the same debt as the Old Notes (which
they replace) and will be issued under and be entitled to the benefits of the
Indenture. For further information and for definitions of certain capitalized
terms used below, see "Description of the Notes."
Securities Offered......... $160.0 million in aggregate principal amount of the
Company's 10 3/4% Senior Notes due 2008.
Maturity Date.............. June 1, 2008.
Interest Rate.............. The Notes will bear interest at the rate of 10 3/4%
per annum, payable semi-annually on June 1 and
December 1 of each year, commencing December 1,
1998.
Interest Reserve
Accounts................... The Company placed approximately $28.6 million,
including approximately $4.1 million of the net
proceeds of the Initial Offering and
8
<PAGE> 14
approximately $24.5 million of available cash, into
the Interest Reserve Accounts (as defined). The
Interest Reserve Accounts are contingency reserves
for future interest payments on Senior Debt (as
defined) of the Company, including the Notes. The
aggregate amount deposited in the Interest Reserve
Accounts is an amount (the "Required Amount")
sufficient to pay one year of pro forma interest on
the Company's Senior Debt as of May 27, 1998. The
Notes Interest Account (as defined), one of the
Interest Reserve Accounts, is pledged to the
Trustee (as defined) as security for the benefit of
the Trustee and the holders of the Notes, and the
Other Senior Debt Interest Account (as defined) is
pledged to the Administrative Agent (as defined) as
security for the benefit of the Administrative
Agent and the lenders under the Credit Agreement.
All amounts deposited in the Interest Reserve
Accounts will be invested in U.S. Government
Securities (as defined). In the event that the
Company's Excess Available Cash (as defined) for
any given fiscal quarter ending after the Issue
Date is less than the Company's Projected Senior
Debt Interest Expense for the next fiscal quarter,
the Company may request that funds be disbursed
from the applicable Interest Reserve Account for
payment of interest on the Notes or any other
Senior Debt, as applicable. In certain instances,
the Company will be required to contribute
additional amounts to the Interest Reserve Accounts
to maintain the Required Amount. The Company is
required to maintain the Interest Reserve Accounts
until the earlier of (i) the later of (x) May 27,
2001 and (y) such time as the Company's Fixed
Charge Coverage Ratio for the four consecutive
fiscal quarter periods ending as of the last day of
the most recent fiscal quarter is greater than 2.5
to 1.0, and (ii) the date upon which all
obligations with respect to the Notes have been
indefeasibly paid in full. See "Description of
Notes--Interest Reserve Accounts."
OPTIONAL REDEMPTION........ The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after June 1, 2003 in cash at the redemption prices
set forth herein, plus accrued and unpaid interest
and Liquidated Damages (as defined), if any,
thereon to the date of redemption. In addition, at
any time prior to June 1, 2001, the Company may on
any one or more occasions redeem up to an aggregate
of 35% of the original aggregate principal amount
of Notes at a redemption price of 110.750% of the
principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to
the redemption date, with the net cash proceeds of
one or more Equity Offerings (as defined); provided
that at least 65% of the aggregate principal amount
of Notes originally issued remains outstanding
immediately after the occurrence of any such
redemption; and provided, further, that any such
redemption shall occur within 60 days of the date
of the closing of any such offering. See
"Description of Notes -- Optional Redemption."
CHANGE OF CONTROL.......... Upon the occurrence of a Change of Control (as
defined), each holder of Notes will have the right
to require the Company to repurchase all or any
part of such holder's Notes at an offer price in
cash equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date
of repurchase. See "Description of
Notes -- Repurchase at the Option of
Holders -- Change of Control."
9
<PAGE> 15
SUBSIDIARY GUARANTEES...... The Notes will be fully and unconditionally
guaranteed on a joint and several basis by each of
the Company's principal domestic operating
subsidiaries existing on the Issue Date and certain
other subsidiaries formed or acquired thereafter
(collectively, the "Subsidiary Guarantors"). The
Subsidiary Guarantors' liability under the
Subsidiary Guarantees will be limited so that the
obligations of the Subsidiary Guarantors under the
Subsidiary Guarantees will not constitute a
fraudulent conveyance or fraudulent transfer under
federal or state law, and the Subsidiary Guarantees
will be automatically released in connection with
certain Asset Sales (as defined). See "Description
of Notes -- Subsidiary Guarantees."
RANKING.................... The Notes will be senior unsecured obligations of
the Company (except as provided with respect to the
applicable Interest Reserve Account) and will rank
pari passu in right of payment with all existing
and future unsubordinated indebtedness of the
Company and senior in right of payment to all
existing and future subordinated indebtedness of
the Company. The Subsidiary Guarantees will be
general unsecured obligations of the Subsidiary
Guarantors (except as provided with respect to the
applicable Interest Reserve Account) and will rank
pari passu in right of payment with all existing
and future unsubordinated indebtedness of the
Subsidiary Guarantors and senior in right of
payment to all existing and future subordinated
indebtedness of the Subsidiary Guarantors. The
Notes and the Subsidiary Guarantees, however, will
be effectively subordinated to secured obligations
of the Company and the Subsidiary Guarantors,
respectively (including the Company's and the
Subsidiary Guarantors' obligations under the Credit
Agreement (as defined), to the extent of the assets
securing such obligations) and to all indebtedness
and other obligations of each Subsidiary that is
not a Subsidiary Guarantor (the "Non-Guarantor
Subsidiaries"). Since the Notes and the Subsidiary
Guarantees will rank pari passu with all existing
and future unsubordinated indebtedness of the
Company and the Subsidiary Guarantors, as
applicable, neither the Company nor the Subsidiary
Guarantors may incur indebtedness that is per se
senior to the Notes. However, the Indenture permits
the Company and the Restricted Subsidiaries (as
defined) to incur additional Indebtedness,
including secured indebtedness, subject to certain
limitations. Any such future secured indebtedness
would be effectively senior to the Notes to the
extent securing such obligations. See "Risk
Factors -- Ranking", "Description of
Notes -- General", "Description of Notes -- Certain
Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock" and "Description of
Notes -- Certain Covenants -- Liens." As of June
30, 1998, the Notes and the Subsidiary Guarantees
would have been effectively subordinated to
approximately $61.9 million of secured obligations
of the Company and the Subsidiary Guarantors
(including an aggregate of $18.8 million of letter
of credit obligations under the Credit Agreement)
and $24.9 million of indebtedness and other
obligations of the Non-Guarantor Subsidiaries. See
"Risk Factors -- Substantial Leverage and Debt
Service."
10
<PAGE> 16
CERTAIN COVENANTS.......... The Indenture contains certain covenants that
limit, among other things, the ability of the
Company and its Restricted Subsidiaries to (i) pay
dividends, redeem capital stock or make certain
other restricted payments or investments; (ii)
incur additional indebtedness or issue certain
preferred equity interests; (iii) merge or
consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all
or substantially all of its assets; (iv) create
liens on assets; and (v) enter into certain
transactions with affiliates or related persons.
See "Description of Notes -- Certain Covenants."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE
TENDERING OLD NOTES IN EXCHANGE FOR EXCHANGE NOTES, SEE "RISK FACTORS." THE RISK
FACTORS ARE GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS THE EXCHANGE NOTES.
11
<PAGE> 17
SUMMARY PRO FORMA AND PROJECTED FINANCIAL DATA
The following sets forth (i) certain summary unaudited pro forma financial
data of the Company, as if the Greenmarine Acquisition (as defined) and the
Initial Offering had occurred on October 1, 1996, and (ii) certain summary
projected financial data for the Company for fiscal 1998. The pro forma
information excludes certain historical charges and is not necessarily
indicative of the results that would have occurred had the Greenmarine
Acquisition and the Initial Offering been completed on the dates indicated or of
the Company's actual or future results. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
The projected financial data of the Company set forth below have been
derived from, and should be read in conjunction with, the summary financial
projections and related assumptions contained in Appendix A hereto (the
"Projections"). The Projections included in this Prospectus were prepared by the
Company and are forward-looking statements based upon a number of assumptions
and estimates that, while presented with numerical specificity and considered
reasonable by the Company, are inherently speculative in nature and subject to
significant business, economic, competitive and operational uncertainties,
contingencies and risks, many of which are beyond the control of the Company. It
can be expected that one or more of the assumptions underlying the Projections
will prove not to be accurate and that unanticipated events and circumstances
will occur. As a result, actual results will vary from the Projections and those
variations may be material due to various risks, including the inability of the
Company's management team to successfully restructure its boat and engine
manufacturing operations in the manner and within the time frame presently
contemplated and the other risks described herein under "Risk Factors."
Consequently, this Prospectus should not be regarded as a representation by the
Company or any other person (including the Initial Purchasers) that the
Projections will be achieved. The Projections were not prepared with a view
toward compliance with published guidelines of the American Institute of
Certified Public Accountants, or any other regulatory or professional agency or
body or generally accepted accounting principles. See "Risk Factors--Risks
Related to Projections."
Neither Arthur Andersen LLP, the Company's independent certified public
accountants, nor the Initial Purchasers have compiled or examined the As
Adjusted Pro Forma EBITDA (as defined in footnote (4) to the financial data
presented below) or the Projections and, accordingly, they express no opinion or
any other form of assurance with respect to, assume no responsibility for, and
disclaim any association with, the As Adjusted Pro Forma EBITDA and the
Projections. The Company does not intend to update or otherwise revise the
Projections to reflect events or circumstances existing or arising after the
date of this Prospectus or to reflect the occurrence of unanticipated events,
unless, in the Company's opinion, such events have materially effected the
financial condition of the Company or resulted in the Projections no longer
having a reasonable basis. IN LIGHT OF THE FOREGOING, PROSPECTIVE INVESTORS ARE
CAUTIONED NOT TO RELY ON THE PRO FORMA DATA OR THE PROJECTIONS.
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PROJECTED
---------------------------------------------- ----------------- ------------------------------------
NINE MONTHS ENDED
YEAR ENDED ----------------------------- NINE MONTHS ENDED THREE MONTHS ENDING YEAR ENDING
SEPT. 30, 1997 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1998 SEPT. 30, 1998 SEPT. 30, 1998
-------------- ------------- ------------- ------------- -------------- --------------
(DOLLARS IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............ $979.5 $709.9 $760.1 $760.1 $288.4 $1,048.5
Gross earnings....... 154.4 115.1 169.3 169.3 71.6 240.9
Earnings (loss) from
operations......... (68.4) (42.2) 13.3 13.3 13.7 27.0
OTHER DATA:
EBITDA (as
defined)(1)........ (0.9)(4) 7.5(4) 54.2(4) 54.2 30.3 84.5
Interest
expense(2)......... 31.2 24.0 24.5 22.6 7.3 29.9
Capital
expenditures....... 36.3 30.1 23.7 23.7 6.3 30.0
Gross earnings
margin............. 15.8% 16.2% 22.3% 22.3% 24.8% 23.0%
EBITDA margin........ (0.1)% 1.1% 7.1% 7.1% 10.5% 8.1%
CREDIT DATA:
Ratio of
EBITDA/interest
expense............ N/A 0.3x 2.2x 2.4x 4.2x 2.8x
Ratio of net
normalized
debt/EBITDA(3)..... N/A -- -- -- -- 2.7x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Net debt(3).............................................. $225.3
Net normalized debt(3)................................... 225.5
</TABLE>
(footnotes on following page)
12
<PAGE> 18
- ------------------------------
(1) "EBITDA" represents earnings from operations (including income derived from
the Company's stern drive joint venture, net of joint venture expenses)
before depreciation and amortization (excluding debt discount amortization),
and, for the fiscal year ended September 30, 1997, "EBITDA" does not include
a one-time $11.8 million charge due to a change in control expense related
to compensation expenses resulting from the change in control as a result of
the Greenmarine Acquisition. The Company accrues for income from the stern
drive joint venture, net of joint venture expenses, in Other Income and has
included it in EBITDA because it reflects a recurring stream of revenue from
the sale of the Company's stern drive parts and accessories products. Income
from the stern drive joint venture, net of joint venture expenses, was $7.2
million in fiscal 1997, $4.6 million and $1.9 million for each of the nine
months ended June 30, 1997 and 1998, respectively, and is projected to be
$2.4 million for the three months ended September 30, 1998 and $4.5 million
for fiscal 1998. EBITDA is widely used by securities analysts and is
presented here to provide additional information about the Company's ability
to meet its future debt service, capital expenditures and working capital
requirements. While management believes that EBITDA is an appropriate
approximation of the Company's liquidity, as well as an appropriate
measurement to use in evaluating the Company's operating performance, EBITDA
should not be considered as an alternative to, or more meaningful than,
income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity, and should not be construed as an indication of a
company's operating performance or as a measure of liquidity. EBITDA as
presented herein may be calculated differently by other companies and,
accordingly, the amounts presented herein may not be comparable to similarly
titled measurements of other companies.
(2) Interest expense represents total interest expense less amortization of
deferred financing costs.
(3) Net debt as of June 30, 1998 represents the Company's historical total debt
minus available cash and cash equivalents and amounts in the Interest
Reserve Accounts. See "Capitalization." Net normalized debt represents the
Company's total debt minus available cash and cash equivalents and the
amounts in the Interest Reserve Accounts, and assumes $30.2 million
outstanding under the revolving credit facility of the Credit Agreement,
which represents the Company's average month-end balance outstanding for the
last twelve months ended June 30, 1998. As of June 30, 1998, the Company had
$30.0 million drawn under the Credit Agreement (excluding an aggregate of
$18.8 million of letter of credit obligations under the Credit Agreement).
(4) Pro forma EBITDA does not reflect adjustments to the Company's pro forma
income statement data (giving effect to the Initial Offering and the
Greenmarine Acquisition) in order to (i) exclude the effect of certain
charges recorded in fiscal 1997 which are deemed by management to be unusual
or infrequent in nature or (ii) give effect to the anticipated cost savings
from certain actions taken by the Company's senior management team since the
Greenmarine Acquisition. The "as adjusted pro forma" data set forth below
reflects these unusual or infrequent charges and gives effect to certain
cost saving actions taken by the Company's senior management team since the
Greenmarine Acquisition. These anticipated cost savings adjustments are
forecasts of the Company based on estimates and assumptions made by the
Company that are inherently uncertain and not factually supportable, though
considered reasonable by the Company. As a result, there can be no assurance
that any such adjustments would have been achieved. The components of the
unusual or infrequent charges and the estimated cost savings adjustments are
as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED JUNE 30, JUNE 30,
SEPT. 30, 1997 1997 1998
-------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Pro forma EBITDA (as defined)............................... $(0.9) $ 7.5 $54.2
----- ----- -----
Estimated net annual adjustments:
Unusual or Infrequent Charges:
Write-off of impaired assets relating to the Chris Craft
line of boats and write-offs of inventory and tooling
relating to discontinued products and technology....... 4.6 -- --
Additional reserves relating to changes in the method of
estimating surplus parts and accessories inventory and
recognizing certain pre-rigging rebate expense......... 1.8 -- --
Additional accrual relating to salt water intrusion issues
on certain engines, which have since been resolved..... 1.0 -- --
Certain non-recurring expenses associated with the
introduction of FICHT technology....................... 0.8 -- --
Charges related to early adoption of the AICPA Statement
of
Position 96-1 "Environmental Remediation
Liabilities"........................................... 7.0 -- --
Accruals for warranty expenses at the Company's Boat Group
as
the result of changes in the method used to estimate
warranty reserves...................................... 9.7 8.0 --
</TABLE>
13
<PAGE> 19
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED JUNE 30, JUNE 30,
SEPT. 30, 1997 1997 1998
-------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Cost Savings Adjustments:
Closing of Company's Old Hickory facility................. 0.5 0.4 0.3
Termination of employees.................................. 14.2 10.7 6.9
Workforce reductions that have been announced but not
finalized.............................................. 2.5 1.9 1.2
Savings from implementation of new purchasing
initiatives............................................ 3.8 2.9 2.9
----- ----- -----
Total estimated net annual adjustments...................... 45.9 23.9 11.3
----- ----- -----
As adjusted pro forma EBITDA (as defined) and full amount of
estimated annual adjustments.............................. $45.0 $31.4 $65.5
===== ===== =====
</TABLE>
14
<PAGE> 20
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary historical consolidated financial information of the Company
presented below was derived from the consolidated financial statements of the
Company as of and for each of the years in the five-year period ended September
30, 1997, and for the nine months ended June 30, 1997 and 1998. The following
summary financial information is qualified in its entirety by, and should be
read in conjunction with, "Capitalization," "Selected Historical Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," and the Consolidated Financial
Statements of the Company, together with the notes thereto, included elsewhere
in this Prospectus. For accounting purposes, the Greenmarine Acquisition was
treated as a purchase transaction and, accordingly, the summary historical
consolidated financial information of the Company prior to the Greenmarine
Acquisition is not comparable in all respects to the historical consolidated
financial information for subsequent periods. The Company's consolidated
financial data for the nine month periods ended June 30, 1997 and 1998 have been
derived from the Company's unaudited consolidated financial statements which, in
the opinion of management, contain all normal recurring adjustments necessary
for fair presentation of the financial condition and results of operations for
such periods. Operating results for the nine months ended June 30, 1998 may not
be indicative of the results that can be expected for fiscal 1998.
<TABLE>
<CAPTION>
POST-MERGER
PRE-MERGER COMPANY COMPANY
---------------------------------------------------------------- -----------
NINE NINE
MONTHS MONTHS
ENDED ENDED
FISCAL YEARS ENDED SEPTEMBER 30, JUNE 30, JUNE 30,
-------------------------------------------------- ----------- -----------
1993 1994 1995 1996 1997 1997 1998(1)
-------- -------- -------- -------- ------ ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT FOR RATIOS)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................... $1,034.6 $1,078.4 $1,229.2 $1,121.5 $979.5 $709.9 $760.1
Gross earnings............... 218.0 252.0 297.4 229.3 153.0 114.0 169.3
Selling, general and
administrative expense.... 226.1 206.0 230.2 210.3 215.4 151.7 156.0
Restructuring charges(2)..... 144.8 -- -- 25.6 -- -- --
Change in control expenses-
compensation(3)........... -- -- -- -- 11.8 -- --
Earnings (loss) from
operations(4)............. (152.9) 46.0 67.2 (6.6) (74.2) (37.7) 13.3
OTHER DATA:
EBITDA (as defined)(5)....... 46.9 93.4 118.7 77.3 (0.9) 7.5 54.2
Capital expenditures......... 50.0 68.2 66.5 52.7 36.3 30.1 23.7
Net cash provided by
operating activities...... 39.6 57.3 51.4 91.1 (9.2) 11.9 12.8
Net cash used for investing
activities................ (51.9) (63.0) (65.8) (50.5) (26.1) (16.3) (16.4)
Net cash used for financing
activities................ (24.7) (19.7) (8.1) (2.9) (3.7) (6.4) (14.5)
Ratio of earnings to fixed
charges(6)................ N/A 4.3x 3.5x N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 35.5
Current assets............................................ 400.0
Interest Reserve Accounts(7).............................. 28.6
Total assets.............................................. 1,115.8
Total debt................................................ 289.4
Total shareholders' investment............................ 267.5
</TABLE>
(footnotes on following page)
15
<PAGE> 21
- ------------------------------
(1) On September 12, 1997, a wholly-owned subsidiary of Greenmarine Holdings
acquired beneficial ownership of more than 90% of the Company's common
stock. On September 30, 1997, the subsidiary merged with and into the
Company. This acquisition has been accounted for as a purchase and is deemed
to have occurred on September 30, 1997. The Company's balance sheet as of
June 30, 1998 and its results of operations for the nine months ended June
30, 1998 reflect the purchase accounting adjustments and, consequently, such
operating results are not directly comparable to results of operations in
prior periods.
(2) The restructuring charges recorded in fiscal 1993 related to closings and
transfers of manufacturing and distribution operations including severance
costs resulting from staff reduction programs as well as write-off of the
remaining intangibles of $75.8 million primarily related to the recreational
boat group. The restructuring charges recorded in fiscal 1996 related to
closings of distribution operations and write-down of manufacturing
facilities outside the United States.
(3) The change in control expense--compensation recorded in fiscal 1997 related
to compensation expenses resulting from the change in control as a result of
the Greenmarine Acquisition.
(4) The net loss reported in fiscal 1993 reflects an extraordinary charge of
$117.5 million representing a cumulative effect on prior years of changes in
accounting principles for income taxes and postretirement benefits other
than pensions.
(5) "EBITDA" represents earnings from operations (including income derived from
the Company's stern drive joint venture, net of joint venture expenses)
before depreciation and amortization (excluding debt discount amortization)
and restructuring charges, and, for the fiscal year ended September 30,
1997, "EBITDA" does not include a one-time $11.8 million charge due to a
change in control expense related to compensation expenses resulting from
the change in control as a result of the Greenmarine Acquisition. The
Company accrues for income from the stern drive joint venture, net of joint
venture expenses, in Other Income and has included it in EBITDA because it
reflects a recurring stream of revenue from the sale of the Company's stern
drive parts and accessories products. Income from the stern drive joint
venture, net of joint venture expenses, was $0.4 million, $4.1 million, $4.9
million, $4.4 million, $7.2 million, $4.6 million and $1.9 million for the
fiscal years ended 1993, 1994, 1995, 1996 and 1997, respectively, and for
the nine months ended June 30, 1997 and 1998, respectively. Information of
the type represented by EBITDA is widely used by securities analysts and is
presented here to provide additional information about the Company's ability
to meet its future debt service, capital expenditures and working capital
requirements. While management believes that EBITDA is an appropriate
approximation of the Company's liquidity, as well as an appropriate
measurement to use in evaluating the Company's operating performance, EBITDA
should not be considered as an alternative to, or more meaningful than,
income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity, and should not be construed as an indication of a
company's operating performance or as a measure of liquidity. EBITDA as
presented herein may be calculated differently by other companies and,
accordingly, the amounts presented herein may not be comparable to similarly
titled measurements of other companies.
(6) For purposes of the computations, earnings before fixed charges consist of
income (loss) before the provision for income taxes and fixed charges; fixed
charges consist of interest expense, including the interest portion of
rental obligations on capitalized and noncapitalized leases and amortization
of debt discount and deferred debt expenses. Earnings were inadequate to
cover fixed charges for fiscal 1993, fiscal 1996, fiscal 1997, the nine
months ended June 30, 1997 and June 30, 1998. The amounts of additional
earnings that would have been required to cover fixed charges for such
periods are $159.9 million, $10.4 million, $76.3 million, $24.5 million and
$0.7 million, respectively.
(7) Funds deposited in the Interest Reserve Accounts will be held by a
depositary as a contingency reserve for future interest payments on Senior
Debt (as defined). See "Description of Notes--Interest Reserve Accounts."
16
<PAGE> 22
RISK FACTORS
Prospective investors should carefully consider the following factors,
together with the other information set forth in this Prospectus, before making
an investment decision. The risk factors set forth below are generally
applicable to the Old Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company has substantial indebtedness and debt service obligations.
Approximately 12% of the Company's outstanding borrowings bear interest at
variable rates. As of June 30, 1998, the Company had total consolidated
indebtedness and stockholder's equity of approximately $289.4 million and $267.5
million, respectively. For the year ended September 30, 1997, pro forma for the
Initial Offering and the application of the net proceeds therefrom, the
Company's earnings would have been insufficient to cover its fixed charges by
$70.4 million. For the nine months ended June 30, 1998, the Company's earnings
were insufficient to cover its fixed charges by approximately $0.7 million. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company's high level of indebtedness will have important consequences
for its future operations, including, but not limited to, the following: (i) a
substantial portion of its cash flow from operations must be dedicated to debt
service and will not be available for other purposes; (ii) the Company's ability
to obtain additional debt financing in the future for working capital, capital
expenditures or acquisitions may be limited; (iii) the level of indebtedness
could increase the Company's vulnerability to adverse changes in the marine
industry and general economic conditions; (iv) the Company may be placed at a
competitive disadvantage with respect to its competitors; and (v) a portion of
the Company's borrowings bear interest at variable rates of interest which could
result in higher interest expense in the event of an increase in market interest
rates.
The Indenture governing the Notes restricts, among other things, the
ability of the Company and its subsidiaries to incur additional indebtedness, to
encumber or sell assets, to enter into transactions with affiliates and to make
certain investments. In addition, the Credit Agreement contains certain other
and more restrictive covenants and prohibits the Company and its subsidiaries
from prepaying other indebtedness, including the Notes. The Credit Agreement
also requires the Company to maintain specified financial ratios and satisfy
certain financial condition tests. The Company's ability to meet those financial
ratios and tests can be affected by events beyond its control, and there can be
no assurance that the Company will meet those tests. Certain of the Company's
other debt instruments contain financial and other restrictive covenants,
including restrictions on the Company's ability to incur certain secured
indebtedness and to enter into certain sale and lease-back transactions. A
violation of any of such covenants would result in an event of default which, if
not cured or waived, could prevent the Company from making additional borrowings
under the Credit Agreement and otherwise have a material adverse effect on the
Company. See "Description of Notes" and "Description of Certain Other
Indebtedness."
Based upon the current level of operations and anticipated cost savings,
the Company believes that its cash flow from operations, together with
borrowings under the Credit Agreement, the Interest Reserve Accounts and its
other sources of liquidity, will be adequate to meet its anticipated requirement
for working capital and accrued liabilities, capital expenditures, interest
payments and scheduled principal payments over the next several years. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition; Liquidity and Capital Resources." There can be
no assurance, however, that the Company's business will continue to generate
cash flow at or above current levels or that anticipated costs savings can be
fully achieved. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt and accrued liabilities and make
necessary capital expenditures, or if its future earnings growth is insufficient
to amortize all required principal payments out of internally generated funds,
the Company may be required to refinance all or a portion of its existing debt,
sell assets or obtain additional financing. There can be no assurance that any
such refinancing or asset sales would be possible or that any additional
financing could be obtained, particularly in view of the Company's high level of
debt.
17
<PAGE> 23
DECLINING MARKET SHARE AND SALES; NET LOSSES; ABILITY TO EXECUTE TURNAROUND
STRATEGY
The Company's market share in the U.S. boat market has declined from 20% in
fiscal 1993 to 13% as of July 31, 1998, and its market share in the U.S. engine
market has declined from 49% in fiscal 1993 to 35% as of July 31, 1998. The
Company's net sales have declined from $1,229.2 million in fiscal 1995 to $979.5
million in fiscal 1997. The declining sales in fiscal 1996 and fiscal 1997
contributed to net losses of $7.3 million and $79.1 million in the respective
years. The Company estimates that approximately 10% of its decline in market
share with respect to its outboard marine engines was due to the loss of a major
customer in fiscal 1994. The loss of this customer resulted from Brunswick
Corporation, one of the Company's major competitors, acquiring an equity
interest in the customer. Since the Company's new senior management team was
hired, the Company's earnings (loss) from operations has improved by $51.0
million to $13.3 million for the nine months ended June 30, 1998 from $(37.7)
million for the comparable period in fiscal 1997, and EBITDA (as defined) has
improved by $46.7 million to $54.2 million for the nine months ended June 30,
1998 from $7.5 million for the comparable period in fiscal 1997. However, there
can be no assurance that net sales and market share will not continue to decline
or that the Company will not continue to report net losses in the future.
Under its new ownership and management, the Company has implemented various
revenue-enhancing and cost-reducing initiatives as part of its business
strategy. See "Business--Business Strategy." The success of the Company's
strategy will be dependent upon a number of factors, many of which are beyond
the Company's control. These factors include: substantial market acceptance for
the Company's existing or future products; the ability of the Company to attract
and retain qualified personnel; the successful integration of its newest
management members; the condition of the marine industry; and the domestic and
international economy in general, and the other risks referred to in "Risk
Factors." There can be no assurance that the Company's business strategy, or all
elements thereof, will be fully implemented or, if implemented, that the
anticipated benefits of the initiatives will be realized.
HIGHLY CYCLICAL INDUSTRY
The Company's business is highly cyclical, and its operations are highly
dependent on a number of factors relating to or affecting consumer spending.
Sales of the Company's products are closely linked to the condition of the
overall economy and are influenced by local, national and international economic
conditions, as well as interest rates and the availability of fuel. In an
economic downturn, consumer discretionary spending levels are reduced, often
resulting in disproportionately large declines in the sale of relatively
expensive items such as recreational boats. Similarly, rising interest rates
could have a negative impact on consumers' ability, or willingness to obtain
financing from lenders, which could also adversely affect the ability of the
Company to sell its products. Even if prevailing economic conditions are
positive, consumer spending on non-essential goods such as recreational boats
can be adversely affected due to declines in consumer confidence levels. Total
unit sales of outboard boats in the United States fell from a high of 355,000
units in 1988 to 192,000 units in 1992, while total unit sales of outboard
engines in the United States fell from a high of 460,000 units to 272,000 units
during the same time period. The sales decline in the marine industry during
this period was the worst such decline in the last 30 years. Although annual
U.S. purchases of boats and engines increased to 336,960 and 317,000,
respectively, in 1995, unit sales declined in 1996 and again in 1997, when
reported U.S. sales of boats and engines were 304,600 and 302,000, respectively.
The Company believes these declines were partially due to adverse weather
conditions. See "--Seasonality; Weather Conditions" and "Business--Industry
Overview."
SEASONALITY; WEATHER CONDITIONS
The Company's business is seasonal due to the impact of the buying patterns
of its dealers and consumers. The Company's peak revenue periods historically
have been its fiscal quarters ending June 30 and September 30, respectively.
Because of the seasonality of the Company's business, the results of operations
for any fiscal quarter are not necessarily indicative of the results for the
full year. Additionally, an event which adversely affects the Company's business
during any of these peak periods could have a material adverse effect on the
Company's financial condition or results of operations for the full year. The
Company's business is also
18
<PAGE> 24
affected by weather patterns which may adversely impact the Company's operating
results. For example, excessive rain during the Spring and Summer, the peak
retail sales periods, or unseasonably cool weather and prolonged winter
conditions may curtail customer demand for the Company's products. Although the
geographic diversity of the Company's dealer network will reduce the overall
impact on the Company of adverse weather conditions in any one market area, such
conditions will continue to represent potential adverse risks to the Company's
financial performance.
RELIANCE ON PATENTS AND INTELLECTUAL PROPERTY; CERTAIN ALLEGATIONS REGARDING
FICHT TECHNOLOGY
The Company's engine manufacturing business relies heavily on patented and
other proprietary technology. The Company relies upon a combination of patent,
trademark and trade secret laws, together with licenses, confidentiality
agreements and other contractual covenants to establish and protect its
technology and other intellectual property rights. Wherever legally permissible
and appropriate, the Company files applications to acquire its patents and
register its trademarks and service marks in the United States and many foreign
countries where the Company currently sells its products or could reasonably be
expected to sell products in future years. There can be no assurance that the
patent applications submitted by the Company or its licensors will result in
patents being issued or that if issued, such patents or pre-existing patents
will afford adequate protection against competitors with similar technology.
There can also be no assurance that any patents issued to or licensed by the
Company will not be infringed upon or designed around by others, that others
will not obtain patents that the Company will need to license or design around,
that the Company's products will not inadvertently infringe upon the valid
patents of others or that others will not manufacture and distribute the
Company's patented products upon expiration of such patents. In addition, there
can be no assurance that key patents of the Company will not be invalidated or
that the Company or its licensors will have adequate funds to finance the high
cost of prosecuting or defending patent validity or infringement issues.
The Company has recently received correspondence from Orbital Engine
Corporation Limited ("Orbital") alleging that the Company's FICHT fuel-injected
150-horsepower engines infringe two Australian Orbital patents, which correspond
to three U.S. patents and to a number of foreign patents. The Company believes
that it has substantial defenses to these allegations, including that the three
corresponding U.S. patents are not infringed and/or are invalid. However, there
can be no assurance that Orbital will not commence litigation against the
Company with respect to this matter or, if such litigation is commenced, that
the Company's defenses will be successful. If Orbital is successful in an action
against the Company, the Company could be required to obtain a license from
Orbital to continue the manufacture, sale, use or sublicense of FICHT products
and technology or it may be required to redesign its FICHT products and
technology to avoid infringement. There can be no assurance that any such
license could be obtained or that any such redesign would be possible. There
also can be no assurance that the failure to obtain any such license or effect
any such redesign, or any cost associated therewith, would not have a material
adverse effect on the Company. The sale of FICHT engines accounted for
approximately 2% of the Company's revenues in fiscal 1997 and approximately 8%
of the Company's revenues in the first three quarters of fiscal 1998. See
"Business--Intellectual Property."
COMPETITION
All the fields in which OMC is engaged are highly competitive. The Company
faces competition on international, national, regional and local levels. OMC's
principal competition in the domestic and international outboard engine market
is from Brunswick Corporation and Yamaha Motor Co., Ltd. In the boat
manufacturing industry, there are hundreds of manufacturers which compete with
OMC, the largest of which in the United States are Brunswick Corporation, Genmar
Industries, Inc., and Tracker Marine, L.P. Many of OMC's competitors in the boat
manufacturing industry are smaller, regional builders who may possess cost
advantages over the Company's boat manufacturing operations. In addition, the
Company faces competition generally from other forms of recreational products
and activities such as golf, camping and recreational vehicles. Many of the
Company's competitors, including Brunswick Corporation and Yamaha Motor Co.,
Ltd., are large, vertically integrated companies that may have greater
resources, including financial resources, than the Company. Although the Company
believes that its products are well recognized in the markets in
19
<PAGE> 25
which the Company competes and that it can effectively continue to compete in
these markets, there can be no assurance that such competition will not
adversely affect the Company's results of operations or ability to maintain or
increase sales and market share.
DEPENDENCE UPON KEY PERSONNEL
Since the Company's acquisition by Greenmarine Holdings, the Company has
replaced a large portion of its management team. The ability of the Company to
turnaround its operations and restore profitability is highly dependent upon
certain members of this senior management team. The loss of certain of these
managers could have a material adverse effect upon the Company's business. The
Company has employment agreements with David D. Jones, its President and Chief
Executive Officer, and Andrew P. Hines, its Executive Vice President and Chief
Financial Officer. However, these employment agreements do not preclude Mr.
Jones or Mr. Hines from voluntarily terminating their employment with the
Company. The Company does not maintain key-man life insurance with respect to
any of its officers. The Company's success will also depend on its ability to
attract and retain highly skilled and qualified personnel. See "Management."
FOREIGN OPERATIONS
The Company has manufacturing and assembly operations in Mexico, China,
Hong Kong, Brazil, Australia and Canada and sells its products worldwide. For
the nine months ended June 30, 1998 and for fiscal 1997, approximately 26% of
the Company's net sales were derived from operations conducted outside the
United States. In addition, as of June 30, 1998, approximately 16% of the
Company's assets were located outside the United States. Foreign operations are
subject to special risks that can materially affect sales of the Company and the
value of the Company's foreign assets, including currency exchange rate
fluctuations, the impact of inflation, government expropriation, exchange
controls and other restrictions on the repatriation of earnings, political
instability, civil insurrection and other risks. Changes in certain exchange
rates could have an adverse effect on the relative prices at which the Company
and foreign competitors sell their products in the same market and on the
Company's ability to meet interest and principal obligations with respect to its
U.S. dollar-denominated debt. Similarly, the cost of certain items required in
the Company's operations may be affected by changes in the value of the relevant
currencies. Specifically, the substantial devaluation of the Japanese yen since
the beginning of the fourth quarter of fiscal 1997 has improved the competitive
position of several of the Company's Japanese competitors by decreasing the
sales price in U.S. dollars of their Japanese products in the U.S. market. While
the Company hedges certain exposures to foreign currency exchange rate changes
arising in the ordinary course of business, there can be no assurance that the
Company will be successful and that shifts in currency exchange rates will not
have a material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Condition;
Liquidity and Capital Resources" and Notes 10 and 16 to the Consolidated
Financial Statements included elsewhere herein.
ENVIRONMENTAL AND REGULATORY COMPLIANCE
The Company is subject to regulation under various federal, state and local
laws relating to the environment and to employee safety and health. These laws
include those relating to the generation, storage, transportation, disposal and
emission into the environment of various substances, those relating to drinking
water quality initiatives and those which allow regulatory authorities to compel
(or seek reimbursement for) cleanup of environmental contamination arising at
its owned or operated sites and at facilities where its waste is being or has
been disposed. The Company believes it is in substantial compliance with such
laws except where such noncompliance is not expected to have a material adverse
effect. The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund") and similar state laws impose joint, strict, and
several liability on (i) owners or operators of facilities at, from, or to which
a release of hazardous substances has occurred; (ii) parties who generated
hazardous substances that were released at such facilities; and (iii) parties
who transported or arranged for the transportation of hazardous substances to
such facilities. A majority of states have adopted Superfund statutes comparable
to, and in some cases more stringent than, CERCLA. The Company has been notified
that it is named a potentially responsible party
20
<PAGE> 26
("PRP") at various sites for study and clean-up costs. In some cases there are
several named PRPs and in others there are hundreds. The Company generally
participates in the investigation or clean-up of these sites through cost
sharing agreements with terms which vary from site to site. Costs are typically
allocated based upon the volume and nature of the materials sent to the site.
However, as a PRP, the Company can be held jointly and severally liable for all
environmental costs associated with a site. As of June 30, 1998, the Company has
accrued approximately $22.0 million for costs relating to remediation at
contaminated sites, including operation and maintenance for continuing and
closed-down operations. The Company believes that these reserves are adequate,
although there can be no assurance that this amount will be adequate to cover
such known or unknown matters. See "Business--Environmental Matters" and Note 18
to the Consolidated Financial Statements included elsewhere herein.
The EPA has adopted regulations governing emissions from two-stroke marine
engines. As adopted, the regulations as they relate to outboard engines phase in
over nine years, beginning in model year 1998 and concluding in model year 2006.
With respect to personal watercraft, the regulations phase in over eight years,
beginning in model year 1999 and concluding in model year 2006. Marine engine
manufacturers will be required to reduce hydrocarbon emissions from outboard
engines, on average, by 8.3% per year beginning with the 1998 model year, and
emissions from personal watercraft by 9.4% per year beginning in model year
1999. In 1994, the Company announced "Project LEAP," a project to convert its
entire outboard product line to low-emission products within the next decade. To
date, the Company estimates that it has spent approximately $50.0 million on
Project LEAP, including the introduction of its new FICHT fuel-injection
technology and four-stroke outboard engines, and by the Year 2006 the Company is
expected to have expended an aggregate of approximately $90.0 million to meet
the EPA's new emissions standards. See "Business--Research and Development" and
"--Environmental Matters." The Company does not believe that compliance with
these standards, which will add cost to the Company's engine products and will
initially result in a lower margin to the Company, will be a major deterrent to
sales. The Company believes that its new compliant technology will add value to
its products at the same time that the entire industry is faced with developing
solutions to the same regulatory requirements. In addition, the Company has
implemented several initiatives to reduce the manufacturing costs of its new
engines. Although there can be no assurance, the Company does not believe that
compliance with these new EPA regulations will have a material adverse effect on
future results of operations or the financial condition of the Company.
Additionally, certain states have required or are considering requiring a
license to operate a recreational boat. While such licensing requirements are
not expected to be unduly restrictive, regulations may discourage potential
first-time buyers, which could affect the Company's business, financial
condition and results of operations. In addition, certain state and local
government authorities are contemplating regulatory efforts to restrict boating
activities, including the use of engines, on certain inland bodies of water.
While the Company cannot assess the impact that any such regulations would have
on its business until such regulations are formally enacted, depending upon the
scope of any such regulations, they could have a material adverse effect on the
Company's business.
The Company cannot predict the environmental legislation or regulations
that may be enacted in the future or how existing or future laws or regulations
will be administered or interpreted. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of the regulatory
agencies or stricter interpretation of existing laws, may require additional
expenditures by the Company, some or all of which may be material.
INTANGIBLE ASSETS
As of June 30, 1998, the Company's balance sheet included approximately
$327 million of unamortized intangible assets, which is greater than 29% of the
total assets of the Company and 122% of the shareholders' equity. The current
amortization rate on the unamortized intangible assets is almost $9 million per
year.
Goodwill represents the excess of the cost of the businesses acquired over
the fair value of the net identifiable assets. United States generally accepted
accounting principles require goodwill and other intangibles to be amortized
over the period benefited, which management has determined to be between 15
21
<PAGE> 27
and 40 years. Management continually monitors events and circumstances both
within the Company and within the industry to determine if any event or
circumstance could warrant revisions to the Company's estimated useful life of
the goodwill and/or other intangible assets. If management determined that a
reduction of the useful life of the intangible assets is necessary, it could
have a material impact on the Company's results of operations.
YEAR 2000 ISSUES AND CONSEQUENCES
During fiscal 1997 and fiscal 1998, the Company assessed the steps
necessary to address matters related to "Year 2000" issues. This review included
all of the Company's hardware and software requirements worldwide, including
processors embedded in manufacturing equipment, as well as vendors of goods and
services. Based on this review, the Company has developed a strategy for
attaining Year 2000 compliance that includes modifying and replacing software,
acquiring new hardware, educating its dealers and distributors and working with
its vendors of goods and services. The Company is in the process of implementing
and testing remedies of the issues identified during the assessment phase and
anticipates completing all implementation and testing of internal remedies by
June 30, 1999. The Company has also initiated formal communications with its
significant vendors to determine their readiness for Year 2000 issues. To date,
the Company has spent approximately $3 million on personal computer and network
mainframe and telecommunication solutions to issues related with the Year 2000
and estimates that it will spend up to a total of $10 million, half of which is
associated with personal computers and networks, to remedy all of the issues
associated with ensuring that its hardware and software worldwide, and the
systems associated therewith, are able to operate properly in the Year 2000.
The Company believes that its owned or licensed hardware and software will
be able to operate properly into the Year 2000. However, the Company relies on
the goods and services of other companies in order to manufacture and deliver
its goods to the market. Although the Company is taking every reasonable step to
ensure that these vendors will be able to continue to provide their goods or
services, there can be no assurance that, even upon certification of their
ability to do so, the Company's vendors will be able to provide their goods and
services to the Company in a manner that satisfactorily addressed the Year 2000
issues. In the event that a vendor is critical and either no alternate vendor is
available or is able to operate into the Year 2000, this could have a material
adverse effect on the Company's business, results of operations, or financial
condition. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations--Year 2000 Matters."
RISKS RELATED TO PROJECTIONS
The projections set forth under "Summary--Summary Pro Forma and Projected
Financial Data" and "Projected Financial Information," while presented with
numerical specificity, are based upon a number of estimates and assumptions.
Though considered reasonable by the Company, such estimates and assumptions are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of the
Company, and upon assumptions with respect to future business strategies and
decisions which are subject to change. The Projections were not prepared with a
view toward compliance with published guidelines of the American Institute of
Certified Public Accountants, any regulatory or professional agency or body, or
generally accepted accounting principles. Moreover, neither Arthur Andersen LLP,
the independent public accountants for the Company, nor the Initial Purchasers
have compiled or examined the Projections and, accordingly, they express no
opinion or any other form of assurance with respect to, assume no responsibility
for and disclaim any association with the Projections. While the Company
believes the Projections are based upon reasonable assumptions and estimates,
actual results will vary and such variations may be material. This Prospectus
also includes projections of industry growth rates by industry sources. Such
projections are also subject to uncertainties, contingencies and assumptions.
Projections are necessarily speculative in nature, and it is usually the case
that one or more of the assumptions underlying the projections will not
materialize. Furthermore, the Company does not intend to update or revise the
Projections to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events, unless, in the Company's
opinion, such events have materially effected the financial
22
<PAGE> 28
condition of the Company or resulted in the Projections no longer having a
reasonable basis. Prospective purchasers of the Notes are cautioned not to rely
on any of the projections included herein.
RANKING
The Notes will be senior unsecured obligations of the Company (except as
provided with respect to the applicable Interest Reserve Account) and will rank
pari passu in right of payment with all existing and future senior
unsubordinated indebtedness of the Company and senior in right of payment to all
existing and future subordinated indebtedness of the Company. The Subsidiary
Guarantees will be general unsecured obligations of the Subsidiary Guarantors
(except as provided with respect to the applicable Interest Reserve Account) and
will rank pari passu in right of payment with all existing and future
unsubordinated indebtedness of the Subsidiary Guarantors, and senior in right of
payment to all existing and future subordinated indebtedness of the Subsidiary
Guarantors. The Notes and the Subsidiary Guarantees will be effectively
subordinated to secured obligations of the Company and the Subsidiary
Guarantors, respectively (including the Company's and the Subsidiary Guarantors'
obligations under the Credit Agreement, to the extent of the assets securing
such obligations) and to all indebtedness and other obligations of each
Non-Guarantor Subsidiary. As of June 30, 1998, the Notes and the Subsidiary
Guarantees would have been effectively subordinated to approximately $61.9
million of secured obligations of the Company and the Subsidiary Guarantors
(including an aggregate of $18.8 million of letter of credit obligations under
the Credit Agreement) and $24.9 million of indebtedness and other obligations of
the Non-Guarantor Subsidiaries. See "Capitalization."
BANKRUPTCY RISK RELATED TO INTEREST RESERVE ACCOUNTS
The right of the trustee under the Depositary Agreement (as defined) to
foreclose on the Notes Interest Account (as defined) upon the occurrence of any
event of default on the Notes is likely to be significantly impaired by
applicable law if a bankruptcy or reorganization case were to be commenced by or
against the Company. Upon the commencement of a bankruptcy case, for example,
the trustee will be automatically stayed from commencing or continuing any
foreclosure action absent an order from the bankruptcy court. In addition, the
cash in the Interest Reserve Accounts may be deemed "cash collateral" which the
Company may be able to use (subject to bankruptcy court order and adequate
protection to the trustee) for purposes other than those specified under the
Depositary Agreement. Moreover, payments of interest from the Interest Reserve
Accounts, or payments to replenish the balance thereof, made within 90 days of
the commencement of a bankruptcy case may be deemed preferences and, therefore,
recoverable from recipients or immediate transferees of such recipients. If such
payments are made to "insiders" (as defined in the Bankruptcy Code), the
applicable preference period will increase from 90 days to one year. Further,
under a plan of reorganization, the maturity date and interest rate associated
with the claim secured by the Interest Reserve Accounts may be significantly
modified.
FRAUDULENT TRANSFER CONSIDERATIONS
Under relevant fraudulent transfer law, if a court were to find in a
lawsuit by an unpaid creditor or representative of creditors of the Company or a
Subsidiary Guarantor, that at the time the Company issued the Notes or at the
time the Subsidiary Guarantors issued the Subsidiary Guarantees either (i) the
Company or a Subsidiary Guarantor received less than fair consideration or
reasonable equivalent value for incurring the indebtedness represented by the
Notes or the Subsidiary Guarantees, and, at the time of such incurrence, the
Company or a Subsidiary Guarantor (a) was insolvent or was rendered insolvent by
reason of such incurrence, (b) was engaged or about to engage in a business or
transaction for which its remaining property constituted unreasonably small
capital or (c) intended to incur, or believed it would incur, debts beyond its
ability to pay as such debts mature, or (ii) the Notes or the Subsidiary
Guarantees were issued with actual intent to hinder, delay or defraud creditors,
such court could, among other things, (x) void all or a portion of the Company's
or such Subsidiary Guarantor's obligations to the holders of the Notes and/or
(y) subordinate the Company's or such Subsidiary Guarantor's obligations to the
holders of the Notes to other existing and future indebtedness of the Company or
such Subsidiary Guarantor, the effect of which would be to entitle such other
creditors to be paid in full before any payment could be made on the Notes or
Subsidiary Guarantees. In addition, because
23
<PAGE> 29
net proceeds from the issuance of the Old Notes was applied to repay outstanding
indebtedness under the Term Loan (as defined), a court may also consider the
solvency of the Company at the time when such indebtedness was incurred. The
measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all of its liabilities were greater than the
value of all of its property at a fair valuation, or if the present fair salable
value of the debtor's assets were less than the amount required to repay its
probable liability on its debts as they become absolute and mature. There can be
no assurance as to what standard a court would apply in order to determine
solvency.
On the basis of its historical financial information, its recent operating
results and other factors, the Company believes that (i) the Company was, at the
time it assumed indebtedness under the Term Loan and at the time it incurred
additional indebtedness under the Term Loan, and will be, at the time the Old
Notes were issued, and (ii) each Subsidiary Guarantor was, at the time the
Subsidiary Guarantees were issued, and that the Company and each Subsidiary
Guarantor will continue to be solvent, that each will have sufficient capital to
carry on its business and will continue to be able to pay its debts as they
mature. There can be no assurance, however, that a court would necessarily agree
with these conclusions.
CONTROL BY PRINCIPAL STOCKHOLDER
Greenmarine Holdings holds 99.9% of the outstanding common stock of the
Company. Accordingly, Greenmarine Holdings can elect all of the directors of the
Board of Directors of the Company and controls all corporate transactions or
other matters required to be submitted to stockholders for approval, including
any merger, consolidation, or sale of all or substantially all of the Company's
assets. By reason of such stock ownership, Greenmarine Holdings may have
interests which could be in conflict with those of the holders of the Notes. See
"The Greenmarine Acquisition", "Management--Control by Greenmarine Holdings" and
"Security Ownership of Certain Beneficial Owners and Management" (including
Footnote 1 thereto).
CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any of such holder's Notes
at an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
thereon to the date of repurchase. See "Description of Notes--Repurchase at the
Option of Holders--Change of Control." In the event that a Change of Control
occurs, the Company would likely be required to refinance the indebtedness
outstanding under the Credit Agreement and the Notes. There can be no assurance
that the Company would be able to refinance such indebtedness or, if such
refinancing were to occur, that such refinancing would be on terms favorable to
the Company.
One of the events that would constitute a Change of Control under the
Indenture is a sale, lease, transfer or other disposition of all or
substantially all of the assets of the Company to any person other than a
Permitted Holder. Permitted Holders are defined in the Indenture to include
Greenmarine Holdings and its affiliates, Quasar Strategic Partners LDC and its
affiliates, Quantum Industrial Partners LDC and its affiliates, Quasar
Industrial Fund N.V. and its affiliates, Quantum Industrial Holdings Ltd and
Greenlake Holdings LLC and its affiliates, all of may be deemed affiliates of
the Company. Accordingly, the Company or its controlling shareholder,
Greenmarine Holdings, could effect such a sale or disposition to an affiliated
entity without resulting in a Change of Control under the Indenture and, thus,
without triggering the Company's obligation to offer to repurchase the Notes
upon a Change of Control. See "Risk Factors--Control by Principal Stockholder",
"Security Ownership of Certain Beneficial Owners and Management," "Description
of Notes--Repurchase at the Option of Holders--Change of Control," "Description
of Notes--Certain Definitions--Change of Control," and "Description of
Notes--Certain Definitions--Permitted Holders."
ABSENCE OF PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF EXCHANGE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange Offer,
there has not been any public market for the Old
24
<PAGE> 30
Notes. The Old Notes have not been registered under the Securities Act and will
be subject to restrictions on transferability to the extent that they are not
exchanged for Exchange Notes by holders who are entitled to participate in the
Exchange Offer. The market for Old Notes not tendered for exchange in the
Exchange Offer is likely to be more limited than the existing market for such
Notes. The holders of Old Notes (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who are not eligible to participate in the Exchange Offer are entitled to
certain registration rights, and the Company is required to file a Shelf
Registration Statement (as defined) with respect to such Old Notes. The Exchange
Notes will constitute a new issue of securities with no established trading
market. The Company does not intend to list the Exchange Notes on any national
securities exchange or seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchasers have advised the Company that they currently intend to make a market
in the Exchange Notes, but they are not obligated to do so and may discontinue
such market making at any time. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and may
be limited during the Exchange Offer and the pendency of the Shelf Registration
Statement. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of the trading
market for the Exchange Notes. If a trading market does not develop or is not
maintained, holders of Exchange Notes may experience difficulty in reselling the
Exchange Notes or may be unable to sell them at all. If a market for the
Exchange Notes develops, any such market making may be discontinued at any time.
FAILURE TO EXCHANGE OLD NOTES
Exchange Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal (or Agent's Message) and all other required
documentation. Therefore, holders of Old Notes desiring to tender such Old Notes
in exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange. Old Notes that are not tendered or are tendered but not accepted
will, following consummation of the Exchange Offer, continue to be subject to
the existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer, certain registration rights under the Registration Rights
Agreement will terminate. In addition, any holder of Old Notes who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities, and if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or any other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
To the extent that Old Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange Offer."
25
<PAGE> 31
THE GREENMARINE ACQUISITION
On September 12, 1997, Greenmarine Holdings acquired control of
approximately 90% of the then outstanding shares of common stock ("Pre-Merger
Company Shares") of Outboard Marine Corporation through an $18.00 per share
tender offer pursuant to Greenmarine Holdings' Offer to Purchase dated August 8,
1997 (the "Tender Offer"). On September 30, 1997, Greenmarine Holdings acquired
the untendered Pre-Merger Company Shares by merging an acquisition subsidiary
with and into the Company (the "Merger"). As a result of the Merger, OMC became
a wholly-owned subsidiary of Greenmarine Holdings; each untendered Pre-Merger
Company Share outstanding immediately prior to the Merger was converted into the
right to receive a cash payment of $18.00 per share; and 20.4 million shares of
new common stock of the Company were issued to Greenmarine Holdings. The Tender
Offer and the Merger are collectively referred to herein as the "Greenmarine
Acquisition."
Greenmarine Holdings currently beneficially owns over 99% of the
outstanding shares of common stock of the Company. The members of Greenmarine
Holdings are Greenlake Holdings LLC ("Greenlake"), Quasar Strategic Partners LDC
("QSP") and Quantum Industrial Partners LDC ("QIP"). Greenlake, QSP and QIP have
approximately a 30.5%, 34.75% and 34.75% interest in Greenmarine Holdings,
respectively. Greenlake is controlled by Mr. Alfred D. Kingsley and Mr. Gary K.
Duberstein. QSP and QIP are entities affiliated with Soros Fund Management LLC.
See "Security Ownership of Certain Beneficial Owners and Management" (including
Footnote 1 thereto).
To finance a portion of the funds required to effect the Greenmarine
Acquisition, the acquisition subsidiary of Greenmarine Holdings entered into a
Credit Agreement, dated August 13, 1997, with American Annuity Group, Inc. and
Great American Insurance Company, as lenders, pursuant to which the lenders
provided a $150.0 million term loan (the "Term Loan"). The Term Loan bore
interest at a rate of 10% per annum and was by its terms due on June 16, 1998.
The proceeds of the Term Loan were used to acquire Pre-Merger Company Shares in
the Tender Offer and the Merger, and to repurchase a portion of the Company's 7%
Convertible Subordinated Debentures due 2002 (the "Convertible Debentures"),
which the Company was required to offer to repurchase as a result of the
Greenmarine Acquisition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition; Liquidity and Capital
Resources" and "Description of Certain Other Indebtedness--Subordinated Debt
Securities--7% Convertible Subordinated Debentures Due 2002." In connection with
the Merger, the Company assumed all of the borrower's obligations under the Term
Loan. The net proceeds of the sale of the Old Notes were used to prepay the Term
Loan. See "Use of Proceeds." To finance the remaining portion of the funds
required to consummate the Greenmarine Acquisition, each of QSP and QIP
contributed $96.25 million to Greenmarine Holdings and Greenlake contributed
$48.5 million and 2.0 million Pre-Merger Company Shares to Greenmarine Holdings.
26
<PAGE> 32
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement.
The Company will not receive any cash proceeds from the issuance of the Exchange
Notes offered hereby. In consideration for issuing the Exchange Notes
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount, the form and terms of which are the same as the forms and
terms of the Exchange Notes (which replace the Old Notes), except as otherwise
described herein. The Old Notes surrendered in exchange for Exchange Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase or decrease in the indebtedness
of the Company. As such, no effect has been given to the Exchange Offer in the
pro forma statements or capitalization tables.
The net proceeds to the Company from the sale of the Old Notes were $155.2
million (after deduction of discounts to the Initial Purchasers). The net
proceeds of the sale of the Old Notes were used to prepay the $150.0 million
principal amount of the Term Loan, plus accrued and unpaid interest thereon
(approximately $1,083,000). In addition, approximately $4.1 million of the net
proceeds of the sale of the Old Notes and $24.5 million of available cash, in
aggregate representing an amount sufficient to pay one year of pro forma
interest on the Company's Senior Debt, were used to fund the Interest Reserve
Accounts. In certain instances, the Company will be required to contribute
additional amounts to the Interest Reserve Accounts to maintain the Required
Amount. The Depositary Agreement allows the Depositary Agent to foreclose upon
the net proceeds of the Interest Reserve Accounts upon the occurrence of any
default or event of default under the Indenture or the Credit Agreement. See
"Description of Notes--Interest Reserve Accounts."
27
<PAGE> 33
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of June 30, 1998. This table should be read in conjunction with "Use of
Proceeds," "Selected Historical Consolidated Financial Data" and the
Consolidated Financial Statements, and the related notes thereto, included
elsewhere herein.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1998
---------------------
(UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents................................... $ 35.5
Interest Reserve Accounts(1)................................ 28.6
Total debt (including current portion of long-term debt):
Credit Agreement(2)....................................... $ 30.0
10 3/4% Senior Notes due 2008(3).......................... 155.3
9 1/8% Debentures due 2017................................ 62.6
Medium-Term Notes due 1999 to 2001(4)..................... 21.3
Industrial Revenue Bonds due 2002 to 2007 and other
debt(5)................................................ 13.1
7% Convertible Subordinated Debentures due 2002(6)........ 7.1
------
Total debt............................................. 289.4
------
Total shareholders' investment.............................. 267.5
------
Total capitalization................................... $556.9
======
</TABLE>
- ------------------------------
(1) Funds deposited in the Interest Reserve Accounts are held by a depositary as
a contingency reserve for future interest payments on Senior Debt (as
defined). See "Description of Notes -- Interest Reserve Accounts."
(2) As of June 30, 1998, aggregate outstanding borrowings under the Credit
Agreement totalled $30.0 million. In addition, eight letters of credit in an
aggregate amount of $18.8 million were outstanding on that date. As of June
30, 1998, the Company had additional borrowing availability of approximately
$45.0 million under the Credit Agreement, after giving effect to the
borrowing base limitation and $18.8 million of outstanding letters of
credit. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition; Liquidity and Capital Resources"
and "Description of Certain Other Indebtedness--Credit Agreement."
(3) Excludes $4.7 million of unamortized discounts and commissions to the
Initial Purchasers in connection with the Initial Offering. The aggregate
principal amount of the 10 3/4% Senior Notes due 2008 outstanding is $160.0
million. See "Use of Proceeds."
(4) Interest rates on the Medium-Term Notes range from 8.160% to 8.625%. See
"Description of Certain Other Indebtedness--Senior Debt
Securities--Medium-Term Notes."
(5) Interest rates on the Industrial Revenue Bonds range from 6% to 12.037%.
(6) As a result of the Greenmarine Acquisition, the outstanding Convertible
Debentures are convertible into the right to receive a cash payment equal to
$809 for each $1,000 principal amount of Convertible Debentures so
converted. The outstanding Convertible Debentures are convertible at any
time prior to their maturity on July 1, 2002. See "Description of Certain
Other Indebtedness -- Subordinated Debt Securities -- 7% Convertible
Subordinated Debentures due 2002."
28
<PAGE> 34
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial information of the Company
presented below was derived from the consolidated financial statements of the
Company as of and for each of the years in the five-year period ended September
30, 1997 and for the nine months ended June 30, 1997 and 1998. For accounting
purposes, the Greenmarine Acquisition was treated as a "purchase" transaction
and, accordingly, the selected historical consolidated financial information of
the Company is not comparable in all respects to the historical consolidated
financial information for periods subsequent to the Greenmarine Acquisition. The
Company's consolidated financial data for the nine month periods ended June 30,
1997 and 1998 have been derived from the Company's unaudited consolidated
financial statements which, in the opinion of management, contain all normal
recurring adjustments necessary for fair presentation of the financial condition
and results of operations for such periods. Operating results for the nine
months ended June 30, 1998 may not be indicative of the results that can be
expected for fiscal 1998. The following selected financial information is
qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and the Consolidated Financial Statements of the
Company, together with the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
POST-MERGER
PRE-MERGER COMPANY COMPANY
------------------------------------------------------------------ -----------
NINE MONTHS NINE MONTHS
ENDED ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30, JUNE 30,
--------------------------------------------------- 1997 1998(1)
1993 1994 1995 1996 1997 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- ------- ------------ -----------
(DOLLARS IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................... $1,034.6 $1,078.4 $1,229.2 $1,121.5 $ 979.5 $ 709.9 $760.1
Cost of goods sold.................. 816.6 826.4 931.8 892.2 826.5 595.9 590.8
-------- -------- -------- -------- ------- ------- ------
Gross earnings...................... 218.0 252.0 297.4 229.3 153.0 114.0 169.3
Selling, general and administrative
expense........................... 226.1 206.0 230.2 210.3 215.4 151.7 156.0
Restructuring charges(2)............ 144.8 -- -- 25.6 -- -- --
Change in control
expenses--compensation(3)......... -- -- -- -- 11.8 -- --
-------- -------- -------- -------- ------- ------- ------
Earnings (loss) from operations..... (152.9) 46.0 67.2 (6.6) (74.2) (37.7) 13.3
Interest expense.................... 19.8 15.1 23.1 12.3 16.2 12.7 22.6
Change in control expenses.......... -- -- -- -- 15.1 -- --
Other (income)/expense, net......... (12.8) (22.5) (16.7) (8.5) (29.2) (25.9) (8.6)
-------- -------- -------- -------- ------- ------- ------
Earnings (loss) before provision for
income taxes...................... (159.9) 53.4 60.8 (10.4) (76.3) (24.5) (0.7)
Provisions (credit) for income
taxes............................. 5.1 4.9 9.4 (3.1) 2.8 2.2 3.2
-------- -------- -------- -------- ------- ------- ------
Net earnings (loss)(4).............. $ (282.5) $ 48.5 $ 51.4 $ (7.3) $ (79.1) $ (26.7) $ (3.9)
======== ======== ======== ======== ======= ======= ======
OTHER DATA:
EBITDA (as defined)(5).............. $ 46.9 $ 93.4 $ 118.7 $ 77.3 $ (0.9) $ 7.5 $ 54.2
Net cash provided by operating
activities........................ 39.6 57.3 51.4 91.1 (9.2) 11.9 12.8
Net cash used for investing
activities........................ (51.9) (63.0) (65.8) (50.5) (26.1) (16.3) (16.4)
Net cash used for financing
activities........................ (24.7) (19.7) (8.1) (2.9) (3.7) (6.4) (14.5)
Depreciation and amortization....... 55.6 44.0 47.6 54.7 57.0 41.2 40.4
Capital expenditures................ 50.0 68.2 66.5 52.7 36.3 30.1 23.7
Ratio of earnings to fixed
charges(6)........................ N/A 4.3x 3.5x N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRE-MERGER COMPANY POST-MERGER POST-MERGER
------------------------------------- COMPANY COMPANY
SEPTEMBER 30, SEPTEMBER 30, JUNE 30,
------------------------------------- ------------- -----------
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 104.4 $ 80.3 $ 58.3 $ 95.5 $ 54.4 $ 35.5
Working capital............ 173.9 196.2 253.4 214.2 (28.5)(7) 97.2
Total assets............... 791.8 817.1 907.0 873.7 1,179.0 1,115.8
Long-term debt............. 183.0 178.2 177.4 177.6 103.8 248.2
Total shareholders'
investment............... 160.9 209.0 255.8 237.6 277.0 267.5
</TABLE>
(footnotes on following page)
29
<PAGE> 35
- ------------------------------
(1) On September 12, 1997, a wholly-owned subsidiary of Greenmarine Holdings
acquired beneficial ownership of more than 90% of the Company's common
stock. On September 30, 1997, the subsidiary merged with and into the
Company. This acquisition has been accounted for as a purchase and is deemed
to have occurred on September 30, 1997. The Company's balance sheet as of
June 30, 1998 and its results of operations for the nine months ended June
30, 1998 reflect the purchase accounting adjustments and, consequently, such
operating results are not directly comparable to results of operations in
prior periods.
(2) The restructuring charges recorded in fiscal 1993 related to closings and
transfers of manufacturing and distribution operations including severance
costs resulting from staff reduction programs as well as write-off of the
remaining intangibles of $75.8 million primarily related to the recreational
boat group. The restructuring charges recorded in fiscal 1996 related to
closings of distribution operations and write-down of manufacturing
facilities outside the United States.
(3) The change in control expense--compensation recorded in fiscal 1997 related
to compensation expenses resulting from the change in control as a result of
the Greenmarine Acquisition.
(4) The net loss reported in fiscal 1993 reflects an extraordinary charge of
$117.5 million representing a cumulative effect on prior years of changes in
accounting principles for income taxes and postretirement benefits other
than pensions.
(5) "EBITDA" represents earnings from operations (including income derived from
the Company's stern drive joint venture, net of joint venture expenses)
before depreciation and amortization (excluding debt discount amortization)
and restructuring charges, and, for the fiscal year ended September 30,
1997, "EBITDA" does not include a one-time $11.8 million charge due to a
change in control expense related to compensation expenses resulting from
the change in control as a result of the Greenmarine Acquisition. The
Company accrues for income from the stern drive joint venture, net of joint
venture expenses, in Other Income and has included it in EBITDA because it
reflects a recurring stream of revenue from the sale of the Company's stern
drive parts and accessories products. Income from the stern drive joint
venture, net of joint venture expenses, was $0.4 million, $4.1 million, $4.9
million, $4.4 million, $7.2 million, $4.6 million and $1.9 million for the
fiscal years ended 1993, 1994, 1995, 1996 and 1997, and for the nine months
ended June 30, 1997 and 1998, respectively. EBITDA is widely used by
securities analysts and is presented here to provide additional information
about the Company's ability to meet its future debt service, capital
expenditures and working capital requirements. While management believes
that EBITDA is an appropriate approximation of the Company's liquidity, as
well as an appropriate measurement to use in evaluating the Company's
operating performance, EBITDA should not be considered as an alternative to,
or more meaningful than, income from operations or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles), as a measure of liquidity, and should not be
construed as an indication of a company's operating performance or as a
measure of liquidity. EBITDA as presented herein may be calculated
differently by other companies and, accordingly, the amounts presented
herein may not be comparable to similarly titled measurements of other
companies.
(6) For purposes of the computations, earnings before fixed charges consist of
income (loss) before the provision for income taxes and fixed charges; fixed
charges consist of interest expense, including the interest portion of
rental obligations on capitalized and noncapitalized leases and amortization
of debt discount and deferred debt expenses. Earnings were inadequate to
cover fixed charges for fiscal 1993, fiscal 1996, fiscal 1997, the nine
months ended June 30, 1997 and the nine months ended June 30, 1998. The
amounts of additional earnings that would have been required to cover fixed
charges for such periods are $159.9 million, $10.4 million, $76.3 million,
$24.5 million and $0.7 million, respectively.
(7) Working capital as of September 30, 1997 includes $96.0 million in principal
amount of the Term Loan, which had been classified as short-term
indebtedness.
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<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the more
detailed information and Consolidated Financial Statements of the Company,
together with the notes thereto, included elsewhere in this Prospectus.
GENERAL
Industry Overview. In general, the recreational marine industry is highly
cyclical. Industry sales are impacted by the general state of the economy,
interest rates, consumer spending, technology, dealer effectiveness,
demographics, fuel availability and government regulations. In addition, the
Company's business is impacted by weather patterns. For example, excessive rain
during the Spring and Summer, the peak retail sales periods, or unseasonably
cool weather and prolonged winter conditions may curtail customer demand for the
Company's products. See "Risk Factors--Highly Cyclical Industry" and
"--Seasonality; Weather Conditions."
Fiscal 1997 Operating Results. In fiscal 1997, the Company's sales declined
12.7% from $1,121.5 million in fiscal 1996 to $979.5 million in fiscal 1997, and
the Company reported a net loss in fiscal 1997 of $79.1 million. Although the
recreational boating industry as a whole experienced a downturn in sales in
1997, the Company believes that its results were adversely affected by several
unusual occurrences. Among these was the distraction of former senior management
following the announcement by the prior Board of Directors in April 1997 of its
intention to sell the Company. This decision culminated in the Greenmarine
Acquisition in September 1997. In addition, due to the soft unit sales
environment and an unusually high level of dealer engine inventories at the
beginning of fiscal 1997, the Company elected to reduce its planned engine
production levels to allow dealer inventories to return to normal levels. As a
result, management believes that dealer inventory of the Company's outboard
engines declined by approximately 17,200 units between fiscal 1996 and fiscal
1997. Had the Company not made the decision to assist dealers in reducing
inventory levels and replaced all inventory sold by dealers during this period
of time, the Company estimates that it would have generated an additional
$20,000,000 in gross earnings for the fiscal year. In addition, the reduced
production volume associated with lower unit sales and shutdowns for equipment
changes to improve quality resulted in significant costs relating to unscheduled
downtime in the Company's manufacturing operations.
During fiscal 1997, the Company incurred approximately $24.9 million of
expenses that management deems to be unusual or infrequent in nature. These
additional charges included the following: (i) changes in accounting estimate
resulting from the early adoption of the AICPA Statement of Position 96-1,
"Environmental Remediation Liabilities", which required the Company to accrue
for future normal operating and maintenance costs for site monitoring and
compliance requirements at particular sites ($7.0 million); (ii) additional
accruals for warranty expenses at the Company's Boat Group that resulted from
the Company extending the warranty claim acceptance period on certain models and
revising the lag factor used to estimate the warranty reserve ($9.7 million);
(iii) an additional accrual relating to salt water intrusion issues on certain
engines sold in international markets, which have since been resolved ($1.0
million); (iv) the write-off of impaired assets (based on adoption of the
Financial Accounting Standards Board's Statement of Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of.") relating to the Chris Craft line of boats as a result of the
Company's analysis of the Chris Craft division's undiscounted future cash flows
being insufficient to recover the carrying value of the division's long-lived
assets ($2.0 million); (v) the write-offs of inventory and tooling relating to
discontinued or obsolete products and technology the Company is not going to use
($2.6 million); (vi) additional reserves relating to changes in the method of
estimating surplus parts and accessories inventory over known or anticipated
requirements and recognizing certain pre-rigging rebate expenses ($1.8 million);
and (vii) certain expenses associated with the introduction of the FICHT
technology were incurred for the new product, including incremental expenses and
additional product testing to ensure quality ($0.8 million).
New Management Initiatives. On September 12, 1997, Greenmarine Holdings
acquired control of the Company. See "The Greenmarine Acquisition." Since that
time the Company has assembled a new, highly-experienced senior management team
led by David D. Jones. The new senior management team has
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<PAGE> 37
developed a turnaround strategy to capitalize on the Company's strong market
position and leading, well-recognized brand names and to take advantage of
anticipated growth in the recreational marine industry. As part of its strategic
business plan, the Company has begun to implement a series of initiatives to
reduce operating costs, improve the Company's operating practices, and
rationalize its facilities, workforce and product lines.
In January 1998, the Company began the rationalization of its boat
manufacturing operations by closing its Old Hickory, Tennessee facility and
consolidating the freshwater fishing operations at the Company's Murfreesboro,
Tennessee facility. The Company also began the consolidation of its saltwater
fishing operations at its Columbia, South Carolina facility. In addition, as
part of the Company's plan to improve operating efficiencies and reduce costs,
the Company has reduced its workforce by approximately 540 employees as of June
30, 1998, primarily within the Company's boat operations. In June 1998, the
Company closed its research facility in Waukesha, Wisconsin.
In March 1998, the Company announced a lean manufacturing initiative for
its marine power manufacturing operations. Lean manufacturing is a disciplined
approach for implementing proven manufacturing methodologies in order to reduce
manufacturing costs through improved employee productivity and reduced
inventory. The first phase of this initiative was introduced at the Company's
final assembly plant in Calhoun, Georgia and, as the second phase, this
initiative has been expanded to certain of the Company's sub-assembly
facilities. This initiative is expected to substantially reduce costs, shorten
production times, lower inventory and dramatically improve the Company's
responsiveness to dealer and consumer demand. The Company has also implemented a
strategic purchasing program which was announced in January 1998. This program
is designed to reduce purchasing costs by consolidating purchasing across
vendors, integrating suppliers into the product design process at an early stage
and designing products for lower cost.
In June 1998, the Company announced the realignment of its aluminum boat
brands. The Company will consolidate the most popular models from Grumman,
Roughneck and Sea Nymph lines and move them under the Lowe brand, thereby
positioning the Lowe brand to offer a full line of aluminum boats. This
consolidation is another step the Company is taking to reduce the competition
among its own brands in every aluminum market and as a way to assist its dealers
offer a complete line of boats to meet customer demand, rather than having to
select from multiple boat company lines.
In July 1998, the Company announced its new brand strategy for its Johnson
and Evinrude outboard engines. This strategy is designed to differentiate the
Johnson and Evinrude lines, which had become identical engines that were
marketed under different names. Johnson and Evinrude engines will be readily
distinguishable from each other and will be marketed to target different
consumers. The Johnson brand will continue as a full line of carbureted
two-strokes and will be marketed as the reliable engine it always has been.
Evinrude will offer a full line of FICHT fuel-injected technology engines and
four-stroke engines and will be marketed as the Company's "premium" outboard
engine brand. As part of this strategy, the Company's outboard engine dealers
will now be able to sell both lines instead of being either a Johnson or
Evinrude dealer.
Management anticipates that the measures implemented to date will result in
overall cost reductions of approximately $21.0 million annually, a portion of
which the Company anticipates will be realized in fiscal 1998. The Company
believes that these savings represent permanent reductions in its cost structure
and anticipates further savings from the full implementation of all elements of
the Company's strategy. There can be no assurance, however, that these programs
will achieve the anticipated savings in fiscal 1998 or that additional cost
savings will be achieved.
Introduction of FICHT Engines. All marine engine manufacturers are facing
the challenge of meeting the EPA's emission standards which require
manufacturers to reduce hydrocarbon emissions from outboard engines, on average,
by 8.3% per year through model year 2006 beginning with the 1998 model year, and
emissions from personal watercraft by 9.4% per year through model year 2006
beginning in model year 1999. Partly in response to these EPA emission
standards, the Company introduced its new Johnson and Evinrude engines with
FICHT fuel-injection technology, which offer an average hydrocarbon emission
reduction of 80% and an approximate 35% increase in fuel economy depending on
the application. The higher manufacturing costs of the FICHT fuel injected
engines will result initially in a lower margin to the Company; however, the
Company has implemented several initiatives to reduce the manufacturing costs of
its new engines. Because of
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<PAGE> 38
the higher retail costs of engines incorporating the FICHT technology, consumer
acceptance of the new engines may be restrained as long as less expensive engine
models, which do not meet the new EPA standards, continue to be available. To
date, the Company estimates that it has spent approximately $50.0 million on
low-emission technology, and by the Year 2006 the Company is expected to have
expended an aggregate of approximately $90.0 million to meet the EPA's new
emission standards. The Company expenses its research and development costs as
they are incurred.
Purchase Accounting. On September 12, 1997, Greenmarine Holdings acquired
control of the Company by consummating the Tender Offer. On September 30, 1997,
Greenmarine Holdings' acquisition subsidiary was merged with and into the
Company, with the Company being the surviving entity of the merger. The
Greenmarine Acquisition was completed for aggregate consideration of
approximately $373.0 million and has been accounted for under the purchase
method of accounting. Accordingly, the purchase price has been allocated to
assets acquired and liabilities assumed based on fair market values at the date
of acquisition (i.e., September 30, 1997). In the opinion of management,
accounting for the purchase as of September 30, 1997 instead of September 12,
1997 did not materially affect the Company's results of operations for fiscal
1997. The fair values of tangible assets acquired and liabilities assumed were
$844.9 million and $902.0 million, respectively. In addition, $83.9 million of
the purchase price was allocated to intangible assets for trademarks, patents
and dealer network. As part of the initial purchase price allocation, the
Company accrued an aggregate amount of $136.9 million for implementation and
execution of business reorganizations, including product line rationalization,
implementation of the lean manufacturing realignment, implementation of the
Company's purchasing initiatives, plant restructuring and reduction of the
Company's workforce. The financial statements reflect the preliminary allocation
of purchase price as the purchase price allocation has not been finalized. The
excess purchase price over fair value of the net assets acquired was $250.2
million and has been classified as goodwill in the Statement of Consolidated
Financial Position as of September 30, 1997. The goodwill related to the
acquisition will be amortized using the straight-line method over a period of 40
years. Accordingly, the Company's results of operations for the nine months
ended June 30, 1998 are not comparable to its results of operations in earlier
periods.
Seasonality. The Company's business is seasonal due to the impact of the
buying patterns of its dealers and consumers. The Company's peak revenue periods
historically have been its fiscal quarters ending June 30 and September 30,
respectively. Accordingly, the Company's business, receivables, inventory and
accompanying short-term borrowing to satisfy working capital requirements are
usually at their highest levels in the Company's second fiscal quarter and
decline thereafter as the Company's products enter the peak consumer selling
seasons. Short-term borrowings averaged $2.9 million and $5.7 million in 1997
and 1996, respectively, with month-end peak borrowings of $29.0 million and
$15.0 million in February 1997 and 1996, respectively. To date in fiscal 1998,
month-end peak borrowings were $70.7 million in February and March.
Change in Fiscal Year-End. Effective October 1, 1998, the Company's fiscal
year-end will change from September 30 to December 31. The Company will file
with the Securities and Exchange Commission and deliver to the Trustee an Annual
Report on Form 10-K for the current fiscal year ended September 30, 1998 and a
Transition Report on Form 10-Q for the transition period of October 1, 1998
through December 31, 1998. See "Available Information" and "Description of
Notes--Certain Covenants--Reports."
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<PAGE> 39
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information expressed in dollars in millions and as a percentage of
net sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------------------------------------ --------------------------------
1995 1996 1997 1997 1998
----------------- ---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $1,229.2 100.0% $1,121.5 100.0% $979.5 100.0% $709.9 100.0% $760.1 100.0%
Cost of goods sold... 931.8 75.8 892.2 79.6 826.5 84.4 595.9 83.9 590.8 77.7
-------- ----- -------- ----- ------ ----- ------ ----- ------ -----
Gross earnings....... 297.4 24.2 229.3 20.4 153.0 15.6 114.0 16.1 169.3 22.3
Selling, general and
administrative
expense............ 230.2 18.7 210.3 18.8 215.4 22.0 151.7 21.4 156.0 20.5
Restructuring
charges............ -- -- 25.6 2.3 -- -- -- -- -- --
Change in control
expenses--
compensation....... -- -- -- -- 11.8 1.2 -- -- -- --
-------- ----- -------- ----- ------ ----- ------ ----- ------ -----
Earnings (loss) from
operations......... 67.2 5.5 (6.6) (0.7) (74.2) (7.6) (37.7) (5.3) 13.3 1.8
Non-operating expense
(income)........... 6.4 0.5 3.8 0.3 2.1 0.2 (13.2) (1.8) 14.0 1.9
Provision (credit)
for income taxes... 9.4 0.8 (3.1) (0.3) 2.8 0.3 2.2 0.3 3.2 0.4
-------- ----- -------- ----- ------ ----- ------ ----- ------ -----
Net earnings
(loss)............. $ 51.4 4.2% $ (7.3) (0.7)% $(79.1) (8.1)% $(26.7) (3.8)% $ (3.9) (0.5)%
======== ===== ======== ===== ====== ===== ====== ===== ====== =====
</TABLE>
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
Net Sales. Net sales increased to $760.1 million in the nine months ended
June 30, 1998 from $709.9 million in the nine months ended June 30, 1997, an
increase of 7.1%. The Company's sales increase was attributable primarily to
higher volume sales in the United States of marine engines in the current fiscal
year, which increased 19.8% over the prior year period. Engine sales were
depressed in the first half of fiscal 1997 as a result of the Company's program
to restrain engine production in order to assist dealers in reducing inventory
levels. In the first quarter of fiscal 1997, the Company suspended production of
many of its larger engines for nearly a month in order to make changes to
equipment and processes necessary in order to significantly improve the quality
of those engines. This production suspension adversely affected the Company's
sales and margins in the first half of fiscal 1997. The Company experienced a
3.2% increase in net sales in the three months ended June 30, 1998 as compared
to the similar period in fiscal 1997 ($284.6 million for the three months ended
June 30, 1998 as compared to $275.8 million in the three months ended June 30,
1997). Although this sales increase was not as favorable as the Company's
overall 7.1% sales increase for the nine-month period, it was consistent with,
and primarily attributable to, the Company's boat brand strategy, which during
the third quarter of fiscal 1998 refocused certain of the Company's boat brands
into particular market niches and resulted in the elimination of many lower end
and lower gross margin boat models.
Cost of Goods Sold. Cost of goods sold decreased to $590.8 million in the
nine months ended June 30, 1998 from $595.9 in the nine months ended in June 30,
1997, a decrease of $5.1 million or 0.9%. Cost of goods sold was 77.7% of net
sales in the nine months ended June 30, 1998 as compared with 83.9% of net sales
in the nine months ended June 30, 1997. The improvement in the Company's gross
margin in the current fiscal 1998 reflects increased manufacturing efficiencies
at engine plants and a better absorption of costs, primarily due to higher sales
volume. In addition, in the first quarter of fiscal 1997, the Company's cost of
goods sold was negatively impacted by the production suspension discussed above
in Net Sales.
Selling, General and Administrative ("SG&A") Expense. SG&A expense
increased to $156.0 million in the nine months ended June 30, 1998 from $151.7
million in the nine months ended June 30, 1997, an increase of $4.3 million or
2.8%. SG&A expense as a percentage of net sales decreased to 20.5% in the nine
months ended June 30, 1998 from 21.4% in the nine months ended June 30, 1997.
The SG&A expense in the nine months ended June 30, 1997 included an adjustment
to increase boat warranty reserves $8.0 million as a result
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<PAGE> 40
of changes in the method used to estimate warranty reserves. The SG&A expense in
the nine months ended June 30, 1998 reflected higher amortization of goodwill
and intangibles due to purchase accounting.
Earnings (Loss) from Operations. Earnings from operations improved to $13.3
million for the nine months ended June 30, 1998 from a loss of $37.7 million for
the nine months ended June 30, 1997, an improvement of $51.0 million. The
improvement was primarily attributable to the increase in sales coupled with
better absorption of costs as described above.
Non-Operating Expense (Income). Interest expense increased to $22.6 million
in the nine months ended June 30, 1998 from $12.7 million in the nine months
ended June 30, 1997, an increase of $9.9 million, as a result of the new debt
structure in place after the Greenmarine Acquisition. Other non-operating income
was $8.6 million in the nine months ended June 30, 1998 compared to $25.9
million in the nine months ended June 30, 1997. The nine months ended June 30,
1997 amount included non-recurring income, including insurance recovery and a
lawsuit settlement ($10.7 million), as well as gains on disposition of fixed
assets ($7.4 million).
Provision (Credit) for Income Taxes. The provision for income taxes was
$3.2 million in the nine months ended June 30, 1998 and $2.2 million in the nine
months ended June 30, 1997. The provision for income taxes for the nine months
ended June 30, 1998 and 1997 resulted from the net of expected taxes payable and
benefits relating to certain international subsidiaries. No tax benefit is
allowed for domestic losses because they are not realizable, at this time, under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
FISCAL YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1996
Net Sales. Net sales decreased to $979.5 million in fiscal 1997 from
$1,121.5 million in fiscal 1996, a decrease of $142.0 million or 12.7%. U.S.
revenues, which accounted for 74% of total net sales, declined 11.3% in fiscal
1997 while international sales decreased 16.1%. Industry unit volume in the U.S.
declined for outboard motors and boats in fiscal 1997 compared to fiscal 1996.
The Company's sales of outboard motor units in the U.S. declined by 19.5% in
fiscal 1997 as compared to fiscal 1996. These declines were due primarily to the
planned reduction in dealer inventories, disruptions in marketing efforts and
customer demand resulting from the announcement in April 1997 concerning the
possible sale of the Company, as well as an overall decline in the industry for
sales of outboard engines.
Cost of Goods Sold. Cost of goods sold decreased 7.4% to $826.5 million in
fiscal 1997 from $892.2 in fiscal 1996. Cost of goods sold was 84.4% of net
sales in fiscal 1997 as compared with 79.6% of net sales in fiscal 1996. During
fiscal 1997, the Company incurred approximately $24.9 million of expenses that
management deems to be unusual or infrequent in nature. These additional charges
included the following: (i) changes in accounting estimate resulting from the
early adoption of the AICPA Statement of Position 96-1, "Environmental
Remediation Liabilities", which required the Company to accrue for future normal
operating and maintenance costs for site monitoring and compliance requirements
at particular sites ($7.0 million); (ii) additional accruals for warranty
expenses at the Company's Boat Group that resulted from the Company extending
the warranty claim acceptance period on certain models and revising the lag
factor used to estimate the warranty reserve ($9.7 million); (iii) an additional
accrual relating to salt water intrusion issues on certain engines sold in
international markets, which have since been resolved ($1.0 million); (iv) the
write-off of impaired assets (based on adoption of the Financial Accounting
Standards Board's Statement of Accounting Standards No. 121, "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of.")
relating to the Chris Craft line of boats as a result of the Company's analysis
of the Chris Craft division's undiscounted future cash flows being insufficient
to recover the carrying value of the division's long-lived assets ($2.0
million); (v) the write-offs of inventory and tooling relating to discontinued
or obsolete products and technology the Company is not going to use ($2.6
million); (vi) additional reserves relating to changes in the method of
estimating surplus parts and accessories inventory over known or anticipated
requirements and recognizing certain pre-rigging rebate expenses ($1.8 million);
and (vii) certain expenses associated with the introduction of the FICHT
technology were incurred for the new product, including incremental expenses and
additional product testing to ensure quality ($0.8 million). The Company
believes
35
<PAGE> 41
that these charges were one-time expenses. Excluding these charges, cost of
goods sold in fiscal 1997 would have been $818.3 million or 83.5% of net sales.
Selling, General and Administrative Expense. SG&A expense increased to
$215.4 million in fiscal 1997 from $210.3 million in fiscal 1996, an increase of
$5.1 million or 2.4%. SG&A expense, as a percentage of net sales increased to
22.0% in fiscal 1997 from 18.8% in fiscal 1996. The fiscal 1997 SG&A expense
reflected the reduction of costs resulting from the restructuring programs
initiated in fiscal 1996, but were more than offset by charges resulting from a
change in accounting estimate of $9.7 million related to increased warranty
accruals and a $7.0 million accrual for environmental remediation related to the
early adoption of a new accounting standard. Excluding these charges, SG&A
expense for fiscal 1997 would have been $198.7 million or 20.3% of net sales.
Earnings (Loss) from Operations. Operating loss increased to $74.2 million
in fiscal 1997 from a loss of $6.6 million in fiscal 1996. Fiscal 1997 includes
$11.8 million in compensation expenses resulting from the change in control as a
result of the Greenmarine Acquisition. The increase in operating loss was
primarily a result of the decline in net sales, higher costs for product and
higher SG&A expense, each as described above. Fiscal 1996 included restructuring
charges of $25.6 million, primarily related to the closing of distribution
operations and the write-down of manufacturing facilities outside the United
States. Excluding the $11.8 million change in control compensation expense in
fiscal 1997 and the unusual expenses and charges referred to in the discussion
of Cost of Goods Sold and Selling, General and Administrative Expense above,
respectively, operating loss would have been $37.5 million for fiscal 1997.
Non-Operating Expense (Income). Interest expenses in fiscal 1997 increased
by $3.9 million to $16.2 million in fiscal 1997 from $12.3 million in fiscal
1996. The increase in fiscal 1997 was primarily attributable to a $5.0 million
favorable interest adjustment for past tax liabilities which was recorded in
fiscal 1996. Included in non-operating expense in fiscal 1997 was $15.1 million
of change of control expenses associated with the Greenmarine Acquisition. Other
non-operating income was $29.2 million in fiscal 1997 and $8.5 million in fiscal
1996. The fiscal 1997 amount included insurance recovery and a lawsuit
settlement ($10.7 million), as well as higher gains on disposition of fixed
assets ($5.8 million). See Note 14 to the Consolidated Financial Statements
included elsewhere herein.
Provision (Credit) for Income Taxes. Provision (credit) for income taxes
was $2.8 million in fiscal 1997 and $(3.1) million in fiscal 1996, and is
explained in Note 15 to the Consolidated Financial Statements included elsewhere
herein. The provision for income taxes for fiscal 1997 resulted from the net of
expected taxes payable and benefits relating to certain international
subsidiaries. No tax benefit is allowed for domestic losses because they are not
deemed realizable, at this time, under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." The resolution of open tax
issues from prior years resulted in a tax credit in fiscal 1996.
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1995
Net Sales. Net sales decreased to $1,121.5 million in fiscal 1996 from
$1,229.2 million in fiscal 1995, a decrease of $107.7 million or 8.8%. U.S.
revenues, which accounted for 73% of total sales, declined 10.3% in fiscal 1996
while international sales decreased 4.4%. The marine industry experienced
unexpected weakness in Winter and Spring retail demand in fiscal 1996 in the
segments in which the Company is strongest. This weakness was due primarily to
an unusually cold and wet Spring.
Cost of Goods Sold. Cost of goods sold decreased to $892.2 million in
fiscal 1996 from $931.8 million in fiscal 1995, a decrease of $39.6 million or
4.2%. Cost of goods sold was 79.6% of net sales in fiscal 1996 as compared with
75.8% of net sales in fiscal 1995. This deterioration in the Company's gross
margins resulted from the inability to adjust operations to reflect lower sales.
Selling, General and Administrative Expense. SG&A expense decreased to
$210.3 million in fiscal 1996 from $230.2 million in fiscal 1995, a decrease of
$19.9 million or 8.6%. As a percentage of net sales, SG&A expense was 18.8% in
fiscal 1996, which approximates the prior fiscal year. The decrease in SG&A
expense was due primarily to efforts to reduce these expenses because of
decreased sales. Operating decisions were made in the third and fourth quarters
of fiscal 1996 which resulted in restructuring charges of $25.6 million.
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<PAGE> 42
Included in these charges was $20.1 million for closings of distribution
operations and write-down of manufacturing facilities outside the United States.
The North American and European sales, marketing and manufacturing operations
were realigned to more effectively meet market needs. As a result, Canadian and
European manufacturing facilities were closed and production that was formerly
conducted in those facilities was moved to other facilities operated by the
Company, primarily in the United States. In addition, sales offices were
consolidated and operations such as billing and order entry were centralized.
Distribution of service parts in North America was also consolidated.
Earnings (Loss) from Operations. The Company reported an operating loss of
$6.6 million in fiscal 1996 compared to an operating profit of $67.2 million in
fiscal 1995. The decrease in operating income was primarily a result of lower
sales, higher cost of sales and restructuring charges, offset by lower SG&A
expense as described above. Before the restructuring charges, earnings from
operations were $19.0 million.
Non-Operating Expense (Income). Interest expense decreased to $12.3
million in fiscal 1996 from $23.1 million in fiscal 1995. Significant causes for
the reduction included $5.0 million as a result of a favorable adjustment of
interest on past tax liabilities, lower levels of working capital required in
fiscal 1996 and accounts receivable sales that lowered interest expense. Other
non-operating income decreased to $8.5 million in fiscal 1996 from $16.7 million
in fiscal 1995, a decline of $8.2 million. The decrease was primarily the result
of the absence of gain recognized on the sale of the Company's investment in
I.J. Holdings, Inc. in fiscal 1995, a reduction in realization from fixed assets
sales and discount charges on accounts receivable sales in fiscal 1996.
Provision (Credit) for Income Taxes. The resolution of open tax issues
from prior years resulted in a tax credit in fiscal 1996. Provision (credit) for
income taxes was $(3.1) million in 1996 and $9.4 million in fiscal 1995, and is
explained in Note 15 to the Consolidated Financial Statements included elsewhere
herein.
FINANCIAL CONDITION; LIQUIDITY AND CAPITAL RESOURCES
As a result of the Greenmarine Acquisition, the Statement of Consolidated
Financial Position as of September 30, 1997 was prepared using the purchase
method of accounting which reflects the fair values of assets acquired and
liabilities assumed. The excess of the total acquisition cost over the estimated
fair value of assets acquired and liabilities assumed at the date of acquisition
was estimated initially at $250.2 million. The financial statements reflect the
preliminary allocation of purchase price, as the purchase price allocation has
not been finalized. Accordingly, the Statement of Condensed Consolidated
Financial Position as of June 30, 1998 is not comparable to that as of June 30,
1997 because of the purchase accounting adjustments.
The Company's business is seasonal in nature with receivable and inventory
levels normally increasing in the Company's fiscal quarter ending December 31
and peaking in the Company's fiscal quarter ending March 31. Current assets at
June 30, 1998 decreased $71.0 million from September 30, 1997. Cash and cash
equivalents at June 30, 1998 decreased $18.9 million from September 30, 1997,
and receivables decreased $3.4 million due primarily to lower European
receivables due to a change in European sales channels and lower miscellaneous
receivables offset by higher receivables related to a significant increase in
engine sales as compared to fiscal 1997. Inventories at June 30, 1998 decreased
$2.4 million from September 30, 1997 due to improved inventory management. Other
current assets at June 30, 1998 decreased $46.3 million from September 30, 1997
primarily due to a reduction in a trust depository that funded the remaining
untendered outstanding shares of the Company's common stock and due to the
redemption of deposits for letters of credit. Accounts payable at June 30, 1998
decreased $65.3 million from September 30, 1997 due to payments to Company
shareholders for untendered outstanding stock and to other payments relating to
the change of control. Cash provided by operations was $12.8 million for the
nine months ended June 30, 1998 compared with $11.9 million for the nine months
ended June 30, 1997.
Concurrently with the issuance of the Old Notes, the Company placed
approximately $28.6 million, including approximately $4.1 million of the net
proceeds of the Initial Offering and approximately $24.5 million of available
cash, into the Interest Reserve Accounts that must be maintained until at least
May 27, 2001. At June 30, 1998, the "restricted cash" on deposit in the Interest
Reserve Accounts was $28.6 million. See "Description of Notes--Interest Reserve
Accounts."
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Expenditures for plant, equipment and tooling were $23.7 million for the
nine months ended June 30, 1998, representing a $6.4 million decrease from the
prior year period level of $30.1 million, primarily as a result of deferred
capital expenditures. The low level of spending to date is related primarily to
the Company's capital appropriation process. Capital spending related to any
approved capital expenditure is realized, on average, approximately nine months
after approval. A lower level of capital spending was appropriated in fiscal
1997 as compared to prior years due to the Company's pending sale, which was
completed in September 1997. Since the Greenmarine Acquisition, the Company's
new senior management team has evaluated and continues to evaluate its internal
systems and controls. Although the Company believes that such systems and
controls are adequate, the Company will upgrade them as it deems necessary to
improve the overall efficiency of the Company's operations. The Company
estimates that total capital expenditures for fiscal 1998 will be approximately
$30.0 million, which includes maintenance capital expenditures and various
planned and potential projects designed to increase efficiencies and enhance the
Company's competitiveness and profitability. Specifically, these capital
expenditures include continued expenditures related to the introduction of the
FICHT technology to the Company's various engine models, cost reduction
programs, product quality improvements, improvements to and upgrades of the
Company's hardware and software, and other general capital improvements and
repairs.
Short-term debt was $30.0 million at June 30, 1998. Current maturities and
sinking fund requirements of long-term debt decreased by $61.7 million from
September 30, 1997 due primarily to the redemption of the Company's 7%
Convertible Subordinated Debentures due 2002. The Company also borrowed
approximately $30.0 million from certain wholly-owned foreign subsidiaries.
Approximately $2.0 million, net of offsets, is due in fiscal 1998, and
approximately $20.2 million is due at the end of fiscal 1999.
In connection with the Greenmarine Acquisition, the Company assumed the
obligations under the Term Loan. A portion of the net proceeds from the Initial
Offering was to prepay the $150.0 million principal amount of, and approximately
$1.1 million accrued and unpaid interest on, the Term Loan. See "The Greenmarine
Acquisition" and "Use of Proceeds."
The Company entered into an Amended and Restated Loan and Security
Agreement, effective as of January 6, 1998 (the "Credit Agreement"), with a
syndicate of lenders for which NationsBank of Texas, N.A. is administrative and
collateral agent (the "Agent"). The Credit Agreement provides a revolving credit
facility (the "Revolving Credit Facility") of up to $150.0 million, subject to
borrowing base limitations, to finance working capital with a $30.0 million
sublimit for letters of credit. The Revolving Credit Facility expires on
December 31, 2000. The Revolving Credit Facility is secured by a first and only
security interest in all of the Company's existing and hereafter acquired
accounts receivable, inventory, chattel paper, documents, instruments, deposit
accounts, contract rights, patents, trademarks and general intangibles and is
guaranteed by the Company's four principal domestic operating subsidiaries. On
June 30, 1998, outstanding borrowings under the Credit Agreement aggregated
$30.0 million and eight letters of credit were outstanding totalling $18.8
million. The level of borrowings as of June 30, 1998 was due primarily to the
seasonality of the Company's business. Although there can be no assurance, the
Company expects to use the cash from the anticipated sales of products and
collection of receivables to repay all amounts outstanding under the Revolving
Credit Facility by the end of fiscal 1998. The Credit Agreement contains a
number of financial covenants, including those requiring the Company to satisfy
specific levels of (i) consolidated tangible net worth, (ii) interest coverage
ratios, and (iii) leverage ratios. On May 21, 1998, the Company entered into a
First Amendment to Amended and Restated Loan and Security Agreement with the
lenders under the Credit Agreement, pursuant to which, among other things, (i)
the Company's compliance with the consolidated tangible net worth covenant for
the period ended June 30, 1998 was waived, notwithstanding the Company's
anticipated compliance therewith, (ii) the Company's consolidated tangible net
worth requirement for the period ended September 30, 1998 has been amended,
(iii) the borrowing base was amended to allow for borrowings against eligible
intellectual property, thereby increasing borrowing capacity, (iv) the sublimit
for the issuance of letters of credit was increased from $25.0 million to $30.0
million, and (v) the lenders consented to several other matters related to the
Initial Offering, including the establishment of the Interest Reserve Accounts.
See "Description of Certain Other Indebtedness--Credit Agreement."
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As a normal business practice, the Company has made arrangements with
financial institutions by which qualified retail dealers may obtain inventory
financing. Under these arrangements, the Company will repurchase products in the
event of repossession upon a retail dealer's default. These arrangements contain
provisions which limit the Company's repurchase obligation to $40.0 million per
model year for a period not to exceed 30 months from the date of invoice. This
obligation automatically reduces over the 30-month period. The Company resells
any repurchased products. Losses incurred under this program have not been
material. In fiscal 1997, the Company repurchased approximately $3.9 million of
products, all of which were resold at a discounted price. The Company accrues
for losses that are anticipated in connection with expected repurchases. The
Company does not expect these repurchases to materially affect its results of
operations.
As of September 30, 1997, the Company reserved a total amount equal to
$136.9 million as accrued liabilities for business reorganizations. These
reserves include accruals for rationalization of the Company's product lines,
workforce reductions, plant consolidations and closures. A total of
approximately $33.2 million of such accrued liabilities relate to non-cash
items. The Company also has other non-current liabilities of $202.3 million,
including environmental reserves and post-retirement benefits other than pension
of $95.0 million.
The Company has recorded net deferred tax assets of $40.1 million, of which
$21.1 million is reflected as a net long-term asset. The Company believes that
these net deferred tax assets will be realized. A valuation allowance of $131.8
million was recorded at September 30, 1997 to reduce the deferred tax assets to
their estimated net realizable value. Of this valuation allowance, $20.7 million
relates to deferred tax assets established for foreign and state loss
carryforwards. As of September 30, 1997, certain non-U.S. subsidiaries of the
Company had net operating loss carryforwards for income tax purposes of $34.8
million. Of this amount, $4.0 million will expire by 2002, with the remaining
balance being unlimited. In addition, the Company has $103.2 million of federal
net operating loss carryforwards expiring between 2009 and 2012, and $133.8
million of state net operating loss carryforwards expiring between 1998 and
2012. These carryforwards, however, are entirely offset by the valuation
allowance referred to above. Accordingly, no benefit has been recognized with
respect to these carryforwards in the Consolidated Financial Statements. Several
factors would generally enable the Company to recognize the deferred tax assets
that have been offset by the valuation allowance. Historical profitability,
forecasted earnings, and management's determination "it is more likely than not"
the deferred tax assets will be realized against forecasted earnings, all affect
whether the remaining U.S. deferred tax assets may be recognized through a
reversal of the valuation allowance. Because the deferred tax asset realization
factors were adversely affected by the Company's results for fiscal 1997, the
Company believes it is unlikely the reversal of the valuation allowance will
occur in fiscal 1998. See the Consolidated Financial Statements and the notes
thereto (including Note 15) included elsewhere herein.
Based upon the current level of operations and anticipated cost savings,
the Company believes that its cash flow from operations, together with
borrowings under the Credit Agreement, the Interest Reserve Accounts and its
other sources of liquidity, will be adequate to meet its anticipated requirement
for working capital and accrued liabilities, capital expenditures, interest
payments and scheduled principal payments over the next several years. There can
be no assurance, however, that the Company's business will continue to generate
cash flow at or above current levels or that anticipated costs savings can be
fully achieved. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt and accrued liabilities and make
necessary capital expenditures, or if its future earnings growth is insufficient
to amortize all required principal payments out of internally generated funds,
the Company may be required to refinance all or a portion of its existing debt,
sell assets or obtain additional financing. There can be no assurance that any
such refinancing or asset sales would be possible or that any additional
financing could be obtained on attractive terms, particularly in view of the
Company's high level of debt. See "Risk Factors--Substantial Leverage and Debt
Service."
YEAR 2000 MATTERS
During fiscal 1997 and 1998, the Company assessed the steps necessary to
address issues raised by the coming of Year 2000. The review included all of the
Company's hardware and software requirements worldwide, including processors
embedded in its manufacturing equipment, as well as vendors of goods and
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services. Based on this review, the Company developed a strategy for attaining
Year 2000 compliance that includes modifying and replacing software, acquiring
new hardware, educating its dealers and distributors and working with vendors of
both goods and services. With the assessment phase of the strategy completed,
the Company is in the process of implementing and testing remedies of issues
identified during the assessment phase. To date, all applications on the
Company's mainframe have been reprogrammed and initial testing will be conducted
through the first quarter of calendar 1999. Issues raised relative to personal
computers and local and wide area networks are in the process of being remedied
through the acquisition of new software and hardware. The Company has found very
few embedded processors contained in its manufacturing equipment which would be
affected by the Year 2000 and those which were identified are in the process of
being modified. Most of the Company's telecommunications equipment is currently
Year 2000 compliant and in cases where it is not, the equipment has either been
replaced or appropriation requests for the replacement have been prepared and
are being processed. The Company anticipates completing all implementation and
testing of internal remedies by June 30, 1999.
Also as part of the Company's Year 2000 compliance efforts, it has
substantially reviewed all vendors of goods and is currently reviewing vendors
providing services and prioritized them from critical (i.e., vendors whose goods
or services are necessary for the Company's continued operation) to non-critical
(i.e., suppliers whose products were either not critical to the continued
operation of the Company or whose goods or services could otherwise be readily
obtained from alternate sources) providers. These vendors range from service
providers, such as banks, utility companies and benefit plan service providers
to suppliers of goods required for the manufacture of the Company's products.
Following this initial vendor review, the Company established a strategy to
determine the readiness of those vendors for Year 2000. This initially involves
sending a letter notifying the vendor of the potential Year 2000 issues, which
was followed by a questionnaire to be completed by the vendor. In the event a
non-critical supplier either did not respond or responded inadequately,
follow-up questionnaires were sent and calls made in order to further clarify
the vendor situation. In the event that a critical vendor did not respond or
responded inadequately, the Company not only follows up with additional
questionnaires and telephone calls but also scheduled or will schedule on-site
meetings with the vendor in order to satisfy itself that the vendor is or will
be prepared to operate into the Year 2000. The Company believes that the
unresponsive critical vendors create the most uncertainty in the Company's Year
2000 compliance efforts. In the event that the Company is not satisfied that a
critical vendor will be able to provide its goods or services into the Year
2000, the Company has begun review alternate suppliers who are in a position to
certify that they are or will be Year 2000 ready.
Finally, in preparing for the advent of the Year 2000, the Company has
taken steps to heighten the awareness among its dealer and distributor network
of the issues associated with the Year 2000. The issue is covered in monthly
publications which are distributed to the dealers and also by the sales force
that is responsible for the regular communications with the dealer and
distributor network.
To date, the Company has spent a total of approximately $3 million on
personal computer and network, mainframe and telecommunication solutions for
issues related with the Year 2000 and estimates that it will spend up to a total
of $10 million, half of which is associated with personal computers and
networks, to remedy all of the issues associated with ensuring that its hardware
and software worldwide, and the systems associated therewith, are able to
operate into the Year 2000.
The Company believes that its owned or licensed hardware and software will
be able to operate into the Year 2000. However, the Company relies on the goods
and services of other companies in order to manufacture and deliver its goods to
the market. Although the Company is taking every reasonable step to ensure that
these vendors will be able to continue to provide their goods or services, there
can be no assurance that, even upon certification of their ability to do so, the
Company's vendors will be able to provide their goods and services to the
Company in a manner that satisfactorily addresses the Year 2000 issues. In the
event that the vendor is critical and either no alternate vendor is available or
is able to operate into the Year 2000, this event could have a material adverse
effect on the Company's business, results of operations, or financial condition.
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RECENTLY ADOPTED ACCOUNTING STANDARDS
In fiscal 1999, the Company will implement three accounting standards
issued by the Financial Accounting Standards Board, SFAS 130, "Reporting
Comprehensive Income," SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information," and SFAS 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." The Company believes that these changes will
have no effect on its financial position or results of operations as they
require only changes in or additions to current disclosures.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 ("SOP 96-1"), "Environmental Remediation
Liabilities", which provides authoritative guidance on the recognition,
measurement, display and disclosure of environmental remediation liabilities.
The Company adopted SOP 96-1 in the quarter ended September 30, 1997. The change
in accounting estimate required the Company to accrue for future normal
operating and maintenance costs for site monitoring and compliance requirements
at particular sites. The initial expense for implementation of SOP 96-1 was $7.0
million, charged to selling, general and administrative expense in the quarter
ended September 30, 1997.
In June 1998, the Financial Accounting Standards Board issued Statement 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133 is effective for fiscal years beginning after June
15, 1999. The Company has not yet quantified the impacts of adopting SFAS 133 on
its financial statements and has not determined the timing of or method of its
adoption of SFAS 133. However, the Company believes adoption will have no
material effect on its financial position or results of operations based on
current levels of financial instruments.
INFLATION
Inflation may cause or may be accompanied by increases in gasoline prices
and interest rates. Such increases may adversely affect the purchase of the
Company's products. Inflation has not had a significant impact on operating
results during the past three fiscal years.
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BUSINESS
GENERAL
OMC believes it is the world's largest dedicated manufacturer of outboard
marine engines and boats. The Company has an approximate 35% share of the United
States outboard marine engine market and believes it has an approximate 26%
share of the worldwide market. Sold under the Johnson and Evinrude brand names,
the Company offers one of the industry's widest ranges of outboard engines, with
models from two to 250-horsepower. The Company's boat brands are also among the
most recognized in the industry and are market leaders in several categories,
including the fishing, aluminum and recreational boat segments. OMC's primary
boat brands include Chris Craft, Four Winns, Seaswirl, Stratos, Javelin,
Hydra-Sports, Lowe and Princecraft. The Company also generates a significant,
recurring stream of revenue in replacement parts and accessories from its large
installed base of over seven million engines. The Company believes that its
marine dealer network of approximately 6,500 independent authorized dealers
worldwide, approximately 4,300 of which are located in North America, is one of
the largest marine dealer networks in the world. The Company currently has
several important strategic alliances with respect to marine engines, including
for the development of the new FICHT fuel injection technology, a supply
arrangement with Suzuki Motor Corporation and an arrangement with AB Volvo-Penta
relating to gasoline stern drive and inboard marine power systems.
The Company was incorporated in 1936 by members of the Briggs and Evinrude
families. Prior to the 1980s, the focus of the Company's strategy was to be the
industry leader in the two-cycle engine market by manufacturing engines and a
variety of products powered by small gasoline engines. In addition to outboard
engines, the Company's products included lawnmowers, chainsaws, snowmobiles,
light industrial vehicles and turf care products. In the late 1980s, however, a
structural shift occurred in the marine industry as engine manufacturers,
including the Company, began to package their engines with boats from boat
manufacturers. Marine dealers found it more efficient and economical to buy
boats "packaged" with engines rather than buy engines and boats separately. In
line with this trend, the Company acquired 15 boat companies by 1990 and
divested its non-marine product lines, thereby transforming itself from an
engine company to a marine company.
In September 1997, the Company was acquired by an affiliate of Greenway
Partners, L.P. and entities affiliated with Soros Fund Management LLC. Since the
acquisition, the Company has assembled a new, highly experienced senior
management team led by David D. Jones, Jr. as President and Chief Executive
Officer. Mr. Jones was previously President of the Mercury Marine Division of
Brunswick Corporation, where, under his direction, the division gained
substantial market share in several key marine segments. Mr. Jones has more than
twenty years of experience in the marine industry. Also as part of the new
management team, Andrew P. Hines joined the Company as Executive Vice President
and Chief Financial Officer. Mr. Hines has extensive experience in turnaround
situations. In addition, the Company has added 27 other new members to its
management team to fill key operational and administrative positions, including
new heads of most of its boat divisions, its engine manufacturing operations,
its purchasing and supply operations, and its sales, marketing and advertising
operations. The new management team is complemented by a highly experienced and
skilled workforce. In the engine manufacturing operations, where skill,
experience and training represent a significant competitive advantage, the
Company's salaried and hourly employees have an average tenure with the Company
of approximately 16 and 14 years, respectively. The new senior management team
has developed several key initiatives to turn around and substantially improve
the Company's operations. Since the new team was hired, the Company's earnings
(loss) from operations has improved by $51.0 million to $13.3 million for the
nine months ended June 30, 1998 from $(37.7) million for the comparable period
in fiscal 1997, and EBITDA (as defined) has improved by $46.7 million to $54.2
million for the nine months ended June 30, 1998 from $7.5 million for the
comparable period in fiscal 1997.
The Company owns a majority interest in FICHT GmbH & Co. KG, which has
developed a patented, highly innovative fuel-injection technology designed for
two-stroke engines. The FICHT fuel-injection technology utilizes advanced
electronic microprocessors to directly inject high-pressure fuel into a sealed
combustion chamber, eliminating the escape of any unburned fuel. The FICHT
fuel-injection system uses
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fewer mechanical parts, is smaller and, the Company believes, more reliable than
any other low-emission engine. The FICHT fuel-injection technology possesses
several advantages over standard two-stroke engines, including smoother and
quieter operation, 35% better fuel economy on average, up to 80% reduction in
hydrocarbon emissions and virtually no smoke on start-up. In addition,
two-stroke engines based on the FICHT fuel-injection technology offer several
benefits relative to four-stroke engines, including increased low-end power,
lighter weight and smaller size. Furthermore, the FICHT fuel-injection
technology meets emissions standards mandated by the EPA set for the Year 2006.
The Company has already introduced outboard engines incorporating the FICHT
fuel-injection technology in six separate horsepower categories. To date, the
Company has received several awards relating to its FICHT fuel-injection
technology, including the 1996 Popular Mechanics Design & Engineering Award for
marine engines, the 1997 International Marine Trades Exposition and Conference
Innovation Award, the 1997 Motor Boating and Sailing Magazine Innovation Award,
the 1997 Society of Automotive Engineers International Off-Highway & Powerplant
Company of the Year Award and the 1997 Euromot Award.
INDUSTRY OVERVIEW
The recreational boating industry generated approximately $19.3 billion in
domestic retail sales in 1997, including approximately $8.8 billion in sales of
boats, engines, trailers and accessories. In addition, according to statistics
compiled by the U.S. Department of Commerce, recreational products and services
represent one of the fastest growing segments of U.S. expenditures.
Although unit sales in the marine industry in recent years have been
declining or flat, the Company expects to benefit from recent industry-wide
efforts in the U.S. designed to increase the share of recreational expenditures
related to boating. The NMMA, the MRAA and other marine industry leaders,
including the Company, have formed a joint task force to implement initiatives
to improve the quality of the industry's marine dealer network, improve the
overall boating experience for consumers and enhance the awareness of boating as
a recreational activity through various advertising programs. The Company
believes that the overall shift in spending of discretionary income towards
recreational products and services and recent efforts to increase the share of
recreational expenditures directed towards boating, will contribute to growth in
the recreational boating industry over the next several years.
In general, recreational marine industry sales are impacted by the general
state of the economy, interest rates, consumer spending, technology, dealer
effectiveness, demographics, weather conditions, fuel availability and
government regulations. During the period from 1983 to 1992, the recreational
marine industry experienced both its largest growth (from 1983 to 1988) and its
largest downturn (from 1988 to 1992) in over 30 years. The growth period was
stimulated not only by increasing real disposable income, but also by the
emerging trend within the marine industry of packaging engines with boats, which
resulted in boat packages that were more affordable to consumers, and easily
obtainable marine loans that required no money down and could be refinanced over
a term of over ten years. The following contraction in sales from 1988 to 1992
was due not only to the recession during the early 1990s, but also to the
accentuated level of sales in the late 1980s. Many boat owners had loan balances
in the early 1990s that exceeded their boat value, which made trade-up sales
more difficult to obtain. In addition, the U.S. government imposed a luxury tax
in 1990 on boats sold at prices in excess of $100,000. The Company believes,
however, that it was not clear to most consumers that the tax applied only to
higher priced boats and that many consumers believed it applied to all boats. As
a result, the Company believes that the luxury tax depressed sales of boats
among all price segments. The luxury tax was repealed in 1993. Since 1992,
domestic sales of recreational boats have increased from $2.2 billion in 1992 to
$3.6 billion in 1997. In addition, industry observers project that consumer
spending on recreational marine products and services will grow approximately
5.6% annually from 1997 to 2002.
BUSINESS STRATEGY
The Company's new senior management team has developed a turnaround
strategy designed to better capitalize on its strong market position and
leading, well-recognized brand names and to take advantage of the
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continued anticipated growth in the recreational marine industry. Specifically,
the Company's business strategy combines the following elements:
- RATIONALIZE BRANDS AND PRICING. The Company has repositioned and
realigned its engine and boat brands to lower its manufacturing costs by
better focusing each of its brands on a particular niche in the outboard
marine engine and boating markets, thereby reducing competition among
its own brands. Pricing will be reset to better reflect the particular
image and the value added by each brand. To further support this
strategy, the Company is refocusing its marketing efforts and
expenditures to emphasize and reinforce its brands as they are
repositioned.
- AGGRESSIVELY REDUCE OPERATING COSTS. The Company's new management team
has identified several cost reduction opportunities that management
believes could reduce overall manufacturing costs. The Company's cost
reduction strategy includes the following elements: (i) reduce
purchasing costs by consolidating purchasing across vendors, integrating
suppliers into the product design process at an early stage, and
designing products for lower cost; (ii) rationalize boat manufacturing
operations by reviewing the size and location of the facilities relative
to the products manufactured there and the market for those products,
and consolidate the number of boat manufacturing facilities to improve
manufacturing efficiencies and unit costs; (iii) improve operating
efficiency by improving factory layout and workflows, standardizing
manual labor inputs, stabilizing machining and casting and improving
quality control; and (iv) increase outsourcing of non-core capabilities
from approximately 40% of the value of the Company's engines to 65%. In
furtherance of these initiatives, the Company has already:
- closed a boat manufacturing plant;
- closed a research and development facility;
- substantially completed its announced 540 employee workforce
reduction (representing an approximate 8% reduction in its
workforce);
- implemented the first phase of its purchasing initiative,
which includes efforts to reduce the cost of purchasing raw
materials, components and subassemblies; and
- implemented the first and second phases of its lean
manufacturing realignment at its main outboard engine
manufacturing and assembly facility and certain of its sub-
assembly facilities.
The Company expects to generate approximately $21.0 million in annual
savings from the measures that have already been put in place.
- CAPITALIZE ON FICHT TECHNOLOGY. The Company plans to exploit its
innovative FICHT technology by expanding its application to a wider
range of engine models. Since the Company's introduction of the FICHT
technology in its 150-horsepower Johnson and Evinrude models released in
January 1997, the Company has introduced 90-horsepower, 115-horsepower,
175-horsepower, 200-horsepower and 225-horsepower Evinrude models. The
Company also plans to capitalize on the FICHT technology by generating
additional revenues from sublicensing the technology to, and
manufacturing components for, other engine applications, including
snowmobiles, personal watercraft, motorcycles and lawn equipment. The
Company, directly or through its FICHT GmbH & Co. KG subsidiary, has
entered into five such sublicensing arrangements to date with Polaris
Industries Inc., Arctic Cat, Inc., Kawasaki Heavy Industries, Ltd., and
two lawn and garden-care equipment manufacturers. See "--Strategic
Alliances--FICHT Joint Venture" and "--Intellectual Property."
- STRENGTHEN CONTINUOUS QUALITY IMPROVEMENT PROGRAMS. Management believes
that the quality of the Company's products represents a key competitive
factor. The Company maintains rigid quality controls and extensively
tests its products and components in each of its manufacturing and
assembly facilities. In addition to on-site testing, the Company
maintains year-round, on-water testing facilities in Illinois and
Florida. The Company continually monitors its quality assurance programs
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and intends to expand these programs and further motivate its workforce
toward achieving increasing quality standards.
- STRENGTHEN DEALER NETWORK. The Company has implemented a number of
initiatives to strengthen its dealer network. In fiscal 1997, the
Company managed a program to substantially reduce dealer inventory of
outboard engines, which helped strengthen the viability of the dealer
network by reducing dealer inventory costs. The Company is also
participating in industry association initiatives to strengthen the
marine industry's retailer network. These initiatives have been
spearheaded by a joint task force, including the NMMA, MRAA and other
marine industry leaders, including the Company. The initiatives include
dealership educational programs to improve dealer servicing standards
and customer relationships.
- EXPAND PARTS AND ACCESSORIES BUSINESS. The Company plans to strengthen
its parts and accessories business, which generates a recurring stream
of high-margin sales. The Company's initiatives to strengthen its parts
and accessories business include redesigned packaging and an advertising
program that will provide a consistent brand image and clearer product
descriptions.
- STRENGTHEN MARKET-DRIVEN PRODUCT DEVELOPMENT EFFORTS. The Company has
developed a reputation as a leader in marine engineering capabilities.
Since the Company's founding in 1936, the Company has continually
introduced advanced engineering designs, applications and technologies
to the marine industry. Management plans to make better use of the
Company's superior engineering capabilities by focusing the Company's
product development efforts on the features and capabilities most
demanded by customers and on product designs that maximize the cost
effectiveness of its manufacturing operations. Management believes that
its development of the FICHT fuel-injection technology is a result of
this market-driven product development initiative, and that this
initiative should help the Company increase market share among all of
its product lines.
PRODUCTS
The Company manufactures a wide variety of outboard engines and boats and
distributes these products throughout the world.
The following table sets forth, for the periods indicated, information
concerning the Company's net sales by division (including the value of
intercompany engine sales in the Company's Engine Group) expressed in dollars in
millions and as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996 FISCAL 1995
--------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Engines.............................. $519.1 53.0% $ 653.6 58.3% $ 683.0 55.6%
Boats................................ 262.7 26.8 255.8 22.8 335.3 27.3
Parts & Accessories.................. 189.5 19.4 195.4 17.4 194.8 15.8
Other................................ 8.2 0.8 16.7 1.5 16.1 1.3
------ ----- -------- ----- -------- -----
Total...................... $979.5 100.0% $1,121.5 100.0% $1,229.2 100.0%
====== ===== ======== ===== ======== =====
</TABLE>
The following table sets forth, for the periods indicated, information
concerning the Company's net sales by geographic region expressed in dollars in
millions and as a percentage of net sales (for additional information concerning
the Company's sales by geographic region for the Company's last three fiscal
years, see Note 16 to the Consolidated Financial Statements included elsewhere
herein).
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996 FISCAL 1995
-------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
United States.............................. $721.0 73.6% $ 813.3 72.5% $ 906.8 73.8%
Europe..................................... 90.9 9.3 114.8 10.2 117.1 9.5
Other...................................... 167.6 17.1 193.4 17.3 205.3 16.7
------ ----- -------- ----- -------- -----
Total............................ $979.5 100.0% $1,121.5 100.0% $1,229.2 100.0%
====== ===== ======== ===== ======== =====
</TABLE>
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<PAGE> 51
Outboard Engines
The Company's Johnson and Evinrude brands are two of the most recognized
outboard engine brands worldwide. Johnson and Evinrude are competitively priced
with other premium priced outboards and include offerings in virtually every
segment of the outboard engine market. In July 1998, the Company announced its
new brand strategy for its Johnson and Evinrude outboard engines. This strategy
is designed to differentiate the Johnson and Evinrude lines, which had become
identical engines that were marketed under different names. Johnson and Evinrude
engines will become readily distinguishable from each other and will be marketed
to target different consumers. The Company's Evinrude brand will comprise
two-stroke models incorporating the Company's FICHT fuel-injection technology
and certain four-stroke engines. The Evinrude brand will be marketed as the
Company's "premium" outboard marine engine brand. The Company's Johnson brand
will comprise a full line of traditional carbureted two-stroke models. In
addition, the Company has entered into a supply agreement with an affiliate of
Suzuki Motor Corporation under which Suzuki will manufacture certain other
four-stroke engines for sale by the Company under its Evinrude brand.
In 1997, the Company introduced the new Johnson and Evinrude 150-horsepower
engine with FICHT fuel-injection technology. Through its Evinrude brand line,
the Company currently offers engines incorporating its innovative FICHT
fuel-injection technology in the 90, 115, 150, 175, 200 and 225-horsepower
categories and is rapidly expanding this technology across the remainder of the
Evinrude outboard engine product line. The FICHT fuel-injection system uses an
electronically driven fuel injector, controlled by a powerful
microprocessor-based engine management system, to blast short bursts of highly
pressurized fuel directly into the combustion chamber at rates of up to 100
times per second. This high-pressure fuel pulse atomizes and positions each
burst of gasoline in the cylinder for complete ignition once the exhaust port
has been closed by the rising piston resulting in no unburned fuel escaping
prior to combustion. The FICHT fuel-injection technology possesses several
advantages over standard two-stroke engines, including smoother and quieter
operation, 35% better fuel economy on average, up to 80% reduction in
hydrocarbon emissions and virtually no smoke on start-up. In addition,
two-stroke engines based on the FICHT fuel-injection technology offer several
benefits relative to four-stroke engines, including increased low-end power,
lighter weight and smaller size. Engines with FICHT fuel-injection technology
meet the EPA emissions standards set for the Year 2006.
Since the Company originally acquired the FICHT technology from the Ficht
family, it has been actively engaged in research and development efforts aimed
at improving the FICHT technology. The Company, directly or through its FICHT
GmbH & Co. KG subsidiary, has entered into arrangements to sublicense the FICHT
fuel-injection technology to manufacturers of snowmobiles, personal watercraft,
motorcycles and lawn equipment, including Polaris Industries, Inc., Arctic Cat,
Inc., Kawasaki Heavy Industries, Ltd., and two lawn and garden-care equipment
manufacturers. See "--Strategic Alliances--FICHT Joint Venture" and
"--Intellectual Property." The Company is currently evaluating other
opportunities to sublicense the FICHT fuel-injection technology to manufacturers
of non-automotive engines.
The following table sets forth the number of engine models and price range
by size of engine in terms of horsepower:
<TABLE>
<CAPTION>
NUMBER OF
HORSEPOWER RANGE MODELS RETAIL PRICE RANGE ($)
---------------- --------- ----------------------
<S> <C> <C>
2-24 horsepower..................... 60 676-3,060
25-99 horsepower..................... 83 2,534-8,454
100-250 horsepower.................... 76 7,836-16,076
---
Total....................... 219
</TABLE>
Boats
The Company's boat brands are among the most recognized in the industry and
are market leaders in several categories, including the fishing, aluminum and
recreational boat segments. OMC's primary boat brands include Chris Craft, Four
Winns, Seaswirl, Stratos, Javelin, Hydra-Sports, Lowe and Princecraft. The
46
<PAGE> 52
Company offers products that cover most segments in the recreational and fishing
boat market, from ten foot aluminum boats to 33-foot luxury cruisers, and is the
largest producer of boats in units and one of the two largest in dollars.
The Company is rationalizing and realigning its boat brands to lower its
manufacturing costs and better focus each of its brands on a particular niche in
the boating industry, thereby reducing competition and inefficient overlap among
its brands. As part of this rationalization plan, the Hydra-Sports brand will
become the Company's flagship saltwater fishing boat line, the Stratos brand
will become the Company's top-of-the-line, tournament-style freshwater fishing
boat line and the Javelin brand will become the Company's entry to mid-level
recreational fishing boat line. The production of the Company's Sunbird brand
runabout boats for the 1999 model year will be suspended, and the Sunbird
Neptune series saltwater fishing boat products will be moved under the
Hydra-Sports brand. Hydra-Sports brand freshwater fishing boats and Stratos
brand saltwater fishing boats will be discontinued. The Company has realigned
its aluminum boat brands by consolidating the most popular models from its
Grumman, Roughneck and Sea Nymph lines and moving them under the Lowe brand. The
Lowe brand will now be positioned to offer a full line of aluminum boats.
47
<PAGE> 53
The following table provides a brief description of the Company's 1998
model year boat products by category, including product line and trade name,
overall length, retail price range, and description of boats manufactured:
<TABLE>
<CAPTION>
PRODUCT LINE AND OVERALL RETAIL
TRADE NAME LENGTH (FT.) PRICE RANGE ($) DESCRIPTION
<S> <C> <C> <C> <C>
RECREATIONAL BOATS
Chris Craft 19-32 19,993-122,947 Chris Craft is one of the world's most
recognized brands in the marine
industry, serving the "prestige" market
for boaters seeking a "top-of-the-line"
boat. In 1997, Powerboat Magazine named
the Chris Craft 210 Bowrider "Boat of
the Year."
Four Winns 17-33 11,600-148,056 Four Winns is the nation's third most
popular boat brand. Four Winns offers a
premium line of family-oriented
recreational boats.
Seaswirl 17-26 13,900-59,500 Seaswirl is a mid-priced boat line, and
is one of the leading boat brands in the
Western United States.
FISHING BOATS
Stratos 16-21 17,047-34,457 Stratos is a performance line of
freshwater fishing boats designed for
the discriminating angler. The line
includes bass, walleye and fish-'n-ski
boats.
Javelin 17-20 12,533-27,823 Javelin is a value-priced freshwater
fishing boat line. Products include
bass, walleye and fish-'n-ski boats.
Hydra-Sports 16-31 14,325-101,730 Hydra-Sports is a full line of saltwater
fishing boats designed for the fishing
enthusiast.
ALUMINUM BOATS
Lowe 10-25 385-22,828 Lowe offers aluminum jon, fishing,
pontoon and deck boats.
Princecraft 10-24 473-28,634 Princecraft is a premium line of
aluminum boats manufactured in Canada
and sold throughout North America.
Products include jon, fishing,
fish-'n-ski, pontoon and deck boats.
- ----------------------------------------------------------------------------------------------------
</TABLE>
Parts and Accessories
The Company also offers a wide line of marine parts and accessories through
its Johnson and Evinrude dealers. Key products include engine parts, propellers
and engine oil. Most of the parts business consists of replacement parts for
outboard motors. The Company estimates that there are approximately seven
million Johnson and Evinrude outboard motors in use, which produce a steady
demand for high-margin replacement parts. In addition, in 1996, OMC launched a
new value-line of marine accessories under the Nautic Pro brand name. This brand
is marketed in part through a new distribution channel of marine and discount
retailers, and is priced to compete with other private label and discount
brands. Marine parts and accessories comprised approximately 19% of OMC's sales
in fiscal 1997.
In June 1998, the Company announced that it had entered into a long-term
strategic business agreement with Johnson Worldwide Associates, Inc. to supply a
range of private-label, electric trolling motors in compliance with the
Company's specifications. This arrangement will allow the Company to offer its
dealers a full line of industry leading electric trolling motors with
state-of-the-art technology.
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<PAGE> 54
Quality Assurance
The Company maintains rigid quality controls and extensively tests its
products and components in each of its manufacturing and assembly facilities. In
addition to on-site testing, the Company maintains year-round, on-water testing
facilities in Illinois and Florida. The Company continually monitors and
endeavors to improve its quality assurance programs and intends to expand these
programs and further motivate its workforce towards achieving increasing quality
standards.
STRATEGIC ALLIANCES
FICHT Joint Venture
On April 30, 1992, the Company and FICHT GmbH of Kirchseeon, Germany
entered into a license agreement (the "1992 License Agreement") pursuant to
which FICHT granted to the Company an exclusive, worldwide right and license to
manufacture, use, sell and sublicense marine engines that utilize the FICHT
fuel-injection system. The 1992 License Agreement provides that the Company
shall pay royalties to FICHT GmbH on a per cylinder basis for each marine engine
that is sold by the Company which utilizes the FICHT fuel-injection system. The
term of the license is for the duration of each patent that relates to the FICHT
fuel-injection system existing at the time that the 1992 License Agreement was
executed or filed within one year thereafter. Since certain patents related to
the FICHT technology have not been formally issued to date by certain foreign
jurisdictions, the ultimate term of the 1992 License Agreement cannot be
determined until each such unissued patent is issued.
On July 21, 1995, the Company acquired a majority ownership interest in
FICHT GmbH to promote the development and worldwide manufacturing and marketing
of the FICHT fuel-injection system. FICHT GmbH was subsequently converted to a
limited partnership known as FICHT GmbH & Co. KG (together with any predecessor
in interest, "FICHT GmbH"), in which the Company is the general partner and
holds a 51% interest and in which members of the Ficht family collectively hold
a 49% interest. The partnership agreement contains certain supermajority
provisions which provide that the partnership may not sell the business of FICHT
GmbH as a whole or in substantial parts, including licensing, sublicensing or
sale of patents and other intellectual property related to the FICHT
fuel-injection technology, without a unanimous vote of the partners and may not
effect certain other actions, including acquisitions of other enterprises,
without a majority of 75% of the votes of the partners. All ordinary course of
business matters require only a simple majority vote. As part of the Company's
1995 acquisition of a majority ownership in FICHT GmbH, the 1992 License
Agreement was assigned to FICHT GmbH & Co. KG.
On February 7, 1997, the Company and FICHT GmbH entered into a license
agreement (the "1997 License Agreement") pursuant to which FICHT GmbH granted to
the Company an exclusive, worldwide license to manufacture, use, sell and
sublicense the FICHT fuel-injection system for all non-marine, non-automotive
applications, including but not limited to, snowmobiles, all-terrain vehicles,
scooters, motorcycles, forest and garden equipment, lawn equipment and utility
equipment. The terms of the 1997 License Agreement provide that the Company
shall pay to FICHT GmbH a basic license fee in monthly installments through
February 2000. The term of the license is for the duration of each patent that
relates to the FICHT fuel-injection system existing at the time that the 1997
License Agreement was executed or filed within one year thereafter. Since
certain patents related to the FICHT technology have not been formally issued to
date by certain foreign jurisdictions, the ultimate term of the 1997 License
Agreement cannot be determined until each such unissued patent is issued.
Prior to the execution of the 1997 License Agreement, FICHT GmbH entered
into non-exclusive sublicense agreements with two lawn and garden equipment
manufacturers, pursuant to which FICHT GmbH granted non-exclusive licenses for
the manufacture and sale of non-marine engines that utilize the FICHT
fuel-injection system in return for certain royalty payments, of which the
Company is entitled to a 51% interest. In addition, since entering into the 1997
License Agreement, the Company has executed separate sublicense agreements with
each of Kawasaki Heavy Industries, Ltd., Arctic Cat, Inc. and Polaris
Industries, Inc. Under these sublicense agreements, which, subject to certain
exceptions, may be terminated by each sublicensee after five years, the Company
has granted a non-exclusive license for the manufacture and sale of
49
<PAGE> 55
certain non-automotive, marine and non-marine applications of the FICHT
fuel-injection system in return for certain license fees and/or royalty
payments.
OMC/Volvo Stern Drive Joint Venture
On September 2, 1992, the Company and its wholly-owned subsidiary, OMC
Partners, Inc., and AB Volvo Penta, Volvo Penta North America Inc. and V.P
Partners, Inc. (collectively, "Volvo") entered into an agreement for the
creation of the Volvo Penta Marine Products L.P. joint venture. The agreement
contemplated ownership of the joint venture in a 40/60 ratio by the Company and
Volvo respectively. VPMP Management Corporation serves as the managing general
partner for the partnership and also is owned 40/60 by the Company and Volvo,
respectively, with the Company having two directors and Volvo having three. The
Company and Volvo created the joint venture for the purpose of developing,
manufacturing and designing sterndrive marine packages and inboard gasoline
engines (the "JV Products"). The joint venture does not include diesel inboards
or inboard or sterndrive-like packages or jet pumps powered by outboard
powerheads. Also excluded from the joint venture are Volvo's duoprop
sterndrives. Both parties licensed to the joint venture their intellectual
property necessary for the manufacture of the JV Products on a non-exclusive,
worldwide, perpetual and royalty-free basis.
Volvo has the right to worldwide distribution of the JV Products and the
Company has the right to distribute those same JV Products to its captive boat
companies. Pursuant to the terms of the Agreement of Limited Partnership,
profits from sales of aftermarket service parts and repowers are to be split in
proportion to the number of units sold by each partner.
As long as the Company owns an interest in the joint venture, it is (1)
required to purchase its requirements for JV Products from the joint venture,
(2) obligated to sell to the joint venture, at cost, the parts it manufactures
for the joint venture, (3) required to participate in the funding of product
development for JV Products which the Company wants to use, and (4) entitled to
participate in the profit or loss of the joint venture to the extent of its 40%
interest.
On July 1, 1993, the parties entered into the Termination Option and
Amendment Agreement ("TOAA") as an alternative method for the Company to
withdraw from the joint venture. The joint venture can be terminated as follows:
(1) by exercise of the option under the TOAA, (2) by utilizing the dispute
resolution provision in the VPMP Management Corporation Stockholders Agreement,
or (3) by agreement of the parties.
On June 14, 1996, the Company notified Volvo of its intent to exercise the
option to terminate under the TOAA. Subsequently, Volvo filed a motion for
declaratory judgment against the Company in a Virginia state court seeking a
determination of its obligations pursuant to the termination. The litigation has
remained inactive while the Company and Volvo negotiate the structure of the
relationship. Since the time of the Company's termination notice, the Company
and Volvo have been actively engaged in these negotiations. Although the Company
expects its negotiations with Volvo to result in a new relationship, there can
be no assurance that this will occur. In the event such renegotiations are not
successful, pursuant to the terms of the joint venture relationship the Company
is assured of a low cost supply of stern drive product for a two-year period
following the formal termination of the joint venture.
Suzuki Agreement
On June 13, 1997, the Company entered into a five-year Original Equipment
Manufacturer Supply/ Purchase Agreement with Suzuki Motor Corporation for the
purchase of certain four-stroke outboard engines and related parts and
accessories. The products are manufactured by Suzuki and marketed and sold under
the Johnson and Evinrude brands. The Company and Suzuki have recently
participated in a joint evaluation of respective product performance
characteristics. The Company and Suzuki are currently negotiating an agreement
for the supply/purchase of OMC-manufactured engines and parts and accessories to
be branded and sold under the Suzuki name.
50
<PAGE> 56
SALES AND DISTRIBUTION
The Company believes that it has one of the world's largest marine dealer
network with approximately 6,500 dealers worldwide, approximately 4,300 of which
are in North America, and many of whom sell both the Company's boats and its
engines. The Company's outboard engines and parts and accessories are
distributed in the United States and Canada through a dealer organization, the
majority of which operate under direct-from-factory dealerships. The Company's
boats are sold primarily to direct-from-factory dealerships. Distribution of the
Company's products outside the United States and Canada is handled by various
divisions and subsidiaries of the Company, which sell to dealers and wholesale
distributors throughout the world. The Company's dealership agreements are
typically nonexclusive and are executed on an annual basis.
The Company sponsors various programs to provide its dealers with marketing
and financial assistance and to encourage them to offer broader lines of the
Company's products. Such programs include "cooperative" advertising, boat-show
promotions, dealer rebate programs and "floor plan" financing assistance and
various other credit arrangements. In a typical "floor plan" financing
arrangement, an institutional lender agrees to provide a dealer with a line of
credit in a specified amount for the purchase of inventory which secures such
credit. For certain lenders the Company, in turn, agrees to repurchase products
up to a specified amount in the event of repossession by the lender upon a
dealer's default. The Company's "floor plan" financing arrangements contain
provisions which limit the Company's obligations to $40.0 million per model year
for a period not to exceed 30 months from the date of invoice. This obligation
automatically reduces over the 30-month period. The Company resells any
repurchased products at a discount. Losses incurred to date under this program
have not been material. In fiscal 1997, the Company repurchased approximately
$3.9 million of repossessed products, which were subsequently resold. The
Company accrues for losses which are anticipated in connection with expected
repurchases.
The Company augments its dealers' marketing efforts by, among other
methods, advertising in boating and other recreational magazines, by furnishing
displays at regional, national or international boat shows and by sponsoring
various fishing tournaments and fishing professionals. The Company is refocusing
its marketing efforts to emphasize and reinforce its new brand-realignment
strategies.
As part of its sales efforts, the Company actively pursues original
equipment manufacturer ("OEM") and pre-rig arrangements relating to its outboard
engines. Among the Company's OEM arrangements are those with Mako Marine
International, Inc., Smoker Craft, Inc. and Godfrey Conveyer Company. The
Company also has pre-rig arrangements with certain boat manufacturers, including
Genmar Holdings, Inc. and Pro Line. Each of these manufacturers has agreed to
pre-rig certain of its products for outboard engines sold by OMC to such
manufacturer's dealers. In return, OMC pays a fee to the boat manufacturer based
on the number of pre-rigged boats sold by the manufacturer.
MANUFACTURING OPERATIONS
The Company's principal outboard engine manufacturing and assembly
facilities are located in Illinois, Wisconsin, Georgia, North Carolina, Mexico,
China, Brazil, and Hong Kong. Its principal boat manufacturing facilities are
located in Michigan, Florida, Tennessee, South Carolina, Oregon, Indiana,
Missouri, Australia and Canada. See "--Properties."
The Company has taken significant steps to improve the efficiency of its
manufacturing operations. In February 1998, the Company closed its Old Hickory,
Tennessee plant and moved its production to the Company's Murfreesboro,
Tennessee plant. The Murfreesboro plant now focuses on the production of
fiberglass, freshwater fishing boats. Concurrently, production of the Company's
saltwater fishing boats was moved to the Company's Columbia, South Carolina
manufacturing facility. This move focused the Columbia facility exclusively on
saltwater fishing boats and located production of the Company's saltwater
fishing boats closer to the retail market for these boats.
In addition, the Company has begun several important initiatives aimed at
reducing costs in its engine manufacturing facilities. These initiatives
include: (i) measures aimed at reducing purchasing costs through consolidation
of vendors and improvement of the design process; (ii) improving factory layouts
and work
51
<PAGE> 57
flows; (iii) standardizing labor inputs; (iv) outsourcing non-core capabilities;
and (v) improving quality control. The Company has implemented the first phase
of its lean manufacturing initiative at its main outboard engine manufacturing
and assembly facility in Calhoun, Georgia and, as the second phase, this
initiative is currently being expanded to additional sub-assembly facilities.
COMPETITION
The Company faces competition on international, national, regional and
local levels. Each of the markets in which the Company participates is highly
competitive. In addition, the Company faces competition generally from other
forms of recreational products and activities such as golf, camping and
recreational vehicles. Management believes that the Company is the world's
second largest manufacturer of outboard engines, the world's largest
manufacturer of aluminum boats and freshwater fiberglass fishing boats, and the
third largest manufacturer of recreational boats.
The marine engine market has high barriers to entry due to the capital
investment and technological expertise required in manufacturing marine engines.
As a result, the marine engine market is concentrated with two main U.S.-based
competitors, OMC and Brunswick Corporation, and three main Japan-based
manufacturers, Yamaha Motor Co., Ltd., American Honda Motor Co., Inc. and Suzuki
Motor Corporation. There are hundreds of manufacturers of boats which compete
with the Company, the largest of which in the United States are Brunswick,
Genmar Industries, Inc. and Tracker Marine, L.P. Many of the Company's
competitors in the boat manufacturing industry are smaller, regional builders
who may possess cost advantages over the Company's boat manufacturing
operations. Although the recreational boat market is fragmented, the top four
boat builders (including the Company) accounted for approximately 45% of the
U.S. market in 1997 in terms of unit sales.
Many of the Company's competitors, including Brunswick and Yamaha, are
large, vertically integrated companies that may have greater resources,
including financial resources, than the Company. The Company believes, however,
that it is well positioned within the recreational boating industry, as it is
one of only two integrated domestic manufacturers of both marine engines and
boats. The Company believes that this integration is a competitive advantage as
the industry continues to trend towards sales of integrated boat and engine
packages.
INTELLECTUAL PROPERTY
The Company's success is dependent in part on its technology. The Company
relies upon a combination of patent, trademark and trade secret laws, together
with licenses, confidentiality agreements and other contractual covenants, to
establish and protect its technology and other intellectual property rights. The
Company owns a considerable number of patents and patent applications throughout
the world, primarily for the production of engines, including those related to
the FICHT fuel-injection technology. The Company has recently received
correspondence from Orbital alleging that the Company's FICHT fuel-injected 150-
horsepower engines infringe two Australian Orbital patents, which correspond to
three U.S. patents and to a number of foreign patents. The Company believes that
it has substantial defenses to these allegations, including that the three
corresponding U.S. patents are not infringed and/or are invalid. However, there
can be no assurance that Orbital will not commence litigation against the
Company with respect to this matter or, if such litigation is commenced, that
the Company's defenses will be successful. If Orbital is successful in an action
against the Company, the Company could be required to obtain a license from
Orbital to continue the manufacture, sale, use or sublicense of FICHT products
and technology or it may be required to redesign its FICHT products and
technology to avoid infringement. There can be no assurance that any such
license could be obtained or that any such redesign would be possible. There
also can be no assurance that the failure to obtain any such license or effect
any such redesign, or any cost associated therewith, would not have a material
adverse effect on the Company. The sale of FICHT engines accounted for
approximately 2% of the Company's revenues in fiscal 1997 and approximately 8%
of the Company's revenues in the first three quarters of fiscal 1998.
The Company also uses a number of trade names and trademarks in its
business, including Chris Craft, Evinrude, FFI, FICHT, Four Winns, Grumman,
Hydra-Sports, Javelin, Johnson, Lowe, OMC, Princecraft,
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<PAGE> 58
Roughneck, Sea Horse, Sea Nymph, Seaswirl and Stratos. Wherever legally
permissible and appropriate, the Company files applications to acquire its
patents and register its trademarks and service marks in the United States and
many foreign countries where the Company currently sells its products or could
reasonably be expected to sell products in future years.
In addition, the Company has license agreements with FICHT GmbH & Co. KG (a
majority-owned subsidiary of the Company), Chris Craft Industries, Inc. and
Northrop Grumman Corporation. The Company has an exclusive, worldwide license
with its majority-owned subsidiary FICHT GmbH for the marine industry for the
FICHT fuel-injection system. This license is royalty bearing and is active for
the duration of each patent existing at the time that the license agreement was
executed in April 1992 or filed within one year thereafter. The Company also has
an exclusive, worldwide license with its majority-owned subsidiary FICHT GmbH
for all non-automotive applications of the FICHT technology. This license is
royalty bearing and is active for the duration of each patent existing at the
time that the license agreement was executed in February 1997 or filed within
one year thereafter. The Company's license with Chris Craft Industries, Inc. is
an exclusive, perpetual, royalty bearing license to use the Chris Craft trade
name and trademark for boats and certain boat products worldwide. The Company's
Grumman license is an exclusive, royalty-free license to use the Grumman trade
name and trademark for recreational aluminum boats and canoes in territories
which include the United States and Europe. This license expires on December 31,
1999, however it is subject to unlimited ten year renewal terms at the Company's
option.
RESEARCH AND DEVELOPMENT
In the fiscal years 1997, 1996 and 1995, OMC spent $38.2 million, $41.8
million and $41.6 million, respectively, on research and development activities
relating to the development of new products and improvement of existing
products, including the FICHT fuel-injection technology. All of these activities
were OMC sponsored. The EPA has adopted regulations governing emissions from
marine engines. As adopted, the regulations as they relate to outboard engines
phase in over nine years, beginning in model year 1998 and concluding in model
year 2006. With respect to personal watercraft, the regulations phase in over
eight years, beginning in model year 1999 and concluding in model year 2006.
Marine engine manufacturers will be required to reduce hydrocarbon emissions
from outboard engines, on average, by 8.3% per year beginning with the 1998
model year, and emissions from personal watercraft by 9.4% per year beginning in
model year 1999. In 1994, the Company announced Project LEAP, a project to
develop new low-emission technologies and to convert its entire outboard product
line to low-emission products within the next decade. To date, the Company
estimates that it has spent approximately $50.0 million on Project LEAP,
including the introduction of its new FICHT fuel-injection technology and
four-stroke outboard engines, and by the Year 2006 the Company is expected to
have expended an aggregate of approximately $90.0 million to meet the EPA's new
emission standards. Compliance with these standards will add cost to the
Company's engine products in the short-term. However, this situation is not seen
as a major deterrent to sales since value will be added to its products at the
same time that the entire industry is faced with developing solutions to the
same regulatory requirements. The Company believes this situation will not have
a material impact on future results of operations or the financial condition of
the Company.
RAW MATERIALS
The principal raw materials required in the Company's manufacturing
operations are aluminum, resin and fiberglass, all of which are purchased at
competitive or prevailing market prices. The Company has supply arrangements for
the purchase of resin and aluminum. From time to time, the Company has also
purchased commodity options to hedge anticipated price fluctuations with respect
to purchases of aluminum. The Company believes that adequate sources of supply
exist and will continue to exist, at competitive prices, for all of the
Company's raw material requirements.
EMPLOYEES
As of June 30, 1998, approximately 6,870 people were employed by OMC and
its subsidiaries, consisting of 1,511 salaried and 5,359 hourly employees.
Salaried and hourly employees of MPPG have an average
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<PAGE> 59
tenure of approximately 16 and 14 years, respectively. Approximately 18% of the
Company's employees are represented by one of three unions. The Laborers
International Union of North America ("LIUNA") represents approximately 515
employees at the Calhoun, Georgia facility; the independent Marine Machinists
Association ("IMMA") represents approximately 429 employees at the Waukegan,
Illinois facility; and the United Steel Workers of America ("USWA") represents
approximately 329 employees at the Milwaukee, Wisconsin facility. The Company's
agreements with the LIUNA, IMMA and USWA are effective through September 30,
1998, October 30, 1999 and March 31, 2003, respectively. The Company believes
that its labor relations are satisfactory.
PROPERTIES
The following table sets forth the Company's material facilities as of June
30, 1998.
<TABLE>
<CAPTION>
OWNED OR LEASED
LOCATION FACILITY TYPE/USE (LEASE EXPIRATION) SQUARE FOOTAGE
-------- ----------------- ------------------ --------------
<S> <C> <C> <C>
Waukegan, IL Worldwide headquarters; outboard Owned 1,400,000
engine component manufacturing
Delavan, WI Outboard engine component Leased (Aug. 2006) 40,000
manufacturing
Milwaukee, WI Outboard engine component Owned 375,000
manufacturing
Burnsville, NC Outboard engine component Owned 290,000
manufacturing
Spruce Pine, NC Outboard engine component Owned 100,000
manufacturing
Andrews, NC Outboard engine component Owned 150,000
manufacturing
Calhoun, GA Outboard engine assembly Owned 290,000
Beloit, WI Worldwide parts and accessories Owned 483,000
distribution center
Waukegan, IL Distribution center Leased (Jan. 2003) 180,000
Morrow, GA Distribution center Owned 86,000
Parsippany, NJ Distribution center Owned 88,000
Dallas, TX Distribution center Owned 86,000
Kent, WA Distribution center Leased (Dec. 2000) 56,000
Sunrise, FL Sales Office Leased (Sept. 2001) 8,000
Cadillac, MI Boat manufacturing Owned 364,000
Lebanon, MO Boat manufacturing Owned 227,000
Murfreesboro, TN Boat manufacturing Owned 275,000
Columbia, SC Boat manufacturing Owned 178,000
Culver, OR Boat manufacturing Owned 166,000
Syracuse, IN Boat manufacturing Owned 235,000
Sarasota, FL Boat manufacturing Owned 190,000
Princeville, Quebec, Canada Boat manufacturing Owned 417,000
Juarez, Chihuahua, Mexico Outboard engine component Owned 200,000
manufacturing
Dongguan, China Outboard engine component Leased (Apr. 1999) 65,000
manufacturing
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
OWNED OR LEASED
LOCATION FACILITY TYPE/USE (LEASE EXPIRATION) SQUARE FOOTAGE
-------- ----------------- ------------------ --------------
<S> <C> <C> <C>
Hong Kong Outboard engine and component Leased (June 2047) 35,000
manufacturing and distribution
center;
Manaus, Brazil Outboard engine and component Leased (Aug. 1999) 46,000
assembly and fabrication
Altona, Australia Boat manufacturing and assembly Owned 28,000
Yatala, Australia Boat manufacturing and assembly Owned 37,000
Bankstown, Australia Office; distribution center Leased (Dec. 1998) 54,000
Gent, Belgium Office; warehouse Leased (Apr. 2003) 13,000
Bankstown, Australia Office; warehouse Leased (Apr. 2001) 54,000
</TABLE>
ENVIRONMENTAL MATTERS
The Company is subject to regulation under various federal, state and local
laws relating to the environment and to employee safety and health. These laws
include those relating to the generation, storage, transportation, disposal and
emission into the environment of various substances, those relating to drinking
water quality initiatives, and those which allow regulatory authorities to
compel (or seek reimbursement for) clean-up of environmental contamination at
its owned or operated sites and at facilities where its waste is or has been
disposed. Permits are required for operation of the Company's business
(particularly air emission permits), and these permits are subject to renewal,
modification and, in certain circumstances, revocation. The Company believes
that it is in substantial compliance with such laws and permitting requirements,
except where such non-compliance is not expected to have a material adverse
effect.
CERCLA imposes joint, strict, and several liability on (i) owners or
operators of facilities at, from, or to which a release of hazardous substances
has occurred; (ii) parties who generated hazardous substances that were released
at such facilities; and (iii) parties who transported or arranged for the
transportation of hazardous substances to such facilities. A majority of states
have adopted Superfund statutes comparable to, and in some cases more stringent
than, CERCLA. The Company has been notified that it is named a PRP at various
sites for study and clean-up costs. In some cases there are several named PRPs
and in others there are hundreds. The Company generally participates in the
investigation or clean-up of these sites through cost sharing agreements with
terms which vary from site to site. Costs are typically allocated based upon the
volume and nature of the materials sent to the site. However, as a PRP, the
Company can be held jointly and severally liable for all environmental costs
associated with a site.
Once the Company becomes aware of its potential liability at a particular
site, it uses its experience to determine if it is probable that a liability has
been incurred and whether or not the amount of the loss can be reasonably
estimated. Once the Company has sufficient information necessary to support a
reasonable estimate or range of loss for a particular site, an amount is added
to the Company's aggregate environmental contingent liability accrual. The
amount added to the accrual for the particular site is determined by analyzing
the site as a whole and reviewing the probable outcome for the remediation of
the site. This is not necessarily the minimum or maximum liability at the site
but, based upon the Company's experience, most accurately reflects the Company's
liability based on the information currently available. The Company takes into
account the number of other participants involved in the site, their experience
in the remediation of sites and the Company's knowledge of their ability to pay.
As a general rule, the Company accrues remediation costs for continuing
operations on an undiscounted basis and accrues for normal operating and
maintenance costs for site monitoring and compliance requirements. The Company
also accrues for environmental close-down costs associated with discontinued
operations or facilities, including the environmental costs of operation and
maintenance until disposition. At June 30, 1998, the Company has accrued
approximately $22.0 million for costs relating to remediation at contaminated
sites including operation and maintenance for continuing and closed-down
operations. The possible recovery of insurance proceeds has not been considered
in estimating
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<PAGE> 61
contingent environmental liabilities. Each site, whether or not remediation
studies have commenced, is reviewed on a quarterly basis and the aggregate
environmental contingent liability accrual is adjusted accordingly. Therefore,
the Company believes the accruals accurately reflect the Company's liability
based upon current information.
The EPA has adopted regulations governing emissions from marine engines. As
adopted, the regulations as they relate to outboard engines phase in over nine
years, beginning in model year 1998 and concluding in model year 2006. With
respect to personal watercraft, the regulations phase in over eight years,
beginning in model year 1999 and concluding in model year 2006. Marine engine
manufacturers will be required to reduce hydrocarbon emissions from outboard
engines, on average, by 8.3% per year beginning with the 1998 model year, and
emissions from personal watercraft by 9.4% per year beginning in model year
1999. In 1994, the Company announced Project LEAP, a project to convert its
entire outboard product line to low-emission products within the next decade. To
date, the Company estimates that it has spent approximately $50.0 million on
Project LEAP, including the introduction of its new FICHT fuel-injection
technology, and by the Year 2006 the Company is expected to have expended an
aggregate of approximately $90.0 million to meet the EPA's new emissions
standards. The Company does not believe that compliance with these standards,
which will add cost to the Company's engine products and will initially result
in a lower margin to the Company, will be a major deterrent to sales. The
Company believes that its new compliant technology will add value to its
products at the same time that the entire industry is faced with developing
solutions to the same regulatory requirements. The Company does not believe that
compliance with these new EPA regulations will have a material adverse effect on
its financial condition or future results of operations.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 ("SOP 96-1"), "Environmental Remediation
Liabilities", which provides authoritative guidance on the recognition,
measurement, display and disclosure of environmental remediation liabilities.
The Company adopted SOP 96-1 in the quarter ended September 30, 1997. The change
in accounting estimate required the Company to accrue for future normal
operating and maintenance costs for site monitoring and compliance requirements
at particular sites. The initial expense for implementation of SOP 96-1 was $7.0
million, charged to selling, general and administrative expense in the quarter
ended September 30, 1997.
LEGAL MATTERS
The Company is engaged in a substantial number of legal proceedings arising
in the ordinary course of business. While the result of these proceedings cannot
be predicted with any certainty, based upon the information presently available,
the Company is of the opinion that the final outcome of all such proceedings
should not have a material adverse effect on the financial condition or the
results of operations of the Company.
Products sold or serviced by the Company may expose it to potential
liability for personal injury or property damage claims relating to the use of
those products. Historically, the resolution of product liability claims has not
materially affected the Company. The Company maintains a Domestic Products
Liability/ Protection and Indemnity Self-Insured Retention Program. The Company
has a Primary Self-Insured Retention for any one accident or occurrence of
$250,000 with an underlying Self-Insured Retention of $2,000,000 per accident
with a $2,000,000 per year aggregate. Product liability claims occurring outside
the United States are covered by insurance with a limit of $1,000,000 per
occurrence, $2,000,000 aggregate. In the event that the underlying products
liability insurance or retentions are exhausted, there is excess coverage up to
$100,000,000 per occurrence and in the aggregate.
For a discussion of certain allegations relating to the FICHT technology,
see also "Risk Factors--Reliance on Patents and Intellectual Property; Certain
Allegations Regarding FICHT Technology."
56
<PAGE> 62
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding each director and
executive officer of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alfred D. Kingsley.............. 55 Chairman of the Board
Gary K. Duberstein.............. 43 Vice Chairman of the Board and Assistant Secretary
Richard Katz.................... 56 Vice Chairman of the Board
Ron Hiram....................... 45 Director
Frank V. Sica................... 47 Director
David D. Jones, Jr.............. 54 President and Chief Executive Officer; Director
Andrew P. Hines................. 58 Executive Vice President and Chief Financial Officer;
Director
Kimberly K. Bors................ 37 Vice President--Human Resources
Paul R. Rabe.................... 49 Vice President--MPPG North American Sales and
Marketing
Robert S. Romano................ 43 Vice President--General Counsel and Secretary
Leslie M. Savickas.............. 52 Vice President--Treasurer
Joseph P. Tomczak............... 43 Vice President--Controller
</TABLE>
Alfred D. Kingsley has been Chairman of the Board of Directors since
September 12, 1997. Since 1993, Mr. Kingsley has been Senior Managing Director
of Greenway Partners, L.P., an investment partnership. Prior to that, Mr.
Kingsley held various positions at Icahn & Co., Inc., including senior adviser
until 1992. Mr. Kingsley is also a director of ACF Industries, Incorporated, and
a director of the general partner of American Real Estate Partners, L.P. Mr.
Kingsley is Chairman of the Compensation and Benefits Committee and a member of
the Audit Committee.
Gary K. Duberstein has been Vice Chairman of the Board of Directors and
Assistant Secretary since September 12, 1997. Since 1993, Mr. Duberstein has
been a Managing Director of Greenway Partners, L.P., an investment partnership.
Prior to that, Mr. Duberstein served as general counsel to Icahn & Co., Inc.,
and as vice president of certain companies operated by Carl Icahn from 1985 to
1993. Mr. Duberstein is a member of the Compensation and Benefits Committee and
Chairman of the Audit Committee.
Richard Katz has been Vice Chairman of the Board of Directors since
September 12, 1997. From 1977 to 1993, Mr. Katz was a director of NM Rothschild
& Sons Limited, London, England. Since 1986, he has served as a Supervisory
Director for a number of entities affiliated with Soros Fund Management LLC. Mr.
Katz is also a director of Apex Silver Mines Limited. Mr. Katz is a member of
the Compensation and Benefits Committee.
Ron Hiram has been a director since September 30, 1997. Mr. Hiram has been
associated with Soros Fund Management LLC, an investment management company,
since 1995 and has been a Managing Director thereof since 1997. From 1992 to
1995, Mr. Hiram was a Managing Director of Lehman Brothers Incorporated. Mr.
Hiram is a member of the Compensation and Benefits Committee and Audit
Committee.
Frank V. Sica has been a director since July 22, 1998. Mr. Sica has been a
Managing Director of Soros Fund Management LLC and head of its private equity
operations since May 1, 1998. Prior to joining Soros Fund Management LLC, Mr.
Sica held various positions during his 18-year tenure at Morgan Stanley Dean
Witter & Co. Mr. Sica is also a director of Emmis Broadcasting Corporation, CSG
Systems International, Inc. and Kohl's Corporation.
David D. Jones, Jr. has been President and Chief Executive Officer and a
director since September 25, 1997. From 1990 to 1997, Mr. Jones held numerous
positions with the Mercury Marine Division of Brunswick
57
<PAGE> 63
Corporation and most recently as President of the Mercury Marine Division. Mr.
Jones is also a director of National Exchange Bank, Fond du Lac, WI, and the
ASHA Corporation, Santa Barbara, CA.
Andrew P. Hines has been the Executive Vice President and Chief Financial
Officer since October 6, 1997. Mr. Hines has been a director since October 7,
1997. Prior to joining the Company, Mr. Hines held the position of Senior Vice
President and Chief Financial Officer for Woolworth Corporation since 1994.
During 1993, Mr. Hines was a consultant to Pentland PLC, England. From 1989 to
1992, Mr. Hines held the position of Executive Vice President and Chief
Financial Officer with adidas USA. Prior to that, Mr. Hines held various senior
financial positions with RJR Nabisco, Inc. from 1976 to 1989.
Kimberly K. Bors has been Vice President--Human Resources since October 1,
1997. Prior to her election to such position, Ms. Bors held the position of
Director, Compensation and Organizational Development with the Company since
1995. Prior to joining the Company, Ms. Bors held the position of Director of
Compensation and Human Resources Services with Browning-Ferris Industries, Inc.
since 1990.
Paul R. Rabe has been Vice President--MPPG North American Sales and
Marketing since December 17, 1997. Prior to his election to such position, Mr.
Rabe held the position of Division Vice President, MPPG since joining the
Company in 1996. Prior to joining the Company, Mr. Rabe held the position of
Vice President and General Manager of Cummins Marine Division of Cummins Engine
Company since 1992.
Robert S. Romano has been Vice President--General Counsel and Secretary
since October 9, 1997. Prior to his election to such position, Mr. Romano was
appointed Assistant Secretary and Assistant General Counsel in 1996 and 1994,
respectively. Mr. Romano has held various positions within the Company's legal
department since joining the Company in 1980.
Leslie M. Savickas has been Vice President--Treasurer since March 16, 1998.
Prior to that, Ms. Savickas was a treasury consultant to the Company from
December 3, 1997. From 1995 to 1997, Ms. Savickas held the position of Vice
President, Finance for The LINC Group, Inc. Ms. Savickas held the position of
CEO of The Comparative Advantage, Inc. from 1994 to 1995 and, prior to that, the
position of treasurer of XL/Datacomp, Inc. from 1988 to 1993.
Joseph P. Tomczak was named Vice President--Controller on May 1, 1998 and
formally joined the Company on June 1, 1998. Mr. Tomczak previously served as
Vice President and Corporate Controller for Alliant Foodservice, Inc. from July
1990 to May 1998.
To the knowledge of the Company, there are no family relationships between
any director or executive officer and any other director or executive officer.
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<PAGE> 64
ADDITIONAL KEY PERSONNEL
Including the executive officers, since the Greenmarine Acquisition, 27 key
positions have been filled or replaced with members of the new management team.
The following sets forth certain information with respect to certain additional
key personnel of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John A. Anderson.......................... 47 President and General Manager--Four Winns
John T. Aylsworth......................... 55 Vice President--Marketing Support and
Advertising
Robert L. Beagle.......................... 36 General Manager--Freshwater Fishing
Operations
Francois Bouffard......................... 46 General Manager--MPPG Canada
Leslie E. Crawford........................ 50 President and General Manager--OMC
Aluminum Boat Group, Inc.
Charles D. Eckert......................... 53 President and General Manager--OMC Europe
Paul A. Luck.............................. 44 Vice President, Finance--Boats
William J. Miller......................... 51 Vice President, Manufacturing--MPPG
Susan M. Opeka............................ 41 Division Vice President, Finance--MPPG
John A. Roush............................. 33 Vice President, General Manager FICHT Fuel
Injection
Paula S. Rummage.......................... 40 Vice President, Finance and
Administration--Boat Group
Peter J. VanLancker....................... 46 Vice President, Product Design and
Engineering--Boat Group
Russell J. Van Rens....................... 50 Vice President--Quality
Chris R. Wainscott........................ 42 President and General Manager--Saltwater
Fishing Boats Division
Robert J. Werner.......................... 40 Vice President--Supply Management and
Logistics
Jack J. White, Jr. ....................... 61 President--Freshwater Division
George Wishart............................ 42 Vice President--Parts and Accessories
Donald P. Wood............................ 53 Division Vice President--North American
Sales, MPPG
Robert F. Young........................... 48 Division Vice President, Product
Development and Research--MPPG
Charles J. Yunger......................... 59 President and General Manager--Chris Craft
</TABLE>
John A. Anderson is President and General Manager of the Company's Four
Winns boat group. Mr. Anderson joined the Company in November 1997, and prior
thereto served as President of Shamrock, a division of KCS International which
manufactures inboard sport fishing boats from 1996 to 1997. Mr. Anderson has
also previously served as Director of Sales for Sea Doo, a division of
Bombardier Motor Corporation of America (from 1992 to 1996), and as Senior Vice
President, Marketing at Sea Ray Boats, Inc., a wholly-owned subsidiary of
Brunswick Corporation (from 1965 to 1992).
John T. Aylsworth is Vice President of Marketing Support and Advertising
for the Company's engine and boat brands. Mr. Aylsworth joined the Company in
December 1997, and prior thereto spent five years with Tuzee and Associates
developing programs to support marketing efforts for some of the industry's most
prominent companies.
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<PAGE> 65
Robert L. Beagle is General Manager of the Company's Freshwater Fishing
Operations. Mr. Beagle joined the Company in February 1998, and prior thereto
served as General Manager of Marine Group LLC, a manufacturer and distributor of
Procraft and Astro bass boats (from 1996 to 1998). From 1992 to 1996, Mr. Beagle
was Vice President of Manufacturing of the Marine Group Division of the
Brunswick Corporation.
Francois Bouffard is General Manager--MPPG Canada. Mr. Bouffard joined the
Company in April 1998. Mr. Bouffard has more than 20 years of experience in
sales and marketing, a majority of which has been in Canada. He most recently
served as Executive Vice President, Sales and Marketing of Motor Coach
Industries, Inc. (from 1994 to 1997). Prior to that, Mr. Bouffard held various
positions with Prevost Car Inc. (from 1990 to 1994).
Leslie E. Crawford is President and General Manager--OMC Aluminum Boat
Group, Inc. Mr. Crawford joined the Company in March 1998, and prior thereto
served as President of Wellcraft Marine (from 1995 to 1998), a division of
Genmar Holdings, Inc., where he had earlier served as Vice President for the
fishing boat group (from 1994 to 1995). Prior to that, Mr. Crawford was
Executive Vice President of Tracker Marine, L.P. (from 1985 to 1994).
Charles D. Eckert is President and General Manager--OMC Europe. Prior to
assuming this position in March 1998, Mr. Eckert held various positions of
increasing responsibility during his thirty years with the Company, including,
most recently, Controller of the International Group.
Paul A. Luck is Vice President, Finance--Boats. Prior to joining the
Company on August 18, 1998, Mr. Luck held the position of Vice President,
Finance at SPX Corporation since 1997. Between 1996 and 1997, Mr. Luck was the
International Finance Manager at Federal Mogul. Prior to that, Mr. Luck was Vice
President--Finance and Chief Financial Officer of FTD, Inc. from 1995 to 1996,
and Vice President--Financial Planning and Analysis at Dun & Bradstreet
Corporation from 1993 to 1995.
William J. Miller is Vice President, Manufacturing--MPPG. Prior to joining
the Company in March 1998, Mr. Miller served as Vice President, Operations at
the Toro Company (from 1997 to 1998), where he was responsible for 12 U.S.
manufacturing facilities. Prior to that Mr. Miller held positions of increasing
responsibility at Frigidaire Company from 1992 to 1997, most recently as Vice
President, Refrigeration.
Susan M. Opeka is Division Vice President, Finance--MPPG. Prior to joining
the Company in January 1998, Ms. Opeka spent twelve years at Tenneco Automotive,
a Division of Tenneco, Inc., most recently as Executive Director Strategic
Planning.
John A. Roush is Vice President, General Manager--FICHT Fuel Injection.
Prior to joining the Company in July 1998, Mr. Roush was a Vice President of
Allied Signal, Inc. since 1996. Prior to that, Mr. Roush was an Engagement
Manager at McKinsey & Company, Inc. from 1992 to 1996.
Paula S. Rummage is Vice President, Finance and Administration--Boat Group.
Prior to assuming this position in September 1997, Ms. Rummage held various
positions of increasing responsibility during her twelve-year tenure with the
Company, most recently President of OMC Fishing Boat Group.
Peter J. VanLancker is Vice President, Product Design and Engineering--Boat
Group. Mr. VanLancker joined the Company in July 1996. Prior thereto, Mr.
VanLancker served as Vice President, Design and Advanced Technology of Boston
Whaler Company from 1969 to 1996.
Russel J. Van Rens is Vice President--Quality. Prior to assuming this
position in February 1998, Mr. Van Rens served as OMC's Vice President, Engine
Manufacturing. He has been with the Company since 1971, serving in increasingly
responsible positions.
Chris R. Wainscott is President and General Manager of the Company's
Saltwater Fishing Boats Division. Prior to assuming this position in February
1998, Mr. Wainscott served as Vice President of Sales and Marketing for the
Company's fishing boat products, including the Stratos, Javelin and Hydra-Sports
freshwater and saltwater brands (from 1996 to 1998). Prior to that, Mr.
Wainscott was Regional Sales Manager, Hydra-Sports from 1991 to 1996. Mr.
Wainscott has over 11 years of experience with the Company's products.
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<PAGE> 66
Robert J. Werner is Vice President--Supply Management and Logistics. Prior
to joining the Company in April 1998, Mr. Werner served as Manager, Sourcing,
Global Services Operation for General Electric Corporation from 1997 to 1998.
For eight years prior to that, Mr. Werner held various sourcing positions of
increasing responsibility with General Electric Corporation. He has over 18
years of hands-on international experience, with a focus on identification,
development, and expansion of worldwide sources of supply.
Jack J. White, Jr. is President of the Company's Freshwater Division. Prior
to joining the Company in April 1998, Mr. White owned the Marine Group, LLC, a
manufacturer and distributor of Procraft and Astro bass boats from 1996 to 1998.
Prior to that, Mr. White was general manager of and a consultant to the Fishing
Boat Division of the Brunswick Corporation from 1988 to 1995.
George Wishart is Vice President--Parts and Accessories. Prior to joining
the Company in April 1998, Mr. Wishart spent 11 years at Kraft Foods, Inc. in
positions of increasing responsibility, most recently serving as Business
Director, Enhancers Division.
Donald P. Wood is Division Vice President, North American Sales--MPPG. Mr.
Wood returned to the Company in November 1997 from Tracker Marine, L.P., a
manufacturer of aluminum boats, where he was Vice President of Sales from 1989
to 1994. Between leaving Tracker Marine and rejoining the Company, Mr. Wood
helped establish Horizon Marine Company and worked for the Company in various
positions of increasing responsibility.
Robert F. Young is Division Vice President, Product Development Engineering
and Research--MPPG. Prior to assuming this position in January 1997, Mr. Young
held numerous positions of increasing responsibility during his 27-year tenure
with OMC within its Engineering and Product Development departments, including
most recently, Vice President, Engineering.
Charles J. Yunger is President and General Manager of the Company's Chris
Craft boat group. Prior to joining the Company in April 1998, from 1996 Mr.
Yunger served as Director of Operations of the Hatteras Yachts division of
Genmar Industries, Inc., and prior to that as Director of Product Development of
Genmar's Cruiser division (from 1992 to 1996). Mr. Yunger has over 33 years of
marine industry experience.
CONTROL BY GREENMARINE HOLDINGS
Greenmarine Holdings holds 99.9% of the outstanding common stock of the
Company. Accordingly, Greenmarine Holdings can elect all of the Board of
Directors of the Company and controls all corporate transactions or other
matters required to be submitted to stockholders for approval, including any
merger, consolidation, or sale of all or substantially all of the Company's
assets. See "Security Ownership of Certain Beneficial Owners and Management"
(including Footnote 1 thereto).
The members of Greenmarine Holdings are Greenlake, QSP and QIP. Greenlake,
QSP and QIP have approximately a 30.5%, 34.75% and 34.75% interest in
Greenmarine Holdings, respectively. See "The Greenmarine Acquisition." Pursuant
to the Operating Agreement of Greenmarine Holdings, Greenlake has the right to
appoint two designees to Greenmarine Holdings' Management Committee and the
holders of a majority of Greenmarine Holdings' interest held by QSP and QIP have
the right to appoint two members of Greenmarine Holdings' Management Committee.
Greenmarine Holdings' Management Committee is currently comprised of Messrs.
Alfred D. Kingsley, Gary K. Duberstein and Richard Katz. From and after
September 12, 1998, the holders of a majority of Greenmarine Holdings' interest
held by QSP and QIP may elect to increase the size of Greenmarine Holdings'
Management Committee to five members, three of whom will be designated by the
holders a majority of Greenmarine Holdings's interest held by QSP and QIP and
two of whom will be designated by Greenlake. The vote of three of the members of
Greenmarine Holdings' Management Committee is required for action by the
Management Committee.
Pursuant to the Operating Agreement of Greenmarine Holdings, the board of
directors of the Company is to be comprised of members approved by the
Management Committee of Greenmarine Holdings, provided that Greenlake shall have
the right to designate at least one member of the board of directors.
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<PAGE> 67
COMPENSATION OF DIRECTORS
Directors of the Company do not receive any compensation, as such, for
services provided to the Company as a director, including participation on any
committees. Directors may be entitled to reimbursement for travel expenses
associated with Board activities.
PERSONAL REWARDS AND OPPORTUNITIES PROGRAM
On March 10, 1998, the Board of Directors of the Company adopted the
Outboard Marine Corporation Personal Rewards and Opportunities Program ("PROP").
PROP was designed to recognize and reward, through cash bonuses, stock options
and other equity-based awards, the personal contributions and achievements of
key employees of the Company, both individually and as members of the management
and key employee team. All employees of the Company and its subsidiaries are
eligible to participate in PROP. PROP replaced all prior long and short-term
incentive plans of the Company. PROP provides for (i) cash and/or equity annual
bonuses based on performance targets, and (ii) grants of stock options, shares
of restricted stock, phantom shares of stock or stock appreciation rights. The
aggregate number of shares of stock available for equity awards under PROP is
1,500,000 shares of currently authorized common stock of the Company. PROP is
administered by the Board of Directors of the Company or a committee or
subcommittee of the Board appointed by the Board among its members, which, in
either case, has authority, at its discretion, to determine the persons to whom
equity awards will be granted and the specifics of those grants. As of June 30,
1998, the Company had granted stock options relating to 587,245 shares of common
stock. Of these options, 96,133 were vested at the time of grant. The other
491,112 options will vest as follows: 94,445 in fiscal 1998, 61,667 in the
three-month transition period ending December 31, 1998, 175,000 in the Company's
fiscal year ending December 31, 1999, 121,115 in the Company's fiscal year
ending December 31, 2000, and 38,885 thereafter. All of these stock options are
exercisable at $18.00 per share and expire ten years after the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation paid or to be paid to those persons who were, at
September 30, 1997, (i) the Chief Executive Officer or served in such capacity
during fiscal 1997, (ii) the other four most highly compensated Executive
Officers of the Company, who were serving in such capacity as of September 30,
1997 and (iii) individuals who would have been one of the four most highly paid
Executive Officers but for the fact that they were not serving as an Executive
Officer on September 30, 1997 (collectively the "Named Executives") for services
rendered in all capacities to the Company for the 1997, 1996 and 1995 fiscal
years. Messrs. Schueppert, Vitulli, Medland and Baddeley are no longer employed
by the Company. Mr. Bowman is currently serving as a consultant to the Company
pursuant to the terms of a Consulting Agreement between the Company and Mr.
Bowman.
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<PAGE> 68
For a discussion of the terms of Mr. Bowman's Consulting Agreement, and a
discussion of compensation payable to each of Messrs. Jones and Hines, see
"Management--Employment Contracts and Severance Agreements".
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- -----------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($)(2) SARS # ($) ($)(3)
- --------------------------- ---- ------- ------- ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D.D. Jones, Jr.(4)....... 1997 7,692 0 0 0 0 0 0
President and Chief 1996 -- -- -- -- -- -- --
Executive Officer 1995 -- -- -- -- -- -- --
H.W. Bowman(5)........... 1997 466,059 0 0 0 25,500 0 112,929
Former Chairman of the 1996 428,341 0 0 0 38,200 0 16,856
Board, President and 1995 246,928 240,000 0 0 150,000 0 12,812
Chief Executive Officer
G.L. Schueppert(6)....... 1997 298,076 120,000 0 0 11,000 0 90,834
Former Executive Vice 1996 225,000 0 0 810,000 10,000 0 80,031
President and Chief 1995 -- -- -- -- -- -- --
Financial Officer
C.J. Vitulli(7).......... 1997 306,076 0 0 0 12,000 0 95,851
Former Senior Vice 1996 93,269 0 0 385,000 0 0 0
President and President, 1995 -- -- -- -- -- -- --
OMC Boat Group
R.H. Medland(8).......... 1997 230,670 0 30,331 0 6,500 0 65,105
Former Senior Vice 1996 193,083 0 0 303,750 6,000 45,056 13,939
President and Chief 1995 183,000 96,716 0 0 0 52,024 16,316
Administrative Officer
D.J. Baddeley(9)......... 1997 228,951 0 28,032 0 6,000 0 75,084
Former Vice President, 1996 199,170 0 0 303,750 7,500 52,096 15,374
Secretary and General 1995 190,000 100,415 0 0 0 39,366 15,269
Counsel
</TABLE>
- ------------------------------
(1) For Mr. Medland, $17,230 for a company car and $13,101 for accounting and
legal fees, and for Mr. Baddeley, $16,772 for a company car and $11,260 for
accounting and legal fees. No other Named Executive's Other Annual
Compensation reached the level required for disclosure.
(2) In fiscal 1996 the Named Executives, except Mr. Bowman, and certain other
employees of the Company received grants of restricted stock at prices of
$16.00-$20.25 per share based on the closing price of a share of common
stock of the pre-Merger Company on the date of grant. The number of shares
granted were 255,000, having an aggregate value on the date of grant of
$5,037,500 of which Messrs. Schueppert, Vitulli, Medland and Baddeley
received 40,000, 20,000, 15,000 and 15,000, respectively. Based on the value
of a share of common stock of the pre-Merger Company as of September 30,
1997, the aggregate value of all outstanding restricted stock was
$4,590,000. With the exception of one grant of 5,000 shares which was not to
vest for a period of three years, the restricted stock granted in fiscal
year 1996, like prior grants of restricted stock, was not to vest for a
period of five years. However, as a result of the change of control
resulting from the Greenmarine Acquisition, all restricted stock fully
vested and was either paid-out in cash in an amount equal to $18.00 per
share or held by the Company pending negotiations on employment or severance
agreements.
(3) For fiscal 1997, includes matching contributions to the OMC Employees Taxed
Deferred Savings Plan in the amount of $1,640, $93, $25, $1,712 and $1,667;
the dollar value of insurance premiums paid by the pre-Merger Company of
$31,604, $44,161, $2,289, $19,000 and $21,363 for the benefit of Messrs.
Bowman, Schueppert, Vitulli, Medland and Baddeley, respectively; restricted
stock dividends in the amount of $12,205, $6,037, $5,576 and $7,066 for the
benefit of Messrs. Schueppert, Vitulli, Medland and Baddeley, respectively;
and stock option cash-outs in the amount of $79,687, $37,500, $34,375,
$37,387 and $44,987 for the benefit of Messrs. Bowman, Schueppert, Vitulli,
Medland and Baddeley, respectively. In addition, Mr. Vitulli received a
sign-on bonus in the amount of $50,000.
(4) Mr. Jones was hired by the Company on September 25, 1997 and, therefore,
information prior to that date does not exist.
(5) Mr. Bowman was hired by the pre-Merger Company on February 19, 1995 and,
therefore, information prior to that date does not exist. Mr. Bowman ceased
serving in the capacity noted on September 25, 1997.
(6) Mr. Schueppert was hired by the pre-Merger Company on January 2, 1996 and,
therefore, information prior to that date does not exist. Mr. Schueppert
ceased serving in the capacity noted on October 6, 1997.
(7) Mr. Vitulli was hired by the pre-Merger Company on June 10, 1996 and,
therefore, information prior to that date does not exist. Mr. Vitulli ceased
serving in the capacity noted on October 15, 1997.
(8) Mr. Medland ceased serving in the capacity noted on December 31, 1997.
(9) Mr. Baddeley ceased serving in the capacity noted on October 6, 1997.
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<PAGE> 69
OPTION GRANTS IN THE 1997 FISCAL YEAR
The following table provides information on the grants of options to
purchase common stock of the Pre-Merger Company given to the Named Executives on
February 3, 1997. As a result of the cancellation of all outstanding options in
connection with the Greenmarine Acquisition, no information is provided
regarding the potential realizable value of the options granted in fiscal 1997.
Any value received by the Named Executives during fiscal 1997 as a result of the
cancellation is reflected in the summary compensation table above and the
section below titled "Option Exercises in the 1997 Fiscal Year and Fiscal Year
End Option Values".
<TABLE>
<CAPTION>
# OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO ALL EXERCISE
GRANT OPTIONS/SARS EMPLOYEES PRICE PER
NAME DATE GRANTED(#) IN 1997(1) SHARE $(2) EXPIRED(3)
- ---- ------ ------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
H.W. Bowman...................... 2/3/97 25,500 11.40 16.375 9/30/97
G.L. Schueppert.................. 2/3/97 11,000 4.94 16.375 9/30/97
C.J. Vitulli..................... 2/3/97 12,000 5.36 16.375 9/30/97
R.H. Medland..................... 2/3/97 6,500 2.91 16.375 9/30/97
D.J. Baddeley.................... 2/3/97 6,000 2.68 16.375 9/30/97
</TABLE>
- ------------------------------
(1) In the 1997 fiscal year 139 employees received stock options.
(2) The exercise price of $16.375 was the closing price of a share of common
stock of the pre-Merger Company on the New York Stock Exchange on February
3, 1997.
(3) Pursuant to the change of control resulting from the Greenmarine
Acquisition, all outstanding options were fully vested and then cancelled
effective September 30, 1997.
OPTION EXERCISES IN THE 1997 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table shows information on the exercise in the 1997 fiscal
year of options to purchase common stock of the pre-Merger Company by the Named
Executives or the payout of limited stock appreciation rights associated
therewith. As a result of the cancellation of all outstanding options in
connection with the Greenmarine Acquisition, no information is provided
regarding unexercised options as of September 30, 1997 or the value of
in-the-money options as of such date.
<TABLE>
<CAPTION>
SHARES
ACQUIRED OR VALUE
NAME EXERCISED(#) REALIZED($)
---- ------------ -----------
<S> <C> <C>
H.W. Bowman......................................... 25,500 79,687
G.L. Schueppert..................................... 11,000 37,500
C.J. Vitulli........................................ 12,000 34,375
R.H. Medland........................................ 22,700 37,387
D.J. Baddeley....................................... 20,200 44,987
</TABLE>
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1997
The following table describes the performance shares granted to the Named
Executive Officers during the Company's 1997 fiscal year under the 1994 OMC
Long-Term Incentive Plan (the "LTIP"). The LTIP plan has been terminated and all
awards thereunder to Named Executive Officers have been cancelled. Accordingly,
the following table is provided for information purposes only. The grants were
awarded to cover the three year award cycle October 1, 1996 through September
30, 1999. No distribution of performance shares, whether in cash or stock, was
to be made until after the end of the three year award cycle and a Compensation
and Benefits Committee had determined the extent to which the Company had
achieved the performance goals set at the beginning of each award cycle. The
initial value of each performance share granted under the LTIP was $16.00. The
initial value was the average of the closing price for a share of common stock
of the pre-Merger Company on the New York Stock Exchange for the month of
September 1996. The performance goals set for these performance shares were (1)
the average of the absolute return on net assets for the three year award cycle,
(2) return on net assets improvement for the three year award cycle
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<PAGE> 70
over the prior three year award cycle and (3) total shareholder return on the
common stock of the pre-Merger Company as compared to the return on the S&P 400
for grants prior to October 1, 1996 and the S&P 500 for grants thereafter
measured over the three year award cycle.
<TABLE>
<CAPTION>
NUMBER OF PERFORMANCE ESTIMATED FUTURE PAYOUTS
PERFORMANCE PERIOD (1) (POTENTIAL SHARES)
SHARES UNIT ---------------------------------------
GRANTED (2) PAYOUT THRESHOLD(#) TARGET(#) MAXIMUM(#)
----------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
H.W. Bowman................... 15,300 3 Years 7,650 15,300 30,600
G.L. Schueppert............... 7,100 3 Years 3,550 7,100 14,200
C.J. Vitulli.................. 6,400 3 Years 3,200 6,400 12,800
R.H. Medland.................. 3,900 3 Years 1,950 3,500 7,800
D.J. Baddeley................. 3,800 3 Years 1,900 3,800 7,600
</TABLE>
- ------------------------------
(1) The number of shares to be paid upon the completion of an award cycle would
have depended entirely on the extent to which the pre-Merger Company
achieved the performance goals set at the beginning of the award cycle. The
payout at the Threshold level would have been 50%, the payout at the Target
level would have been 100% and the payout at the Maximum level would have
been 200% of the number of performance shares originally granted.
(2) As a condition of the agreements governing the resignation or termination,
as the case maybe, of the Named Executives Officers listed above, all
outstanding grants of performance shares, including the above, were
cancelled or forfeited.
RETIREMENT PLANS
The approximate annual benefits shown in the table below are for the Named
Executive participants and are not subject to social security offset but are
subject to offset for any benefits payable from retirement programs of the
Company's foreign subsidiaries. The total annual benefit payable from the
Outboard Marine Corporation Employees Retirement Plan (the "Retirement Plan")
and the supplemental non-qualified retirement plan is shown in the table below
for selected average base earnings levels and years of service based upon
certain assumptions including all years of credited service as an Executive
Officer, retirement at age 65 and election of a single life annuity for the
benefit payment.
<TABLE>
<CAPTION>
20 OR
AVERAGE ANNUAL BASE EARNINGS 5 YEARS 10 YEARS 15 YEARS MORE YEARS
---------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$ 150,000..................................... $ 19,125 $ 38,250 $ 57,375 $ 76,500
$ 250,000..................................... $ 31,875 $ 63,750 $ 95,625 $127,500
$ 300,000..................................... $ 38,250 $ 76,500 $114,750 $153,000
$ 500,000..................................... $ 63,750 $127,500 $191,250 $255,000
$ 900,000..................................... $114,750 $229,500 $344,250 $459,000
$1,300,000..................................... $165,750 $331,500 $497,250 $663,000
</TABLE>
The Retirement Plan provides a fixed benefit determined on the basis of
years of service and final average base earnings. In addition to the benefits
from the Retirement Plan, certain participants in the Company's annual incentive
compensation plan(s) are eligible for retirement benefits from a supplemental
non-qualified retirement plan. The retirement benefits under the non-qualified
plan are based upon amounts paid under the annual bonus plan as well as salary,
and the total retirement benefits payable under the plans may exceed the maximum
benefits payable under the Employee Retirement Income Security Act of 1974, as
amended. The basis for benefits under both plans can be those amounts contained
in the Summary Compensation Table above if the years disclosed are one or more
of the three highest annual earnings in the last ten years as discussed below.
Participants in the plans who are not Executive Officers receive an
aggregate benefit equal to 1.2% of total pay and .5% above social security
covered compensation for each year of credited service times the average of the
five highest consecutive annual earnings (base annual salary rate plus incentive
compensation earned in the same year under an annual incentive compensation
plan) during such participant's last ten years of employment. An Executive
Officer who participates in the plans will receive the 1.2% of total pay and .5%
above social security covered compensation for each year of credited service as
a non-Executive Officer and
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<PAGE> 71
2.55% for each year of credited service as an Executive Officer times the
average of the three highest annual earnings during such participant's last ten
years of employment.
As of December 31, 1997, Messrs. Bowman, Schueppert, Vitulli, Medland and
Baddeley will have 2.67, 1.76, 1.34, 6.50 and 7.75, respectively, credited years
of service under the Company's retirement plans. The total estimated vested
annual benefit payable from these two plans for Messrs. Bowman, Schueppert,
Vitulli, Medland and Baddeley based upon certain assumptions including actual
years of credited service as a non-Executive Officer and Executive Officer, as
the case may be, current age and base earning levels, and election of a single
life annuity for the benefit payment is $120,500, $0, $0, $47,704 and $55,707,
respectively, which payments are not subject to social security offset but are
subject to offset for any benefits payable from retirement programs of the
Company's foreign subsidiaries.
EMPLOYMENT CONTRACTS AND SEVERANCE AGREEMENTS
David D. Jones, Jr. The Company and David D. Jones, Jr. have entered into
an employment agreement, dated as of March 10, 1998 and effective as of
September 25, 1997 (the "Jones Employment Agreement"). Pursuant to the Jones
Employment Agreement, Mr. Jones will serve as President and Chief Executive
Officer of the Company and as a member of the Board of Directors of the Company.
The term of Mr. Jones's employment under the Jones Employment Agreement expires
on September 30, 2000, or, if OMC changes its fiscal year to a calendar year, on
December 31, 2000 (in either case, the "Jones Initial Term"), which term shall
automatically renew for an additional two years on the initial expiration date
and each expiration date thereafter until the end of the fiscal year during
which Mr. Jones attains age 65, unless Mr. Jones's employment is otherwise
terminated pursuant to the terms of the Jones Employment Agreement. In exchange
for his services, Mr. Jones will receive (1) a base salary of $500,000 per annum
for the first six months of his employment and $600,000 per annum for the
remainder of the term of Mr. Jones's employment subject to increases at the
Board of Director's discretion, (2) an annual bonus of up to 200% of base salary
contingent on OMC's achieving certain financial performance goals, of which,
during the Jones Initial Term, one-fourth shall be paid in cash and
three-fourths shall be paid in common stock of OMC using a value of $18.00 per
share, (3) an incentive option to purchase 61,105 shares of common stock of OMC
at an exercise price of $18.00 per share, 5,555 shares of which vested upon
grant, and with annual vesting of 5,555 shares each January 1st until fully
exercisable, (4) a non-qualified option to purchase 238,895 shares of common
stock of OMC at an exercise price of $18.00 per share with scheduled annual
vesting each year over a three-year period, and (5) (i) payment by OMC of
$643,470 in cash, (ii) the issuance of a non-qualified stock option to purchase
107,245 shares of common stock of OMC at an exercise price of $18.00 per share,
90,578 shares of which vested upon grant, with the remaining 16,667 shares
vesting on December 31, 1998, and (iii) a deferred compensation obligation of
the Company to him in the amount of $1,930,410 reduced by the product of (A) any
decrease in the per share value of the common stock of OMC below $18.00 per
share and (B) 107,245, in consideration of the incentive compensation, unvested
options and restricted stock forfeited by Mr. Jones solely as a result of his
severance from Brunswick Corporation to accept employment with the Company. The
Jones Employment Agreement provides that Mr. Jones will be entitled to
participate in or receive benefits under any employee benefit plan, program or
arrangement made available generally by OMC to its similarly situated executives
and that Mr. Jones is entitled to participate in OMC's Supplemental Non-
Qualified Retirement Plan for Elected Officers.
If OMC terminates Mr. Jones's employment for cause or Mr. Jones voluntarily
resigns from his employment with OMC other than for good reason, OMC will be
obligated to pay Mr. Jones his base salary through the date of termination. If
OMC terminates Mr. Jones's employment with OMC without cause or Mr. Jones
terminates his employment with OMC for good reason, Mr. Jones will be entitled
to receive (1) his base salary through the date of termination plus any accrued
vacation, (2) his annual bonus, if any, for the fiscal year in which such
termination occurred prorated for the number of full months Mr. Jones was
employed during such fiscal year, (3) an amount equal to the greater of his base
salary for one year or his base salary for the remainder of the term of the
Jones Employment Agreement, and (4) the benefit of continued participation in
the OMC employee benefit plans, programs or arrangements in which Mr. Jones
participated prior to his termination until the greater of one year or the end
of the then remaining term of the Jones
66
<PAGE> 72
Employment Agreement, and (5) any remaining unvested stock options granted by
OMC to Mr. Jones pursuant to the Jones Employment Agreement, which stock options
shall automatically vest as of the date of termination and be exercisable for 90
days thereafter. If Mr. Jones's employment with OMC terminates as a result of
his death, (1) OMC will be obligated to pay to Mr. Jones's estate his base
salary to the date of his death plus any accrued vacation, and Mr. Jones's
annual bonus, if any, for the fiscal year in which his death occurs prorated for
the number of full months Mr. Jones was employed during such fiscal year, (2) in
the event Mr. Jones dies during any twelve-month period during the term of his
employment, any unvested stock options granted by OMC to Mr. Jones pursuant to
the Jones Employment Agreement which would have become vested if Mr. Jones
continued his employment during such twelve-month vesting period shall vest pro-
rata for the number of full months Mr. Jones was employed during such
twelve-month period in which his death occurs and be exercisable for 12 months
after Mr. Jones's death, and (3) Mr. Jones's surviving spouse shall be entitled
to participate in OMC's group medical and dental plans for the remainder of the
term of the Jones Employment Agreement. If Mr. Jones's employment with OMC is
terminated as a result of his total disability, (1) OMC will be obligated to pay
Mr. Jones his base salary to the date on which total disability is deemed to
have occurred plus any accrued vacation, and Mr. Jones's annual bonus, if any,
for the fiscal year in which his total disability occurs prorated for the number
of full months Mr. Jones was employed during such fiscal year, (2) in the event
total disability occurs during any twelve-month period during the term of Mr.
Jones's employment, any unvested stock options granted by OMC to Mr. Jones
pursuant to the Jones Employment Agreement which would have become vested if Mr.
Jones continued his employment during such twelve-month vesting period shall
vest pro rata for the number of full months Mr. Jones was employed during such
twelve-month period in which his total disability occurs and be exercisable for
12 months after Mr. Jones's total disability, and (3) Mr. Jones shall be
permitted to participate in OMC's employee benefit plans, programs or
arrangements in which he participated prior to he termination of his employment
until the end of the then remaining term of the Jones Employment Agreement.
Pursuant to the Jones Employment Agreement, OMC will have the right to
repurchase all shares of common stock of OMC owned by Mr. Jones and vested stock
options granted by OMC to Mr. Jones upon the termination of Mr. Jones's
employment with OMC for any reason. Upon the termination by OMC of Mr. Jones's
employment without cause, the termination by Mr. Jones of his employment for
good reason, the voluntary termination by Mr. Jones of his employment at or
after the expiration of the term of the Jones Employment Agreement, the
voluntary termination by Mr. Jones of his employment at or after his attaining
age 62, or the termination of Mr. Jones's employment as a result of his death or
total disability, Mr. Jones or his estate, as applicable, will have the right to
require OMC purchase all shares of common stock of OMC owned by Mr. Jones and
vested stock options granted by OMC to Mr. Jones.
Mr. Jones is prohibited from disposing his shares of OMC common stock
without the prior written consent of OMC. However, pursuant to the Jones
Employment Agreement, Mr. Jones will have a tag-along right, subject to certain
exceptions, with respect to certain dispositions of common stock of OMC by
Greenmarine Holdings. Greenmarine Holdings will have certain take-along rights
to require Mr. Jones to sell his shares of OMC common stock if Greenmarine
Holdings proposes to sell not less than 50% of the OMC common stock owned by
Greenmarine Holdings.
Mr. Jones is subject to confidentiality, non-competition and
non-solicitation provisions, which are enforceable during the term of the Jones
Employment Agreement and for a one-year period commencing on the expiration or
termination of Mr. Jones's employment with OMC.
See also "Certain Relationships and Related Transactions."
Andrew P. Hines. The Company and Andrew P. Hines have entered into an
employment agreement, effective as of October 6, 1997 (the "Hines Employment
Agreement"). Pursuant to the Hines Employment Agreement, Mr. Hines will serve as
Executive Vice President and Chief Financial Officer of the Company and as a
member of the Board of Directors of the Company. The term of Mr. Hines's
employment under the Hines Employment Agreement expires on October 6, 2000,
which term shall automatically renew for an additional year on the initial
expiration date and each expiration date thereafter, unless Mr. Hines's
employment is otherwise terminated pursuant to the terms of the Hines Employment
Agreement. In exchange for his
67
<PAGE> 73
services, Mr. Hines will receive (1) a base salary of $325,000 per annum, which
was increased to $375,000 per annum by the Board of Directors in June 1998 and
may be increased at the discretion of the Board of Directors and (2) a
non-qualified option to purchase 180,000 shares of common stock of OMC at an
exercise price of $18.00 per share with annual vesting in equal proportions over
a three-year period. Simultaneously with the execution of the Hines Employment
Agreement, Mr. Hines purchased from OMC 14,444 shares of OMC common stock, of
which 2,777 shares were issued in consideration of a $50,000 cash payment and
11,667 shares were issued in consideration of Mr. Hines issuing a promissory
note in favor of OMC in the principal amount of $210,000. On April 6, 1998, Mr.
Hines purchased an additional 5,556 shares of common stock issued in
consideration of a $100,000 cash payment. The Hines Employment Agreement
provides that Mr. Hines, in certain circumstances, will be entitled to
participate in the short-term and long-term incentive and stock option or other
equity or quasi-equity participation plans, programs or arrangements in which
similarly situated executives are entitled to participate. Mr. Hines will also
be entitled to receive benefits under any employee benefit plan, program or
arrangement made available generally by OMC to its similarly situated
executives.
If OMC terminates Mr. Hines's employment for cause or Mr. Hines voluntarily
resigns from his employment with OMC other than for good reason, OMC will be
obligated to pay Mr. Hines's base salary through the date of termination. If OMC
terminates Mr. Hines's employment with OMC without cause or Mr. Hines terminates
his employment with OMC for good reason, Mr. Hines will be entitled to receive
(1) his base salary through the date of termination plus any accrued vacation,
(2) an amount equal to the greater of his base salary for one year or his base
salary for the remainder of the term of the Hines Employment Agreement, (3) the
benefit of continued participation in OMC's employee benefit plans, programs or
arrangements in which Mr. Hines participated prior to his termination until the
greater of one year or the end of the then remaining term of the Hines
Employment Agreement, and (4) any remaining unvested stock options granted by
OMC to Mr. Hines, which stock options shall automatically vest as of the date of
termination and be exercisable for 90 days thereafter. If Mr. Hines's employment
with OMC terminates as a result of his death, (1) OMC will be obligated to pay
to Mr. Hines's estate Mr. Hines's base salary to the date of his death plus any
accrued vacation, and any bonus for the fiscal year in which his death occurs
prorated for the number of full months Mr. Hines was employed during such fiscal
year, and (2) Mr. Hines's estate will have one year from the date of Mr. Hines's
death to exercise all vested and unexercised stock options granted by OMC to Mr.
Hines. If Mr. Hines's employment with OMC is terminated as a result of his total
disability, (1) OMC will be obligated to pay Mr. Hines his base salary to the
date on which total disability is deemed to have occurred plus any accrued
vacation, and any bonus for the fiscal year in which his total disability occurs
prorated for the number of full months Mr. Hines was employed during such fiscal
year, (2) any stock options granted by OMC to Mr. Hines that have vested as of
the date of such total disability shall be exercisable for 90 days after the
date of such termination, and (3) Mr. Hines shall be permitted to participate in
OMC's employee benefit plans, programs or arrangements in which he participated
prior to he termination of his employment until the end of the then remaining
term of the Hines Employment Agreement.
Pursuant to the Hines Employment Agreement, OMC will have the right to
repurchase all shares of common stock of OMC owned by Mr. Hines and vested stock
options granted by OMC to Mr. Hines upon the termination of Mr. Hines's
employment with OMC for any reason. Upon the termination by OMC of Mr. Hines'
employment without cause, the termination by Mr. Hines of his employment for
good reason, the voluntary termination by Mr. Hines of his employment at or
after the expiration of the term of the Hines Employment Agreement, the
voluntary termination by Mr. Hines of his employment at or after his attaining
age 62, or the termination of Mr. Hines's employment as a result of his death or
total disability, Mr. Hines or his estate, as applicable, will have the right to
require OMC purchase all shares of common stock of OMC owned by Mr. Hines and
stock options granted by OMC to Mr. Hines.
Mr. Hines is prohibited from disposing his shares of OMC common stock
without the prior written consent of OMC. However, pursuant to the Hines
Employment Agreement, Mr. Hines will have a tag-along right, subject to certain
exceptions, with respect to certain dispositions of common stock of OMC by
Greenmarine Holdings. Greenmarine Holdings will have certain take-along rights
to require Mr. Hines to sell
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<PAGE> 74
his shares of OMC common stock if Greenmarine Holdings proposes to sell not less
than 50% of the OMC common stock owned by Greenmarine Holdings.
Mr. Hines is subject to confidentiality, non-competition and
non-solicitation provisions, which are enforceable during the term of the Hines
Employment Agreement and for a one-year period commencing on the expiration or
termination of Mr. Hines's employment with OMC.
See also "Certain Relationships and Related Transactions."
"Certain Employment Agreements". The Company has employment agreements with
Kimberly K. Bors, George L. Broughton, Pete W. Brown, Raymond M. Cartade, Jack
L. Feurig, Grainger B. McFarlane, James P. Murphy, Paul R. Rabe, Robert S.
Romano, Peter J. Vanlanker, Russell J. Van Rens and Robert F. Young. The
agreements provide for an employment term expiring the earlier of September 30,
2000, or such employee's death, total disability or attainment of age 65. If OMC
terminates any such employee's employment for cause, or any such employee
voluntarily resigns from his or her employment with OMC other than for good
reason, OMC is obligated to pay the employee's base salary through the date of
termination. If OMC terminates any such employee's employment with OMC without
cause, or any such employee terminates employment with OMC for good reason, the
employee will be entitled to receive (i) accrued and unpaid Base Salary as of
the date of termination, (ii) a lump-sum payment equal to one times base salary,
plus the highest annual bonus received by such employee for any of the five
fiscal years preceding fiscal 1997. In addition, each such employee shall be
entitled to receive outplacement services at an aggregate cost not to exceed 15%
of such employee's base salary, and the Company shall continue for one year,
such employee's participation in the Company Group Medical and Life Insurance
Plans.
Harry W. Bowman. The Company and Harry W. Bowman entered into a Consulting
Agreement, effective as of September 24, 1997 (the "Bowman Consulting
Agreement"). Pursuant to the Bowman Consulting Agreement, Mr. Bowman agreed to
resign from his positions as President, Chief Executive Officer and Chairman of
the Board of OMC and was to receive certain benefits from the Company, including
(1) a cash payment in the amount of $940,000, (2) a fee in the amount of
$230,000 for employment services to OMC from the date of the agreement through
March 31, 1998, (3) a consulting fee in the amount of $230,000 for consulting
services from April 1, 1998 through September 30, 1998, (4) in exchange for his
agreement not to engage in any competitive activity or make any disparaging
statements about the Company or any of its employees, officers, or directors, a
cash payment in the amount of $700,000, (5) the retirement benefits to which Mr.
Bowman was entitled under the Employment Agreement entered into between the
Company and Mr. Bowman dated February 14, 1995, (6) coverage under the Company's
welfare and benefit plans through September 30, 1998, (7) compensation for
outplacement services and reimbursement for certain financial advisory services,
and (8) gross-up payments for any excise tax resulting from the application
imposed by Section 4999 of the Internal Revenue Code of 1986 resulting from the
change of control provisions of Section 280G of the Internal Revenue Code of
1986. In consideration of these benefits, Mr. Bowman agreed that the Employment
Agreement dated February 14, 1995, except those provisions which survive through
the Consulting Agreement, and the Severance Agreement dated March 31, 1997
between the Company and Mr. Bowman would be terminated.
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<PAGE> 75
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of common stock of OMC as of August 31, 1998 by (i) any person or
group who beneficially owns more than 5% of the outstanding common stock of OMC
and (ii) each director and executive officer of OMC and all directors and
executive officers of OMC as a group. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. Shares
of common stock of OMC subject to options currently exercisable, or exercisable
within 60 days of the date of this Prospectus, are deemed outstanding for
computing the percentage of the person holding such options but are not deemed
outstanding for computing the percentage of any other person. Except as
otherwise indicated, beneficial ownership in the following tables includes sole
voting and dispositive power.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OF CLASS
---------------- ------------ --------
<S> <C> <C>
Greenmarine Holdings LLC(1)................................. 20,400,000 99.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Alfred D. Kingsley(2)....................................... 20,400,000 99.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Gary K. Duberstein(2)....................................... 20,400,000 99.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Richard Katz(3)............................................. 20,400,000 99.9%
Villa La Sirena
Vico dell'Olivetta 12
18039 Martola Inferiore
Ventimiglia, Italy
Ron Hiram(4)................................................ 20,400,000 99.9%
888 Seventh Avenue, 33rd Floor
New York, New York 10106
Frank V. Sica(5)............................................ 20,400,000 99.9%
888 Seventh Avenue, 33rd Floor
New York, New York 10106
David D. Jones, Jr.(6)...................................... 190,578 *
c/o Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
Andrew P. Hines(7).......................................... 80,000 *
c/o Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
Directors and Executive Officers as a group (12
persons)(8)............................................... 20,670,578 100.0%
</TABLE>
- ------------------------------
* Less than 1%.
(1) The members of Greenmarine Holdings are Greenlake Holdings LLC, a Delaware
limited liability company ("Greenlake"), Quasar Strategic Partners LDC, a
Cayman Islands limited duration company ("QSP"), and Quantum Industrial
Partners LDC, a Cayman Islands limited duration company ("QIP"). Greenlake,
QSP and QIP have approximately a 30.5%, 34.75% and 34.75% interest in
Greenmarine Holdings, respectively. Greenlake is controlled by Mr. Alfred D.
Kingsley and Mr. Gary K. Duberstein. QSP is an indirect subsidiary of Quasar
International Fund N.V., a Netherlands Antilles limited liability company
("Quasar"). QIP is the principal operating
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<PAGE> 76
subsidiary of Quantum Industrial Holdings Ltd., a British Virgin Islands
corporation ("QIH"). The principal business of QIP and QSP is investing in
securities. Quasar and QIH are investment funds which have as their
principal investment advisors Soros Fund Management LLC ("SFM LLC"). Mr.
George Soros is the Chairman of SFM LLC. Mr. Stanley Druckenmiller is the
Lead Portfolio Manager and a Member of the Management Committee of SFM LLC.
QIH Management Investor, L.P. ("QIHMI"), an investment advisory firm, is a
minority shareholder of QIP and QSP. Pursuant to constituent documents of
QIP and QSP, QIHMI is vested with investment discretion with respect to the
portfolio assets held for the accounts of each of QIP and QSP. The principal
business of QIHMI is to provide management and advisory services to, and to
invest in, QIP and QSP. Mr. Soros is the sole shareholder of QIH Management,
Inc. ("QIH Management"), which is the sole general partner of QIHMI. The
principal business of QIH Management is to serve as the sole general partner
of QIHMI. Mr. Soros has entered into an agreement pursuant to which he has
agreed to use his best efforts to cause QIH Management, as the general
partner of QIHMI, to act at the discretion of SFM LLC. Greenmarine Holdings
is controlled by a Management Committee comprised of up to a total of four
Managers. Pursuant to the Operating Agreement of Greenmarine Holdings,
Greenlake has the right to appoint two designees to Greenmarine Holdings's
Management Committee and the holders of a majority of Greenmarine Holdings'
interest held by QSP and QIP have the right to appoint two members of
Greenmarine Holdings' Management Committee. Greenmarine Holdings' Management
Committee is currently comprised of Messrs. Alfred D. Kingsley, Gary K.
Duberstein and Richard Katz. From and after September 12, 1998, the holders
of a majority of Greenmarine Holdings' interests held by QSP and QIP may
elect to increase the size of Greenmarine Holdings' Management Committee to
five members, three of whom will be designated by the holders a majority of
Greenmarine Holdings' interests held by QSP and QIP and two of whom will be
designated by Greenlake. The vote of three of the members of Greenmarine
Holdings's Management Committee is required for action by the Management
Committee.
(2) Each of Alfred D. Kingsley and Gary K. Duberstein is a director of the
Company. In addition, each of Messrs. Kingsley and Duberstein are members of
Greenmarine Holdings's Management Committee and they control Greenlake. All
of the shares indicated as owned by each of Messrs. Kingsley and Duberstein
are owned directly by Greenmarine Holdings and are included because of their
affiliation with Greenmarine Holdings. As such, Messrs. Kingsley and
Duberstein may be deemed to have beneficial ownership of these shares within
the meaning of Rule 13d-3 under the Exchange Act.
(3) Richard Katz is a director of the Company. In addition, Mr. Katz is a member
of Greenmarine Holdings's Management Committee. All of the shares indicated
as owned by Mr. Katz are owned directly by Greenmarine Holdings and are
included because of his affiliation with Greenmarine Holdings. The reference
to such shares shall not be deemed admission that Mr. Katz may be deemed to
have beneficial ownership of these shares within the meaning of Rule 13d-3
under the Exchange Act.
(4) Ron Hiram is a director of the Company. All of the shares indicated as owned
by Mr. Hiram are owned directly by Greenmarine Holdings and are included
because of his affiliation with Greenmarine Holdings. The reference to such
shares shall not be deemed admission that Mr. Hiram may be deemed to have
beneficial ownership of these shares within the meaning of Rule 13d-3 under
the Exchange Act.
(5) Frank V. Sica is a director of the Company. All of the shares indicated as
owned by Mr. Sica are owned directly by Greenmarine Holdings and are
included because of his affiliation with Greenmarine Holdings. The reference
to such shares shall not be deemed an admission that Mr. Sica may be deemed
to have beneficial ownership of these shares within the meaning of Rule
13d-3 under the Exchange Act.
(6) Represents 190,578 shares of OMC common stock issuable upon exercise of
options granted to Mr. Jones pursuant to the Jones Employment Agreement,
which options are currently exercisable. Does not include 216,667 shares of
OMC common stock issuable upon exercise of options granted to Mr. Jones
pursuant to the Jones Employment Agreement, which options will not become
exercisable within 60 days of the date of this Prospectus. See "Management--
Employment Contracts and Severance Agreements."
(7) Of the 80,000 shares indicated as owned by Mr. Hines, 8,333 were purchased
in consideration of $150,000 in cash payments and 11,667 were purchased in
consideration of Mr. Hines issuing a promissory note in favor of the Company
in the principal amount of $210,000. Mr. Hines has pledged 20,000 shares to
the Company to secure his obligations under such promissory note. Does not
include 120,000 shares of OMC common stock issuable upon exercise of options
granted to Mr. Hines pursuant to the Hines Employment Agreement, which
options will not become exercisable within 60 days of the date of this
Prospectus. See "Management--Employment Contracts and Severance Agreements."
(8) Includes 20,400,000 shares indicated as owned by Messrs. Kingsley,
Duberstein, Katz, Hiram and Sica as a result of their affiliation with
Greenmarine Holdings.
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<PAGE> 77
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is party to an employment agreement with each of David D.
Jones, Jr. and Andrew P. Hines, and to employment agreements with certain other
personnel. See "Management--Employment Contracts and Severance Agreements."
OMC has agreed to reimburse Mr. Jones for his reasonable moving expenses
incurred in connection with his relocation to the geographical vicinity of
Chicago, Illinois. Through June 30, 1998, such expenses have been approximately
$80,300. In addition, on August 14, 1998, OMC loaned to Mr. Jones the amount of
$280,322 for the purchase of property in Lake Forest, Illinois for the
construction of a new residence. During the term of Mr. Jones's employment with
OMC, OMC will pay to Mr. Jones an amount equal to the interest payable on any
such loan, which is being charged a rate of 6 1/2% per annum. This loan is
evidenced by a promissory note and secured by a second mortgage in favor of OMC.
OMC has agreed to bear the "first-loss" position in the event that Mr. Jones's
new residence is sold for an amount less than its original cost plus
improvements. In the event Mr. Jones's employment with OMC is terminated for any
reason and such new residence has not been sold, within 120 days after such
termination, Mr. Jones will be obligated to repay such loan or repurchase such
equity investment, as the case may be, at an appraised value to be determined by
an independent appraiser. OMC has also agreed to reimburse Mr. Jones for any
loss he incurs on the sale of his current residence.
To enable Mr. Jones to exercise at any time during his employment with OMC
all or any portion of the non-qualified option to purchase 238,895 shares of OMC
common stock granted by OMC to Mr. Jones pursuant to the Jones Employment
Agreement, OMC has agreed to loan to Mr. Jones an amount equal to the aggregate
exercise price of the portion of such option being exercised. Any such loan
shall be due and payable in full within 30 days following Mr. Jones's
termination of employment for any reason. In addition, pursuant to the Jones
Employment Agreement, OMC has purchased for the benefit of Mr. Jones and his
heirs a term life insurance policy with a death benefit of $1,500,000.
OMC has agreed to reimburse Mr. Hines until the earlier of the date he
permanently relocates to the Chicago, Illinois geographical vicinity or October
6, 1998, Mr. Hines's rental fees for a temporary residence in the Chicago,
Illinois area, including all utilities, and for round trip coach airfares
between New Jersey and Chicago for reasonable travel between such locations by
Mr. Hines and his wife. Through June 30, 1998, such expenses have been
approximately $48,600. If Mr. Hines is unable to sell his current residence
before the earlier of October 6, 1999 or the date on which he purchases a
residence in the Chicago, Illinois area, OMC shall obtain an appraisal of Mr.
Hines's New Jersey residence and advance to Mr. Hines the equity value of such
residence, which equity value shall be the greater of such appraisal or $850,000
less any outstanding mortgage balance. Any such advance shall be secured by a
second mortgage in favor of OMC. If OMC so advances to Mr. Hines the equity
value of his New Jersey residence, OMC shall have the right to sell such
residence and shall assume all mortgage payment obligations for such residence.
OMC will be entitled to any profits and will suffer any losses that result from
the difference between such equity value and the actual sale price of Mr.
Hines's New Jersey residence. Pursuant to the Hines Employment Agreement, the
Company loaned to Mr. Hines the amount of $210,000 for the sole purpose of
purchasing 11,666.66 shares of common stock of the Company. The loan is
evidenced by a promissory note bearing interest at a rate of 5.81% per annum and
secured by a pledge and security agreement with the shares of OMC common stock
issued to Mr. Hines as collateral.
OMC has agreed to loan to Paul R. Rabe the amount of $83,500 to assist in
the purchase of a new permanent residence. The loan is interest free and is
evidenced by a promissory note. Mr. Rabe is obligated to repay the loan upon the
earlier to occur of (i) the sale of his former residence or (ii) termination of
his employment with the Company for any reason. As of June 1, 1998, the amount
outstanding remained at $83,500.
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<PAGE> 78
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on May 27, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in reliance
on Rule 144A under the Securities Act. As a condition to the Purchase Agreement,
the Company and the Subsidiary Guarantors (collectively, the "Issuers") and the
Initial Purchasers entered into the Registration Rights Agreement on May 27,
1998, the date of the Initial Offering (the "Issue Date").
Pursuant to the Registration Rights Agreement, the Company and the
Subsidiary Guarantors agreed to file a registration statement on Form S-4 with
respect to the Exchange Offer (the "Exchange Offer Registration Statement") with
the Commission on or prior to 60 days after the Issue Date, and use their
respective best efforts to have it declared effective on or prior to 150 days
after the Issue Date. The Company and the Subsidiary Guarantors have also agreed
to use their best efforts to cause the Exchange Offer Registration Statement to
be effective continuously, to keep the Exchange Offer open for a period of not
less than 20 business days and cause the Exchange Offer to be consummated no
later than the 30th business day after it is declared effective by the
Commission. The Exchange Offer is being made to satisfy certain of the
contractual obligations of the Company and the Subsidiary Guarantors under the
Registration Rights Agreement and the Purchase Agreement.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Old Notes which are Transfer Restricted Securities
notifies the Company prior to the 20th business day following the consummation
of the Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (b) it may not resell the Series B Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by it, or (c) it is a
broker-dealer and holds Old Notes acquired directly from the Company or any of
the Company's affiliates, the Company and the Subsidiary Guarantors will file
with the Commission a Shelf Registration Statement to register for public resale
the Transfer Restricted Securities held by any such Holder who provide the
Company with certain information for inclusion in the Shelf Registration
Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Old Note until the earliest date on which (i) such Old
Note is exchanged in the Exchange Offer and entitled to be resold to the public
by the Holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) such Old Note has been disposed of in
accordance with the Shelf Registration Statement, or (iii) such Old Note is
distributed to the public pursuant to Rule 144 under the Securities Act, and
each Exchange Note until the date on which such Exchange Note is disposed of by
a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
The Registration Rights Agreement provides that (i) if the Exchange Offer
Registration Statement is not declared effective by the Commission on or prior
to the 150th day after May 27, 1998, (ii) if the Exchange Offer is not
consummated on or before the 30th business day after the Exchange Offer
Registration Statement is declared effective, (iii) if obligated to file the
Shelf Registration Statement and the Company and the Subsidiary Guarantors fail
to file the Shelf Registration Statement with the Commission on or prior to the
60th day after such filing obligation arises, (iv) if obligated to file a Shelf
Registration Statement and the Shelf Registration Statement is not declared
effective on or prior to the 90th day after the obligation to file a Shelf
Registration Statement arises, or (v) if the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is declared
effective but thereafter ceases to be effective or useable in connection with
resales of the Transfer Restricted Securities, for such time of
non-effectiveness or non-usability (each, a "Registration Default"), the Company
and the Subsidiary Guarantors agree to pay to each Holder of Transfer Restricted
Securities affected thereby liquidated damages ("Liquidated Damages") in an
amount equal to $.05 per week per $1,000 in principal amount of Transfer
Restricted Securities held by such Holder for each week or portion thereof that
the Registration Default continues for the first 90-day
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<PAGE> 79
period immediately following the occurrence of such Registration Default. The
amount of the Liquidated Damages shall increase by an additional $.05 per week
per $1,000 in principal amount of Transfer Restricted Securities with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages of $.35 per week per $1,000 in
principal amount of Transfer Restricted Securities. The Company and the
Subsidiary Guarantors shall not be required to pay Liquidated Damages for more
than one Registration Default at any given time. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will cease.
All accrued Liquidated Damages shall be paid by the Company or the
Subsidiary Guarantors to Holders entitled thereto by wire transfer of
immediately available same day funds to the accounts specified by them or by
mailing checks to their registered address if no such accounts have been
specified.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. The Company will issue $1,000 principal amount of Exchange
Notes in exchange for each $1,000 principal amount of outstanding Old Notes
accepted in the Exchange Offer. Holders may tender some or all of their Old
Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Old Notes except that (i) the Exchange Notes bear a Series B designation
and a different CUSIP Number from the Old Notes, (ii) the Exchange Notes have
been registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the Exchange Notes
will not be entitled to registration rights (including provision for payment of
Liquidated Damages in certain events) under the Registration Rights Agreement,
including the provisions providing for an increase in the interest rate on the
Old Notes in certain circumstances relating to the timing of the Exchange Offer,
all of which rights will terminate when the Exchange Offer is terminated. The
Exchange Notes will evidence the same debt as the Old Notes and will be entitled
to the benefits of the Indenture.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered. As of the date of this Prospectus, $160,000,000
aggregate principal amount of Old Notes were outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
Exchange Offer. See "--Fees and Expenses."
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<PAGE> 80
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, or such later date not more than 10 business days
thereafter to which it may be extended by the Company, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of the
Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders.
Any such extension, delay in acceptance, termination or amendment will be
followed promptly by oral (confirmed in writing) or written notice thereof to
the Exchange Agent and by making a public announcement thereof, and such
announcement in the case of an extension will be made no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Without limiting the manner in which the Company may choose to
make any public announcement and subject to applicable law, the Company shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a press release to an appropriate news
agency.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from their date of issuance. Holders
of Old Notes that are accepted for exchange will receive, in cash, accrued
interest thereon to, but not including, the date of issuance of the Exchange
Notes. Such interest will be paid with the first interest payment on the
Exchange Notes on December 1, 1998. Interest on the Old Notes accepted for
exchange will cease to accrue upon issuance of the Exchange Notes.
Interest on the Exchange Notes is payable semi-annually on each June 1 and
December 1, commencing on December 1, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
For a holder to validly tender Old Notes pursuant to the Exchange Offer, a
properly completed and duly executed Letter of Transmittal, with any required
signature guarantee, or (in the case of a book-entry transfer) an Agent's
Message in lieu of the Letter of Transmittal, and any other required documents
must be received by the Exchange Agent at the address set forth under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, prior to 5:00 p.m., New York City time, on the Expiration Date, either
(a) certificates for tendered Old Notes must be received by the Exchange Agent
at such address or (b) such Old Notes must be transferred pursuant to the
procedures for book-entry transfer described below (and a confirmation of such
tender received by the Exchange Agent, including an Agent's Message if the
tendering holder has not delivered a Letter of Transmittal). The term "Agent's
Message" means a message, transmitted by the book-entry transfer facility, The
Depository Trust Company (the "Book-Entry Transfer Facility"), to and received
by the Exchange Agent and forming a part of a book-entry confirmation, which
states that the Book-Entry Transfer Facility has received an express
acknowledgment from the tendering participant that such participant has received
and agrees to be bound by the Letter of Transmittal and that the Company may
enforce such Letter of Transmittal against such participant.
By tendering, each holder of Old Notes will represent to the Company that,
among other things, (i) the Exchange Notes to be acquired by such holder of Old
Notes in connection with the Exchange Offer are being acquired by such holder in
the ordinary course of business of such holder, (ii) such holder is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate, in the distribution of the
Exchange Notes, (iii) except as otherwise disclosed in writing, such holder is
not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company, and (iv) such holder
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<PAGE> 81
acknowledges and agrees that any person participating in the Exchange Offer with
the intention or for the purpose of distributing the Exchange Notes must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with a secondary resale of the Exchange Notes acquired by such
person and cannot rely on the position of the Staff of the Commission set forth
in the no-action letters that are discussed under "Resale of the Exchange
Notes." In addition, by accepting the Exchange Offer, such holder will (i)
represent and warrant that, if such holder is a Participating Broker-Dealer,
such Participating Broker-Dealer acquired the Old Notes for its own account as a
result of market-making activities or other trading activities and has not
entered into any arrangement or understanding with the Company or any
"affiliate" of the Company (within the meaning of Rule 405 under the Securities
Act) to distribute the Exchange Notes to be received in the Exchange Offer, and
(ii) acknowledges that, by receiving Exchange Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired as a result of
market-making activities or other trading activities, such Participating
Broker-Dealer will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes.
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK
OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See "Instructions
to Registered Holder and/or Book-Entry Transfer Facility Participant from
Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a recognized participant in the Securities
Transfer Agent Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program (each a "Medallion
Signature Guarantor"), unless the Old Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of a member firm of a registered national securities exchange, a member
of the NASD or a commercial bank or trust company having an office or
correspondent in the United States (each of the foregoing being an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by a Medallion Signature Guarantor.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Old Notes at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution
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<PAGE> 82
that is a participant in the Book-Entry Transfer Facility's system may make
book-entry delivery of Old Notes by causing such Book-Entry Transfer Facility to
transfer such Old Notes into the Exchange Agent's account with respect to the
Old Notes in accordance with the Book-Entry Transfer Facility's procedures for
such transfer. Although delivery of the Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, an appropriate Letter of Transmittal properly completed and duly
executed with any required signature guarantee (or, in the case of book-entry
transfer, an Agent's Message in lieu thereof) and all other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the
Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of book-entry transfer, an Agent's Message) or any
other required documents to the Exchange Agent or (iii) who cannot complete the
procedures for book-entry transfer (including delivery of an Agent's Message),
prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution (i) an Agent's Message with respect to guaranteed
delivery that is accepted by the Company, or (ii) a properly completed and
duly executed Notice of Guaranteed Delivery (by mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal together with the certificate(s) representing the Old Notes
(or a confirmation of book-entry transfer of such Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or, in
the case of book-entry transfer, an Agent's Message), as well as the
certificate(s) representing all tendered Old Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility), and all
other documents required by the Letter of Transmittal are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
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Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a letter notice of
withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number(s) and principal amount of such
Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the
name and number of the account at the Book-Entry Transfer Facility to be
credited), (iii) be signed by the holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Any Old Notes which have been tendered but which are not accepted for exchange
will be returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries;
(b) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn.
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<PAGE> 84
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<S> <C> <C>
By Mail: Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust
P.O. Box 778 Company
Boston, Massachusetts 02102 Two International Place
Attention: Corporate Trust Department Boston, Massachusetts 02110
Kellie Mullen Attention: Corporate Trust
To Confirm by Telephone Department
or for Information Call: Kellie Mullen
(617) 664-5587
By Hand: in New York
State Street Bank and Trust Company, N.A.
61 Broadway, 15th Floor By Hand: in Boston
Corporate Trust Window State Street Bank and Trust
New York, New York 10006 Company
Two International Plaza
Fourth Floor, Corporate Trust
Boston, Massachusetts 02110
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is the original principal amount, as reflected in the Company's
accounting records on the date of exchange. Accordingly, no gain or loss for
accounting purposes will be recognized by the Company. Certain expenses of the
Exchange Offer will be amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may be resold only (i) to the Company (upon redemption thereof or otherwise),
(ii) so long as the Old Notes are eligible for resale pursuant to Rule 144A, to
a person
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<PAGE> 85
inside the United States whom the seller reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the Securities Act in
a transaction meeting the requirements of Rule 144A, in accordance with Rule 144
under the Securities Act, or pursuant to another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel
reasonably acceptable to the Company), (iii) outside the United States to a
foreign person in a transaction meeting the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States.
RESALE OF THE EXCHANGE NOTES
With respect to resales of Exchange Notes, based on interpretations by the
staff of the Commission set forth in no-action letters issued to third parties,
the Company believes that a holder or other person who receives Exchange Notes,
whether or not such person is the holder (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives Exchange Notes in exchange for Old Notes in the ordinary
course of business and who is not participating, does not intend to participate,
and has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, will be allowed to resell the Exchange Notes
to the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Exchange Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the Exchange Notes, such holder cannot rely
on the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration is
otherwise available. Further, each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange for Old Notes, where such Old
Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. For a description of
the procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
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<PAGE> 86
DESCRIPTION OF NOTES
GENERAL
The Exchange Notes offered hereby will be issued as a separate series under
the Indenture (the "Indenture") dated as of May 27, 1998 among the Company, the
Subsidiary Guarantors and State Street Bank and Trust Company, as trustee (the
"Trustee"). The form and terms of the Exchange Notes are the same as the form
and terms of the Old Notes (which they replace) except that (i) the Exchange
Notes will bear a Series B designation, (ii) the Exchange Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (iii) holders of the Exchange Notes will
not be entitled to registration rights (including provision for payment of
Liquidated Damages in certain events) of holders of Old Notes under the
Registration Rights Agreement, including the provisions providing for an
increase in the interest rate on the Old Notes in certain circumstances relating
to the timing of the Exchange Offer, which rights will terminate when the
Exchange Offer is consummated. The Old Notes issued in the Initial Offering and
the Exchange Notes offered hereby are referred to collectively as the "Notes."
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the Indenture.
The definitions of certain terms used in the following summary are set forth
below under "--Certain Definitions." For purposes of this summary, the term
"Company" refers only to Outboard Marine Corporation and not to any of its
Subsidiaries.
The Notes will be general unsecured obligations of the Company (except to
the limited extent provided in connection with the applicable Interest Reserve
Account) and will rank pari passu in right of payment with all current and
future unsubordinated Indebtedness of the Company. However, the Company and the
Subsidiary Guarantors are parties to the Credit Agreement and all borrowings
under the Credit Agreement are secured by a first priority Lien on the accounts
receivable, inventories and certain other assets of the Company and the
Subsidiary Guarantors.
The operations of the Company are conducted, in part, through its
Subsidiaries and, therefore, the Company is, in part, dependent upon the cash
flow of its Subsidiaries to meet its obligations, including its obligations
under the Notes. As of the date of the Indenture, all of the Company's
Subsidiaries will be Restricted Subsidiaries. However, under certain
circumstances, the Company will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to the restrictive covenants set forth in the Indenture.
The Company's obligations under the Notes will be jointly and severally
guaranteed (the "Subsidiary Guarantees") by each of the Company's Significant
Subsidiaries, other than any Foreign Subsidiaries (each such Person, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors"). The
Subsidiary Guarantees will be senior unsecured obligations of the Subsidiary
Guarantors (except to the limited extent provided in connection with the
applicable Interest Reserve Account) and will rank pari passu in right of
payment with all current and future unsubordinated Indebtedness of the
Subsidiary Guarantors and senior to all subordinated Indebtedness of the
Subsidiary Guarantors. However, the Notes will be effectively subordinated to
all secured Indebtedness of the Subsidiary Guarantors, including Indebtedness
under the Credit Agreement, and all Indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of each Subsidiary
of the Company that is not a Subsidiary Guarantor (the "Non-Guarantor
Subsidiaries"). Any right of the Company to receive assets of any such
Non-Guarantor Subsidiary upon the latter's liquidation or reorganization (and
the consequent right of the Holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of the creditors of such
Non-Guarantor Subsidiary. For the twelve months ended September 30, 1997 and the
nine months ended June 30, 1998, the combined revenues of the Company and the
Subsidiary Guarantors represented approximately 78% and 79%, respectively, of
the Company's total revenues and for the same periods the combined total assets
of the Company and the Subsidiary Guarantors represented approximately 84% and
83%, respectively, of the Company's
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consolidated total assets. As of June 30, 1998, the Notes and the Subsidiary
Guarantees would have been effectively subordinated to approximately $61.9
million of secured obligations of the Company and the Subsidiary Guarantors
(including an aggregate of $18.8 million of letter of credit obligations under
the Credit Agreement) and $24.9 million of indebtedness and other obligations of
the Non-Guarantor Subsidiaries. The Indenture permits the Company and its
Restricted Subsidiaries to incur additional Indebtedness, including secured
Indebtedness, subject to certain limitations. See "Risk Factors--Ranking."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $160.0 million and
will mature on June 1, 2008. Interest on the Notes will accrue at the rate of
10 3/4% per annum and will be payable semi-annually in arrears on June 1 and
December 1 of each year, commencing on December 1, 1998, to Holders of record on
the immediately preceding May 15 and November 15, respectively. Interest on the
Notes will accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages on the Notes
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the Company,
payment of interest and Liquidated Damages may be made by check mailed to the
Holders of the Notes at their respective addresses set forth in the register of
Holders of Notes; provided that all payments of principal, premium, interest and
Liquidated Damages with respect to Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
INTEREST RESERVE ACCOUNTS
The Trustee has, pursuant to the Depositary Agreement, appointed State
Street Bank and Trust Company (the "Depositary Agent") as the Depositary Agent
and securities intermediary with respect to the Interest Reserve Accounts (as
defined), in which approximately $28.6 million of cash, including approximately
$4.1 million of the net proceeds realized from the sale of the Notes and
approximately $24.5 million of available cash was deposited on the Issue Date.
The actual amount of funds deposited equaled one year of Projected Senior Debt
Interest Expense (as defined) on all Senior Debt (as defined) outstanding on the
Issue Date (the "Required Amount"). Pursuant to the terms of that certain
Depositary Agreement among the Company, the Trustee, the Administrative Agent
under the Credit Agreement, and the Depositary Agent (the "Depositary
Agreement"), the Depositary Agent will hold, invest and disburse the amounts on
deposit from time to time in the Interest Reserve Accounts (the "Interest
Reserve Funds") in accordance with the Depositary Agreement and the Company
shall have no right of withdrawal under the Interest Reserve Accounts except
under circumstances established in the Depositary Agreement.
The Accounts
The following accounts (each an "Interest Reserve Account" and
collectively, the "Interest Reserve Accounts") have been established and created
with the Depositary Agent:
(i) Notes Interest Account;
(ii) Other Senior Debt Interest Account; and
(iii) Distribution Account.
The Notes Interest Account is pledged to the Trustee as security for the
benefit of the Trustee and the holders of the Notes. The Other Senior Debt
Interest Account and the Distribution Account are pledged to the Administrative
Agent as security for the benefit of the Administrative Agent and the lenders
under the Credit Agreement. All amounts deposited with the Depositary Agent, at
the written request and direction of the Company, will be invested by the
Depositary Agent in U.S. Government Securities. The Required
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Amount was deposited on the Issue Date into the Notes Interest Account in an
amount equal to that portion of one year of Projected Senior Debt Interest
Expense attributable to the Notes and into the Other Senior Debt Interest
Account in an amount equal to one year of Projected Senior Debt Interest Expense
attributable to all other Senior Debt.
Disbursements from Interest Reserve Accounts
In the event that the Company's Excess Available Cash for any given fiscal
quarter ending after the Issue Date is less than the Company's Projected Senior
Debt Interest Expense for the next fiscal quarter (as certified by the Company
or its duly authorized agent for such purposes), the Depositary Agent shall be
authorized, at the request of the Company, to disburse funds from the applicable
Interest Reserve Account, as set forth in a certificate from the Company (a
"Certificate of Authorization") requesting that funds be disbursed, for the
payment of interest on the Notes or any other Senior Debt, as applicable;
provided that the aggregate amount disbursed in any fiscal quarter (including
the amount of all Deemed Payments made in such fiscal quarter, but excluding the
actual disbursement of any Deemed Payments) does not exceed the difference
between the Excess Available Cash for the prior fiscal quarter and the Company's
actual Fixed Charges with respect to Senior Debt paid in the specified fiscal
quarter. The Depositary Agent shall disburse funds from the applicable Interest
Reserve Account, in accordance with the Certificate of Authorization, on any
date on which interest is payable on Senior Debt; provided, however, that an
instruction to pay interest expense on any particular Senior Debt shall include
(and be deemed to constitute) a request to disburse (from the applicable
Interest Reserve Account) all accrued but unpaid interest on all other
outstanding Senior Debt (which payments (the "Deemed Payments") shall be held in
a sub-account of the applicable Interest Reserve Account and shall be paid by
the Depositary Agent on the next date on which interest becomes due and payable
with respect to any such other Senior Debt, including the Notes).
Additions to Interest Reserve Accounts
In the event that (i) the Company's Excess Available Cash for any given
fiscal quarter is greater than its Projected Senior Debt Interest Expense for
the next fiscal quarter (the amount of such excess, the "Excess Cash") and (ii)
either (a) the Notes Required Amount exceeds the difference between (x) the
amount of funds on deposit in the Notes Interest Account and (y) the amount of
all Deemed Payments with respect to the Notes which have not yet been
distributed, or (b) the Other Senior Debt Required Amount exceeds the difference
between (x) the amount of funds on deposit in the Other Senior Debt Interest
Account and (y) the amount of all Deemed Payments with respect to the other
Senior Debt which have not yet been distributed, then the Company shall deposit
into the applicable Interest Reserve Account, an amount equal to such excess;
provided that if the Excess Cash is less than the amount of such required
deposits, then the amount of Excess Cash shall be deposited ratably into the
Notes Interest Account and the Other Senior Debt Interest Account (based on the
amount of their respective required deposits).
Interest Income
In the event that either Interest Reserve Account is fully funded to the
applicable Required Amount plus applicable Deemed Payments, if any, as of the
end of any fiscal quarter, the Depositary Agent shall distribute any amounts in
excess of the applicable Required Amount plus applicable Deemed Payments, if
any, to the Distribution Account; provided that the Company's Excess Available
Cash for such quarter exceeds the Projected Senior Debt Interest Expense for the
following fiscal quarter. So long as no Default or Event of Default shall have
occurred and be continuing, amounts distributed to the Distribution Account
shall be made available to the Company for general corporate purposes.
Termination
The Company is required to maintain the Interest Reserve Accounts until the
earlier of (i) the later of (x) three years from the Issue Date and (y) such
time as the Company's Fixed Charge Coverage Ratio for the four consecutive
fiscal quarter periods ending as of the last day of the most recent fiscal
quarter is greater than 2.5 to 1.0, and (ii) the date upon which all obligations
with respect to the Notes have been indefeasibly
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<PAGE> 89
paid in full. At such time, after notice to the Depositary Agent, the Interest
Reserve Funds shall be placed in the Distribution Account and made available to
the Company for general corporate purposes. Upon delivery of such notice to the
Depositary Agent, the Trustee and the Administrative Agent, the Depositary
Agreement shall automatically terminate and, except as expressly provided
therein, be of no further force and effect.
Remedies
The Depositary Agreement provides that, upon receipt of notice of an event
of default, the Depositary Agent shall cease making further distributions and
the Trustee may foreclose on the Notes Interest Account and/or the
Administrative Agent may foreclose on the Other Senior Debt Interest Account, as
applicable, and the Trustee and the Administrative Agent may exercise other
rights and remedies, upon the occurrence of any Default or Event of Default,
after the expiration of any applicable cure period under the Indenture (with
respect to the Notes Interest Account) or any default or event of default, after
the expiration of any applicable cure period under the Credit Agreement (with
respect to the Other Senior Debt Interest Account and the Distribution Account).
The ability of the holders of Notes to realize upon the Interest Reserve Funds
may be subject to certain bankruptcy law limitations in the event of the
bankruptcy of the Company. See "Risk Factors--Bankruptcy Risk Related to
Interest Reserve Accounts."
SUBSIDIARY GUARANTEES
Each of the Company's Significant Subsidiaries (other than any Foreign
Subsidiary, as designated by the Company) as of the Issue Date is a Subsidiary
Guarantor under the Indenture. Each Subsidiary Guarantor unconditionally
guarantees on a senior basis, jointly and severally, the full and prompt
performance of the Company's obligations under the Indenture and the Notes,
including the payment of principal and interest on the Notes. The obligations of
each Subsidiary Guarantor under its Subsidiary Guarantee is limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes and the Indenture and
(ii) immediately after giving effect to such transaction, no Default or Event of
Default exists.
The Indenture provides that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all or substantially all of the properties or assets of any
Subsidiary Guarantor to a third party or an Unrestricted Subsidiary, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor, in either case, in a transaction or
manner that does not violate any of the covenants in the Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary Guarantor) or the Person acquiring the property
(in the event of a sale or other disposition of all or substantially all of the
properties or assets of such Subsidiary Guarantor) will be released from and
relieved of any obligations under its Subsidiary Guarantee, provided that any
Net Proceeds of such sale or other disposition are applied in accordance with
the covenant described under the caption "--Repurchase at the Option of
Holders--Asset Sales;" and provided, further, however, that any such termination
shall occur only to the extent that all obligations of such Subsidiary Guarantor
under all of its guarantees of, and under all of its pledges of assets or other
security interests that secure, any other Indebtedness of the Company or its
Restricted Subsidiaries shall also terminate upon such release, sale or
disposition.
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The Indenture requires the Company to cause certain other Restricted
Subsidiaries to become Subsidiary Guarantors under certain circumstances. See
"--Certain Covenants--Additional Subsidiary Guarantees."
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to June 1,
2003. Thereafter, the Notes will be subject to redemption at any time at the
option of the Company, in whole or in part, upon not less than 30 nor more than
60 days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated Damages
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on June 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.............................................. 105.375%
2004.............................................. 103.583%
2005.............................................. 101.792%
2006 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to June 1, 2001, the Company may on
any one or more occasions redeem up to an aggregate of 35% of the original
aggregate principal amount of Notes at a redemption price of 110.750% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of
one or more Equity Offerings; provided that at least 65% of the aggregate
principal amount of Notes originally issued remain outstanding immediately after
the occurrence of such redemption; and provided, further that any such
redemption shall occur within 60 days of the date of the closing of any such
offering. The Indenture does not restrict the ability of the Company to
separately make open-market purchases or other privately negotiated purchases of
Notes from time to time.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
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"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
The Company's ability to repurchase Notes pursuant to a Change of Control
Offer may be limited by a number of factors. The Credit Agreement provides that
certain change of control events with respect to the Company would constitute a
default thereunder permitting the lending parties thereto to accelerate the
Indebtedness thereunder. In addition, certain events that may obligate the
Company to offer to repay all outstanding obligations under the Credit Agreement
may not constitute a Change of Control under the Indenture. However, the Company
may not have sufficient resources to repay all outstanding Indebtedness under
the Credit Agreement and to repurchase tendered Notes. Furthermore, any future
credit agreements or other agreements relating to senior Indebtedness to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is directly or
indirectly prohibited from purchasing Notes, the Company could seek the consent
of its lenders to the purchase of Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the purchase of Notes would remain prohibited.
The failure by the Company to purchase tendered Notes would constitute a breach
of the Indenture which would, in turn, constitute a default under the Credit
Agreement and could lead to the acceleration of the indebtedness thereunder. In
any such event, the security granted in respect of the Credit Agreement could
result in the Holders of the Notes receiving less ratably than the lenders under
the Credit Agreement. See "Risk Factors--Change of Control."
In addition, the terms of the Convertible Debentures include provisions
similar to those contained in the Notes which require the Company to make an
offer to repurchase all or any part of such securities under circumstances
constituting a Change of Control. However, the repurchase of any tendered
Debentures may constitute a default under the terms of the Credit Agreement and
the Indenture. The failure to repurchase any tendered Convertible Debentures
would also constitute a default under the Convertible Debentures Indenture (as
defined). See "Description of Certain Other Indebtedness--Subordinated Debt
Securities--7% Convertible Debentures due 2002."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Restricted Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of
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Notes to require the Company to repurchase such Notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of the Company and its Restricted Subsidiaries taken as a whole to another
Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto), of the Company or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed or
satisfied by the transferee of any such assets pursuant to a customary novation
or other agreement that releases the Company or such Restricted Subsidiary from
further liability and (y) any marketable securities, notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement periods) converted by
the Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option, (a) to purchase, redeem,
repay or prepay Indebtedness under the Credit Agreement or other secured
Indebtedness of the Company or a Restricted Subsidiary (and, in the case of any
such Indebtedness that was borrowed under a revolving credit line, to
correspondingly reduce commitments with respect thereto), (b) to cash
collateralize letters of credit to the extent such letters of credit have not
been drawn upon or returned undrawn; provided, however, that any such cash
collateral released to the Company upon the expiration of such letters of credit
shall again be deemed to be Net Proceeds (and, in the case of any such letters
of credit established under a revolving credit line to correspondingly reduce
commitments with respect thereto), or (c) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets that are used or useful, in each case, in
a Permitted Business; provided, however, that if the Company or any Restricted
Subsidiary has entered into a definitive agreement with respect to any such
acquisition or capital expenditure within such 365 day period, it may defer the
application of such Net Proceeds to effect such acquisition or capital
expenditure for up to an additional 90 days or the fifth Business Day following
the termination of any such definitive agreement, whichever occurs first.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will
be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the date of purchase, in accordance with the procedures set
forth in the Indenture. To the extent that any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any general corporate purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes tendered into such Asset Sale Offer
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
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CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company or any of its Restricted Subsidiaries) or to the direct or
indirect holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or to
the Company or a Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company; (iii)
make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated in
right of payment to the Notes, except a payment of interest or principal at
Stated Maturity; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (ii), (iii) and (iv) of the next succeeding paragraph), is less
than the sum, without duplication, of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
the beginning of the first fiscal quarter commencing after the Issue Date
to the end of the Company's most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a deficit,
less 100% of such deficit), plus (ii) 100% of the aggregate net cash
proceeds received by the Company since the Issue Date as a contribution to
its common equity capital or from the issue or sale of Equity Interests of
the Company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company), plus (iii) to the extent that any Restricted Investment
(including any Investment in an Unrestricted Subsidiary) that was made
after the Issue Date is sold for cash or otherwise liquidated or repaid for
cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) to the extent that
any Unrestricted Subsidiary is redesignated as a Restricted Subsidiary
after the Issue Date, the lesser of (A) the fair market value of the
Company's Investment in such Subsidiary as of the date of such
redesignation or (B) such fair market value as of the date on which such
Subsidiary was originally designated as an Unrestricted Subsidiary.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
in exchange for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of the Company) of, other Equity
Interests of the Company (other than any Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement, defeasance or other acquisition
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shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the payment of any dividend by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro rata
basis; (v) Investments in any Person (other than the Company or a Wholly-Owned
Restricted Subsidiary or any Unrestricted Subsidiary) engaged in a Permitted
Business having an aggregate fair market value, taken together with all other
Investments made pursuant to this clause (v) that are at that time outstanding
not to exceed $25 million; (vi) the repurchase of Convertible Debentures in an
amount not to exceed $7.1 million, plus any accrued and unpaid interest thereon,
in connection with any offer required to be made to the holders thereof
following a Change of Control or similar event; provided, that the Company has
previously paid all amounts required to be paid in connection with any Change of
Control Offer for the Notes; (vii) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company held
by any management employee of the Company (or any Restricted Subsidiary)
pursuant to any management equity subscription agreement or stock option,
phantom stock or other equity incentive plan; provided, however, that the
aggregate price paid for all such repurchased, redeemed, acquired or retired
Equity Interests shall not exceed the sum of (a) $2 million in each fiscal year
(provided that any unused amounts may be carried over to any subsequent fiscal
year, subject to a maximum amount of $4 million in any fiscal year) plus (b) the
amount of net cash proceeds received by the Company from the Sale of Equity
Interests (other than Disqualified Stock) to management employees of the Company
or any Restricted Subsidiary; provided that any such net cash proceeds shall be
excluded from any computation under clause (c)(ii) above; (viii) loans to
employees of the Company or any Restricted Subsidiary to purchase Equity
Interests issued by the Company in an amount not to exceed $2 million at any
time outstanding; (ix) Investments in Unrestricted Subsidiaries having an
aggregate fair market value, taken together with all other Investments made
pursuant to this clause (ix) that are at that time outstanding, not to exceed $5
million; (x) the payment of consulting or similar fees to Holdings in an
aggregate amount not to exceed $250,000 in any fiscal year; provided, that the
requirement set forth in clause (b) of the preceding paragraph is satisfied with
respect to any such payment; or (xi) other Restricted Payments in an aggregate
amount not to exceed $5 million; provided, however, that at the time of, and
after giving effect to, any Restricted Payment permitted under clauses (iii)
through (xi) above, no Default or Event of Default shall have occurred and be
continuing or would occur as consequence thereof.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default; provided
that in no event shall the business currently operated by any Subsidiary
Guarantor be transferred to or held by an Unrestricted Subsidiary. In the event
of any such designation, all outstanding Investments owned by the Company and
its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be
an Investment made as of the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant.
All such outstanding Investments will be deemed to constitute Restricted
Investments in an amount equal to the fair market value of such Investments at
the time of such designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such Restricted
Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The
Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary if such redesignation would not cause a Default.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
assets or securities that are required to be valued by this covenant shall be
determined by the Board of Directors whose resolution with respect thereto shall
be delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $20 million. Not later than
the date of making any Restricted Payment, the Company shall deliver to the
Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "--Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
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Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of preferred stock; provided, however, that the Company or any
Subsidiary Guarantor (or, to the extent specified in clause (viii) of the
definition of Permitted Debt, any Foreign Subsidiary) may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock if the Fixed
Charge Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least (a) 2.0 to 1.0, if such
date is prior to December 31, 1999, (b) 2.25 to 1.0, if such date is on or after
December 31, 1999 and prior to June 30, 2001 and (c) 2.5 to 1.0 thereafter, in
each case determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may be and the
proceeds thereof applied, at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of revolving credit Indebtedness and
letters of credit pursuant to the Credit Agreement (including Indebtedness
under any Receivables Facility); provided that the aggregate principal
amount of all such Indebtedness (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
Company thereunder) outstanding under the Credit Agreement after giving
effect to such incurrence does not exceed the greater of (a) $150.0 million
or (b) the Borrowing Base less, in either case, the aggregate amount of all
Net Proceeds of Asset Sales applied by the Company or any of its
Subsidiaries to permanently reduce the commitments for revolving credit
Indebtedness under the Credit Agreement pursuant to the covenant described
above under the caption "--Asset Sales";
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company and the Subsidiary Guarantors of
the Indebtedness represented by the Notes and the Subsidiary Guarantees
issued pursuant to the Indenture;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or Purchase Money Obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment (including
tooling) used in the business of the Company or such Restricted Subsidiary
or other expenditures which would be included within clause (a) of the
definition of "Consolidated Capital Expenditures" (whether through the
direct purchase of assets or the Capital Stock of any Person owning such
Assets), in an aggregate principal (or accreted value, as applicable)
amount at any time outstanding, not to exceed $25 million;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace any
Indebtedness (other than Indebtedness incurred pursuant to clauses (i),
(vi), (vii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv) or (xvi) hereof)
that was permitted by the Indenture to be incurred;
(vi) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds in
the ordinary course of business;
(vii) the incurrence of intercompany Indebtedness between or among the
Company and any Wholly-Owned Restricted Subsidiary; provided, however, that
(a) if the Company or a Subsidiary Guarantor is the obligor on such
Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes and
the Subsidiary Guarantees, and
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(b) (1) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than the
Company or a Wholly-Owned Restricted Subsidiary and (2) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Wholly-Owned Restricted Subsidiary shall be deemed, in each
case, to constitute an incurrence of such Indebtedness by the Company or
such Restricted Subsidiary, as the case may be that was not permitted by
this clause;
(viii) the incurrence by any Foreign Subsidiary of Indebtedness under
Foreign Credit Facilities; provided that the aggregate principal amount of
all Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of Foreign Subsidiaries
thereunder) outstanding under all Foreign Credit Facilities after giving
effect to such incurrence does not exceed $5 million or such greater
amount, not to exceed $30 million outstanding at any time, as may be
incurred by any Foreign Subsidiary pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph above;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations;
(x) the guarantee by the Company or any of the Subsidiary Guarantors
of Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant;
(xi) Indebtedness of the Company and its Restricted Subsidiaries from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight
overdrafts, which will not be, and will not be deemed to be, inadvertent)
drawn against any insufficient funds in the ordinary course of business;
(xii) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness pursuant to the issuance of promissory notes in an amount not
to exceed $2 million at any time outstanding in order to repurchase or
otherwise acquire or retire for value Equity Interests of the Company held
by any employee of the Company as permitted by clause (vii) of the second
paragraph of the covenant described under the caption "Restricted Payment";
provided, however, that any such Indebtedness incurred pursuant to this
clause (xii) shall be expressly subordinated in right of payment to the
Notes;
(xiii) Indebtedness incurred by the Company or any of its Restricted
Subsidiaries constituting reimbursement obligations with respect to letters
of credit issued in the ordinary course of business, including without
limitation to letters of credit in respect to workers' compensation claims
or self-insurance (and including letters of credit issued with respect to
the Designated Obligation), or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation claims;
provided, however, that upon the drawing of such letters of credit or the
incurrence of such Indebtedness, such obligations are reimbursed within 30
days following such drawing or incurrence;
(xiv) Indebtedness arising from the agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment or purchase
price of similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, that the maximum aggregate liability
of all such Indebtedness shall at no time exceed the gross proceeds
actually received by the Company or a Restricted Subsidiary in connection
with such disposition;
(xv) guarantees by the Company or any of its Restricted Subsidiaries
of Indebtedness of Persons who are not Affiliates of the Company incurred
in the ordinary course of business in an aggregate principal amount not to
exceed $15 million at any time outstanding; and
(xvi) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness, in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding not to exceed
$15 million.
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The Indenture also provides that the Company will not incur any
Indebtedness (including Permitted Debt) that is contractually subordinated in
right of payment to any other Indebtedness of the Company unless such
Indebtedness is also contractually subordinated in right of payment to the Notes
on substantially identical terms; provided, however, that no Indebtedness of the
Company shall be deemed to be contractually subordinated in right of payment to
any other Indebtedness of the Company solely by virtue of being unsecured.
For purposes of determining compliance with this covenant, in the event
that an item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xvi) above as of
the date of incurrence thereof, or is entitled to be incurred pursuant to the
first paragraph of this covenant as of the date of incurrence thereof, the
Company shall, in its sole discretion, classify such item of Indebtedness on the
date of its incurrence in any manner that complies with this covenant. Accrual
of interest, accretion or amortization of original issue discount, the payment
of interest on any Indebtedness in the form of additional Indebtedness with the
same terms, and the payment of dividends on Disqualified Stock in the form of
additional shares of the same class of Disqualified Stock will not be deemed to
be an incurrence of Indebtedness or an issuance of Disqualified Stock for
purposes of this covenant; provided, in each such case, that the amount thereof
is included in Fixed Charges of the Company as accrued.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien of any kind upon any of their property or assets,
now owned or hereafter acquired, except Permitted Liens.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant described
above under the caption "--Certain Covenants--Liens," (ii) the gross cash
proceeds of such sale and leaseback transaction are at least equal to the fair
market value (in the case of transactions having a fair market value in excess
of $5.0 million, as determined in good faith by the Board of Directors and set
forth in an Officers' Certificate delivered to the Trustee) of the property that
is the subject of such sale and leaseback transaction and (iii) the transfer of
assets in such sale and leaseback transaction is permitted by, and the Company
applies the proceeds of such transaction in compliance with, the covenant
described above under the caption "--Repurchase at the Option of Holders--Asset
Sales."
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness or other agreements as in effect on the date of the Indenture, (b)
the Credit Agreement as in effect as of the date of the Indenture and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restric-
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tive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in the Credit Agreement as in effect on the
date of the Indenture, (c) the Indenture and the Notes, (d) applicable law,
rule, regulation or order, (e) any agreement or other instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) customary non-assignment provisions in licenses, leases or
other contracts or agreements entered into in the ordinary course of business
and consistent with past practices, (g) Purchase Money Obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (h)
Permitted Refinancing Indebtedness; provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced, (i) contracts for the sale of assets,
including without limitation, customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary that is otherwise permitted by the Indenture; (j) Indebtedness
secured by Liens otherwise permitted to be incurred pursuant to the provisions
of the covenant described above under the caption "--Liens" that limits the
right of the debtor to dispose of the assets securing such Indebtedness; (k)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business; and (l) agreements
relating to the financing of the acquisition of real or tangible personal
property acquired after the date of the Indenture; provided, that such
encumbrance or restriction relates only to the property which is acquired and in
the case of any encumbrance or restriction that constitutes a Lien, such Lien
constitutes a Purchase Money Lien.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not, directly or indirectly,
consolidate or merge with or into (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company is
the surviving corporation or the entity or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; (iv) except in the case of a
merger of the Company with or into a Wholly-Owned Restricted Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, immediately after such transaction after giving pro forma effect
thereto and any related financing transactions as if the same had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock;" and (v) each Subsidiary Guarantor, unless it is the other
party to the transaction described above, shall have by supplemental indenture
confirmed that its Subsidiary Guarantee shall apply to the Company's or the
surviving Person's obligations under the Indenture and the Notes.
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or
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purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction") unless (i) such Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the fairness
to the Holders of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of national
standing; provided that the following shall not be deemed to be Affiliate
Transactions: (A) any employment agreement entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of the Company or such Restricted Subsidiary, including
reasonable loans to officers contemplated by such employment agreements, (B)
transactions between or among the Company and/or its Restricted Subsidiaries,
(C) Permitted Investments or Restricted Payments that are permitted by the
provisions of the Indenture described above under the caption "--Certain
Covenants--Restricted Payments," (D) customary compensation paid to, and
indemnity or insurance provided on behalf of, directors and officers of the
Company or any of its Restricted Subsidiaries as determined in good faith by the
Company's Board of Directors, including customary programs related to the
testing and evaluation of the Company's products; (E) transactions with
customers, suppliers, joint venture partners or purchasers or sellers of goods
or services, in each case in the ordinary course of business (including, without
limitation, pursuant to joint venture agreements) which are at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party; and (F) payments under any agreement in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) and any replacement agreement
thereto so long as any such amendment or replacement agreement is no less
favorable to the Company and its Restricted Subsidiaries in any material respect
than the original agreement as in effect on the Issue Date.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall after the date of the Indenture (i) transfer or cause to be
transferred in one or a series of transactions (whether or not related), any
assets, business, divisions, real property or equipment having an aggregate fair
market value (as determined in good faith by the Board of Directors) in excess
of $1.0 million to any Restricted Subsidiary that is a Significant Subsidiary
(other than a Foreign Subsidiary) that is not a Subsidiary Guarantor; (ii)
acquire or create another Restricted Subsidiary that is a Significant Subsidiary
(other than a Foreign Subsidiary); or (iii) cause any Restricted Subsidiary of
the Company, that is not a Subsidiary Guarantor, to guarantee any Indebtedness
of the Company other than the Notes, or pledge any of its assets to secure any
Indebtedness of the Company other than the Notes, then, in each case, the
Company will cause such Restricted Subsidiary to (A) execute and deliver to the
Trustee a supplemental indenture in form and substance reasonably satisfactory
to the Trustee pursuant to which such Restricted Subsidiary shall
unconditionally Guarantee all of the Company's obligations under the Notes on
the terms set forth in such supplemental indenture and (B) deliver to the
Trustee an opinion of counsel reasonably satisfactory to the Trustee that such
supplemental indenture has been duly executed and delivered by such Restricted
Subsidiary. Notwithstanding the foregoing, if such transferee or acquired
Subsidiary has been properly designated as an Unrestricted Subsidiary in
accordance with the Indenture, then for so long as it continues to constitute an
Unrestricted Subsidiary, that
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transferee or acquired Subsidiary shall not be required to execute a Subsidiary
Guarantee or deliver to the Trustee an opinion of counsel in accordance with the
terms of the Indenture.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its consolidated Subsidiaries (showing in
reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial condition and results of operations of the Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants, and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports, in each case within 15 days
after the time periods specified for such filings in the Commission's rules and
regulations. In addition, whether or not required by the rules and regulations
of the Commission, the Company will file a copy of all such information and
reports with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, at all times that
the Commission does not accept the filings provided for in the preceding
sentence, the Company and the Subsidiary Guarantors have agreed that, for so
long as any Notes remain outstanding, they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company or any of its Subsidiaries to comply with the provisions described under
the captions "--Repurchase at the Option of the Holders--Change of Control" or
"Certain Covenants Merger, Consolidation or Sale of Assets"; (iv) failure by the
Company or any of its Subsidiaries to comply with the provisions described under
the caption "--Repurchase at the Option of the Holders--Asset Sales," and
"--Certain Covenants--Restricted Payments," "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," which failure continues for 30
days; (v) failure by the Company or any of its Subsidiaries for 60 days after
notice to comply with any of its other agreements in the Indenture or the Notes;
(vi) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $5.0 million or more; (vii) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (viii) certain events of bankruptcy or insolvency with respect to the
Company or any of its Significant Subsidiaries; or (ix) except as permitted by
the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full force
and effect or any Subsidiary Guarantor, or any Person
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acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to June
1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to June 1, 2003, then the premium specified in the
Indenture shall also become immediately due and payable to the extent permitted
by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option, and the Subsidiary Guarantors may, at the
option of their respective Boards of Directors, and at any time, elect to have
all of its obligations discharged with respect to the outstanding Notes and all
obligations of the Subsidiary Guarantors under the Subsidiary Guarantees ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
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described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "--Events of Default and
Remedies" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit and the granting of Liens to secure such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
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AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"--Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company's
assets, to make any change that would provide any additional rights or benefits
to the Holders of Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, or to comply with requirements of the
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture,
Depositary Agreement and Registration Rights Agreement without charge by writing
to Outboard Marine Corporation, 100 Sea Horse Drive, Waukegan, Illinois 60085,
Attention: General Counsel.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of laws to the extent that the
application if the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Adjusted Senior Debt Amount" shall mean, on any date, the aggregate
principal amount (or accreted value) of all outstanding Senior Debt of the
Company and its Restricted Subsidiaries; provided, however, that the amount of
outstanding Indebtedness under the Credit Agreement and any other revolving
credit facilities shall be deemed to be the amount specified by the Chief
Financial Officer of the Company as the Company's good faith estimate of its
average outstanding daily balances under all such revolving credit facilities
during the specified Forecast Period (which average daily balances shall in no
event exceed 150% of its average daily balances under all revolving credit
facilities during the corresponding fiscal quarter in the prior fiscal year).
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance, transfer or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) of the Company or any Restricted Subsidiaries other than
sales (or resales) of inventory in the ordinary course of business consistent
with past practices (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions of
the Indenture described above under the caption "--Repurchase at Option of
Holders--Change of Control" and/or the provisions described above under the
caption "--Certain Covenants--Merger, Consolidation or Sale of Assets" and not
by the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Restricted Subsidiaries of Equity Interests of any of the
Company's Restricted Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $2.0 million or (b) for Net Proceeds in
excess of $2.0 million. Notwithstanding the foregoing, the following items shall
not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to another
Restricted Subsidiary; (ii) an issuance of Equity Interests by a Wholly-Owned
Restricted Subsidiary to the Company or to another Wholly-Owned Restricted
Subsidiary; (iii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Certain Covenants--Restricted Payments";
(iv) any sale of Equity Interests of the Company; (v) any surrender or waiver of
contract rights or the settlement, release or surrender of contract, tort or
other claims of any kind, in each case in the ordinary course of business; (vi)
any grant of any license of patents, trademarks, trade names, registrations
therefor or similar intellectual property, in the ordinary course of business;
(vii) any sale of the Company's facility in Juarez, Mexico in a transaction
which (a) satisfies the requirements of clauses (i) and (ii) of the first
paragraph under the caption "-- Repurchase at the Option of Holders -- Asset
Sales" (but substituting "50%" in lieu of "75%" in said clause (ii)) and
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(b) is consummated no later than 18 months following the Issue Date pursuant to
a definitive agreement signed no later than one year subsequent to the Issue
Date; provided, that any cash Net Proceeds received therefrom will be deemed to
be Net Proceeds from an Asset Sale for all purposes under the Indenture; (viii)
the sale and leaseback of any assets within 90 days of the acquisition of such
assets; (ix) any disposition of Cash Equivalents in the ordinary course of
business; (x) sales of accounts receivable, or participation, therein, in
connection with any Receivables Facility; and (xi) sales of damaged,
fully-depreciated or obsolete equipment or assets that, in the Company's
reasonable judgment, are no longer used or useful in the business of the Company
or its Restricted Subsidiaries.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
75% of the face amount of all accounts receivable owned by the Company and its
Restricted Subsidiaries as of such date that are not more than 60 days past due,
and (b) 50% of the book value of all inventory owned by the Company and its
Subsidiaries as of such date, all calculated on a consolidated basis and in
accordance with GAAP. To the extent that information is not available as to the
amount of accounts receivable or inventory as of a specific date, the Company
may utilize the most recent available information for purposes of calculating
the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than twelve months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less from
the date of acquisition, bankers' acceptances with maturities not exceeding
twelve months and overnight bank deposits, in each case with any lender party to
the Credit Agreement or with any domestic commercial bank having capital and
surplus in excess of $500 million and a Thompson Bank Watch Rating of "B" or
better, (iv) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (ii) and (iii) above
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within six months after the date of acquisition, and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i) through (v) of this
definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Permitted Holder or a Related Party of a
Permitted Holder (as defined below), (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company, (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above), other than the
Permitted Holders and their Related Parties, becomes the "beneficial owner" (as
such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except
that in calculating the
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beneficial ownership of any particular "person," such "person" shall be deemed
to have beneficial ownership of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company or Holdings (measured by voting power
rather than number of shares), (iv) the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing Directors or
(v) the Company or Holdings consolidates with, or merges with or into, any
Person, or sells, assigns, conveys, transfers, leases or otherwise disposes of
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company or Holdings, in any such event pursuant to a
transaction in which any of the outstanding Voting Stock of the Company or
Holdings is converted into or exchanged for cash, securities or other property,
other than any such transaction where the Voting Stock of the Company or
Holdings outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance).
"Consolidated Capital Expenditures" means, for any period, an amount equal
to (i) the sum of (a) the aggregate of all expenditures (whether paid in cash or
other consideration or accrued as a liability and including that portion of
Capital Leases which is capitalized on the consolidated balance sheet of the
Company and its Restricted Subsidiaries) by the Company and its Restricted
Subsidiaries during that period that, in conformity with GAAP, are included in
"property, plant or equipment" or comparable items reflected in the consolidated
balance sheets of the Company and its Subsidiaries plus (b) to the extent not
covered by clause (i)(a) of this definition, the aggregate of all expenditures
by the Company and its Restricted Subsidiaries during that period to acquire (by
purchase or otherwise) the business, property or fixed assets (other than
current assets consisting of inventory or accounts receivable) of any Person, or
the stock or other evidence of beneficial ownership of any Person that, as a
result of such acquisition, becomes a Restricted Subsidiary of the Company minus
(ii) the sum of (a) the proceeds of Indebtedness permitted under clause (iv) of
the definition of Permitted Indebtedness, (b) an amount equal to the proceeds
received by the Company or any of its Subsidiaries from a sale-leaseback
transaction permitted under the covenant in the Indenture entitled "Sale and
Leaseback Transactions" so long as such transaction occurs within 180 days of
the acquisition of the related property or equipment and to the extent prior
expenditures, up to an equivalent amount for the asset so sold and leased back,
constituted Consolidated Capital Expenditures (as defined above) in such period
or in any prior period, and (c) expenditures in an amount not to exceed the
proceeds of insurance, condemnation awards (or payments in lieu thereof) or
indemnity payments received from third parties, so long as such expenditures
were made for purposes of replacing or repairing the assets in respect of which
such proceeds, awards or payments were received and so long as such expenditures
are made not later than 12 months of the occurrence of the damage to or loss of
the assets being replaced or repaired.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, in each case to
the extent deducted in computing Consolidated Net Income (i) an amount equal to
any extraordinary loss recorded in such period, plus (ii) provision for taxes
based on income or profits of such Person and its Subsidiaries for such period,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period), plus (v) any other
non-cash expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid expense that was paid in a prior period) of such
Person and its Subsidiaries for such period, minus, to the extent included in
the computation of Consolidated Net Income, any non-cash items increasing such
Consolidated Net Income for such period in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision
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for taxes based on the income or profits of, the interest expense of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly-Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Agreement" means that certain Amended and Restated Loan and
Security Agreement, dated as of January 6, 1998, by and among the Company and
NationsBank of Texas, N.A., as amended, modified, increased, renewed, refunded,
replaced or refinanced from time to time.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Obligations" means the obligation of the Company with respect
to certain "Rabbi Trust" arrangements in existence on the Issue Date in an
aggregate amount not to exceed $14 million.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the Holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature; provided, however, that any Capital Stock that
would constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Distribution Account" means that certain account, to be maintained by the
Depositary Agent pursuant to the terms of the Depositary Agreement, into which
the Depositary Agent shall, under certain circumstances, distribute amounts in
excess of the Required Amount (other than any Deemed Payments) in accordance
with the terms of the Depositary Agreement.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means an offering of common stock (other than
Disqualified Stock) of the Company pursuant to an effective registration
statement filed with the Commission pursuant to the Securities Act, other than
an offering pursuant to Form S-8 (or any successor thereto).
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"Excess Available Cash" means for any fiscal quarter ending after the Issue
Date (each a "Reference Period") an amount (not less than zero), determined as
of the last day of such Reference Period, equal to (i) the sum (without
duplication) of the amounts for such Reference Period of (a) the Consolidated
Net Income of the Company and its Restricted Subsidiaries; plus (b) the amount
of Net Proceeds of Asset Sales received by the Company or any Restricted
Subsidiary during such Reference Period, to the extent not otherwise included in
Consolidated Net Income; plus (c) the amount of cash proceeds (net of
underwriting discounts, placement fees and similar commissions and reasonable
costs and expenses related thereto) received by the Company or any Restricted
Subsidiary during such Reference Period from the issuance of Equity Interests or
the incurrence of Indebtedness (other than any proceeds from the issuance of the
Notes or borrowings under revolving credit facilities, including the Credit
Agreement); plus, (d) consolidated depreciation and amortization expense for the
Company and its Restricted Subsidiaries for such Reference Period; plus (e) the
net decrease, if any, in working capital for the Company and its Restricted
Subsidiaries during such Reference Period; plus (f) to the extent not included
in Consolidated Net Income, the amount of any cash extraordinary gains
recognized by the Company or any Restricted Subsidiary; plus (g) any other
non-cash expenses reducing the Consolidated Net Income of the Company and its
Restricted Subsidiaries for such Reference Period (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid expense that was paid
in a prior period); minus (ii) the sum (without duplication) of the amounts for
such Reference Period of (a) the aggregate amount of Consolidated Capital
Expenditures paid for in cash by the Company or any Restricted Subsidiary during
such Reference Period; plus (b) cash payments made to permanently repay or
retire the principal amount of any Indebtedness of the Company or any Restricted
Subsidiary (excluding the repayment of any revolving credit facility unless a
corresponding amount of the related commitments are permanently reduced); plus
(c) the net increase (if any) in deferred tax assets and the net decrease (if
any) in deferred tax liabilities of the Company and its Restricted Subsidiaries
during the Reference Period; plus (d) the net increase, if any, in working
capital for the Company and its Restricted Subsidiaries during such Reference
Period; plus (e) cash payments in respect of restructuring reserves and other
long-term accrued liabilities; plus (f) other non-cash items increasing
Consolidated Net Income for the Company and its Restricted Subsidiaries during
such Reference Period; all of the foregoing as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in conformity with GAAP.
"Existing Indebtedness" means up to $104.1 million in aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries (other
than letters of credit and Indebtedness under the Credit Agreement) in existence
on the Issue Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest of such Person and
its Restricted Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Indebtedness of another Person that is Guaranteed by
such Person or one of its Restricted Subsidiaries or secured by a Lien on assets
of such Person or one of its Restricted Subsidiaries (whether or not such
Guarantee or Lien is called upon) and (iv) the product of (a) all dividend
payments, whether or not in cash, on any series of preferred stock of such
Person or any of its Restricted Subsidiaries, other than dividend payments on
Equity Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of
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such Person and its Restricted Subsidiaries for such period. In the event that
the referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but on or
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred and the proceeds
thereof applied at the beginning of the applicable four-quarter reference
period. In addition, for purposes of making the computation referred to above,
(i) acquisitions that have been made by the Company or any of its Restricted
Subsidiaries, including through mergers or consolidations and including any
related financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter reference
period and Consolidated Cash Flow for such reference period shall be calculated
without giving effect to clause (iii) of the proviso set forth in the definition
of Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, and
(iii) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"Foreign Credit Facilities" means, with respect to the Company's Foreign
Subsidiaries, one or more debt facilities or other debt securities or commercial
paper facilities with banks or other institutional lenders providing for
overdraft, revolving credit loans, terms loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or letters of
credit to which one or more Foreign Subsidiary is a party, in each case, as
amended, restated, modified, increased, renewed, refunded, replaced or
refinanced in whole or in part from time to time.
"Foreign Subsidiary" means any Subsidiary of the Company, more than 80% of
the sales, earnings or assets (determined on a consolidated basis) of which are
located or derived from operations outside the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate or currency swap agreements, cap agreements
and collar agreements and (ii) other agreements or arrangements (including
foreign exchange or commodity hedge, exchange, purchase or similar agreements)
designed to protect such Person against fluctuations in interest rates, value of
assets owned, financed or sold, value of raw materials purchased, or of
liabilities incurred or assumed or of pre-funding arrangements, or against
fluctuations in foreign currency exchange rates or commodity prices, in any
case, in the ordinary course of business of such Person and not for speculative
purposes.
"Holdings" means Greenmarine Holding, L.L.C., a Delaware limited liability
company.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing
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Capital Lease Obligations or the balance deferred and unpaid of the purchase
price of any property or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person; provided, however, that
Indebtedness shall not include the obligations of the Company in respect of
"floor plan financing" or similar arrangements entered into in the ordinary
course of business for the benefit of dealers in connection with the sale of the
Company's products. The amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances (excluding commission, travel, relocation and similar advances to
officers and employees made in the ordinary course of business) or capital
contributions, purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, together with all items that
are or would be classified as investments on a balance sheet prepared in
accordance with GAAP. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Issue Date" means the first date on which any Notes are issued under the
Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gains or
losses, together with any related provision for taxes on such gains or losses,
realized in connection with (a) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions) or (b) the disposition
of any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary gain (but not loss), together with any
related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to repay Indebtedness secured by
such assets (other than pursuant to the Credit Agreement), and any reserve for
adjustment in respect of the sale price of, or warranties and indemnities made
with respect to, such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or
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(c) constitutes the lender; (ii) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any Indebtedness of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity; and (iii) as to which
the lenders have been notified in writing (including in any written agreement)
that they will not have any recourse to the stock or assets of the Company or
any of its Restricted Subsidiaries.
"Notes Interest Account" means that certain account, to be maintained by
the Depositary Agent pursuant to the terms of the Depositary Agreement, into
which an amount equal to that portion of one year of Projected Senior Debt
Interest Expense attributable to the Notes was deposited on the Issue Date.
"Notes Required Amount" means $17.2 million.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Other Senior Debt Interest Account" means that certain account, to be
maintained by the Depositary Agent pursuant to the terms of the Depositary
Agreement, into which an amount equal to that portion of one year of Projected
Senior Debt Interest Expense attributable to all Senior Debt other than the
Notes was deposited on the Issue Date.
"Other Senior Debt Required Amount" means $11.4 million.
"Permitted Business" means any of the businesses engaged in by the Company
and its respective Restricted Subsidiaries on the date of the Indenture, and any
similar, complementary or related business with respect to any such businesses,
including, without limitation, any business related to the development or
application of the Company's FICHT technology as described in this Prospectus.
"Permitted Holders" means, collectively, (i) Holdings and its Affiliates,
and their respective managers, members, employees and directors, (ii) Greenlake
Holdings LLC and its Affiliates, and their respective managers, members and
directors, (iii) Quasar Strategic Partners LDC and its Affiliates, and their
respective managers, members, partners, employees and directors, (iv) Quantum
Industrial Partners LDC and its Affiliates, and their respective managers,
members, partners, employees and directors, (v) Quasar Industrial Fund N.V. and
its Affiliates, and their respective managers, members, partners, employees and
directors, (vi) Quantum Industrial Holdings Ltd. and its Affiliates, and their
respective managers, members partners, employees and directors, and (vii) with
respect to any natural persons described in the foregoing clauses (i) through
(vi), (A) any spouse, lineal descendent (including by adoption and
stepchildren), or sibling of such natural persons and (B) any trust,
corporation, limited liability company or partnership, the beneficiaries,
stockholders or partners of which consist entirely of such natural persons or
the individuals described in subclause (A) above.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly-Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business; (b) any Investment in Cash Equivalents; (c) any Investment by the
Company or any Restricted Subsidiary of the Company in a Person, if as a result
of such Investment (i) such Person becomes a Wholly-Owned Restricted Subsidiary
of the Company that is engaged in a Permitted Business or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly-Owned Restricted Subsidiary of the Company that is engaged in a Permitted
Business; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the Option
of Holders--Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) any Investment in residential real estate obtained in connection with
employment or relocation arrangements entered into in the ordinary course of
business; provided, that the aggregate amount of such Investments does not
exceed $1.5 million at any time outstanding; (g) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owning to the Company or any Subsidiary or in satisfaction of
judgments or pursuant to any plan of reorganization or
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similar arrangement upon the bankruptcy or insolvency of the Company's or any of
its Subsidiaries' trade creditors or customers.
"Permitted Liens" means (i) Liens on assets securing Indebtedness and other
Obligations under the Credit Agreement, to the extent that the assets securing
such Indebtedness are of the same general type of assets as those securing the
Indebtedness and other Obligations under the Credit Agreement on the Issue Date
(including any such assets of Foreign Subsidiaries); (ii) Liens in favor of the
Company; (iii) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were not incurred in contemplation of such acquisition; (v) Liens to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (vi) Liens existing on the date of the Indenture; (vii)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
and which are not being foreclosed, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (viii) Liens to secure Indebtedness (including Capital Lease
Obligations) permitted by clause (iv) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock," which
Liens attach only to the assets acquired with such Indebtedness; (ix) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (x) Purchase Money Liens (including extensions and renewals thereof);
(xi) Liens securing Indebtedness under Hedging Obligations; (xii) Liens securing
obligations of the Company or any of its Restricted Subsidiaries under any
"floor-plan" financing arrangement; (xiii) statutory Liens of landlords and
carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's,
or other like Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provisions, if any, as shall be
required in conformity with GAAP shall have been made therefor; and (xiv) Liens
incurred in the ordinary course of business of the Company or any Restricted
Subsidiary of the Company and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the use
thereof in the operation of business by the Company or such Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness (including
prepayment fees and premiums) of the Company or any of its Restricted
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Indebtedness of the
Company or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, or other business entity or government or agency
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or political subdivision thereof (including any subdivision or ongoing business
of any such entity or substantially all of the assets of any such entity,
subdivision or business).
"Projected Senior Debt Interest Expense" means with respect to any fiscal
quarter of the Company commencing after the Issue Date (each a "Forecast
Period"), (a) the pro forma Fixed Charges which will accrue during such Forecast
Period on the Adjusted Senior Debt Amount outstanding on the last day of the
immediately preceding fiscal quarter, whether or not any such Fixed Charges will
be payable during such Forecast Period plus (b) all accrued and unpaid Fixed
Charges with respect to Senior Debt, calculated as of the day immediately prior
to the first day of such Forecast Period minus (c) the amount of all Deemed
Payments with respect to Senior Debt which have not been distributed.
"Purchase Money Obligations" of any Person means any obligations of such
Person to any seller or any other Person incurred or assumed to finance the
purchase, or the cost of construction of improvement, or real or personal
property to be used in the business of such person or any of its Restricted
Subsidiaries in an amount that is not more than 100% of the cost, or fair market
value, as appropriate, of such property, and incurred within 180 days after the
date of such acquisition (excluding accounts payable to trade creditors incurred
in the ordinary course of business).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Company and/or any of its
Restricted Subsidiaries sells its accounts receivable to a Person that is not a
Restricted Subsidiary.
"Senior Debt" means, as of any date, the outstanding Indebtedness of the
Company or any Restricted Subsidiary attributable to the Notes, borrowings
(including letters of credit outstanding) under the Credit Agreement and any
other Existing Indebtedness then outstanding which is not subordinated in right
of payment to other Indebtedness of the Company or any Restricted Subsidiary.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person (a "subsidiary"), by one or more subsidiaries of such
Person or by such Person and one or more subsidiaries of such Person or (ii) a
partnership in which such Person or a subsidiary of such Person is, at the date
of determination, a general partner of such partnership, or (iii) any
partnership, limited liability company or other Person in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination, has (x) at least a
majority ownership interest or (y) the power to elect or appoint or direct the
election or appointment of the managing partner or member of such Person or, if
applicable, a majority of the directors or other governing body of such Person.
"Subsidiary Guarantors" means each of (i) the Company's direct or indirect
Restricted Subsidiaries that are Significant Subsidiaries (other than Foreign
Subsidiaries) on the date of the Indenture and (ii) any other subsidiary that
executes a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and their respective successors and assigns.
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"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant described above under the
caption "Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period, and (ii) no
Default or Event of Default would be in existence following such designation.
"U.S. Government Securities" means securities (i) issued or directly and
fully guaranteed or insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof) having maturities of not more than six
months from the date of acquisition, or (ii) interests in money market mutual
funds which invest solely in assets or securities of the type described in
clause (i) above.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person and one or more Wholly-Owned Restricted Subsidiaries
of such Person.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
CREDIT AGREEMENT
The Company and its principal operating subsidiaries, OMC Aluminum Boat
Group, Inc., OMC Fishing Boat Group, Inc., OMC Latin America/Caribbean, Inc.,
Recreational Boat Group Limited Partnership and OMC Recreational Boat Group,
Inc. entered into an Amended and Restated Loan and Security Agreement, effective
as of January 6, 1998 (as amended by the First Amendment to Amended and Restated
Loan and Security Agreement, dated May 21, 1998, the "Credit Agreement") with a
syndicate of lenders, for which NationsBank Montgomery Securities LLC is
syndication agent, and NationsBank of Texas, N.A. is administrative and
collateral agent (the "Administrative Agent"). The Credit Agreement provides for
a revolving credit facility of up to $150.0 million (the "Revolving Credit
Facility") to finance working capital, with a $30.0 million sublimit for letters
of credit. Availability of loans under the Credit Agreement will be limited to a
maximum amount based on specific percentages of the Company's eligible
receivables and eligible inventory. The maturity date for loans made under the
Credit Agreement is December 31, 2000. In addition, loans under the Revolving
Credit Facility must be repaid if at any time the outstanding principal amount
thereof exceeds the borrowing base in effect at such time. Loans under the
Revolving Credit Facility may be repaid and reborrowed.
At the election of the Company, interest is payable on borrowings under the
Credit Agreement at either a "Base Rate" or a "Euro-Dollar Rate" plus a margin
of 0.50% and 2.00% respectively. On June 30, 1998, the weighted average interest
rate on all borrowings outstanding under the Credit Agreement was 7.65%,
excluding fees and usage charges.
Indebtedness under the Credit Agreement is secured by the Company's
existing and after-acquired accounts receivable, inventory, chattel paper,
documents and instruments pertaining to collateral, deposit accounts, contract
rights, patents, trademarks and general intangibles. In addition, OMC Aluminum
Boat Group, Inc., OMC Fishing Boat Group, Inc., OMC Latin America/Caribbean,
Inc. and Recreational Boat Group Limited Partnership and OMC Recreational Boat
Group, Inc. have guaranteed the Company's obligations under the Credit
Agreement.
The Credit Agreement contains a number of negative covenants, including,
among other things, covenants that limit the ability of the Company to: (i)
create or incur additional indebtedness; (ii) merge, consolidate or sell all or
a substantial portion of its assets; (iii) invest in other entities; (iv)
guarantee the obligations of other persons; (v) make certain capital and tooling
expenditures; (vi) engage in transactions with affiliates; or (vii) create and
incur certain capital lease obligations.
The Credit Agreement contains a number of financial covenants, including
those requiring the Company to satisfy specific levels of (i) consolidated
tangible net worth; (ii) interest coverage ratios; and (iii) leverage ratios.
The Credit Agreement prohibits the Company's consolidated Tangible Net Worth (as
defined below) from being at any time less than: (i) for the period ended
September 30, 1998, a deficit of $57.0 million; (ii) for the period ended June
30, 1999, the amount of Tangible Net Worth as of September 30, 1998; (iii) for
the period ended September 30, 1999, the amount of Tangible Net Worth as of
September 30, 1998, plus $5.0 million; (iv) for the period ended June 30, 2000,
the amount of Tangible Net Worth as of September 30, 1999; and (v) for the
periods ended September 30, 2000 and thereafter, the amount of Tangible Net
Worth as of September 30, 1999, plus $18.0 million. The Company's consolidated
Interest Coverage Ratio (as defined below) calculated as of the end of each of
the Company's fiscal quarters, measured (i) as of June 30, 1998, for the
calendar year to date, and (ii) thereafter, as of each fiscal quarter, in each
case for the preceding 12 calendar months then ending, is prohibited from being
less than: (A) for the period ended June 30, 1998, 1.2 to 1.0; (B) for the
period ended September 30, 1998, 0.9 to 1.0; (C) for the period ended December
31, 1998 and all other periods in fiscal 1999, 1.0 to 1.0; (D) for the period
ended December 31, 1999 and all other periods in 2000, 1.3 to 1.0; and (E) for
the periods ended December 31, 2000 and any fiscal period thereafter, 1.5 to
1.0. The Company's consolidated Leverage Ratio calculated at the end of each of
the Company's fiscal quarters, measured as of the end of each fiscal quarter, in
each case for the preceding 12 calendar months then ending, is prohibited from
being greater than: (i) for the period ended June 30, 1998, 20.0 to 1.0; (ii)
for the
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period ended September 30, 1998 and each quarterly period thereafter through and
including June 30, 1999, 4.5 to 1.0; (iii) for the period ended September 30,
1999 and each quarterly period thereafter through and including June 30, 2000,
4.0 to 1.0; and (iv) for the period ended September 30, 2000 and each quarterly
period thereafter, 3.5 to 1.0.
The borrowing base under the Credit Agreement includes eligible
intellectual property, which, when added to eligible receivables and eligible
inventory, increases availability under the Revolving Credit Facility, for any
six-month period selected by the Company, by $30.0 million through December 31,
1998, $20.0 million from January 1, 1999 through December 31, 1999, and $10.0
million from January 1, 2000 through December 31, 2000.
The Company is required to pay to the lenders under the Credit Agreement an
aggregate commitment fee as follows: (i) for each day from January 6, 1998
through the end of the fiscal quarter of the Company in which the lenders
receive the Company's financial statements dated September 30, 1998, an amount
equal to the product of (A) 0.375% multiplied by (B) the unused portion to the
Revolving Credit Facility for such day; and (ii) thereafter through December 31,
2000, an amount equal to the product of (A) 0.375% per annum, to the extent the
Company's Leverage Ratio is greater than or equal to 4.0 to 1.0 (as determined
by reference to the most recent financial statements of the Company delivered to
the lenders), or 0.25% per annum, to the extent the Company's leverage ratio is
less than 4.0 to 1.0 (as determined by reference to the most recent financial
statements of the Company delivered to the lenders), in either case, multiplied
by (B) the unused portion of the Revolving Credit Facility for such day. This
commitment fee shall be payable in arrears on each interest payment date and on
the date of any permanent reduction in the Revolving Credit Facility. The
Company is also required to pay to the lenders letter of credit fees equal to
2.00% on the average daily aggregate amount of letters of credit outstanding
from time to time. The letters of credit fees are payable quarterly in arrears
on the first business day of each January, April, July and October.
Events of default under the Credit Agreement include, among other things,
defaults in payment, breaches of representations and warranties, noncompliance
with covenants, defaults under certain other agreements or instruments of
indebtedness, certain bankruptcy or insolvency events, certain termination
events under ERISA, certain change in control events, and the occurrence of any
event or condition which constitutes a "material adverse effect" under the
Credit Agreement.
Set forth below are certain defined terms used in the Credit Agreement and
the foregoing summary of certain terms of the Credit Agreement.
"EBITDA" means Net Income (as defined in the Credit Agreement), plus (a)
for each of the fiscal quarters in the period beginning October 1, 1997, through
and including September 30, 1998, to the extent deducted in the determination of
Net Income, (i) any expense resulting from amortization of goodwill recorded on
OMC's financial statements pursuant to purchase accounting adjustments under
GAAP, and (ii) up to $3,000,000 of "other income" (as determined in accordance
with GAAP) cumulatively for each fiscal year, plus, (b) for each fiscal quarter
to the extent deducted in the determination of Net Income, each of the
following: (i) interest expense (ii) income taxes; and (iii) depreciation and
amortization expense.
"Indebtedness" of any person means, without duplication, all liabilities of
such person, and to the extent not otherwise included in liabilities, the
following: (a) all obligations for Money Borrowed or for the deferred purchase
price of property or services; (b) all obligations (including, during the
noncancellable term of any lease in the nature of a title retention agreement,
all future payment obligations under such lease discounted to their present
value in accordance with GAAP) secured by any lien to which any property or
asset owned or held by such person is subject, whether or not the obligation
secured thereby shall have been assumed by such Person; (c) all obligations of
other persons which such person has guaranteed, including, but not limited to,
all obligations of such person consisting of recourse liability with respect to
accounts receivable sold or otherwise disposed of by such person; (d) all
obligations of such person in respect of Interest Rate Protection Agreements (as
defined in the Credit Agreement); and (e) in the case of any borrower (without
duplication) all obligations of such borrower under the Credit Agreement.
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"Interest Coverage Ratio" means, for any period, the ratio of (i) Net
Income plus, (a) for each of the fiscal quarters in the period beginning October
1, 1997, through and including September 30, 1998, to the extent deducted in the
determination of Net Income, (i) any expense resulting from amortization of
goodwill recorded on OMC's balance sheet pursuant to purchase accounting
adjustments under GAAP, and (ii) up to $3,000,000 of "other income" (as
determined in accordance with GAAP) cumulatively for each fiscal quarter, plus,
(b) to the extent deducted in the determination of Net Income, net interest
expense and income taxes, to (ii) the aggregate amount of interest expense paid
during such period.
"Leverage Ratio" means, at any time, the ratio of (i) the sum of
Indebtedness for Money Borrowed, determined as of such time, to (ii) EBITDA,
determined for the preceding four (4) completed fiscal quarters.
"Money Borrowed" means, as applied to Indebtedness: (a) Indebtedness for
money borrowed; (b) Indebtedness, whether or not in any such case the same was
for money borrowed, (i) represented by notes payable, and drafts accepted, that
represent extensions of credit, (ii) constituting obligations evidenced by
bonds, debentures, notes or similar instruments, or (iii) upon which interest
charges are customarily paid of that was issued or assumed as full or partial
payment for property (other than trade credit that is incurred in the ordinary
course of business); (c) Indebtedness that constitutes a Capitalized Lease
Obligation; and (d) Indebtedness that is such by virtue of clause (c) of the
definition thereof, but only to the extent that the obligations guaranteed are
obligations that would constitute Indebtedness for money borrowed.
"Net Worth" means, with respect to any person, such person's total
shareholder's equity (including, without limitation, capital stock, additional
paid-in capital and retained earnings, after deducting treasury stock), or other
form of equity (i.e., partner's capital membership interests, etc.) which would
appear as such on a balance sheet of such person prepared in accordance with
GAAP.
"Tangible Net Worth" means the Net Worth of OMC and its consolidated
subsidiaries at the time in question, plus subordinated Indebtedness, excluding
(i) any amounts due from affiliates, (ii) the amount of all intangible items
reflected therein, including, without limitation, all unamortized debt discount
and expense, unamortized research and development expense, unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names, copyrights,
unamortized excess cost of investment in non-consolidated subsidiaries over
equity at dates of acquisition and all similar items which should property be
treated as intangibles in accordance with GAAP, (iii) purchase accounting
adjustments to OMC's balance sheet which would otherwise be required pursuant to
GAAP, and (iv) non-cash currency translation adjustments which would otherwise
be required pursuant to GAAP.
The Notes will be effectively subordinated to the Company's obligations
under the Credit Agreement to the extent of the assets securing such
obligations. A copy of the Credit Agreement was filed with the Commission as an
Exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997. See "Available Information."
SENIOR DEBT SECURITIES
The Company entered into an Indenture, dated as of April 1, 1987 (as
supplemented, the "Global Debt Indenture") with LaSalle National Bank, as
trustee, pursuant to which up to $200.0 million principal amount of debt
securities of varying series (the "Debt Securities") may be issued. The Debt
Securities issued under the Global Debt Indenture are unsecured obligations of
the Company and will rank on parity with all other unsecured and unsubordinated
indebtedness of the Company.
The Global Debt Indenture contains certain restrictive covenants including:
(i) restrictions on the Company's ability to create, incur, issue, assume or
guarantee any indebtedness for borrowed money secured by certain real property
or shares of any capital stock or indebtedness of any subsidiary, without
effectively providing that the Debt Securities shall be secured by such a
mortgage equally and ratably with such indebtedness so long as such indebtedness
shall be so secured; and (ii) restrictions upon certain sale and lease-back
transactions by the Company or any subsidiary of certain real property.
The following are events of default under the Global Debt Indenture with
respect to Debt Securities of any series: (i) default of the payment of any
interest on any Debt Security of that series when due that
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continues for 30 days; (ii) default in the payment of principal of or a premium,
if any, on any Debt Security of that series at its maturity; (iii) default in
the deposit of any sinking fund payment in respect to any Debt Security of that
series when due; (iv) default in the performance or breach of any other covenant
of the Company in the Indenture that continues for 90 days after written notice
as provided in the Global Debt Indenture; and (v) certain events of bankruptcy
and solvency or reorganization relating to the Company.
If an event of default with respect to Debt Securities of any series at the
time outstanding shall occur and be continuing, either the trustee or the
holders of at least 25% in principal amount of the outstanding Debt Securities
of that series may declare the principal amount of all Debt Securities of that
series to be due and payable immediately, subject to the Company's right to cure
as provided in the Indenture.
9 1/8% Debentures Due 2017
At June 30, 1998, $65.2 million principal amount of 9 1/8% Debentures due
2017 (the "9 1/8% Debentures") was outstanding under the Global Debt Indenture.
The 9 1/8% Debentures mature on April 15, 2017, and interest thereon is payable
semi-annually on April 15 and October 15 of each year. The 9 1/8% Debentures are
unsecured obligations of the Company and rank pari passu in right of payment
with all other unsecured and unsubordinated indebtedness of the Company,
including the Notes (except as provided with respect to the applicable Interest
Reserve Account). The 9 1/8% Debentures are redeemable through the operation of
a sinking fund beginning on April 15, 1998, and each year thereafter to and
including April 15, 2016 at a sinking fund redemption price equal to 100% of the
principal amount thereof plus accrued interest to the redemption date. On or
prior to April 15 in each of the years 1998 to 2016 inclusive, the Company is
required to make a mandatory sinking fund payment in cash to LaSalle National
Bank in an amount sufficient to redeem 9 1/8% Debentures in the aggregate
principal amount of $5,000,000 plus accrued interest thereon. However, 9 1/8%
Debentures reacquired or redeemed by the Company may be used at the principal
amount thereof to reduce the amount of any one or more mandatory Sinking Fund
payments. As of March 31, 1998, the Company had repurchased and deposited with
LaSalle National Bank $34.8 million principal amount of 9 1/8% Debentures, which
will be used to satisfy its mandatory sinking fund obligations through April 15,
2004. The Company at its option may make an optional sinking fund payment in
cash in each year from 1998 to 2016 inclusive in an amount sufficient to redeem
up to an additional $10,000,000 principal amount of 9 1/8% Debentures. In
addition to the events of default contained in the Global Debt Indenture, an
event of default with respect to the 9 1/8% Debentures also includes: (i)
default in the payment when due of any principal of or interest on any of the
indebtedness for borrowed money of the Company or any restricted subsidiary
aggregating in excess of $15,000,000 in principal amount; (ii) default in the
performance of any covenant and any bond, note or other evidence of indebtedness
in respect of any indebtedness for borrowed money of the Company or restricted
subsidiary aggregating in excess of $15,000,000 in principal amount, or (iii)
default in the performance of any covenant in any mortgage, indenture or
instrument under which any indebtedness for borrowed money of the Company or any
restricted subsidiary aggregating in excess of $15,000,000 may be issued.
Medium-Term Notes
At June 30, 1998, an aggregate of $20,775,000 principal amount of
Medium-Term Notes Series A (the "Medium-Term Notes") were outstanding under the
Global Debt Indenture. Rates on the Medium-Term Notes range from 8.160% to
8.625%. The maturity dates of the Medium-Term Notes include March 15, 1999,
March 15, 2000 and March 15, 2001. Interest on each of the outstanding
Medium-Term Notes is payable semi-annually each March 30 and September 30 and at
maturity. The Medium-Term Notes are unsecured obligations of the Company and
rank pari passu in right of payment with all other unsecured and unsubordinated
indebtedness of the Company, including the Notes (except as provided with
respect to the applicable Interest Reserve Account). In addition to the events
of default described in the Global Note Indenture, an event of default with
respect to the Medium-Term Notes also includes; (i) default in the payment when
due of any principal (and any premium, if any) or interest on any indebtedness
for borrowed money of the Company aggregating in excess of $25,000,000 in
principal amount; (ii) default in the performance of any covenant in any bond,
note or other evidence of indebtedness in respect of any indebtedness for
borrowed money of the Company aggregating in excess of $25,000,000 in principal
amount; or (iii) default in the performance of any covenant and any mortgage,
indenture or instrument under which any indebtedness for borrowed money of the
Company aggregating in excess of $25,000,000 may be issued or
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by which the same may be secured in any such case, if such default had resulted
in indebtedness for borrowed money of the Company aggregating in excess of
$25,000,000 in principal amount becoming or being declared due and payable prior
to the date on which it would otherwise have become due and payable.
SUBORDINATED DEBT SECURITIES
7% Convertible Subordinated Debentures Due 2002
At June 30, 1998, $7.1 million principal amount of the Company's 7%
Convertible Subordinated Debentures due 2002 (the "Convertible Debentures") were
outstanding. The Convertible Debentures were issued under an Indenture dated
June 22, 1992 (the "7% Debentures Indenture") between the Company and LaSalle
National Bank, as successor trustee. The Convertible Debentures are unsecured
and subordinated in right of payment to all "senior indebtedness" (as defined in
the 7% Debentures Indenture) of the Company, including the Notes.
Following the Merger, the Company was required to offer to purchase for
cash any and all of the then outstanding Convertible Debentures at a purchase
price equal to 100% of the outstanding principal amount of each Convertible
Debenture plus any accrued and unpaid interest thereon. On November 12, 1997,
the Company consummated such offer to purchase and, as a result thereof,
purchased $67.7 million principal amount of Convertible Debentures. Immediately
prior to the Merger, the Convertible Debentures were convertible into shares of
common stock of the Company at the conversion price of $22.25 per share. As a
result of the Merger, the remaining $7.1 million principal amount of outstanding
Convertible Debentures are no longer convertible into shares of common stock of
the Company. Pursuant to the terms of the 7% Debentures Indenture, as a result
of the Merger, each holder of the remaining outstanding Convertible Debentures
has the right to convert such holder's Convertible Debentures into the cash that
was payable to holders of common stock in the Merger for each share of common
stock into which such Convertible Debentures might have been converted
immediately prior to the Merger. Accordingly, as a result of the Merger, the
remaining $7.1 million principal amount of Convertible Debentures are
convertible at the conversion price of $22.25 per share of common stock into the
right to receive $18.00 per share of common stock into which the Convertible
Debentures would have been convertible had the Convertible Debentures been
converted into Pre-Merger Company Shares prior to the Merger (i.e., $18.00 /
$22.25). Accordingly, on September 30, 1997, the Company and the trustee entered
into a Supplemental Indenture which provided that, in accordance with the terms
of the 7% Debentures Indenture, the remaining outstanding Convertible Debentures
are convertible into the right to receive a cash payment equal to $809 for each
$1,000 principal amount of Convertible Debentures so converted (i.e., ($18.00 /
$22.25) * $1,000). The outstanding Convertible Debentures are convertible at any
time prior to their maturity on July 1, 2002.
The Convertible Debentures may be redeemed by the Company, in whole or from
time-to-time in part, at the specified redemption prices (ranging from 102.8% of
principal amount during the twelve-month period beginning July 1, 1998 to 100.7%
of principal amount during the twelve-month period beginning July 1, 2000),
together with accrued and unpaid interest.
The 7% Debentures Indenture provides that in the event of any default in
the payment when due of principal or interest on a senior indebtedness or after
notice from the holders of at least $20.0 million in principal amount of senior
indebtedness to which such event of default relates or any other event of
default with respect to any senior indebtedness shall have occurred and be
continuing, then no payment shall be made by the Company on account of the
principal of or interest on the Convertible Debentures or on account of the
purchase or redemption or other acquisition of the Convertible Debentures unless
or until the senior indebtedness to which such default relates is discharged or
such event of default shall be cured or waived or shall have ceased to exist or
the holders of such senior indebtedness or their agents shall have waived the
benefits of such provision.
In the event of certain change of control events, each holder of
Convertible Debentures will have the right to require the Company to purchase
for cash all or any part of the holder's Convertible Debentures for a purchase
price equal to 100% of the principal amount thereof, plus interest accrued and
unpaid interest thereon.
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Events of default under the 7% Debentures Indenture include, among other
things, failure to make interest payments when due (if not cured within 30
days), failure to make principal payments at maturity, acceleration of certain
other indebtedness of the Company and certain events of bankruptcy, insolvency,
reorganization, receivership or liquidation involving the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences to tendering holders of Old Notes of the exchange of Old Notes for
Exchange Notes.
This summary is based upon provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Regulations promulgated thereunder (including
temporary regulations), administrative rulings and judicial decisions now in
effect, all of which are subject to change, possibly with retroactive effect.
This summary does not discuss all aspects of federal income taxation that may be
relevant to a particular holder in light of such holder's individual investment
circumstances or to certain types of holders subject to special treatment under
the federal income tax laws (for example, dealers in securities or foreign
currency, banks, life insurance companies, other financial institutions,
tax-exempt organizations and persons who hold (or will hold) the Notes as a
position in a "straddle" or as part of a synthetic security or "hedge,"
"conversion transaction" or other integrated investment, or persons that have a
"functional currency" other than the U.S. dollar), nor does it discuss any
aspect of state, local or foreign taxation. The following discussions assumes
that the Old Notes and Exchange Notes are (and will be) held by the holders
thereof as "capital assets" within the meaning of Section 1221 of the Code.
EACH HOLDER OF OLD NOTES SHOULD CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES TO IT, BASED UPON SUCH HOLDER'S SPECIFIC
TAX SITUATION, OF PARTICIPATION IN THE EXCHANGE OFFER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES OF TENDERING OLD NOTES
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
should not constitute an exchange for federal income tax purposes. Accordingly,
not only will the Exchange Offer have no federal income tax consequences to
holders who exchange their Old Notes for Exchange Notes (i.e., they will not
recognize any gain or loss, there will be no change in the holder's tax basis
and its holding period will carry over to the Exchange Notes), but also the
federal income tax consequences of holding and disposing of the Exchange Notes
will be the same as applicable to the Old Notes exchanged therefor.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities. The Company has
agreed that for a period of 270 days after the Expiration Date, they will make
this Prospectus, as amended or supplemented, available to any Participating
Broker-Dealer for use in connection with any such resale. In addition, until
, 1998 (90 days after the commencement of the Exchange Offer),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such
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<PAGE> 121
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
Participating Broker-Dealer and/or the purchasers of any such Exchange Notes.
Any Participating Broker-Dealer that resells the Exchange Notes that were
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 270 days after the Expiration Date the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Notes initially will be in the form of one or more permanent global
certificates in definitive, duly registered form (the "Global Notes"). Upon
issuance, the Global Notes will be deposited with the Trustee, as custodian for
DTC, in New York, New York, and registered in the name of Cede & Co., as nominee
of DTC for credit to the accounts of DTC's Direct and Indirect Participants (as
defined below). Transfer of beneficial interests in any Global Notes will be
subject to the applicable rules and procedures of DTC and its Direct or Indirect
Participants (each as defined below), which may change from time to time. The
Global Notes may be transferred, in whole and not in part, only to another
nominee of DTC or to a successor of DTC or its nominee in certain limited
circumstances. Beneficial interests in the Global Notes may be exchanged for
Notes in certificated form in certain limited circumstances. See "-- Transfer of
Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
Depositary Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Direct Participants") and to facilitate the clearance and settlement of
transactions in those securities between Direct Participants through electronic
book-entry changes in accounts of Participants. The Direct Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities that clear through or maintain
a direct or indirect, custodial relationship with a Direct Participant
(collectively, the "Indirect Participants").
DTC has advised the Company that, pursuant to DTC's procedures, (i) upon
deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Notes that have been allocated to them by the Initial
Purchasers, and (ii) DTC will maintain records of the ownership interests of
such Direct Participants in the Global Notes and the transfer of ownership
interests by and between Direct Participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, Indirect Participants or other owners of beneficial interests in the
Global Notes. Direct Participants and Indirect Participants must maintain their
own records of the ownership interests of, and the transfer of ownership
interests by and between, Indirect Participants and other owners of beneficial
interests in the Global Notes. Investors in the Global Notes may hold their
interests therein directly through DTC if they are Direct Participants in DTC or
indirectly through organizations that are Direct Participants in DTC. All
ownership interests in any Global Notes may be subject to the procedures and
requirements of DTC.
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The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "--Transfers of Interests
in Global Notes for Certificated Notes."
EXCEPT AS DESCRIBED IN "-- TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES", OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, the Company, the Subsidiary Guarantors
and the Trustee will treat the persons in whose names the Notes are registered
(including Notes represented by Global Notes) as the owners thereof for the
purpose of receiving payments and for any and all other purposes whatsoever.
Payments in respect of the principal, premium, Liquidated Damages, if any, and
interest on Global Notes registered in the name of Cede & Co., as nominee of
DTC, will be payable by the Trustee to DTC or its nominee as the registered
holder under the Indenture. Consequently, neither the Company, the Trustee nor
any agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Direct Participant's or
Indirect Participant's records relating to or payments made on account of
beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Direct Participant's or
Indirect Participant's records relating to the beneficial ownership interests in
any Global Note or (ii) any other matter relating to the actions and practices
of DTC or any of its Direct Participants or Indirect Participants.
DTC has advised the Company that its current payment practice (for payments
of principal, interest and the like) with respect to securities such as the
Notes is to credit the accounts of the relevant Direct Participants with such
payment on the payment date in amounts proportionate to such Direct
Participant's respective ownership interests in the Global Notes as shown on
DTC's records. Payments by Direct Participants and Indirect Participants to the
beneficial owners of the Notes will be governed by standing instructions and
customary practices between them and will not be the responsibility of DTC, the
Trustee, the Company or the Subsidiary Guarantors. Neither the Company, the
Subsidiary Guarantors nor the Trustee will be liable for any delay by DTC or its
Direct Participants or Indirect Participants in identifying the beneficial
owners of the Notes, and the Company and the Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee as the
registered owner of the Notes for all purposes.
The Global Notes will trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants who hold an interest through a
Direct Participant will be effected in accordance with the procedures of such
Direct Participant but generally will settle in immediately available funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more Direct
Participants to whose account interests in the Global Notes are credited and
only in respect of such portion of the aggregate principal amount of the Notes
to which such Direct Participant or Direct Participants has or have given
direction. However, if there is an Event of Default under the Notes, DTC will
exchange Global Notes (without the direction of one or more of its Direct
Participants) for legended Notes in certificated form, and distribute such
certificated forms of Notes to its Direct Participants. See "--Transfers of
Interests in Global Notes for Certificated Notes."
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Direct Participants, they are under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. None of the Company, the Subsidiary
Guarantors, the Initial Purchasers or the Trustee shall have any responsibility
for the performance by DTC or
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its Direct and Indirect Participants of their respective obligations under the
rules and procedures governing any of their operations.
Transfers of Interests in Global Notes for Certificated Notes
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies the Company that it is unwilling or unable to continue as depositary
for the Global Notes and the Company thereupon fails to appoint a successor
depositary within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Notes or (iii)
there shall have occurred and be continuing a Default or an Event of Default
with respect to the Notes. In any such case, the Company will notify the Trustee
in writing that, upon surrender by the Direct and Indirect Participants of their
interest in such Global Note, Certificated Notes will be issued to each person
that such Direct and Indirect Participants and the DTC identify as being the
beneficial owner of the related Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
Neither the Company, the Subsidiary Guarantors nor the Trustee will be
liable for any delay by the holder of any Global Note or DTC in identifying the
beneficial owners of Notes, and the Company and the Trustee may conclusively
rely on, and will be protected in relying on, instructions from the holder of
the Global Note or DTC for all purposes.
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof or, if no such account is specified, by mailing a check to
each such holder's registered address. The Company expects that secondary
trading in the Certificated Notes will also be settled in immediately available
funds.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Exchange Notes offered hereby will be passed upon for the Company by Weil,
Gotshal & Manges LLP, New York, New York.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company as of September 30,
1996 and 1997, and for each of the three years in the period ended September 30,
1997 included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as stated in its report appearing elsewhere
herein.
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GLOSSARY OF MARINE TERMS
BASS BOAT. Low freeboard boat, normally including forward flipping deck
and stern casting platform; designed for day fishing in protected waters.
BOWRIDER. A fiberglass recreational boat with seating forward of the
windshield, normally in the 16 to 22 foot range.
CRUISER. A boat designed primarily for cruising and characterized by a
starboard side control station aft of the main cabin and a cockpit. The interior
is typically an enclosed cabin with one or more berth/stateroom areas, one or
more enclosed heads, a full galley and generally a dinette or other eating
facility.
DECK BOAT. A V-hull boat made of either fiberglass or aluminum with
seating on a deck, similar to a pontoon boat deck, as opposed to in the cockpit.
FOUR-STROKE. Four-stroke engines have four discrete activities that occur
to produce power. The four activities are fuel intake, compression, combustion
(power) and exhaust. To accomplish this the piston moves up and down four times
and the crankshaft rotates twice for each power cycle. Intake and exhaust is
accomplished through valves which open and close.
INBOARD BOAT. A boat with the engine concealed in the boat. The propeller
is under the boat in a fixed position, and the boat is steered with a rudder.
JON BOAT. A flat-bottom boat, usually aluminum, with a squared-off bow and
stern.
OUTBOARD BOAT. A boat designed to use an outboard engine as its power
source.
PONTOON BOAT. A boat with either two or three aluminum pontoon floats with
a deck on top for seating, fishing, lounging, picnicking and other recreational
activities.
PRE-RIG. The process of attaching to a boat, by the manufacturer of the
boat as opposed to the dealer, the wiring and controls necessary for the
attachment of a specific type of outboard engine.
RECREATIONAL BOATS. Cruisers and runabouts.
RUNABOUT. A boat with covered bow or open bow seating, equipped primarily
for daytime multi-recreational use. May include minimal accommodations, such as
vee berth, small galley unit and portable head for possible overnight use.
SALTWATER FISHING BOAT. As named, designed primarily for offshore fishing,
characterized by control stations aft of the main cabin, either on center or
either side and also on a tower. It may or may not have a windshield. The large
cockpit is equipped with baitwells, fish boxes and a prep center. For models
with cabins, the interior typically contains one stateroom area, one enclosed
head, a full galley and generally a dinette or other eating facility.
STERN DRIVE BOAT. A boat with the engine concealed in the boat and having
a drive similar to an outboard's lower unit attached to the stern. The drive
unit pivots from side to side to steer the boat.
TWO-STROKE. Two-stroke engines produce power with two cycles of the
piston. Intake and exhaust is accomplish simultaneously while the piston moves
downward. Compression and power occur while the piston moves up, thus producing
power every time the crankshaft rotates. Fuel enters and exhausts through port
(holes) in the side of the cylinder wall.
V-HULL. The hull of a boat that rises from its bottom to the sides and
forms a "V" shape when viewed from the front or back
WALLEYE BOAT. A boat that is similar in design to a bass boat but is
designed for larger open water. It typically has a deeper V-hull and higher
freeboard. It also provides for seating in the boat as opposed to seating on a
deck.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Statements of Consolidated
Earnings are derived from the historical financial statements of the Company.
The Unaudited Pro Forma Condensed Statements of Consolidated Earnings for the
fiscal year ended September 30, 1997 and the nine months ended June 30, 1997
give effect to the Greenmarine Acquisition and the Initial Offering as if they
had occurred on October 1, 1996, and for the nine months ended June 30, 1998,
give effect to the Initial Offering as if it had occurred on October 1, 1997.
The Greenmarine Acquisition has been accounted for under the purchase
method of accounting. Accordingly, the purchase price has been allocated to
assets acquired and liabilities assumed based on fair market values at the date
of acquisition. The purchase accounting adjustments reflected on the Company's
statement of consolidated financial position at September 30, 1997 reflect the
Company's preliminary determination of the adjustments based upon available
information. There can be no assurance that the actual adjustments will not vary
significantly from the estimated adjustments reflected herein. See Note 1 to the
Consolidated Financial Statements.
The unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred had the Greenmarine
Acquisition and the Initial Offering been consummated, at the dates indicated,
nor is it necessarily indicative of future operating results or financial
position. Neither Arthur Andersen LLP, the Company's independent certified
public accountants, nor the Initial Purchasers have compiled or examined the As
Adjusted Pro Forma EBITDA (as defined in footnote (i) to the Unaudited Pro Forma
Condensed Consolidated Financial Statements) and, accordingly, they express no
opinion or any other form of assurance with respect to, assume no responsibility
for, and disclaim any association with, the As Adjusted Pro Forma EBITDA. The
unaudited pro forma condensed consolidated financial data should be read in
conjunction with the financial statements of the Company and the related notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein.
PF-1
<PAGE> 126
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA ADJUSTMENTS
COMPANY ------------------------
HISTORICAL ACQUISITION OFFERING PRO FORMA
---------- ----------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net Sales........................................ $979.5 $ -- $ -- $979.5
Cost of goods sold............................... 826.5 (1.4)(a) -- 825.1
------ ------ ----- ------
Gross earnings................................ 153.0 1.4 -- 154.4
Selling, general and administrative expense...... 215.4 7.4(b) -- 222.8
Change in control expenses -- compensation....... 11.8 (11.8)(c) -- --
------ ------ ----- ------
Earnings (loss) from operations............... (74.2) 5.8 -- (68.4)
Non-operating expense (income):
Interest expense.............................. 16.2 12.2(d) 2.8(f) 31.2
Change in control expenses.................... 15.1 (15.1)(e) -- --
Other, Net.................................... (29.2) -- -- (29.2)
------ ------ ----- ------
Earnings (loss) before provision for income
taxes......................................... (76.3) 8.7 (2.8) (70.4)
Provision for income taxes....................... 2.8 -- -- 2.8
------ ------ ----- ------
Net (earnings) loss.............................. $(79.1) $ 8.7 $(2.8) $(73.2)
====== ====== ===== ======
OTHER DATA:
Depreciation and amortization(g)................. $ 57.0 $ 6.0 $ -- $ 63.0
EBITDA (as defined)(h)........................... (0.9) -- -- (0.9)(i)
Capital expenditures............................. 36.3 -- -- 36.3
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Statements of
Consolidated Earnings.
PF-2
<PAGE> 127
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRE-MERGER PRO FORMA ADJUSTMENTS
COMPANY ------------------------
HISTORICAL ACQUISITION OFFERING PRO FORMA
---------- ----------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING DATA:
Net Sales..................................... $709.9 $ -- $ -- $709.9
Cost of goods sold............................ 595.9 (1.1)(a) -- 594.8
------ ------ ----- ------
Gross earnings............................. 114.0 1.1 -- 115.1
Selling, general and administrative expense... 151.7 5.6(b) -- 157.3
------ ------ ----- ------
Earnings (loss) from operations............ (37.7) (4.5) -- (42.2)
Non-operating expense (income):
Interest expense........................... 12.7 9.2(d) 2.1(f) 24.0
Other, Net................................. (25.9) -- -- (25.9)
------ ------ ----- ------
Earnings (loss) before provision for income
taxes...................................... (24.5) (13.7) (2.1) (40.3)
Provision for income taxes.................... 2.2 -- -- 2.2
------ ------ ----- ------
Net (earnings) loss........................... $(26.7) $(13.7) $(2.1) $(42.5)
====== ====== ===== ======
OTHER DATA:
Depreciation and amortization(g).............. $ 41.2 $ 4.5 $ -- $ 45.7
EBITDA (as defined)(h)........................ 7.5 -- -- 7.5(i)
Capital expenditures.......................... 30.1 -- -- 30.1
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Statements of
Consolidated Earnings.
PF-3
<PAGE> 128
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
NINE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
POST-MERGER PRO FORMA
COMPANY ADJUSTMENTS
HISTORICAL OFFERING PRO FORMA
----------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
OPERATING DATA:
Net Sales.............................................. $760.1 $ -- $760.1
Cost of goods sold..................................... 590.8 -- 590.8
------ ------
Gross earnings...................................... 169.3 169.3
Selling, general and administrative expense............ 156.0 -- 156.0
------ ------
Earnings (loss) from operations..................... 13.3 -- 13.3
Non-operating expense (income):
Interest expense.................................... 22.6 1.9(f) 24.5
Other, Net.......................................... (8.6) -- (8.6)
------ ----- ------
Loss before provision for income taxes................. (0.7) (1.9) (2.6)
Provision for income taxes............................. 3.2 -- 3.2
------ ----- ------
Net earnings (loss).................................... $ (3.9) $(1.9) $ (5.8)
====== ===== ======
OTHER DATA:
Depreciation and amortization(g)....................... $ 40.4 $ -- $ 40.4
EBITDA (as defined)(h)................................. 54.2 -- 54.2(i)
Capital expenditures................................... 23.7 -- 23.7
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Statements of
Consolidated Earnings.
PF-4
<PAGE> 129
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS
OF CONSOLIDATED EARNINGS
(a) Adjustments reflect lower depreciation on computer equipment and lower
amortization on tooling, offset in part by higher depreciation expense on
machinery and equipment, based on the Company's purchase price allocation
following the Greenmarine Acquisition.
(b) Adjustments reflect additional amortization related to $334.1 million of
intangibles and goodwill based on the Company's purchase price allocation
following the Greenmarine Acquisition, less amortization of $1.6 million
per year related to $38.3 million of intangibles and goodwill relating to
the Pre-Merger Company.
(c) Reflects elimination of one-time change in control expense related to
compensation expenses resulting from the change in control as a result of
the Greenmarine Acquisition.
(d) Adjustment to interest expense assumes that (i) the Company's $150.0
million Term Loan was outstanding as of October 1, 1996 at a 10% interest
rate, (ii) the tendered and repurchased amount of the Company's Convertible
Debentures was repaid as of October 1, 1996, and (iii) the Company incurred
additional interest expense on additional borrowings related to change in
control expenses, in each case, as if the Greenmarine Acquisition had
occurred on October 1, 1996.
(e) Reflects elimination of one-time change of control expenses in connection
with the Greenmarine Acquisition.
(f) Adjustment to interest expense assumes (i) for the year ended September 30,
1997 and for the nine months ended June 30, 1997, that the Initial Offering
and the application of the net proceeds therefrom occurred as of October 1,
1996, and (ii) for the nine months ended June 30, 1998, that the Initial
Offering and the application of the net proceeds therefrom occurred as of
October 1, 1997.
(g) Depreciation and amortization includes debt discount amortization.
(h) "EBITDA" represents earnings from operations (including income derived from
the Company's stern drive joint venture, net of joint venture expenses)
before depreciation and amortization (excluding debt discount
amortization), and, for the fiscal year ended September 30, 1997, "EBITDA"
does not include a one-time $11.8 million charge due to a change in control
expense related to compensation expenses resulting from the change in
control as a result of the Greenmarine Acquisition. The Company accrues for
income from the stern drive joint venture, net of joint venture expenses,
in Other Income and has included it in EBITDA because it reflects a
recurring stream of revenue from the sale of the Company's stern drive
parts and accessories products. Income from the stern drive joint venture,
net of joint venture expenses, was $7.2 million in fiscal 1997, and $4.6
million and $1.9 million for the nine months ended June 30, 1997 and 1998,
respectively. EBITDA is widely used by securities analysts and is presented
here to provide additional information about the Company's ability to meet
its future debt service, capital expenditures and working capital
requirements. While management believes that EBITDA is an appropriate
approximation of the Company's liquidity, as well as an appropriate
measurement to use in evaluating the Company's operating performance,
EBITDA should not be considered as an alternative to, or more meaningful
than, income from operations or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as
a measure of liquidity, and should not be construed as an indication of a
company's operating performance or as a measure of liquidity. EBITDA as
presented herein may be calculated differently by other companies and,
accordingly, the amounts presented herein may not be comparable to
similarly titled measurements of other companies.
(i) Pro forma EBITDA does not reflect adjustments to the Company's pro forma
income statement data (giving effect to the Initial Offering and the
Greenmarine Acquisition) in order to (i) exclude the effect of certain
charges recorded in fiscal 1997 which are deemed by management to be
unusual or infrequent in nature or (ii) give effect to the anticipated cost
savings from certain actions taken by the Company's senior management team
since the Greenmarine Acquisition. The "as adjusted pro forma" data set
forth
PF-5
<PAGE> 130
below reflects these unusual or infrequent charges and gives effect to
certain cost saving actions taken by the Company's senior management team
since the Greenmarine Acquisition. These anticipated cost savings
adjustments are forecasts of the Company based on estimates and assumptions
made by the Company that are inherently uncertain and not factually
supportable, though considered reasonable by the Company. As a result,
there can be no assurance that any such adjustments would have been
achieved. The components of the unusual or infrequent charges and the
estimated cost savings adjustments are as follows:
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED JUNE 30, JUNE 30,
SEPT. 30, 1997 1997 1998
-------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Pro forma EBITDA (as defined)......................... $(0.9) $ 7.5 $54.2
----- ----- -----
Estimated net annual adjustments:
Unusual or Infrequent Charges:
Write-off of impaired assets relating to the Chris
Craft line of boats and write-offs of inventory
and tooling relating to discontinued products and
technology....................................... 4.6 -- --
Additional reserves relating to changes in the
method of estimating surplus parts and
accessories inventory and recognizing certain
pre-rigging rebate expense....................... 1.8 -- --
Additional accrual relating to salt water intrusion
issues on certain engines, which have since been
resolved......................................... 1.0 -- --
Certain non-recurring expenses associated with the
introduction of FICHT technology................. 0.8 -- --
Charges related to early adoption of the AICPA
Statement of Position 96-1 "Environmental
Remediation Liabilities"......................... 7.0 -- --
Accruals for warranty expenses at the Company's Boat
Group as the result of changes in the method used
to estimate warranty reserves.................... 9.7 8.0 --
Cost Savings Adjustments:
Closing of Company's Old Hickory facility........... 0.5 0.4 0.3
Termination of employees............................ 14.2 10.7 6.9
Workforce reductions that have been announced but
not finalized.................................... 2.5 1.9 1.2
Savings from implementation of new purchasing
initiatives...................................... 3.8 2.9 2.9
----- ----- -----
Total estimated net annual adjustments................ 45.9 23.9 11.3
----- ----- -----
As adjusted pro forma EBITDA (as defined) and full
amount of estimated annual adjustments.............. $45.0 $31.4 $65.5
===== ===== =====
</TABLE>
PF-6
<PAGE> 131
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
OUTBOARD MARINE CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants.................. F-2
Statements of Consolidated Earnings for the years ended
September 31, 1997, 1996 and 1995...................... F-3
Statements of Consolidated Financial Position as of
September 30, 1997 and 1996............................ F-4
Statements of Consolidated Cash Flows for the years ended
September 30, 1997, 1996
and 1995............................................... F-5
Statements of Changes in Consolidated Stockholders'
Investment for the years ended September 30, 1997, 1996
and 1995............................................... F-6
Notes to Consolidated Financial Statements................ F-7
Condensed Statements of Consolidated Earnings for the
nine-month periods ended June 30, 1998 and 1997
(unaudited)............................................ F-35
Condensed Statement of Consolidated Financial Position as
of June 30, 1998 (unaudited)........................... F-36
Condensed Statements of Consolidated Cash Flows for the
nine-month periods ended June 30, 1998 and 1997
(unaudited)............................................ F-37
Condensed Statement of Changes in Consolidated
Stockholders' Investment for the nine-month period
ended June 30, 1998 (unaudited)........................ F-38
Notes to Condensed Consolidated Interim Financial
Statements (unaudited)................................. F-39
</TABLE>
F-1
<PAGE> 132
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Outboard Marine Corporation:
We have audited the accompanying Statement of Consolidated Financial
Position of Outboard Marine Corporation (a Delaware corporation) and
subsidiaries ("Post-Merger Company" or "Company") as of September 30, 1997 and
the related Statements of Cash Flows and Changes in Consolidated Shareholders'
Investment from inception (see Note 1) to September 30, 1997. We have also
audited the accompanying Statements of Consolidated Financial Position of
Outboard Marine Corporation (a Delaware corporation) and subsidiaries
("Pre-Merger Company") as of September 30, 1996 and the related Statements of
Consolidated Earnings, Cash Flows and Changes in Consolidated Shareholders'
Investment for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Post-Merger and
Pre-Merger 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 financial position of the Post-Merger Company as
of September 30, 1997 and their cash flows from inception to September 30, 1997,
and the financial position of the Pre-Merger Company as of September 30, 1996
and the results of their operations and their cash flows for each of the three
years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
By: Arthur Andersen LLP
------------------------------------
Arthur Andersen LLP
Chicago, Illinois
January 12, 1998
F-2
<PAGE> 133
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE)
------------------------------------------------
PRE-MERGER COMPANY
------------------------------------------------
YEARS ENDED SEPTEMBER 30
------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net sales............................................... $979.5 $1,121.5 $1,229.2
Cost of goods sold...................................... 826.5 892.2 931.8
------ -------- --------
Gross earnings........................................ 153.0 229.3 297.4
Selling, general and administrative expense............. 215.4 210.3 230.2
Restructuring charges................................... -- 25.6 --
Change in control expenses -- compensation.............. 11.8 -- --
------ -------- --------
Earnings (loss) from operations....................... (74.2) (6.6) 67.2
Non-operating expense (income):
Interest expense...................................... 16.2 12.3 23.1
Change in control expenses............................ 15.1 -- --
Other, net............................................ (29.2) (8.5) (16.7)
------ -------- --------
2.1 3.8 6.4
------ -------- --------
Earnings (loss) before provision for income taxes..... (76.3) (10.4) 60.8
Provision (credit) for income taxes..................... 2.8 (3.1) 9.4
------ -------- --------
Net earnings (loss)................................... $(79.1) $ (7.3) $ 51.4
====== ======== ========
Net earnings (loss) per share of common stock
Basic................................................. $(3.91) $ (0.36) $ 2.57
====== ======== ========
Diluted............................................... $(3.91) $ (0.36) $ 2.33
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 134
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
-------------------------
POST-MERGER PRE-MERGER
COMPANY COMPANY
----------- ----------
SEPTEMBER 30
-------------------------
1997 1996
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 54.4 $ 95.5
Receivables (less reserve for doubtful receivables of $6.7
million in 1997 and $11.6 million in 1996)............. 153.2 167.6
Inventories............................................... 176.9 165.1
Deferred income tax benefits.............................. 19.0 15.6
Other current assets...................................... 67.5 23.7
-------- ------
Total Current Assets................................... 471.0 467.5
Product tooling, net........................................ 34.2 51.6
Plant and equipment, net.................................... 210.2 218.9
Goodwill.................................................... 250.2 29.1
Trademarks, patents and other intangibles................... 83.9 9.2
Pension asset............................................... 74.4 50.1
Other assets................................................ 55.1 47.3
-------- ------
Total Assets........................................... $1,179.0 $873.7
======== ======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Loan payable.............................................. $ 96.0 $ --
Accounts payable.......................................... 142.0 90.0
Accrued liabilities....................................... 182.0 151.9
Accrued income taxes...................................... 6.6 11.2
Current maturities and sinking fund requirements of
long-term debt......................................... 72.9 0.2
-------- ------
Total Current Liabilities.............................. 499.5 253.3
Long-Term debt.............................................. 103.8 177.6
Postretirement benefits other than pensions................. 96.0 100.7
Other non-current liabilities............................... 202.7 104.5
Shareholders' Investment:
Common stock--25 million shares authorized at $.01 par
value with 20.4 million shares outstanding in 1997; 90
million shares authorized at $.15 par value with 20.1
million shares outstanding in 1996..................... 0.2 3.0
Capital in excess of par value of common stock............ 276.8 114.1
Accumulated earnings employed in the business............. -- 134.4
Minimum pension liability adjustment...................... -- (3.1)
Cumulative translation adjustments........................ -- (8.5)
Treasury stock at cost, .1 million shares in 1996......... -- (2.3)
-------- ------
Total shareholders' investment......................... 277.0 237.6
-------- ------
Total Liabilities and Shareholders' Investment.... $1,179.0 $873.7
======== ======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 135
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------------------
PRE-MERGER
COMPANY
AND
POST-MERGER
COMPANY PRE-MERGER COMPANY
----------- ------------------
YEARS ENDED SEPTEMBER 30
---------------------------------
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)......................................... $ (79.1) $ (7.3) $ 51.4
Adjustments to reconcile net earnings (loss) to net cash
provided by operations:
Depreciation and amortization............................. 57.0 54.7 47.6
Restructuring charges..................................... -- 21.6 --
Changes in current accounts excluding the effects of
acquisitions and noncash transactions:
Decrease (increase) in receivables..................... 9.6 32.4 (32.4)
Decrease (increase) in inventories..................... 26.5 27.3 (29.5)
Decrease (increase) in other current assets............ (0.4) (3.6) (13.2)
Increase (decrease) in accounts payable, accrued
liabilities and income taxes......................... (5.3) (15.1) 14.1
Increase (decrease) in deferred items.................. (15.8) (20.6) 13.7
Other, net............................................. (1.7) 1.7 (0.3)
------- ------ ------
Net cash provided by (used for) operating
activities...................................... (9.2) 91.1 51.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments................................................. -- -- (9.9)
Expenditures for plant and equipment, and tooling........... (36.3) (52.7) (66.5)
Proceeds from sale of plant and equipment................... 13.0 2.7 11.8
Other, net.................................................. (2.8) (0.5) (1.2)
------- ------ ------
Net cash used for investing activities............ (26.1) (50.5) (65.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt, including current maturities.... -- (0.2) (1.1)
Cash dividends paid......................................... (6.0) (6.1) (8.0)
Other, net.................................................. 2.3 3.4 1.0
------- ------ ------
Net cash used for financing activities............ (3.7) (2.9) (8.1)
Exchange Rate Effect on Cash................................ (2.1) (0.5) 0.5
------- ------ ------
Net increase (decrease) in Cash and Cash Equivalents........ (41.1) 37.2 (22.0)
Cash and Cash Equivalents at Beginning of Year.............. 95.5 58.3 80.3
------- ------ ------
Pre-Merger Company Cash and Cash Equivalents at End of
Year...................................................... $ 54.4 $ 95.5 $ 58.3
======= ====== ======
- -----------------------------------------------------------------------------------------------
Post-Merger Company Cash and Cash Equivalents prior to
merger--September 30, 1997................................ $ 54.4
CASH FLOWS FROM FINANCING ACTIVITIES (POST-MERGER COMPANY):
Proceeds from short-term borrowings......................... 96.0
Issuance of Post-Merger Company common stock................ 277.0
Purchase of Pre-Merger Company common stock................. (373.0)
-------
Post-Merger Company Cash and Cash Equivalents--September 30,
1997...................................................... $ 54.4
=======
SUPPLEMENTAL CASH FLOW DISCLOSURES (PRE-MERGER COMPANY):
Interest paid............................................... $ 21.0 $ 15.4 $ 19.7
Income taxes paid........................................... $ 3.4 $ 3.5 $ 3.4
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE> 136
OUTBOARD MARINE CORPORATION
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
--------------------------------------------------------------------------------------------------
ACCUMULATED
EARNINGS MINIMUM
ISSUED CAPITAL IN EXCESS EMPLOYED PENSION CUMULATIVE
COMMON STOCK OF PAR VALUE IN THE LIABILITY TRANSACTION TREASURY
SHARES AMOUNT OF COMMON STOCK BUSINESS ADJUSTMENT ADJUSTMENTS STOCK
------ ------ ----------------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE--SEPTEMBER 30,
1994....................... 20.2* $ 3.0 $ 110.7 $106.3 $ -- $ (6.6) $ (4.4)
Net earnings................. -- -- -- 51.4 -- -- --
Dividends declared--40 cents
per share.................. -- -- -- (8.0) -- -- --
Shares issued under stock
plans...................... -- -- 1.5 -- -- -- 0.8
Translation adjustments...... -- -- -- -- -- 1.1 --
----- ----- ------- ------ ------ ------ ------
BALANCE--SEPTEMBER 30,
1995....................... 20.2* $ 3.0 $ 112.2 $149.7 $ -- $ (5.5) $ (3.6)
Net loss..................... -- -- -- (7.3) -- -- --
Dividends declared--40 cents
per share.................. -- -- -- (8.0) -- -- --
Minimum pension liability
adjustment................. -- -- -- -- (3.1) -- --
Shares issued under stock
plans...................... -- -- 1.9 -- -- -- 1.3
Translation adjustments...... -- -- -- -- -- (3.0) --
----- ----- ------- ------ ------ ------ ------
BALANCE--SEPTEMBER 30,
1996....................... 20.2* $ 3.0 $ 114.1 $134.4 $ (3.1) $ (8.5) $ (2.3)
Net loss..................... -- -- -- (79.1) -- -- --
Dividends declared--20 cents
per share.................. -- -- -- (4.0) -- -- --
Minimum pension liability
adjustment................. -- -- -- -- (.4) -- --
Shares issued under stock
plans...................... 0.3 0.1 3.8 -- -- -- --
Translation adjustments...... -- -- -- -- -- (7.3) --
----- ----- ------- ------ ------ ------ ------
BALANCE--SEPTEMBER 30, 1997--
PRE-MERGER COMPANY......... 20.5* $ 3.1 $ 117.9 $ 51.3 $ (3.5) $(15.8) $ (2.3)
===== ===== ======= ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE--SEPTEMBER 30, 1997--
POST-MERGER COMPANY PRIOR
TO MERGER.................. 20.5* $ 3.1 $ 117.9 $ 51.3 $ (3.5) $(15.8) $ (2.3)
Cancellation of Pre-Merger
Company shares upon
merger..................... (20.5)* (3.1) (117.9) (51.3) 3.5 15.8 2.3
Issuance of Post-Merger
Company shares upon
merger..................... 20.4 0.2 276.8 -- -- -- --
----- ----- ------- ------ ------ ------ ------
BALANCE--SEPTEMBER 30,
1997--POST-MERGER
COMPANY.................... 20.4 $ 0.2 $ 276.8 $ -- $ -- $ -- $ --
===== ===== ======= ====== ====== ====== ======
</TABLE>
- ------------------------------
* Includes shares of treasury stock
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 137
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MERGER WITH GREENMARINE ACQUISITION CORP.
On September 12, 1997, Greenmarine Acquisition Corp. ("Greenmarine")
acquired control of Outboard Marine Corporation (the "Pre-Merger Company") when
shareholders tendered approximately 90 percent of the outstanding shares of the
Pre-Merger Company's common stock to Greenmarine for $18 per share in cash.
Greenmarine was formed solely to purchase the shares of the Pre-Merger Company
and merged with and into the Pre-Merger Company in a non-taxable transaction on
September 30, 1997. Outboard Marine Corporation was the sole surviving entity of
the merger with Greenmarine (the "Post-Merger Company" or the "Company"). All of
the outstanding Pre-Merger Company common stock was cancelled on September 30,
1997 and 20.4 million shares of new common stock were issued to Greenmarine
Holdings LLC (the "Parent") the parent company of Greenmarine. Greenmarine's
total purchase price of common stock and related acquisition costs amounted to
$373.0 million.
The Statement of Consolidated Financial Position at September 30, 1997 is
not comparable to the prior year because of purchase accounting adjustments. The
acquisition and the merger were accounted for using the purchase method of
accounting. Accordingly, the purchase price has been allocated to assets
acquired and liabilities assumed based on fair market values at the date of
acquisition. The fair values of tangible assets acquired and liabilities assumed
were $844.9 million and $902.0 million, respectively. In addition, $83.9 million
of the purchase price was allocated to intangible assets for trademarks, patents
and dealer network. Purchase accounting included liabilities of $136.9 million
for implementation and execution of business reorganizations. The financial
statements reflect the preliminary allocation of purchase price as the purchase
price allocation has not been finalized. The excess purchase price over fair
value of the net assets acquired was $250.2 million and has been classified as
goodwill in the Statement of Consolidated Financial Position. The goodwill
related to the acquisition will be amortized using the straight-line method over
a period of 40 years.
The acquisition and the merger have been accounted for as if the
acquisition and merger had taken place simultaneously on September 30, 1997. In
the opinion of management, accounting for the acquisition and the merger as of
September 30, 1997 as opposed to accounting for the acquisition and the merger
on September 12, 1997 did not materially impact the Statement of Consolidated
Earnings. Unaudited pro forma combined results of operations of the Company and
Greenmarine on the basis that the acquisition had taken place at the beginning
of fiscal 1997 and 1996 are presented in Note 19.
2. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS. The Company, and its subsidiaries, is a multinational
company which operates in the marine recreation business. The Company
manufactures and markets marine engines, boats and marine parts and accessories.
BASIS OF PRESENTATION. The Statement of Consolidated Financial Position at
September 30, 1997 for the Post-Merger Company was prepared using a new basis of
purchase accounting. The Pre-Merger Company's historical basis of accounting was
used prior to September 30, 1997. The Statement of Consolidated Financial
Position as of September 30, 1997, which was prepared under the new basis of
accounting, reflected the preliminary fair values of assets acquired and
liabilities assumed, and the related debt incurred in connection with the merger
with Greenmarine on September 30, 1997.
PRINCIPLES OF CONSOLIDATION. The accounts of all significant subsidiaries
were included in the Consolidated Financial Statements. Intercompany accounts,
all material transactions and earnings have been eliminated in consolidation. At
September 30, 1997, all subsidiaries were wholly owned except those referred to
in Note 3 to the Consolidated Financial Statements.
ACCOUNTING ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions which affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial
F-7
<PAGE> 138
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS. For purposes of the Statements of Consolidated
Cash Flows, marketable securities with an original maturity of three months or
less are considered cash equivalents.
The Company's domestic banking system provides for the daily replenishment
of major bank accounts for check clearing requirements. Accordingly, outstanding
checks of $18.3 million and $21.1 million which had not yet been paid by the
banks at September 30, 1997 and 1996, respectively, were reflected in trade
accounts payable in the Statements of Consolidated Financial Position.
RESTRICTED CASH. At September 30, 1997, the Post-Merger Company has $37.0
million in restricted cash held in a trust depository to fund the redemption of
remaining untendered old outstanding shares of stock. This asset is classified
as other current assets and substantially funds the corresponding liability
classified as accrued liabilities.
INVENTORIES. The Company's domestic inventory is carried at the lower of
cost or market using principally the last-in, first-out (LIFO) cost method. All
other inventory (19% in 1997 and 23% in 1996) is carried at the lower of
first-in, first-out (FIFO) cost or market. The book basis for inventories at
September 30, 1997 exceeds the tax basis by $39.1 million as a result of
applying purchase accounting in connection with the merger.
During 1997 and 1996, the liquidation of LIFO inventory quantities acquired
at lower costs prevailing in prior years as compared with the costs of 1997 and
1996 purchases, increased earnings before tax by $1.0 million and $1.3 million,
respectively. There were no material liquidations of LIFO inventory quantities
in 1995.
PRODUCT TOOLING, PLANT AND EQUIPMENT AND DEPRECIATION. Product tooling
costs are amortized over a period not exceeding five years, beginning the first
year the related product is sold. Plant and equipment are recorded at cost and
depreciated substantially on a straight-line basis over their estimated useful
lives as follows: buildings, 10 to 40 years; machinery and equipment, 3 to
12 1/2 years. Depreciation is not provided on construction in progress until the
related assets are placed into service.
Amortization of tooling and depreciation of plant and equipment was $52.7
million, $52.1 million and $45.4 million for the years ended September 30, 1997,
1996 and 1995, respectively.
When plant and equipment is retired or sold, its cost and related
accumulated depreciation are written-off and the resulting gain or loss is
included in net earnings.
Maintenance and repair costs are charged directly to earnings as incurred
and were $26.5 million, $29.4 million and $32.4 million for 1997, 1996 and 1995,
respectively. Major rebuilding costs which substantially extend the useful life
of an asset are capitalized and depreciated.
INTANGIBLES. The Statements of Consolidated Financial Position
(Post-Merger Company) included preliminary purchase accounting goodwill of
$250.2 million and trademarks, patents and other intangibles of $83.9 million on
September 30, 1997. Intangibles are amortized over 15 to 40 years. The carrying
value of the intangible assets is periodically reviewed by the Company based on
the expected future operating earnings of the related units.
Amortization of intangibles on the Pre-Merger Company was $1.6 million,
$1.8 million and $1.2 million for 1997, 1996 and 1995, respectively.
REVENUE RECOGNITION. The Company recognizes sales and related expenses
including estimated warranty costs upon shipment of products to unaffiliated
customers.
F-8
<PAGE> 139
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ADVERTISING COSTS. Advertising costs are charged to expense as incurred
and were $33.7 million, $31.8 million and $35.9 million for 1997, 1996 and 1995,
respectively.
WARRANTY. The Company generally provides the ultimate consumer a warranty
with each product and accrues warranty expense at time of sale based upon actual
claims history. Actual warranty costs incurred are charged against the accrual
when paid. In the year ended September 30, 1997, warranty accruals were
increased $9.7 million due to a change in accounting estimate.
RESEARCH AND DEVELOPMENT COSTS. Expenditures relating to the development
of new products and processes, including significant improvements and
refinements to existing products, are expensed as incurred. Such expenditures
were $38.2 million, $41.8 million and $41.6 million for 1997, 1996 and 1995,
respectively.
TRANSLATION OF NON-U.S. SUBSIDIARY FINANCIAL STATEMENTS. The financial
statements of non-U.S. subsidiaries are translated to U.S. dollars substantially
as follows: all assets and liabilities at year-end exchange rates; sales and
expenses at average exchange rates; shareholders' investment at historical
exchange rates. Gains and losses from translating non-U.S. subsidiaries'
financial statements are recorded directly in shareholders' investment. The
Statements of Consolidated Earnings for 1997 and 1995 include foreign exchange
losses (gains) of $1.0 million and $(0.6) million, respectively, which resulted
primarily from commercial transactions and forward exchange contracts. In 1996,
there was no net foreign exchange gain or loss.
IMPAIRMENT OF LONG-LIVED ASSETS. Effective October 1, 1996, the Pre-Merger
Company adopted the Financial Accounting Standards Board's Statement of
Accounting Standards No. 121 (SFAS 121), "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of." SFAS 121
requires that long-lived assets and certain identifiable intangibles held and
used by a company be reviewed for possible impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 also requires that long-lived assets and certain
identifiable intangibles held for sale, other than those related to discontinued
operations, be reported at the lower of carrying amount or fair value less cost
to sell. The Company evaluates the long-lived assets and certain identifiable
intangibles for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment charge of $2.0 million was recognized in the year ended September 30,
1997.
The Company periodically evaluates whether later events and circumstances
have occurred that indicate the remaining estimated useful life of intangible
assets may warrant revision or that the remaining balance may not be
recoverable. If factors indicate that intangible assets should be evaluated for
possible impairment, the Company would use an estimate of the relative business
unit's expected undiscounted operating cash flow over the remaining life of the
intangible asset in measuring whether the intangible asset is recoverable.
EARNINGS PER SHARE OF COMMON STOCK. The Financial Accounting Standards
Board's Statement No. 128 (SFAS 128), "Earnings per Share" was issued in
February, 1997. The new standard simplifies the computation of earnings per
share (EPS) and provides improved comparability with international standards.
SFAS 128 replaces primary EPS with "Basic" EPS, which excludes dilution and is
computed by dividing net earnings or (loss) by the weighted-average number of
common shares outstanding for the period. "Diluted" EPS (which replaces fully
diluted EPS) is computed similarly to fully diluted EPS by reflecting the
potential dilution that occurs if securities or other contracts to issue common
stock were exercised or converted to common stock or resulted in the issuance of
common stock that then shared in the earnings.
Basic earnings (loss) per share of common stock is computed based on the
weighted average number of shares of common stock outstanding of 20.2 million,
20.1 million and 20.0 million for the years ended September 30, 1997, 1996 and
1995, respectively. The computation of diluted earnings (loss) per share of
common stock assumed conversion of the 7% convertible subordinated debentures
due 2002; accordingly, net earnings (loss) were increased by after-tax interest
and related expense amortization on the debentures. For
F-9
<PAGE> 140
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
the fully diluted earnings (loss) per share computations for 1997, 1996 and
1995, shares were computed to be 23.6 million, 23.6 million and 23.5 million,
respectively. For 1997 and 1996, the computation of diluted earnings (loss) per
share was antidilutive; therefore, the amounts reported for basic and diluted
earnings (loss) per share are identical.
On September 30, 1997, all of the old outstanding common stock was
cancelled and 20.4 million shares of new common stock were issued. See Note 9
concerning the redemption of the 7% convertible subordinated debentures due
2002.
3. JOINT VENTURE AND INVESTMENTS
In July 1995, the Pre-Merger Company and FICHT GmbH of Kirchseeon, Germany
announced the formation of a strategic alliance for the development and
worldwide manufacturing and marketing of high pressure fuel injection systems
and other technologies. Under the terms of the strategic alliance, the Pre-
Merger Company acquired a 51% interest in FICHT GmbH. The Ficht family retained
a 49% interest and continues to operate the business. FICHT GmbH and Co. KG
(FICHT) is the name of the resulting business. The Company has an exclusive
license for the marine industry for the FICHT fuel injection system. In
addition, the Company has an exclusive worldwide license agreement for all
non-automotive applications. Royalty income, if any, resulting from other
licensing of the technology will be distributed through FICHT.
In July 1993, the Pre-Merger Company and AB Volvo Penta and Volvo Penta of
the Americas, Inc. formed a joint venture company to produce gasoline stern
drive and gasoline inboard marine power systems. The joint venture is 60% owned
by Volvo Penta of the Americas, Inc. (Volvo Penta) and 40% owned by the Company.
The jointly produced marine power systems are marketed by Volvo Penta to
independent boat builders worldwide and are used in boats manufactured by
subsidiaries of the Company. The units carry the Volvo Penta and SX Cobra brand
names.
The equity method of accounting is used for the joint venture. At September
30, 1997 and 1996, the Company's investment including current net accounts
receivable was $19.7 and $13.6 million, respectively. The joint venture is a
manufacturing and after-market joint venture. The Company recognizes gross
profit relating to certain parts sales and incurs expenses for product
development that are part of the joint venture. The Pre-Merger Company's share
of the joint venture's earnings was $7.2 million, $4.4 million and $4.9 million
in 1997, 1996 and 1995, respectively, which were included in other expense
(income) in the Statements of Consolidated Earnings.
4. RESTRUCTURING CHARGES
During fiscal year 1996, the Pre-Merger Company recorded $25.6 million in
restructuring charges. Included was $20.1 million for closings of distribution
operations and write-down of manufacturing facilities outside the United States.
The North American and European sales and marketing operations were realigned to
more effectively meet market needs.
Accrued liabilities included restructuring charges of $6.0 million and
$18.5 million at September 30, 1997 and 1996, respectively. The remaining
accrual at September 30, 1997, represents amounts primarily for severance
payments and other closure costs of overseas manufacturing companies. The
remaining restructuring reserves are expected to be utilized during the 1998
fiscal year.
F-10
<PAGE> 141
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
5. INVENTORIES
The various components of inventory were as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
COMPANY COMPANY
----------- ----------
1997 1996
SEPTEMBER 30 (DOLLARS IN MILLIONS)
<S> <C> <C>
Finished product..................................... $ 62.1 $ 75.6
Raw material, work in process and service parts...... 114.8 131.2
------ ------
Inventory at current cost which is less than
market.......................................... 176.9 206.8
Excess of current cost over LIFO cost................ -- 41.7
------ ------
Net inventory...................................... $176.9 $165.1
====== ======
</TABLE>
6. PLANT AND EQUIPMENT
Plant and equipment components were as follows:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
COMPANY COMPANY
----------- ----------
1997 1996
SEPTEMBER 30 (DOLLARS IN MILLIONS)
<S> <C> <C>
Land and improvements................................ $ 13.2 $ 21.0
Buildings............................................ 65.0 149.5
Machinery and equipment.............................. 126.1 379.7
Construction in progress............................. 5.9 14.9
------ ------
210.2 565.1
Accumulated depreciation............................. -- 346.2
------ ------
Plant and equipment, net........................... $210.2 $218.9
====== ======
</TABLE>
F-11
<PAGE> 142
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
7. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
COMPANY COMPANY
----------- ----------
1997 1996
SEPTEMBER 30 (DOLLARS IN MILLIONS)
<S> <C> <C>
Accrued liabilities were as follows:
Compensation, pension programs and current
postretirement medical............................. $ 24.2 $ 25.1
Warranty............................................. 24.6 23.3
Marketing program.................................... 32.8 35.3
Restructuring........................................ 6.0 18.5
Accruals for business reorganizations................ 50.9 --
Other................................................ 43.5 49.7
------ ------
Accrued liabilities................................ $182.0 $151.9
====== ======
Other non-current liabilities were as follows:
Accruals for business reorganizations................ $ 86.0 $ --
Pension programs..................................... 17.3 16.8
Environmental remediation............................ 18.4 11.1
Other................................................ 81.0 76.6
------ ------
Accrued non-current liabilities.................... $202.7 $104.5
====== ======
</TABLE>
For both accrued liabilities and other non-current liabilities, accruals
for business reorganizations represent adjustments made in purchase accounting
at September 30, 1997. These adjustments include accruals for rationalization of
the product range, terminations, plant consolidations and closures.
As part of its acquisition by Greenmarine Holdings on September 30, 1997,
the Company developed a business reorganization plan to realign and consolidate
products offered in the marketplace, and to improve existing manufacturing
processes that will enable the company to increase production efficiency and
asset utilization. This business reorganization plan is accounted for above
under the heading "accruals for business reorganizations." The plan includes
closure and consolidation of certain manufacturing facilities located primarily
in the United States. The most significant cost component of the plan is a $64.6
million accrual for severance and employee benefits for production,
administration and support personnel and increased pension and postretirement
costs resulting from curtailments. These costs will be paid out to the
respective employees and charged against the accruals as the terminations occur.
Other expected costs of the business reorganization include product
discontinuance and facility closing costs ($59.7 million) and other contractual
obligations related to the business reorganization plan ($12.6 million). These
costs have been accrued for in compliance with Emerging Issues Task Force (EITF)
Issue 95-3. The Company anticipates substantial completion of its business
reorganization in the calendar year 2001.
F-12
<PAGE> 143
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
8. SHORT-TERM BORROWINGS AND ACCOUNTS RECEIVABLE SALES AGREEMENTS
A summary of short-term borrowing activity was as follows (the balance
outstanding at September 30, 1997 was Post-Merger Company):
<TABLE>
<CAPTION>
1997 1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Outstanding at September 30
Credit agreement......................................... $96.0 $ -- $ --
Bank borrowing........................................... $ -- $ -- $ --
Average bank borrowing for the year
Borrowing................................................ $ 2.9 $ 5.7 $ 55.3
Interest rate............................................ 7.1% 6.6% 7.2%
Maximum month end borrowing.............................. $29.0 $15.0 $100.0
===== ===== ======
</TABLE>
The Company became obligated under a credit agreement, as amended, with AFG
which provides for loans of up to $150 million (the "Acquisition Debt"). Amounts
outstanding under this credit agreement are secured by 20.4 shares of common
stock of the Post-Merger Company and bear interest at 10%. The Acquisition Debt
matures on June 16, 1998. On November 12, 1997, the Company borrowed the
remaining $54.0 million principal amount of Acquisition Debt in connection with
the purchase of all properly tendered 7% convertible subordinated debentures of
Outboard Marine Corporation (see Note 9 to the Consolidated Financial
Statements). Under the Acquisition Debt agreement, the Company is required to
meet certain covenants. The Company is in compliance with these covenants.
The full amount of the Acquisition Debt matures on June 16, 1998. Although
the Company does not currently have the funds to refinance such debt, the
Company and its Parent believe the Company will be able to raise such funds
through the sale of debt or equity in the public or private markets by the
maturity date of the Acquisition Debt.
In addition to the credit agreement, the Company's non-U.S. subsidiaries
had additional uncommitted lines of credit of approximately $0.9 million on
September 30, 1997.
The Company entered into a Financing and Security Agreement effective
November 12, 1997, which provided for loans of up to $50 million. Effective
January 6, 1998, the Company entered into a $150 million Amended and Restated
Loan and Security Agreement which expires December 31, 2000 which replaced the
November 12, 1997 agreement. Under this agreement the Company is required to
meet certain covenants. Any loans outstanding under the January 6, 1998
agreement will be secured by the Company's inventory, receivables and
intellectual property and are guaranteed by certain of the Company's operating
subsidiaries.
In connection with the change of control, the Pre-Merger Company terminated
a previous revolving credit agreement which had provided for loans up to $150
million.
The Pre-Merger Company had a $55 million receivable sales agreement whereby
it agreed to sell an ownership interest in a designated pool of domestic trade
accounts receivable ("Receivables"). These receivable sales agreements were
terminated as of April 30, 1997. During the course of fiscal year 1997, monthly
sales of receivables averaged $7.4 million with maximum sales of $29.0 million
in February 1997. The Pre-Merger Company retained substantially the same credit
risk as if the Receivables had not been sold. The costs associated with the
receivable sales agreements were included in non-operating expense--other, net
in the Statements of Consolidated Earnings for the years ended September 30,
1997 and 1996.
F-13
<PAGE> 144
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
9. LONG-TERM DEBT
Long-term debt on September 30, 1997 and 1996, net of sinking fund
requirements included in current liabilities, consisted of the following:
<TABLE>
<CAPTION>
POST-MERGER PRE-MERGER
COMPANY COMPANY
----------- ----------
1997 1996
SEPTEMBER 30 (DOLLARS IN MILLIONS)
<S> <C> <C>
7% convertible subordinated debentures due 2002...... $ 74.8 $ 74.8
9 1/8% sinking fund debentures due through 2017...... 62.6 64.8
Medium-term notes due 1998 through 2001 with rates
ranging from 8.16% to 8.625%....................... 26.2 24.8
Industrial revenue bonds and other debt with rates
ranging from 6.0% to 12.037%....................... 13.1 13.4
------ ------
$176.7 $177.8
Less current maturities.............................. (72.9) (0.2)
------ ------
$103.8 $177.6
====== ======
</TABLE>
On September 30, 1997, the Company held $34.8 million of its 9 1/8% sinking
fund debentures, which will be used to meet sinking fund requirements of $5.0
million per year in the years 1998 through 2004. Amounts are recorded as a
reduction of outstanding debt.
Due to the change of control and the merger with Greenmarine, the Company
was required to offer to purchase its 7% convertible subordinated debentures due
2002. Debentures tendered and repurchased on November 12, 1997 totaled $67.7
million leaving $7.1 million outstanding and a continuing obligation of the
Company. Accordingly, $67.7 million was reflected in current maturities.
The agreements covering both long and short-term debt instruments have
restrictive financial covenants. At September 30, 1997, the Company was in
compliance with these financial covenants.
Maturities and sinking fund requirements of long-term debt for each of the
next five years are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C>
1998....................................... $72.9
1999....................................... $11.2
2000....................................... $ 7.0
2001....................................... $ 6.3
2002....................................... $ 8.4
</TABLE>
10. FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, receivables, accounts
payable, and current maturities of long-term debt approximate fair values due to
the short term nature of these instruments. The fair value of the long-term debt
was $103.8 million and $171.7 million at September 30, 1997 and 1996,
respectively, versus carrying amounts of $103.8 and $177.6 million at September
30, 1997 and 1996, respectively. The fair value of long-term debt was based on
quoted market prices where available or discounted cash flows using market rates
available for similar debt of the same remaining maturities.
The Company uses various financial instruments to manage interest rate,
foreign currency, and commodity pricing exposures. The agreements are with major
financial institutions which are expected to fully perform under the terms of
the instruments, thereby mitigating the credit risk from the transactions. The
Company does not hold or issue financial instruments for trading purposes. The
notional amounts of these
F-14
<PAGE> 145
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
contracts do not represent amounts exchanged by the parties and, thus, are not a
measure of the Company's risk. The net amounts exchanged are calculated on the
basis of the notional amounts and other terms of the contracts, such as interest
rates or exchange rates, and only represent a small portion of the notional
amounts.
The Pre-Merger Company had entered into several interest rate swap
agreements as a means of managing its proportion of fixed to variable interest
rate exposure. The differential to be paid or received is accrued consistent
with the terms of the agreements and market interest rates and is recognized in
net earnings as an adjustment to interest expense. At September 30, 1996, the
Pre-Merger Company had outstanding fixed to floating interest rate swap
agreements having a total notional principal amount of $100 million expiring
November 25, 1996. Also at September 30, 1997 and 1996, the Company had an
outstanding floating to fixed interest rate swap agreement having a total
notional principal amount of $5 million expiring February 15, 1999. The fair
value of the interest rate swap agreements at September 30, 1997 and 1996 was an
estimated termination liability of $0.3 and $0.5 million, respectively. This
potential expense at each fiscal year end had not yet been reflected in net
earnings as it represents the hedging of long-term activities to be amortized in
future reporting periods. The fair value was the estimated amount the Company
would have paid to terminate the swap agreements.
The Company purchases currency options to hedge particular anticipated but
not yet committed sales expected to be denominated in such currencies. The
Company amortizes the cost of the options over the term of the instruments which
is generally six to eighteen months. The recognition of gains or losses on these
instruments is accrued as foreign exchange rates change and is recognized in net
earnings as an adjustment to cost of goods sold. At September 30, 1997, the
Company had Belgian franc put options for $32.1 million with a market value of
$4.3 million and a French franc put option for $10 million with a market value
of $1.0 million, both of which settled October 2, 1997. This potential income
had been reflected in net earnings as cost of goods sold at September 30, 1997,
as it represented a hedge of fiscal 1997 activities. The fair values were
obtained from major financial institutions based upon the market values as of
September 30, 1997.
The Company purchases commodity options to hedge anticipated purchases of
aluminum. The Company amortizes the cost of the options over the term of the
instruments. Gains and losses on open hedging transactions are deferred until
the options are exercised. Upon exercise, gains and losses are included in
inventories as a cost of the commodities and reflected in net earnings when the
product is sold. At September 30, 1997, the Company had options covering
approximately 25% of annual forecasted aluminum purchases. The fair market value
of these options was $0.3 million at September 30, 1997. The fair market value
was obtained from a major financial institution based upon the market value of
those options at September 30, 1997.
11. PREFERRED STOCK AND SHAREHOLDER RIGHTS PLAN
Due to the change of control and the merger with Greenmarine, all rights
existing under the shareholder rights plan adopted by the Pre-Merger Company on
April 24, 1996 expired on September 30, 1997.
In addition, as a result of the merger, all of the Pre-Merger Company's
preferred stock, including those reserved for issuance under the shareholder
rights plan, were cancelled.
12. COMMON STOCK
On September 30, 1997, all of the old outstanding common stock was
cancelled and 20.4 million shares of new common stock were issued.
In 1992, the Pre-Merger Company issued $74.75 million, principal amount, of
7% subordinated convertible debentures. The debentures were convertible into
3,359,550 shares of the Pre-Merger Company's common stock (which were reserved)
at a conversion price of $22.25 per share. Due to the change of control and the
merger with Greenmarine, each holder of debentures had the right, at such
holder's option, to require
F-15
<PAGE> 146
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
the Company to repurchase all or a portion of such holder's debentures at the
purchase price by November 12, 1997. As a result of the offer to purchase, all
but $7.1 million of the principal amount was tendered to, and purchased by, the
Company.
Due to the merger with Greenmarine, all stock options, stock appreciation
rights and restricted stock granted under the OMC Executive Equity Incentive
Plan and the OMC 1994 Long-Term Incentive Plan were fully vested and payable in
accordance with the terms of the Plans or as provided in the terms of the
grants, as amended. In the case of stock options, participants in the plans were
entitled to receive in cash the difference, if any, between the purchase price
of $18.00 per share (or limited stock appreciation rights at $19.50 per share as
computed for officers) and the stock option purchase price. All amounts with
respect to the above plans have been expensed and included in change of control
expenses.
With regard to restricted stock granted under either of the plans,
participants were entitled to receive the cash value of the grants based on
$18.00 per share or as may have otherwise been agreed to between the participant
and the Pre-Merger Company.
The Pre-Merger Company adopted the disclosure-only provision under
Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," as of September 30, 1997, while continuing to measure
compensation cost under APB Opinion No. 25, "Accounting for Stock Issued to
Employees." If the accounting provisions of SFAS 123 had been adopted as of the
beginning of 1996, the effect on net earnings for 1997 and 1996 would have been
immaterial.
A summary of option data for all plans was as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION EXERCISE
OPTION SHARES PRICE PER SHARE
------------- ----------------
<S> <C> <C>
Options outstanding and unexercised at September 30,
1994................................................ 1,112,220 $ 10.00 - 24.625
Options granted..................................... 153,200 $20.875 - 29.225
Options exercised................................... (41,715) $ 10.00 - 21.375
Options cancelled................................... (40,460) $ 18.50 - 24.625
---------
Options outstanding and unexercised at September 30,
1995................................................ 1,183,245 $ 10.00 - 29.225
Options granted..................................... 233,500 $ 16.00 - 20.00
Options exercised................................... (36,730) $ 10.00 - 19.375
Options cancelled................................... (102,415) $ 10.00 - 24.625
---------
Options outstanding and unexercised at September 30,
1996................................................ 1,277,600 $ 10.00 - 29.225
Options granted..................................... 223,700 $ 16.375
Options exercised................................... (526,620) $ 10.00 - 19.375
Options cancelled................................... (974,680) $16.375 - 29.225
---------
Options outstanding and unexercised at September 30,
1997*............................................... --
---------
Exercisable at September 30, 1997..................... --
---------
</TABLE>
- ------------------------------
* Due to the merger with Greenmarine, all options outstanding were paid out in
cash and cancelled at September 30, 1997.
13. RETIREMENT BENEFIT AND INCENTIVE COMPENSATION PROGRAMS
The Company and its subsidiaries have retirement benefit plans covering a
majority of its employees. Worldwide pension calculations resulted in expense
(income) of $2.4 million, $0.3 million and $(0.5) million in 1997, 1996 and
1995, respectively.
F-16
<PAGE> 147
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following schedule of pension expense (income) presents amounts
relating to the Company's material pension plans, United States and Canada (all
years presented were Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
--------------------------
1997 1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Benefits earned during the period........................ $ 6.6 $ 6.2 $ 5.4
Interest cost on projected benefit obligation............ 28.5 25.4 24.2
Return on pension assets................................. (88.5) (46.5) (66.0)
Net amortization and deferral............................ 54.3 15.7 34.3
------ ------ ------
Net periodic pension expense (income).......... $ .9 $ .8 $ (2.1)
====== ====== ======
</TABLE>
Actuarial assumptions used for the Company's principal defined benefit
plans (1997 was Post-Merger Company):
<TABLE>
<CAPTION>
SEPTEMBER 30
--------------------
1997 1996 1995
<S> <C> <C> <C>
Discount rates.............................................. 7 1/2% 8% 7 3/4%
Rate of increase in compensation levels (salaried employee
plans).................................................... 5% 5% 5%
Expected long-term rate of return on assets................. 9 1/2% 9 1/2% 9 1/2%
</TABLE>
The funded status and pension liability were as follows (1997 was
Post-Merger Company):
<TABLE>
<CAPTION>
PLANS WHOSE
PLANS WHOSE ACCUMULATED
ASSETS EXCEED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------
SEPTEMBER 30
--------------------------------------
1997 1996 1997 1996
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation
Vested.......................................... $331.0 $298.5 $15.2 $14.0
Nonvested....................................... 27.7 32.8 1.0 1.2
------ ------ ----- -----
Accumulated benefit obligation............... 358.7 331.3 16.2 15.2
Effect of projected future compensation
increases....................................... 22.1 21.3 1.2 1.3
------ ------ ----- -----
Projected benefit obligation................. 380.8 352.6 17.4 16.5
Plan assets at fair market value.................. 455.2 387.2 -- --
------ ------ ----- -----
Plan assets (in excess of) less than projected
benefit obligation.............................. (74.4) (34.6) 17.4 16.5
Unrecognized net loss............................. -- (16.8) -- (4.4)
Prior service cost not yet recognized in net
periodic pension expense........................ -- (15.7) -- (.7)
Remaining unrecognized net asset (obligation)
arising from the initial application of SFAS No.
87.............................................. -- 17.0 -- (.5)
Adjustment required to recognize minimum
liability....................................... -- -- -- 4.3
------ ------ ----- -----
Pension liability (asset) recognized......... $(74.4) $(50.1) $17.4 $15.2
====== ====== ===== =====
</TABLE>
The provisions of SFAS No. 87, "Employers' Accounting for Pensions",
require the recognition of an additional minimum liability for each defined
benefit plan for which the accumulated benefit obligation exceeds plan assets.
This amount has been recorded as a long-term liability with an offsetting
intangible asset. Because the asset recognized may not exceed the amount of
unrecognized prior service cost and transition obligation on an individual plan
basis, the balance of $3.5 million is reported as a separate reduction of
F-17
<PAGE> 148
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
shareholders' investment at September 30, 1997 prior to the merger with
Greenmarine. At September 30, 1997 in accordance with purchase accounting, plan
assets in excess of or less than the projected benefit obligation have been
recorded.
The Company's major defined benefit plans had provided that upon a change
of control of the Company and upon certain other actions by the acquirer, all
participants of these plans would become vested in any excess of plan assets
over total accumulated benefit obligations. Pursuant to the terms of the plan,
this provision was deleted to avoid being triggered by the change of control
which took place September 12, 1997.
The Company provides certain health care and life insurance benefits for
eligible retired employees, primarily employees of the Milwaukee, Wisconsin;
Waukegan, Illinois; and former Galesburg, Illinois plants as well as Marine
Power Products and the Corporate office. Employees at these locations become
eligible if they have fulfilled specific age and service requirements. These
benefits are subject to deductible, co-payment provisions and other limitations,
which are amended periodically. The Company reserves the right to make
additional changes or terminate these benefits in the future.
On January 1, 1994, and to be effective in 1998, the Pre-Merger Company
introduced a cap for the employer-paid portion of medical costs for non-union
active employees. The cap is tied to the Consumer Price Index.
The net cost of providing postretirement health care and life insurance
benefits included the following components (all years presented were Pre-Merger
Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
--------------------------
1997 1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits attributed to service during the
period.................................................... $ 1.1 $ 1.0 $ 1.0
Interest cost on accumulated postretirement benefit
obligation................................................ 7.3 6.4 6.9
Amortization of prior service cost and actuarial gain....... (1.8) (1.9) (1.8)
----- ----- -----
Net periodic postretirement benefit cost.......... $ 6.6 $ 5.5 $ 6.1
===== ===== =====
</TABLE>
The amounts recognized in the Statements of Consolidated Financial Position
included (1997 was Post-Merger Company):
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------
1997 1996
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees.................................................. $ 65.3 $ 64.5
Fully eligible active plan participants................... 13.3 11.5
Other active plan participants............................ 24.2 19.3
Prior service credit...................................... -- 10.7
Unrecognized net gain..................................... -- 0.7
------ ------
Net obligation.................................... $102.8 $106.7
====== ======
</TABLE>
The accumulated postretirement benefit obligation was determined using a
7 1/2% and 8% weighted average discount rate at September 30, 1997 and 1996,
respectively. The health care cost trend rate was assumed to be 8% in fiscal
year 1997, declining to 7% next year and remaining constant thereafter. In
fiscal year 1996, the health care cost trend rate was assumed to be 9%,
gradually declining to 7% over two years and remaining constant thereafter. A
one percentage point increase of this annual trend rate would increase the
accumulated postretirement benefit obligation at September 30, 1997 by
approximately $7.0 million and the net periodic cost by $0.6 million for the
year.
F-18
<PAGE> 149
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Under the OMC Executive Bonus Plan, the compensation committee of the board
of directors, which administers the plan and whose members are not participants
in the plan, had authority to determine the extent to which the Pre-Merger
Company meets, for any fiscal year, the performance targets for that fiscal year
which are set by the committee no later than the third month of the fiscal year.
In fiscal 1997, no incentive compensation was paid or provided under this plan.
In fiscal years 1996 and 1995, $0.8 million and $5.1 million, respectively, was
charged to earnings under this plan.
The 1994 OMC Long-Term Incentive Plan and its predecessor plan authorized
the awarding of performance units or performance shares, each with a value equal
to the value of a share of common stock at the time of award. Performance shares
for the three year cycle ended September 30, 1997 will be earned and paid based
upon the judgment of the compensation committee of the Company's board of
directors whose members are not participants in the plan, as to the achievement
of various goals over multi-year award cycles. In 1997, 1996 and 1995,
respectively, $(0.2) million, $(0.4) million and $1.1 million were charged
(credited) to earnings for the estimated cost of performance units earned under
the plan.
14. OTHER EXPENSE (INCOME), NET
Other non-operating expense (income) in the Statements of Consolidated
Earnings consisted of the following items (all years presented were Pre-Merger
Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------
1997 1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Expense (Income)
Interest earned......................................... $ (4.5) $(4.1) $ (7.0)
Insurance recovery and lawsuit settlement............... (10.7) -- --
Foreign exchange losses (gains)......................... 1.0 -- (0.6)
(Gain) loss on disposition of plant and equipment....... (5.8) 0.9 (1.8)
Joint venture earnings.................................. (7.2) (4.4) (4.9)
Discount charges--
Accounts receivable sales............................ 0.6 1.7 --
Miscellaneous, net...................................... (2.6) (2.6) (2.4)
------ ----- ------
$(29.2) $(8.5) $(16.7)
====== ===== ======
</TABLE>
15. INCOME TAXES
The provision for income taxes consisted of the following components (all
years presented were Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------
1997 1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Provision for current income taxes
Federal................................................. $(36.7) $(5.6) $ 19.8
State................................................... (2.3) -- 3.7
Non-U.S................................................. 2.8 2.5 10.6
------ ----- ------
Total current........................................ (36.2) (3.1) 34.1
Changes to valuation allowance............................ 39.0 -- (24.7)
------ ----- ------
Total provision................................. $ 2.8 $(3.1) $ 9.4
====== ===== ======
</TABLE>
F-19
<PAGE> 150
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The significant short-term and long-term deferred tax assets and
liabilities were as follows (1997 was Post-Merger Company):
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------
1997 1996
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Litigation and claims..................................... $ 18.4 $ 16.9
Product warranty.......................................... 14.6 10.7
Marketing programs........................................ 13.7 15.3
Postretirement medical benefits........................... 41.2 42.7
Restructuring............................................. 7.3 7.6
Loss carryforwards........................................ 55.0 29.6
Net accruals for business reorganizations................. 13.6 --
Other..................................................... 50.5 46.5
Valuation allowance....................................... (131.8) (92.8)
------- ------
Total deferred tax assets.............................. $ 82.5 $ 76.5
------- ------
Deferred tax liabilities
Depreciation and amortization............................. $ (13.9) $(12.4)
Employee benefits......................................... (12.8) (14.0)
Other..................................................... (15.7) (12.3)
------- ------
Total deferred tax liabilities......................... (42.4) (38.7)
------- ------
Net deferred tax assets........................... $ 40.1 $ 37.8
======= ======
</TABLE>
The Company believes the recorded net deferred tax assets of $40.1 million,
of which $21.1 million is reflected as a net long-term asset, will be realized.
A valuation allowance of $131.8 million has been recorded at September 30, 1997,
to reduce the deferred tax assets to their estimated net realizable value. Of
this valuation allowance, $20.7 million relates to deferred tax assets
established for foreign and state loss carryforwards.
As of September 30, 1997, certain non-U.S. subsidiaries of the Company had
net operating loss carryforwards for income tax purposes of $34.8 million. Of
this amount, $4.0 million will expire by 2002, with the remaining balance being
unlimited. In addition, the Company has $103.2 million of Federal net operating
loss carryforwards expiring between 2009 and 2012 and $133.8 million of state
net operating loss carryforwards expiring between 1998 and 2012. These
carryforwards are entirely offset by the valuation allowance. No benefit has
been recognized in the Consolidated Financial Statements.
Several factors would generally enable the Company to recognize the
deferred tax assets that have been offset by the valuation allowance. Historical
profitability, forecasted earnings, and management's determination "it is more
likely than not" the deferred tax assets will be realized against forecasted
earnings, all affect whether the remaining U.S. deferred tax assets may be
recognized, through a reversal of the valuation allowance. Because the deferred
tax asset realization factors were adversely affected by the 1997 fiscal year
results, it is unlikely the reversal of the valuation allowance will occur in
1998.
F-20
<PAGE> 151
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
The following summarizes the major differences between the actual provision
for income taxes on earnings (losses) and the provision (credit) based on the
statutory United States Federal income tax rate (all years presented were
Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
--------------------------
1997 1996 1995
(% TO PRETAX EARNINGS)
<S> <C> <C> <C>
At statutory rate........................................... (35.0)% (35.0)% 35.0%
State income taxes, net of Federal tax deduction............ (3.0) (0.2) 4.0
Tax effect of non-U.S. subsidiary earnings (loss) taxed at
other than the U.S. rate.................................. 0.1 11.4 9.6
Tax benefit not provided on domestic and foreign operating
losses.................................................... 41.8 20.6 1.2
Tax effect of goodwill amortization and write-offs.......... 0.4 3.3 8.7
Reversal of valuation allowance............................. -- -- (44.8)
Federal tax effect prior year's state income taxes paid..... (0.2) 13.6 --
Tax effects of audit settlements............................ -- (50.5) --
Other....................................................... (0.5) 7.0 1.7
----- ----- -----
Actual provision.......................................... N.M.% N.M.% 15.4%
===== ===== =====
</TABLE>
Domestic and non-U.S. earnings before provision (credit) for income taxes
consisted of the following (all years presented were Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
-------------------------
1997 1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Earnings (loss) before provision for income taxes
United States........................................... $(68.7) $ (8.1) $46.8
Non-U.S................................................. (7.6) (2.3) 14.0
------ ------ -----
Total........................................... $(76.3) $(10.4) $60.8
====== ====== =====
</TABLE>
The above non-U.S. loss of $(7.6) million is a net amount that includes
both earnings and losses. Due to the integrated nature of the Company's
operations, any attempt to interpret the above pretax earnings (loss) as
resulting from stand-alone operations could be misleading.
No U.S. deferred taxes have been provided on $84.0 million of undistributed
non-U.S. subsidiary earnings. The Company has no plans to repatriate these
earnings and, as such, they are considered to be permanently invested. While no
detailed calculations have been made of the potential U.S. income tax liability
should such repatriation occur, the Company believes that it would not be
material in relation to the Company's Consolidated Financial Position or
Consolidated Earnings.
16. GEOGRAPHIC BUSINESS DATA
The Company, which operates in a single business segment, manufactures and
distributes marine engines, boats, parts and accessories. The Company markets
its products primarily through dealers in the United States, Europe and Canada,
and through distributors in the rest of the world.
F-21
<PAGE> 152
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Information by geographic area was as follows (all years presented were
Pre-Merger Company, except total assets in 1997 were Post-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30
--------------------------------
1997 1996 1995
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales
United States...................................... $ 721.0 $ 813.3 $ 906.8
Europe............................................. 90.9 114.8 117.1
Other.............................................. 167.6 193.4 205.3
-------- -------- --------
Total........................................... $ 979.5 $1,121.5 $1,229.2
======== ======== ========
Sales between geographic areas from
United States...................................... $ 152.2 $ 144.4 $ 179.7
Europe............................................. 2.1 7.4 7.9
Other.............................................. 47.0 45.6 58.0
-------- -------- --------
Total........................................... $ 201.3 $ 197.4 $ 245.6
======== ======== ========
Total revenue
United States...................................... $ 873.2 $ 957.7 $1,086.5
Europe............................................. 93.0 122.2 125.0
Other.............................................. 214.6 239.0 263.3
Eliminations....................................... (201.3) (197.4) (245.6)
-------- -------- --------
Total........................................... $ 979.5 $1,121.5 $1,229.2
======== ======== ========
Earnings (loss) from operations
United States...................................... $ (36.3) $ 5.1 $ 55.1
Europe............................................. (9.1) (8.2) (3.2)
Other.............................................. (7.4) 6.0 30.1
Corporate expenses................................. (9.6) (9.5) (14.8)
-------- -------- --------
Total........................................... $ (62.4) $ (6.6) $ 67.2
======== ======== ========
Total assets at September 30
United States...................................... $ 969.6 $ 593.6 $ 612.2
Europe............................................. 53.2 76.8 102.9
Other.............................................. 124.5 134.8 145.6
Corporate assets................................... 31.7 68.5 46.3
-------- -------- --------
Total........................................... $1,179.0 $ 873.7 $ 907.0
======== ======== ========
</TABLE>
Corporate assets consist of cash, securities and property. Due to the
integrated nature of the Company's operations, any attempt to interpret the
above geographic area data as resulting from unique or stand-alone types of
operations could be misleading.
F-22
<PAGE> 153
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
17. QUARTERLY INFORMATION (UNAUDITED)
A summary of pertinent quarterly data for the 1997 and 1996 fiscal years
was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE)
<S> <C> <C> <C> <C>
Fiscal 1997
Net sales............................................. $197.1 $237.0 $275.8 $269.6
Gross earnings........................................ 22.7 36.5 54.8 39.0
Net earnings (loss)................................... (14.3) (7.3) (5.1) (52.4)
------ ------ ------ ------
Net earnings (loss) per share:
Primary............................................ $(0.71) $(0.36) $(0.25) $(2.58)
------ ------ ------ ------
Fully diluted...................................... $(0.71) $(0.36) $(0.25) $(2.58)
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
DEC. 31 MAR. 31 JUNE 30 SEPT. 30
<S> <C> <C> <C> <C>
Fiscal 1996*
Net sales............................................. $232.1 $285.5 $291.0 $312.9
Gross earnings........................................ 39.4 61.3 59.6 69.0
Net earnings (loss)................................... (12.4) 1.1 (3.6) 7.6
------ ------ ------ ------
Net earnings (loss) per share:
Primary............................................ $(0.62) $ 0.05 $(0.18) $ 0.38
------ ------ ------ ------
Fully diluted...................................... $(0.62) $ 0.05 $(0.18) $ 0.36
------ ------ ------ ------
</TABLE>
- ------------------------------
- - Includes restructuring charges of $11.9 million in the 3rd quarter and $13.7
million in the 4th quarter.
Earnings per share amounts for each quarter are required to be computed
independently and, therefore, may not equal the amount computed for the total
year.
Due to the seasonal nature of the Company's business, it is not appropriate
to compare the results of operations of different fiscal quarters.
The price range at which the Pre-Merger Company's common stock traded on
the New York Stock Exchange and the dividends declared per share during the last
eight fiscal quarters were as follows:
<TABLE>
<CAPTION>
MARKET PRICE
--------------------------- DIVIDEND
QUARTER ENDED HIGH LOW CLOSING DECLARED
<S> <C> <C> <C> <C>
September 30, 1997............................. $18.00 $16.50 $18.00 $ --
June 30, 1997.................................. 18.13 14.00 17.75 --
March 31, 1997................................. 17.88 12.00 12.63 .10
December 31, 1996.............................. 17.50 14.88 16.50 .10
September 30, 1996............................. 18.50 14.38 15.38 .10
June 30, 1996.................................. 20.25 18.13 18.13 .10
March 31, 1996................................. 21.88 18.88 19.13 .10
December 31, 1995.............................. 22.38 19.75 20.38 .10
</TABLE>
Old shares of common stock were cancelled September 30, 1997 and new shares
were issued which are not publicly traded.
18. COMMITMENTS AND CONTINGENT LIABILITIES
As a normal business practice, the Company has made arrangements with
financial institutions by which qualified retail dealers may obtain inventory
financing. Under these arrangements, the Company will
F-23
<PAGE> 154
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
repurchase its products in the event of repossession upon a retail dealer's
default. These arrangements contain provisions which limit the Company's
repurchase obligation to $40 million per model year for a period not to exceed
30 months from the date of invoice. The Company resells any repurchased
products. Losses incurred under this program have not been material. The Company
accrues for losses which are anticipated in connection with expected
repurchases.
Minimum commitments under operating leases having initial or remaining
terms greater than one year are $8.2 million, $6.2 million, $4.3 million, $2.2
million, $1.4 million and $4.0 million for the years ending September 30, 1998,
1999, 2000, 2001, 2002 and after 2002, respectively.
The Company is engaged in a substantial number of legal proceedings arising
in the ordinary course of business. While the result of these proceedings, as
well as those discussed below, cannot be predicted with any certainty, based
upon the information presently available, management is of the opinion that the
final outcome of all such proceedings should not have a material effect upon the
Company's Consolidated Financial Position or the Consolidated Earnings of the
Company.
Under the requirements of Superfund and certain other laws, the Company is
potentially liable for the cost of clean-up at various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. The Company has been notified that it is named a potentially
responsible party ("PRP") at various sites for study and clean-up costs. In some
cases there are several named PRPs and in others there are hundreds. The Company
generally participates in the investigation or clean-up of these sites through
cost sharing agreements with terms which vary from site to site. Costs are
typically allocated based upon the volume and nature of the materials sent to
the site. However, under Superfund, and certain other laws, as a PRP the Company
can be held jointly and severally liable for all environmental costs associated
with a site.
Once the Company becomes aware of its potential liability at a particular
site, it uses its experience to determine if it is probable that a liability has
been incurred and whether or not the amount of the loss can be reasonably
estimated. Once the Company has sufficient information necessary to support a
reasonable estimate or range of loss for a particular site, an amount is added
to the Company's aggregate environmental contingent liability accrual. The
amount added to the accrual for the particular site is determined by analyzing
the site as a whole and reviewing the probable outcome for the remediation of
the site. This is not necessarily the minimum or maximum liability at the site
but, based upon the Company's experience, most accurately reflects the Company's
liability based on the information currently available. The Company takes into
account the number of other participants involved in the site, their experience
in the remediation of sites and the Company's knowledge of their ability to pay.
In October 1996, the AICPA issued Statement of Position 96-1 (SOP 96-1),
"Environmental Remediation Liabilities", which provides authoritative guidance
on the recognition, measurement, display and disclosure of environmental
remediation liabilities. The Company has elected early adoption of SOP 96-1 in
the quarter ended September 30, 1997. The change in accounting estimate required
the Company to accrue for future normal operating and maintenance costs for site
monitoring and compliance requirements at particular sites. The initial expense
for implementation of SOP 96-1 was $7.0 million, charged to selling, general and
administrative expense in the quarter ended September 30, 1997.
As a general rule, the Company accrues remediation costs for continuing
operations on an undiscounted basis and accrues for normal operating and
maintenance costs for site monitoring and compliance requirements. The Company
also accrues for environmental close-down costs associated with discontinued
operations or facilities, including the environmental costs of operation and
maintenance until disposition. At September 30, 1997, the Company has accrued
approximately $23 million for costs related to remediation at contaminated sites
including operation and maintenance for continuing and closed-down operations.
The
F-24
<PAGE> 155
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
possible recovery of insurance proceeds has not been considered in estimating
contingent environmental liabilities.
Each site, whether or not remediation studies have commenced, is reviewed
on a quarterly basis and the aggregate environmental contingent liability
accrual is adjusted accordingly. Because the sites are reviewed and the accrual
adjusted quarterly, the Company is confident the accrual accurately reflects the
Company's liability based upon the information available at the time.
19. PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(UNAUDITED)
The following unaudited pro forma Condensed Statements of Consolidated
Earnings (the "Pro Forma Statements") were prepared to illustrate the estimated
effects of the merger with Greenmarine Acquisition Corp. as if the transaction
had occurred for statements of consolidated earnings purposes as of the
beginning of the period presented.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. The Pro Forma
Statements do not purport to represent what the Company's results of operations
would actually have been if such transactions in fact had occurred at the
beginning of the period indicated or to project the Company's results of
operation for any future period.
The Pro Forma Statements include adjustments, with respect to the merger,
to reflect additional interest expense and depreciation expense, amortization of
goodwill, and elimination of non-recurring fees and expenses incurred by the
Pre-Merger Company in 1997 in connection with the merger.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30
--------------------
1997 1996
(UNAUDITED)
(DOLLARS IN
MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Net sales................................................... $979.5 $1,121.5
Cost of goods sold.......................................... 825.1 890.8
------ --------
Gross earnings............................................ 154.4 230.7
Selling, general and administrative expense................. 222.8 217.5
Restructuring charges....................................... -- 25.6
------ --------
Earnings (loss) from operations........................... (68.4) (12.4)
Interest expense............................................ 28.4 24.3
Other (income) expense, net................................. (29.2) (8.5)
------ --------
Loss before provision for income taxes.................... (67.6) (28.2)
Provision (credit) for income taxes......................... 2.8 (3.1)
------ --------
Net loss.................................................. $(70.4) $ (25.1)
====== ========
Net loss per share of common stock (primary and fully
diluted).................................................. $(3.45) $ (1.23)
====== ========
Shares outstanding.......................................... 20.4 20.4
====== ========
</TABLE>
20. SUBSIDIARY GUARANTOR INFORMATION
The Company issued $160,000,000 10 3/4% Senior Notes due 2008 ("Notes") on
May 21, 1998. The Company's payment obligations under the Notes are to be
guaranteed by certain of the Company's wholly-owned subsidiaries ("Guarantor
Subsidiaries"). Such guarantees are full, unconditional, unsecured and
unsubordinated on a joint and several basis by each of the Guarantor
Subsidiaries. As of and through June 1, 1998, the Guarantor Subsidiaries were
wholly-owned, but not the only wholly-owned, subsidiaries of the
F-25
<PAGE> 156
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
Company. Separate financial statements of the Guarantor Subsidiaries are not
presented because management of the Company has determined that they are not
material to investors.
The following condensed consolidating financial data illustrates the
composition of the Company ("Parent Company"), the Guarantor Subsidiaries and
the Company's non-guarantor subsidiaries ("Other Subsidiaries"). Investments in
subsidiaries are accounted for by the Company under the equity method of
accounting for purposes of the supplemental consolidating presentation. Earnings
of subsidiaries are, therefore, reflected in the Company's investment accounts
and earnings. The Company has not allocated goodwill to the Guarantor
Subsidiaries or the other subsidiaries in association with the acquisition by
and merger with Greenmarine.
F-26
<PAGE> 157
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
YEAR ENDED SEPTEMBER 30, 1997
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $607.2 $439.0 $255.4 $(322.1) $979.5
Cost of goods sold....................... 518.8 423.6 203.0 (318.9) 826.5
------ ------ ------ ------- ------
Gross earnings......................... 88.4 15.4 52.4 (3.2) 153.0
Selling, general and administrative
expense................................ 103.1 66.0 46.3 -- 215.4
Change in control
expenses--compensation................. 11.8 -- -- -- 11.8
------ ------ ------ ------- ------
Earnings (loss) from operations........ (26.5) (50.6) 6.1 (3.2) (74.2)
Non-operating expense (income)........... 10.0 0.1 (8.0) -- 2.1
Equity earnings (loss)--subsidiaries..... (39.4) -- -- 39.4 --
------ ------ ------ ------- ------
Earnings (loss) before provision for
income taxes........................ (75.9) (50.7) 14.1 36.2 (76.3)
Provision for income taxes............... -- -- 2.8 -- 2.8
------ ------ ------ ------- ------
Net earnings (loss)............ $(75.9) $(50.7) $ 11.3 $ 36.2 $(79.1)
====== ====== ====== ======= ======
</TABLE>
F-27
<PAGE> 158
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
YEAR ENDED SEPTEMBER 30, 1996
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $650.9 $488.0 $308.5 $(325.9) $1,121.5
Cost of goods sold....................... 552.1 433.1 235.8 (328.8) 892.2
------ ------ ------ ------- --------
Gross earnings......................... 98.8 54.9 72.7 2.9 229.3
Selling, general and administrative
expense................................ 92.8 62.6 54.9 -- 210.3
Restructuring charges.................... 9.0 0.4 16.2 -- 25.6
------ ------ ------ ------- --------
Earnings (loss) from operations........ (3.0) (8.1) 1.6 2.9 (6.6)
Non-operating expense (income)........... -- 3.3 0.5 -- 3.8
Equity earnings (loss)-- subsidiaries.... (12.5) -- -- 12.5 --
------ ------ ------ ------- --------
Earnings (loss) before provision for
income taxes........................ (15.5) (11.4) 1.1 15.4 (10.4)
Provision (credit) for income taxes...... (5.3) -- 2.2 -- (3.1)
------ ------ ------ ------- --------
Net earnings (loss)............ $(10.2) $(11.4) $ (1.1) $ 15.4 $ (7.3)
====== ====== ====== ======= ========
</TABLE>
F-28
<PAGE> 159
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
YEAR ENDED SEPTEMBER 30, 1995
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales................................ $770.6 $521.4 $331.0 $(393.8) $1,229.2
Cost of goods sold....................... 606.9 456.5 258.2 (389.8) 931.8
------ ------ ------ ------- --------
Gross earnings......................... 163.7 64.9 72.8 (4.0) 297.4
Selling, general and administrative
expense................................ 106.0 64.0 60.2 -- 230.2
------ ------ ------ ------- --------
Earnings (loss) from operations........ 57.7 0.9 12.6 (4.0) 67.2
Non-operating expense (income)........... 5.1 2.9 (1.6) -- 6.4
Equity earnings (loss) -- subsidiaries... 2.3 -- -- (2.3) --
------ ------ ------ ------- --------
Earnings (loss) before provision for
income taxes........................ 54.9 (2.0) 14.2 (6.3) 60.8
Provision (credit) for income taxes...... (0.5) -- 9.9 -- 9.4
------ ------ ------ ------- --------
Net earnings (loss)............ $ 55.4 $ (2.0) $ 4.3 $ (6.3) $ 51.4
====== ====== ====== ======= ========
</TABLE>
F-29
<PAGE> 160
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
SEPTEMBER 30, 1997
POST-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... $ 27.3 $ 0.5 $ 26.6 $ -- $ 54.4
Receivables....................... 75.3 38.1 39.8 -- 153.2
Intercompany receivables
(payables)..................... 3.6 (17.5) 13.9 -- --
Inventories....................... 76.2 66.1 42.2 (7.6) 176.9
Other current assets.............. 72.8 4.8 5.0 3.9 86.5
-------- ------ ------ ------- --------
Total Current Assets...... 255.2 92.0 127.5 (3.7) 471.0
Product tooling, net................ 30.7 2.2 1.3 -- 34.2
Intangibles......................... 327.2 -- 6.9 -- 334.1
Pension and other assets............ 117.2 0.4 12.9 (1.0) 129.5
Property, plant and equipment,
net............................... 160.2 24.5 25.5 -- 210.2
Intercompany notes, net............. 85.6 -- (85.6) -- --
Investment in subsidiaries.......... 121.6 -- -- (121.6) --
-------- ------ ------ ------- --------
Total Assets.............. $1,097.7 $119.1 $ 88.5 $(126.3) $1,179.0
======== ====== ====== ======= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Loan payable...................... $ 96.0 $ -- $ -- $ -- $ 96.0
Accounts payable.................. 116.6 16.8 8.6 -- 142.0
Accrued and other................. 145.4 24.7 17.0 1.5 188.6
Current maturities and sinking
fund requirements of long-term
debt........................... 72.7 -- 0.2 -- 72.9
-------- ------ ------ ------- --------
Total Current
Liabilities............. 430.7 41.5 25.8 1.5 499.5
Long-term debt...................... 101.2 -- 2.6 -- 103.8
Other non-current liabilities....... 282.6 8.0 8.1 -- 298.7
Shareholders' Investment............ 283.2 69.6 52.0 (127.8) 277.0
-------- ------ ------ ------- --------
Total Liabilities and
Shareholders'
Investment.............. $1,097.7 $119.1 $ 88.5 $(126.3) $1,179.0
======== ====== ====== ======= ========
</TABLE>
F-30
<PAGE> 161
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
SEPTEMBER 30, 1996
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.............. $ 54.5 $ 0.6 $ 40.4 $ -- $ 95.5
Receivables............................ 34.3 6.1 127.2 -- 167.6
Intercompany receivables (payables).... 30.6 0.8 (31.4) -- --
Inventories............................ 54.2 64.3 50.9 (4.3) 165.1
Other current assets................... 24.8 5.9 7.5 1.1 39.3
------ ------ ------- ------- ------
Total Current Assets........... 198.4 77.7 194.6 (3.2) 467.5
Product tooling, net..................... 45.2 4.9 1.5 -- 51.6
Intangibles.............................. 0.6 28.4 9.3 -- 38.3
Pension and other assets................. 84.9 1.0 11.5 -- 97.4
Property, plant and equipment, net....... 155.6 29.8 33.5 -- 218.9
Intercompany notes, net.................. 122.2 (0.1) (122.1) -- --
Investment in subsidiaries............... 183.7 -- -- (183.7) --
------ ------ ------- ------- ------
Total Assets................... $790.6 $141.7 $ 128.3 $(186.9) $873.7
====== ====== ======= ======= ======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable....................... $ 63.3 $ 16.6 $ 10.1 $ -- $ 90.0
Accrued and other...................... 112.9 18.9 31.6 (0.3) 163.1
Current maturities and sinking fund
requirements of long-term debt...... -- -- 0.2 -- 0.2
------ ------ ------- ------- ------
Total Current Liabilities...... 176.2 35.5 41.9 (0.3) 253.3
Long-term debt........................... 174.7 -- 2.9 -- 177.6
Other non-current liabilities............ 199.4 0.6 5.4 (0.2) 205.2
Shareholders' Investment................. 240.3 105.6 78.1 (186.4) 237.6
------ ------ ------- ------- ------
Total Liabilities and
Shareholders' Investment..... $790.6 $141.7 $ 128.3 $(186.9) $873.7
====== ====== ======= ======= ======
</TABLE>
F-31
<PAGE> 162
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1997
PRE-MERGER AND POST-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)......................... $(75.9) $(50.7) $ 11.3 $ 36.2 $ (79.1)
Adjustments to reconcile net earnings (loss)
to net cash provided by operations:
Depreciation and amortization............. 44.9 7.1 5.0 -- 57.0
Changes in current accounts excluding the
effects of acquisitions and noncash
transactions:
Decrease (increase) in receivables...... (39.5) (32.0) 82.7 (1.6) 9.6
Decrease (increase) in intercompany
accounts............................. 45.0 56.1 (101.1) -- --
Decrease (increase) in inventories...... 14.1 4.0 5.4 3.0 26.5
Decrease (increase) in other current
assets............................... (0.5) 1.0 1.9 (2.8) (0.4)
Increase (decrease) in accounts payable
and accrued liabilities.............. 3.0 5.9 (15.8) 1.6 (5.3)
Other, net.............................. (27.1) 7.5 (0.9) 3.0 (17.5)
------- ------ ------ ------- -------
Net cash provided by (used for)
operating activities............. (36.0) (1.1) (11.5) 39.4 (9.2)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment, and
tooling................................... (32.3) (2.4) (1.6) -- (36.3)
Proceeds from sale of plant and equipment... 10.9 1.4 0.7 -- 13.0
Equity earnings -- subsidiaries............. 39.4 -- -- (39.4) --
Other, net.................................. (5.3) 2.0 0.5 -- (2.8)
------- ------ ------ ------- -------
Net cash provided by (used for)
investing activities............. 12.7 1.0 (0.4) (39.4) (26.1)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt, including
current maturities........................ 0.3 -- (0.3) -- --
Cash dividends paid......................... (6.0) -- -- -- (6.0)
Other, net.................................. 1.8 -- 0.5 -- 2.3
------- ------ ------ ------- -------
Net cash provided by (used for)
financing activities............. (3.9) -- 0.2 -- (3.7)
Exchange Rate Effect on Cash................ -- -- (2.1) -- (2.1)
------- ------ ------ ------- -------
Net decrease in Cash and Cash Equivalents... (27.2) (0.1) (13.8) -- (41.1)
Cash and Cash Equivalents at Beginning of
Year...................................... 54.5 0.6 40.4 -- 95.5
------- ------ ------ ------- -------
Pre-Merger Cash and Cash Equivalents at
End of Year............................... $ 27.3 $ 0.5 $ 26.6 $ -- $ 54.4
======= ====== ====== ======= =======
- -----------------------------------------------------------------------------------------------------------------
Post-Merger Cash and Cash Equivalents prior
to merger -- September 30, 1997........... $ 27.3 $ 0.5 $ 26.6 -- $ 54.4
Cash Flows from Financing Activities
(Post Merger Company):
Proceeds from short term borrowings......... 96.0 -- -- -- 96.0
Issuance of Post-Merger company common
stock..................................... 283.2 69.6 42.5 (118.3) 277.0
Purchase of Pre-Merger company common
stock..................................... (379.2) (69.6) (42.5) 118.3 (373.0)
------- ------ ------ ------- -------
Post-Merger Cash and Cash Equivalents at End
of Year................................... $ 27.3 $ 0.5 $ 26.6 $ -- $ 54.4
======= ====== ====== ======= =======
</TABLE>
F-32
<PAGE> 163
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1996
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------- ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)...................... $(10.2) $(11.4) $ (1.1) $ 15.4 $ (7.3)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operations:
Depreciation and amortization.......... 41.6 6.9 6.2 -- 54.7
Restructuring charges.................. 12.9 -- 8.7 -- 21.6
Changes in current accounts excluding
the effects of acquisitions and
noncash transactions:
Decrease (increase) in
receivables....................... 35.0 26.8 (32.2) 2.8 32.4
Decrease (increase) in intercompany
accounts.......................... 54.1 (32.9) (21.2) -- --
Decrease (increase) in
inventories....................... 3.9 (1.3) 13.0 11.7 27.3
Decrease (increase) in other
current assets.................... (4.5) -- 1.8 (0.9) (3.6)
Increase (decrease) in accounts
payable and accrued liabilities... 0.7 (1.0) (12.3) (2.5) (15.1)
Other, net.......................... (59.3) 16.2 38.2 (14.0) (18.9)
------ ------ ------ ------ ------
Net cash provided by (used for)
operating activities......... 74.2 3.3 1.1 12.5 91.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment,
and tooling............................ (44.4) (4.6) (3.7) -- (52.7)
Proceeds from sale of plant and
equipment.............................. -- 1.6 1.1 -- 2.7
Equity earnings -- subsidiaries.......... 12.5 -- -- (12.5) --
Other, net............................... (0.4) (0.3) 0.2 -- (0.5)
------ ------ ------ ------ ------
Net cash provided by (used for)
investing activities......... (32.3) (3.3) (2.4) (12.5) (50.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt, including
current maturities..................... -- -- (0.2) -- (0.2)
Cash dividends paid...................... (6.1) -- -- -- (6.1)
Other, net............................... 3.4 -- -- -- 3.4
------ ------ ------ ------ ------
Net cash provided by (used for)
financing activities......... (2.7) -- (0.2) -- (2.9)
Exchange Rate Effect on Cash............. -- -- (0.5) -- (0.5)
------ ------ ------ ------ ------
Net increase (decrease) in Cash and Cash
Equivalents............................ 39.2 -- (2.0) -- 37.2
Cash and Cash Equivalents at Beginning
of Year................................ 15.3 0.6 42.4 -- 58.3
------ ------ ------ ------ ------
Cash and Cash Equivalents at End
of Year................................ $ 54.5 $ 0.6 $ 40.4 $ -- $ 95.5
====== ====== ====== ====== ======
</TABLE>
F-33
<PAGE> 164
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)...................... $ 55.4 $ (2.0) $ 4.3 $ (6.3) $ 51.4
Adjustments to reconcile net earnings
(loss) to net cash provided by
operations:
Depreciation and amortization.......... 35.8 6.9 4.9 -- 47.6
Changes in current accounts excluding
the effects of acquisitions and
noncash transactions:
Decrease (increase) in
receivables....................... (36.7) (1.0) 7.2 (1.9) (32.4)
Decrease (increase) in intercompany
accounts.......................... (25.2) 2.0 23.4 (0.2) --
Decrease (increase) in
inventories....................... (12.3) (11.3) (9.5) 3.6 (29.5)
Decrease (increase) in other
current assets.................... (12.3) (0.4) (0.5) -- (13.2)
Increase (decrease) in accounts
payable and accrued liabilities... 16.8 9.5 (9.3) (2.9) 14.1
Other, net.......................... 19.7 0.5 (12.2) 5.4 13.4
------ ------ ------ ------ ------
Net cash provided by (used for)
operating activities......... 41.2 4.2 8.3 (2.3) 51.4
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment,
and tooling............................ (50.6) (5.8) (10.1) -- (66.5)
Proceeds from sale of plant and
equipment.............................. 1.5 0.3 10.0 -- 11.8
Equity earnings -- subsidiaries.......... (2.3) -- -- 2.3 --
Other, net............................... (10.4) -- (0.7) -- (11.1)
------ ------ ------ ------ ------
Net cash provided by (used for)
investing activities......... (61.8) (5.5) (0.8) 2.3 (65.8)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt, including
current maturities..................... (0.9) -- (0.2) -- (1.1)
Cash dividends paid...................... (8.0) -- -- -- (8.0)
Other, net............................... (2.1) -- 3.1 -- 1.0
------ ------ ------ ------ ------
Net cash provided by (used for)
financing activities......... (11.0) -- 2.9 -- (8.1)
Exchange Rate Effect on Cash............. -- -- 0.5 -- 0.5
------ ------ ------ ------ ------
Net increase (decrease) in Cash and Cash
Equivalents............................ (31.6) (1.3) 10.9 -- (22.0)
Cash and Cash Equivalents at Beginning
of Year................................ 46.9 1.9 31.5 -- 80.3
------ ------ ------ ------ ------
Cash and Cash Equivalents at End
of Year................................ $ 15.3 $ 0.6 $ 42.4 $ -- $ 58.3
====== ====== ====== ====== ======
</TABLE>
F-34
<PAGE> 165
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30
-----------------------------
POST-MERGER PRE-MERGER
COMPANY COMPANY
------------- ------------
1998 1997
(DOLLARS IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................... $760.1 $709.9
Cost of goods sold.......................................... 590.8 595.9
------ ------
Gross earnings............................................ 169.3 114.0
Selling, general and administrative expense................. 156.0 151.7
------ ------
Earnings (loss) from operations........................... 13.3 (37.7)
Non-operating expense (income):
Interest expense.......................................... 22.6 12.7
Other, net................................................ (8.6) (25.9)
------ ------
14.0 (13.2)
------ ------
Earnings (loss) before provision for income taxes......... (0.7) (24.5)
Provision for income taxes.................................. 3.2 2.2
------ ------
Net earnings (loss)............................... $ (3.9) $(26.7)
====== ======
Net earnings (loss) per share of common stock
Basic..................................................... $(0.19) $(1.32)
====== ======
Diluted................................................... $(0.19) $(1.32)
====== ======
Average shares of common stock outstanding.................. 20.4 20.2
</TABLE>
The accompanying notes are an integral part of these statements.
F-35
<PAGE> 166
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN
MILLIONS)
-----------
POST-MERGER
COMPANY
-----------
JUNE 30,
1998
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 35.5
Receivables............................................... 149.8
Inventories
Finished products......................................... 64.2
Raw material, work in process and service parts........... 110.3
--------
Total inventories...................................... 174.5
Other current assets........................................ 40.2
--------
Total current assets................................... 400.0
Restricted cash............................................. 28.6
Product tooling, net........................................ 33.7
Goodwill.................................................... 245.5
Trademarks, patents and other intangibles................... 81.7
Other assets................................................ 126.8
Plant and equipment at cost................................. 219.6
Less accumulated depreciation............................. (20.1)
--------
199.5
--------
Total assets...................................... $1,115.8
========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Short-term debt........................................... $ 30.0
Accounts payable.......................................... 76.7
Accrued and other......................................... 179.1
Accrued income taxes...................................... 5.8
Current maturities and sinking fund requirements of
long-term debt......................................... 11.2
--------
Total current liabilities.............................. 302.8
Long-term debt.............................................. 248.2
Postretirement benefits other than pensions................. 95.0
Other non-current liabilities............................... 202.3
Shareholders' Investment:
Common stock and capital surplus.......................... 277.1
Accumulated earnings employed in the business............. (3.9)
Cumulative translation adjustments........................ (5.7)
--------
Total shareholders' investment......................... 267.5
--------
Total liabilities and shareholders' investment.... $1,115.8
========
</TABLE>
The accompanying notes are an integral part of these statements.
F-36
<PAGE> 167
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30
-------------------------
POST-MERGER PRE-MERGER
COMPANY COMPANY
----------- ----------
1998 1997
(DOLLARS IN MILLIONS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)......................................... $ (3.9) $(26.7)
Adjustments to reconcile net earnings (loss) to net cash
provided by operations:
Depreciation and amortization............................. 40.4 41.2
Changes in current accounts excluding the effects of
acquisitions and noncash transactions:
Decrease in receivables................................ 2.2 8.3
Decrease in inventories................................ 0.8 2.0
Decrease in other current assets....................... 46.2 0.7
Decrease in accounts payable and accrued liabilities... (68.2) (13.1)
Other, net............................................. (4.7) (0.5)
------ ------
Net cash provided by operating activities......... 12.8 11.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment, and tooling........... (23.7) (30.1)
Proceeds from sale of plant and equipment................... 6.6 14.4
Other, net.................................................. 0.7 (0.6)
------ ------
Net cash used for investing activities............ (16.4) (16.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term debt............................. (66.0) --
Proceeds from issuance of long-term debt.................... 155.2 --
Increase in restricted cash................................. (28.6) --
Payments of long-term debt, including current maturities.... (75.2) --
Cash dividends paid......................................... -- (6.0)
Other, net.................................................. 0.1 (0.4)
------ ------
Net cash used for financing activities............ (14.5) (6.4)
Exchange Rate Effect on Cash................................ (0.8) (0.9)
------ ------
Net decrease in Cash and Cash Equivalents................... (18.9) (11.7)
Cash and Cash Equivalents at Beginning of Period............ 54.4 95.5
------ ------
Cash and Cash Equivalents at End of Period.................. $ 35.5 $ 83.8
====== ======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................. $ 21.8 $ 11.7
Income taxes paid......................................... $ 4.5 $ 3.2
====== ======
</TABLE>
The accompanying notes are an integral part of these statements
F-37
<PAGE> 168
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' INVESTMENT
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
EARNINGS
ISSUED CAPITAL IN EXCESS EMPLOYED CUMULATIVE
COMMON STOCK OF PAR VALUE IN THE TRANSACTION
SHARES AMOUNT OF COMMON STOCK BUSINESS ADJUSTMENTS
------ ------ ----------------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE--SEPTEMBER 30, 1997......... 20.4 $0.2 $276.8 $ -- $ --
Net loss............................ -- -- -- $(3.9) --
Shares issued....................... -- -- 0.1 -- --
Translation adjustments............. -- -- -- -- (5.7)
----- ---- ------ ----- -----
Balance -- June 30, 1998............ 20.4 $0.2 $276.9 $(3.9) $(5.7)
===== ==== ====== ===== =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE> 169
OUTBOARD MARINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. MERGER WITH GREENMARINE ACQUISITION CORP.
On September 12, 1997, Greenmarine Acquisition Corp. ("Greenmarine")
acquired control of Outboard Marine Corporation (the "Pre-Merger Company") when
shareholders tendered approximately 90 percent of the outstanding shares of the
Pre-Merger Company's common stock to Greenmarine for $18 per share in cash.
Greenmarine was formed solely to purchase the shares of the Pre-Merger Company
and merged with and into the Pre-Merger Company in a non-taxable transaction on
September 30, 1997. Outboard Marine Corporation was the surviving entity of the
merger with Greenmarine (the "Post-Merger Company") (in either case, unless
specifically referenced, Pre-Merger Company or Post-Merger Company are also
defined as "OMC" or the "Company"). All of the outstanding Pre-Merger Company
common stock was cancelled on September 30, 1997 and 20.4 million shares of new
common stock were issued to Greenmarine Holdings LLC (the "Parent") the parent
company of Greenmarine. Greenmarine's total purchase price of common stock and
related acquisition costs amounted to $373.0 million.
The Post-Merger Company Condensed Statement of Consolidated Financial
Position as of June 30, 1998 and the related Post-Merger Company Condensed
Statement of Consolidated Earnings for the nine months ended June 30, 1998 and
Consolidated Condensed Cash Flow for the nine months ended June 30, 1998 are not
comparable to the prior year because of purchase accounting adjustments. The
acquisition and the merger were accounted for using the purchase method of
accounting. Accordingly, the purchase price at September 30, 1997 has been
allocated to assets acquired and liabilities assumed based on fair market values
at the date of acquisition. The fair values of tangible assets acquired and
liabilities assumed were $844.9 million and $902.0 million, respectively. In
addition, $83.9 million of the purchase price was allocated to intangible assets
for trademarks, patents and dealer network. Purchase accounting included
liabilities of $136.9 million for implementation and execution of business
reorganizations. The financial statements reflect the preliminary allocation of
purchase price as the purchase price allocation has not been finalized. The
excess purchase price over fair value of the net assets acquired was $250.2
million and has been classified as goodwill in the Statement of Consolidated
Financial Position at September 30, 1997. The goodwill related to the
acquisition will be amortized using the straight-line method over a period of 40
years.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
present information in accordance with generally accepted accounting principles
for interim financial information and have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Accordingly, they do
not include all information or footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the information furnished reflects all adjustments necessary for a
fair statement of the results of the interim periods and all such adjustments
are of a normal recurring nature. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K/A for the year ended September 30, 1997.
The 1998 interim results are not necessarily indicative of the results which may
be expected for the remainder of the year.
3. SHORT-TERM BORROWINGS
The Company became obligated under a credit agreement, as amended, which
provides for loans of up to $150 million (the "Acquisition Debt"). Amounts
outstanding under this credit agreement are secured by 20.4 million shares of
common stock of the Post-Merger Company and bear interest at 10%. On November
12, 1997, the Company borrowed the remaining $54.0 million principal amount of
Acquisition Debt in connection with the purchase of all properly tendered 7%
convertible subordinated debentures of Outboard Marine Corporation due 2002. The
full amount of the Acquisition Debt was paid on May 27, 1998 from the proceeds
of newly issued long-term debt.
F-39
<PAGE> 170
OUTBOARD MARINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective January 6, 1998, the Company entered into a $150 million Amended
and Restated Loan and Security Agreement which expires December 31, 2000 and at
June 30, 1998, $30.0 million was outstanding. Any loans outstanding under this
agreement will be secured by the Company's inventory, receivables, intellectual
property and other current assets and are guaranteed by certain of the Company's
operating subsidiaries.
On May 27, 1998, the Company issued $160.0 million of 10 3/4% Senior Notes
("Senior Notes") due 2008, with interest payable semiannually on June 1 and
December 1 of each year. The net proceeds from the issuance totaled $155.2
million and $150.0 million was used to prepay the Acquisition Debt. Concurrently
with the issuance of the Senior Notes, the Company entered into a depositary
agreement which provided for the establishment and maintenance of an interest
reserve account for the benefit of the holders of the Senior Notes and other
senior creditors of the Company in an amount equal to one year's interest due to
these lenders. At June 30, 1998, the interest reserve "Restricted Cash" was
$28.6 million and must be maintained for a minimum of three years but at least
until such time as the Company's fixed coverage ratio is greater than 2.5 to 1.0
or the Senior Notes are paid in full.
Under the various credit agreements, the Company is required to meet
certain financial covenants throughout the year. The Company is in compliance
with terms and conditions of these agreements.
4. CONTINGENT LIABILITIES
As a normal business practice, the Company has made arrangements with
financial institutions by which qualified retail dealers may obtain inventory
financing. Under these arrangements, the Company will repurchase its products in
the event of repossession upon a retail dealer's default. These arrangements
contain provisions which limit the Company's repurchase obligation to $40
million per model year for a period not to exceed 30 months from the date of
invoice. This obligation automatically reduces over the 30-month period. The
Company resells any repurchased products. Losses incurred under this program
have not been material. The Company accrues for losses which are anticipated in
connection with expected repurchases.
The Company is engaged in a substantial number of legal proceedings arising
in the ordinary course of business. While the result of these proceedings, as
well as those discussed below, cannot be predicted with any certainty, based
upon the information presently available, management is of the opinion that the
final outcome of all such proceedings should not have a material effect upon the
Company's Consolidated Financial Position or the Consolidated Earnings of the
Company.
Under the requirements of Superfund and certain other laws, the Company is
potentially liable for the cost of clean-up at various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. The Company has been notified that it is named a potentially
responsible party ("PRP") at various sites for study and clean-up costs. In some
cases there are several named PRPs and in others there are hundreds. The Company
generally participates in the investigation or clean-up of these sites through
cost sharing agreements with terms which vary from site to site. Costs are
typically allocated based upon the volume and nature of the materials sent to
the site. However, under Superfund, and certain other laws, as a PRP the Company
can be held jointly and severally liable for all environmental costs associated
with a site.
Once the Company becomes aware of its potential liability at a particular
site, it uses its experience to determine if it is probable that a liability has
been incurred and whether or not the amount of the loss can be reasonably
estimated. Once the Company has sufficient information necessary to support a
reasonable estimate or range of loss for a particular site, an amount is added
to the company's aggregate environmental contingent liability accrual. The
amount added to the accrual for the particular site is determined by analyzing
the site as a whole and reviewing the probable outcome for the remediation of
the site. This is not necessarily the minimum or maximum liability at the site
but, based upon the Company's experience, most accurately
F-40
<PAGE> 171
OUTBOARD MARINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
reflects the Company's liability based on the information currently available.
The Company takes into account the number of other participants involved in the
site, their experience in the remediation of sites and the Company's knowledge
of their ability to pay. As a general rule, the Company accrues remediation
costs for continuing operations on an undiscounted basis and accrues for normal
operating and maintenance costs for site monitoring and compliance requirements.
The Company also accrues for environmental close-down costs associated with
discontinued operations or facilities, including the environmental costs of
operation and maintenance until disposition. At June 30, 1998, the Company has
accrued approximately $22 million for costs related to remediation at
contaminated sites including operation and maintenance for continuing and
closed-down operations. The possible recovery of insurance proceeds has not been
considered in estimating contingent environmental liabilities.
In the nine months ended June 30, 1997, the Company recovered insurance
proceeds of $6.1 million for prior environmental charges which is included in
non-operating expense (income) in the Statement of Consolidated Earnings.
Each site, whether or not remediation studies have commenced, is reviewed
on a quarterly basis and the aggregate environmental contingent liability
accrual is adjusted accordingly. Because the sites are reviewed and the accrual
adjusted quarterly, the Company is confident the accrual accurately reflects the
Company's liability based upon the information available at the time.
5. PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(UNAUDITED)
The following unaudited pro forma Condensed Statement of Consolidated
Earnings (the "Pro Forma Statement") was prepared to illustrate the estimated
effects of the merger with Greenmarine Acquisition Corp. as if the transaction
had occurred for statement of consolidated earnings purposes as of the beginning
of fiscal 1997.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. The Pro Forma
Statement does not purport to represent what the Company's results of operations
would actually have been if such transactions in fact had occurred at the
beginning of the period indicated or to project the Company's results of
operation for any future period.
The Pro Forma Statement includes adjustments, with respect to the merger,
to reflect additional interest expense, depreciation expense and amortization of
goodwill.
F-41
<PAGE> 172
OUTBOARD MARINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, 1997
-----------------
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
Net sales.................................. $709.9
Cost of goods sold......................... 594.8
------
Gross earnings........................... 115.1
Selling, general and administrative
expense.................................. 157.3
------
Earnings (Loss) from operations.......... (42.2)
Interest expense........................... 21.9
Other (income) expense, net................ (25.9)
------
Loss before provision for income taxes... (38.2)
Provision for income taxes................. 2.2
------
Net loss................................. $(40.4)
------
Net loss per share of common stock (basic
and diluted)............................. $(1.98)
------
Shares outstanding....................... 20.4
------
</TABLE>
6. STOCK OPTION PLAN
On March 10, 1998, the Company adopted the Outboard Marine Corporation
Personal Rewards and Opportunities Program ("PROP"). PROP was designed to
recognize and reward, through cash bonuses, stock options and other equity-based
awards, the personal contributions and achievements of key employees of the
Company. All employees are eligible to participate in PROP. PROP replaced all
long and short-term incentive plans of the Company. PROP provides for (i) cash
and/or equity annual bonuses based on performance targets, and (ii) grants of
stock options, shares of restricted stock, phantom shares of stock or stock
appreciation rights. The aggregate number of shares of stock available for
equity awards under PROP is 1,500,000 shares of currently authorized common
stock of the Company. Grants under PROP are discretionary.
Stock option grants under PROP through June 30, 1998 were 587,245, of
which, 96,133 were vested upon grant. The remaining grants vest as follows:
94,445 in fiscal 1998, 61,667 in the three-month transition period ending
December 31, 1998, 175,000 in the Company's fiscal year ending December 31,
1999, 121,115 in the Company's fiscal year ending December 31, 2000, and 38,885
thereafter. The grants are exercisable at $18 per share and expire ten years
after date of grant. The Company accounts for PROP under APB Opinion No. 25, and
has not recorded any compensation expense for grants through June 30, 1998 as
the exercise price of the stock option approximates fair market value of the
Company's stock on the date of grant.
7. RECENTLY ADOPTED ACCOUNTING STANDARDS
In fiscal 1999, the Company will implement three accounting standards
issued by the Financial Accounting Standards Board, SFAS 130, "Reporting
Comprehensive Income," SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information," and SFAS 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." The Company believes that these changes will
have no effect on its financial position or results of operations as they
require only changes in or additions to current disclosures.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1 ("SOP 96-1"), "Environmental Remediation
Liabilities", which provides authoritative guidance on the recognition,
measurement, display and disclosure of environmental remediation liabilities.
The Company adopted SOP 96-1 in the quarter ended September 30, 1997. The change
in accounting estimate required the Company to accrue for future normal
operating and maintenance costs for site monitoring and compliance requirements
at particular sites. The initial expense for implementation of SOP 96-1 was $7.0
million, charged to selling, general and administrative expense in the quarter
ended September 30, 1997.
F-42
<PAGE> 173
OUTBOARD MARINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In June 1998, the Financial Accounting Standards Board issued Statement 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. SFAS 133 is effective for fiscal years beginning after June
15, 1999. The Company has not yet quantified the impacts of adopting SFAS 133 on
its financial statements and has not determined the timing of or method of its
adoption of SFAS 133. However, the Company believes adoption will have no
material effect on its financial position or results of operations based on
current levels of financial instruments.
8. SUBSIDIARY GUARANTOR INFORMATION
The Company issued $160,000,000 10 3/4% Senior Notes due 2008 ("Notes") on
May 21, 1998. The Company's payment obligations under the Notes are to be
guaranteed by certain of the Company's wholly-owned subsidiaries ("Guarantor
Subsidiaries"). Such guarantees are full, unconditional, unsecured and
unsubordinated on a joint and several basis by each of the Guarantor
Subsidiaries. As of and through June 1, 1998, the Guarantor Subsidiaries were
wholly-owned, but not the only wholly-owned, subsidiaries of the Company.
Separate financial statements of the Guarantor Subsidiaries are not presented
because management of the Company has determined that they are not material to
investors.
The following condensed consolidating financial data illustrates the
composition of the Company ("Parent Company"), the Guarantor Subsidiaries and
the Company's non-guarantor subsidiaries ("Other Subsidiaries"). Investments in
subsidiaries are accounted for by the Company under the equity method of
accounting for purposes of the supplemental consolidating presentation. Earnings
of subsidiaries are, therefore, reflected in the Company's investment accounts
and earnings. The Company has not allocated goodwill to the Guarantor
Subsidiaries or the other subsidiaries in association with the acquisition by
and merger with Greenmarine.
F-43
<PAGE> 174
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
NINE MONTHS ENDED JUNE 30, 1998
POST-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales............................ $494.4 $312.2 $196.1 $(242.6) $760.1
Cost of goods sold................... 395.3 282.5 158.5 (245.5) 590.8
------ ------ ------ ------- ------
Gross earnings..................... 99.1 29.7 37.6 2.9 169.3
Selling, general and administrative
expense............................ 90.5 38.7 26.8 -- 156.0
------ ------ ------ ------- ------
Earnings (loss) from operations.... 8.6 (9.0) 10.8 2.9 13.3
Non-operating expense (income)....... 11.0 1.1 1.9 -- 14.0
Equity earnings
(loss) -- subsidiaries............. (2.8) -- -- 2.8 --
------ ------ ------ ------- ------
Earnings (loss) before provision
for income taxes................ (5.2) (10.1) 8.9 5.7 (0.7)
Provision for income taxes........... 1.6 -- 1.6 -- 3.2
------ ------ ------ ------- ------
Net earnings (loss)........ $ (6.8) $(10.1) $ 7.3 $ 5.7 $ (3.9)
====== ====== ====== ======= ======
</TABLE>
F-44
<PAGE> 175
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
NINE MONTHS ENDED JUNE 30, 1997
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net Sales................................. $422.6 $334.9 $194.1 $(241.7) $709.9
Cost of goods sold........................ 374.9 311.2 151.7 (241.9) 595.9
------ ------ ------ ------- ------
Gross earnings.......................... 47.7 23.7 42.4 0.2 114.0
Selling, general and administrative
expense................................. 68.5 47.7 35.5 -- 151.7
------ ------ ------ ------- ------
Earnings (loss) from operations......... (20.8) (24.0) 6.9 0.2 (37.7)
Non-operating expense (income)............ (6.1) (0.8) (6.3) -- (13.2)
Equity earnings (loss) -- subsidiaries.... (12.2) -- -- 12.2 --
------ ------ ------ ------- ------
Earnings (loss) before provision for
income taxes......................... (26.9) (23.2) 13.2 12.4 (24.5)
Provision for income taxes................ -- -- 2.2 -- 2.2
------ ------ ------ ------- ------
Net earnings (loss)............. $(26.9) $(23.2) $ 11.0 $ 12.4 $(26.7)
====== ====== ====== ======= ======
</TABLE>
F-45
<PAGE> 176
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
JUNE 30, 1998
POST-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ 9.1 $ 4.1 $ 22.3 $ -- $ 35.5
Receivables....................... 72.9 33.1 43.8 -- 149.8
Intercompany receivables
(payables)..................... 0.5 (2.5) 2.0 -- --
Inventories....................... 83.5 41.9 45.8 3.3 174.5
Other current assets.............. 27.9 4.0 4.4 3.9 40.2
-------- ------ ------ ------- --------
Total current assets...... 193.9 80.6 118.3 7.2 400.0
Restricted Cash..................... 28.6 -- -- -- 28.6
Product tooling, net................ 30.2 3.2 0.3 -- 33.7
Intangibles......................... 320.7 -- 6.5 -- 327.2
Pension and other assets............ 115.7 0.3 10.8 -- 126.8
Property, plant and equipment,
net............................... 151.4 23.2 24.9 -- 199.5
Intercompany notes, net............. 74.0 -- (74.0) -- --
Investment in subsidiaries.......... 114.5 -- -- (114.5) --
-------- ------ ------ ------- --------
Total assets.............. $1,029.0 $107.3 $ 86.8 $(107.3) $1,115.8
======== ====== ====== ======= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Loan payable...................... $ 30.0 $ -- $ -- $ -- $ 30.0
Accounts payable.................. 60.3 9.4 7.0 -- 76.7
Accrued and other................. 140.7 26.9 17.3 -- 184.9
Current maturities and sinking
fund requirements of long-term
debt........................... 11.0 -- 0.2 -- 11.2
-------- ------ ------ ------- --------
Total current
liabilities............. 242.0 36.3 24.5 -- 302.8
Long-term debt...................... 245.8 -- 2.4 -- 248.2
Other non-current liabilities....... 280.3 12.0 4.4 0.6 297.3
Shareholders' investment............ 260.9 59.0 55.5 (107.9) 267.5
-------- ------ ------ ------- --------
Total liabilities and
shareholders'
investment.............. $1,029.0 $107.3 $ 86.8 $(107.3) $1,115.8
======== ====== ====== ======= ========
</TABLE>
F-46
<PAGE> 177
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
JUNE 30, 1997
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 43.8 $ -- $ 40.0 $ -- $ 83.8
Receivables............................ 66.1 34.7 55.1 -- 155.9
Intercompany receivables (payables).... 26.6 (32.7) 6.1 -- --
Inventories............................ 59.9 57.8 47.5 (3.3) 161.9
Other current assets................... 26.6 5.0 5.5 1.1 38.2
------ ------ ------- ------- ------
Total current assets........... 223.0 64.8 154.2 (2.2) 439.8
Product tooling, net..................... 42.1 3.7 1.2 -- 47.0
Intangibles.............................. 0.5 27.7 7.8 -- 36.0
Pension and other assets................. 83.1 0.4 15.2 -- 98.7
Property, plant and equipment, net....... 148.2 27.6 27.8 -- 203.6
Intercompany notes, net.................. 109.6 -- (109.6) -- --
Investment in subsidiaries............... 141.6 -- -- (141.6) --
------ ------ ------- ------- ------
Total assets................... $748.1 $124.2 $ 96.6 $(143.8) $825.1
====== ====== ======= ======= ======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable....................... $ 52.8 $ 10.7 $ 9.0 $ -- $ 72.5
Accrued and other...................... 115.8 30.0 17.5 -- 163.3
Current maturities and sinking fund
requirements of long-term debt...... 5.0 -- 0.2 -- 5.2
------ ------ ------- ------- ------
Total current liabilities 173.6 40.7 26.7 -- 241.0
Long-term debt........................... 170.0 -- 2.6 -- 172.6
Other non-current liabilities............ 199.1 0.4 8.8 -- 208.3
Shareholders' investment................. 205.4 83.1 58.5 (143.8) 203.2
------ ------ ------- ------- ------
Total liabilities and
shareholders' investment..... $748.1 $124.2 $ 96.6 $(143.8) $825.1
====== ====== ======= ======= ======
</TABLE>
F-47
<PAGE> 178
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1998
POST-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss).................. $ (6.8) $(10.1) $ 7.3 $ 5.7 $ (3.9)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operations:
Depreciation and amortization...... 34.1 3.3 3.0 -- 40.4
Changes in current accounts
excluding the effects of
acquisitions and noncash
transactions:
Decrease (increase) in
receivables................... 2.6 5.0 (5.4) -- 2.2
Decrease (increase) in
intercompany accounts......... 22.9 (11.1) (11.8) -- --
Decrease (increase) in
inventories................... (14.7) 24.3 (5.7) (3.1) 0.8
Decrease (increase) in other
current assets................ 45.5 0.7 0.4 (0.4) 46.2
Increase (decrease) in accounts
payable and accrued
liabilities................... (61.1) (10.5) (2.1) 5.5 (68.2)
Other, net...................... (6.2) 5.0 1.4 (4.9) (4.7)
------ ------ ------ ----- ------
Net cash provided by (used
for) operating
activities............... 16.3 6.6 (12.9) 2.8 12.8
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment,
and tooling........................ (18.7) (2.9) (2.1) -- (23.7)
Proceeds from sale of plant and
equipment.......................... 5.3 0.1 1.2 -- 6.6
Equity earnings -- subsidiaries...... 2.8 -- -- (2.8) --
Other, net........................... 3.3 (0.2) (2.4) -- 0.7
------ ------ ------ ----- ------
Net cash provided by (used
for) investing
activities............... (7.3) (3.0) (3.3) (2.8) (16.4)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term debt...... (66.0) -- -- -- (66.0)
Proceeds from issuance of long-term
debt............................... 155.2 -- -- -- 155.2
Increase in restricted cash.......... (28.6) -- -- -- (28.6)
Payments of long-term debt, including
current maturities................. (75.0) -- (0.2) -- (75.2)
Other, net........................... (12.8) -- 12.9 -- 0.1
------ ------ ------ ----- ------
Net cash provided by (used
for) financing
activities............... (27.2) -- 12.7 -- (14.5)
Exchange Rate Effect on Cash......... -- -- (0.8) -- (0.8)
------ ------ ------ ----- ------
Net increase (decrease) in Cash and
Cash Equivalents................... (18.2) 3.6 (4.3) -- (18.9)
Cash and Cash Equivalents at
Beginning of Period................ 27.3 0.5 26.6 -- 54.4
------ ------ ------ ----- ------
Cash and Cash Equivalents at End of
Period............................. $ 9.1 $ 4.1 $ 22.3 $ -- $ 35.5
====== ====== ====== ===== ======
</TABLE>
F-48
<PAGE> 179
OUTBOARD MARINE CORPORATION
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1997
PRE-MERGER COMPANY
<TABLE>
<CAPTION>
PARENT GUARANTOR OTHER CONSOLIDATED
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)...................... $(26.9) $(23.2) $ 11.0 $ 12.4 $(26.7)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operations:
Depreciation and amortization.......... 30.7 5.9 4.6 -- 41.2
Changes in current accounts excluding
the effects of acquisitions and
noncash transactions:
Decrease (increase) in
receivables....................... 50.7 (28.6) (13.8) -- 8.3
Decrease (increase) in intercompany
accounts.......................... (42.4) 33.9 8.5 -- --
Decrease (increase) in
inventories....................... (5.4) 6.6 1.5 (0.7) 2.0
Decrease (increase) in other current
assets............................ (1.6) 0.8 1.5 -- 0.7
Increase (decrease) in accounts
payable and accrued liabilities... (3.7) 5.1 (15.8) 1.3 (13.1)
Other, net.......................... -- 0.6 (0.3) (0.8) (0.5)
------ ------ ------ ------ ------
Net cash provided by (used for)
operating activities......... 1.4 1.1 (2.8) 12.2 11.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment, and
tooling................................ (25.3) (1.9) (2.9) -- (30.1)
Proceeds from sale of plant and
equipment.............................. 11.6 0.2 2.6 -- 14.4
Equity earnings -- subsidiaries.......... 12.2 -- -- (12.2) --
Other, net............................... (4.0) -- 3.4 -- (0.6)
------ ------ ------ ------ ------
Net cash provided by (used for)
investing activities......... (5.5) (1.7) 3.1 (12.2) (16.3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term debt.......... 0.2 -- (0.2) -- --
Cash dividends paid...................... (6.0) -- -- -- (6.0)
Other, net............................... (0.8) -- 0.4 -- (0.4)
------ ------ ------ ------ ------
Net cash provided by (used for)
financing activities......... (6.6) -- 0.2 -- (6.4)
Exchange Rate Effect on Cash............. -- -- (0.9) -- (0.9)
------ ------ ------ ------ ------
Net decrease in Cash and Cash
Equivalents............................ (10.7) (0.6) (0.4) -- (11.7)
Cash and Cash Equivalents at Beginning of
Period................................. 54.5 0.6 40.4 -- 95.5
------ ------ ------ ------ ------
Cash and Cash Equivalents at End of
Period................................. $ 43.8 $ -- $ 40.0 $ -- $ 83.8
====== ====== ====== ====== ======
</TABLE>
9. SUBSEQUENT EVENT
On July 22, 1998, the Board of Directors of the Company resolved to amend
Article X of its Bylaws to reflect a change in its fiscal year, effective as of
October 1, 1998, from the twelve month period of October 1 through September 30
of each year to a twelve month calendar year of January 1 through December 31 of
each year.
F-49
<PAGE> 180
APPENDIX A
PROJECTED FINANCIAL INFORMATION
THE PROJECTIONS ARE FORWARD-LOOKING STATEMENTS BASED UPON A NUMBER OF
ASSUMPTIONS AND ESTIMATES THAT, WHILE PRESENTED WITH NUMERICAL SPECIFICITY AND
CONSIDERED REASONABLE BY THE COMPANY, ARE INHERENTLY SPECULATIVE IN NATURE AND
SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE AND OPERATIONAL
UNCERTAINTIES, CONTINGENCIES AND RISKS, MANY OF WHICH ARE BEYOND THE CONTROL OF
THE COMPANY. IT CAN BE EXPECTED THAT ONE OR MORE OF THE ASSUMPTIONS UNDERLYING
THE PROJECTIONS WILL PROVE NOT TO BE ACCURATE AND THAT UNANTICIPATED EVENTS AND
CIRCUMSTANCES WILL OCCUR. AS A RESULT, ACTUAL RESULTS WILL VARY FROM THE
PROJECTIONS AND THOSE VARIATIONS MAY BE MATERIAL DUE TO VARIOUS RISKS,
INCLUDING, THE INABILITY OF THE COMPANY'S MANAGEMENT TEAM TO SUCCESSFULLY
RESTRUCTURE ITS BOAT AND ENGINE MANUFACTURING OPERATIONS IN THE MANNER AND
WITHIN THE TIME FRAME PRESENTLY CONTEMPLATED. CONSEQUENTLY, THIS PROSPECTUS
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON
THAT THE FINANCIAL PROJECTIONS WILL BE ACHIEVED. THE PROJECTIONS WERE NOT
PREPARED WITH A VIEW TOWARD COMPLIANCE WITH PUBLISHED GUIDELINES OF THE AMERICAN
INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS, OR ANY OTHER REGULATORY OR
PROFESSIONAL AGENCY OR BODY OR GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
NEITHER ARTHUR ANDERSEN LLP, THE COMPANY'S INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS, NOR THE INITIAL PURCHASERS HAVE COMPILED OR EXAMINED THE
PROJECTIONS AND, ACCORDINGLY, THEY EXPRESS NO OPINION OR ANY OTHER FORM OF
ASSURANCE WITH RESPECT TO, ASSUME NO RESPONSIBILITY FOR, AND DISCLAIM ANY
ASSOCIATION WITH, THE PROJECTIONS. FURTHERMORE, THE COMPANY DOES NOT INTEND TO
UPDATE OR REVISE THE PROJECTIONS TO REFLECT EVENTS OR CIRCUMSTANCES EXISTING OR
ARISING AFTER THE DATE OF THIS PROSPECTUS OR TO REFLECT THE OCCURRENCE OF ANY
UNANTICIPATED EVENTS, UNLESS, IN THE COMPANY'S OPINION, SUCH EVENTS HAVE
MATERIALLY EFFECTED THE FINANCIAL CONDITION OF THE COMPANY OR RESULTED IN THE
PROJECTIONS NO LONGER HAVING A REASONABLE BASIS. POTENTIAL INVESTORS ARE
CAUTIONED NOT TO RELY ON THE PROJECTIONS IN MAKING AN INVESTMENT DECISION.
INDEX TO PROJECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction................................................ A-2
Summary of Significant Financial Projection Assumptions..... A-2
Summary Projected Financial Information..................... A-3
Discussion of Significant Projection Assumptions............ A-4
</TABLE>
A-1
<PAGE> 181
INTRODUCTION
The projected financial information included in this Prospectus (the
"Projections") represents the Company's best estimates as of August 1998 of the
Company's results of operations for the fiscal year ending September 30, 1998.
The Projections were prepared by the Company and are qualified by, and subject
to, the assumptions set forth below and the other information contained in this
Prospectus.
No independent expert has reviewed the Projections. The Arthur Andersen LLP
reports included in this Prospectus relate to the Company's historical financial
information. They do not extend to the projected financial data and should not
be read to do so. The Projections should be read together with the information
contained in "Risk Factors--Risks Related to Projections," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and Unaudited Pro Forma Condensed Consolidated Financial Statements.
SUMMARY OF SIGNIFICANT FINANCIAL PROJECTION ASSUMPTIONS
The Company's ability to achieve the projected financial results is
dependent upon a number of factors. For instance, the Projections assume the
success of the Company's operating strategy. The success of the Company's
operating strategy assumes, among other things, that the Company: (i)
successfully stems the recent loss in engine and boat market share and increases
retail sales of its engine and boat products; (ii) successfully rationalizes its
brand names and pricing strategy; (iii) successfully launches its new product
line and pricing strategy for future model years; (iv) successfully reduces its
purchasing costs through the integration of purchasing functions between the
Boat and Engine Groups; (v) completes the previously announced closure of its
boat manufacturing operations in Old Hickory, Tennessee and successfully
consolidates its boat manufacturing operations in Murfreesboro, Tennessee and
Columbia, South Carolina; (vi) successfully rationalizes its boat manufacturing
operations and completes the lean manufacturing initiatives with respect to the
Engine Group's manufacturing facility in Calhoun, Georgia; and (vii) is able to
successfully implement the new management team's strategic initiatives without
additional cash costs in excess of management's current strategic plan. See
"Business--Business Strategy." The success of a significant portion of the
management team's strategy is subject to uncertainties and contingencies beyond
the Company's control, and no assurance can be given that the strategy will be
effective or that the anticipated benefits from the strategy will be realized in
the period for which the Projections have been prepared.
The Projections also assume that: (i) there will be no material change in
the existing political, fiscal or economic conditions, including changes in
foreign exchange rates, that are material to the Company's revenues or costs;
(ii) there will be no material change in legislation or regulations or the
administration thereof, or changes in technology or industry standards that will
have an unexpected effect on the business of the Company; (iii) there will be no
material response by any of the Company's competitors to the Company's strategic
initivities; (iv) there will be no material change in any of the Company's
existing material contracts or customer relationships; (v) there will be no
change in generally accepted accounting principles that will have a material
effect on the financial results of the Company; (vi) there will be no labor or
other disturbances that would materially affect the operations or revenues of
the Company; (vii) there will be no material costs, gains or losses in revenues
arising from legal proceedings; (viii) there will be no material change in
economic conditions which might adversely affect demand or overall consumer
confidence; (ix) there will be no further decline in the Company's market share;
(x) there will be no abnormal weather conditions; and (xi) there will be no
inflation. Although no standard rate of inflation was applied to the
Projections, each number was projected to reflect the actual number at such
point in the future to which such figure relates. See Notes to Consolidated
Financial Statements for a review of other assumptions underlying the
Projections.
The assumptions described herein are those that the Company believes are
significant to the Projections. However, not all assumptions used in preparing
the Projections have been set forth herein. The failure by the Company to
successfully implement its operating strategy or the occurrence of any of the
events or circumstances set forth in the immediately preceding paragraph or
elsewhere herein could result in the Company's actual operating results being
different than the Projections, and such differences may be adverse and
material.
A-2
<PAGE> 182
SUMMARY PROJECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ACTUAL NINE PROJECTED THREE PROJECTED FISCAL
MONTHS ENDED MONTHS ENDING YEAR ENDING
JUNE 30, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1998
------------- ------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue..................................... $760.1 $288.4 $1,048.5
Cost of goods sold.......................... 590.8 216.8 807.6
Gross earnings.............................. 169.3 71.6 240.9
Selling, general and administrative......... 156.0 57.9 213.9
Earnings (loss) from operations............. 13.3 13.7 27.0
OTHER DATA:
EBITDA...................................... 54.2 30.3 84.5
Interest expense............................ 22.6 7.3 29.9
Capital expenditures........................ 23.7 6.3 30.0
Gross earnings margin....................... 22.3% 24.8% 23.0%
EBITDA margin............................... 7.1% 10.5% 8.1%
</TABLE>
A-3
<PAGE> 183
DISCUSSION OF SIGNIFICANT PROJECTION ASSUMPTIONS
ACCOUNTING POLICIES
The significant accounting policies described in Note 1 of the "Notes to
Consolidated Financial Statements" have been applied in preparing these
Projections.
REVENUE
The Company anticipates significant improvements in sales for both its
Engine and Boat Groups during the second half of fiscal 1998 as compared to the
Company's actual results for the first half of 1998. The recreational marine
industry in general is seasonal, with peak revenue periods typically occurring
during the Spring and Summer seasons. The Company forecasts that sales volume
will increase substantially during the second half of the year in accordance
with historical seasonal patterns. The following table presents the revenue
contribution expected for the second half of 1998 relative to the average
contribution in the second half of fiscal years 1993 through 1996. Fiscal 1997
was excluded from this analysis in order to avoid distorting the average with
the financial results of a fiscal year in which the Company's operations were
disrupted with its pending sale. As shown in the table, the Company's revenue
expectations for the second half of 1998 relative to the first half is in line
with historical averages.
SEASONAL REVENUE CONTRIBUTION
<TABLE>
<CAPTION>
QUARTERLY PERCENT CONTRIBUTION
--------------------------------
Q1 Q2 Q3 Q4 FIRST HALF SECOND HALF
-- -- -- -- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED REVENUE
Average ('93-'96)....................... 18.8% 25.6% 27.7% 27.9% 44.4% 55.6%
1998E................................... 20.1 25.2 27.1 27.5 45.4 54.6
TOTAL ENGINE REVENUE
Average ('93-'96)....................... 18.5 25.1 27.4 29.0 43.5 56.5
1998E................................... 20.0 24.1 27.3 28.6 44.1 55.9
BOAT REVENUE
Average ('93-'96)....................... 19.9 26.9 28.4 24.8 46.8 53.2
1998E................................... 20.4 28.5 26.6 24.5 48.9 51.1
</TABLE>
Engine Group
Engine Group revenues are expected to increase by 26.8%, from $340.6
million during the first half of fiscal 1998 to $431.9 million during the second
half of the year. The Engine Group revenue increase is driven primarily by the
increase of 22.2% in engine units sold during the third quarter, and a projected
14.7% increase in the fourth quarter, as the Company enters its peak selling
season during the Spring and Summer seasons. The unit volume increase is
expected to be offset partially by a 1.7% decrease in average engine unit prices
during the fourth quarter. The anticipated reduction is due to a product mix
shift toward lower horsepower engines, which typically occurs as the peak
selling season begins in the northern part of the United States. The projected
decrease is also attributable to the Company's 1999 model year rollout in July.
Boat Group
The Company forecasts that Boat Group revenues will increase by 4.5%, from
$135.0 million during the first half of fiscal 1998 to $141.0 million during the
second half of the fiscal year. The expected revenue increase is driven
primarily by (i) a 3.8% increase in boat units sold from the first six months of
fiscal 1998 to the second half of the fiscal year as the Company enters its peak
selling season and introduces its new products in the Summer. This is partially
offset by the 1.6% decrease in average unit prices during the third quarter and
A-4
<PAGE> 184
an anticipated 4.3% decrease in average unit price during the fourth quarter
related to the Company's discounting in connection with the introduction of its
new models during the Summer.
GROSS PROFIT
Engine Group
Engine Group gross profit is expected to increase from $80.6 million during
the first half of fiscal 1998 to $117.8 million, attributable to the expected
growth in Engine Group revenue. As a percent of revenue, Engine Group gross
margins improved slightly to 26.4% of revenue in the third quarter and are
anticipated to improve to 28.1% in the fourth quarter as compared to 20.8% in
the first quarter and 26.0% in the second quarter, due to the Company's expected
increase in Engine Group revenue and its ability to leverage its relatively
stable manufacturing overhead over a growing revenue base. Also contributing to
the margin improvements are ongoing quality improvements implemented by the
Company's new management team as part of its strategic initiatives. The
projected decrease in costs during the fourth quarter is due to a shift in
product mix towards the value-based models highlighted during the Summer
promotional programs. The expected improvement in Engine Group gross margins is
also attributable to the higher mix of sales of parts and accessories, which
increased to 27.5% of overall Engine Group revenue during the third quarter and
are forecasted to increase 29.5% during the fourth quarter from 20.2% in the
first quarter and 22.2% in the second quarter. These increases in parts and
accessories sales in the second half are due to the seasonal nature of marine
engine repair and tune up activity, which takes place predominantly in the
Spring and Summer months. Given the higher gross margins generated by sales of
parts and accessories relative to engine unit sales, the increase in mix toward
parts and accessories sales increases overall Engine Group gross margins. The
Engine Group's forecasted gross margin in the fourth quarter is also anticipated
to benefit from the ability of the Company to leverage its increased sales over
its relatively stable manufacturing overhead, as it did in the third quarter.
The following table summarizes the Engine Group's average gross margin
contribution and margin percentages between 1993 and 1996 as compared to actual
and projected gross margin contribution and percentages for fiscal 1998. As
shown in the table, the Company generated gross margins in the first half of
1998 that were 2.0% higher than the average first half margin in 1993 through
1996; however, the Company's second half margin projections conservatively
project a gross margin in the second half of 1998 that is only 0.3% higher than
the average for 1993 through 1996.
ENGINE GROUP SEASONAL GROSS MARGIN TRENDS
<TABLE>
<CAPTION>
PERCENT CONTRIBUTION MARGIN PERCENTAGE
------------------------ ------------------------
FIRST HALF SECOND HALF FIRST HALF SECOND HALF
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Gross Profit
Average ('93-'96).................................. 39.5% 60.5 21.7% 25.6%
1998E.............................................. 40.6 59.4 23.7 27.3
Difference......................................... 1.1 (1.1) 2.0 1.7
</TABLE>
Boat Group
The Company anticipates significant improvements in the Boat Group's gross
margin in connection with its recently announced strategy to rationalize and
realign its boat brands to lower manufacturing costs. Gross margins reached
12.7% in the first half of 1998, and are projected to increase by 3.4 percentage
points to 16.1% in the second half of 1998, resulting in a 14.4% gross margin
assumed for the full year of fiscal 1998. The Company's shipping costs increased
to 1.8% of revenue during the third quarter and is anticipated to decrease to
1.3% during the fourth quarter as compared to 2.2% during the first quarter and
1.4% during the second quarter, as the Company is able to leverage
transportation efficiencies during the fourth quarter. The projected improvement
in Boat Group gross margins is also attributable to the Company's ability to
leverage relatively stable manufacturing overhead over a growing revenue base.
The Company expects $0.5 million in annual cost
A-5
<PAGE> 185
savings from the closing of its boat manufacturing operations in Old Hickory,
Tennessee and the consolidation of its freshwater fishing boat operations in
Murfreesboro, Tennessee and its saltwater fishing boat operations in Columbia,
South Carolina. Management anticipates further gross profit improvements as the
Company expands its boat rationalization strategy.
EBITDA
Engine Group
The Engine Group is anticipated to generate EBITDA of $59.1 million, or
13.7% of revenue, during the second half of fiscal 1998, compared to $30.7
million, or 9.0% of revenue, during the first half of 1998. The Engine Group
typically generates a larger amount of EBITDA during the second half of the year
due to seasonality patterns. The anticipated improvement in EBITDA margin during
the second half of fiscal 1998 compared to the first half of 1998 is driven
primarily by the following factors: (i) decrease in selling expense to 14.0% of
net engine revenue in the third quarter, then up to 17.5% in the fourth quarter;
(ii) improvement in warranty expense from 3.7% of engine revenue in the second
quarter to 3.2% in the third quarter and 2.6% in the fourth quarter, due to
over-accruals in the first half of fiscal 1998.
The following table summarizes the Engine Group's average EBITDA margin
contribution and margin percentages between 1993 and 1996 as compared to actual
and projected EBITDA margin contribution and percentages for fiscal 1998. As
shown in the table, the Company generated EBITDA margins in the first half of
1998 that were 3.1% higher than the average first half margin in 1993 through
1996; however, the Company's second half EBITDA margin projections
conservatively project an EBITDA margin in the second half of 1998 that is only
1.3% higher than the average for 1993 through 1996.
ENGINE GROUP SEASONAL EBITDA MARGIN TRENDS
<TABLE>
<CAPTION>
PERCENT CONTRIBUTION MARGIN PERCENTAGE
------------------------ ------------------------
FIRST HALF SECOND HALF FIRST HALF SECOND HALF
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
EBITDA
Average (93-96).................................... 26.2% 73.8% 5.9% 12.0%
1998E.............................................. 34.2 65.8 9.0 13.7
Difference......................................... 8.0 (8.0) 3.1 1.3
</TABLE>
Boat Group
The Boat Group is forecasted to lose EBITDA of $0.2 million, or (0.2)% of
revenue, during the second half of fiscal 1998 as compared to a loss of $5.0
million, or (3.7%) of revenue, during the first half of the year. In addition to
the improvement in profitability which typically occurs during the Company's
peak selling season during the second half of the year, the Company forecasts
steady improvement in Boat Group selling and warranty expense, from 14.1% of
revenue in the first quarter, 13.3% in the second quarter and 13.3% in the third
quarter to 12.7% in the fourth quarter, attributable primarily to the Company's
boat rationalization strategy. In addition, the Company anticipates lower
selling expenses in the Boat Group during the second half of fiscal 1998 because
a larger share of the trade show and promotional spending is spent during the
Company's second fiscal quarter.
INTEREST EXPENSE
The Projections give pro forma effect to the Initial Offering and the use
of net proceeds therefrom, as if the Initial Offering had been completed as of
March 31, 1998. The Projections assume that the net proceeds from the Initial
Offering are used to repay all outstanding principal and interest on the Term
Loan. The average interest rate on the Credit Agreement is assumed to be 8.5%
based on the terms of the Credit Agreement. Interest income on average cash
balances is projected using rates averaging between 4% and 6%. The Projections
assume that the costs associated with the issuance of the Notes are amortized
over a ten-year period and the costs associated with the Credit Agreement are
amortized over a three-year period.
A-6
<PAGE> 186
CAPITAL EXPENDITURES
The Projections assume total capital expenditures during fiscal 1998 of
approximately $27.4 million, $15.3 million of which is assumed to be related to
capital equipment and $12.1 million of which is assumed to be related to
tooling. Of the total capital expenditures, the Company spent approximately
$11.9 million during the six months ended March 31, 1998 and $23.7 for the nine
months ended June 30, 1998. The Company anticipates that approximately $24.9
million of the total forecasted capital expenditures will be related to the
Company's Engine Group, and $2.5 million will be spent in the Boat Group. In
addition, the Company forecasts that approximately $2.6 million of total capital
expenditures will be related to converting the Company's engine product lines to
include FICHT technology. Management estimates that maintenance capital spending
for fiscal 1998 will be approximately $14.6 million and that $5.9 million has
been spent by the Company as of March 31, 1998.
A-7
<PAGE> 187
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON IS AUTHORIZED IN CONNECTION WITH
THE EXCHANGE OFFER MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SUBSIDIARY GUARANTORS OR ANY OTHER PERSON. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH
IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO BUY SUCH SECURITIES TO ANY PERSON
IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION
TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information................. iii
Summary............................... 1
Risk Factors.......................... 17
The Greenmarine Acquisition........... 26
Use of Proceeds....................... 27
Capitalization........................ 28
Selected Historical Consolidated
Financial Data...................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
Business.............................. 42
Management............................ 57
Security Ownership of Certain
Beneficial Owners and Management.... 70
Certain Relationships and Related
Transactions........................ 72
The Exchange Offer.................... 73
Description of Notes.................. 81
Description of Certain Other
Indebtedness........................ 110
Certain Federal Income Tax
Consequences........................ 115
Plan of Distribution.................. 115
Book-Entry; Form and Transfer......... 116
Legal Matters......................... 118
Independent Accountants............... 118
Glossary of Marine Terms.............. 119
Unaudited Pro Forma Condensed
Consolidated Financial Statements... PF-1
Index to Consolidated Financial
Statements.......................... F-1
Projected Financial Information....... A-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$160,000,000
OUTBOARD MARINE CORPORATION
10 3/4% SENIOR NOTES
DUE 2008
--------------------
PROSPECTUS
--------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Outboard Marine Corporation (the "Registrant") is a Delaware corporation.
Subsection (b)(7) of Section 102 of the Delaware General Corporation Law (the
"DGCL"), enables a corporation in its original certificate of incorporation or
an amendment thereto to eliminate or limit the personal liability of a director
to the corporation or its stockholders for monetary damages for violations of
the director's fiduciary duty, except (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit. Article 6 of the Registrant's Restated Certificate of
Incorporation has eliminated the personal liability of directors to the fullest
extent permitted by law.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any director, officer, employee or agent or former director, officer,
employee or agent who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding; provided that such director, officer, employee or agent
acted in good faith in a manner reasonably believed to be in, or not opposed to,
the best interests of the corporation, and, with respect to any criminal action
or proceeding, provided further that such director, officer, employee or agent
had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
director, officer, employee or agent, or former director, officer, employee or
agent, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit provided that such director,
officer, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such director, officer, employee or agent shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all of the circumstances of the case, such director, officer, employee
or agent is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director, officer,
employee or agent of a corporation has been successful on the merits in defense
of any action, suit or proceeding referred to in subsections (a) and (b) or in
the defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith; that indemnification and advancement of expenses
provided for, by, or granted pursuant to, Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
II-1
<PAGE> 189
All of the directors and officers of the Company are covered by insurance
policies maintained and held in effect by the Company against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
3.1(a) -- Restated Certificate of Incorporation of the Company (filed
as Exhibit 3(A) to the Company's Annual Report on Form
10-K/A for the year ended September 30, 1997 (the "1997
10-K"))*
(b) -- Certificate of Incorporation of OMC Fishing Boat Group,
Inc., as amended**
(c) -- Certificate of Incorporation of OMC Aluminum Boat Group,
Inc., as amended**
(d) -- Certificate of Incorporation of OMC Recreational Boat Group,
Inc.**
(e) -- Certificate of Incorporation of OMC Latin America/Caribbean,
Inc., as amended**
(f) -- Certificate of Limited Partnership of Recreational Boat
Group Limited Partnership**
3.2(a) -- Amended and Restated by-laws of the Company (filed as
Exhibit 3(B) to the 1997 10-K)*
(a)(1) -- Amended and Restated by-laws of the Company (adopted July
23, 1998)
(b) -- By-laws of OMC Fishing Boat Group, Inc.**
(c) -- By-laws of OMC Aluminum Boat Group, Inc.**
(d) -- By-laws of OMC Recreational Boat Group, Inc.**
(e) -- By-laws of OMC Latin America/Caribbean, Inc.**
(f) -- Agreement of Limited Partnership of Recreational Boat Group
Limited Partnership, as amended**
4.1 -- Indenture for the 10 3/4% Senior Notes due 2008, Series A
(the "Old Notes") and 10 3/4% Senior Notes due 2008, Series
B (the "Exchange Notes"), dated as of May 27, 1998 among the
Company, the Subsidiary Guarantors and State Street Bank and
Trust Company, as trustee**
4.2 -- Form of Old Note (included in Exhibit 4.1)**
4.3 -- Form of Exchange Note**
4.4 -- Form of Subsidiary Guarantee (included in Exhibit 4.1)**
4.5 -- Registration Rights Agreement dated as of May 27, 1998 among
the Company, the Subsidiary Guarantors and Donaldson, Lufkin
& Jenrette Securities Corporation and Bear, Stearns & Co.,
Inc.**
4.6 -- Depositary Agreement dated as of May 27, 1998 among the
Company, State Street Bank and Trust Company, as trustee,
NationsBank, N.A., as administrative agent, and State Street
Bank and Trust Company, as depositary agent**
4.7 -- With respect to rights of holders of the Company's 9 1/8%
Sinking Fund Debentures due 2017, reference is made to
Exhibit 4(A) to the Company's Registration Statement Number
33-12759 filed on March 20, 1987*
4.8 -- With respect to rights of holders of the Company's 7%
Convertible Subordinated Debentures due 2002, reference is
made to the Company's Registration Statement Number 33-47354
filed on April 28, 1992*
4.9 -- With respect to the Supplemental Indenture dated September
30, 1997 related to the Company's 7% Convertible
Subordinated Debentures due 2002, reference is made to
Exhibit 4(C) to the 1997 10-K*
5 -- Opinion of Weil, Gotshal & Manges LLP as to the validity of
the Exchange Notes to be issued by the Company**
5.1 -- Revised opinion of Weil, Gotshal & Manges LLP as to the
validity of the Exchange Notes to be issued by the Company
</TABLE>
II-2
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.1 -- With respect to Severance Agreements between the Company and
certain elected and appointed officers and certain other
executives of the Company, reference is made to Exhibits
99.3 and 99.4 of the Company's Schedule 14D-9 filed with the
Securities and Exchange Commission on July 15, 1997*
10.2 -- With respect to the Consulting Agreement for Mr. Bowman
dated September 24, 1997, reference is made to Exhibit 10(I)
to the 1997 10-K*
10.3 -- With respect to the Employment Agreement of Mr. Hines dated
October 6, 1997, reference is made to Exhibit 10(J) to the
1997 10-K*
10.4 -- With respect to the Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated January 6, 1998, reference is made to Exhibit 10(E) to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1997*
10.5 -- First Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated May 21, 1998**
10.6 -- With respect to the Employment Agreement of Mr. Jones dated
March 10, 1998, reference is made to Exhibit 10(F) to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998*
10.7 -- With respect to the Personal Rewards and Opportunity
Program, reference is made to Exhibit 10(G) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998*
10.8 -- With respect to the form of Employment Agreement between the
Company and Kimberly K. Bors, Paul R. Rabe, Robert S. Romano
and certain other executives of the Company, reference is
made to Exhibit 19(H) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998*
11 -- Computation of per share income (loss) (filed as Exhibit 11
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998)*
11.1 -- Revised computation of per share income (loss) (filed as
Exhibit 11 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1998)*
12 -- Statement of Computation of Ratios of Earnings to Fixed
Charges**
12.1 -- Revised Statement of Computation of Ratios of Earnings to
Fixed Charges
21 -- Subsidiaries of Registrant (filed as Exhibit 21 to the 1997
10-K)*
23.1 -- Consent of Arthur Andersen LLP**
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5 to this Registration Statement)**
23.3 -- Updated Consent of Arthur Andersen LLP
23.4 -- Updated Consent of Weil, Gotshal & Manges LLP (included in
the opinion filed as Exhibit 5.1 to Amendment No. 1 to this
Registration Statement)
24 -- Power of Attorney (included on signature pages to this
Registration Statement)**
24.1 -- Power of Attorney of Frank V. Sica
25 -- Statement of Eligibility and Qualification of State Street
Bank and Trust Company, as Trustee on Form T-1 with respect
to the 10 3/4% Senior Notes due 2008
27 -- Financial Data Schedule**
27.1 -- Revised Financial Data Schedule
99.1 -- Form of Letter of Transmittal**
</TABLE>
II-3
<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
99.2 -- Form of Notice of Guaranteed Delivery**
99.3 -- Form of Instructions to Registered Holders and/or Book-Entry
Facility Participant from Beneficial Owner**
99.4 -- Form of Exchange Agent Agreement**
</TABLE>
- ---------------
* Incorporated herein by reference.
** Previously filed.
(b) Schedules
All Schedules are omitted as the required information is presented in the
Registrant's consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS.
(a) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Each of the undersigned registrants hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of a registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the provisions, or otherwise, each of the
II-4
<PAGE> 192
registrants has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
(d) Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(e) Each of the undersigned registrants hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE> 193
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Outboard Marine Corporation has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Waukegan,
State of Illinois.
Date: September 4, 1998 OUTBOARD MARINE CORPORATION
By: /s/ ANDREW P. HINES
------------------------------------
Andrew P. Hines
Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board September 4, 1998
- ---------------------------------------------------
Alfred D. Kingsley
* Vice Chairman and Assistant September 4, 1998
- --------------------------------------------------- Secretary
Gary K. Duberstein
* Vice Chairman September 4, 1998
- ---------------------------------------------------
Richard Katz
* Director September 4, 1998
- ---------------------------------------------------
Ron Hiram
* Director September 4, 1998
- ---------------------------------------------------
Frank V. Sica
* President and Chief Executive September 4, 1998
- --------------------------------------------------- Officer; Director (Principal
David D. Jones, Jr. Executive Officer)
/s/ ANDREW P. HINES Executive Vice President and September 4, 1998
- --------------------------------------------------- Chief Financial Officer;
Andrew P. Hines Director (Principal
Financial Officer)
* Vice President and Controller September 4, 1998
- ---------------------------------------------------
Joseph P. Tomczak
* Signed on behalf of each of the above-mentioned
individuals by their attorney-in-fact.
</TABLE>
/s/ ANDREW P. HINES
- -----------------------------------
Andrew P. Hines
Attorney-in-Fact
II-6
<PAGE> 194
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, OMC
Fishing Boat Group, Inc. has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Waukegan,
State of Illinois.
Date: September 4, 1998 OMC FISHING BOAT GROUP, INC.
By: /s/ ROBERT S. ROMANO, ESQ.
------------------------------------
Robert S. Romano, Esq.
President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board September 4, 1998
- ---------------------------------------------------
David D. Jones, Jr.
/s/ ROBERT S. ROMANO, ESQ. President and Secretary; September 4, 1998
- --------------------------------------------------- Director (Principal
Robert S. Romano, Esq. Executive Officer)
* Assistant Secretary and September 4, 1998
- --------------------------------------------------- Treasurer; Director
Gordon G. Repp (Principal Financial
Officer)
* Vice President September 4, 1998
- ---------------------------------------------------
Paula S. Rummage
* Signed on behalf of each of the above-mentioned
individuals by their attorney-in-fact.
</TABLE>
/s/ ROBERT S. ROMANO
- -----------------------------------
Robert S. Romano
Attorney-in-Fact
II-7
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, OMC
Aluminum Boat Group, Inc. has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Waukegan,
State of Illinois.
Date: September 4, 1998 OMC ALUMINUM BOAT GROUP, INC.
By: /s/ ROBERT S. ROMANO, ESQ.
------------------------------------
Robert S. Romano, Esq.
President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board September 4, 1998
- ---------------------------------------------------
David D. Jones, Jr.
/s/ ROBERT S. ROMANO, ESQ. President and Secretary; September 4, 1998
- --------------------------------------------------- Director (Principal
Robert S. Romano, Esq. Executive Officer)
* Assistant Secretary and September 4, 1998
- --------------------------------------------------- Treasurer; Director
Gordon G. Repp (Principal Financial
Officer)
* Vice President, Finance September 4, 1998
- ---------------------------------------------------
Steve M. Hansley
* Signed on behalf of each of the above-mentioned
individuals by their attorney-in-fact.
/s/ ROBERT S. ROMANO
- ---------------------------------------------------
Robert S. Romano
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 196
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, OMC
Latin America/ Caribbean, Inc. has duly caused this Amendment to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Waukegan, State of Illinois.
<TABLE>
<S> <C>
Date: September 4, 1998 OMC LATIN AMERICA/CARIBBEAN
BY: /s/ RAYMOND M. CARTADE
----------------------------------------------
Raymond M. Cartade
President
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board September 4, 1998
- ---------------------------------------------------
David D. Jones, Jr.
* Vice President and September 4, 1998
- --------------------------------------------------- Secretary; Director
Robert S. Romano, Esq.
* Assistant Secretary; September 4, 1998
- --------------------------------------------------- Director
Gordon G. Repp
/s/ RAYMOND M. CARTADE President September 4, 1998
- --------------------------------------------------- (Principal Executive
Raymond M. Cartade Officer)
* Vice President and Treasurer September 4, 1998
- --------------------------------------------------- (Principal Financial
Julio de Almeida Pires Officer)
* Signed on behalf of each of the above-mentioned
individuals by their attorney-in-fact.
/s/ RAYMOND M. CARTADE
- ---------------------------------------------------
Raymond M. Cartade
Attorney-in-Fact
</TABLE>
II-9
<PAGE> 197
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, OMC
Recreational Boat Group, Inc. has duly caused this Amendment to be signed on its
behalf, and as general partner on behalf of Recreational Boat Group Limited
Partnership, by the undersigned, thereunto duly authorized, in the City of
Waukegan, State of Illinois.
Date: September 4, 1998 OMC RECREATION BOAT GROUP, INC.
By: /s/ ROBERT S. ROMANO, ESQ.
------------------------------------
Robert S. Romano, Esq.
Vice President and Secretary
RECREATIONAL BOAT GROUP LIMITED
PARTNERSHIP
By: OMC Recreational Boat Group, Inc.,
General Partner
By: /s/ ROBERT S. ROMANO, ESQ.
------------------------------------
Robert S. Romano, Esq.
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board and September 4, 1998
- --------------------------------------------------- President (Principal
David D. Jones, Jr. Executive Officer)
/s/ ROBERT S. ROMANO, ESQ. Vice President and Secretary; September 4, 1998
- --------------------------------------------------- Director
Robert S. Romano, Esq.
* Assistant Secretary; Director September 4, 1998
- --------------------------------------------------- (Principal Financial
Gordon G. Repp Officer)
* Signed on behalf of each of the above-mentioned
individuals by their attorney-in-fact.
/s/ ROBERT S. ROMANO
- ---------------------------------------------------
Robert S. Romano
Attorney-in-Fact
</TABLE>
II-10
<PAGE> 198
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT EXEMPTION
NUMBER DESCRIPTION INDICATION
------- ----------- ----------
<C> <S> <C> <C>
3.1(a) -- Restated Certificate of Incorporation of the Company (filed
as Exhibit 3(A) to the Company's Annual Report on Form
10-K/A for the year ended September 30, 1997 (the "1997
10-K"))*....................................................
(b) -- Certificate of Incorporation of OMC Fishing Boat Group,
Inc., as amended**..........................................
(c) -- Certificate of Incorporation of OMC Aluminum Boat Group,
Inc., as amended**..........................................
(d) -- Certificate of Incorporation of OMC Recreational Boat Group,
Inc.**......................................................
(e) -- Certificate of Incorporation of OMC Latin America/Caribbean,
Inc., as amended**..........................................
(f) -- Certificate of Limited Partnership of Recreational Boat
Group Limited Partnership**.................................
3.2(a) -- Amended and Restated by-laws of the Company (filed as
Exhibit 3(B) to the 1997 10-K)*.............................
(a)(1) -- Amended and Restated by-laws of the Company (adopted July
23, 1998)...................................................
(b) -- By-laws of OMC Fishing Boat Group, Inc.**...................
(c) -- By-laws of OMC Aluminum Boat Group, Inc.**..................
(d) -- By-laws of OMC Recreational Boat Group, Inc.**..............
(e) -- By-laws of OMC Latin America/Caribbean, Inc.**..............
(f) -- Agreement of Limited Partnership of Recreational Boat Group
Limited Partnership, as amended**...........................
4.1 -- Indenture for the 10 3/4% Senior Notes due 2008, Series A
(the "Old Notes") and 10 3/4% Senior Notes due 2008, Series
B (the "Exchange Notes"), dated as of May 27, 1998 among the
Company, the Subsidiary Guarantors and State Street Bank and
Trust Company, as trustee**.................................
4.2 -- Form of Old Note (included in Exhibit 4.1)**................
4.3 -- Form of Exchange Note**.....................................
4.4 -- Form of Subsidiary Guarantee (included in Exhibit 4.1)**....
4.5 -- Registration Rights Agreement dated as of May 27, 1998 among
the Company, the Subsidiary Guarantors and Donaldson, Lufkin
& Jenrette Securities Corporation and Bear, Stearns & Co.,
Inc.**......................................................
4.6 -- Depositary Agreement dated as of May 27, 1998 among the
Company, State Street Bank and Trust Company, as trustee,
NationsBank, N.A., as administrative agent, and State Street
Bank and Trust Company, as depositary agent**...............
4.7 -- With respect to rights of holders of the Company's 9 1/8%
Sinking Fund Debentures due 2017, reference is made to
Exhibit 4(A) to the Company's Registration Statement Number
33-12759 filed on March 20, 1987*...........................
4.8 -- With respect to rights of holders of the Company's 7%
Convertible Subordinated Debentures due 2002, reference is
made to the Company's Registration Statement Number 33-47354
filed on April 28, 1992*....................................
4.9 -- With respect to the Supplemental Indenture dated September
30, 1997 related to the Company's 7% Convertible
Subordinated Debentures due 2002, reference is made to
Exhibit 4(C) to the 1997 10-K*..............................
5 -- Opinion of Weil, Gotshal & Manges LLP as to the validity of
the Exchange Notes to be issued by the Company**............
5.1 -- Revised opinion of Weil, Gotshal & Manges LLP as to the
validity of the Exchange Notes to be issued by the
Company.....................................................
</TABLE>
<PAGE> 199
<TABLE>
<CAPTION>
EXHIBIT EXEMPTION
NUMBER DESCRIPTION INDICATION
------- ----------- ----------
<C> <S> <C> <C>
10.1 -- With respect to Severance Agreements between the Company and
certain elected and appointed officers and certain other
executives of the Company, reference is made to Exhibits
99.3 and 99.4 of the Company's Schedule 14D-9 filed with the
Securities and Exchange Commission on July 15, 1997*........
10.2 -- With respect to the Consulting Agreement for Mr. Bowman
dated September 24, 1997, reference is made to Exhibit 10(I)
to the 1997 10-K*...........................................
10.3 -- With respect to the Employment Agreement of Mr. Hines dated
October 6, 1997, reference is made to Exhibit 10(J) to the
1997 10-K*..................................................
10.4 -- With respect to the Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated January 6, 1998, reference is made to Exhibit 10(E) to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended December 31, 1997*............................
10.5 -- First Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated May 21, 1998**........................................
10.6 -- With respect to the Employment Agreement of Mr. Jones dated
March 10, 1998, reference is made to Exhibit 10(F) to the
Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998*...............................
10.7 -- With respect to the Personal Rewards and Opportunity
Program, reference is made to Exhibit 10(G) to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998*.............................................
10.8 -- With respect to the form of Employment Agreement between the
Company and Kimberly K. Bors, Paul R. Rabe, Robert S. Romano
and certain other executives of the Company, reference is
made to Exhibit 19(H) to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1998*.......
11 -- Computation of per share income (loss) (filed as Exhibit 11
to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998)*.......................
11.1 -- Revised computation of per share income (loss) (filed as
Exhibit 11 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1998)*................
12 -- Statement of Computation of Ratios of Earnings to Fixed
Charges**...................................................
12.1 -- Revised Statement of Computation of Ratios of Earnings to
Fixed Charges...............................................
21 -- Subsidiaries of Registrant (filed as Exhibit 21 to the 1997
10-K)*......................................................
23.1 -- Consent of Arthur Andersen LLP**............................
23.2 -- Consent of Weil, Gotshal & Manges LLP (included in the
opinion filed as Exhibit 5 to this Registration
Statement)**................................................
23.3 -- Updated Consent of Arthur Andersen LLP......................
23.4 -- Updated Consent of Weil, Gotshal & Manges LLP (included in
the opinion filed as Exhibit 5.1 to Amendment No. 1 to this
Registration Statement).....................................
24 -- Power of Attorney (included on signature pages to this
Registration Statement)**...................................
24.1 -- Power of Attorney of Frank V. Sica..........................
25 -- Statement of Eligibility and Qualification of State Street
Bank and Trust Company, as Trustee on Form T-1 with respect
to the 10 3/4% Senior Notes due 2008**......................
27 -- Financial Data Schedule**...................................
27.1 -- Revised Financial Data Schedule.............................
99.1 -- Form of Letter of Transmittal**.............................
</TABLE>
<PAGE> 200
<TABLE>
<CAPTION>
EXHIBIT EXEMPTION
NUMBER DESCRIPTION INDICATION
------- ----------- ----------
<C> <S> <C> <C>
99.2 -- Form of Notice of Guaranteed Delivery**.....................
99.3 -- Form of Instructions to Registered Holders and/or Book-Entry
Facility Participant from Beneficial Owner**................
99.4 -- Form of Exchange Agent Agreement**..........................
</TABLE>
- ---------------
* Incorporated herein by reference.
** Previously filed.
<PAGE> 1
EXHIBIT 3.2(a)(1)
Amended and Restated
BY-LAWS
OF
Outboard Marine Corporation
(a Delaware corporation)
(adopted by the Board of Directors on July 23, 1998)
ARTICLE I
Stockholders
SECTION 1. Annual Meetings. The annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly come before the meeting shall be held each year at such date and
time, within or without the State of Delaware, as the Board of Directors shall
determine.
SECTION 2. Special Meetings. Special meetings of stockholders
for the transaction of such business as may properly come before the meeting may
be called by order of the Board of Directors or by stockholders holding together
at least a majority of all the shares of the Corporation entitled to vote at the
meeting, and shall be held at such date and time, within or without the State of
Delaware, as may be specified by such order.
SECTION 3. Notice of Meetings. Written notice of all meetings
of the stockholders shall be mailed or delivered to each stockholder not less
than 10 nor more than 60 days prior to the meeting. Notice of any special
meeting shall state in general terms the purpose or purposes for which the
meeting is to be held.
SECTION 4. Stockholder Lists. The officer who has charge of
the stock ledger of the Corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, either at a place within the city where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
<PAGE> 2
The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
SECTION 5. Quorum. Except as otherwise provided by law or the
Corporation's Certificate of Incorporation, a quorum for the transaction of
business at any meeting of stockholders shall consist of the holders of record
of a majority of the issued and outstanding shares of the capital stock of the
Corporation entitled to vote at the meeting, present in person or by proxy. At
all meetings of the stockholders at which a quorum is present, all matters,
except as otherwise provided by law or the Certificate of Incorporation, shall
be decided by the vote of the holders of a majority of the shares entitled to
vote thereat present in person or by proxy. If there be no such quorum, the
holders of a majority of such shares so present or represented may adjourn the
meeting from time to time, without further notice, until a quorum shall have
been obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 6. Organization. Meetings of stockholders shall be
presided over by the Chairman, if any, or if none or in the Chairman's absence
the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the
President, if any, or if none or in the President's absence a Vice-President,
or, if none of the foregoing is present, by a chairman to be chosen by the
stockholders entitled to vote who are present in person or by proxy at the
meeting. The Secretary of the Corporation, or in the Secretary's absence an
Assistant Secretary, shall act as secretary of every meeting, but if neither the
Secretary nor an Assistant Secretary is present, the presiding officer of the
meeting shall appoint any person present to act as secretary of the meeting.
SECTION 7. Voting; Proxies; Required Vote. (a) At each meeting
of stockholders, every stockholder shall be entitled to vote in person or by
proxy appointed by instrument in writing, subscribed by such stockholder or by
such stockholder's duly authorized attorney-in-fact (but no such proxy shall be
voted or acted upon after three years from its date, unless the proxy provides
for a longer period), and, unless the Certificate of Incorporation provides
otherwise, shall have one vote for each share of stock entitled to vote
registered in the name of such stockholder on the books of the Corporation on
the applicable record date fixed pursuant to these By-laws. At all elections of
directors the voting may but need not be by ballot and a plurality of the votes
cast there shall elect. Except as otherwise required by law or the Certificate
of Incorporation, any other action shall be authorized by a majority of the
votes cast.
(b) Any action required or permitted to be taken at any
meeting of stockholders may, except as otherwise required by law or the
Certificate of Incorporation, be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of record of the issued and outstanding capital
stock of the Corporation having a majority of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted, and the writing or writings are filed with the
permanent records of the Corporation. Prompt notice of the taking of corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.
<PAGE> 3
(c) Where a separate vote by a class or classes, present in
person or represented by proxy, shall constitute a quorum entitled to vote on
that matter, the affirmative vote of the majority of shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class, unless otherwise provided in the Corporation's Certificate of
Incorporation.
SECTION 8. Inspectors. The Board of Directors, in advance of
any meeting, may, but need not, appoint one or more inspectors of election to
act at the meeting or any adjournment thereof. If an inspector or inspectors are
not so appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors. In case any person who may be appointed as an inspector
fails to appear or act, the vacancy may be filled by appointment made by the
directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, and the validity and effect of
proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
On request of the person presiding at the meeting, the inspector or inspectors,
if any, shall make a report in writing of any challenge, question or matter
determined by such inspector or inspectors and execute a certificate of any fact
found by such inspector or inspectors.
ARTICLE II
Board of Directors
SECTION 1. General Powers. The business, property and affairs
of the Corporation shall be managed by, or under the direction of, the Board of
Directors.
SECTION 2. Qualification; Number; Term; Remuneration. (a) Each
director shall be at least 18 years of age. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The number of directors constituting the entire Board shall be 6, or
such larger or smaller number as may be fixed from time to time by action of the
stockholders or Board of Directors. The use of the phrase "entire Board" herein
refers to the total number of directors which the Corporation would have if
there were no vacancies.
(b) Directors who are elected at an annual meeting of
stockholders, and directors who are elected in the interim to fill vacancies and
newly created directorships, shall hold office until the next annual meeting of
stockholders and until their successors are elected and qualified or until their
earlier resignation or removal.
(c) Directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be paid a fixed sum
for attendance at each meeting of the Board of Directors or a stated salary as
director. No such payment shall
<PAGE> 4
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
SECTION 3. Quorum and Manner of Voting. Except as otherwise
provided by law, a majority of the entire Board shall constitute a quorum. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting from time to time to another time and place without notice.
The vote of the majority of the directors present at a meeting at which a quorum
is present shall be the act of the Board of Directors.
SECTION 4. Places of Meetings. Meetings of the Board of
Directors may be held at any place within or without the State of Delaware, as
may from time to time be fixed by resolution of the Board of Directors, or as
may be specified in the notice of meeting.
SECTION 5. Annual Meeting. Following the annual meeting of
stockholders, the newly elected Board of Directors shall meet for the purpose of
the election of officers and the transaction of such other business as may
properly come before the meeting. Such meeting may be held without notice
immediately after the annual meeting of stockholders at the same place at which
such stockholders' meeting is held.
SECTION 6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors shall
from time to time by resolution determine.
SECTION 7. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board, President,
or by a majority of the directors then in office.
SECTION 8. Notice of Meetings. A notice of the place, date and
time and the purpose or purposes of each meeting of the Board of Directors shall
be given to each director by mailing the same at least two days before the
meeting, or by telegraphing or telephoning the same or by delivering the same
personally not later than the day before the day of the meeting.
SECTION 9. Organization. At all meetings of the Board of
Directors, the Chairman, or Chairmen, if any, or if none or in the Chairman's or
Chairmen's absence or inability to act the Vice-Chairman, or Vice-Chairmen, if
any, or in the Vice-Chairman's or Vice-Chairmen's absence or inability to act
the President, or in the President's absence or inability to act any
Vice-President who is a member of the Board of Directors, or in such
Vice-President's absence or inability to act a chairman chosen by the directors,
shall preside. The Secretary of the Corporation shall act as secretary at all
meetings of the Board of Directors when present, and, in the Secretary's
absence, the presiding officer may appoint any person to act as secretary.
SECTION 10. Resignation; Removal. Any director may resign at
any time upon written notice to the Corporation and such resignation shall take
effect upon receipt thereof by the President, unless otherwise specified in the
resignation. Any or all
<PAGE> 5
of the directors may be removed, with or without cause, by the holders of 75% of
the shares of stock outstanding and entitled to vote for the election of
directors.
SECTION 11. Vacancies. Unless otherwise provided in these
By-laws, vacancies on the Board of Directors, whether caused by resignation,
death, disqualification, removal, an increase in the authorized number of
directors or otherwise, may be filled by the affirmative vote of a majority of
the remaining directors, although less than a quorum, or by a sole remaining
director, or at a special meeting of the stockholders, by the holders of shares
entitled to vote for the election of directors.
SECTION 12. Action by Written Consent. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if all the directors consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
ARTICLE III
Committees
SECTION 1. Appointment. From time to time the Board of
Directors by a resolution adopted by a majority of the entire Board may appoint
any committee or committees for any purpose or purposes, to the extent lawful,
which shall have powers as shall be determined and specified by the Board of
Directors in the resolution of appointment.
SECTION 2. Procedures, Quorum and Manner of Acting. Each
committee shall fix its own rules of procedure, and shall meet where and as
provided by such rules or by resolution of the Board of Directors. Except as
otherwise provided by law, the presence of a majority of the then appointed
members of a committee shall constitute a quorum for the transaction of business
by that committee, and in every case where a quorum is present the affirmative
vote of a majority of the members of the committee present shall be the act of
the committee. Each committee shall keep minutes of its proceedings, and actions
taken by a committee shall be reported to the Board of Directors.
SECTION 3. Action by Written Consent. Any action required or
permitted to be taken at any meeting of any committee of the Board of Directors
may be taken without a meeting if all the members of the committee consent
thereto in writing, and the writing or writings are filed with the minutes of
proceedings of the committee.
SECTION 4. Term; Termination. In the event any person shall
cease to be a director of the Corporation, such person shall simultaneously
therewith cease to be a member of any committee appointed by the Board of
Directors.
ARTICLE IV
Officers
<PAGE> 6
SECTION 1. Election and Qualifications. The Board of Directors
shall elect the officers of the Corporation, which shall include a Chairman of
the Board, one (or more) Vice-Chairman of the Board, a President and a
Secretary, and may include, by election or appointment, one or more
Vice-Presidents (any one or more of whom may be given an additional designation
of rank or function), a Treasurer and such assistant secretaries, such Assistant
Treasurers and such other officers as the Board may from time to time deem
proper. Each officer shall have such powers and duties as may be prescribed by
these By-laws and as may be assigned by the Board of Directors or the President.
Any two or more offices may be held by the same person except the offices of
President and Secretary. A director's tenure on the Board of Directors does not
disqualify such director from jointly holding a position as an officer, provided
that a majority of the remaining members of the Board of Directors approve such
appointment.
SECTION 2. Term of Office and Remuneration. The term of office
of all officers shall be one year and until their respective successors have
been elected and qualified, but any officer may be removed from office, either
with or without cause, at any time by the Board of Directors. Any vacancy in any
office arising from any cause may be filled for the unexpired portion of the
term by the Board of Directors. The remuneration of all officers of the
Corporation may be fixed by the Board of Directors or in such manner as the
Board of Directors shall provide.
SECTION 3. Resignation; Removal. Any officer may resign at any
time upon written notice to the Corporation and such resignation shall take
effect upon receipt thereof by the President, unless otherwise specified in the
resignation. Any officer shall be subject to removal, with or without cause, at
any time by vote of a majority of the entire Board.
SECTION 4. Chairman of the Board. The Chairman of the Board of
Directors shall preside at all meetings of the Board of Directors and shall have
such other powers and duties as may from time to time be assigned by the Board
of Directors. Any document or contract may be signed by the Chairman of the
Board on behalf of the Corporation.
SECTION 5. Vice-Chairman of the Board. At the request of the
Chairman of the Board, a Vice-Chairman of the Board of Directors shall preside
at all meetings of the Board of Directors in the absence of the Chairman of the
Board and shall have such other powers and duties as may from time to time be
assigned by either the Board of Directors or the Chairman of the Board,
including, without limitation, the power to execute and deliver in the name of
the Corporation contracts and other documents.
SECTION 6. President and Chief Executive Officer. The
President shall be the chief executive officer of the Corporation, and shall
have such duties as customarily pertain to that office. The President shall have
general management and supervision of the property, business and affairs of the
Corporation and over its other officers; may appoint and remove assistant
officers and other agents and employees, other than officers referred to in
Section 1 of this Article IV; and may execute and deliver in the name of the
Corporation powers of attorney, contracts, bonds and other obligations and
instruments.
<PAGE> 7
SECTION 7. Vice-President. A Vice-President may execute and
deliver in the name of the Corporation contracts and other obligations and
instruments pertaining to the regular course of the duties of said office, and
shall have such other authority as from time to time may be assigned by the
Board of Directors or the President.
SECTION 8. Chief Financial Officer. The Chief Financial
Officer shall be responsible for maintaining the financial integrity of the
Corporation, shall prepare the financial plans for the Corporation, and shall
monitor the financial performance of the Corporation and its subsidiaries, as
well as performing such other duties as may be assigned by the Chairman of the
Board or the Board of Directors or the President.
SECTION 9. Treasurer. The Treasurer shall have care and
custody of the funds and securities of the Corporation, shall deposit such funds
in the name and to the credit of the Corporation with such depositories as the
Treasurer shall approve, shall disburse the funds of the Corporation for proper
expenses and dividends, and as may be ordered by the Board, taking proper
vouchers for such disbursements. The Treasurer shall perform all of the duties
incident to the office of Treasurer, as well as such other duties as may be
assigned by the Chairman of the Board or the Board of Directors or the President
or the Chief Financial Officer.
SECTION 10. Secretary and Assistant Secretary. The Secretary
shall attend all meetings of the stockholders and the Board of Directors and
shall keep the minutes for such meetings in one or more books provided for that
purpose. The Secretary shall be custodian of the corporate records, except those
required to be in the custody of the Treasurer or the Controller, shall keep the
seal of the Corporation, and shall execute and affix the seal of the Corporation
to all documents duly authorized for execution under seal on behalf of the
Corporation, and shall perform all of the duties incident to the office of
Secretary, as well as such other duties as may be assigned by the Chairman of
the Board or the Board of Directors.
The Assistant Secretaries shall perform such of the
Secretary's duties as the Secretary shall from time to time direct. In case of
the absence or disability of the Secretary or a vacancy in the office, an
Assistant Secretary designated by the Chairman of the Board or by the Secretary,
if the office is not vacant, shall perform the duties of the Secretary.
SECTION 11. General Counsel. The General Counsel shall be a
licensed attorney at law and shall be the chief legal officer of the
Corporation. The General Counsel shall have such power and exercise such
authority and provide such counsel to the Corporation as deemed necessary or
desirable to enforce the rights and protect the property and integrity of the
Corporation, shall also have the power, authority, and responsibility for
securing for the Corporation all legal advice, service, and counseling, and
shall perform all of the duties incident to the office of General Counsel, as
well as such other duties as may be assigned by the Chairman of the Board or the
Board of Directors or the President.
SECTION 12. Controller and Assistant Controllers. The
Controller shall be the chief accounting officer of the Corporation and shall
keep and maintain in good and lawful order all accounts required by law and
shall have sole control over, and ultimate responsibility for, the accounts and
accounting methods of the Corporation and
<PAGE> 8
the compliance of the Corporation with all systems of accounts and accounting
regulations prescribed by law. The Controller shall audit, to such extent and at
such times as may be required by law or as the Controller may think necessary,
all accounts and records of corporate funds or property, by whomsoever kept, and
for such purposes shall have access to all such accounts and records. The
Controller shall make and sign all necessary and proper accounting statements
and financial reports of the Corporation, and shall perform all of the duties
incident to the office of Controller, as well as such other duties as may be
assigned by the Chairman of the Board or the Board of Directors or the President
or the Chief Financial Officer.
The Assistant Controllers shall perform such of the
Controller's duties as the Controller shall from time to time direct. In case of
the absence or disability of the Controller or a vacancy in the office, an
Assistant Controller designated by the Chairman of the Board or the Controller,
if the office is not vacant, shall perform the duties of the Controller.
SECTION 13. Assistant Officers. Any assistant officer shall
have such powers and duties of the officer such assistant officer assists as
such officer or the Board of Directors shall from time to time prescribe.
ARTICLE V
Books and Records
SECTION 1. Location. The books and records of the Corporation
may be kept at such place or places within or outside the State of Delaware as
the Board of Directors or the respective officers in charge thereof may from
time to time determine. The record books containing the names and addresses of
all stockholders, the number and class of shares of stock held by each and the
dates when they respectively became the owners of record thereof shall be kept
by the Secretary as prescribed in the By-laws and by such officer or agent as
shall be designated by the Board of Directors.
SECTION 2. Addresses of Stockholders. Notices of meetings and
all other corporate notices may be delivered personally or mailed to each
stockholder at the stockholder's address as it appears on the records of the
Corporation.
SECTION 3. Fixing Date for Determination of Stockholders of
Record. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
<PAGE> 9
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date. If no record date has
been fixed by the Board of Directors, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation by delivery to its
registered office in this State, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by this chapter, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting shall be at the close of business on the day on
which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE VI
Certificates Representing Stock
SECTION 1. Certificates; Signatures. The shares of the
Corporation shall be represented by certificates, provided that the Board of
Directors of the Corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate, signed by or
in the name of the Corporation by the Chairman or Vice-Chairman of the Board of
Directors, or the President or Vice-President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary of the
Corporation, representing the number of shares registered in certificate form.
Any and all signatures on any such certificate may be facsimiles. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. The name of the holder of record of the
shares represented thereby, with the number of such shares and the date of
issue, shall be entered on the books of the Corporation.
<PAGE> 10
SECTION 2. Transfers of Stock. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
shares of capital stock shall be transferable on the books of the Corporation
only by the holder of record thereof in person, or by duly authorized attorney,
upon surrender and cancellation of certificates for a like number of shares,
properly endorsed, and the payment of all taxes due thereon.
SECTION 3. Fractional Shares. The Corporation may, but shall
not be required to, issue certificates for fractions of a share where necessary
to effect authorized transactions, or the Corporation may pay in cash the fair
value of fractions of a share as of the time when those entitled to receive such
fractions are determined, or it may issue scrip in registered or bearer form
over the manual or facsimile signature of an officer of the Corporation or of
its agent, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a stockholder except as therein
provided.
The Board of Directors shall have power and authority to make
all such rules and regulations as it may deem expedient concerning the issue,
transfer and registration of certificates representing shares of the
Corporation.
SECTION 4. Lost, Stolen or Destroyed Certificates. The
Corporation may issue a new certificate of stock in place of any certificate,
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the Board of Directors may require the owner of any lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of any such new certificate.
ARTICLE VII
Dividends
Subject always to the provisions of law and the Certificate of
Incorporation, the Board of Directors shall have full power to determine whether
any, and, if any, what part of any, funds legally available for the payment of
dividends shall be declared as dividends and paid to stockholders; the division
of the whole or any part of such funds of the Corporation shall rest wholly
within the lawful discretion of the Board of Directors, and it shall not be
required at any time, against such discretion, to divide or pay any part of such
funds among or to the stockholders as dividends or otherwise; and before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, thinks proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the Board of Directors
shall think conducive to the interest of the Corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it was
created.
<PAGE> 11
ARTICLE VIII
Ratification
Any transaction, questioned in any law suit on the ground of
lack of authority, defective or irregular execution, adverse interest of
director, officer or stockholder, non-disclosure, miscomputation, or the
application of improper principles or practices of accounting, may be ratified
before or after judgment, by the Board of Directors or by the stockholders, and
if so ratified shall have the same force and effect as if the questioned
transaction had been originally duly authorized. Such ratification shall be
binding upon the Corporation and its stockholders and shall constitute a bar to
any claim or execution of any judgment in respect of such questioned
transaction.
ARTICLE IX
Corporate Seal
The corporate seal shall have inscribed thereon the name of
the Corporation and the year of its incorporation, and shall be in such form and
contain such other words and/or figures as the Board of Directors shall
determine. The corporate seal may be used by printing, engraving, lithographing,
stamping or otherwise making, placing or affixing, or causing to be printed,
engraved, lithographed, stamped or otherwise made, placed or affixed, upon any
paper or document, by any process whatsoever, an impression, facsimile or other
reproduction of said corporate seal.
ARTICLE X
Fiscal Year
Unless otherwise fixed by the Board of Directors, the fiscal
year of the Corporation shall be the twelve-month period beginning January 1 and
ending December 31.
ARTICLE XI
Waiver of Notice
Whenever notice is required to be given by these By-laws or by
the Certificate of Incorporation or by law, a written waiver thereof, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
ARTICLE XII
Bank Accounts, Drafts, Contracts, Etc.
<PAGE> 12
SECTION 1. Bank Accounts and Drafts. In addition to such bank
accounts as may be authorized by the Board of Directors, the primary financial
officer or any person designated by said primary financial officer, whether or
not an employee of the Corporation, may authorize such bank accounts to be
opened or maintained in the name and on behalf of the Corporation as he may deem
necessary or appropriate, payments from such bank accounts to be made upon and
according to the check of the Corporation in accordance with the written
instructions of said primary financial officer, or other person so designated by
the Treasurer.
SECTION 2. Contracts. The Board of Directors may authorize any
person or persons, in the name and on behalf of the Corporation, to enter into
or execute and deliver any and all deeds, bonds, mortgages, contracts and other
obligations or instruments, and such authority may be general or confined to
specific instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, the President or any other person designated by either of them shall
have the power and authority to execute and deliver proxies, powers of attorney
and other instruments on behalf of the Corporation in connection with the rights
and powers incident to the ownership of stock by the Corporation. The Chairman,
the President or any other person authorized by proxy or power of attorney
executed and delivered by either of them on behalf of the Corporation may attend
and vote at any meeting of stockholders of any company in which the Corporation
may hold stock, and may exercise on behalf of the Corporation any and all of the
rights and powers incident to the ownership of such stock at any such meeting,
or otherwise as specified in the proxy or power of attorney so authorizing any
such person. The Board of Directors, from time to time, may confer like powers
upon any other person.
SECTION 4. Financial Reports. The Board of Directors may
appoint the primary financial officer or other fiscal officer and/or the
Secretary or any other officer to cause to be prepared and furnished to
stockholders entitled thereto any special financial notice and/or financial
statement, as the case may be, which may be required by any provision of law.
ARTICLE XIII
Amendments
The Board of Directors shall have power to adopt, amend or
repeal By-laws. By-laws adopted by the Board of Directors may be repealed or
changed, and new By-laws made, by the stockholders, and the stockholders may
prescribe that any By-law made by them shall not be altered, amended or repealed
by the Board of Directors.
<PAGE> 1
Exhibit 5.1
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153-0119
Telephone: (212) 310-8000
Fax: (212) 310-8007
June 29, 1998
Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, IL 60085
Ladies and Gentlemen:
We have acted as counsel to Outboard Marine Corporation, a Delaware
corporation (the "Company"), and certain of its subsidiaries (the "Subsidiary
Guarantors"), in connection with the preparation and filing of a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), relating to $160,000,000 aggregate
principal amount of 10-3/4% Senior Notes due 2008, Series B (the "New Notes") of
the Company and the Subsidiary Guarantors' guarantees thereof (the "Subsidiary
Guarantees").
In so acting, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of the Registration Statement, the Prospectus
that is a part of the Registration Statement (the "Prospectus"), the Indenture,
dated as of May 27, 1998, by and among the Company, the Subsidiary Guarantors
and State Street Bank and Trust Company, as trustee (the "Trustee"), pursuant to
which the New Notes and the Subsidiary Guarantees will be issued (the
"Indenture"), the form of New Note and the Subsidiary Guarantees included as
Exhibits 4.3 and 4.4 to the Registration Statement, and such corporate records,
agreements, documents and other instruments, and such certificates or comparable
documents of public officials and of officers and representatives of the
Company, and have made such inquiries of such officers and representatives of
the Company as we have deemed relevant and necessary as a basis for the opinions
hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us
<PAGE> 2
as certified, conformed or photostatic copies and the authenticity of the
originals of such later documents. As to all questions of fact material to this
opinion that have not been independently established, we have relied upon
certificates or comparable documents of officers and representatives of the
Company. The opinions set forth below are also based on the assumption that the
Registration Statement, as finally amended (including any necessary
post-effective amendments), has become effective under the Securities Act.
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that:
The New Notes are duly authorized, and, when duly executed on behalf of the
Company, authenticated by the Trustee under the Indenture and issued and
delivered in accordance with the terms of the Indenture and as contemplated by
the Registration Statement, will constitute the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms and the terms of the Indenture, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
The Subsidiary Guarantees have been duly authorized, validly issued and
constitute the legal, valid and binding obligations of each Subsidiary
Guarantor, enforceable against it in accordance with their terms and the terms
of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity, including principles of commercial reasonableness, good
faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity).
The opinions herein are limited to the laws of the State of New York, the
corporate laws of the State of Delaware and the federal laws of the United
States, and we express no opinion as to the effect on the matters covered by
this opinion of the laws of any other jurisdiction.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement. We also consent to any and all references to our firm
under the caption "Legal Matters" in the Prospectus.
Very truly yours,
WEIL, GOTSHAL & MANGES LLP
<PAGE> 1
EXHIBIT 12.1
OUTBOARD MARINE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Post-Merger Pre-Merger
Company Company Pre-Merger Company
-------------------------- --------------------------------------------------------
Nine Month's ended June 30 Years ended September 30
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(In millions except ratios)
Earnings (loss):
Earnings (loss) before provision for
income taxes $ (0.7) $ (24.5) $ (76.3) $ (10.4) $ 60.8 $ 53.4 $(159.9)
Interest expense 22.6 12.7 16.2 12.3 23.1 15.1 19.8
Interest portion of rent expense 0.6 0.6 1.1 1.2 1.3 1.3 1.0
------- ------- ------- ------- ------ ------ -------
Earnings (loss) $ 22.5 $ (11.2) $ (59.0) $ 3.1 $ 85.2 $ 69.8 $(139.1)
======= ======= ======= ======= ====== ====== =======
Fixed Charges:
Interest expense 22.6 12.7 16.2 12.3 23.1 15.1 19.8
Interest portion of rent expense 0.6 0.6 1.1 1.2 1.3 1.3 1.0
------- ------- ------- ------- ------ ------ -------
Fixed Charges $ 23.2 $ 13.3 $ 17.3 $ 13.5 $ 24.4 $ 16.4 $ 20.8
======= ======= ======= ======= ====== ====== =======
Ratio of earnings to fixed charges 3.5 4.3
====== ======
Excess of fixed charges over earnings $ 0.7 $ 24.5 $ 76.3 $ 10.4 $ 159.9
======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
Exhibit 23.3
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
-------------------------
ARTHUR ANDERSEN LLP
Chicago, Illinois
September 3, 1998
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that Frank V. Sica, Director of Outboard
Marine Corporation, a Delaware corporation, hereby constitutes Andrew P. Hines
and Leslie M. Savickas, and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution, to sign for him and in his name,
place and stead, in any and all capacities, any and all amendments (including
post-effective amendments) to the registration statement pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), on Form S-4
(Registration No. 333-57949), and to file the same with the Securities and
Exchange Commission, granting unto each of said attorneys-in-fact and agents
full power and authority to do and perform each and every act and thing
requisite to be done, as fully to all intents and purposes as such person might
or could do personally, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their respective substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, the foregoing Power of
Attorney has been signed by the undersigned in the capacity and on the date
indicated.
Date: September 2, 1998
/s/ Frank V. Sica
----------------------
By: Frank V. Sica
Title: Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FORM S-4
REGISTRATION STATEMENT OF OUTBOARD MARINE CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000075149
<NAME> OUTBOARD MARINE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 35,500
<SECURITIES> 0
<RECEIVABLES> 156,500
<ALLOWANCES> 6,700
<INVENTORY> 174,500
<CURRENT-ASSETS> 400,000
<PP&E> 219,600
<DEPRECIATION> 20,100
<TOTAL-ASSETS> 1,115,800
<CURRENT-LIABILITIES> 302,800
<BONDS> 248,200
0
0
<COMMON> 200
<OTHER-SE> 267,300
<TOTAL-LIABILITY-AND-EQUITY> 1,115,800
<SALES> 760,100
<TOTAL-REVENUES> 760,100
<CGS> 590,800
<TOTAL-COSTS> 590,800
<OTHER-EXPENSES> 147,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,600
<INCOME-PRETAX> 14,000
<INCOME-TAX> 700
<INCOME-CONTINUING> (3,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,900)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> (.19)
</TABLE>
