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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM OCTOBER 1, 1998 TO DECEMBER 31, 1998
COMMISSION FILE NUMBER 1-2883
OUTBOARD MARINE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 36-1589715
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
100 SEA HORSE DRIVE 60085
WAUKEGAN, ILLINOIS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 689-6200
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2002 NEW YORK STOCK EXCHANGE &
CHICAGO STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates at
December 31, 1998 was $0.
Number of shares of Common Stock of $0.01 par value outstanding at December
31, 1998 was 20,425,554 shares.
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TABLE OF CONTENTS
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ITEM
NO. PAGE
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PART I
1 Business.................................................... 3
2 Properties.................................................. 16
3 Legal Proceedings........................................... 17
4 Submission of Matters to a Vote of Security Holders......... 17
PART II
5 Market for Registrant's Common Equity and Related 17
Shareholder Matters.........................................
6 Selected Financial Data..................................... 17
7 Management's Discussion and Analysis of Financial Condition 19
and Results of Operations...................................
7A Quantitative and Qualitative Disclosures About Market 35
Risk........................................................
8 Financial Statements and Supplementary Data................. 37
9 Changes in and Disagreements on Accounting and Financial 71
Disclosure..................................................
PART III
10 Directors and Executive Officers of the Registrant.......... 72
11 Executive Compensation...................................... 76
12 Security Ownership.......................................... 86
13 Certain Relationships and Related Transactions.............. 88
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K.........................................................
Signatures..................................................
Exhibit Index...............................................
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PART I
ITEM 1. BUSINESS
Unless the context otherwise requires, all references herein to the
"Company" or "OMC" shall mean Outboard Marine Corporation, a Delaware
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 1998 or fiscal year 1998 refer to the Company's fiscal year ended
September 30, 1998. However, effective October 1, 1998, the Company's fiscal
year-end changed from September 30 to December 31.
GENERAL
Outboard Marine Corporation believes it is the world's largest dedicated
manufacturer of outboard marine engines and boats. As of December 31, 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
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
sterndrive 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, 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.
On September 12, 1997, Greenmarine Holdings LLC ("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."
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Since the Greenmarine Acquisition, the Company has recruited a new 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 emissions standards mandated by the United
States Environmental Protection Agency (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 $19.2 billion in
domestic retail sales in 1998, including approximately $8.7 billion in sales of
boats, engines and trailers. 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.
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. See "Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Cyclicality; Seasonality;
Weather Conditions." 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 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 financed 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 fact of the accentuated
level of sales in the late 1980s. Many boat owners had loan balances in the
early 1990s that exceeded the value of the boats, 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 this luxury tax applied to all
boats and that this depressed sales of boats in all price segments. The luxury
tax was repealed in 1993.
Since 1992, domestic sales of recreational boats have increased from $2.2
billion to $3.6 billion in 1998.
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PRODUCTS
The Company manufactures a wide variety of outboard engines, including
marine parts and accessories, and boats and distributes these products
throughout the world.
The following table sets forth, for the periods indicated, information
concerning the Company's net sales by product category expressed in dollars in
millions and as a percentage of net sales.
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<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Engines................ $111.9 56.1% $ 636.5 62.1% $560.4 57.2% $ 628.5 56.0%
Boats.................. 87.5 43.9 389.2 37.9 419.1 42.8 493.0 44.0
------ ----- -------- ----- ------ ----- -------- -----
Total.................. $199.4 100.0% $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, see Note 16 of the Notes to the
Consolidated Financial Statements contained in Item 8 elsewhere herein).
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States......... $152.0 76.2% $ 769.7 75.0% $721.0 73.6% $ 813.3 72.5%
Europe................ 15.6 7.8 91.9 9.0 90.9 9.3 114.8 10.2
Other................. 31.8 16.0 164.1 16.0 167.6 17.1 193.4 17.3
------ ----- -------- ----- ------ ----- -------- -----
Total................. $199.4 100.0% $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 outboard engines 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. Johnson and Evinrude engines are now readily
distinguishable from each other and are being marketed to target different
consumers. The Company's Evinrude brand comprises two-stroke models
incorporating the Company's FICHT fuel-injection technology and certain
four-stroke engines. The Evinrude brand is being marketed as the Company's
"premium" outboard marine engine brand. The Company's Johnson brand comprises 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 manufactures 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
reviewing 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
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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.
The Company has developed and is implementing strategies to address
performance issues that have been identified in certain applications of several
of its FICHT engines. These strategies include modifications to the 1999
model-year FICHT engines and changes to the production processes for FICHT
engines. In addition, upgrade kits are being provided to dealers for certain
previously sold FICHT engines. See "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- General
Introduction of FICHT Engines; Regulatory Compliance" and "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Three Months Ended December 31, 1998
Compared to Three Months Ended December 31, 1997."
Since the Company originally acquired the FICHT technology, 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" below. 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>
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NUMBER OF RETAIL PRICE
HORSEPOWER RANGE MODELS 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>
Parts and Accessories
The Company also offers a wide line of marine parts and accessories through
its Johnson and Evinrude dealers. Key products include engine parts, propellers
and engine oil. Most of the parts business consists of replacement parts for
outboard motors. The Company estimates that there are approximately seven
million Johnson and Evinrude outboard motors in use, which produce a steady
demand for high-margin replacement parts. In addition, in 1996, OMC launched a
new value-line of marine accessories under the Nautic Pro brand name. This brand
is marketed in part through a new distribution channel of marine and discount
retailers, and is priced to compete with other private label and discount
brands. Marine parts and accessories comprised approximately 18% and 13% of
OMC's sales in fiscal year 1998 and the three months ended December 31, 1998,
respectively.
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 designed to the Company's
specifications. This arrangement allows the Company to offer its dealers a full
line of industry leading electric trolling motors with state-of-the-art
technology.
BOATS
The Company's boat brands are 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.
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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 year 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 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 1999
model year boat products by category, including product line and trade name,
overall length, retail price range, and a brief description of boats
manufactured:
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PRODUCT LINE OVERALL RETAIL
& TRADE NAME LENGTH(FT) PRICE RANGE($) DESCRIPTION
- ------------ ---------- -------------- -----------
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RECREATIONAL:
Chris*Craft.................... 19-32 19,993-122,947 Chris*Craft is one of the world's
most recognized brands in the marine
industry, serving the "prestige"
market for boaters seeking a
"top-of-the-line" boat. In 1997,
Powerboat Magazine named the
Chris*Craft 210 Bowrider "Boat of the
Year."
Four Winns..................... 17-33 11,600-148,056 Four Winns is the nation's third most
popular boat brand. Four Winns offers
a premium line of family-oriented
recreational boats.
Seaswirl....................... 17-26 13,900-59,500 Seaswirl is a mid-priced boat line,
and is one of the leading boat brands
in the Western United States.
FISHING:
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 14,325-101,370 Hydra-Sports is a full line of
saltwater fishing boats designed for
the fishing enthusiast.
ALUMINUM:
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>
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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 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 License 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.
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OMC/Volvo Sterndrive Joint Venture
On December 8, 1998 the Company sold its interest in the joint venture
Volvo Penta Marine Products L.P. (the "Volvo Penta Joint Venture") to 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. Separately, 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
networks with approximately 6,500 dealers worldwide, approximately 4,300 of the
dealers are in North America, and many of them 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 arrangements contain
provisions that limit the Company's obligations to approximately $32 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. For the three-month
period ended December 31, 1998 and for fiscal 1998, the Company repurchased
approximately $1.4 million and $4.1 million of products, respectively, 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.
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 year 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
9
<PAGE> 10
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 "Item 2 -- 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 has 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 it will be closing its engine
manufacturing facilities located in Milwaukee, Wisconsin and Waukegan, Illinois
by the end of the year 2000. In connection with these closures, the Company
recorded a restructuring charge of $98.5 million in fiscal year 1998. See "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operation -- General" and Note 4 of the Notes to the Consolidated Financial
Statements contained in Item 8 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 with the balance being relocated 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
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 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.
Foreign Operations
For the three months ended December 31, 1998 and for fiscal year 1998,
approximately 24% and 25%, respectively of the Company's net sales were derived
from operations conducted outside the United States. As of December 31, 1998 and
as of September 30, 1998, approximately 3% of the Company's long-lived assets
(primarily property, plant and equipment) 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 "Item 7A --
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
10
<PAGE> 11
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 "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Resources" and Note 10 of the Notes to the Consolidated Financial Statements
contained in Item 8 elsewhere herein.
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 continuously monitors and
endeavors to improve its quality assurance programs and further intends to
expand these programs and further motivate its workforce towards achieving
increasing quality standards.
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. However, the Company believes
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 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
11
<PAGE> 12
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 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%
and 16.2% of the Company's revenues for the fiscal year ended 1998 and the
three-month period ended December 31, 1998, respectively.
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.
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 fuel-injection technology. This
license is royalty bearing and is active for the duration of each patent
existing at the time that the license agreement was executed in February 1997 or
filed within one year thereafter. The Company's license with Chris Craft
Industries, Inc. is an exclusive, perpetual, royalty bearing license to use the
Chris*Craft trade name and trademark for boats and certain boat products
worldwide. The Company's Grumman license is an exclusive, royalty-free license
to use the Grumman trade name and trademark for recreational aluminum boats and
canoes in territories which include the United States and Europe. This license
expires on December 31, 1999, however it is subject to unlimited ten year
renewal terms at the Company's option.
RESEARCH AND DEVELOPMENT
In the three-month period ended December 31, 1998 and the fiscal years
1998, 1997 and 1996, OMC spent $10.2 million, $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.
The regulations relating 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 are 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
12
<PAGE> 13
products within the next decade. To date, the Company estimates that it has
spent approximately $54.0 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 adds cost to the Company's engine products in the
short-term. However, this situation is not seen as a major deterrent to sales
since value will be added to its products at the same time that the entire
industry is faced with developing solutions to the same regulatory requirements.
The Company believes this situation will not have a material impact on future
results of operations or the financial condition of the Company. See "Item
7 -- Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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 permit requirements,
except where such non-compliance is not expected to have a material adverse
effect.
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund") and earlier 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.
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 December 31, 1998, the Company accrued
approximately $25.0 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
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<PAGE> 14
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.
The regulations relating 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 are 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. Through December 31, 1998, the
Company estimates that it has spent approximately $54.0 million on low emissions
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.
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
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<PAGE> 15
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. See Note 18 of the Notes to the Consolidated Financial
Statements contained in Item 8 elsewhere herein.
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 "Item 7A -- Quantitative and Qualitative
Disclosures About Market Risk" and Note 10 of the Notes to the Consolidated
Financial Statements contained in Item 8 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 December 31, 1998, approximately 7,273 people were employed by OMC
and its subsidiaries worldwide (6,200 domestic employees), consisting of 1,474
salaried and 5,799 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 476 employees at the
Calhoun, Georgia facility; the independent Marine Machinists Association
("IMMA") represents approximately 378 employees at the Waukegan, Illinois
facility; and the United Steel Workers of America ("USWA") represents
approximately 371 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 of its manufacturing
facilities in Milwaukee, Wisconsin and in Waukegan, Illinois, the Company's
workforce will be reduced by approximately 950 salaried and hourly employees by
the end of the year 2000. See Note 4 of the Notes to the Consolidated Financial
Statements contained in Item 8 elsewhere herein.
ITEM 2. PROPERTIES
The following table sets forth the Company's material facilities as of
December 31, 1998.
<TABLE>
<CAPTION>
OWNED OR LEASED SQUARE
LOCATION FACILITY TYPE/USE (LEASE EXPIRATION) FOOTAGE
- -------- ----------------- ------------------- ---------
<S> <C> <C> <C>
Waukegan, IL......................... Worldwide headquarters; Owned 1,400,000
outboard 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
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
OWNED OR LEASED SQUARE
LOCATION FACILITY TYPE/USE (LEASE EXPIRATION) FOOTAGE
- -------- ----------------- ------------------- ---------
<S> <C> <C> <C>
Beloit, WI........................... Worldwide parts and Owned 483,000
accessories distribution
center
Waukegan, IL......................... Distribution center Leased (Jan. 2003) 180,000
Morrow, GA........................... Distribution center Owned 86,000
Parsippany, NJ....................... Distribution center Owned 88,000
Dallas, TX........................... Distribution center Owned 86,000
Kent, WA............................. Distribution center Leased (Dec. 2000) 56,000
Sunrise, FL.......................... Sales Office Leased (Sept. 2001) 8,000
Cadillac, MI......................... Boat manufacturing Owned 364,000
Lebanon, MO.......................... Boat manufacturing Owned 227,000
Murfreesboro, TN..................... Boat manufacturing Owned 275,000
Columbia, SC......................... Boat manufacturing Owned 178,000
Culver, OR........................... Boat manufacturing Owned 166,000
Syracuse, IN......................... Boat manufacturing Owned 235,000
Sarasota, FL......................... Boat manufacturing Owned 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 (Dec. 2002) 65,000
manufacturing
Hong Kong............................ Outboard engine and Leased (Jun. 2047) 35,000
component manufacturing
and distribution center
Manaus, Brazil....................... Outboard engine and Leased (Aug. 1999) 46,000
component assembly and
fabrication
Altona, Australia.................... Boat manufacturing and Owned 28,000
assembly
Yatala, Australia.................... Boat manufacturing and Owned 37,000
assembly
Bankstown, Australia................. Office; distribution center Leased (Dec. 2004) 54,000
Gent, Belgium........................ Office; distribution center Leased (Apr. 2003) 121,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
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. See also "Item
1 -- Business -- Environmental Matters."
For a discussion of certain allegations relating to the FICHT technology,
see "Item 1 -- Business -- Intellectual Property."
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
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<PAGE> 17
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.
See also Note 18 of the Notes to the Consolidated Financial Statements
contained in Item 8 elsewhere herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three-month period ended December 31, 1998, there were no
matters submitted to a vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There were two record holders of common stock of OMC at December 31, 1998.
There is no established public trading market for the Company's common stock.
During calendar year 1998, the Company granted an aggregate of 858,640 options
to 160 employees.
ITEM 6. SELECTED FINANCIAL DATA
The following summary represents certain financial information for the
three months ended December 31, 1998 and December 31, 1997, and the five fiscal
years ended September 30, 1998, 1997, 1996, 1995, and 1994.
17
<PAGE> 18
<TABLE>
<CAPTION>
POST-MERGER COMPANY
-----------------------------------------
AT OR FOR THE
THREE MONTHS PRE-MERGER COMPANY
ENDED -----------------------------------------
DECEMBER 31,
------------------ AT OR FOR THE FISCAL AT OR FOR THE FISCAL YEARS ENDED
YEAR ENDED SEPTEMBER 30,
(DOLLARS IN MILLIONS, EXCEPT PER SHARE 1997 SEPTEMBER 30, -----------------------------------------
AMOUNTS AND RATIOS) 1998 UNAUDITED 1998 1997(1) 1996 1995 1994
- -------------------------------------- ------ --------- -------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $199.4 $209.5 $1,025.7 $ 979.5 $1,121.5 $1,229.2 $1,078.4
Net earnings (loss)................ (47.1) (17.1) (150.5) (79.1) (7.3) 51.4 48.5
Average number of shares of common
stock outstanding and common stock
equivalents, if applicable....... 20.4 20.4 20.4 20.2 20.1 20.1 20.0
Per average share of common stock--
Net earnings (loss)
Basic.......................... (2.31) (0.84) (7.38) (3.91) (0.36) 2.56 2.42
Diluted........................ (2.31) (0.84) (7.38) (3.91) (0.36) 2.33 2.22
Dividends declared................. -- -- -- 0.20 0.40 0.40 0.40
Total assets(2) 916.2 977.5 949.9 1,050.2 873.7 907.0 817.1
Long-term debt..................... 247.0 102.8 247.9 103.8 177.6 177.4 178.2
OTHER DATA:
EBITDA (as defined)(3)............. (30.1) 0.9 20.0 (0.9) 77.3 118.7 93.4
Net cash provided by operating
activities..................... (53.3) (36.6) 60.3 (9.2) 91.1 51.4 57.3
Net cash provided by investing
activities..................... (9.6) (5.4) (24.0) (26.1) (50.5) (65.8) (63.0)
Net cash provided by financing
activities 31.2 12.0 (45.1) (3.7) (2.9) (8.1) (19.7)
Depreciation and amortization
(including amortization of debt
discount)........................ 12.4 12.5 50.1 57.0 54.7 47.6 44.0
Amortization of debt discount...... 0.1 0.3 0.8 2.7 0.8 1.0 0.8
Capital expenditures............... 15.1 6.3 34.4 36.3 52.7 66.5 68.2
Ratio of earnings to fixed charges... N/A N/A N/A N/A N/A 3.5x 4.3x
</TABLE>
- ---------------
(1) September 30, 1997 data includes Post-Merger Company data for total assets
and long-term debt.
(2) Total assets at December 31, 1998, September 30, 1998 and September 30, 1997
are not comparable with 1996, 1995 and 1994 due to the application of
purchase accounting in respect of the Greenmarine Acquisition. See Notes 1
and 2 of the Notes to the Consolidated Financial Statements contained in
Item 8 elsewhere herein for further information on purchase accounting and
certain reclassifications made to the Company's Statements of Consolidated
Financial Position.
(3) "EBITDA" represents earnings from operations (including income derived from
the Company's sterndrive joint venture, net of joint venture expenses)
before depreciation and amortization (excluding debt discount amortization)
and restructuring charges. For 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 in Item 8 elsewhere herein. For
fiscal year ended September 30, 1997, "EBITDA" does not include a one-time
$11.8 million charge due to a change of control expense related to
compensation expenses resulting from the change of control as a result of
the Greenmarine Acquisition. The Company accrued for income from the
sterndrive 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 sterndrive parts and accessories products.
Income (loss) from the sterndrive joint venture, net of joint venture
expenses, was $4.1 million, $4.9 million, $4.4 million, $7.2 million, $4.8
million, $1.2 million and $(0.3) million for the fiscal years ended 1994,
1995, 1996, 1997, 1998, and for the three months ended December 31, 1998 and
1997, 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.
18
<PAGE> 19
ITEM 7. 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 in Item 8 elsewhere herein.
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 recognized approximately $149 million in operating expenses and
restructuring costs in fiscal year 1998 to record its reorganization plan and
contingencies, including a restructuring charge of $98.5 million, and additional
operating expenses of $53.3 million, which was offset partially by an
approximate $3.0 million reduction in amortization expense. The Company also
reclassified certain deferred tax liabilities to a corresponding liability
account. These deferred tax liabilities were previously offset against deferred
tax assets associated with certain purchase accounting reserves that were
subsequently reversed in the restatements. 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 and September 30, 1998.
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.
Effective October 1, 1998, the Company's fiscal year-end changed from
September 30 to December 31. Accordingly, the Company is filing with the
Securities and Exchange Commission this transition report on Form 10-K for the
transition period of October 1, 1998 through December 31, 1998.
Industry Overview. According to data published by the NMMA, the
recreational boating industry generated approximately $19.2 billion in domestic
retail sales in 1998, including approximately $8.7 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.
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
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
19
<PAGE> 20
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 due partially to adverse
weather conditions. In 1998, U.S. unit sales of boats and engines increased to
305,400 and 314,000, respectively.
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 final excess
purchase price over fair value of the net assets acquired was approximately $120
million and has been classified as goodwill in the Company's Statement of
Consolidated Financial Position at September 30, 1998.
New Management Initiatives. Since the Greenmarine Acquisition, the Company
has assembled a new 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
20
<PAGE> 21
plan includes the elimination and consolidation of certain of the Company's
products, and the closing and consolidation of certain of the Company's
manufacturing facilities with corresponding involuntary employee terminations.
However, there can be no assurance that the Company's turnaround strategy will
be fully implemented or that its anticipated benefits will be realized.
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 reduced its workforce by approximately 540 employees (in addition to the
950 employees discussed below), 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. The
Company has incurred approximately $0.8 million in severance costs through
December 31, 1998.
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 a 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 has been positioned to offer a full
line of aluminum boats. The 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 Associates, Inc.
to supply a range of private labeled electric trolling motors designed to OMC's
specifications. This gives 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 become identical engines that
were marketed under different names. Johnson and Evinrude engines are now
readily distinguishable from each other and are being marketed to target
different consumers. The Company's Evinrude brand comprises two-stroke models
incorporating the Company's FICHT fuel-injection technology and certain
four-stroke engines. The Evinrude brand is being marketed as the Company's
"premium" outboard marine engine brand. The Company's Johnson brand comprises a
full line of traditional carbureted two-stroke models. As a result, while OMC
dealers previously sold either Johnson or Evinrude engines, they are now able to
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 end of the year
2000. A restructuring charge of $98.5 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. As of
21
<PAGE> 22
December 31, 1998, the Company has not incurred any costs against the
restructuring charge established in the prior fiscal year. See Note 4 of the
Notes to the Condensed Consolidated Financial Statements contained in Item 8
elsewhere herein. The Company plans to outsource substantially all of the
manufacturing of parts currently produced by these two facilities to third party
vendors with the balance being relocated to other facilities of the Company. The
Company has already transferred the manufacture of certain components,
accessories and service parts and continues to obtain and review proposals from
vendors in anticipation of outsourcing the remainder of the production. The
Company has begun negotiations with the unions representing employees at the
Milwaukee and Waukegan facilities regarding shutdown agreements. Although there
can be no assurance, the Company believes that these negotiations will result in
satisfactory shutdown agreements with the respective unions and anticipates
substantial completion of the restructuring plan by the end of year 2000.
Market Share. Since 1993, the Company's twelve-month rolling domestic
outboard engine market share has gradually declined from 49% as of December 31,
1993 to 35% as of December 31, 1998, and its domestic boat market share has also
declined from 20% to 13% for the same period. The primary causes for these
declines have been the loss of key dealers to competitors and the
rationalization of boat brands. In addition, competitors have offered products
in certain categories for which the Company does not have a competitive product.
Although there can be no assurance that the Company's market share will not
continue to decline, the Company believes that its business strategies,
including plans for future products and for products currently being offered,
such as FICHT, will improve its market share.
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
are 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 December 31, 1998, the Company estimates that it has spent
approximately $54 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. This upgrade kit included certain performance enhancements to the
FICHT engines, including, among other things, improvements to the mapping
contained in the software of the engine-management module. The Company
established a reserve for the correction of the identified problems in fiscal
year 1998, which resulted in an approximate $7.0 million increase in the
Company's warranty reserve for fiscal year 1998. In January 1999, the Company
completed its analysis and determined that certain technological improvements
were needed to improve the overall performance of the FICHT engines. As part of
this strategy, an upgrade kit for previously sold models, which will contain
additional performance enhancements to the FICHT engines, will be provided to
dealers in April 1999. The Company expects the cost of the April 1999 upgrade
kits to be approximately $4.3 million and has recorded an expense and a
corresponding reserve for such costs in its financial statements as of December
31, 1998. The Company believes that the April 1999 upgrade kits will
significantly improve the overall performance of its FICHT engines and reduce
the
22
<PAGE> 23
Company's overall warranty expense experienced for such engines. In addition,
the Company will implement engine modifications and changes in production for
the affected FICHT models. These engine modifications and production charges
will be implemented during a planned two-week suspension of the Company's
operations at certain of its engine-manufacturing facilities in March 1999. See
"-- Temporary Plant Shutdown" below. Also, a limited warranty extension, from
two to three years, will be provided on all FICHT engines purchased by customers
between January 1, 1999 and March 31, 1999 that had been sold by the Company to
its dealers as of December 31, 1998, which is intended to demonstrate the
Company's confidence in the improved FICHT engines. The Company expects this
warranty-extension program to cost approximately $1.3 million and, accordingly,
has recorded an expense and a corresponding reserve for such costs in its
December 31, 1998 financial statements. The Company also expects that actions to
be taken to address the FICHT performance issues will result in additional
expenses in 1999, primarily in the quarter ending March 31, 1999 due to higher
levels of unabsorbed overhead costs, and a reduced level of engine sales in the
March 31, 1999 quarter as compared to the same quarter in 1998, as production
facilities are modified for the changes in the FICHT-engine production
processes.
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 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 in Item 8 herein). The sale of FICHT engines
accounted for approximately 8% and 16.2% of the Company's revenues in fiscal
year 1998 and for the three months ended December 31, 1998, respectively.
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 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
23
<PAGE> 24
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.
OMC/Volvo Sterndrive Joint Venture. On December 8, 1998 the Company sold
its interest in the joint venture Volvo Penta Marine Products L.P. (the "Volvo
Penta Joint Venture") to 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. Separately, 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.
See Note 3 of the Consolidated Financial Statements contained in Item 8
elsewhere herein.
Research and Development. In the three-month periods ended December 31,
1998 and December 31, 1997, OMC spent approximately $10.2 million, and $9.0
million, respectively, on research and development activities relating to the
development of new products and improvement of existing products, including
FICHT fuel-injection technology. In fiscal years ended September 30, 1998, 1997,
and 1996, the Company spent approximately $36.8 million, $38.2 million, and
$41.8 million for research and development activities, respectively. 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 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 December 31, 1998, the Company has accrued
approximately $25 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 in Item 8 elsewhere herein.
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<PAGE> 25
Reclassification. Beginning in October 1998, warranty expense, which was
previously reflected as a component of selling, general, and administrative
expenses, is included as another component of cost of goods sold in the
Company's Consolidated Statements of Earnings and Comprehensive Income. In
addition, research and development expense, which was previously reflected as a
component of cost of goods sold, is included as a selling, general and
administrative expense in the Company's Consolidated Statements of Earnings and
Comprehensive Income. Amounts reported for the prior periods have been
reclassified to conform to the new presentation.
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>
THREE MONTHS ENDED DECEMBER 31,
FISCAL YEARS ENDED SEPTEMBER 30, ------------------------------------
---------------------------------------------------------- 1997
1996 1997 1998 (UNAUDITED) 1998
----------------- --------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $1,121.5 100.0% $979.5 100.0% $1,025.7 100.0% $209.5 100.0% $199.4 100.0%
Cost of goods sold..... 877.6 78.3 822.0 83.9 793.6 77.4 171.7 82.0 180.7 90.6
-------- ------ ------ ------ -------- ------ ------ ------- ------ ------
Gross earnings......... 243.9 21.7 157.5 16.1% 232.1 22.6 37.8 18.0 18.7 9.4
Selling, general and
adminstrative
expense.............. 224.9 20.1 219.9 22.5 266.2 26.0 48.8 23.3 62.3 31.2
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) (11.0) (5.3) (43.6) (21.8)
Non-operating expense,
net.................. 3.8 0.3 2.1 0.2 14.5 1.4 5.3 2.5 3.5 1.8
Provision (credit) for
income taxes......... (3.1) (0.3) 2.8 0.3 3.4 0.3 0.8 0.4 -- --
-------- ------ ------ ------ -------- ------ ------ ------- ------ ------
Net loss............... $ (7.3) (0.7)% $(79.1) (8.1)% $ (150.5) (14.7)% $(17.1) (8.2)% $(47.1) (23.6)%
======== ====== ====== ====== ======== ====== ====== ======= ====== ======
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
1997
Net Sales. Net sales were $199.4 million in the three months ended
December 31, 1998, a decrease of $10.1 million or 4.8% from $209.5 million in
the three months ended December 31, 1997. Worldwide engine sales in the December
31, 1998 quarter were lower than in the comparable quarter in 1997 due primarily
to lower demand for certain of the Company's outboard engines, loss of business
with certain dealers and increased promotional pricing offered by competitors.
International engine sales were also lower than the prior year period due to
increased competition in Australia and deteriorating economic conditions in
Latin America and Asia. In addition, boat sales were slightly lower than last
year primarily as a result of the Company discontinuing certain product lines in
the second and third quarters of fiscal year 1998.
Cost of Goods Sold. Cost of goods sold increased to $180.7 million in the
three months ended December 31, 1998 from $171.7 million in the three months
ended December 31, 1997, an increase of $9.0 million or 5.2%. Cost of goods sold
was 90.6% of net sales during the three months ended December 31, 1998 as
compared with 82.0% of net sales during the comparable period in 1997. The
increase in cost of goods sold as a percent of net sales was primarily due to a
$8.6 million increase in warranty expense in the period related primarily to
actions taken by the Company to address certain performance issues identified
with the Company's FICHT engines, including a reserve for upgrade kits that are
being provided in April 1999 for previously sold FICHT engines and a limited
warranty extension, from two to three years, on FICHT engines sold by dealers to
customers between January 1, 1999 and March 31, 1999. See
"-- General -- Introduction of FICHT Engines; Regulatory Compliance" above.
Selling, General and Administrative ("SG&A"). SG&A expense increased to
$62.3 million in the three months ended December 31, 1998 from $48.8 million in
the three months ended December 31, 1997, an increase of $13.5 million or 27.7%.
The increase is due primarily to higher selling expense of approximately
25
<PAGE> 26
$6.0 million during the three months ended December 31, 1998 related to new
sales promotions and increased advertising expenses for the Company's new model
year engines and boats. The SG&A expense increase was also due in part to costs
related to a number of actions incurred during the December 31, 1998 quarter,
including charges resulting from the Company's efforts to eliminate old and
discontinued boat models in dealer channels and to reduce field engine
inventories held by dealers. The aggregate amount of these charges was $4.1
million. Finally, the Company incurred approximately $2.9 million in costs
associated with its Year 2000-compliance initiatives in the period ended
December 31, 1998. The Company did not incur these type of Year 2000 compliance
costs in the comparable period during 1997.
Loss from Operations. Loss from operations was $43.6 million in the three
months ended December 31, 1998 compared with a loss of $11.0 million in the
three months ended December 31, 1997, an increase of $32.6 million. The increase
in the loss from operations was primarily attributable to the decrease in sales
and increases in certain components of costs of goods sold and SG&A expense
described above.
Non-Operating Expense (Income). Interest expense decreased to $6.8 million
in the three months ended December 31, 1998 from $7.7 million in the three
months ended December 31, 1997, a decrease of $0.9 million. Other non-operating
income was $3.3 million in the three months ended December 31, 1998 compared to
$2.4 million in the three months ended December 31, 1997. This increase in
non-operating income was due primarily to certain product development expenses
related to the sterndrive joint venture not being incurred in the December 31,
1998 quarter as a result of the Company's sale of its joint-venture interest in
the sterndrive joint venture with AB Volvo Penta and Volvo Penta of the
Americas, Inc.
Provision (Credit) for Income Taxes. No provision for income taxes was made
in the three months ended December 31, 1998 as compared to a $0.8 million
provision in the three months ended December 31, 1997. The provision for income
taxes for the three months ended December 31, 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, 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
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 to certain model and brand eliminations.
Cost of Goods Sold. Cost of goods sold decreased to $793.6 million in
fiscal year 1998 from $822.0 million in fiscal year 1997, a decrease of $28.4
million or 3.5%. Cost of goods sold was 77.4% of net sales in fiscal year 1998
as compared with 83.9% 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 $266.2 million in fiscal year 1998 from $219.9 million in fiscal
year 1997, an increase of $46.3 million or 21.1%. SG&A expense as a percentage
of net sales increased to 26.0% in fiscal year 1998 from 22.5% 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) $2.8 million in compensation
expense primarily related to forfeitures resulting from the termination of an
executive's employment agreement with a
26
<PAGE> 27
former employer in connection with the Company's hiring the executive
concurrently with the acquisition of the Company by Greenmarine Holdings, and
(iii) $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 which included: (i) costs to
recognize severance and benefits for approximately 950 employees to be
terminated ($14.0 million); (ii) curtailment losses associated with the
acceleration of pension and postretirement benefits for employees at the two
facilities ($72.1 million); (iii) costs to clean and close the facilities ($6.5
million); (iv) costs to ready machinery and equipment for disposal and costs to
dispose of machinery and equipment at the facilities ($3.9 million); and (v)
costs to write-down certain replacement parts for machinery and equipment at the
facilities to net realizable value ($2.0 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 in Item 8 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 were offset
by $15.1 million in change in control expenses associated with the Greenmarine
Acquisition. These expenses included $7.5 million in payments to a 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 in Item 8 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 year 1997 from
$1,121.5 million in fiscal year 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 year 1997 while international sales decreased 16.1%. Industry unit volume
in the U.S. declined for outboard motors and boats in fiscal year 1997 compared
to fiscal year 1996. The Company's sales of outboard motor units in the U.S.
declined by 19.5% in fiscal year 1997 as compared to fiscal year 1996.
27
<PAGE> 28
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 6.3% to $822.0 million in
fiscal year 1997 from $877.6 in fiscal year 1996. Cost of goods sold was 83.9%
of net sales in fiscal 1997 as compared with 78.3% of net sales in fiscal year
1996. Cost of goods sold in fiscal year 1997 included approximately $17.9
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); (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); and (vi) 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, cost of goods sold in fiscal year 1997 would
have been $804.1 million or 82.1% of net sales.
Selling, General and Administrative Expense. SG&A expense decreased to
$219.9 million in fiscal year 1997 from $224.9 million in fiscal year 1996, a
decrease of $5.0 million or 2.2%. SG&A expense, as a percentage of net sales
increased to 22.5% in fiscal year 1997 from 20.1% in fiscal year 1996. The SG&A
expenses in fiscal year 1997 included 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). Excluding these charges, SG&A expense for
fiscal year 1997 would have been $212.9 million or 21.7% of net sales. These
charges were partially offset by reductions of costs resulting from the
restructuring programs initiated in fiscal year 1996.
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. Operating loss increased to $74.2 million in fiscal
year 1997 from a loss of $6.6 million in fiscal year 1996. Fiscal year 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 year 1996
included restructuring charges of $25.6 million, primarily related to the
closing of distribution operations and the write-down of manufacturing
facilities outside the United States. Excluding the $11.8 million change in
control compensation expense in fiscal year 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 year 1997.
Non-Operating Expense (Income). Interest expenses in fiscal 1997 increased
by $3.9 million to $16.2 million in fiscal year 1997 from $12.3 million in
fiscal year 1996. The increase in fiscal year 1997 was primarily attributable to
a $5.0 million favorable interest adjustment for past tax liabilities which was
recorded in fiscal year 1996. Other non-operating income was $14.1 million in
fiscal year 1997 as compared to $8.5 million in fiscal year 1996. Included in
non-operating expense in fiscal year 1997 was $15.1 million of
28
<PAGE> 29
change of control expenses associated with the Greenmarine Acquisition. The
fiscal year 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 in Item 8 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 year 1996, and is
explained in Note 15 of the Notes to the Consolidated Financial Statements
included in Item 8 elsewhere herein. The provision for income taxes for fiscal
year 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
The Company's business is seasonal with 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 December 31, 1998
decreased $31.1 million from September 30, 1998. Receivables at December 31,
1998 decreased $23.0 million from September 30, 1998 due primarily to lower net
sales in the three months ended December 31, 1998 as compared to net sales
during the Company's fourth quarter of fiscal year 1998. Inventories at December
31, 1998 increased $22.8 million from September 30, 1998 due to the seasonal
nature of OMC's business and excess inventories resulting from lower than
anticipated sales of the Company's outboard engines during the three months
ended December 31, 1998. In addition, the Company had $28.6 million in
"Restricted Cash" at December 31, 1998, which cash is held in interest reserve
accounts for the benefit of the Company's senior lenders (as discussed below).
Short-term debt was $32.4 million at December 31, 1998 comprising
borrowings under the Company's revolving credit facility during the three-month
period ended December 31, 1998. These borrowings were used to fund an overall
increase in inventory levels due to both the seasonality of the Company's
business and excess inventory resulting from lower than anticipated sales of the
Company's outboard engines. The borrowings were also used to fund capital
expenditures of $15.1 million during the three months ended December 31, 1998,
which expenditures increased $8.8 million from $6.3 million for the comparable
period in 1997. The higher level of expenditures is due partially to increased
spending for new machinery and equipment for certain of the Company's
engine-manufacturing facilities.
Cash used for operations was $53.3 million for the three months ended
December 31, 1998 compared with $36.6 million for the three months ended
December 31, 1997. The significant increase in cash used for operations during
the three-month period ended December 31, 1998 was due to increased inventory
manufacturing for the upcoming 1999 selling season and due to the Company's net
loss from operations as explained above in the discussion of the Company's
results of operations for the December 31, 1998 quarter.
The Company anticipates that short-term debt will increase approximately
$50 million during the fiscal quarter ending March 31, 1999. The increase is
expected to be attributable to anticipated revolving credit borrowings to fund
inventory buildup for new model year products and capital expenditures planned
for the March 31, 1999 quarter.
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, chattel paper, documents, instruments,
deposit accounts, contract rights, patents, trademarks and general intangibles
and is guaranteed by the Company's four principal domestic operating
subsidiaries. On December 31, 1998, the Company had outstanding borrowings under
the Credit Agreement of $32.4 million, and had $37.6 million of letter of credit
obligations outstanding under the Credit Agreement. The Credit Agreement
contains a number of financial covenants, including those requiring the Company
to satisfy specific levels of (i) consolidated tangible net
29
<PAGE> 30
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 and subsequent actual compliance
therewith at such time, (ii) the Company's consolidated tangible net worth
requirement for the period ended September 30, 1998 was amended to better align
such covenant with the Company's then anticipated financial performance for the
remainder of fiscal year 1998, (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 the
issuance of letters of credit was increased from $30.0 million to $50.0 million
to enable the Company to replace cash collateral obligations under a letter of
credit, which obligations arose following the change in control resulting from
the Greenmarine Acquisition. The Company entered into a Third Amendment to
Amended and Restated Loan and Security Agreement, effective as of December 21,
1998 (the "Third Amendment"), 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 coverage ratio and
consolidated leverage ratio covenants was 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. The Third Amendment modified the Company's financial
covenant compliance requirements under the Credit Agreement to give effect to
the restatements of the Company's financial statements for fiscal year 1997 and
for the first three quarters of fiscal year 1998 and their anticipated impact on
the Company's future results of operations. As of December 31, 1998, the Company
was in violation of the Credit Agreement's leverage coverage ratio covenant. The
Company informed the lenders under the Credit Agreement of the circumstances
causing the violation and entered into the Fourth Amendment to Amended and
Restated Loan and Security Agreement, effective as of February 1, 1999, pursuant
to which (i) the Company's non-compliance with the consolidated leverage
covenant for the period ended December 31, 1998 was waived, (ii) work-in-process
inventory is included in the borrowing base calculation through June 30, 1999,
and (iii) the Company's borrowing base capacity was increased by $10 million for
certain intellectual property. The Company entered into the Fifth Amendment to
Amended and Restated Loan and Security Agreement, effective as of February 25,
1999, which among other things, amended the Company's consolidated tangible net
worth, consolidated leverage and consolidated interest coverage ratios for
future periods in order to bring the covenants in line with anticipated results
of operations, including the effect of the costs incurred and to be incurred to
address the FICHT performance issues discussed above.
The Company became obligated under a credit agreement, as amended, which
provided for loans of up to $150 million (the "Acquisition Debt"). The
Acquisition Debt was used to finance a portion of the funds required to effect
the Greenmarine Acquisition. Amounts outstanding under this credit agreement
were secured by 20.4 million shares of common stock of the post-Merger Company
and bore 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 due
2002, which the Company was required to offer to repurchase as a result of the
Greenmarine Acquisition (as discussed below). The full amount of the Acquisition
Debt was paid on May 27, 1998 from the proceeds of the sale of the Company's
10 3/4% Senior Notes (as described below).
On May 27, 1998, the Company issued $160.0 million of 10 3/4% Senior Notes
due 2008 ("Senior Notes"), with interest payable semiannually on June 1 and
December 1 of each year. The net proceeds from the issuance of the Senior Notes
totaled $155.2 million, of which $150.0 million was used to repay the
Acquisition Debt. The Senior 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
prescribed redemption prices set forth in the indenture governing the Senior
Notes. In addition, at any time prior to June 1, 2001, the Company may on any
one or more
30
<PAGE> 31
occasions redeem up to an aggregate of 35% of the original principal amount of
the Senior Notes at a redemption price of 110.750% of the principal amount
thereof, plus accrued and unpaid interest, with the net proceeds of one or more
equity public offerings, provided that at least 65% of the aggregate principal
amount of Senior Notes originally issued remains outstanding immediately after
the occurrence of any such redemption. The Senior Notes are guaranteed on a
joint and several basis by each of the Company's principal domestic operating
subsidiaries. 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.
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 an interest reserve account for the benefit of the other senior
creditors of the Company. An aggregate amount of cash equal to one year's
interest due to these lenders was deposited into these interest reserve
accounts. At December 31, 1998, the "Restricted Cash" held in these interest
reserve accounts totaled $28.6 million. The "Restricted Cash" must remain in
such accounts until at least May 27, 2001.
At December 31, 1998, $62.8 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 December 31, 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.
At December 31, 1998, an aggregate of approximately $20.9 million principal
amount of the Company's Medium-Term Notes Series A (the "Medium-Term Notes") was
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.
At December 31, 1998, $7.1 million principal amount of the Company's 7%
Convertible Subordinated Debentures due 2002 (the "Convertible Debentures") was
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. Each holder of the remaining outstanding
Convertible Debentures now has the right to convert (at $22.25 per share) such
holder's Convertible Debentures and receive cash in an amount equal to what each
holder would have received had they converted the Convertible Debentures into
common stock immediately prior to the Merger ($18.00 per share). Accordingly,
the remaining outstanding Convertible
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<PAGE> 32
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) x $1,000). The outstanding Convertible Debentures are
convertible at any time prior to their maturity on July 1, 2002.
The Company has various Industrial Revenue Bonds outstanding in an
aggregate principal amount of approximately $11.9 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 1999, the Company will be required to pay approximately $10 million in
cash to satisfy obligations that will become due on the Medium-Term Notes. See
Note 9 of the Notes to the Consolidated Financial Statements contained in Item 8
elsewhere herein. In addition, the Company will be required to pay approximately
$1.2 million in cash to satisfy obligations that will become due at various
times in 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 that limit the Company's repurchase obligation to approximately $32
million per model year for a period not to exceed 30 months from the date of
invoice. The Company resells any repurchased products. Losses incurred under
this program have not been material. For the three-month periods ended December
31, 1998 and 1997 and for fiscal year 1998, the Company repurchased
approximately $1.4 million, $1.5 million and $4.1 million of products,
respectively, 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 presently anticipated
requirements 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.
TEMPORARY PLANT SHUTDOWN
The Company determined that it will temporarily suspend manufacturing
operations for approximately two weeks in March 1999 at certain of its engine
facilities. This operations shutdown will enable the Company to reduce excess
field inventories held by dealers caused by lower than anticipated engine sales
in the three-month period ended December 31, 1998. In addition, the
manufacturing suspension will allow the Company to better coordinate production
schedules with new marketing programs. Finally, the shutdown will afford the
Company the opportunity to implement the strategies designed to address the
FICHT engine performance issues, including modifications to the 1999 FICHT
engines and changes in the FICHT engine production processes. The Company
expects that this temporary plant shutdown will result in additional expenses in
1999, primarily in the quarter ending March 31, 1999 due to higher levels of
unabsorbed overhead costs, and a reduced level of sales in the March 31, 1999
quarter.
YEAR 2000 MATTERS
During 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
32
<PAGE> 33
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 that would be
affected by the Year 2000 and those which were identified are in the process of
being modified. Most of the Company's telecommunications equipment is currently
Year 2000 compliant and in cases where it is not, the equipment has either been
replaced or appropriation requests for the replacement have been prepared and
are being processed. The Company anticipates completing all implementation and
testing of internal remedies by June 30, 1999.
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 involved
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 schedules 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
will review alternate suppliers who are in a position to assure the Company 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 non-compliant 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 outboard motors, sterndrives and
parts and accessories, including electric trolling motors, which it previously
manufactured and currently manufactures for sale to its dealers, distributors
and original equipment manufacturers and has determined that those products are
Year 2000 compliant.
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 $6.7 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 into the Year 2000. The Company has expensed these
33
<PAGE> 34
items, except for hardware costs incurred in the normal course of business,
which have been capitalized, in the Company's Statement of Consolidated Earnings
and Comprehensive Income for the applicable period.
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 determine
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
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 services 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 could have a negative impact on the Company's
business, results of operations, or financial condition.
EURO CURRENCY CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union adopted the "euro" as their common legal currency. The euro trades on
currency exchanges and is available for non-cash transactions. From January 1,
1999 through January 1, 2002, each of the participating countries are scheduled
to maintain their national ("legacy") currencies as legal tender for goods and
services. Beginning January 1, 2002, new euro-denominated bills and coins will
be issued, and legacy currencies will be withdrawn from circulation no later
than July 1, 2002. The Company's foreign operating subsidiaries that will be
affected by the euro conversion have established plans to address any business
issues raised, including the competitive impact of cross-border price
transparency. It is not anticipated that there will be any near term business
ramifications; however, the long-term implications, including any changes or
modifications that will need to be made to business and financial strategies are
still being reviewed. From an accounting, treasury and computer system
standpoint, the impact from the euro currency conversion is not expected to have
a material impact on the financial position or results of operations of the
Company.
RECENTLY ADOPTED ACCOUNTING STANDARDS
To date in 1999, the Company has implemented 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." See Note 2 of the Notes to the Consolidated
Financial Statements contained in Item 8 elsewhere herein.
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.
34
<PAGE> 35
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.
FORWARD-LOOKING STATEMENTS
This transition report on Form 10-K contains forward-looking statements,
which may constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. 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 Form 10-K
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 that could cause actual events or results to differ materially
from those projected and that include, but are not limited to, the impact of
competitive products and pricing, successful implementation of turnaround
strategies, product demand and market acceptance, new product development, Year
2000 issues, availability of raw materials, the availability of adequate
financing on terms and conditions acceptable to the Company, and general
economic conditions including interest rates and consumer confidence. Investors
are also directed to other risks discussed in this transition report on Form
10-K and documents filed by the Company with the Securities and Exchange
Commission.
ITEM 7A. 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.
35
<PAGE> 36
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 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
-----------------------------------------------------------------------------------
FAIR
DECEMBER 31, 1998 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 THEREAFTER TOTAL 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 $ 0.4 $226.2 $259.5 $244.7
Average Interest Rate.............. 10.00% 10.07% 10.13% 10.22% 10.29% 9.54% 9.94%
Variable Rate ($US).................. -- -- -- -- $ 5.5 $ 5.5 $ 5.5 $ 5.5
Average Interest Rate.............. -- -- -- -- -- 4.56% 3.41%
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............... 5.11% -- -- -- -- -- 5.11%
</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 December 31, 1998, there were net unrealized gains on
forward contracts of $4.4 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 December 31, 1998, the potential unrealized
gains on forward contracts of $4.4 million, would have been reduced by $2.5
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 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 December 31,
1998, there were unrealized losses on aluminum futures of $0.1 million. Assuming
a 10% change in market prices at December 31, 1998, additional potential losses
in the net fair value of these contracts would have been $0.1 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.
36
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 December 31, 1998,
September 30, 1998 and 1997 and the related Statements of Consolidated Earnings
and Comprehensive Income, Consolidated Cash Flows and Changes in Consolidated
Shareholders' Investment for the three-month period ended December 31, 1998 and
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 and Comprehensive Income,
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 December 31, 1998, September 30, 1998 and 1997 and the results of their
operations and their cash flows for the three-month period ended December 31,
1998, and 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.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II "Valuation and Qualifying
Accounts", as listed in the index of financial statements, is presented for
purposes of complying with the Securities and Exchange Commissions rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 25, 1999
37
<PAGE> 38
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
POST-MERGER COMPANY
-----------------------------------
SEPTEMBER 30,
DECEMBER 31, -------------------
(DOLLARS IN MILLIONS, EXCEPT AMOUNTS PER SHARE) 1998 1998 1997
- ----------------------------------------------- ------------ ------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................ $ 13.6 $ 45.2 $ 54.4
Receivables (less reserve for doubtful receivables of
$9.2 million at December 31, 1998 and $9.5 million and
$6.7 million at September 30, 1998 and 1997,
respectively)......................................... 130.5 153.5 153.2
Inventories.............................................. 197.2 174.4 176.9
Deferred income tax benefits............................. 3.4 3.4 0.9
Other current assets..................................... 20.4 19.7 67.7
------- ------- --------
Total current assets.................................. 365.1 396.2 453.1
Restricted cash............................................ 28.6 28.6 --
Product tooling, net....................................... 30.0 32.4 34.2
Plant and equipment, net................................... 197.1 194.5 210.2
Goodwill................................................... 115.5 116.3 127.3
Trademarks, patents and other intangibles.................. 80.9 81.6 83.9
Pension asset.............................................. 46.4 45.6 74.4
Deferred income tax benefits............................... 40.5 41.1 39.2
Other assets............................................... 12.1 13.6 27.9
------- ------- --------
Total assets.......................................... $ 916.2 $ 949.9 $1,050.2
======= ======= ========
Liabilities and Shareholders' Investment Current
liabilities:
Loan payable............................................. $ 32.4 $ -- $ 96.0
Accounts payable......................................... 90.0 115.1 142.0
Accrued liabilities...................................... 185.1 177.3 139.3
Accrued income taxes..................................... 6.5 7.8 6.4
Current maturities and sinking fund requirements of
long-term debt........................................ 11.2 11.2 72.9
------- ------- --------
Total current liabilities............................. 325.2 311.4 456.6
Long-term debt............................................. 247.0 247.9 103.8
Postretirement benefits other than pensions................ 124.4 123.7 96.0
Other non-current liabilities.............................. 162.4 172.2 116.8
Shareholders' investment:
Common stock -- 25 million shares authorized at $.01 par
value with 20.4 million shares outstanding in all
periods presented..................................... 0.2 0.2 0.2
Capital in excess of par value of common stock........... 276.9 276.9 276.8
Accumulated deficit-employed in the business............. (197.6) (150.5) --
Accumulated other comprehensive income................... (22.3) (31.9) --
------- ------- --------
Total shareholders' investment........................ 57.2 94.7 277.0
------- ------- --------
Total liabilities and shareholders' investment...... $ 916.2 $ 949.9 $1,050.2
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
38
<PAGE> 39
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED EARNINGS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
POST-MERGER COMPANY PRE-MERGER COMPANY
-------------------------- ---------------------
THREE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- --------------------------------
(DOLLARS IN MILLIONS EXCEPT AMOUNTS PER SHARE) 1998 1997 1998 1997 1996
- ---------------------------------------------- ------ ------ -------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................................... $199.4 $209.5 $1,025.7 $979.5 $1,121.5
Cost of goods sold.............................. 180.7 171.7 793.6 822.0 877.6
------ ------ -------- ------ --------
Gross earnings................................ 18.7 37.8 232.1 157.5 243.9
Selling, general and administrative expense..... 62.3 48.8 266.2 219.9 224.9
Restructuring charges........................... -- -- 98.5 -- 25.6
Change of control expenses -- compensation...... -- -- -- 11.8 --
------ ------ -------- ------ --------
Loss from operations.......................... (43.6) (11.0) (132.6) (74.2) (6.6)
------ ------ -------- ------ --------
Non-operating expense (income)
Interest expense.............................. 6.8 7.7 30.1 16.2 12.3
Change of control expenses.................... -- -- -- 15.1 --
Other, net.................................... (3.3) (2.4) (15.6) (29.2) (8.5)
------ ------ -------- ------ --------
3.5 5.3 14.5 2.1 3.8
------ ------ -------- ------ --------
Loss before provision for income taxes........ (47.1) (16.3) (147.1) (76.3) (10.4)
Provision (benefit) for Income Taxes............ -- 0.8 3.4 2.8 (3.1)
------ ------ -------- ------ --------
Net loss...................................... $(47.1) $(17.1) $ (150.5) $(79.1) $ (7.3)
====== ====== ======== ====== ========
Other comprehensive income (expense), net of tax
Foreign currency translation adjustments...... 0.4 (3.4) (7.2) 8.5 (3.0)
Minimum pension liability..................... 9.2 -- (24.7) 3.1 (3.1)
------ ------ -------- ------ --------
Other comprehensive income (loss).......... 9.6 (3.4) (31.9) 11.6 (6.1)
------ ------ -------- ------ --------
Comprehensive loss....................... $(37.5) $(20.5) $ (182.4) $(67.5) $ (13.4)
====== ====== ======== ====== ========
Net loss per share of common stock
Basic......................................... $(2.31) $(0.84) $ (7.38) $(3.91) $ (0.36)
====== ====== ======== ====== ========
Diluted....................................... $(2.31) $(0.84) $ (7.38) $(3.91) $ (0.36)
====== ====== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
39
<PAGE> 40
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
PRE-MERGER
COMPANY
POST-MERGER COMPANY AND
------------------------- POST-MERGER PRE-MERGER
THREE MONTHS COMPANY COMPANY
ENDED ----------- ----------
DECEMBER 31, YEAR ENDED SEPTEMBER 30,
--------------- ----------------------------------
(DOLLARS IN MILLIONS) 1998 1997 1998 1997 1996
- --------------------- ------ ------ ------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................. $(47.1) $(17.1) $(150.5) $(79.1) $(7.3)
Adjustments to reconcile net loss to net cash provided by
operations:
Depreciation and amortization.......................... 12.4 12.5 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................... 26.4 24.4 (0.9) 9.6 32.4
Decrease (increase) in inventories................... (22.9) (21.3) 1.9 26.5 27.3
Decrease (increase) in other current assets.......... 4.7 31.8 45.4 (0.4) (3.6)
Increase (decrease) in accounts payable, accrued
liabilities and income taxes....................... (24.0) (63.5) (46.7) (5.3) (15.1)
Increase (decrease) in deferred items................ (3.6) -- 66.7 (15.8) (20.6)
Other, net........................................... 0.8 (3.4) (4.2) (1.7) 1.7
------ ------ ------- ------ -----
Net cash provided by (used for) operating
activities....................................... (53.3) (36.6) 60.3 (9.2) 91.1
Cash Flows from Investing Activities:
Expenditures for plant and equipment, and tooling........ (15.1) (6.3) (34.4) (36.3) (52.7)
Proceeds from sale of plant and equipment................ 2.3 0.1 9.6 13.0 2.7
Proceeds from sale of joint venture...................... 3.2 -- -- -- --
Other, net............................................... -- 0.8 0.8 (2.8) (0.5)
------ ------ ------- ------ -----
Net cash used for investing activities............. (9.6) (5.4) (24.0) (26.1) (50.5)
Cash Flows from Financing Activities:
(Payments) issuance of short-term debt................... 32.4 79.7 (96.0) -- --
Payments of long-term debt, including current
maturities............................................. (1.2) (67.7) (75.0) -- (0.2)
Proceeds from the issuance of long-term debt............. -- -- 155.4 -- --
Cash dividends paid...................................... -- -- -- (6.0) (6.1)
Restricted cash.......................................... -- -- (28.6) -- --
Other, net............................................... -- -- (0.9) 2.3 3.4
------ ------ ------- ------ -----
Net cash provided by (used for) financing
activities....................................... 31.2 12.0 (45.1) (3.7) (2.9)
Exchange rate effect on cash............................. 0.1 (0.3) (0.4) (2.1) (0.5)
------ ------ ------- ------ -----
Net increase (decrease) in cash and cash equivalents..... (31.6) (30.3) (9.2) (41.1) 37.2
Cash and cash equivalents at beginning of year........... 45.2 54.4 54.4 95.5 58.3
------ ------ ------- ------ -----
Cash and cash equivalents at end of year................. $ 13.6 $ 24.1 $ 45.2 $ 54.4 $95.5
====== ====== ======= ====== =====
Restricted cash.......................................... $ 28.6 $ -- $ 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.......................................... $ 12.5 $ 7.2 $ 23.5 $ 21.0 $15.4
====== ====== ======= ====== =====
Income taxes paid (refunded)........................... $ (1.4) $ 1.3 $ 0.0 $ 3.4 $ 3.5
====== ====== ======= ====== =====
</TABLE>
The accompanying notes are an integral part of these statements.
40
<PAGE> 41
OUTBOARD MARINE CORPORATION
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
ACCUMULATED
EARNINGS
ISSUED CAPITAL IN EXCESS (DEFICIT) ACCUMULATED
COMMON STOCK OF PAR VALUE EMPLOYED OTHER
--------------- OF COMMON IN THE COMPREHENSIVE TREASURY
SHARES AMOUNT STOCK BUSINESS INCOME STOCK
------ ------ ----------------- ----------- ------------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance -- September 30, 1995.................. 20.2 $ 3.0 $ 112.2 $ 149.7 $ (5.5) $ (3.6)
Net loss....................................... -- -- -- (7.3) -- --
Dividends declared -- 40 cents per share....... -- -- -- (8.0) -- --
Minimum pension liability adjustment........... -- -- -- -- (3.1) --
Shares issued under stock plans................ -- -- 1.9 -- -- 1.3
Translation adjustments........................ -- -- -- -- (3.0) --
----- ----- ------- ------- ------- ------
Balance -- September 30, 1996.................. 20.2 $ 3.0 $ 114.1 $ 134.4 $ (11.6) $ (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 $ (19.3) $ (2.3)
Balance -- September 30, 1997 --
Post-Merger Company prior to merger.......... 20.5 3.1 117.9 51.3 (19.3) (2.3)
Cancellation of Pre-Merger Company share upon
merger....................................... (20.5) (3.1) (117.9) (51.3) 19.3 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) $ (31.9) $ --
Net loss....................................... -- -- -- (47.1) -- --
Minimum pension liability adjustment........... -- -- -- -- 9.2 --
Translation adjustments........................ -- -- -- -- 0.4 --
----- ----- ------- ------- ------- ------
Balance -- December 31, 1998 --
Post-Merger Company.......................... 20.4 $ 0.2 $ 276.9 $(197.6) $ (22.3) $ --
===== ===== ======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these statements.
41
<PAGE> 42
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 changed from September 30 to December 31.
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. Unaudited Statements of Consolidated Earnings and Comprehensive Income
and Consolidated Cash Flows for the three months ended December 31, 1997 have
been included for comparative purposes.
42
<PAGE> 43
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECLASSIFICATION. Beginning in October 1998, warranty expense, which was
previously reflected as Selling, General, and Administrative expenses ("SG&A"),
is included as another component of cost of goods sold in the Consolidated
Statement of Earnings. In addition, research and development expense, which was
previously reflected as cost of goods sold, is included as SG&A expenses in the
Consolidated Statement of Earnings. Also in the Statements of Consolidated
Financial Position, the valuation allowance associated with certain deferred tax
assets has been reclassified from other long-term liabilities to both short-term
deferred tax assets and a new category entitled deferred income tax benefits
(long-term) to reflect the short-term and long-term deferred tax assets net of
the short-term and long-term valuation allowance. In addition, in the Statements
of Consolidated Financial Position, pension assets associated with one of the
Company's pension plans has been reclassified from other assets to long-term
liabilities, where the related pension benefit obligation is recorded, to
reflect the net underfunded obligation in such plan.
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 December 31,
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 $22.4 million, $26.4 million and $18.3 million which had not yet been
paid by the banks at December 31, 1998, and 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 December 31, 1998 and September 30, 1998, the Restricted Cash
was $28.6 million and must be maintained until the later of May 27, 2001 or
until 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% at December 31, 1998 and September 30, 1998 and 22% at
September 30, 1997) is carried at the lower of first-in, first-out (FIFO) cost
or market. In the fiscal year ending September 30, 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.
43
<PAGE> 44
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $10.9 million and $43.1 million for the three month
period ending December 31, 1998 and for the twelve month period ending September
30, 1998, respectively, 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.
Maintenance and repair costs are charged directly to earnings as incurred
and Post-Merger company expenses were $6.8 million and $27.0 million for the
three month period ending December 31, 1998 and for the twelve month period
ending September 30, 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 December
31, 1998, September 30, 1998 and September 30, 1997 included goodwill, net of
amortization expense, of $115.5 million, $116.3 million and $127.3 million,
respectively, and trademarks, patents and other intangibles of $80.9 million,
$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 $1.4 million and
$6.2 million for the three months ending December 31, 1998 and for the twelve
month period ending September 30, 1998 and on the Pre-Merger Company was $1.6
million and $1.8 million for 1997 and 1996, respectively. Accumulated
amortization was $7.6, $6.2 million and $0.0 at December 31, 1998, September 30,
1998, and September 30, 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 $8.9 million, and $27.6 million on the Post-Merger Company for the
three-month period ending December 31, 1998 and the twelve month period ending
September 30, 1998, and $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.
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 $10.2 million and $36.8 million for the three-month period
ending December 31, 1998 and for the twelve-month period ending September 30,
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
44
<PAGE> 45
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 for the three-month period ended December 31, 1998 and for
the twelve-month period ended September 30, 1998 and the Pre-Merger Company in
1997 include foreign exchange losses (gains) of $(0.7) million, $(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 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 long-lived tangible or intangible assets may warrant revision or
that the remaining balance may not be recoverable. If factors indicate that such
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 tangible and intangible assets in measuring
whether such assets are 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,
20.4 million, 20.4 million, 20.2 million and 20.1 million for the three-month
periods ended December 31, 1998 and 1997, and 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
three-month periods ended December 31, 1998 and 1997, and the fiscal years ended
September 30, 1998, 1997 and 1996 fiscal years, shares were computed to be 20.4
million, 20.4 million, 20.4 million, 23.6 million and 23.6 million,
respectively. For all periods, 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.
45
<PAGE> 46
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NEW ACCOUNTING STANDARDS. In the fiscal year 1999, the Company implemented
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."
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.
COMPREHENSIVE INCOME. The Company has chosen to present Other
Comprehensive Income in the Statement of Consolidated Earnings. Accumulated
Other Comprehensive Income consists of the following:
<TABLE>
<CAPTION>
ACCUMULATED
MINIMUM FOREIGN OTHER
PENSION CURRENCY COMPREHENSIVE
LIABILITY TRANSLATION INCOME
--------- ----------- -------------
<S> <C> <C> <C>
Balance at September 30, 1995.................. $ -- $ (5.5) $ (5.5)
Fiscal year activity........................... (3.1) (3.0) (6.1)
--------------- --------------- ---------------
Balance at September 30, 1996.................. $ (3.1) $ (8.5) $ (11.6)
Fiscal year activity........................... (0.4) (7.3) (7.7)
--------------- --------------- ---------------
Balance at September 30, 1997 -- Pre-Merger
Company...................................... $ (3.5) $ (15.8) $ (19.3)
Merger activity................................ 3.5 15.8 19.3
--------------- --------------- ---------------
Balance at September 30, 1997 -- Post-Merger
Company...................................... $ -- $ -- $ --
Fiscal year activity........................... (24.7) (7.2) (31.9)
--------------- --------------- ---------------
Balance at September 30, 1998.................. $ (24.7) $ (7.2) $ (31.9)
Period activity................................ 9.2 0.4 9.6
--------------- --------------- ---------------
Balance at December 31, 1998................... $ (15.5) $ (6.8) $ (22.3)
=============== =============== ===============
</TABLE>
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. 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.
46
<PAGE> 47
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 carried the Volvo Penta and SX Cobra
brand names. The equity method of accounting was used to account for the
Company's investment in 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 was a manufacturing and
after-market joint venture. The Company recognized gross profit relating to
certain parts sales and incurred expenses for product development that were 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 $1.2 million for the three-month period
ending December 31, 1998 and $4.8 million for the fiscal year ending September
30, 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 sold its joint venture with AB Volvo Penta and Volvo Penta of the
Americas, Inc. ("Volvo") 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. As a result, the Company sold its ownership
interest to Volvo for approximately $3.2 million, realizing a $0.5 million loss.
The loss was accrued for as part of the Company's purchase allocation.
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 which includes: 1) costs to recognize severance and
benefits for approximately 950 employees to be terminated ($14.0 million), 2)
curtailment losses associated with the acceleration of pension and
postretirement benefits for employees at the two facilities ($72.1 million), 3)
costs to clean and close the facilities ($6.5 million), 4) costs to ready
machinery and equipment for disposal and costs to dispose of machinery and
equipment at the facilities ($3.9 million), and 5) costs to write-down certain
replacement parts for machinery and equipment at the facilities to net
realizable value ($2.0 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 December 31, 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 $0.3 million, $1.4 million, and $12.5 million against
this reserve for the three months ended December 31, 1998, and the fiscal years
ending September 30, 1998 and 1997, respectively. The North American and
European sales and marketing operations were realigned to more effectively meet
market needs.
47
<PAGE> 48
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
The components of inventory were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1998 1998 1997
------------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Finished product............................................ $ 83.9 $ 55.8 $ 62.1
Raw material, work in process and service parts............. 114.5 118.6 114.8
------ ------ ------
Inventory at current cost which is less than market....... 198.4 174.4 176.9
Excess of current cost over LIFO cost....................... 1.2 -- --
------ ------ ------
Net inventory............................................. $197.2 $174.4 $176.9
====== ====== ======
</TABLE>
6. PLANT AND EQUIPMENT
Plant and equipment components were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1998 1998 1997
------------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Land and improvements....................................... $ 12.0 $ 11.9 $ 13.2
Buildings................................................... 60.2 62.6 65.0
Machinery and equipment..................................... 132.4 129.0 126.1
Construction in progress.................................... 16.2 8.5 5.9
------ ------ ------
220.8 212.0 210.2
Accumulated depreciation.................................... 23.7 17.5 --
------ ------ ------
Plant and equipment, net.................................... $197.1 $194.5 $210.2
====== ====== ======
</TABLE>
7. ACCRUED LIABILITIES AND OTHER NON-CURRENT LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1998 1998 1997
------------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Accrued liabilities were as follows:
Compensation, pension programs and current postretirement
medical................................................... $ 20.9 $ 25.7 $ 24.2
Warranty.................................................... 40.9 36.3 24.6
Marketing programs.......................................... 52.9 36.2 32.8
Restructuring reserves...................................... 10.3 10.6 6.0
Other....................................................... 60.1 68.5 51.7
------ ------ ------
Accrued liabilities....................................... $185.1 $177.3 $139.3
====== ====== ======
</TABLE>
48
<PAGE> 49
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1998 1998 1997
------------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Other non-current liabilities were as follows:
Pension programs............................................ $ 35.5 $ 42.9 $ 17.3
Environmental remediation................................... 18.0 18.1 18.4
Warranty.................................................... 20.6 20.4 15.2
Restructuring reserves...................................... 20.4 20.4 --
Other....................................................... 67.9 70.4 65.9
------ ------ ------
Accrued non-current liabilities........................... $162.4 $172.2 $116.8
====== ====== ======
</TABLE>
As described in Note 4, the Company recorded a $98.5 million restructuring
reserve in the fourth quarter of the fiscal year ending September 30, 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.
8. SHORT-TERM BORROWINGS AND ACCOUNTS RECEIVABLE SALES AGREEMENTS
A summary of short-term borrowing activity was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1998 1998 1997
------------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Outstanding:
Credit agreement.......................................... $ -- $ -- $ 96.0
Bank borrowing............................................ $ 32.4 $ -- $ --
Average bank borrowing for the period
Borrowing................................................. $ 8.9 $ 35.7 $ 2.9
Interest rate............................................. 8.2% 8.0% 7.1%
Maximum month end borrowing................................. $ 32.4 $ 70.7 $ 29.0
====== ====== ======
</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 million shares of
common stock of the Post-Merger Company and bear interest at 10%. On November
12, 1997, the Company borrowed the remaining $54.0 million principal amount of
Acquisition Debt in connection with the purchase of all properly tendered 7%
convertible subordinated debentures of Outboard Marine Corporation due 2002 (see
Note 9). 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).
In addition to the Company's credit agreements, the Company's non-U.S.
subsidiaries had additional uncommitted lines of credit of approximately $0.9
million on December 31, 1998, September 30, 1998 and September 30, 1997.
49
<PAGE> 50
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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") expiring December 31, 2000
which replaced the November 12, 1997 agreement. 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 is
secured by a first and only security interest in all of the Company's existing
and hereafter acquired accounts receivable, inventory, chattel paper, documents,
instruments, deposit accounts, contract rights, patents, trademarks and general
intangibles and is guaranteed by the Company's four principal domestic operating
subsidiaries. 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 and
subsequent actual compliance therewith at such time, (ii) the Company's
consolidated tangible net worth requirement for the period ended September 30,
1998 was amended to better align such covenant with the Company's then
anticipated financial performance for the remainder of fiscal year 1998, (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 the issuance of letters of credit
was increased from $30.0 million to $50.0 million to enable the Company to
replace cash collateral obligations under a letter of credit, which obligations
arose following the change in control resulting from the Greenmarine
Acquisition. 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 coverage ratio and consolidated leverage ratio 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
covenants for future periods were amended. The Third Amendment modified the
Company's financial covenant compliance requirements under the Credit Agreement
to give effect to the restatements of the Company's financial statements for
fiscal year 1997 and for the first three quarters of fiscal year 1998 and their
anticipated impact on the Company's future results of operations. As of December
31, 1998, the Company was in violation of the Credit Agreement leverage coverage
ratio covenant. The Company informed the lenders under the Credit Agreement of
the circumstances causing the violation and entered into the Fourth Amendment to
Amended and Restated loan and Security Agreement effective as of February 1,
1999 pursuant to which (i) the Company's non-compliance with the consolidated
leverage covenant for the period ended December 31, 1998 was waived, (ii)
work-in-process inventory is included in the borrowing base calculation through
June 30, 1999, and (iii) the Company's borrowing base capacity was increased by
$10 million for certain intellectual property. The Company entered into the
Fifth Amendment to Amended and Restated Loan and Security Agreement, effective
as of February 25, 1999, which among other things, amended the Company's
consolidated tangible net worth, consolidated leverage and consolidated interest
coverage ratios for future periods in order to bring the covenants in line with
anticipated results of operations, including the effect of the costs incurred
and to be incurred to address performance issues identified with respect to the
Company FICHT engines.
50
<PAGE> 51
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 seek further amendments, 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.
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 at December 31, 1998, September 30, 1998 and 1997, net of
sinking fund requirements included in current liabilities, consisted of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1998 1998 1997
------------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
10 3/4% senior notes due 2008............................... $155.5 $155.4 $ --
7% convertible subordinated debentures due 2002............. 7.1 7.1 74.8
9 1/8% sinking fund debentures due through 2017............. 62.8 62.6 62.6
Medium-term notes due 1999 through 2001 with rates ranging
from 8.16% to 8.625%...................................... 20.9 21.1 26.2
Industrial revenue bonds and other debt due 2002 through
2007 with rates ranging from 6.0% to 12.037%.............. 11.9 12.9 13.1
------ ------ ------
258.2 259.1 176.7
Less current maturities..................................... (11.2) (11.2) (72.9)
------ ------ ------
$247.0 $247.9 $103.8
====== ====== ======
</TABLE>
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 $4.5 million remained at December 31, 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 December 31, 1998, the interest reserve
Restricted Cash totaled $28.6 million. The Restricted Cash must remain in the
interest reserve account until at least May 27, 2001. 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
51
<PAGE> 52
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 December 31, 1998, September 30, 1998 and 1997, the Company held $34.8
million of its 9 1/8% sinking fund debentures, which will be used to meet
sinking fund requirements of $5.0 million per year in the years 1999 through
2004. Amounts are recorded as a reduction of outstanding debt.
At December 31, 1998, an aggregate of $20.9 million 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 calendar years is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
1999................................................... $ 11.2
2000................................................... 7.0
2001................................................... 6.3
2002................................................... 8.4
2003................................................... 0.4
</TABLE>
10. FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents, receivables, accounts
payable, and current maturities of long-term debt approximate fair values due to
the short term nature of these instruments. The fair value of the long-term debt
was $239.0 million, $237.1 million and $103.8 million at December 31, 1998,
September 30, 1998 and 1997, respectively, versus carrying amounts of $247.0
million, $247.9 million and $103.8 million at December 31, 1998, 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.
52
<PAGE> 53
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 December 31, 1998,
September 30, 1998 and 1997, the Company had an outstanding variable 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 December 31, 1998, September 30, 1998 and 1997 was an estimated
termination liability of $0.1 million, $0.1 million 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 and
included as a component of the related hedged transaction, when incurred.
At December 31, 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 $25.7 million.
The Company also entered into foreign currency forward exchange contracts to
receive $25.2 million for 28.3 million Australian dollars and 39.2 million
French francs with a fair market value of $24.4 million. The Company records the
fair market value of these transactions in its financial statements as this
activity represents hedges against intercompany transactions. Gains and losses
on the adjustment to the fair market value of such instruments is reflected in
the Consolidated Statement of Earnings.
The Company also entered into foreign currency forward exchange contracts
to receive 2,633.6 million Japanese yen for $19.1 million with a fair market
value of $23.5 million at December 31, 1998. The gains on these Japanese yen
contracts has been deferred at December 31, 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 December 31, 1998
all mature in one year or less. The fair values were obtained from major
financial institutions based upon the market values as of December 31, 1998, and
September 30, 1998 and 1997.
53
<PAGE> 54
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 December 31, 1998, the Company had futures covering approximately 3% of
annual forecasted aluminum purchases. The fair market value of these aluminum
options resulted in a $0.1 million and $0.1 million deferred loss at December
31, 1998 and September 30, 1998, respectively, and $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 December 31, 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 of the then
outstanding debentures at a purchase price equal to 100% of the outstanding
principal amount of each debenture plus any accrued and unpaid interest thereon.
On November 12, 1997, the Company consummated such offer to purchase, and, as a
result thereof, 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
54
<PAGE> 55
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, stock units or
stock appreciation rights. The aggregate number of shares of stock available for
equity awards under PROP is 1,500,000 shares of currently authorized common
stock of the Company. Grants under PROP are discretionary.
Stock option grants under PROP through December 31, 1998 were 1,073,745.
The grants expire ten years after date of grant and are exercisable at $18.00
per share, except for 105,000 stock options granted to certain participants that
are exercisable at $22.00 per share. The Company accounts for PROP under APB
Opinion No. 25, and has not recorded any compensation expense for grants through
December 31, 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 the three month period ending December 31, 1998 and the fiscal
year ending September 30, 1998 would have been a reduction of pretax earnings of
$0.1 million, and $0.7 million on a proforma basis and a reduction of basic and
diluted earnings per share of $0.01 and $0.03 per share.
A summary of option data for all plans was as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
NUMBER OF PRICE
OPTION SHARES PER SHARE
------------- ---------
<S> <C> <C>
Options outstanding and unexercised at September 30,
1997* --
Pre-Merger Company........................................ --
Options granted............................................. 991,745 $18.00
---------
Options outstanding and unexercised at September 30, 1998... 991,745 $18.00
=========
Options granted............................................. 110,500 $21.80
Options cancelled........................................... 28,500 --
---------
Options outstanding and unexercised at December 31, 1998.... 1,073,745 $18.86
=========
Exercisable at December 31, 1998............................ 267,190 $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 $(0.3) million, and $(5.0) million for the three month period ending
December 31, 1998 and the twelve month period ending September 30, 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 September 1998 restructuring -- see Note 4) associated with the
acceleration of pension benefits for employees at the Milwaukee and Waukegan
facilities.
55
<PAGE> 56
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: (the 1997 and 1996 fiscal
years refer to the Pre-Merger Company):
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEARS ENDED SEPTEMBER 30,
ENDED ---------------------------------
DECEMBER 31, 1998 1998 1997 1996
----------------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Benefits earned during the period................. $ 1.9 $ 6.6 $ 6.6 $ 6.2
Interest cost on projected benefit obligation..... 8.3 28.8 28.5 25.4
Return on pension assets.......................... (10.8) (41.3) (88.5) (46.5)
Net amortization and deferral..................... -- (0.1) 54.3 15.7
------ ------ ------ ------
Net periodic pension expense (income)............. $ (0.6) $ (6.0) $ 0.9 $ 0.8
====== ====== ====== ======
</TABLE>
Actuarial assumptions used for the Company's principal defined benefit
plans:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, --------------------
1998 1998 1997 1996
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Discount rates......................................... 7% 7% 7 1/2% 8%
Rate of increase in compensation levels (salaried
employee plans)...................................... 5% 5% 5% 5%
Expected long-term rate of return on assets............ 9 1/2% 9 1/2% 9 1/2% 9 1/2%
</TABLE>
56
<PAGE> 57
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following provides a reconciliation of benefit obligations, plan assets
and funded status within the guidelines of SFAS 132:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------
1998 1998 1997
------------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of period................... $476.3 $398.2 $368.8
Service cost................................................ 1.9 6.6 6.6
Interest cost............................................... 8.3 28.8 28.5
Curtailment loss............................................ -- 42.2 --
Acturarial (gain) loss...................................... 4.2 34.7 21.1
Benefits paid............................................... (7.4) (32.4) (26.8)
Foreign exchange translation................................ -- (1.8) --
------ ------ ------
Benefit obligation at end of period:........................ $483.3 $476.3 $398.2
====== ====== ======
Change in plan assets:
Fair value of plan assets at beginning of period............ $440.2 $455.2 $388.5
Actual return on plan assets................................ 41.0 18.0 92.2
Employer contribution....................................... 0.5 1.4 1.3
Benefits paid............................................... (7.4) (32.4) (26.8)
Foreign exchange translation................................ -- (2.0) --
------ ------ ------
Fair value of plan assets at end of period.................. $474.3 $440.2 $455.2
====== ====== ======
Reconciliation:
Funded status............................................... $ (9.0) $(36.1) $ 57.0
Unrecognized net actuarial loss............................. 19.2 36.0 --
------ ------ ------
Prepaid (accrued) benefit cost.............................. $ 10.2 $ (0.1) $ 57.0
====== ====== ======
Amounts recognized in the Statements of Financial Position
consist of:
Prepaid benefit cost........................................ $ 46.4 $ 45.6 $ 74.4
Accrued benefit liability................................... (20.7) (21.0) (17.4)
Minimum pension liability................................... (15.5) (24.7) --
------ ------ ------
Net amount recognized....................................... $ 10.2 $ (0.1) $ 57.0
====== ====== ======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligation in
excess of plan assets were $232.5 million, $231.4 million and $196.3 million,
respectively, as of December 31, 1998, $227.0 million, $226.0 million and $181.4
million, respectively, as of September 30, 1998, and $17.4 million, $16.4
million and $0.0 million, respectively, as of September 30, 1997.
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
57
<PAGE> 58
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reported as a separate reduction of shareholders' investment at September 30,
1998. At December 31, 1998, the reduction of shareholders' investment is $15.5
million with the change of $9.2 million reported as a component of other
comprehensive income in the three months ended December 31, 1998.
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 North
American Engine Operations 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>
THREE MONTHS FISCAL YEARS ENDED SEPTEMBER 30,
ENDED --------------------------------
DECEMBER 31, 1998 1998 1997 1996
----------------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Service cost-benefits attributed to service
during the period........................... $ 0.2 $ 0.7 $ 1.1 $ 1.0
Interest cost on accumulated postretirement
benefit obligation.......................... 2.2 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...... $ 2.4 $ 7.1 $ 6.6 $ 5.5
====== ====== ====== ======
</TABLE>
58
<PAGE> 59
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following provides a reconciliation of benefit obligations, plan assets
and funded status within the guidelines of SFAS 132:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
DECEMBER 31, ------------------
1998 1998 1997
------------ ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of period................ $ 131.4 $ 102.8 $ 95.3
Service cost............................................. 0.2 0.7 1.1
Interest cost............................................ 2.2 6.6 7.3
Curtailment loss......................................... -- 29.9 --
Actuarial gain........................................... 3.7 (0.3) 6.9
Benefits paid............................................ (2.5) (8.3) (7.8)
------- ------- -------
Benefit obligation at end of period...................... $ 135.0 $ 131.4 $ 102.8
======= ======= =======
Change in plan assets:
Fair value of plan assets at beginning of period......... $ -- $ -- $ --
Actual return on plan assets............................. -- -- --
Employer contribution.................................... 2.5 8.3 7.8
Benefits paid............................................ (2.5) (8.3) (7.8)
------- ------- -------
Fair value of plan assets at end of period............... $ -- $ -- $ --
------- ------- -------
Funded status............................................ $(135.0) $(131.4) $(102.8)
Unrecognized net actuarial loss.......................... 3.4 (0.4) --
------- ------- -------
Prepaid(accrued)benefit cost............................. (131.6) (131.8) (102.8)
Less: Current portion of Postretirement obligation..... (8.0) (9.0) (8.0)
------- ------- -------
Net long-term postretirement obligation.................. (123.6) (122.8) (94.8)
Former officer life insurance obligation................. (0.8) (0.9) (1.2)
------- ------- -------
Total postretirement benefits other than pension......... $(124.4) $(123.7) $ (96.0)
======= ======= =======
</TABLE>
The accumulated postretirement benefit obligation was determined using a
7%, 7% and 7 1/2% weighted average discount rate at December 31, 1998, 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
obligation at December 31, 1998, September 30, 1998, and September 30, 1997 by
approximately $11.3 million, $11.0 million, and $8.6 million and the total
service and interest cost components by $0.2 million, $0.6 million, and $0.6
million, respectively. A one percentage point decrease of this annual trend rate
would decrease the accumulated postretirement benefit obligation at December 31,
1998, September 30, 1998, and September 30, 1997 by approximately $9.5 million,
$9.3 million, and $7.2 million, and the total service and interest cost
components by $0.2 million, $0.5 million, and $0.5 million, respectively.
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
59
<PAGE> 60
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
THREE MONTHS FISCAL YEARS ENDED SEPTEMBER 30,
ENDED --------------------------------
DECEMBER 31, 1998 1998 1997 1996
----------------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Expense (Income)
Interest earned............................... $ (0.9) $ (4.3) $ (4.5) $ (4.1)
Insurance recovery and lawsuit settlement..... -- -- (10.7) --
Foreign exchange losses (gains)............... (0.7) (0.7) 1.0 --
(Gain) loss on disposition of plant and
equipment.................................. 0.7 (2.9) (5.8) 0.9
Joint venture earnings........................ (1.2) (4.8) (7.2) (4.4)
Discount charges -- Accounts receivable
sales...................................... -- -- 0.6 1.7
Miscellaneous, net............................ (1.2) (2.9) (2.6) (2.6)
------ ------ ------ ------
$ (3.3) $(15.6) $(29.2) $ (8.5)
====== ====== ====== ======
</TABLE>
15. INCOME TAXES
The provision for income taxes consisted of the following components (1997
and 1996 were Pre-Merger Company):
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEARS ENDED SEPTEMBER 30,
ENDED --------------------------------
DECEMBER 31, 1998 1998 1997 1996
----------------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Provision for income taxes
Federal....................................... $(17.9) $(29.4) $(36.7) $ (5.6)
State......................................... (1.7) (7.1) (2.3) --
Non-U.S....................................... 0.4 3.1 2.8 2.5
------ ------ ------ ------
Total current.............................. (19.2) (33.4) (36.2) (3.1)
Valuation allowance............................. 19.2 36.8 39.0 --
------ ------ ------ ------
Total provision............................ $ -- $ 3.4 $ 2.8 $ (3.1)
====== ====== ====== ======
</TABLE>
60
<PAGE> 61
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant short-term and long-term deferred tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
DECEMBER 31, 1998 1998 1997
----------------- ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Deferred tax assets
Litigation and claims................................... $ 21.4 $ 21.1 $ 18.4
Product warranty........................................ 22.7 21.0 14.6
Marketing programs...................................... 22.8 15.1 13.7
Postretirement medical benefits......................... 52.3 52.3 41.2
Restructuring........................................... 16.8 17.5 7.3
Loss carryforwards...................................... 77.0 67.5 55.0
Other................................................... 57.7 57.5 58.6
Valuation allowance..................................... (137.8) (118.6) (81.8)
------ ------ ------
Total deferred tax assets............................ $132.9 $133.4 $127.0
------ ------ ------
Deferred tax liabilities
Depreciation and amortization........................... $(14.5) $(13.5) (13.9)
Employee benefits....................................... -- (0.8) (12.8)
Purchase accounting asset revaluations.................. (39.0) (40.3) (44.5)
Other................................................... (35.5) (34.3) (15.7)
------ ------ ------
Total deferred tax liabilities....................... (89.0) (88.9) (86.9)
------ ------ ------
Net deferred tax assets............................ $ 43.9 $ 44.5 $ 40.1
====== ====== ======
Reconciliation to Statement of Consolidated Financial
Position:
Net -- current deferred tax assets -- (net of current
valuation allowance)................................. $ 3.4 $ 3.4 $ 0.9
Net -- long-term deferred tax assets -- (net long-term
valuation allowance)................................. 40.5 41.1 39.2
------ ------ ------
Total net deferred tax assets........................ $ 43.9 $ 44.5 $ 40.1
====== ====== ======
</TABLE>
61
<PAGE> 62
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company believes the recorded net deferred tax assets of $43.9 million
will be realized. A valuation allowance of $137.8 million has been recorded at
December 31, 1998, to reduce the deferred tax assets to their estimated net
realizable value. Of this valuation allowance, $23.8 million relates to deferred
tax assets established for foreign and state loss carryforwards.
As of December 31, 1998, certain non-U.S. subsidiaries of the Company had
net operating loss carryforwards for income tax purposes of $36.1 million. Of
this amount, $3.3 million will expire by 2004 with the remaining balance being
unlimited. In addition, the Company has $151.3 million of Federal net operating
loss carryforwards expiring between 2008 and 2019 and $178.3 million of state
net operating loss carryforwards expiring between 1999 and 2014. These
carryforwards are entirely offset by the valuation allowance. No benefit has
been recognized in the Consolidated Financial Statements.
Under SFAS 109, "Accounting for Income Taxes", the Company is required to
consider several factors in order to determine if it is "more likely than not"
that deferred tax assets will be realized. Those factors include an examination
of the Company's historical profitability, forecasted earnings, etc. Based upon
the Company's historical results as well as forecasted earnings, it is unlikely
that the valuation allowance will be reversed in calendar year 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>
THREE MONTHS
ENDED FISCAL YEARS ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------------
1998 1998 1997 1996
------------ -------- -------- --------
(% TO PRETAX EARNINGS)
<S> <C> <C> <C> <C>
At statutory rate................................. (35.0)% (35.0)% (35.0)% (35.0)%
State income taxes, net of Federal tax
deduction....................................... (3.7) (3.6) (3.0) (0.2)
Tax effect of non-U.S. subsidiary earnings (loss)
taxed at other than the U.S. rate............... (1.3) -- 0.1 11.4
Tax benefit not provided on domestic and foreign
operating losses................................ 39.4 33.0 41.8 20.6
Tax effect of goodwill amortization and
write-offs...................................... 0.6 1.4 0.4 3.3
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.% N.M.%
</TABLE>
62
<PAGE> 63
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Domestic and non-U.S. losses before provision (credit) for income taxes
consisted of the following (1997 and 1996 were Pre-Merger Company):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED FISCAL YEARS ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------------------
1998 1998 1997 1996
------------ --------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Loss before provision for income taxes
United States.................................. $(46.3) $(144.8) $(68.7) $ (8.1)
Non-U.S........................................ (0.8) (2.3) (7.6) (2.3)
------ ------- ------ ------
Total....................................... $(47.1) $(147.1) $(76.3) $(10.4)
====== ======= ====== ======
</TABLE>
The above non-U.S. loss of $.8 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 losses as resulting from stand-alone
operations could be misleading.
No U.S. deferred taxes have been provided on $65.7 million of undistributed
non-U.S. subsidiary earnings. The Company has no plans to repatriate these
earnings and, as such, they are considered to be permanently invested. While no
detailed calculations have been made of the potential U.S. income tax liability
should such repatriation occur, the Company believes that it would not be
material in relation to the Company's Consolidated Financial Position or
Consolidated Earnings.
16. SEGMENT AND RELATED INFORMATION
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", in 1999, changing the way the Company
reports information about its operating segments. The Company has two reportable
segments: Marine Engines and Boats. The Company markets its products primarily
through dealers in the United States and Canada, through distributors and
dealers in Europe and through distributors in the rest of the world.
63
<PAGE> 64
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other Column" includes primarily
corporate related items. Earnings before taxes included in the "Other Column"
comprise primarily corporate staffing expense, interest expense on the Company's
current and long-term debt obligations, and amortization expense on the
Company's intangible assets. Total Assets included in the "Other Column" are
comprised primarily of cash, intangible assets associated with the purchase of
the Company that have not been allocated to the reportable segments, deferred
income tax assets, certain property, plant and equipment, and the pension assets
associated with one of the Company's pension plans.
<TABLE>
<CAPTION>
MARINE ENGINES BOATS OTHER TOTAL
-------------- ------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED DECEMBER 31, 1998
Revenues......................................... $111.9 $ 87.5 $ -- $ 199.4
Earnings Before Taxes............................ (18.9) (12.0) (16.2) (47.1)
Total Assets..................................... 608.2 116.2 191.8 916.2
Capital Expenditures............................. 11.0 2.3 1.8 15.1
Depreciation and Amortization.................... 9.5 1.3 1.6 12.4
FISCAL YEAR ENDED SEPTEMBER 30, 1998
Revenues......................................... $636.5 $ 389.2 $ -- $1,025.7
Earnings Before Taxes............................ (27.8) (36.4) (82.9) (147.1)
Total Assets..................................... 612.5 126.1 211.3 949.9
Capital Expenditures............................. 25.8 8.0 0.6 34.4
Depreciation and Amortization.................... 36.0 6.3 7.8 50.1
FISCAL YEAR ENDED SEPTEMBER 30, 1997
Revenues......................................... $560.4 $ 419.1 $ -- $ 979.5
Earnings Before Taxes............................ 19.1 (57.2) (38.2) (76.3)
Total Assets..................................... 607.2 151.2 291.8 1,050.2
Capital Expenditures............................. 33.2 2.6 0.5 36.3
Depreciation and Amortization.................... 42.6 9.2 5.2 57.0
FISCAL YEAR ENDED SEPTEMBER 30, 1996
Revenues......................................... $628.5 $ 493.0 $ -- $1,121.5
Earnings Before Taxes............................ 9.8 (5.3) (14.9) (10.4)
Total Assets..................................... 592.1 161.7 119.9 873.7
Capital Expenditures............................. 45.6 5.3 1.8 52.7
Depreciation and Amortization.................... 44.1 7.1 3.5 54.7
</TABLE>
64
<PAGE> 65
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information by geographic area was as follows (1997 and 1996 were
Pre-Merger Company):
<TABLE>
<CAPTION>
THREE MONTHS FISCAL YEARS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------------
1998 1998 1997 1996
------------ -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales
United States................................. $152.0 $ 769.7 $ 721.0 $ 813.3
Asia.......................................... 2.3 11.5 20.3 24.8
Australia..................................... 10.1 38.3 45.4 48.8
Canada........................................ 8.5 56.7 44.4 61.7
Europe........................................ 15.6 91.9 90.9 114.8
Latin America (including Brazil and Mexico)... 10.9 57.6 57.5 58.1
------ -------- -------- --------
Total...................................... $199.4 $1,025.7 $ 979.5 $1,121.5
====== ======== ======== ========
Total Long-lived assets
United States................................. $378.5 $ 379.0 $ 407.5 $ 234.5
Asia.......................................... 6.1 4.5 3.3 4.4
Australia..................................... 2.1 2.1 2.7 2.8
Canada........................................ 2.9 3.1 3.1 7.2
Europe........................................ 1.2 1.1 1.4 4.9
Latin America (including Brazil and Mexico)... 2.7 2.6 3.4 3.4
------ -------- -------- --------
Total...................................... $393.5 $ 392.4 $ 421.4 $ 257.2
====== ======== ======== ========
</TABLE>
65
<PAGE> 66
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. QUARTERLY INFORMATION -- (UNAUDITED)
A summary of pertinent quarterly data for the quarter ended December 31,
1998 and fiscal years 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
DECEMBER 31, 1998
-------------------------
DOLLARS IN MILLIONS,
EXCEPT AMOUNTS PER SHARE)
<S> <C>
Quarter Ended December 31, 1998
Net sales........................................ $199.4
Gross earnings................................... 18.7
Net loss......................................... (47.1)
Net loss per share:
Basic............................................ $(2.31)
------
Diluted.......................................... $(2.31)
------
</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 1998
Net sales.................................... $ 209.5 $ 262.2 $ 282.4 $ 271.6
Gross earnings............................... 37.8 59.3 67.6 67.4
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............................... 27.9 40.8 49.0 39.8
Net loss..................................... (14.3) (7.3) (5.1) (52.4)
Net 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.
66
<PAGE> 67
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 that limit the Company's repurchase obligation to
approximately $32 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 $5.6 million, $5.2 million, $4.0 million, $3.4
million, $2.6 million and $4.6 million for the years ending December 31, 1999
through 2003 and after 2003, respectively.
The Company is engaged in a substantial number of legal proceedings arising
in the ordinary course of business. While the result of these proceedings, as
well as those discussed below, cannot be predicted with any certainty, based
upon the information presently available, management is of the opinion that the
final outcome of all such proceedings should not have a material effect upon the
Company's Consolidated Financial Position or the Consolidated Earnings of the
Company.
Under the requirements of Superfund and certain other laws, the Company is
potentially liable for the cost of clean-up at various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. The Company has been notified that it is named a potentially
responsible party ("PRP") at various sites for study and clean-up costs. In some
cases there are several named PRPs and in others there are hundreds. The Company
generally participates in the investigation or clean-up of these sites through
cost sharing agreements with terms which vary from site to site. Costs are
typically allocated based upon the volume and nature of the materials sent to
the site. However, under Superfund, and certain other laws, as a PRP the Company
can be held jointly and severally liable for all environmental costs associated
with a site.
Once the Company becomes aware of its potential liability at a particular
site, it uses its experience to determine if it is probable that a liability has
been incurred and whether or not the amount of the loss can be reasonably
estimated. Once the Company has sufficient information necessary to support a
reasonable estimate or range of loss for a particular site, an amount is added
to the Company's aggregate environmental contingent liability accrual. The
amount added to the accrual for the particular site is determined by analyzing
the site as a whole and reviewing the probable outcome for the remediation of
the site. This is not necessarily the minimum or maximum liability at the site
but, based upon the Company's experience, most accurately reflects the Company's
liability based on the information currently available. The Company takes into
account the number of other participants involved in the site, their experience
in the remediation of sites and the Company's knowledge of their ability to pay.
In October 1996, the AICPA issued Statement of Position 96-1 (SOP 96-1),
"Environmental Remediation Liabilities", which provides authoritative guidance
on the recognition, measurement, display and disclosure of environmental
remediation liabilities. The Company has elected early adoption of SOP 96-1 in
the quarter ended September 30, 1997. The change in accounting estimate required
the Company to accrue for future normal operating and maintenance costs for site
monitoring and compliance requirements at particular sites. The initial expense
for implementation of SOP 96-1 was $7.0 million, charged to selling, general and
administrative expense in the quarter ended September 30, 1997.
As a general rule, the Company accrues remediation costs for continuing
operations on an undiscounted basis and accrues for normal operating and
maintenance costs for site monitoring and compliance requirements. The Company
also accrues for environmental close-down costs associated with discontinued
operations or facilities, including the environmental costs of operation and
maintenance until disposition. At Decem-
67
<PAGE> 68
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ber 31, 1998 the Company has accrued approximately $25 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
feasibility 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 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 owner 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.
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. This upgrade kit included certain performance enhancements to the
FICHT engines, including, among other things, improvements to the mapping
contained in the software of the engine-management module. The Company
established a reserve for the correction of the identified problems in fiscal
year 1998, which resulted in an approximately $7.0 million increase in the
Company's warranty reserve for fiscal year 1998. In January 1999, the Company
completed its analysis and determined that certain technological improvements
were needed to improve the overall performance of the FICHT engines. As part of
this strategy, an upgrade kit for previously sold models, which will contain
additional performance enhancements to the FICHT engines, will be provided to
dealers in April 1999. The Company expects the cost of the April 1999 upgrade
kits to be approximately $4.3 million and has recorded an expense and a
corresponding reserve for such costs in its financial statements as of December
31, 1998. The Company believes that the April 1999 upgrade kits will
significantly improve the overall performance of its FICHT engines and reduce
the Company's overall warranty expense experienced on such engines. In addition,
the Company will implement engine modifications and changes in production for
the affected FICHT models. These engine modifications and production charges
will be implemented during a planned two-week suspension of the Company's
operations at its engine-manufacturing facilities in March 1999. Also, a limited
warranty extension, from two to three years, will be provided on all FICHT
engines purchased by customers between January 1, 1999 and March 31, 1999 that
had been sold by the Company to its dealers as of December 31, 1998, which is
intended to demonstrate the Company's confidence in the improved FICHT engines.
The Company expects this warranty-extension program to cost approximately $1.3
million and, accordingly, has recorded an expense and a corresponding reserve
for such costs in its December 31, 1998 financial statements. The Company also
expects that actions to be taken to address the FICHT performance issues will
result in additional charges and expenses in 1999, primarily in the quarter
ending March 31, 1999 due to higher levels of unabsorbed overhead costs, and a
reduced level of engine sales in the March 31, 1999 quarter as compared to the
same quarter in 1998, as production facilities are modified for the changes in
the FICHT engine production processes.
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
68
<PAGE> 69
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 and 16.2% for the three months ended December
31, 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.
69
<PAGE> 70
OUTBOARD MARINE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Pro Forma Statements include adjustments, with respect to the merger,
to reflect additional interest expense and depreciation expense, amortization of
goodwill, and elimination of non-recurring fees and expenses incurred by the
Pre-Merger Company in 1997 in connection with the merger.
<TABLE>
<CAPTION>
FOR THE FISCAL 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>
70
<PAGE> 71
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS -- BALANCE
BEGINNING COSTS AND COSTS AT END
DESCRIPTION OF PERIOD EXPENSES INCURRED OF PERIOD
- ----------- ---------- ---------- ------------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Restructuring reserves
December 1998................................ $ 31.0 $ -- $ 0.3 $ 30.7
====== ====== ====== ======
September 1998............................... $ 6.0 $ 26.4 $ (1.4) $ 31.0
====== ====== ====== ======
1997......................................... $ 18.5 $ -- $ 12.5 $ 6.0
====== ====== ====== ======
1996......................................... $ 11.4 $ 25.6 $(18.5) $ 18.5
====== ====== ====== ======
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No disclosure is required pursuant to this item.
71
<PAGE> 72
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information regarding each director and
executive officer of the Company as of March 1, 1999:
<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.................................... 46 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
Johan Arzbach................................ 53 Vice President of OMC and President of
International Operations
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............................. 44 Vice President, General Counsel and Secretary
Eric T. Martinez............................. 35 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. 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.
72
<PAGE> 73
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 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.
JOHAN ARZBACH has been Vice President of OMC and President of OMC's
International Operations since January 5, 1999. Prior to joining the company,
Mr. Arzbach spent twenty-three years at Ingersoll Rand in positions of
increasing responsibility, where he most recently served as Vice President and
General Manager of the Asia-Pacific operations of Ingersoll Rand's air
compressor group.
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 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.
ERIC T. MARTINEZ has been Vice President and Treasurer since March 1, 1999.
Prior to that, Mr. Martinez was the Assistant Treasurer for Favorite Brands
International Inc. since July 1998. From 1997 to June 1998, Mr. Martinez served
as Assistant Treasurer of Corporate Finance and Global Capital Markets for IMC
Global Inc. Prior to that, from 1996 to 1997, Mr. Martinez was the mergers and
acquisitions finance leader for GE Plastics, a division of General Electric
Company. From 1991 to 1996, he was financial evaluations and analysis supervisor
for Amoco Corporation.
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.
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.
73
<PAGE> 74
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.............................. 45 Division Vice President, Finance, Boats
Rand E. McNally........................... 46 Senior Vice President, North American
Marketing, Sales and Service
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 Division Vice President, Product Design
and Engineering, Boat Group
Russell J. VanRens........................ 50 Vice President, Quality
Chris R. Wainscott........................ 43 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............................ 54 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 division. 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.
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).
74
<PAGE> 75
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 Division 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.
RAND E. MCNALLY is Senior Vice President, North American Marketing, Sales
and Service. Mr. McNally joined the Company in January 1999, and prior thereto
spent eleven years at Aqua-Chem Corporation, in positions of increasing
responsibility, where he most recently served as Executive Vice President and
General Manager of the Cleaver-Brooks Division. Prior to that, Mr. McNally
served as General Manager of Giles and Ransome in Philadelphia, PA.
WILLIAM J. MILLER is Vice President, Manufacturing and is responsible for
North American Engine 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 Division 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.
RUSSELL 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 boat 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 boat 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
75
<PAGE> 76
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 "Item 12 -- Security Ownership of Certain Beneficial Owners and
Management" (including Footnote 1 thereto).
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. 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.
ITEM 11. EXECUTIVE COMPENSATION
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, stock units 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 December 31, 1998, the
Company had granted and outstanding stock options relating to 1,061,245 shares
of common stock. Of these options, 112,800 vested at the time of grant. The
other 948,445 options have vested or will vest as follows: 154,445 as of
December 31, 1998; 286,708 in the Company's fiscal year ending December 31,
1999; 259,073 in the Company's fiscal year ending December 31, 2000; and 248,219
thereafter. All of these stock options expire ten years after the date of grant
and are exercisable at $18.00 per share except for 105,000 stock options granted
to certain participants that are exercisable at $22.00 per share.
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<PAGE> 77
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation paid or to be paid to those persons who were, at December
31, 1998, (i) the Chief Executive Officer or served in such capacity during
calendar 1998, (ii) the other four most highly compensated Executive Officers of
the Company, who were serving in such capacity as of December 31, 1998 and (iii)
individuals who would have been one of the four most highly paid Executive
Officers but for the fact that they were not serving as an Executive Officer on
December 31, 1998 (collectively the "Named Executives") for services rendered in
all capacities to the Company for the 1998 calendar year ("1998C") and the 1998,
1997 and 1996 fiscal years.
For a discussion of compensation payable to each of Messrs. Jones, Hines
and Gowens, see "Item 10 -- Directors and Executive Officers of
Registrant -- Employment Contracts and Severance Agreements".
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION ---------------------------------------------------
---------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARDS OPTIONS/ SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($) ($)(3) ($)(4) ($)(5)
- --------------------------- ----- ------- ------- ------------ ---------- ------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D.D. Jones, Jr.(6)............... 1998C 597,309 900,000 63,358 -- 346,140 -- 649,019
President and Chief 1998 556,925 900,000 114,736 -- 407,245 -- 2,578,014
Executive Officer 1997 7,692 -- -- -- -- -- --
1996 -- -- -- -- -- -- --
A.P. Hines(7).................... 1998C 375,000 468,745 119,215 -- 180,000 -- --
Executive Vice 1998 349,708 468,745 -- -- 180,000 -- --
President and Chief 1997 -- -- -- -- -- -- --
Financial Officer 1996 -- -- -- -- -- -- --
J. P. Tomczak(8)................. 1998C 119,231 11,500 -- -- 11,000 -- 40,577
Vice President and 1998 65,385 -- -- -- 11,000 -- 40,000
Controller 1997 -- -- -- -- -- -- --
1996 -- -- -- -- -- -- --
R.S. Romano...................... 1998C 197,307 19,000 -- -- 8,000 2,928 2,230
Vice President, General 1998 190,000 19,000 -- -- 8,000 19,353 1,974
Counsel and Secretary 1997 143,917 11,488 -- -- -- -- 4,320
1996 126,250 55,783 -- -- -- -- 1,610
K.K. Bors........................ 1998C 145,385 14,000 -- -- 7,000 5,855 1,662
Vice President, Human 1998 137,308 14,000 -- -- 7,000 5,855 1,373
Resources 1997 103,231 6,738 -- -- -- -- --
1996 87,087 23,958 -- -- -- -- 5,212
P.R. Rabe(9)..................... 1998C 201,000 24,000 -- -- 10,000 3,800 1,948
Vice President, North 1998 270,270 24,000 -- -- 10,000 3,800 1,948
American Sales and Marketing 1997 193,977 25,000 -- -- -- -- --
1996 20,455 -- -- -- -- -- 30,000
</TABLE>
- ---------------
(1) Calendar and fiscal 1998 bonuses for Mr. Jones include $225,000 and 37,500
shares of Stock Units under PROP valued at $18.00 per share. Calendar and
fiscal 1998 bonuses for Mr. Hines include $117,187 and 19,531 shares of
Stock Units under PROP valued at $18.00 per share. All fiscal 1998, 1997 and
1996 and calendar 1998 bonuses to Messrs. Tomczak, Romano and Rabe and Ms.
Bors were paid in cash.
(2) For calendar year 1998, other annual compensation for Mr. Jones, includes
$13,810 for moving expense, $5,818 for financial services, $10,940 for
company car, $5,466 as payment for interest on a loan from the Company, and
$27,324 for tax gross-up; and for Mr. Hines, includes $58,258 for moving
expense, $9,587 for company car and $51,370 for tax gross-up. For fiscal
year 1998, other annual compensation for Mr. Jones includes $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 "Item
13 -- Certain Relationships and Related Transactions"). Each of Messrs
Hines, Romano and Rabe in fiscal 1998, and Messrs. Romano and Rabe in
calendar 1998, received a de minimis amount of perquisites and other
personal benefits, the value of which did not exceed either $50,000 or 10%
of the total amount of annual salary and bonus received by each during
fiscal or calendar 1998, as applicable.
(3) See Option Grants in Fiscal Year 1998 below.
(4) For Ms. Bors and Mr. Rabe, the amounts consist entirely of cash payouts for
restricted stock of the pre-merger Company following the change of control.
For Mr. Romano, the amount in fiscal year 1998 consists of $9,000 payment
for options, $7,425 payment for
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performance units and $2,928 payment of restricted stock of the pre-merger
Company following the change of control, with only the $2,928 payment made
in calendar year 1998.
(5) For calendar year 1998, all other compensation for Mr. Jones includes
$643,470 as a cash sign-on bonus, $1,415 as a Company contribution under the
Company's 401(k) retirement plan and $4,134 for life insurance premiums. For
fiscal year 1998, for Mr. Jones, (i) $2,573,880 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, which amount included $643,470, paid to Mr. Jones as a cash sign-on
bonus, and (ii) $4,134 for life insurance premiums. For Mr. Tomczak, the
amounts in calendar 1998 and fiscal year 1998 include a $40,000 cash sign-on
bonus and a $577 Company contribution under the Company's 401(k) retirement
plan in calendar 1998. For Mr. Romano, all other compensation includes a
life insurance premium of $68 in calendar year 1998 and contributions by the
Company under the Company's 401(k) retirement plan of $2,162 in calendar
year 1998, and of $1,974, $4,320, and $1,610 in fiscal years 1998, 1997 and
1996, respectively. For Ms. Bors, all other compensation includes a life
insurance premium of $68 in calendar year 1998, a $5,000 cash sign-on bonus
in fiscal year 1996, and Company contributions under the Company's 401(k)
retirement plan of $1,594 for calendar 1998 and of $1,373 and $212 in fiscal
years 1998 and 1996, respectively. For Mr. Rabe, $1,948 in fiscal and
calendar 1998 was a Company contribution under the Company's 401(k)
retirement plan and $30,000 in fiscal year 1996 was a cash sign-on bonus.
(6) Mr. Jones was hired by the Company on September 25, 1997 and, therefore,
information prior to that date does not exist.
(7) Mr. Hines was hired by the Company on October 6, 1997 and, therefore,
information prior to that date does not exist.
(8) Mr. Tomczak was hired by the Company on June 1, 1998 and, therefore,
information prior to that date does not exist.
(9) Effective October 1, 1998, Mr. Rabe was no longer employed by the Company.
OPTION GRANTS IN FISCAL YEAR 1998
The following table provides information on the grants of options to
purchase common stock of the Company given to the Named Executives in fiscal
year 1998. No options to purchase common stock of the Company were granted to
the Named Executives in the three-month period ended December 31, 1998.
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO POTENTIAL
UNDERLYING ALL EXERCISE REALIZABLE
OPTIONS/SARS EMPLOYEES PRICE VALUE ($)(4)
GRANTED IN FISCAL PER SHARE EXPIRATION ---------------------
NAME GRANT DATE (#)(1) 1998(2) $(3) DATE 5% 10%
- ---- ---------- ------------ ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
D.D. Jones, Jr.................... 3/10/98 238,895 22% $18.00 3/10/08 2,704,316 6,853,268
3/10/98 107,245 10% $18.00 3/10/08 1,214,024 3,076,576
12/30/97 61,105 6% $18.00 12/30/07 691,715 1,752,941
A.P. Hines........................ 10/6/97 180,000 16% $18.00 10/06/07 2,037,616 5,163,726
R.S. Romano....................... 7/22/98 8,000 * $18.00 7/22/08 90,561 229,499
J.P. Tomczak...................... 7/22/98 11,000 1% $18.00 7/22/08 124,521 315,561
K.K. Bors......................... 7/22/98 7,000 * $18.00 7/22/08 79,241 200,812
P.R. Rabe......................... 7/22/98 10,000 * $18.00 9/30/98 0 0
</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
the 107,245 options vested upon grant, the 238,895 options vest over a
three-year period (88,890 on 9/25/98, 94,445 on 9/25/99 and 55,560 on
9/25/00) and the 61,105 incentive stock options granted in accordance with
Section 422 of the Internal Revenue Code of 1986, as amended, vest in
increments of 5,500 beginning on the date of grant and every January 1
thereafter.
(2) In fiscal year 1998 and calendar year 1998, 156 and 160 employees
respectively, received stock options. An "*" denotes less than 1%.
(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 for the Company's then outstanding
common stock in connection with the Greenmarine Acquisition 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 (ten 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.
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OPTION EXERCISES IN THE 1998 CALENDAR YEAR AND CALENDAR YEAR END OPTION VALUES
No options were exercised by the Named Executives during calendar and
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 $18.00, which is the per
share consideration paid by Greenmarine Acquisition Corp. for the Company's
stock in September, 1997 in connection with the Greenmarine Acquisition.
Accordingly, the table indicates that the options had no value at the end of
calendar year 1998 because the exercise price was equal to such fair market
value.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES CALENDAR 1998 CALENDAR 1998
ACQUIRED VALUE YEAR END(#) YEAR END($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ---- ----------- -------- -------------------- --------------------
<S> <C> <C> <C> <C>
D.D. Jones, Jr....................... 0 0 207,245/200,000 0
A.P. Hines........................... 0 0 60,000/120,000 0
J.P. Tomczak......................... 0 0 0/11,000 0
R.S. Romano.......................... 0 0 0/8,000 0
K.K. Bors............................ 0 0 0/7,000 0
P.R. Rabe............................ 0 0 0/10,000 0
</TABLE>
LONG-TERM INCENTIVE PLAN AWARDS IN CALENDAR YEAR 1998
There were no amounts paid in calendar year 1998 to any employee, including
the Named Executives in the form of an LTIP under PROP.
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> <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
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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, Tomczak, Romano, Rabe and
Ms. Bors had 1.33, 1.25, 0.58, 1.25, 1.25 and 1.25, respectively, credited years
of officer service and 0.0, 0.0, 0.0, 17.91, 1.17 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, Tomczak, Romano, Rabe 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 $18,699, $11,156,
$3,146, $65,593, $8,678 and $8,486, 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.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive any compensation for services
provided to the Company as a Director, including participation on any
committees. Directors may be entitled to reimbursement for travel expenses
associates with Board activities.
EMPLOYMENT CONTRACTS AND SEVERANCE AGREEMENTS
DAVID D. JONES, JR. The Company and David D. Jones, Jr. have entered into
an employment agreement, dated as of March 10, 1998 and effective as of
September 25, 1997 (the "Jones Employment Agreement"). Pursuant to the Jones
Employment Agreement, Mr. Jones will serve as President and Chief Executive
Officer of the Company and as a member of the Board of Directors of the Company.
The term of Mr. Jones's employment under the Jones Employment Agreement expires
on September 30, 2000, or, if OMC changes its fiscal year to a calendar year, on
December 31, 2000 (in either case, the "Jones Initial Term"), which term shall
automatically renew for an additional two years on the initial expiration date
and each expiration date thereafter until the end of the fiscal year during
which Mr. Jones attains age 65, unless Mr. Jones's employment is otherwise
terminated pursuant to the terms of the Jones Employment Agreement. In exchange
for his services, Mr. Jones will receive (1) a base salary of $500,000 per annum
for the first six months of his employment and $600,000 per annum for the
remainder of the term of Mr. Jones's employment subject to increases at the
discretion of the Board of Directors, (2) an annual bonus of up to 200% of base
salary contingent on OMC 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
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<PAGE> 81
(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, (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 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
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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 "Item 13 -- 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
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
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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 "Item 13 -- 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,
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 the Gowens 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
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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 Gowens Employment 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 "Item 13 -- Certain Relationships and Related Transactions."
CERTAIN SEVERANCE ARRANGEMENTS. Company has severance agreements with
George L. Broughton, Raymond M. Cartade, John D. Flaig, Grainger B. McFarlane,
James P. Murphy, Robert S. 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.
84
<PAGE> 85
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 calendar year 1998. Mr.
Kingsley served as the Company's Chairman of the Board during calendar year
1998. Messrs. Duberstein and Katz served as Vice Chairmen of the Board in
calendar year 1998. Mr. Hiram did not serve as an officer or employee of the
Company or any of its subsidiaries during calendar 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
"Item 12 -- Security Ownership".
85
<PAGE> 86
ITEM 12. SECURITY OWNERSHIP
The following table sets forth information with respect to the beneficial
ownership of common stock of the Company as of March 1, 1999 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 20,692,800 100.0%
persons)(8)...............................................
</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 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
86
<PAGE> 87
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 "Item
10 -- Directors and Executive Officers of the Registrant."
(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 "Item
10 -- Directors and Executive Officers of the Registrant."
(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 Form 10-K. See "Item
10 -- Directors and Executive and Registrant -- 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 Form
10-K. See "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.
87
<PAGE> 88
ITEM 13. 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 "Item 10 -- Directors and
Executives Officers of the Registrant -- 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 December 31, 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' 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 6.5% 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' new residence is sold for
an amount less than its original cost, plus improvements. In the event Mr.
Jones' 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' 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 December 31, 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 bear 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.
In fiscal 1998, OMC loaned Paul R. Rabe $83,500 to assist him in the
purchase of a new permanent residence. The loan was interest free. Mr. Rabe
repaid the loan in full upon the termination of his employment with the Company
on October 1, 1998.
88
<PAGE> 89
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Transition Report on Form 10-K:
1. Report of Independent Public Accountants
2. Financial statement schedules required to be filed by Item 8 of
this Transition Report on Form 10-K:
All schedules are omitted as the information is not required, is
inapplicable or is included in the Consolidated Financial Statements or
Notes thereto.
Individual financial statements for the Company's subsidiaries and
partnerships have been omitted because consolidated statements have been
prepared for all of the Company's wholly-owned subsidiaries and limited
partnerships.
3. An exhibit index is set forth below:
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <C> <S>
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"))*
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) (filed as Exhibit 3.2(a)(1) to the Company's
Registration Statement on Form S-4 (Registration No.
333-57949) (the "Form S-4"))*
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 (filed as Exhibit 4.1 to the Form
S-4)*
4.2 -- Form of Old Note (included in Exhibit 4.1) (filed as Exhibit
4.1 to the Form S-4)*
4.3 -- Form of Exchange Note (filed as Exhibit 4.2 to the Form
S-4)*
4.4 -- Form of Subsidiary Guarantee of the Old Notes and the
Exchange Notes (included in Exhibit 4.1) (filed as Exhibit
4.1 to the Form S-4)*
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. (filed as Exhibit 4.5 to the Form S-4)*
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 administrator agent, and State Street
Bank And Trust Company, as depositary agent (filed as
Exhibit 4.6 to the Form S-4)*
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*
10.1 -- With respect to Severance Agreement between the Company and
certain elected and appointed officers and certain other
executives of the Company, reference is made to Exhibit 99.3
and 99.4 of the Company's Schedule 14D-9 filed with the
Securities and Exchange Commission on July 15, 1997*
</TABLE>
<PAGE> 90
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <C> <S>
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 (filed as Exhibit 10.5 to the Form S-4)*
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 -- Employment Agreement of Robert Gowens dated October 1, 1998
(filed as Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1998 (the
"1998 10-K"))*
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 1998 10-K)*
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 1998 10-K)*
10.11 -- Fourth Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated effective as of February 1, 1999
10.12 -- Fifth Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated effective as of February 25, 1999
10.13 -- Lease Agreement dated December 18, 1998 from the Company, as
landlord, to Andrew Hines, as tenant
10.14 -- Mortgage Note dated December 18, 1998 between the Company,
as Borrower, and Andrew Hines, as Lender
10.15 -- Mortgage dated December 18, 1998 between the Company, as
Borrower, and Andrew Hines, as Lender
10.16 -- Promissory Note dated December 4, 1998 with Robert Gowens,
Jr. and Donna Gowens, as Maker, and the Company, as Payee
10.17 -- Second Mortgage dated December 4, 1998 with Robert Gowens,
Jr. and Donna Gowens, as Mortgagor, and the Company, as
Mortgagee
10.18 -- Nonqualified Stock Option Agreement dated October 1, 1998
between the Company and Robert B. Gowens
10.19 -- Secured Promissory Note dated October 6, 1998 with Andrew
Hines, as Maker, and the Company, as Maker
10.20 -- Pledge and Security Agreement dated October 6, 1997 between
Andrew Hines, as Debtor, and the Company, as the Secured
Party
10.21 -- Nonqualified Stock Option Grant Agreement dated October 6,
1997 between the Company and Andrew Hines
10.22 -- Incentive Stock Option Grant Agreement dated December 30,
1997 between the Company and David Jones
10.23 -- Nonqualified Stock Option Grant Agreement dated March 10,
1998 between the Company and David Jones
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <C> <S>
10.24 -- Nonqualified Stock Option Grant Agreement dated March 10,
1998 between the Company and David Jones
11 -- Computation of per share earnings (loss)
12 -- Statement of Computation of Ratios of Earnings (Loss) to
Fixed Charges
21 -- Subsidiaries of Registrant (filed as Exhibit 21 to the 1997
10-K)*
27 -- Financial Data Schedule
</TABLE>
- ---------------
* Incorporated herein by reference.
(b) During the fourth quarter of the year ended September 30, 1998, the
Company filed one report on Form 8-K on July 31, 1998 announcing, effective
January 1, 1999, the change of its fiscal year to a calendar year. No reports on
Form 8-K were filed during the transition period from October 1, 1998 to
December 31, 1998.
(c) Exhibits are attached hereto.
(d) None.
<PAGE> 92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
OUTBOARD MARINE CORPORATION
/s/ DAVID D. JONES, JR.
By:
--------------------------------------
David D. Jones, Jr.
President, Chief Executive Officer
and Director
Date: March 2, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE
----
<C> <S>
/s/ ALFRED D. KINGSLEY March 2, 1999
- ---------------------------------------------
Alfred D. Kingsley
Chairman of the Board
/s/ GARY K. DUBERSTEIN March 2, 1999
- ---------------------------------------------
Gary K. Duberstein
Vice Chairman and Assistant Secretary
of the Board
/s/ RICHARD KATZ March 2, 1999
- ---------------------------------------------
Richard Katz
Vice Chairman of the Board
/s/ RON HIRAM March 2, 1999
- ---------------------------------------------
Ron Hiram
Director
/s/ FRANK V. SICA March 2, 1999
- ---------------------------------------------
Frank V. Sica
Director
/s/ DAVID D. JONES, JR. March 2, 1999
- ---------------------------------------------
David D. Jones, Jr.
President, Chief Executive Officer
and Director
/s/ ANDREW P. HINES March 2, 1999
- ---------------------------------------------
Andrew P. Hines
Executive Vice President and
Chief Financial Officer, Director
(Principal Financial Officer)
/s/ JOSEPH P. TOMCZAK March 2, 1999
- ---------------------------------------------
Joseph P. Tomczak
Vice President and Controller
(Principal Accounting Officer)
</TABLE>
<PAGE> 93
OUTBOARD MARINE CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <C> <S>
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"))*
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) (filed as Exhibit 3.2(a)(1) to the Company's
Registration Statement on Form S-4 (Registration No.
333-57949) (the "Form S-4"))*
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 (filed as Exhibit 4.1 to the Form
S-4)*
4.2 -- Form of Old Note (included in Exhibit 4.1) (filed as Exhibit
4.1 to the Form S-4)*
4.3 -- Form of Exchange Note (filed as Exhibit 4.2 to the Form
S-4)*
4.4 -- Form of Subsidiary Guarantee of the Old Notes and the
Exchange Notes (included in Exhibit 4.1) (filed as Exhibit
4.1 to the Form S-4)*
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. (filed as Exhibit 4.5 to the Form S-4)*
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 administrator agent, and State Street
Bank And Trust Company, as depositary agent (filed as
Exhibit 4.6 to the Form S-4)*
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*
10.1 -- With respect to Severance Agreement between the Company and
certain elected and appointed officers and certain other
executives of the Company, reference is made to Exhibit 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 (filed as Exhibit 10.5 to the Form S-4)*
</TABLE>
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <C> <S>
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 -- Employment Agreement of Robert Gowens dated October 1, 1998
(filed as Exhibit 10.8 to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1998 (the
"1998 10-K"))*
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 1998 10-K)*
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 1998 10-K)*
10.11 -- Fourth Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated effective as of February 1, 1999
10.12 -- Fifth Amendment to Amended and Restated Loan and Security
Agreement between the Company and NationsBank of Texas, N.A.
dated effective as of February 25, 1999
10.13 -- Lease Agreement dated December 18, 1998 from the Company, as
landlord, to Andrew Hines, as tenant
10.14 -- Mortgage Note dated December 18, 1998 between the Company,
as Borrower, and Andrew Hines, as Lender
10.15 -- Mortgage dated December 18, 1998 between the Company, as
Borrower, and Andrew Hines, as Lender
10.16 -- Promissory Note dated December 4, 1998 with Robert Gowens,
Jr. and Donna Gowens, as Maker, and the Company, as Payee
10.17 -- Second Mortgage dated December 4, 1998 with Robert Gowens,
Jr. and Donna Gowens, as Mortgagor, and the Company, as
Mortgagee
10.18 -- Nonqualified Stock Option Agreement dated October 1, 1998
between the Company and Robert B. Gowens
10.19 -- Secured Promissory Note dated October 6, 1998 with Andrew
Hines, as Maker, and the Company, as Maker
10.20 -- Pledge and Security Agreement dated October 6, 1997 between
Andrew Hines, as Debtor, and the Company, as the Secured
Party
10.21 -- Nonqualified Stock Option Grant Agreement dated October 6,
1997 between the Company and Andrew Hines
10.22 -- Incentive Stock Option Grant Agreement dated December 30,
1997 between the Company and David Jones
10.23 -- Nonqualified Stock Option Grant Agreement dated March 10,
1998 between the Company and David Jones
10.24 -- Nonqualified Stock Option Grant Agreement dated March 10,
1998 between the Company and David Jones
11 -- Computation of per share earnings (loss)
12 -- Statement of Computation of Ratios of Earnings (Loss) to
Fixed Charges
21 -- Subsidiaries of Registrant (filed as Exhibit 21 to the 1997
10-K)*
27 -- Financial Data Schedule
</TABLE>
* Incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.11
NationsBank
NationsBank, N.A.
FOURTH AMENDMENT TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
among
OUTBOARD MARINE CORPORATION,
OMC ALUMINUM BOAT GROUP, INC.,
OMC FISHING BOAT GROUP, INC.,
OMC LATIN AMERICA/CARIBBEAN, INC.,
and
RECREATIONAL BOAT GROUP LIMITED PARTNERSHIP
as Borrowers and Guarantors,
and
OMC RECREATIONAL BOAT GROUP, INC.,
and
(and the other Borrowers and/or Guarantors, if any,
from time to time party hereto),
NATIONSBANK, N.A.,
as Agent and a Lender,
(and the other Lenders, if any, from time to time party hereto),
as Lenders
Dated effective as of February 1, 1999
<PAGE> 2
FOURTH AMENDMENT TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment"), dated effective as of February 1, 1999, is executed and
entered into by and among OUTBOARD MARINE CORPORATION, a Delaware corporation
("OMC"), OMC ALUMINUM BOAT GROUP, INC., a Delaware corporation OMC FISHING BOAT
GROUP, INC., a Delaware corporation, OMC LATIN AMERICA/CARIBBEAN, INC., a
Delaware corporation, RECREATIONAL BOAT GROUP LIMITED PARTNERSHIP, a Delaware
limited partnership, OMC RECREATIONAL BOAT GROUP, INC., a Delaware corporation
(collectively all of the "Loan Parties," as of the effective date hereof, under
the Amended and Restated Loan and Security Agreement referenced under the
Recitals hereinbelow; herein called the "Loan Parties"), each of the lending
institutions signatory hereto (collectively all of the "Lenders," as of the
effective date hereof, under the Amended and Restated Loan and Security
Agreement referenced under the Recitals hereinbelow; herein called the
"Lenders") and NATIONSBANK, N.A., a national banking association and successor
in interest by merger to NationsBank of Texas, N.A., in its capacity as agent
for itself and the other Lenders (in such capacity, together with its successors
and assigns in such capacity, herein called "Agent").
RECITALS:
A. The Loan Parties, the Lenders and Agent are parties to the certain
Amended and Restated Loan and Security Agreement dated effective as of January
6, 1998, as amended by the certain First Amendment to Loan and Security
Agreement dated effective as of 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 (hereinafter called the "Agreement").
Unless otherwise defined in this Amendment, terms defined by the Agreement,
where used in this Amendment, shall have the same meanings as are prescribed by
the Agreement, as amended by this Amendment.
B. The Loan Parties, the Lenders and Agent have agreed to amend the
Agreement as provided hereinbelow.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. Unless otherwise defined in this Amendment,
each capitalized term used in this Amendment, shall have the same meaning given
to such term in the Agreement, as amended by this Amendment.
<PAGE> 3
ARTICLE 2
Amendments
Section 2.1 Amendment to Definition of "Borrowing Base" in Article 1 of
the Agreement. Effective as of February 1, 1999, the definition of "Borrowing
Base" in Article 1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
"Borrowing Base" means, at any time, an amount equal to the lesser of:
(a) the maximum principal amount of the Revolving Credit
Facility, minus the sum of
(i) the Letter of Credit Reserve, plus
(ii) the Reserve, or
(b) an amount equal to the sum of
(i) 85% (or such lesser percentage as Agent may
determine pursuant to Section 2.5) of the
face value of Eligible Receivables that are
determined by Agent in its discretion to be
Qualified L/C Supported Receivables at such
time, plus
(ii) 85% (or such lesser percentage as Agent may
determine pursuant to Section 2.5) of the
face value of Eligible Receivables that are
determined by Agent in its discretion to be
Qualified Guaranteed Receivables at such
time, plus
(iii) 85% (or such lesser percentage as Agent may
determine pursuant to Section 2.5) of the
face value of Eligible Domestic Receivables
(other than Qualified L/C Supported
Receivables or Qualified Guaranteed
Receivables) at such time, plus
(iv) 75% (or such lesser percentage as Agent may
determine pursuant to Section 2.5) of the
Dollar Equivalent face value of Eligible
Foreign Receivables (other than Qualified
L/C Supported Receivables or Qualified
Guaranteed Receivables) at such time,
plus
(v) the lesser of
(A) 60% with respect to Eligible
Domestic Inventory and 50% with
respect to Eligible Foreign
Inventory (or such lesser
percentage as Agent may determine
pursuant to Section 2.5) of the
lesser of cost determined on a FIFO
(or first-in-first-out) accounting
basis or fair market value of such
Eligible Inventory, as applicable,
net of the Loan Parties' reserve
for obsolescence (if any), at
such time, plus, during the
2
<PAGE> 4
period of January 1, 1998 through April 30,
1998, the period of January 1, 1999 through
June 30, 1999, and the period of January 1
through April 30 of any calendar year
thereafter, 35% (or such lesser percentage
as Agent may in its discretion determine
from time to time) of the lesser of cost
determined on a FIFO (or first-in-first-out)
accounting basis or fair market value of
Eligible Work-In-Process Inventory, net of
the Loan Parties' reserve for obsolescence
(if any), at such time or
(B) $75,000,000, minus
(vi) the Letter of Credit Reserve; plus
(vii) provided that the representations of
Borrowers under Section 7.1(z) are and
remain true and correct, during any single
period commencing during any calendar year,
determined as provided hereinbelow (herein
called a "Designated Period"), (i)
$30,000,000 at any time during the period
from the Agreement Date through December 30,
1998, (ii) $20,000,000 at any time during
any portion of a Designated Period that
occurs during the period December 31, 1998
through January 31, 1999 or $30,000,000 at
any time during any portion of such
Designated Period that occurs during the
period February 1, 1999 through December 30,
1999, (ii) $10,000,000 at any time during
the period from December 31, 1999 through
December 30, 2000 and (iv) $0.00 on or at
any time after December 31, 2000; provided,
that any such Designated Period for any
calendar year shall begin on the Business
Day, if any, during such year on which the
aggregate outstanding balance of Loans first
exceeds an amount equal to the aggregate
amount determined under paragraph (b) of
this definition without regard to this
subparagraph (vii), and shall terminate on
the earlier of (a) the expiration of one
hundred eighty (180) days thereafter or (b)
December 31 of such year;
provided that with respect to clause (b) preceding, Agent may deduct any Reserve
prior to application of the relevant percentages used to calculate the Borrowing
Base as set forth herein.
ARTICLE 3
Miscellaneous
Section 3.1 Limited Waiver. Agent and the Lenders hereby waive any
Event of Default resulting solely from noncompliance with Subsection (c)
("Leverage Ratio") of Section 12.1 ("Financial Ratios") of the Agreement for the
period ending December 31, 1998,
3
<PAGE> 5
provided, that such waiver is expressly limited as provided herein and shall not
impair the requirements of such Subsection with respect to any other time or
period.
Section 3.2 Conditions Precedent. The effectiveness of this Amendment
is subject to the satisfaction of each of the following conditions precedent:
(a) Agent shall have received all of the following, each dated
the date of this Amendment (unless otherwise indicated), in form and
substance satisfactory to Agent:
(i) Amendment Documents. This Amendment, the certain
amendment fee letter agreement in connection therewith and any
other instrument, document or certificate required by Agent to
be executed or delivered by any of the Loan Parties, Agent or
the Lenders in connection with this Amendment, in each case
duly executed (the "Amendment Documents");
(ii) Fees and Expenses. Evidence that the costs and
expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by Agent incident to this
Amendment or otherwise required to be paid in accordance with
Section 16.2 of the Agreement, to the extent incurred and
submitted to the Loan Parties, shall have been paid in full;
(iii) Additional Information. Agent shall have
received such additional documents, instruments and
information as Agent may reasonably request to effect the
transactions contemplated hereby; and
(iv) Consents. All consents required by Section 16.9
of the Agreement shall have been obtained (it being understood
that, pursuant to Section 16.9 of the Agreement, consent of
Agent and all Lenders shall be required for effectiveness of
Section 2.1 and consent of Agent and Required Lenders shall be
required for effectiveness of all other provisions of this
Agreement.
(b) The representations and warranties contained herein, in
the Agreement and in all other Loan Documents, as amended hereby, shall
be true and correct as of the date hereof as if made on the date hereof
(except those, if any, which by their terms specifically relate only to
a different date).
(c) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all other agreements,
documents and instruments executed and/or delivered pursuant hereto,
and all legal matters incident thereto, shall be satisfactory to Agent.
(d) After giving effect to Section 3.1, no Default or Event of
Default shall have occurred and be continuing.
Section 3.3 Representations and Warranties. The Loan Parties hereby
represent and warrant to, and agree with, Agent, for benefit of the Lenders,
that, as of the date of and after
4
<PAGE> 6
giving effect to this Amendment, (a) the execution, delivery and performance of
this Amendment and any and all other Amendment Documents executed and/or
delivered in connection herewith have been authorized by all requisite corporate
action on the part of each of the Loan Parties (as applicable) and will not
violate any of such Loan Party's certificate of incorporation or bylaws (or, in
the case of Recreational Boat Group Limited Partnership, its certificate of
limited partnership or its limited partnership agreement), (b) all
representations and warranties set forth in the Agreement and in any other Loan
Document are true and correct as if made again on and as of such date (except
those, if any, which by their terms specifically relate only to a different
date) in the Agreement), (d) no Default or Event of Default has occurred and is
continuing, (e) the Agreement (as amended by this Amendment), and all other Loan
Documents are and remain legal, valid, binding and enforceable obligations in
accordance with the terms thereof, and (f) the certifications delivered to Agent
under clause (i), clause (ii) and clause (iii) of Section 6.1(c) of the
Agreement (in the case of the certification required by such clause (iii), as
subsequently modified pursuant to Section 6.1(b) of the Agreement) remain true,
correct and complete as of the effective date of this Amendment.
Section 3.4 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Agent or any Lender, or any closing, shall
affect the representations and warranties or the right of Agent and the Lenders
to rely upon them.
Section 3.5 Reference to Agreement. Each of the Loan Documents,
including the Agreement, the Amendment Documents and any and all other
agreements, documents or instruments now or hereafter executed and/or delivered
pursuant to the terms hereof or pursuant to the terms of the Agreement as
amended hereby, are hereby amended so that any reference in such Loan Documents
to the Agreement, whether direct or indirect, shall mean a reference to the
Agreement as amended hereby.
Section 3.6 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 3.7 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Credit Parties and the Loan Parties and their
respective successors and assigns, except each of the Loan Parties may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of Agent and the Lenders.
Section 3.8 General. This Amendment, when signed by each signatory as
provided hereinbelow (i) shall be deemed effective prospectively as of the
effective date specified in the preamble of this Amendment, (ii) contains the
entire agreement among the parties and may not be amended or modified except in
writing signed by all parties, (iii) shall be governed and construed according
to the laws of the State of Texas, and (iv) may be executed in any number of
counterparts, each of which shall be valid as an original and all of which shall
be one and the same agreement. A telecopy or other electronic transmission of
any executed counterpart shall be deemed valid as an original.
5
<PAGE> 7
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts, signed on or
about February 11, 1998 but effective as of the date specified in the preamble
hereof.
BORROWERS:
OUTBOARD MARINE CORPORATION
By: /s/ Andrew P. Hines
Name: Andrew P. Hines
Title: Executive Vice President and
Chief Financial Officer
By: /s/ Gordon G. Repp
Name: Gordon G. Repp
Title: Senior Counsel and Assistant
Secretary
OMC ALUMINUM BOAT GROUP, INC.
By: /s/ Gordon G. Repp
Name: Gordon G. Repp
Title: Assistant Secretary and Treasurer
By: /s/ Andrew P. Hines
Name: Andrew P. Hines
Title: Chief Financial Officer
6
<PAGE> 8
OMC FISHING BOAT GROUP, INC.
By: /s/ Gordon G. Repp
Name: Gordon G. Repp
Title: Assistant Secretary and Treasurer
By: /s/ Andrew P. Hines
Name: Andrew P. Hines
Title: Chief Financial Officer
OMC LATIN AMERICA/CARIBBEAN, INC.
By: /s/ Andrew P. Hines
Name: Andrew P. Hines
Title: Chief Financial Officer
By: /s/ Gordon G. Repp
Name: Gordon G. Repp
Title: Assistant Secretary
RECREATIONAL BOAT GROUP
LIMITED PARTNERSHIP
By: OMC Recreational Boat Group, Inc.
General Partner
By: /s/ Gordon G. Repp
Name: Gordon G. Repp
Title: Assistant Secretary and Treasurer
By: /s/ Andrew P. Hines
Name: Andrew P. Hines
Title: Chief Financial Officer
7
<PAGE> 9
GUARANTOR:
OMC RECREATIONAL BOAT GROUP, INC.
By: /s/ Gordon G. Repp
Name: Gordon G. Repp
Title: Assistant Secretary and Treasurer
By: /s/ Andrew P. Hines
Name: Andrew P. Hines
Title: Chief Financial Officer
8
<PAGE> 10
AGENT:
NATIONSBANK, N.A.
successor in interest by merger to
NationsBank of Texas, N.A.
By: /s/ Stacy Wills
Name: Stacy Wills
Title: Vice President
9
<PAGE> 11
LENDERS:
NATIONSBANK, N.A.
successor in interest by merger to
NationsBank of Texas, N.A.
By: /s/ Stacy Wills
Name: Stacy Wills
Title: Vice President
10
<PAGE> 12
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/ Donna H. Evans
Name: Donna H. Evans
Title: Vice President
11
<PAGE> 13
FLEET CAPITAL CORPORATION
By: /s/ Thomas Maiale
Name: Thomas Maiale
Title: Vice President
12
<PAGE> 14
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Pamela Wozniak
Name: Pamela Wozniak
Title: Vice President
13
<PAGE> 15
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Robert Heinz
Name: Robert Heinz
Title: Senior Vice President
14
<PAGE> 16
FLEET CAPITAL CORPORATION f/k/a
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Thomas Maiale
Name: Thomas Maiale
Title: Vice President
15
<PAGE> 1
Exhibit 10.12
FIFTH AMENDMENT TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
among
OUTBOARD MARINE CORPORATION,
OMC ALUMINUM BOAT GROUP, INC.,
OMC FISHING BOAT GROUP, INC.,
OMC LATIN AMERICA/CARIBBEAN, INC.,
and
RECREATIONAL BOAT GROUP LIMITED PARTNERSHIP
as Borrowers and Guarantors,
and
OMC RECREATIONAL BOAT GROUP, INC.,
and
(AND THE OTHER BORROWERS AND/OR GUARANTORS, IF ANY,
FROM TIME TO TIME PARTY HERETO),
NATIONSBANK, N.A.,
as Agent and a Lender,
(AND THE OTHER LENDERS, IF ANY, FROM TIME TO TIME PARTY HERETO),
as Lenders
Dated effective as of February 25, 1999
<PAGE> 2
FIFTH AMENDMENT TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment"), dated effective as of February 25, 1999 (the "Effective
Date"), is executed and entered into by and among OUTBOARD MARINE CORPORATION, a
Delaware corporation ("OMC"), OMC ALUMINUM BOAT GROUP, INC., a Delaware
corporation OMC FISHING BOAT GROUP, INC., a Delaware corporation, OMC LATIN
AMERICA/CARIBBEAN, INC., a Delaware corporation, RECREATIONAL BOAT GROUP LIMITED
PARTNERSHIP, a Delaware limited partnership, OMC RECREATIONAL BOAT GROUP, INC.,
a Delaware corporation (collectively all of the "Loan Parties," as of the
effective date hereof, under the Amended and Restated Loan and Security
Agreement referenced under the Recitals hereinbelow; herein called the "Loan
Parties"), each of the lending institutions signatory hereto (collectively all
of the "Lenders," as of the effective date hereof, under the Amended and
Restated Loan and Security Agreement referenced under the Recitals hereinbelow;
herein called the "Lenders") and NATIONSBANK, N.A., a national banking
association and successor in interest by merger to NationsBank of Texas, N.A.,
in its capacity as agent for itself and the other Lenders (in such capacity,
together with its successors and assigns in such capacity, herein called
"Agent").
RECITALS:
A. The Loan Parties, the Lenders and Agent are parties to the certain
Amended and Restated Loan and Security Agreement dated effective as of January
6, 1998, as amended by the certain First Amendment to Loan and Security
Agreement dated effective as of May 21, 1998, the Second Amendment to Amended
and Restated Loan and Security Agreement dated effective as of August 31, 1998,
the Third Amendment to Amended and Restated Loan and Security Agreement dated
effective as of December 21, 1998 and the Fourth Amendment to Amended and
Restated Loan and Security Agreement dated effective as of February 1, 1999
(hereinafter called the "Agreement"). Unless otherwise defined in this
Amendment, terms defined by the Agreement, where used in this Amendment, shall
have the same meanings as are prescribed by the Agreement, as amended by this
Amendment.
B. The Loan Parties, the Lenders and Agent have agreed to amend the
Agreement as provided hereinbelow.
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Amendments
Section 1.1 Amendment to Definitions in Article 1 of the Agreement.
Effective as of the date hereof, the following definitions in Article 1 of the
Agreement are hereby amended and restated in their entirety to read as follows:
<PAGE> 3
"Applicable Margin" means, for the period through the end of
the fiscal quarter of OMC in which Agent receives OMC's financial
statements dated December 31, 1999, pursuant to Section 11.1(a), two
percent (2%) with respect to Eurodollar Loans and one-half percent
(0.5%) with respect to Base Rate Loans, subject to adjustment from time
to time thereafter to the percentage specified for each Type of Loan,
corresponding to the Leverage Ratio, as set forth below, respectively:
<TABLE>
<CAPTION>
Leverage Ratio Eurodollar Loans Base Rate Loans
-------------- ---------------- ---------------
<S> <C> <C>
Greater than or equal to 3.5 to 1.0 2.00% 0.50%
Less than 3.5 to 1.0 but greater than or 1.75% 0.00%
equal to 2.5 to 1.0
Less than 2.5 to 1.0 1.25% 0.00%
</TABLE>
provided, that notwithstanding the forgoing, with respect to the
amount, if any, of Loans at any time funded and outstanding in excess
of the aggregate amount determined under paragraph (b) of the
definition of "Borrowing Base" without giving effect to subparagraph
(vii) thereof, "Applicable Margin" means two and one half percent
(2.50%) with respect to Eurodollar Loans and one percent (1.00%) with
respect to Base Rate Loans. For the purpose of determining the
Applicable Margin, OMC's Leverage Ratio shall be determined based upon
OMC's Consolidated financial statements for the months of March, June,
September and December delivered to Agent as required by Section 11.1,
and any resulting change, if any, in the Applicable Margin, shall
become effective (i) as to Base Rate Loans, as of the first day of the
calendar month following the month in which such financial statements
are delivered to Agent and (ii) as to Eurodollar Loans, as of the date
(on or after the effective date as referenced in clause (i) preceding)
when any such Eurodollar Loan is made, Continued or Converted, as the
case may be.
"Leverage Ratio" means, as of the last day of any fiscal
quarter of OMC, the ratio of (i) the sum of (A) Indebtedness for Money
Borrowed (excluding Reimbursement Obligations) of OMC and its
Subsidiaries outstanding on such date and (B) twenty percent (20%) of
the notional amount of any Indebtedness of OMC and its Subsidiaries
evidenced by Interest Rate Protection Agreements outstanding on such
date to (ii) EBITDA of OMC and its Subsidiaries for the twelve-month
period ending on such date; provided, however, EBITDA of OMC and its
Subsidiaries shall be calculated (A) as of June 30, 1999, for the
six-month period ending on such date and (B) as of September 30, 1999,
for the nine-month period ending on such date.
Section 1.2 Amendment to Section 12.1. As of the Effective Date Section
12.1 ("Financial Ratios") hereby is amended and restated to read in its entirety
as follows:
2
<PAGE> 4
Section 12.1 Financial Ratios.
(a) Tangible Net Worth. The Loan Parties will not directly or
indirectly permit Tangible Net Worth, on any date set forth below to be
less than the amounts, set forth opposite such date:
<TABLE>
<CAPTION>
PERIOD END DATE REQUIREMENT
--------------- -----------
<S> <C>
June 30, 1999 ($130,000,000)
September 30, 1999 ($120,000,000)
June 30, 2000 An amount equal to Tangible Net
Worth as of September 30, 1999
September 30, 2000 An amount equal to the sum of
(i) Tangible Net Worth as of
September 30, 1999 plus (ii)
18,000,000
June 30, 2001 and the last day of each fiscal An amount equal to Tangible Net
quarter thereafter Worth as of September 30, 2000
</TABLE>
(b) Minimum Interest Coverage. The Loan Parties will not
permit OMC's Consolidated Interest Coverage Ratio, determined in
accordance with GAAP and based on the financial statements delivered
pursuant to Section 11.1, as applicable, measured as of each fiscal
quarter ending on each date specified below, for the twelve month
period ending on such date (or in the case of September 30, 1999, the
nine month period ending on such date) to be less than the ratio set
forth opposite such date:
<TABLE>
<CAPTION>
PERIOD END DATE REQUIREMENT
--------------- -----------
<S> <C>
September 30, 1999 1.60 to 1.0
December 31, 1999 1.00 to 1.0
March 31, 2000 1.30 to 1.0
June 30, 2000 1.30 to 1.0
September 30, 2000 1.30 to 1.0
December 31, 2000 and the last day of each fiscal 1.50 to 1.0
quarter thereafter
</TABLE>
3
<PAGE> 5
(c) Leverage Ratio. The Loan Parties will not permit OMC's
Consolidated Leverage Ratio, determined in accordance with GAAP and
based on the financial statements delivered pursuant to Section 11.1,
as applicable, measured as of the end of each fiscal quarter ending on
each date set forth below, to be greater than the ratio set forth
opposite such date:
<TABLE>
<CAPTION>
PERIOD END DATE REQUIREMENT
--------------- -----------
<S> <C>
June 30, 1999 7.5 to 1.0
September 30, 1999 4.0 to 1.0
December 30, 1999 4.0 to 1.0
March 31, 2000 4.0 to 1.0
June 30, 2000 4.0 to 1.0
September 30, 2000 and the last day of each fiscal 3.5 to 1.0
quarter thereafter
</TABLE>
(d) Minimum EBITDA. The Loan Parties will not permit OMC's
Consolidated EBITDA calculated for the three (3) month period ended as
of March 31, 1999, to be less than zero Dollars ($0.00).
ARTICLE 2
Miscellaneous
Section 2.1 Conditions Precedent. The effectiveness of this Amendment
is subject to the satisfaction of each of the following conditions precedent:
(a) Agent shall have received all of the following, each dated
the date of this Amendment (unless otherwise indicated), in form and
substance satisfactory to Agent:
(i) Amendment Documents. This Amendment, the certain
amendment fee letter agreement in connection therewith and any
other instrument, document or certificate required by Agent to
be executed or delivered by any of the Loan Parties, Agent or
the Lenders in connection with this Amendment, in each case
duly executed (the "Amendment Documents");
4
<PAGE> 6
(ii) Fees and Expenses. Evidence that the costs and
expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by Agent incident to this
Amendment or otherwise required to be paid in accordance with
Section 16.2 of the Agreement, to the extent incurred and
submitted to the Loan Parties, shall have been paid in full;
(iii) Additional Information. Agent shall have
received such additional documents, instruments and
information as Agent may reasonably request to effect the
transactions contemplated hereby; and
(iv) Consents. All consents required by Section 16.9
of the Agreement shall have been obtained.
(b) The representations and warranties contained herein, in
the Agreement and in all other Loan Documents, as amended hereby, shall
be true and correct as of the date hereof as if made on the date hereof
(except those, if any, which by their terms specifically relate only to
a different date).
(c) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all other agreements,
documents and instruments executed and/or delivered pursuant hereto,
and all legal matters incident thereto, shall be satisfactory to Agent.
(d) No Default or Event of Default shall have occurred and be
continuing.
Section 2.2 Representations and Warranties. The Loan Parties hereby
represent and warrant to, and agree with, Agent, for the benefit of the Lenders,
that, as of the date of and after giving effect to this Amendment, (a) the
execution, delivery and performance of this Amendment and any and all other
Amendment Documents executed and/or delivered in connection herewith have been
authorized by all requisite corporate action on the part of each of the Loan
Parties (as applicable) and will not violate any of such Loan Party's
certificate of incorporation or bylaws (or, in the case of Recreational Boat
Group Limited Partnership, its certificate of limited partnership or its limited
partnership agreement), (b) all representations and warranties set forth in the
Agreement and in any other Loan Document are true and correct as if made again
on and as of such date (except those, if any, which by their terms specifically
relate only to a different date) in the Agreement), (d) no Default or Event of
Default has occurred and is continuing, (e) the Agreement (as amended by this
Amendment), and all other Loan Documents are and remain legal, valid, binding
and enforceable obligations in accordance with the terms thereof, and (f) the
certifications delivered to Agent under clause (i), clause (ii) and clause (iii)
of Section 6.1(c) of the Agreement (in the case of the certification required by
such clause (iii), as subsequently modified pursuant to Section 6.2(b) of the
Agreement) remain true, correct and complete as of the effective date of this
Amendment.
Section 2.3 Survival of Representations and Warranties. All
representations and warranties made in this Amendment or any other Loan Document
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Agent or any
5
<PAGE> 7
Lender, or any closing, shall affect the representations and warranties or the
right of Agent and the Lenders to rely upon them.
Section 2.4 Reference to Agreement. Each of the Loan Documents,
including the Agreement, the Amendment Documents and any and all other
agreements, documents or instruments now or hereafter executed and/or delivered
pursuant to the terms hereof or pursuant to the terms of the Agreement as
amended hereby, are hereby amended so that any reference in such Loan Documents
to the Agreement, whether direct or indirect, shall mean a reference to the
Agreement as amended hereby.
Section 2.5 Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
Section 2.6 Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of the Credit Parties and the Loan Parties and their
respective successors and assigns, except each of the Loan Parties may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of Agent and the Lenders.
Section 2.7 General. This Amendment, when signed by each signatory as
provided hereinbelow (i) shall be deemed effective prospectively as of the
effective date specified in the preamble of this Amendment, (ii) contains the
entire agreement among the parties and may not be amended or modified except in
writing signed by all parties, (iii) shall be governed and construed according
to the laws of the State of Texas, and (iv) may be executed in any number of
counterparts, each of which shall be valid as an original and all of which shall
be one and the same agreement. A telecopy or other electronic transmission of
any executed counterpart shall be deemed valid as an original.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO ORAL AGREEMENTS BETWEEN THE PARTIES.
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers in several
counterparts.
BORROWERS:
OUTBOARD MARINE CORPORATION
By: /s/ Andrew P. Hines
-----------------------------------------
Name: Andrew P. Hines
-----------------------------------------
Title: Executive Vice President and Chief Financial
-----------------------------------------
Officer
-----------------------------------------
Authorized Officer
By: /s/ Gordon G. Repp
-----------------------------------------
Name: Gordon G. Repp
-----------------------------------------
Title: Assistant Secretary
-----------------------------------------
Authorized Officer
OMC ALUMINUM BOAT GROUP, INC.
By: /s/ Andrew P. Hines
-----------------------------------------
Name: Andrew P. Hines
-----------------------------------------
Title: Chief Financial Officer
-----------------------------------------
Authorized Officer
By: /s/ Gordon G. Repp
-----------------------------------------
Name: Gordon G. Repp
-----------------------------------------
Title: Assistant Secretary and Treasurer
-----------------------------------------
Authorized Officer
OMC FISHING BOAT GROUP, INC.
By: /s/ Andrew P. Hines
-----------------------------------------
Name: Andrew P. Hines
-----------------------------------------
Title: Chief Financial Officer
-----------------------------------------
Authorized Officer
By: /s/ Gordon G. Repp
-----------------------------------------
Name: Gordon G. Repp
-----------------------------------------
Title: Assistant Secretary and Treasurer
-----------------------------------------
Authorized Officer
7
<PAGE> 9
OMC LATIN AMERICA/CARIBBEAN, INC.
By: /s/ Andrew P. Hines
-----------------------------------------
Name: Andrew P. Hines
-----------------------------------------
Title: Chief Financial Officer
-----------------------------------------
Authorized Officer
By: /s/ Gordon G. Repp
-----------------------------------------
Name: Gordon G. Repp
-----------------------------------------
Title: Assistant Secretary
-----------------------------------------
Authorized Officer
RECREATIONAL BOAT GROUP
LIMITED PARTNERSHIP
By: OMC Recreational Boat Group, Inc.,
General Partner
By: /s/ Andrew P. Hines
--------------------------------
Name: Andrew P. Hines
--------------------------------
Title: Chief Financial Officer
--------------------------------
Authorized Officer
By: /s/ Gordon G. Repp
--------------------------------
Name: Gordon G. Repp
--------------------------------
Title: Assistant Secretary and Treasurer
--------------------------------
Authorized Officer
8
<PAGE> 10
GUARANTOR:
OMC RECREATIONAL BOAT GROUP, INC.
By: /s/ Andrew P. Hines
----------------------------------------
Name: Andrew P. Hines
----------------------------------------
Title: Chief Financial Officer
----------------------------------------
Authorized Officer
By: /s/ Gordon G. Repp
----------------------------------------
Name: Gordon G. Repp
----------------------------------------
Title: Assistant Secretary and Treasurer
----------------------------------------
Authorized Officer
9
<PAGE> 11
AGENT:
NATIONSBANK, N.A.,
successor in
interest by merger
to NationsBank of
Texas, N.A.
By: /s/ Stacy Wills
----------------------------------------
Name: Stacy Wills
----------------------------------------
Title: Vice President
----------------------------------------
Authorized Officer
10
<PAGE> 12
LENDERS:
NATIONSBANK, N.A.
successor in interest by merger to
NationsBank of Texas, N.A.
By: /s/ Stacy Wills
----------------------------------------
Name: Stacy Wills
----------------------------------------
Title: Vice President
----------------------------------------
Authorized Officer
11
<PAGE> 13
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/ David Weislogel
----------------------------------------
Name: David Weislogel
----------------------------------------
Title: Vice President
----------------------------------------
Authorized Officer
12
<PAGE> 14
FLEET CAPITAL CORPORATION
By: /s/ Thomas Maiale
----------------------------------------
Name: Thomas Maiale
----------------------------------------
Title: Vice President
----------------------------------------
Authorized Officer
13
<PAGE> 15
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Lan K. Haverfield
----------------------------------------
Name: Lan K. Haverfield
----------------------------------------
Title: Senior Vice President
----------------------------------------
Authorized Officer
14
<PAGE> 16
TRANSAMERICA BUSINESS CREDIT CORPORATION
By: /s/ Ari Kaplan
----------------------------------------
Name: Ari Kaplan
----------------------------------------
Title: Senior Account Executive
----------------------------------------
Authorized Officer
15
<PAGE> 17
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Thomas Maiale
----------------------------------------
Name: Thomas Maiale
----------------------------------------
Title: Vice President
----------------------------------------
Authorized Officer
16
<PAGE> 1
EXHIBIT 10.13
LEASE AGREEMENT
FROM
OUTBOARD MARINE CORPORATION
LANDLORD
TO
ANDREW P. HINES
TENANT
PREMISES: 20 Saddle Hills Road, Mendham Township, New Jersey 07931
<PAGE> 2
L E A S E
THIS AGREEMENT OF LEASE made this 18th day of December, 1998 between
OUTBOARD MARINE CORPORATION ("Landlord"), and ANDREW P. HINES ("Tenant").
WITNESSETH:
1. Premises Demised. The Landlord leases and demises to the Tenant the
residential property commonly known as 20 Saddle Hill Road, Mendham Township,
New Jersey (hereinafter the "Premises").
2. Term. The term of this Lease shall be month-to-month beginning on the
date above and terminating on March 31, 1998, unless terminated earlier by
Tenant by providing prior written notice to Landlord.
3. Rental. The Tenant covenants and agrees to pay to the Landlord by cash
or check, at the address for notice provided below, or as an offset to an equal
amount due from Landlord to Tenant as and for interest on a demand note of even
date herewith from Landlord to Tenant, the amount of Four Thousand Six Hundred
Fifty-Eight and 33/100 Dollars ($4,658.33) per month, payable on or before the
first of each and every month of the Term.
4. Repairs and Maintenance. During the Term, Tenant agrees, at its sole
cost and expense, to make all repairs caused by its negligence, to keep the
Premises free from debris and litter and to perform all necessary noncapital
maintenance, repairs and replacements to the premises.
5. Alterations. Tenant shall make no changes, alterations, additions or
improvements to the Premises ("Alterations").
6. Subletting and Assignment. (a) Tenant may not assign this Lease or
sublet the whole or any part of the Premises.
(b) Any assignment of this Lease or any sublease of the Premises shall not
relieve Tenant of any of its obligations under this Lease.
<PAGE> 3
7. Damage or Destruction. (a) If, in Tenant's good faith judgment, the
Premises shall be so damaged or destroyed by fire, other casualty, acts of God
or the elements so that they cannot be restored or made tenantable or suitable
for Tenant's use within thirty (30) days from the date of such damage or
destruction ("Substantial Damage") or prior to the termination hereof, either
party may terminate this Lease by written notice given to the other after the
date of such Substantial Damage. Such termination shall be effective as of the
date of the Substantial Damage and the rent and all other charges which are
Tenant's responsibility shall abate from that date and any rent and other
charges paid for any period beyond such date shall be repaid to Tenant.
(b) If this Lease is not terminated as provided in Paragraph (a) of this
Section, then the Tenant shall, at its sole cost and expense, with due diligence
restore and repair the Premises as speedily as practical. During the restoration
and repair period, the rent and other charges which are Tenant's responsibility
shall be abated or reduced from the date of the Substantial Damage depending
upon the period for which and the extent to which the Premises are not
tenantable, accessible or suitable for Tenant's business needs.
8. Eminent Domain. (a) If there is a Substantial Taking of the Premises by
right or threat of eminent domain, this Lease shall terminate and the rent and
all other charges which are Tenant's responsibility shall abate from the date of
Substantial Taking and any rent and other charges paid for any period beyond
such date shall be repaid to Tenant. "Substantial Taking" means the remainder of
the Premises cannot, as substantiated by Tenant, be restored or made tenantable,
accessible or suitable for Tenant's business needs within thirty (30) days from
the date of the taking or prior to the termination of this Lease.
(b) If a portion of the Premises shall be taken by right or threat of
eminent domain but the taking does not constitute a Substantial Taking, this
Lease shall not terminate but Landlord shall, at its sole cost and expense, with
due diligence, restore and repair the Premises as speedily as practical. During
the restoration and repair period, the rent and other charges which are Tenant's
responsibility shall be abated or reduced form the date of the taking depending
upon the period for which and the extent to which the Premises are not
tenantable or suitable for Tenant's business needs.
(c) Tenant shall not be entitled to any part of the payment or award for
any such taking provided, however, that Tenant may file a claim for any taking
of Tenant Property or moving expense.
9. Indemnity. Each party shall, to the extent they have insurance coverage
therefor, defend, indemnify and save harmless the other against all claims,
liabilities, losses, damages,
2
<PAGE> 4
costs and expenses (including reasonable attorneys' fees and other costs of
defense) because of injury, including death, to any person, or damage or loss of
any kind to any property caused by the negligence or misconduct of the
defaulting party, its agents, employees or contractors in connection with
Tenant's use of the Premises and equipment located thereon, or by such party's
failure to perform its obligations under this agreement.
10. Subordination. Landlord is hereby vested with full power and authority
to subordinate Tenant's interest hereunder to the lien of any mortgage or deed
of trust which may now or hereafter be placed on the Building or underlying
leasehold estate and to all renewals, modifications, consolidations and
replacement of such mortgage or deed of trust.
11. Landlord's Right of Entry. Landlord has the right to enter the
Premises at any reasonable time upon prior written notice to Tenant, or without
notice in case of emergency, for the purpose of performing such maintenance,
repairs, replacements and Alterations to the Premises as are required under this
Lease.
12. Taxes and Insurance. (a) Tenant shall pay all real property taxes and
Assessments payable for the period of the Term levied upon the Premises.
(b) Tenant shall carry, throughout the Term, with solvent and responsible
companies, a renters insurance policy, covering the contents of the premises and
liability resulting from the acts or failure to act of Tenant.
13. Waiver of Subrogation. The parties release each other and their
respective authorized representatives from any claims for damage to any person
or to the Building or the Premises that are caused by or result from risks
insured against under any insurance policies carried by either of the parties.
Any liability that either party may have against the other shall be limited to
the amount that exceeds the amount of insurance proceeds received or if a party
is to be indemnified under the terms of this Lease the amount which exceeds the
insurance proceeds received by the indemnified party. Each party to the extent
possible shall obtain, for each policy of insurance, provisions permitting
waiver of any claim against the other party for loss or damage within the scope
of the insurance and each party to the extent permitted for itself and its
insurer, waives all such insured claims against the other party.
14. Access. Tenant shall have full and unimpaired access to the Premises.
15. Default; Rights and Remedies. (a) The occurrence of any one or more of
the following matters constitutes a Default by Tenant under this Lease:
3
<PAGE> 5
(i) failure by Tenant to pay rent within ten (10)days after
receipt of written notice of such failure to pay the same on
the due date;
(ii) failure by Tenant to pay within ten (10) days after receipt of
written notice from Landlord to Tenant, any other moneys
required to be paid by Tenant under the Lease; or
(iii) failure by Tenant to observe or perform any other covenant,
agreement, condition or provision of this Lease, if such
failure shall continue for thirty (30) days after receipt of
written notice from Landlord to Tenant, except that if such
default cannot be cured within such thirty (30) day period,
this period shall be extended, provided that Tenant commences
to cure such default within such thirty (30) day period and
proceeds diligently thereafter to effect such cure.
(b) The occurrence of any one or more of the following matters constitutes
a Default by Landlord under this Lease:
(i) failure by Landlord to pay, within ten (10) days after receipt
of written notice from Tenant to Landlord, any moneys required
to be paid by Landlord under this Lease; or
(ii) failure by Landlord to observe or perform any other covenant,
agreement, condition or provision of this Lease, if such
failure shall continue for thirty (30) days after receipt of
written notice from Tenant to Landlord, except that if such
default cannot be cured within such thirty (30) day period,
this period shall be extended, provided that Landlord
commences to cure such default within such thirty (30) day
period and proceeds diligently thereafter to affect such cure.
(c) The occurrence of any one or more of the matters described in
Paragraph (a) or (b) of this section shall be referred to as a "Default" by
Tenant or Landlord, as the case may be.
(d) If a Default occurs, the Parties shall have the rights and remedies
hereinafter set forth, which shall be distinct, separate and cumulative, and
shall not operate to exclude or deprive them of any other right or remedy
allowed it by law:
(i) Landlord or Tenant may terminate this Lease by giving the
other party not less than ten (10) days written notice of
their election to do so, in which event the Term shall end,
and all right, title and interest of the Parties hereunder
shall expire, on the date stated in such notice;
(ii) Landlord may terminate the right of the Tenant to possession
of the Premises without terminating the Lease by giving not
less than ten (10) days' advance notice to Tenant.
4
<PAGE> 6
(e) Each party shall defend, indemnify and save harmless the other against
all claims, liabilities, losses, damages, costs and expenses (including
reasonable attorneys' fees and other costs of defense) incurred or sustained in
connection with such party's breach of any representations, warranties,
covenants, agreements or guarantees under this Lease.
16. Holding Over. Should Tenant remain in possession of the Premises, or
part thereof, after the expiration of this Lease without the execution of a new
lease by Landlord and Tenant, Tenant shall become a tenant from month-to-month
of the Premises, or part thereof, under all the terms, conditions, provisions
and obligations of this Lease and such month-to-month tenancy may be terminated
by either Landlord or Tenant as of the end of any calendar month upon five (5)
business days prior written notice.
17. Quiet Enjoyment. Landlord covenants that if and for so long as Tenant
pays the rent and performs the covenants and conditions hereof, Tenant shall
peaceably and quietly have, hold and enjoy the Premises for the Term.
18. Real Estate Brokers. The parties acknowledge that no Broker's
commissions are due as a result of this transaction.
19. Attorneys' Fees. In the event either party institutes legal
proceedings against the other for breach of or interpretation of any of the
terms, conditions or covenants of this Lease, the party against whom a judgment
is entered, shall pay all reasonable costs and expenses relative thereto,
including reasonable attorneys' fees of the prevailing party.
20. Estoppel Certificate. Tenant agrees, upon not less than ten (10) days
prior written request by Landlord, to deliver to Landlord a correct and complete
statement in writing signed by Tenant certifying (i) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the Lease as modified is in full force and effect and identifying the
modifications); (ii) the date upon which Tenant began paying rent and the dates
to which the rent and other charges have been paid; (iii) that, to the best of
Tenant's knowledge, the Landlord is not in default under any provision of this
Lease, or, if in default, the nature thereof; and (iv) that there has been no
prepayment of rent other than that provided for in this Lease. Landlord, upon
not less than twenty (20) days prior written request of Tenant, shall furnish a
similar statement in writing to Tenant, covering the matters set forth above, to
the extent applicable to Landlord.
21. Notices. Any notice by either party to the other shall be in writing
and shall be deemed to be duly given only if delivered personally or mailed by
registered or certified mail in a postpaid envelope to the following:
5
<PAGE> 7
If to Landlord: OUTBOARD MARINE CORPORATION
100 Sea Horse Drive
Waukegan, IL 60085
Attn: Vice President and Controller
If to Tenant: ANDREW P. HINES
100 Sea Horse Drive
Waukegan, IL 60085
Notice shall be deemed to have been given, if delivered personally, delivery
thereof, and, if mailed, upon the date postmarked.
22. Entire Agreement. This Lease contains the entire agreement between the
parties, there being no other terms, oral or written, except as herein
expressed. No modification of this Lease shall be binding on the parties unless
it is in writing and signed by both parties hereto.
23. Controlling Law. This agreement shall be construed in accordance with
the laws of the State of New Jersey and jurisdiction shall lie within the
federal, state or county courts located therein.
IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of
the day and year first above written.
ATTEST: OUTBOARD MARINE CORPORATION
/s/ Gordon G. Repp By:/s/ Robert S. Romano
- ------------------------------ ---------------------------------------
Title:Vice President and General Counsel
WITNESS: ANDREW P. HINES
/s/ Gordon G. Repp By:/s/ Andrew P. Hines
- ------------------------------ ---------------------------------------
6
<PAGE> 1
EXHIBIT 10.14
MORTGAGE NOTE
This Mortgage Note is made on December 18, 1998 between the Borrower(s) Outboard
Marine Corporation, whose address is 100 Sea Horse Drive, Waukegan, Illinois
60085 referred to as "I," and the Lender Andrew P. Hines, whose address is 20
Saddle Hill Road, Mendham, New Jersey 07931 referred to as the "Lender."
If more than one Borrower signs this Note, the word "I" shall mean each Borrower
named above. The word "Lender" means the original Lender and anyone else who
takes this Note by transfer.
1. Borrower(s) Promise to Pay Principal and Interest. In return for a loan that
I received, I promise to pay $860,000.00 (called "principal"), plus interest to
the order of the Lender. Interest, at a yearly rate of six and 1/2% will be
charged on that part of the principal which has not been paid from the date of
this Note until all principal has been paid.
2. Payments. I will pay principal and interest based on a on demand year payment
schedule with monthly payments of $ on demand on the day of each month
beginning on on demand I will pay all amounts owed under this Note no later than
on demand. All payments will be made to the Lender at the address shown above or
to a different place if required by the Lender.
3. Early Payments. I have the right to make payments at any time before they are
due. These early payments will mean that this Note will be paid in less time.
However, unless I pay this Note in full, my monthly payments will remain the
same.
4. Late Charge for Overdue Payments. If the Lender has not received any payment
within on demand days after its due date, I will pay the Lender a late charge of
none % of the payment. This charge will be paid with the late payment.
5. Mortgage to Secure Payment. The Lender has been given a Mortgage dated
December 18, 1998, to protect the Lender if the promises made in this Note are
not kept. I agree to keep all promises made in the Mortgage covering property I
own located at 20 Saddle Hill Road in the Township of Mendham in the County of
Morris and the State of New Jersey. All terms of the Mortgage are made part of
this Note.
6. Default. If I fail to make any payment required by this Note within one day
after its due date, or if I fail to keep any other promise I make in this Note
or in the Mortgage, the Lender may declare that I am in default on the Mortgage
and this Note. Upon default, I must immediately pay the full amount of all
unpaid principal, interest, other amounts due on the Mortgage and this Note and
the Lender's costs of collection and attorney fees of twenty (20%) percent of
outstanding balance.
7. Waivers. I give up my right to require that the Lender do the following: (a)
to demand payment (called "presentment"); (b) to notify me of nonpayment (called
"notice of dishonor"); and (c) to obtain an official certified statement showing
nonpayment (called a "protest"). The Lender may exercise any right under this
Note, the Mortgage or under any law, even if Lender has delayed in exercising
that right or has agreed in an earlier instance not to exercise that right.
Lender does not waive its right to declare that I am in default by making
payments or incurring expenses on my behalf. Outboard Marine Corporation and the
signatories hereto represent that any necessary corporate resolution and
approvals for execution of this Demand Promissory Note have been obtained.
8. Each Person Liable. The Lender may enforce any of the provisions of this Note
against any one or more of the Borrowers who sign this Note.
9. No Oral Changes. This Note can only be changed by an agreement in writing
signed by both the Borrower(s) and the Lender.
1
<PAGE> 2
10. Signatures. I agree to the terms of this Note. If the Borrower is a
corporation, its proper corporate officers sign and its corporate seal is
affixed.
OUTBOARD MARINE CORPORATION
/s/ Robert S. Romano (SEAL)
------------------------------------------
Robert S. Romano, Vice President
Witnessed or Attested by:
(SEAL)
-----------------------------------------
/s/ Gordon G. Repp
- -------------------------------------
Gordon G. Repp, Assistant Secretary
2
<PAGE> 1
EXHIBIT 10.15
MORTGAGE
This Mortgage is made on December 18, 1998 between the Borrower(s) Outboard
Marine Corporation, whose address is 100 Sea Horse Drive, Waukegan, Illinois
60085 referred to as "I," and the Lender Andrew P. Hines, whose address is 20
Saddle Hill Road, Mendham, New Jersey 07931 referred to as the "Lender."
If more than one Borrower signs this Mortgage, the word "I" shall mean each
Borrower named above. The word "Lender" means the original Lender and anyone
else who takes this Mortgage by transfer.
1. Mortgage Note. In return for a loan that I received, I promise to pay
$860,000 (called "Principal"), plus interest in accordance with the terms of a
Mortgage Note dated December 18, 1998 (referred to as the "Note"). The Note
provides for monthly payments of $ on demand yearly interest rate of six and
1/2%. All sums owed under the Note are due no later than on demand. All terms of
the Note are made part of this Mortgage.
2. Property Mortgaged. The property mortgaged to the Lender (called the
"Property") is located in the Township of Mendham, County of Morris, and State
of New Jersey. The Property includes (a) the land; (b) all buildings that are
now, or will be, located on the land; (c) all fixtures that are now, or will be,
attached to the land or building(s) (for example, furnaces, bathroom fixtures
and kitchen cabinets); (d) all condemnation awards and insurance proceeds
relating to the land and building(s); and (e) all other rights that I have, or
will have, as owner of the Property. The legal description is:
/X/ Please see attached Legal Description annexed hereto and made a part
of hereof (check box if applicable).
Being commonly known as 20 Saddle Hill Road, Mendham, New Jersey 07931.
Being same premises conveyed to Borrower herein by deed of lender herein
intended to be recorded simultaneously herewith. This Mortgage is a First
Purchase Money Mortgage given to secure a portion of the purchase price.
3. Rights Given to Lender. I mortgage the Property to the Lender. This means
that I give the Lender those rights stated in this Mortgage and also those
rights the law gives to lenders who hold mortgages on real property. When I pay
all amounts due to the Lender under the Note and this Mortgage, the Lender's
rights under this Mortgage will end. The Lender will then cancel this Mortgage
at my expense.
4. Promises. I make the following promises to the Lender:
a. Note and Mortgage. I will comply with all of the terms of the Note
and this Mortgage.
b. Payments. I will make all payments required by the Note and this
Mortgage.
c. Ownership. I warrant title to the premises (N.J.S.A. 46:9-2). This
means I own the Property and will defend my ownership against all
claims.
d. Liens and Taxes. I will pay all liens, taxes, assessments and other
government charges made against the Property when due. I will not
claim any deduction from the taxable value of the Property because
of this Mortgage. I will not claim any credit against the Principal
and interest payable under the Note and this Mortgage for any taxes
paid on the Property.
e. Insurance. I must maintain extended coverage insurance on the
Property. The Lender may also require that I maintain flood
insurance or other types of insurance. The insurance companies,
policies, amounts, and types of coverage must be acceptable to the
Lender. I will notify the Lender in the event of any substantial
loss or damage. The Lender may then settle the claim on my behalf if
I fail to do so. All payments from the insurance company must be
payable to the Lender under a "standard mortgage clause" in the
insurance policy. The Lender may use any proceeds to repair and
restore the
<PAGE> 2
Property or to reduce the amount due under the Note and this
Mortgage. This will not delay the due date for any payment under the
Note and this Mortgage.
f. Repairs. I will keep the Property in good repair, neither damaging
nor abandoning it. I will allow the Lender to inspect the Property
upon reasonable notice to me.
g. Statement of Amount Due. Upon request of the Lender, I will certify
to the Lender in writing: (a) the amount due on the Note and this
Mortgage; and (b) whether or not I have any defense to my
obligations under the Note and this Mortgage.
h. Rent. I will not accept rent from any tenant for more than one month
in advance.
i. Lawful Use. I will use the Property in compliance with all laws,
ordinances and other requirements of any governmental authority.
5. Eminent Domain. All or part of the Property may be taken by a government
entity for public use. If this occurs, I agree that any compensation be given to
the Lender. The Lender may use this to repair and restore the Property or to
reduce the amount owed on the Note and this Mortgage. This will not delay the
due date for any further payment under the Note and this Mortgage. Any remaining
balance will be paid to me.
6. Tax and Insurance Escrow. If the Lender requests, I will make regular monthly
payments to the Lender of: (a) 1/12 of the yearly real estate taxes and
assessments on the Property; and (b) 1/12 of the yearly cost of insurance on the
Property. These payments will be held by the Lender without interest to pay the
taxes, assessments and insurance premiums as they become due.
7. Payments Made for Borrower(s). If I do not make all of the repairs or
payments as agreed in this Mortgage, the Lender may do so for me. The cost of
these repairs and payments will be added to the Principal, will bear interest at
the same rate provided in the Note and will be repaid to the Lender upon demand.
8. Default. The Lender may declare that I am in default on the Note and this
Mortgage if:
a. I fail to make any payment required by the Note and this Mortgage
within on demand days after its due date;
b. I fail to keep any other promise I make in this Mortgage;
c. The ownership of the Property is changed for any reason;
d. The holder of any lien on the Property starts foreclosure
proceedings; or
e. Bankruptcy, insolvency or receivership proceedings are started by or
against any of the Borrower(s).
9. Payments Due Upon Default. If the Lender declares that I am in default, I
must immediately pay the full amount of all unpaid Principal, interest, other
amounts due on the Note and this Mortgage and the Lender=s costs of collection
and reasonable attorney fees.
10. Lender's Rights Upon Default. If the Lender declares that the Note and this
Mortgage are in default, the Lender will have all rights given by law or set
forth in this Mortgage. This includes the right to any one or more of the
following:
a. take possession of and manage the Property, including the collection
of rents and profits;
b. have a court appoint a receiver to accept rent for the Property (I
consent to this);
c. start a court action, known as foreclosure, which will result in a
sale of the Property to reduce my obligations under the Note and
this Mortgage; and
d. Sue me for any money that I owe the Lender.
11. Notices. All notices must be in writing and personally delivered or sent by
certified mail, return receipt requested, to the address given in this Mortgage.
Address changes may be made upon notice to the other party.
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<PAGE> 3
12. No Waiver by Lender. Lender may exercise any right under this Mortgage or
under any law, even if Lender has delayed in exercising that right or has agreed
in an earlier instance not to exercise that right. Lender does not waive its
right to declare that I am in default by making payments or incurring expenses
on my behalf.
13. Each Person Liable. This Mortgage is legally binding upon each Borrower and
all who succeed to their responsibilities (such as heirs and executors). The
Lender may enforce any of the provisions of the Note and this Mortgage against
any one or more of the Borrowers who sign this Mortgage.
14. No Oral Changes. This Mortgage can only be changed by an agreement in
writing signed by both the Borrower(s) and the Lender.
15. Signatures. I agree to the terms of this Mortgage. If the Borrower is a
corporation, its proper corporate officers sign and its corporate seal is
affixed.
OUTBOARD MARINE CORPORATION
/s/ Robert S. Romano (SEAL)
-------------------------------------
Robert S. Romano, Vice President
Witnessed or Attested by:
(SEAL)
-------------------------------------
/s/ Gordon G. Repp
- -------------------------------------
Gordon G. Repp, Assistant Secretary
3
<PAGE> 4
STATE OF NEW JERSEY, COUNTY OF MORRIS SS.:
I certify that on
personally came before me and stated to my satisfaction that this person (or if
more than one, each person): (a) was the maker of the attached instrument; and,
(b) executed this instrument as his or her own act.
---------------------------------------------
(Print name and title below signature)
STATE OF ILLINOIS COUNTY OF LAKE SS.:
I certify that on December 18, 1998
Robert S. Romano
personally came before me and stated to my satisfaction that this person (or if
more than one, each person): (a) was the maker of the attached instrument; and,
(b) executed this instrument as Vice President of Outboard Marine Corporation
the entity named in this instrument; and, (c) executed this instrument as the
act of the entity named in this instrument.
/s/ Kathleen A. Needham
--------------------------------------------
Kathleen A. Needham
A Notary Public of the State of Illinois My
commission expires 3/25/00
(SEAL)
<PAGE> 5
SCHEDULE A
NUMBER 4
(Continued)
DESCRIPTION
All that certain trace lot and parcel of land lying and being in the Township of
Mendham County of Morris and State of New Jersey being more particularly
described as follows:
BEING known as Lot 61 Block 2 as shown on map Entitled "Final Plat-Section 2 of
Hills of Roxiticus, Township of Mendham, Morris County, New Jersey" made by
Osborne M. Campbell & Associates, Consulting Engineers and Land Surveyors,
Mendham, New Jersey, dated July, 1974, scale 1" 100' which aforesaid Map was
finally revised September 15, 1976 and was filed in the Morris County Clerk's
Office on October 18, 1976 as Map #3511.
BEING also known as Lot 47 in Block 100 on the current Tax Map of the Township
of Mendham, Morris County, New Jersey.
<PAGE> 1
EXHIBIT 10.16
PROMISSORY NOTE
$ 100,000.00 Date: December 4, 1998
FOR VALUE RECEIVED, Robert B. Gowens, Jr. and Donna G. Gowens, husband and
wife,("Maker"), having an address at 55 Trowbridge Circle, Lake Bluff, IL 60044,
promise to pay to the order of Outboard Marine Corporation, a Delaware
Corporation ("Payee") having an address at 100 Sea Horse Drive, Waukegan,
Illinois 60085, without defalcation or offset and without relief from valuation
or appraisement laws, the principal sum of One Hundred Thousand and no/100
($100,000.00) Dollars in lawful money of the United States of America together
with interest thereon at a rate of six and one-half (6.5%) percent per Annum.
Maker shall make payments of interest only of Five Hundred Forty-One and 66/100
($541.66) Dollars each month commencing on December 9, 1998 and continuing on
the first day of each month thereafter until such time as Maker repays the loan
evidenced by this Note as provided for herein. Monthly installments shall be
equal to interest due on the amounts outstanding hereunder at any time. Partial
months shall be prorated based on the actual number of days in that month.
All amounts required to be paid hereunder shall be payable to Outboard
Marine Corporation, 100 Sea Horse Drive, Waukegan 60085, attention Treasurer or
at such other place as Payee from time to time may designate in writing.
Notwithstanding any provision herein or in any instrument now or hereafter
securing this Note, the total liability for payments of interest or in the
nature of interest, shall not exceed the limits now imposed by the applicable
usury law, if any, including the choice of law rules. In the event of the
acceleration of this Note, the total charges for interest and in the nature of
interest shall not exceed the maximum amount allowed by law and any excess
portion of such charges that may have been prepaid shall be refunded to the
Maker hereof. Such refund shall be made by application of the amount involved
against the sums due hereunder, but such crediting shall not cure or waive the
default occasioning acceleration.
Payment of this Note is secured by a Second Mortgage (referred to as the
"Mortgage") of even date herewith, from Maker to Payee, secured upon all of
Maker's right, title and interest in and to, but not by way of limitation, those
certain parcels of land together with buildings and other improvements
constructed and to be constructed on the property described on Exhibit A
attached hereto (herein referred to as the "Mortgaged Property").
<PAGE> 2
All of the agreements, conditions, covenants, provisions and stipulations
contained in the Mortgage and which are to be kept and performed by Maker, are
hereby made a part of this Note to the same extent and with the same force and
effect as if they were fully set forth herein, and Maker covenants and agrees to
keep and perform them, or cause them to be kept and performed, strictly in
accordance with their terms.
This Note is repayable as follows:
(A) If Mr. Gowens leaves the employ of Payee before October 1, 2001, or as
that date may be extended or modified in writing between the parties,
without Good Reason or as a result of a termination For Cause, as those
terms are defined in paragraph 9 of the Employment Agreement entered into
between Payee and Mr. Gowens dated October 1, 1998 (the "Employment
Agreement"), Maker will repay this Note in full 60 days after termination
of his employment.
(B) Should Maker be required by Payee to relocate his residence at any
time prior to October 1, 2001, or as that date may be extended or modified
in writing between the parties, Maker will repay the Note in full out of
the proceeds at the time of closing on the sale of the Mortgaged Property,
PROVIDED that the amount of any Loss on sale, as defined below, will be
deducted from the principal which Maker would otherwise be obligated to
repay. Should Maker be required to relocate his residence at any time
after September 30, 2001, Maker will repay the Note in full out of the
proceeds at the time of closing on the sale of the Mortgaged Property.
(C) If Mr. Gowens dies before October 1, 2001, or as that date may be
extended or modified in writing between the parties, while an employee of
Payee, or leaves Payee before that date with Good Reason or as a result of
a termination without Cause, as those terms are defined in paragraph 9 of
the Employment Agreement, or if he ceases being an employee at or after
the termination of the Employment Agreement, Maker (or his estate) will
repay the Note, less the amount of any Loss, as defined below, within 180
days of his death or the termination of his employment.
(D) Maker shall, at any time, have the right to prepay, without penalty or
premium, all or any portion of the loan evidenced by this Note. Partial
prepayments shall be applied to installments due in the reverse order of
their maturity.
The term "Loss" as used above means, if positive, the amount derived by
subtracting the greater of (i) the gross sale price of the Mortgaged Property
and (ii) the fair market value of the
2
<PAGE> 3
Mortgaged Property, from the amount for which Maker purchased the Mortgaged
Property, plus documented improvements.
If any installment of interest or principal or any other payment is not
paid by Maker within the time periods hereinafter set forth, then there shall
also be immediately due and payable a late charge equal to four percent (4%) of
the amount of the delinquent payment. It is further understood that, subject to
the provisions hereinafter set forth with regard to grace periods of such
default, should there be any default in the payment of any installment of
interest or principal on the date on which it shall fall due, or in the
performance of any of the agreements, conditions, covenants, provisions or
stipulations contained in this Note, or should there be a default under the
Mortgage, then Payee, at its option and after the expiration of the grace
period, if any, hereinafter set forth, may declare immediately due and payable
the entire unpaid balance of principal with interest accrued thereon from the
date of default at the rate of eighteen percent (18%) per annum (the "Default
Rate"); and payment thereof may be enforced and recovered in whole or in part at
any time by one or more of the remedies provided to Payee in this Note or in the
Mortgage. In such case, Payee may also recover all costs of suit and other
expenses in connection therewith, together with reasonable attorney's fees.
Maker hereby waives and releases, to the extent allowed by applicable law,
all benefit that might accrue to Maker by virtue of any present or future laws
exempting the Mortgaged Property, or any other property, real or personal, or
any part of the proceeds arising from any sale of any such property, from
attachment, levy, or sale under execution, or providing for any stay of
execution, exemption from civil process, or extension of time for payment; and
Maker agrees that any real estate that may be levied upon pursuant to a judgment
obtained by virtue hereof, or any writ of execution issued thereon and may be
sold upon any such writ in whole or in part in any order desired by Payee.
Maker and all endorsers, sureties and, guarantors hereby jointly and
severally waive presentment for payment, demand, notice of demand, notice of
nonpayment or dishonor, protest and notice of protest of this Note, and all
other notices in connection with the delivery, acceptance, performance, default,
or enforcement of the payment of this Note, and they agree that the liability of
each of them shall be unconditional, without regard to the liability of any
other party, and shall not be affected in any manner by any indulgence,
extension of time, renewal, waiver or modification granted or consented to by
Payee. Maker and all endorsers, sureties, and guarantors consent to any and all
extensions of time, renewals, waivers, or modifications that may be granted by
Payee with respect to the payment or other provisions of this Note, and to the
release of the collateral or any part thereof, with or without substitution, and
agree that additional makers, endorsers, guarantors, or sureties may become
parties hereto without notice to them or affecting their liability hereunder.
3
<PAGE> 4
Payee shall not be deemed, by any act of omission or commission, to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and signed by Payee, and then only to the extent specifically set forth in
writing. A waiver of one event shall not be construed as continuing or as a bar
to or waiver of any right or remedy to a subsequent event.
Payee will not exercise any right or remedy provided for in this Note or
in the Mortgage because of any default of Maker, unless: (a) the default
consists of the failure to pay money and, Maker shall have failed to pay the sum
or sums due within a period of five (5) days after the due date; or (b) the
default consists of something other than the nonpayment of the money and, Payee
shall have given written notice of the default to Maker and Maker shall have
failed within thirty (30) days after the effective date of such notice to cure
the default except that if the default is such that is not susceptible of being
cured with due diligence within the thirty (30) days and Maker shall have
commenced to cure within such period and diligently and continuously prosecutes
the cure to completion, then the cure period shall be extended for a reasonable
period of time to allow completion of the cure but in no event longer than
ninety (90) days from the date of original notice; provided however, that no
such notice from Payee shall be required nor shall Payee be required to allow
any part of the said grace period: (i) if a petition in bankruptcy or for
reorganization shall have been filed by Maker, or if a Receiver or a Trustee is
appointed for Maker or if Maker makes an assignment for the benefit of
creditors, or if Maker is levied upon and is about to be sold out upon the
Mortgaged Property; or (ii) if a petition in bankruptcy or for reorganization
shall been filed against Maker and shall not be dismissed for thirty (30) days
after such filing.
This instrument shall be governed by and construed according to the laws
of the State of Illinois and the parties hereby consent to jurisdiction for any
action brought hereunder or pursuant hereto in any federal, state or county
court, as applicable.
4
<PAGE> 5
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has duly
executed this Note and has caused it to be duly attested, effective as of the
day and year first above written.
WITNESS: ROBERT B. GOWENS, JR.
/s/ Michael C. Dorf SIGNATURE:/s/ Robert B. Gowens, Jr.
- --------------------------- ---------------------------------
WITNESS DONNA G. GOWENS
/s/ Michael C. Dorf SIGNATURE:/s/ Donna G. Gowens
- --------------------------- ---------------------------------
Prepared by:
Gordon G. Repp
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
5
<PAGE> 6
EXHIBIT "A"
Mortgaged Property
<PAGE> 1
EXHIBIT 10.17
SECOND MORTGAGE
When Recorded Mail to: X
X
Gordon G. Repp X
Outboard Marine Corporation X
100 Sea-Horse Drive X
Waukegan, IL 60085 X
X Space Above for Recorder's Use
Made as of the 4th day of December, 1998 between Robert B. Gowens, Jr. and Donna
G. Gowens, husband and wife, with an address of 55 Trowbridge Circle, Lake
Bluff, IL 60044 (hereinafter referred to as "Mortgagor"), and Outboard Marine
Corporation, a Delaware corporation with an office at 100 Sea-Horse Drive,
Waukegan, Illinois 60085 (hereinafter referred to as the "Mortgagee").
W I T N E S S E T H
WHEREAS, Mortgagor is justly indebted to the Mortgagee for money borrowed,
as evidenced by a certain Promissory Note (hereinafter called the "Note") of
even date herewith, the terms, covenants, and conditions of which are
specifically incorporated herein by reference, duly executed and delivered by
Mortgagor, payable to the order of Mortgagee at its office aforesaid, or at such
other place as may be designated in writing by the holder of said Note, in the
principal sum of One Hundred Thousand and no/100 ($100,000.00) dollars advanced
by the Mortgagee to the Mortgagor, with interest thereon from the date thereof
at the rate set forth therein, such principal and interest being payable at the
times and in the manner as therein more particularly set forth.
NOW, THEREFORE, in consideration of the principal advances made by the
Mortgagee to the Mortgagor and other valuable consideration, and for the purpose
of securing the prompt repayment by Mortgagor of said indebtedness and all other
sums payable hereunder and under said Note (including, without limitation, costs
of collection and reasonable attorney's fees) and also for the purpose of
securing the performance of and compliance with all of the terms, covenants,
conditions, and warranties herein contained and contained in the Note, the
Mortgagor does hereby bargain, sell, give, grant, convey and Mortgage unto the
Mortgagee, its successors and assigns all the property lying and being in the
town of Lake Bluff, COUNTY OF Lake, STATE OF Illinois as more fully described in
Exhibit A attached hereto and made a part
<PAGE> 2
hereof, TOGETHER WITH all interest which Mortgagor now has or may hereafter
acquire in or to said property and in and to:
(a) all easements and rights of way appurtenant thereto;
(b) all buildings, structures, improvements, fixtures, appliances,
equipment, and other articles of real property of every kind and
nature, whether or not physically attached or affixed to said
property and now or hereafter installed or placed thereon, and used
in connection with any future operation thereof (including, but not
limited to, all apparatus and equipment used to provide or supply
air-cooling, air-conditioning, heat, gas, water, light, power,
laundry, garbage disposal; and fire prevention and extinguishing
equipment, elevators, antennas) it being intended and agreed that
such items be conclusively deemed to be affixed to and to be part of
the property that is mortgaged hereby;
(c) all water and water rights (whether or not appurtenant) and shares
of stock pertaining to such water or water rights, ownership of
which affects said property;
(d) all shrubs, trees, crops, and plants;
(e) all adjacent lands included in enclosure or occupied by buildings
located partly on the above described property; and
(f) all claims, demands or causes of actions of every kind (including
proceeds of settlements of any such claim, demand, or cause of
action of any kind) which Mortgagor now has or may hereafter acquire
arising out of acquisition or ownership of the property, including
any award of damages or compensation for injury to or in connection
with any condemnation for public use of the property to any part
thereof (whether or not eminent domain proceedings have been
instituted); however, Mortgagee shall have no duty to prosecute any
such claim, demand or cause of action;
ALSO TOGETHER WITH all rents, issues, profits, royalties, tools, earnings, and
incomes therefrom and installments of money payable pursuant to any agreement
for sale of said property or any party thereof.
(For the purpose of this instrument, including all provisions incorporated
by reference herein, all of the foregoing described property, property rights,
and interest shall be referred to as the "Property" or the "Premises").
2
<PAGE> 3
TO HAVE AND TO HOLD the same unto the Mortgagee, its successors and
assigns forever, subject as aforesaid.
AND MORTGAGOR represents, warrants, and covenants that it is the lawful
owner of the Property free from all encumbrances and liens, whatsoever, except
those items as set forth herein.
TO PROTECT THE SECURITY OF THIS MORTGAGE, MORTGAGOR AGREES AS FOLLOWS:
1. REPAIR AND MAINTENANCE OF PROPERTY. Mortgagor shall keep the Property
in good condition and repair; not to substantially alter, remove, or demolish
any buildings thereon; to restore promptly and in good workmanlike manner any
buildings or other improvements which may be damaged or destroyed, to pay when
due all claims for labor performed and materials furnished in connection with
the Property and not to permit any mechanics lien against the Property; to
comply with all laws affecting the Property or requiring any alterations or
improvements to be made thereon; not to commit or permit waste thereon; not to
commit, suffer, or permit any act upon the Property in violation of law; and to
do all other acts that from the character or use of such property may be
reasonably necessary to keep the Property in the same condition (reasonable wear
and tear excepted) as at the date of this Mortgage; to perform and keep each of
the covenants and agreements required to be kept and performed by Mortgagor
pursuant to the terms of the Lease and any and all other instruments creating
Mortgagor's interest in or defining Mortgagor's rights in respect to the
Property.
2. INSURANCE. Mortgagor shall provide and maintain in force, at all times,
fire, casualty, mortgage, and other types of insurance with respect to the
Property or loan as may reasonably be required by Mortgagee. Each policy of such
insurance shall be in an amount, for a term and in form and content by such
companies, as may be satisfactory to Mortgagee, with loss payable to Mortgagee,
and shall, if required by Mortgagee, be delivered to and remain in possession of
Mortgagee as further security for the faithful performance of this Mortgage.
Until advised to the contrary by the Mortgagee, such insurance shall include
insurance against loss or damage to the buildings and improvements on the
Property by fire and any risks covered by insurance of the type known as "fire
and extended coverage," in an amount not less than the original amount of the
Note or the full replacement cost of the buildings and improvements, whichever
is greater.
Mortgagor shall furnish Mortgagee with written evidence showing payment of
all premiums therefor. At least 30 days prior to the expiration of any insurance
policy, a policy renewing or extending such expiring insurance shall be
delivered to Mortgagee with written evidence showing payment of the premium
therefor, and in the event any such premium is not so delivered to Mortgagee, if
required, Mortgagor by executing this Mortgage specifically
3
<PAGE> 4
requests Mortgagee to obtain such insurance. Mortgagee, but without obligation
so to do, without notice to or demand upon Mortgagor and without releasing
Mortgagor from any obligation hereof, may obtain such insurance through or from
any insurance agency or company acceptable to it, and pay the premium therefor.
Mortgagee shall not be chargeable with obtaining or maintaining such insurance
or for the collection of any insurance monies or for any insolvency of any
insurer or insurance underwriter. Mortgagee, from time to time may furnish to
any insurance agency or company, or any other person, any information contained
in or extracted from any insurance policy theretofore delivered to Mortgagee
pursuant hereto, and any information concerning the loan secured hereby.
Mortgagor hereby assigns to Mortgagee all unearned premiums on any such
policy, and agrees that any and all unexpired insurance shall inure to the
benefit of, and pass to, the purchaser of the Property conveyed at any sale held
hereunder.
3. CASUALTY OR CONDEMNATION.
(a) In the event of any casualty to the Property or any part thereof or
should the Property or any part thereof or interest thereon be taken or damaged
by reason of any public improvement or condemnation proceeding, or in any other
manner, or should Mortgagor receive any notice or other information regarding
such proceeding, Mortgagor shall give prompt written notice thereof to the
Mortgagee.
(b) In the event of any damage or destruction to all or any part of the
improvements, Mortgagee shall have the option, in its sole discretion, of
applying all or part of the insurance proceeds (i) to any indebtedness secured
hereby and in such order as Mortgagee may determine, or (ii) to the restoration
of the improvements, or (iii) a payment to the Mortgagor.
(c) In the event of such loss or damage, all proceeds or insurance shall
be payable to Mortgagee and Mortgagor hereby authorizes and directs any affected
insurance company to make payment of such proceeds directly to Mortgagee.
Mortgagee is hereby authorized and empowered by Mortgagor to settle, adjust, or
compromise any claims for loss, damage, or destruction under any policy or
policies of insurance.
(d) Except to the extent that insurance proceeds are received by Mortgagee
and applied to the indebtedness secured hereby, nothing herein contained shall
be deemed to excuse Mortgagor from repairing or maintaining the Property as
provided herein or restoring all damage or destruction to the Property,
regardless of whether or not there are insurance proceeds available or whether
any such proceeds are sufficient in amount, and the application or release by
Mortgagee or any insurance proceeds shall not cure or waive any default or
notice of default under this Mortgage or invalidate any act done pursuant to
such notice.
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<PAGE> 5
(e) In the event of a condemnation or other taking, Mortgagee shall be
entitled to all compensation, awards, and other payments or relief, up to the
amount of its debt and accrued interest thereon, and shall be entitled at its
option to commence, appear in, and prosecute in its own name any compromise or
settlement in connection with such taking or damage. All such compensation,
awards, damages, rights or action, and proceeds awarded to Mortgagor ,up to the
amount of its debt and accrued interest thereon, (the "Proceeds") are hereby
assigned to the Mortgagee and the Mortgagor agrees to execute such further
assignments of the Proceeds as Mortgagee may require.
(f) In the event any portion of the Property is so taken or damaged,
Mortgagee shall have the option to apply all such Proceeds, after deducting
therefrom all costs and expenses (regardless of the particular nature thereof
and whether incurred with or without suit), including attorneys' fees, incurred
by Mortgagee in connection with such Proceeds, upon any indebtedness secured
hereby and in such order as Mortgagee may determine, or to apply all such
Proceeds, after such deductions, to the restoration of the Property upon such
conditions Mortgagee may determine. Such application or release shall not cure
or waive any default or notice of default hereunder or invalidate any act done
pursuant to such notice.
4. TAXES, LIENS, AND OTHER SUMS DUE. To pay, satisfy and discharge: (a)
all general and special taxes on the Property, and all assessments affecting the
Property, at least 10 days before delinquency, (b) all special assessments for
public improvements on the Property, when due, without permitting any
improvement bond to issue for any special assessment, (c) on demand of
Mortgagee, but in no event later than the date such amounts become due, (1) all
encumbrances, charges and liens (including without limitation, income tax liens
or liens of a similar character, to be impressed or levied by the United States
Government, or the State, Municipality, or county, where the Property is located
or an agency of any of them), with interest, on such Property, or any part
thereof, which are, or appear to Mortgagee to be, prior to or superior hereto,
(2) Mortgagee's fees, charges, and expenses for any other statement,
information, or services furnished by Mortgagee in connection with the
obligations secured hereby (said service may include, but not limited to, the
processing by Mortgagee of assumptions, substitutions, changes of owners,
recordation of map, plat, or record of survey, grants of easements, and full and
partial reconveyances, and the obtaining by Mortgagee of any policies of
insurance pursuant to any of the provisions contained in this Mortgage), (3) if
the Property includes a leasehold estate, all payments and obligations required
of the Mortgagor or his successor in interest under the terms of the instrument
or instruments creating such leasehold, (4) all payments and monetary
obligations required of the owner of such Property under any easement pertaining
to the Property or any modification thereof, and (5) any sums advanced or paid
by Mortgagee under any clause or provision of this Mortgage.
Should Mortgagor fail to make any such payment, Mortgagee, without
contesting the validity or amount, may elect to make or advance such payment
together with any costs,
5
<PAGE> 6
expenses, fees, or charges relating thereto, including employing counsel and
paying his reasonable fees. Any such sum, until so repaid, shall be secured
hereby and bear interest from the date it was advanced or paid at 18% per annum
and shall be secured by this Mortgage. Mortgagor agrees to notify Mortgagee
immediately upon receipt by Mortgagor of notice of an increase in the assessed
value of the Property and agrees that Mortgagee, in the name of Mortgagor, may
contest by appropriate proceedings such increase in assessment. Mortgagor agrees
to notify Mortgagee and appropriate taxing authorities immediately upon the
happening of any event which does or may affect the value of the Property, the
amount or basis of assessment of the Property, or the availability of any
exemption to which Mortgagor is or may be entitled.
5. CLAIMS, DEMANDS AND ACTIONS. (a) To defend any action or proceeding
purporting to affect the Property or the condition and integrity of any
improvements constructed thereon or purporting to affect the security hereof
(whether or not it actually affects the security hereof), or purporting to
affect the rights or powers of Mortgagee, and (b) to file and prosecute all
necessary claims and actions to prevent or recover for any damage to or
destruction of the Property, and enforce against others each and every
obligation to be performed by them under any easement pertaining to the
Property.
Mortgagee is hereby authorized without obligation so to do, to commence,
appear in, or defend any action or proceeding, whether or not brought by or
against Mortgagor, and with or without action or suit, to exercise or enforce
any other right, remedy, or power available or conferred hereunder, whether or
not judgment be entered in any action or proceeding. Mortgagee may appear or
intervene in any action or proceeding, and retain counsel therein, and take such
action therein, as may be advised, and may settle, compromise, or pay the same
or any other claims and, in that behalf and for any of said purposes, may expend
and advance such sums of money as either may deem necessary. If any action or
proceeding be commenced (including an action in connection with the sale of the
Property or to collect the debt secured hereby) to which action or proceeding
the Mortgagee is made a party, or which it becomes necessary to defend or uphold
the lien or the Mortgage, all sums paid or incurred by the Mortgagee (including
reasonable counsel fees and all applicable statutory costs, allowances and
disbursements), shall be paid by Mortgagor on demand, together with interest
thereon at the rate of 18% per annum and any such sum and the interest thereon
shall be a lien on the Property prior to any right, or title to, interest in, or
claim upon the Property attaching or accruing subsequent to the lien of this
Mortgage, and if the Mortgagor shall fail to comply with or perform any warranty
or covenant herein, the Mortgagee, at its option, may comply with or perform the
same, and the cost thereof, together with interest thereon at the rate of 18%
per annum, shall be secured by this Mortgage and shall be paid by the Mortgagor
to the Mortgagee. If Mortgagee employs an attorney to collect any or all of the
unpaid indebtedness hereof or to enforce any other provision hereof or in
connection with the sale of the Property, Mortgagee, in addition to all other
costs and fees allowed according to law, shall be reimbursed by Mortgagor
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<PAGE> 7
immediately for all reasonable costs and attorneys' fees incurred by the
Mortgagee and the same shall be secured by this Mortgage.
6. LEASES. Mortgagor will not, without the consent of Mortgagee, consent
to the cancellation or surrender of, or accept prepayment of rents other than
rent paid at the signing of, any lease now or hereinafter covering the Property
or any part thereof, nor modify any such lease so as to shorten the term,
decrease the rent, accelerate the payment of rent, or change the terms of any
renewal option; and any such purported assignment, cancellation, surrender,
prepayment, or modification made without the written consent of the Mortgagee
shall be void as against the Mortgagee and with respect to this Mortgage.
The Mortgagor covenants to keep, observe, and perform all of the covenants
on its part to be kept, observed, and performed and to require the tenants to
keep, observe, and perform all of the covenants on the part of said tenants to
be kept, observed, and performed under any Leases; and in default thereof the
Mortgagee shall have the right to perform or to require performance of such
Lease covenants, to add any expense incurred in connection therewith to the debt
secured hereby, which such expense shall bear interest from the date of payment
at the rate of 18% per annum and shall be recoverable as part of the debt
secured hereby and shall be immediately due and payable. Mortgagor agrees to
furnish to Mortgagee a copy of any modification of any Lease presently in effect
and copies of all future leases affecting the Property, and failure to furnish
to Mortgagee a copy of any future lease affecting the Property shall be deemed a
default under this Mortgage for which the Mortgagee may, at its option, declare
the entire unpaid balance of the note secured hereby, to be immediately due and
payable.
In the event that tenant under the Lease shall elect to terminate the
Lease, the proceeds of any termination payment shall be applied first to satisfy
the indebtedness secured by each mortgage to which this Mortgage is subordinate,
then this Mortgage shall be satisfied and any remaining balance shall be paid to
the Mortgagor.
7. INSPECTION AND BUSINESS RECORDS. Mortgagee at any time during the
continuation of this Mortgage may enter and inspect the Property at any
reasonable time and if the Property is now or hereafter used for commercial or
residential income purposes, Mortgagor will promptly deliver to Mortgagee such
financial statements, gross income statements, and profit and loss statements of
such types and at such intervals as may be required by Mortgagee which will be
certified and prepared according to the usual and acceptable accounting
principles and practices, which statements shall cover the financial operations
relating to the Property, and Mortgagor further agrees when requested by
Mortgagee to promptly deliver in writing such further additional information as
required by Mortgagee relating to any such financial statements. The provisions
of this paragraph 7 shall be subject to the rights of the lessee under the
Lease.
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<PAGE> 8
8. RIGHT TO COLLECT AND RECEIVE RENTS AND PROFITS. Upon default by
Mortgagor in payment of any indebtedness secured hereby or in the performance of
any agreement hereunder, Mortgagee may any time without notice, either in
person, by agent, or by receiver to be appointed by the court, and without
regard to the adequacy of any security for the indebtedness hereby secured,
enter upon the take possession of the Property or any part thereof, make,
cancel, enforce, or modify leases, obtain and eject tenants, set or modify rents
in its own name, sue for or otherwise collect the rents, income, issues, and
profits thereof, including those past due and unpaid, and apply the same, less
costs and expenses of operation and collection, including reasonable attorney's
fees, upon any indebtedness secured hereby and in such order as Mortgagee may
determine, and except for such application, Mortgagee shall not be liable to any
person for the collection or non-collection of any rents, income, issues, or
profits, nor with failure to assert or enforce any of the foregoing rights. The
entering upon and taking possession of such property, the collection of such
rents, income, issues, or profits, the doing of other acts herein authorized,
and the application thereof as aforesaid shall not cure or waive any default or
notice of default hereunder or invalidate any act done pursuant to such notice.
The provisions of this paragraph 8 shall be subject to the rights of the lessee
under the Lease.
9. EVENTS OF DEFAULT. It shall be an Event of Default if Mortgagor or any
subsequent owner of the Property: fails to make any payment of interest or
principal or any other sum of money within five (5) days of its due date; or if
Mortgagor or any subsequent owner of the property takes any action prohibited by
this Mortgage, or fails to perform any obligation secured or required by this
Mortgage within thirty (30) days after Mortgagee shall have given written notice
to Mortgagor of such default, except that if the default is such that it is not
susceptible of being cured with due diligence within the thirty (30) day period
and Mortgagor shall have commenced to cure within such period and shall
diligently and continuously prosecute the cure to completion, then the cure
period shall be extended for a reasonable period of time to allow completion of
the cure but in no event longer than ninety (90) days from the date of the
original notice; or files a voluntary petition in bankruptcy or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief; or shall seek or
consent to the appointment of any trustee, receiver, or liquidator of all or any
part of the Property, or of any or all of the revenues, rents, issues, or
profits thereof or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts generally as
they become due; or has entered against it an order, judgment, or decree
approving a petition filed against it seeking any reorganization, dissolution,
or similar relief under any statute, law, or regulation relating to relief for
debtors, which shall remain in effect for 60 days; or has entered against it a
writ of execution or attachment or any similar process against all or any part
of or interest in the Property, or any judgment involving monetary damages shall
be entered against it which shall become a lien on
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<PAGE> 9
the Property or any portion thereof or interest therein which remains in effect
for 60 days after its entry or levy.
10. REMEDIES UPON DEFAULT.
A. If an Event of Default shall occur, Mortgagee may declare all
indebtedness secured hereby to be immediately due and payable and the same shall
thereupon become due and payable without any presentment, demand, protest or
notice of any kind. Thereafter Mortgagee may:
(i) Either in person or by agent, with or without bringing any
action or proceeding, enter upon and take possession of the
Property, or any part thereof, in its own name, and do any
acts which it deems necessary or desirable to preserve the
value, marketability, or rentability of the Property, or any
part thereof or interest therein, increase the income
therefrom with or without taking possession of the Property,
sue for or otherwise collect the rents, issues and profits
thereof, including those past due and unpaid. The entering
upon and taking possession of the Property shall not cure or
waive any default or notice of default hereunder or invalidate
any act done in response to such default and Mortgagee shall
be entitled to exercise every right provided for in the
Mortgage or by law upon occurrence of any Event of Default,
including the right to exercise any available power of sale;
(ii) Commence an action to foreclose this Mortgage, appoint a
receiver, or specifically enforce any of the covenants hereof;
(iii) Exercise any or all of the remedies available to a secured
party under the applicable Uniform Commercial Code.
(iv) Sell the Property at public auction for cash, after having
first given such notice of hearing as to commencement of
foreclosure proceedings and obtained such findings or leave of
court as may then be required by law and relating to
foreclosure proceedings under power of sale to convey title to
the purchase in as full and simple a manner as is permitted by
law.
B. When the indebtedness hereby secured, or any part thereof, shall
become due, whether by acceleration or otherwise, Mortgagee shall have the right
to foreclose the lien hereof for such indebtedness or part thereof. In any suit
to foreclose the lien hereof or enforce any other remedy of Mortgagee under this
Mortgage or the Note, there shall be allowed and
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<PAGE> 10
included as additional indebtedness in the decree for sale or other judgment or
decree all expenditures and expenses which may be paid or incurred by or on
behalf of Mortgagee including but not limited to attorneys' fees. All
expenditures and expenses as may be incurred in the protection of the Property
and the maintenance of the lien of this Mortgage, including the fees of any
attorney employed by Mortgagee in any litigation or proceeding affecting this
Mortgage, or the Note shall be immediately due and payable by Mortgagor, with
interest thereon at 18% per annum and shall be secured by this Mortgage.
C. No remedy herein provided shall be exclusive of any other remedy
herein, or now or hereafter existing by law, but shall be cumulative. Every
power or remedy hereby given to Mortgagee or to which Mortgagee may be otherwise
entitled may be exercised from time to time and as often as may be deemed
expedient, and Mortgagee may pursue inconsistent remedies. If Mortgagee holds
any additional security for any obligation secured hereby, it may enforce the
sale thereof at its option, either before, contemporaneously with, or after the
sale is made hereunder. On any default of Mortgagor, Mortgagee may, at its
option, offset against an indebtedness owing by it to Mortgagor, the whole or
any part of the indebtedness secured hereby, and the Mortgagee is hereby
authorized and empowered, at its option, without any obligation so to do, and
without affecting the obligations hereof, to apply toward the payment of any
indebtedness secured hereby and of the Mortgagor to the Mortgagee, any and all
sums of money which the Mortgagee may have in its possession or under its
control, including without limiting the generality of the foregoing, the
indebtedness evidenced by an investment certificate or any escrow or trust
funds. In order to assure the definiteness and certainty of the rights and
obligations herein provided, Mortgagor waives any and all rights of offset of
claims and no offset shall relieve Mortgagor from paying installments on the
obligations secured hereby as they become due.
11. OBLIGATIONS OF MORTGAGOR. The Mortgagor shall pay when due all
interest and principal due on the First Mortgage.
12. NO WAIVER OR MODIFICATION UNLESS IN WRITING. No modification
or waiver by Mortgagee of any right under this Mortgage shall be effective
unless in writing. Waiver by Mortgagee of any right granted to Mortgagee under
this Mortgage or of any provision of this Mortgage as to any transaction or
occurrence shall not be deemed a waiver as to any future transaction or
occurrence. By accepting payment of any sum secured hereby after its due date,
or by making any payment or performing any act on behalf of Mortgagor that
Mortgagor was obligated hereunder but failed to make or perform, or by adding
any payment so made by Mortgagee to the indebtedness secured hereby, Mortgagee
does not waive its right to require prompt payment when due of all sums so
secured or to require prompt performance of all other acts required hereunder,
or to declare a default for failure so to pay.
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<PAGE> 11
13. CREATION OF SECURITY INTEREST. Mortgagor hereby grants to Mortgagee a
security interest in the personal property located on or at the Property,
including without limitation any and all property of similar type or kind
hereafter located on or at the Property for the purpose of securing all
obligations of Mortgagor contained in the Note and this Mortgage.
14. HAZARDOUS OR TOXIC MATERIALS. The Mortgagor shall ensure that the
Property is maintained in compliance with, and shall not cause or permit the
Property to be in violation of, any federal, state, or local laws, ordinances,
or regulations relating to industrial hygiene or to the environmental conditions
("Hazardous Materials Laws") on, under, about, or affecting the Property.
Neither the Mortgagor nor any of its tenants shall use, generate, manufacture,
store, or dispose of on, under or about the Property or transport to or from the
Property any flammable explosives, radioactive materials, hazardous wastes,
toxic substances, or related materials, including without limitation any
substances defined or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," or "toxic substances," under any
applicable federal or state laws or regulations. The Mortgagor shall advise the
Mortgagee in writing promptly upon notice of: (i) any and all enforcement,
cleanup, removal, or other governmental or regulatory actions instituted,
completed, or threatened pursuant to any applicable Hazardous Materials Laws;
(ii) all claims made or threatened by any third party against the Mortgagor, the
Lessee, or the Property relating to damage, contribution, cost recovery
compensation, loss, or injury resulting from any Hazardous Materials, and (iii)
the Mortgagor's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that could cause the Property or
any part thereof to be subject to any restrictions on the ownership, occupancy,
transferability, or use of the Property under any Hazardous Materials Laws.
The Mortgagor shall, at its expense, and after obtaining the written
consent of the Mortgagee, take all necessary remedial action(s) in response to
the presence of any Hazardous Materials on, under, or about the Property.
15. GENERAL PROVISIONS. (a) This Mortgage applies to, inures to the
benefit of, and binds all parties hereto, their heirs, legatees, devisees,
administrators, executors, successors, and assign. (b) The term "Mortgagee"
shall mean the owner and holder, including a pledgee, on any note secured
hereby, whether or not named as Mortgagee herein. (c) Wherever the context so
requires, the masculine gender includes the feminine and neuter, the singular
number includes the plural, and visa versa. (d) Captions and paragraph headings
used herein are for convenience only, are not a part of this Mortgage, and shall
not be used in construing it.
16. RECEIVER. Upon the commencement of any action to enforce any remedy
available hereunder, the Mortgagee shall be entitled as a matter of right
without notice, without bond, without regard to the solvency of the Mortgagor,
or waste of the Property or adequacy of the security of the Property, to have a
receiver appointed for the Property with such powers and
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<PAGE> 12
rights as may be incident to the making of such appointment and the Mortgagor
does hereby irrevocably consent to such appointment.
17. GOVERNING LAW. This Mortgage shall be construed according to the laws
of the State of Illinois.
18. SALE OR TRANSFER OF PREMISES. Mortgagor agrees that if the Property or
any part thereof or any interest therein is sold, assigned, transferred,
conveyed or otherwise alienated by Mortgagor, whether voluntarily or
involuntarily, or by operation of law other than the First Mortgage or creation
of a lien or other encumbrance subordinate to this Mortgage which does not
relate to a transfer of rights of occupancy in the Premises, without the prior
written consent of Mortgagee, then Mortgagee may declare the Note secured hereby
and all other obligations hereunder to be forthwith due and payable. Any change
in the legal or equitable title of the Premises or the beneficial ownership of
the Premises, including the sale, conveyance or disposition of a majority
interest in the Mortgagor, if a corporation or partnership, whether or not of
record and whether or not for consideration, shall be deemed to be a transfer of
interest in the Premises.
IN WITNESS WHEREOF, this Mortgage has been duly executed on the date
indicated above.
WITNESS: ROBERT B. GOWENS, JR.
/s/ Michael C. Dorf SIGNATURE:/s/ Robert B. Gowens, Jr.
- -------------------------- ----------------------------------
WITNESS DONNA G. GOWENS
/s/ Michael C. Dorf SIGNATURE:/s/ Donna G. Gowens
- -------------------------- ----------------------------------
Prepared by:
Gordon G. Repp
Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, IL 60085
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<PAGE> 13
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
I, Michael C. Dorf, a Notary Public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY, that Robert B. Gowens, Jr. and Donna G. Gowens,
husband and wife, personally known to me to be the same persons whose names are
subscribed to the foregoing instrument, respectively, appeared before me this
day in person and acknowledged that they signed and delivered the said
instrument as their own free and voluntary act, for the uses and purposes
therein set forth.
GIVEN Under my hand and Notarial Seal this 4th day of December, 1998.
/s/ Michael C. Dorf
-----------------------------------
Notary Public
My commission expires:
May 7, 2000
<PAGE> 14
EXHIBIT "A"
PROPERTY
<PAGE> 1
EXHIBIT 10.18
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: Robert B. Gowens
DATE OF GRANT: October 1, 1998
GRANTED PURSUANT TO: Outboard Marine Corporation
Personal Rewards and
Opportunities Program
NUMBER OF UNDERLYING SHARES: 100,000 shares
EXERCISE PRICE: $22.00 per share
VESTING SCHEDULE: 33,333 shares become exercisable on October
1, 1999, an additional 33,333 shares become
exercisable on October 1, 2000, and an
additional 33,334 shares become exercisable
on October 1, 2001.
1. This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of October 1, 1998 (the "Date of Grant") between
Outboard Marine Corporation, a Delaware corporation (the "Company"), and Robert
B. Gowens (the "Employee") pursuant to an employment agreement between the
Company and the Employee dated October 1, 1998 ("Employment Agreement"). It is
the intent of the Company and the Employee that the Option (as defined in
Paragraph 2 below) will not qualify as an "incentive stock option" under Section
422 of the Internal Revenue Code of 1986, as amended from time to time.
2. The Employee is granted an option to purchase 100,000 shares of the
common stock of the Company (the "Option"). The Option is granted under the
Outboard Marine Corporation Personal Rewards and Opportunities Program ("PROP"),
a copy of which is enclosed herewith, and is subject to the terms of PROP and of
this Agreement. Terms not defined herein shall have the meanings ascribed
thereto
<PAGE> 2
in PROP. The Option granted hereunder is a matter of separate inducement and is
not in lieu of salary or other compensation for the Employee's services.
3. The Option's Exercise Price is $22.00 per share.
4. The Option, unless sooner terminated or exercised in full, shall
expire on the 10th anniversary of the Date of Grant and, notwithstanding
anything contained in this Agreement to the contrary, no portion of the Option
may be exercised after such date.
5. Subject to Paragraph 4 above and Paragraph 6 below, the Option shall
become exercisable according to the exercisability schedule set forth below;
provided, that the Employee remains continuously employed by the Company during
and through the following consecutive periods.
33,333 shares shall become exercisable on October
1, 1999 and shall remain
exercisable until the 10th
anniversary of the Date of Grant;
33,333 shares shall become exercisable on October
1, 2000 and shall remain
exercisable until the 10th
anniversary of the Date of Grant;
and
33,334 shares shall become exercisable on October
1, 2001 and shall remain
exercisable until the 10th
anniversary of the Date of Grant.
6. (a) Death or Disability of Employee. In the event of the death of
the Employee, or if the Employee's employment is terminated due to the
Employee's disability (as defined in the Employment Agreement), the
unexercisable portion of the Option held by the Employee on the date of the
Employee's death or the date of the termination of the Employee's employment due
to disability, as the case may be, (i) shall vest for the applicable 12-month
vesting period in a pro rata amount for the number of full months the Employee
was employed during such 12-month vesting period in which his death or
disability occurs and (ii) the remainder of the unexercisable portion of the
Option shall immediately be forfeited by the Employee as of such date. The
exercisable portion of the Option held by the Employee on such date shall
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<PAGE> 3
remain exercisable until the earlier of (i) the end of the 12-month period
following the date of the Employee's death or the date of the termination of the
Employee's employment due to disability, as the case may be, or (ii) the date
the Option would otherwise expire.
(b) Termination of Employee's Employment for Cause. If the
Employee's employment is terminated by the Company or any of its subsidiaries
for Cause, the entire Option (both the exercisable and unexercisable portions of
the Option) held by the Employee on the date of the termination of his
employment shall immediately be forfeited by the Employee as of such date.
(c) Termination of Employee's Employment Without Cause or for
Good Reason. If the Employee's employment is terminated by the Company other
than for Cause or the Employee's death or disability (as defined in the
Employment Agreement), or by the Employee for Good Reason, the unexercisable
portion of the Option held by the Employee on the date of the termination of his
employment shall become immediately exercisable by the Employee as of such date
and the entire Option held by the Employee on such date shall remain exercisable
until the earlier of (i) the end of the 90-day period following the date of the
termination of the Employee's employment, or (ii) the date the Option would
otherwise expire.
(d) Termination of Employee's Employment for Other Reasons. If
the Employee's employment is terminated by the Company or the Employee resigns
for any reason other than described in subsections (a)-(c) of this Section 6,
the unexercisable portion of the option held by the Employee on the date of the
termination of his employment shall be forfeited by the Employee and the
exercisable portion of the Option held by the Employee on such date shall remain
exercisable until the earlier of (i) the end of the 90-day period following the
date of the termination of the Employee's employment, or (ii) the date the
Option would otherwise expire.
(e) "Cause" and "Good Reason." For purposes of this Agreement,
the terms "Cause" and "Good Reason" shall have the meanings ascribed thereto in
the Employment Agreement between the Employee and the Company dated October 1,
1998.
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<PAGE> 4
7. The call and put provisions contained in paragraphs 10 and 11,
respectively, of the Employment Agreement are hereby incorporated herein.
8. During the Employee's lifetime, the Option shall not be subject in
any manner to alienation, anticipation, sale, assignment, pledge, encumbrance or
other transfer and shall be exercisable only by the Employee. Upon the death of
the Employee, (i) the Option shall be exercisable only by the executor or
administrator of the estate of the deceased Employee or the person or persons to
whom the deceased Employee's rights with respect to the Option shall pass by
will or the laws of descent and distribution and (ii) the Option shall be
exercisable (x) during the period specified in Paragraph 6(a) above, if the
Employee's employment terminated as a result of his death or (y) during the same
period that the Option would have been exercisable by the Employee if he had
survived, if the Employee's death occurred after the Employee's employment
terminated.
9. The Employee may exercise the exercisable portion of the Option
regardless of whether any other stock option that the Employee has been granted
by the Company remains unexercised. In no event may the Employee exercise the
Option for a fraction of a share or for less than 100 shares (unless the number
purchased is the total balance for which the Option is then exercisable).
10. Any exercise of the Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal business office of the
Company, specifying the Option being exercised and the number of shares of Stock
to be purchased, and specifying a business day not more than 10 days from the
date such notice is given for the payment of the purchase price against delivery
of the shares of Stock being purchased. Subject to the terms of PROP and this
Agreement, the Company shall cause certificates for the shares so purchased to
be delivered at the principal business office of the Company, against payment of
the full purchase price, on the date specified in the notice of exercise. The
Option's Exercise Price shall be paid by the Employee in cash or, if permitted
by the Committee in its sole discretion at the time of exercise, in shares of
Common Stock currently held by the Employee at the time of exercise, or by a
combination of cash and such currently held shares. Any shares of Common Stock
delivered in payment of the Exercise Price shall be valued at their then fair
market value.
4
<PAGE> 5
11. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld or
otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares subject to the Option. In lieu thereof, the Company
shall have the right to withhold the amount of such taxes from any other sums
due or to become due from the Company to the Employee. The Company may, in its
discretion, hold the stock certificate or certificates to which the Employee is
entitled upon the exercise of the Option as security for the payment of such
withholding tax liability until cash sufficient to pay that liability has been
accumulated. In addition, at any time that the Company becomes subject to a
withholding obligation under applicable law with respect to the exercise of a
Non-Qualified Option (the "Tax Date"), except as set forth below, a holder of a
Non-Qualified Option may elect to satisfy, in whole or in part, the holder's
related personal tax liabilities (an "Election") by (a) directing the Company to
withhold from shares of Stock issuable in the related exercise either a
specified number of shares of Stock or shares of Stock having a specified value
(in each case not in excess of the related personal tax liabilities), (b)
tendering shares of Stock previously issued pursuant to the exercise of a stock
option or other shares of Stock owned by the holder, or (c) combining any or all
of the foregoing Elections in any fashion. An Election shall be irrevocable. The
withheld shares and other shares of Stock and other shares of Stock tendered in
payment shall be valued at their fair market value on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right to make
Elections or provide that the right to make Elections shall not apply to
particular shares of Stock or exercises. The Committee may impose any additional
conditions or restrictions on the right to make an Election as it shall deem
appropriate, including any limitations necessary to comply with Section 16 of
the Exchange Act.
12. The Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option until the Option is
exercised and the Employee receives such shares.
13. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as
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<PAGE> 6
determined by the Company, giving notice of applicable restrictions on transfer
under or with respect to such laws.
14. The Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Securities Act of 1933, as amended (the "Act"),
which Registration Statement shall have become effective and shall include a
prospectus that is current with respect to the shares subject to the Option,
then the Employee shall execute and deliver a certificate to the Company
indicating (i) that he is purchasing the shares for his own account and not with
a view to the resale or distribution thereof, (ii) that any subsequent offer for
sale or sale of any such shares shall be made either pursuant to (x) a
Registration Statement on an appropriate form under the Act, which Registration
Statement shall have become effective and shall be current with respect to the
shares being offered and sold, or (y) a specific exemption from the registration
requirements of the Act and any rules and regulations thereunder and applicable
state securities laws and regulations, but in claiming such exemption, the
Employee shall, prior to any offer for sale or sale of such shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
applicability of such exemption and (iii) that the Employee agrees that the
certificate or certificates evidencing such shares shall bear a legend to the
effect of the foregoing.
15. The Committee may, in its sole discretion, require that the
certificate or certificates representing the shares of Common Stock purchased
pursuant to the exercise of the Option shall bear an appropriate legend in form
and substance, as determined by the Company, giving notice of such conditions
and/or restrictions.
16. This Agreement is subject to all terms, conditions, limitations and
restrictions contained in PROP, which shall be controlling in the event of any
conflicting or inconsistent provisions.
17. This Agreement is not a contract of employment and the terms of the
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue the Employee's employment, and it shall not impose any obligation on
the Employee's part to remain in the employ of the Company.
6
<PAGE> 7
18. The Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of the Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date written below.
OUTBOARD MARINE CORPORATION
DATED: January 29, 1999. By /s/ David D. Jones, Jr.
-------------------------------
David D. Jones, Jr.
ACCEPTED this 29 day of January 1999:
/s/ Robert B. Gowens
- ------------------------------------
Robert B. Gowens
7
<PAGE> 1
EXHIBIT 10.19
$210,000.00 October 6, 1997
SECURED PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, Andrew Hines (the
"Maker"), hereby promises to pay to Outboard Marine Corporation (the "Payee"),
at its offices located at 100 Sea-Horse Drive, Waukegan, Illinois 60085 or at
such other place as Payee or any holder hereof may from time to time designate
to Maker in writing, the principal sum of two hundred and ten thousand dollars
($210,000) plus accrued and unpaid interest on the unpaid principal amount
hereof as provided herein, in lawful money of the United States, in accordance
with the terms hereafter set forth. Terms used herein and not defined herein
shall have the meanings ascribed to them in the Pledge and Security Agreement
(as defined below).
Interest shall be payable quarterly on March 31, June 30,
September 30, and December 31 of each calendar year at an annual rate of 5.81%
from the date hereof until payment of the principal amount hereof in full. The
principal amount shall be due and payable in full on the earliest of (i) October
6, 2000, (ii) termination of the Maker's employment for any reason with the
Payee, or (iii) the Maker's sale, transfer, pledge, hypothecation or other
disposal of (a "Sale") any of the Pledged Collateral or the Released Shares
under the Pledge and Security Agreement of even date herewith between the Maker
and the Payee (the "Pledge and Security Agreement"), provided that if Maker
sells, transfers, pledges, hypothecates or otherwise disposes of any of the
Pledged Collateral or the Released Shares, the amount of principal and accrued
interest hereunder due and payable to Payee as a result of such Sale shall only
equal the amount of the net proceeds resulting from such Sale. If for any reason
Maker sells, transfers, pledges, hypothecates or otherwise disposes of any of
the Pledged Collateral or the Released Shares, the net proceeds resulting from
such Sale shall be applied to reduce the principal and all accrued and unpaid
interest hereunder. Interest hereunder shall be computed on the basis of the
actual number of days elapsed over the period of a 365-day year. This Note may
be prepaid in whole or in part without premium or penalty. Maker hereby waives
diligence, demand, presentment, protest and (except as herein provided) notice,
and assent to extensions of time of
<PAGE> 2
payments, releases, surrender or substitution of security or forbearance or
other indulgence, without notice.
All payments shall be applied first to accrued and unpaid
interest hereunder and then to the principal balance hereof. If the Maker shall
default in the punctual payment of any sum payable hereunder or upon the
occurrence of any Event of Default under the Pledge and Security Agreement,
after ten (10) days' notice of such default is given, Payee or any holder hereof
may exercise any and all of its rights and remedies at law or in equity or
otherwise, including any rights arising under the Pledge and Security Agreement,
all such rights and remedies being cumulative, nonexclusive and enforceable
alternatively, successively and concurrently. Payee shall have the right to set
off all or a portion of any amounts due to Maker by the Payee or its
subsidiaries against the amounts due to Payee from Maker with respect to due and
unpaid interest or principal. Maker acknowledges and agrees that Maker's
obligation to pay principal and interest hereunder shall not be subject to any
counterclaims, offsets or defenses against Payee or any holder of this Note that
are presently existing or which may arise in the future.
If, after the due date for the payment of any principal or
interest hereunder, this Note is referred to an attorney for collection, Maker
shall be liable for reasonable attorneys' fees and expenses and other reasonable
expenses and costs of collection.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES
OF CONFLICT OF LAWS THEREUNDER AND SHALL BE BINDING UPON THE SUCCESSORS AND
ASSIGNS OF MAKER AND SHALL INURE TO THE BENEFIT OF PAYEE, ITS SUCCESSORS,
ENDORSEES AND ASSIGNS.
The Maker hereby irrevocably consents to the jurisdiction of
the Courts of the State of New York and of any Federal Court located in such
State in connection with any action or proceeding arising out of or relating to
this Note. The Maker further agrees that Maker will not commence or move to
transfer any action or proceeding, arising out or relating to the provisions of
this Note, in any Court other than one located in the State of New York. In any
such litigation, the Maker waives personal service of any summons, complaint or
other process and agrees that the service thereof may be made by certified mail
directed to
2
<PAGE> 3
the Maker at Maker's address as specified for the purposes of notice under
Section 6.2 of the Pledge and Security Agreement.
This Note may not be changed, modified or terminated orally,
but only by an agreement in writing signed by the party to be charged. No
extension of the date on which payment is due shall be effective unless signed
by Payee.
If any term or provision of this Note shall be held invalid,
illegal or unenforceable, the validity of all other terms and provisions hereof
shall in no way be affected.
/s/ Andrew Hines
--------------------------
Andrew Hines
3
<PAGE> 1
EXHIBIT 10.20
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is made
as of the 6th day of October, 1997 by and between Andrew Hines, an individual
residing at 20 Saddle River Road, Far Hills, New Jersey 07931 (the "Debtor"),
and Outboard Marine Corporation, a Delaware corporation with an office at 100
Sea Horse Drive, Waukegan, Illinois 60085 (the "Secured Party").
W I T N E S S E T H:
WHEREAS, the Secured Party has loaned the Debtor, in the
aggregate, $210,000 (the "Loan") to purchase 11,666.66 shares (together with any
and all dividends, distributions, conversions and substitutions thereof, the
"Purchase Money Shares") of the common stock, par value $.01 per share (the
"Common Stock"), of the Secured Party, and the Debtor has delivered to the
Secured Party a promissory note of even date herewith in the principal amount of
$210,000 due October 6, 2000, substantially in the form of Exhibit A hereto (the
"Note");
WHEREAS, the Secured Party desires security for the payment of
the Note in the form of a pledge to the Secured Party by the Debtor of (i) the
Purchase Money Shares, (ii) the 2,777.78 shares of Common Stock purchased by the
Debtor pursuant to Section 5(a) of his Employment Agreement (as defined below)
(such shares, together with any and all dividends, distributions, conversions
and substitutions thereof, the "Supplemental Shares", and collectively with the
Purchase Money Shares, the "Pledged Shares") of, and (iii) any and all other
shares of Common Stock hereafter acquired by Debtor as a result of the exercise
of stock options granted to Debtor by the Secured Party or otherwise (together
with any and all dividends, distributions, conversions and substitutions
thereof, "Additional Shares", and collectively with the Pledged Shares, the
"Pledged Collateral"), and the Debtor is willing to pledge the Pledged
Collateral upon the terms and conditions hereinafter set forth; and
WHEREAS, in order to induce the Secured Party to make the Loan
and accept the Note, the Debtor has made certain representations, warranties and
covenants to Secured Party, as set forth herein;
NOW, THEREFORE, to induce the Secured Party to make the Loan
and accept the Note and for other good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the Debtor and the Secured Party
hereby agree as follows:
<PAGE> 2
1. PLEDGE OF SECURITIES
1.1. Pledge. As security for the prompt payment
of all indebtedness, in the aggregate, due under the Note (the "Indebtedness"),
the Debtor hereby pledges, assigns, hypothecates, transfers and delivers to the
Secured Party, and grants to the Secured Party a first lien on and perfected
security interest in the Pledged Shares of the Secured Party which constitute
all of the shares of the Secured Party currently owned by the Debtor. As further
security for the Indebtedness, the Debtor hereby agrees to pledge, assign,
hypothecate, transfer and deliver to the Secured Party, and grant to the Secured
Party a first lien on and a perfected security interest in any Additional Shares
upon becoming the record owner thereof.
1.2. Stock Dividends; Distributions. If, while
this Agreement is in effect, the Debtor or any permitted transferee(s) of the
Pledged Collateral shall become entitled to receive or do receive any stock
certificate (including, without limitation, any certificate representing a stock
dividend or distribution in connection with any reclassification, increase or
reduction of capital or issued in connection with any reorganization), option or
rights, whether in substitution of or in exchange for any shares of Pledged
Collateral, the Debtor and its transferee(s) agree to accept the same as the
Secured Party's agent and to hold the same in trust on behalf of the Secured
Party and to deliver the same forthwith to the Secured Party in the exact form
received, with the endorsement of the Debtor or its transferee(s), as
applicable, when necessary, together with undated stock powers duly executed in
blank and signature guarantees (if requested by the Secured Party), to be held
by the Secured Party subject to the terms of this Agreement, as collateral
security for satisfaction of the Indebtedness. Any sums paid upon or in respect
of the Pledged Collateral upon the partial or full liquidation or dissolution of
the Secured Party shall be paid to the Secured Party and shall be applied to
reduce the Indebtedness; and in case any distribution of capital is made on or
in respect of the Pledged Collateral or any property shall be distributed upon
or with respect to the Pledged Collateral pursuant to a recapitalization or
reclassification of the capital of the Secured Party or pursuant to the
reorganization thereof, the property so distributed will be duly retained by the
Secured Party as collateral security for payment of the Indebtedness.
1.3. Cash Dividends; Voting Rights. Unless an
Event of Default, as defined in Section 5, has occurred and is continuing, (i)
the Debtor or any transferee of the Pledged Collateral shall be entitled to
receive all cash dividends paid in
2
<PAGE> 3
respect of the Pledged Collateral, subject to the Debtor's obligation to apply
any such payments (net of taxes thereon) to the prepayment of the Indebtedness
as set forth in Section 5(a) hereof and (ii) the Debtor or any transferee of the
Pledged Collateral shall have the right, from time to time, to vote and give
consents with respect to the Pledged Collateral or any part thereof for all
purposes not inconsistent with the provision of this Agreement.
1.4. Delivery of Pledged Collateral. Immediately upon
execution of this Agreement, the Debtor shall deliver to the Secured Party
certificates representing all of the Pledged Stock, together with appropriate
undated stock powers duly executed in blank. Immediately upon becoming a record
owner of any and all Additional Shares, the Debtor hereby agrees to deliver to
the Secured Party certificates representing all such Additional Shares, together
with appropriate undated stock powers duly executed in blank.
2. WARRANTY OF OWNERSHIP
The Debtor will be the beneficial owner of the
Pledged Shares, free and clear of all liens, claims, encumbrances or other
rights of third parties of whatever kind or nature, other than the pledge
created by this Agreement. There are no outstanding options, rights, warrants or
any agreements or commitments with respect to the purchase or transferability of
the Pledged Shares. The Debtor has full power, authority and legal right to
pledge all of the Pledged Shares and grant the security interest therein
pursuant to this Agreement. The pledge, assignment and delivery of the Pledged
Shares will create a valid first lien on and a first perfected security interest
in such shares of the Pledged Shares and the proceeds thereof and the pledge
made pursuant thereto will not be in violation of any existing restrictions upon
transfer of the Pledged Shares, or, alternatively, there has been compliance
with all such applicable restrictions.
3. ADDITIONAL SHARES
The Debtor agrees that it will (a) pledge hereunder,
immediately upon its acquisition thereof, any and all Additional Shares, and (b)
promptly (and in any event within three business days) deliver to the Secured
Party an amendment hereto, duly executed by the Debtor, substantially in the
form of Exhibit B attached hereto, in respect of the Additional Shares (each, a
"Pledge Amendment"), together with all certificates or instruments representing
or evidencing the same. The Debtor
3
<PAGE> 4
hereby (i) authorizes the Secured Party to attach each Pledge Amendment to this
Agreement, (ii) agrees that all Additional Shares listed on any Pledge Amendment
delivered to the Secured Party shall for all purposes hereunder constitute
Pledged Collateral, and (iii) is deemed to have made, upon such delivery, the
representations and warranties contained in Section 2 hereof with respect to
such Additional Shares.
4. TRANSFERABILITY OF PLEDGED COLLATERAL
4.1. Permitted Transfers; Liability of
Transferees. Notwithstanding anything to the contrary herein, in the Note, or in
the Employment Agreement, the Debtor and any of its successors, transferees or
assignees may not sell, assign or transfer record and beneficial ownership of
any or all of the Pledged Collateral or the Released Shares (a "Sale") to any
third party, without the express prior written consent of the Secured Party;
provided, however, that the net proceeds resulting from such Sale shall be
applied to reduce the Indebtedness in accordance with the terms of the Note.
4.2. Covenant Against Encumbrances. The Debtor
and its permitted successors, transferees and assignees shall not repledge or
hypothecate any of the Pledged Collateral or otherwise create, assume or permit
to exist any claim or lien on or security interest in any of the Pledged
Collateral.
5. DEFAULT AND REMEDIES
(a) The following shall constitute an Event of
Default under this Agreement:
(i) the Debtor fails to make any payment of
principal or interest under the Note and
such default continues unremedied for ten
(10) days after notice thereof is given by
the Secured Party to the Debtor, or the
Note becomes due as a result of the
termination of the Debtor's employment with
the Secured Party;
(ii) the Debtor (i) fails or is unable to pay
its debts generally as they become due,
(ii) commences a voluntary case in
bankruptcy or any other action or
proceeding for any other relief under any
law affecting creditors' rights that is
similar to a bankruptcy law, (iii) consents
by answer or otherwise to the
4
<PAGE> 5
commencement against him of any involuntary
case in bankruptcy or any other such action
or proceeding, (iv) applies for or consents
to the appointment of, or the taking of
possession by, a receiver, liquidator,
assignee, custodian, trustee, conservator,
sequestrator or other similar official of
or of any substantial part of his property,
(v) a receiver, liquidator, assignee,
custodian, trustee, conservator,
sequestrator or other similar official is
appointed to take possession of any
substantial part of the Debtor's property
without his consent, or (vi) a court enters
an order for relief or a decree in an
involuntary case in bankruptcy or any other
action or proceeding in respect of Debtor
or any substantial part of his property
under any law affecting creditors' rights
that is similar to bankruptcy law;
(iii) the Debtor defaults in the performance of
any covenant contained herein and such
default is not cured within thirty (30)
days after notice thereof; or
(iv) any of the warranties or representations
contained in this Agreement shall have been
untrue in any material respect when made.
(b) Upon the occurrence of an Event of Default the
Secured Party shall have the right to take the following actions with respect to
the Pledged Collateral and any other collateral held as security for the
Indebtedness:
(i) collect by legal proceedings or otherwise
all dividends and other sums now or
hereafter payable on account of the Pledged
Collateral and any other collateral held as
security for the Indebtedness;
(ii) apply, set off, collect, or sell in one or
more sales upon the sending of ten (10)
days' notice to the Debtor (which notice
Debtor agrees is commercially reasonable),
the whole or any part of the Pledged
Collateral and any other collateral held as
security for the Indebtedness in such order
as the Secured Party or any holder of the
5
<PAGE> 6
Note may elect, and any such sale may be
made either in a public or private sale at
its place of business or elsewhere, or at
any broker's board or securities exchange,
either for cash or upon credit or for
future delivery, and the Secured Party or
any other holder of the Note may be the
purchaser of any or all of the Pledged
Collateral or any such other collateral so
sold and hold the same thereafter in its
own right free from any claim of the
Debtor. Each sale shall be made to the
highest bidder, but the Secured Party
reserves the right to reject any and all
bids at such sale which, in its sole
discretion, it shall deem inadequate.
Demands of performance, except as otherwise
herein specifically provided for, notices
of sale, advertisements and the presence of
property at sale are hereby waived and any
sale hereunder may be conducted by any
auctioneer or any officer or agent of the
Secured Party; and
(iii) between the time of the occurrence of the
Event of Default and the date of sale of
the Pledged Collateral, exercise as to the
Pledged Collateral all the rights, powers
and remedies of an owner other than the
right to vote the Pledged Collateral.
Proceeds of the sale of any of the Pledged Collateral and any other collateral
held as security for the Indebtedness and all sums received or collected by the
Secured Party or any holder of the Note from or on account of the Pledged
Collateral shall be applied to the payment of reasonable expenses incurred or
paid in connection with any sale, transfer or delivery of the Pledged Collateral
or such other collateral, to the payment of any other reasonable costs, charges,
attorneys' fees or expenses mentioned herein, and to the payment of the
Indebtedness of the Debtor or any part thereof, all in such order and manner as
Secured Party or any holder of the Note in its discretion may determine. The
balance of such proceeds, if any, shall be returned to the record owner of the
Pledged Collateral.
6. RELEASE OF STOCK
6.1. Upon the termination of the employment of
the Debtor with the Secured Party as a result of an event
6
<PAGE> 7
specified in clause (c), (d) or (e) of Section 9 of the Employment Agreement,
dated as of October 6, 1997, between the Debtor and the Secured Party (the
"Employment Agreement"), or as a result of the death of the Debtor, the Secured
Party or any other holder of the Note shall release both the Supplemental Shares
and the Additional Shares (collectively, upon such release, the "Released
Shares") from the lien and security interest of this Agreement.
6.2. Upon payment in full of all Indebtedness due
under the Note, the Secured Party or any other holder of the Note shall release
the Pledged Collateral and any other collateral then held as security for the
Indebtedness from the lien and security interest of this Agreement.
7. MISCELLANEOUS
7.1. The Debtor hereby waives any and all rights
which he may have to require the Secured Party to proceed against any person or
any collateral or to pursue any other remedy prior to enforcing his rights
hereunder as well as any and all rights which he may have as a result of any
extension or postponement of the time of payment or any other indulgence by the
Secured Party or release of collateral, and hereby consents to any or all such
action taken by the Secured Party.
The Debtor hereby releases the Secured Party from any claims,
causes of action and demands at any time arising out of or with respect to this
Agreement, the Note, the use of the Pledged Collateral or any other collateral
pledged to secure the Indebtedness and/or any actions taken or omitted to be
taken by Secured Party with respect thereto, and the Debtor agrees to hold
Secured Party harmless from and with respect to any and all such claims, causes
of action and demands, except with respect to acts or omissions constituting
gross negligence or willful misconduct. The Secured Party's prior recourse to
any part or all of the Pledged Collateral or any other collateral pledged to
secure the Indebtedness shall not constitute a condition of any demand, suit or
proceeding for payment or collection of the Note, nor shall any demand, suit or
proceeding for payment or collection of the Note constitute a condition of any
recourse by Secured Party to the Pledged Collateral or such other collateral. No
act, failure or delay by Secured Party shall constitute a waiver of its rights
and remedies hereunder or otherwise. No single or partial waiver by Secured
Party of any covenant, warranty, representation, default, right or remedy which
Secured Party may have shall operate as a waiver of any other covenant,
warranty, representation, default, right or remedy or of the same covenant,
7
<PAGE> 8
warranty, representation, default, right or remedy on a future occasion.
7.2. All notices hereunder shall be in writing
and hand-delivered, telecopied or sent by overnight courier service or
registered or certified mail, postage prepaid, to the address of the parties set
forth hereinabove or to the address of any transferee of the Pledged Collateral
provided to the Debtor, or to such other address as way be designated in a
notice pursuant hereto; provided, that a copy of all notices hereunder sent to
the Secured Party shall be sent to Greenmarine Holdings LLC, 277 Park Avenue,
27th Floor, New York, New York 10172, attention: Gary Duberstein. All such
notices shall be deemed duly given upon receipt or upon refusal if properly
delivered.
7.3. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns
in interest, and this Agreement is to be construed and performed in accordance
with the laws of New York without giving effect to the principles of conflicts
of law thereunder. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original and one and the same agreement.
7.4. This Agreement may not be changed orally,
but only by an agreement in writing and signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
7.5. The parties hereto agree that each section
and provision herein shall be treated as a separate and independent clause, and
the enforceability of any one clause shall in no way impair the enforceability
of any other clauses herein. If at any time in the future any one or more of the
sections or provisions contained in this Agreement shall for any reason be held
to be excessively broad as to scope, activity or subject so as to be
unenforceable, such sections or provisions shall be construed by limiting and
reducing them, so as to be enforceable to the extent compatible with the
applicable law as it shall then appear.
8
<PAGE> 9
IN WITNESS WHEREOF, the undersigned have caused this Pledge
and Security Agreement to be executed the day and year first above written.
/s/ Andrew Hines
------------------------------------
Debtor: Andrew Hines
Secured Party:
OUTBOARD MARINE CORPORATION
By: /s/ Gary K. Duberstein
--------------------------------
Name: Gary K. Duberstein
Title: Vice Chairman of the Board
9
<PAGE> 10
Exhibit B
FORM OF PLEDGE AMENDMENT
This Pledge Amendment, dated ____________________,
____, is delivered pursuant to Section 3 of the Pledge and Security
Agreement referred to below. The undersigned hereby agrees that this
Pledge Amendment may be attached to the Pledge and Security Agreement,
dated as of October 6, 1997, between the undersigned and Outboard
Marine Corporation and that the Additional Shares listed on this Pledge
Amendment shall be and become part of the Pledged Collateral referred
to in the Pledge and Security Agreement and shall secure all
Indebtedness of the undersigned. The terms defined in the Pledge and
Security Agreement are being used herein as therein defined.
By: ________________________________
name:
Stock
Certificate Number
Issuer Class of Stock No(s). Par Value of Shares
- ------ -------------- ------ --------- ---------
10
<PAGE> 1
Exhibit 10.21
Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
October 6, 1997
Mr. Andrew Hines
20 Saddle River Road
Far Hills, New Jersey 07931
Re: Grant of Nonqualified Options
Dear Mr. Hines:
Reference is made hereby to that certain Employment Agreement
between you and Outboard Marine Corporation (the "Company"), of even date
herewith (the "Employment Agreement"), which, among other things, provides for
the grant to you of two nonqualified options to purchase shares of common stock,
par value $.01 per share, of the Company (the "Shares") on the terms and subject
to the conditions set forth in the Employment Agreement and in this letter
agreement (the "Option Agreement"). For purposes of Section 280G of the Internal
Revenue Code of 1986, as amended, this Option Agreement is subject to
ratification by the affirmative vote of stockholders of the Company representing
a majority of the Shares outstanding. A copy of the Employment Agreement is
annexed hereto as Exhibit A and shall be deemed a part hereof as if fully set
forth herein. Unless the context otherwise requires, all terms defined in the
Employment Agreement shall have the same meanings when used herein.
1. Option.
(a) The Company hereby grants to you, as a
matter of separate inducement and not in lieu of any salary or other
compensation for your services, the right and option (the "Option") to purchase,
in accordance with the terms and subject to the conditions set forth in the
Employment Agreement and in this Option Agreement, an aggregate of 180,000
Shares at a cash price of $18.00 per
<PAGE> 2
Share, such option price being, in the judgment of the Board of Directors, not
less than one hundred percent (100%) of the fair market value of such Share at
the date hereof. The Option is not intended to qualify as an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended.
(b) During a period commencing on the first
anniversary of the date of this Option Agreement and terminating at the close of
business on the tenth anniversary hereof of the date of this Option Agreement of
the date of this Option Agreement (the "Expiration Date", this Option may be
exercised by you from time to time in whole or in part to the extent set forth
below:
i) this Option may not be exercised by
you prior to the first anniversary of the date of this
Option Agreement;
ii) up to thirty-three and a third
percent (33 1/3%) of the total number of Shares subject to this Option
may be purchased by you beginning on the first anniversary of the date
of this Option Agreement;
iii) up to an additional thirty-three
and a third percent (33 1/3%) of the total number of Shares subject to
this Option may be purchased by you beginning on the second anniversary
of the date of this Option Agreement; and
iv) the balance of the total number of
Shares subject to this Option may be purchased by you beginning on the
third anniversary of the date of this Option Agreement;
provided, however, that to the extent Executive dies during any such
twelve-month period referred to above, any unvested portion of the Option shall
vest prorata for the number of full months Executive was employed during such
twelve-month period in which his death occurs.
2. Termination of Options. The unexercised portion of the
Option granted herein will automatically and without notice terminate and become
null and void upon the earliest to occur of the following:
(a) on the Expiration Date;
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<PAGE> 3
(b) the date of termination of your
employment if your employment is terminated by you other than for Good Reason
(as defined in the Employment Agreement) or is terminated by the Company for
Cause (as defined in the Employment Agreement);
(c) the expiration of 90 days after the date
of termination by the Company of your employment other than for Cause or the
termination by you of your employment for Good Reason, during which period the
Option will be exercisable only to the extent that it had been exercisable
immediately prior to the termination of your employment;
(d) the expiration of one (1) year after
your death if your death occurs during your employment, during which period the
Option will be exercisable only to the extent that it had been exercisable
immediately prior to and as a result of your death; or
(e) the expiration of 90 days after
termination of your employment as a result of your Total Disability (as defined
in the Employment Agreement), during which period the Option will be exercisable
only to the extent that it would have been exercisable immediately prior to your
termination of Employment.
3. Non-transferability of Options. The Option is not
transferable by you otherwise than by will or the laws of descent and
distribution or to a trust exclusively for the benefit of members of your
family, and are exercisable, during your lifetime, only by you or the trustee of
any such trust to which you shall have transferred the Option. The Option may
not be assigned, transferred (except by will or the laws of descent and
distribution or to such a trust), pledged or hypothecated in any way (whether by
operation of law or otherwise) and shall not be subject to execution, attachment
or similar proceeding. Any attempted assignment, transfer, pledge, hypothecation
or other disposition of the Option contrary to the provisions hereof, and the
levy of any attachment or similar proceeding upon the Option, shall be null and
void and without effect.
4. Exercise of the Option.
(a) Purchase of Shares. Any exercise of the
Option shall be in writing addressed to the Secretary of the
Company at the principal place of business of the Company,
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<PAGE> 4
shall be substantially in the form attached hereto as Exhibit B and shall be
accompanied by a certified or bank cashier's check to the order of the Company
in the full amount of the purchase price of the Shares so purchased.
(b) Legends. If the Company, in its sole
discretion, shall determine that it is necessary, to comply with applicable
securities laws, the certificate or certificates representing the Shares
purchased pursuant to the exercise of the Option shall bear an appropriate
legend in form and substance, as determined by the Company, giving notice of
applicable restrictions on transfer under or in respect of such laws.
(c) Investment Intent. You hereby covenant
and agree with the Company that if, at the time of exercise of the Option, there
does not exist a Registration Statement on an appropriate form under the
Securities Act of 1933, as amended (the "Act"), which Registration Statement
shall have become effective and shall include a prospectus which is current with
respect to the Shares subject to the Option, (i) that you will represent that
you are purchasing the Shares for your own account and not with a view to the
resale or distribution thereof and (ii) that any subsequent offer for sale or
sale of any such Shares shall be made either pursuant to (x) a Registration
Statement on an appropriate form under the Act, which Registration Statement
shall have become effective and shall be current with respect to the Shares
being offered and sold, or (y) a specific exemption from the registration
requirements of the Act, but in claiming such exemption, you shall, if requested
by the Company, prior to any offer for sale or sale of such Shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
applicability of such exemption.
(d) The exercise of the Option after
termination of your employment with the Company shall be subject to satisfaction
of the conditions precedent that you neither (i) compete with, or take other
employment with or render services to a competitor of, the Company, its
subsidiaries or affiliates without the written consent of the Company, nor (ii)
conduct yourself in a manner adversely affecting the Company, as determined in
good faith by the Company's Board of Directors.
5. Adjustment Provisions; Change in Control.
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<PAGE> 5
(a) If there shall be any change in the
Shares, through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to all holders of
Shares, an adjustment shall be made to the Option such that the Option shall
thereafter be exercisable for such securities, cash and/or other property as
would have been received in respect of the Shares subject to the Option had it
been exercised in full immediately prior to such change or distribution, and
such an adjustment shall be made successively each time any such change shall
occur. In addition, in the event of any such change or distribution, in order to
prevent dilution or enlargement of your rights hereunder, the Company will have
authority to adjust, in an equitable manner, the number and kind of shares that
may be issued with respect to the Option hereunder, the number and kind of
shares subject to the Option, the exercise price applicable to the Option, and
the Market Value (as hereinafter defined) of the Shares and other value
determinations applicable to the Option. Appropriate adjustments may also be
made by the Company in the terms of the Option to reflect such changes or
distributions and to modify any other terms of the Option on an equitable basis.
In addition, the Company is authorized to make adjustments to the terms and
conditions of the Option, in recognition of unusual or nonrecurring events
affecting the Company or the financial statements of the Company, or in response
to changes in applicable laws, regulations, or accounting principles.
(b) Notwithstanding any other provision
hereunder, if there is a "Change in Control" (as hereinafter defined) of the
Company, the Option shall immediately become exercisable. For purposes of this
Section 7(b), a "Change in Control" of the Company shall be deemed to have
occurred upon any of the following events:
(i) The consummation of a direct or
indirect sale, lease, exchange or other transfer of all or substantially all of
the assets of the Company to any person or entity or group of persons or
entities acting in concert as a partnership or other group (a "Group of
Persons") other than a subsidiary of the Company;
(ii) The replacement of a majority of
the Board of Directors of the Company and such replacement
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<PAGE> 6
shall not have been approved by a majority of the directors on the Board of
Directors at such time; or
(iii) A Group of Persons (other than
Greenmarine Holdings LLC, one or more of its members or any affiliate (as
defined in the Exchange Act) of any such member) shall, as a result of a tender
or exchange offer, open market purchases, privately negotiated purchases or
otherwise, have become the beneficial owner (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
securities of the Company representing more than 50% of the combined voting
power of the then outstanding securities of the Company ordinarily (and apart
from rights arising under special circumstances) having the right to vote in the
election of directors.
Notwithstanding the foregoing, (A) changes in the relative
beneficial ownership among members of Greenmarine Holdings LLC shall not, by
themselves, constitute a Change in Control of the Company, and (B) any event
listed in clauses (i) through (iii) above that the Board of Directors determines
in good faith not to be a Change in Control of the Company, shall not constitute
a Change in Control of the Company.
The Company, in its discretion, may determine that, upon the
occurrence of a Change in Control of the Company, the Option shall terminate
within a specified number of days after notice to you, and you shall receive,
with respect to each Share subject to the Option, an amount equal to the excess,
if any, of the Market Value of such Shares immediately prior to the occurrence
of such Change in Control over the exercise price per share of the Option; such
amount to be payable in cash, in one or more kinds of property (including the
property, if any, payable in the transaction) or in a combination thereof, as
the Company, in its discretion, shall determine.
(c) "Market Value" shall mean the fair
market value of the Shares determined in good faith by the Board of Directors of
the Company, provided that in the event Shares shall be traded on a national
stock exchange or a public market shall exist for the Shares on a national
quotation system, the fair market value for the Shares shall be the average
closing price for the Shares for the 20 trading days immediately preceding the
date on which Market Value is to be determined.
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<PAGE> 7
6. Withholding Taxes. The Company may withhold or cause to be
withheld from sums due or to become due to you from the Company or a subsidiary
or affiliate thereof an amount necessary to satisfy its obligation (if any) to
withhold taxes incurred by reason of the exercise of these Options, or may
require you to reimburse the Company in such amount and may make such
reimbursement a condition to the delivery of the Shares pursuant to the exercise
of this Option Agreement.
7. Tenure. Your right to continue to serve the Company or any
of its subsidiaries as an officer, employee, or otherwise, shall not be enlarged
or otherwise affected by his award hereunder.
8. Notices. Any notice required or permitted under this Option
Agreement shall be deemed to have been duly given if delivered, telecopied or
mailed, certified or registered mail, return receipt requested to you, in any
case, in accordance with Section 29 of the Employment Agreement.
9. Failure to Enforce Not a Waiver. The failure of the Company
to enforce at any time any provision of the this Option Agreement shall in no
manner be construed to be a waiver of such provision or of any other provision
hereof.
10. Governing Law. This Option Agreement shall be governed by
and construed according to the laws of the State of Delaware, applicable to
agreements made and performed in that state.
11. Partial Invalidity. The invalidity or illegality of any
provision herein shall not be deemed to affect the validity of any other
provision.
12. Counterparts. This Option Agreement may be executed in
counterparts each of which taken together shall constitute one and the same
instrument.
13. Amendment. This Option Agreement may not be amended except
by an instrument in writing making specific reference hereto signed by each of
the parties hereto; provided, however, the provisions of Section 1 hereof may
not be amended more than once every six (6) months, other than to comport with
changes in the Internal Revenue Code of 1986, as amended, or the rules and
regulations thereunder,
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<PAGE> 8
or the Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.
Please indicate your acceptance of all the terms and
conditions of this Option Agreement by signing and returning a copy hereof.
Very truly yours,
OUTBOARD MARINE CORPORATION
By: /s/ Gary K. Duberstein
Name: Gary K. Dubertstein
Title: Vice Chairman of the Board
ACCEPTED as of the date and year first written above:
/s/ Andrew Hines
Andrew Hines
8
<PAGE> 9
Exhibit A
Employment Agreement
(see attached)
9
<PAGE> 10
Exhibit B
Exercise Letter
[Date]
Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
Attention: Corporation Secretary
Re: Nonqualified Stock Option Granted
Pursuant to Employment Agreement
Dear Sir:
I am the holder of a Nonqualified Stock Option granted to me
pursuant to the above-referenced Employment Agreement, dated as October 6, 1997,
between Outboard Marine Corporation (the "Company") and me to purchase 180,000
shares of common stock of the Company ("Shares") at a price of $18.00 per Share.
I hereby exercise that option with respect to ______ Shares, the total purchase
price for which is $_____________________.
On _______________ [a business day not more than 15 days from
the date of this letter], I will present a certified check payable to the order
of the Company in the amount of $____________ [and ___________ Shares (in proper
form for transfer and accompanied by all requisite stock transfer stamps or cash
in lieu thereof) having a fair market value equal to $______________]
representing the total purchase price for the Shares. The certificate or
certificates representing the Shares should be registered in my name and upon
the presentation of that check [and ___________ Shares] the Shares should be
[delivered to me] [forwarded to me at the address indicated below].
I hereby agree to pay the full amount of all withholding taxes
which the Company or any subsidiary or parent corporation is required to
withhold in connection with the exercise of this option and further authorize
the Company, or the subsidiary or parent corporation, to withhold from any cash
compensation paid to me or in my behalf an amount sufficient to discharge the
Federal, State or local income or employment tax withholding obligation to
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<PAGE> 11
which the Company, or the subsidiary or parent corporation, becomes subject by
reason of the exercise of this option. I agree that the corporation by which I
am employed may, in its discretion, hold the stock certificate to which I become
entitled upon exercise of this option, as security for the payment of the
aforementioned withholding tax liability, until cash sufficient to pay that
liability has been accumulated.
Please acknowledge receipt of the exercise of my stock option
on the attached copy of this letter.
Very truly yours,
Andrew Hines
Address
Social Security Number
RECEIPT ACKNOWLEDGED:
OUTBOARD MARINE CORPORATION
By:
Name:
Title:
11
<PAGE> 1
EXHIBIT 10.22
INCENTIVE STOCK OPTION GRANT AGREEMENT
GRANTED TO: David D. Jones, Jr.
DATE OF GRANT: December 30, 1997
GRANTED PURSUANT TO: (i) Paragraph 6 of an employment agreement
dated March 10, 1998 between the Company and
David D. Jones, Jr. and (ii) Outboard Marine
Corporation Personal Rewards and
Opportunities Program
NUMBER OF UNDERLYING SHARES: 61,105 shares
EXERCISE PRICE: $18.00 per share
VESTING SCHEDULE: 5,555 shares become exercisable on the Date
of Grant and an additional 5,555 shares
become exercisable on each of the next 10
January 1sts following the Date of Grant
1. This Incentive Stock Option Grant Agreement (the "Agreement") is
made and entered into as of December 30, 1997 (the "Date of Grant") between
Outboard Marine Corporation, a Delaware corporation (the "Company"), and David
D. Jones, Jr. (the "Employee") pursuant to Paragraph 6 of an employment
agreement dated March 10, 1998 between the Company and the Employee (the
"Employment Agreement "). It is the intent of the Company and the Employee that
the Option (as defined in Paragraph 2 below) shall qualify as an "incentive
stock option" ("ISO") under Section 422 of the Internal Revenue Code of 1986, as
amended from time to time, but the Company makes no warranty as to the
qualification of the Option as an ISO. Moreover, to the extent that the
aggregate fair market value of the shares with respect to which the Option and
all other ISOs granted to the Employee by the Company are exercisable for the
first time during any calendar year exceeds $100,000, such options shall not
qualify as ISOs.
2. The Employee is granted an option to purchase 61,105 shares of the
common stock of the Company (the "Option"). The Option is granted under the
Outboard Marine Corporation Personal Rewards and Opportunities Program ("PROP"),
a copy of which is enclosed herewith and to the extent directly relating to the
Option, under Paragraphs 6, 11, 12 and 13 of the Employment Agreement, the
provisions of which are incorporated herein. The Option granted hereunder is a
matter of separate inducement and is not in lieu of salary or other compensation
for the Employee's services.
3. The Option's Exercise Price is $18.00 per share.
4. The Option, unless sooner terminated or exercised in full, shall
expire on the 10th anniversary of the Date of Grant and, notwithstanding
anything contained in this Agreement to the contrary, no portion of the Option
may be exercised after such date.
5. Subject to Paragraph 4 above and the terms of the Employment
Agreement incorporated herein, the Option shall become exercisable according to
the exercisability schedule set forth below:
<PAGE> 2
5,555 shares shall become exercisable on the Date
of Grant and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 1998 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 1999 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 2000 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 2001 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 2002 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 2003 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 2004 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 2005 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
5,555 shares shall become exercisable on January
1, 2006 and shall remain exercisable until
the 10th anniversary of the Date of Grant;
and
5,555 shares shall become exercisable on January
1, 2007 and shall remain exercisable until
the 10th anniversary of the Date of Grant.
6. During the Employee's lifetime, the Option shall not be subject in
any manner to alienation, anticipation, sale, assignment, pledge, encumbrance or
other transfer and shall be exercisable only by the Employee. Upon the death of
the Employee, the Option shall be exercisable only by the executor or
administrator of the estate of the deceased Employee or the person or persons to
whom the deceased Employee's rights with respect to the Option shall pass by
will or the laws of descent and distribution.
7. The Employee may exercise the exercisable portion of the Option
regardless of whether any other stock option that the Employee has been granted
by the Company remains unexercised. In no event may the Employee exercise the
Option for a fraction of a share or for less than 100 shares (unless the number
purchased is the total balance for which the Option is then exercisable).
8. Any exercise of the Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal business office of the
Company, specifying the Option being exercised and the number of shares of Stock
to be purchased, and specifying a business day not more than 10 days from the
date such notice is given for the payment of the purchase price against delivery
of the shares of Stock being purchased. Subject to the terms of PROP and this
Agreement, the Company shall cause certificates for the shares so purchased to
be delivered at the principal business office of the Company, against payment of
the full purchase price, on the date specified in the notice of exercise. The
Option's Exercise Price shall be paid by the Employee in cash or, if permitted
by the Committee in its sole discretion at the time of exercise, in shares of
Common Stock currently held by the Employee at the time of exercise, or by a
combination of
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<PAGE> 3
cash and such currently held shares. Any shares of Common Stock delivered in
payment of the Exercise Price shall be valued at their then fair market value.
9. By his acceptance of this Agreement, the Employee agrees to
reimburse the corporation employing the Employee for any taxes required by any
government to be withheld or otherwise deducted and paid by such corporation
with respect to the issuance or disposition of the shares subject to the Option.
In lieu thereof, the corporation that employs the Employee shall have the right
to withhold the amount of such taxes from any other sums due or to become due
from such corporation to the Employee. The corporation that employs the Employee
may, in its discretion, hold the stock certificate or certificates to which the
Employee is entitled upon the exercise of the Option as security for the payment
of such withholding tax liability until cash sufficient to pay that liability
has been accumulated. In addition, at any time that the Company becomes subject
to a withholding obligation under applicable law with respect to the exercise of
a Non-Qualified Option (the "Tax Date"), except as set forth below, a holder of
a Non-Qualified Option may elect to satisfy, in whole or in part, the holder's
related personal tax liabilities (an "Election") by (a) directing the Company to
withhold from shares of Stock issuable in the related exercise either a
specified number of shares of Stock or shares of Stock having a specified value
(in each case not in excess of the related personal tax liabilities), (b)
tendering shares of Stock previously issued pursuant to the exercise of a stock
option or other shares of Stock owned by the holder, or (c) combining any or all
of the foregoing Elections in any fashion. An Election shall be irrevocable. The
withheld shares and other shares of Stock and other shares of Stock tendered in
payment shall be valued at their fair market value on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right to make
Elections or provide that the right to make Elections shall not apply to
particular shares of Stock or exercises. The Committee may impose any additional
conditions or restrictions on the right to make an Election as it shall deem
appropriate, including any limitations necessary to comply with Section 16 of
the Exchange Act.
10. The Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option until the Option is
exercised and the Employee receives such shares.
11. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or with
respect to such laws.
12. The Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Securities Act of 1933, as amended (the "Act"),
which Registration Statement shall have become effective and shall include a
prospectus that is current with respect to the shares subject to the Option,
then the Employee shall execute and deliver a certificate to the Company
indicating (i) that he is purchasing the shares for his own account and not with
a view to the resale or distribution thereof, (ii) that any subsequent offer for
sale or sale of any such shares shall be made either pursuant to (x) a
Registration Statement on an appropriate form under the Act, which Registration
Statement shall have become effective and shall be current with respect to the
shares being offered and sold, or (y) a specific exemption from the registration
requirements of the Act and any rules and regulations thereunder and applicable
state securities laws and regulations, but in claiming such exemption, the
Employee shall, prior to any offer for sale or sale of such shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
applicability of such exemption and (iii) that the Employee agrees that the
certificate or certificates evidencing such shares shall bear a legend to the
effect of the foregoing.
13. This Agreement is not a contract of employment and the terms of the
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue the Employee's employment, and it shall not impose any obligation on
the Employee's part to remain in the employ of the Company.
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<PAGE> 4
14. The Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of the Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date written below.
OUTBOARD MARINE CORPORATION
By /s/ Gary K. Duberstein
__________________________
Gary K. Duberstein
ACCEPTED:
Signature of Employee
/s/ David D. Jones, Jr.
______________________________
DAVID D. JONES, JR.
Name of Employee (please print)
Date: 12/21/98
4
<PAGE> 1
EXHIBIT 10.23
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: David D. Jones, Jr.
DATE OF GRANT: March 10, 1998
GRANTED PURSUANT TO:
(i) Paragraph 6 of an employment agreement
dated March 10, 1998 between the Company and
David D. Jones, Jr. and (ii) Outboard Marine
Corporation Personal Rewards and
Opportunities Program
NUMBER OF UNDERLYING SHARES: 238,895 shares
EXERCISE PRICE: $18.00 per share
VESTING SCHEDULE: 88,890 shares become exercisable on
September 25, 1998, an additional 94,445
shares become exercisable on September 25,
1999, and an additional 55,560 shares become
exercisable on September 25, 2000.
1. This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of March 10, 1998 (the "Date of Grant") between
Outboard Marine Corporation, a Delaware corporation (the "Company"), and David
D. Jones, Jr. (the "Employee") pursuant to Paragraph 6 of an employment
agreement between the Company and the Employee dated March 10, 1998 ("Employment
Agreement"). It is the intent of the Company and the Employee that the Option
(as defined in Paragraph 2 below) will not qualify as an "incentive stock
option" under Section 422 of the Internal Revenue Code of 1986, as amended from
time to time.
2. The Employee is granted an option to purchase 238,895 shares of the
common stock of the Company (the "Option"). The Option is granted under the
Outboard Marine Corporation Personal Rewards and Opportunities Program ("PROP"),
a copy of which is enclosed herewith and to the extent directly relating to the
Option, under Paragraphs 6, 11, 12 and 13 of the Employment Agreements, the
provisions of which are incorporated herein by reference. The Option granted
hereunder is a matter of separate inducement and is not in lieu of salary or
other compensation for the Employee's services.
3. The Option's Exercise Price is $18.00 per share.
4. The Option, unless sooner terminated or exercised in full, shall
expire on the 10th anniversary of the Date of Grant and, notwithstanding
anything contained in this Agreement to the contrary, no portion of the Option
may be exercised after such date.
5. Subject to Paragraph 4 above and the terms of the Employment
Agreement incorporated herein, the Option shall become exercisable according to
the exercisability schedule set forth below.
88,890 shares shall become exercisable on September 25, 1998
and shall remain exercisable until the 10th
anniversary of the Date of Grant;
<PAGE> 2
94,445 shares shall become exercisable on September 25, 1999
and shall remain exercisable until the 10th
anniversary of the Date of Grant; and
55,560 shares shall become exercisable on September 25, 2000
and shall remain exercisable until the 10th
anniversary of the Date of Grant.
6. During the Employee's lifetime, the Option shall not be subject in
any manner to alienation, anticipation, sale, assignment, pledge, encumbrance or
other transfer and shall be exercisable only by the Employee. Upon the death of
the Employee, the Option shall be exercisable only by the executor or
administrator of the estate of the deceased Employee or the person or persons to
whom the deceased Employee's rights with respect to the Option shall pass by
will or the laws of descent and distribution. Notwithstanding the preceding two
sentences, the Option may be transferred by the Employee solely to his spouse,
siblings, parents, children and/or grandchildren or trusts for the benefit of
such persons or partnerships, limited liability companies or other entities
owned soley by such persons subject to any restrictions otherwise applicable to
the Option.
7. The Employee may exercise the exercisable portion of the Option
regardless of whether any other stock option that the Employee has been granted
by the Company remains unexercised. In no event may the Employee exercise the
Option for a fraction of a share or for less than 100 shares (unless the number
purchased is the total balance for which the Option is then exercisable).
8. Any exercise of the Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal business office of the
Company, specifying the Option being exercised and the number of shares of Stock
to be purchased, and specifying a business day not more than 10 days from the
date such notice is given for the payment of the purchase price against delivery
of the shares of Stock being purchased. Subject to the terms of PROP and this
Agreement, the Company shall cause certificates for the shares so purchased to
be delivered at the principal business office of the Company, against payment of
the full purchase price, on the date specified in the notice of exercise. The
Option's Exercise Price shall be paid by the Employee in cash or, if permitted
by the Committee in its sole discretion at the time of exercise, in shares of
Common Stock currently held by the Employee at the time of exercise, or by a
combination of cash and such currently held shares. Any shares of Common Stock
delivered in payment of the Exercise Price shall be valued at their then fair
market value.
9. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld or
otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares subject to the Option. In lieu thereof, the Company
shall have the right to withhold the amount of such taxes from any other sums
due or to become due from the Company to the Employee. The Company may, in its
discretion, hold the stock certificate or certificates to which the Employee is
entitled upon the exercise of the Option as security for the payment of such
withholding tax liability until cash sufficient to pay that liability has been
accumulated. In addition, at any time that the Company becomes subject to a
withholding obligation under applicable law with respect to the exercise of a
Non-Qualified Option (the "Tax Date"), except as set forth below, a holder of a
Non-Qualified Option may elect to satisfy, in whole or in part, the holder's
related personal tax liabilities (an "Election") by (a) directing the Company to
withhold from shares of Stock issuable in the related exercise either a
specified number of shares of Stock or shares of Stock having a specified value
(in each case not in excess of the related personal tax liabilities), (b)
tendering shares of Stock previously issued pursuant to the exercise of a stock
option or other shares of Stock owned by the holder, or (c) combining any or all
of the foregoing Elections in any fashion. An Election shall be irrevocable. The
withheld shares and other shares of Stock and other shares of Stock tendered in
payment shall be valued at their fair market value on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right to make
Elections or provide that the right to make Elections shall not apply to
particular shares of Stock or exercises. The Committee may impose any additional
conditions or restrictions on the right to make an Election as it shall deem
appropriate, including any limitations necessary to comply with Section 16 of
the Exchange Act.
2
<PAGE> 3
10. The Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option until the Option is
exercised and the Employee receives such shares.
11. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or with
respect to such laws.
12. The Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Securities Act of 1933, as amended (the "Act"),
which Registration Statement shall have become effective and shall include a
prospectus that is current with respect to the shares subject to the Option,
then the Employee shall execute and deliver a certificate to the Company
indicating (i) that he is purchasing the shares for his own account and not with
a view to the resale or distribution thereof, (ii) that any subsequent offer for
sale or sale of any such shares shall be made either pursuant to (x) a
Registration Statement on an appropriate form under the Act, which Registration
Statement shall have become effective and shall be current with respect to the
shares being offered and sold, or (y) a specific exemption from the registration
requirements of the Act and any rules and regulations thereunder and applicable
state securities laws and regulations, but in claiming such exemption, the
Employee shall, prior to any offer for sale or sale of such shares, obtain a
favorable written opinion from counsel for or approved by the Company as to the
applicability of such exemption and (iii) that the Employee agrees that the
certificate or certificates evidencing such shares shall bear a legend to the
effect of the foregoing.
13. This Agreement is not a contract of employment and the terms of the
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue the Employee's employment, and it shall not impose any obligation on
the Employee's part to remain in the employ of the Company.
The Employee acknowledges and agrees that neither the Company, its shareholders
nor its directors and officers, has any duty or obligation to disclose to the
Employee any material information regarding the business of the Company or
affecting the value of the Common Stock before or at the time of a termination
of the employment of the Employee by the Company, including, without limitation,
any information concerning plans for the Company to make a public offering of
its securities or to be acquired by or merged with or into another firm or
entity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date written below.
OUTBOARD MARINE CORPORATION
DATED: December 21, 1998. By /s/ Gary K. Duberstein
_________________________
Gary K. Duberstein
ACCEPTED this 21 day of December, 1998:
/s/ David D. Jones, Jr.
_______________________________
DAVID D. JONES, JR.
3
<PAGE> 1
EXHIBIT 10.24
NONQUALIFIED STOCK OPTION GRANT AGREEMENT
GRANTED TO: David D. Jones, Jr.
DATE OF GRANT: March 10, 1998
GRANTED PURSUANT TO: (i) Paragraph 7 of an employment agreement
dated March 10, 1998 between the Company and
David D. Jones, Jr. and (ii) Outboard Marine
Corporation Personal Rewards and
Opportunities Program
NUMBER OF UNDERLYING SHARES: 107,245 shares
EXERCISE PRICE: $18.00 per share
VESTING SCHEDULE: Option is immediately exercisable.
1. This Nonqualified Stock Option Grant Agreement (the "Agreement") is
made and entered into as of March 10, 1998 (the "Date of Grant") between
Outboard Marine Corporation, a Delaware corporation (the "Company"), and David
D. Jones, Jr. (the "Employee") pursuant to Paragraph 7 of an employment
agreement dated March 10, 1998 between the Company and the Employee ("Employment
Agreement"). It is the intent of the Company and the Employee that the Option
(as defined in Paragraph 2 below) will not qualify as an "incentive stock
option" under Section 422 of the Internal Revenue Code of 1986, as amended from
time to time.
2. The Employee is granted an option to purchase 107,245 shares of the
common stock of the Company (the "Option"). The Option is granted under the
Outboard Marine Corporation Personal Rewards and Opportunities Program ("PROP"),
a copy of which is enclosed herewith and to the extent directly relating to the
Option, under Paragraphs 7, 11, 12 and 13 of the Employment Agreement, the
provisions of which are incorporated herein by reference. The Option granted
hereunder is a matter of separate inducement and is not in lieu of salary or
other compensation for the Employee's services.
3. The Option's Exercise Price is $18.00 per share.
4. The Option, unless sooner terminated or exercised in full, shall
expire on the 10th anniversary of the Date of Grant and, notwithstanding
anything contained in this Agreement to the contrary, no portion of the Option
may be exercised after such date.
5. Subject to Paragraph 4 above and the terms of the Employment
Agreement incorporated herein, the Option shall become exercisable on the Date
of Grant.
6. During the Employee's lifetime, the Option shall not be subject in
any manner to alienation, anticipation, sale, assignment, pledge, encumbrance or
other transfer and shall be exercisable only by the Employee. Upon the death of
the Employee, the Option shall be exercisable only by the executor or
administrator of the estate of the deceased Employee or the person or persons to
whom the deceased Employee's rights with respect to the Option shall pass by
will or the laws of descent and distribution. Notwithstanding the preceding two
sentences, the Option may be transferred by the Employee
<PAGE> 2
solely to his spouse, siblings, parents, children and/or grandchildren or trusts
for the benefit of such persons or partnerships, limited liability companies or
other entities owned soley by such persons subject to any restrictions otherwise
applicable to the Option.
7. The Employee may exercise the exercisable portion of the Option
regardless of whether any other stock option that the Employee has been granted
by the Company remains unexercised. In no event may the Employee exercise the
Option for a fraction of a share or for less than 100 shares (unless the number
purchased is the total balance for which the Option is then exercisable).
8. Any exercise of the Option shall be in writing addressed to the
Corporate Secretary of the Company at the principal business office of the
Company, specifying the Option being exercised and the number of shares of Stock
to be purchased, and specifying a business day not more than 10 days from the
date such notice is given for the payment of the purchase price against delivery
of the shares of Stock being purchased. Subject to the terms of PROP and this
Agreement, the Company shall cause certificates for the shares so purchased to
be delivered at the principal business office of the Company, against payment of
the full purchase price, on the date specified in the notice of exercise. The
Option's Exercise Price shall be paid by the Employee in cash or, if permitted
by the Committee in its sole discretion at the time of exercise, in shares of
Common Stock currently held by the Employee at the time of exercise, or by a
combination of cash and such currently held shares. Any shares of Common Stock
delivered in payment of the Exercise Price shall be valued at their then fair
market value.
9. By his acceptance of this Agreement, the Employee agrees to
reimburse the Company for any taxes required by any government to be withheld or
otherwise deducted and paid by the Company with respect to the issuance or
disposition of the shares subject to the Option. In lieu thereof, the Company
shall have the right to withhold the amount of such taxes from any other sums
due or to become due from the Company to the Employee. The Company may, in its
discretion, hold the stock certificate or certificates to which the Employee is
entitled upon the exercise of the Option as security for the payment of such
withholding tax liability until cash sufficient to pay that liability has been
accumulated. In addition, at any time that the Company becomes subject to a
withholding obligation under applicable law with respect to the exercise of a
Non-Qualified Option (the "Tax Date"), except as set forth below, a holder of a
Non-Qualified Option may elect to satisfy, in whole or in part, the holder's
related personal tax liabilities (an "Election") by (a) directing the Company to
withhold from shares of Stock issuable in the related exercise either a
specified number of shares of Stock or shares of Stock having a specified value
(in each case not in excess of the related personal tax liabilities), (b)
tendering shares of Stock previously issued pursuant to the exercise of a stock
option or other shares of Stock owned by the holder, or (c) combining any or all
of the foregoing Elections in any fashion. An Election shall be irrevocable. The
withheld shares and other shares of Stock and other shares of Stock tendered in
payment shall be valued at their fair market value on the Tax Date. The
Committee may disapprove of any Election, suspend or terminate the right to make
Elections or provide that the right to make Elections shall not apply to
particular shares of Stock or exercises. The Committee may impose any additional
conditions or restrictions on the right to make an Election as it shall deem
appropriate, including any limitations necessary to comply with Section 16 of
the Exchange Act.
10. The Employee shall not have any of the rights of a shareholder with
respect to the shares of Common Stock underlying the Option until the Option is
exercised and the Employee receives such shares.
11. If the Company, in its sole discretion, shall determine that it is
necessary, to comply with applicable securities laws, the certificate or
certificates representing the shares purchased pursuant to the exercise of the
Option shall bear an appropriate legend in form and substance, as determined by
the Company, giving notice of applicable restrictions on transfer under or with
respect to such laws.
12. The Employee covenants and agrees with the Company that if, at the
time of exercise of the Option, there does not exist a Registration Statement on
an appropriate form under the Securities Act of 1933, as amended (the "Act"),
which Registration Statement shall have become effective and shall include a
prospectus that is current with respect to the shares subject to the Option,
then the Employee shall execute and deliver a certificate to the Company
indicating (i) that he is purchasing the shares for his own account
2
<PAGE> 3
and not with a view to the resale or distribution thereof, (ii) that any
subsequent offer for sale or sale of any such shares shall be made either
pursuant to (x) a Registration Statement on an appropriate form under the Act,
which Registration Statement shall have become effective and shall be current
with respect to the shares being offered and sold, or (y) a specific exemption
from the registration requirements of the Act and any rules and regulations
thereunder and applicable state securities laws and regulations, but in claiming
such exemption, the Employee shall, prior to any offer for sale or sale of such
shares, obtain a favorable written opinion from counsel for or approved by the
Company as to the applicability of such exemption and (iii) that the Employee
agrees that the certificate or certificates evidencing such shares shall bear a
legend to the effect of the foregoing.
13. This Agreement is not a contract of employment and the terms of the
Employee's employment shall not be affected hereby or by any agreement referred
to herein except to the extent specifically so provided herein or therein.
Nothing herein shall be construed to impose any obligation on the Company to
continue the Employee's employment, and it shall not impose any obligation on
the Employee's part to remain in the employ of the Company.
14. The Employee acknowledges and agrees that neither the Company, its
shareholders nor its directors and officers, has any duty or obligation to
disclose to the Employee any material information regarding the business of the
Company or affecting the value of the Common Stock before or at the time of a
termination of the employment of the Employee by the Company, including, without
limitation, any information concerning plans for the Company to make a public
offering of its securities or to be acquired by or merged with or into another
firm or entity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date written below.
OUTBOARD MARINE CORPORATION
DATED: December 21, 1998. By /s/ Gary K. Duberstein
------------------------
Gary K. Duberstein
ACCEPTED this 21 day of December, 1998:
/s/ David D. Jones, Jr.
- ----------------------------
DAVID D. JONES, JR.
3
<PAGE> 1
EXHIBIT 11
OUTBOARD MARINE CORPORATION
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
POST-MERGER COMPANY PRE-MERGER COMPANY
---------------------------------------- -----------------------
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- --------------------------------------
1998 1997 1998 1997 1996
----------- ---------- ----------- ---------- ----------
(In millions except amounts per share)
<S> <C> <C> <C> <C> <C>
Basic Earnings (Loss) Per Share:
Net Earnings (Loss)........................ $ (47.1) $(17.1) $(150.5) $(79.1) $ (7.3)
------- ------ ------- ------ -------
Weighted Average Number of Shares.......... 20.4 20.4 20.4 20.2 20.1
------- ------ ------- ------ -------
Basic Earnings (Loss) Per Share............ $ (2.31) $(0.84) $ (7.38) $(3.91) $ (0.36)
------- ------ ------- ------ -------
Diluted Earnings Per Share:
Net Earnings (Loss)........................ $ (47.1) $(17.1) $(150.5) $(79.1) $ (7.3)
Add: After-Tax Interest and Related Expense
Amortization on 7% Convertible
Subordinated Debentures................. -- -- -- 3.3 3.3
------- ------ ------- ------ ------
Net Earnings (Loss) Adjusted............... $ (47.1) $(17.1) $(150.5) $(75.8) $ (4.0)
------- ------ ------- ------ ------
Weighted Average Number of Shares............ 20.4 20.4 20.4 20.1 20.1
Common Stock Equivalents (Stock Options)..... -- -- -- 0.1 0.1
Weighted Average Common Shares Assuming
Conversion of 7% Convertible Subordinated
Debentures................................. -- -- -- 3.4 3.4
------- ------ ------- ------ ------
Average Shares Outstanding................... 20.4 20.4 20.4 23.6 23.6
------- ------ ------- ------ ------
Diluted Earnings (Loss) Per Share............ $ (2.31) $(0.84) $ (7.38) $ * $ *
======= ====== ======= ====== ======
- ------------
* The computation of diluted earnings per share of common stock is antidilutive; therefore, the amount reported
for basic and diluted earnings per share is the same.
</TABLE>
<PAGE> 1
EXHIBIT 12
OUTBOARD MARINE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO FIXED CHARGES
<TABLE>
<CAPTION>
Three Months
Ended
December 31 Years ended September 30
------------------- ------------------------------------------------
Post-Merger Company Pre-Merger Company
------------------------------ ------------------------------------
1998 1997 1998 1997 1996 1995 1994
-------- ------- ------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
(In millions except ratios)
Earnings (loss):
Earnings (loss) before provision for income
taxes................................... $(47.1) $(16.3) $(147.1) $(76.3) $(10.4) $60.8 $53.4
Interest expense........................... 6.8 7.7 30.1 16.2 12.3 23.1 15.1
Interest portion of rent expense........... 0.3 0.3 1.2 1.1 1.2 1.3 1.3
------ ------ ------- ------ ------ ----- -----
Earnings (loss)......................... $(40.0) $ (8.3) $(115.8) $(59.0) $ 3.1 $85.2 $69.8
====== ====== ======= ====== ====== ===== =====
Fixed Charges:
Interest expense........................... 6.8 7.7 30.1 16.2 12.3 23.1 15.1
Interest portion of rent expense........... 0.3 0.3 1.2 1.1 1.2 1.3 1.3
------ ------ ------- ------ ------ ----- -----
Fixed Charges........................... $ 7.1 $ 8.0 $ 31.3 $ 17.3 $ 13.5 $24.4 $16.4
====== ====== ======= ====== ====== ===== =====
Ratio of earnings to fixed charges........... 3.5 4.3
===== =====
Excess of fixed charges over earnings........ $ 47.1 $ 16.3 $ 147.1 $ 76.3 $ 10.4
====== ====== ======= ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,600
<SECURITIES> 0
<RECEIVABLES> 139,700
<ALLOWANCES> 9,200
<INVENTORY> 197,200
<CURRENT-ASSETS> 365,100
<PP&E> 220,800
<DEPRECIATION> 23,700
<TOTAL-ASSETS> 916,200
<CURRENT-LIABILITIES> 325,200
<BONDS> 247,000
0
0
<COMMON> 200
<OTHER-SE> 57,000
<TOTAL-LIABILITY-AND-EQUITY> 916,200
<SALES> 199,400
<TOTAL-REVENUES> 199,400
<CGS> 180,700
<TOTAL-COSTS> 180,700
<OTHER-EXPENSES> 59,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,800
<INCOME-PRETAX> (47,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (47,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (47,100)
<EPS-PRIMARY> (2.31)
<EPS-DILUTED> (2.31)
</TABLE>
