<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1998
REGISTRATION NO. 333-57949
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
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.)
SUBSIDIARY GUARANTORS OF SENIOR NOTES REGISTERED HEREBY
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 NAMES OF REGISTRANTS AS (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
SPECIFIED IN THEIR CHARTERS) 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 REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
ROBERT S. ROMANO, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
OUTBOARD MARINE CORPORATION
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 DECEMBER 30, 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 ,
1999, 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, Series A (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 , 1999, 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 Equity 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 September 30, 1998, the Notes and the Subsidiary
Guarantees would have been effectively subordinated to approximately $50.6
million of secured obligations of the Company and the Subsidiary Guarantors
(including an aggregate of $37.7 million of letter of credit obligations under
the Credit Agreement) and $30.9 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 14 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 SECURITIES
AND EXCHANGE 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 , 1999
<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 , 1999 (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, 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. Prior to October 1, 1998, the Company's fiscal year
ended each September 30; therefore, for example, references herein 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 changed from September
30 to December 31. A glossary of certain technical terms used herein is included
for the convenience of the reader on page 120.
THE COMPANY
OMC believes it is the world's largest dedicated manufacturer of outboard
marine engines and boats. As of September 30, 1998, the Company had an
approximate 35% share of the United States outboard marine engine market and
estimated 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 ranging from two to
250-horsepower. The Company's boat brands are also among the most recognized in
the industry and are one of the 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. The new management team also
includes
1
<PAGE> 7
Andrew P. Hines who 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 a substantial number of 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.
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 has been reset to better reflect the particular
image and the value added by each brand. To further support this
strategy, the Company has refocused 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 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 and engine 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 and engine 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;
- completed its previously 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 raw
materials, components and subassemblies;
- 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;
- identified potential vendors for outsourcing the
production of certain engine components; and
- announced that its Milwaukee, Wisconsin and Waukegan,
Illinois engine manufacturing facilities will be closed
over the next two years.
- 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 a 150-horsepower model released in January 1997, the
Company has introduced 90-horsepower, 115-horsepower, 175-horsepower,
200-horsepower and 225-horsepower Evinrude models.
2
<PAGE> 8
- 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
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 implemented 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. Since its
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.
For a discussion of certain matters relating to the Company's turnaround
strategy, see "Risk Factors -- Ability to Execute Turnaround Strategy."
INDUSTRY
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 believes it may 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 may contribute to growth in the
recreational boating industry over the next several years.
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 could provide 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
3
<PAGE> 9
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.
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 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 ,
1999, 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 and unpaid interest thereon to, but not
including, the issuance date of the Exchange Notes,
and will receive, in cash, any accrued and unpaid
Liquidated Damages. Such interest and Liquidated
Damages 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
6
<PAGE> 12
an "affiliate," as defined under Rule 405 of the
Securities Act, of the 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 (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, 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
September 30, 1998, the Notes and the Subsidiary
Guarantees would have been effectively subordinated
to approximately $50.6 million of secured
obligations of the Company and the Subsidiary
Guarantors (including an aggregate of $37.7 million
of letter of credit obligations under the Credit
Agreement) and $30.9 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 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, 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.
<TABLE>
<CAPTION>
POST-MERGER
PRE-MERGER COMPANY COMPANY
------------------------------------------- -------------
FISCAL YEAR
FISCAL YEARS ENDED SEPTEMBER 30, ENDED
------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998(1)
--------- --------- --------- ------- -------------
(DOLLARS IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $1,078.4 $1,229.2 $1,121.5 $979.5 $1,025.7
Gross earnings.......................... 252.0 297.4 229.3 153.0 234.3
Selling, general and administrative
expense.............................. 206.0 230.2 210.3 215.4 268.4
Restructuring charges(2)................ -- -- 25.6 -- 98.5
Change in control expenses-
compensation(3)...................... -- -- -- 11.8 --
Earnings (loss) from operations......... 46.0 67.2 (6.6) (74.2) (132.6)
OTHER DATA:
EBITDA (as defined)(4).................. 93.4 118.7 77.3 (0.9) 20.0
Capital expenditures.................... 68.2 66.5 52.7 36.3 34.4
Net cash provided by operating
activities........................... 57.3 51.4 91.1 (9.2) 60.3
Net cash used for investing
activities........................... (63.0) (65.8) (50.5) (26.1) (24.0)
Net cash used for financing
activities........................... (19.7) (8.1) (2.9) (3.7) (45.1)
Ratio of earnings to fixed charges(5)... 4.3x 3.5x N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 45.2
Current assets............................................ 418.1
Interest Reserve Accounts(6).............................. 28.6
Total assets.............................................. 1,082.1
Long-term debt............................................ 247.9
Total shareholders' investment............................ 94.7
</TABLE>
(footnotes on following page)
12
<PAGE> 18
- ------------------------------
(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
September 30, 1998 and its results of operations for the fiscal year ended
September 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 1998 related to the announced
closings of the Company's Milwaukee, Wisconsin and Waukegan, Illinois engine
manufacturing facilities, including severance costs, curtailment losses and
facility shut-down costs associated therewith. The restructuring charges
recorded in fiscal 1996 related to closings of distribution operations and
write-down of manufacturing facilities outside the United States. See Note 4
of the Notes to the Consolidated Financial Statements contained elsewhere
herein.
(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) "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. For each of the fiscal years ended September 30,
1998 and September 30, 1996, "EBITDA" does not include restructuring charges
of $98.5 million and $25.6 million, respectively. See Note 4 of the Notes to
the Consolidated Financial Statements contained elsewhere herein. 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 $4.1
million, $4.9 million, $4.4 million, $7.2 million and $4.8 million for the
fiscal years ended 1994, 1995, 1996, 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, 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 a measure of liquidity or as an
indication of a company's operating performance. 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.
(5) 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 1996, fiscal 1997 and fiscal 1998. The
amounts of additional earnings that would have been required to cover fixed
charges for such periods are $10.4 million, $76.3 million and $147.1
million, respectively.
(6) 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."
13
<PAGE> 19
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 2% of the Company's outstanding borrowings bear interest at
variable rates. As of September 30, 1998, the Company had total consolidated
indebtedness and stockholder's equity of approximately $259.1 million and $94.7
million, respectively. For the fiscal year ended September 30, 1998, 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
$147.1 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.
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DECLINING MARKET SHARE AND SALES; NET LOSSES
The Company's market share in the U.S. boat market has declined from 20% in
fiscal 1993 to 13% as of September 30, 1998, and its market share in the U.S.
engine market has declined from 49% in fiscal 1993 to 35% as of September 30,
1998. The Company's net sales declined from $1,229.2 million in fiscal 1995 to
$979.5 million in fiscal 1997, but the Company's net sales increased to $1,025.7
million in fiscal 1998. 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 recorded a loss from operations of $132.6 million in fiscal
1998, which loss would have been $34.1 million excluding the $98.5 million
restructuring charge recorded in fiscal 1998. 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. Excluding the $98.5
million restructuring charge recorded in fiscal 1998 and the $11.8 million
charge in control expenses-compensation recorded in fiscal 1997, the Company's
loss from operations has improved by $28.3 million from a loss of $62.4 million
for fiscal 1997, and EBITDA (as defined) has improved by $20.9 million to $20.0
million for fiscal 1998 from $(0.9) million for fiscal 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
However, there can be no assurance that the Company's market share will not
continue to decline or that the Company's net sales will continue to improve, or
that the Company will not continue to report net losses in the future.
ABILITY TO EXECUTE TURNAROUND STRATEGY
Under its new ownership and management, the Company has implemented various
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. In addition, the Company's strategy to reduce operating costs through
certain workforce reductions and facility closures has risks, including the
ability to produce at other facilities of the Company, or have produced by
third-party vendors, quality sub-assembly parts in required quantities.
Furthermore, the Company will incur significant costs associated with the
announced closing of its Milwaukee and Waukegan manufacturing facilities,
including severance and related benefits, plant closing costs and curtailment
losses associated with the Company's benefit plans. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and Note 4 to the
Notes to the Consolidated Financial Statements.
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 320,850 and 308,000, and 304,600
and 302,000, respectively. The
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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 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 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 8% of the Company's revenues in 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 interna-
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tional 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 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
fiscal 1998, approximately 25% of the Company's net sales were derived from
operations conducted outside the United States. In addition, as of September 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 of the Notes 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)
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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 ("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 September 30, 1998, the Company has accrued
approximately $24.0 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 of the
Notes 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.
On December 10, 1998 the California Air Resources Board ("CARB") adopted
emissions standards for outboard engines and personal watercraft sold in the
State of California that would require compliance with the EPA's year 2006
emissions standards in 2001, and significantly more stringent standards in 2004
and 2008. All manufacturers of outboard engines and personal watercraft will be
affected by the regulations. While the Company has not been able to fully assess
the impact that such standards will have on its business, the Company has begun
to assess possible responses to these standards, including a possible legal
challenge. The Company's FICHT fuel-injection and four-stroke outboard engines
currently comply with CARB's 2001 standards, and all but one of these engines
comply with CARB's 2004 standard. The Company believes that this one engine will
be in compliance by 2004. In addition, based on current technology, CARB's year
2008 standards would require the Company to turn to untested technologies in an
attempt to achieve compliance. The California market represents only an
approximate 3% of the Company's North American sales of outboard engines.
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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. In
one instance, the East Bay Municipal Utility District, located near Oakland,
California, has adopted regulations that, on one of the three inland water
bodies under its jurisdiction, will limit certain gasoline engine use effective
January 1, 2000 and prohibit all gasoline engine use effective January 1, 2002.
While the Company cannot assess the impact that any such contemplated
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 affect on the Company's business. The Company, however, does
not believe that the regulations adopted by the East Bay Municipal Utility
District will 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 September 30, 1998, the Company's balance sheet included
approximately $198 million of unamortized intangible assets, which is greater
than 18% of the total assets of the Company and 209% of the shareholders'
equity. The current amortization rate on the unamortized intangible assets is
approximately $6 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 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. The steps to be
taken include reviews 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 these reviews, 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 both goods and services. With the
assessment phase of the strategy completed, the Company is in the process of
implementing and testing remedies of the issues identified during the assessment
phase. The Company anticipates completing all implementation and testing of
internal remedies by June 30, 1999. To date, the Company has spent approximately
$3.8 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 $11 million, approximately 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 indications of their ability
to do so, the Company's vendors will be able to provide their goods
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and services to the Company in a manner that satisfactorily addresses the Year
2000 issues. If, on or near January 1, 2000, the Company discovers that a
non-critical vendor, which previously assured the Company that it would be Year
2000 compliant, is in-fact not compliant, an alternate supplier will be used by
the Company and there should be no material effect on the Company's business.
If, on or near January 1, 2000, the Company discovers that a critical vendor,
such as a utility company or a supplier of a part, component or other goods or
service that is not readily available from an alternate supplier, which
previously assured the Company that it would be Year 2000 compliant is in-fact
not compliant, the Company may not be able to produce on a timely basis finished
goods for sale to its dealers. If this should occur, the Company will either
wait for such vendor to become Year 2000 compliant or seek an alternate vendor
who can provide the applicable goods or service in a more timely manner. In
connection with the Company's initiative to outsource non-core capabilities, a
potential vendor's Year 2000 readiness is one criteria the Company will consider
in determining which vendor will be used for such outsourcing. 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 negative impact 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."
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 September 30, 1998, the Notes and the Subsidiary
Guarantees would have been effectively subordinated to approximately $50.6
million of secured obligations of the Company and the Subsidiary Guarantors
(including an aggregate of $37.7 million of letter of credit obligations under
the Credit Agreement) and $30.9 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
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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 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
International Fund N.V. and its affiliates, Quantum Industrial Holdings Ltd. and
its affiliates, and Greenlake
21
<PAGE> 27
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 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."
22
<PAGE> 28
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.
23
<PAGE> 29
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."
24
<PAGE> 30
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of September 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 SEPTEMBER 30, 1998
------------------------
(DOLLARS IN MILLIONS)
<S> <C>
Cash and cash equivalents................................... $ 45.2
Interest Reserve Accounts(1)................................ 28.6
Total debt (including current portion of long-term debt):
Credit Agreement(2)....................................... $ --
10 3/4% Senior Notes due 2008(3).......................... 155.4
9 1/8% Debentures due 2017................................ 62.6
Medium-Term Notes due 1999 to 2001(4)..................... 21.1
Industrial Revenue Bonds due 2002 to 2007 and other
debt(5)................................................ 12.9
7% Convertible Subordinated Debentures due 2002(6)........ 7.1
------
Total debt............................................. 259.1
------
Total shareholders' investment.............................. 94.7
------
Total capitalization................................... $353.8
======
</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 September 30, 1998, there were no outstanding borrowings under the
Credit Agreement. However, letters of credit in an aggregate amount of $37.7
million were outstanding on that date. As of September 30, 1998, the Company
had additional borrowing availability of approximately $60.7 million under
the Credit Agreement, after giving effect to the borrowing base limitation
and $37.7 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."
25
<PAGE> 31
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, 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 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
---------------------------------------- -------------
FISCAL YEAR
FISCAL YEAR ENDED SEPTEMBER 30, ENDED
---------------------------------------- SEPTEMBER 30,
1994 1995 1996 1997 1998(1)
-------- -------- -------- ------- -------------
(DOLLARS IN MILLIONS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................... $1,078.4 $1,229.2 $1,121.5 $ 979.5 $1,025.7
Cost of goods sold.......................... 826.4 931.8 892.2 826.5 791.4
-------- -------- -------- ------- --------
Gross earnings.............................. 252.0 297.4 229.3 153.0 234.3
Selling, general and administrative
expense................................... 206.0 230.2 210.3 215.4 268.4
Restructuring charges(2).................... -- -- 25.6 -- 98.5
Change in control
expenses--compensation(3)................. -- -- -- 11.8 --
-------- -------- -------- ------- --------
Earnings (loss) from operations............. 46.0 67.2 (6.6) (74.2) (132.6)
Interest expense............................ 15.1 23.1 12.3 16.2 30.1
Change in control expenses.................. -- -- -- 15.1 --
Other (income)/expense, net................. (22.5) (16.7) (8.5) (29.2) (15.6)
-------- -------- -------- ------- --------
Earnings (loss) before provision for income
taxes..................................... 53.4 60.8 (10.4) (76.3) (147.1)
Provisions (credit) for income taxes........ 4.9 9.4 (3.1) 2.8 3.4
-------- -------- -------- ------- --------
Net earnings (loss)......................... $ 48.5 $ 51.4 $ (7.3) $ (79.1) $ (150.5)
======== ======== ======== ======= ========
OTHER DATA:
EBITDA (as defined)(4)...................... $ 93.4 $ 118.7 $ 77.3 $ (0.9) $ 20.0
Net cash provided by operating activities... 57.3 51.4 91.1 (9.2) 60.3
Net cash used for investing activities...... (63.0) (65.8) (50.5) (26.1) (24.0)
Net cash used for financing activities...... (19.7) (8.1) (2.9) (3.7) (45.1)
Depreciation and amortization (including
amortization of debt discount)............ 44.0 47.6 54.7 57.0 50.1
Amortization of debt discount............... 0.8 1.0 0.8 2.7 0.8
Capital expenditures........................ 68.2 66.5 52.7 36.3 34.4
Ratio of earnings to fixed charges(5)....... 4.3x 3.5x N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PRE-MERGER COMPANY POST-MERGER COMPANY
--------------------------- -------------------
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 80.3 $ 58.3 $ 95.5 $ 54.4 $ 45.2
Working capital(6)............................ 196.2 253.4 214.2 14.2 106.5
Total assets.................................. 817.1 907.0 873.7 1,094.8 1,082.1
Long-term debt................................ 178.2 177.4 177.6 103.8 247.9
Total shareholders' investment................ 209.0 255.8 237.6 277.0 94.7
</TABLE>
(footnotes on following page)
26
<PAGE> 32
- ------------------------------
(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
September 30, 1998 and its results of operations for fiscal 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 1998 related to the announced
closings of the Company's Milwaukee, Wisconsin and Waukegan, Illinois engine
manufacturing facilities, including severance costs, curtailment losses and
facility shut-down costs associated therewith. The restructuring charges
recorded in fiscal 1996 related to closings of distribution operations and
write-down of manufacturing facilities outside the United States. See Note 4
of the Notes to the Consolidated Financial Statements contained elsewhere
herein.
(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) "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. For each of the fiscal years ended September 30,
1998 and September 30, 1996, "EBITDA" does not include restructuring charges
of $98.5 million and $25.6 million, respectively. See Note 4 of the Notes to
the Consolidated Financial Statements contained elsewhere herein. 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 $4.1
million, $4.9 million, $4.4 million, $7.2 million and $4.8 million for the
fiscal years ended 1994, 1995, 1996, 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, 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 a measure of liquidity or as an indication of a company's
operating performance. 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.
(5) 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 1996, fiscal 1997 and fiscal 1998. The
amounts of additional earnings that would have been required to cover fixed
charges for such periods are $10.4 million, $76.3 million and $147.1
million, respectively.
(6) Working capital is defined as current assets minus current liabilities.
Working capital as of September 30, 1997 included $96.0 million in principal
amount of the Term Loan, which had been classified as short-term
indebtedness.
27
<PAGE> 33
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
The Company restated its consolidated financial statements for its fiscal
year ended September 30, 1997 in connection with its revising the accounting for
its acquisition by Greenmarine Holdings. The Company also restated its financial
statements for its fiscal quarters ended December 31, 1997, March 31, 1998, and
June 30, 1998. The restatement resulted from management's reconsideration of the
periods to which the reorganization plan expenses incurred in connection with
the acquisition by Greenmarine Holdings should be charged. As of September 30,
1997, management had recorded these expenses as purchase accounting adjustments.
Upon further consideration, management believed that these charges were more
appropriately reported in fiscal year 1998. Operational refinements during
fiscal year 1998, including changes in the specific plants to be closed, and the
fact that certain parts of the plan were not implemented within a one year time
period, resulted in a decision that these expenses were, using interpretations
of authoritative accounting literature, more appropriately reported in fiscal
year 1998. As a result, the Company's September 30, 1997 financial statements
were restated to reverse $122.9 million of previously recorded accrued
liabilities and contingencies with a corresponding reduction in goodwill. The
Company has recognized approximately $149 million in operating expenses and
restructuring costs in fiscal year 1998 to record its reorganization plan and
contingencies. The Company also reclassified certain deferred tax items and a
valuation reserve to more properly aggregate them in the appropriate asset and
liability accounts. Separately, the Company reduced the deferred tax assets and
the corresponding valuation allowance to reflect the tax impacts of the purchase
accounting adjustments. As part of the purchase accounting adjustments, the
Company also reclassified a valuation reserve for a joint venture investment to
"other assets" from "accrued liabilities". Such reclassifications did not change
net income in the Statement of Consolidated Earnings for the fiscal year ended
September 30, 1997 but did have the effect of reducing earnings from operations
by approximately $150 million for the fiscal year ended September 30, 1998. This
reduction included a restructuring charge (see "-- Results of Operations" below)
of $98.5 million and additional operating expenses of $53.3 million. The
restatements did not have an effect on the Company's Statement of Consolidated
Cash Flows (other than certain reclassifications in the cash flows from
operations) for fiscal year 1997 or fiscal year 1998. See Note 4 of the Notes to
the Consolidated Financial Statements contained elsewhere herein.
Industry Overview. According to data published by the NMMA, 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 may
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 may contribute to growth in the recreational boating industry over the
next several years.
Cyclicality; Seasonality; Weather Conditions. The recreational marine
industry is highly cyclical. Industry sales, including sales of the Company's
products, are closely linked to the conditions of the overall economy and are
influenced by local, national and international economic conditions, as well as
interest rates, consumer spending, technology, dealer effectiveness,
demographics, fuel availability and government regulations. In an economic
downturn, consumer discretionary spending levels are reduced, often resulting in
28
<PAGE> 34
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. According to data published by the
NMMA, 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.
According to data published by the NMMA, 1995 annual U.S. purchases of boats and
engines increased to 336,960 and 317,000, respectively, but unit sales declined
in 1996 and 1997, when reported U.S. sales of boats and engines were 320,850 and
308,000, and 304,600 and 302,000, respectively. The Company believes these
declines were partially due to adverse weather conditions.
The recreational marine industry, in general, and the business of the
Company are seasonal due to the impact of the buying patterns of 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 receivables, inventory and accompanying short-term borrowing to
satisfy working capital requirements are usually at their highest levels in the
Company's fiscal quarter ending March 31 and decline thereafter as the Company's
products enter the peak consumer selling seasons. Short-term borrowings averaged
$35.7 million in fiscal year 1998, with month-end peak borrowings of $70.7
million in February and March 1998. 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 years.
The Company's business is also 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 may reduce the overall impact on the Company of adverse weather
conditions in any one market area, such conditions may continue to represent
potential adverse risks to the Company's financial performance.
Acquisition by Greenmarine Holdings LLC. On September 12, 1997,
Greenmarine Holdings acquired control of approximately 90% of the then
outstanding shares of common stock (the "Pre-Merger Company Shares") of the
Company 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 its acquisition subsidiary (i.e., Greenmarine
Acquisition Corp.) with and into the Company (the "Merger", and together with
the Tender Offer, the "Greenmarine Acquisition"). As a result of the Merger, the
Company 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 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 $883.6 million and $817.8 million, at September 30, 1997,
respectively. In addition, $83.9 million of the purchase price was allocated to
intangible assets for trademarks, patents and dealer network. The excess
purchase price over fair value of the net assets acquired was $127.3 million and
has been classified as goodwill in the Statement of Consolidated Financial
Position as of September 30, 1997. At September 30, 1998, the allocation of
purchase price to assets acquired and liabilities assumed in the Greenmarine
Acquisition was finalized. The material adjustments from the preliminary
purchase price allocation at September 30, 1997 included an adjustment of $5.3
million to reverse a portion of a valuation
29
<PAGE> 35
allowance established for the disposition of the Company's joint venture
agreement (see Note 3 of the Notes to the Consolidated Financial Statements
contained elsewhere herein) and reverse goodwill accordingly. In addition, the
Company reduced its purchase accounting reserves and corresponding goodwill, by
$1.4 million for revisions of certain estimates. The goodwill related to the
acquisition will be amortized using the straight-line method over a period of 40
years.
New Management Initiatives. Since the Greenmarine Acquisition, the Company
has assembled a new, highly-experienced senior management team led by David D.
Jones. The new senior management team has 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. Under its new management, the Company has also developed a
business reorganization plan to realign and consolidate its products offered in
the marketplace, and to improve existing manufacturing processes that will
enable the Company to increase production efficiency and asset utilization. This
turnaround strategy and reorganization plan includes the elimination and/or
consolidation of certain of the Company's products and includes the closing
and/or consolidation of certain of the Company's manufacturing facilities and
corresponding involuntary employee terminations.
In January 1998, the Company began implementing its turnaround strategy and
reorganization plan by closing its Old Hickory, Tennessee facility and
consolidating the freshwater fishing operations at the Company's Murfreesboro,
Tennessee facility. The Company also began, and has now completed, the
consolidation of certain of its saltwater fishing operations. In addition, the
Company has reduced its workforce by approximately 540 employees as of March 31,
1998, primarily within the Company's boat operations. The Company has accounted
for liabilities assumed in connection with the severance benefits associated
with the closure of the Old Hickory facility ($1.3 million) as part of the
purchase price allocation at September 30, 1997.
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 reduce costs, shorten production
times, lower inventory and improve the Company's responsiveness to dealer and
consumer demand. The Company also began implementing a strategic purchasing
program 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 April 1998, the Company announced that it would close its research
facility in Waukesha, Wisconsin and relocate these operations to other
facilities. The Company has accounted for its closure of the Waukesha, Wisconsin
facility in its fiscal year ended September 30, 1998 results by recording
approximately $2.5 million of expenses in its Statement of Consolidated
Earnings.
In June 1998, the Company announced the realignment of its aluminum boat
brands. The most popular models from the Grumman, Roughneck and Sea Nymph lines
were consolidated into the Lowe brand, which brand has been positioned to offer
a full line of aluminum boats. This consolidation is a further step in the
Company's efforts to reduce competition among its own brands in every aluminum
market and as a way to help its dealers offer a complete line of boats to meet
customer demand, rather than having to select from multiple boat company lines.
Also in June 1998, the Company announced that it had entered into a
long-term strategic business agreement with Johnson Worldwide Associations, Inc.
to supply a range of private-label electric trolling motors designed to OMC's
specifications. This will give the Company a full line of industry leading,
current technology electric trolling motors to offer its dealers.
In July 1998, the Company announced a new brand strategy for its Johnson
and Evinrude outboard engines. This strategy is designed to differentiate the
Company's Johnson and Evinrude lines, which had
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<PAGE> 36
become identical engines that were marketed under different names. Upon
implementing this strategy, 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. As a result,
while OMC dealers previously sold either Johnson or Evinrude engines, they will
now sell both engine lines.
On September 24, 1998, the Company announced that it would be closing its
Milwaukee, Wisconsin and Waukegan, Illinois facilities by the year 2000. A
restructuring charge of approximately $98 million was recognized in the fourth
quarter of fiscal 1998 and includes charges for the costs associated with
closing these two facilities, and the related employee termination benefits for
approximately 950 employees. See Note 4 of the Notes to the Consolidated
Financial Statements contained elsewhere herein. The Company plans to outsource
substantially all of the manufacturing of parts currently produced by these two
facilities to third party vendors or transfer such production to other
facilities of the Company. It has started to obtain proposals from vendors and
is currently reviewing the proposals received in anticipation of outsourcing
production. The Company anticipates substantial completion of the restructuring
plan by the end of year 2000.
Introduction of FICHT Engines; Regulatory Compliance. 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 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. In 1994, the Company announced "Project
LEAP", a project to convert its entire outboard product line to low-emissions
products within the next decade. Partly in response to these EPA emission
standards, the Company introduced its 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 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 may or may not meet the new EPA standards,
continue to be available. Through September 30, 1998, the Company estimates that
it has spent approximately $50 million on low-emission technology, and by the
year 2006 the Company is expected to spend an aggregate of approximately $90.0
million to meet the EPA's new emission standards.
In fiscal year 1997, the Company became aware of certain performance issues
associated with its FICHT engines. In April 1998, the Company began to identify
the causes of these performance issues and an upgrade kit was prepared and
distributed. The Company established a reserve for the correction of the
problems in fiscal year 1998. This resulted in an approximate $7 million
increase in the Company's warranty reserve for fiscal year 1998.
The Company has 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
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<PAGE> 37
redesign, or any cost associated therewith, would not have a material adverse
effect on the Company. The Company determined a range of potential outcomes for
this matter and recorded a liability in its September 1998 financial statements
(See Note 18 of the Notes to the Consolidated Financial Statements contained
elsewhere herein). The sale of FICHT engines accounted for approximately 8% of
the Company's revenues in fiscal year 1998.
The Company does not believe that compliance with the EPA's new emission
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.
On December 10, 1998, the California Air Resources Board ("CARB") adopted
emissions standards for outboard engines and personal watercraft sold in the
State of California that would require compliance with the EPA's year 2006
emissions standards in 2001, and significantly more stringent standards in 2004
and 2008. All manufacturers of outboard engines and personal watercraft will be
affected by the regulations. While the Company has not been able to fully assess
the impact that such standards will have on its business, the Company has begun
to assess possible responses to these standards, including a possible legal
challenge. The Company's FICHT fuel-injection and four-stroke outboard engines
currently comply with CARB's 2001 standards, and all but one of these engines
comply with CARB's 2004 standard. The Company believes that this one engine will
be in compliance by 2004. In addition, based on current technology, CARB's year
2008 standards would require the Company to turn to untested technologies in an
attempt to achieve compliance. The California market represents only an
approximate 3% of the Company's domestic sales of outboard engines.
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. In
one instance, the East Bay Municipal Utility District, located near Oakland,
California, has adopted regulations that, on one of the three water bodies under
its jurisdiction, will limit certain gasoline engine use effective January 1,
2002. While the Company cannot assess the impact that any such contemplated
regulations would have on its business until such regulations are formally
enacted, depending upon the scope of any such regulations, they may have a
material adverse effect on the Company's business. The Company, however, does
not believe that the regulations adopted by the East Bay Municipal Utility
District will 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.
Research and Development. In fiscal years 1998, 1997, and 1996, OMC spent
approximately $36.8 million, $38.2 million, and $41.8 million, respectively, on
research and development activities relating to the development of new products
and improvement of existing products, including FICHT fuel-injection technology.
The Company expenses its research and development costs as they are incurred.
Environmental 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
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<PAGE> 38
reimbursement for) cleanup of environmental contamination arising at its owned
or operated sites and 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. 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, as a PRP, the Company can be held jointly and severally
liable for all environmental costs associated with a site. As of September 30,
1998, the Company has accrued approximately $24 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 Note 18 of the Notes to the
Consolidated Financial Statements included elsewhere herein.
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 a transition report on Form 10-Q for
the transition period of October 1, 1998 through December 31, 1998.
RESULTS OF OPERATION
The following table sets forth, for the periods indicated, selected
financial information expressed in dollars (millions) and as a percentage of net
sales:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------
1996 1997 1998
----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $1,121.5 100.0% $979.5 100.0% $1025.7 100.0%
Cost of goods sold................... 892.2 79.6 826.5 84.4 791.4 77.2
Gross earnings....................... 229.3 20.4 153.0 15.6 234.3 22.8
Selling, general and administrative
expense............................ 210.3 18.8 215.4 22.0 268.4 26.2
Restructuring charges................ 25.6 2.3 -- -- 98.5 9.6
Change in control expenses --
compensation....................... -- -- 11.8 1.2 -- --
-------- ----- ------ ----- ------- -----
Loss from operations................. (6.6) (0.7) (74.2) (7.6) (132.6) (13.0)
Non-operating expense, net........... 3.8 0.3 2.1 0.2 14.5 1.4
Provision (credit) for income
taxes.............................. (3.1) (0.3) 2.8 0.3 3.4 0.3
-------- ----- ------ ----- ------- -----
Net earnings (loss).................. $ (7.3) (0.7)% $(79.1) (8.1)% $(150.5) (14.7)%
======== ===== ====== ===== ======= =====
</TABLE>
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
30, 1997
Net Sales. Net sales increased to $1,025.7 million in fiscal year 1998
from $979.5 million in the fiscal year 1997, an increase of 4.7%. The Company's
sales increase was attributable primarily to higher volume sales in the United
States of marine engines in fiscal year 1998, resulting in a 25% increase in net
sales as compared to fiscal year 1997. The increase in U.S. marine engine sales
in 1998 was partially offset by reductions in international sales due to the
poor economic conditions in Asia and due to tighter credit controls in Russia.
Engine sales were lower 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
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<PAGE> 39
changes to equipment and processes necessary in order to significantly improve
the quality of those engines. Finally, boat sales declined, as planned, by
approximately 5% due primarily to certain model and brand eliminations.
Cost of Goods Sold. Cost of goods sold decreased to $791.4 million in
fiscal year 1998 from $826.5 million in fiscal year 1997, a decrease of $35.1
million or 4.2%. Cost of goods sold was 77.2% of net sales in fiscal year 1998
as compared with 84.4% of net sales in fiscal year 1997. The improvements in the
Company's gross margin in the current fiscal year reflected increased
manufacturing efficiencies at engine and boat plants and a better absorption of
fixed costs, due primarily to higher engine sales volume. In addition, in fiscal
1997, the Company's cost of goods sold was impacted negatively by the production
suspension discussed above and by certain expenses discussed below in the
comparison of fiscal year 1997 and fiscal year 1996.
Selling, General and Administrative ("SG&A") Expense. SG&A expense
increased to $268.4 million in fiscal year 1998 from $215.4 million in fiscal
year 1997, an increase of $53.0 million or 24.6%. SG&A expense as a percentage
of net sales increased to 26.2% in fiscal year 1998 from 22.0% in fiscal year
1997. SG&A expense increased in fiscal year 1998 due primarily to: (i) $10.9
million for potential legal expenses related to claims known, but not
quantifiable at the end of fiscal 1997, (ii) $7.0 million for increased warranty
expense associated with upgrading engines designed prior to September 30, 1997,
(iii) $2.8 million in compensation expense related to forfeitures resulting from
the termination of an executive's employment agreement with a former employer in
connection with the Company's hiring the executive concurrently with the
acquisition of the Company by Greenmarine Holdings, and (iv) $17.6 million of
expenses associated with implementing the Company's boat group reorganization
plan. Additionally, the SG&A expense in the current fiscal year reflected higher
amortization of goodwill and intangibles due to purchase accounting. Finally,
the Company recognized approximately $7.0 million in additional expenses in
fiscal year 1998 associated with its marketing and advertising of model year
1999 boats and engines.
Restructuring Charge. During the fourth quarter of fiscal year 1998,
management finalized a restructuring plan for the closure/consolidation of its
Milwaukee and Waukegan engine facilities. The Company announced the closure of
the Milwaukee and Waukegan facilities on September 24, 1998. The Company
recorded a $98.5 million restructuring charge to recognize severance and
benefits for approximately 950 employees to be terminated ($14.0 million),
curtailment losses associated with the acceleration of pension and
post-retirement benefits for employees at the two facilities ($72.1 million),
and facility shut down costs associated with closing the facilities and
disposing of certain assets($12.4 million). The Company's plan includes
outsourcing substantially all of its sub-assembly production currently performed
in its Milwaukee and Waukegan facilities to third-party vendors. See Note 4 of
the Notes to the Consolidated Financial Statements contained elsewhere herein.
Change in Control Expenses. In fiscal year 1997, the Company recorded
$11.8 million in compensation expenses associated with certain officer
agreements and the executive incentive plan which required settlement payments
to certain current and former management team members at the time of the
Greenmarine Acquisition.
Loss from Operations. Loss from operations was $132.6 million in fiscal
year 1998 compared with a loss of $74.2 million in fiscal year 1997, an increase
of $58.4 million. Excluding the restructuring charge and change in control
expenses recorded in 1998 and 1997, the loss from operations was $34.1 million
in fiscal year 1998, an improvement of $28.3 million compared to the loss of
$62.4 million in fiscal year 1997.
Non-Operating Expense, Net. Interest expense increased to $30.1 million in
fiscal year 1998 from $16.2 million in fiscal year 1997, an increase of $13.9
million. The increase resulted from the new debt structure in place after the
Greenmarine Acquisition (see "-- Financial Condition; Liquidity and Capital
Resources" below). Other non-operating income was $15.6 million in fiscal year
1998 compared to $14.1 million in fiscal year 1997. The non-operating income in
fiscal year 1998 included interest income of $4.3 million, gains from
disposition of certain fixed assets of $2.9 million, and favorable foreign
exchange transactions of $0.7 million. The non-operating income in fiscal year
1997 included an insurance recovery and a lawsuit settlement ($10.7 million), as
well as gains on disposition of fixed assets ($5.8 million), which was offset by
$15.1 million in expenses associated with the Greenmarine Acquisition. These
expenses included $7.5 million in payments to a
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<PAGE> 40
potential buyer of the Company for 'breakage fees' as a result of the Company
being acquired by Greenmarine Holdings. See Note 14 of the Notes to the
Consolidated Financial Statements contained elsewhere herein.
Provision (Credit) for Income Taxes. The provision for income taxes was
$3.4 million in fiscal year 1998 and $2.8 million in fiscal year 1997. The
provision for income taxes for fiscal year 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
deemed 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 year 1997 from $892.2 in fiscal year 1996. Cost of goods sold was 84.4%
of net sales in fiscal 1997 as compared with 79.6% of net sales in fiscal year
1996. Cost of goods sold in fiscal year 1997 included approximately $8.2 million
of expenses comprised of the following: (i) an additional accrual relating to
salt water intrusion issues on certain engines sold in international markets,
which have since been resolved ($1.0 million); (ii) 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);
(iii) 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);
(iv) 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 (v) 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). Excluding these charges, cost of goods
sold in fiscal year 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 year 1997 from $210.3 million in fiscal year 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 year 1997 from 18.8% in fiscal year 1996. The SG&A
expenses in fiscal year 1997 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) and; (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 (i.e., the period of time between the sale of products
to a dealer or distributor and the ultimate payment by the Company of a warranty
claim made to repair products) used to estimate the warranty reserve ($9.7
million). Excluding these charges, SG&A expense for fiscal year 1997 would have
been $198.7 million or 20.3% of net sales. These charges were partially offset
by reductions of costs resulting from the restructuring programs initiated in
fiscal year 1996.
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
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<PAGE> 41
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, Net. 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. Other non-operating income was $14.1 million in fiscal 1997 as
compared to $8.5 million 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. 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 of the Notes 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 of the Notes 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.
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 approximately $127 million, which was subsequently adjusted at September 30,
1998 to approximately $120 million (prior to amortization of goodwill). See Note
1 of the Notes to the Consolidated Financial Statements contained elsewhere
herein.
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
September 30, 1998 decreased $52.9 million from September 30, 1997. Cash and
cash equivalents at September 30, 1998 decreased $9.2 million from September 30,
1997. In addition, the Company had $28.6 million in "Restricted Cash" at
September 30, 1998, which cash is held in interest reserve accounts for the
benefit of the Company's senior lenders (as discussed below). Receivables at
September 30, 1998 increased $0.3 million due primarily to an increase in
domestic engine sales versus the prior year which was partially offset by lower
European receivables due to a slowdown in sales, primarily in Asia and Russia
due to the poor economic conditions in those countries. Inventories in fiscal
year 1998 decreased $2.5 million from fiscal year 1997 due primarily to more
effective inventory management at all of the Company's locations implemented as
part of the Company's lean manufacturing initiative. Other current assets at
September 30, 1998 decreased $47.9 million from September 30, 1997 due primarily
to a reduction in a trust depository that funded the remaining untendered
outstanding shares of the Company's pre-merger common stock and due to the
funding for letters of credit. Accounts payable at September 30, 1998 decreased
$26.9 million from September 30, 1997 due primarily to payments to Company
shareholders for untendered outstanding stock and to other payments relating to
the change of control. Accrued liabilities increased $38.0 million from
September 30, 1997 due to a restructuring charge (see discussion of the Results
of Operations for fiscal year 1998 above) that was partially recorded in accrued
liabilities ($6.0 million) and due to increases in the Company's warranty
reserves ($17.0 million) due partially to performance issues associated with the
introduction of the Company's new FICHT fuel-injection technology. See
"-- General -- Introduction of FICHT Engines; Regulatory Compliance" above.
Cash provided by operations was $60.3 million for the twelve months ended
September 30, 1998 compared with a use of cash of $9.2 million for the twelve
months ended September 30, 1997. The favorable
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<PAGE> 42
increase in the Company's cash flow from operations was due primarily to
effective working capital management.
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 September 30, 1998, the "restricted cash" on deposit in the
Interest Reserve Accounts was $28.6 million. See "Description of Notes--Interest
Reserve Accounts."
Expenditures for plant, equipment and tooling were $34.4 million for the
twelve months ended September 30, 1998, representing a $1.9 million decrease
from the prior year period level of $36.3 million, primarily as a result of
certain deferrals of capital expenditures. The reduced level of capital spending
in fiscal 1998 is also related to a new, more rigorous process of reviewing the
Company's need. In fiscal 1997, capital spending was lower than historical
levels (approximately $50 million per year) due to anticipation of the Company's
sale, which was completed in September 1997. Capital expenditures in fiscal 1998
included 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.
Loans payable decreased $96 million from September 30, 1997 as the Company
paid its remaining obligations under the Term Loan. Current maturities and
sinking fund requirements of long-term debt decreased by $61.7 million from
September 30, 1997 due primarily to the redemption on November 12, 1997 of
approximately 90% of the Company's 7% Convertible Subordinated Debentures due
2002 (as discussed below).
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 (as amended, 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 $50.0 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, chattle 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 September 30, 1998, the Company did not have any outstanding
borrowings under the Credit Agreement, but did have $37.7 million of letter of
credit obligations outstanding under the Credit Agreement at September 30, 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 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 was 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
certain matters relating to the Company's offering of $160.0 million of 10 3/4%
Senior Notes due 2008, including the establishment of an interest reserve
account. The Company entered into a Second Amendment to Amended and Restated
Loan and Security Agreement, effective as of August 31, 1998, with the lenders
under the Credit Agreement, pursuant to which, among other things, the sublimit
for
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<PAGE> 43
the issuance of letters of credit was increased from $30.0 million to $50.0
million. The Company entered into a Third Amendment to Amended and Restated Loan
and Security Agreement, effective as of December 21, 1998, with the lenders
under the Credit Agreement, pursuant to which, among other things, (i) the
Company's compliance with the consolidated tangible net worth, consolidated
interest coverage ratio and consolidated leverage ratio covenants were waived
for the period ended September 30, 1998 and (ii) the Company's consolidated
tangible net worth, consolidated interest coverage ratio and consolidated
leverage ratio covenants for future periods were amended. See "Description of
Certain Other Indebtedness -- Credit Agreement."
At September 30, 1998, $62.6 million principal amount of the Company's
9 1/8% Debentures due 2017 (the "9 1/8% Debentures") was outstanding. 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
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 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 September 30, 1998, the Company had repurchased and
deposited with the trustee for the 9 1/8% Debentures $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. See "Description of Certain Other
Indebtedness -- Senior Debt Securities -- 9 1/8% Debentures due 2017."
At September 30, 1998, an aggregate of approximately $20.8 million
principal amount of the Company's Medium-Term Notes Series A (the "Medium-Term
Notes") were outstanding. Interest 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. See "Description of Certain Other Indebtedness -- Senior Debt
Securities -- Medium-Term Notes."
At September 30, 1998, $7.1 million principal amount of the Company's 7%
Convertible Subordinated Debentures due 2002 (the "Convertible Debentures") were
outstanding. 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 and 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, 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. See
"Description of
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<PAGE> 44
Certain Other Indebtedness -- Subordinated Debt Securities -- 7% Convertible
Subordinated Debentures due 2002."
The Company has various Industrial Revenue Bonds outstanding in an
aggregate principal amount of approximately $13 million. The Industrial Revenue
Bonds have various maturity dates between 2002 and 2007. Interest rates on the
Industrial Revenue Bonds range from 6% to 12.037%.
In fiscal year 1999, the Company will pay approximately $10 million in cash
to satisfy obligations that will become due in fiscal year 1999 on the Medium
Term Notes. See Note 9 of the Notes to the Consolidated Financial Statements
contained elsewhere herein. In addition, the Company will pay approximately $1.2
million in cash to satisfy obligations that will become due at various times in
fiscal year 1999 under certain of its Industrial Revenue Bonds.
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 approximately $31
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 1998, the Company repurchased approximately
$4.2 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.
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 steps to be taken include
reviews of the Company's hardware and software requirements worldwide, including
processors embedded in its manufacturing equipment, as well as vendors of goods
and services. Based on these reviews, 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
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<PAGE> 45
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 to review alternate suppliers who are in a position
to certify that they are or will be Year 2000 ready. The timing of the Company's
decision to change vendors will depend on what type of goods or service the
non-responsive or non-compliant vendor provides and the lead time required for
an alternate vendor to begin supplying. The Company has reviewed those critical
vendors that have not responded adequately and has been reviewing the timing of
replacing, if necessary, any such noncompliant vendor. In connection with the
Company's initiative to outsource non-core capabilities, a potential vendor's
Year 2000 readiness is one criteria the Company will consider in selecting the
vendor for such outsourcing activity.
In addition, the Company has reviewed the goods which it manufactures for
sale to its dealers, distributors and original equipment manufacturers and has
determined that those goods are Year 2000 compliant.
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 $3.8 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 $11 million, approximately 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 indications 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. If, on
or near January 1, 2000, the Company discovers that a non-critical vendor, which
previously assured the Company that it would be Year 2000 compliant, is in-fact
not compliant, an alternate supplier will be used by the Company and there
should be no material effect on the Company's business. If, on or near January
1, 2000, the Company discovers that a critical vendor, such as a utility company
or a supplier of a part, component or other goods or service that is not readily
available from an alternate supplier, which previously assured the
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<PAGE> 46
Company that it would be Year 2000 compliant is in-fact not compliant, the
Company may not be able to produce on a timely basis finished goods for sale to
its dealers. If this should occur, the Company will either wait for such vendor
to become Year 2000 compliant or seek an alternate vendor who can provide the
applicable goods or service in a more timely manner. 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 negative impact on the
Company's business, results of operations, or financial condition.
NEW ADOPTED ACCOUNTING STANDARDS
In fiscal year 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 currently
reported) as they require only changes in or additions to current disclosures.
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.
INFLATION
Inflation may cause or may be accompanied by increases in gasoline prices
and interest rates. Such increases may adversely affect the sales of the
Company's products. Inflation has not had a significant impact on operating
results during the past three fiscal years.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest and foreign
exchange rates and commodity prices and enters into financial contracts in the
ordinary course of business to hedge these exposures. The Company does not use
financial instruments for trading or speculative purposes. Derivative
instruments are matched to existing assets, liabilities or transactions with the
objective of reducing the impact of adverse movements in interest rates,
currency exchange rates or commodity prices. Generally, the amounts of the
instruments are less than or equal to the amount of the underlying assets,
liabilities or transactions and are held to maturity. Instruments are either
traded over authorized exchanges or with counterparties of high credit standing.
As a result of these factors, the Company's exposure to market and credit risks
from financial derivative instruments is considered to be negligible.
The Company has used interest rate swaps to adjust the ratio of fixed and
floating rates in the Company's debt portfolio. The following table provides
information about the Company's derivative financial instruments and other
financial instruments that are sensitive to changes in interest rates, including
interest rate swaps and debt obligations. The table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
For interest rate swaps, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity date. Notional amounts
are used to calculate the contractual
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<PAGE> 47
payments to be exchanged under the contract. Weighted average variable rates are
based on implied forward rates in the yield curve at the reporting date.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
----------------------------------------------------------------------------------
SEPTEMBER 30, 1998 9/30/99 9/30/00 9/30/01 9/30/02 9/30/03 THEREAFTER TOTAL FAIR VALUE
(IN MILLIONS, EXCEPT RATES) ------- ------- ------- ------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Debt:
Fixed Rate ($US).......... $ 11.2 $ 7.0 $ 6.3 $ 8.4 $ 1.4 $226.3 $260.5 $241.0
Average Interest
Rate................. 10.03% 10.10% 10.15% 10.22% 10.29% 9.61% 9.98%
Variable Rate ($US)....... -- -- -- -- -- $ 5.5 $ 5.5 $ 5.5
Average Interest
Rate................. -- -- -- -- -- 4.67% 3.43%
INTEREST RATE DERIVATIVES
Interest Rate Swaps:
Variable to Fixed ($US)... $ 5.0 -- -- -- -- -- $ 5.0 $(0.1)
Average Pay Rate....... 10.20% -- -- -- -- -- 10.20%
Average Receive Rate... 5.10% -- -- -- -- -- 5.10%
</TABLE>
The Company uses forward and option contracts to reduce the earnings and
cash flow impact of nonfunctional currency denominated receivables and payables.
The contract maturities are matched with the settlement dates of the related
transactions. As of September 30, 1998, there was a net unrealized gain on
forward contracts of $0.8 million, calculated as the difference between the
contract rate and the rate available to terminate the contracts. Assuming a 10%
appreciation in the U.S. dollar at September 30, 1998, potential losses in the
net fair value of foreign exchange contracts would have been $4.3 million. As
these contracts are used for hedging purposes, the Company feels that these
losses would be largely offset by gains on the underlying firm commitments or
anticipated transactions.
The Company's exposure to commodity price changes relates to certain
manufacturing operations that utilize various commodity-based components,
primarily for aluminum. The Company manages its exposure to changes in prices
through the terms of its supply and procurement contracts and the use of
exchange-traded and over-the-counter commodity contracts. As of September 30,
1998, there was an unrealized loss on aluminum futures of $0.1 million. Assuming
a 10% change in market prices at September 30, 1998, additional potential losses
in the net fair value of these contracts would have been $0.2 million.
The estimated losses mentioned above assume the occurrence of certain
adverse market conditions. They do not consider the potential effect of
favorable changes in the market factors.
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<PAGE> 48
BUSINESS
GENERAL
OMC believes it is the world's largest dedicated manufacturer of outboard
marine engines and boats. As of September 30, 1998, the Company had an
approximate 35% share of the United States outboard marine engine market and
estimated it had 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 ranging from two to
250-horsepower. The Company's boat brands are also among the most recognized in
the industry and are one of the 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 relating to certain four-stroke outboard engines, and a supply
arrangement with Volvo Penta of the Americas, Inc. 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 late 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. The new management team also
includes Andrew P. Hines who 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 a substantial number of 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 senior management team has
developed several key initiatives to turn around and substantially improve the
Company's operations.
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. 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
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<PAGE> 49
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 believes it may 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, may contribute to growth in
the recreational boating industry over the next several years.
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
and other factors. 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 contraction in sales from 1988 to 1992 was due to the
recession during the early 1990s, as well as 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 that many consumers were
under the impression that the luxury tax applied to all boats and that this
depressed sales of boats among all price segments. The luxury tax was repealed
in 1993.
Since 1992, domestic sales of recreational boats increased from $2.2
billion in 1992 to $3.6 billion in 1997.
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 has been reset to better reflect the particular
image and the value added by each brand. To further support this
strategy, the Company has refocused its marketing efforts and
expenditures to emphasize and reinforce its brands as they are
repositioned.
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- AGGRESSIVELY REDUCE OPERATING COSTS. The Company's new management team
has identified several cost reduction opportunities that 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 and engine 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 and engine 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;
- completed its previously 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 raw materials,
components and subassemblies;
- 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;
- identified potential vendors for outsourcing the production
of certain engine components; and
- announced that its Milwaukee, Wisconsin and Waukegan,
Illinois engine manufacturing facilities will be closed over
the next two years.
- 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 a 150-horsepower model 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
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 implemented 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
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<PAGE> 51
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. Since its
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.
For a discussion of certain matters relating to the Company's turnaround
strategy, see "Risk Factors -- Ability to Execute Turnaround Strategy."
PRODUCTS
The Company manufactures a wide variety of outboard engines, boats and
marine parts and accessories 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 1998 FISCAL 1997 FISCAL 1996
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Engines............................ $ 561.1 54.7% $ 519.1 53.0% $ 653.6 58.3%
Boats.............................. 272.9 26.6 262.7 26.8 255.8 22.8
Parts & Accessories................ 185.7 18.1 189.5 19.4 195.4 17.4
Other.............................. 6.0 0.6 8.2 0.8 16.7 1.5
-------- ----- -------- ----- -------- -----
Total.................... $1,025.7 100.0% $ 979.5 100.0% $1,121.5 100.0%
======== ===== ======== ===== ======== =====
</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 of the Notes to the Consolidated Financial Statements
included elsewhere herein).
<TABLE>
<CAPTION>
FISCAL 1998 FISCAL 1997 FISCAL 1996
---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
United States............................ $ 769.7 75.0% $ 721.0 73.6% $ 813.3 72.5%
Europe................................... 91.9 9.0 90.9 9.3 114.8 10.2
Other.................................... 164.1 16.0 167.6 17.1 193.4 17.3
-------- ----- -------- ----- -------- -----
Total.......................... $1,025.7 100.0% $ 979.5 100.0% $1,121.5 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
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
46
<PAGE> 52
names. Upon implementation of this strategy, 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 a 150-horsepower outboard 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. See "-- Research and Development" below. 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
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.
In fiscal 1998, the Company began 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
47
<PAGE> 53
competition and inefficient overlap among its brands. As part of this
rationalization plan, the Hydra-Sports brand became the Company's flagship
saltwater fishing boat line, the Stratos brand became the Company's
top-of-the-line, tournament-style freshwater fishing boat line and the Javelin
brand became the Company's entry to mid-level recreational fishing boat line.
Production of the Company's Sunbird brand runabout boats for the 1999 model year
was suspended, and the Sunbird Neptune series saltwater fishing boat products
were incorporated into the Hydra-Sports brand. Hydra-Sports brand freshwater
fishing boats and Stratos brand saltwater fishing boats have been discontinued.
The Company has realigned its aluminum boat brands by consolidating the most
popular models from its Grumman, Roughneck and Sea Nymph lines and incorporating
them into the Lowe brand. The Lowe brand is now positioned to offer a full line
of aluminum boats.
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 19,993-125,947 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 and fish-'n-ski boats.
Javelin 17-20 12,533-27,823 Javelin is a value-priced freshwater
fishing boat line. Products include bass
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
48
<PAGE> 54
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 18% of OMC's sales in fiscal 1998.
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.
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. However, assuming that
none of such unissued patents were to issue, the 1992 License Agreement would
expire on July 25, 2015.
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
49
<PAGE> 55
by certain foreign jurisdictions, the ultimate term of the 1997 License
Agreement cannot be determined until each such unissued patent is issued.
However, assuming that none of such unissued patents were to issue, the 1997
Licence Agreement would expire on July 25, 2015.
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 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 December 8, 1998 the Company transferred its interest in the joint
venture Volvo Penta Marine Products L.P. (the "Volvo Penta Joint Venture") to an
affiliate of Volvo Penta of the Americas, Inc. ("Volvo"). The joint venture was
formed by the Company, AB Volvo Penta and Volvo Penta North America, Inc. in
1993 to manufacture sterndrive engines for boats. Concurrently with the transfer
of the Company's interest in the Volvo Penta Joint Venture, the Company and
Volvo entered into an agreement whereby Volvo will supply to the Company
sterndrives through June 30, 2001 and component parts through June 30, 2011 and
the Company will supply component parts to Volvo through June 30, 2011.
Suzuki Agreement
On June 13, 1997, the Company entered into a five-year Original Equipment
Manufacturer Supply/ Purchase Agreement with an affiliate of 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 Evinrude brand. 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. There can be no assurance that these
negotiations will result in a binding agreement between the Company and Suzuki.
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 network. The
majority of these dealers purchase the Company's products directly from the
Company. The Company's boats are sold, for the most part, directly to
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
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<PAGE> 56
arrangements contain provisions which limit the Company's obligations to
approximately $31 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
1998, the Company repurchased approximately $4.2 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. In fiscal 1998, the
Company refocused 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., Alumacraft Boat Company, Triton Boats
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. In connection with this closure, the Company accrued $1.3
million in severance costs in its allocation of purchase price in connection
with the Greenmarine Acquisition. The Murfreesboro plant now focuses on the
production of fiberglass, freshwater fishing boats. Concurrently, production of
certain 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 September 1998, the Company announced that, over the next two years, it
will be closing its engine manufacturing facilities located in Milwaukee,
Wisconsin and Waukegan, Illinois. In connection with these closures, the Company
recorded a restructuring charge of $98.5 million in fiscal year 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and Note 4 of the Notes to the Consolidated Financial Statements
contained elsewhere herein. As part of the Company's plan to close these
facilities, substantially all of the production operations currently conducted
at these facilities will be outsourced to third-party vendors or transferred to
other facilities of the Company. These plant closures will be effected in
phases, and the production transfers associated therewith already have begun and
are expected to be completed by the end of December 2000.
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
flows; (iii) standardizing labor inputs; (iv) outsourcing non-core capabilities;
and (v) improving quality control. The Company has also implemented the first
phase of its lean manufacturing initiative at its main outboard engine
manufacturing and assembly facility in Calhoun, Georgia. The second phase of
this initiative is currently being implemented at additional sub-assembly
facilities. The Company has also identified potential vendors for outsourcing
the production of certain engine components.
51
<PAGE> 57
For the fiscal year ended September 30, 1998, approximately 25% of the
Company's net sales were derived from operations conducted outside the United
States. As of September 30, 1998, approximately 15.8% 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 (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quantitative and Qualitative Disclosures
About Market Risk"). 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 year 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 Note 10
of the Notes to the Consolidated Financial Statements included elsewhere herein.
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, with an approximate 35% share
of the United States outboard marine engine market and an estimated 26% share of
the worldwide market. Management also believes that the Company is 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
52
<PAGE> 58
the production of engines, including those related to the FICHT fuel-injection
technology. The Company has 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 8% of the Company's revenues in 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, 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 fiscal years 1998, 1997 and 1996, OMC spent $36.8 million, $38.2 million
and $41.8 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
financed by OMC. 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
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<PAGE> 59
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. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quantitative and Qualitative Disclosures
About Market Risk" and Note 10 of the Notes to the Consolidated Financial
Statements contained elsewhere herein. 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 September 30, 1998, approximately 6,400 people were employed by OMC
and its subsidiaries, consisting of 1,316 salaried and 5,086 hourly employees.
Approximately 17% 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 433 employees at
the Waukegan, Illinois facility; and the United Steel Workers of America
("USWA") represents approximately 353 employees at the Milwaukee, Wisconsin
facility. The Company's agreements with the LIUNA, IMMA and USWA are effective
through September 30, 2000, October 30, 1999 and March 31, 2003, respectively.
The Company believes that its labor relations are satisfactory.
In connection with the Company's planned closure over the next two years of
its manufacturing facilities in Milwaukee, Wisconsin and Waukegan, Illinois, the
Company's workforce will be reduced by approximately 950 employees by the end of
such closure period. See Note 4 of the Notes to the Consolidated Financial
Statements contained elsewhere herein.
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
</TABLE>
54
<PAGE> 60
<TABLE>
<CAPTION>
OWNED OR LEASED
LOCATION FACILITY TYPE/USE (LEASE EXPIRATION) SQUARE FOOTAGE
-------- ----------------- ------------------ --------------
<S> <C> <C> <C>
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 153,000
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
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. 2004) 54,000
Gent, Belgium Office; warehouse Leased (Apr. 2003) 13,000
Bankstown, Australia Office; warehouse Leased (Apr. 2001) 54,000
</TABLE>
ENVIRONMENTAL AND REGULATORY 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
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<PAGE> 61
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 September 30, 1998, the Company has accrued
approximately $24.0 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 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.
On December 10, 1998 the California Air Resources Board ("CARB") adopted
emissions standards for outboard engines and personal watercraft sold in the
State of California that would require compliance with the EPA's year 2006
emissions standards in 2001, and significantly more stringent standards in 2004
and 2008. All manufacturers of outboard engines and personal watercraft will be
affected by the regulations. While the Company has not been able to fully assess
the impact that such standards will have on its business, the Company has begun
to assess possible responses to these standards, including a possible legal
challenge. The Company's FICHT fuel-injection and four-stroke outboard engines
currently comply with CARB's 2001 standards, and all but one of these engines
comply with CARB's 2004 standard. The Company believes that this one engine will
be in compliance by 2004. In addition, based on current technology, CARB's year
2008 standards would require the Company to turn to untested technologies in an
attempt to achieve compliance. The California market represents only an
approximate 3% of the Company's North American sales of outboard engines.
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<PAGE> 62
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. In
one instance, the East Bay Municipal Utility District, located near Oakland,
California, has adopted regulations that, on one of the three water bodies under
its jurisdiction, will limit certain gasoline engine use effective January 1,
2002. While the Company cannot assess the impact that any such contemplated
regulations would have on its business until such regulations are formally
enacted, depending upon the scope of any such regulations, they may have a
material adverse effect on the Company's business. The Company, however, does
not believe that the regulations adopted by the East Bay Municipal Utility
District will 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.
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."
57
<PAGE> 63
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.............. 56 Chairman of the Board
Gary K. Duberstein.............. 44 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.............. 55 President and Chief Executive Officer; Director
Andrew P. Hines................. 59 Executive Vice President and Chief Financial Officer;
Director
Kimberly K. Bors................ 38 Vice President--Human Resources
Robert B. Gowens, Jr............ 50 Vice President of OMC and President, North American
Engine Operations
Robert S. Romano................ 43 Vice President, General Counsel and Secretary
Leslie M. Savickas.............. 52 Vice President and Treasurer
Joseph P. Tomczak............... 43 Vice President and 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
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<PAGE> 64
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.
Robert B. Gowens, Jr. has been Vice President of OMC and President, North
American Engine Operations since October 1, 1998. Prior to his appointment to
such position, Mr. Gowens held the position of Vice President and General
Manager of the Quicksilver unit of the Mercury Marine Division of Brunswick
Corporation since 1996 and, prior thereto, Vice President of Sales of Mercury
Marine's Mercruiser unit. From 1984 to 1992, Mr. Gowens served as President and
Chief Executive Officer of Cigarette Racing Team, Inc., which specialized in
high performance boat manufacturing. Prior thereto, Mr. Gowens served as a Vice
President of A.T. Kearney, Inc. from 1980 to 1983.
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 and 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 and 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> 65
ADDITIONAL KEY PERSONNEL
Since the Greenmarine Acquisition, numerous key positions have been filled
or replaced with members of the new management team. The following sets forth
certain information with respect to certain key personnel of the Company who are
not executive officers:
<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
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
Susan M. Opeka............................ 41 Division Vice President, Finance
John A. Roush............................. 33 Vice President, General Manager FICHT Fuel
Injection
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
Donald P. Wood............................ 53 Division Vice President--North American
Sales
Robert F. Young........................... 48 Division Vice President, Product
Development and Research
</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.
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.
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<PAGE> 66
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. 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. 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.
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.
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.
Donald P. Wood is Division Vice President, North American Sales. 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
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<PAGE> 67
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. 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.
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.
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
committee. 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 November
30, 1998, the Company had granted stock options relating to 971,745 shares of
common stock. Of these options, 112,745 were vested at the time of grant. The
other 859,000 options have vested or will vest as follows: 100,000 in fiscal
year 1998, 150,557 in the three-month transition period ending December 31,
1998,
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<PAGE> 68
311,333 in the Company's fiscal year ending December 31, 1999, 218,563 in the
Company's fiscal year ending December 31, 2000, and 78,547 thereafter. All of
these stock options are exercisable at $18.00 per share and expire ten years
after the date of grant except for 61,105 incentive stock options granted to Mr.
Jones which expire eleven years after the date of grant.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation paid or to be paid to those persons who were, at
September 30, 1998, (i) the Chief Executive Officer or served in such capacity
during fiscal 1998, (ii) the other four most highly compensated Executive
Officers of the Company, who were serving in such capacity as of September 30,
1998 and (iii) individuals who would have been one of the four most highly paid
Executive Officers but for the fact that they were not serving as an Executive
Officer on September 30, 1998 (collectively the "Named Executives") for services
rendered in all capacities to the Company for the 1998, 1997 and 1996 fiscal
years.
For a discussion of compensation payable to each of Messrs. Jones, Hines
and Gowens, see "-- Employment Contracts and Severance Agreements".
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------- ---------------------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($) (#) ($)(3) ($)(4)
- --------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D.D. Jones, Jr.(5)............. 1998 556,925 900,000 114,737 -- -- -- 2,578,014
President and Chief 1997 7,692 -- -- -- -- -- --
Executive Officer 1996 -- -- -- -- -- -- --
A.P. Hines(6).................. 1998 349,708 468,750 39,981 --
Executive Vice 1997 -- -- -- -- -- -- --
President and Chief 1996 -- -- -- -- -- -- --
Financial Officer
P.R. Rabe(7)................... 1998 270,270 24,000 6,437 -- -- 3,810 1,948
Vice President, North 1997 193,977 25,000 -- -- -- -- --
American Sales & Marketing 1996 20,455 -- -- -- -- -- 30,000
R.S. Romano.................... 1998 206,425 19,000 1,842 -- -- 2,928 1,974
Vice President, General 1997 143,917 11,488 -- -- -- -- 4,320
Counsel and Secretary 1996 126,250 55,783 -- -- -- -- 1,610
K.K. Bors...................... 1998 137,308 14,000 -- -- -- 5,855 1,373
Vice President, Human 1997 103,231 6,738 -- -- -- -- --
Resources 1996 87,087 23,958 -- -- -- -- 5,212
</TABLE>
- ---------------
(1) Fiscal 1998 bonus for Mr. Jones and Mr. Hines include $225,000 and 37,500
shares of Phantom Stock valued at $18.00 per share and $117,187 and 19,531
shares of stock units valued at $18.00 per share, respectively.
(2) For Mr. Jones, $89,023 for moving expense, $5,250 for financial services,
$19,553 for company car and $910 as payment for interest on a loan from the
Company (see "Certain Relationships and Related Transactions"). For Mr.
Hines, $22,846 for moving expense and $17,135 for company car.
(3) Consists of payout for restricted stock of the pre-merger Company following
the change of control.
(4) For Mr. Jones, $1,930,410 represents an amount equal to incentives that Mr.
Jones was to receive from his prior employer, but were forfeited by Mr.
Jones in connection with his being hired by the Company, $643,470 as sign-on
bonus and $4,134 for life insurance premiums. For Mr. Rabe $30,000 as
sign-on bonus. For Mr. Romano, all a contribution by the Company under the
Company's 401(k) retirement plan. For Ms. Bors, $5,000 as sign-on bonus in
1996 and all others a contribution by the Company under the Company's 401(k)
retirement plan.
(5) Mr. Jones was hired by the Company on September 25, 1997 and, therefore,
information prior to that date does not exist.
(6) Mr. Hines was hired by the Company on October 6, 1997 and, therefore,
information prior to that date does not exist.
(7) Effective October 1, 1998, Mr. Rabe was no longer employed by the Company.
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<PAGE> 69
OPTION GRANTS IN THE 1998 FISCAL YEAR
The following table provides information on the grants of options to
purchase common stock of the Company given to the Named Executives in fiscal
year 1998.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE POTENTIAL REALIZABLE
UNDERLYING GRANTED TO PRICE VALUE ($)(4)
OPTIONS/SARS ALL EMPLOYEES PER SHARE EXPIRATION --------------------
NAME GRANT DATE GRANTED(#)(1) IN 1998(2) $(3) DATE 5% 10%
---- ---------- ------------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
D.D. Jones, Jr. ..... 10/1/97 238,845 24% $18.00 10/01/07 215,006 430,011
10/1/97 107,245 11% $18.00 10/01/07 96,520 193,041
10/1/97 61,105 6% $18.00 10/01/09 54,994 109,989
A.P. Hines........... 10/6/97 180,000 30.93% $18.00 10/06/07 162,000 324,000
R.S. Romano.......... 7/22/98 8,000 1.37% $18.00 07/22/08 7,200 14,400
P.R. Rabe............ 7/22/98 10,000 1.72% $18.00 09/30/98 0 0
K.K. Bors............ 7/22/98 7,000 1.2% $18.00 07/22/08 6,300 12,600
</TABLE>
- ---------------
(1) All options vest over a four year period; 25% of the option grant being
exercisable at the end of the first year after the grant date and then an
additional 25% each year thereafter, except for Mr. Hines whose options vest
in equal proportions over a three year period, and for Mr. Jones for which
107,245 vested upon grant, 238,895 vested in equal proportions over a
three-year period and 61,105 incentive stock options granted in accordance
with Section 422 of the Internal Revenue Code of 1986, as amended, which
vest in increments of 5,500 beginning on the date of grant and every January
1 thereafter.
(2) In the 1998 fiscal year, 156 employees received stock options.
(3) Assumes a fair market value of $18.00 per share at the date of grant. As the
Company's common stock is not a publicly-traded equity, the grant price was
based on the per share consideration paid by Greenmarine Acquisition Corp.
for the Company's stock in September, 1997.
(4) The amounts set forth reflect the potential realizable value of the options
granted at assumed annual rates of stock price appreciation of 5% and 10%
through the expiration date of the options (eleven years). The use of 5% and
10% is pursuant to Securities and Exchange Commission requirements and is
not intended by the Company to forecast possible future appreciation.
OPTION EXERCISES IN THE 1998 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
No options were exercised by the Named Executives during fiscal year 1998.
The per share fair market value of the Company's common stock used to make the
calculations in the following table is $18.00, which is the per share
consideration paid by Greenmarine Acquisition Corp. for the Company's stock in
September, 1997 in connection with the Greenmarine Acquisition. Accordingly, the
table indicates that the options had no value at the end of fiscal year 1998
because the exercise price was equal to such fair market value.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FISCAL YEAR END(#) FISCAL YEAR END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ---- --------------- ----------- ------------------ ------------------
<S> <C> <C> <C> <C>
D.D. Jones, Jr. ............... 0 0 207,245/200,000 0
A.P. Hines..................... 0 0 0/180,000 0
P.R. Rabe...................... 0 0 0/10,000 0
R.S. Romano.................... 0 0 0/8,000 0
K.K. Bors...................... 0 0 0/7,000 0
</TABLE>
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1998
There were no long-term incentive awards made under PROP in fiscal year
1998 to any employee, including the Named Executives.
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<PAGE> 70
RETIREMENT PLANS
The approximate total annual benefit for the Named Executive participants
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>
YEARS OF SERVICE
----------------------------------------------
AVERAGE ANNUAL BASE EARNINGS 5 10 15 20 OR MORE
- ---------------------------- -------- -------- -------- ----------
<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
$1,900,000..................................... $242,250 $484,500 $726,750 $969,000
</TABLE>
The Retirement Plan provides a fixed benefit determined on the basis of
years of service and final average base earnings. The approximate annual
benefits shown in the table above 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.
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 the 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 both 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 are those amounts contained in the Summary
Compensation Table above, for Salary and Bonus, 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 1.20% of total pay and 0.5% 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 1.20% of total pay and
0.5% above social security covered compensation for each year of credited
service as a non-Executive Officer and 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, 1998, Messrs. Jones, Hines, Rabe and Romano and Ms. Bors
will have 1.33, 1.25, 1.25, 1.25 and 1.25, respectively, credited years of
officer service and 0, 0, 2.91, 17.91 and 2.0, respectively, credited years of
non-officer service under the Company's retirement plans. The total estimated
vested annual benefit payable from these two plans for Messrs. Jones, Hines,
Rabe and Romano and Ms. Bors 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 $5,645, $5,308, $8,162, $62,462 and
$8,172, 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").
65
<PAGE> 71
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 discretion of the Board of Directors, (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, or at Mr. Jones' election, the three-fourths,
or any portion thereof, shall be paid in the form of a cash deferral(subject to
reduction in the event the per share value of the common stock of OMC declines
below $18.00) in which case Mr. Jones will receive a fully vested and
immediately exercisable option, at a per share exercise price equal to $18.00
with respect to the total number of shares of the bonus stock, (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 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
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<PAGE> 72
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 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
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<PAGE> 73
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 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."
Robert B. Gowens, Jr. The Company and Robert B. Gowens, Jr. have entered
into an Employment Agreement effective as of October 1, 1998 (the "Gowens
Employment Agreement"). Pursuant to the Gowens Employment Agreement, Mr. Gowens
will serve as Vice President of the Company and President, North American Engine
Operations. The term of the Gowens Employment Agreement commenced on October 1,
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<PAGE> 74
1998 and shall continue through the earlier of its third anniversary or Mr.
Gowens' death or total disability or as otherwise terminated pursuant to the
terms of the Gowens Employment Agreement. In exchange for his services, Mr.
Gowens will receive (1) a base salary of $300,000 per annum and (2) a
non-qualified option to purchase 100,000 shares of common stock of OMC at an
exercise price of $22.00 per share with annual vesting in equal proportions over
a three year period. The Gowens Employment Agreement provides that Mr. Gowens
shall be eligible to participate in the Company's bonus and incentive
compensation programs applicable, generally, to similarly situated senior
executive officers. The Gowens Employment Agreement also provides for a loan
from the Company in order to assist Mr. Gowens in purchasing a new, permanent
residence in the Chicago, Illinois geographic vicinity. Mr. Gowens will also be
entitled to receive benefits under any employee benefit plan, program or
arrangement made available, generally, by OMC to similarly situated executive
officers.
If OMC terminates Mr. Gowens' employment without cause or Mr. Gowens
voluntarily resigns his employment with good reason, Mr. Gowens will be entitled
to receive (1) his accrued and unpaid base salary and vacation as of the date of
his termination of employment; (2) a lump sum payment in the amount equal to the
greater of (a) Mr. Gowens' base salary for one year and (b) his base salary for
the remainder of the term of his Employment Agreement; and (3) OMC shall pay to
Mr. Gowens, within sixty (60) days of the end of the fiscal year, his bonus for
the fiscal year in which such termination occurred, based upon the Company's
level of actual attainment of his bonus target for such fiscal year, prorated
for the number of full months Mr. Gowens was employed during that fiscal year.
In addition, OMC shall, at its expense, continue for one year Mr. Gowens'
participation on the same basis as active employees in the Company's group,
medical and life insurance plans in which he participated prior to the
termination of his employment. Any unvested stock options granted to Mr. Gowens
shall automatically vest as the date of termination and shall be exercisable,
along with other vested options, in accordance with the terms of the plan.
If OMC terminates Mr. Gowens' employment for cause or Mr. Gowens
voluntarily resigned without good reason, Mr. Gowens shall be entitled his
accrued and unpaid base salary through such date of termination. In the event of
Mr. Gowens' death, OMC shall pay to his estate his base salary and vacation owed
through the date of death and any bonus for the fiscal year in which his death
occurs, prorated for the number of full months Mr. Gowens was employed during
such fiscal year and any restricted stock grant shall become fully vested.
In the event that the Agreement terminates as a result of Mr. Gowens' total
disability, OMC shall pay to Mr. Gowens his base salary through the date in
which he is determined to have become totally disabled and any bonus for the
fiscal year in which his total disability occurs, prorated for the number of
full months he was employed during such fiscal year, provided, however, that OMC
shall only be required to pay such amounts to Mr. Gowens that are not covered by
long term disability payments, if any, to Mr. Gowens pursuant to any long term
disability policy or plan of the Company.
Pursuant to the Gowens Employment Agreement, OMC will have the right to
repurchase, at fair market value, all shares of common stock of OMC owned by Mr.
Gowens, and vested stock options granted by OMC to Mr. Gowens upon the
termination of Mr. Gowens' employment with OMC for any reason. Upon the
termination by OMC of Mr. Gowens' employment without cause, for good reason, a
voluntary termination by Mr. Gowens, a voluntary termination by Mr. Gowens at or
after attaining his age 62 or as a result of total disability or death, Mr.
Gowens or his estate, as applicable, will have the right to require OMC to
purchase all shares of common stock of OMC owned by Mr. Gowens and stock options
granted by OMC to Mr. Gowens.
Mr. Gowens is subject to a confidentiality provision which is enforceable
during the term of the Gowens Employment Agreement and thereafter and a
non-competition provision which is enforceable during the term of the Gowens
Employment Agreement and for a period of one year commencing on the expiration
or termination of Mr. Gowens' employment with OMC.
See also "Certain Relationships and Related Transactions."
Certain Severance Arrangements. The Company has severance agreements with
George L. Broughton, Raymond M. Cartade, Jack L. Feurig, John D. Flaig, Grainger
B. McFarlane, James P. Murphy, Robert S.
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<PAGE> 75
Romano, Peter J. VanLancker and Robert F. Young. Each of these agreements was
entered into prior to the Greenmarine Acquisition, and the Company's potential
severance obligations thereunder became effective upon the change in control of
the Company resulting from the Greenmarine Acquisition. The agreements provide
that if such employee elects to resign his employment for specified reasons, or
is terminated by the Company other than for cause, the Company will pay such
employee an amount in cash equal to not more than one times (except for Mr.
Flaig who will be paid two times) (1) salary plus (2) the amount of the highest
annual incentive compensation received by such employee in the five fiscal years
preceding the fiscal year of the change in control (or, for certain employees,
the two fiscal years immediately following the fiscal year of the change in
control, if greater). Additionally, for certain employees for a period of 12
months following the termination date (the "Continuation Period"), the Company
will arrange to provide the employee with benefits substantially similar to
those the employee was receiving or entitled to receive immediately prior to the
termination date. Further, the Company will pay to certain employees a lump sum
cash payment in an amount equal to the actuarial equivalent of the excess of (1)
the retirement, pension, medical, life and other benefits that will be payable
to the employee under the Company's retirement plans if the employee continued
to be employed through the Continuation Period given the employee's base salary
over (2) the retirement, pension, medical, life and other benefits that employee
is entitled to receive under the Company's retirement plans. As a result of the
Greenmarine Acquisition, the severance agreements have, or will be, paid in
accordance with their terms for those employees who have satisfied the
conditions discussed above. The terms of these severance agreements will remain
in force until September 12, 2000, or as otherwise may be negotiated by the
employee and the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Kingsley, Duberstein, Katz and Hiram served on the Compensation
Committee of the Company's Board of Directors during fiscal year 1998. Mr.
Kingsley served as the Company's Chairman of the Board during fiscal year 1998.
Messrs. Duberstein and Katz served as Vice Chairmen of the Board in fiscal year
1998. Mr. Hiram did not serve as an officer or employee of the Company or any of
its subsidiaries during fiscal year 1998.
Messrs. Kingsley and Duberstein control Greenlake Holdings LLC, which has
approximately a 30.5% interest in Greenmarine Holdings, the Company's sole
shareholder. Mr. Hiram is a Managing Director of Soros Fund Management LLC,
which serves as the principal investment adviser to the indirect parent entities
of Quasar Strategic Partners LDC and Quantum Industrial Partners LDC, each of
which are the owners of approximately 34.75% of Greenmarine Holdings. Mr. Katz
is also affiliated with Quantum Industrial Partners LDC and Quasar Strategic
Partners LDC. In fiscal year 1998, Greenmarine Holdings was controlled by a
Management Committee comprised by Messrs. Kingsley, Duberstein and Katz. See
"Security Ownership of Certain Beneficial Owners and Management."
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<PAGE> 76
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 December 1, 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)................................................ -- --
888 Seventh Avenue, 33rd Floor
New York, New York 10106
Frank V. Sica(5)............................................ -- --
888 Seventh Avenue, 33rd Floor
New York, New York 10106
David D. Jones, Jr.(6)...................................... 212,800 *
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)............................................... 20,692,800 100.0%
</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> 77
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. The address of each
of Mr. George Soros and Mr. Stanley Druckenmiller is 888 Seventh Avenue,
33rd Floor, New York, New York 10106.
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. Mr. Hiram is a Managing Director of
Soros Fund Management LLC. Soros Fund Management LLC is the principal
investment advisor to Quasar and QIH. See footnote 1 above and
"Management -- Directors and Executive Officers of the Company."
(5) Frank V. Sica is a director of the Company. Mr. Sica is a Managing Director
of Soros Fund Management LLC. Soros Fund Management LLC is the principal
investment advisor to Quasar and QIH. See footnote 1 above and
"Management -- Directors and Executive Officers of the Company."
(6) Represents 212,800 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 194,445 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 and Katz as a result of their affiliation with Greenmarine
Holdings.
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<PAGE> 78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is party to an employment agreement with each of David D.
Jones, Jr., Andrew P. Hines and Robert B. Gowens, Jr., and to severance
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 vicinity of Chicago, Illinois.
Through September 30, 1998, such expenses have been approximately $89,000. 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 date he permanently
relocates to the Chicago, Illinois vicinity Mr. Hines' 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. Through September 30, 1998, such
expenses have been approximately $62,400. On December 18, 1998 the Company
purchased Mr. Hines' home located in New Jersey for the amount of $860,000. The
Company issued to Mr. Hines a demand promissory note in the amount of $860,000,
secured by a mortgage, bearing interest at a rate of 6.5%. Concurrently with the
transfer of the property, Mr. Hines entered into a lease of the home from the
Company through March 31, 1999. 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
actual sale price of Mr. Hines' 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.
On December 8, 1998, the Company loaned to Mr. Gowens the amount of
$100,000 for the purchase of his principal residence located in the Chicago
vicinity, secured by a second mortgage. The promissory note bears interest at a
rate of 6.5% per annum with payments of interest only. The note is payable if
(1) Mr. Gowens leaves the employment of OMC before October 1, 2001 without Good
Reason or as a result of termination for Cause as defined in the Gowens
Employment Agreement; (2) Mr. Gowens is required by OMC to relocate his
residence any time prior to October 1, 2001 or (3) Mr. Gowens dies before
October 1, 2001, all subject to extension as agreed to between Mr. Gowens and
OMC. In the event that Mr. Gowens is required by OMC to relocate his residence
prior to October 1, 2001, OMC shall suffer the loss, if any, on the note if the
gross sale price of the mortgaged property or the fair market value of the
mortgaged property, whichever is greater, is greater than the purchase price of
the mortgaged property, plus documented improvements.
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<PAGE> 79
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 (i.e., October 24, 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
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<PAGE> 80
90-day 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. Any such accrued and unpaid Liquidated Damages shall be paid along
with the payment of interest on the Notes.
A Registration Default occurred as a result of the Exchange Offer
Registration Statement not being declared effective by the Commission on or
prior to October 24, 1998. This Registration Default was cured on January ,
1999 when the Commission declared effective the Exchange Offer Registration
Statement. In accordance with the terms of the Indenture, as a result of such
Registration Default, on December 1, 1998 the Company paid an amount equal to
the Liquidated Damages that had then accrued along with the required interest
payment on the Old Notes. In addition, in accordance with the terms of the
Indenture, the remaining portion of the accrued and unpaid Liquidated Damages
resulting from such Registration Default will be paid on June 1, 1999 along with
the then required interest payment on the Exchange Notes.
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
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<PAGE> 81
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."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1999, 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, and any accrued Liquidated Damages with
respect to the Old Notes, are 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
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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 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.
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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 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
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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.
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
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(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.
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.
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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 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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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, 1998, the
combined revenues of the Company and the Subsidiary Guarantors represented
approximately 79% of the Company's total revenues and for the same period the
combined total assets of the Company and the Subsidiary Guarantors represented
approximately 87% of the Company's consolidated total assets. As of September
30, 1998, the Notes and the Subsidiary Guarantees
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would have been effectively subordinated to approximately $50.6 million of
secured obligations of the Company and the Subsidiary Guarantors (including an
aggregate of $37.7 million of letter of credit obligations under the Credit
Agreement) and $30.9 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 on the Notes, and Liquidated Damages
with respect to the Old 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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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 Holdings LLC, 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 Second Amendment to Amended
and Restated Loan and Security Agreement, dated effective as of August 31, 1998,
and the Third Amendment to Amended and Restated Loan and Security Agreement,
dated effective as of December 21, 1998, the "Credit Agreement") with a
syndicate of lenders, for which NationsBank Montgomery Securities LLC is
syndication agent, and NationsBank, N.A. (as successor in interest by merger to
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 $50.0 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 September 30, 1998, there were no borrowings
outstanding under the Credit Agreement, but there were $37.7 million of letter
of credit obligations outstanding.
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 (except a guaranty of the Notes); (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 June
30, 1999, the amount of Tangible Net Worth as of December 31, 1998 plus $5.0
million; (ii) for the period ended September 30, 1999, the amount of Tangible
Net Worth as of June 30, 1999, plus $5.0 million; (iii) for the period ended
June 30, 2000, the amount of Tangible Net Worth as of September 30, 1999; and
(iv) 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 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 September 30, 1999, 1.25 to 1.0; and
(B) for the periods ended December 31, 1999 and any fiscal period thereafter,
1.75 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,
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is prohibited from being greater than: (i) for the period ended September 30,
1998, 15.0 to 1.0; (ii) for the period ended December 31, 1998, 26.0 to 1.0;
(iii) for the period ended March 31, 1999, 17.0 to 1.0; (iv) for the period
ended June 30, 1999, 8.0 to 1.0; (v) for the period ended September 30, 1999,
4.0 to 1.0; (vi) for the period ended December 31, 1999 and each quarterly
period thereafter through and including June 30, 2000, 4.0 to 1.0; and (vii) 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, the occurrence of any
event or condition which constitutes a "material adverse effect" under the
Credit Agreement and any request for disbursement from any Interest Reserve
Account in any fiscal quarter through June 30, 1999.
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
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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.
"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 (in the case of any Indebtedness evidenced by an
Interest Rate Protection Agreement, limited, however, to an amount equal to
twenty percent (20%) of the amount of such Indebtedness), 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 the sum of subordinated Indebtedness
plus non-cash adjustments, 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. 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
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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 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 September 30, 1998, $62.6 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 September 30, 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 September 30, 1998, an aggregate of approximately $20.8 million
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
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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 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 September 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.
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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.
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.
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
will 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
, 1999 (90 days after the commencement of the Exchange Offer),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
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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 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.
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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.
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."
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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 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,
1997 and 1998, and for each of the three years in the period ended September 30,
1998 included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as stated in its report appearing elsewhere
herein.
119
<PAGE> 125
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.
120
<PAGE> 126
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Statement of Consolidated
Earnings is derived from the historical financial statements of the Company. The
Unaudited Pro Forma Condensed Statement of Consolidated Earnings for the fiscal
year ended September 30, 1998 gives effect to the Initial Offering as if it had
occurred on October 1, 1997.
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 Initial Offering
been consummated, at the date indicated, nor is it necessarily indicative of
future operating results or financial position. 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> 127
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF CONSOLIDATED EARNINGS
FISCAL YEAR ENDED SEPTEMBER 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.............................................. $1,025.7 $ -- $1,025.7
Cost of goods sold..................................... 791.4 -- 791.4
-------- --------
Gross earnings...................................... 234.3 -- 234.3
Selling, general and administrative expense............ 366.9 -- 366.9
-------- --------
Earnings (loss) from operations..................... (132.6) -- (132.6)
Non-operating expense (income):
Interest expense.................................... 30.1 1.7(a) 31.8
Other, Net.......................................... (15.6) -- (15.6)
-------- ----- --------
Loss before provision for income taxes................. (147.1) (1.7) (148.8)
Provision for income taxes............................. 3.4 -- 3.4
-------- ----- --------
Net earnings (loss).................................... $ (150.5) $(1.7) $ (152.2)
======== ===== ========
OTHER DATA:
Depreciation and amortization(b)....................... $ 50.1 $ -- $ 50.1
EBITDA (as defined)(c)................................. 20.0 -- 20.0
Capital expenditures................................... 34.4 -- 34.4
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Statements of
Consolidated Earnings.
PF-2
<PAGE> 128
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS
OF CONSOLIDATED EARNINGS
(a) Adjustment to interest expense assumes that the Initial Offering and the
application of the net proceeds therefrom occurred as of October 1, 1997.
(b) Depreciation and amortization includes debt discount amortization.
(c) "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. For the fiscal year ended
September 30, 1998, "EBITDA" does not include a restructuring charge of
$98.5 million. See Note 4 of the Notes to the Consolidated Financial
Statements contained elsewhere herein. 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 $4.8 million in 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,
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 a measure of
liquidity or as an indication of a company's operating performance. 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.
PF-3
<PAGE> 129
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 Financial Position as of
September 30, 1998 and 1997............................ F-3
Statements of Consolidated Earnings for the years ended
September 30, 1998, 1997 and 1996...................... F-4
Statements of Consolidated Cash Flows for the years ended
September 30, 1998, 1997
and 1996............................................... F-5
Statements of Changes in Consolidated Shareholders'
Investment for the years ended September 30, 1998, 1997
and 1996............................................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 130
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Outboard Marine Corporation:
We have audited the accompanying Statements of Consolidated Financial
Position of Outboard Marine Corporation (a Delaware corporation) and
subsidiaries ("Post-Merger Company" or "Company") as of September 30, 1998 and
1997 and the related Statements of Consolidated Earnings, Consolidated Cash
Flows and Changes in Consolidated Shareholders' Investment for the year in the
period ended September 30, 1998 and the related Statements of Consolidated 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 Earnings, Consolidated Cash Flows and Changes in Consolidated
Shareholders' Investment of Outboard Marine Corporation (a Delaware corporation)
and subsidiaries ("Pre-Merger Company") for each of the two 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 upon 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, 1998 and 1997 and the results of their operations and their
cash flows for the year in the period ended September 30, 1998 and their cash
flows from inception to September 30, 1997, and the results of operations and
cash flows of the Pre-Merger Company for each of the two years in the period
ended September 30, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
December 23, 1998
F-2
<PAGE> 131
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
POST-MERGER COMPANY
----------------------
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS,
EXCEPT AMOUNTS PER
SHARE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 45.2 $ 54.4
Receivables (less reserve for doubtful receivables of $9.5
million in 1998 and $6.7 million in 1997)............... 153.5 153.2
Inventories............................................... 174.4 176.9
Deferred income tax benefits.............................. 25.4 19.0
Other current assets...................................... 19.6 67.5
-------- --------
Total current assets.................................... 418.1 471.0
Restricted cash............................................. 28.6 --
Product tooling, net........................................ 32.4 34.2
Plant and equipment, net.................................... 194.5 210.2
Goodwill, net............................................... 116.3 127.3
Trademarks, patents and other intangibles, net.............. 81.6 83.9
Pension asset............................................... 45.6 74.4
Other assets................................................ 165.0 93.8
-------- --------
Total assets............................................ $1,082.1 $1,094.8
======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Loan payable.............................................. $ -- $ 96.0
Accounts payable.......................................... 115.1 142.0
Accrued liabilities....................................... 177.3 139.3
Accrued income taxes...................................... 8.0 6.6
Current maturities of long-term debt...................... 11.2 72.9
-------- --------
Total current liabilities............................... 311.6 456.8
Long-term debt.............................................. 247.9 103.8
Postretirement benefits other than pensions................. 123.7 96.0
Other non-current liabilities............................... 304.2 161.2
Shareholders' investment:
Common stock -- 25 million shares authorized at $.01 par
value with 20.4 million shares issued and outstanding in
1998 and 1997........................................... 0.2 0.2
Capital in excess of par value of common stock............ 276.9 276.8
Accumulated earnings...................................... (150.5) --
Minimum pension liability adjustment...................... (24.7) --
Cumulative translation adjustments........................ (7.2) --
-------- --------
Total shareholders' investment.......................... 94.7 277.0
-------- --------
Total liabilities and shareholders' investment.......... $1,082.1 $1,094.8
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 132
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED EARNINGS
<TABLE>
<CAPTION>
POST-MERGER
COMPANY PRE-MERGER COMPANY
----------- ------------------
YEARS ENDED SEPTEMBER 30,
---------------------------------
1998 1997 1996
----------- ------ --------
(DOLLARS IN MILLIONS
EXCEPT AMOUNTS PER SHARE)
<S> <C> <C> <C>
Net sales................................................... $1,025.7 $979.5 $1,121.5
Cost of goods sold.......................................... 791.4 826.5 892.2
-------- ------ --------
Gross earnings............................................ 234.3 153.0 229.3
Selling, general and administrative expense................. 268.4 215.4 210.3
Restructuring charges....................................... 98.5 -- 25.6
Change of control expenses -- compensation.................. -- 11.8 --
-------- ------ --------
Loss from operations...................................... (132.6) (74.2) (6.6)
Non-operating expense (income):
Interest expense.......................................... 30.1 16.2 12.3
Change in control expenses................................ -- 15.1 --
Other (income) expense, net............................... (15.6) (29.2) (8.5)
-------- ------ --------
14.5 2.1 3.8
-------- ------ --------
Loss before provision for income taxes.................... (147.1) (76.3) (10.4)
Provision (credit) for income taxes......................... 3.4 2.8 (3.1)
-------- ------ --------
Net loss.................................................. $ (150.5) $(79.1) $ (7.3)
======== ====== ========
Net loss per share of common stock
Basic..................................................... $ (7.38) $(3.91) $ (0.36)
======== ====== ========
Diluted................................................... $ (7.38) $(3.91) $ (0.36)
======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 133
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
PRE-MERGER
COMPANY
AND
POST-MERGER POST-MERGER PRE-MERGER
COMPANY COMPANY COMPANY
----------- ----------- ----------
YEARS ENDED SEPTEMBER 30,
----------------------------------------
1998 1997 1996
----------- ----------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(150.5) $(79.1) $ (7.3)
Adjustments to reconcile net loss to net cash provided
by operations:
Depreciation and amortization......................... 50.1 57.0 54.7
Restructuring charges................................. 98.5 -- 21.6
Changes in current accounts excluding the effects of
acquisitions and noncash transactions:
Decrease (increase) in receivables................. (0.9) 9.6 32.4
Decrease (increase) in inventories................. 1.9 26.5 27.3
Decrease (increase) in other current assets........ 45.4 (0.4) (3.6)
Increase (decrease) in accounts payable, accrued
liabilities and income taxes..................... (46.7) (5.3) (15.1)
Increase (decrease) in deferred items.............. 66.7 (15.8) (20.6)
Other, net......................................... (4.2) (1.7) 1.7
------- ------ ------
Net cash provided by (used for) operating
activities.................................... 60.3 (9.2) 91.1
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment, and tooling....... (34.4) (36.3) (52.7)
Proceeds from sale of plant and equipment............... 9.6 13.0 2.7
Other, net.............................................. 0.8 (2.8) (0.5)
------- ------ ------
Net cash used for investing activities........... (24.0) (26.1) (50.5)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt............................. (96.0) -- --
Payments of long-term debt, including current
maturities............................................ (75.0) -- (0.2)
Proceeds from issuance of long-term debt................ 155.4 -- --
Cash dividends paid..................................... -- (6.0) (6.1)
Other, net.............................................. (29.5) 2.3 3.4
------- ------ ------
Net cash used for financing activities........... (45.1) (3.7) (2.9)
Exchange rate effect on cash............................ (0.4) (2.1) (0.5)
------- ------ ------
Net (decrease) increase in cash and cash equivalents.... (9.2) (41.1) 37.2
Cash and cash equivalents at beginning of year.......... 54.4 95.5 58.3
------- ------ ------
Cash and cash equivalents at end of year................ $ 45.2 $ 54.4 $ 95.5
======= ====== ======
Restricted cash......................................... $ 28.6* $ -- $ --
======= ====== ======
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:
Interest paid......................................... $ 23.5 $ 21.0 $ 15.4
Income taxes paid..................................... $ 0.0 $ 3.4 $ 3.5
======= ====== ======
</TABLE>
- ---------------
* The Company had $45.2 million in available cash and additional $28.6 million
in Restricted Cash at September 30, 1998.
The accompanying notes are an integral part of these statements
F-5
<PAGE> 134
OUTBOARD MARINE CORPORATION
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
ISSUED CAPITAL IN MINIMUM
COMMON STOCK EXCESS OF PENSION CUMULATIVE
--------------- PAR VALUE OF ACCUMULATED LIABILITY TRANSLATION TREASURY
SHARES AMOUNT COMMON STOCK EARNINGS ADJUSTMENT ADJUSTMENTS STOCK
------ ------ ------------ ----------- ---------- ----------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -- September 30,
1995....................... 20.2* $ 3.0 $ 112.2 $ 149.7 $ -- $ (5.5) $(3.6)
Net earnings 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................. -- -- -- -- (0.4) -- --
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 $ -- $ -- $ -- $ --
Net loss..................... -- $ -- $ -- $(150.5) $ -- $ -- $ --
Minimum pension liability
adjustment................. -- -- -- -- (24.7) -- --
Shares issued under stock
plans...................... -- -- 0.1 -- -- --
Translation adjustments...... -- -- -- -- -- (7.2) --
----- ----- ------- ------- ------ ------ -----
Balance --
September 30, 1998 --
Post-Merger Company........ 20.4 $ 0.2 $ 276.9 $(150.5) $(24.7) $ (7.2) $ --
===== ===== ======= ======= ====== ====== =====
</TABLE>
- ---------------
* Net of shares of treasury stock.
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 135
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 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 $883.6 million and $817.8 million, respectively. In addition, $83.9 million
of the purchase price was allocated to intangible assets for trademarks, patents
and dealer network. At September 30, 1997, the preliminary allocation of
purchase price to assets acquired and liabilities assumed included $8.1 million
of reserves for: 1) severance costs associated with closing the Old Hickory, TN
facility, 2) guaranteed payments for terminating a supply agreement, and 3)
severance costs for certain corporate employees. At September 30, 1998, the
allocation of purchase price to assets acquired and liabilities assumed in the
Greenmarine Acquisition was finalized. The adjustments from the preliminary
purchase price allocation at September 30, 1997 included $5.3 million to reverse
a portion of a valuation allowance (and related goodwill) established for the
disposition of the Company's joint venture (see Note 3). In addition, the
Company reduced its purchase accounting reserves and corresponding goodwill by
$1.4 million for revisions of certain estimates. The adjusted September 30, 1998
excess purchase price over fair value of the net assets acquired was
approximately $120 million (prior to goodwill amortization) 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 year 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.
CHANGE IN FISCAL YEAR. 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 a transition report on Form 10-Q for
the transition period of October 1, 1998 through December 31, 1998.
BASIS OF PRESENTATION. The consolidated financial statements for the
Post-Merger Company were prepared using a new basis of purchase accounting. The
Pre-Merger Company's historical basis of accounting was used prior to September
30, 1997.
F-7
<PAGE> 136
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRINCIPLES OF CONSOLIDATION. The accounts of all significant subsidiaries
were included in the Consolidated Financial Statements. Intercompany activity
and account balances have been eliminated in consolidation. At September 30,
1998, 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 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
Financial Position and 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 $26.4 million and $18.3 million which had not yet been paid by the
banks at September 30, 1998 and 1997, respectively, were reflected in trade
accounts payable in the Statements of Consolidated Financial Position.
RESTRICTED CASH. On May 27, 1998, the Company issued $160.0 million of
10 3/4% Senior Notes ("Senior Notes") due 2008. 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
("Restricted Cash") 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 September 30, 1998, the Restricted Cash was $28.6 million and
must be maintained until the later of June 27, 2001, such time as the Company's
fixed coverage ratio is greater than 2.5 to 1.0 (as determined under the
depositary agreement)or such time as the Senior Notes are paid in full.
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 (23% in 1998 and 22% in 1997) is carried at the lower of
first-in, first-out (FIFO) cost or market. In fiscal year 1998, the Company
changed its accounting for the absorption of certain manufacturing overhead
costs to better reflect the costs to manufacture such inventory. The effect of
this change was to decrease cost of goods sold and increase its earnings from
operations by approximately $3.6 million.
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.
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 on the
Post-Merger Company was $43.1 million for 1998 and on the Pre-Merger Company was
$52.7 million and $52.1 million for 1997 and 1996, 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 other (income) expenses net in the Statements of Consolidated
Earnings.
F-8
<PAGE> 137
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maintenance and repair costs are charged directly to earnings as incurred
and Post-Merger company expenses were $27.0 million for 1998 and Pre-Merger
Company expenses were $26.5 million and $29.4 million for 1997 and 1996,
respectively. Major rebuilding costs which substantially extend the useful life
of an asset are capitalized and depreciated accordingly.
INTANGIBLES. The Statements of Consolidated Financial Position at
September 30, 1998 and 1997 included goodwill, net of amortization expense, of
$116.3 million and $127.3 million and trademarks, patents and other intangibles
of $81.6 million and $83.9 million, respectively. 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 Post-Merger Company was $6.2 million for
1998 and on the Pre-Merger Company was $1.6 million and $1.8 million for 1997
and 1996, respectively. Accumulated amortization was $6.2 million and $0.0 for
1998 and 1997, respectively.
REVENUE RECOGNITION. The Company recognizes sales and related expenses
including estimated warranty costs upon shipment of products to unaffiliated
customers.
ADVERTISING COSTS. Advertising costs are charged to expense as incurred
and were $27.6 million on the Post-Merger Company for 1998, $33.7 million and
$31.8 million on the Pre-Merger Company for 1997 and 1996, 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, 1998, warranty accruals were
increased by approximately $17.0 million partially as a result of costs
associated with its new FICHT engines. In the year ended September 30, 1997,
warranty accruals were increased by $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 certain improvements and refinements to
existing products, are expensed as incurred. Such Post-Merger Company
expenditures were $36.8 million for 1998, and Pre-Merger Company expenditures
were $38.2 million and $41.8 million for 1997 and 1996, 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 the Post-Merger Company in 1998 and
Pre-Merger Company in 1997 include foreign exchange losses (gains) of $(0.7)
million and $1.0 million, respectively, which resulted primarily from commercial
transactions and forward exchange contracts.
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 for the Pre-Merger Company was
F-9
<PAGE> 138
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized in the year ended September 30, 1997. The Company periodically
evaluates whether 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 stock option
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 20.4 million,
20.2 million and 20.1 million for the fiscal years ended September 30, 1998,
1997 and 1996, 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 the
diluted earnings (loss) per share computations for the 1998, 1997 and 1996
fiscal years, shares were computed to be 20.4 million, 23.6 million and 23.6
million, respectively. For the 1998, 1997 and 1996 fiscal years, 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 Pre-Merger Company 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.
NEW ACCOUNTING STANDARDS. In fiscal year 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 currently reported) as they require only changes in or
additions to current disclosures.
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.
F-10
<PAGE> 139
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 that 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 was 60% owned
by Volvo Penta of the Americas, Inc. (Volvo Penta) and 40% owned by the Company.
The jointly produced marine power systems were 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, 1998 and 1997, the Company's investment, including current net
accounts receivable, was $24.0 and $13.9 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 Post-Merger
Company's share of the joint venture's earnings (including income derived from
the Company's stern-drive joint venture net of joint venture expenses) was $4.8
million for 1998, and the Pre-Merger Company's was $7.2 million and $4.4 million
in fiscal years 1997 and 1996, respectively, which were included in other
(income) expense, net in the Statements of Consolidated Earnings. On December 8,
1998, the Company terminated its joint venture with AB Volvo Penta and Volvo
Penta of the Americas, Inc. and entered into a Product Sourcing Contract which
will control the future purchase and sale obligations of various specified goods
between certain of the parties.
4. RESTRUCTURING CHARGES
During the fourth quarter of fiscal year 1998, the Company finalized a
restructuring plan for the closure/ consolidation of its Milwaukee and Waukegan
engine facilities. The Company announced the closure of the Milwaukee and
Waukegan facilities on September 24, 1998. The Company recorded a $98.5 million
restructuring charge to recognize severance and benefits for approximately 950
employees to be terminated ($14.0 million), curtailment losses associated with
the acceleration of pension and postretirement benefits for employees at the two
facilities ($72.1 million), and facility shut down costs associated with closing
the facility and disposing of certain assets ($12.4 million). The Company's plan
includes outsourcing the substantial portion of its sub-assembly production
currently performed in its Milwaukee and Waukegan facilities to third party
vendors or transferring such production to other facilities of the Company. The
Company anticipates substantial completion of such plan by the end of year 2000.
No costs have been charged to this reserve as of September 30, 1998.
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 Company recognized $1.4 million, $12.5 million and $7.1 million in costs
against this reserve in 1998, 1997 and 1996, respectively. The North American
and European sales and marketing operations were realigned to more effectively
meet market needs.
F-11
<PAGE> 140
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
The components of inventory were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Finished product............................................ $ 55.8 $ 62.1
Raw material, work in process and service parts............. 118.6 114.8
------ ------
Inventory at current cost which is less than market....... 174.4 176.9
Excess of current cost over LIFO cost....................... -- --
------ ------
Net inventory............................................. $174.4 $176.9
====== ======
</TABLE>
6. PLANT AND EQUIPMENT
Plant and equipment components were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Land and improvements....................................... $ 11.9 $ 13.2
Buildings................................................... 62.6 65.0
Machinery and equipment..................................... 129.0 126.1
Construction in progress.................................... 8.5 5.9
------ ------
212.0 210.2
Accumulated depreciation.................................... 17.5 --
------ ------
Plant and equipment, net.................................. $194.5 $210.2
====== ======
</TABLE>
7. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accrued liabilities were as follows:
Compensation, pension programs and current postretirement
medical................................................... $ 25.7 $ 24.2
Warranty.................................................... 36.3 24.6
Marketing programs.......................................... 36.2 32.8
Restructuring reserves...................................... 10.6 6.0
Other....................................................... 68.5 51.7
------ ------
Accrued liabilities.................................... $177.3 $139.3
</TABLE>
F-12
<PAGE> 141
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Other non-current liabilities were as follows:
Pension programs............................................ $ 80.7 $ 17.3
Environmental remediation................................... 18.1 18.4
Warranty.................................................... 20.4 15.2
Deferred income taxes (primarily valuation allowance)....... 124.0 80.5
Restructuring reserves...................................... 20.4 --
Other....................................................... 40.6 29.8
------ ------
Accrued non-current liabilities........................... $304.2 $161.2
====== ======
</TABLE>
As described in Note 4, the Company recorded a $98.5 million restructuring
reserve in the fourth quarter of fiscal year 1998. The Company has classified
$6.0 million as accrued liabilities which represents the Company's anticipated
expenditures in fiscal year 1999 for severance costs associated with the closing
of its Milwaukee and Waukegan facilities. In addition, the Company has recorded
$20.4 million as other non-current liabilities for severance and closing costs
associated with the closing of the Milwaukee and Waukegan facilities that will
be incurred in the year 2000. Finally, in connection with the closure of the
Milwaukee and Waukegan facilities, the Company recorded a $42.2 million
curtailment loss related to the Company's pension plan and a $29.9 million
curtailment loss related to the Company's postretirement liabilities (the
pension curtailment loss has been categorized under the heading "Pension
programs" above and the postretirement curtailment loss has been included as
"Postretirement benefits other than pensions" in the Statement of Consolidated
Financial Position). The Company anticipates that the funding of the pension
benefits for the employees at the Milwaukee and Waukegan facilities will be from
the Pension Plan's Asset Portfolio, to which the Company has contributed.
8. SHORT-TERM BORROWINGS AND ACCOUNTS RECEIVABLE SALES AGREEMENTS
A summary of short-term borrowing activity was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Outstanding at September 30
Credit agreement.......................................... $ -- $96.0 $ --
Bank borrowing............................................ $ -- $ -- $ --
Average bank borrowing for the year
Borrowing................................................. $35.7 $ 2.9 $ 5.7
Interest rate............................................. 8.0% 7.1% 6.6%
Maximum month end borrowing............................... $70.7 $29.0 $15.0
===== ===== =====
</TABLE>
The Company became obligated under a credit agreement, as amended, with
American Fidelity Group ("AFG") which provided for loans of up to $150 million
(the "Acquisition Debt"). The Acquisition Debt was used to finance a portion of
the funds received to effect Greenmarine's acquisition of the Company. Amounts
outstanding under this credit agreement were secured by 20.4 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 (see Note 9 to
the Consolidated Financial Statements). The full amount of the Acquisition Debt
was paid on May 27, 1998, from the proceeds of newly issued long-term debt (see
Note 9).
F-13
<PAGE> 142
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1998 and 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 (the "Credit Agreement") which expires December 31,
2000 which replaced the November 12, 1997 agreement. The Company entered into a
Second Amendment to Amended and Restated Loan and Security Agreement, effective
as of August 31, 1998 with the lenders under the Credit Agreement, pursuant to
which, among other things, the sublimit for the issuance of letters of credit
was increased from $30.0 million to $50.0 million. As of September 30, 1998, the
Company was in violation of certain of the maintenance covenants contained in
its credit agreement with NationsBank, N.A. The Company informed the lenders
under the credit agreement of the circumstances resulting in the violation, and
the Company entered into a Third Amendment to Amended and Restated Loan and
Security Agreement, effective as of December 21, 1998 with the lenders under the
Credit Agreement, pursuant to which, among other things, (i) the Company's
non-compliance with the consolidated tangible net worth, consolidated interest
and consolidated leverage covenants for the period ended September 30, 1998 was
waived and (ii) the Company's consolidated tangible net worth, consolidated
leverage ratio and consolidated interest coverage ratio requirements have been
amended. Separately, any loans outstanding under the Credit Agreement are
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 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.
9. LONG-TERM DEBT
Long-term debt on September 30, 1998 and 1997, net of sinking fund
requirements included in current liabilities, consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
10 3/4% senior notes due 2008............................... $155.4 $ --
7% convertible subordinated debentures due 2002............. 7.1 74.8
9 1/8% sinking fund debentures due through 2017............. 62.6 62.6
Medium-term notes due 1998 through 2001 with rates ranging
from 8.16% to 8.625%...................................... 21.1 26.2
Industrial revenue bonds and other debt due 2002 through
2007 with rates ranging from 6.0% to 12.037%.............. 12.9 13.1
------ ------
$259.1 $176.7
Less current maturities..................................... (11.2) (72.9)
------ ------
$247.9 $103.8
====== ======
</TABLE>
F-14
<PAGE> 143
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $155.4
million, of which, $150.0 million was used to prepay the Acquisition Debt.
Unamortized debt discount costs of $4.6 million remained at September 30, 1998.
The Senior Notes are guaranteed by certain of the Company's U.S. operating
subsidiaries. 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 September 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 (as determined under the depository
agreement)or the Senior Notes are paid in full. The Indenture governing the
Senior Notes 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.
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. 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. 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. At September 30,
1997, $67.7 million was reflected as current maturities of debt.
On September 30, 1998, 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 1999 through 2004. Amounts are recorded as a
reduction of outstanding debt.
At September 30, 1998, an aggregate of $21.1 principal amount of
Medium-Term Notes Series A (the "Medium-Term Notes") were outstanding. Rates on
the Medium-Term Notes range from 8.160% to 8.125%. Interest on each of the
outstanding Medium-Term Notes is payable semiannually each March 30 and
September 30 and at maturity.
The agreements covering the Company's revolving credit agreement (see Note
8) and one industrial revenue bond have restrictive financial covenants.
Maturities and sinking fund requirements of long-term debt for each of the
next five fiscal years is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
1999..................................... $11.2
2000..................................... $ 7.0
2001..................................... $ 6.3
2002..................................... $ 8.4
2003..................................... $ 1.4
</TABLE>
F-15
<PAGE> 144
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $237.1 million and $103.8 million at September 30, 1998 and 1997,
respectively, versus carrying amounts of $247.9 and $103.8 million at September
30, 1998 and 1997, 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 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. Also at September 30, 1998
and 1997, 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 agreement at
September 30, 1998 and 1997 was an estimated termination liability of $0.1 and
$0.3 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 enters into foreign exchange forward contracts and options to
hedge particular anticipated transactions expected to be denominated in such
currencies. The recognition of gains or losses on these instruments is accrued
as foreign exchange rates change and is recognized in net earnings unless the
gains or losses are related to qualifying hedges on firm foreign currency
commitments which are deferred. At September 30, 1997, the Company had $32.1
million Belgian franc put options with a market value of $4.3 million and a $10
million French franc put option with a market value of $1.0 million, both of
which settled October 2, 1997. This 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.
At September 30, 1998, the Company had entered into foreign currency
forward exchange contracts to receive 11.0 million Australian dollars and 29.0
million Canadian dollars for $25.7 million with a fair market value of $25.5
million. The $0.2 million loss was recognized in 1998. The Company also entered
into foreign currency forward exchange contracts to receive $0.6 million (also
fair market value) for 0.9 million Canadian dollars. Finally, at September 30,
1998, the Company had Canadian dollar put options for $1.3 million (also fair
market value).
The Company also entered into foreign currency forward exchange contracts
to receive 3,165.5 million Japanese yen for $22.9 million with a fair market
value of $23.7 million at September 30, 1998. The gains on these Japanese yen
contracts has been deferred at September 30, 1998 because they relate to
qualifying hedges on firm foreign currency commitments which are deferred
off-balance sheet and included as a component of the related hedged transaction,
when incurred.
The foreign currency contracts and options outstanding at September 30,
1998 all mature in one year or less. The fair values were obtained from major
financial institutions based upon the market values as of September 30, 1998 and
1997.
F-16
<PAGE> 145
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company purchases commodity futures to hedge anticipated purchases of
aluminum. Gains and losses on open hedging transactions are deferred until the
futures are closed. Upon closing, 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, 1998, the Company had futures covering approximately 11%
of annual forecasted aluminum purchases. The fair market value of these options
resulted in a $0.1 million deferred loss at September 30, 1998 and a $0.3
million deferred gain at September 30, 1997. The fair market value was obtained
from a major financial institution based upon the market value of those futures
at September 30, 1998.
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 outstanding common stock of the
Pre-Merger Company was cancelled and 20.4 million shares of common stock of the
Post-Merger Company 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 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. As a result of the merger, the remaining $7.1
million of convertible debentures are no longer convertible into common stock
(see Note 9).
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. 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. All
amounts with respect to the above plans have been expensed and included in the
category "change of control expenses -- compensation" in the September 30, 1997
Statement of Consolidated Earnings.
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.
On March 10, 1998, the Post-Merger 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 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
F-17
<PAGE> 146
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 September 30, 1998 were 991,745. The
grants are exercisable at $18 per share and expire ten years after date of
grant, except for 61,105 incentive stock options granted to an executive which
expire 11 years after the date of grant. The Company accounts for PROP under APB
Opinion No. 25, and has not recorded any compensation expense for grants through
September 30, 1998 as the exercise price of the stock option approximates
management's estimate of fair market value of the Company's stock on the date of
grant. If the accounting provisions of SFAS 123 had been adopted, the effect on
net earnings for 1998 would have been a reduction of pretax earnings of $0.7
million on a proforma basis and a reduction of basic and diluted earnings per
share of $0.03 per share.
A summary of option data for all plans was as follows:
<TABLE>
<CAPTION>
OPTION
NUMBER OF EXERCISE
OPTION SHARES PRICE PER SHARE
------------- ---------------
<S> <C> <C>
Options outstanding and unexercised at September 30,
1997* -- Pre-Merger Company............................ --
Options granted -- Post-Merger Company................... 991,745 $18.00
-------
Options outstanding and unexercised at September 30,
1998................................................... 991,745 $18.00
=======
Exercisable at September 30, 1998........................ 212,745 $18.00
=======
</TABLE>
- ---------------
* Due to the merger with Greenmarine, all options outstanding prior to September
30, 1997 were paid out in cash and cancelled at September 30, 1997.
The weighted average fair value per option granted during 1998, estimated
on the date of grant using the Black-Scholes option-pricing model was $3.75. The
fair value of 1998 options granted is estimated on the date of grant using the
following assumptions: risk-free interest rate 4.7%, and an expected life of
five years. The Company has used the 'minimum value' method of valuing stock
options based upon SFAS 123.
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 $(5.0) million for 1998 and on the Pre-Merger Company were $2.4
million and $(0.3) million in 1997 and 1996, respectively. In addition, the
Company recorded a $42.2 million curtailment loss (as part of its 1998
restructuring -- see Note 4) associated with the acceleration of pension
benefits for employees at the Milwaukee and Waukegan facilities.
F-18
<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 (the
1997 and 1996 fiscal years refer to the Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Benefits earned during the period........................ $ 6.6 $ 6.6 $ 6.2
Interest cost on projected benefit obligation............ 28.8 28.5 25.4
Return on pension assets................................. (41.3) (88.5) (46.5)
Net amortization and deferral............................ (0.1) 54.3 15.7
------ ------ ------
Net periodic pension expense (income)............... $ (6.0) $ 0.9 $ 0.8
====== ====== ======
</TABLE>
Actuarial assumptions used for the Company's principal defined benefit
plans:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rates.............................................. 7% 7 1/2% 8%
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:
<TABLE>
<CAPTION>
PLANS WHOSE
PLANS WHOSE ACCUMULATED
ASSETS EXCEED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- ---------------
SEPTEMBER 30,
---------------------------------------
1998 1997 1998 1997
-------- -------- ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation
Vested................................................. $206.1 $331.0 $209.9 $15.2
Nonvested.............................................. 18.3 27.7 16.1 1.0
------ ------ ------ -----
Accumulated benefit obligation...................... 224.4 358.7 226.0 16.2
Excess of projected benefit obligation over accumulated
benefit obligation..................................... 24.9 22.1 1.0 1.2
------ ------ ------ -----
Projected benefit obligation........................ 249.3 380.8 227.0 17.4
Plan assets at fair market value......................... 258.8 455.2 181.4 --
------ ------ ------ -----
Plan assets (in excess of) less than projected benefit
obligation............................................. (9.5) (74.4) 45.6 17.4
Unrecognized net loss.................................... (36.1) -- (24.6) --
Adjustment required to recognize minimum liability....... -- -- 24.7 --
------ ------ ------ -----
Pension liability (asset) recognized................ $(45.6) $(74.4) $ 45.7 $17.4
====== ====== ====== =====
</TABLE>
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 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. In 1998, because
the accumulated benefit obligation exceeded the plan assets and because, due to
the application of purchase accounting, the Company did not have any
unrecognized prior service cost at the beginning of the fiscal year, the balance
of $24.7 million is reported as a separate reduction of shareholders' investment
at September 30, 1998.
F-19
<PAGE> 148
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 at the Acquisition Date.
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. In addition, as
part of the Company's restructuring charge (See Note 4), the Company recorded a
curtailment loss of $29.9 million associated with the acceleration of
postretirement benefits for employees at the Milwaukee and Waukegan facilities.
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 (1997 and 1996 were Pre-Merger
Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits attributed to service during the
period.................................................... $ 0.7 $ 1.1 $ 1.0
Interest cost on accumulated postretirement benefit
obligation................................................ 6.6 7.3 6.4
Amortization of prior service cost and actuarial gain....... (0.2) (1.8) (1.9)
----- ----- -----
Net periodic postretirement benefit cost............... $ 7.1 $ 6.6 $ 5.5
===== ===== =====
</TABLE>
The amounts recognized in the Statements of Consolidated Financial Position
included:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees.................................................... $ 59.9 $ 65.3
Fully eligible active plan participants..................... 56.2 13.3
Other active plan participants............................ 15.3 24.2
Unrecognized net gain..................................... 0.4 --
------ ------
Net obligation......................................... $131.8 $102.8
Less: (current portion of postretirement obligation)...... 8.1 6.8
------ ------
Net long-term postretirement obligation..................... $123.7 $ 96.0
====== ======
</TABLE>
The accumulated postretirement benefit obligation was determined using a 7%
and 7 1/2% weighted average discount rate at September 30, 1998 and 1997,
respectively. The health care cost trend rate was assumed to be 7% in fiscal
year 1998, and remaining constant thereafter. In fiscal year 1997, the health
care cost trend rate was assumed to be 8%, declining to 7% in one year and
remaining constant thereafter. A one percentage point increase of this annual
trend rate would increase the accumulated postretirement benefit
F-20
<PAGE> 149
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligation at September 30, 1998 by approximately $11.2 million and the net
periodic cost by $0.8 million for the year.
Under the OMC Executive Bonus Plan, the Pre-Merger Company's compensation
committee of the board of directors, which administered the plan and whose
members were 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 were 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 year 1996, $5.1 million 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 were earned and paid based
upon the judgment of the compensation committee of the Pre-Merger Company's
board of directors whose members were not participants in the plan, as to the
achievement of various goals over multi-year award cycles. In 1997 and 1996,
respectively, $(0.2) million and $(0.4) million were 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 (1997 and 1996 were Pre-Merger
Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1998 1997 1996
------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Expense (Income)
Interest earned......................................... $ (4.3) $ (4.5) $(4.1)
Insurance recovery and lawsuit settlement............... -- (10.7) --
Foreign exchange losses (gains)......................... (0.7) 1.0 --
(Gain) loss on disposition of plant and equipment....... (2.9) (5.8) 0.9
Joint venture earnings.................................. (4.8) (7.2) (4.4)
Discount charges --
Accounts receivable sales............................ -- 0.6 1.7
Miscellaneous, net...................................... (2.9) (2.6) (2.6)
------ ------ -----
$(15.6) $(29.2) $(8.5)
====== ====== =====
</TABLE>
F-21
<PAGE> 150
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. INCOME TAXES
The provision for income taxes consisted of the following components (1997
and 1996 were Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------
1998 1997 1996
------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Provision for current income taxes
Federal................................................. $ (9.0) $(36.7) $(5.6)
State................................................... (7.1) (2.3) --
Non-U.S................................................. 3.1 2.8 2.5
------ ------ -----
Total current........................................ (13.0) (36.2) (3.1)
Changes to valuation allowance............................ 16.4 39.0 --
------ ------ -----
Total provision................................. $ 3.4 $ 2.8 $(3.1)
====== ====== =====
</TABLE>
The significant short-term and long-term deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Deferred tax assets
Litigation and claims..................................... $ 17.6 $ 18.4
Product warranty.......................................... 21.0 14.6
Marketing programs........................................ 15.1 13.7
Postretirement medical benefits........................... 67.7 41.2
Restructuring............................................. 16.8 7.3
Loss carryforwards........................................ 67.5 55.0
Other..................................................... 57.5 58.6
Valuation allowance....................................... (98.2) (81.8)
------- -------
Total deferred tax assets.............................. $ 165.0 $ 127.0
------- -------
Deferred tax liabilities
Depreciation and amortization............................. $ (13.5) (13.9)
Employee benefits......................................... (15.0) (12.8)
Purchase accounting asset revaluations.................... (57.7) (44.5)
Other..................................................... (34.3) (15.7)
------- -------
Total deferred tax liabilities......................... (120.5) (86.9)
------- -------
Net deferred tax assets........................... $ 44.5 $ 40.1
======= =======
</TABLE>
The Company believes the recorded net deferred tax assets of $44.5 million
will be realized. A valuation allowance of $98.2 million has been recorded at
September 30, 1998, to reduce the deferred tax assets to their estimated net
realizable value. Of this valuation allowance, $23.2 million relates to deferred
tax assets established for foreign and state loss carryforwards.
As of September 30, 1998, certain non-U.S. subsidiaries of the Company had
net operating loss carryforwards for income tax purposes of $37.0 million. Of
this amount, $5.0 million will expire by 2003 with the remaining balance being
unlimited. In addition, the Company has $125.8 million of Federal net operating
F-22
<PAGE> 151
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
loss carryforwards expiring between 2009 and 2013 and $156.6 million of state
net operating loss carryforwards expiring between 1999 and 2013. 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 1998 and 1997
fiscal year results, it is unlikely the reversal of the valuation allowance will
occur in 1999.
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 (1997 and 1996 were Pre-Merger
Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
------ ------ ------
(% TO PRETAX EARNINGS)
<S> <C> <C> <C>
At statutory rate........................................... (35.0)% (35.0)% (35.0)%
State income taxes, net of Federal tax deduction............ (3.6) (3.0) (0.2)
Tax effect of non-U.S. subsidiary earnings (loss) taxed at
other than the U.S. rate.................................. -- 0.1 11.4
Tax benefit not provided on domestic and foreign operating
losses.................................................... 33.0 41.8 20.6
Tax effect of goodwill amortization and write-offs.......... 1.4 0.4 3.3
Reversal of valuation allowance............................. 1.9 -- --
Federal tax effect prior year's state income taxes paid..... -- (0.2) 13.6
Tax effects of audit settlements............................ -- -- (50.5)
Tax effect of Foreign Investment in U.S. property........... 6.4 -- --
Other....................................................... 0.1 (0.5) 7.0
----- ----- -----
Actual provision....................................... N.M.% N.M.% N.M.%
===== ===== =====
</TABLE>
Domestic and non-U.S. earnings before provision (credit) for income taxes
consisted of the following (1997 and 1996 were Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------
1998 1997 1996
------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Earnings (loss) before provision for income taxes
United States......................................... $(144.8) $(68.7) $ (8.1)
Non-U.S............................................... (2.3) (7.6) (2.3)
------- ------ ------
Total......................................... $(147.1) $(76.3) $(10.4)
======= ====== ======
</TABLE>
The above non-U.S. loss of $2.3 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 $64.6 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.
F-23
<PAGE> 152
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Information by geographic area was as follows (1997 and 1996 were
Pre-Merger Company):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Net sales
United States...................................... $ 769.7 $ 721.0 $ 813.3
Europe............................................. 91.9 90.9 114.8
Other.............................................. 164.1 167.6 193.4
-------- -------- --------
Total........................................... $1,025.7 $ 979.5 $1,121.5
======== ======== ========
Sales between geographic areas from
United States...................................... $ 168.1 $ 152.2 $ 144.4
Europe............................................. 1.1 2.1 7.4
Other.............................................. 53.7 47.0 45.6
-------- -------- --------
Total........................................... $ 222.9 $ 201.3 $ 197.4
======== ======== ========
Total revenue
United States...................................... $ 937.8 $ 873.2 $ 957.7
Europe............................................. 93.0 93.0 122.2
Other.............................................. 217.8 214.6 239.0
Eliminations....................................... (222.9) (201.3) (197.4)
-------- -------- --------
Total........................................... $1,025.7 $ 979.5 $1,121.5
======== ======== ========
Earnings (loss) from operations
United States...................................... $ (133.9) $ (48.1) $ 5.1
Europe............................................. (4.0) (9.1) (8.2)
Other.............................................. 14.4 (7.4) 6.0
Corporate expenses................................. (9.1) (9.6) (9.5)
-------- -------- --------
Total........................................... $ (132.6) $ (74.2) $ (6.6)
======== ======== ========
Total assets at September 30
United States...................................... $ 879.8 $ 885.4 $ 593.6
Europe............................................. 54.9 53.2 76.8
Other.............................................. 116.2 124.5 134.8
Corporate assets................................... 31.2 31.7 68.5
-------- -------- --------
Total........................................... $1,082.1 $1,094.8 $ 873.7
======== ======== ========
</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-24
<PAGE> 153
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY INFORMATION -- (UNAUDITED)
A summary of pertinent quarterly data for the 1998 and 1997 fiscal years
was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
------------ ---------- --------- --------------
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE)
<S> <C> <C> <C> <C>
Fiscal 1998
Net sales.......................... $209.5 $262.2 $282.4 $ 271.6
Gross earnings..................... 35.8 58.0 69.5 71.0
Net loss........................... (17.1) (8.4) (3.8) (121.2)
Net loss per share:
Basic.............................. $(0.84) $(0.41) $(0.19) $ (5.94)
------ ------ ------ -------
Diluted............................ $(0.84) $(0.41) $(0.19) $ (5.94)
------ ------ ------ -------
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED,
-----------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
------------ ----------- ----------- -------------
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE)
<S> <C> <C> <C> <C>
Fiscal 1997 -- Pre-Merger Company
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:
Basic........................... $(0.71) $(0.36) $(0.25) $(2.58)
------ ------ ------ ------
Diluted......................... $(0.71) $(0.36) $(0.25) $(2.58)
------ ------ ------ ------
</TABLE>
In the fourth fiscal quarter of fiscal year 1997 and fiscal year 1998, the
Company recorded approximately $27 million for change of control expenses and
$98.5 million for restructuring charges (see Note 4), respectively.
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.
Shares of common stock of the Pre-Merger Company were cancelled September
30, 1997 and shares of common stock of the Post-Merger Company were issued and
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 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 $31
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.
Minimum commitments under operating leases having initial or remaining
terms greater than one year are $6.4 million, $5.3 million, $4.0 million, $3.2
million, $2.8 million and $4.5 million for the years ending September 30, 1999
through 2003 and after 2003, respectively.
F-25
<PAGE> 154
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1998 the Company has accrued
approximately $24 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.
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.
In July 1998, the Company was provided information on the results of a
study which was performed on the Company's owned property located in Waukegan,
Illinois, commonly known as the Coke plant. This information was provided to the
Company by the two prior owners of the property -- General Motors
F-26
<PAGE> 155
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Corporation and North Shore Gas Company. Although the Company was aware of the
contamination and that the study was being conducted, it was not until July 1998
that the Company became aware of the scope and extent of the contamination and
the associated remedial alternatives. Although the Company believes that it was
not a generator of hazardous substances at the site, as a land owners it is, by
statute, a PRP. Based on its experience with Superfund Sites, the Company
calculated a range of potential allocations and recorded an amount related to
the most probable outcome in its September 1998 financial statements.
The Company has 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 Company determined a range of potential
outcomes of this matter and recorded a liability in its September 1998 financial
statements. The sale of FICHT engines accounted for approximately 8% of the
Company's revenues in fiscal 1998.
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.
F-27
<PAGE> 156
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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................. 219.8 214.5
Restructuring charges....................................... -- 25.6
------ --------
Earnings (loss) from operations............................. (65.4) (9.4)
Interest expense............................................ 28.4 24.3
Other (income) expense, net................................. (29.2) (8.5)
------ --------
Loss before provision for income taxes...................... (64.6) (25.2)
Provision (credit) for income taxes......................... 2.8 (3.1)
------ --------
Net loss.................................................... $(67.4) $ (22.1)
====== ========
Net loss per share of common stock (primary and fully
diluted).................................................. $(3.30) $ (1.08)
====== ========
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 September 30, 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-28
<PAGE> 157
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
FISCAL YEAR ENDED SEPTEMBER 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................................ $ 675.0 $404.6 $256.4 $(310.3) $1,025.7
Cost of goods sold....................... 511.8 381.0 214.2 (315.6) 791.4
------- ------ ------ ------- --------
Gross earnings......................... 163.2 23.6 42.2 5.3 234.3
Selling, general and administrative
expense................................ 146.3 83.1 39.0 0.0 268.4
Restructuring charges.................... 98.5 0.0 0.0 0.0 98.5
------- ------ ------ ------- --------
Earnings (loss) from operations........ (81.6) (59.5) 3.2 5.3 (132.6)
Non-operating expense, net............... 12.1 1.4 1.0 0.0 14.5
Equity earnings (loss) -- subsidiaries... (62.1) 0.0 0.0 62.1 0.0
------- ------ ------ ------- --------
Earnings (loss) before provision for
income taxes........................ (155.8) (60.9) 2.2 67.4 (147.1)
Provision (credit) for income taxes...... 0.0 0.0 3.4 0.0 3.4
------- ------ ------ ------- --------
Net earnings (loss)............ $(155.8) $(60.9) $ (1.2) $ 67.4 $ (150.5)
======= ====== ====== ======= ========
</TABLE>
F-29
<PAGE> 158
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
FISCAL 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, net............... 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-30
<PAGE> 159
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING EARNINGS
FISCAL 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, net............... -- 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-31
<PAGE> 160
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
FISCAL YEAR ENDED SEPTEMBER 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.............. $ 26.6 $ 0.7 $ 17.9 $ 0.0 $ 45.2
Receivables............................ 81.2 38.4 33.9 0.0 153.5
Intercompany receivables (payables).... (74.0) (18.0) 92.0 0.0 0.0
Inventories............................ 93.1 41.6 41.9 (2.2) 174.4
Other current assets................... 34.5 4.4 6.1 0.0 45.0
------ ----- ------- ------- --------
Total Current Assets........... 161.4 67.1 191.8 (2.2) 418.1
Restricted cash.......................... 28.6 0.0 0.0 0.0 28.6
Product tooling, net..................... 29.4 2.7 0.3 0.0 32.4
Intangibles, net......................... 190.8 0.0 7.1 0.0 197.9
Pension and other assets................. 195.6 2.4 12.6 0.0 210.6
Property, plant and equipment, net....... 146.4 23.3 25.0 (0.2) 194.5
Intercompany notes, net.................. (92.5) 0.0 92.5 0.0 0.0
Investment in subsidiaries............... 298.1 0.0 0.0 (298.1) 0.0
------ ----- ------- ------- --------
Total Assets................... $957.8 $95.5 $ 329.3 $(300.5) $1,082.1
====== ===== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable....................... $ 86.4 $20.2 $ 8.5 $ 0.0 $ 115.1
Accrued and other...................... 105.5 57.7 22.8 (0.7) 185.3
Current maturities of long-term debt... 11.0 0.0 0.2 0.0 11.2
------ ----- ------- ------- --------
Total Current Liabilities...... 202.9 77.9 31.5 (0.7) 311.6
Long-term debt........................... 245.6 0.0 2.3 0.0 247.9
Other non-current liabilities............ 412.9 7.8 7.2 0.0 427.9
Shareholders' Investment................. 96.4 9.8 288.3 (299.8) 94.7
------ ----- ------- ------- --------
Total Liabilities and
Shareholders' Investment..... $957.8 $95.5 $ 329.3 $(300.5) $1,082.1
====== ===== ======= ======= ========
</TABLE>
F-32
<PAGE> 161
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
FISCAL YEAR ENDED 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, net.................... 204.3 -- 6.9 -- 211.2
Pension and other assets............ 155.9 0.4 12.9 (1.0) 168.2
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.............. $1,013.5 $119.1 $ 88.5 $(126.3) $1,094.8
======== ====== ====== ======= ========
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................. 102.7 24.7 17.0 1.5 145.9
Current maturities of long-term
debt........................... 72.7 -- 0.2 -- 72.9
-------- ------ ------ ------- --------
Total Current
Liabilities............. 388.0 41.5 25.8 1.5 456.8
Long-term debt...................... 101.2 -- 2.6 -- 103.8
Other non-current liabilities....... 241.1 8.0 8.1 -- 257.2
Shareholders' Investment............ 283.2 69.6 52.0 (127.8) 277.0
-------- ------ ------ ------- --------
Total Liabilities and
Shareholders'
Investment.............. $1,013.5 $119.1 $ 88.5 $(126.3) $1,094.8
======== ====== ====== ======= ========
</TABLE>
F-33
<PAGE> 162
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 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)...................... $(123.3) $(60.9) $ (1.0) $ 34.7 $(150.5)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operations:
Depreciation and amortization.......... 42.4 4.5 3.1 0.1 50.1
Changes in current accounts excluding
the effects of acquisitions and
noncash transactions:
Decrease (increase) in
receivables....................... (2.4) (0.3) 5.2 (3.4) (0.9)
Decrease (increase) in intercompany
receivables and payables, and
intercompany note receivables and
note payables..................... 188.2 0.3 (188.5) 0.0 0.0
Decrease (increase) in
inventories....................... (15.2) 24.5 (2.0) (5.4) 1.9
Decrease (increase) in other
current assets.................... 43.4 0.4 (1.2) 2.8 45.4
Increase (decrease) in accounts
payable and accrued liabilities... (58.0) 1.4 3.6 6.3 (46.7)
Restructuring charges............... 98.5 0.0 0.0 0.0 98.5
Other, net.......................... 31.4 32.9 3.6 (5.4) 62.5
------- ------ ------ ------ -------
Net cash provided by (used for)
operating activities......... 205.0 2.8 (177.2) 29.7 60.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for plant and equipment,
and tooling............................ (25.8) (4.7) (3.9) 0.0 (34.4)
Proceeds from sale of plant and
equipment.............................. 8.3 1.3 0.0 0.0 9.6
Equity earnings (loss)................... 29.7 0.0 0.0 (29.7) 0.0
Change in subsidiary investment.......... 0.0 0.0 0.0 0.0 0.0
Other, net............................... 2.5 0.8 (2.5) 0.0 0.8
------- ------ ------ ------ -------
Net cash provided by (used for)
investing activities......... 14.7 (2.6) (6.4) (29.7) (24.0)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term debt.......... (96.0) 0.0 0.0 0.0 (96.0)
Net increase of long-term debt, including
current maturities..................... 80.6 0.0 (0.2) 0.0 80.4
Increase in restricted cash.............. (28.6) 0.0 0.0 0.0 (28.6)
Change in subsidiary capital............. (175.6) 0.0 175.6 0.0 0.0
Other, net............................... (0.9) 0.0 0.0 0.0 (0.9)
------- ------ ------ ------ -------
Net cash provided by (used for)
financing activities......... (220.5) 0.0 175.4 0.0 (45.1)
Exchange Rate Effect on Cash............. 0.0 0.0 (0.4) 0.0 (0.4)
------- ------ ------ ------ -------
Net increase (decrease) in Cash and Cash
Equivalents............................ (0.8) 0.2 (8.6) 0.0 (9.2)
Cash and Cash Equivalents at Beginning
of Period.............................. 27.3 0.5 26.6 0.0 54.4
------- ------ ------ ------ -------
Cash and Cash Equivalents at End
of Period.............................. $ 26.5 $ 0.7 $ 18.0 $ 0.0 $ 45.2
======= ====== ====== ====== =======
</TABLE>
F-34
<PAGE> 163
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
FISCAL 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-35
<PAGE> 164
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF CONSOLIDATING CASH FLOWS
FISCAL 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-36
<PAGE> 165
- ------------------------------------------------------
- ------------------------------------------------------
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.......................... 14
The Greenmarine Acquisition........... 23
Use of Proceeds....................... 24
Capitalization........................ 25
Selected Historical Consolidated
Financial Data...................... 26
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 43
Management............................ 58
Security Ownership of Certain
Beneficial Owners and Management.... 71
Certain Relationships and Related
Transactions........................ 73
The Exchange Offer.................... 74
Description of Notes.................. 82
Description of Certain Other
Indebtedness........................ 111
Certain Federal Income Tax
Consequences........................ 116
Plan of Distribution.................. 116
Book-Entry; Form and Transfer......... 117
Legal Matters......................... 119
Independent Accountants............... 119
Glossary of Marine Terms.............. 120
Unaudited Pro Forma Condensed
Consolidated Financial Statements... PF-1
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$160,000,000
OUTBOARD MARINE CORPORATION
10 3/4% SENIOR NOTES
DUE 2008
--------------------
PROSPECTUS
--------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 166
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> 167
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> 168
<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*
10.9 -- Second Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated effective as of August 31, 1998 (filed as Exhibit 10.9
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998)*
10.10 -- Third Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas,
N.A., dated effective as of December 21, 1998 (filed as
Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1998)*
10.11 -- Employment Agreement, dated October 1, 1998, between the
Company and Robert Gowens (filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 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)*
11.2 -- Revised computation of per share income (loss) (filed as
Exhibit 11 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 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**
12.2 -- Revised Statement of Computation of Ratios of Earnings to
Fixed Charges (filed as Exhibit 12 to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1998)*
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 (dated September 3,
1998)**
</TABLE>
II-3
<PAGE> 169
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
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)**
23.5 -- Updated Consent of Arthur Andersen LLP (dated September 17,
1998)**
23.6 -- Updated Consent of Arthur Anderson LLP (dated December 28,
1998)
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**
27.2 -- Revised Financial Data Schedule (as of September 30, 1998)
99.1 -- Form of Letter of Transmittal**
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;
II-4
<PAGE> 170
(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
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> 171
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: December 30, 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 December 30, 1998
- ---------------------------------------------------
Alfred D. Kingsley
* Vice Chairman and Assistant December 30, 1998
- --------------------------------------------------- Secretary
Gary K. Duberstein
* Vice Chairman December 30, 1998
- ---------------------------------------------------
Richard Katz
* Director December 30, 1998
- ---------------------------------------------------
Ron Hiram
* Director December 30, 1998
- ---------------------------------------------------
Frank V. Sica
* President and Chief Executive December 30, 1998
- --------------------------------------------------- Officer; Director (Principal
David D. Jones, Jr. Executive Officer)
/s/ ANDREW P. HINES Executive Vice President and December 30, 1998
- --------------------------------------------------- Chief Financial Officer;
Andrew P. Hines Director (Principal
Financial Officer)
* Vice President and Controller December 30, 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> 172
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: December 30, 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 December 30, 1998
- ---------------------------------------------------
David D. Jones, Jr.
/s/ ROBERT S. ROMANO, ESQ. President and Secretary; December 30, 1998
- --------------------------------------------------- Director (Principal
Robert S. Romano, Esq. Executive Officer)
* Assistant Secretary and December 30, 1998
- --------------------------------------------------- Treasurer; Director
Gordon G. Repp (Principal Financial
Officer)
* Vice President December 30, 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> 173
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: December 30, 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 December 30, 1998
- ---------------------------------------------------
David D. Jones, Jr.
/s/ ROBERT S. ROMANO, ESQ. President and Secretary; December 30, 1998
- --------------------------------------------------- Director (Principal
Robert S. Romano, Esq. Executive Officer)
* Assistant Secretary and December 30, 1998
- --------------------------------------------------- Treasurer; Director
Gordon G. Repp (Principal Financial
Officer)
* Vice President, Finance December 30, 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> 174
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: December 30, 1998 OMC LATIN AMERICA/CARIBBEAN, INC.
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 December 30, 1998
- ---------------------------------------------------
David D. Jones, Jr.
* Vice President and December 30, 1998
- --------------------------------------------------- Secretary; Director
Robert S. Romano, Esq.
* Assistant Secretary; December 30, 1998
- --------------------------------------------------- Director
Gordon G. Repp
/s/ RAYMOND M. CARTADE President December 30, 1998
- --------------------------------------------------- (Principal Executive
Raymond M. Cartade Officer)
* Vice President and Treasurer December 30, 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> 175
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: December 30, 1998 OMC RECREATIONAL 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 December 30, 1998
- --------------------------------------------------- President (Principal
David D. Jones, Jr. Executive Officer)
/s/ ROBERT S. ROMANO, ESQ. Vice President and Secretary; December 30, 1998
- --------------------------------------------------- Director
Robert S. Romano, Esq.
* Assistant Secretary; Director December 30, 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> 176
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> 177
<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*.......
10.9 -- Second Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated effective as of August 31, 1998 (filed as Exhibit 10.9
to the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1998)*.............................
10.10 -- Third Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated effective as of December 21, 1998 (filed as Exhibit
10.10 to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998)*......................
10.11 -- Employment Agreement, dated October 1, 1998, between the
Company and Robert Gowens (filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 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)*................
11.2 -- Revised computation of per share income (loss) (filed as
Exhibit 11 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 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**.............................................
12.2 -- Revised Statement of Computation of Ratios of Earnings to
Fixed Charges (filed as Exhibit 12 of the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1998)*......................................................
21 -- Subsidiaries of Registrant (filed as Exhibit 21 to the 1997
10-K)*......................................................
23.1 -- Consent of Arthur Andersen LLP**............................
</TABLE>
<PAGE> 178
<TABLE>
<CAPTION>
EXHIBIT EXEMPTION
NUMBER DESCRIPTION INDICATION
------- ----------- ----------
<C> <S> <C> <C>
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 (dated September 3,
1998)**.....................................................
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)**...................................
23.5 -- Updated Consent of Arthur Andersen LLP (dated September 17,
1998)**.....................................................
23.6 -- Updated Consent of Arthur Andersen LLP (dated December 28,
1998).......................................................
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**...........................
27.2 -- Revised Financial Data Schedule (as of September 30,
1998).......................................................
99.1 -- Form of Letter of Transmittal**.............................
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 23.6
[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
December 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000075149
<NAME> OUTBOARD MARINE CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 45,200
<SECURITIES> 0
<RECEIVABLES> 163,000
<ALLOWANCES> 9,500
<INVENTORY> 174,400
<CURRENT-ASSETS> 418,100
<PP&E> 212,000
<DEPRECIATION> 17,500
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<CURRENT-LIABILITIES> 311,600
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0
0
<COMMON> 200
<OTHER-SE> 94,500
<TOTAL-LIABILITY-AND-EQUITY> 1,082,100
<SALES> 1,025,700
<TOTAL-REVENUES> 1,025,700
<CGS> 791,400
<TOTAL-COSTS> 791,400
<OTHER-EXPENSES> 351,300
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<INTEREST-EXPENSE> 30,100
<INCOME-PRETAX> (147,100)
<INCOME-TAX> 3,400
<INCOME-CONTINUING> (150,500)
<DISCONTINUED> 0
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<NET-INCOME> (150,500)
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