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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 1-2883
OUTBOARD MARINE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-1589715
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 Sea Horse Drive 60085
Waukegan, Illinois (Zip Code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (847) 689-6200
Securities registered pursuant to Section 12(b) of the Act:
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Name of Each Exchange
Title of Each Class on Which Registered
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<S> <C>
7% Convertible Subordinated Debentures Due 2002 New York 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, 1999 was $0.
Number of shares of Common Stock of $0.01 par value outstanding at December
31, 1999 was 20,439,531 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
Market for Registrant's Common Equity and Related Shareholder
5 Matters........................................................... 18
6 Selected Financial Data........................................... 18
Management's Discussion and Analysis of Financial Condition and
7 Results of Operations............................................. 19
7A Quantitative and Qualitative Disclosures about Market Risk........ 30
8 Financial Statements and Supplementary Data....................... 32
Changes in and Disagreements on Accounting and Financial
9 Disclosure........................................................ 70
PART III
10 Directors and Executive Officers of the Registrant................ 70
11 Executive Compensation............................................ 72
12 Security Ownership................................................ 82
13 Certain Relationships and Related Transactions.................... 84
PART IV
14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K... 86
Signatures........................................................ 90
</TABLE>
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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. However, effective October
1, 1998, the Company's fiscal year-end changed from September 30 to December
31. Therefore, for example, references herein to fiscal 1998 or fiscal year
1998 refer to the Company's fiscal year ended September 30, 1998 whereas
references to fiscal 1999 or fiscal year 1999 refer to the fiscal year ended
December 31, 1999.
General
Outboard Marine Corporation believes it is the world's largest dedicated
manufacturer of outboard marine engines and boats. As of December 31, 1999, the
Company had an approximate 32% share of the United States outboard engine
market and an estimated worldwide market share of 25%. Marketed 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 represent 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. The Company believes that its
marine dealer network of approximately 5,100 independent authorized dealers
worldwide, approximately 3,600 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 stern drive and inboard marine power systems.
The Company was incorporated in 1936 by members of the Briggs and Evinrude
families. Prior to the late 1980s, the focus of the Company's strategy was to
be the industry leader in the two-cycle engine market by manufacturing engines
and a variety of products powered by small gasoline engines. In addition to
outboard engines, the Company's products included lawnmowers, chainsaws,
snowmobiles, light industrial vehicles and turf care equipment. 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
3
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stock of the Company were issued to Greenmarine Holdings. The Tender Offer and
the Merger are collectively referred to herein as the "Greenmarine
Acquisition."
Since the Greenmarine Acquisition, the Company has recruited a highly
experienced senior management team led by David D. Jones, Jr. as President and
Chief Executive Officer. Mr. Jones was previously President of the Mercury
Marine Division of Brunswick Corporation, where, under his direction, the
division gained substantial market share in several key marine segments. Mr.
Jones has more than twenty years of experience in the marine industry. The
management team also includes Andrew P. Hines who joined the Company as
Executive Vice President and Chief Financial Officer and is currently Executive
Vice President Strategic Planning and Business Development. 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 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 seven separate horsepower categories.
Industry Overview
The recreational boating industry generated approximately $23 billion in
domestic retail sales in 1999, including approximately $12 billion in sales of
new boats, engines, trailers and accessories. 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 cost and 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 primarily to the recession during the early 1990s. In addition,
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. Finally, 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.
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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.
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 September 30, 1998
------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Engines............ $ 649.8 58.5% $111.9 56.1% $ 636.5 62.1%
Boats.............. 461.1 41.5 87.5 43.9 389.2 37.9
---------- ------- --------- -------- ---------- -------
Total............ $1,110.9 100.0% $199.4 100.0% $1,025.7 100.0%
========== ======= ========= ======== ========== =======
</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 and industry segment, see
Note 15 of the Notes to the Consolidated Financial Statements contained in Item
8 elsewhere herein).
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended Fiscal Year Ended
December 31, 1999 December 31, 1998 September 30, 1998
------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
United States...... $ 867.1 78.1% $152.0 76.2% $ 769.7 75.0%
Europe............. 93.4 8.4 15.6 7.8 91.9 9.0
Other.............. 150.4 13.5 31.8 16.0 164.1 16.0
---------- ------- --------- -------- ---------- -------
Total............ $1,110.9 100.0% $199.4 100.0% $1,025.7 100.0%
========== ======= ========= ======== ========== =======
</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. The Company's Evinrude brand
comprises two-stroke models incorporating the Company's FICHT Ram fuel-
injection technology and certain four-stroke engines. The Evinrude brand is
being marketed as the Company's "premium" outboard marine engine brand. In
addition, the Company has entered into a supply agreement with an affiliate of
Suzuki Motor Corporation under which Suzuki will manufacture certain other
four-stroke engines for sale by the Company under its Evinrude brand. The
Johnson brand comprises a full line of traditional carbureted two-stroke
models.
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, 225 and 250-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 microprocessor-based
engine management system, to blast short bursts of highly pressurized fuel
directly into the combustion chamber at rates of up to 100 times per second.
This high-pressure fuel pulse atomizes and positions each burst of gasoline in
the cylinder for complete ignition once the exhaust port has been closed by the
rising piston resulting in no unburned fuel escaping prior to combustion. The
FICHT fuel-injection technology possesses several advantages over standard two-
stroke engines, including smoother and quieter operation, 35% better fuel
economy on average, up to 80% reduction in hydrocarbon emissions and virtually
no smoke on start-up. In addition, two-stroke engines based on the FICHT fuel-
injection technology offer several benefits relative to four-stroke engines,
including increased low-end power, lighter weight and smaller size. Engines
with FICHT fuel-injection technology meet the EPA emissions standards set for
the year 2006.
5
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In fiscal 1997, the Company became aware of certain performance issues with
its FICHT engines. Since then the Company has developed and implemented
strategies to address the performance issues that had been identified. These
strategies included modifications to the 1999 model-year FICHT engines and
changes to the production processes for FICHT engines. In addition, upgrade
kits were provided for certain previously sold FICHT engines. Finally, on May
13, 1999, the Company announced an all-new line of Evinrude two-stroke direct
injection outboards with FICHT Ram injection technology for model year 2000.
These engines reflect certain further design refinements and improved methods
of production. See "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations--General--Introduction of FICHT Engines;
General"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>
<CAPTION>
Number of Retail Price
Horsepower Range Models Range($)
---------------- --------- ------------
<S> <C> <C>
2-24 horsepower..................................... 71 719- 3,056
25-99 horsepower.................................... 81 2,681- 8,813
100-250 horsepower.................................. 72 7,844-17,269
---
Total............................................. 224
===
</TABLE>
Parts and Accessories
The Company also offers a wide array of marine parts and accessories through
its Johnson and Evinrude dealers. Key products include engine parts, propellers
and engine oil. Most of the parts business consists of replacement parts for
outboard motors. The Company estimates that there are approximately seven
million Johnson and Evinrude outboard motors in use, which produce a steady
demand for high-margin replacement parts. In addition, in 1996 OMC launched a
new value-line of marine accessories under the Nautic Pro brand name. This
brand is marketed in part through a new distribution channel of marine and
discount retailers, and is priced to compete with other private label and
discount brands. Marine parts and accessories comprised approximately 19% and
18% of OMC's sales in fiscal year 1999 and fiscal year 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 boat brands are Chris*Craft,
Four Winns, Seaswirl, Stratos, Javelin, Hydra-Sports, Lowe and Princecraft. The
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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 one of the largest producers of boats in units and 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 amongst 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 2000 model
year boat products by category, including product line and trade name, overall
length, retail price range, and a brief description of boats manufactured:
<TABLE>
<CAPTION>
Product Line Overall Retail
& Trade Name Length(ft) Price Range($) Description
------------ ---------- -------------- -----------
<C> <C> <C> <S>
RECREATIONAL:
Chris*Craft... 19-32 21,915-150,200 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.
Four Winns.... 17-33 11,900-139,589 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 12,500-65,000 Seaswirl is a mid-priced boat line,
and is one of the leading boat brands
in the Western United States.
FISHING:
Stratos....... 16-22 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.. 17-30 14,300-101,500 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... 10-26 382-28,500 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.
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
holds 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 requires 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 December 10, 2017.
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 Stern Drive 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. Concurrently with the sale of the Company's
interest in the Volvo Penta Joint Venture, the Company and Volvo entered into
an agreement whereby Volvo will supply to the Company sterndrives through June
30, 2000 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.
Sales and Distribution
The Company believes that it has one of the world's largest marine dealer
networks with approximately 5,100 dealers worldwide, approximately 3,600 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 those 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 are 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 more 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 agrees to repurchase products up to a
specified amount in the event of repossession by the lender upon a dealer's
default. The Company's "floor plan" financing arrangements contain provisions,
which limit the Company's obligations to a total aggregate of approximately $33
million for a period not to exceed 18 months from the date of invoice. For the
fiscal years 1999 and 1998, the Company repurchased approximately $5.7 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, financial position,
and cash flows.
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.
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., Grady White
and Pursuit. Each of these manufacturers has agreed to pre-rig certain of its
products for outboard engines sold by OMC to such manufacturer's dealers. In
return, OMC pays a fee to the boat manufacturer based on the number of pre-
rigged boats sold by the manufacturer.
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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. In September 1998, the Company announced that it
would close its Illinois and Wisconsin facilities by the end of 2000 as more
fully discussed below. 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 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 (Hydrasports) and located
production closer to the retail market for these boats.
In September 1998, the Company announced that, over the next two years, it
would be closing its engine manufacturing facilities located in Milwaukee,
Wisconsin and Waukegan, Illinois. In connection with these closures, the
Company recorded a restructuring charge of $98.5 million in fiscal year 1998.
See "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. 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; (ii)
redesign for commonality of components; (iii) improved factory layouts and work
flows; (iv) outsourcing of non-core capabilities; and (v) improvements in key
quality metrics. The Company has begun implementation of its lean manufacturing
strategy at its main outboard engine assembly facility in Calhoun, Georgia. The
second phase of this initiative will include implementation at additional
manufacturing locations. The Company has also identified vendors for
outsourcing of targeted engine components as the move towards "focused"
factories continues.
Most recently, the Company has begun implementation of demand flow
technology at its final assembly facility in Calhoun, Georgia. This technology
will enable the Company to be more responsive to customer needs and should
result in lower work-in- process inventory and required manufacturing floor
space.
Foreign Operations
For the fiscal years 1999 and 1998, approximately 22%, and 25%,
respectively, of the Company's net sales were derived from operations conducted
outside the United States. As of December 31, 1999 and December 31, 1998,
approximately 4% of the Company's long-lived assets (primarily property, plant
and equipment) were located outside the United States. Foreign operations are
subject to unique 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
10
<PAGE>
value of the relevant currencies. While the Company hedges certain exposures to
foreign currency exchange rate changes arising in the ordinary course of
business, there can be no assurance that the Company will be successful and
that shifts in currency exchange rates will not have a material adverse effect
on the Company. See 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 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 32% share
of the United States outboard marine engine market and an estimated 25% 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 46% of the
U.S. market in 1999 in terms of unit sales.
Many of the Company's competitors, including Brunswick, Yamaha, and Honda
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 boat and engine packages.
Intellectual Property
The Company's engine manufacturing business relies heavily on patented and
other proprietary technology. The Company employs 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
11
<PAGE>
obtain patents that the Company will need to license or design around, that the
Company's products will not inadvertently infringe upon the valid patents of
others or that others will not manufacture and distribute the Company's
patented products upon expiration of such patents. In addition, there can be no
assurance that key patents of the Company will not be invalidated or that the
Company or its licensors will have adequate funds to finance the high cost of
prosecuting or defending patent validity or infringement issues.
In March 1998, the Company received correspondence from Orbital Engine
Corporation Limited ("Orbital") alleging that the Company's FICHT fuel-injected
150-horsepower engines infringed two Australian Orbital patents, which
correspond to three U.S. patents and to a number of foreign patents. In May
1999, the Company entered into a non-assert agreement with Orbital relative to
engines sold by OMC and its licensees, which use FICHT fuel injection. Under
the terms of the agreement, the Company will make certain payments to Orbital
for the use of the patents and all foreign counterparts, as well as certain
other patents, identified in the agreement. Under the terms of the agreement,
the Company is not precluded from developing FICHT fuel injection for any
application.
The Company also uses a number of trade names and trademarks in its
business, including Chris*Craft, Evinrude, FFI, FICHT, FICHT Ram Injection,
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 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 the Chris*Craft trade name and trademark for boats and certain boat
products worldwide. This license continues in perpetuity as the terms of the
license are complied with. 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, 2009, however it is
subject to unlimited ten-year renewal terms at the Company's option.
Research and Development
In the fiscal years 1999 and 1998, OMC spent $42.2 million and $36.8
million, respectively, on research and development, and related engineering
activities, for 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
12
<PAGE>
product line to low-emission products within the next decade. To date, the
Company estimates that it has spent approximately $65 million on Project LEAP,
including the introduction of its new FICHT fuel-injection technology and four-
stroke outboard engines. 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.
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 closedown costs associated with
discontinued operations or facilities, including the environmental costs of
operation and maintenance until disposition. At December 31, 1999, the Company
has an accrual of approximately $23 million for costs relating to remediation
at contaminated sites including operation and maintenance for continuing and
closed-down operations. It is reasonably possible that a change in this
estimate could occur in the near term. In addition, the Company has estimated
that reasonably possible environmental loss contingencies may exceed amounts
accrued by as much as $16.0 million at December 31, 1999. The possible recovery
of insurance proceeds has not been considered in estimating contingent
environmental liabilities. Each
13
<PAGE>
site, whether or not remediation studies have commenced, is reviewed on a
quarterly basis and the aggregate environmental contingent liability accrual is
adjusted accordingly. Therefore, the Company believes the accruals accurately
reflect the Company's liability based upon current information.
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. 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 adopted SOP 96-1 in the quarter ended September 30, 1997. The
adoption 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 17 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.
14
<PAGE>
Employees
As of December 31, 1999, approximately 6,335 people were employed worldwide
(5,713 domestic) by OMC and its subsidiaries, consisting of 1,209 salaried and
5,126 hourly employees. Approximately 16% of the Company's employees are
represented by one of three unions. The Laborers International Union of North
America ("LIUNA") represents approximately 457 employees at the Calhoun,
Georgia facility; the Independent Marine Machinists Association ("IMMA")
represents approximately 334 employees at the Waukegan, Illinois facility; and
the United Steel Workers of America ("USWA") represents approximately 244
employees at the Milwaukee, Wisconsin facility. The Company's agreements with
the LIUNA, IMMA and USWA are effective through September 30, 2000, December 31,
2000 or the closing of the facility, and March 31, 2000 or the closing of the
facility, 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 such closure period. See Note 4 of the Notes to the Consolidated
Financial Statements contained in Item 8 elsewhere herein.
15
<PAGE>
Item 2. Properties
The following table sets forth the Company's material facilities as of
December 31, 1999.
<TABLE>
<CAPTION>
Owned or Leased Square
Location Facility Type/Use (lease expiration) Footage
-------- ----------------- ------------------ -------
<S> <C> <C> <C>
Waukegan, IL............ Worldwide headquarters; outboard
engine component manufacturing Owned 1,519,000
Delavan, WI............. Outboard engine component
manufacturing Leased (Aug. 2006) 40,000
Milwaukee, WI........... Outboard engine component
manufacturing Owned 375,000
Burnsville, NC.......... Outboard engine component
manufacturing Owned 290,000
Spruce Pine, NC......... Outboard engine component
manufacturing Owned 100,000
Andrews, NC............. Outboard engine component
manufacturing Owned 150,000
Calhoun, GA............. Outboard engine assembly Owned 356,000
Beloit, WI.............. Worldwide parts and accessories
distribution center Owned 483,000
Waukegan, IL............ Distribution center Leased (Jan. 2003) 30,000
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
Cadillac, MI............ Boat manufacturing Owned 368,000
Lebanon, MO............. Boat manufacturing Owned 227,000
Murfreesboro, TN........ Boat manufacturing Owned 275,000
Columbia, SC............ Boat manufacturing Owned 223,000
Culver, OR.............. Boat manufacturing Owned 235,000
Syracuse, IN............ Boat manufacturing Owned 271,000
Sarasota, FL............ Boat manufacturing Owned 153,000
Princeville, Quebec, Boat manufacturing
Canada................. Owned 417,000
Juarez, Chihuahua, Outboard engine component
Mexico................. manufacturing Owned 200,000
Dongguan, China......... Outboard engine component
manufacturing Leased (Apr. 2002) 65,000
Hong Kong............... Outboard engine and component
manufacturing and distribution
center Owned 361,000
Manaus, Brazil.......... Outboard engine and component
assembly and fabrication Leased (Aug. 2001) 46,000
Campinas, Brazil........ Office; distribution center Leased (Aug. 2000) 15,000
Yatala, Australia....... Boat manufacturing and assembly Owned 37,000
Bankstown, Australia.... Office; distribution center Leased (Dec. 2004) 54,000
Gent, Belgium........... Office; warehouse Leased (Apr. 2003) 122,000
Bankstown, Australia.... Office; warehouse Leased (Apr. 2001) 54,000
Stuart, FL.............. Engineering test center Owned 53,000
</TABLE>
16
<PAGE>
Item 3. Legal Proceedings
The Company is engaged in a 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."
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. Currently,
the Company has a Self-Insured Retention for any one accident or occurrence of
$1,250,000 (indemnity only) with an $8,000,000 per year aggregate. Product
liability claims occurring outside the United States are covered by insurance
with a limit of $1,000,000 per occurrence, $2,000,000 aggregate. In the event
that the underlying product liability insurance or retentions are exhausted,
there is excess coverage up to $100,000,000 per occurrence and in the
aggregate.
See Note 17 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 fiscal year ended December 31, 1999, there were no matters
submitted to a vote of security holders.
17
<PAGE>
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, 1999.
There is no established public trading market for the Company's common stock.
During fiscal year 1999, the Company granted an aggregate of 596,000 options to
143 employees.
Item 6. Selected Financial Data
The following summary represents certain financial information for the
twelve months ended December 31, 1999, and December 31, 1998, the three months
ended December 31, 1998 and December 31, 1997, and the three fiscal years ended
September 30, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
Post-Merger Company Pre-Merger Company
---------------------------------------------------------- --------------------
At or for the
At or for the At or for the three months At or for the At or for the
fiscal year twelve months ended fiscal year fiscal years ended
ended ended December 31, ended September 30,
December 31, December 31, ---------------- September 30, --------------------
1999 1998 (1) 1998 1997 (1) 1998 1997 (3) 1996
------------- ------------- ------ -------- ------------- --------------------
(Dollars in millions, except per share amounts and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $1,110.9 $1,015.6 $199.4 $209.5 $1,025.7 $ 979.5 $ 1,121.5
Net earnings (loss)..... 8.2 (180.5) (47.1) (17.1) (150.5) (79.1) (7.3)
Average number of shares
of common stock
outstanding and common
stock equivalents, if
applicable............. 20.4 20.4 20.4 20.4 20.4 20.2 20.1
Per average share of
common stock:
Net earnings (loss)
Basic.................. 0.40 (8.85) (2.31) (0.84) (7.38) (3.91) (0.36)
Diluted................ 0.40 (8.85) (2.31) (0.84) (7.38) (3.91) (0.36)
Dividends declared per
share................. -- -- -- -- -- 0.20 0.40
Total assets (2)(4)..... 848.4 874.2 874.2 938.9 907.2 1,011.6 836.8
Long-term debt,
excluding current
maturities............. 241.4 247.0 247.0 102.8 247.9 103.8 177.6
Other data:
Net cash provided by
(used for) operating
activities............ 40.6 44.3 (53.0) (36.6) (60.7) (9.2) 91.1
Net cash provided by
(used for) investing
activities............ (42.5) (28.2) (9.6) (5.4) (24.0) (26.1) (50.5)
Net cash provided by
(used for) financing
activities............ 12.1 (26.6) 30.9 12.0 (45.5) (3.7) (2.9)
Depreciation and
amortization (including
amortization of debt
discount).............. 52.1 50.0 12.4 12.5 50.1 57.0 54.7
Amortization of debt
discount............... 1.5 0.6 0.1 0.3 0.8 2.7 0.8
Capital expenditures.... 48.5 43.2 15.1 6.3 34.4 36.3 52.7
</TABLE>
- --------
(1) Unaudited financial data for the twelve months ended December 31, 1998 and
the three months ended December 31, 1997 have been included for comparative
purposes.
(2) Total assets at December 31, 1999, December 31, 1998, December 31, 1997,
September 30, 1998 and September 30, 1997 are not comparable with 1996 due
to the application of purchase accounting. See "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(3) September 30, 1997 data includes Post-Merger Company data for total assets
and long-term debt.
(4) Certain historical amounts have been reclassed to conform with the 1999
presentation.
18
<PAGE>
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
Effective October 1, 1998, the Company's fiscal year-end changed from
September 30 to December 31. Therefore, for example, references herein to
fiscal 1998 or fiscal year 1998 refer to the Company's fiscal year ended
September 30, 1998 whereas references to fiscal 1999 or fiscal year 1999 refer
to the Company's fiscal year ended December 31, 1999.
Industry Overview. According to data published by the NMMA, the recreational
boating industry generated approximately $23 billion in domestic retail sales
in 1999, including approximately $12 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 cost and 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 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, 1998 annual U.S.
purchases of boats and engines were 305,000 and 314,000, respectively. In 1999,
U.S. unit sales of boats and engines increased to 345,000 and 331,900,
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 ended 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 ended March 31 and decline thereafter as the Company's
products enter the peak consumer selling seasons. Short-term borrowings
averaged $56.8 million in fiscal year 1999, with month-end peak borrowings of
$80.0 million in March 1999. Because of the seasonality of the Company's
business, the results of operations for any fiscal quarter are not necessarily
indicative of the results for the full year. Additionally, an event which
adversely affects the Company's business during any of these peak periods could
have a material adverse effect on the Company's financial condition or results
of operations for the full year.
The Company's business is also affected by weather patterns, which may
adversely impact the Company's operating results. For example, excessive rain
during the Spring and Summer, the peak retail sales periods, or unseasonably
cool weather and prolonged winter conditions, may curtail customer demand for
the Company's products. Although the geographic diversity of the Company's
dealer network may reduce the overall impact on
19
<PAGE>
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 Statement of Consolidated Financial
Position at September 30, 1998.
Market Share. Since 1997, the Company has seen a slight decrease in its
twelve month rolling domestic outboard engine market share from 33% as of
December 31, 1997 to 32% as of December 31, 1999, and a decline in its domestic
boat market share from 20% to 9% for the same period. The primary causes have
been the loss of key customers 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 will be able to reverse the decline in market
share the Company is confident that its strategies for future products,
combined with those products currently being offered, such as FICHT, will
improve its market share.
Introduction of FICHT Engines; General. 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 costs
associated with 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 further 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, that contained
additional performance enhancements to the FICHT engines, was provided to
dealers in April 1999. The Company recorded costs for upgrade kits of $4.3
million and $1.2 million for the quarters ended December 31, 1998 and March 31,
1999, respectively. The Company believes these upgrade kits will significantly
improve the overall performance of 1998 and 1999 model year FICHT fuel injected
engines. To demonstrate the Company's confidence in the FICHT fuel injected
engines as improved by the upgrade kits, the Company provided a limited
warranty extension on certain components from two to three years on all 1999
model FICHT fuel injected engines purchased between January 1, 1999 and March
31, 1999 and also on those purchased by June 30, 1999 and registered by July
15, 1999. In addition, the Company implemented engine modifications and changes
in production for the affected FICHT models. These engine modifications and
production changes were implemented during a planned two-week suspension of the
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Company's operations at certain of its engine-manufacturing facilities in March
1999. Finally, on May 13, 1999, the Company announced an all-new line of
Evinrude two-stroke direct injection outboards with FICHT Ram injection
technology for model year 2000. These engines reflect certain further design
refinements and improved methods of production.
In March 1998, the Company received correspondence from Orbital Engine
Corporation Limited ("Orbital") alleging that the Company's FICHT fuel-injected
150 horsepower engines infringed two Australian Orbital patents, which
correspond to three U.S. patents and to a number of foreign patents. In May
1999, the Company entered into a non-assert agreement with Orbital relative to
engines sold by OMC and its licensees which used FICHT fuel injection. Under
the terms of the agreement, the Company will make certain payments to Orbital
for use of the patents and all foreign counterparts, as well as certain other
patents, identified in the agreement. Under the terms of the agreement, the
Company is not precluded from developing FICHT fuel injection for any
application.
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>
Twelve Months ended Three Months ended Fiscal years ended
December 31, December 31, September 30,
-------------------------------- ----------------------------- -------------------------------
1998 1997
1999 (unaudited) 1998 (unaudited) 1998 1997
--------------- --------------- ------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $1,110.9 100.0% $1,015.6 100.0% $199.4 100.0% $209.5 100.0% $1,025.7 100.0% $979.5 100.0%
Cost of goods
sold............. 881.0 79.3 802.6 79.0 180.7 90.6 171.7 82.0 793.6 77.4 822.0 83.9
-------- ----- -------- ----- ------ ----- ------ ----- -------- ----- ------ -----
Gross earnings.... 229.9 20.7 213.0 21.0 18.7 9.4 37.8 18.0 232.1 22.6 157.5 16.1
Selling, general
and
administrative
expense.......... 207.2 18.7 279.7 27.5 62.3 31.2 48.8 23.3 266.2 26.0 219.9 22.5
Restructuring
charge (income).. (14.1) (1.3) 98.5 9.7 -- -- -- -- 98.5 9.6 -- --
Change in control
expenses-compensation.. -- -- -- -- -- -- -- -- -- -- 11.8 1.2
-------- ----- -------- ----- ------ ----- ------ ----- -------- ----- ------ -----
Earnings (loss)
from operations.. 36.8 3.3 (165.2) (16.2) (43.6) (21.8) (11.0) (5.3) (132.6) (13.0) (74.2) (7.6)
Non-operating
expense, net..... 18.0 1.6 12.7 1.3 3.5 1.8 5.3 2.5 14.5 1.4 2.1 0.2
Provision for
income taxes..... 10.6 1.0 2.6 0.3 -- -- 0.8 0.4 3.4 0.3 2.8 0.3
-------- ----- -------- ----- ------ ----- ------ ----- -------- ----- ------ -----
Net earnings
(loss)........... $ 8.2 0.7% $ (180.5) (17.8)% $(47.1) (23.6)% $(17.1) (8.2)% $ (150.5) (14.7)% $(79.1) (8.1)%
======== ===== ======== ===== ====== ===== ====== ===== ======== ===== ====== =====
</TABLE>
Twelve Months Ended December 31, 1999 Compared to the Twelve Months Ended
December 31, 1998.
Net Sales. Net sales were $1,110.9 million in 1999 as compared to $1,015.6
million in 1998, representing an increase of $95.3 million or 9.4%. During this
time period, the Company's worldwide engine sales, including parts and
accessories increased 4.7% while boat sales increased 16.8%. The increase in
engine sales was due primarily to increased domestic unit sales of both low-
emission and traditional carburated engines offset partially by lower
international sales due primarily to continued softness in Latin America. The
increase in boat sales was due to increased consumer demand for the Company's
fishing, recreational and aluminum boats, particularly, larger boat models.
Cost of Goods Sold. Cost of goods sold for 1999 was $881.0 million as
compared to $802.6 million in 1998, an increase of $78.4 million or 9.8%. Gross
earnings for 1999 were 20.7% of net sales while gross earnings for 1998 were
21.0% of net sales. The reduction in the gross earnings percentage for the year
was due to i) higher price allowances offered to dealers due to competitive
pricing pressures and ii) operational inefficiencies at the engine plants that
resulted in lower overhead absorption. These factors were partially offset by
lower warranty and product liability expense in the current year resulting from
improved claims experience.
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<PAGE>
Selling, General and Administrative ("SG&A"). SG&A expense for 1999 was
$207.2 million versus $279.7 million in 1998 representing a decrease of $72.5
million or 25.9%. The decrease in SG&A expense was due primarily to the
following: i) a curtailment gain of $15.0 million recorded in the second and
third quarters of 1999 to reflect the impact of the changes made to the pension
and postretirement medical plans as discussed in Note 12, ii) $17.6 million in
expenses associated with implementing the Company's boat group reorganization
plan which were recorded in 1998, and iii) environmental and other contingency
costs recorded in 1998. Finally, the reduction in SG&A expense is also due to
the continued focus on reducing discretionary expenditures across the Company.
Restructuring Charge. 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 that included charges for the
costs associated with closing the two facilities, and the related employee
termination benefits for approximately 950 employees. In 1999, the Company
completed its negotiations of the closing agreements with the unions
representing the Milwaukee and Waukegan workers, respectively. These changes
resulted in changes to the post-retirement medical and pension plans for union
employees. The changes required a decrease in the previously recorded
restructuring charge of $14.1 million. See Note 4 of the Notes to the
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 or transfer
such production to other facilities of the Company. The Company has already
transferred the manufacture of substantially all of the manufactured products
from the Milwaukee facility and certain components, accessories and service
parts from the Waukegan facility and continues to obtain and review proposals
from vendors in anticipation of outsourcing the remainder of production. The
Company anticipates substantial completion of the restructuring plan by the end
of year 2000. As of December 31, 1999, the Company has incurred $1.0 million
against the restructuring charge established in the prior fiscal year. The
remaining balance will be spent in 2000 and 2001 as the plants are closed in
2000 and facilities are subsequently sold, accordingly. As part of its
outsourcing efforts, the Company is negotiating with a potential vendor for the
lease of space in one of its facilities in connection with this vendor possibly
assuming the production of the facility. Although there can be no assurance, if
the Company is successful in its negotiations, there would be a reduction of
the employee severance and other costs previously recorded as part of the
restructuring charge for the closure of this facility. The Company anticipates
having more information regarding the negotiations early in the second quarter
of 2000.
Earnings/(Loss) from Operations. Earnings from operations for 1999 was $36.8
million or 3.3% of net sales versus a loss in 1998 of $165.2 million
representing an increase of $202.0 million. This increase is due to the reasons
discussed above including the increase in sales volume, the decrease in SG&A
expense, and the restructuring charge recorded in 1998.
Non-Operating Expense (Income). Interest expense decreased to $23.1 million
in 1999 from $29.2 million in the twelve months ended December 31, 1998, a
decrease of $6.1 million. The decrease in interest expense was due primarily to
a tax-related interest accrual adjustment of $8.2 million in 1999 as a result
of a favorable IRS tax audit. Other non-operating income was $5.1 million in
1999 versus $16.5 million in 1998. This decrease in non-operating income was
due primarily to the Company selling its interest in the joint venture Volvo
Penta Marine Products L.P. to Volvo Penta of the Americas, Inc. ("Volvo") on
December 8, 1998 and the Company no longer participating in the earnings of the
joint venture following the sale. In addition, the decrease in other income was
due to higher foreign exchange losses as a result of certain foreign currencies
appreciation against the dollar from 1998 to 1999.
Provision for Income Taxes. The provision for income taxes was $10.6 million
in 1999 as compared to $2.6 million in 1998. The provision for income taxes for
fiscal 1999 resulted from expected taxes payable less tax benefits relating to
certain international subsidiaries. No tax benefit is allowed for domestic
losses because
22
<PAGE>
they are not expected to be realizable, at this time, under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
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; General" 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
$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 expenses 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 theses 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 this 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 as well as increases in certain components of costs of goods sold and
SG&A expense as 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 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
23
<PAGE>
expected taxes payable and benefits relating to certain international
subsidiaries. No tax benefit is allowed for domestic losses because they are
not realizable, at this time, under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
Fiscal Year Ended September 30, 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 reduce engine production in order to assist dealers in
lowering 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 fiscal year 1998 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.
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 estimated legal expenses, (ii) $2.8 million in compensation expense
primarily related to forfeitures resulting from the termination of an
executive's employment agreement with a former employer in connection with the
Company's hiring the executive concurrently with the acquisition of the Company
by Greenmarine Holdings, and (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.
24
<PAGE>
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, income from the Company's
interest in the Volvo joint venture of $4.8 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),
income from the Company's interest in the Volvo joint venture of $7.2 million,
as well as gains on disposition of fixed assets ($5.8 million), which was
offset by $15.1 million in expenses associated with the Greenmarine
Acquisition. These expenses included $7.5 million in payments to a 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 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 expected taxes payable
less tax 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."
Financial Condition; Liquidity and Capital Resources
The Company's business is seasonal in nature 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,
1999 decreased $27.9 million from December 31, 1998. Receivables at December
31, 1999 decreased $25.6 million from December 31, 1998 primarily due to the
ongoing effort to shorten the collection cycle of receivables and due to the
growth in OMC sponsored dealer financing programs from which payment is made to
OMC by financing companies in five to ten days from the date of invoice. In
addition, receivables were lower versus the prior year due to the collection of
receivables in the current year which were owed to the Company in December 1998
from Volvo as a result of the sale of the Company's interest in the joint
venture Volvo Penta Marine Products L.P. Inventories at December 31, 1999
decreased $8.6 million from December 31, 1998, primarily in finished goods
inventory as a result of increased sales and shipments in 1999 versus 1998.
Accounts payable increased $9.2 million from December 31, 1998 due primarily to
increased production material purchases to support higher sales levels in 1999.
In addition, the Company had $30.6 million in "Restricted Cash" at December 31,
1999, which cash is held in interest reserve accounts for the benefit of the
Company's senior lenders (as discussed below). Cash provided by operations was
$40.6 million for the twelve months ended December 31, 1999 compared with $44.3
million for the twelve months ended December 31, 1998.
On January 28, 2000, the Company sold an aggregate of 650,000 shares of
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), and warrants (the "Warrants") to purchase an aggregate of
5,750,000 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), for an aggregate consideration of $65.0 million in a private placement
transaction to Greenlake Holdings II, LLC and Quantum Industrial Partners, LDC.
The Series A Preferred Stock has an initial liquidation preference of $100 per
share and an initial conversion price of $14 per share (in each case, subject
to adjustment upon occurrence of certain events). The Series A Preferred Stock
is convertible into Common Stock at any time. The Series A
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<PAGE>
Preferred Stock has an annual dividend rate of 15% of the then current
liquidation preference, and is entitled to share ratably in any dividends paid
on the Common Stock. Dividends will accrue if not paid in cash, and the
liquidation preference will be increased by the amount of any accrued but
unpaid dividends. The Series A Preferred Stock may be redeemed at any time
after October 1, 2008, upon written request of the holders of at least 75% of
the then outstanding shares. The Company may redeem all outstanding shares of
the Series A Preferred Stock if, at any time, less than 10% of the total Series
A Preferred Stock originally sold on January 28, 2000 remains outstanding. The
Warrants are exercisable at any time until January 28, 2010, at an exercise
price of $.01 per share of Common Stock, payable in cash or in shares of Common
Stock. The Company intends to use the proceeds from the sale of the Series A
Preferred Stock and Warrants for general corporate purposes, including funding
its working capital and making capital expenditures.
The Pro Forma impact of the above transaction, had it occurred on January 1,
1999, would have resulted in an approximate $65 million in proceeds, which
would have been used to paydown the existing revolving credit facility. The
transaction would have been recorded as a $29.1 million increase in preferred
stock and a $35.9 million increase in shareholders' investment (the fair market
value of the attached warrants).
Expenditures for plant, equipment, and tooling were $48.5 million during the
twelve months ended December 31, 1999, representing an increase of $5.3 million
from $43.2 million for the twelve month period ended December 31, 1998. The
higher level of expenditures is primarily related to increased spending for new
machinery and equipment at the Company's engine manufacturing facilities for
product improvements and due to increased spending for the Company's computer
hardware and software.
Loan payable was $58.0 million at December 31, 1999 comprising borrowings
under the Company's Revolving Credit Facility (as discussed below). These
borrowings were used to pay $10.0 million of the Company's Medium Term Notes
Series A, which came due March 1999, and to fund capital expenditures. Current
maturities of long-term debt decreased $2.8 million from December 1998 due to
the payment of the Company's Medium-Term Notes Series A offset by the
reclassification of certain long-term debt to current maturities for debt that
is payable within the next 12 months.
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 Bank of America, 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 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 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. The Company entered into a Sixth
Amendment to the Amended and Restated Loan and Security Agreement effective
July 30, 1999, which among other things (i) extended the termination of the
Revolving Credit Facility from December 31, 2000 to December 31, 2001, (ii)
included work-in-process inventory in the borrowing base calculation until
September 30, 1999, and (iii) extended the duration of the borrowing base
capacity for intellectual property through October 31, 1999. On October 27,
1999, the Company entered into a Seventh Amendment to the Amended and Restated
Loan and Security Agreement which among other things extended the duration of
the borrowing base capacity for intellectual property through December 31,
1999. On February 1, 2000 the Company entered into an Eighth Amendment to the
Amended and Restated Loan and Security Agreement which among other things (i)
increased the borrowing capacity by increasing intellectual property
availability by $10.0 million to $20.0 million and increasing the advance rate
for finished goods inventory from 60% to 65%, (ii) eliminated tangible
26
<PAGE>
net worth, interest coverage, and leverage ratio covenants, and (iii)
established minimum availability requirements, maximum capital and tooling
expenditures, and a minimum earnings before interest, taxes, depreciation and
amortization covenant tests to reflect expected operating results.
On May 27, 1998, the Company issued $160.0 million of 10 3/4% Senior Notes
Series A ("Series A Notes") due 2008, with interest payable semiannually on
June 1 and December 1 of each year. The net proceeds from the issuance of the
Series A Notes totaled $155.2 million, of which $150.0 million was used to
repay the Acquisition Debt. The Series A 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
Series A Notes. In addition, at any time prior to June 1, 2001, the Company may
on any one or more occasions redeem up to an aggregate of 35% of the original
principal amount of the Series A 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 Series A Notes originally issued remains
outstanding immediately after the occurrence of any such redemption. The Series
A Notes are guaranteed on a joint and several basis by each of the Company's
principal domestic operating subsidiaries. The Indenture governing the Series A
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 Series A 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 Series A 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, 1999, the "Restricted Cash" held in these interest
reserve accounts totaled $30.6 million. The "Restricted Cash" must remain in
such accounts until at least May 27, 2001. These accounts may be accessed by
the Company for the payment of the respective interest only, provided certain
criteria are met by the Company.
On April 14, 1999, the Company completed an exchange offer of all the Senior
Notes Series A for the Senior Notes Series B ("Series B Notes") which are
registered under the Securities Act of 1933, pursuant to a Registration
Statement on Form S-4 and an accompanying Prospectus. The form and terms of the
Series B Notes are the same form and terms of the Series A Notes except (i) the
Series B designation, (ii) the Series B notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) holders of the Series B notes are not entitled to
registration rights as the exchange offer was intended to satisfy such exchange
and registration rights.
At December 31, 1999, $62.9 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
1999 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 acquired or redeemed by the Company may be used as
the principal amount thereof to reduce the amount of any one or more mandatory
Sinking Fund payments. As of December 31, 1999, 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 1999 to 2016
inclusive in an amount sufficient to redeem up to an additional $10,000,000
principal amount of 9 1/8% Debentures.
27
<PAGE>
At December 31, 1999, an aggregate of approximately $10.8 million principal
amount of the Company's Medium-Term Notes Series A (the "Medium-Term Notes")
was outstanding in two tranches. $5.8 million of the Medium-Term Notes bear
interest at a rate of 8.55% while the remaining $5.0 million bear interest at
8.625%. The maturity dates of the Medium-Term Notes are 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, 1999, $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 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 $10.7 million as of December 31, 1999. The
Industrial Revenue Bonds have various maturity dates between 2002 and 2007.
Interest rates on the Industrial Revenue Bonds range from 6% to 12.037%.
In fiscal year 2000, the Company will be required to pay approximately $5.8
million in cash to satisfy obligations that will become due on the Medium Term
Notes. 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
fiscal year 2000 under certain of its Industrial Revenue Bonds.
As a normal business practice, the Company has made arrangements with
financial institutions by which qualified retail dealers may obtain inventory
financing. Under these arrangements, the Company will repurchase products in
the event of repossession upon a retail dealer's default. These arrangements
contain provisions which limit the Company's repurchase obligation to a total
aggregate of approximately $33 million for a period not to exceed 18 months
from the date of invoice. The Company resells any repurchased products at a
discount. Losses incurred under this program have not been material. For the
fiscal years 1999 and 1998, the Company repurchased approximately $5.7 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, financial position,
or cash flows.
Based upon the current level of operations and anticipated cost savings, the
Company believes that its cash flow from operations together with the sale of
the Series A Preferred Stock and Warrants, the available borrowing capacity
under the Credit Agreement, and 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
28
<PAGE>
necessary capital expenditures, or if its future earnings growth is
insufficient to meet 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.
Year 2000 Matters
The Company completed and tested all year 2000 remedies prior to December
31, 1999 and did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
its operations since January 1, 2000, the Company does not expect any
significant impact to its ongoing business as a result of Year 2000. However,
it is possible that the full impact of the date change which was of concern due
to computer programs that used 2 digits instead of 4 digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with billing,
payroll or financial closings at month, quarter or year-end. In addition, the
Company could still be negatively affected if its vendors are adversely
affected by Year 2000. The Company currently is not aware of any significant
Year 2000 problems that have arisen for its vendors.
The Company expended approximately $12.5 million ($4.6 million capital), to
remedy all of the issues associated with ensuring that its hardware and
software worldwide, and the systems associated therewith, were able to operate
into the year 2000.
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.
Accounting Standard
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
December 31, 2000. The Company has not yet quantified the impacts of adopting
SFAS 133 on its financial statements and has not determined the timing of or
method of its adoption of SFAS 133.
Inflation
Inflation may cause or may be accompanied by increases in gasoline prices
and interest rates. Such increases may adversely affect the sales of the
Company's products. Because of the low level of inflation in recent years,
inflation has not had a significant impact on operating results during the past
three fiscal years.
29
<PAGE>
Forward-Looking Statements
This report on Form 10-K contains "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 which could cause actual events or results to differ
materially from those projected and which include, but are not limited to, the
impact of competitive products and pricing, product demand and market
acceptance, new product development, 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 annual
report on Form 10-K and documents filed by the Company with the Securities and
Exchange Commission.
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.
The following table presents principal cash flows and related weighted
average interest rates by expected maturity dates. 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, 1999 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 Thereafter Total Value
----------------- -------- -------- -------- -------- -------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Debt:
Fixed Rate ($US)....... $8.4 $7.0 $8.6 $0.4 $0.7 $231.0 $256.1 $170.0
Average Interest
Rate................. 8.1% 8.4% 7.2% 12.0% 11.0% 10.2% 10.0%
Variable Rate ($US).... -- -- -- -- -- $ 5.5 $ 5.5 $ 5.5
Average Interest
Rate................. 5.12% 5.12%
</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. Assuming a 10% depreciation in the U.S. dollar at
December 31, 1999, potential losses in the net fair value of foreign exchange
contracts would have been $0.3 million. As these contracts are used for hedging
purposes, the Company feels that these losses would be largely offset by gains
on the underlying firm commitments or anticipated transactions.
The Company's exposure to commodity price changes relates to certain
manufacturing operations that utilize various commodity-based components,
primarily 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
30
<PAGE>
over-the-counter commodity contracts. As of December 31, 1999, there were
unrealized gains on aluminum futures of $0.5 million. Assuming a 10% increase
in market prices at December 31, 1999, potential losses in the net fair value
of these contracts would have been immaterial.
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.
31
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Outboard Marine Corporation:
We have audited the accompanying statements of consolidated financial
position of Outboard Marine Corporation and subsidiaries (the Company) as of
December 31, 1999, and the related statements of consolidated earnings and
comprehensive income, consolidated cash flows, and changes in consolidated
shareholders' investment for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Outboard
Marine Corporation and subsidiaries as of December 31, 1999, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
February 28, 2000
32
<PAGE>
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 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 the year
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 auditing standards generally
accepted in the United States. 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 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 the year in the period ended September 30, 1997, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 25, 1999
33
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED FINANCIAL POSITION
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------- -------------
(Dollars in millions except
amounts per share)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 25.0 $ 13.6
Receivables (less allowance for doubtful
receivables of $6.2 million at December
31, 1999 and $9.2 million at December 31,
1998)..................................... 104.9 130.5
Inventories................................ 188.6 197.2
Deferred taxes............................. 1.9 1.9
Other current assets....................... 15.3 20.4
------------- -------------
Total current assets..................... 335.7 363.6
Restricted cash.............................. 30.6 29.3
Product tooling, net......................... 29.5 30.0
Plant and equipment, net..................... 200.5 197.1
Goodwill, net................................ 107.2 115.5
Trademarks, patents and other intangibles,
net......................................... 79.3 80.9
Pension asset................................ 50.8 46.4
Other assets................................. 14.8 11.4
------------- -------------
Total assets............................. $ 848.4 $ 874.2
============= =============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Loan payable................................. $ 58.0 $ 32.4
Accounts payable............................. 99.2 90.0
Accrued liabilities.......................... 175.5 185.1
Accrued income taxes......................... 7.7 6.5
Current maturities and sinking fund
requirements of long-term debt.............. 8.4 11.2
------------- -------------
Total current liabilities................ 348.8 325.2
Long-term debt............................... 241.4 247.0
Postretirement benefits other than pensions.. 99.1 124.4
Other non-current liabilities................ 78.8 120.4
Shareholders' investment
Common stock--25 million shares authorized
at $.01 par value with 20.4 million shares
outstanding at December 31, 1999 and
1998...................................... 0.2 0.2
Capital in excess of par value of common
stock..................................... 277.3 276.9
Accumulated deficit........................ (189.2) (197.6)
Accumulated other comprehensive loss....... (8.0) (22.3)
------------- -------------
Total shareholders' investment........... 80.3 57.2
------------- -------------
Total liabilities and shareholders'
investment.............................. $ 848.4 $ 874.2
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED EARNINGS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Pre-Merger
Post-Merger Company Company
----------------------------------------- ---------------------
Twelve Months Ended Three Months Ended Twelve Months Ended
December 31, December 31, September 30,
--------------------- ------------------- ---------------------
1999 1998 1998 1997 1998 1997
-------- ----------- ------ ----------- ---------- ---------
(unaudited) (unaudited)
(Dollars in millions except amounts per share)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $1,110.9 $1,015.6 $199.4 $209.5 $ 1,025.7 $ 979.5
Cost of goods sold...... 881.0 802.6 180.7 171.7 793.6 822.0
-------- -------- ------ ------ ---------- --------
Gross earnings........ 229.9 213.0 18.7 37.8 232.1 157.5
Selling, general, and
administrative
expense................ 207.2 279.7 62.3 48.8 266.2 219.9
Restructuring charge
(income)............... (14.1) 98.5 -- -- 98.5 --
Change in control
expenses-compensation.. -- -- -- -- -- 11.8
-------- -------- ------ ------ ---------- --------
Earnings (loss) from
operations........... 36.8 (165.2) (43.6) (11.0) (132.6) (74.2)
Non-operating expense
(income)
Interest expense...... 23.1 29.2 6.8 7.7 30.1 16.2
Change of control
expenses............. -- -- -- -- -- 15.1
Other, net............ (5.1) (16.5) (3.3) (2.4) (15.6) (29.2)
-------- -------- ------ ------ ---------- --------
18.0 12.7 3.5 5.3 14.5 2.1
Earnings (loss) before
provision for income
taxes................ 18.8 (177.9) (47.1) (16.3) (147.1) (76.3)
Provision for income
taxes.................. 10.6 2.6 -- 0.8 3.4 2.8
-------- -------- ------ ------ ---------- --------
Net earnings (loss)..... $ 8.2 $ (180.5) $(47.1) $(17.1) $ (150.5) $ (79.1)
======== ======== ====== ====== ========== ========
Other comprehensive
income (expense)
Foreign currency
translation
adjustments.......... (1.2) (3.4) 0.4 (3.4) (7.2) 8.5
Minimum pension
liability............ 15.5 (15.5) 9.2 -- (24.7) 3.1
-------- -------- ------ ------ ---------- --------
Other comprehensive
income (expense)... 14.3 (18.9) 9.6 (3.4) (31.9) 11.6
-------- -------- ------ ------ ---------- --------
Comprehensive
income (loss)...... $ 22.5 $ (199.4) $(37.5) $(20.5) $ (182.4) $ (67.5)
======== ======== ====== ====== ========== ========
Net earnings (loss) per
share of common stock
Basic................. $ 0.40 $ (8.85) $(2.31) $(0.84) $ (7.38) $ (3.91)
======== ======== ====== ====== ========== ========
Diluted............... $ 0.40 $ (8.85) $(2.31) $(0.84) $ (7.38) $ (3.91)
======== ======== ====== ====== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
35
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Pre-Merger
Post-Merger Company Company
----------------------------------------------- ----------
Twelve Months Three Months Twelve Months
Ended Ended Ended
December 31, December 31, September 30,
------------------- ------------------- -------------------
1999 1998 1998 1997 1998 1997
------ ----------- ------ ----------- ------- ----------
(unaudited) (unaudited)
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net earnings/(loss).... $ 8.2 $(180.5) $(47.1) $(17.1) $(150.5) $(79.1)
Adjustments to
reconcile net
earnings/(loss) to net
cash provided by
operations:
Depreciation and
amortization......... 52.1 50.0 12.4 12.5 50.1 57.0
Curtailment gain...... (15.0) -- -- -- -- --
Restructuring charges
(income)............. (14.1) 98.5 -- -- 98.5 --
Deferred taxes........ 6.0 -- -- -- -- --
Changes in current
accounts excluding
the effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... 24.5 1.1 26.4 24.4 (0.9) 9.6
Decrease (increase) in
inventories.......... 4.7 0.3 (22.9) (21.3) 1.9 26.5
Decrease (increase) in
other current
assets............... 1.2 18.3 4.7 31.8 45.4 (0.4)
Increase (decrease) in
accounts payable,
accrued liabilities
and income taxes..... (17.2) (6.5) (24.0) (63.5) (46.3) (5.3)
Increase (decrease) in
other items.......... (9.8) 63.1 (2.5) (3.4) 62.5 (17.5)
------ ------- ------ ------ ------- -------
Net cash provided by
(used for) operating
activities.......... 40.6 44.3 (53.0) (36.6) 60.7 (9.2)
Cash Flows from
Investing Activities:
Expenditures for plant
and equipment, and
tooling............... (48.5) (43.2) (15.1) (6.3) (34.4) (36.3)
Proceeds from sale of
plant and equipment,
including assets held
for sale.............. 4.6 11.8 2.3 0.1 9.6 13.0
Proceeds from sale of
joint venture......... -- 3.2 3.2 -- -- --
Other, net............. 1.4 -- -- 0.8 0.8 (2.8)
------ ------- ------ ------ ------- -------
Net cash used for
investing
activities.......... (42.5) (28.2) (9.6) (5.4) (24.0) (26.1)
Cash Flows from
Financing Activities:
(Payments) issuance of
short-term debt, net.. 25.6 (143.3) 32.4 79.7 (96.0) --
Payments of long-term
debt, including
current maturities.... (12.6) (8.5) (1.2) (67.7) (75.0) --
Proceeds from the
issuance of long-term
debt.................. -- 155.4 -- -- 155.4 --
Cash dividends paid.... -- -- -- -- -- (6.0)
Restricted cash........ (1.3) (29.3) (0.3) -- (29.0) --
Other, net............. 0.4 (0.9) -- -- (0.9) 2.3
------ ------- ------ ------ ------- -------
Net cash provided by
(used for) financing
activities.......... 12.1 (26.6) 30.9 12.0 (45.5) (3.7)
Exchange rate effect on
cash.................. 1.2 -- 0.1 (0.3) (0.4) (2.1)
------ ------- ------ ------ ------- -------
Net increase (decrease)
in cash and cash
equivalents........... 11.4 (10.5) (31.6) (30.3) (9.2) (41.1)
Cash and cash
equivalents at
beginning of period... 13.6 24.1 45.2 54.4 54.4 95.5
------ ------- ------ ------ ------- -------
Cash and cash
equivalents at end of
period................ $ 25.0 $ 13.6 $ 13.6 $ 24.1 $ 45.2 $ 54.4
====== ======= ====== ====== ======= =======
Restricted cash........ $ 30.6 $ 29.3 $ 29.3 $ -- $ 29.0 $ --
====== ======= ====== ====== ======= =======
Post-Merger Company
cash and cash
equivalents prior to--
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......... $ 30.4 $ 29.4 $ 12.5 $ 7.2 $ 23.5 $ 21.0
====== ======= ====== ====== ======= =======
Income taxes paid
(refunded), net...... $ (4.9) $ (0.1) $ (1.4) $ 1.3 $ 0.0 $ 3.4
====== ======= ====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CHANGES IN CONSOLIDATED SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Accumulated
Issued Capital in Earnings
Common Stock Excess (Deficit) Accumulated
Shares of Par Employed Other
-------------- Value of in the Comprehensive Treasury
Shares Amount Common Stock Business Income (loss) Stock
------ ------ ------------ ----------- ------------- --------
(Dollars and shares in millions)
<S> <C> <C> <C> <C> <C> <C>
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)
Cancellation of Pre-
Merger Company shares
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 $ 0.0 $ 0.0 $ --
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) $ --
Net earnings............ 8.2
Minimum pension
liability adjustment... 15.5
Shares issued under
stock plans............ 0.4
Translation
adjustments............ (1.2)
Other................... 0.2
----- ----- ------- ------- ------ -----
Balance--December 31,
1999--Post-Merger
Company................ 20.4 $ 0.2 $ 277.3 $(189.2) $ (8.0) $ --
===== ===== ======= ======= ====== =====
</TABLE>
The accompanying notes are an integral part of these statements.
37
<PAGE>
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 (the "Greenmarine Acquisition"). Outboard Marine
Corporation, including its subsidiaries, 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.
2. Nature of Business and Significant Accounting Policies
Nature of Business. The Company is a multinational company that 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 and
the twelve months ended December 31, 1998 have been included for comparative
purposes.
38
<PAGE>
Principles of Consolidation. The accounts of all significant subsidiaries
were included in the Consolidated Financial Statements. Inter-company activity
and account balances have been eliminated in consolidation. At December 31,
1999, all subsidiaries were wholly owned except those referred to in Note 3 to
the Consolidated Financial Statements.
Reclassification. Certain amounts in 1998 have been restated to conform to
the 1999 presentation.
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 banking system provides for the daily replenishment of major
bank accounts for check clearing requirements. Accordingly, outstanding checks
of $17.5 million and $22.4 million, which had not yet been paid by the banks at
December 31, 1999 and December 31, 1998, 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, 1999 and December 31, 1998, the
Restricted Cash was $30.6 million and $29.3 million, respectively. The
restricted cash must be maintained until the later of May 27, 2001, or such
time as the Company's fixed coverage ratio is greater than 2.5 to 1.0 (as
defined 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 which comprised 21% and 23% of total inventory at December 31,
1999 and December 31, 1998, respectively, is carried at the lower of first-in,
first-out (FIFO) cost or market. In the fiscal year ended 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, the liquidation of LIFO inventory quantities acquired at lower
costs prevailing in prior years as compared with the costs of 1997 purchases,
increased earnings before tax by $1.0 million.
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, which includes assets
acquired under capital leases, are recorded at cost and depreciated
substantially on a straight-line basis over their estimated useful lives as
follows: buildings, 10 to 40 years; machinery and equipment, 3 to 12 1/2 years.
Depreciation is not provided on construction in progress until the related
assets are placed into service.
Amortization of tooling and depreciation of plant and equipment was $44.9
million, $43.1 million and $52.7 million for the fiscal year ended December 31,
1999, and the fiscal years ended September 30, 1998 and 1997, respectively.
39
<PAGE>
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) expense, net, in the Statements of Consolidated
Earnings.
Maintenance and repair costs, which are charged directly to earnings as
incurred, were $25.9 million, $27.0 million and $26.5 million for the fiscal
year ended December 31, 1999, and the fiscal years ended September 30, 1998 and
1997, 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, 1999 and December 31, 1998 included goodwill, net of amortization expense,
of $107.2 million and $115.5 million, respectively, and trademarks, patents and
other intangibles of $79.3 million and $80.9 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. In 1999, goodwill was reduced by $6.0 million as
benefits associated with certain deferred tax assets at the date of the
Greenmarine Acquisition were recognized (see note 14).
Amortization of intangibles was $5.7 million, $6.2 million and $1.6 million
for the fiscal year ended December 31, 1999, and the fiscal years ended
September 30, 1998 and 1997, respectively. Accumulated amortization was $14.3
million and $7.6 million at December 31, 1999 and December 31, 1998,
respectively.
Revenue Recognition. The Company generally recognizes the sale of
merchandise and related expenses, including estimated warranty costs, when the
following conditions have been met: i) the customer has paid for the product or
willingly assumed an obligation to pay; and, ii) the customer or common carrier
has physically received the product and risk of ownership has passed to the
customer.
Advertising Costs. Advertising costs are charged to expense as incurred and
were $28.6 million, $27.6 million and $33.7 million for the fiscal year ended
December 31, 1999, and the fiscal years ended September 30, 1998 and 1997,
respectively.
Warranty. The Company generally provides the ultimate consumer a warranty
with each product and accrues warranty expense at the time of sale based upon
accrual estimates, which consider 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 improvements and refinements to existing
products, are expensed as incurred. Such expenditures were $42.2 million, $36.8
million and $38.2 million for fiscal year ended December 31, 1999, and the
fiscal years ended September 30, 1998 and 1997, respectively.
Translation of Non-U.S. Subsidiary Financial Statements. The financial
statements of non-U.S. subsidiaries are translated to U.S. dollars
substantially as follows: all assets and liabilities at year-end exchange
rates; sales and expenses at average exchange rates during the period; and,
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
Company for the fiscal year ended December 31, 1999, and the fiscal years ended
September 30, 1998 and 1997 include foreign exchange losses (gains) of $1.9
million, $(0.7) million and $1.0 million, respectively, which resulted
primarily from commercial transactions.
Impairment of Long-Lived Assets. 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. The Company periodically evaluates whether events and
circumstances have occurred that indicate the remaining estimated useful life
of intangible assets may warrant revision or that the remaining balance may not
be recoverable. If factors indicate that intangible assets should be evaluated
for possible impairment, the Company would use an estimate of the relative
business unit's expected undiscounted operating cash flow over the remaining
life of the intangible asset in measuring whether
40
<PAGE>
the intangible asset is recoverable. If this review indicates that the assets
will not be recoverable, the carrying value of the Company's assets would be
reduced to their estimated fair market value.
Stock-Based Compensation. The Company continues to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Compensation cost for stock options, if any, is measured as the excess of the
quoted market price of the Company's stock at the date of grant over the amount
an employee must pay to acquire the stock. Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. The Company
has elected to remain on its current method of accounting as described above,
and has adopted the disclosure requirements of SFAS No. 123.
Derivative Financial Instruments and Foreign Currency Transactions. The
Company uses derivative financial instruments selectively to offset exposure to
market risks arising from changes in foreign exchange rates and interest rates.
Derivative financial instruments currently utilized by the Company primarily
include foreign currency forward contracts. Contracts are executed centrally to
minimize transaction costs on currency conversions and minimize losses due to
adverse changes in foreign currency markets. The Company evaluates and monitors
consolidated net exposures by currency and maturity, and external derivative
financial instruments to minimize that net exposure.
Earnings Per Share of Common Stock. 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 for the fiscal year 1999, the twelve
month period ended December 31, 1998, the three-month periods ended December
31, 1998 and 1997, and the fiscal year ended September 30, 1998, respectively,
and 20.2 million for the fiscal year ended September 30, 1997. For fiscal year
1997, 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, shares were computed to be 20.6 million for fiscal year
1999 and 20.4 million for the twelve months ended December 31, 1998, the three
month periods ended December 31, 1998 and 1997, and fiscal year 1998. For all
periods, except fiscal year 1999, 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.
Segment Information. Effective in 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information", with respect to segment reporting. As a
result, the Company has changed the way it reports information about its
operating segments. The Company determines its reportable segments based on the
strategic business units and the commonalities among the products and services
within each segment, which corresponds to the manner in which the Company's
management reviews and evaluates operating performance. The Company has
combined certain similar operating segments that meet applicable criteria
established under SFAS No. 131.
41
<PAGE>
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, 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........................ $ 0.0 $ 0.0 $ 0.0
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)
Fiscal year activity................... 15.5 (1.2) 14.3
------ ------ ------
Balance at December 31, 1999........... $ 0.0 $ (8.0) $ (8.0)
====== ====== ======
</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 worldwide for the marine industry for the FICHT fuel
injection system. In addition, the Company has an exclusive worldwide license
agreement for all non-automotive applications. Royalty income, if any,
resulting from other licensing of the technology will be distributed through
FICHT.
In July 1993, the Pre-Merger Company and AB Volvo Penta and Volvo Penta of
the Americas, Inc. ("Volvo") formed a joint venture Company to produce gasoline
stern drive and gasoline inboard marine power systems for OEM & after-market
sales. 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 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 $4.8 million for the fiscal year ended September
1998, and the Pre-Merger Company's share was $7.2 million in fiscal year 1997
which was included in other (income) expense, net in the Statements of
Consolidated Earnings. On December 8, 1998, the Company terminated its joint
venture with AB Volvo Penta and Volvo Penta of the Americas, Inc. ("Volvo") and
entered into a Product Sourcing Contract which will control the future purchase
and sale obligations of various specified goods between the Company and Volvo.
As such, the Company sold its ownership interest to Volvo for approximately
$3.2 million, resulting in no material gain or loss.
4. Restructuring Charges
During the fiscal quarter ended September 30, 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 included: 1) costs to recognize severance and
benefits for approximately 950
42
<PAGE>
employees to be terminated ($14.0 million), 2) costs to clean and close the
facilities ($6.5 million), 3) costs to ready machinery and equipment for
disposal and costs to dispose of machinery and equipment at the facilities
($3.9 million), 4) costs to write-down certain replacement parts for machinery
and equipment at the facilities to net realizable value ($2.0 million) and 5)
curtailment losses associated with the acceleration of pension ($42.2 million)
and postretirement medical benefits ($29.9 million) for employees at the two
facilities. 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 and transferring the balance of production to
other facilities within the Company. The Company anticipates substantial
completion of such plan by the end of fiscal year 2000.
By May 1999, the Company completed its negotiations of the closing
agreements with the unions representing the Milwaukee and Waukegan workers,
respectively. These negotiations resulted in changes to the post-retirement
medical and pension plans for union employees. The changes required an
adjustment in the previous estimate of the curtailment loss for the pension and
postretirement medical benefits. Specifically, in the second fiscal quarter of
1999, the curtailment loss related to the postretirement medical benefit
obligation was decreased by $19 million and the curtailment loss related to the
pension benefit obligation was increased by $5 million, resulting in a net
reduction of the previous curtailment loss from $72.1 million to $58.1 million.
This adjustment was reflected in the Statement of Consolidated Operations and
Comprehensive Income (in the second quarter of 1999) as a $14 million reduction
in the previously recorded Restructuring Charge. The adjusted curtailment loss
of $58.1 million represents the estimate of the increase in pension and
postretirement medical benefit obligations due to the closure of the Milwaukee
and Waukegan facilities. The cash payment for the pension benefits will be made
from the assets of the pension fund while the payment for the postretirement
medical benefits will be made from the general assets of the Company.
As of September 30, 1999, the Company had identified suppliers and begun the
transfer of manufacturing responsibilities for the outsourcing of crankshafts,
propellers, drive shafts, propeller shafts, and numerous investment cast and
service parts to third-party suppliers. In September 1999, the Company made two
additional adjustments to the restructuring accrual. First, the severance
accrual was reduced by $2.6 million due to the attrition of employees at the
Waukegan and Milwaukee locations. In addition, an increase in the pension
obligation of $2.5 million was recorded to reflect an increased benefit offered
to the exempt employees at the Milwaukee and Waukegan locations. The impact of
these entries has been reflected in the Condensed Statement of Consolidated
Operations and Comprehensive Income as a $0.1 million decrease to the
previously recorded Restructuring Charge.
As of December 31, 1999, the Company has incurred approximately $1.0 million
against the restructuring charge established in the prior fiscal year. The
remaining balance will be substantially spent in 2000 as the plants are closed
and the facilities are subsequently sold. As part of its outsourcing efforts,
the Company is negotiating with a potential vendor for the lease of space in
the facility for the supply of some of the production. Although there can be no
assurance, if the Company is successful in its negotiations, there would be a
reduction of the employee severance and other costs previously recorded for
this facility. The Company anticipates having more information regarding the
negotiations early in the second quarter of 2000.
The elements of the restructuring accrual (excluding curtailment
gains/losses) are as follows (in millions):
<TABLE>
<CAPTION>
Balance at
Original Accrual December 31,
Accrual Utilized Changes 1999
-------- -------- ------- ------------
<S> <C> <C> <C> <C>
Fiscal 1998 Charge.................... $26.4 $ 1.0 $2.6 $22.8
Fiscal 1996 Charge.................... 25.6 23.8 -- 1.8
----- ----- ---- -----
$52.0 $24.8 $2.6 $24.6
</TABLE>
43
<PAGE>
5. Inventories
The components of inventory were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
<S> <C> <C>
Finished product................................. $ 67.5 $ 83.9
Raw material, work in process and service parts.. 123.6 114.5
------ ------
Inventory at current cost which is less than
market.......................................... 191.1 198.4
Excess of current cost over LIFO cost............ 2.5 1.2
------ ------
Net inventory.................................... $188.6 $197.2
====== ======
</TABLE>
6. Plant and Equipment
Plant and equipment components were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
<S> <C> <C>
Land and improvements.............................. $ 11.3 $ 12.0
Buildings.......................................... 63.0 60.2
Machinery and equipment............................ 146.8 132.4
Construction in progress........................... 25.0 16.2
------ ------
246.1 220.8
Accumulated depreciation........................... 45.6 23.7
------ ------
Plant and equipment, net........................... $200.5 $197.1
====== ======
</TABLE>
7. Accrued Liabilities and Other Non-Current Liabilities
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
<S> <C> <C>
Accrued liabilities were as follows:
Compensation, pension programs and current
postretirement Medical........................ $ 24.6 $ 20.9
Warranty....................................... 40.6 40.9
Marketing programs............................. 43.1 52.9
Restructuring reserves......................... 24.6 10.3
Other.......................................... 42.6 60.1
------ ------
Accrued liabilities.............................. $175.5 $185.1
====== ======
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
<S> <C> <C>
Other non-current liabilities were as follows:
Pension programs............................... $15.2 $ 35.5
Environmental remediation...................... 21.2 18.0
Warranty....................................... 22.7 20.6
Restructuring reserves......................... -- 20.4
Other.......................................... 19.7 25.9
----- ------
Accrued non-current liabilities.................. $78.8 $120.4
===== ======
</TABLE>
44
<PAGE>
8. Short-Term Borrowings
A summary of short-term borrowing activity was as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
<S> <C> <C>
Outstanding:
Bank borrowing................................... $58.0 $32.4
Average bank borrowing for the period:
Borrowing........................................ $56.8 $ 8.9
Interest rate.................................... 7.3% 8.2%
Maximum month end borrowing........................ $80.0 $32.4
</TABLE>
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 Bank of America, 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 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 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. In order to meet the Company's
liquidity requirements, the Company entered into a Sixth Amendment to the
Amended and Restated Loan and Security Agreement effective July 30, 1999, which
among other things (i) extended the termination of the Revolving Credit
Facility from December 31, 2000 to December 31, 2001, (ii) included work-in-
process inventory in the borrowing base calculation until September 30, 1999,
and (iii) extended the duration of the borrowing base capacity for intellectual
property through October 31, 1999. On October 27, 1999, the Company entered
into a Seventh Amendment to the Amended and Restated Loan and Security
Agreement which among other things extended the duration of the borrowing base
capacity for intellectual property through December 31, 1999. On February 1,
2000 the Company entered into an Eighth Amendment to the Amended and Restated
Loan and Security Agreement which among other things (i) increased the
borrowing capacity by increasing intellectual property availability by $10.0
million to $20.0 million and increasing the advance rate for finished goods
inventory from 60% to 65%, (ii) eliminated tangible net worth, interest
coverage, and leverage ratio covenants, and (iii) established minimum
availability requirements, maximum capital and tooling expenditures, and
included a minimum earnings before interest, taxes, depreciation, and
amortization covenant test to reflect expected operating results.
45
<PAGE>
9. Long-Term Debt
Long-term debt on December 31, 1999 and December 31, 1998, net of sinking
fund requirements included in current liabilities, consisted of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in million)
<S> <C> <C>
10 3/4% senior notes due 2008..................... $156.0 $155.5
7% convertible subordinated debentures due 2002... 7.1 7.1
9 1/8% sinking fund debentures due through 2017... 62.9 62.8
Medium-term notes due 2000 through 2001 with rates
ranging from 8.55% to 8.625%..................... 10.8 20.9
Industrial revenue bonds and other debt due 2002
through 2007 with rates ranging from 6.0% to
12.037%.......................................... 10.7 11.9
Other............................................. 2.3 --
------ ------
$249.8 $258.2
Less current maturities........................... (8.4) (11.2)
------ ------
$241.4 $247.0
====== ======
</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 $155.2
million, of which $150.0 million was used to prepay the acquisition debt.
Unamortized debt discount costs of $4.0 million remained at December 31, 1999.
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, 1999 and December
31, 1998, the interest reserve Restricted Cash was $30.6 million and $29.3
million, respectively. Restricted cash must be maintained for a minimum of
three years or at least until such time as the Company's fixed coverage ratio
is greater than 2.5 to 1.0 (as defined under the depositary agreement) or the
Senior Notes are paid in full. The Indenture governing the Senior Notes
contains certain covenants that limit, among other things, the ability of the
Company and its restricted subsidiaries to (i) pay dividends, redeem capital
stock or make certain other restricted payments or investments; (ii) incur
additional indebtedness or issue certain preferred equity interests; (iii)
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its assets; (iv)
create liens on assets; and (v) enter into certain transactions with affiliates
or related persons.
At December 31, 1999, $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 Debentures are convertible
into the right to receive a cash payment equal to $809 for each $1,000
principal amount of
46
<PAGE>
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.
On December 31, 1999 and December 31, 1998, the Company held $34.8 million
of its 9 1/8% sinking fund debentures, which will be used to meet sinking fund
requirements of $5.0 million per year in the years 2000 through 2004. Amounts
are recorded as a reduction of outstanding debt.
At December 31, 1999, an aggregate of approximately $10.8 million principal
amount of the Company's Medium-Term Notes Series A (the "Medium-Term Notes")
was outstanding in two tranches. $5.8 million of the Medium-Term Notes bear
interest at a rate of 8.55% while the remaining $5.0 million bear interest at
8.625%. The maturity dates of the Medium-Term Notes include March 15, 2000 and
March 15, 2001. Interest on each of the outstanding Medium-Term Notes is
payable semi-annually each March 30 and September 30 and at maturity.
The agreements covering the Company's revolving credit agreement (see Note
8) and one industrial revenue bond have restrictive financial covenants.
Maturities and sinking fund requirements of long-term debt for each of the
next five fiscal years is as follows:
<TABLE>
<CAPTION>
(Dollars in
millions)
-----------
<S> <C>
2000............................................................. $8.4
2001............................................................. 7.0
2002............................................................. 8.6
2003............................................................. 0.4
2004............................................................. 0.7
</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 $170.0 million and $239.0 million at December 31, 1999 and December
31, 1998, respectively, versus carrying amounts of $241.4 million and $247.0
million at December 31, 1999 and December 31, 1998, 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.
Prior to 1999, the Company had entered into certain interest rate swap
agreements as a means of managing its proportion of fixed to variable interest
rate exposure. The differential to be paid or received is accrued consistent
with the terms of the agreements and market interest rates and is recognized in
net earnings as an adjustment to interest expense. At December 31, 1998 and
September 30, 1998 the Company had an outstanding variable to fixed interest
rate swap agreement having a total notional principal amount of $5.0 million
expiring February 15, 1999. The fair value of the interest rate swap agreement
at December 31, 1998 was an estimated termination liability of $0.1 million.
This potential expense at each fiscal year end had not yet
47
<PAGE>
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 intercompany or 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 reflected in the
Consolidated Statement of Earnings unless the gains or losses are related to
qualifying hedges on firm foreign currency commitments under which gains and
losses are deferred.
At December 31, 1999, the Company had entered into foreign currency forward
exchange contracts to receive 11.0 million Australian dollars for $7.1 million
with a fair market value of $7.2 million. The $0.1 million gain was recognized
in the Statement of Comprehensive Earnings at December 31, 1999. The Company
also entered into foreign currency forward exchange contracts to receive $4.0
million (also fair market value) for 5.8 million Canadian dollars.
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 inter-Company transactions. Gains and losses
on the adjustment to the fair market value of such instruments are 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 gain on the Japanese yen contracts have 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, 1999
and 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, 1999 and December 31, 1998.
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, 1999, the Company had futures covering approximately 31%
of annual forecasted aluminum purchases. The fair market value of these
aluminum options resulted in a $0.5 million deferred gain and $0.1 million
deferred loss at December 31, 1999 and December 31, 1998, respectively. The
fair market value was obtained from a major financial institution based upon
the market value of those futures at December 31, 1999 and December 31, 1998.
11. 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.
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
48
<PAGE>
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 1997, the effect on net earnings for 1997 would have been
immaterial.
On March 10, 1998, the Post-Merger Company adopted the Outboard Marine
Corporation Personal Rewards and Opportunities Program ("PROP"). PROP was
designed to recognize and reward, through cash bonuses, stock options and other
equity-based awards, the personal contributions and achievements of employees
of the Company. All employees are eligible to participate in PROP. PROP
replaced all long and short-term incentive plans of the Company. PROP provides
for (i) cash and/or equity annual bonuses based on performance targets, and
(ii) grants of stock options, shares of restricted stock, stock units or stock
appreciation rights. The aggregate number of shares of stock available for
equity awards under PROP is 1,900,000 shares of currently authorized common
stock of the Company. Grants under PROP are discretionary.
Stock option grants under PROP through December 31, 1999 were 1,570,870, net
of cancelled option grants. The grants are primarily exercisable at $18 and $22
per share and expire ten years after date of grant. Additionally, there were
61,105 incentive stock options granted to an executive which expire 11 years
after the date of grant. The Company accounts for PROP under APB Opinion No.
25, and has not recorded any compensation expense for grants through December
31, 1999 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 fiscal year ended December 31, 1999, and the fiscal year ended
September 30, 1998 would have been a reduction of pretax earnings of $1.0
million and $0.7 million, respectively, on a proforma basis and a reduction of
basic and diluted earnings per share of $0.05 million and $0.03 per share,
respectively.
A summary of option data for all plans was as follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Price
Option Shares Per Share
------------- ---------
<S> <C> <C>
Options outstanding and unexercised at September
30, 1997......................................... -- --
Options granted................................... 979,245 $18.00
--------- ------
Options outstanding and unexercised at September
30, 1998......................................... 979,245 $18.00
========= ======
Options granted................................... 110,500 $21.80
Options cancelled................................. 28,500 --
--------- ------
Options outstanding and unexercised at December
31, 1998......................................... 1,061,245 $18.86
========= ======
Options granted................................... 596,000 $21.75
Options cancelled................................. 86,375 --
--------- ------
Options outstanding and unexercised at December
31, 1999......................................... 1,570,870 $19.69
========= ======
Exercisable at December 31, 1999.................. 615,703 $18.00
</TABLE>
The weighted average fair value per option granted during 1999 and 1998,
estimated on the date of grant using the Black-Scholes option-pricing model was
$4.81 and $3.75, respectively. The fair value of 1999 and 1998 options granted
is estimated on the date of grant using the following assumptions: risk-free
interest rate of
49
<PAGE>
5.4% in 1999 and 4.7% in 1998, and an expected life of four years in 1999 and
five years in 1998. The Company has used the "minimum value' method of valuing
stock options based upon SFAS 123.
12. Retirement Benefit and Incentive Compensation Programs
The Company and its subsidiaries have retirement benefit plans covering a
majority of its employees. Worldwide pension calculations resulted in (expense)
income of $5.4 million, $5.0 million, and $(2.4) million for the fiscal year
ended December 31, 1999, and the fiscal years ended September 30, 1998, and
September 30, 1997, 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. This curtailment loss was subsequently
increased by $5.0 million in May 1999 and by $2.5 million in September 1999 to
reflect the finalization of the curtailment loss estimate (see Note 4).
In May 1999, the Company made the decision to change the pension and post-
retirement medical plans for current active employees and current retirees of
the Company. The pension plan changes include merging the Company's union and
non-union pension plans into one consolidated pension plan. In addition, the
Company decided to freeze the merged pension plan for non-union employees
effective September 30, 1999. Finally, the postretirement medical plan was
changed to provide new employee contribution rates, changes in benefit levels,
different service providers and the elimination of post-65 retirement medical
coverage for employees who retire on or after January 1, 2000. These changes in
both the pension and postretirement medical plans resulted in a curtailment
gain of $15.0 million which was reflected in the Company's Condensed Statement
of Consolidated Operations and Comprehensive Income as a reduction in selling,
general and administrative expense in fiscal year 1999.
The following schedule of pension expense (income) presents amounts relating
to the Company's pension plans:
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
<S> <C> <C> <C>
Benefits earned during the
period.......................... $ 5.0 $ 6.6 $ 6.6
Interest cost on projected
benefit obligation.............. 33.1 28.8 28.5
Return on pension assets......... (44.6) (41.3) (88.5)
Net amortization and deferral.... -- (0.1) 54.3
------ ------ ------
Net periodic pension expense
(income)........................ $ (6.5) $ (6.0) $ 0.9
====== ====== ======
Curtailment (gain) loss.......... (9.7) 42.2 --
Special Termination Benefits..... 7.9 -- --
Actuarial assumptions used for the Company's principal defined benefit
plans:
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Discount rates................... 7.5% 7.0% 7.5%
Rate of increase in compensation
levels (salaried employee
plans).......................... 5.0% 5.0% 5.0%
Expected long-term rate of return
on assets....................... 9.5% 9.5% 9.5%
</TABLE>
50
<PAGE>
The following provides a reconciliation of benefit obligations, plan assets
and funded status:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in millions)
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of period...... $483.3 $476.3
Service cost................................... 5.0 1.9
Interest cost.................................. 33.1 8.3
Plan amendment................................. (7.5) --
Actuarial (gain) loss.......................... (29.6) 4.2
Benefits paid.................................. (31.0) (7.4)
------ ------
Benefit obligation at end of period:............. $453.3 $483.3
====== ======
Change in plan assets:
Fair value of plan assets at beginning of
period........................................ $474.3 $440.2
Actual return on plan assets................... 83.6 41.0
Employer contribution.......................... 1.5 0.5
Benefits paid.................................. (31.0) (7.4)
------ ------
Fair value of plan assets at end of period....... $528.4 $474.3
====== ======
Reconciliation:
Funded status.................................. $ 75.1 $ (9.0)
Unrecognized net actuarial loss................ (38.9) 19.2
Unrecognized prior service cost................ (0.5) --
------ ------
Prepaid (accrued) benefit cost................... $ 35.7 $ 10.2
====== ======
Amounts recognized in the Statements of Financial
Position consist of:
Prepaid benefit cost........................... $ 50.8 $ 46.4
Accrued benefit liability...................... (15.1) (20.7)
Minimum pension liability...................... -- (15.5)
------ ------
Net amount recognized............................ $ 35.7 $ 10.2
====== ======
</TABLE>
At September 30, 1997 in accordance with purchase accounting, plan assets in
excess of or less than the projected benefit obligation had 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 $15.5 million was reported as a separate reduction of
shareholders' investment at December 31, 1998. In 1999, the minimum pension
liability of $15.5 million was reversed due to the Company's decision to merge
and freeze the pension plans for current and active retirees of the Company.
This $15.5 million change is reported as a component of Other Comprehensive
Income in fiscal year 1999.
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. This
51
<PAGE>
curtailment loss was subsequently decreased by $19 million in May 1999 to
reflect the finalization of the union agreements, which were settled with the
Company's unions in 1999 (see Note 4).
The net cost of providing postretirement health care and life insurance
benefits included the following components:
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
<S> <C> <C> <C>
Service cost-benefits attributed
to service during the period... $ 0.9 $0.7 $1.1
Interest cost on accumulated
postretirment benefit
obligation..................... 7.6 6.6 7.3
Amortization of prior service
cost and actuarial gain........ (0.7) (0.2) (1.8)
----- ---- ----
Net periodic postretirement
benefit cost................... $ 7.8 $7.1 $6.6
===== ==== ====
Curtailment (gain) loss......... (24.8) 29.9 --
</TABLE>
The following provides a reconciliation of benefit obligations, plan assets
and funded status:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in millions)
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of period...... $ 135.0 $ 131.4
Service cost................................... 0.9 0.2
Interest cost.................................. 7.6 2.2
Plan amendment................................. (24.8) --
Actuarial (gain) loss.......................... (15.2) 3.7
Benefits paid.................................. (9.5) (2.5)
------- -------
Benefit obligation at end of period.............. $ 94.0 $ 135.0
======= =======
Change in plan assets:
Fair value of plan assets at beginning of
period........................................ $ -- $ --
Actual return on plan assets................... -- --
Employer contribution.......................... 8.6 2.5
Employee contribution.......................... 0.9 --
Benefits paid.................................. (9.5) (2.5)
------- -------
Fair value of plan assets at end of period....... $ -- $ --
------- -------
Funded status.................................... $ (94.0) $(135.0)
Unrecognized net actuarial loss.................. 1.5 3.4
Unrecognized prior service cost.................. (13.1) --
------- -------
Accrued benefit cost............................. $(105.6) $(131.6)
======= =======
Less: Current portion of postretirement
obligation...................................... (7.2) (8.0)
------- -------
Net long-term postretirement obligation.......... (98.4) (123.6)
Ficht GMBH pension plan.......................... (0.1) --
Former officer life insurance obligation......... (0.6) (0.8)
------- -------
Total postretirement benefits other than
pension......................................... $ (99.1) $(124.4)
======= =======
</TABLE>
52
<PAGE>
The accumulated postretirement benefit obligation was determined using a
7.5% and 7% weighted average discount rate at December 31, 1999 and December
31, 1998, respectively. The health care cost trend rate was assumed to be 7%
and remaining constant thereafter. A one percentage point increase of this
annual trend rate would increase the accumulated postretirement benefit
obligation at December 31, 1999 and December 31, 1998 by approximately $13.6
million and $11.3 million, respectively, and the total service and interest
cost components by $1.2 million and $0.2 million, respectively. A one
percentage point decrease of this annual trend rate would decrease the
accumulated postretirement benefit obligation at December 31, 1999 and December
31, 1998 by approximately $11.7 million and $9.5 million and the total service
and interest cost components by $1.1 million and $0.2 million, respectively.
The Company also sponsors a defined contribution plan. Participation in the
plan is available to substantially all employees of the Company. The defined
contribution plan is a Company sponsored 401(k) plan in which employees can
contribute up to 15% of their eligible pay up to the IRS limit of $10,000 per
year. The Company contributes in cash amounts equal to the first 3% of employee
contributions and 50% the next 2% of employee contributions for non-
collectively bargained employees. The amounts expensed for the Company match
provision of the plan were $1.8 million, $0.9 million, and $0.4 million in the
fiscal year ended December 31, 1999, and the fiscal years ended September 30,
1998 and 1997.
13. Other Expense (Income), Net
Other non-operating expense (income) in the Statements of Consolidated
Earnings consisted of the following items:
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
<S> <C> <C> <C>
Expense (Income)
Interest earned................ $(2.7) $ (4.3) $ (4.5)
Insurance Recovery and Lawsuit
Settlement.................... -- -- (10.7)
Foreign exchange losses
(gains)....................... 1.9 (0.7) 1.0
(Gain) loss on disposition of
plant and equipment........... (2.2) (2.9) (5.8)
Joint venture earnings......... -- (4.8) (7.2)
Miscellaneous, net............. (2.1) (2.9) (2.0)
----- ------ ------
$(5.1) $(15.6) $(29.2)
===== ====== ======
</TABLE>
53
<PAGE>
14. Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in millions)
<S> <C> <C> <C>
Current provision for income
taxes:
Federal........................ $ -- $ -- $ --
State.......................... 0.5 0.5 0.5
Foreign........................ 4.1 3.1 2.2
Deferred provision for income
taxes:
Federal........................ 1.7 (29.4) (36.7)
State.......................... 1.7 (7.6) (2.8)
Foreign........................ 5.1 0.0 0.6
Valuation Allowance............ (2.5) 36.8 39.0
----- ----- -----
Total Income Tax Provision....... $10.6 $ 3.4 $ 2.8
===== ===== =====
</TABLE>
The significant short-term and long-term deferred tax assets and liabilities
were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
(Dollars in millions)
<S> <C> <C>
Deferred tax assets
Litigation and claims............................ $ 17.8 $ 21.4
Product warranty................................. 23.9 22.7
Marketing programs............................... 18.7 22.8
Postretirement medical benefits.................. 41.7 52.3
Restructuring.................................... 19.2 16.8
Loss carryforwards............................... 100.2 77.0
Other............................................ 43.0 57.7
Valuation Allowance.............................. (171.3) (179.8)
------- -------
Total deferred tax assets...................... $ 93.2 $ 90.9
------- -------
Deferred tax liabilities
Depreciation and amortization.................... $ (15.2) $ (14.5)
Employee benefits................................ (18.8) --
Purchase accounting asset evaluations............ (25.5) (39.0)
Other............................................ (31.8) (35.5)
------- -------
Total deferred tax liabilities................. ($91.3) ($89.0)
------- -------
Net deferred tax assets...................... $ 1.9 $ 1.9
======= =======
</TABLE>
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 and forecasted earnings.
The Company believes the recorded net deferred tax assets of $1.9 million
will more likely than not be realized. A valuation allowance of $171.3 million
has been recorded at December 31, 1999, to reduce the deferred tax assets to
their estimated net realizable value. Of this valuation allowance, $23.9
million relates to deferred tax assets established for foreign and state loss
carryforwards.
54
<PAGE>
As of December 31, 1999, certain non-U.S. subsidiaries of the Company had
net operating loss carryforwards for income tax purposes of $26.0 million. Of
this amount, $2.7 million will expire by 2005 with the remaining balance being
unlimited. In addition, the Company has $216.9 million of Federal net operating
loss carryforwards expiring between 2008 and 2020 and $218.8 million of state
net operating loss carryforwards expiring between 2000 and 2015. These
carryforwards are entirely offset by the valuation allowance. No benefit has
been recognized in the Consolidated Financial Statements. These NOL
carryforwards, and other deferred tax assets, were provided for with a
valuation allowance at the time of the Greenmarine Acquisition. Any future
benefits arising from adjusting the valuation allowance for NOL carryforward
utilization (limited to $15.9 million each year), or realization of the
deferred tax assets will be recorded as a reduction of goodwill arising from
the Greenmarine Acquisition until such balance is exhausted, and thereafter to
other intangibles until exhausted, and thereafter will be recorded as a direct
reduction to income tax expense. The benefit of $6 million recorded during the
year ended December 31, 1999 related to a reduction in the valuation allowance
and a corresponding reduction in goodwill at December 31, 1999.
The following summarizes the major percentage 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:
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(% to pretax earnings)
<S> <C> <C> <C>
At statutory rate................. 35.0% (35.0)% (35.0)%
State income taxes, net of Federal
tax deduction.................... 7.6 (3.6) (3.0)
Tax effect of non-U.S. subsidiary
earnings and operating losses at
other than the U.S. rate......... 0.9 0.1 3.0
Tax effect of goodwill
amortization and write-offs...... 4.4 1.4 0.4
Federal tax effect prior year's
state income taxes paid.......... -- -- (0.2)
Disposal of investment not
deductible for tax............... 5.2 -- --
Equity earnings of foreign
affiliates subject to U.S.
taxation......................... 14.9 -- --
Change in valuation allowance..... (13.3) 25.0 51.1
Tax effect of foreign investment
in U.S. property................. -- 6.4 --
Other............................. 1.7 8.0 (12.8)
Actual provision................ 56.4% N.M.% N.M.%
</TABLE>
Domestic and non-U.S. earnings before provision (credit) for income taxes
consisted of the following:
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, September 30, September 30,
1999 1998 1997
------------- ------------- -------------
(Dollars in million)
<S> <C> <C> <C>
Earnings (loss) before provision
for income taxes
United States................. $ 1.0 $(144.8) $(68.7)
Non-U.S. ..................... 17.8 (2.3) (7.6)
----- ------- ------
Total....................... $18.8 $(147.1) $(76.3)
===== ======= ======
</TABLE>
The above non-U.S. income of $17.8 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 earnings (loss) as
resulting from stand-alone operations could be misleading.
No U.S. deferred taxes have been provided on $77.9 million of undistributed
non-U.S. subsidiary earnings. The Company has no plans to repatriate these
earnings and, as such, they are considered permanently invested. While no
detailed calculations have been made of the potential U.S. income tax liability
should such
55
<PAGE>
repatriation occur, the Company believes that it would not be material in
relation to the Company's Consolidated Financial Position or Consolidated
Earnings.
During the calendar year 1999, the Company settled with the Internal Revenue
Service the audits for the fiscal years 1992 through 1994. As a result of this
settlement, an accrual for previously provided interest of $8.2 was no longer
necessary, and upon reversal reduced the Company's total interest expense for
the 1999 year.
15. Segment and Related Information
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in 1999 which changes the way the Company
reports information about its operating segments. The Company has two
reportable segments: marine engines, including parts and accessories, 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.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The "Other Column" reflects primarily
corporate related items including curtailment income, restructuring charges,
corporate staff expenses, and intangible assets (including amortization
expense) related to the Company's acquisition in September 1997.
<TABLE>
<CAPTION>
Marine
Engines Boats Other Total
------- ------ ------ --------
(Dollars in millions)
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1999
Revenues................................... $649.8 $461.1 $ -- $1,110.9
Intersegment revenues...................... 75.6 0.2 -- 75.8
Earnings (loss) from operations............ 16.9 2.1 17.8 36.8
Total Assets............................... 640.4 119.5 88.5 848.4
Capital Expenditures....................... 29.0 9.1 10.4 48.5
Depreciation and Amortization.............. 39.3 5.4 7.4 52.1
Three Months Ended December 31, 1998
Revenues................................... $111.9 $ 87.5 $ -- $ 199.4
Intersegment revenues...................... 19.2 -- -- 19.2
Earnings (loss) from operations............ (20.8) (11.6) (11.2) (43.6)
Total Assets............................... 596.0 111.6 166.6 874.2
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
Intersegment revenues...................... 102.2 -- -- 102.2
Earnings (loss) from operations............ 61.6 (34.6) (159.6) (132.6)
Total Assets............................... 612.5 126.1 168.6 907.2
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
Intersegment revenues...................... 131.9 -- -- 131.9
Earnings (loss) from operations............ 16.0 (54.9) (35.3) (74.2)
Total Assets............................... 607.2 151.2 253.2 1,011.6
Capital Expenditures....................... 33.2 2.6 0.5 36.3
Depreciation and Amortization.............. 42.6 9.2 5.2 57.0
</TABLE>
56
<PAGE>
The following table presents financial information by geographic region.
Revenues are attributed by geographic area upon the location where the products
are sold:
<TABLE>
<CAPTION>
Fiscal Year Three Months Fiscal Year Fiscal Year
Ended Ended Ended Ended
December 31, December 31, September 30, September 30,
1999 1998 1998 1997
------------ ------------ ------------- -------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Net sales
United States.......... $ 867.1 $152.0 $ 769.7 $721.0
Hong Kong.............. 12.5 2.3 11.5 20.3
Australia.............. 42.8 10.1 38.3 45.4
Canada................. 57.6 8.5 56.7 44.4
Europe................. 93.4 15.6 91.9 90.9
Latin America
(including Brazil and
Mexico)............... 37.5 10.9 57.6 57.5
-------- ------ -------- ------
Total................ $1,110.9 $199.4 $1,025.7 $979.5
======== ====== ======== ======
Intersegment revenues
United States.......... $ 119.8 $ 29.8 $ 134.2 $119.2
Hong Kong.............. 23.8 9.7 32.8 29.7
Australia.............. 0.6 0.0 0.3 0.2
Canada................. 12.9 2.7 6.8 5.8
Europe................. 0.9 0.1 1.1 2.1
Latin America
(including Brazil and
Mexico)............... -- -- -- --
-------- ------ -------- ------
Total................ $ 158.0 $ 42.3 $ 175.2 $157.0
======== ====== ======== ======
Earnings (loss) from
operations
United States.......... $ 26.4 $(43.1) $ (143.1) $(75.7)
Hong Kong.............. 2.0 1.7 0.8 0.5
Australia.............. 1.0 (0.5) 0.5 3.2
Canada................. 3.9 (0.1) 4.1 1.1
Europe................. 1.9 (2.5) (0.8) (8.8)
Latin America
(including Brazil and
Mexico)............... 1.6 0.9 5.9 5.5
-------- ------ -------- ------
Total................ $ 36.8 $(43.6) $ (132.6) $(74.2)
======== ====== ======== ======
Total Long-lived assets
United States.......... $ 370.8 $378.5 $ 379.0 $407.5
Hong Kong.............. 6.9 6.1 4.5 3.3
Australia.............. 1.2 2.1 2.1 2.7
Canada................. 3.1 2.9 3.1 3.1
Europe................. 2.1 1.2 1.1 1.4
Latin America
(including Brazil and
Mexico)............... 2.8 2.7 2.6 3.4
-------- ------ -------- ------
Total.................. $ 386.9 $393.5 $ 392.4 $421.4
======== ====== ======== ======
</TABLE>
Data for Europe (which primarily includes Belgium) and Latin America
(including Brazil and Mexico) is provided as supplemental information as these
locations are individually immaterial. Due to the integrated nature of the
Company's operations, any attempt to interpret the above geographic area data
as resulting from unique or stand-alone types of operations could be
misleading.
57
<PAGE>
16. Quarterly Information--(Unaudited)
A summary of pertinent quarterly data for fiscal 1999, the three month
period ended December 31, 1998 and fiscal 1998 was as follows:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------
March 31 June 30 September 30 December 31
------------- -------- ------------ ------------
(Dollars in millions, except amounts per share)
<S> <C> <C> <C> <C>
Fiscal 1999
Net sales............... $255.2 $315.6 $279.4 $260.7
Gross earnings.......... 53.3 70.2 62.7 43.7
Net earnings (loss)..... (11.9) 33.8 11.0 (24.7)
Net loss per share:
Basic................. $(0.58) $ 1.66 $ 0.54 $(1.21)
------ ------ ------ ------
Diluted............... $(0.58) $ 1.64 $ 0.53 $(1.21)
------ ------ ------ ------
<CAPTION>
Quarter Ended
December 31
-------------
(Dollars in
millions
except
amounts per
share)
<S> <C> <C> <C> <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)
------
<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>
In the fourth fiscal quarter of fiscal year 1998, the Company recorded a
$98.5 million restructuring charge (see Note 4). 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 meaningful to compare the results of operations
of different fiscal quarters.
17. 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 products in
the event of repossession upon a retail dealer's default. These arrangements
contain provisions which limit the Company's repurchase obligation to a total
aggregate of approximately $33 million for a period not to exceed 18 months
from the date of invoice. The Company resells any repurchased products at a
discount.
58
<PAGE>
Losses incurred under this program have not been material. For the fiscal year
ended December 31, 1999 and for fiscal 1998, the Company repurchased
approximately $5.7 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.
Minimum commitments under operating leases having initial or remaining terms
greater than one year are $7.4 million, $5.8 million, $5.1 million, $3.9
million, $3.0 million, and $4.8 million for the years ending December 31, 2000
through 2004 and after 2004, respectively.
The Company is engaged in a 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 closedown costs associated with discontinued
operations or facilities, including the environmental costs of operation and
maintenance until disposition. At December 31, 1999 the Company has accrued
approximately $23 million for costs related to remediation at contaminated
sites including operation and maintenance for continuing and closed-down
operations. It is reasonably possible that a change in this estimate will occur
in the near term. In addition, the Company has estimated that reasonably
possible environmental loss contingencies may exceed amounts accrued by as much
as $16 million at December 31, 1999. The possible recovery of insurance
proceeds has not been considered in estimating contingent environmental
liabilities.
59
<PAGE>
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 landowner 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 March 1998, the Company received correspondence from Orbital Engine
Corporation Limited ("Orbital") alleging that the Company's FICHT fuel-injected
150 horsepower engines infringed two Australian Orbital patents, which
correspond to three U.S. patents and to a number of foreign patents. In May
1999, the Company entered into a non-assert agreement with Orbital relative to
engines sold by OMC and its licensees which used FICHT fuel injection. Under
the terms of the agreement, the Company will make certain payments to Orbital
for use of the patents and all foreign counterparts, as well as certain other
patents, identified in the agreement. Under the terms of the agreement, the
Company is not precluded from developing FICHT fuel injection for any
application.
18. Subsequent Events
On January 28, 2000, the Company sold an aggregate of 650,000 shares of
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock"), and warrants (the "Warrants") to purchase an aggregate of
5,750,000 shares of its Common Stock, par value $.01 per share (the "Common
Stock"), for an aggregate consideration of $65.0 million in a private placement
transaction to Greenlake Holdings II, LLC and Quantum Industrial Partners, LDC.
Approximately $15.0 million of the Series A Preferred Stock was issued in
exchange for certain subordinated notes previously issued by the Company to the
purchasers. The Series A Preferred Stock has an initial liquidation preference
of $100 per share and an initial conversion price of $14 per share (in each
case, subject to adjustment upon occurrence of certain events). The Series A
Preferred Stock is convertible into Common Stock at any time. The Series A
Preferred Stock has an annual dividend rate of 15% of the then current
liquidation preference, and is entitled to share ratably in any dividends paid
on the Common Stock. Dividends will accrue if not paid in cash, and the
liquidation preference will be increased by the amount of any accrued but
unpaid dividends. The Series A Preferred Stock may be redeemed at any time
after October 1, 2008, upon written request of the holders of at least 75% of
the then outstanding shares. The Company may redeem all outstanding shares of
the Series A Preferred Stock if, at any time, less than 10% of the total Series
A Preferred Stock originally sold on January 28, 2000 remains outstanding. The
Warrants are exercisable at any time until January 28, 2010, at an exercise
price of $.01 per share of Common Stock, payable in cash or in shares of Common
Stock. The Company intends to use the proceeds from the sale of the Series A
Preferred Stock and Warrants for general corporate purposes, including funding
its working capital and making capital expenditures.
The Pro Forma impact of the above transaction, had it occurred on January 1,
1999, would have resulted in an approximate $65 million in proceeds, which
would have been used to paydown the existing revolving credit facility. The
transaction would have been recorded as a $29.1 million increase in preferred
stock and a $35.9 million increase in shareholders' investment (the fair market
value of the attached warrants).
The impact of the above transaction to the Statement of Consolidated
Earnings had the transaction occurred as of January 1, 1999 would have included
a decrease in interest expense of $4.7 million and an
60
<PAGE>
increase in preferred dividend expense of $14.3 million (which includes annual
dividend expense and preferred stock accretion). As a result, 1999 loss on
common shares would have been $1.4 million, and loss per diluted common share
would have been $0.07.
19. Subsidiary Guarantor Information
The Company issued $160,000,000 10 3/4% Senior Notes due 2008 ("Notes") on
May 21, 1998. The Company's payment obligations under the Notes are to be
guaranteed by certain of the Company's wholly-owned subsidiaries ("Guarantor
Subsidiaries"). Such guarantees are full, unconditional, unsecured and
unsubordinated on a joint and several basis by each of the Guarantor
Subsidiaries. As of and through December 31, 1999, the Guarantor Subsidiaries
were wholly-owned, but not the only wholly-owned, subsidiaries of the Company.
The Credit Agreement and the Indenture governing the Notes contain certain
covenants which, among other things, will restrict the ability of the Company
and certain of its subsidiaries to incur additional indebtedness; pay dividends
or make distributions in respect to their capital stock; enter into certain
transactions with shareholders and affiliates; make certain investments and
other restricted payments; create liens; enter into certain sales and leaseback
transactions and sales of assets. These covenants are, however, subject to a
number of exceptions and qualifications. Separate financial statements of the
Guarantor Subsidiaries are not presented because management of the Company has
determined that they are not material to investors.
The following consolidating financial statements include the Company
("Parent Company"), the Guarantor Subsidiaries and the Company's non-guarantor
subsidiaries ("Other Subsidiaries"). Investments in subsidiaries are accounted
for by the Company under the equity method of accounting for purposes of the
supplemental consolidating presentation. Earnings of subsidiaries are,
therefore, reflected in the Company's investment accounts and earnings. The
Company has not allocated goodwill to the Guarantor Subsidiaries or the other
subsidiaries in association with the acquisition by and merger with
Greenmarine.
61
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 9.3 $ 0.5 $ 15.2 $ 0.0 $ 25.0
Receivables, net...... 58.1 16.8 30.0 0.0 104.9
Intercompany
receivables
(payables)........... (34.3) 1.2 33.1 0.0 0.0
Inventories........... 102.6 46.7 41.1 (1.8) 188.6
Other current assets.. 9.6 2.0 5.6 0.0 17.2
------ ------ ------ ------- ------
Total current
assets............. 145.3 67.2 125.0 (1.8) 335.7
Restricted cash......... 30.6 0.0 0.0 0.0 30.6
Product tooling, net.... 24.3 5.0 0.2 0.0 29.5
Property, plant and
equipment, net......... 150.1 32.4 18.1 (0.1) 200.5
Goodwill and other in-
tangibles, net......... 181.3 0.0 5.2 0.0 186.5
Other assets............ 56.0 2.5 7.1 0.0 65.6
Intercompany notes,
net.................... (88.3) 0.0 88.3 0.0 0.0
Investment in subsidiar-
ies.................... 256.5 0.0 0.0 (256.5) 0.0
------ ------ ------ ------- ------
Total assets.......... $755.8 $107.1 $243.9 $(258.4) $848.4
====== ====== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Loan payable.......... $ 58.0 $ 0.0 $ 0.0 $ 0.0 $ 58.0
Accounts payable...... 73.6 16.4 9.2 0.0 99.2
Accrued and other..... 133.5 29.6 21.7 (1.6) 183.2
Current maturities of
long-term debt....... 8.2 0.2 0.0 0.0 8.4
------ ------ ------ ------- ------
Total current
liabilities........ 273.3 46.2 30.9 (1.6) 348.8
Long-term debt.......... 239.3 2.1 0.0 0.0 241.4
Other non-current
liabilities............ 162.6 7.7 7.6 0.0 177.9
Shareholders'
investment............. 80.6 51.1 205.4 (256.8) 80.3
------ ------ ------ ------- ------
Total liabilities
and shareholders'
investment......... $755.8 $107.1 $243.9 $(258.4) $848.4
====== ====== ====== ======= ======
</TABLE>
62
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATING FINANCIAL POSITION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 2.2 $ 0.1 $ 11.3 $ 0.0 $ 13.6
Receivables, net...... 71.8 23.3 35.4 0.0 130.5
Intercompany
receivables
(payables)........... (93.5) (9.7) 103.2 0.0 0.0
Inventories........... 103.4 47.8 47.8 (1.8) 197.2
Other current assets.. 12.5 3.2 6.6 0.0 22.3
------ ----- ------ ------- ------
Total current
assets............. 96.4 64.7 204.3 (1.8) 363.6
Restricted cash......... 29.3 0.0 0.0 0.0 29.3
Product tooling, net.... 26.8 2.9 0.3 0.0 30.0
Property, plant and
equipment, net......... 156.9 23.9 16.5 (0.2) 197.1
Goodwill and other
intangibles, net....... 189.4 0.0 7.0 0.0 196.4
Other assets............ 50.8 2.3 4.7 0.0 57.8
Intercompany notes,
net.................... (97.4) 0.0 97.4 0.0 0.0
Investment in
subsidiaries........... 339.3 0.0 0.0 (339.3) 0.0
------ ----- ------ ------- ------
Total assets........ $791.5 $93.8 $330.2 $(341.3) $874.2
====== ===== ====== ======= ======
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Loan payable.......... $ 32.4 $ 0.0 $ 0.0 $ 0.0 $ 32.4
Accounts payable...... 68.1 12.8 9.1 0.0 90.0
Accrued and other..... 143.0 30.0 19.8 (1.2) 191.6
Current maturities of
long-term debt....... 11.2 0.0 0.0 0.0 11.2
------ ----- ------ ------- ------
Total current
liabilities........ 254.7 42.8 28.9 (1.2) 325.2
Long-term debt.......... 247.0 0.0 0.0 0.0 247.0
Other non-current
liabilities............ 231.8 7.9 5.1 0.0 244.8
Shareholders'
investment............. 58.0 43.1 296.2 (340.1) 57.2
------ ----- ------ ------- ------
Total liabilities
and shareholders'
investment......... $791.5 $93.8 $330.2 $(341.3) $874.2
====== ===== ====== ======= ======
</TABLE>
63
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS
AND COMPREHENSIVE INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Net sales............... $652.7 $466.6 $253.0 $ (261.4) $1,110.9
Cost of goods sold...... 525.5 411.3 205.8 (261.6) 881.0
------ ------ ------ -------- --------
Gross Earnings.......... 127.2 55.3 47.2 0.2 229.9
Selling, general and
administrative
expense................ 116.0 51.4 39.8 0.0 207.2
Restructuring charge
(income)............... (14.1) 0.0 0.0 0.0 (14.1)
------ ------ ------ -------- --------
Earnings from
operations............. 25.3 3.9 7.4 0.2 36.8
Non-operating expense
(income)............... 31.3 (0.1) (13.2) 0.0 18.0
Equity earnings (loss)--
subsidiaries........... 20.2 0.0 0.0 (20.2) 0.0
------ ------ ------ -------- --------
Earnings (loss) before
provision for income
taxes.................. 14.2 4.0 20.6 (20.0) 18.8
Provision for income
taxes.................. 6.0 0.0 4.5 0.1 10.6
------ ------ ------ -------- --------
Net earnings (loss)... $ 8.2 $ 4.0 $ 16.1 $ (20.1) $ 8.2
====== ====== ====== ======== ========
Other comprehensive
income (expense):
Foreign currency
translation
adjustment............. (0.4) (0.2) (0.6) 0.0 (1.2)
Minimum pension
liability adjustment... 15.5 0.0 0.0 0.0 15.5
------ ------ ------ -------- --------
Other comprehensive
income (expense)..... 15.1 (0.2) (0.6) 0.0 14.3
------ ------ ------ -------- --------
Comprehensive income
(loss)................. $ 23.3 $ 3.8 $ 15.5 $ (20.1) $ 22.5
====== ====== ====== ======== ========
</TABLE>
64
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 668.5 $ 411.1 $256.4 $(310.3) $1,025.7
Cost of goods sold...... 505.8 391.6 211.8 (315.6) 793.6
------- ------- ------ ------- --------
Gross Earnings.......... 162.7 19.5 44.6 5.3 232.1
Selling, general and
administrative
expense................ 178.0 49.4 38.8 0.0 266.2
Restructuring charge
(income)............... 98.5 0.0 0.0 0.0 98.5
------- ------- ------ ------- --------
Earnings (loss) from
operations............. (113.8) (29.9) 5.8 5.3 (132.6)
Non-operating expense
(income)............... 12.1 1.4 1.0 0.0 14.5
Equity earnings (loss)--
subsidiaries........... (29.9) 0.0 0.0 29.9 0.0
------- ------- ------ ------- --------
Earnings (loss) before
provision for income
taxes.................. (155.8) (31.3) 4.8 35.2 (147.1)
Provision for income
taxes.................. 0.0 0.0 3.4 0.0 3.4
------- ------- ------ ------- --------
Net earnings (loss)... $(155.8) $ (31.3) $ 1.4 $ 35.2 $ (150.5)
======= ======= ====== ======= ========
Other comprehensive
income (expense):
Foreign currency
translation
adjustment............. 1.0 0.0 (8.2) 0.0 (7.2)
Minimum pension
liability adjustment... (24.7) 0.0 0.0 0.0 (24.7)
------- ------- ------ ------- --------
Other comprehensive
income (expense)..... (23.7) 0.0 (8.2) 0.0 (31.9)
------- ------- ------ ------- --------
Comprehensive earnings
(loss)................. $(179.5) $ (31.3) $ (6.8) $ 35.2 $ (182.4)
======= ======= ====== ======= ========
</TABLE>
65
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
Net sales............... $607.2 $439.0 $255.4 $(322.1) $979.5
Cost of goods sold...... 505.6 437.4 197.9 (318.9) 822.0
------ ------ ------ ------- ------
Gross earnings.......... 101.6 1.6 57.5 (3.2) 157.5
Selling, general and
administrative
expense................ 116.3 52.2 51.4 0.0 219.9
Change in control
expenses--
compensation........... 11.8 0.0 0.0 0.0 11.8
------ ------ ------ ------- ------
Earnings (loss) from
operations............. (26.5) (50.6) 6.1 (3.2) (74.2)
Non-operating expense
(income)............... 10.0 0.1 (8.0) 0.0 2.1
Equity earnings (loss)--
subsidiaries........... (39.4) 0.0 0.0 39.4 0.0
------ ------ ------ ------- ------
Earnings (loss) before
provision for income
taxes.................. (75.9) (50.7) 14.1 36.2 (76.3)
Provision for income
taxes.................. 0.0 0.0 2.8 0.0 2.8
------ ------ ------ ------- ------
Net earnings (loss)... $(75.9) $(50.7) $ 11.3 $ 36.2 $(79.1)
====== ====== ====== ======= ======
Other comprehensive
income (expense):
Foreign currency
translation
adjustment............. 16.2 0.0 (7.7) 0.0 8.5
Minimum pension
liability adjustment... 3.1 0.0 0.0 0.0 3.1
------ ------ ------ ------- ------
Other comprehensive
income (expense)..... 19.3 0.0 (7.7) 0.0 11.6
------ ------ ------ ------- ------
Comprehensive earnings
(loss)................. $(56.6) $(50.7) $ 3.6 $ 36.2 $(67.5)
====== ====== ====== ======= ======
</TABLE>
66
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)...... $ 8.2 $ 4.0 $ 16.1 $(20.1) $ 8.2
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operations:
Depreciation and
amortization........... 38.7 10.0 3.5 (0.1) 52.1
Curtailment gain........ (15.0) -- -- -- (15.0)
Restructuring charge.... (14.1) -- -- -- (14.1)
Deferred taxes.......... 6.0 -- -- -- 6.0
Changes in current
accounts excluding the
effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... 15.2 6.5 2.8 -- 24.5
Decrease (increase) in
intercompany
receivables and
payables, and
intercompany note
receivables and note
payables............. 29.4 (6.9) (22.5) -- --
Decrease (increase) in
inventories.......... 0.2 1.1 3.5 (0.1) 4.7
Decrease (increase) in
other current
assets............... (2.0) 1.2 0.9 1.1 1.2
Increase (decrease) in
accounts payable and
accrued liabilities.. (21.5) 3.0 1.7 (0.4) (17.2)
Other, net............ (6.9) (4.4) 2.0 (0.5) (9.8)
------ ------ ------ ------ ------
Net cash provided by
(used for)
operating
activities......... 38.2 14.5 8.0 (20.1) 40.6
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant
and equipment, and
tooling................. (24.6) (21.2) (2.7) -- (48.5)
Proceeds from sale of
plant and equipment..... 4.3 0.1 0.2 -- 4.6
Equity earnings (loss)... (20.1) -- -- 20.1 --
Change in subsidiary
investment.............. (0.7) -- -- 0.7 --
Other, net............... 0.7 0.5 0.2 -- 1.4
------ ------ ------ ------ ------
Net cash provided by
(used for)
investing
activities......... (40.4) (20.6) (2.3) 20.8 (42.5)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in short-
term debt............... 25.6 -- -- -- 25.6
Net change in long-term
debt, including current
maturities.............. (14.9) 2.3 -- -- (12.6)
Change in subsidiary
capital................. (0.1) 4.2 (3.4) (0.7) --
Change in restricted
cash.................... (1.3) -- -- -- (1.3)
Other, net............... 0.4 -- -- -- 0.4
------ ------ ------ ------ ------
Net cash provided by
(used for)
financing
activities......... 9.7 6.5 (3.4) (0.7) 12.1
Exchange Rate Effect on
Cash.................... (0.3) -- 1.5 -- 1.2
------ ------ ------ ------ ------
Net increase in Cash and
Cash Equivalents........ 7.2 0.4 3.8 (0.0) 11.4
Cash and Cash Equivalents
at Beginning of Period.. 2.2 0.1 11.3 -- 13.6
------ ------ ------ ------ ------
Cash and Cash Equivalents
at End of Period........ $ 9.4 $ 0.5 $ 15.1 $ (0.0) $ 25.0
====== ====== ====== ====== ======
</TABLE>
67
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOW
TWELVE MONTHS ENDED SEPTMEBER 30, 1998
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in Millions)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)...... $(155.8) $(31.3) $ 1.4 $35.2 $(150.5)
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operations:
Depreciation and
amortization........... 42.4 4.5 3.1 0.1 50.1
Restructuring charge.... 98.5 -- -- -- 98.5
Changes in current
accounts excluding the
effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... (2.4) (0.3) 5.2 (3.4) (0.9)
Decrease (increase) in
intercompany
receivables and
payables, and
intercompany note
receivables and note
payables............. 188.2 0.3 (188.5) -- --
Decrease (increase) in
inventories.......... (15.2) 24.5 (2.0) (5.4) 1.9
Decrease (increase) in
other current
assets............... 43.4 0.4 (1.2) 2.8 45.4
Increase (decrease) in
accounts payable and
accrued liabilities.. (57.6) 1.4 3.6 6.3 (46.3)
Other, net............ 64.0 3.3 1.1 (5.9) 62.5
------- ------ ------- ----- -------
Net cash provided by
(used for)
operating
activities......... 205.5 2.8 (177.3) 29.7 60.7
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant
and equipment, and
tooling................. (25.8) (4.7) (3.9) -- (34.4)
Proceeds from sale of
plant and equipment..... 8.3 1.3 -- -- 9.6
Equity earnings (loss)... 29.7 -- -- (29.7) --
Other, net............... 2.5 0.8 (2.5) -- 0.8
------- ------ ------- ----- -------
Net cash provided by
(used for)
investing
activities......... 14.7 (2.6) (6.4) (29.7) (24.0)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase in short-
term debt............... (96.0) -- -- -- (96.0)
Net change in long-term
debt, including current
maturities.............. 80.6 -- (0.2) -- 80.4
Change in subsidiary
capital................. (175.6) -- 175.6 -- --
Change in restricted
cash.................... (29.0) -- -- -- (29.0)
Other, net............... (0.9) -- -- -- (0.9)
------- ------ ------- ----- -------
Net cash provided by
(used for)
financing
activities......... (220.9) -- 175.4 -- (45.5)
Exchange Rate Effect on
Cash.................... -- -- (0.4) -- (0.4)
------- ------ ------- ----- -------
Net increase in Cash and
Cash Equivalents........ (0.7) 0.2 (8.7) 0.0 (9.2)
Cash and Cash Equivalents
at Beginning of Period.. 27.3 0.5 26.6 -- 54.4
------- ------ ------- ----- -------
Cash and Cash Equivalents
at End of Period........ $ 26.6 $ 0.7 $ 17.9 $ 0.0 $ 45.2
======= ====== ======= ===== =======
</TABLE>
68
<PAGE>
OUTBOARD MARINE CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Parent Guarantor Other Consolidated
Company Subsidiaries Subsidiaries Eliminations Total
------- ------------ ------------ ------------ ------------
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss)...... $(75.9) $(50.7) $ 11.3 $ 36.2 $(79.1)
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operations:
Depreciation and
amortization........... 44.9 7.1 5.0 -- 57.0
Changes in current
accounts excluding the
effects of
acquisitions and
noncash transactions:
Decrease (increase) in
receivables.......... (39.5) (32.0) 82.7 (1.6) 9.6
Decrease (increase) in
intercompany
receivables and
payables, and
intercompany note
receivables and note
payables............. 45.0 56.1 (101.1) -- --
Decrease (increase) in
inventories.......... 14.1 4.0 5.4 3.0 26.5
Decrease (increase) in
other current
assets............... (0.5) 1.0 1.9 (2.8) (0.4)
Increase (decrease) in
accounts payable and
accrued liabilities.. 3.0 5.9 (15.8) 1.6 (5.3)
Other, net............ (27.1) 7.5 (0.9) 3.0 (17.5)
------ ------ ------ ------ ------
Net cash provided by
(used for)
operating
activities......... (36.0) (1.1) (11.5) 39.4 (9.2)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Expenditures for plant
and equipment, and
tooling................. (32.3) (2.4) (1.6) -- (36.3)
Proceeds from sale of
plant and equipment..... 10.9 1.4 0.7 -- 13.0
Equity earnings (loss)... 39.4 -- -- (39.4) --
Other, net............... (5.3) 2.0 0.5 -- (2.8)
------ ------ ------ ------ ------
Net cash provided by
(used for)
investing
activities......... 12.7 1.0 (0.4) (39.4) (26.1)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net change in long-term
debt, including current
maturities.............. 0.3 -- (0.3) -- --
Cash dividends paid...... (6.0) -- -- -- (6.0)
Other, net............... 1.8 -- 0.5 -- 2.3
------ ------ ------ ------ ------
Net cash provided by
(used for)
financing
activities......... (3.9) -- 0.2 -- (3.7)
Exchange Rate Effect on
Cash.................... -- -- (2.1) -- (2.1)
------ ------ ------ ------ ------
Net increase in Cash and
Cash Equivalents........ (27.2) (0.1) (13.8) 0.0 (41.1)
Cash and Cash Equivalents
at Beginning of Period.. 54.5 0.6 40.4 -- 95.5
------ ------ ------ ------ ------
Cash and Cash Equivalents
at End of Period........ $ 27.3 $ 0.5 $ 26.6 $ 0.0 $ 54.4
====== ====== ====== ====== ======
</TABLE>
69
<PAGE>
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure
No disclosure is required pursuant to this item.
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 December 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
David D. Jones, Jr...... 56 Chairman, President and Chief Executive Officer
Alfred D. Kingsley...... 57 Vice Chairman of the Board
Richard Katz............ 57 Vice Chairman of the Board
Gary K. Duberstein...... 45 Director and Assistant Secretary
Ron Hiram............... 47 Director
Frank V. Sica........... 48 Director
Andrew P. Hines......... 60 Executive Vice President and Chief Financial Officer; Director
Johan Arzbach........... 55 Vice President of OMC and President of International Operations
Robert B. Gowens, Jr.... 52 Vice President of OMC and President, North American Engine Operations
Eric T. Martinez........ 36 Vice President and Treasurer
James B. Pekarek........ 31 Vice President and Controller
Robert S. Romano........ 45 Vice President, General Counsel and Secretary
</TABLE>
Directors
David D. Jones, Jr. has been Chairman of the Board of Directors since May
1999 and 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 McLaren Engines, Inc.,
Livonia, Michigan.
Alfred D. Kingsley has been Vice Chairman of the Board of Directors since
May 1999 and prior to that was Chairman of the Board of Directors since
September 12, 1997. Since 1993, Mr. Kingsley has been Senior Managing Director
of Greenway Partners, L.P., an investment partnership. Prior to that, Mr.
Kingsley held various positions at Icahn & Co., Inc., including senior adviser
until 1992. Mr. Kingsley is also a director of ACF Industries, Incorporated,
and a director of the general partner of American Real Estate Partners, L.P.
Mr. Kingsley is Chairman of the Compensation Committee and a member 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.
Gary K. Duberstein has been a director and Assistant Secretary since
September 12, 1997 and was Vice Chairman of the Board of Directors from
September 12, 1997 to May, 1999. Since 1993, Mr. Duberstein has been a Managing
Director of Greenway Partners, L.P., an investment partnership. Prior to that,
Mr. Duberstein
70
<PAGE>
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 Committee and Chairman of the Audit 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 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 a director of Banco Hipotecario S.A., Emmis
Broadcasting Corporation, CSG Systems International, Inc., Kohl's Corporation
and PointOne Telecommunications. Mr. Sica is a member of the Compensation
Committee.
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.
Executive Officers
Johan Arzbach has been Vice President of OMC and President of OMC's
International Operations since January 1999 and prior thereto 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.
Robert B. Gowens, Jr. has been Vice President, President of North American
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. since 1980.
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 April, 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.
James B. Pekarek has been Vice President and Controller since January, 2000.
Prior to that, Mr. Pekarek was the Director of Reporting from September, 1998,
to January, 2000. From September, 1995 to September, 1998, Mr. Pekarek served
as Director of Reporting for Alliant Foodservice where he was responsible for
all internal and external financial reporting.
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.
71
<PAGE>
To the knowledge of the Company, there are no family relationships between
any director or executive officer and any other director or executive officer.
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 1,900,000 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, 1999, the Company had granted and outstanding stock
options relating to 1,570,870 shares of common stock. Of these options, 144,745
were vested at the time of grant. The other 1,426,125 options have vested or
will vest as follows: 429,958 as of December 31, 1999; 404,505 in the Company's
fiscal year ending December 31, 2000; 283,316 in the Company's fiscal year
ending December 31, 2001 and 308,346 thereafter. All of these stock options are
exercisable at their fair market value on the date of grant as determined in
accordance with PROP, and expire ten years after the date of grant except for
Mr. Jones', whose options were granted at a price pursuant to his employment
agreement.
72
<PAGE>
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,
1999, (i) the Chief Executive Officer or served in such capacity during
calendar 1999, (ii) the other four most highly compensated Executive Officers
of the Company, who were serving in such capacity as of December 31, 1999 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, 1999 (collectively the "Named Executives") for services
rendered in all capacities to the Company for the 1999 and 1998 calendar years
and the 1998 and 1997 fiscal years (designated with an "f").
For a discussion of compensation payable to each of Messrs. Jones, Hines and
Gowens, see Item 10--"Directors and Executive Officers of Registrant".
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------- -----------------------------
Securities
Other Restricted Underlying
Annual Stock Options/ LTIP All Other
Name and Principal Salary Bonus Compensation Awards SARS Payouts Compensation
Position Year ($) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- ------------------ ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D.D. Jones, Jr.(7)...... 1999 600,001 -- -- -- 37,500 -- 18,219
Chairman, President and 1998 597,309 900,000 63,358 -- 346,140 -- 649,019
Chief Executive Officer 1998f 556,925 900,000 114,736 -- 407,245 -- 2,578,014
1997f 7,692 -- -- -- -- -- --
A.P. Hines(8)........... 1999 374,999 -- 61,146 -- -- -- 4,083
Executive Vice 1998 375,000 117,187 119,215 351,558 180,000 -- --
President and Chief 1998f 349,708 117,187 -- 351,558 180,000 -- --
Financial Officer 1997f -- -- -- -- -- -- --
R.B. Gowens(9).......... 1999 300,000 250,000 -- -- -- -- 14,290
Vice President, OMC, & 1998 77,308 -- -- -- 100,000 -- 17,734
President, NAEO 1998f -- -- -- -- -- -- --
1997f -- -- -- -- -- -- --
J. Arzbach(10).......... 1999 230,000 85,000 -- -- 40,000 -- 26,150
Vice President, OMC, & 1998 -- -- -- -- -- -- --
President, 1998f -- -- -- -- -- -- --
International 1997f -- -- -- -- -- -- --
Operations
R. S. Romano............ 1999 209,039 75,000 -- -- 15,000 -- 2,774
Vice President, General 1998 197,307 19,000 -- -- 8,000 2,928 2,230
Counsel and Secretary 1997f 143,917 11,488 -- -- -- -- 4,320
1998f 190,000 19,000 -- -- 8,000 19,353 1,974
</TABLE>
- --------
(1) Calendar and fiscal 1998 bonuses for Mr. Hines include $117,187 in cash and
19,531 shares of Restricted Stock under PROP valued at $18.00 per share.
All fiscal 1998 and 1997 and calendar 1999 and 1998 bonuses to Messrs.
Jones, Gowens, Arzbach and Romano were paid in cash.
(2) For calendar year 1999, other compensation for Mr. Jones, includes $16,759
moving expenses, $16,014 for Company car, $19,451 for financial services,
$18,220 as payment for interest on a loan from the Company, and $45,723 for
tax gross-up; and for Mr. Hines, includes $9,997 for Company car, $22,415
for financial services, and $28,734 for tax gross-up. For calendar year
1998, other annual compensation for Mr. Jones, includes $13,810 for moving
expense, $5,818 for financial services, $10,490 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. Gowens, Arzbach
and Romano in 1999 and Messrs. Hines, Gowens, Arzbach and Romano in fiscal
year 1998, and Messrs. Gowens, Arzbach and Romano in calendar 1998,
received a de minimis amount of perquisites and other
73
<PAGE>
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
calendar 1999 or fiscal or calendar 1998, as applicable.
(3) See Footnote (1) above for Mr. Hines' Restricted Stock award.
(4) See Option grants in the 1999 Fiscal Year below.
(5) For Mr. Romano, the amount in fiscal year 1998 consists of $9,000 payment
for options, $7,425 payment for 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.
(6) For calendar year 1999, all other compensation for Mr. Jones included
$13,581 for life insurance premiums and $4,638 as a Company contribution
under the Company's 401(k) retirement plan. 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 calendar year 1999, all
other compensation for Mr. Hines included $4,083 for life insurance
premiums. For calendar year 1999, all other compensation for Mr. Gowens
included $1,627 as a contribution under the Company's 401(k) retirement
plan and $12,663 for a sign-on bonus. For calendar year 1999, all other
compensation for Mr. Arzbach included $1,150 as a contribution under the
Company's 401(k) retirement plan and $25,000 for a sign-on bonus. For Mr.
Romano, all other compensation includes $1,156 for life insurance premiums
and $1,618 as a contribution under the Company's 401(k) retirement plan
and 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 and $4,320 in fiscal year 1998
and 1997.
(7) Mr. Jones was hired by the Company on September 25, 1997 and, therefore,
information prior to that date does not exist.
(8) Mr. Hines was hired by the Company on October 6, 1997 and, therefore,
information prior to that date does not exist.
(9) Mr. Gowens was hired by the Company on October 1, 1998 and, therefore,
information prior to that date does not exist.
(10) Mr. Arzbach was hired by the Company on January 5, 1999 and, therefore,
information prior to that date does not exist.
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<PAGE>
Option Grants Fiscal Year 1999
The following table provides information on the grants of options to
purchase common stock of the Company given to the Named Executives in fiscal
year 1999.
<TABLE>
<CAPTION>
% of
Number of Total
Securities Options
Underlying Granted Exercise Market Potential
Options/ to all Price Price Realizable
SARs Employees Per on Date Value($)(4)
Grant Granted in Share of Expiration -----------------
Name Date (#)(1) 1999(2) $(3) Grant(3) Date 5% 10%
- ---- ------- ---------- --------- -------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D.D. Jones,Jr........... 9/30/99 37,500 6.29 $18.00 $22.00 9/30/09 424,504 1,075,776
A.P. Hines.............. N/A N/A N/A N/A N/A N/A N/A N/A
R. B. Gowens............ N/A N/A N/A N/A N/A N/A N/A N/A
J. Arzbach.............. 1/5/99 25,000 4.19 $22.00 N/A 1/5/09 345,892 876,558
12/1/99 15,000 2.51 $22.00 N/A 12/1/09 207,535 525,935
R.S. Romano............. 12/1/99 15,000 2.52 $22.00 N/A 12/1/09 207,535 525,935
</TABLE>
- --------
(1) All options vest over a three year period; beginning one year from the date
of grant except for Mr. Arzbach's January 5, 1999 grant which vests over a
period of four years, 25% exercisable at the end of the first year, then an
additional 25% each year thereafter.
(2) In the 1999 calendar year, 143 employees received stock options.
(3) Mr. Jones' options, and the exercise price therefore, are pursuant to his
employment agreement with the Company. See "Employment Contracts and
Severance Agreements" below. Market and grant price of $22.00 per share as
determined by the Board of Directors of the Company in accordance with the
terms of PROP.
(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.
Option Exercises in the 1999 Fiscal Year and Fiscal Year End Option Values
No options were exercised by the Named Executives during fiscal year 1999.
The per share fair market value of the Company's common stock used to make the
calculations in the following table is $22.00, which is the fair market value
as of December 31, 1999 as determined by the Board of Directors of the Company
in accordance with PROP.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
Shares at Fiscal at Fiscal
Acquired Value Year End(#) Year End($)
on Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- ---- ----------- -------- --------------- -------------------
<S> <C> <C> <C> <C>
D.D. Jones, Jr........ 0 0 344,745/100,000 7,584,390/2,200,000
A.P. Hines............ 0 0 120,000/ 60,000 2,640,000/1,320,000
R.B. Gowens........... 0 0 33,333/66,667 733,326/1,466,674
J. Arzbach............ 0 0 0/40,000 0/880,000
R.S. Romano........... 0 0 2,000/21,000 44,000/462,000
</TABLE>
Long-term Incentive Plan Awards in Fiscal Year 1999
There were no amounts paid in fiscal year 1999 to any employee, including
the Named Executives in the form of an LTIP under PROP.
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<PAGE>
Retirement Plans
The approximate total annual benefit for the Named Executive participants
payable from the Outboard Marine Corporation Employees Retirement Plan (the
"Retirement Plan") and the supplemental non-qualified retirement plan is shown
in the table below for selected average base earnings levels and years of
service based upon certain assumptions including all years of credited service
as an Executive Officer, retirement at age 65 and election of a single life
annuity for the benefit payment.
<TABLE>
<CAPTION>
Years of Service
-------------------------------------
Average Annual Base Earnings 5 10 15 20 or More
- ---------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
$ 150,000................................ $ 19,125 $ 38,250 $ 57,375 $ 76,500
$ 250,000................................ $ 31,875 $ 63,750 $ 95,625 $127,500
$ 300,000................................ $ 38,250 $ 76,500 $114,750 $153,000
$ 500,000................................ $ 63,750 $127,500 $191,250 $255,000
$ 900,000................................ $114,750 $229,500 $344,250 $459,000
$1,300,000................................ $165,750 $331,500 $497,250 $663,000
$1,900,000................................ $242,250 $484,500 $726,750 $969,000
</TABLE>
The Retirement Plan provides a fixed benefit determined on the basis of
years of service and final average base earnings. The approximate annual
benefits shown in the table above are not subject to social security offset but
are subject to offset for any benefits payable from retirement programs of the
Company's foreign subsidiaries.
In addition to the benefits from the Retirement Plan, certain participants
in the Company's annual incentive compensation plan(s) are eligible for
retirement benefits from the supplemental non-qualified retirement plan. The
retirement benefits under the non-qualified plan are based upon amounts paid
under the annual bonus plan as well as salary, and the total retirement
benefits payable under both plans may exceed the maximum benefits payable under
the Employee Retirement Income Security Act of 1974, as amended. The basis for
benefits under both plans are those amounts contained in the Summary
Compensation Table above, for Salary and Bonus, if the years disclosed are one
or more of the three highest annual earnings in the last ten years as discussed
below. Effective September 30, 1999, the Company froze the retirement plan.
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, Gowens, Arzbach, and Romano
will have 2.08, 2.00, 1.00, 0.75, and 2.00, respectively, credited years of
officer service and 0.0, 0.0, 0.0, 0.0, and 17.91, 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, Gowens, Arzbach, and Romano 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 $46,020, $18,275, $25,374,
$4,399, and $7,650, 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.
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<PAGE>
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 (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
77
<PAGE>
Employment Agreement, which stock options shall automatically vest as of the
date of termination and be exercisable for 90 days thereafter. If Mr. Jones's
employment with OMC terminates as a result of his death, (1) OMC will be
obligated to pay to Mr. Jones's estate his base salary to the date of his death
plus any accrued vacation, and Mr. Jones's annual bonus, if any, for the fiscal
year in which his death occurs prorated for the number of full months Mr. Jones
was employed during such fiscal year, (2) in the event Mr. Jones dies during
any twelve-month period during the term of his employment, any unvested stock
options granted by OMC to Mr. Jones pursuant to the Jones Employment Agreement
which would have become vested if Mr. Jones continued his employment during
such twelve-month vesting period shall vest pro-rata for the number of full
months Mr. Jones was employed during such twelve-month period in which his
death occurs and be exercisable for 12 months after Mr. Jones's death, and (3)
Mr. Jones's surviving spouse shall be entitled to participate in OMC's group
medical and dental plans for the remainder of the term of the Jones Employment
Agreement. If Mr. Jones's employment with OMC is terminated as a result of his
total disability, (1) OMC will be obligated to pay Mr. Jones his base salary to
the date on which total disability is deemed to have occurred plus any accrued
vacation, and Mr. Jones's annual bonus, if any, for the fiscal year in which
his total disability occurs prorated for the number of full months Mr. Jones
was employed during such fiscal year, (2) in the event total disability occurs
during any twelve-month period during the term of Mr. Jones's employment, any
unvested stock options granted by OMC to Mr. Jones pursuant to the Jones
Employment Agreement which would have become vested if Mr. Jones continued his
employment during such twelve-month vesting period shall vest pro rata for the
number of full months Mr. Jones was employed during such twelve-month period in
which his total disability occurs and be exercisable for 12 months after Mr.
Jones's total disability, and (3) Mr. Jones shall be permitted to participate
in OMC's employee benefit plans, programs or arrangements in which he
participated prior to he termination of his employment until the end of the
then remaining term of the Jones Employment Agreement.
Pursuant to the Jones Employment Agreement, OMC will have the right to
repurchase all shares of common stock of OMC owned by Mr. Jones and vested
stock options granted by OMC to Mr. Jones upon the termination of Mr. Jones's
employment with OMC for any reason. Upon the termination by OMC of Mr. Jones's
employment without cause, the termination by Mr. Jones of his employment for
good reason, the voluntary termination by Mr. Jones of his employment at or
after the expiration of the term of the Jones Employment Agreement, the
voluntary termination by Mr. Jones of his employment at or after his attaining
age 62, or the termination of Mr. Jones's employment as a result of his death
or total disability, Mr. Jones or his estate, as applicable, will have the
right to require OMC purchase all shares of common stock of OMC owned by Mr.
Jones and vested stock options granted by OMC to Mr. Jones.
Mr. Jones is prohibited from disposing his shares of OMC common stock
without the prior written consent of OMC.
However, pursuant to the Jones Employment Agreement, Mr. Jones will have a
tag-along right, subject to certain exceptions, with respect to certain
dispositions of common stock of OMC by Greenmarine Holdings. Greenmarine
Holdings will have certain take-along rights to require Mr. Jones to sell his
shares of OMC common stock if Greenmarine Holdings proposes to sell not less
than 50% of the OMC common stock owned by Greenmarine Holdings.
Mr. Jones is subject to confidentiality, non-competition and non-
solicitation provisions, which are enforceable during the term of the Jones
Employment Agreement and for a one-year period commencing on the expiration or
termination of Mr. Jones's employment with OMC.
See also "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
78
<PAGE>
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
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
79
<PAGE>
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 his Employment Agreement; and (3)
OMC shall pay to Mr. Gowens, within sixty (60) days of the end of the fiscal
year, his bonus for the fiscal year in which such termination occurred, based
upon the Company's level of actual attainment of his bonus target for such
fiscal year, prorated for the number of full months Mr. Gowens was employed
during that fiscal year. In addition, OMC shall, at its expense, continue for
one year Mr. Gowens' participation on the same basis as active employees in the
Company's group, medical and life insurance plans in which he participated
prior to the termination of his employment. Any unvested stock options granted
to Mr. Gowens shall automatically vest as the date of termination and shall be
exercisable, along with other vested options, in accordance with the terms of
the plan.
If OMC terminates Mr. Gowens' employment for cause or Mr. Gowens voluntarily
resigned without Good Reason, Mr. Gowens shall be entitled his accrued and
unpaid base salary through such date of termination. In the event of Mr.
Gowens' death, OMC shall pay to his estate his base salary and vacation owed
through the date of death and any bonus for the fiscal year in which his death
occurs, prorated for the number of full months Mr. Gowens was employed during
such fiscal year and any restricted stock grant shall become fully vested.
In the event that the Agreement terminates as a result of Mr. Gowens' total
disability, OMC shall pay to Mr. Gowens his base salary through the date in
which he is determined to have become totally disabled and any bonus for the
fiscal year in which his total disability occurs, prorated for the number of
full months he was employed during such fiscal year, provided, however, that
OMC shall only be required to pay such amounts to Mr. Gowens that are not
covered by long term disability payments, if any, to Mr. Gowens pursuant to any
long term disability policy or plan of the Company.
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<PAGE>
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. The Company has a severance agreement with
Robert S. Romano. This agreement 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 agreement provides that if Mr. Romano elects to
resign his employment for specified reasons, or is terminated by the Company
other than for cause, the Company will pay to him an amount in cash equal to
not more than one times (1) salary, plus (2) the amount of the highest annual
incentive compensation received by him in the five fiscal years preceding the
fiscal year of the change in control. Additionally, for a period of 12 months
following the termination date (the "Continuation Period"), the Company will
arrange to provide to Mr. Romano benefits substantially similar to those he was
receiving or entitled to receive immediately prior to the termination date.
Further, the Company will provide 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 Mr. Ramano under the Company's
retirement plans if he continued to be employed through the Continuation Period
given his base salary over (2) the retirement, pension, medical, life and other
benefits that he is entitled to receive under the Company's retirement plans.
The term of this severance agreement will remain in force until September 12,
2000, or as otherwise may be negotiated by Mr. Romano and the Company.
Compensation Committee Interlocks and Insider Participation
Messrs. Kingsley, Duberstein, Sica and Hiram served on the Compensation
Committee of the Company's Board of Directors during fiscal year 1999. Mr.
Kingsley served as Vice Chairman of the Board in fiscal year 1999. Messrs
Kingsley, Duberstein, Sica and Hiram did not serve as an officer or employee of
the Company or any of its subsidiaries during fiscal year 1999.
Messrs. Kingsley and Duberstein control Greenlake Holdings LLC, which has
approximately a 30.5% interest in Greenmarine Holdings, and also control
Greenlake Holdings, II LLC. Mr. Hiram is a Managing Director of Soros Fund
Management LLC, which serves as the principal investment adviser to the
indirect parent entity of Quantum Industrial Holdings, Ltd., which is the owner
of approximately 34.75% of Greenmarine Holdings. Mr. Sica is a Managing
Director of Soros Fund Management LLC. In fiscal year 1999, Greenmarine
Holdings was controlled by a Management Committee comprised by Messrs.
Kingsley, Duberstein, Sica, Hiram and Katz. See "Item 12--Security Ownership".
81
<PAGE>
Item 12. Security Ownership
The following table sets forth information with respect to the beneficial
ownership of the Company's voting securities, by class, as of March 15, 2000 by
(i) any person or group who beneficially owns more than 5% of any class of the
Company's outstanding voting securities (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, beneficial
ownership of which may be acquired within 60 days of March 15, 2000, 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>
Series A Convertible
Common Stock Preferred Stock
------------------------ ---------------------
Shares Shares
Beneficially Percent Beneficially Percent
Name and Address Owned of Class(1) Owned of Class
- ---------------- ------------ ----------- ------------ --------
<S> <C> <C> <C> <C>
Greenmarine Holdings LLC(1).... 20,400,000 65.2% -- --
277 Park Avenue, 27th Floor
New York, New York 10172
Quantum Industrial Partners
LDC(1)........................ 7,907,426 25.3% 494,554 76.1%
Kaya Flamboyan 9,
Villemstad
Curacao
Netherlands-Antilles
Greenlake Holdings II LLC(2)... 2,485,430 7.9% 155,446 23.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Alfred D. Kingsley(3).......... 22,885,430 73.1% 155,446 23.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Gary K. Duberstein(3).......... 22,885,430 73.1% 155,446 23.9%
277 Park Avenue, 27th Floor
New York, New York 10172
Richard Katz(4)................ 28,307,426 90.4% 494,554 76.1%
Villa La Sirena
Vico dell'Olivetta 12
18039 Martola Inferiore
Ventimiglia, Italy
Ron Hiram(5)................... 28,307,426 90.4% 494,554 76.1%
888 Seventh Avenue, 33rd Floor
New York, New York 10106
Frank V. Sica(6)............... 28,307,426 90.4% 494,554 76.1%
888 Seventh Avenue, 33rd Floor
New York, New York 10106
David D. Jones, Jr.(7)......... 350,300 1.1% -- --
c/o Outboard Marine
Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
Andrew P. Hines(8)............. 159,531 * -- --
c/o Outboard Marine
Corporation
100 Sea Horse Drive
Waukegan, Illinois 60085
Directors and Executive
Officers as a group (12
persons)(9)................... 31,302,688 100.0% 650,000 100.0%
</TABLE>
82
<PAGE>
- --------
* 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
QIP. QIP is the principal operating subsidiary of Quantum Industrial
Holdings Ltd., a British Virgin Islands corporation ("QIH"). The principal
business of QIP is investing in securities. QIH is an investment fund which
has as its principal investment advisor 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. Pursuant to
constituent documents of QIP, QIHMI is vested with investment discretion
with respect to the portfolio assets held for the accounts of each of QIP.
The principal business of QIHMI is to provide management and advisory
services to, and to invest in, QIP. Mr. Soros is the sole shareholder of
QIH Management, Inc. ("QIH Management"), which is the sole general partner
of QIHMI. The principal business of QIH Management is to serve as the sole
general partner of QIHMI. Mr. Soros has entered into an agreement pursuant
to which he has agreed to use his best efforts to cause QIH Management, as
the general partner of QIHMI, to act at the discretion of SFM LLC. The
address of each of Mr. George Soros and Mr. Stanley Druckenmiller is 888
Seventh Avenue, 33rd Floor, New York, New York 10106. Greenmarine Holdings
is controlled by a Management Committee comprised of a total of five
Managers. Pursuant to the Operating Agreement of Greenmarine Holdings,
Greenlake has the right to appoint two designees to Greenmarine Holding's
Management Committee and the holders of a majority of Greenmarine Holdings'
interest held by QSP and QIP have the right to appoint three members of
Greenmarine Holdings' Management Committee. Greenmarine Holdings'
Management Committee is currently comprised of Messrs. Alfred D. Kingsley,
Gary K. Duberstein, Frank V. Sica, Ron Hiram and Richard Katz. The vote of
three of the members of Greenmarine Holdings' Management Committee is
required for action by the Management Committee. 4,374,898 of the common
stock shares indicated as beneficially owned by QIP are as a result of
warrant to purchase and 3,532,528 of the common stock shares are
beneficially owned are as a result of Series A Convertible Preferred Stock.
(See Item 7) Management Discussion and Analysis of Financial Condition and
Results of Operations, Financial Condition, Liability and Capital
Resources.
(2) Greenlake Holdings II LLC ("Greenlake II") is controlled by Mr. Alfred D.
Kingsley and Mr. Gary K. Duberstein. 1,375,102 of the common stock shares
indicated as beneficially owned by Greenlake II are as a result of warrant
to purchase and 1,110,328 common stock shares indicated as beneficially
owned as a result of Series A Convertible Preferred Stock. (See Item 7),
Management's Discussion and Analysis of Financial Condition and Results of
Operation, Financial Condition, Liquidity and Capital Resources.
(3) 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' 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 Greenlake II,
respectively and are included because of their affiliation with Greenmarine
Holdings and their control of Greenlake II. 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.
(4) Richard Katz is a director of the Company. In addition, Mr. Katz is a
member of Greenmarine Holdings' Management Committee. Mr. Katz is also
Chairman of the Board of QIH. All of the shares indicated as owned by Mr.
Katz are owned directly by Greenmarine Holdings and QIP, respectively, and
are included because of his affiliation with Greenmarine Holdings and QIH's
relationship with QIP. 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.
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<PAGE>
(5) 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 QIH. In addition, Mr. Hiram is a member of
Greenmarine Holdings' Management Committee. See footnote 1 above and
"Management--Directors and Executive Officers of the Company." All of the
shares indicated as owned by Mr. Hiram are owned directly by Greenmarine
Holdings and QIP, respectively, and are included because of his affiliation
with Greenmarine Holdings and QIH's relationship with QIP. The reference to
such shares shall not be deemed admission that Mr. Hiram may be deemed to
have beneficial ownership of these shares within the meaning of Rule 13d-3
under the Exchange Act.
(6) 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 QIH. In addition, Mr. Sica is a member of Greenmarine
Holdings' Management Committee. See footnote 1 above and "Management--
Directors and Executive Officers of the Company." All of the shares
indicated as owned by Mr. Sica are owned directly by Greenmarine Holdings
and QIP, respectively, and are included because of his affiliation with
Greenmarine Holdings and QIH's relationship with QIP. The reference to such
shares shall not be deemed admission that Mr. Sica may be deemed to have
beneficial ownership of these shares within the meaning of Rule 13d-3 under
the Exchange Act.
(7) Beneficial ownership of common stock represents 350,300 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 94,445 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 March 15, 2000. See "Employment Contracts and Severance
Agreements."
(8) Of the 159,531 shares of common stock indicated as owned by Mr. Hines,
8,333 were purchased in consideration of $150,000 in cash payments, 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, 19,531 shares
represent restricted stock granted to Mr. Hines pursuant to PROP (See
"Employment Contracts and Severance Agreements") and 120,000 currently
exercisable options to purchase common stock. Mr. Hines has pledged 20,000
shares to the Company to secure his obligations under the promissory note.
Does not include 60,000 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
March 15, 2000. See "Employment Contracts and Severance Agreements."
(9) The common stock includes 20,400,000 shares indicated as owned by Messrs.
Kingsley, Duberstein, Katz, Hiram and Sica as a result of their affiliation
with Greenmarine Holdings, 5,750,000 common stock shares beneficially owned
by QIP and Greenlake II as a result of warrant to purchase and 4,642,856
common stock shares beneficially owned by the same group as a result of
Series A Convertible Preferred Stock. The series A convertible preferred
stock includes 155,446 shares indicated as owned by Messrs. Kingsley and
Duberstein as a result of their affiliation with Greenlake II and 494,554
shares indicated as owned by Messrs. Katz, Hiram and Sica as a result of
their affiliation with QIP.
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 agreement with
Robert S. Romano. See "Management--Employment Contracts and Severance
Agreements."
OMC has agreed to reimburse Mr. Jones for his reasonable moving expenses
incurred in connection with his relocation to the vicinity of Chicago,
Illinois. Through December 31, 1999, 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
84
<PAGE>
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. During
fiscal year 1999, the Company replaced the second mortgage on the Lake Forest,
Illinois residence for a first mortgage on a residence located in Green Lake,
Wisconsin on the same terms and conditions.
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, 1999, 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%. The note was paid on
March 31, 1999 and the mortgage released. Concurrently with the transfer of the
property, Mr. Hines entered into a lease of the home from the Company through
March 31, 1999. OMC shall have the right to sell such residence and shall
assume all mortgage payment obligations for such residence. OMC will be
entitled to any profits and will suffer any losses that result from the actual
sale price of Mr. Hines' New Jersey residence.
Pursuant to the Hines Employment Agreement, the Company loaned to Mr. Hines
the amount of $210,000 for the sole purpose of purchasing 11,666.66 shares of
common stock of the Company. The loan is evidenced by a promissory note bearing
interest at a rate of 5.81% per annum and secured by a pledge and security
agreement with the shares of OMC common stock issued to Mr. Hines as
collateral.
On December 8, 1998, the Company loaned to Mr. Gowens the amount of $100,000
for the purchase of his principal residence located in the Chicago vicinity,
secured by a second mortgage. The promissory note bears interest at a rate of
6.5% per annum with payments of interest only. The note is payable if (1) Mr.
Gowens leaves the employment of OMC before October 1, 2001 without Good Reason
or as a result of termination for Cause as defined in the Gowens Employment
Agreement; (2) Mr. Gowens is required by OMC to relocate his residence any time
prior to October 1, 2001 or (3) Mr. Gowens dies before October 1, 2001, all
subject to extension as agreed to between Mr. Gowens and OMC. In the event that
Mr. Gowens is required by OMC to relocate his residence prior to October 1,
2001, OMC shall suffer the loss, if any, on the note if the gross sale price of
the mortgaged property or the fair market value of the mortgaged property,
whichever is greater, is greater than the purchase price of the mortgaged
property, plus documented improvements.
85
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, 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> <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"))*
3.1(a)(1) Amendment to Restated Certificate of Incorporation of the Company,
attached hereto and incorporated herein as Exhibit 3.1(a)(1)
3.2(a) Amended and Restated bylaws of the Company (filed as Exhibit 3(B) to
the 1997 10-K)*
(a)(1) Amended and Restated bylaws 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 Exchange Note (filed as Exhibit 4.2 to the Form S-4)*
4.3 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)*
4.4 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)*
4.5 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*
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
4.6 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*
4.7 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*
4.8 Outboard Marine Corporation Certificate of the Powers, Designations,
Preferences and Rights of the Series A Convertible Preferred Stock,
Par Value $.01 Per Share, attached hereto and incorporated herein as
Exhibit 4.8.
4.9 Series A Convertible Preferred Stock and Warrant Purchase Agreement,
attached hereto and incorporated herein as Exhibit 4.9.
4.10 Stockholder Agreement between Outboard Marine Corporation, Quantum
Industrial Partners LDC and Greenlake Holdings II LLC, attached hereto
and incorporated herein as Exhibit 4.10.
4.11 Warrant to Purchase Shares of Common Stock of Outboard Marine
Corporation by Quantum Industrial Partners LDC, attached hereto and
incorporated herein as Exhibit 4.11.
4.12 Warrant to Purchase Shares of Common Stock of Outboard Marine
Corporation by Greenlake Holdings LLC, attached hereto and
incorporated herein as Exhibit 4.12.
4.13 Registration Rights Agreement between Outboard Marine Corporation,
Quantum Industrial Partners LDC, Greenlake Holdings II LLC and
Greenmarine Holdings LLC, attached hereto and incorporated herein as
Exhibit 4.13.
10.1 Severance Agreements 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 Employment Agreement of Mr. Hines dated October 6, 1997, reference is
made to Exhibit 10(J) to the 1997 10-K*
10.3 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*
10.4 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)*
10.5 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*
10.6 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*
10.7 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"))*
10.8 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)*
10.9 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)*
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
10.10 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 (filed as Exhibit 10.11 to the Transition Report
on Form 10-K for the transition period ended December 31, 1998)*
10.11 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 (filed as Exhibit 10.12 to the Transition Report
on Form 10-K for the transition period December 31, 1998)*
10.12 Promissory Note dated December 4, 1998 with Robert Gowens, Jr. and
Donna Gowens, as Maker, and the Company, as Payee (filed as Exhibit
10.16 to the Transition Report on Form 10-K for the transition period
ended December 31, 1998)*
10.13 Second Mortgage dated December 4, 1998 with Robert Gowens, Jr. and
Donna Gowens, as Mortgagor, and the Company, as Mortgagee (filed as
Exhibit 10.17 to the Transition Report on Form 10-K for the transition
period ended December 31, 1998)*
10.14 Nonqualified Stock Option Agreement dated October 1, 1998 between the
Company and Robert B. Gowens (filed as Exhibit 10.18 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.15 Secured Promissory Note dated October 6, 1997 with Andrew Hines, as
Maker, and the Company, as Payee (filed as Exhibit 10.19 to the
Transition Report on Form 10-K for the transition period ended
December 31, 1998)*
10.16 Sixth Amendment to Amended and Restated Loan and Security Agreement
between the Company and Bank of America, N.A., dated effective as of
July 30, 1999 filed as Exhibit 10.16 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June 30, 1999*
10.17 Pledge and Security Agreement dated October 6, 1997 between the
Company and Andrew Hines (filed as Exhibit 10.20 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.18 Nonqualified Stock Option Grant Agreement dated October 6, 1997
between the Company and Andrew Hines (filed as Exhibit 10.21 to the
Transition Report on Form 10-K for the transition period ended
December 31, 1998)*
10.19 Incentive Stock Option Grant Agreement dated December 30, 1997 between
the Company and David Jones (filed as Exhibit 10.22 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.20 Nonqualified Stock Option Grant Agreement dated March 10, 1998 between
the Company and David Jones (filed as Exhibit 10.23 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.21 Nonqualified Stock Option Grant Agreement dated March 10, 1998 between
the Company and David Jones (filed as Exhibit 10.24 to the Transition
Report on Form 10-K for the transition period ended December 31,
1998)*
10.22 Seventh Amendment to Amended and Restated Loan and Security Agreement
between the Company and Bank of America, N.A., dated effective as of
October 27, 1999 (filed as Exhibit 10.22 to the Form 10-Q for the
period ended September 30, 1999)*
10.23 Eighth Amendment to Amended and Restated Loan and Security Agreement
between the Company and Bank of America, N.A., dated effective as of
January 31, 2000, attached hereto and incorporated herein as Exhibit
10.24.
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- ----------------------------------------------------------------------
<C> <S>
10.24 Subordinated Promissory Note dated January 19, 2000 with Outboard
Marine Corporation, as borrower, and Quantum Industrial Partners LDC,
as lender, attached hereto and incorporated herein as Exhibit 10.24.
10.25 Subordinated Promissory Note dated January 19, 2000 with Outboard
Marine Corporation, as borrower, and Greenlake Holdings II LLC, as
lender, attached hereto and incorporated herein as Exhibit 10.25.
11. Computation of per share earnings (loss)
21. Subsidiaries of Registrant, attached hereto and incorporated herein as
Exhibit 21.
27. Financial Data Schedule
</TABLE>
- --------
* Incorporated herein by reference.
(b) On February 1, 2000, the Company filed a Report on Form 8-K announcing
the sale of 650,000 shares of Series A Preferred Stock and Warrants to
purchase 5,750,000 shares of the Company's Common Stock.
(c) Exhibits are attached hereto.
(d) None.
89
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Outboard Marine Corporation
Date: March 30, 2000
/s/ David D. Jones, Jr.
By: _________________________________
David D. Jones, Jr.
President, Chief Executive
Officer and Chairman of the Board
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>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David D. Jones, Jr. President, Chief Executive March 30, 2000
______________________________________ Officer and Chairman of
David D. Jones, Jr. the Board
/s/ Alfred D. Kingsley Vice Chairman of the Board March 30, 2000
______________________________________
Alfred D. Kingsley
/s/ Gary K. Duberstein Director and Assistant March 30, 2000
______________________________________ Secretary of the Board
Gary K. Duberstein
/s/ Richard Katz Vice Chairman of the Board March 30, 2000
______________________________________
Richard Katz
/s/ Ron Hiram Director March 30, 2000
______________________________________
Ron Hiram
/s/ Frank V. Sica Director March 30, 2000
______________________________________
Frank V. Sica
/s/ Andrew P. Hines Executive Vice President March 30, 2000
______________________________________ Strategic Planning and
Andrew P. Hines Business Development and
Director
/s/ Eric T. Martinez Interim Chief Financial March 30, 2000
______________________________________ Officer and Vice
Eric T. Martinez President and Treasurer
(Principal Financial
Officer)
/s/ James B. Pekarek Vice President and March 30, 2000
______________________________________ Controller (Principal
James B. Pekarek Accounting Officer)
</TABLE>
90
<PAGE>
Exhibit 3.1(a)(1)
CERTIFICATE OF AMENDMENT
OF
THE RESTATED CERTIFICATE OF INCORPORATION
OF
OUTBOARD MARINE CORPORATION
Pursuant to Sections 228 and 242 of the General
Corporation Law of the State of Delaware
*****
Outboard Marine Corporation, a Delaware corporation (hereinafter called the
"Corporation"), does hereby certify as follows:
FIRST: That the Board of Directors of the Corporation adopted a resolution
proposing and declaring advisable the following amendment to the Restated
Certificate of Incorporation of the Corporation:
RESOLVED, that the Restated Certificate of Incorporation be amended by
changing the fourth Article thereof so that, as amended, such Article
shall be and read as follows:
"FOURTH: The total number of all classes of stock which the
Corporation shall have authority to issue is 37,000,000 shares,
consisting of:
(a) 1,000,000 shares of Preferred Stock, par value $0.01 per share;
and
(b) 36,000,000 shares of Common Stock, par value $0.01 per share."
SECOND: That in lieu of a meeting of stockholders, the sole stockholder of
the Corporation has duly adopted the amendment by written consent in accordance
with the provisions of Sections 228 and 242 of the General Corporation Law of
the state of Delaware.
<PAGE>
IN WITNESS WHEREOF, OUTBOARD MARINE CORPORATION has caused this certificate
to be duly executed in its corporate name this 28 day of January, 2000.
OUTBOARD MARINE CORPORATION
By: /s/ Eric T. Martinez
---------------------
Name: ERIC T. MARTINEZ
Title: Vice President and Treasurer
<PAGE>
Exhibit 4.8
OUTBOARD MARINE CORPORATION
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES A CONVERTIBLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
The following resolution was duly adopted by the Board of Directors of
Outboard Marine Corporation, a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, on January 28, 2000, by the unanimous written consent of the
Board of Directors of the Corporation:
WHEREAS, the Board of Directors of the Corporation is authorized,
within the limitations and restrictions stated in the Certificate of
Incorporation of the Corporation, to provide by resolution or resolutions for
the issuance of shares of preferred stock, par value $.01 per share, of the
Corporation, in one or more series with such voting powers, full or limited, or
without voting powers, and such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions as shall be stated and expressed in the resolution or
resolutions providing for the issuance thereof adopted by the Board of
Directors, and as are not stated and expressed in the Certificate of
Incorporation, or any amendment thereto, including (but without limiting the
generality of the foregoing) such provisions as may be desired concerning
voting, redemption, dividends, dissolution or
<PAGE>
2
the distribution of assets and such other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and fix the
terms of a series of preferred stock and the number of shares constituting such
series;
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby
--------------------------------
established a series of preferred stock designated as "Series A Convertible
Preferred Stock" (such series being hereinafter referred to as the "Series A
Preferred Stock"). The authorized number of shares of Series A Preferred Stock
shall be 650,000. The initial liquidation preference of each share Series A
Preferred Stock upon issuance shall be $100 per share (the "Initial Liquidation
Preference"). As used herein, the "Liquidation Preference" of a share of Series
A Preferred Stock shall be an amount equal to the Initial Liquidation Preference
plus all amounts added thereto in accordance with Section 3(a) hereof.
2. Rank. The Series A Preferred Stock shall, with respect to
----
dividend distributions and distributions of assets and rights upon the
liquidation, winding up and dissolution of the Corporation, rank senior to all
classes of common stock of the Corporation (including, without limitation, the
common stock, par value $.01 per share, of the Corporation (the "Common Stock"))
and to each other class or series of capital stock of the Corporation hereafter
created (the Common Stock and each
<PAGE>
3
other class or series of capital stock of the Corporation are hereinafter
collectively referred to as the "Junior Stock").
<PAGE>
4
3. Dividends.
---------
(a) Beginning on the date of issuance of the Series A Preferred
Stock, the holders of the outstanding shares of Series A Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors of
the Corporation, out of funds legally available therefor, cash dividends on each
share of Series A Preferred Stock at a quarterly rate equal to 3.75% of the then
current Liquidation Preference, payable in arrears on each Dividend Payment Date
commencing on the Initial Dividend Payment Date or the next succeeding Business
Day, if the applicable Dividend Payment Date is not a Business Day.
Notwithstanding the foregoing, the dividend payable on each share of Series A
Preferred Stock with respect to the Initial Dividend Period shall be equal to
the product of (i) 15.0% of the Initial Liquidation Preference multiplied by
(ii) a fraction the numerator of which is the actual number of days from (and
including) the Series A Preferred Stock Issue Date to (but excluding) the
Dividend Payment Date with respect to the Initial Dividend Period, and the
denominator of which is 365. If any dividend (or portion thereof) payable on any
Dividend Payment Date is not declared or paid in full on such Dividend Payment
Date, the amount of such dividend payable that is not paid on such date shall
automatically be added to and cause to be increased the then applicable
Liquidation Preference. Each distribution on the Series A Preferred Stock shall
be payable to holders of record as they appear on the stock books of the
Corporation on such record dates, not less than ten (10) nor more than sixty
(60) days preceding the related Dividend Payment Date, as shall be fixed by the
Board of Directors of the Corporation.
<PAGE>
5
(b) All dividends paid with respect to shares of Series A Preferred
Stock pursuant to Section 3(a) shall be paid pro rata and in like manner to all
of the holders entitled thereto.
(c) Nothing herein contained shall in any way or under any
circumstances be construed or deemed to require the Board of Directors of the
Corporation to declare, or the Corporation to pay or set apart for payment, any
dividends on shares of the Series A Preferred Stock at any time.
(d) Beginning on the Series A Preferred Stock Issue Date, if the
Board of Directors of the Corporation shall declare a dividend or make any other
distribution (including, without limitation, in cash or other property or
assets) to holders of shares of Common Stock (other than (i) dividends payable
in capital stock for which adjustment is made under Section 5(c)(i) or (ii)
subscription rights or warrants for which an adjustment is made under Section
5(c)(ii)), then the holders of each share of Series A Preferred Stock shall be
entitled to receive a dividend or distribution in an amount equal to the amount
of such dividend or distribution received by a holder of the number of shares of
Common Stock for which such share of Series A Preferred Stock is convertible on
the record date for such dividend or distribution. Any such amount shall be paid
to the holders of shares of Series A Preferred Stock at the same time such
dividend or distribution is made to holders of Common Stock. The foregoing
notwithstanding, so long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not declare, pay or set apart for payment any
dividend on any shares of Junior Stock or make any payment on account of, or set
apart
<PAGE>
6
for payment money for a sinking or other similar fund for, the purchase,
redemption or other retirement of, any shares of Junior Stock or any warrants,
rights, calls or options exercisable for or convertible into any shares of
Junior Stock, or make any distribution in respect thereof, either directly or
indirectly, whether in cash, obligations or shares of the Corporation or other
property unless prior to such declaration, payment and set apart, the holders of
not less than 85% of the outstanding shares of Series A Preferred Stock shall
have consented thereto in writing.
4. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, before any distribution or payment
to holders of Junior Stock, the holders of shares of Series A Preferred Stock
shall be entitled to be paid an amount equal to the greater of (i) the
Liquidation Preference, plus an amount in cash equal to the product of (x) 15%
of the then current Liquidation Preference, and (y) a fraction, the numerator of
which is the actual number of days from (and including) the most recent Dividend
Payment Date to (but excluding) the date fixed for liquidation, dissolution or
winding-up of the Corporation, and the denominator of which is 365, and (ii) the
amount that the holders of shares of Series A Preferred Stock would be entitled
to receive in connection with such liquidation, dissolution or winding up if all
of the holders of the Series A Preferred Stock had converted their shares
immediately prior to any relevant record date or payment in connection with such
liquidation, dissolution or winding up, in either case, before any payment or
distribution is made to any class or series of capital stock.
<PAGE>
7
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to the
holders of Series A Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of the
Series A Preferred Stock shall be distributed among and paid to such holders
ratably in proportion to the amounts that would be payable to such holders if
such assets were sufficient to permit payment in full.
(c) Neither the consolidation or merger of the Corporation with or
into any other Person nor the sale or other distribution to another Person of
all or substantially all the assets, property or business of the Corporation,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 4.
5. Conversion.
----------
(a) Stockholders' Right To Convert. Each share of Series A Preferred
------------------------------
Stock shall be convertible, at the option of the holder thereof, at any time, or
from time to time, into fully paid and nonassessable shares of Common Stock at
the Conversion Price. As used herein the "Conversion Price" shall be $14.00 per
share, subject to adjustment as set forth in this Section 5.
(b) Number of Shares of Common Stock Issuable upon Conversion. The
---------------------------------------------------------
number of shares of Common Stock to be issued upon conversion of shares of
Series A Preferred Stock pursuant to Section 5(a) shall be equal to the product
of (i) a fraction, the numerator of which is the then current Liquidation
Preference and
<PAGE>
8
the denominator of which is the Conversion Price, and (ii) the number of shares
of Series A Preferred Stock to be converted.
(c) Antidilution Adjustments. The Conversion Price shall be adjusted
------------------------
from time to time in certain cases as follows:
(i) Dividend, Subdivision, Combination or Reclassification of
---------------------------------------------------------
Common Stock. If the Corporation shall, at any time or from time to time, (a)
- ------------
declare a dividend on the Common Stock payable in shares of its capital stock
(including Common Stock), (b) subdivide the outstanding Common Stock, (c)
combine the outstanding Common Stock into a smaller number of shares, or (d)
issue any shares of its capital stock in a reclassification of the Common Stock
(excluding any such reclassification in connection with a consolidation or
merger in which the Corporation is the continuing corporation), then in each
such case, the Conversion Price in effect at the time of the record date for
such dividend or of the effective date of such subdivision, combination or
reclassification and the number and kind of shares of capital stock issuable on
such date shall be proportionately adjusted so that, in connection with a
conversion after such date, the holder of the Series A Preferred Stock shall be
entitled to receive the aggregate number and kind of shares of capital stock
which, if the conversion had occurred immediately prior to such date, the holder
would have owned upon such conversion and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification. Any such adjustment
shall become effective immediately after the record date of such dividend or the
effective date of such subdivision, combination or reclassification. Such
adjustment
<PAGE>
9
shall be made successively whenever any event listed above shall occur. If a
dividend is declared and such dividend is not paid, the Conversion Price shall
be adjusted to the Conversion Price in effect immediately prior to such record
date.
(ii) Issuance of Rights to Purchase Common Stock Below
-------------------------------------------------
Current Market Price or Conversion Price. If the Corporation shall, at any time
- ----------------------------------------
or from time to time, fix a record date for the issuance of rights or warrants
to all holders of Common Stock entitling them (for a period expiring within 45
calendar days after such record date) to subscribe for or purchase Common Stock
or securities convertible into Common Stock at a price per share of Common
Stock, or having a conversion price per share of Common Stock, if a security is
convertible into Common Stock (determined by dividing (x) the sum of (A) the
total consideration, if any, paid to the Corporation for such rights, warrants
or other securities convertible into Common Stock, and (B) the total
consideration payable to the Corporation upon exercise, conversion or exchange
of such rights, warrants or other securities convertible into Common Stock (the
sum of (A) and (B) being the "Conversion Consideration"), by (y) the total
number of shares of Common Stock covered by such rights, warrants or other
securities convertible into Common Stock), lower than either the Current Market
Price per share of Common Stock on such record date (or, if an ex-dividend date
has been established for such record date, on the day next preceding such ex-
dividend date) or the then current Conversion Price, then the current Conversion
Price shall be reduced to the price determined by multiplying (1) the Conversion
Price in effect
<PAGE>
10
immediately prior to such record date by (2) a fraction, the numerator of which
shall be the sum of (I) the number of shares of Common Stock outstanding on such
record date, plus (II) the quotient obtained by dividing the Conversion
Consideration by the Applicable Price, and the denominator of which shall be the
sum of (I) the number of shares of Common Stock outstanding on such record date
plus (II) the number of additional shares of Common Stock to be offered for
subscription or purchase (or the total number of shares of Common Stock covered
by such rights, warrants or other securities convertible into Common Stock). In
case such price for subscription or purchase may be paid in a consideration part
or all of which shall be in a form other than cash, the value of such
consideration shall be determined in good faith by the Board of Directors of the
Corporation and shall be that value which is agreed upon by at least 75% of the
members thereof; provided, that if the holders of 25% of the shares of Series A
--------
Preferred Stock object to such valuation as determined by the Board of Directors
within fifteen (15) days of receipt of written notice of such valuation or, if
75% of the members of the Board of Directors of the Corporation are unable to
agree upon the value of such consideration, the value thereof shall be
determined by an independent investment bank of nationally recognized stature
that is selected by 75% of the members of the Board of Directors. Any such
adjustment shall become effective immediately after the record date for such
rights or warrants. Such adjustment shall be made successively whenever such a
record date is fixed. If such rights or warrants are not so issued, the then
current Conversion Price shall be adjusted to the Conversion Price in effect
immediately prior to such record date. The determination of whether
<PAGE>
11
any adjustment is required under this Section 5(c)(ii) by reason of the sale and
issuance of rights, options, warrants or convertible or exchangeable securities
and the amount of such adjustment, if any, shall be made only at the time of
such issuance or sale and not at the subsequent time of issuance or sale of
Common Stock upon the exercise or conversion of such rights, warrant, options or
convertible or exchangeable securities. Upon the expiration of any such options,
warrants or rights, the termination of any such rights to convert or exchange or
the expiration of any options, warrants or rights related to such convertible or
exchangeable securities, the Conversion Price, to the extent in any way affected
by or computed using such options, warrants, rights or securities or options or
rights related to such securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock actually issued upon the exercise
of such options, warrants or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities.
(iii) Issuance of Common Stock Below Current Market Price or
------------------------------------------------------
Conversion Price. If the Corporation shall, at any time or from time to time,
- ----------------
sell or issue shares of Common Stock (regardless of whether originally issued or
from the Corporation's treasury), or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (excluding (w) shares issued in any of the transactions
described in Section 5(c)(i) or (ii), (x) shares issued upon the exercise or
conversion of Series A Preferred Stock, and
<PAGE>
12
(y) options issuable pursuant to bona fide employee benefit plans or
arrangements approved or adopted by the Corporation's Board of Directors, and
the shares of Common Stock issuable on exercise of such options, and (z)
warrants issued by the Corporation pursuant to the Purchase Agreement and the
shares of Common Stock issuable upon exercise of such warrants) at a price per
share of Common Stock (determined, in the case of rights, options, warrants or
convertible or exchangeable securities, by dividing (x) the total consideration
received or receivable by the Corporation in consideration of the sale or
issuance of such rights, options, warrants or convertible or exchangeable
securities, plus the total consideration payable to the Corporation upon
exercise or conversion or exchange thereof, by (y) the total number of shares of
Common Stock covered by such rights, options, warrants or convertible or
exchangeable securities) lower than either the Current Market Price per share of
Common Stock or the Conversion Price immediately prior to such sale or issuance,
then the Conversion Price shall be reduced to the price determined by
multiplying the Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (I) the number of shares of
Common Stock outstanding immediately prior to such sale or issuance, plus (II)
the quotient obtained by dividing the aggregate consideration received
(determined as provided below) for such sale or issuance by the Applicable
Price, and the denominator of which shall be the total number of shares of
Common Stock outstanding immediately after such sale or issuance. Such
adjustment shall be made successively whenever such sale or issuance is made.
For the purposes of such adjustments, the shares of Common Stock which the
<PAGE>
13
holder of any such rights, options, warrants, or convertible or exchangeable
securities shall be entitled to subscribe for or purchase shall be deemed to be
issued and outstanding as of the date of such sale or issuance and the
consideration "received" by the Corporation therefor shall be deemed to be the
consideration actually received or receivable by the Corporation (plus any
underwriting discounts or commissions in connection therewith) for such rights,
options, warrants or convertible or exchangeable securities, plus the
consideration stated in such rights, options, warrants or convertible or
exchangeable securities to be payable to the Corporation for the shares of
Common Stock covered thereby. If the Corporation shall sell or issue shares of
Common Stock for a consideration consisting, in whole or in part, of property
other than cash or its equivalent, then in determining the "price per share of
Common Stock" and the "consideration" received or receivable by or payable to
the Corporation for purposes of the first sentence and the immediately preceding
sentence of this Section 5(c)(iii), the fair value of such property shall be
determined in good faith by the Board of Directors of the Corporation and shall
be the value which is agreed upon by at least 75% of the members thereof or if
75% of the members of the Board of Directors of the Corporation are unable to
agree upon the value of such consideration, the value thereof shall be
determined by an independent investment bank of nationally recognized stature
that is selected by 75% of the members of the Board of Directors. The
determination of whether any adjustment is required under this Section 5(c)(iii)
by reason of the sale and issuance of rights, options, warrants or convertible
or exchangeable securities and the amount of such adjustment, if any, shall be
made only at the time of such issuance
<PAGE>
14
or sale and not at the subsequent time of issuance or sale of Common Stock upon
the exercise or conversion of such rights, options, warrants or convertible or
exchangeable securities. Upon the expiration of any such options, warrants or
rights, the termination of any such rights to convert or exchange or the
expiration of any options, warrants or rights related to such convertible or
exchangeable securities, the then current Conversion Price, to the extent in any
was affected by or computed using such options, warrants, rights or securities
or options or rights related to such securities, shall be recomputed to reflect
the issuance of only the number of shares of Common Stock actually issued upon
the exercise of such options, warrants or rights, upon the conversion or
exchange of such securities or upon the exercise of the options or rights
related to such securities.
(d) De Minimis Adjustments. No adjustment of the then current
----------------------
Conversion Price shall be made if the amount of such adjustment would result in
a change in the then current Conversion Price per share of less than $.10, but
in such case any adjustment that would otherwise be required to be made shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment, which together with any adjustment so carried forward,
would result in a change in the then current Conversion Price of at least $.10
per share. Notwithstanding the provisions of the first sentence of this Section
5(d), any adjustment postponed pursuant to this Section 5(d) shall be made no
later than the earlier of (i) three years from the date of the transaction that
would, but for the provisions of the first sentence
<PAGE>
15
of this Section 5(d), have required such adjustment and (ii) the date of any
conversion of shares of Series A Preferred Stock into shares of Common Stock.
(e) Fractional Shares. Notwithstanding any other provision of
-----------------
this Certificate of Designation or the Corporation's Certificate of
Incorporation, the Corporation shall not be required to issue fractions of
shares upon conversion of any shares of Series A Preferred Stock or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares, the Corporation may pay therefore, at the time of any conversion of
shares of Series A Preferred Stock as herein provided, an amount in cash equal
to such fraction multiplied by the greater of the Current Market Price of a
share of Common Stock on such date and the Conversion Price.
(f) Reorganization, Reclassification, Merger and Sale of Assets
-----------------------------------------------------------
Adjustment. If there occurs any capital reorganization or any reclassification
- ----------
of the Common Stock (other than a reorganization or reclassification that
results in an adjustment pursuant to provisions of Section 5(c) hereof), the
consolidation or merger of the Corporation with or into another Person (other
than a merger or consolidation of the Corporation in which the Corporation is
the continuing corporation and which does not result in any reclassification or
change of outstanding shares of Common Stock) or the sale, transfer or other
disposition of all or substantially all of the assets of the Corporation to
another Person, then each share of Series A Preferred Stock shall thereafter be
convertible into the same kind and amounts of securities (including shares of
stock) or other assets, or both, which were issuable or distributable to the
holders of outstanding Common Stock upon such reorganization, reclassification,
consolidation,
<PAGE>
16
merger, sale or conveyance (but only to the extent that a dividend or
distribution with respect thereto was not or is not made pursuant to Section
3(d) hereof), in respect of that number of shares of Common Stock into which
such share of Series A Preferred Stock might have been converted immediately
prior to such reorganization, reclassification, consolidation, merger, sale or
conveyance; and, in any such case, appropriate adjustments (as determined in
good faith by the Board of Directors of the Corporation) shall be made to assure
that the provisions set forth herein (including provisions with respect to
changes in, and other adjustments of, the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be practicable, in relation to any
securities or other assets thereafter deliverable upon the conversion of the
Series A Preferred Stock.
(g) Mechanics of Conversion. The option to convert shall be
-----------------------
exercised by surrendering for such purpose to the Corporation, at any place
where the Corporation shall maintain a transfer agent for its Common Stock,
certificates representing the shares to be converted, duly endorsed in blank or
accompanied by proper instruments of transfer, and at the time of such
surrender, the Person in whose name any certificate for shares of Common Stock
shall be issuable upon such conversion shall be deemed to be the holder of
record of such shares of Common Stock on such date, notwithstanding that the
share register of the Corporation shall then be closed or that the certificates
representing such Common Stock shall not then be actually delivered to such
Person.
<PAGE>
17
(h) Certificate as to Adjustments. Whenever the Conversion
-----------------------------
Price and the number of shares of Common Stock issuable, or the securities or
other property deliverable upon the conversion of the Series A Preferred Stock,
shall be adjusted pursuant to the provisions hereof, the Corporation shall
promptly give written notice thereof to each holder of shares of Series A
Preferred Stock at such holder's address as it appears on the transfer books of
the Corporation and shall forthwith file, at its principal executive office and
with any transfer agent or agents for the Series A Preferred Stock and the
Common Stock, a certificate, signed by the President or one of the Vice
Presidents of the Corporation, and by its Chief Financial Officer, its Treasurer
or one of its Assistant Treasurers, stating the adjusted Conversion Price, the
number of shares of Common Stock issuable, or the securities or other property
deliverable, per share of Series A Preferred Stock converted, calculated to the
nearest one-tenth of one cent or to the nearest one-hundredth of a share and
setting forth in reasonable detail the method of calculation and the facts
requiring such adjustment and upon which such calculation is based. Each
adjustment shall remain in effect until a subsequent adjustment hereunder is
required.
(i) Reservation of Common Stock. The Corporation shall at all
---------------------------
times reserve and keep available for issuance upon the conversion of the shares
of Series A Preferred Stock the maximum number of its authorized but unissued
shares of Common Stock as is reasonably anticipated to be sufficient to permit
the conversion of all outstanding shares of Series A Preferred Stock and shall
take all action required to increase the authorized number of shares of Common
Stock if at any time there shall be
<PAGE>
18
insufficient authorized but unissued shares of Common Stock to permit such
reservation or to permit the conversion of all outstanding shares of Series A
Preferred Stock.
(j) No Conversion Charge or Tax. The issuance and delivery of
---------------------------
certificates for shares of Common Stock upon the conversion of shares of Series
A Preferred Stock shall be made without charge to the holder of shares of Series
A Preferred Stock for any issue or transfer tax, or other incidental expense in
respect of the issuance or delivery of such certificates or the securities
represented thereby, all of which taxes and expenses shall be paid by the
Corporation.
6. Redemption.
----------
<PAGE>
19
(a) Redemption Demand. Upon the demand of the holders of at
-----------------
least 75% of the outstanding shares of Series A Preferred Stock made in writing
to the Corporation at any time after October 1, 2008 (a "Redemption Demand"),
the Corporation shall be required to redeem all of the shares of Series A
Preferred Stock, at a redemption price per share equal to the Liquidation
Preference per share plus an amount in cash equal to the product of (x) 15% of
the then current Liquidation Preference, multiplied by (y) a fraction, the
numerator of which is the actual number of days from (and including) the most
recent Dividend Payment Date to (but excluding) the Redemption Date, and the
denominator of which is 365 (the "Redemption Price"), to the extent that (i)
funds are legally available therefor and (ii) such redemption would not cause a
default or event of default under any documents governing the Corporation's
outstanding indebtedness or lines of credit. If at the time a Demand Notice is
received by the Corporation funds are legally available to redeem some but not
all of the outstanding shares of Series A Preferred Stock, then the Corporation
shall redeem as many shares of Series A Preferred Stock as its legally available
funds permit.
(b) Redemption at Corporation's Option. On and after the date
----------------------------------
on which fewer than 10% of the shares of Series A Preferred Stock issued on the
Series A Preferred Stock Issue Date remain outstanding, the Corporation shall
have the right, at its sole option and election, to redeem all of the
outstanding shares of Series A Preferred Stock, on not less than 30 days' notice
of the date of redemption (any such redemption date pursuant to this Section
6(b) being referred to herein as an "Optional Redemption Date") at a redemption
price per share equal to the Liquidation Preference
<PAGE>
20
per share plus an amount in cash equal to the product of (x) 15% of the then
current Liquidation Preference, multiplied by (y) a fraction, the numerator of
which is the actual number of days from (and including) the most recent Dividend
Payment Date to (but excluding) the Optional Redemption Date, and the
denominator of which is 365, to the extent that funds are legally available
therefor (the "Optional Redemption Price").
(c) Redemption Notice. At least 30 days and not more than 60
-----------------
days before a Redemption Date, the Corporation shall mail a notice of Redemption
(the "Redemption Notice") by first class mail, postage prepaid, to each holder
of record on the record date fixed for such redemption at such holder's address
as it appears on the stock register of the Corporation; provided, however, that
-------- -------
neither the failure to give such notice nor any deficiency therein shall affect
the validity of the procedure for the redemption of any shares of Series A
Preferred Stock to be redeemed except as to the holder or holders to whom the
Corporation has failed to give said notice or except as to the holder or holders
whose notice was defective. The Redemption Notice shall be mailed by the
Corporation to the holders of the shares of Series A Preferred Stock (and in the
case of a Demand Redemption, such Redemption Notice shall be mailed not later
than 10 days after receipt by the Corporation of a Redemption Demand) and shall
state:
(i) that the Corporation is redeeming shares of Series A
Preferred Stock in response to a Redemption Demand or in connection with an
Optional Redemption, as the case may be;
(ii) the Redemption Price;
<PAGE>
21
(iii) in the case of a Demand Redemption, whether funds are
legally available to redeem all or less than all of the outstanding shares
of the Series A Preferred Stock and the total number of shares of the
Series A Preferred Stock being redeemed;
(iv) if, in the case of a Demand Redemption, less than all
of the shares of Series A Preferred Stock held by such holder are to be
redeemed, the number of shares of Series A Preferred Stock held by such
holder, as of the appropriate record date, that the Corporation intends to
redeem;
(v) the Redemption Date;
(vi) that the holder is to surrender to the Corporation, at
the place or places where certificates for shares of Series A Preferred
Stock are to be surrendered for redemption, in the manner and at the price
designated, his or her certificate or certificates representing the shares
of Series A Preferred Stock to be redeemed; and
(vii) that dividends on the shares of the Series A Preferred
Stock to be redeemed shall cease to accrue and increase on such Optional
Redemption Date unless the Corporation defaults in the payment of the
Optional Redemption Price.
(d) Pro-Rata Redemption. In the event of a redemption pursuant
-------------------
to Section 6(a) of less than all of the then outstanding shares of the Series A
<PAGE>
22
Preferred Stock, the Corporation shall effect such redemption pro rata according
--- ----
to the number of shares held by each holder of the Series A Preferred Stock.
(e) Surrender of Shares; Payment. Each holder of Series A
----------------------------
Preferred Stock shall surrender the certificate or certificates representing
such shares of Series A Preferred Stock to the Corporation, duly endorsed, in
the manner and at the place designated in the Redemption Notice, and on the
Redemption Date or the Optional Redemption Date the full Redemption Price or
Optional Redemption Price, as the case may be, for such shares shall be payable
in cash to the Person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled and
retired. In the event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued by the Corporation
representing the unredeemed shares.
(f) Effect on Redeemed Shares. Unless the Corporation defaults
-------------------------
in the payment in full of the Redemption Price or the Optional Redemption Price,
dividends on the Series A Preferred Stock called for redemption shall cease to
accumulate and increase on the Redemption Date or Optional Redemption Date, as
the case may be, and the holders of such redeemed shares shall cease to have any
further rights with respect thereto on the Redemption Date or Optional
Redemption Date, other than the right to receive the Redemption Price or
Optional Redemption Price, as the case may be.
7. Voting Rights.
-------------
<PAGE>
23
(a) The holders of Series A Preferred Stock, except as otherwise
required under Delaware law or as set forth in Sections 7(b) and (c) below,
shall not be entitled or permitted to vote on any matter required or permitted
to be voted upon by the stockholders of the Corporation.
(b) So long as the Series A Preferred Stock is outstanding, each
share of Series A Preferred Stock shall entitle the holder thereof to vote, in
person or by proxy, at a special or annual meeting of stockholders, on all
matters entitled to be voted on by holders of Common Stock voting together as a
single class with other shares entitled to vote thereon. With respect to any
such vote, each share of Series A Preferred Stock shall entitle the holder
thereof to cast that number of votes per share as is equal to the number of
votes that such holder would be entitled to cast had such holder converted its
shares of Series A Preferred Stock into shares of Common Stock on the record
date for determining the stockholders of the Corporation eligible to vote on any
such matters. The foregoing notwithstanding, if the acquisition by any holder of
shares of Series A Preferred Stock would require such holder and/or the
Corporation to comply with the pre-merger notification requirements of the Hart-
Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR Act"), then
the shares of Series A Preferred Stock acquired by such holder shall not entitle
the holder thereof to vote, in person or by proxy, at any special or annual
meeting of stockholders, on any matter covered by this Section 7(b), but not
with respect to matters covered by Section 7(c), unless and until (i) such
holder and the Corporation have complied with the
<PAGE>
24
requirements of the HSR Act and (ii) the applicable waiting period under the HSR
Act shall have expired or been terminated.
(c) Unless the consent or approval of a greater number of shares
shall then be required by law, the affirmative vote of the holders of at least
seventy-five percent (75%) of the outstanding shares of Series A Preferred
Stock, voting as a single class, in person or by proxy, at a special or annual
meeting of stockholders called for the purpose or by written consent, shall be
necessary to authorize, adopt or approve an amendment to this Certificate of
Designation or the Certificate of Incorporation of the Corporation that would
alter or change the powers, preferences or special rights of the shares of
Series A Preferred Stock so as to affect the shares of Series A Preferred Stock
adversely.
8. Reissuance of Series A Preferred Stock. Shares of Series A
--------------------------------------
Preferred Stock that have been issued and reacquired in any manner, including
shares purchased or redeemed or exchanged, shall (upon compliance with any
applicable provisions of the laws of Delaware) have the status of authorized and
unissued shares of preferred stock undesignated as to series and may be
redesignated and reissued as part of any series of preferred stock (other than
Series A Preferred Stock).
9. Business Day. If any payment or redemption shall be required by
------------
the terms hereof to be made on a day that is not a Business Day, such payment or
redemption shall be made on the immediately succeeding Business Day.
10. Definitions. As used in this Certificate of Designation, the
-----------
following terms shall have the following meanings (with terms defined in the
singular
<PAGE>
25
having comparable meanings when used in the plural and vice versa), unless the
---- -----
context otherwise requires:
"Applicable Price" shall mean the higher of (a) the Current Market
Price per share of Common Stock on the applicable record or other relevant date
and (b) the then current Conversion Price.
"Board of Directors" shall have the Board of Directors of the
Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other day
on which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Closing Price" shall mean, with respect to the Common Stock for any
day, (a) the last reported sale price regular way or, in case no such sale takes
place on such day, the average of the closing bid and asked prices regular way,
in either case as reported on the principal national securities exchange on
which such Common Stock is listed or admitted for trading or (b) if the Common
Stock is not listed or admitted for trading on any national securities exchange,
the last reported sale price or, in case no such sale takes place on such day,
the average of the highest reported bid and the lowest reported asked quotation
for the Common Stock, in either case as reported on the Nasdaq Stock Market,
Inc. or a similar service if the Nasdaq Stock Market, Inc. is no longer
reporting such information.
<PAGE>
26
"Common Stock" shall have the meaning ascribed to it in Section 2
hereof.
"Conversion Consideration" shall have the meaning ascribed to it in
Section 5(c)(ii) hereof.
"Conversion Price" shall have the meaning ascribed to it in Section
5(a).
"Corporation" shall mean Outboard Marine Corporation, a Delaware
corporation.
"Current Market Price" shall mean, with respect to the Common Stock on
any date, the average of the daily Closing Prices per share of Common Stock for
the 10 consecutive trading days commencing 15 days before such date. If on any
such date the shares of Common Stock are not listed or admitted for trading on
any national securities exchange or quoted on the Nasdaq Stock Market, Inc. or a
similar service, the Current Market Price for such shares shall be the fair
market value of such shares on such date as determined in good faith by the
Board of Directors of the Corporation and shall be the value which is agreed
upon by 75% of the members thereof, or if 75% of the members of the Board of
Directors of the Corporation are unable to agree upon the value of such
consideration, the value thereof shall be determined by an independent
investment bank of a nationally recognized stature that is selected by the
holders of 75% of the members of the Board of Directors.
"Dividend Payment Date" means each of March 31, June 30, September 30
and December 31 of each year.
<PAGE>
27
"Dividend Period" means the Initial Dividend Period and, thereafter,
each Quarterly Dividend Period.
"HSR Act" shall have the meaning ascribed to it in Section 7(b).
"Initial Dividend Period" means the dividend period commencing on, and
including, the Series A Preferred Stock Issue Date and ending on, and excluding,
the first Dividend Payment Date to occur thereafter.
"Initial Liquidation Preference" shall have the meaning ascribed to it
in Section 1 hereof.
"Junior Stock" shall have the meaning ascribed to it in Section 2
hereof.
"Liquidation Preference" shall have the meaning ascribed to it in
Section 1 hereof.
"Redemption Date" means, with respect to any shares of Series A
Preferred Stock, the date on which such shares are to be redeemed by the
Corporation pursuant to Section 6 hereof.
"Redemption Demand" shall have the meaning ascribed to it in Section
6(a)
"Redemption Notice" shall have the meaning ascribed to it in Section
6(c) hereof.
"Redemption Price" shall have the meaning ascribed to it in Section
6(a) hereof.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated
<PAGE>
28
or unincorporated association, joint venture, joint stock company, governmental
body or other entity of any kind.
"Purchase Agreement" shall mean the Series A Convertible Preferred
Stock and Warrant Purchase Agreement, dated January 28, 2000, by and among the
Corporation, Quantum Industrial Partners LDC and Greenlake Holdings II LLC.
"Quarterly Dividend Period" shall mean the quarterly periods
commencing on, and including, each Dividend Payment Date and ending on, and
excluding, each next Dividend Payment Date occurring immediately thereafter,
respectively.
"Series A Preferred Stock" shall have the meaning ascribed to it in
Section 1 hereof.
"Series A Preferred Stock Issue Date" means the date on which the
Series A Preferred Stock is originally issued by the Corporation.
<PAGE>
================================================================================
SERIES A CONVERTIBLE PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
among
OUTBOARD MARINE CORPORATION,
QUANTUM INDUSTRIAL PARTNERS LDC
and
GREENLAKE HOLDINGS II LLC
______________________________
Dated: January 28, 2000
______________________________
================================================================================
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I DEFINITIONS.......................................................... 1
1.1 Definitions...................................................... 1
ARTICLE II PURCHASE AND SALE OF PREFERRED STOCK................................. 7
2.1 Purchase and Sale of Preferred Stock and Warrants................ 7
2.2 Certificate of Designation....................................... 7
2.3 Use of Proceeds.................................................. 7
2.4 Closing.......................................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................ 8
3.1 Corporate Existence and Power.................................... 8
3.2 Authorization; No Contravention.................................. 8
3.3 Governmental Authorization; Third Party Consents................. 8
3.4 Binding Effect................................................... 8
3.5 Compliance with Laws............................................. 9
3.6 Capitalization................................................... 9
3.7 No Default or Breach; Contractual Obligations.................... 10
3.8 Financial Statements............................................. 10
3.9 No Material Adverse Change; Ordinary Course of Business.......... 10
3.10 Private Offering................................................. 11
3.11 Intellectual Property............................................ 11
3.12 Broker's, Finder's or Similar Fees............................... 11
3.13 Litigation; Observance of Statutes and Orders.................... 11
3.14 Taxes............................................................ 12
3.15 Title to Property; Leases........................................ 12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..................... 12
4.1 Existence and Power.............................................. 12
4.2 Authorization; No Contravention.................................. 13
4.3 Governmental Authorization; Third Party Consents................. 13
4.4 Binding Effect................................................... 13
4.5 Purchase for Own Account......................................... 13
4.6 Restricted Securities............................................ 14
4.7 Broker's, Finder's or Similar Fees............................... 14
4.8 Accredited Investor.............................................. 14
4.9 Disclosure of Information........................................ 15
4.10 Investment Experience............................................ 15
ARTICLE V CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE.............. 15
5.1 Representations and Warranties................................... 15
5.2 Secretary's Certificate.......................................... 15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.3 Filing of Charter Amendment and Certificate of Designation....... 15
5.4 Purchased Shares................................................. 16
5.5 Warrants......................................................... 16
5.6 Registration Rights Agreement.................................... 16
5.7 Stockholders Agreement........................................... 16
5.8 Opinion of Counsel............................................... 16
ARTICLE VI CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE............... 16
6.1 Representations and Warranties................................... 16
6.2 Payment of Purchase Price........................................ 17
6.3 Registration Rights Agreement.................................... 17
6.4 Stockholders Agreement........................................... 17
ARTICLE VII INDEMNIFICATION..................................................... 17
7.1 Indemnification.................................................. 17
7.2 Notification..................................................... 18
7.3 Limitation on Indemnification.................................... 19
ARTICLE VIII AFFIRMATIVE COVENANTS............................................... 19
8.1 Financial Statements and Other Information....................... 19
8.2 Reservation of Common Stock...................................... 20
8.3 Books and Records................................................ 20
8.4 Inspection....................................................... 20
ARTICLE IX MISCELLANEOUS....................................................... 20
9.1 Survival of Representations and Warranties....................... 21
9.2 Notices.......................................................... 21
9.3 Successors and Assigns; Third Party Beneficiaries................ 22
9.4 Amendment and Waiver............................................. 22
9.5 Counterparts..................................................... 23
9.6 Headings......................................................... 23
9.7 GOVERNING LAW.................................................... 23
9.8 Severability..................................................... 23
9.9 Rules of Construction............................................ 23
9.10 Right to Conduct Activities...................................... 23
9.11 Entire Agreement................................................. 24
9.12 Fees............................................................. 24
9.13 Publicity........................................................ 24
9.14 Further Assurances............................................... 25
</TABLE>
ii
<PAGE>
EXHIBITS
A Form of Warrant
B Form of Certificate of Designations
C Form of Registration Rights Agreement
D Form of OMC Opinion of Counsel
E Form of Stockholders Agreement
SCHEDULES
2.1 Purchased Shares, Warrant Shares and Purchase Price
3.3 Authorizations and Consents
v
<PAGE>
EXHIBIT 4.9
SERIES A CONVERTIBLE PREFERRED
STOCK AND WARRANT PURCHASE AGREEMENT
SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT,
dated January 28, 2000 (this "Agreement"), among Outboard Marine Corporation, a
---------
Delaware corporation (the "Company") Quantum Industrial Partners LDC ("QIP") and
------- ---
Greenlake Holdings II LLC ("Greenlake" and together with QIP, the "Purchasers").
--------- ----------
WHEREAS, upon the terms and conditions set forth in this Agreement,
the Company proposes to issue and sell to each of the Purchasers, for the
aggregate purchase price set forth opposite such Purchaser's name on Schedule
--------
2.1 hereto, (i) the aggregate number of shares, par value $.01 per share, of
- ---
Series A Convertible Preferred Stock of the Company (the "Preferred Stock") set
---------------
forth opposite such Purchaser's name on Schedule 2.1 hereto, and (ii) the
------------
warrant (the "Warrant") to purchase, subject to the terms and conditions
-------
thereof, the aggregate number of shares (subject to adjustment) of Common Stock,
par value $.01 per share, of the Company (the "Common Stock") set forth opposite
------------
such Purchaser's name on Schedule 2.1 hereto, at an exercise price of $.01 per
------------
share (subject to adjustment), containing the terms and conditions set forth in
the form of warrant attached hereto as Exhibit A.
---------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
-----------
A. Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" (as defined in
---------
Rule 12b-2 of the General Rules and Regulations under the Exchange Act) of, and
any Person controlling, controlled by, or under common control with, any
Purchaser. For the purposes of this Agreement, "control" includes the ability
to have investment discretion through contractual means or by operation of law.
<PAGE>
"Agreement" means this Agreement as the same may be amended,
---------
supplemented or modified in accordance with the terms hereof.
"Audited Financial Statements" has the meaning set forth in Section
----------------------------
3.8 of this Agreement.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the Closing
-------
Date, as the same may be amended from time to time.
"Certificate of Designation" means the Certificate of Designation with
--------------------------
respect to the Preferred Stock adopted by the Board of Directors and duly filed
with the Secretary of State of the State of Delaware on or before the Closing
Date substantially in the form attached hereto as Exhibit B.
---------
"Certificate of Incorporation" means the Certificate of Incorporation
----------------------------
of the Company, as the same may be amended from time to time.
"Charter Amendment" means an amendment to the Certificate of
-----------------
Incorporation increasing the number of authorized shares of Common Stock from
25,000,000 to 36,000,000.
"Claims" has the meaning set forth in Section 7.1 of this Agreement.
------
"Closing" has the meaning set forth in Section 2.3 of this Agreement.
-------
"Closing Date" has the meaning set forth in Section 2.4 of this
------------
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto.
"Commission" means the United States Securities and Exchange
----------
Commission or any similar agency then having jurisdiction to enforce the
Securities Act.
"Common Stock" has the meaning set forth in the recitals to this
------------
Agreement.
<PAGE>
3
"Company" has the meaning set forth in the preamble to this Agreement.
-------
"Condition of the Company" means the assets, business, properties,
------------------------
prospects, operations or financial condition of the Company.
"Contingent Obligation" means, as applied to any Person, any direct or
---------------------
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
------------------ ---------------
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, (b) to advance or provide funds (i) for the payment or discharge of
any such primary obligation, or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, (c) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss or failure or inability to perform in respect thereof.
The amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision of
-----------------------
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Copyrights" means any foreign or United States copyright
----------
registrations and applications for registration thereof, and any non-registered
copyrights.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission thereunder.
"GAAP" means United States generally accepted accounting principles in
----
effect from time to time.
"Governmental Authority" means the government of any nation, state,
----------------------
city, locality or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
<PAGE>
4
"Greenlake" has the meaning set forth in the recitals to this
---------
Agreement.
"Indebtedness" means, as to any Person, (a) all obligations of such
------------
Person for borrowed money (including, without limitation, reimbursement and all
other obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations of such Person
evidenced by notes, bonds, debentures or similar instruments, (c) all
obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable and accrued commercial or trade
liabilities arising in the ordinary course of business, (d) all interest rate
and currency swaps, caps, collars and similar agreements or hedging devices
under which payments are obligated to be made by such Person, whether
periodically or upon the happening of a contingency, (e) all indebtedness
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (f) all obligations of
such Person under leases which have been or should be, in accordance with GAAP,
recorded as capital leases, (g) all indebtedness secured by any Lien (other than
Liens in favor of lessors under leases other than leases included in clause (f))
on any property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is non-
recourse to the credit of that Person, and (h) any Contingent Obligation of such
Person.
"Indemnified Party" has the meaning set forth in Section 7.1 of this
-----------------
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.1 of this
------------------
Agreement.
"Intellectual Property" has the meaning set forth in Section 3.10 of
---------------------
this Agreement.
"Interim Financial Statements" has the meaning set forth in Section
----------------------------
3.8 of this Agreement.
"Internet Assets" means any Internet domain names and other computer
---------------
user identifiers and any rights in and to sites on the worldwide web, including
rights in and to any text, graphics, audio and video files and html or other
code incorporated in such sites.
"Knowledge" means the knowledge of the Company.
---------
<PAGE>
5
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences).
"Losses" has the meaning set forth in Section 7.1 of this Agreement.
------
"Material Adverse Effect" means a material adverse effect on (i) the
-----------------------
business, operations, financial condition, assets, prospects or properties of
the Company and its subsidiaries taken as a whole, or (ii) the ability of the
Company to perform its obligations under the Transaction Documents, or (iii) the
validity or enforceability of the Transaction Documents.
"Notes" has the meaning set forth in Section 2.3 of this Agreement.
-----
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
------
"Patents" means any foreign or United States patents and patent
-------
applications, including any divisions, continuations, continuations-in-part,
substitutions or reissues thereof, whether or not patents are issued on such
applications and whether or not such applications are modified, withdrawn or
resubmitted.
"Permits" has the meaning set forth in Section 3.5 of this Agreement.
-------
"Person" means any individual, firm, corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, Governmental Authority or other entity of any kind,
and shall include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the recitals to this
---------------
Agreement.
"Purchased Shares" has the meaning set forth in Section 2.1 of this
----------------
Agreement.
"Purchasers" has the meaning set forth in the preamble to this
----------
Agreement.
"QIP" has the meaning set forth in the recitals to this Agreement.
---
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement substantially in the form attached hereto as Exhibit C.
---------
<PAGE>
6
"Requirements of Law" means, as to any Person, any law, statute,
-------------------
treaty, rule, regulation, right, privilege, qualification, license or franchise
or determination of an arbitrator or a court or other Governmental Authority or
stock exchange, in each case applicable or binding upon such Person or any of
its property or to which such Person or any of its property is subject or
pertaining to any or all of the transactions contemplated or referred to herein.
"Securities" means the Purchased Shares, the shares of Common Stock
----------
issuable upon conversion of the Purchased Shares, the Warrants and the Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
"Software" means any computer software programs, source code, object
--------
code, data and documentation, including, without limitation, any computer
software programs that incorporate and run the Company's pricing models,
formulae and algorithms.
"Stock Equivalents" means any security or obligation which is by its
-----------------
terms convertible into or exchangeable for shares of common stock or other
capital stock or securities of the Company, and any option, warrant or other
subscription or purchase right with respect to common stock or such other
capital stock or securities.
"Stockholders Agreement" means the Stockholders Agreement
----------------------
substantially in the form attached hereto as Exhibit E.
---------
"Trade Secrets" means any trade secrets, research records, processes,
-------------
procedures, manufacturing formulae, technical know-how, technology, blue prints,
designs, plans, inventions (whether patentable and whether reduced to practice),
invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
----------
marks, trade dress, trade names, brand names, designs and logos, corporate
names, product or service identifiers, whether registered or unregistered, and
all registrations and applications for registration thereof.
"Transaction Documents" means, collectively, this Agreement, the
---------------------
Warrants, the Stockholders Agreement, the Certificate of Designation and the
Registration Rights Agreement.
"Warrant" has the meaning set forth in the recitals to this Agreement.
-------
<PAGE>
7
"Warrant Shares" has the meaning set forth in Section 2.1 of this
--------------
Agreement.
ARTICLE II.
PURCHASE AND SALE OF PREFERRED STOCK
------------------------------------
A. Purchase and Sale of Preferred Stock and Warrants. Subject to the
-------------------------------------------------
terms and conditions herein set forth, the Company agrees to issue and sell to
each Purchaser, and each Purchaser agrees to purchase from the Company, for the
aggregate purchase price set forth opposite such Purchaser's name on Schedule
2.1 hereto, on the Closing Date (a) the number of shares of Preferred Stock set
forth opposite such Purchaser's name on Schedule 2.1 hereto (all of the shares
------------
of Preferred Stock being purchased pursuant hereto being referred to herein as
the "Purchased Shares"), and (ii) a Warrant to purchase the aggregate number of
----------------
shares of Common Stock set forth opposite such Purchaser's name on Schedule 2.1
------------
hereto (all of the shares of Common Stock issuable upon exercise of the Warrants
being purchased pursuant hereto being referred to herein as the "Warrant
-------
Shares").
- ------
B. Certificate of Designation. The Purchased Shares shall have the
--------------------------
preferences and rights set forth in the Certificate of Designation, which shall
be filed by the Company prior to the Closing.
C. Use of Proceeds. The Company shall use the proceeds from the sale
---------------
of the Purchased Shares and the Warrants to the Purchasers for general corporate
purposes, including to fund the Company's working capital, make capital
expenditures and, to the extent the Subordinated Promissory Notes dated January
19, 2000 and issued by the Company to Quantum Industrial Partners LDC and
Greenlake Holdings II LLC, in the principal sum of $10,424,187.73 and
$4,575,812.27, respectively (the "Notes") are not exchanged for shares of
-----
Preferred Stock pursuant to the terms of the Notes, to redeem the Notes.
D. Closing. The closing of the sale and purchase of the Purchased
-------
Shares (the "Closing") shall take place at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, at 10:00 a.m., local time, on January 28, 2000 or at such
other time, place and date that the Company and the Purchasers may agree in
writing (the "Closing Date"). On the Closing Date, the Company shall deliver to
------------
each Purchaser (a) a certificate representing its Purchased Shares and (b) a
Warrant to purchase Warrant Shares against delivery by such Purchaser to the
Company of the aggregate purchase price therefor by wire transfer of immediately
available funds.
<PAGE>
8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to each of the Purchasers as
follows:
A. Corporate Existence and Power. The Company (a) is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has all requisite power and authority to
own and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently, or is proposed to be, engaged;
and (c) is duly qualified as a foreign corporation, licensed and in good
standing under the laws of each jurisdiction in which its ownership, lease or
operation of property or the conduct of its business requires such
qualification, except where the failure to so qualify would not, individually or
in the aggregate, have a Material Adverse Effect. The Company has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and each of the other Transaction Documents.
B. Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby, including,
without limitation, the sale, issuance and delivery of the Securities, (a) have
been duly authorized by all necessary corporate action of the Company; (b) do
not contravene the terms of the Certificate of Incorporation or the By-laws; (c)
do not violate, conflict with or result in any breach or contravention of, or
the creation of any Lien under, any Contractual Obligation of the Company or any
Requirement of Law applicable to the Company, except as would not have a
Material Adverse Effect; and (d) do not violate any judgment, injunction, writ,
award, decree or order of any nature (collectively, "Orders") of any
------
Governmental Authority against, or binding upon, the Company.
C. Governmental Authorization; Third Party Consents. Except as set
------------------------------------------------
forth in Schedule 3.3 or with respect to filings that are required or permitted
------------
to be made pursuant to federal or state securities laws, no approval, consent,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person, and no lapse of a waiting period
under a Requirement of Law, is necessary or required in connection with the
execution, delivery or performance (including, without limitation, the sale,
issuance and delivery of the Securities) by, or enforcement against, the Company
of this Agreement and the other Transaction Documents or the transactions
contemplated hereby and thereby.
D. Binding Effect. This Agreement and each of the other
--------------
Transaction Documents have been duly executed and delivered by the Company, and
<PAGE>
9
constitute the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).
E. Compliance with Laws.
--------------------
(1) The Company is in compliance with all Requirements of Law and
all Orders issued by any court or Governmental Authority against the Company in
all material respects.
(2) (i) The Company has all licenses, permits and approvals of any
Governmental Authority (collectively, "Permits") that are necessary for the
-------
conduct of the business of the Company; (ii) such Permits are in full force and
effect; and (iii) no violations are or have been recorded in respect of any
Permit, in each case, except as would not, individually or in the aggregate,
have a Material Adverse Effect.
F. Capitalization. On the Closing Date, after giving effect to the
--------------
transactions contemplated by this Agreement (including the filing of the Charter
Amendment), the authorized capital stock of the Company shall consist of (i)
36,000,000 shares of Common Stock, of which 20,439,531 shares are issued and
outstanding, (ii) 650,000 shares of Preferred Stock, and (iii) 350,000 shares of
undesignated "blank check" preferred stock. The Company has reserved an
aggregate of 4,642,857 shares of Common Stock for issuance upon conversion of
the Purchased Shares, 5,750,000 shares of Common Stock for issuance upon
exercise of the Warrants and an aggregate of 2,100,000 shares of Common Stock
for issuance upon the exercise of stock options issued or issuable under the
Outboard Marine Corporation Personal Rewards and Opportunities Plan. Except as
described in the immediately preceding sentence or as provided in the
Transaction Documents, on the Closing Date, there will be no options, warrants,
conversion privileges, subscription or purchase rights or other rights
outstanding to purchase or otherwise acquire (i) any authorized but unissued,
unauthorized or treasury shares of the Company's capital stock, (ii) any Stock
Equivalents or (iii) other securities of the Company. The Purchased Shares and
the Warrants are duly authorized, and when issued and sold to the Purchasers
after payment therefor, will be validly issued, fully paid and non-assessable,
and, assuming the accuracy of and compliance with each Purchaser's
representations and warranties in Sections 4.5, 4.6, 4.8, 4.9 and 4.10 hereof,
will be exempt from the registration requirements of the Securities Act. The
shares of Common Stock issuable upon conversion of the Purchased Shares and
exercise of the Warrants are duly authorized and, when issued in compliance with
the provisions of the Certificate of Designations (in the case of the shares of
Common Stock issuable upon conversion of the Purchased
<PAGE>
10
Shares) and the Warrants (in the case of the Warrant Shares), will be validly
issued, fully paid and non-assessable and not subject to any preemptive rights
or similar rights that have not been satisfied. The issued and outstanding
shares of Common Stock are all duly authorized, validly issued, fully paid and
non-assessable.
G. No Default or Breach; Contractual Obligations. The Company has
---------------------------------------------
not received notice of a current or pending default and is not in default under,
or with respect to, any Contractual Obligation nor, to the Company's knowledge,
does any condition exist that with notice or lapse of time or both would
constitute a default thereunder, except as would not have a Material Adverse
Effect. All of the Contractual Obligations are valid, subsisting, in full force
and effect and binding upon the Company and, to the Company's Knowledge, the
other parties thereto. To the Knowledge of the Company, no other party to any
such Contractual Obligation is in material default thereunder, nor does any
condition exist that with notice or lapse of time or both would constitute a
material default by such other party thereunder.
H. Financial Statements. The consolidated balance sheet of the
--------------------
Company and its subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders equity and cash flows for the
year then ended, including the notes and schedules thereto, certified by Arthur
Andersen LLP, independent public accountants, that have been delivered by the
Company to the Purchasers fairly present the consolidated financial position of
the Company and its subsidiaries as at December 31, 1998 and the consolidated
results of operations for the Company and its subsidiaries for the period then
ended, in each case in accordance with generally accepted accounting principles
consistently applied for the period covered thereby (the foregoing consolidated
financial statements at and for the period ending December 31, 1998 are referred
to herein as the "Audited Financial Statements"). The unaudited consolidated
----------------------------
balance sheet of the Company and its subsidiaries as of November 30, 1999 and
the related unaudited consolidated statements of income, stockholders equity and
cash flows for the eleven months then ended, that have been delivered by the
Company to the Purchasers fairly present the consolidated financial position of
the Company and its subsidiaries as at November 30, 1999 and the consolidated
results of operations for the Company and its subsidiaries for the eleven months
then ended, in each case in accordance with generally accepted accounting
principles applied on a basis consistent with the Audited Financials, except for
normal year-end adjustments and the absence of footnotes required by GAAP (the
foregoing unaudited consolidated financial statements at November 30, 1999 and
for the eleven months then ending are referred to herein as the "Interim
-------
Financial Statements").
- --------------------
I. No Material Adverse Change; Ordinary Course of Business. Since
-------------------------------------------------------
December 31, 1998, there has been no change in the financial condition,
operations, business or properties of the Company or any of its subsidiaries
except (x) as disclosed in the Company's reports under the Securities Exchange
Act of 1934,
<PAGE>
11
as amended, as filed with the Securities and Exchange Commission subsequent to
December 31, 1998 and prior to the date hereof, (y) as disclosed in the Interim
Financial Statements or (y) changes that individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect.
J. Private Offering. No form of general solicitation or general
----------------
advertising was used by the Company or its representatives in connection with
the offer or sale of the Purchased Shares or the Warrants.
K. Intellectual Property.
---------------------
(1) Except as would not, individually or in the aggregate, have a
Material Adverse Effect: (i) The Company is the owner of all, or has the
license or right to use, sell and license all of, the Copyrights, Patents, Trade
Secrets, Trademarks, Internet Assets, Software and other proprietary rights
(collectively, "Intellectual Property") that are used in connection with its
---------------------
business as presently conducted or contemplated in its business plan, free and
clear of all Liens.
(ii) None of the Intellectual Property of the Company is
subject to any outstanding Order, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to the
Knowledge of the Company, threatened, which challenges the validity,
enforceability, use or ownership of the item.
(iii) To the knowledge of the Company, none of the
Intellectual Property currently sold or licensed by the Company to any Person or
used by or licensed to the Company by any Person infringes upon or otherwise
violates any Intellectual Property rights of others.
(iv) No litigation is pending and no Claim has been made
against the Company or, to the Knowledge of the Company, is threatened,
contesting the right of the Company to sell or license to any Person or use the
Intellectual Property presently sold or licensed to such Person or used by the
Company.
(2) To the Knowledge of the Company, no Person is infringing
upon or otherwise violating the Intellectual Property rights of the Company.
L. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by the Company
in connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any action taken by the
Company.
M. Litigation; Observance of Statutes and Orders.
---------------------------------------------
<PAGE>
12
1. There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company or any
subsidiary or any property of the Company or any subsidiary in any court or
before any arbitrator of any kind or before or by any governmental authority
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
2. Neither the Company nor any subsidiary is in default under
any order, judgment, decree or ruling of any court, arbitrator or governmental
authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation environmental laws) of any governmental
authority, which default or violation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
N. Taxes. The Company and its subsidiaries have filed all income
-----
tax returns that are required to have been filed in any jurisdiction, and have
paid all taxes shown to be due and payable on such returns and all other taxes
and assessments payable by them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (x) the amount of which, or the failure to file with
respect to which, is not individually or in the aggregate material or (y) the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which the Company or a
subsidiary, as the case may be, has established adequate reserves in accordance
with generally accepted accounting principles.
O. Title to Property; Leases. The Company and its subsidiaries
-------------------------
have good title to their respective properties, including all such properties
reflected in the audited balance sheet as of December 31, 1998 or purported to
have been acquired by the Company or any subsidiary after said date (except as
sold or otherwise disposed of), in each case free and clear of liens, except for
(x) liens securing the Company's obligations under the Company's credit
facilities and in respect of the Company's borrowings, and (y) those defects in
title and liens that, individually or in the aggregate, would not have a
Material Adverse Effect. All material leases are valid and subsisting and are
in full force and effect in all material respects except to the extent that the
failure to be so would not, individually or in the aggregate, have a Material
Adverse Effect.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
<PAGE>
13
Each of the Purchasers hereby represents and warrants, severally and
not jointly, to the Company as follows:
A. Existence and Power. Such Purchaser (a) is duly organized and
-------------------
validly existing under the laws of the jurisdiction of its formation and (b) has
the requisite power and authority to execute, deliver and perform its
obligations under this Agreement and each of the other Transaction Agreements to
which it is a party.
B. Authorization; No Contravention. The execution, delivery and
-------------------------------
performance by such Purchaser of this Agreement and each of the other
Transaction Agreements to which it is a party and the transactions contemplated
hereby and thereby, (a) have been duly authorized by all necessary action, (b)
do not contravene the terms of such Purchaser's organizational documents, or any
amendment thereof, and (c) do not violate, conflict with or result in any breach
or contravention of, or the creation of any Lien under, any Contractual
Obligation of such Purchaser or any Requirement of Law applicable to such
Purchaser, and (d) do not violate any Orders of any Governmental Authority
against, or binding upon, such Purchaser.
C. Governmental Authorization; Third Party Consents. No approval,
------------------------------------------------
consent, compliance, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance (including, without
limitation, the purchase of the Purchased Shares and the Warrants) by, or
enforcement against, such Purchaser of this Agreement and each of the other
Transaction Agreements to which it is a party or the transactions contemplated
hereby and thereby.
D. Binding Effect. This Agreement and each of the other Transaction
--------------
Agreements to which it is a party have been duly executed and delivered by such
Purchaser and constitutes the legal, valid and binding obligations of such
Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
E. Purchase for Own Account. The Purchased Shares and the Warrants
------------------------
to be acquired by such Purchaser pursuant to this Agreement and any shares of
Common Stock received upon conversion or exercise of the Purchased Shares or the
Warrants or as a result of the ownership thereof are being or will be acquired
for investment for its own account and with no intention of distributing,
transferring, assigning or reselling or otherwise disposing such Purchased
Shares or Warrants or Common Stock or any part thereof in any transaction that
would be in violation of the
<PAGE>
14
securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Purchaser at all times to sell or
otherwise dispose of all or any part of such Purchased Shares or Warrants under
an effective registration statement under the Securities Act, or under an
exemption from such registration available under the Securities Act, and
subject, nevertheless, to the disposition of such Purchaser's property being at
all times within its control. If such Purchaser should in the future decide to
dispose of any of the Securities, such Purchaser understands and agrees that it
may do so only once it reasonably satisfies the Company that such transfer is in
compliance with the Securities Act and applicable state securities laws, as then
in effect. Such Purchaser agrees to the imprinting, so long as required by law,
of a legend on certificates representing all of the Securities to the following
effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR RECEIVABLE
UPON THE EXERCISE OR CONVERSION THEREOF OR AS A RESULT OF THE
OWNERSHIP HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE. THE SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND THE ORIGINAL
PURCHASERS OF THE SECURITIES REPRESENTED HEREBY. TRANSFEREES OF
SUCH SECURITIES SHOULD REVIEW SUCH AGREEMENT TO DETERMINE THEIR
RIGHTS AND OBLIGATIONS."
F. Restricted Securities. Such Purchaser understands that the
---------------------
Securities are "restricted securities" under the Securities Act and will not be
registered at the time of their issuance under the Securities Act for the reason
that the sale provided for in this Agreement is exempt pursuant to Section 4(2)
of the Securities Act and that the reliance of the Company on such exemption is
predicated in part on such Purchaser's representations set forth herein, and
that such Securities may be resold without registration under the Securities Act
only in certain limited circumstances defined therein. Such Purchaser
represents that it is reasonably familiar with such resale restrictions in the
Securities Act, Rule 144 promulgated thereunder, and the other applicable
federal and state rules and regulations.
<PAGE>
15
G. Broker's, Finder's or Similar Fees. There are no brokerage
----------------------------------
commissions, finder's fees or similar fees or commissions payable by such
Purchaser in connection with the transactions contemplated hereby based on any
agreement, arrangement or understanding with such Purchaser or any action taken
by such Purchaser.
H. Accredited Investor. Such Purchaser is an "Accredited Investor"
-------------------
within the meaning of Rule 501 of Regulation D under the Securities Act, as
presently in effect.
I. Disclosure of Information. Such Purchaser has carefully reviewed
-------------------------
the representations and warranties concerning the Company contained in this
Agreement and has had adequate opportunity to ask questions and receive answers
from the Company regarding the terms and conditions of the offering of the
Securities and the business, assets, prospects and financial condition of the
Company.
J. Investment Experience. Such Purchaser is, or has been, an
---------------------
investor in securities of companies similar to the Company and has or is
represented by one who has such knowledge and experience in financial or
business matters that it is capable of evaluation of the merits and risks of an
investment in the Securities.
ARTICLE V.
CONDITIONS TO THE OBLIGATION
OF THE PURCHASERS TO CLOSE
--------------------------
The obligation of the Purchasers to purchase the Purchased Shares and
the Warrants, to pay the purchase price therefor at the Closing and to perform
any obligations hereunder shall be subject to the satisfaction as determined by,
or waiver by, the Purchasers of the following conditions on or before the
Closing Date.
A. Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Article III hereof shall be true and
correct in all material respects at and on the Closing Date as if made at and on
such date, except to the extent that any representation and warranty expressly
speaks as of an earlier date, in which case such representation and warranty is
true and correct as of such date and except for any activities or transactions
which may have taken place after the date hereof which are contemplated by this
Agreement.
B. Secretary's Certificate. The Purchasers shall have received a
-----------------------
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the Closing Date and signed by the Secretary or an Assistant
Secretary of the Company, certifying (a) that the attached copies of the
Certificate of Incorporation
<PAGE>
16
(including the Charter Amendment and the Certificate of Designation), the By-
laws, and resolutions of the Board of Directors of the Company approving this
Agreement and each of the other Transaction Documents and the transactions
contemplated hereby and thereby, are all true, complete and correct and remain
unamended and in full force and effect and (b) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement, each other
Transaction Document and any other document delivered in connection herewith on
behalf of the Company.
C. Filing of Charter Amendment and Certificate of Designation.
----------------------------------------------------------
Each of the Charter Amendment and the Certificate of Designation shall have been
duly filed by the Company with the Secretary of State of the State of Delaware
in accordance with the General Corporation Law of the State of Delaware, and the
Purchasers shall have received evidence of each such filing in form and
substance reasonably satisfactory to the Purchasers.
D. Purchased Shares. The Company shall have delivered to each of
----------------
the Purchasers certificates in definitive form representing the number of
Purchased Shares set forth opposite such Purchaser's name on Schedule 2.1
------------
hereto, registered in the name of such Purchaser.
E. Warrants. The Company shall have duly executed and delivered to
--------
each of the Purchasers a Warrant to purchase that number of shares of Common
Stock set forth opposite such Purchaser's name on Schedule 2.1 hereto in
------------
substantially the form attached hereto as Exhibit A.
---------
F. Registration Rights Agreement. The Company shall have duly
-----------------------------
executed and delivered the Registration Rights Agreement.
G. Stockholders Agreement. The Company shall have duly executed
----------------------
and delivered the Stockholders Agreement.
H. Opinion of Counsel. The Purchasers shall have received an
------------------
opinion of Senior Counsel for the Company, dated the Closing Date, relating to
the transactions contemplated by or referred to herein, substantially in the
form attached hereto as Exhibit D.
---------
ARTICLE VI.
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
-----------------------
<PAGE>
17
The obligation of the Company to issue and sell the Purchased Shares
and the Warrants and the obligation of the Company to perform its other
obligations hereunder shall be subject to the satisfaction as determined by, or
waiver by, the Company of the following conditions on or before the Closing
Date:
A. Representations and Warranties. The representations and
------------------------------
warranties of the Purchasers contained in Article IV hereof shall be true and
correct on at and on the Closing Date as if made at and on such date, except to
the extent that any representation and warranty expressly speaks as of an
earlier date, in which case such representation and warranty is true and correct
as of such date and except for any activities or transactions which may have
taken place after the date hereof which are contemplated by this Agreement.
B. Payment of Purchase Price. Each Purchaser shall have paid the
-------------------------
aggregate purchase price for the Purchased Shares and the Warrant to be
purchased by such Purchaser.
C. Registration Rights Agreement. Each Purchaser shall have duly
-----------------------------
executed and delivered the Registration Rights Agreement.
D. Stockholders Agreement. Each Purchaser have duly executed and
----------------------
delivered the Stockholders Agreement.
ARTICLE VII.
INDEMNIFICATION
---------------
A. Indemnification. Except as otherwise provided in this Article
---------------
VII, the Company (the "Indemnifying Party") agrees to indemnify, defend and hold
------------------
harmless each of the Purchasers and its Affiliates and their respective
officers, directors, agents, employees, subsidiaries, partners, members and
controlling persons (each, an "Indemnified Party") to the fullest extent
-----------------
permitted by law from and against any and all losses, actions, suits,
proceedings, claims, complaints, disputes, arbitrations or investigations
(collectively, "Claims" or written threats thereof (including, without
------
limitation, any Claim by a third party), damages, expenses (including reasonable
fees, disbursements and other charges of counsel incurred by the Indemnified
Party in any action between the Indemnifying Party and the Indemnified Party or
between the Indemnified Party and any third party) or other liabilities
(collectively, "Losses") resulting from or arising out of any breach of any
------
representation or warranty, covenant or agreement by the Company in this
Agreement or the other Transaction Documents; provided, however, that the
-------- -------
Indemnifying Party shall not be liable under this Article VII to an Indemnified
Party to the extent that it is finally judicially determined
<PAGE>
18
that such Losses resulted or arose from the breach by such Indemnified Party of
any representation, warranty, covenant or other agreement of such Indemnified
Party contained in this Agreement or the other Transaction Documents or the
willful misconduct or gross negligence of such Indemnified Party; and provided
--------
further, that if and to the extent that such indemnification is unenforceable
- -------
for any reason, the Indemnifying Party shall make the maximum contribution to
the payment and satisfaction of such Losses which shall be permissible under
applicable laws. The amount of any payment to any Indemnified Party herewith in
respect of any Loss shall be of sufficient amount to make such Indemnified Party
whole. In connection with the obligation of the Indemnifying Party to indemnify
for expenses as set forth above, the Indemnifying Party shall, upon presentation
of appropriate invoices containing reasonable detail, reimburse each Indemnified
Party for all such expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party) as they are incurred by such Indemnified Party; provided,
--------
however, that if an Indemnified Party is reimbursed under this Article VII for
- -------
any expenses, such reimbursement of expenses shall be refunded to the extent it
is finally judicially determined that the Losses in question resulted primarily
from the willful misconduct or gross negligence of such Indemnified Party.
B0 Notification. Each Indemnified Party under this Article VII
------------
shall, promptly after the receipt of notice of the commencement of any Claim
against such Indemnified Party in respect of which indemnity may be sought from
the Indemnifying Party under this Article VII, notify the Indemnifying Party in
writing of the commencement thereof. The omission of any Indemnified Party to so
notify the Indemnifying Party of any such action shall not relieve the
Indemnifying Party from any liability which it may have to such Indemnified
Party (a) other than pursuant to this Article VII or (b) under this Article VII
unless, and only to the extent that, such omission results in the Indemnifying
Party's forfeiture of substantive rights or defenses. In case any such Claim
shall be brought against any Indemnified Party, and it shall notify the
Indemnifying Party of the commencement thereof, the Indemnifying Party shall be
entitled to assume the defense thereof at its own expense, with counsel
satisfactory to such Indemnified Party in its reasonable judgment; provided,
--------
however, that any Indemnified Party may, at its own expense, retain separate
- -------
counsel to participate in such defense at its own expense. Notwithstanding the
foregoing, in any Claim in which both the Indemnifying Party, on the one hand,
and an Indemnified Party, on the other hand, are, or are reasonably likely to
become, a party, such Indemnified Party shall have the right to employ separate
counsel and to control its own defense of such Claim if, in the reasonable
opinion of counsel to such Indemnified Party, a conflict or potential conflict
exists between the Indemnifying Party, on the one hand, and such Indemnified
Party, on the other hand, that would make such separate representation
advisable; provided, however, that the Indemnifying Party (i) shall not be
-------- -------
liable for the fees and expenses of more than one counsel to all Indemnified
Parties and (ii) shall
<PAGE>
19
reimburse the Indemnified Parties for all of such fees and expenses of such
counsel incurred in any action between the Indemnifying Party and the
Indemnified Parties or between the Indemnified Parties and any third party, as
such expenses are incurred. The Indemnifying Party agrees that it will not,
without the prior written consent of the Purchasers, settle, compromise or
consent to the entry of any judgment in any pending or threatened Claim relating
to the matters contemplated hereby (if any Indemnified Party is a party thereto
or has been actually threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising or that may arise out of such
Claim. The Indemnifying Party shall not be liable for any settlement of any
Claim effected against an Indemnified Party without its written consent, which
consent shall not be unreasonably withheld. The rights accorded to an
Indemnified Party hereunder shall be in addition to any rights that any
Indemnified Party may have at common law, by separate agreement or otherwise;
provided, however, that notwithstanding the foregoing or anything to the
- -------- -------
contrary contained in this Agreement, nothing in this Article VII shall restrict
or limit any rights that any Indemnified Party may have to seek equitable
relief.
C0 Limitation on Indemnification. Anything in this Agreement to
-----------------------------
the contrary notwithstanding, no payment shall be made to an Indemnified Party
pursuant to Section 7.1 of this Agreement until the amounts which the Purchasers
would otherwise be entitled to receive as indemnification under this Agreement
aggregate at least $500,000, at which time the Purchaser shall be entitled to
receive any such payments and any subsequent payments in full. Anything in this
Agreement to the contrary notwithstanding, the liability of the Company under
this Article shall in no event exceed the total purchase price paid for the
Purchased Shares and the Warrants received by the Company pursuant to this
Agreement.
ARTICLE VIII.
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees with each Purchaser that so
long as such Purchaser holds any Purchased Shares or Warrant:
A0 Financial Statements and Other Information. The Company shall
------------------------------------------
deliver to such Purchaser, in form and substance reasonably satisfactory to such
Purchaser:
1 as soon as available, but not later than ninety (90) days
after the end of each fiscal year of the Company, a copy of the audited balance
sheet of the Company as of the end of such fiscal year and the related
statements of operations and
<PAGE>
20
cash flows for such fiscal year, setting forth in each case in comparative form
the figures for the previous year, all in reasonable detail and accompanied by a
management summary and analysis of the operations of the Company for such fiscal
year and by the opinion of a nationally recognized independent certified public
accounting firm which report shall state without qualification that such
financial statements present fairly the financial condition as of such date and
results of operations and cash flows for the periods indicated in conformity
with GAAP applied on a consistent basis;
2 commencing with the quarterly fiscal period ending on March
31, 2000, as soon as available, but in any event not later than forty-five (45)
days after the end of each of the first three fiscal quarters of each fiscal
year, the unaudited balance sheet of the Company, and the related statements of
operations and cash flows for such quarter and for the period commencing on the
first day of the fiscal year and ending on the last day of such quarter, all
certified by an appropriate officer of the Company as presenting fairly the
financial condition as of such date and results of operations and cash flows for
the periods indicated in conformity with GAAP applied on a consistent basis,
subject to normal year-end adjustments and the absence of footnotes required by
GAAP; and
3 commencing with the month ending on January 31, 2000, as soon
as available, but in any event not later than thirty (30) days after the end of
the first eleven months of each fiscal year, the unaudited balance sheet of the
Company, and the related statements of operations and cash flows for such month
and for the period commencing on the first day of the fiscal year and ending on
the last day of such month, all certified by an appropriate officer of the
Company as presenting fairly the financial condition as of such date and results
of operations and cash flows for the periods indicated in conformity with GAAP
applied on a consistent basis, subject to normal year-end adjustments and the
absence of footnotes required by GAAP.
B0 Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issue or delivery upon conversion of the Purchased Shares, as
provided in the Certificate of Designations, and the exercise of the Warrants
the maximum number of shares of Common Stock that may be issuable or deliverable
upon such conversion. Such shares of Common Stock are duly authorized and, when
issued or delivered in accordance with the Certificate of Designations, shall be
validly issued, fully paid and non-assessable. The Company shall issue such
shares of Common Stock, in accordance with the terms of the Certificate of
Designations, and otherwise comply with the terms hereof and thereof.
C0 Books and Records. The Company shall keep proper books of record
-----------------
and account, in which full and correct entries shall be made of all financial
<PAGE>
21
transactions and the assets and business of the Company in accordance with GAAP
consistently applied.
D0 Inspection. The Company shall permit representatives of the
----------
Purchasers to visit and inspect any of its properties, to examine its corporate,
financial and operating records and make copies thereof or abstracts therefrom,
to discuss its affairs, finances and accounts with their respective directors,
officers and independent public accountants, and shall provide the Purchasers
and their representatives with reasonable access to its officers and employees,
all at such reasonable times during normal business hours and as often as may be
reasonably requested upon reasonable advance notice to the Company.
ARTICLE IX.
MISCELLANEOUS
-------------
A0 Survival of Representations and Warranties. All of the
------------------------------------------
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the first anniversary of the Closing Date.
B0 Notices. All notices, demands and other communications provided
-------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
if to the Company:
Outboard Marine Corporation
100 Sea Horse Drive
Waukegan, IL 60085
Telecopy: (847) 689-6200
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: (212) 450-4800
Attention: Julia K. Cowles, Esq.
(i) if to Quantum Industrial Partners LDC.:
<PAGE>
22
Kaya Flamboyan 9,
Villemstad
Curacao
Netherlands-Antilles
with a copy to:
Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10016
Telecopy: (212) 664-0544
Attention: Michael Neus, Esq.
and a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy:(212) 757-3990
Attention: Richard S. Borisoff, Esq.
(ii) If to Greenlake:
Greenlake Holdings II LLC
c/o Greenway Partners, L.P.
277 Park Avenue
New York, NY 10016
Telecopy: (212) 350-5253
Attention: Gary Duberstein
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 310-8007
Attention: David Blittner, Esq.
All such notices, demands and other communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied.
<PAGE>
23
C0 Successors and Assigns; Third Party Beneficiaries. This
-------------------------------------------------
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws
and the terms and conditions thereof, the Purchasers may assign any of their
rights under this Agreement or the other Transaction Documents to any of their
respective Affiliates. The Company may not assign any of its rights under this
Agreement without the written consent of the Purchasers. Except as provided in
Article VII, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
D0 Amendment and Waiver.
--------------------
1 No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
2 Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company and the Purchasers purchasing 75% of
the Purchased Shares, and (ii) only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Agreement, no notice to or demand on the Company in any case
shall entitle the Company to any other or further notice or demand in similar or
other circumstances.
E0 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
F0 Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
G0 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
<PAGE>
24
H0 Severability. If any one or more of the provisions contained
------------
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
I0 Rules of Construction. Unless the context otherwise requires,
---------------------
"or" is not exclusive and references to sections or subsections refer to
sections or subsections of this Agreement.
J0 Right to Conduct Activities. The Company and each Purchaser
---------------------------
hereby acknowledges that some or all of the Purchasers are professional
investment funds, and as such, invest in numerous portfolio companies, some of
which may be competitive with the Company's business. No Purchaser shall be
liable to the Company or to any other Purchaser for any claim arising out of, or
based upon, the investment activities of such Purchaser, including without
limitation, any claim arising out of, or based upon, (i) the investment by
Purchaser in an entity competitive to the Company, or (ii) actions taken by any
partner, officer or other representative of any Purchaser to assist any such
competitive company, or otherwise, and whether or not such action has a
detrimental effect of the Company.
K0 Entire Agreement. This Agreement, together with the exhibits
----------------
and schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, representations, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits and schedules hereto, and the other Transaction Documents supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
L0 Fees. Upon the Closing, the Company shall reimburse each of the
----
Purchasers for all expenses incurred by each such Purchaser in the course of
conducting such Purchaser's due diligence investigation of the Company
(including any fees and expenses of outside consultants to such Purchaser) and
for the fees, disbursements and other charges of counsel incurred in connection
with the transactions contemplated by this Agreement.
M0 Publicity.
---------
<PAGE>
25
(a) Except as may be required by applicable Requirements of Law,
none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement and the
transactions contemplated hereby without prior approval by the other parties
hereto. If any announcement is required by law or the rules of any securities
exchange or market on which shares of Common Stock are traded to be made by any
party hereto, prior to making such announcement such party will deliver a draft
of such announcement to the other parties and shall give the other parties
reasonable opportunity to comment thereon.
(b) For so long as QIP or any of its Affiliates owns any shares
of Preferred Stock or Common Stock into which it is converted, QIP shall have
the opportunity to review and modify any provision of any public release, public
announcement or government filing which is to be released to the public, which
provision mentions QIP or any of its Affiliates, prior to the release of such
document to the public, it being understood and agreed that Soros Private Equity
Partners LLC will be identified as making investments on behalf of QIP.
N0 Further Assurances. Each of the parties shall execute such
------------------
documents and use reasonable efforts to perform such further acts (including,
without limitation, obtaining any consents, exemptions, authorizations or other
actions by, or giving any notices to, or making any filings with, any
Governmental Authority or any other Person) as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Series A Convertible Preferred Stock and Warrant Purchase
Agreement on the date first written above.
OUTBOARD MARINE CORPORATION
By: /S/ Eric T. Martinez
-------------------------------
Name: Eric T. Martinez
Title: Vice President and Treasurer
QUANTUM INDUSTRIAL PARTNERS LDC
By: /S/ Michael C. Neus
-------------------------------
Name: Michael C. Neus
Title: Attorney-In-Fact
GREENLAKE HOLDINGS II LLC
By: /S/ Gary K. Duberstein
---------------------
Name: Gary K. Duberstein
Title: Vice President
<PAGE>
Exhibit A
---------
PURCHASE AGREEMENT
------------------
Date:____________________
TO:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase_______ shares of Common Stock covered by such
Warrant, makes payment herewith in full therefor at the price per share provided
by this Warrant.
Signature:__________________________
Address: __________________________
__________________________
__________________________
* * *
ASSIGNMENT
----------
For Value Received, _______________________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock covered
by such Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------- ------- -------------
Dated:___________________ Signature:_________________________
___
___ Witness:___________________________
1
<PAGE>
===============================================================================
STOCKHOLDERS AGREEMENT
among
OUTBOARD MARINE CORPORATION
QUANTUM INDUSTRIAL PARTNERS LDC
and
GREENLAKE HOLDINGS II LLC
Dated: January 28, 2000
<PAGE>
Table of Contents
-----------------
<TABLE>
<S> <C>
1. Definitions........................................................................ 1
2. Restrictions on Transfer of Shares................................................. 5
2.1 Limitation on Transfer........................................................ 5
2.2 Permitted Transfers........................................................... 5
2.3 Permitted Transfer Procedures................................................. 6
2.4 Transfers in Compliance with Law; Substitution of Transferee.................. 6
3. Right of First Offer and Tag-Along Rights.......................................... 6
3.1 Proposed Voluntary Transfers.................................................. 6
3.2 Involuntary Transfers......................................................... 10
4. Future Issuance of Shares; Preemptive Rights....................................... 12
4.1 Offering Notice............................................................... 12
4.2 Preemptive Rights; Exercise................................................... 13
4.3 Closing....................................................................... 13
4.4 Sale to Subject Purchaser..................................................... 14
5. After-Acquired Securities; Agreement to be Bound................................... 14
5.1 After-Acquired Securities..................................................... 14
5.2 Agreement to be Bound......................................................... 14
6. Miscellaneous...................................................................... 15
6.1 Notices...................................................................... 15
6.2 Successors and Assigns....................................................... 17
6.3 Amendment and Waiver......................................................... 17
6.4 Board Representation......................................................... 17
6.5 Counterparts................................................................. 17
6.6 Specific Performance......................................................... 17
6.7 Headings..................................................................... 18
6.8 GOVERNING LAW................................................................ 18
6.9 Severability................................................................. 18
6.10 Entire Agreement............................................................. 18
6.11 Term of Agreement............................................................ 18
6.12 Further Assurances........................................................... 18
</TABLE>
EXHIBITS
<PAGE>
A-1 Form of Transfer Agreement (Previously issued shares)
A-2 Form of Transfer Agreement (Newly issued shares)
<PAGE>
EXHIBIT 4.10
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (this "Agreement") dated January 28, 2000,
---------
among Outboard Marine Corporation, a Delaware corporation (the "Company"),
-------
Quantum Industrial Partners LDC, a Cayman Islands limited duration company
("QIP"), and Greenlake Holdings II LLC, a Delaware limited liability company
---
("Greenlake").
---------
WHEREAS, pursuant to the Series A Convertible Preferred Stock and
Warrant Purchase Agreement, dated the date hereof (the "Stock Purchase
--------------
Agreement"), among the Company, QIP and Greenlake, the Company has agreed to
issue and sell to QIP and Greenlake (a) an aggregate of 650,000 shares of the
Company's Series A Convertible Preferred Stock, par value $.01 per share (the
"Preferred Stock"), and (b) warrants (the "Warrants") to purchase, subject to
- ---------------- --------
the terms and conditions thereof, 5,750,000 shares of Common Stock; and
WHEREAS, the parties hereto wish to restrict the transfer of the
Shares (as hereinafter defined) and the Warrants and to provide for, among other
things, first offer, tag-along and preemptive rights and certain other rights
under certain conditions.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the meanings set forth below:
"Affiliate" shall mean any Person who is an "affiliate" (as
---------
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act) of, and any Person controlling, controlled by or under common control with,
any Stockholder. For the purposes of this Agreement, "control" includes the
ability to have investment discretion through contractual means or by operation
of law.
"Agreement" means this Agreement as the same may be amended,
---------
supplemented or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the Company.
------------------
"Business Day" means any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
<PAGE>
2
"Code" means the Internal Revenue Code of 1986, as amended, or
----
any successor statute thereto.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $.01 per share,
------------
of the Company or any other capital stock of the Company into which such stock
is reclassified or reconstituted and any other common stock of the Company.
"Common Stock Equivalents" means any security or obligation which
------------------------
is by its terms convertible into or exercisable for shares of Common Stock,
including, without limitation, the Preferred Stock, and any option, warrant or
other subscription or purchase right with respect to Common Stock.
"Company" has the meaning set forth in the recitals to this
-------
Agreement.
"Company Option" has the meaning set forth in Section 3.1(b) of
--------------
this Agreement.
"Company Option Period" has the meaning set forth in Section
---------------------
3.1(b) of this Agreement.
"Contract Date" has the meaning set forth in Section 3.1(e) of
-------------
this Agreement.
"Excess New Securities" has the meaning set forth in Section
---------------------
4.2(a) of this Agreement.
"Excess Offered Securities" has the meaning set forth in Section
-------------------------
3.1(c) of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder.
"Fair Value" has the meaning set forth in Section 3.2(b) of this
----------
Agreement.
"Governmental Authority" means the government of any nation,
----------------------
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to
<PAGE>
3
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Initial Public Offering" means the initial public offering of the
-----------------------
shares of Common Stock of the Company pursuant to an effective registration
statement filed under the Securities Act.
"Involuntary Transfer" means any transfer, proceeding or action
--------------------
by or in which a Stockholder shall be deprived or divested of any right, title
or interest in or to any of the Shares, including, without limitation, (i) any
seizure under levy of attachment or execution, (ii) any transfer in connection
with bankruptcy (whether pursuant to the filing of a voluntary or an involuntary
petition under the United States Bankruptcy Code of 1978, or any modifications
or revisions thereto) or other court proceeding to a debtor in possession,
trustee in bankruptcy or receiver or other officer or agency, (iii) any transfer
to a state or to a public officer or agency pursuant to any statute pertaining
to escheat or abandoned property and (iv) any transfer pursuant to a divorce or
separation agreement or a final decree of a court in a divorce action.
"Involuntary Transferee" has the meaning set forth in Section
----------------------
3.2(a) of this Agreement.
"IPO Effectiveness Date" means the date upon which the Company
----------------------
closes its Initial Public Offering.
"Liens" means any mortgage, deed of trust, pledge, hypothecation,
-----
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related preferences).
"New Issuance Notice" has the meaning set forth in Section 4.1 of
-------------------
this Agreement.
"New Securities" has the meaning set forth in Section 4.1 of this
--------------
Agreement.
"Offer Price" has the meaning set forth in Section 3.1(a) of this
-----------
Agreement.
"Offered Securities" has the meaning set forth in Section 3.1(a)
------------------
of this Agreement.
"Offering Notice" has the meaning set forth in Section 3.1(a) of
---------------
this Agreement.
<PAGE>
4
"Other Stockholder" means (a) any transferee of a Stockholder
-----------------
(other than a Permitted Transferee thereof), who has agreed to be bound by the
terms and conditions of this Agreement in accordance with Section 2.4 or to whom
Shares have been transferred in accordance with Section 3.1(e) and (b) any
Person other than a Stockholder who has agreed to be bound by the terms and
conditions of this Agreement in accordance with Section 5.2(a).
"Permitted Transferee" has the meaning set forth in Section 2.2
--------------------
of this Agreement.
"Person" means any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Preemptive Rightholder(s)" has the meaning set forth in Section
-------------------------
4.1 of this Agreement.
"Preferred Stock" has the meaning set forth in the recitals to
---------------
this Agreement.
"Proportionate Percentage" has the meaning set forth in Section
------------------------
4.2(a) of this Agreement.
"Proposed Price" has the meaning set forth in Section 4.1 of this
--------------
Agreement.
"Rightholder(s)" has the respective meanings set forth in
--------------
Sections 3.1(c) and 3.2(a) of this Agreement.
"Rightholder Option Period" has the meaning set forth in Section
-------------------------
3.1(c) of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
--------------
and the rules and regulations of the Commission promulgated thereunder.
"Selling Stockholder" has the meaning set forth in Section 3.1(a)
-------------------
of this Agreement.
"Shares" means, with respect to each Stockholder, all shares,
------
whether now owned or hereafter acquired, of Common Stock and Preferred Stock,
owned thereby; provided, however, for the purposes of any computation of the
-------- -------
number
<PAGE>
5
of Shares pursuant to Sections 2, 3, 4.1, 4.2 and 6.3, all outstanding Common
Stock Equivalents shall be deemed converted, exercised or exchanged as
applicable and the shares of Common Stock issuable upon such conversion,
exercise or exchange shall be deemed outstanding, whether or not such
conversion, exercise or exchange has actually been effected.
"Stock Purchase Agreement" has the meaning set forth in the
------------------------
recitals to this Agreement.
"Stockholders" means (a) QIP and Greenlake and any transferee
------------
thereof who has agreed to be bound by the terms and conditions of this Agreement
in accordance with Section 2.4 and (b) any Person who has agreed to be bound by
the terms and conditions of this Agreement in accordance with Section 5.2(a),
and the term "Stockholder" shall mean any such Person.
-----------
"Subject Purchaser" has the meaning set forth in Section 4.1 of
-----------------
this Agreement.
"Tag-Along Rightholder" has the meaning set forth in Section
---------------------
3.1(f)(i) of this Agreement.
"Third Party Purchaser" has the meaning set forth in Section
---------------------
3.1(a) of this Agreement.
"transfer" has the meaning set forth in Section 2.1 of this
--------
Agreement.
"Transferred Shares" has the meaning set forth in Section 3.2(a)
------------------
of this Agreement.
"Warrants" has the meaning set forth in the recitals to this
--------
Agreement.
2. Restrictions on Transfer of Shares.
----------------------------------
2.1 Limitation on Transfer. No Stockholder shall sell, give,
----------------------
assign, hypothecate, pledge, encumber, grant a security interest in or otherwise
dispose of (whether by operation of law or otherwise) (each a "transfer") any
--------
Shares or any right, title or interest therein or thereto (including any Common
Stock Equivalents), except in accordance with the provisions of this Agreement,
including, without limitation, Section 2.4. Any attempt to transfer any Shares
or any rights thereunder or therein in violation of the preceding sentence shall
be null and void ab initio.
<PAGE>
6
2.2 Permitted Transfers. Notwithstanding anything to the
-------------------
contained in this Agreement, but subject to Sections 2.1, 2.3 and 2.4, at any
time, each of the Stockholders may transfer all or a portion of its Shares to
any of its Affiliates (each, a "Permitted Transferee"). A Permitted Transferee
--------------------
of Shares pursuant to this Section 2.2 may transfer its Shares pursuant to this
Section 2.2 only to the transferor Stockholder or to a Person that is a
Permitted Transferee of such transferor Stockholder.
2.3 Permitted Transfer Procedures. If any Stockholder wishes to
-----------------------------
transfer Shares to a Permitted Transferee under Section 2.2, such Stockholder
shall give notice to the Company of its intention to make any transfer permitted
under Section 2.2 not less than ten (10) days prior to effecting such transfer,
which notice shall state the name and address of each Permitted Transferee to
whom such transfer is proposed, the relationship of such Permitted Transferee to
such Stockholder, and the number of Shares proposed to be transferred to such
Permitted Transferee.
2.4 Transfers in Compliance with Law; Substitution of
-------------------------------------------------
Transferee. Notwithstanding any other provision of this Agreement, no transfer
- ----------
may be made pursuant to this Section 2 or Section 3 unless (a) the transferee
has agreed in writing to be bound by the terms and conditions of this Agreement
pursuant to an instrument substantially in the form attached hereto as Exhibit
-------
C-1, (b) the transfer complies in all respects with the applicable provisions of
- ---
this Agreement and (c) the transfer complies in all respects with applicable
federal and state securities laws, including, without limitation, the Securities
Act. If requested by the Company, an opinion of counsel to such transferring
Stockholder shall be supplied to the Company at such transferring Stockholder's
expense, to the effect that such transfer complies with the applicable federal
and state securities laws. Upon becoming a party to this Agreement, (i) the
Permitted Transferee of a Stockholder shall be substituted for, and shall enjoy
the same rights and be subject to the same obligations as, a Stockholder
hereunder with respect to the Shares transferred to such Permitted Transferee,
(ii) an Other Stockholder shall be subject to the same obligations as, but none
of the rights of, the transferring Stockholder and (iii) the transferee of an
Other Stockholder shall be substituted for, and shall be subject to the same
obligations as, the transferring Other Stockholder hereunder with respect to the
Shares transferred to such transferee.
3. Right of First Offer and Tag-Along Rights.
-----------------------------------------
3.1 Proposed Voluntary Transfers.
----------------------------
(a) Offering Notice. Subject to Section 2, if any
---------------
Stockholder (a "Selling Stockholder") wishes to transfer all or any portion of
-------------------
its or his Shares to any Person (other than to a Permitted Transferee) (a "Third
-----
Party Purchaser"), such Selling Stockholder shall offer such Shares first to the
- ---------------
Company, by
<PAGE>
7
sending written notice (an "Offering Notice") to the Company, which shall state
---------------
(a) the number of Shares proposed to be transferred (the "Offered Securities");
------------------
(b) the proposed purchase price per Share for the Offered Securities (the "Offer
-----
Price"); and (c) the terms and conditions of such sale. Upon delivery of the
- -----
Offering Notice, such offer shall be irrevocable unless and until the rights of
first offer provided for herein shall have been waived or shall have expired.
The Company shall promptly deliver a copy of the Offering Notice to each of the
Stockholders.
(b) Company Option; Exercise. For a period of thirty (30) days
------------------------
after the giving of the Offering Notice pursuant to Section 3.1(a) (the "Company
-------
Option Period"), the Company shall have the right (the "Company Option") but not
- ------------- --------------
the obligation to purchase any or all of the Offered Securities at a purchase
price equal to the Offer Price and upon the terms and conditions set forth in
the Offering Notice. The right of the Company to purchase any or all of the
Offered Securities under this Section 3.1(b) shall be exercisable by delivering
written notice of the exercise thereof, prior to the expiration of the Company
Option Period, to the Selling Stockholder, with a copy to the Stockholders
(other than the Selling Stockholder), which notice shall state the number of
Offered Securities proposed to be purchased by the Company. The failure of the
Company to respond within the Company Option Period shall be deemed to be a
waiver of the Company Option, provided that the Company may waive its rights
--------
under this Section 3.1(b) prior to the expiration of the Company Option Period
by giving written notice to the Selling Stockholder, with a copy to the
Stockholders (other than the Selling Stockholder).
(c) Rightholder Option; Exercise.
----------------------------
(i) If the Company does not elect to purchase all of the
Offered Securities, then for a period of thirty (30) days after the earlier to
occur of (a) the expiration of the Company Option Period and (b) the date upon
which the Selling Stockholder shall have received written notice from the
Company of its exercise of the Company Option pursuant to Section 3.1(b) or its
waiver thereof (the "Rightholder Option Period"), each of the Stockholders
(other than a Selling Stockholder) (for the purpose of Section 3.1, each, a
"Rightholder" and collectively, the "Rightholders") shall have the right to
----------- ------------
purchase all, but not less than all, of the remaining Offered Securities at a
purchase price equal to the Offer Price and upon the terms and conditions set
forth in the Offering Notice. Each such Rightholder shall have the right to
purchase that percentage of the Offered Securities determined by dividing (i)
the total number of Shares then owned by such Rightholder by (ii) the total
number of Shares then owned by all such Rightholders. If any Rightholder does
not fully subscribe for the number or amount of Offered Securities it or he is
entitled to purchase, then each other participating Rightholder shall have the
right to purchase that percentage of the Offered Securities not so subscribed
for (for the purposes of this Section 3.1(c), the "Excess Offered Securities")
-------------------------
determined by dividing (x) the total
<PAGE>
8
number of Shares then owned by such fully participating Rightholder by (y) the
total number of Shares then owned by all fully participating Rightholders who
elected to purchase Offered Securities. The procedure described in the preceding
sentence shall be repeated until there are no remaining Excess Offered
Securities. If the Company and/or the Rightholders do not purchase all of the
Offered Securities pursuant to Section 3.1(b) and/or Section 3.1(c), then the
Selling Stockholder may, subject to Section 3.1(f), sell the Offered Securities
to a Third Party Purchaser in accordance with Section 3.1(e).
(ii) The right of each Rightholder to purchase all of the
remaining Offered Securities under subsection (i) above shall be exercisable by
delivering written notice of the exercise thereof, prior to the expiration of
the Rightholder Option Period, to the Selling Stockholder with a copy to the
Company. Each such notice shall state (a) the number of Shares held by such
Rightholder and (b) the number of Shares that such Rightholder is willing to
purchase pursuant to this Section 3.1(c). The failure of a Rightholder to
respond within the Rightholder Option Period to the Selling Stockholder shall be
deemed to be a waiver of such Rightholder's rights under subsection (i) above,
provided that each Rightholder may waive its rights under subsection (ii) above
- --------
prior to the expiration of the Rightholder Option Period by giving written
notice to the Selling Stockholder, with a copy to the Company.
(d) Closing. The closing of the purchases of Offered Securities
-------
subscribed for by the Company under Section 3.1(b) and/or the Rightholders under
Section 3.1(c) shall be held at the executive office of the Company at 11:00
a.m., local time, on the 60th day after the giving of the Offering Notice
pursuant to Section 3.1(a) or at such other time and place as the parties to the
transaction may agree. At such closing, the Selling Stockholder shall deliver
certificates representing the Offered Securities, duly endorsed for transfer and
accompanied by all requisite transfer taxes, if any, and such Offered Securities
shall be free and clear of any Liens (other than those arising hereunder and
those attributable to actions by the purchasers thereof) and the Selling
Stockholder shall so represent and warrant, and shall further represent and
warrant that it is the sole beneficial and record owner of such Offered
Securities. The Company and/or each Rightholder, as the case may be, purchasing
Offered Securities shall deliver at the closing payment in full in immediately
available funds for the Offered Securities purchased by it or him. At such
closing, all of the parties to the transaction shall execute such additional
documents as are otherwise necessary or appropriate.
(e) Sale to a Third Party Purchaser. Unless the Company and/or the
-------------------------------
Rightholders elect to purchase all, but not less than all, of the Offered
Securities under Sections 3.1(b) and 3.1(c), the Selling Stockholder may,
subject to Section 3.1(f), sell all, but not less than all, the Offered
Securities to a Third Party Purchaser on the terms and conditions set forth in
the Offering Notice; provided,
--------
<PAGE>
9
however, that such sale is bona fide and made pursuant to a contract entered
- -------
into within sixty (60) days after the earlier to occur of (i) the waiver by the
Company and all of the Rightholders of their options to purchase the Offered
Securities and (ii) the expiration of the Rightholder Option Period (the
"Contract Date"); and provided further, that such sale shall not be consummated
------------- -------- -------
unless and until (x) such Third Party Purchaser shall represent in writing to
the Company and each Rightholder that it is aware of the rights of the Company,
the Stockholders contained in this Agreement and (y) prior to the purchase by
such Third Party Purchaser of any of such Offered Securities, such Third Party
Purchaser shall become a party to this Agreement as an Other Stockholder and
shall agree to be bound by the terms and conditions hereof in accordance with
Section 2.4 hereof. If such sale is not consummated within 30 days after the
Contract Date for any reason, then the restrictions provided for herein shall
again become effective, and no transfer of such Offered Securities may be made
thereafter by the Selling Stockholder without again offering the same to the
Company and the Rightholders in accordance with this Section 3.1.
(f) Tag-Along Rights.
----------------
(i) If a Stockholder is transferring Offered
Securities to a Third Party Purchaser pursuant to Section 3.1(e), then each of
the Stockholders (other than the Selling Stockholder) (each, a "Tag-Along
---------
Rightholder") shall have the right to sell to such Third Party Purchaser, upon
- -----------
the terms set forth in the Offering Notice, that number of Shares held by such
Tag-Along Rightholder equal to that percentage of the Offered Securities
determined by dividing (A) the total number of Shares then owned by such
Tag-Along Rightholder by (B) the sum of (x) the total number of Shares then
owned by all such Tag-Along Rightholders exercising their rights pursuant to
this Section 3.1(f) and (y) the total number of Shares then owned by the Selling
Stockholder. The Selling Stockholder and the Tag-Along Rightholder(s) exercising
their rights pursuant to this Section 3.1(f) shall effect the sale of the
Offered Securities and such Tag-Along Rightholder(s) shall sell the number of
Offered Securities required to be sold by such Tag-Along Rightholder(s) pursuant
to this Section 3.1(f)(i), and the number of Offered Securities to be sold to
such Third Party Purchaser by the Selling Stockholder shall be reduced
accordingly.
(ii) The Selling Stockholder shall give notice to each
Tag-Along Rightholder of each proposed sale by it of Offered Securities which
gives rise to the rights of the Tag-Along Rightholders set forth in this Section
3.1(f), at least fifteen (15) days prior to the proposed consummation of such
sale, setting forth the name of such Selling Stockholder, the number of Offered
Securities, the name and address of the proposed Third Party Purchaser, the
proposed amount and form of consideration and terms and conditions of payment
offered by such Third Party Purchaser, the percentage of Shares that such Tag-
Along Rightholder may sell to such Third Party Purchaser (determined in
accordance with Section 3.1(f)(i)), and a
<PAGE>
10
representation that such Third Party Purchaser has been informed of the "tag-
along" rights provided for in this Section 3.1(f) and has agreed to purchase
Shares in accordance with the terms hereof. The tag-along rights provided by
this Section 3.1(f) must be exercised by any Tag-Along Rightholder wishing to
sell its Shares within ten (10) days following receipt of the notice required by
the preceding sentence, by delivery of a written notice to the Selling
Stockholder indicating such Tag-Along Rightholder's wish to exercise its rights
and specifying the number of Shares (up to the maximum number of Shares owned by
such Tag-Along Rightholder required to be purchased by such Third Party
Purchaser) it wishes to sell, provided that any Tag-Along Rightholder may waive
--------
its rights under this Section 3.1(f) prior to the expiration of such 10-day
period by giving written notice to the Selling Stockholder, with a copy to the
Company. The failure of a Tag-Along Rightholder to respond within such 10-day
period shall be deemed to be a waiver of such Tag-Along Rightholder's rights
under this Section 3.1(f). If a Third Party Purchaser fails to purchase Shares
from any Tag-Along Rightholder that has properly exercised its tag-along rights
pursuant to this Section 3.1(f)(ii), then the Selling Stockholder shall not be
permitted to consummate the proposed sale of the Offered Securities, and any
such attempted sale shall be null and void ab initio.
3.2 Involuntary Transfers.
---------------------
(a) Rights of First Offer upon Involuntary Transfer. If an
-----------------------------------------------
Involuntary Transfer of any Shares (the "Transferred Shares") owned by any
------------------
Stockholder shall occur, then the Company and the Stockholders (unless such
Stockholder is the Stockholder transferring the Transferred Shares) (for the
purpose of Section 3.2, each, a "Rightholder" and collectively, the
-----------
"Rightholders") shall have the same rights as specified in Sections 3.1(b) and
- -------------
3.1(c), respectively, with respect to such Transferred Shares as if the
Involuntary Transfer had been a proposed voluntary transfer by a Selling
Stockholder and shall be governed by Section 3.1 except that (i) the time
periods shall run from the date of receipt by the Company of actual notice of
the Involuntary Transfer (and the Company shall immediately give notice to the
Rightholders of the date of receipt of such notice), (ii) such rights shall be
exercised by notice to the transferee of such Transferred Shares (the
"Involuntary Transferee") rather than to the Stockholder who suffered or will
----------------------
suffer the Involuntary Transfer and (iii) the purchase price per Transferred
Share shall be agreed upon by the Involuntary Transferee and the Company and/or
the purchasing Rightholders purchasing a majority of the Transferred Shares, as
the case may be; provided, however, that if such parties fail to agree as to
-------- -------
such purchase price, the purchase price shall be the Fair Value thereof as
determined in accordance with Section 3.2(b). Notwithstanding anything to the
contrary set forth in this Agreement, an Involuntary Transferee that has not
agreed to be bound to the terms and conditions hereunder, in accordance with
Section 5.2(a) hereof, shall not be deemed to have any rights of a Stockholder
under this Agreement.
<PAGE>
11
(b) Fair Value. If the parties fail to agree upon the
----------
purchase price of the Transferred Shares in accordance with Section 3.2(a)
hereof, then the Company or the Rightholders, as the case may be, shall purchase
the Transferred Shares at a purchase price equal to the Fair Value (as
hereinafter defined) thereof. The Fair Value of the Transferred Shares shall be
determined by a panel of three independent appraisers, which shall be nationally
recognized investment banking firms or nationally recognized experts experienced
in the valuation of corporations engaged in the business conducted by the
Company. Within five (5) Business Days after the date the applicable parties
determine that they cannot agree as to the purchase price, the Involuntary
Transferee and the Board of Directors (in the case of a purchase by the
Company), or the purchasing Rightholders purchasing a majority of the
Transferred Shares being purchased by the purchasing Rightholders (if the
Company is not purchasing any Transferred Shares), or the Board of Directors and
such purchasing Rightholders jointly (in the case of a purchase by the Company
and Rightholders), as the case may be, shall each designate one such appraiser
that is willing and able to conduct such determination. If either the
Involuntary Transferee or the Board of Directors or the purchasing Rightholders
or both, as the case may be, fails to make such designation within such period,
then the other party that has made the designation shall have the right to make
the designation on its behalf. The two appraisers designated shall, within a
period of five (5) Business Days after the designation of the second appraiser,
designate a mutually acceptable third appraiser. The three appraisers shall
conduct their determination as promptly as practicable, and the Fair Value of
the Transferred Shares shall be the average of the determination of the two
appraisers that are closer to each other than to the determination of the third
appraiser, which third determination shall be discarded; provided, however, that
-------- -------
if the determination of two appraisers are equally close to the determination of
the third appraiser, then the Fair Value of the Transferred Shares shall be the
average of the determination of all three appraisers. Such determination shall
be final and binding on the Involuntary Transferee, the Company and the
Rightholders. The Involuntary Transferee shall be responsible for the fees and
expenses of the appraiser designated by or on behalf of it, and the Company or
the purchasing Rightholders (if both the Company and the Purchasing
Rightholders), or the Purchasing Rightholders (if the Company is not purchasing
any Transferred Shares) for the fees and expenses of the appraiser designated by
or on behalf of the Board of Directors or the purchasing Rightholders (if the
Company is not purchasing any Transferred Shares), as the case may be. The
Involuntary Transferee and the Company or the purchasing Rightholders, as the
case may be, shall each share half the fees and expenses of the appraiser
designated by the appraisers. For purposes of this Section 3.2(b), the "Fair
----
Value" of the Transferred Shares means the fair market value of such Transferred
- -----
Shares determined in accordance with this Section 3.2(b) based upon all
considerations that the appraisers determine to be relevant. All expenses to be
shared by the Company and the purchasing Rightholders, or among the purchasing
Rightholders (if the Company is not
<PAGE>
12
purchasing any Transferred Shares), shall be shared in proportion to the number
of Shares purchased.
(c) Closing. The closing of any purchase under this
-------
Section 3.2 shall be held at the executive office of the Company at 11:00 a.m.,
local time, on the earlier to occur of (a) the fifth Business Day after the
purchase price per Transferred Share shall have been agreed upon by the
Involuntary Transferee and the Company or the purchasing Rightholders, as the
case may be, in accordance with Section 3.2(a)(iii), or (b) the fifth Business
Day after the determination of the Fair Value of the Transferred Shares in
accordance with Section 3.2(b), or at such other time and place as the parties
to the transaction may agree. At such closing, the Involuntary Transferee shall
deliver certificates, if applicable, or other instruments or documents
representing the Transferred Shares being purchased under this Section 3.2, duly
endorsed with a signature guarantee for transfer and accompanied by all
requisite transfer taxes, if any, and such Transferred Shares shall be free and
clear of any Liens (other than those arising hereunder) arising through the
action or inaction of the Involuntary Transferee and the Involuntary Transferee
shall so represent and warrant, and further represent and warrant that it is the
beneficial owner of such Transferred Shares. The Company or each Rightholder, as
the case may be, purchasing such Transferred Shares shall deliver at closing
payment in full in immediately available funds for such Transferred Shares. At
such closing, all parties to the transaction shall execute such additional
documents as are otherwise necessary or appropriate.
(d) General. In the event that the provisions of this
-------
Section 3.2 shall be held to be unenforceable with respect to any particular
Involuntary Transfer, the Company and the Rightholders shall have the rights
specified in Sections 3.1(b) and 3.1(c), respectively, with respect to any
transfer by an Involuntary Transferee of such Shares, and each Rightholder
agrees that any Involuntary Transfer shall be subject to such rights, in which
case the Involuntary Transferee shall be deemed to be the Selling Stockholder
for purposes of Section 3.1 of this Agreement and shall be bound by the
provisions of Section 3.1 and other related provisions of this Agreement.
4. Future Issuance of Shares; Preemptive Rights.
--------------------------------------------
4.1 Offering Notice. Except for (a) capital stock of the Company
---------------
that may be issued to employees, consultants, officers or directors of the
Company pursuant to a stock incentive plan or other employee benefit arrangement
approved by the Board of Directors, (b) a subdivision of the outstanding shares
of Common Stock into a larger number of shares of Common Stock, (c) capital
stock issued upon exercise, conversion or exchange of any Common Stock
Equivalent and (d) capital stock of the Company issued in consideration of an
acquisition, approved by
<PAGE>
13
the Board of Directors, by the Company of another Person, if the Company wishes
to issue any capital stock or any other securities convertible into or
exchangeable for capital stock of the Company (collectively, "New Securities" to
--------------
any Person (the "Subject Purchaser"), then the Company shall offer such New
-----------------
Securities first to each of the Stockholders (each, a "Preemptive Rightholder"
----------------------
and collectively, the "Preemptive Rightholders") by sending written notice (the
-----------------------
"New Issuance Notice") to the Preemptive Rightholders, which New Issuance Notice
-------------------
shall state (x) the number of New Securities proposed to be issued and (y) the
proposed purchase price per security of the New Securities (the "Proposed
--------
Price"). Upon delivery of the New Issuance Notice, such offer shall be
- -----
irrevocable unless and until the rights provided for in Section 4.2 shall have
been waived or shall have expired.
4.2 Preemptive Rights; Exercise.
---------------------------
(a) For a period of twenty (20) days after the giving of
the New Issuance Notice pursuant to Section 4.1, each of the Preemptive
Rightholders shall have the right to purchase its Proportionate Percentage (as
hereinafter defined) of the New Securities at a purchase price equal to the
Proposed Price and upon the terms and conditions set forth in the New Issuance
Notice. Each such Preemptive Rightholder shall have the right to purchase that
percentage of the New Securities determined by dividing (x) the total number of
Shares then owned by such Preemptive Rightholder exercising its rights under
this Section 4.2 by (y) the total number of Shares (the "Proportionate
-------------
Percentage"). If any Preemptive Rightholder does not fully subscribe for the
- ----------
number or amount of New Securities that it or he is entitled to purchase
pursuant to the preceding sentence, then each Preemptive Rightholder which
elected to purchase New Securities shall have the right to purchase that
percentage of the remaining New Securities not so subscribed for (for the
purposes of this Section 4.2(a), the "Excess New Securities") determined by
---------------------
dividing (x) the total number of Shares then owned by such fully participating
Preemptive Rightholder by (y) the total number of Shares then owned by all fully
participating Preemptive Rightholders who elected to purchase Excess New
Securities.
(b) The right of each Preemptive Rightholder to purchase the New
Securities under subsection (a) above shall be exercisable by delivering written
notice of the exercise thereof, prior to the expiration of the 20-day period
referred to in subsection (a) above, to the Company, which notice shall state
the amount of New Securities that such Preemptive Rightholder elects to purchase
pursuant to Section 4.2(a). The failure of a Preemptive Rightholder to respond
within such 20-day period shall be deemed to be a waiver of such Preemptive
Rightholder's rights under Section 4.2(a), provided that each Preemptive
--------
Rightholder may waive its rights under Section 4.2(a) prior to the expiration of
such 20-day period by giving written notice to the Company.
<PAGE>
14
4.3 Closing. The closing of the purchase of New Securities
-------
subscribed for by the Preemptive Rightholders under Section 4.2 shall be held at
the executive office of the Company at 11:00 a.m., local time, on (a) the 45th
day after the giving of the New Issuance Notice pursuant to Section 4.1, if the
Preemptive Rightholders elect to purchase all of the New Securities under
Section 4.2, (b) the date of the closing of the sale to the Subject Purchaser
made pursuant to Section 4.4 if the Preemptive Rightholders elect to purchase
some, but not all, of the New Securities under Section 4.2 or (c) at such other
time and place as the parties to the transaction may agree. At such closing,
the Company shall deliver certificates representing the New Securities, and such
New Securities shall be issued free and clear of all Liens (other than those
arising hereunder and those attributable to actions by the purchasers thereof)
and the Company shall so represent and warrant, and further represent and
warrant that such New Securities shall be, upon issuance thereof to the
Preemptive Rightholders and after payment therefor, duly authorized, validly
issued, fully paid and non-assessable. Each Preemptive Rightholder purchasing
the New Securities shall deliver at the closing payment in full in immediately
available funds for the New Securities purchased by him or it. At such closing,
all of the parties to the transaction shall execute such additional documents as
are otherwise necessary or appropriate.
4.4 Sale to Subject Purchaser. The Company may sell to the
-------------------------
Subject Purchaser all of the New Securities not purchased by the Preemptive
Rightholders pursuant to Section 4.2 on terms and conditions that are no more
favorable to the Subject Purchaser than those set forth in the New Issuance
Notice; provided, however, that such sale is bona fide and made pursuant to a
-------- -------
contract entered into within ninety (90) days following the earlier to occur of
(i) the waiver by the Preemptive Rightholders of their option to purchase New
Securities pursuant to Section 4.2, and (ii) the expiration of the 20-day period
referred to in Section 4.2. If such sale is not consummated within such 90-day
period for any reason, then the restrictions provided for herein shall again
become effective, and no issuance and sale of New Securities may be made
thereafter by the Company without again offering the same in accordance with
this Section 4. The closing of any issuance and purchase pursuant to this
Section 4.4 shall be held at a time and place as the parties to the transaction
may agree.
5. After-Acquired Securities; Agreement to be Bound.
------------------------------------------------
5.1 After-Acquired Securities. All of the provisions of this
-------------------------
Agreement shall apply to all of the Shares and Common Stock Equivalents issued
pursuant to the Stock Purchase Agreement.
5.2 Agreement to be Bound. The Company shall not issue any shares
---------------------
of capital stock or any Common Stock Equivalents to any Person not a party to
this Agreement, other than to directors, officers, employees or consultants of
the
<PAGE>
15
Company (or their heirs or beneficiaries) pursuant to a stock incentive plan or
other employee benefit arrangement approved by the Board of Directors, unless
either (a) such Person has agreed in writing to be bound by the terms and
conditions of this Agreement pursuant to an instrument substantially in the
form attached hereto as Exhibit C-2, or (b) such Person has entered into an
-----------
agreement with the Company restricting the transfer of its or his Shares in form
and substance reasonably satisfactory to QIP, as representative of the
Stockholders (or such other representative as shall be designated by QIP or by
the holder(s) of a majority of the Shares held by the Stockholders). Upon
becoming a party to this Agreement, such Person shall be deemed to be, and shall
be subject to the same obligations as, an Other Stockholder hereunder. Any
issuance of Shares or any Common Stock Equivalents by the Company in violation
of this Section 5.2 shall be null and void ab initio.
6. Miscellaneous.
-------------
6.1 Notices. All notices, demands or other communications
-------
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first class mail, return receipt requested, telecopier,
courier service, overnight mail or personal delivery:
(a) if to the Company to the attention of each of its
Treasurer and General Counsel at:
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
Telecopy: (847) 689-6246
with a copy to:
David, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: (212) 450-4800
Attention: Julia K. Cowles, Esq.
(b) if to QIP:
Quantum Industrial Partners LDC
Kaya Flamboyan 9,
Villemstad
Curacao
Netherlands-Antilles
<PAGE>
16
with a copy to:
Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10016
Telecopy: (212) 664-0544
Attention: Michael Neus, Esq.
and a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Richard S. Borisoff, Esq.
(c) If to Greenlake:
Greenlake Holdings II LLC
c/o Greenway Partners, L.P.
277 Park Avenue
New York, NY 10016
Telecopy: (212) 350-5253
Attention: Gary Duberstein
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 310-8007
Attention: David Blittner, Esq.
(d) if to any other Stockholder, at its address as it
appears on the record books of the Company.
Any party may by notice given in accordance with this Section 6.1 designate
another address or Person for receipt of notices hereunder. All such notices,
demands and other communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial courier service; five (5) Business Days after being
deposited in the mail, postage prepaid, if mailed; and when receipt is
mechanically acknowledged, if telecopied.
<PAGE>
17
6.2 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties and their respective successors,
heirs, legatees and legal representatives. This Agreement is not assignable
except in connection with a transfer of Shares in accordance with this
Agreement.
6.3 Amendment and Waiver.
--------------------
(a) Except as specifically set forth in this Agreement, no
failure or delay on the part of any party hereto in exercising any right, power
or remedy hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to the parties hereto at law, in equity or
otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by any party from the terms of any provision of
this Agreement, shall be effective only if it is made or given in writing and
signed by (i) the Company and the Stockholders holding 75% of the voting power
of the Shares held by Stockholders. Any such amendment, supplement,
modification, waiver or consent shall be binding upon the Company and all of the
Stockholders.
6.4 Board Representation. For so long as QIP and Greenlake or
--------------------
Affiliates thereof collectively own at least 50% of the outstanding shares of
Preferred Stock, the Company's Board of Directors shall be expanded to add one
additional director (the "Additional Director") who shall be selected by the
-------------------
holders of a majority of the outstanding shares of Preferred Stock. The Company
will use its best efforts to cause the Additional Director to be nominated and
to solicit proxies for his or her election.
6.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
6.6 Specific Performance. The parties hereto intend that each
--------------------
of the parties have the right to seek damages or specific performance in the
event that any other party hereto fails to perform such party's obligations
hereunder. Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the plaintiff party
has an adequate remedy at law.
<PAGE>
18
6.7 Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
6.8 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
6.9 Severability. If any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
6.10 Entire Agreement. This Agreement, together with the
----------------
exhibits hereto, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits hereto, supersede all prior agreements and
understandings among the parties with respect to such subject matter.
6.11 Term of Agreement. This Agreement shall become effective
-----------------
upon the execution hereof and shall terminate upon the earlier of (a) the IPO
Effectiveness Date or (b) the date on which less than two Stockholders own any
Shares.
6.12 Further Assurances. Each of the parties shall, and shall
------------------
cause their respective Affiliates to, execute such instruments and take such
action as may be reasonably required or desirable to carry out the provisions
hereof and the transactions contemplated hereby.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed, or have caused to
be executed, this Stockholders Agreement on the date first written above.
OUTBOARD MARINE CORPORATION
By: /s/ Eric T. Martinez
------------------------------------
Name: Eric T. Martinez
Title: Vice President and Treasurer
QUANTUM INDUSTRIAL PARTNERS LDC
By: /s/ Micheal C. Neus
------------------------------------
Name: Micheal C. Neus
Title: Attorney-In-Fact
GREENLAKE HOLDINGS II LLC
By: /s/ Gary K. Dubertein
------------------------------------
Name: Gary K. Duberstein
Title: Vice President
<PAGE>
Exhibit A-1
-----------
ACKNOWLEDGMENT AND AGREEMENT
The undersigned wishes to receive from __________ ("Transferor")
----------
certain shares or certain options, warrants or other rights to purchase _____
shares, par value $.01 per share, of Common Stock (the "Shares") of Outboard
------
Marine Corporation, a Delaware corporation (the "Company");
-------
The Shares are subject to the Stockholders Agreement, dated January
___, 2000 (the "Agreement"), among the Company and the other parties listed on
---------
the signature pages thereto;
The undersigned has been given a copy of the Agreement and afforded
ample opportunity to read and to have counsel review it, and the undersigned is
thoroughly familiar with its terms;
Pursuant to the terms of the Agreement, the Transferor is prohibited
from transferring such Shares and the Company is prohibited from registering the
transfer of the Shares unless and until a transfer is made in accordance with
the terms and conditions of the Agreement and the recipient of such Shares
acknowledges the terms and conditions of the Agreement and agrees to be bound
thereby; and
The undersigned wishes to receive such Shares and have the Company
register the transfer of such Shares.
In consideration of the mutual promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to induce the Transferor to transfer such Shares to the
undersigned and the Company to register such transfer, the undersigned does
hereby acknowledge and agree that (i) he[/she] has been given a copy of the
Agreement and afforded ample opportunity to read and to have counsel review it,
and the undersigned is thoroughly familiar with its terms, (ii) the Shares are
subject to the terms and conditions set forth in the Agreement, and (iii) the
undersigned does hereby agree fully to be bound thereby as a ["Stockholder"] [an
-----------
"Other Stockholder"] (as therein defined).
-----------------
This ________ day of ________, 20__.
____________________________________
<PAGE>
Exhibit A-2
-----------
ACKNOWLEDGMENT AND AGREEMENT
The undersigned wishes to receive from Outboard Marine Corporation, a
Delaware corporation (the "Company"), _______ shares, par value $.01 per share,
-------
of Common Stock, or certain newly issued options, warrants or other rights to
purchase _______ shares of Common Stock (the "Shares"), of the Company;
------
The Shares are subject to the Stockholders Agreement, dated January
__, 2000 (the "Agreement"), among the Company and the other parties listed on
---------
the signature pages thereto;
The undersigned has been given a copy of the Agreement and afforded
ample opportunity to read and to have counsel review it, and the undersigned is
thoroughly familiar with its terms;
Pursuant to the terms of the Agreement, the Company is prohibited from
issuing the Shares unless and until a transfer is made in accordance with the
terms and conditions of the Agreement and the recipient of such Shares
acknowledges the terms and conditions of the Agreement and agrees to be bound
thereby; and
The undersigned wishes to receive such Shares.
In consideration of the mutual promises contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and to induce the Company to issue such Shares, the undersigned
does hereby acknowledge and agree that (i) he[/she] has been given a copy of the
Agreement and afforded ample opportunity to read and to have counsel review it,
and the undersigned is thoroughly familiar with its terms, (ii) the Shares are
subject to terms and conditions set forth in the Agreement, and (iii) the
undersigned does hereby agree fully to be bound thereby as an "Other
Stockholder" (as therein defined).
This ________ day of ________, 20__.
__________________________________
<PAGE>
EXHIBIT 4.11
THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR RECEIVABLE UPON THE
EXERCISE OR CONVERSION THEREOF OR AS A RESULT OF THE OWNERSHIP HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND THE ORIGINAL PURCHASERS OF THE
SECURITIES REPRESENTED HEREBY. TRANSFEREES OF SUCH SECURITIES SHOULD REVIEW
SUCH AGREEMENT TO DETERMINE THEIR RIGHTS AND OBLIGATIONS.
--------------------------
Date: January 28, 2000
WARRANT TO PURCHASE
5,103,780 SHARES OF COMMON STOCK OF
OUTBOARD MARINE CORPORATION
Void after 5:00 P.M. (Eastern Time) on the
Expiration Date (as defined herein)
THIS CERTIFIES that QUANTUM INDUSTRIAL PARTNERS LDC (the "Warrant Holder"),
or registered assigns, is entitled to purchase from OUTBOARD MARINE CORPORATION
(the "Company"), a Delaware corporation, at any time after the date hereof and
until 5:00 P.M. (Eastern Time) on the Expiration Date, FIVE MILLION, ONE HUNDRED
THREE THOUSAND, SEVEN HUNDRED EIGHTY fully paid and nonassessable shares of
Common Stock of the Company, $.01 par value per share (the "Common Stock"), at a
purchase price of $.01 per share, in each case subject to adjustment as provided
in Section 6 hereof.
1. Definitions. For the purpose of this Warrant:
-----------
<PAGE>
(a) "Expiration Date" shall mean January 28, 2010.
---------------
(b) "Warrant Price" shall mean the price per share at which
-------------
shares of Common Stock of the Company are purchasable hereunder, as such price
may be adjusted from time to time hereunder.
(c) "Warrant Shares" shall mean the Common Stock purchased upon
--------------
exercise of Warrants.
(d) "Warrants" shall mean this original Warrant to purchase
--------
Common Stock of the Company and any and all Warrants which are issued in
exchange or substitution for the Warrant pursuant to the terms of this Warrant.
2. Method of Exercise of Warrants. This Warrant may be exercised at
------------------------------
any time and from time to time after the date hereof and prior to 5:00 P.M.
(Eastern Time) on the Expiration Date, in whole or in part (but not as to
fractional shares), by the surrender of the Warrant, manually or by facsimile
transmission, with the Purchase Agreement attached hereto as Exhibit A properly
---------
completed and duly executed, at the principal office of the Company at the
address set forth in Section 10(ii) hereof, or such other location which shall
at that time be the principal office of the Company (the "Principal Office"),
----------------
and upon payment to it by certified check or bank draft or wire transfer of
immediately available funds to the order of the Company of the purchase price
for the shares to be purchased upon such exercise. The person entitled to the
shares so purchased shall be treated for all purposes as the holder of such
shares as of the close of business on the date of exercise and certificates for
the shares of stock so purchased shall be delivered to the person so entitled
within a reasonable time, not exceeding thirty (30) days, after such exercise.
Unless this Warrant has expired, a new Warrant of like tenor and for such number
of shares as the holder of this Warrant shall direct, representing in the
aggregate the right to purchase a number of shares with respect to which this
Warrant shall not have been exercised, shall also be issued to the holder of
this Warrant within such time.
3. Conversion Right.
----------------
(a) In lieu of the payment of the Exercise Price, the Warrant
Holder shall have the right (but not the obligation), to require the Company to
convert this Warrant, in whole or in part, into shares of Common Stock (the
"Conversion Right") as provided for in this Section 3. Upon exercise of the
----------------
Conversion Right, the Company shall deliver to the Warrant Holder (without
payment by the Warrant Holder of any of the Warrant Price) in accordance with
Section 2 that number of shares of Common Stock equal to the quotient obtained
by dividing (i) the value of the Warrant at the time the Conversion Right is
exercised (determined by subtracting the aggregate Warrant Price in effect
immediately prior to the exercise of the Conversion Right from the aggregate
Current Market Price (as defined herein) for the shares of Common Stock issuable
upon exercise of the Warrant immediately prior to the exercise of the Conversion
Right) by (ii) the Current Market Price of one share of Common Stock immediately
prior to the exercise of the Conversion Right.
2
<PAGE>
(b) The Conversion Right may be exercised by the Warrant Holder
at any time and from time to time prior to 5:00 p.m. (Eastern Time) on the
Expiration Date by surrender of the Warrant, together with notice of such
exercise, to the Company, and specifying the total number of shares of Common
Stock that the Warrant Holder will be issued pursuant to such conversion.
(c) Current Market Price of a share of Common Stock as of a
particular date (the "Determination Date") shall mean the average closing price
------------------
of the Company's Common Stock on the principal securities exchange or market on
which such shares are then traded for the last thirty (30) trading days prior to
the Determination Date, or if the Common Stock is not traded on any such
principal securities exchange or market at the time the Conversion Right is
exercised, a market price per share determined in good faith by the Board of
Directors of the Company or, if such determination is not satisfactory to the
Warrant Holder, by a nationally recognized investment banking firm selected by
the Company and the Warrant Holder, the expenses for which shall be borne
equally by the Company and the Warrant Holder.
4. Exchange. This Warrant is exchangeable, upon the surrender hereof
--------
by the holder hereof at the Principal Office of the Company, for new Warrants of
like tenor registered in such holder's name and representing in the aggregate
the right to purchase the number of shares purchasable under the Warrant being
exchanged, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder at the time
of such surrender.
5. Transfer. Any transfer or assignment of this Warrant, whether in
--------
whole or in part without, must be made in compliance with all applicable federal
and state securities laws and the Company shall not be required to give effect
to any such purported transfer or assignment unless it is reasonably satisfied
that such transfer has been made in compliance with all applicable federal and
state securities laws. Subject to the immediately preceding sentence, this
Warrant is transferable, in whole or in part, at the Principal Office of the
Company by the holder hereof, in person or by duly authorized attorney, upon
presentation of this Warrant, properly endorsed, for transfer. Each holder of
this Warrant, by holding it, agrees that the Warrant, when endorsed in blank,
may be deemed negotiable, and that the holder hereof, when the Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with the Warrant as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by the Warrant, or to the
transfer thereof on the books of the Company, any notice to the contrary
notwithstanding.
6. Certain Covenants of the Company. The Company covenants and
--------------------------------
agrees that all shares which may be issued upon the exercise of this Warrant
will, upon issuance, be duly authorized and validly issued, fully paid and
nonassessable. The Company covenants and agrees that none of the shares which
may be issued upon the exercise of this Warrant will, upon issuance, be in
violation of or subject to any preemptive rights of any person. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of
3
<PAGE>
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
7. Adjustment of Warrant Price and Number of Shares. The number and
------------------------------------------------
kind of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Reclassification, Consolidation or Merger. At any time while
-----------------------------------------
the Warrants remain outstanding and unexpired, in case of any reclassification
or change of outstanding securities issuable upon exercise of the Warrants
(other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination of
outstanding securities issuable upon the exercise of the Warrants) or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of rights of outstanding securities issuable upon exercise of the
Warrants, other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination of outstanding securities issuable upon exercise of the Warrants),
the Company, or such successor corporation, as the case may be, shall, without
payment of any additional consideration therefor, execute new Warrants providing
that the holders of the Warrants shall have the right to exercise such new
Warrants (upon terms not less favorable to the holders than those then
applicable to the Warrants) and to receive upon such exercise, in lieu of each
share of Common Stock or other security theretofore issuable upon exercise of
the Warrants, the kind and amount of shares of stock, other securities, money or
property receivable upon such reclassification, change, consolidation or merger
by the holder of one share of Common Stock or other security issuable upon
exercise of the Warrants had the Warrants been exercised immediately prior to
such reclassification, change, consolidation or merger. Such new Warrants shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The provisions of
this subsection 7(a) shall similarly apply to successive reclassifications,
changes, consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Company at any
------------------------------------
time while the Warrants remain outstanding and unexpired shall subdivide or
combine its Common Stock, (i) the Warrant Price shall be proportionately
reduced, and the number of shares of Common Stock for which this Warrant may be
exercised shall be proportionately increased, in case of subdivision of such
shares, as of the effective date of such subdivision, or, if the Company shall
take a record of holders of its Common Stock for the purpose of so subdividing,
as of such record date, whichever is earlier, or (ii) the Warrant Price shall be
proportionately increased, and the number of shares of Common Stock for which
this Warrant may be exercised shall be proportionately reduced, in the case of
combination of such shares, as of the effective date of such combination, or, if
the Company shall take a record of holders of its Common Stock for the purpose
of so combining, as of such record date, whichever is earlier.
4
<PAGE>
(c) Stock Dividends. If the Company at any time while the Warrants
---------------
remain outstanding and unexpired shall pay a dividend in shares of its Common
Stock, or make other distribution to the holders of Common Stock or of options,
warrants or rights to subscribe for or purchase shares of Common Stock or of
evidences of indebtedness issued by the Company or any other person, then the
Warrant Price shall be adjusted, as of the date the Company shall take a record
of the holders of its Common Stock for the purpose of receiving such dividend or
other distribution (or if no such record is taken, as at the date of such
payment or other distribution), to that price determined by multiplying the
Warrant Price in effect immediately prior to such payment or other distribution
by a fraction (i) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such dividend or distribution, and
(ii) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution (the
"Fraction"), and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be adjusted by multiplying such number by the reciprocal of
the Fraction. The number of shares of Common Stock at any time outstanding
shall not include any shares thereof then directly or indirectly owned or held
by or for the account of the Company or any wholly-owned subsidiary. The
provisions of this subsection 6(c) shall not apply under any of the
circumstances for which an adjustment is provided in subsections 6(a) or 6(b).
(d) Liquidating Dividends, Etc. If the Company at any time while the
--------------------------
Warrants remain outstanding and unexpired makes a distribution of its assets to
the holders of its Common Stock as a dividend in liquidation or by way of return
of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
subsections 7(a) through 7(c)), the Warrant Holder shall be entitled to receive
upon the exercise hereof, in addition to the shares of Common Stock receivable
upon such exercise, and without payment of any consideration other than the
Warrant Price, an amount of such assets so distributed equal to the value of
such distribution per share of Common Stock multiplied by the number of shares
of Common Stock which, on the record date for such distribution, are issuable
upon exercise of this Warrant (with no further adjustment being made following
any event which causes a subsequent adjustment in the number of shares of Common
Stock issuable upon the exercise hereof), and an appropriate provision therefor
shall be made a part of any such distribution. The value of a distribution
which is paid in other than cash shall be determined by 75% of the members of
the Board of Directors of the Company, or if 75% of the members of the Board of
Directors are unable to agree upon the value of such consideration, the value
thereof shall be determined by an independent investment bank of nationally
recognized stature that is selected by 75% of the members of the Board of
Directors.
(e) Notice of Adjustments. Whenever the Warrant Price or the number
---------------------
of shares of Common Stock purchasable under the terms of this Warrant at the
Warrant Price shall be adjusted pursuant to this Section 6, the Company shall
promptly prepare a certificate signed by its President or a Vice President and
by its Treasurer or Assistant Treasurer or its Secretary or Assistant Secretary,
setting forth in reasonable detail the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a
5
<PAGE>
description of the basis on which the Company's Board of Directors made any
determination hereunder), and the Warrant Price and number of shares of Common
Stock purchasable at that Warrant Price after giving effect to such adjustment,
and shall promptly cause copies of such certificate to be mailed (by first class
and postage prepaid) to the registered holder of this Warrant.
8. Fractional Shares. No fractional shares of the Company's Common
-----------------
Stock will be issued in connection with any purchase hereunder but in lieu of
such fractional shares, the Company shall make a cash refund therefor equal in
amount to the product of the applicable fraction multiplied by the Warrant Price
paid by the holder for its Warrant Shares upon such exercise.
9. Loss, Theft, Destruction or Mutilation. Upon receipt by the
--------------------------------------
Company of evidence reasonably satisfactory to it that any Warrant has been
mutilated, destroyed, lost or stolen, and in the case of any destroyed, lost or
stolen Warrant, a bond of indemnity reasonably satisfactory to the Company, or
in the case of a mutilated Warrant, upon surrender and cancellation thereof, the
Company will execute and deliver in the Warrant Holder's name, in exchange and
substitution for the Warrant so mutilated, destroyed, lost or stolen, a new
Warrant of like tenor substantially in the form thereof with appropriate
insertions and variations.
10. Notices. All notices, demands and other communications provided
--------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(i) if to the Warrant Holder:
Quantum Industrial Partners LDC
Kaya Flamboyan 9
Willemstad
Curacao
Netherlands-Antilles
with a copy to:
Soros Fund Management LLC
888 Seventh Avenue
New York, NY 10016
Telecopy: (212) 664-0544
Attention: Michael Neus, Esq.
and a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
6
<PAGE>
Attention: Richard S. Borisoff, Esq.
(ii) if to the Company, to the attention of each of its Treasurer
and General Counsel at:
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
Telecopy: (847) 689-6246
with a copy to:
Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: (212) 450-4800
Attention: Julia K. Cowles, Esq.
All such notices and communications shall be deemed to have been duly
given when hand delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) business days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied. Any party may by notice given in accordance with this Section 10
designate another address or person for receipt of notices hereunder.
11. Headings. The descriptive headings of the several sections of
--------
this Warrant are inserted for convenience only and do not constitute a part of
this Warrant.
12. Payment of Taxes. The issuance of certificates for Warrant
----------------
Shares shall be made without charge to the Warrant Holder for any stock transfer
or other issuance tax in respect thereto; provided, however, that the Warrant
-------- -------
Holder shall be required to pay any and all taxes that may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the then Warrant Holder as upon the books of the
Company.
13. Binding Effect; Benefits. This Warrant shall inure to the
------------------------
benefit of and shall be binding upon the Company and the Warrant Holder and
their respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrant Holder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
14. Severability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such
7
<PAGE>
invalidity or unenforceability without rendering invalid or unenforceable the
terms and provisions of this Warrant or affecting the validity or enforceability
of any of the terms or provisions of this Warrant in any other jurisdiction.
15. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
16. No Rights or Liabilities as Stockholders. No Warrant Holder
----------------------------------------
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of this
Warrant for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the Warrant Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Warrant Holder shall have exercised this Warrant and been issued Common Stock in
accordance with the provisions hereof. Nothing contained in this Warrant shall
be determined as imposing any liabilities on the Warrant Holder to purchase any
securities, whether such liabilities are asserted by the Company or by creditors
or stockholders of the Company or otherwise.
17. Compliance with Securities Laws.
-------------------------------
(a) The Warrant Holder, by acceptance hereof, acknowledges that
this Warrant and the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the Warrant Holder's own account and not as a
nominee for any other party, and for investment, and that the Warrant Holder
will not offer, sell or otherwise dispose of this Warrant or any shares of
Common Stock to be issued upon exercise hereof except under circumstances that
will not result in a violation of the Securities Act or any state securities
laws. Upon exercise of this Warrant, the Warrant Holder shall, if requested by
the Company, confirm in writing, in a form satisfactory to the Company, that the
shares of Common Stock so purchased are being acquired solely for the Warrant
Holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale.
(b) This warrant and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in substantially the
following form (in addition to any legend required by state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR RECEIVABLE UPON THE
EXERCISE OR CONVERSION THEREOF OR AS A RESULT OF THE OWNERSHIP HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
8
<PAGE>
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT
TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND SUCH LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND THE ORIGINAL PURCHASERS OF THE
SECURITIES REPRESENTED HEREBY. TRANSFEREES OF SUCH SECURITIES SHOULD
REVIEW SUCH AGREEMENT TO DETERMINE THEIR RIGHTS AND OBLIGATIONS."
18. Market Stand-Off Agreement. Each holder of this Warrant or any
--------------------------
portion hereof hereby agrees that, during the period of duration specified by
the Company and, in the case of an underwritten public offering, an underwriter
of Common Stock or other securities of the Company, following the effective date
of a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale, grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) all or any portion of this
Warrant or shares of Common Stock issued or issuable upon exercise of the
Warrant held by it at any time during such period except common stock included
in such registration; provided, however, that such market stand-off time period
shall not exceed 180 days in the case of an initial public offering and 90 days
in the case of all other offerings.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instruction with respect to the foregoing restriction until the
end of such period.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on the date of this Warrant.
OUTBOARD MARINE CORPORATION
By:________________________________
10
<PAGE>
EXHIBIT 4.12
THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR RECEIVABLE UPON THE
EXERCISE OR CONVERSION THEREOF OR AS A RESULT OF THE OWNERSHIP HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND THE ORIGINAL PURCHASERS OF THE
SECURITIES REPRESENTED HEREBY. TRANSFEREES OF SUCH SECURITIES SHOULD
REVIEW SUCH AGREEMENT TO DETERMINE THEIR RIGHTS AND OBLIGATIONS.
--------------------------
Date: January 28, 2000
WARRANT TO PURCHASE
646,220 SHARES OF COMMON STOCK OF
OUTBOARD MARINE CORPORATION
Void after 5:00 P.M. (Eastern Time) on the
Expiration Date (as defined herein)
THIS CERTIFIES that GREENLAKE HOLDINGS II LLC (the "Warrant Holder"), or
registered assigns, is entitled to purchase from OUTBOARD MARINE CORPORATION
(the "Company"), a Delaware corporation, at any time after the date hereof and
until 5:00 P.M. (Eastern Time) on the Expiration Date, SIX HUNDRED FORTY-SIX
THOUSAND, TWO HUNDRED TWENTY fully paid and nonassessable shares of Common Stock
of the Company, $.01 par value per share (the "Common Stock"), at a purchase
price of $.01 per share, in each case subject to adjustment as provided in
Section 6 hereof.
1. Definitions. For the purpose of this Warrant:
-----------
(a) "Expiration Date" shall mean January 28, 2010.
---------------
<PAGE>
(b) "Warrant Price" shall mean the price per share at which
-------------
shares of Common Stock of the Company are purchasable hereunder, as such price
may be adjusted from time to time hereunder.
(c) "Warrant Shares" shall mean the Common Stock purchased upon
--------------
exercise of Warrants.
(d) "Warrants" shall mean this original Warrant to purchase
--------
Common Stock of the Company and any and all Warrants which are issued in
exchange or substitution for the Warrant pursuant to the terms of this Warrant.
2. Method of Exercise of Warrants. This Warrant may be exercised at
------------------------------
any time and from time to time after the date hereof and prior to 5:00 P.M.
(Eastern Time) on the Expiration Date, in whole or in part (but not as to
fractional shares), by the surrender of the Warrant, manually or by facsimile
transmission, with the Purchase Agreement attached hereto as Exhibit A properly
---------
completed and duly executed, at the principal office of the Company at the
address set forth in Section 10(ii) hereof, or such other location which shall
at that time be the principal office of the Company (the "Principal Office"),
----------------
and upon payment to it by certified check or bank draft or wire transfer of
immediately available funds to the order of the Company of the purchase price
for the shares to be purchased upon such exercise. The person entitled to the
shares so purchased shall be treated for all purposes as the holder of such
shares as of the close of business on the date of exercise and certificates for
the shares of stock so purchased shall be delivered to the person so entitled
within a reasonable time, not exceeding thirty (30) days, after such exercise.
Unless this Warrant has expired, a new Warrant of like tenor and for such number
of shares as the holder of this Warrant shall direct, representing in the
aggregate the right to purchase a number of shares with respect to which this
Warrant shall not have been exercised, shall also be issued to the holder of
this Warrant within such time.
3. Conversion Right.
----------------
(a) In lieu of the payment of the Exercise Price, the Warrant
Holder shall have the right (but not the obligation), to require the Company to
convert this Warrant, in whole or in part, into shares of Common Stock (the
"Conversion Right") as provided for in this Section 3. Upon exercise of the
----------------
Conversion Right, the Company shall deliver to the Warrant Holder (without
payment by the Warrant Holder of any of the Warrant Price) in accordance with
Section 2 that number of shares of Common Stock equal to the quotient obtained
by dividing (i) the value of the Warrant at the time the Conversion Right is
exercised (determined by subtracting the aggregate Warrant Price in effect
immediately prior to the exercise of the Conversion Right from the aggregate
Current Market Price (as defined herein) for the shares of Common Stock issuable
upon exercise of the Warrant immediately prior to the exercise of the Conversion
Right) by (ii) the Current Market Price of one share of Common Stock immediately
prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Warrant Holder
at any time and from time to time prior to 5:00 p.m. (Eastern Time) on the
Expiration Date by
2
<PAGE>
surrender of the Warrant, together with notice of such exercise, to the Company,
and specifying the total number of shares of Common Stock that the Warrant
Holder will be issued pursuant to such conversion.
(c) Current Market Price of a share of Common Stock as of a
particular date (the "Determination Date") shall mean the average closing price
------------------
of the Company's Common Stock on the principal securities exchange or market on
which such shares are then traded for the last thirty (30) trading days prior to
the Determination Date, or if the Common Stock is not traded on any such
principal securities exchange or market at the time the Conversion Right is
exercised, a market price per share determined in good faith by the Board of
Directors of the Company or, if such determination is not satisfactory to the
Warrant Holder, by a nationally recognized investment banking firm selected by
the Company and the Warrant Holder, the expenses for which shall be borne
equally by the Company and the Warrant Holder.
4. Exchange. This Warrant is exchangeable, upon the surrender hereof
--------
by the holder hereof at the Principal Office of the Company, for new Warrants of
like tenor registered in such holder's name and representing in the aggregate
the right to purchase the number of shares purchasable under the Warrant being
exchanged, each of such new Warrants to represent the right to subscribe for and
purchase such number of shares as shall be designated by said holder at the time
of such surrender.
5. Transfer. Any transfer or assignment of this Warrant, whether in
--------
whole or in part without, must be made in compliance with all applicable federal
and state securities laws and the Company shall not be required to give effect
to any such purported transfer or assignment unless it is reasonably satisfied
that such transfer has been made in compliance with all applicable federal and
state securities laws. Subject to the immediately preceding sentence, this
Warrant is transferable, in whole or in part, at the Principal Office of the
Company by the holder hereof, in person or by duly authorized attorney, upon
presentation of this Warrant, properly endorsed, for transfer. Each holder of
this Warrant, by holding it, agrees that the Warrant, when endorsed in blank,
may be deemed negotiable, and that the holder hereof, when the Warrant shall
have been so endorsed, may be treated by the Company and all other persons
dealing with the Warrant as the absolute owner hereof for any purpose and as the
person entitled to exercise the rights represented by the Warrant, or to the
transfer thereof on the books of the Company, any notice to the contrary
notwithstanding.
6. Certain Covenants of the Company. The Company covenants and
--------------------------------
agrees that all shares which may be issued upon the exercise of this Warrant
will, upon issuance, be duly authorized and validly issued, fully paid and
nonassessable. The Company covenants and agrees that none of the shares which
may be issued upon the exercise of this Warrant will, upon issuance, be in
violation of or subject to any preemptive rights of any person. The Company
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of issue upon exercise of the purchase
rights evidenced by this Warrant, a sufficient number of shares of its Common
Stock to provide for the exercise of the rights represented by this Warrant.
3
<PAGE>
7. Adjustment of Warrant Price and Number of Shares. The number and
------------------------------------------------
kind of securities purchasable upon the exercise of the Warrants and the Warrant
Price shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(a) Reclassification, Consolidation or Merger. At any time while
-----------------------------------------
the Warrants remain outstanding and unexpired, in case of any reclassification
or change of outstanding securities issuable upon exercise of the Warrants
(other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination of
outstanding securities issuable upon the exercise of the Warrants) or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is a
continuing corporation and which does not result in any reclassification or
change of rights of outstanding securities issuable upon exercise of the
Warrants, other than a change in par value, or from par value to no par value,
or from no par value to par value, or as a result of a subdivision or
combination of outstanding securities issuable upon exercise of the Warrants),
the Company, or such successor corporation, as the case may be, shall, without
payment of any additional consideration therefor, execute new Warrants providing
that the holders of the Warrants shall have the right to exercise such new
Warrants (upon terms not less favorable to the holders than those then
applicable to the Warrants) and to receive upon such exercise, in lieu of each
share of Common Stock or other security theretofore issuable upon exercise of
the Warrants, the kind and amount of shares of stock, other securities, money or
property receivable upon such reclassification, change, consolidation or merger
by the holder of one share of Common Stock or other security issuable upon
exercise of the Warrants had the Warrants been exercised immediately prior to
such reclassification, change, consolidation or merger. Such new Warrants shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The provisions of
this subsection 7(a) shall similarly apply to successive reclassifications,
changes, consolidations and mergers.
(b) Subdivision or Combination of Shares. If the Company at any
------------------------------------
time while the Warrants remain outstanding and unexpired shall subdivide or
combine its Common Stock, (i) the Warrant Price shall be proportionately
reduced, and the number of shares of Common Stock for which this Warrant may be
exercised shall be proportionately increased, in case of subdivision of such
shares, as of the effective date of such subdivision, or, if the Company shall
take a record of holders of its Common Stock for the purpose of so subdividing,
as of such record date, whichever is earlier, or (ii) the Warrant Price shall be
proportionately increased, and the number of shares of Common Stock for which
this Warrant may be exercised shall be proportionately reduced, in the case of
combination of such shares, as of the effective date of such combination, or, if
the Company shall take a record of holders of its Common Stock for the purpose
of so combining, as of such record date, whichever is earlier.
(c) Stock Dividends. If the Company at any time while the
---------------
Warrants remain outstanding and unexpired shall pay a dividend in shares of its
Common Stock, or make other distribution to the holders of Common Stock or of
options, warrants or rights to subscribe for or purchase shares of Common Stock
or of evidences of indebtedness issued by the Company
4
<PAGE>
or any other person, then the Warrant Price shall be adjusted, as of the date
the Company shall take a record of the holders of its Common Stock for the
purpose of receiving such dividend or other distribution (or if no such record
is taken, as at the date of such payment or other distribution), to that price
determined by multiplying the Warrant Price in effect immediately prior to such
payment or other distribution by a fraction (i) the numerator of which shall be
the total number of shares of Common Stock outstanding immediately prior to such
dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution (the "Fraction"), and the number of shares of Common Stock issuable
upon exercise of this Warrant shall be adjusted by multiplying such number by
the reciprocal of the Fraction. The number of shares of Common Stock at any time
outstanding shall not include any shares thereof then directly or indirectly
owned or held by or for the account of the Company or any wholly-owned
subsidiary. The provisions of this subsection 6(c) shall not apply under any of
the circumstances for which an adjustment is provided in subsections 6(a) or
6(b).
(d) Liquidating Dividends, Etc. If the Company at any time while
--------------------------
the Warrants remain outstanding and unexpired makes a distribution of its assets
to the holders of its Common Stock as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
subsections 7(a) through 7(c)), the Warrant Holder shall be entitled to receive
upon the exercise hereof, in addition to the shares of Common Stock receivable
upon such exercise, and without payment of any consideration other than the
Warrant Price, an amount of such assets so distributed equal to the value of
such distribution per share of Common Stock multiplied by the number of shares
of Common Stock which, on the record date for such distribution, are issuable
upon exercise of this Warrant (with no further adjustment being made following
any event which causes a subsequent adjustment in the number of shares of Common
Stock issuable upon the exercise hereof), and an appropriate provision therefor
shall be made a part of any such distribution. The value of a distribution which
is paid in other than cash shall be determined by 75% of the members of the
Board of Directors of the Company, or if 75% of the members of the Board of
Directors are unable to agree upon the value of such consideration, the value
thereof shall be determined by an independent investment bank of nationally
recognized stature that is selected by 75% of the members of the Board of
Directors.
(e) Notice of Adjustments. Whenever the Warrant Price or the
---------------------
number of shares of Common Stock purchasable under the terms of this Warrant at
the Warrant Price shall be adjusted pursuant to this Section 6, the Company
shall promptly prepare a certificate signed by its President or a Vice President
and by its Treasurer or Assistant Treasurer or its Secretary or Assistant
Secretary, setting forth in reasonable detail the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated (including a description of the basis on which the Company's
Board of Directors made any determination hereunder), and the Warrant Price and
number of shares of Common Stock purchasable at that Warrant Price after giving
effect to such adjustment, and shall promptly cause copies of such certificate
to be mailed (by first class and postage prepaid) to the registered holder of
this Warrant.
5
<PAGE>
8. Fractional Shares. No fractional shares of the Company's Common
-----------------
Stock will be issued in connection with any purchase hereunder but in lieu of
such fractional shares, the Company shall make a cash refund therefor equal in
amount to the product of the applicable fraction multiplied by the Warrant Price
paid by the holder for its Warrant Shares upon such exercise.
9. Loss, Theft, Destruction or Mutilation. Upon receipt by the
--------------------------------------
Company of evidence reasonably satisfactory to it that any Warrant has been
mutilated, destroyed, lost or stolen, and in the case of any destroyed, lost or
stolen Warrant, a bond of indemnity reasonably satisfactory to the Company, or
in the case of a mutilated Warrant, upon surrender and cancellation thereof, the
Company will execute and deliver in the Warrant Holder's name, in exchange and
substitution for the Warrant so mutilated, destroyed, lost or stolen, a new
Warrant of like tenor substantially in the form thereof with appropriate
insertions and variations.
10. Notices. All notices, demands and other communications provided
--------
for or permitted hereunder shall be made in writing and shall be by registered
or certified first class mail, return receipt requested, telecopier, courier
service, overnight mail or personal delivery:
(i) if to the Warrant Holder:
Greenlake Holdings II LLC
c/o Greenway Partners, L.P.
277 Park Avenue
New York, NY 10016
Telecopy: (212) 350-5253
Attention: Gary Duberstein
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Telecopy: (212) 310-8007
Attention: David Blittner, Esq.
(ii) if to the Company, to the attention of each of its Treasurer
and General Counsel at:
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
Telecopy: (847) 689-6246
with a copy to:
6
<PAGE>
Davis, Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Telecopy: (212) 450-4800
Attention: Julia K. Cowles, Esq.
All such notices and communications shall be deemed to have been duly
given when hand delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) business days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied. Any party may by notice given in accordance with this Section 10
designate another address or person for receipt of notices hereunder.
11. Headings. The descriptive headings of the several sections of
--------
this Warrant are inserted for convenience only and do not constitute a part of
this Warrant.
12. Payment of Taxes. The issuance of certificates for Warrant
----------------
Shares shall be made without charge to the Warrant Holder for any stock transfer
or other issuance tax in respect thereto; provided, however, that the Warrant
-------- -------
Holder shall be required to pay any and all taxes that may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the then Warrant Holder as upon the books of the
Company.
13. Binding Effect; Benefits. This Warrant shall inure to the
------------------------
benefit of and shall be binding upon the Company and the Warrant Holder and
their respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrant Holder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
14. Severability. Any term or provision of this Warrant which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
15. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE
CONFLICTS OF LAW PRINCIPLES THEREOF.
16. No Rights or Liabilities as Stockholders. No Warrant Holder
----------------------------------------
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of this
Warrant for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the Warrant Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value
7
<PAGE>
or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Warrant Holder shall have exercised this Warrant
and been issued Common Stock in accordance with the provisions hereof. Nothing
contained in this Warrant shall be determined as imposing any liabilities on the
Warrant Holder to purchase any securities, whether such liabilities are asserted
by the Company or by creditors or stockholders of the Company or otherwise.
17. Compliance with Securities Laws.
-------------------------------
(a) The Warrant Holder, by acceptance hereof, acknowledges that
this Warrant and the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the Warrant Holder's own account and not as a
nominee for any other party, and for investment, and that the Warrant Holder
will not offer, sell or otherwise dispose of this Warrant or any shares of
Common Stock to be issued upon exercise hereof except under circumstances that
will not result in a violation of the Securities Act or any state securities
laws. Upon exercise of this Warrant, the Warrant Holder shall, if requested by
the Company, confirm in writing, in a form satisfactory to the Company, that the
shares of Common Stock so purchased are being acquired solely for the Warrant
Holder's own account and not as a nominee for any other party, for investment,
and not with a view toward distribution or resale.
(b) This warrant and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in substantially the
following form (in addition to any legend required by state securities laws):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR RECEIVABLE UPON THE
EXERCISE OR CONVERSION THEREOF OR AS A RESULT OF THE OWNERSHIP HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A
STOCKHOLDERS AGREEMENT AMONG THE COMPANY AND THE ORIGINAL PURCHASERS OF THE
SECURITIES REPRESENTED HEREBY. TRANSFEREES OF SUCH SECURITIES SHOULD
REVIEW SUCH AGREEMENT TO DETERMINE THEIR RIGHTS AND OBLIGATIONS."
18. Market Stand-Off Agreement. Each holder of this Warrant or any
--------------------------
portion hereof hereby agrees that, during the period of duration specified by
the Company and, in the case of an underwritten public offering, an underwriter
of Common Stock or other securities of the Company, following the effective date
of a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or
8
<PAGE>
indirectly sell, offer to sell, contract to sell (including, without limitation,
any short sale, grant any option to purchase or otherwise transfer or dispose of
(other than to donees who agree to be similarly bound) all or any portion of
this Warrant or shares of Common Stock issued or issuable upon exercise of the
Warrant held by it at any time during such period except common stock included
in such registration; provided, however, that such market stand-off time period
shall not exceed 180 days in the case of an initial public offering and 90 days
in the case of all other offerings.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instruction with respect to the foregoing restriction until the
end of such period.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer on the date of this Warrant.
OUTBOARD MARINE CORPORATION
By:___________________________________
10
<PAGE>
Exhibit A
---------
PURCHASE AGREEMENT
------------------
Date: _________________________
TO:
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to purchase __________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by this Warrant.
Signature: _________________________________
Address: _________________________________
_________________________________
_________________________________
* * *
ASSIGNMENT
----------
For Value Received, __________________________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the within Warrant, with respect to the number of shares of Common Stock covered
by such Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------- ------- -------------
Dated: _______________________ Signature: ______________________________
Witness: ________________________________
1
<PAGE>
================================================================================
REGISTRATION RIGHTS AGREEMENT
among
OUTBOARD MARINE CORPORATION,
QUANTUM INDUSTRIAL PARTNERS LDC,
GREENLAKE HOLDINGS II LLC
and
GREENMARINE HOLDINGS LLC
--------------------------
Dated: January 28, 2000
--------------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
1. Definitions.............................................................. 1
2. General; Securities Subject to this Agreement............................ 5
(a) Grant of Rights................................................... 5
(b) Registrable Securities............................................ 5
(c) Holders of Registrable Securities................................. 5
3. Demand Registration...................................................... 6
(a) Request for Demand Registration................................... 6
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration...................................................... 6
(c) Effective Demand Registration..................................... 7
(d) Expenses.......................................................... 7
(e) Underwriting Procedures........................................... 8
(f) Selection of Underwriters......................................... 8
4. Incidental or "Piggy-Back" Registration.................................. 8
5. Form S-3 Registration.................................................... 10
(a) Request for a Form S-3 Registration............................... 10
(b) Form S-3 Underwriting Procedures.................................. 10
(c) Limitations on Form S-3 Registrations............................. 11
(d) Expenses.......................................................... 11
(e) No Demand Registration............................................ 12
6. Holdback Agreements...................................................... 12
(a) Restrictions on Public Sale by Designated Holders................. 12
(b) Restrictions on Public Sale by the Company........................ 12
7. Registration Procedures.................................................. 12
(a) Obligations of the Company........................................ 12
(b) Seller Information................................................ 15
(c) Notice to Discontinue............................................. 16
(d) Registration Expenses............................................. 16
8. Indemnification; Contribution............................................ 16
(a) Indemnification by the Company.................................... 16
(b) Indemnification by Designated Holders............................. 17
(c) Conduct of Indemnification Proceedings............................ 18
(d) Contribution...................................................... 18
</TABLE>
i
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<TABLE>
<S> <C>
9. Rule 144................................................................. 19
10. Miscellaneous............................................................ 19
(a) Recapitalizations, Exchanges, etc................................. 19
(b) No Inconsistent Agreements........................................ 20
(c) Remedies.......................................................... 20
(d) Amendments and Waivers............................................ 20
(e) Notices........................................................... 20
(f) Successors and Assigns; Third Party Beneficiaries................. 22
(g) Counterparts...................................................... 23
(h) Headings.......................................................... 23
(i) GOVERNING LAW..................................................... 23
(j) Severability...................................................... 23
(k) Entire Agreement.................................................. 23
(l) Further Assurances................................................ 24
(m) Other Agreements.................................................. 24
</TABLE>
ii
<PAGE>
EXHIBIT 4.13
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated January 28, 2000 (this
"Agreement"), among Outboard Marine Corporation, a Delaware corporation (the
"Company"), Quantum Industrial Partners LDC, a Cayman Islands limited duration
company ("QIP"), Greenlake Holdings II LLC, a Delaware limited liability company
---
("Greenlake"), and Greenmarine Holdings LLC, a Delaware limited liability
---------
company ("Greenmarine," and together with QIP and Greenlake, the
-----------
"Stockholders").
------------
WHEREAS, pursuant to the Series A Convertible Preferred Stock and
Warrant Purchase Agreement, dated the date hereof (the "Stock Purchase
--------------
Agreement"), among the Company, QIP and Greenlake, the Company has agreed to
issue and sell to QIP and Greenlake, (a) an aggregate of 650,000 shares of
Series A Convertible Preferred Stock, par value $.01 per share, of the Company
(the "Preferred Stock") and (b) warrants (the "Warrants") to purchase, subject
--------------- --------
to the terms and conditions thereof, an aggregate of 5,750,000 shares of Common
Stock;
WHEREAS, concurrently herewith, the Company, QIP and Greenlake are
entering into the Stockholders' Agreement (as hereinafter defined), pursuant to
which the parties thereto have agreed to, among other things, certain first
offer and tag-along rights and preemptive rights;
WHEREAS, QIP and Greenlake, or Affiliates thereof, are the members of
Greenmarine, and Greenmarine is the holder of 20,400,000 shares of Common Stock;
and
WHEREAS, in order to induce each of QIP and Greenlake to purchase its
shares of Preferred Stock and the Warrants, the Company has agreed to grant
registration rights with respect to the Registrable Securities (as hereinafter
defined) as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. As used in this Agreement the following terms have
-----------
the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" (as
---------
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act) of, and any Person controlling, controlled by or under common control with,
any
<PAGE>
2
Stockholder. For the purposes of this Agreement, "control" includes the ability
to have investment discretion through contractual means or by operation of law.
"Approved Underwriter" has the meaning set forth in Section 3(f)
--------------------
of this Agreement.
"Business Day" means any day other than a Saturday, Sunday or
------------
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Closing Price" means, with respect to the Registrable
-------------
Securities, as of the date of determination, (a) the closing price per share of
a Registrable Security on such date published in The Wall Street Journal or, if
-----------------------
no such closing price on such date is published in The Wall Street Journal, the
-----------------------
average of the closing bid and asked prices on such date, as officially reported
on the principal national securities exchange (including, without limitation,
The Nasdaq Stock Market, Inc.) on which the Registrable Securities are then
listed or admitted to trading; or (b) if the Registrable Securities are not then
listed or admitted to trading on any national securities exchange but are
designated as national market system securities by the NASD, the last trading
price per share of a Registrable Security on such date; or (c) if there shall
have been no trading on such date or if the Registrable Securities are not so
designated, the average of the reported closing bid and asked prices of the
Registrable Securities on such date as shown by The Nasdaq Stock Market, Inc.
(or its successor) and reported by any member firm of The New York Stock
Exchange, Inc. selected by the Company; or (d) if none of (a), (b) or (c) is
applicable, a market price per share determined in good faith by the Company_s
Board of Directors or, if such determination is not satisfactory to the
Designated Holder for whom such determination is being made, by a nationally
recognized investment banking, accounting or consulting firm selected by the
Company and such Designated Holder, the expenses for which shall be borne
equally by the Company and such Designated Holder. If trading is conducted on a
continuous basis on any exchange, then the closing price shall be at 4:00 P.M.
New York City time.
"Commission" means the Securities and Exchange Commission or any
----------
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $.01 per share,
------------
of the Company or any other capital stock of the Company into which such stock
is reclassified or reconstituted and any other common stock of the Company.
"Company" has the meaning set forth in the recitals to this
-------
Agreement.
<PAGE>
3
"Company Underwriter" has the meaning set forth in Section 4(a)
-------------------
of this Agreement.
"Demand Registration" has the meaning set forth in Section 3(a)
-------------------
of this Agreement.
"Designated Holder" means each of the Stockholders and any
----------------
transferee of any of them to whom Registrable Securities have been transferred
in accordance with Section 10(f) of this Agreement, other than a transferee to
whom Registrable Securities have been transferred pursuant to a Registration
Statement under the Securities Act or Rule 144 or Regulation S under the
Securities Act (or any successor rule thereto).
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations of the Commission thereunder.
"Greenlake" has the meaning set forth in the recitals to this
---------
Agreement.
"Greenmarine" has the meaning set forth in the recitals to this
-----------
Agreement.
"Holders' Counsel" has the meaning set forth in Section 3(d) of
----------------
this Agreement.
"Incidental Registration" has the meaning set forth in Section
-----------------------
4(a) of this Agreement.
"Indemnified Party" has the meaning set forth in Section 8(c) of
-----------------
this Agreement.
"Indemnifying Party" has the meaning set forth in Section 8(c) of
------------------
this Agreement.
"Initial Public Offering" means the initial public offering of
-----------------------
the shares of Common Stock of the Company pursuant to an effective Registration
Statement filed under the Securities Act.
"Initiating Holders" has the meaning set forth in Section 3(a) of
------------------
this Agreement.
"Inspector" has the meaning set forth in Section 7(a)(vii) of
---------
this Agreement.
<PAGE>
4
"IPO Effectiveness Date" means the date upon which the Company
----------------------
closes its Initial Public Offering.
"Liability" has the meaning set forth in Section 8(a) of this
---------
Agreement.
"Market Price" means, on any date of determination, the average
------------
of the daily Closing Price of the Registrable Securities for the immediately
preceding thirty (30) days on which the national securities exchanges are open
for trading.
"NASD" means the National Association of Securities Dealers, Inc.
----
"Person" means any individual, firm, corporation, partnership,
------
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the recitals to
---------------
this Agreement.
"QIP" has the meaning set forth in the recitals to this
---
Agreement.
"Records" has the meaning set forth in Section 7(a)(vii) of this
-------
Agreement.
"Registrable Securities" means each of the following: (a) any
----------------------
and all shares of Common Stock owned by the Designated Holders on the date
hereof or issued or issuable to such Designated Holders upon conversion of
shares of Preferred Stock or exercise of the Warrants and (b) any shares of
Common Stock issued or issuable to any of the Designated Holders with respect to
the Registrable Securities by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise and any shares of Common Stock issuable
upon conversion, exercise or exchange thereof.
"Registration Expenses" has the meaning set forth in Section 7(d)
---------------------
of this Agreement.
"Registration Statement" means a Registration Statement filed
----------------------
pursuant to the Securities Act.
<PAGE>
5
"S-3 Initiating Holders" has the meaning set forth in Section
----------------------
5(a) of this Agreement.
"S-3 Registration" has the meaning set forth in Section 5(a) of
----------------
this Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
--------------
and the rules and regulations of the Commission promulgated thereunder.
"Stock Purchase Agreement" has the meaning set forth in the
------------------------
recitals to this Agreement.
"Stockholders" means each of QIP, Greenlake and Greenmarine
------------
and any transferee of any of them to whom Registrable Securities are transferred
in accordance with Section 10(f) of this Agreement.
"Stockholders' Agreement" means the Stockholders' Agreement,
------------
dated the date hereof, among the Company, QIP and Greenlake.
"Warrants" has the meaning set forth in the recitals to this
--------
Agreement.
2. General; Securities Subject to this Agreement.
---------------------------------------------
(a) Grant of Rights. The Company hereby grants registration
---------------
rights to the Designated Holders upon the terms and conditions set forth in this
Agreement.
(b) Registrable Securities. For the purposes of this Agreement,
----------------------
Registrable Securities will cease to be Registrable Securities as to any
Designated Holder, when (i) a Registration Statement covering such Registrable
Securities has been declared effective under the Securities Act by the
Commission and such Registrable Securities have been disposed of pursuant to
such effective Registration Statement, (ii) the entire amount of the Registrable
Securities held by such Designated Holder may be sold in a single sale, in the
opinion of counsel satisfactory to the Company and the Designated Holder, each
in their reasonable judgment, pursuant to Rule 144 (or any successor provision
then in effect) under the Securities Act, or (iii) the Registrable Securities
are proposed to be sold or distributed by a Person not entitled to the
registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed to
---------------------------------
be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option granted by the Company to purchase,
or a security issued by the Company convertible into or exercisable or
exchangeable for, Registrable
<PAGE>
6
Securities whether or not such acquisition or conversion has actually been
effected. If the Company receives conflicting instructions, notices or elections
from two or more Persons with respect to the same Registrable Securities, the
Company may act upon the basis of the instructions, notice or election received
from the registered owner of such Registrable Securities. Registrable Securities
issuable upon exercise of an option or upon conversion of another security shall
be deemed outstanding for the purposes of this Agreement.
3. Demand Registration .
-------------------
(a) Request for Demand Registration. At any time commencing 180
-------------------------------
days after the IPO Effectiveness Date, the holders of at least 15% of the then
outstanding Registrable Securities that have an aggregate offering price of at
least $10,000,000 (the "Initiating Holders"), may make a written request to the
------------------
Company to register, and the Company shall register, under the Securities Act
(other than pursuant to a Registration Statement on Form S-4 or S-8 or any
successor thereto) (a "Demand Registration"), the number of Registrable
-------------------
Securities stated in such request; provided, however, that the Company shall not
-------- -------
be obligated to effect more than four such Demand Registrations on a Securities
Act registration form other than Form S-3 (or any successor form thereto). If at
the time of any request to register Registrable Securities pursuant to this
Section 3(a), the Company is engaged in, or has fixed plans to engage in within
sixty (60) days of the time of such request, a registered public offering or is
engaged in any other activity which, in the good faith determination of the
Board of Directors of the Company, would be adversely affected by the Demand
Registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a reasonable period not in
excess of sixty (60) days from the effective date of such offering or the date
of completion of such other activity, as the case may be, such right to delay a
request to be exercised by the Company not more than two non-consecutive times
in any twelve (12) month period; provided, that two such 60-day periods may be
--------
consecutive in the event that (i) the Company would be required to disclose in
the prospectus contained in the Registration Statement information not otherwise
publicly disclosed, and (ii) there is a likelihood, in the reasonable judgment
of the Board of Directors of the Company, that such disclosure, or any other
action to be taken in connection with such prospectus, would materially and
adversely affect or interfere with any financing, acquisition, merger or similar
transaction involving the Company. Each request for a Demand Registration by
the Initiating Holders shall state the amount of the Registrable Securities
proposed to be sold and the intended method of disposition thereof.
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
----------------------------------------------------------
Registration. Each of the Designated Holders (other than Initiating Holders
- ------------
which have requested a registration under Section 3(a)) may offer its or his
Registrable Securities under any Demand Registration pursuant to this Section
3(b). Within ten (10) days after the receipt of a request for a Demand
Registration from an Initiating
<PAGE>
7
Holder, the Company shall (i) give written notice thereof to all of the
Designated Holders (other than Initiating Holders which have requested a
registration under Section 3(a)) and (ii) subject to Section 3(e), include in
such registration all of the Registrable Securities held by such Designated
Holders from whom the Company has received a written request for inclusion
therein within ten (10) days of the receipt by such Designated Holders of such
written notice referred to in clause (i) above. Each such request by such
Designated Holders shall specify the number of Registrable Securities proposed
to be registered. The failure of any Designated Holder to respond within such
10-day period referred to in clause (ii) above shall be deemed to be a waiver of
such Designated Holder's rights under this Section 3 with respect to such Demand
Registration, provided that any Designated Holder may waive its rights under
--------
this Section 3 prior to the expiration of such 10-day period by giving written
notice to the Company, with a copy to the Initiating Holders. If a Designated
Holder sends the Company a written request for inclusion of part or all of such
Designated Holder's Registrable Securities in a registration, such Designated
Holder shall not be entitled to withdraw or revoke such request without the
prior written consent of the Company in its sole discretion unless, as a result
of facts or circumstances arising after the date on which such request was made
relating to the Company or to market conditions, such Designated Holder
reasonably determines that participation in such registration would have a
material adverse effect on such Designated Holder.
(c) Effective Demand Registration. The Company shall use its
-----------------------------
best efforts to cause any such Demand Registration to become and remain
effective not later than sixty (60) days after it receives a request under
Section 3(a) hereof. A registration shall not constitute a Demand Registration
until it has become effective and remains continuously effective for the lesser
of (i) the period during which all Registrable Securities registered in the
Demand Registration are sold and (ii) 90 days; provided, however, that a
-------- -------
registration shall not constitute a Demand Registration if (x) after such Demand
Registration has become effective, such registration or the related offer, sale
or distribution of Registrable Securities thereunder is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the conditions
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Initiating Holder.
(d) Expenses. The Company shall pay all Registration
--------
Expenses in connection with a Demand Registration (other than underwriting
discounts and commissions and brokerage commissions), including the reasonable
fees and expenses of one counsel selected by the Designated Holders holding a
majority of the Registrable Securities being registered in such registration
("Holders Counsel") in connection therewith (not to exceed $15,000), whether or
---------------
not such Demand Registration becomes effective.
<PAGE>
8
(e) Underwriting Procedures. If the Company or the Initiating
-----------------------
Holders holding a majority of the Registrable Securities held by all of the
Initiating Holders so elect, the Company shall use its reasonable best efforts
to cause a Demand Registration to be in the form of a firm commitment
underwritten offering and the managing underwriter or underwriters selected for
such offering shall be the Approved Underwriter selected in accordance with
Section 3(f). In connection with any Demand Registration under this Section 3
involving an underwritten offering, none of the Registrable Securities held by
any Designated Holder making a request for inclusion of such Registrable
Securities pursuant to Section 3(b) hereof shall be included in such
underwritten offering unless such Designated Holder accepts the terms of the
offering as agreed upon by the Company, the Initiating Holders and the Approved
Underwriter, and then only in such quantity as will not, in the opinion of the
Approved Underwriter, be detrimental to of such offering by the Initiating
Holders. If the Approved Underwriter advises the Company that the aggregate
amount of such Registrable Securities requested to be included in such offering
is sufficiently large to be detrimental to such offering, then the Company shall
include in such registration only the aggregate amount of Registrable Securities
that the Approved Underwriter believes may be sold without any such detrimental
effect and shall reduce the amount of Registrable Securities to be included in
such registration, first as to the Company, second as to the Designated Holders
----- ------
(who are not Initiating Holders and who requested to participate in such
registration pursuant to Section 3(b) hereof) as a group, if any, and third as
-----
to the Initiating Holders as a group, pro rata within each group based on the
number of Registrable Securities owned by each such Designated Holder or
Initiating Holder, as the case may be.
(f) Selection of Underwriters. If any Demand Registration or
-------------------------
S-3 Registration, as the case may be, of Registrable Securities is in the form
of an underwritten offering, the Company shall use its reasonable best efforts
to select and obtain an investment banking firm of national reputation to act as
the managing underwriter of the offering (the "Approved Underwriter"); provided,
-------------------- --------
however, that the Approved Underwriter shall, in any case, also be approved by
- -------
the Initiating Holders or S-3 Initiating Holders, as the case may be, such
approval not to be unreasonably withheld.
4. Incidental or "Piggy-Back" Registration.
---------------------------------------
<PAGE>
9
(a) Request for Incidental Registration. At any time after the IPO
-----------------------------------
Effectiveness Date, if the Company proposes to file a Registration Statement
under the Securities Act with respect to an offering by the Company for its own
account (other than a Registration Statement on Form S-4 or S-8 or any successor
thereto or pursuant to Rule 415 under the Securities Act) or for the account of
any stockholder of the Company other than the Designated Holders, then the
Company shall give written notice of such proposed filing to each of the
Designated Holders at least twenty (20) days before the anticipated filing date,
and such notice shall describe the proposed registration and distribution and
offer such Designated Holders the opportunity to register the number of
Registrable Securities as each such Designated Holder may request (an
"Incidental Registration"). The Company shall use its reasonable best efforts
-----------------------
to cause the managing underwriter or underwriters in the case of a proposed
underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company or
the account of such other stockholder, as the case may be, included therein. In
connection with any Incidental Registration under this Section 4(a) involving an
underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the Designated
Holders thereof accept the terms of the underwritten offering as agreed upon
between the Company, such other stockholders, if any, and the Company
Underwriter, and then only in such quantity as the Company Underwriter believes
will not be detrimental to the success of the offering by the Company and such
other stockholders. If the Company Underwriter determines that the registration
of all or part of the Registrable Securities which the Designated Holders have
requested to be included would be detrimental to such offering, then the Company
shall be required to include in such Incidental Registration, to the extent of
the amount that the Company Underwriter believes may be sold without causing
such detrimental effect, (i) if such offering is by the Company for its own
account, then first, all of the securities to be offered for the account of the
-----
Company; second, the Registrable Securities to be offered for the account of the
------
Designated Holders pursuant to this Section 4, pro rata based on the number of
Registrable Securities owned by each such Designated Holder; and third, any
-----
other securities requested to be included in such offering; or (ii) if such
offering is for the account of any stockholder of the Company other than the
Designated Holders, then first, all of the securities to be offered for the
-----
account of such stockholder; and second, the Registrable Securities to be
------
offered for the account of the Designated Holders pursuant to this Section 4,
pro rata based on the number of Registrable Securities owned by each such
Designated Holder, and any securities to be offered for the account of the
Company, ratably.
(b) Expenses. The Company shall bear all Registration Expenses
--------
(other than underwriting discounts and commissions and brokerage commissions),
including the reasonable fees and expenses of Holders' Counsel in connection
therewith (not to exceed $15,000) in connection with any Incidental
<PAGE>
10
Registration pursuant to this Section 4, whether or not such Incidental
Registration becomes effective.
5. Form S-3 Registration.
---------------------
(a) Request for a Form S-3 Registration. Upon the Company
-----------------------------------
becoming eligible for use of Form S-3 (or any successor form thereto) under the
Securities Act in connection with a public offering of its securities, in the
event that the Company shall receive from one or more of the Stockholders (the
"S-3 Initiating Holders"), a written request that the Company register, under
----------------------
the Securities Act on Form S-3 (or any successor form then in effect) (an "S-3
---
Registration"), all or a portion of the Registrable Securities owned by such S-3
- ------------
Initiating Holders, the Company shall give written notice of such request to all
of the Designated Holders (other than S-3 Initiating Holders which have
requested an S-3 Registration under this Section 5(a)) at least thirty (30) days
before the anticipated filing date of such Form S-3, and such notice shall
describe the proposed registration and offer such Designated Holders the
opportunity to register the number of Registrable Securities as each such
Designated Holder may request in writing to the Company, given within fifteen
(15) days after their receipt from the Company of the written notice of such
registration. With respect to each S-3 Registration, the Company shall, subject
to Section 5(b), (i) include in such offering the Registrable Securities of the
S-3 Initiating Holders, and (ii) use its reasonable best efforts to (x) cause
such registration pursuant to this Section 5(a) to become and remain effective
as soon as practicable, but in any event not later than forty-five (45) days
after it receives a request therefor and (y) include in such offering the
Registrable Securities of the Designated Holders (other than S-3 Initiating
Holders which have requested an S-3 Registration under this Section 5(a)) who
have requested in writing to participate in such registration on the same terms
and conditions as the Registrable Securities of the S-3 Initiating Holders
included therein. Each S-3 Registration shall remain continuously effective for
the lesser of (A) the period during which all Registrable Securities registered
in such registration are sold, and (B) 90 days.
(b) Form S-3 Underwriting Procedures. If the Company or the S-3
--------------------------------
Initiating Holders holding a majority of the Registrable Securities held by all
of the S-3 Initiating Holders so elect, the Company shall use its reasonable
best efforts to cause such S-3 Registration pursuant to this Section 5 to be in
the form of a firm commitment underwritten offering and the managing underwriter
or underwriters selected for such offering shall be the Approved Underwriter
selected in accordance with Section 3(f). In connection with any S-3
Registration under Section 5(a) involving an underwritten offering, the Company
shall not be required to include any Registrable Securities in such underwritten
offering unless the Designated Holders thereof accept the terms of the
underwritten offering as agreed upon between the Company, the Approved
Underwriter and the S-3 Initiating Holders, and then only in such quantity as
such underwriter believes will not be detrimental to of such offering by the S-3
<PAGE>
11
Initiating Holders. If the Approved Underwriter believes that the registration
of all or part of the Registrable Securities which the S-3 Initiating Holders
and the other Designated Holders have requested to be included would be
detrimental to the success of such public offering, then the Company shall be
required to include in the underwritten offering, to the extent of the amount
that the Approved Underwriter believes may be sold without causing such
detrimental effect, first, all of the Registrable Securities to be offered for
-----
the account of the S-3 Initiating Holders, pro rata based on the number of
Registrable Securities owned by such S-3 Initiating Holders; second, the
------
Registrable Securities to be offered for the account of the other Designated
Holders who requested inclusion of their Registrable Securities pursuant to
Section 5(a), pro rata based on the number of Registrable Securities owned by
such Designated Holders; and third, any other securities requested to be
-----
included in such offering.
(c) Limitations on Form S-3 Registrations. If at the time of any
-------------------------------------
request to register Registrable Securities pursuant to Section 5(a), the Company
is engaged in, or has fixed plans to engage in within sixty (60) days of the
time of such request, a registered public offering or is engaged in any other
activity which, in the good faith determination of the Board of Directors of the
Company, would be adversely affected by the requested S-3 Registration to the
material detriment of the Company, then the Company may at its option direct
that such request be delayed for a reasonable period not in excess of sixty (60)
days from the effective date of such offering, such right to delay a request to
be exercised by the Company not more than two non-consecutive times in any
twelve (12) month period; provided, that two such 60-day periods may be
--------
consecutive in the event that (i) the Company would be required to disclose in
the prospectus relating to such S-3 Registration information not otherwise
publicly disclosed, and (ii) there is a likelihood, in the reasonable judgment
of the Board of Directors of the Company, that such disclosure, or any other
action to be taken in connection with such S-3 Registration would materially and
adversely affect or interfere with any financing, acquisition, merger or similar
transaction involving the Company. In addition, the Company shall not be
required to effect any registration pursuant to Section 5(a), (i) within 180
days after the pricing date of the Initial Public Offering, (ii) if within the
twelve (12) month period preceding the date of such request, the Company has
effected two (2) registrations on Form S-3 pursuant to Section 5(a), (iii) if
Form S-3 is not available for such offering by the S-3 Initiating Holders or
(iv) if the S-3 Initiating Holders, together with the Designated Holders (other
than S-3 Initiating Holders which have requested an S-3 Registration under
Section 5(a)) registering Registrable Securities in such registration, propose
to sell their Registrable Securities at an aggregate price (calculated based
upon the Market Price of the Registrable Securities on the date of filing of the
Form S-3 with respect to such Registrable Securities) to the public of less than
$1,000,000.
(d) Expenses. The Company shall bear all Registration Expenses
--------
(other than underwriting discounts and commissions and brokerage
<PAGE>
12
commissions), including the reasonable fees and expenses of Holders' Counsel
(not to exceed $15,000) in connection therewith in connection with any S-3
Registration pursuant to this Section 5, whether or not such S-3 Registration
become effective.
(e) No Demand Registration. No registration requested by any
----------------------
Designated Holder pursuant to this Section 5 shall be deemed a Demand
Registration pursuant to Section 3.
6. Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Designated Holders. To the
-------------------------------------------------
extent requested (i) by the Company, the Initiating Holders or the S-3
Initiating Holders, as the case may be, in the case of a non-underwritten public
offering and (ii) by the Approved Underwriter or the Company Underwriter, as the
case may be, in the case of an underwritten public offering, each Designated
Holder of Registrable Securities agrees (x) not to directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any Registrable Securities or of any
securities convertible into or exchangeable or exercisable for such Registrable
Securities, including a sale pursuant to Rule 144 under the Securities Act, and
(y) not to make any request for a Demand Registration or S-3 Registration under
this Agreement, during the ten (10) days prior to, and during the ninety (90)
day period (or 180 day period in the case of the Initial Public Offering) or
such shorter period, if any, mutually agreed upon by such Designated Holder, the
Company and the requesting party beginning on the effective date of such
Registration Statement (except as part of such registration).
(b) Restrictions on Public Sale by the Company. To the extent
------------------------------------------
requested (i) by QIP or Greenlake, as the case may be, in the case of a non-
underwritten public offering and (ii) by the Approved Underwriter or the Company
Underwriter, as the case may be, in the case of an underwritten public offering
the Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or S-8 or any
successor thereto), during the ten (10) days prior to, and during the period
beginning on the effective date of any Registration Statement in which the
Designated Holders of Registrable Securities are participating and ending on the
earlier of (i) the date on which all Registrable Securities registered on such
Registration Statement are sold and (ii) 90 days after the effective date of
such Registration Statement (except as part of such registration).
7. Registration Procedures.
-----------------------
(a) Obligations of the Company. Whenever registration of
--------------------------
Registrable Securities has been requested pursuant to Section 3, Section 4 or
<PAGE>
13
Section 5 of this Agreement, the Company shall use its reasonable best efforts
to effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly as is reasonably
practicable, and in connection with any such request, the Company shall, as
expeditiously as is reasonably possible:
(i) prepare and file with the Commission a Registration
Statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of such Registrable Securities in accordance with the intended method of
distribution thereof, and cause such Registration Statement to become effective;
provided, however, that (x) before filing a Registration Statement or prospectus
or any amendments or supplements thereto, the Company shall provide Holders'
Counsel and any other Inspector with an adequate and appropriate opportunity to
review and comment on such Registration Statement and each prospectus included
therein (and each amendment or supplement thereto) to be filed with the
Commission, subject to such documents being under the Company_s control, and (y)
the Company shall notify the Holders_ Counsel and each seller of Registrable
Securities of any stop order issued or threatened by the Commission and take all
action required to prevent the entry of such stop order or to remove it if
entered;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the lesser of (x) 90 days and (y) such shorter period which will terminate when
all Registrable Securities covered by such Registration Statement have been
sold, and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement;
(iii) furnish to each seller of Registrable Securities, prior to
filing a Registration Statement, at least one copy of such Registration
Statement as is proposed to be filed, and thereafter such number of copies of
such Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) as each such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) register or qualify such Registrable Securities under such
other securities or "blue sky" laws of such jurisdictions as any seller of
Registrable Securities may request, and to continue such qualification in effect
in such jurisdiction for as long as permissible pursuant to the laws of such
jurisdiction, or for as long as any such seller requests or until all of such
Registrable Securities are sold, whichever is shortest, and do any and all other
acts and things which may be reasonably
<PAGE>
14
necessary or advisable to enable any such seller to consummate the disposition
in such jurisdictions of the Registrable Securities owned by such seller;
provided, however, that the Company shall not be required to (x) qualify
- -------- ------
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 7(a)(iv), (y) subject itself to
taxation in any such jurisdiction or (z) consent to general service of process
in any such jurisdiction;
(v) notify each seller of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller of Registrable Securities a reasonable number of copies
of such supplement to or an amendment of such prospectus as may be necessary so
that, after delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(vi) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Approved Underwriter or
Company Underwriter, if any, selected as provided in Section 3, Section 4 or
Section 5, as the case may be) and take such other actions as are prudent and
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities, including, in the case of a firm commitment public
offering, causing its officers to participate in "road shows" and other
information meetings organized by the Approved Underwriter or Company
Underwriter;
(vii) make available at reasonable times for inspection by any
seller of Registrable Securities, any managing underwriter participating in any
disposition of such Registrable Securities pursuant to a Registration Statement,
Holders_ Counsel and any attorney, accountant or other agent retained by any
such seller or any managing underwriter (each, an "Inspector" and collectively,
---------
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") as shall
-------
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company_s officers, directors and employees, and
the independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors (and the Inspectors shall confirm their agreement in
writing in
<PAGE>
15
advance to the Company if the Company shall so request) unless (x) the
disclosure of such Records is necessary, in the Company_s judgment, to avoid or
correct a misstatement or omission in the Registration Statement, (y) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction after exhaustion of all appeals therefrom or (z)
the information in such Records was known to the Inspectors on a non-
confidential basis prior to its disclosure by the Company or has been made
generally available to the public without a breach of this paragraph. Each
seller of Registrable Securities agrees that it shall, upon learning that
disclosure of such Records is sought in a court of competent jurisdiction, give
notice to the Company and allow the Company, at the Company_s expense, to
undertake appropriate action to prevent disclosure of the Records deemed
confidential;
(viii) if such sale is pursuant to an underwritten offering,
obtain a "cold comfort" letter from the Company_s independent public accountants
in customary form and covering such matters of the type customarily covered by
"cold comfort" letters as Holders' Counsel or the managing underwriter
reasonably requests;
(ix) comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable but no later than fifteen (15) months after the effective date of
the Registration Statement, an earnings statement covering a period of twelve
(12) months beginning after the effective date of the Registration Statement, in
a manner which satisfies the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder;
(x) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed, provided that the applicable listing requirements are satisfied;
--------
(xi) keep Holders_ Counsel advised in writing as to the
initiation and progress of any registration under Section 3, Section 4 or
Section 5 hereunder;
(xii) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the NASD; and
(xiii) take all other steps reasonably necessary to effect the
registration of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require each seller of
------------------
Registrable Securities as to which any registration is being effected to
furnish, and such seller shall furnish, to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.
<PAGE>
16
(c) Notice to Discontinue. Each Designated Holder of Registrable
---------------------
Securities agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 7(a)(v), such Designated
Holder shall forthwith discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Designated Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 7(a)(v) and, if so directed by the
Company, such Designated Holder shall deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Designated
Holder's possession, of the prospectus covering such Registrable Securities
which is current at the time of receipt of such notice. If the Company shall
give any such notice, the Company shall extend the period during which such
Registration Statement shall be maintained effective pursuant to this Agreement
(including, without limitation, the period referred to in Section 7(a)(ii)) by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 7(a)(v) to and including the date when
sellers of such Registrable Securities under such Registration Statement shall
have received the copies of the supplemented or amended prospectus contemplated
by and meeting the requirements of Section 7(a)(v).
(d) Registration Expenses. The Company shall pay all expenses
---------------------
(other than as set forth in Sections 3(d) and 4(b) arising from or incident to
its performance of, or compliance with, this Agreement, including, without
limitation, (i) Commission, stock exchange and NASD registration and filing
fees, (ii) all fees and expenses incurred in complying with securities or "blue
sky" laws (including reasonable fees, charges and disbursements of counsel to
any underwriter incurred in connection with "blue sky" qualifications of the
Registrable Securities as may be set forth in any underwriting agreement), (iii)
all printing, messenger and delivery expenses and (iv) the fees, charges and
disbursements of counsel to the Company and of its independent public
accountants and any other accounting fees, charges and expenses incurred by the
Company (including, without limitation, any expenses arising from any "cold
comfort" letters or any special audits incident to or required by any
registration or qualification) and any legal fees, charges and expenses incurred
by the Company. All of the expenses described in the preceding sentence of this
Section 7(d) are referred to herein as "Registration Expenses."
---------------------
8. Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to
-------------------------------
indemnify and hold harmless each Designated Holder and each Person who controls
(within the meaning of Section 15 of the Securities Act) such Designated Holder
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) (collectively, "Liabilities"),
-----------
arising out of or based upon any untrue, or allegedly untrue, statement of a
material fact contained in any
<PAGE>
17
Registration Statement, prospectus or preliminary prospectus or notification or
offering circular (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or arising out of or based upon
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading under
the circumstances such statements were made, except insofar as such Liability
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission contained in such Registration Statement,
preliminary prospectus or final prospectus in reliance upon information
concerning such Designated Holder furnished in writing to the Company by such
Designated Holder expressly for use therein, including, without limitation, the
information furnished to the Company pursuant to Section 8(b) or failure of a
Designated Holder to deliver a copy of the registration statement or prospectus
or any amendments or supplements thereto after the Company has furnished such
Designated Holder with copies of the same. The Company shall also provide
customary indemnities to any underwriters of the Registrable Securities, their
officers, directors and employees and each Person who controls such underwriters
(within the meaning of Section 15 of the Securities Act) to the same extent as
provided above with respect to the indemnification of the Designated Holders of
Registrable Securities.
(b) Indemnification by Designated Holders. In connection with
-------------------------------------
any Registration Statement in which a Designated Holder is participating
pursuant to Section 3, Section 4 or Section 5 hereof, each such Designated
Holder shall promptly furnish to the Company in writing such information with
respect to such Designated Holder as the Company may reasonably request or as
may be required by law for use in connection with any such Registration
Statement or prospectus and all information required to be disclosed in order to
make the information previously furnished to the Company by such Designated
Holder not materially misleading or necessary to cause such Registration
Statement not to omit a material fact with respect to such Designated Holder
necessary in order to make the statements therein not misleading. Each
Designated Holder agrees to indemnify and hold harmless the Company, its
affiliates and directors any underwriter retained by the Company and each Person
who controls the Company or such underwriter (within the meaning of Section 15
of the Securities Act) to the same extent as the foregoing indemnity from the
Company to the Designated Holders, but only with respect to any such information
with respect to such Designated Holder furnished in writing to the Company by
such Designated Holder expressly for use in such registration statement or
prospectus, including, without limitation, the information furnished to the
Company pursuant to this Section 8(b); provided, however, that the total amount
-------- -------
to be indemnified by such Designated Holder pursuant to this Section 8(b) shall
be limited to the net proceeds received by such Designated Holder in the
offering to which the Registration Statement or prospectus relates.
(c) Conduct of Indemnification Proceedings. Any Person entitled
--------------------------------------
to indemnification hereunder (the "Indemnified Party") agrees to give prompt
-----------------
written notice to the indemnifying party (the "Indemnifying Party") after the
------------------
receipt
<PAGE>
- --------------------------------------------------------------------------------
EIGHTH 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),
BANK OF AMERICA, 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 January 31, 2000
<PAGE>
EIGHTH AMENDMENT TO AMENDED AND
RESTATED LOAN AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
("Amendment"), dated effective as of January 31, 2000 (the "Amendment 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
Amendment Effective Date, 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 Amendment Effective Date, under the Amended and
Restated Loan and Security Agreement referenced under the Recitals hereinbelow;
herein called the "Lenders") and BANK OF AMERICA, N.A., (a national banking
association and successor in interest to Bank of America, N.A., formerly
NationsBank, N.A., successor in interest 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 Amended and Restated 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, the Fourth Amendment to
Amended and Restated Loan and Security Agreement dated effective as of February
1, 1999, the Fifth Amendment to Amended and Restated Loan and Security Agreement
dated effective as of February 25, 1999, the Sixth Amendment to Amended and
Restated Loan and Security Agreement dated effective as of July 30, 1999 and the
Seventh Amendment to Amended and Restated Loan and Security Agreement dated
effective as of October 27, 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
Definitions
-----------
Section 1.1 Definitions. Unless otherwise defined in this Amendment,
-----------
terms defined by the Agreement, where used in this Agreement, shall have the
same meanings in this Amendment as are prescribed by the Agreement.
ARTICLE 2
Amendments
----------
Section 2.1 Amendment and Addition to Definitions in Article 1 of the
---------------------------------------------------------
Agreement.
- ---------
(a) Effective as of the Amendment Effective Date, the following
definitions in Article 1 of the Agreement are hereby amended and restated in
---------
their entirety to read as follows:
<PAGE>
"Applicable Margin" means, for each portion of the unpaid balance of
-----------------
the Revolving Credit Loans, the percentage specified for each Type of Loan
adjacent to such portion as set forth below, respectively:
<TABLE>
<CAPTION>
====================================================================================================
Unpaid Balance of Revolving
Credit Loans Eurodollar Loans Base Rate Loans
====================================================================================================
<S> <C> <C>
$0 through the amount of the 3.50% 1.50%
Trademark IP Allowance
----------------------------------------------------------------------------------------------------
All amounts over the amount of the 2.50% 1.00%
Trademark IP Allowance
====================================================================================================
</TABLE>
For purposes of determining the Applicable Margin, the unpaid balance of the
Revolving Credit Loans shall be deemed to be comprised first of Eurodollar Loans
outstanding and thereafter by Base Rate Loans outstanding, notwithstanding the
dates on which any such Loans were funded.
"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,
2
<PAGE>
plus
----
(v) the lesser of
(A) 65% with respect to Eligible Domestic Inventory
consisting of finished goods, 60% with respect to
Eligible Domestic Inventory consisting of raw
materials and service parts 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 period of January 1 through May 31 of
any calendar year, 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), 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, an
--------------
amount equal to the Trademark IP Allowance;
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.
(b) Effective as of the Amendment Effective Date, the following
definition hereby is added to Article 1 of the Agreement, and is deemed to be
---------
inserted immediately following the existing definition of "Trademark Security
Agreement":
"Trademark IP Allowance" means $20,000,000, reducing by $555,555 on
----------------------
the first day of each calendar month beginning January 1, 2001 and
continuing on the first day of each calendar month thereafter through and
including December 1, 2001.
Section 2.2 Amendment to Section 4.4(a). Effective as of the Amendment
---------------------------
Effective Date, paragraph (a) of Section 4.4 of the Agreement is hereby amended
------------- -----------
and restated to read in its entirety as follows:
(a) Commitment Fee. Subject to the provisions of Section 16.22, in
-------------- -------------
connection with and as consideration for the holding available for the use
of Borrowers hereunder the full amount of the Revolving Credit Facility,
Borrowers will pay a fee to Agent, for the ratable benefit of the Lenders
for each day from the Agreement Date through, but not including, the
Termination Date, an amount equal to .375% per annum multiplied by the
unused portion of the Revolving Credit Facility for such day. Such fee
shall be payable monthly in arrears on each Interest Payment Date and on
the date of any permanent reduction in the Revolving Credit Facility and
shall be fully earned when due and payable and shall not be subject to
refund or rebate. Such fee is not, and shall not be deemed to be, interest
or a charge for the use of money.
Section 2.3 Amendment to Section 4.4(b). Effective as of the Amendment
---------------------------
Effective Date, the first sentence of paragraph (b) of Section 4.4 of the
------------- -----------
Agreement is hereby amended and restated to read in its entirety as follows:
3
<PAGE>
Borrowers agree to pay to Agent for the ratable benefit of the Lenders
Letter of Credit fees equal to 2.50% per annum based on the average daily
aggregate Letter of Credit Amount of all Letters of Credit from time to
time outstanding during the term of this Agreement.
Section 2.4 Amendment to Section 12.1. Effective as of the Amendment
-------------------------
Effective Date, Section 12.1 of the Agreement is hereby amended and restated to
------------
read in its entirety as follows:
Section 12.1 Financial Covenants.
-------------------
(a) Minimum Availability. The aggregate amount calculated under
--------------------
paragraph (b) of the definition of "Borrowing Base," on any date, less the
-------------
unpaid balance of Revolving Credit Loans on such date, shall not be less
than the amount specified for the period in which such date occurs, as
follows:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
February 1, 2000 through April 30, 2000 $15,000,000
May 1, 2000 through June 30, 2000 $25,000,000
July 1, 2000 through September 30, 2000 $10,000,000
October 1, 2000 through December 31, 2000 $25,000,000
January 1, 2001 through April 30, 2001 $15,000,000
May 1, 2001 through June 30, 2001 $25,000,000
July 1, 2001 through September 30, 2001 $10,000,000
October 1, 2001 through December 31, 2001 $25,000,000
</TABLE>
(b) Minimum EBITDA. OMC's Consolidated EBITDA calculated as of the
--------------
end of any fiscal quarter either (i) for such fiscal quarter, shall not be
------
less than the amount specified for such quarter-end under the heading below
entitled "Quarter Amount" or (ii) for the preceding four (4) fiscal
quarters, shall not be less than the amount specified for such quarter-end
under the heading below entitled "Preceding Four Quarters Amount," as
follows:
<TABLE>
<CAPTION>
Preceding
Quarter Ending Quarter Amount Four Quarters Amount
-------------- --------------- --------------------
<S> <C> <C>
March 31, 2000 ($8,900,000) $ 74,678,000
June 30, 2000 $ 28,000,000 $ 48,211,000
September 30, 2000 $ 34,000,000 $ 51,016,000
December 31, 2000 $ 16,000,000 $ 69,100,000
March 31, 2001 $ 4,800,000 $ 82,800,000
June 30, 2001 $ 41,000,000 $ 95,800,000
September 30, 2001 $ 41,500,000 $103,300,000
December 31, 2001 $ 21,000,000 $108,300,000
</TABLE>
Section 2.5 Amendment to Section 12.5. Effective as of the Amendment
-------------------------
Effective Date, Section 12.5 of the Agreement is hereby amended and restated to
------------
read in its entirety as follows:
4
<PAGE>
Section 12.5 Capital and Tooling Expenditures. Capital and Tooling
--------------------------------
Expenditures in the aggregate for all Loan Parties either (i) for any
------
fiscal quarter of OMC, shall not exceed the amount set forth below for such
fiscal quarter under the heading below entitled "Quarter" or (ii) for the
--
calendar year-to-date period ending as of the last day of such fiscal
quarter, shall not exceed the amount set forth below for such fiscal
quarter under the heading entitled "Cumulative YTD," as follows:
<TABLE>
<CAPTION>
Quarter Ending Quarter Cumulative YTD
-------------- ------- --------------
<S> <C> <C>
March 31, 2000 $21,000,000 $21,000,000
June 30, 2000 $22,000,000 $43,000,000
September 30, 2000 $20,000,000 $57,000,000
December 31, 2000 $15,000,000 $72,000,000
March 31, 2001 $26,000,000 $26,000,000
June 30, 2001 $27,500,000 $49,000,000
September 30, 2001 $25,000,000 $70,000,000
December 31, 2001 $17,500,000 $83,500,000
</TABLE>
ARTICLE 3
Miscellaneous
-------------
Section 3.1 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 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;
(iv) Equity and/or Subordinated Indebtedness Contribution.
----------------------------------------------------
Evidence of receipt by OMC of cash proceeds of new equity
contributions and/or Subordinated Indebtedness in an aggregate amount
of at least $65,000,000, on terms in form and substance satisfactory
to Agent and the Lenders;
(v) Trademark Appraisal. An appraisal setting forth the
-------------------
appraised value of the Proprietary Rights listed in Schedule 7.1(z-1)
-----------------
to the Agreement, performed by Arthur Andersen, LLP or other
credentialed appraiser acceptable to Agent, on a valuation basis, and
otherwise in form and substance satisfactory to, Agent.
5
<PAGE>
(vi) Agency Account Agreements. An Agency Account Agreement,
-------------------------
duly executed, for each bank account designated in Schedule 3.2(f) to
---------------
this Agreement.
(vii) Amendment Fee. Payment of an amendment fee in an amount
-------------
agreed upon among the Loan Parties, Agent and the Lenders.
(viii) Additional Information. Agent shall have received such
----------------------
additional documents, instruments and information as Agent may
reasonably request to effect the transactions contemplated hereby;
(ix) 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 as a condition for effectiveness of this Amendment).
(c) 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).
(d) 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.
(e) No Default or Event of Default shall have occurred and be
continuing.
Section 3.2 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 Partys
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), (c) no Default or Event of
Default has occurred and is continuing, (d) 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, (e) 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 Amendment Effective Date;
(f) Schedule 3.2(f) attached hereto is a correct and complete listing of all
---------------
bank accounts maintained by any Loan Party into which any monies, checks, notes,
drafts or other payments relating to or constituting proceeds of trade accounts
receivable are directed, received or deposited, (g) Schedule 3.2(g) attached
---------------
hereto is a complete listing of all agreements, warrants, instruments, notes and
other documentation executed and entered into by any Loan Party in connection
with the equity contribution and/or Subordinated Indebtedness referenced in
Section 3.1(a)(iv), (h) no agreement, warrant, instrument, note or other
- ------------------
document listed in Schedule 3.2(g), nor the execution and performance thereof by
---------------
the parties thereto, shall constitute a Default or Event of Default and (i)
neither the Loan Documents (including as amended by this Amendment), the
performance thereof by the parties thereto, nor any consent, amendment, waiver
entered into pursuant thereto nor any indebtedness refinancing thereof shall
constitute a breach or default under any agreement, warrant, instrument, note or
other document listed in Schedule 3.2(g).
---------------
Section 3.3 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 Lender, or any closing, shall
affect the representations and warranties or the right of Agent and the Lenders
to rely upon them.
Section 3.4 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
6
<PAGE>
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 3.5 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 3.6 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. Without limiting the forgoing, all
references in the Agreement to "NationsBank" shall be deemed to mean Bank of
America, National Association (successor in interest, by merger, to NationsBank,
N.A., successor in interest, by merger, to NationsBank of Texas, N.A.), and its
successors and assigns.
Section 3.7 General. This Amendment, when signed by each signatory as
-------
provided hereinbelow (i) shall be deemed effective prospectively as of the
Amendment Effective Date, (ii) contains the entire agreement among the parties
and may not be amended or modified except pursuant to the Agreement 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.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers in several counterparts effective as
of the date specified in the preamble hereof.
BORROWERS:
OUTBOARD MARINE CORPORATION
By: /S/ Eric T. Martinez
-------------------------------------
Name: Eric T. Martinez
---------------------------------
Title: Vice President and Treasurer
---------------------------------
By: /S/ Robert S. Romano
-------------------------------------
Name: Robert S. Romano
---------------------------------
Title: Vice President, General Counsel
---------------------------------
& Secretary
OMC ALUMINUM BOAT GROUP, INC.
By: /S/ Eric T. Martinez
-------------------------------------
Name: Eric T. Martinez
---------------------------------
Title: Treasurer
---------------------------------
By: /S/ Robert S. Romano
-------------------------------------
Name: Robert S. Romano
---------------------------------
Title: Vice President
---------------------------------
7
<PAGE>
OMC FISHING BOAT GROUP, INC.
By: /S/ Eric T. Martinez
-------------------------------------
Name: Eric T. Martinez
---------------------------------
Title: Treasurer
---------------------------------
By: /S/ Paul A. Luck
-------------------------------------
Name: Paul A. Luck
---------------------------------
Title: Vice President, Finance
---------------------------------
OMC LATIN AMERICA/CARIBBEAN, INC.
By: /S/ Eric T. Martinez
-------------------------------------
Name: Eric T. Martinez
---------------------------------
Title: Vice President
---------------------------------
By: /S/ Warwick Armstrong
-------------------------------------
Name: Warwick Armstrong
---------------------------------
Title: Assistant Treasurer
---------------------------------
RECREATIONAL BOAT GROUP
LIMITED PARTNERSHIP
By: OMC Recreational Boat Group, Inc.,
General Partner
By: /S/ Eric T. Martinez
--------------------------------
Name: Eric T. Martinez
------------------------------
Title: Treasurer
-----------------------------
By: /S/ John A. Anderson
--------------------------------
Name: John A. Anderson
------------------------------
Title: Vice President
-----------------------------
GUARANTOR:
OMC RECREATIONAL BOAT GROUP, INC.
By: /S/ Eric T. Martinez
-------------------------------------
Name: Eric T. Martinez
---------------------------------
Title: Treasurer
---------------------------------
By: /S/ John A. Anderson
-------------------------------------
Name: John A. Anderson
-----------------------------------
Title: Vice President
----------------------------------
8
<PAGE>
AGENT:
BANK OF AMERICA, N.A.
In its capacity as Agent
By: /S/ Larry Cannariato
-------------------------------------
Name: Larry Cannariato
-----------------------------------
Title: Vice President
-----------------------------------
9
<PAGE>
LENDERS:
BANK OF AMERICA, N.A.
In its capacity as Lender
By: /S/ Larry Cannariato
-------------------------------------
Name: Larry Cannariato
-----------------------------------
Title: Vice President
-----------------------------------
10
<PAGE>
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /S/ Donna H. Evans
-------------------------------------
Name: Donna H. Evans
-----------------------------------
Title: Vice President
-----------------------------------
11
<PAGE>
FLEET CAPITAL CORPORATION
By: /S/ Thomas Maiale
-------------------------------------
Name: Thomas Maiale
-----------------------------------
Title: Vice President
----------------------------------
12
<PAGE>
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /S/ Alan R. Schnacke
-------------------------------------
Name: Alan R. Schnake
-----------------------------------
Title: Assistant Vice President
----------------------------------
13
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /S/ Robert Heinz
-------------------------------------
Name: Robert Heinz
-----------------------------------
Title: Senior Vice President
----------------------------------
14
<PAGE>
FLEET BUSINESS CREDIT CORPORATION
By: /S/ Thomas Maiale
-------------------------------------
Name: Thomas Maiale
-----------------------------------
Title: Vice President
----------------------------------
15
<PAGE>
SCHEDULE 3.2(f)
to
EIGHTH AMENDMENT
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
dated as of January 31, 2000
among
Bank of America, N.A., as Agent,
Outboard Marine Corporation, et al and the other Loan Parties thereto
and
the Lenders party thereto
Following is a correct and complete listing of all bank accounts maintained
by any Loan Party into which any monies, checks, notes, drafts or other payments
relating to or constituting proceeds of trade accounts receivable are directed,
received or deposited:
<TABLE>
<CAPTION>
Name of Name of Account
Institution Account Number
----------- ------- -------
<S> <C> <C>
Bank One Outboard Marine Corporation 55-05496
Bank One OMC Concentration Account 10-34198
Bank of America OMC Operating Account 81881-02233
Scotiabank OMC Canada 80002-07298-17
</TABLE>
16
<PAGE>
SCHEDULE 3.2(g)
to
EIGHTH AMENDMENT
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
dated as of January 31, 2000
among
Bank of America, N.A., as Agent,
Outboard Marine Corporation, et al and the other Loan Parties thereto
and
the Lenders party thereto
1. Warrant to Purchase 3,995,940 Shares of Common Stock of Outboard Marine
Corporation from Outboard Marine Corporation to Quantum Industrial Partners
LDC.
2. Warrant to Purchase 1,754,060 Shares of Common Stock of Outboard Marine
Corporation from Outboard Marine Corporation to Greenlake Holdings II LLC.
3. Outboard Marine Corporation Certificate of Powers, Designations,
Preferences and Rights of the Series A Convertible Preferred Stock, Par
Value $.01 Per Share.
4. Registration Rights Agreement between Outboard Marine Corporation, Quantum
Industrial Partners LDC, Greenlake Holdings II LLC and Greenmarine Holdings
LLC.
5. Stockholders Agreement between Outboard Marine Corporation, Quantum
Industrial Partners LDC and Greenlake Holdings II LLC.
6. Series A Convertible Preferred Stock and Warrant Purchase Agreement among
Outboard Marine Corporation, Quantum Industrial Partners LDC and Greenlake
Holdings II LLC.
17
<PAGE>
-1-
Exhibit 10.24
OUTBOARD MARINE CORPORATION
SUBORDINATED PROMISSORY NOTE
$10,424,187.73 New York, New York
January 19, 2000
SECTION 1. Payment of Note.
---------------
OUTBOARD MARINE CORPORATION (the "Borrower"), a Delaware corporation,
hereby promises to pay to the order of QUANTUM INDUSTRIAL PARTNERS LDC or its
successors or assigns (the "Lender") the principal sum of Ten Million, Four
Hundred Twenty-Four Thousand, One Hundred Eighty-Seven Dollars and Seventy-Three
Cents ($10,424,187.73). This Promissory Note (herein, this "Note") has been
delivered by the Borrower to the Lender in consideration of payment to the
Borrower of $9,771,424.53 (the "Purchase Amount") on January 19, 2000 (the "Loan
Date"). This Note is one of a series of notes (the "Notes") in the aggregate
face amount of $15,000,000 which were issued in consideration of aggregate
payments to the Borrower on the Loan Date of $14,060,699.19. All payments under
this Note and the other Notes evidencing the Debt (as defined herein) shall be
paid ratably to the respective holders thereof based on the respective
outstanding amount of each of the Notes. The Borrower agrees to repay the entire
amount of the Notes on June 30, 2000 (the "Maturity Date").
SECTION 2. Default Interest.
----------------
(a) If this Note is not paid in full on the Maturity Date, default
interest shall be payable on the unpaid amount of hereof Notes at the rate of
15% per annum. All default interest on the Notes shall be calculated on the
basis of a 365 or 366 day year, as the case may be, and the actual number of
days elapsed.
(b) Notwithstanding anything herein to the contrary, the interest
(including default interest) payable by the Borrower with respect to this Note
shall not exceed the maximum amount permitted by applicable law.
SECTION 3. Payment.
-------
Amounts payable hereunder shall be payable to the Lender without set-off or
counterclaim by wire transfer of immediately available funds, in lawful money of
the United States of America, to the bank account of the Lender as notified in
writing to the Borrower.
<PAGE>
-2-
SECTION 4. Redemption; Lender Set-Off Option.
---------------------------------
(a) Optional Redemption. At its option, the Borrower may redeem this Note
-------------------
at any time prior to the Maturity Date upon not less than 5 days' advance
written notice to the Lender (the "Optional Redemption"). The Optional
Redemption price for the Note shall be an amount equal to the face amount of the
Note less, for each $1,000,000 of such face amount, $384.1721 per day for each
day prior to the Maturity Date on which such Optional Redemption occurs.
(b) Mandatory Redemption. If the Borrower sells any Eligible Securities
--------------------
(as defined below), in any transaction or series of transactions that result in
cash proceeds to the Borrower of in excess of $50,000,000 ("Minimum Amount"),
the Borrower shall be required to redeem the Notes (the "Mandatory Redemption")
with and to the extent that the cash proceeds from the sale of such Eligible
Securities exceeds the Minimum Amount. Such Mandatory Redemption shall be
made upon not more than five (5) days' advance written notice to the Lender,
which notice shall be given not later than three (3) business days following the
date on which the net proceeds received by the Borrower subsequent to the Loan
Date from the sale of such Eligible Securities first aggregates at least the
Minimum Amount. If such Mandatory Redemption occurs on or prior to the Maturity
Date, the Mandatory Redemption price for the Note shall be an amount equal to
the face amount of the Note less, for each $1,000,000 of such face amount,
$384.1721 per day for each day prior to the Maturity Date on which such
Mandatory Redemption occurs. If such Mandatory Redemption occurs subsequent to
the Maturity Date, the Mandatory Redemption price for the Note shall be an
amount equal to the face amount of the Note plus accrued unpaid default interest
thereon from the Maturity Date to the date of the Mandatory Redemption. As used
herein, "Eligible Securities" mean shares of the Borrower's capital stock,
options, warrants or similar instruments exchangeable or exercisable for,
convertible into or otherwise evidencing the right of the holder to acquire
shares of the Borrower's capital stock, and debt securities of the Borrower
(including debt securities of the Borrower that are convertible into shares of
the Borrower's capital stock) that are subordinated in right of payment to all
then outstanding Senior Obligations (as herein defined) to substantially the
same extent as this Note is so subordinated as provided in Section 9 hereof.
Nothing set forth in Section 9 of this Note shall limit or otherwise affect the
Borrower's obligations or the Lender's rights under this Section 4(b).
(c) Lender Set-Off Option. If, at any time while this Note remains
---------------------
outstanding, the Lender agrees to purchase from the Borrower, and the Borrower
agrees to issue and sell to the Lender, any Eligible Securities, and if at the
time of the closing of such issuance and sale the Borrower has already received
aggregate cash proceeds from the sale of Eligible Securities (or as a result of
such issuance and sale of Eligible Securities to the Lender, the Borrower will
have received aggregate cash proceeds from the sale of Eligible Securities)
equal to at least the Minimum Amount, then, at the option of the Lender, the
Lender may pay all or a portion of the purchase price for such Eligible
Securities by setting-off such purchase price against the value of this Note at
the closing of such issuance and sale but only to the extent that after giving
effect to such set-off, the cash proceeds from the sale of all Eligible
Securities from the Loan Date will have exceeded the Minimum Amount. For such
purposes, the set-off value of this Note shall be
<PAGE>
-3-
(i) if the issuance and sale of such Eligible Securities occurs prior to the
Maturity Date, the amount which would have been payable by the Borrower to the
Lender on the date of such issuance and sale if the Borrower had been required
to redeem this Note on such date in accordance with the Mandatory Redemption
provisions of Section 4(b) hereof, or (ii) if the issuance and sale of Eligible
Securities occurs after the Maturity Date, the face amount of this Note, plus
accrued default interest to the date of such sale and purchase. Nothing set
forth in Section 9 of this Note shall limit or otherwise affect the Lender's
rights under this Section 4(c).
SECTION 5. Representations and Warranties.
------------------------------
The Borrower represents and warrants to the Lender that:
(a) Organization; Power and Authority. The Borrower is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly qualified as a foreign corporation and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Borrower has the corporate power and
authority to own or hold under lease the properties it purports to own or hold
under lease, to transact the business it transacts and proposes to transact, to
execute and deliver this Note and to perform the provisions hereof.
(b) Authorization, etc. This Note has been duly authorized by all
------------------
necessary corporate action on the part of the Borrower, and this Note
constitutes a legal, valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(c) Capitalization. (i) As of the Loan Date, the authorized capital stock
--------------
of the Borrower consists of: 25,000,000 shares of common stock, par value $.01
per share ("Common Stock"), of which 20,439,531 shares are issued and
outstanding and 2,100,000 are reserved for issuance upon the exercise of stock
options issued or issuable under the Outboard Marine Corporation Personal
Rewards and Opportunities Plan; and 1,000,000 shares of preferred stock, par
value $.01 per share, none of which are outstanding or reserved for issuance.
All shares of Common Stock issued and outstanding as of the Loan Date have been
duly issued and are fully paid and non-assessable.
(d) Financial Statements. (i) The consolidated balance sheet of the
--------------------
Borrower and its subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders equity and changes in financial
position for the year then ended, including the notes and schedules thereto,
certified by Arthur Andersen LLP, independent public accountants, that have been
delivered by the Borrower to the Lender fairly present the consolidated
financial position of the Borrower and its subsidiaries as at December 31, 1998
and the consolidated results
<PAGE>
-4-
of operations for the Borrower and its subsidiaries for the period then ended,
in each case in accordance with generally accepted accounting principles
consistently applied for the period covered thereby (the foregoing consolidated
financial statements at and for the year ending December 31, 1998 are referred
to herein as the "Audited Financial Statements"). The unaudited consolidated
balance sheets of the Borrower and its subsidiaries as of November 30, 1999 and
the related unaudited consolidated statements of income, stockholders equity and
changes in financial position for the months then ended, including the notes and
schedules thereto, that have been delivered by the Borrower to the Lender fairly
present the consolidated financial position of the Borrower and its subsidiaries
as at November 30, 1999 and the consolidated results of operations for the
Borrower and its subsidiaries for the eleven months then ended, in each case in
accordance with generally accepted accounting principles applied on a basis
consistent with the Audited Financials (the foregoing unaudited consolidated
financial statements at November 30, 1999 and for the nine months then ending
are referred to herein as the "Interim Financial Statements").
(ii) Since December 31, 1998, there has been no change in the
financial condition, operations, business or properties of the Borrower or any
of its subsidiaries except (x) as disclosed in the Borrower's reports under
Section 13 of the Securities Exchange Act of 1934, as amended, as filed with the
Securities and Exchange Commission subsequent to December 31, 1998 and prior to
the Loan Date, (y) as disclosed in the Interim Financial Statements or (y)
changes that individually or in the aggregate would not reasonably be expected
to have a Material Adverse Effect.
(e) Compliance with Laws, Other Instruments, etc. The execution, delivery
--------------------------------------------
and performance by the Borrower of the Notes will not (i) contravene, result in
any breach of, or constitute a default under, or result in the creation of any
lien or other encumbrance in respect of any property of the Borrower or any
subsidiary under, any indenture, mortgage, deed of trust, loan, credit
agreement, corporate charter or by-laws, or any other material agreement, lease
or instrument to which the Borrower or any subsidiary is a party or by which the
Borrower or any subsidiary or any of their respective properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or governmental authority applicable to the Borrower or any
subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any governmental authority applicable to the Borrower or any
subsidiary, which violation would reasonably be expected to have a Material
Adverse Effect.
(f) Governmental Authorizations, etc. No consent, approval or
--------------------------------
authorization of, or registration, filing or declaration with, any governmental
authority is required in connection with the execution, delivery or performance
by the Borrower of the Notes.
(g) Litigation; Observance of Statutes and Orders. (i) There are no
---------------------------------------------
actions, suits or proceedings pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or any subsidiary or any property
of the Borrower or any subsidiary in any court or
<PAGE>
-5-
before any arbitrator of any kind or before or by any governmental authority
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
(ii) Neither the Borrower nor any subsidiary is in default under any
order, judgment, decree or ruling of any court, arbitrator or governmental
authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation environmental laws) of any governmental
authority, which default or violation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
(h) Taxes. The Borrower and its subsidiaries have filed all income tax
-----
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments payable by them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (x) the amount of which, or the failure to file with
respect to which, is not individually or in the aggregate material or (y) the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which the Borrower or a
subsidiary, as the case may be, has established adequate reserves in accordance
with generally accepted accounting principles.
(i) Title to Property; Leases. The Borrower and its subsidiaries have good
-------------------------
title to their respective properties, including all such properties reflected in
the audited balance sheet as of December 31, 1998 or purported to have been
acquired by the Borrower or any subsidiary after said date (except as sold or
otherwise disposed of), in each case free and clear of liens, except for (x)
liens securing the Secured Obligations (as defined in the Amended and Restated
Loan and Security Agreement), and (y) those defects in title and liens that,
individually or in the aggregate, would not have a Material Adverse Effect. All
material leases are valid and subsisting and are in full force and effect in all
material respects except to the extent that the failure to be so would not,
individually or in the aggregate, have a Material Adverse Effect.
(j) Licenses, Permits, etc. The Borrower and its subsidiaries own or
----------------------
possess all licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that are material,
without conflict with the rights of others, except for those conflicts that,
individually or in the aggregate, would not have a Material Adverse Effect.
(k) Private Offering by the Borrower. Neither the Borrower nor anyone
--------------------------------
acting on its behalf has taken, or will take, any action that would subject the
issuance or sale of the Notes to the registration requirements of Section 5 of
the Securities Act of 1933, as amended.
(l) Existing Indebtedness. Except as set forth in Borrower's disclosure
---------------------
letter to Lender dated The Loan Date, neither the Borrower nor any subsidiary is
in default, and no waiver of default is currently in effect, in the payment of
any principal of or interest on any Indebtedness of the Borrower or such
subsidiary and no event or condition exists with respect to any such
Indebtedness of the Borrower or any subsidiary that would (i) permit (or that
with notice or the
<PAGE>
-6-
lapse of time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment or (ii) prevent the Borrower or any
subsidiary from prepaying any such Indebtedness without prepayment penalty or
premium.
SECTION 6. Covenants.
---------
In addition to the other undertakings herein contained, the Borrower hereby
covenants to the Lender that so long as any amount payable hereunder is
outstanding the Borrower shall perform the following obligations:
(a) Use of Proceeds. The Borrower shall use the proceeds of the Notes to
---------------
fund working capital needs of the Borrower and its subsidiaries.
(b) Other Agreements. The Borrower shall perform and shall cause its
----------------
subsidiaries to perform all of its and their respective obligations as and when
required pursuant and with respect to all Indebtedness of the Borrower or such
subsidiary outstanding from time to time. The Borrower shall not, without the
prior written consent of the Lender, amend or agree to amend any of the
documents governing the Senior Obligations so as to make it a default thereunder
to make payments under this Note to the extent not prohibited by the terms
hereof.
(c) Information. The Borrower shall furnish to the Lender:
-----------
(i) promptly, such financial and other information as the Lender may
from time to time reasonably request; and
(ii) promptly, any financial and other information provided to any
Person that has provided any Indebtedness to the Borrower or any of its
subsidiaries.
(d) Compliance with Law. The Borrower will and will cause each of its
-------------------
subsidiaries to comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
environmental laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(e) Insurance. The Borrower will and will cause each of its subsidiaries
---------
to maintain, with financially sound and reputable insurers, insurance with
respect to their respective properties and businesses against such casualties
and contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
<PAGE>
-7-
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
(f) Maintenance of Properties. The Borrower will and will cause each of
-------------------------
its subsidiaries to maintain and keep, or cause to be maintained and kept, their
respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the business carried on in connection therewith
may be properly conducted at all times, provided that this Section shall not
--------
prevent the Borrower or any subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Borrower has concluded that such discontinuance
would not, individually or in the aggregate, have a Material Adverse Effect.
(g) Payment of Taxes. The Borrower will and will cause each of its
----------------
subsidiaries to file all income tax or similar tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies payable by any of them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, provided that
--------
neither the Borrower nor any subsidiary need pay any such tax or assessment if
(i) the amount, applicability or validity thereof is contested by the Borrower
or such subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Borrower or a subsidiary of the Borrower has established
adequate reserves therefor in accordance with generally accepted accounting
principles on the books of the Borrower or such subsidiary or (ii) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
(h) Corporate Existence, etc. Except as provided in Section 6(i), the
------------------------
Borrower will at all times preserve and keep in full force and effect its
corporate existence. Subject to Section 6(i), the Borrower will at all times
preserve and keep in full force and effect the corporate existence of each of
its subsidiaries (unless merged or consolidated into the Borrower or a
subsidiary of the Borrower) and all rights and franchises of the Borrower and
its subsidiaries unless, in the good faith judgment of the Borrower, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise would not, individually or in the
aggregate, have a Material Adverse Effect.
(i) Merger, Consolidation, etc. The Borrower shall not consolidate with
--------------------------
or merge with any other corporation or convey, transfer or lease substantially
all of its assets in a single transaction or series of transactions to any
Person unless:
(i) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Borrower as an entirety, as the case
may be, shall be a solvent corporation organized and existing under the
laws of the United States or any State thereof (including the District of
Columbia), and, if the Borrower is not such corporation, such corporation
shall have executed and delivered to the Lender its assumption (in form
satisfactory to the Lender)
<PAGE>
-8-
of the due and punctual performance and observance of each covenant and
condition of this Note; and
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing.
No such conveyance, transfer or lease of substantially all of the assets of the
Borrower shall have the effect of releasing the Borrower or any successor
corporation that shall theretofore have become such in the manner prescribed in
this Section 6(i) from its liability under this Note.
(j) Inspection. The Borrower shall permit the representatives of the
----------
Lender, at the expense of the Borrower to visit and inspect any of the offices
or properties of the Borrower or any subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Borrower authorizes said accountants to discuss the affairs,
finances and accounts of the Borrower and its subsidiaries), all at such times
and as often as may be requested upon reasonable notice during normal business
hours.
(k) Further Documents. The Borrower shall execute all such other documents
-----------------
and instruments and do all such other acts and things as the Lender may from
time to time reasonably require to carry out the transactions contemplated
herein.
SECTION 7. Events of Default.
-----------------
Except upon the occurrence of an event under (e) or (f) below, whereupon
this Note shall become immediately due and payable without notice or declaration
by the Lender, the Lender may, subject to Section 9, by written notice to the
Borrower, declare this Note immediately due and payable, whereupon this Note and
all sums due hereunder shall become immediately due and payable without protest,
presentment, demand or notice (except the notice referred to above in this
Section 7) or without petition to any court, all of which are expressly waived
by the Borrower, if any of the following events (each an "Event of Default")
shall occur:
(a) principal or interest due under this Note shall not be paid as and
when due, whether at maturity, by declaration or otherwise, except where such
payment is prohibited by the terms of Section 9; or
(b) any representation by the Borrower herein shall prove to be false or
incorrect in any material respect as of the date made; or
(c) the Borrower shall default in any material respect in the due
performance of any term or covenant of this Note (which is not the subject of
another subsection of this Section 7) which default, if remediable, shall
continue unremedied for a period of thirty (30) days after the
<PAGE>
-9-
earlier of (i) the day an officer of the Borrower obtains actual knowledge of
such default, and (ii) the day the Lender gives written notice of such default
to the Borrower; or
(d) (i) the Borrower or any subsidiary is in default (as principal or as
guarantor or other surety) in the payment of any principal of or premium or
make-whole amount or interest on any Indebtedness that is outstanding in an
aggregate principal amount of at least $2,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Borrower or any subsidiary is in
default in the performance of or compliance with any term of any Indebtedness in
an aggregate outstanding principal amount of at least $2,000,000 or of any
mortgage, indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such Indebtedness has
become, or has been declared, due and payable before its stated maturity or
before its regularly scheduled dates of payment; or
(e) the Borrower or any subsidiary shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator for itself or any of its assets
or properties, (ii) admit in writing its inability to pay its debts as they
mature, (iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated a bankrupt or insolvent, (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or
any answer admitting the material allegations of a petition filed against it in
any proceeding under any such law or if action shall be taken by the Borrower or
such subsidiary for the purpose of effecting any of the foregoing, (vi) have
commenced against it any case, proceeding or other action of a nature described
in (i) through (v) above which results in the entry of an order for relief, or
which remains undismissed for a period of 60 days or (vii) take or be subject to
any action similar to those specified in clauses (i) through (vi) in any
jurisdiction; or
(f) an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or any subsidiary, with respect
to the Borrower or such subsidiary or all or a substantial part of the assets of
the Borrower or any such subsidiary, appointing a receiver, trustee or
liquidator of the Borrower or such subsidiary, or any similar order, judgment or
decree shall be entered or appointment made in any jurisdiction, and such order,
judgment or decree or appointment shall continue unstayed and in effect for a
period of 60 days; or
(g) a final judgment or judgments for the payment of money aggregating in
excess of $2,000,000 are rendered against one or more of the Borrower and its
subsidiaries and which judgments are not, within 60 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay.
SECTION 8. Application of Payments.
-----------------------
Each payment received by the Lender following the Maturity Date shall be
applied, first, to the payment of accrued default interest on this Note to the
date of such payment and second, to the payment of the principal amount of this
Note.
<PAGE>
-10-
SECTION 9. Subordination Agreement.
-----------------------
(a) The Borrower covenants and agrees and the Lender, by the Lender's
acceptance hereof, likewise covenants and agrees, for itself and any future
holder of this Note or the Indebtedness evidenced hereby, that, to the extent
and in the manner set forth below in this Section 9, the Company's Senior
Obligations will be senior in right of payment to the Debt. The Lender by
accepting this Note acknowledges and agrees that the subordination provisions
set forth in this Section 9 are, and are intended to be, an inducement and a
consideration to each holder of any Senior Obligation, whether such Senior
Obligation was created or acquired before or after the issuance of this Note, to
acquire and continue to hold, or to continue to hold, such Senior Obligation and
such holder of Senior Obligations shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or continuing
to hold, such Senior Obligations.
(b) As used herein, "senior in right of payment" means that unless and
until the Senior Obligations have been paid in full, without the express prior
written consent of all holders of such Senior Obligations, the Lender will not
take, demand (including by means of any legal action) or receive from the
Borrower, and the Borrower will not make, give or permit, directly or
indirectly, by set-off, redemption, purchase or in any other manner, any payment
of or security for the whole or any part of the Debt other than any payment
constituting a Mandatory Redemption made in accordance with the terms of Section
4(b) hereof and any set-off made in accordance with Section 4(c) hereof.
(c) Any payment or distribution of assets of the Borrower, whether in
cash, property or securities, to which the Lender would be entitled except for
the provisions hereof, shall be paid or delivered by the Lender, or any
receiver, trustee in bankruptcy, liquidating trustee, disbursing agent or other
Person making such payment or distribution, to the holders of the Senior
Obligations or their representative, ratably in accordance with the amounts
thereof, to the extent necessary to pay in full all Senior Obligations, before
any payment or distribution shall be made to the Lender.
(d) The expressions "prior payment in full," "payment in full," "paid in
full" and any other similar terms or phrases when used herein with respect to
the Senior Obligations shall mean the payment in full money or money's worth of
all the Senior Obligations and the expression "any payment of or security for
the whole or any part of the Debt" and any other similar terms or phrases when
used herein shall not be deemed to include a payment or distribution of stock or
securities of the Borrower provided for by a plan of reorganization or
readjustment authorized by an order or decree of a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy law
or of any other corporation provided for by such plan of reorganization or
readjustment, which stock or securities are subordinated in right of payment to
all then outstanding Senior Obligations to substantially the same extent as this
Note is so subordinated as provided in this Section 9. The consolidation of the
Borrower with, or the merger of the Borrower into, another Person or the
liquidation or dissolution of the Borrower following the conveyance or transfer
of all or substantially all of its properties and assets as an entirety to
another Person
<PAGE>
-11-
upon the terms and conditions set forth in Section 6(i) shall not be deemed a
"proceeding" for the purposes of this Section 9 if the Person formed by such
consolidation or into which the Borrower is merged or the Person which acquires
by conveyance or transfer such properties and assets as an entirety, as the case
may be, shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions set forth in Section 6(i).
(e) If any payment or distribution, whether consisting of money, property
or securities, be collected or received by the Lender in respect of the Debt,
except payments of principal or interest permitted hereunder, the Lender
forthwith shall deliver the same to the holders of the Senior Obligations or
their representative, ratably in accordance with the amounts thereof, in the
form received, duly endorsed to such holders or such representative, if
required, to be applied to the payment or prepayment of the Senior Obligations
until the Senior Obligations are paid in full. Until so delivered, such payment
or distribution shall be held in trust by the Lender as the property of such
holders of Senior Obligations, segregated from other funds and property held by
the Lender.
(f) As used herein, "Senior Obligations" shall mean collectively the
unpaid principal of, premium, if any, and interest on (including, without
limitation, interest accruing after the maturity thereof and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Borrower, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Borrower's outstanding 10-3/4% Senior Notes due 2008, and all
"Secured Obligations," as defined in that certain Amended and Restated Loan and
Security Agreement, dated effective as of January 6, 1998, as amended from time
to time, whether before or after the Loan Date (the "Amended and Restated Loan
and Security Agreement"), by and among the Borrower and the other borrowers and
guarantors party thereto, the lenders party thereto, and Bank of America, N.A.,
as agent for such lenders, now or hereafter owing (including, without
limitation, any increases thereof), and any and all renewals, extensions,
restatements, replacements and refinancings thereof (whether among the same
parties, or any of them, or with any other lender or lenders).
(g) The provisions of this Section 9 shall apply to all Indebtedness
evidenced by or arising under this Note, and any and all renewals,
modifications, amendments, supplements, replacements and restatements thereof,
respectively.
(h) Nothing set forth in this Section 9 shall be deemed in any way to
limit or prevent the holder of this Note from exercising its rights under, or
the Borrower from complying with its obligations under Sections 4(b) or 4(c)
hereof, regardless of whether or not any payment by the Borrower under this Note
would otherwise be prohibited under the terms of this Section 9 at the time that
the Lender seeks to exercise its rights under Section 4(b) or 4(c).
SECTION 10. Additional Definitions.
----------------------
As used herein, the following terms have the respective meanings set forth
below:
<PAGE>
-12-
"Business Day" means, for the purposes of this Note, any day other than a
Saturday, a Sunday or a day on which commercial banks in New York are required
or authorized to be closed.
"Capital Leases" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with generally accepted accounting
principles.
"Debt" means collectively the unpaid principal of and interest on
(including, without limitation, default interest accruing after the maturity
date of the Notes and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Notes and all other
indebtedness of the Borrower in respect thereof, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
incurred, in each case whether on account of principal, premium, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise.
"Default" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
"Guaranty" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
<PAGE>
-13-
"Indebtedness" with respect to any Person, means, on any date of
determination (without duplication):
(a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business consistent with past practice);
(c) all liabilities appearing on its balance sheet in accordance with
generally accepted accounting principles in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any lien with
respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, financial condition, assets or properties of the Borrower
and its subsidiaries taken as a whole, or (ii) the ability of the Borrower to
perform its obligations under this Note, or (iii) the validity or enforceability
of this Note.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Preferred Stock" means any class of capital stock of a corporation that is
preferred over any other class of capital stock of such corporation as to the
payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its subsidiaries or
such Person and one or more of its subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar
<PAGE>
-14-
functions) of such entity, and any partnership or joint venture if more than a
50% interest in the profits or capital thereof is owned by such Person or one or
more of its subsidiaries or such Person and one or more of its subsidiaries.
Unless the context otherwise clearly requires, any reference to a "subsidiary"
is a reference to a subsidiary of the Borrower.
"Swaps" means, with respect to any Person, payment obligations with respect
to interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Note, the amount of the obligation under
any Swap shall be the amount determined in respect thereof as of the end of the
then most recently ended fiscal quarter of such Person, based on the assumption
that such Swap had terminated at the end of such fiscal quarter, and in making
such determination, if any agreement relating to such Swap provides for the
netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined.
SECTION 11. Borrower's Obligations Unconditional.
------------------------------------
Except as expressly set forth herein, the obligations of the Borrower
hereunder are unconditional and neither any reference to any other document or
agreement herein nor the subordination for the benefit of the holders of the
Senior Obligations pursuant to Section 9 hereof is intended or shall be deemed
to render the Borrower's obligations hereunder conditional as between the
Borrower and the Lender.
SECTION 12. Assignment, Etc.
----------------
This Note shall be binding upon each of the Borrower, the Lender and their
respective successors and assigns; provided, however, the Borrower may not
-------- -------
assign this Note without the prior written consent of the Lender. The Lender may
sell, assign or transfer this Note without any requirement of consent by the
Borrower, provided, however, that the Indebtedness evidenced by this Note shall
continue to be subject to the terms of Section 9 hereof.
SECTION 13. Indemnification.
---------------
The Borrower shall pay, indemnify, and hold the Lender harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including attorneys' fees and
expenses) or disbursements of any kind or nature whatsoever ("Losses") arising
out of or in connection with (a) the enforcement of any rights of the Lender
under this Note, and (b) any claim (whether or not asserted in any legal
proceeding), litigation, investigation, arbitration or proceeding relating to
this Note (collectively, "indemnified liabilities") provided that the Borrower
--------
shall have no obligation hereunder to the Lender with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of the
Lender. The agreements in this Section 13 shall survive the repayment of this
Note and all other amounts payable hereunder.
<PAGE>
-15-
SECTION 14. No Waiver, Cumulative Remedies.
------------------------------
The Lender shall not by any act (except by a written instrument signed by
the Lender), delay, indulgence, omission or otherwise be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Event of Default or
in any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Lender of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.
SECTION 15. Waiver of Protest, Presentment, etc.
------------------------------------
The Borrower hereby waives protest, presentment, notice of dishonor and
notice of acceleration of maturity and agrees to continue to remain bound for
the payment of principal, interest and all other sums due under this Note
notwithstanding any change or changes by way of release, surrender, exchange,
modification or substitution of any security for this Note or by way of any
extension or extensions of time for the payment of principal and interest.
SECTION 16. Expenses.
--------
The Borrower agrees to pay or reimburse, or cause to be paid or reimbursed,
all of its and the Lender's costs and expenses incurred in connection with the
preparation, execution, and delivery of this Note including, without limitation,
the fees and disbursements of their respective counsel.
SECTION 17. Notice.
------
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be sent by registered or certified
first-class mail, return receipt requested, telecopier, courier service or
personal delivery:
a. if to the Borrower, to the attention of each of its
Treasurer and General Counsel, at:
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
Facsimile No.: (847) 689-6246
<PAGE>
-16-
b. if to the Lender:
Quantum Industrial Partners LDC
Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemsted, Curacao
Netherlands Antilles
Facsimile No.: 011-599-97-322-420
with a copy to:
Soros Fund Management LLC
888 Seventh Avenue, Suite 3300
New York, NY 10106
Attention: Michael C. Neus
Facsimile No.: (212) 664-0544
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; five business days after
being deposited in the mail, post prepaid, if mailed; and when receipt is
acknowledged, if telecopied. The Borrower or the Lender may change the address
to which notices, demands and other communications hereunder are to be delivered
by giving the other party notice in the manner herein set forth.
SECTION 18. Governing Law.
-------------
THIS NOTE AND THE LEGAL RELATIONS BETWEEN THE BORROWER AND THE HOLDER SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
SECTION 19. Consent to Jurisdiction and Service of Process.
----------------------------------------------
Any legal action, suit or proceeding arising out of or relating to this
Note or the agreements and transactions contemplated hereby may be instituted
only in a state or federal court of the State of New York located in the borough
of Manhattan and the Borrower agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such court, that its property
is exempt or immune from attachment or execution, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action,
suit or proceeding is improper or that this Note, the agreements contemplated
hereby or the subject matter hereof or thereof may not be enforced in or by such
court. The Borrower further irrevocably submits to the jurisdiction of any such
court in any such action, suit or proceeding. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against the Borrower if given by registered
<PAGE>
-17-
or certified mail, return receipt requested, or by any other means of mail that
requires a signed receipt, postage prepaid, mailed to the Borrower as herein
provided.
SECTION 20. WAIVER OF JURY TRIAL.
--------------------
THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY
AGREEMENT OR TRANSACTIONS CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM IN
CONNECTION HEREWITH.
OUTBOARD MARINE CORPORATION
By: /s/ Andrew P. Hines
-------------------
Name: Andrew P. Hines
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
-1-
Exhibit 10.25
OUTBOARD MARINE CORPORATION
SUBORDINATED PROMISSORY NOTE
$4,575,812.27 New York, New York
January 19, 2000
SECTION 1. Payment of Note.
---------------
OUTBOARD MARINE CORPORATION (the "Borrower"), a Delaware corporation,
hereby promises to pay to the order of GREENLAKE HOLDINGS II LLC or its
successors or assigns (the "Lender") the principal sum of Four Million, Five
Hundred Seventy-Five Thousand, Eight Hundred Twelve Dollars and Twenty-Seven
Cents ($4,575,812.27). This Promissory Note (herein, this "Note") has been
delivered by the Borrower to the Lender in consideration of payment to the
Borrower of $4,289,274.66 (the "Purchase Amount") on January 19, 2000 (the "Loan
Date"). This Note is one of a series of notes (the "Notes") in the aggregate
face amount of $15,000,000 which were issued in consideration of aggregate
payments to the Borrower on the Loan Date of $14,060,699.19. All payments under
this Note and the other Notes evidencing the Debt (as defined herein) shall be
paid ratably to the respective holders thereof based on the respective
outstanding amount of each of the Notes. The Borrower agrees to repay the entire
amount of the Notes on June 30, 2000 (the "Maturity Date").
SECTION 2. Default Interest.
----------------
(a) If this Note is not paid in full on the Maturity Date, default
interest shall be payable on the unpaid amount of hereof Notes at the rate of
15% per annum. All default interest on the Notes shall be calculated on the
basis of a 365 or 366 day year, as the case may be, and the actual number of
days elapsed.
(b) Notwithstanding anything herein to the contrary, the interest
(including default interest) payable by the Borrower with respect to this Note
shall not exceed the maximum amount permitted by applicable law.
SECTION 3. Payment.
-------
Amounts payable hereunder shall be payable to the Lender without set-off or
counterclaim by wire transfer of immediately available funds, in lawful money of
the United States of America, to the bank account of the Lender as notified in
writing to the Borrower.
<PAGE>
-2-
SECTION 4. Redemption; Lender Set-Off Option.
---------------------------------
(a) Optional Redemption. At its option, the Borrower may redeem this Note
-------------------
at any time prior to the Maturity Date upon not less than 5 days' advance
written notice to the Lender (the "Optional Redemption"). The Optional
Redemption price for the Note shall be an amount equal to the face amount of the
Note less, for each $1,000,000 of such face amount, $384.1721 per day for each
day prior to the Maturity Date on which such Optional Redemption occurs.
(b) Mandatory Redemption. If the Borrower sells any Eligible Securities
--------------------
(as defined below), in any transaction or series of transactions that result in
cash proceeds to the Borrower of in excess of $50,000,000 ("Minimum Amount"),
the Borrower shall be required to redeem the Notes (the "Mandatory Redemption")
with and to the extent that the cash proceeds from the sale of such Eligible
Securities exceeds the Minimum Amount. Such Mandatory Redemption shall be
made upon not more than five (5) days' advance written notice to the Lender,
which notice shall be given not later than three (3) business days following the
date on which the net proceeds received by the Borrower subsequent to the Loan
Date from the sale of such Eligible Securities first aggregates at least the
Minimum Amount. If such Mandatory Redemption occurs on or prior to the Maturity
Date, the Mandatory Redemption price for the Note shall be an amount equal to
the face amount of the Note less, for each $1,000,000 of such face amount,
$384.1721 per day for each day prior to the Maturity Date on which such
Mandatory Redemption occurs. If such Mandatory Redemption occurs subsequent to
the Maturity Date, the Mandatory Redemption price for the Note shall be an
amount equal to the face amount of the Note plus accrued unpaid default interest
thereon from the Maturity Date to the date of the Mandatory Redemption. As used
herein, "Eligible Securities" mean shares of the Borrower's capital stock,
options, warrants or similar instruments exchangeable or exercisable for,
convertible into or otherwise evidencing the right of the holder to acquire
shares of the Borrower's capital stock, and debt securities of the Borrower
(including debt securities of the Borrower that are convertible into shares of
the Borrower's capital stock) that are subordinated in right of payment to all
then outstanding Senior Obligations (as herein defined) to substantially the
same extent as this Note is so subordinated as provided in Section 9 hereof.
Nothing set forth in Section 9 of this Note shall limit or otherwise affect the
Borrower's obligations or the Lender's rights under this Section 4(b).
(c) Lender Set-Off Option. If, at any time while this Note remains
---------------------
outstanding, the Lender agrees to purchase from the Borrower, and the Borrower
agrees to issue and sell to the Lender, any Eligible Securities, and if at the
time of the closing of such issuance and sale the Borrower has already received
aggregate cash proceeds from the sale of Eligible Securities (or as a result of
such issuance and sale of Eligible Securities to the Lender, the Borrower will
have received aggregate cash proceeds from the sale of Eligible Securities)
equal to at least the Minimum Amount, then, at the option of the Lender, the
Lender may pay all or a portion of the purchase price for such Eligible
Securities by setting-off such purchase price against the value of this Note at
the closing of such issuance and sale but only to the extent that after giving
effect to such set-off, the cash proceeds from the sale of all Eligible
Securities from the Loan Date will have exceeded the Minimum Amount. For such
purposes, the set-off value of this Note shall be
<PAGE>
-3-
(i) if the issuance and sale of such Eligible Securities occurs prior to the
Maturity Date, the amount which would have been payable by the Borrower to the
Lender on the date of such issuance and sale if the Borrower had been required
to redeem this Note on such date in accordance with the Mandatory Redemption
provisions of Section 4(b) hereof, or (ii) if the issuance and sale of Eligible
Securities occurs after the Maturity Date, the face amount of this Note, plus
accrued default interest to the date of such sale and purchase. Nothing set
forth in Section 9 of this Note shall limit or otherwise affect the Lender's
rights under this Section 4(c).
SECTION 5. Representations and Warranties.
------------------------------
The Borrower represents and warrants to the Lender that:
(a) Organization; Power and Authority. The Borrower is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and is duly qualified as a foreign corporation and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Borrower has the corporate power and
authority to own or hold under lease the properties it purports to own or hold
under lease, to transact the business it transacts and proposes to transact, to
execute and deliver this Note and to perform the provisions hereof.
(b) Authorization, etc. This Note has been duly authorized by all
-------------------
necessary corporate action on the part of the Borrower, and this Note
constitutes a legal, valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(c) Capitalization. (i) As of the Loan Date, the authorized capital
--------------
stock of the Borrower consists of: 25,000,000 shares of common stock, par value
$.01 per share ("Common Stock"), of which 20,439,531 shares are issued and
outstanding and 2,100,000 are reserved for issuance upon the exercise of stock
options issued or issuable under the Outboard Marine Corporation Personal
Rewards and Opportunities Plan; and 1,000,000 shares of preferred stock, par
value $.01 per share, none of which are outstanding or reserved for issuance.
All shares of Common Stock issued and outstanding as of the Loan Date have been
duly issued and are fully paid and non-assessable.
(d) Financial Statements. (i) The consolidated balance sheet of the
--------------------
Borrower and its subsidiaries as of December 31, 1998, and the related
consolidated statements of income, stockholders equity and changes in financial
position for the year then ended, including the notes and schedules thereto,
certified by Arthur Andersen LLP, independent public accountants, that have been
delivered by the Borrower to the Lender fairly present the consolidated
financial position of the Borrower and its subsidiaries as at December 31, 1998
and the consolidated results
<PAGE>
-4-
of operations for the Borrower and its subsidiaries for the period then ended,
in each case in accordance with generally accepted accounting principles
consistently applied for the period covered thereby (the foregoing consolidated
financial statements at and for the year ending December 31, 1998 are referred
to herein as the "Audited Financial Statements"). The unaudited consolidated
balance sheets of the Borrower and its subsidiaries as of November 30, 1999 and
the related unaudited consolidated statements of income, stockholders equity and
changes in financial position for the months then ended, including the notes and
schedules thereto, that have been delivered by the Borrower to the Lender fairly
present the consolidated financial position of the Borrower and its subsidiaries
as at November 30, 1999 and the consolidated results of operations for the
Borrower and its subsidiaries for the eleven months then ended, in each case in
accordance with generally accepted accounting principles applied on a basis
consistent with the Audited Financials (the foregoing unaudited consolidated
financial statements at November 30, 1999 and for the nine months then ending
are referred to herein as the "Interim Financial Statements").
(ii) Since December 31, 1998, there has been no change in the
financial condition, operations, business or properties of the Borrower or any
of its subsidiaries except (x) as disclosed in the Borrower's reports under
Section 13 of the Securities Exchange Act of 1934, as amended, as filed with the
Securities and Exchange Commission subsequent to December 31, 1998 and prior to
the Loan Date, (y) as disclosed in the Interim Financial Statements or (y)
changes that individually or in the aggregate would not reasonably be expected
to have a Material Adverse Effect.
(e) Compliance with Laws, Other Instruments, etc. The execution,
--------------------------------------------
delivery and performance by the Borrower of the Notes will not (i) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any lien or other encumbrance in respect of any property of the
Borrower or any subsidiary under, any indenture, mortgage, deed of trust, loan,
credit agreement, corporate charter or by-laws, or any other material agreement,
lease or instrument to which the Borrower or any subsidiary is a party or by
which the Borrower or any subsidiary or any of their respective properties may
be bound or affected, (ii) conflict with or result in a breach of any of the
terms, conditions or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or governmental authority applicable to the Borrower or any
subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any governmental authority applicable to the Borrower or any
subsidiary, which violation would reasonably be expected to have a Material
Adverse Effect.
(f) Governmental Authorizations, etc. No consent, approval or
--------------------------------
authorization of, or registration, filing or declaration with, any governmental
authority is required in connection with the execution, delivery or performance
by the Borrower of the Notes.
(g) Litigation; Observance of Statutes and Orders. (i) There are no
---------------------------------------------
actions, suits or proceedings pending or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or any subsidiary or any property
of the Borrower or any subsidiary in any court or
<PAGE>
-5-
before any arbitrator of any kind or before or by any governmental authority
that, individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect.
(ii) Neither the Borrower nor any subsidiary is in default under any
order, judgment, decree or ruling of any court, arbitrator or governmental
authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation environmental laws) of any governmental
authority, which default or violation, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
(h) Taxes. The Borrower and its subsidiaries have filed all income tax
-----
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments payable by them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any
taxes and assessments (x) the amount of which, or the failure to file with
respect to which, is not individually or in the aggregate material or (y) the
amount, applicability or validity of which is currently being contested in good
faith by appropriate proceedings and with respect to which the Borrower or a
subsidiary, as the case may be, has established adequate reserves in accordance
with generally accepted accounting principles.
(i) Title to Property; Leases. The Borrower and its subsidiaries have
-------------------------
good title to their respective properties, including all such properties
reflected in the audited balance sheet as of December 31, 1998 or purported to
have been acquired by the Borrower or any subsidiary after said date (except as
sold or otherwise disposed of), in each case free and clear of liens, except for
(x) liens securing the Secured Obligations (as defined in the Amended and
Restated Loan and Security Agreement), and (y) those defects in title and liens
that, individually or in the aggregate, would not have a Material Adverse
Effect. All material leases are valid and subsisting and are in full force and
effect in all material respects except to the extent that the failure to be so
would not, individually or in the aggregate, have a Material Adverse Effect.
(j) Licenses, Permits, etc. The Borrower and its subsidiaries own or
----------------------
possess all licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that are material,
without conflict with the rights of others, except for those conflicts that,
individually or in the aggregate, would not have a Material Adverse Effect.
(k) Private Offering by the Borrower. Neither the Borrower nor anyone
--------------------------------
acting on its behalf has taken, or will take, any action that would subject the
issuance or sale of the Notes to the registration requirements of Section 5 of
the Securities Act of 1933, as amended.
(l) Existing Indebtedness. Except as set forth in Borrower's disclosure
---------------------
letter to Lender dated The Loan Date, neither the Borrower nor any subsidiary is
in default, and no waiver of default is currently in effect, in the payment of
any principal of or interest on any Indebtedness of the Borrower or such
subsidiary and no event or condition exists with respect to any such
Indebtedness of the Borrower or any subsidiary that would (i) permit (or that
with notice or the lapse of time, or both, would permit) one or more Persons to
cause such Indebtedness to become
<PAGE>
-6-
due and payable before its stated maturity or before its regularly scheduled
dates of payment or (ii) prevent the Borrower or any subsidiary from prepaying
any such Indebtedness without prepayment penalty or premium.
SECTION 6. Covenants.
---------
In addition to the other undertakings herein contained, the Borrower hereby
covenants to the Lender that so long as any amount payable hereunder is
outstanding the Borrower shall perform the following obligations:
(a) Use of Proceeds. The Borrower shall use the proceeds of the Notes to
---------------
fund working capital needs of the Borrower and its subsidiaries.
(b) Other Agreements. The Borrower shall perform and shall cause its
----------------
subsidiaries to perform all of its and their respective obligations as and when
required pursuant and with respect to all Indebtedness of the Borrower or such
subsidiary outstanding from time to time. The Borrower shall not, without the
prior written consent of the Lender, amend or agree to amend any of the
documents governing the Senior Obligations so as to make it a default thereunder
to make payments under this Note to the extent not prohibited by the terms
hereof.
(c) Information. The Borrower shall furnish to the Lender:
-----------
(i) promptly, such financial and other information as the Lender may
from time to time reasonably request; and
(ii) promptly, any financial and other information provided to any
Person that has provided any Indebtedness to the Borrower or any of its
subsidiaries.
(d) Compliance with Law. The Borrower will and will cause each of its
-------------------
subsidiaries to comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
environmental laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
(e) Insurance. The Borrower will and will cause each of its subsidiaries
---------
to maintain, with financially sound and reputable insurers, insurance with
respect to their respective properties and businesses against such casualties
and contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
<PAGE>
-7-
(f) Maintenance of Properties. The Borrower will and will cause each of
-------------------------
its subsidiaries to maintain and keep, or cause to be maintained and kept, their
respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the business carried on in connection therewith
may be properly conducted at all times, provided that this Section shall not
--------
prevent the Borrower or any subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Borrower has concluded that such discontinuance
would not, individually or in the aggregate, have a Material Adverse Effect.
(g) Payment of Taxes. The Borrower will and will cause each of its
----------------
subsidiaries to file all income tax or similar tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies payable by any of them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, provided that
--------
neither the Borrower nor any subsidiary need pay any such tax or assessment if
(i) the amount, applicability or validity thereof is contested by the Borrower
or such subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Borrower or a subsidiary of the Borrower has established
adequate reserves therefor in accordance with generally accepted accounting
principles on the books of the Borrower or such subsidiary or (ii) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a Material Adverse Effect.
(h) Corporate Existence, etc. Except as provided in Section 6(i), the
-------------------------
Borrower will at all times preserve and keep in full force and effect its
corporate existence. Subject to Section 6(i), the Borrower will at all times
preserve and keep in full force and effect the corporate existence of each of
its subsidiaries (unless merged or consolidated into the Borrower or a
subsidiary of the Borrower) and all rights and franchises of the Borrower and
its subsidiaries unless, in the good faith judgment of the Borrower, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise would not, individually or in the
aggregate, have a Material Adverse Effect.
(i) Merger, Consolidation, etc. The Borrower shall not consolidate with or
---------------------------
merge with any other corporation or convey, transfer or lease substantially all
of its assets in a single transaction or series of transactions to any Person
unless:
(i) the successor formed by such consolidation or the survivor of such
merger or the Person that acquires by conveyance, transfer or lease
substantially all of the assets of the Borrower as an entirety, as the case
may be, shall be a solvent corporation organized and existing under the
laws of the United States or any State thereof (including the District of
Columbia), and, if the Borrower is not such corporation, such corporation
shall have executed and delivered to the Lender its assumption (in form
satisfactory to the Lender) of the due and punctual performance and
observance of each covenant and condition of this Note; and
<PAGE>
-8-
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing.
No such conveyance, transfer or lease of substantially all of the assets of the
Borrower shall have the effect of releasing the Borrower or any successor
corporation that shall theretofore have become such in the manner prescribed in
this Section 6(i) from its liability under this Note.
(j) Inspection. The Borrower shall permit the representatives of the
----------
Lender, at the expense of the Borrower to visit and inspect any of the offices
or properties of the Borrower or any subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Borrower authorizes said accountants to discuss the affairs,
finances and accounts of the Borrower and its subsidiaries), all at such times
and as often as may be requested upon reasonable notice during normal business
hours.
(k) Further Documents. The Borrower shall execute all such other documents
-----------------
and instruments and do all such other acts and things as the Lender may from
time to time reasonably require to carry out the transactions contemplated
herein.
SECTION 7. Events of Default.
-----------------
Except upon the occurrence of an event under (e) or (f) below, whereupon
this Note shall become immediately due and payable without notice or declaration
by the Lender, the Lender may, subject to Section 9, by written notice to the
Borrower, declare this Note immediately due and payable, whereupon this Note and
all sums due hereunder shall become immediately due and payable without protest,
presentment, demand or notice (except the notice referred to above in this
Section 7) or without petition to any court, all of which are expressly waived
by the Borrower, if any of the following events (each an "Event of Default")
shall occur:
(a) principal or interest due under this Note shall not be paid as and
when due, whether at maturity, by declaration or otherwise, except where such
payment is prohibited by the terms of Section 9; or
(b) any representation by the Borrower herein shall prove to be false or
incorrect in any material respect as of the date made; or
(c) the Borrower shall default in any material respect in the due
performance of any term or covenant of this Note (which is not the subject of
another subsection of this Section 7) which default, if remediable, shall
continue unremedied for a period of thirty (30) days after the earlier of (i)
the day an officer of the Borrower obtains actual knowledge of such default, and
(ii) the day the Lender gives written notice of such default to the Borrower; or
<PAGE>
-9-
(d) (i) the Borrower or any subsidiary is in default (as principal or as
guarantor or other surety) in the payment of any principal of or premium or
make-whole amount or interest on any Indebtedness that is outstanding in an
aggregate principal amount of at least $2,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Borrower or any subsidiary is in
default in the performance of or compliance with any term of any Indebtedness in
an aggregate outstanding principal amount of at least $2,000,000 or of any
mortgage, indenture or other agreement relating thereto or any other condition
exists, and as a consequence of such default or condition such Indebtedness has
become, or has been declared, due and payable before its stated maturity or
before its regularly scheduled dates of payment; or
(e) the Borrower or any subsidiary shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator for itself or any of its assets
or properties, (ii) admit in writing its inability to pay its debts as they
mature, (iii) make a general assignment for the benefit of creditors, (iv) be
adjudicated a bankrupt or insolvent, (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or
any answer admitting the material allegations of a petition filed against it in
any proceeding under any such law or if action shall be taken by the Borrower or
such subsidiary for the purpose of effecting any of the foregoing, (vi) have
commenced against it any case, proceeding or other action of a nature described
in (i) through (v) above which results in the entry of an order for relief, or
which remains undismissed for a period of 60 days or (vii) take or be subject to
any action similar to those specified in clauses (i) through (vi) in any
jurisdiction; or
(f) an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or any subsidiary, with respect
to the Borrower or such subsidiary or all or a substantial part of the assets of
the Borrower or any such subsidiary, appointing a receiver, trustee or
liquidator of the Borrower or such subsidiary, or any similar order, judgment or
decree shall be entered or appointment made in any jurisdiction, and such order,
judgment or decree or appointment shall continue unstayed and in effect for a
period of 60 days; or
(g) a final judgment or judgments for the payment of money aggregating in
excess of $2,000,000 are rendered against one or more of the Borrower and its
subsidiaries and which judgments are not, within 60 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay.
SECTION 8. Application of Payments.
-----------------------
Each payment received by the Lender following the Maturity Date shall be
applied, first, to the payment of accrued default interest on this Note to the
date of such payment and second, to the payment of the principal amount of this
Note.
SECTION 9. Subordination Agreement.
-----------------------
<PAGE>
-10-
(a) The Borrower covenants and agrees and the Lender, by the Lender's
acceptance hereof, likewise covenants and agrees, for itself and any future
holder of this Note or the Indebtedness evidenced hereby, that, to the extent
and in the manner set forth below in this Section 9, the Company's Senior
Obligations will be senior in right of payment to the Debt. The Lender by
accepting this Note acknowledges and agrees that the subordination provisions
set forth in this Section 9 are, and are intended to be, an inducement and a
consideration to each holder of any Senior Obligation, whether such Senior
Obligation was created or acquired before or after the issuance of this Note, to
acquire and continue to hold, or to continue to hold, such Senior Obligation and
such holder of Senior Obligations shall be deemed conclusively to have relied on
such subordination provisions in acquiring and continuing to hold, or continuing
to hold, such Senior Obligations.
(b) As used herein, "senior in right of payment" means that unless and
until the Senior Obligations have been paid in full, without the express prior
written consent of all holders of such Senior Obligations, the Lender will not
take, demand (including by means of any legal action) or receive from the
Borrower, and the Borrower will not make, give or permit, directly or
indirectly, by set-off, redemption, purchase or in any other manner, any payment
of or security for the whole or any part of the Debt other than any payment
constituting a Mandatory Redemption made in accordance with the terms of Section
4(b) hereof and any set-off made in accordance with Section 4(c) hereof.
(c) Any payment or distribution of assets of the Borrower, whether in
cash, property or securities, to which the Lender would be entitled except for
the provisions hereof, shall be paid or delivered by the Lender, or any
receiver, trustee in bankruptcy, liquidating trustee, disbursing agent or other
Person making such payment or distribution, to the holders of the Senior
Obligations or their representative, ratably in accordance with the amounts
thereof, to the extent necessary to pay in full all Senior Obligations, before
any payment or distribution shall be made to the Lender.
(d) The expressions "prior payment in full," "payment in full," "paid in
full" and any other similar terms or phrases when used herein with respect to
the Senior Obligations shall mean the payment in full money or money's worth of
all the Senior Obligations and the expression "any payment of or security for
the whole or any part of the Debt" and any other similar terms or phrases when
used herein shall not be deemed to include a payment or distribution of stock or
securities of the Borrower provided for by a plan of reorganization or
readjustment authorized by an order or decree of a court of competent
jurisdiction in a reorganization proceeding under any applicable bankruptcy law
or of any other corporation provided for by such plan of reorganization or
readjustment, which stock or securities are subordinated in right of payment to
all then outstanding Senior Obligations to substantially the same extent as this
Note is so subordinated as provided in this Section 9. The consolidation of the
Borrower with, or the merger of the Borrower into, another Person or the
liquidation or dissolution of the Borrower following the conveyance or transfer
of all or substantially all of its properties and assets as an entirety to
another Person upon the terms and conditions set forth in Section 6(i) shall not
be deemed a "proceeding" for the purposes of this Section 9 if the Person formed
by such consolidation or into which the Borrower
<PAGE>
-11-
is merged or the Person which acquires by conveyance or transfer such properties
and assets as an entirety, as the case may be, shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions set
forth in Section 6(i).
(e) If any payment or distribution, whether consisting of money, property
or securities, be collected or received by the Lender in respect of the Debt,
except payments of principal or interest permitted hereunder, the Lender
forthwith shall deliver the same to the holders of the Senior Obligations or
their representative, ratably in accordance with the amounts thereof, in the
form received, duly endorsed to such holders or such representative, if
required, to be applied to the payment or prepayment of the Senior Obligations
until the Senior Obligations are paid in full. Until so delivered, such payment
or distribution shall be held in trust by the Lender as the property of such
holders of Senior Obligations, segregated from other funds and property held by
the Lender.
(f) As used herein, "Senior Obligations" shall mean collectively the
unpaid principal of, premium, if any, and interest on (including, without
limitation, interest accruing after the maturity thereof and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Borrower, whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Borrower's outstanding 10-3/4% Senior Notes due 2008, and all
"Secured Obligations," as defined in that certain Amended and Restated Loan and
Security Agreement, dated effective as of January 6, 1998, as amended from time
to time, whether before or after the Loan Date (the "Amended and Restated Loan
and Security Agreement"), by and among the Borrower and the other borrowers and
guarantors party thereto, the lenders party thereto, and Bank of America, N.A.,
as agent for such lenders, now or hereafter owing (including, without
limitation, any increases thereof), and any and all renewals, extensions,
restatements, replacements and refinancings thereof (whether among the same
parties, or any of them, or with any other lender or lenders).
(g) The provisions of this Section 9 shall apply to all Indebtedness
evidenced by or arising under this Note, and any and all renewals,
modifications, amendments, supplements, replacements and restatements thereof,
respectively.
(h) Nothing set forth in this Section 9 shall be deemed in any way to
limit or prevent the holder of this Note from exercising its rights under, or
the Borrower from complying with its obligations under Sections 4(b) or 4(c)
hereof, regardless of whether or not any payment by the Borrower under this Note
would otherwise be prohibited under the terms of this Section 9 at the time that
the Lender seeks to exercise its rights under Section 4(b) or 4(c).
SECTION 10. Additional Definitions.
----------------------
As used herein, the following terms have the respective meanings set forth
below:
<PAGE>
-12-
"Business Day" means, for the purposes of this Note, any day other than a
Saturday, a Sunday or a day on which commercial banks in New York are required
or authorized to be closed.
"Capital Leases" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with generally accepted accounting
principles.
"Debt" means collectively the unpaid principal of and interest on
(including, without limitation, default interest accruing after the maturity
date of the Notes and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Borrower, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) the Notes and all other
indebtedness of the Borrower in respect thereof, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
incurred, in each case whether on account of principal, premium, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise.
"Default" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
"Guaranty" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including (without limitation) obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of
such indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
<PAGE>
-13-
"Indebtedness" with respect to any Person, means, on any date of
determination (without duplication):
(a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business consistent with past practice);
(c) all liabilities appearing on its balance sheet in accordance with
generally accepted accounting principles in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any lien with
respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or
instruments serving a similar function issued or accepted for its account
by banks and other financial institutions (whether or not representing
obligations for borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, financial condition, assets or properties of the Borrower
and its subsidiaries taken as a whole, or (ii) the ability of the Borrower to
perform its obligations under this Note, or (iii) the validity or enforceability
of this Note.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Preferred Stock" means any class of capital stock of a corporation that is
preferred over any other class of capital stock of such corporation as to the
payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its subsidiaries or such
Person and one or more of its subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the
<PAGE>
-14-
profits or capital thereof is owned by such Person or one or more of its
subsidiaries or such Person and one or more of its subsidiaries. Unless the
context otherwise clearly requires, any reference to a "subsidiary" is a
reference to a subsidiary of the Borrower.
"Swaps" means, with respect to any Person, payment obligations with respect
to interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Note, the amount of the obligation under
any Swap shall be the amount determined in respect thereof as of the end of the
then most recently ended fiscal quarter of such Person, based on the assumption
that such Swap had terminated at the end of such fiscal quarter, and in making
such determination, if any agreement relating to such Swap provides for the
netting of amounts payable by and to such Person thereunder or if any such
agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined.
SECTION 11. Borrower's Obligations Unconditional.
------------------------------------
Except as expressly set forth herein, the obligations of the Borrower
hereunder are unconditional and neither any reference to any other document or
agreement herein nor the subordination for the benefit of the holders of the
Senior Obligations pursuant to Section 9 hereof is intended or shall be deemed
to render the Borrower's obligations hereunder conditional as between the
Borrower and the Lender.
SECTION 12. Assignment, Etc.
----------------
This Note shall be binding upon each of the Borrower, the Lender and their
respective successors and assigns; provided, however, the Borrower may not
-------- -------
assign this Note without the prior written consent of the Lender. The Lender
may sell, assign or transfer this Note without any requirement of consent by the
Borrower, provided, however, that the Indebtedness evidenced by this Note shall
continue to be subject to the terms of Section 9 hereof.
SECTION 13. Indemnification.
---------------
The Borrower shall pay, indemnify, and hold the Lender harmless from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including attorneys' fees and
expenses) or disbursements of any kind or nature whatsoever ("Losses") arising
out of or in connection with (a) the enforcement of any rights of the Lender
under this Note, and (b) any claim (whether or not asserted in any legal
proceeding), litigation, investigation, arbitration or proceeding relating to
this Note (collectively, "indemnified liabilities") provided that the Borrower
--------
shall have no obligation hereunder to the Lender with respect to indemnified
liabilities arising from the gross negligence or willful misconduct of the
Lender. The agreements in this Section 13 shall survive the repayment of this
Note and all other amounts payable hereunder.
<PAGE>
-15-
SECTION 14. No Waiver, Cumulative Remedies.
------------------------------
The Lender shall not by any act (except by a written instrument signed by
the Lender), delay, indulgence, omission or otherwise be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Event of Default or
in any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Lender, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by the Lender of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which the Lender would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law.
SECTION 15. Waiver of Protest, Presentment, etc.
------------------------------------
The Borrower hereby waives protest, presentment, notice of dishonor and
notice of acceleration of maturity and agrees to continue to remain bound for
the payment of principal, interest and all other sums due under this Note
notwithstanding any change or changes by way of release, surrender, exchange,
modification or substitution of any security for this Note or by way of any
extension or extensions of time for the payment of principal and interest.
SECTION 16. Expenses.
--------
The Borrower agrees to pay or reimburse, or cause to be paid or reimbursed,
all of its and the Lender's costs and expenses incurred in connection with the
preparation, execution, and delivery of this Note including, without limitation,
the fees and disbursements of their respective counsel.
SECTION 17. Notice.
------
All notices, demands and other communications provided for or permitted
hereunder shall be made in writing and shall be sent by registered or certified
first-class mail, return receipt requested, telecopier, courier service or
personal delivery:
a. if to the Borrower, to the attention of each of its
Treasurer and General Counsel, at:
Outboard Marine Corporation
100 Sea-Horse Drive
Waukegan, IL 60085
Facsimile No.: (847) 689-6246
b. if to the Lender:
<PAGE>
-16-
Greenlake Holdings II LLC
c/o Greenbelt Corporaiton
277 Park Avenue
New York, NY 10172
Attention: Alfred D. Kingsley
Facsimile No.: (212) 350-5253
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; when delivered by courier, if
delivered by commercial overnight courier service; five business days after
being deposited in the mail, post prepaid, if mailed; and when receipt is
acknowledged, if telecopied. The Borrower or the Lender may change the address
to which notices, demands and other communications hereunder are to be delivered
by giving the other party notice in the manner herein set forth.
SECTION 18. Governing Law.
-------------
THIS NOTE AND THE LEGAL RELATIONS BETWEEN THE BORROWER AND THE HOLDER SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
SECTION 19. Consent to Jurisdiction and Service of Process.
----------------------------------------------
Any legal action, suit or proceeding arising out of or relating to this
Note or the agreements and transactions contemplated hereby may be instituted
only in a state or federal court of the State of New York located in the borough
of Manhattan and the Borrower agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim that it
is not subject personally to the jurisdiction of such court, that its property
is exempt or immune from attachment or execution, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action,
suit or proceeding is improper or that this Note, the agreements contemplated
hereby or the subject matter hereof or thereof may not be enforced in or by such
court. The Borrower further irrevocably submits to the jurisdiction of any such
court in any such action, suit or proceeding. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against the Borrower if given by registered or certified mail, return receipt
requested, or by any other means of mail that requires a signed receipt, postage
prepaid, mailed to the Borrower as herein provided.
SECTION 20. WAIVER OF JURY TRIAL.
--------------------
THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING
<PAGE>
-17-
ARISING OUT OF OR RELATING TO THIS NOTE OR ANY AGREEMENT OR TRANSACTIONS
CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM IN CONNECTION HEREWITH.
OUTBOARD MARINE CORPORATION
By: /s/ Andrew P. Hines
-------------------
Name: Andrew P. Hines
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
OUTBOARD MARINE CORPORATION
EXHIBIT 11: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Post-Merger Company
----------------------------------------------------------------
Twelve Months Ended Three Months Ended
December 31, December 31,
------------------------------- -------------------------
(Dollars and Shares in Millions Except per Share Data) 1999 1998 1998 1997
------------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Basic Earnings per Share:
Net Earnings (Loss) $ 8.2 ($180.5) ($47.1) ($17.1)
Weighted Average Number of Shares 20.4 20.4 20.4 20.4
------------- ------------- ---------- -----------
Basic Earnings (Loss) Per Share $0.40 ($8.85) ($2.31) ($0.84)
============= ============= ========== ===========
Diluted Earnings Per Shares:
Net Earnings (Loss) $ 8.2 ($180.5) ($47.1) ($17.1)
Add: After-tax Interest and Related Expense
Amortization on 7% Convertible Subordinated
Debentures
------------- ------------- ---------- -----------
Net Earnings (Loss) Adjusted $ 8.2 ($180.5) ($47.1) ($17.1)
------------- ------------- ---------- -----------
Weighted Average Number of Shares 20.6 20.4 20.4 20.4
Common Stock Equivalents (Stock Options) ----- ----- ----- -----
Weighted Average Common Shares Assuming
Conversion of 7% Convertible Subordinated
Debentures
Average Shares Outstanding 20.6 20.4 20.4 20.4
------------- ------------- ---------- -----------
Diluted Earnings (Loss) Per Share $0.40 ($8.85) ($2.31) ($0.84)
============= ============= ========== ===========
<CAPTION>
Pre-Merger
Company
-------------
Twelve Months Ended
September 30,
--------------------------------
(Dollars and Shares in Millions Except per Share Data) 1998 1997
------------- -------------
<S> <C> <C>
Basic Earnings per Share:
Net Earnings (Loss) ($150.5) ($79.1)
Weighted Average Number of Shares 20.4 20.2
------------- -------------
Basic Earnings (Loss) Per Share ($7.38) ($3.91)
============= =============
Diluted Earnings Per Shares:
Net Earnings (Loss) ($150.5) ($79.1)
Add: After-tax Interest and Related Expense
Amortization on 7% Convertible Subordinated
Debentures 3.3
------------- -------------
Net Earnings (Loss) Adjusted ($150.5) ($75.8)
------------- -------------
Weighted Average Number of Shares 20.4 20.1
Common Stock Equivalents (Stock Options) ----- 0.1
Weighted Average Common Shares Assuming
Conversion of 7% Convertible Subordinated
Debentures 3.4
Average Shares Outstanding 20.4 23.6
------------- -------------
Diluted Earnings (Loss) Per Share ($7.38) *
============= =============
</TABLE>
*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.
<PAGE>
EXHIBIT 21
Domestic Subsidiaries
---------------------
(as of November 4, 1999)
Subsidiary
----------
OMC Aluminum Boat Group, Inc.
Syracuse Transportation, Inc.
OMC & Co.
OMC Development Inc.
OMC Distributors, Inc. - San Francisco
OMC Europe, Inc.
OMC Fishing Boat Group, Inc.
OMC Holdings, Inc.
OMC Latin America/Caribbean, Inc.
OMC Recreational Boat Group, Inc.
Recreational Boat Group Limited
Partnership
OMC Venture, Inc.
OMCEMA, Inc.
Outboard Marine Holdings, Inc.
Outboard Marine Transportation
Corporation
Outboard Marine Venture Capital
Corporation
<PAGE>
International Subsidiaries
--------------------------
Subsidiary
- ----------
OMC Europe, V.O.F.
OMC Holdings France, S.N.C.
OMC France, S.N.C.
OMC Power Boats S.A.R.L. France
OMC Norge AS
OMC Outboard Marine
Deutschland GmbH
OMC Sverige Aktiebolag
Outboard Marine Corporation
Asia Limited
Outboard Marine Corporation
(Australia), PTY, Ltd.
Outboard Marine Corporation
of Canada, Ltd.
Altra Marine Products, Inc.
<PAGE>
<TABLE>
<S> <C> <C>
Outboard Marine de Mexico, Mexico 1,000 Series A;
S.A. de C.V. 8,621,000 Series B
100%
OUTBOARD MARINE GmbH Germany 100%
FICHT GmbH & Co. KG Germany 51%/2/
Outboard Marine Motores de Amazonia Ltda. Brazil 30,357,768,089 shares- 100%
OMC Do Brazil LTDA Brazil 20 shares - Outboard
Marine Motors
Amazonia LTDA
1 share - Pedro Melo
</TABLE>
__________________
/2/51% owned by Outboard Marine GmbH & 49% owned by members of the Ficht
family.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,000
<SECURITIES> 0
<RECEIVABLES> 104,900
<ALLOWANCES> 0
<INVENTORY> 188,600
<CURRENT-ASSETS> 335,700
<PP&E> 246,100
<DEPRECIATION> 45,600
<TOTAL-ASSETS> 848,400
<CURRENT-LIABILITIES> 348,800
<BONDS> 241,400
0
0
<COMMON> 200
<OTHER-SE> 80,100
<TOTAL-LIABILITY-AND-EQUITY> 848,400
<SALES> 1,110,900
<TOTAL-REVENUES> 1,110,900
<CGS> 881,000
<TOTAL-COSTS> 881,000
<OTHER-EXPENSES> 188,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,100
<INCOME-PRETAX> 18,800
<INCOME-TAX> 10,600
<INCOME-CONTINUING> 8,200
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,200
<EPS-BASIC> 0.40
<EPS-DILUTED> 0.40
</TABLE>
