FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED JUNE 30, 1995
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
Commission File Number: 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0160250
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
P.O.Drawer 457, Whichard's Beach Rd., Washington, N.C. 27889
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 975-
2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Warrants - Common Stock par value $.01 per share
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.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $8,863,681 at September 11, 1995
based upon a closing price of $5.375 per share on such date for
the Company's Common Stock.
As of September 15, 1995 there were 3,029,072 shares of the
Company's Common Stock issued of which 10,000 shares are owned by
the Company's subsidiary Fountain Powerboats, Inc. and are
regarded as treasury shares.
PART 1
Item 1. Business Background.
Fountain Powerboat Industries, Inc. (the "Company"), through
its wholly-owned subsidiary, Fountain Powerboats, Inc. (the
"Subsidiary"), designs, manufactures, and sells offshore sport
boats, sport cruisers, and sport fishing boats intended for that
segment of the recreational power boat market where speed,
performance, and quality are the main criteria for purchase. The
Company's strategy in concentrating on that segment of the market
is to maximize its use of the reputation of its Chairman and
President, Reginald M. Fountain, Jr., as an internationally
recognized power boat racer and designer. The Company also has
made specialized high performance boats for the United States
Government.
The Company's products are sold through a network of
authorized dealers worldwide. The Company has targeted that
segment of the market in which purchase decisions are generally
predicated to a relatively greater degree on the product's image,
style, speed, performance, quality, and safety and to a lesser
degree on the product's price or other economic considerations.
The Company was organized January 30, 1985 pursuant to the
laws of the State of Nevada under the name TOV Ventures,
Ltd.(TOV), and acquired Fountain Powerboats, Inc. during August,
1986. Prior to the acquisition, it had never conducted any
operations. During 1985 TOV sold, pursuant to a Registration
Statement filed with the Securities and Exchange Commission,
512,500 shares of its Common Stock (after giving effect to a one
for ten reverse stock split and the cancellation of 5,875,000
shares of its Common Stock on May 16, 1986) to its directors,
officers, and certain other individuals. All share numbers have
been adjusted for the foregoing stock split and a one-for-two
reverse stock split effected February 4, 1994.
Fountain Powerboats, Inc., a North Carolina corporation, has
been in operation since 1979 and was privately held at the time
it was acquired by TOV. At that time the two shareholders of
Fountain Powerboats, Inc. exchanged the stock of that company
held by them for 1,487,500 shares of Common Stock of TOV.
Existing shareholders of TOV retained 512,500 shares of Common
Stock. TOV then changed its name to Fountain Powerboat
Industries, Inc.
-2-
Products.
Each of the Company's products is based upon a deep V-shaped
fiberglass hull with a V-shaped pad and a notched transom. This
design enables the boat to move along the water at high speed on
its pad and achieve performance and stability standards which the
Company believes are greater than those offered by its
competitors. As a result, the Company maintains that its boats
are among the fastest, best-handling, and safest boats of their
kind.
In Fiscal 1994, the Company developed new, high performance
hull designs for its boats. These new "positive-lift" designs
increase speed significantly by incorporating radically different
keel lines with steps in the hull bottoms. Handling and fuel
economy are also substantially improved with the new designs.
The Company is seeking patent protection for these new hull
designs.
All of the Company's sport boats are of inboard/outdrive
design propelled by single, twin, or triple gasoline engines
ranging from 415 HP to more than 1,000 HP each. In addition to
its standard sport boat product line, Fountain also builds custom
race boats designed specifically for competition. The Company
also produces outboard and inboard powered center console and
cabin model offshore sport fishing boats and luxury cruisers.
Introduced early in Fiscal 1992, the 47' Sport Cruiser is
the flagship of the Fountain fleet. Its hull design is based
upon that of the Company's 47' Superboat and 42' manufacturer's
Super-Vee boats which won 8 out of 10 races in a recent twelve
month period. This model features a walk-in cabin, enclosed head
with shower, complete galley with refrigerator and microwave
oven, as well as, a very extensive list of standard equipment.
With most of the amenities of a traditional cruising yacht,
the Fountain 47' Sport Cruiser is capable of speeds in excess of
60 mph with standard triple MerCruiser 502 EFI engines. A high
performance diesel engine version is available for international
use. This boat was named "The Outstanding Offshore Performance
Boat" for 1992 and 1993 by Powerboat Magazine and "Best of the
Best" for 1992 by Boating Magazine. Depending primarily upon the
customer's choice of engines, the retail price of this boat is
from $333,000 to $450,000.
The Company's 47' Superboat model is available with a wide
range of engine options which make it suitable for organized
competitive racing or for purely recreational purposes. Its
unique hull design permits high speeds in relatively rough
offshore waters. Its sleek styling makes it particularly
attractive. Depending primarily upon the type of engines
selected, this boat retails at prices ranging from $400,000 to
$700,000.
-3-
The 42' Lightning Sport Boat operates at a maximum speed of
60 to 95 mph and is very stable even in relatively rough offshore
waters. This boat's standard features include an integrated swim
platform, flush deck hatches, and an attractively appointed
cockpit and cabin. This boat was cited by Powerboat Magazine as
"The Outstanding Offshore Performance Boat" for 1988 and 1990.
It retails at prices ranging from $137,000 to $300,000, depending
primarily upon the type of engines selected. Equipped with
special racing engines, this model set a new world speed record
for V-hulled boats in January, 1995 at 130.246 mph.
Introduced in Fiscal 1991, the 38' Sport Cruiser offers a
scaled down version of the many amenities found on the 47' Sport
Cruiser. This model has successfully incorporated the
performance type sport boat's features without compromising the
creature comforts found in a cruiser. Depending primarily upon
the customer's choice of engines, the retail price of this boat
is from $191,000 to $375,000.
The 38' Fever Sport Boat operates at maximum speeds of
between 60 and 100 mph. Its retail price ranges from $160,000 to
$276,000, depending primarily upon the type of engines selected.
This model was cited by Powerboat Magazine as "Offshore
Performance Boat of the Year" for 1989 and, again, for 1991. It
also captured an award from The Hot Boat Magazine for "Boat of
the Year" for 1991.
The 35' Lightning Sport Boat is similar in design to the 38'
Fever, but operates at maximum speeds between 66 and 105 mph.
Because of its smaller size and lighter weight, this model can
achieve greater speeds than a 38' Fever when equipped with the
same size engines. The 35' Lightning was named by Powerboat
Magazine "Offshore Boat of the Year" for 1981 and 1995. It has
also captured that magazine's title "Outstanding Offshore
Performance Boat" for 1980, 1981, 1982, 1983, 1984, and 1987.
This boat retails at prices ranging from $140,000 to $275,000,
depending primarily upon the type of engines selected.
Fountain's 32' Fever Sport Boat was introduced during Fiscal
1991 to satisfy the market's demand for a mid-size sport boat
between the 29' Fever and the 35' Lightning. This model combines
many of the advantages of both the 29' model and the 35' model.
Depending primarily upon the customer's choice of engines, the
retail price of this boat is from $121,000 to $141,000.
The 29' Fever II is the smallest twin engine boat in the
Fountain sport boat line. It operates at maximum speeds of 64 to
80 mph and retails between $106,000 and $124,000, depending
primarily upon the type of engines chosen.
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Fountain's 27' Fever sport boat has a single engine. It was
added to the line in order to enable the first time offshore
performance boat buyer to acquire a Fountain power boat at a very
affordable price. This model won an award from Powerboat
Magazine for "The Full Size Boat of the Year" for 1991 and 1992.
It also captured that magazine's award for "Outstanding Full-Size
Workmanship" for 1995. Depending primarily upon the type of
engine selected, the retail price of this boat is from $65,000 to
$90,000.
The new 24' Competition Series sport boat is also a single
engine model. It was designed to resemble Fountain's sleek 47'
Superboat. This model was named "Boat of the Year" for 1993 by
Boating Magazine. Depending primarily upon the type of engine
selected, the retail price of this boat it from $50,000 to
$60,000.
For several years, the Company's sole offshore sport fishing
boat was a 31' model which featured a center console design and
incorporated the same high performance, styling, and structural
integrity as its sport boat models. It has a deck configuration
engineered for the knowledgeable, experienced sport fisherman.
This boat retails for $60,000, excluding engines.
In Fiscal 1992, Fountain added substantially to its sport
fishing boat line. An all new 27' twin engine center console
model and an all new 23' single engine center console model were
introduced to extend the product line. The design, construction,
and performance of these new models, together with the proven
features of the 31' center console model, make a line which in
management's view will appeal to many experienced sport
fishermen.
To further enhance its sport fishing boat line, the Company
introduced a new 31' walk around cabin model based upon the
proven 31' center console hull design. This model features a
deck design which incorporates a walk-in cabin, enclosed head
with shower, and a full galley. With twin outboard engine power,
this model is produced either as a fishing boat for the serious
angler or as a purely recreational sport boat type cruiser.
During Fiscal 1993, the Company introduced both 23' and 27'
walk around cabin fishing boats with outboard engine power and a
new 32' walk around cabin model fishing boat with inboard power.
Other new product introductions for Fiscal 1994 are 25' and 27'
walk around cabin model fishing boats with inboard power.
For Fiscal 1996, the Company plans to introduce a new 22'
sport boat, a 47' Lightning sport boat, a luxury 55' wide beam
sport yacht, and a 29' wide beam walk around cuddy cabin sport
fishing boat.
-5-
Following is a table showing the number of boats completed
and shipped in each of the last three fiscal years by product
line:
Fiscal Fiscal Fiscal
1995 1994 1993
Sport boats........... 293 184 156
Sport cruisers........ 15 6 19
Sport fishing boats... 93 92 135
-------- -------- --------
401 282 310
======== ======== ========
The Company conducts research and development projects for
the design of its plugs and molds for hull, deck, and small parts
production. The design, engineering, and tooling departments
currently employ approximately 16 full-time employees. Amounts
spent on design research and development and to build new plugs
and molds in recent years were:
Design Construction
Research & of New Plugs
Development and Molds
Fiscal 1995............. $ 134,828 $ 767,102
Fiscal 1994............. 157,433 674,394
Fiscal 1993............. 88,858 1,251,214
For Fiscal 1996, planned design research and development
expenses are $144,000 and plug and mold construction expenditures
are approximately $675,000. These expenditures will be primarily
to complete the tooling needed to produce a new 22' sport boat, a
47' Lightning sport boat, a luxury 55' wide beam sport yacht, and
a 29' wide beam walk around cuddy cabin sport fishing boat.
Tooling expenditures will also be made for other modifications to
existing models.
Manufacturing capacity is sufficient to accommodate
approximately 30 to 40 boats in various stages of construction at
any one time. The Company shipped 401 boats in Fiscal 1995, 282
boats in Fiscal 1994, and 310 boats in Fiscal 1993.
-6-
Construction of a boat takes approximately five weeks on a
one shift per day basis. The Company currently has the ability
to manufacture approximately 400 boats per year, using one eight-
hour manufacturing shift per day. The Company believes that it
has the potential to expand its manufacturing capacity through
additional shifts and/or by utilizing the approximately 35 acres
of unimproved land owned by the Company at its manufacturing site
to expand the size of the physical plant. Should the demand
dictate, the capacity of the existing plant could be increased to
approximately 800 boats per year by employing second and third
shifts.
The manufacturing process for the hulls and decks consists
primarily of the "laying-up" by hand of resins and high quality
bi-directional and tri-directional woven fiberglass mats around a
foam core in molds designed and constructed by the Company's
engineering and tooling department. This creates a composite
structure with strong outer and inner skins with a thicker core
in between. The "laying-up" of woven fiberglass mats by hand,
rather than using chopped fiberglass and mechanical blowers,
results in superior strength and appearance. The resin used to
bind the composite structure together is vinylester which is
approximately five times stronger than the polyvinyl used by most
other fiberglass boat manufacturers. Decks are bonded to the
hulls using bonding agents, rivets, screws, and fiberglass to
achieve a strong, unitized construction.
In Fiscal 1994, the Company began building some boats on a
special order basis using state-of-the-art light weight materials
and epoxy resin. The epoxy resin is stronger than the vinylester
so that less of it is required to achieve the needed construction
strength. Since less epoxy resin is needed, the result is less
weight. Less weight contributes substantially to improved
performance, especially when combined with the Company's newly
developed "positive-lift" hull design. The Company is committed
to continuous product improvement.
Pursuant to an agreement dated February 24, 1995, and
effective January 1, 1995, among the Company, Mr. Fountain, and
the Mercury Marine Division of the Brunswick Corporation, the
Company is required to use Mercury engines and accessories
exclusively until the earliest of December 1, 1999, or until
12,000 engines have been purchased, or until the Company's
indebtedness to Mercury is paid in full. Also, as part of the
agreement, Mercury pays the Company for certain consulting
services provided by Mr. Fountain and for appropriate
endorsements for Mercury's products at the rate of 5.5% of
products purchased until June 30, 1996, and at 2.0% until the end
of the consulting agreement on June 30, 1997. Mercury has
extended credit to the Company which is secured by a subordinated
lien on the Company's assets and a pledge by Mr. Fountain of
substantially all of his shares of Common Stock of the Company.
See also Item 7, "Management's Discussion and Analysis".
-7-
The Company manufactures many metal and plastic parts (such
as brackets, T-tops, and windscreens) to assure its quality
standards are met. All other component parts and materials used
in the manufacture of the Company's boats are readily available
from a variety of suppliers at comparable prices exclusive of
discounts. However, where practicable, the Company purchases
certain supplies and materials from a limited number of suppliers
in order to obtain the benefit of volume discounts.
Certain materials used in boat manufacturing, including the
resins used to make the decks and hulls, are toxic, flammable,
corrosive, or reactive and are classified by the federal and
state governments as "hazardous materials." Control of these
substances is regulated by the Environmental Protection Agency
and state pollution control agencies which require reports and
inspect facilities to monitor compliance with their regulations.
The Company's cost of compliance with environmental regulations
has not been material. The Company's manufacturing facilities
are regularly inspected by the Occupational Safety and Health
Administration and by state and local inspection agencies and
departments. The Company believes that its facilities comply
with substantially all regulations. The Company, however, has
been informed that it may incur or may have incurred liability
for remediation of ground water contamination at two hazardous
waste disposal sites resulting from the disposal of a hazardous
substance at those sites by a third-party contractor of the
Subsidiary. (See Item 3. Legal Proceedings.)
Recreational power boats must be certified by the
manufacturer to meet U.S. Coast Guard specifications. In
addition, their safety is subject to federal regulation under the
Boat Safety Act of 1971, as amended, pursuant to which boat
manufacturers may be required to recall products for replacement
of parts or components that have demonstrated defects affecting
safety. The Company has never had to conduct a product recall.
Sales and Marketing.
Sales are made through approximately 60 dealers throughout
the United States. The Company also has an international dealer
network with one dealer in Canada, three in Europe, and three in
Asia. These dealers are not exclusive to the Company and carry
the boats of other companies including some which may be
competitive with the Company's products. The territories served
by any dealer are not exclusive to the dealer. However, the
Company uses discretion in locating new dealers in an effort to
protect the interests of the existing dealers.
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Following is a table of sales by geographic area for the
last three fiscal years:
Fiscal '95 Fiscal '94 Fiscal '93
United States.............$38,220,232 $21,416,888 $23,855,054
Canada, Mexico, Central
and South America.... -0- 187,458 163,886
Europe and
the Middle East..... 309,165 635,866 415,889
Asia..................... 197,932 -0- 2,797,532
---------- ---------- ----------
Total.................... $38,727,329 $22,240,212 $27,232,361
========== ========== ==========
The decline in sales to Asia is accounted for by one
customer account in south Asia which ceased buying boats entirely
in Fiscal 1994.
The Company has a limited international advertising program
and is seeking additional distribution for its products in
foreign markets. In general, the Company requires payment in
full or an irrevocable letter of credit from a domestic bank
before it will ship a boat overseas. Consequently, there is no
credit risk associated with its foreign sales nor risk related to
foreign currency fluctuations.
No single dealer accounted for more than 10% of the
Company's revenues in Fiscal 1995. The Company believes that the
loss of any particular dealer would not have a materially adverse
effect on sales.
Field sales representatives call upon existing dealers and
develop new dealers. The field sales force is headed by the
Subsidiary's Vice President of Sales who is responsible for
developing a full dealer organization for both sport boats,
including sport cruisers, and sport fishing boats. The Company
is seeking to establish separate sport boat and fishing boat
dealers in most marketing areas due to the specialization of each
type of boat and the different sales programs required.
-9-
Although a sales order can be cancelled at any time, most
boats are pre-sold to a dealer before entering the production
line. The Company generally has been able to sell any boat for
which the order has been cancelled to another dealer. To date,
cancellations have not had any material effect on the Company.
The Company normally does not manufacture boats for inventory.
The Company's sales are somewhat seasonal. In an effort to
minimize the carrying costs of their inventories, some dealers
take delivery of boats during their April through July peak sales
season. Therefore, the Company's sales generally begin to
increase during the Spring to a peak during the Summer. Sales
then begin to decline to their lowest levels during the Fall and
Winter.
The Company ships boats to its dealers on a cash on delivery
basis. However, approximately one-half of the Company's
shipments are made pursuant to commercial dealer "floor plan
financing" programs in which the Company participates on behalf
of its dealers. Under these arrangements, a dealer establishes
lines of credit with one or more third-party lenders for the
purchase of showroom inventory.
When a dealer purchases a boat pursuant to a floor plan
arrangement, it draws against its line of credit and the lender
pays the invoice cost of the boat, net of shipping charges,
directly to the Company. Generally, payment is made to the
Company within five to fifteen business days. When the dealer in
turn sells the boat to a retail customer, the dealer repays the
lender, thereby restoring its available credit line.
For the 1996 model year (which commenced July 1, 1995), the
Company has made arrangements to pay all interest charged by
certain floor plan lenders for as long as six months. After six
months, the free interest program ends and interest will be
charged to the dealer at the rate set by the lender. The dealer
will make curtailment payments (equity investments in the boats)
as required by his particular commercial lender. Similar sales
promotion programs were in effect during Fiscal 1995, 1994, and
1993.
Each dealer's floor plan credit facilities are secured by
the dealer's inventory, and, perhaps, other personal and real
property. In connection with the dealers' floor plan
arrangements, the Company (together with substantially all other
major manufacturers) has agreed to repurchase any of its boats
which a lender repossesses from a dealer and returns to the
Company. In the event that a dealer defaults under a credit
line, the lender may then
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invoke the manufacturers' repurchase agreements with respect to
that dealer. In that event, all repurchase agreements of all
manufacturers supplying a defaulting dealer are generally invoked
regardless of the boat or boats with respect to which the dealer
has defaulted (See also Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations).
The Company participates in floor plan arrangements with
several major third-party lenders on behalf of its dealers, most
of whom have financing arrangements with more than one lender.
Except as described above or where it has a direct
repurchase agreement with a dealer, the Company is under no
material obligation to repurchase boats from its dealers. From
time to time the Company will voluntarily repurchase a boat for
the convenience of the dealer or for another dealer who needs a
particular model not readily available from the factory.
The marketing of boats to retail customers is primarily the
responsibility of the dealer, whose efforts are supplemented by
the Company through advertising in boating magazines and
participation in regional, national, and international boat
shows.
Additionally, in order to further promote its products, for
Fiscal 1990 and 1991 the Company developed a racing program.
This entailed the construction of specially designed race boats
which were entered in major national offshore boat races. As of
August 30, 1991, Fountain race boats won 8 of 10 major races.
The result of this record of victories by a major manufacturer is
that the Company's products won a reputation for very fast and
safe hull designs, durable construction, and mechanical
reliability.
The Company believes that the favorable publicity generated
by its winning race boats has contributed significantly to its
sales volume. Although the Company curtailed its racing program
for Fiscal 1992 and sold all of its race boats, the fact that its
racing program was so successful in Fiscal 1990 and Fiscal 1991
has, the Company believes, significantly benefited its sales
volume in subsequent years. For Fiscal 1993, 1994, and 1995, the
Company limited its participation in racing to partial support of
customer owned and driven Fountain race boats. These Fountain
race boats were, in general, very successful in the various
racing circuits in which they competed.
As part of the marketing program for its new line of sport
fishing boats, the Company sponsored several outstanding sport
fishermen in the Southern Kingfish Association's King Mackerel
Tournaments. This competitive circuit is held throughout the
Southeast. In Fiscal 1992, the Company's boats and sponsored
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fishermen dominated the tournaments by winning four of the top
five spots. One Fountain fisherman, Clayton Kirby, was named
"Angler of the Year" and finished in first place. Again, in
Fiscal 1993, first place was taken by a Fountain fisherman.
Fountain fishermen also won second place and 11 of the top 15
spots in Fiscal 1993.
In Fiscal 1994 and 1995, the Foutain fishing team also placed
high in the final standings. The Southern Kingfish Association's
tournaments are held weekly and attract from one hundred to one
thousand entrants with prizes ranging up to $350,000. The
winning participation by Fountain sport fishing boats has given
them favorable exposure to serious sport fishermen, in particular
with respect to the superior performance of Fountain's fishing
boat line.
Sales Order Backlog.
The sales order backlog as of the end of August, 1995 was
for approximately 200 boats having an estimated sales value of
$20,000,000. This compares to the sales order backlog as of the
end of August, 1994 for 84 boats having an approximate sales
value of $8,567,000 and to the backlog as of the end of August,
1993 for 100 boats having an approximate sales value of
$8,145,000.
Product Warranty.
The Company warrants the deck and hull of its boats against
defects in material and workmanship for a period of three years.
Engines included in the boats are warranted by the engine
manufacturer. Warranty expenses of $397,517 were incurred in
Fiscal 1995 and were charged-off against net income. A reserve
for warranty expenses estimated to be incurred in future years
has been recorded and amounted to $400,000 at June 30, 1995.
Competition.
Competition within the power boat manufacturing industry is
intense. While the high performance sports boat market comprises
only a small segment of all boats manufactured, the higher prices
commanded by these boats make it a significant market in terms of
total dollars spent. The manufacturers that compete directly
with the Company in its market segment include:
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Wellcraft Division of Genmar Industries, Inc.
Formula, a division of Thunderbird Products Corporation
Cigarette Racing Team, Inc.
Baja Boats, Inc.
Apache Boats, Inc.
The Company believes that in its market segment, speed,
performance, quality, and safety are the main competitive
factors, with styling and price being somewhat lesser
considerations.
Employees.
At August 20, 1995 the Company had 330 employees, of whom
seven were executive and management personnel. Sixteen were
engaged primarily in administrative positions including
accounting, personnel, marketing and sales activities. Sixteen
were employed in engineering, tooling, and design. The balance
were engaged in manufacturing operations. None of the Company's
employees are party to a collective bargaining agreement. The
Company considers its employee relations to be satisfactory. The
Company is an affirmative action, equal opportunity employer.
Item 2. Properties.
The Company's executive offices and manufacturing facilities
are located on 62 acres along the Pamlico River in Beaufort
County, North Carolina. All of the land, buildings and
improvements are owned by the Company and are held as collateral
on notes and mortgages payable having a balance of $6,003,799 at
June 30, 1995.
The operating facility contains seven buildings totalling
155,250 square feet located on fifteen acres. The buildings
consist of the following:
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Approximate
Square Footage Principal Use
Building 1.......... 13,200 Executive offices, shipping
and receiving, and paint shop.
Building 2.......... 7,200 Final prep shop.
Building 3.......... 63,800 Lamination, woodworking,
upolstery, final assembly,
inventory, and cafeteria.
Building 4.......... 14,250 Metal fabrication shop.
Building 5.......... 26,300 Tooling and research &
development.
Building 6.......... 18,500 Mold storage.
Building 7.......... 12,000 Racing, service, and warranty.
Total............... 155,250
========
Site improvements include a boat ramp and docking facilities
along a 600 foot canal leading to the Pamlico River. In
addition, approximately 182,000 square feet of concrete paving
surrounds the buildings and provides for employee parking.
Thirty-five unimproved acres are owned and available for future
expansion.
Item 3. Legal Proceedings.
The Company has been notified by the United States
Environmental Protection Agency (the "EPA") and the North
Carolina Department of Environment, Health and Natural Resources
("NCDEHNR") that it has been identified as a potentially
responsible party (a "PRP") and may incur, or may have incurred,
liability for the remediation of ground water contamination at
the Spectron/Galaxy Waste Disposal Site located in Elkton,
Maryland (notice from the EPA dated June 7, 1989) and the
Seaboard Disposal Site, located in
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High Point, North Carolina, also referred to as the Jamestown,
North Carolina site (notice from the EPA dated July 10, 1991),
resulting from the disposal of hazardous substances at those
sites by a third-party contractor of the Company. The Company
has been informed that the EPA and NCDEHNR ultimately may
identify a total of between 1,000 and 2,000, or more, PRP's with
respect to each site. The amounts of the hazardous substances
generated by the Company, which were disposed of at both sites,
are believed to be minimal in relation to the total amount of
hazardous substances disposed of by all PRP's at the sites. At
present, the environmental conditions at the sites, to the
Company's knowledge, have not been fully determined by the EPA
and NCDEHNR, respectively, and the Company is not able to
determine at this time the amount of any potential liability it
may have in connection with remediation at either site. Without
any acknowledgement or admission of liability, the Company has
made payments of approximately $3,000 to date as a nonperforming
cash-out participant in an EPA-supervised response and removal
program at the Elkton, Maryland site, and in a NCDEHNR-supervised
removal and preliminary assessment program at the Jamestown,
North Carolina site. A cash-out proposal for the next phase of
the project is expected to be forthcoming from the PRP Group for
the Elkton, Maryland site within the near future. The Company's
full cash-out amount is likely to be less than $10,000 for the
Elkton, Maryland site, based upon an estimated 3,304 gallons of
waste disposed of at that site by the Company. A cash-out
proposal is expected to be forthcoming from the PRP Group for the
Jamestown, North Carolina site by mid-1996, following completion
of a remedial investigation and feasibility study. No estimate
of the likely cash-out amount for the Company for the Jamestown,
North Carolina site is available at present. Any such cash-out
agreement will be subject to approval by EPA and NCDEHNR,
respectively.
In June, 1995, the Company settled an assessment from the
North Carolina Department of Revenue (NCDR) for unpaid sales and
use taxes for the period April 1, 1988 through May 31, 1991. The
Company paid the NCDR $116,187 in full settlement of the recorded
tax assessment, penalties, and interest amounting to $285,739.
The difference between the amount of the tax liability recorded
and the amount actually paid, or $169,552 was recorded in the
Company's financial statements as other income.
There were six product liability lawsuits brought against
the Company at June 30, 1995. In the Company's opinion, these
lawsuits are without merit. Therefore, these lawsuits are being
defended vigorously. The Company carries sufficient product
liability insurance to cover attorney's fees and any losses which
may occur from these lawsuits over and above the insurance
deductibles.
-15-
Item 4. Submission of Matters to a Vote of Security Holders.
At a Special Meeting of the Shareholders held on June 21,
1995, the Shareholders voted to approve the 1995 Stock Option
Plan.
The shareholders vote was as follows:
FOR........................1,512,557
AGAINST.................... 48,125
ABSTAIN.................... 3,300
The 1995 Stock Option Plan provided for the issuance of
300,000 common stock options to the Company's directors and key
employees. Subsequently, on August 4, 1995, the Board of
Directors voted unanimously to award the 300,000 stock options to
Mr. R.M. Fountain, Jr., the Company's Chairman, President, Chief
Exective Officer, and Chief Operating Officer. The exercise
price of the 300,000 stock options awarded to Mr. Fountain is
$7.00 per share, which was the closing market value on August 3,
1995. To date, none of the 300,000 stock options awarded to Mr.
Fountain have been exercised by him. The expiration date of the
options awarded to Mr. Fountain is August 4, 2005.
-16-
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock, $.01 par value, was listed and
began trading on the American Stock Exchange (under the symbol
"FPI") on September 1, 1989. Prior to that time the Company's
common stock was traded in the over-the-counter market and was
quoted on the NASDAQ National Market System (under the symbol
"FPBT").
The following table contains certain historical high and low
price information relating to the common stock for the past
quarters indicated. Amounts shown reflect high and low sales
prices of the common stock on the American Stock Exchange:
Quarter Ended High Low
September 30, 1993..... $4.75 $4.00
December 31, 1993...... 3.75 3.25
March 31, 1994......... 3.38 3.13
June 30, 1994.......... 2.88 2.38
September 30, 1994..... 4.38 2.25
December 31, 1994...... 6.63 2.75
March 31, 1995......... 7.25 5.25
June 30, 1995.......... 6.25 4.50
The Company has not declared or paid any dividends since its
inception. Any decision as to the future payment of dividends
will
depend on the Company's earnings, financial position, and such
other factors as the Board of Directors deems relevant. The
payment of dividends by the Company is restricted by the terms of
its loan agreement with MetLife Capital Corporation which
provides that, without the consent of the lender, and other than
for reasonable operating costs, expenses and liabilities, the
Company may not pay any dividends on its capital stock in excess
of its net profits after taxes plus depreciation and less current
maturities of long term debt (See Note 5 to the Company's
Consolidated Financial Statements included herein). Also, a
North Carolina corporation generally may not pay a dividend or
make any other shareholder distribution if thereafter it would
not be able to pay its debts as they become due in the usual
course of business, or its total assets would be less than the
sum of its total liabilities.
The number of shareholders of record for the Company's common
stock as of September 6, 1995 was 215.
-17-
<TABLE>
Item 6. Selected Financial Data.
Fountain Powerboat Industries, Inc. and Subsidiary
SELECTED FINANCIAL DATA
Fiscal Years 1991 through 1995
<CAPTION>
YEAR ENDED JUNE 30,
Operations Statement Data: -------------------------------------------------------------------------
(Period Ended) 1995 1994 1993 1992 1991
- ----------------------------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales.............................. $ 38,727,329 $ 22,240,212 $ 27,232,360 $ 27,783,378 $ 18,661,900
Net income (loss).................. 2,047,876 (2,993,344) 146,433 (1,529,930) (3,336,861)
Income (loss) per share............ .68 (1.00) .04 (.66) (1.50)
Weighted average shares outstanding 3,019,072 2,968,571 2,932,500 2,311,185 2,220,000
Balance Sheet Data
(At Period End)
- -----------------------------------
Current assets..................... $ 6,185,727 $ 5,635,619 $ 5,011,591 $ 6,607,386 $ 6,260,223
Total assets....................... 16,334,757 16,266,787 16,211,026 17,957,207 17,675,139
Current liabilities................ 6,081,298 14,976,570 5,920,743 8,878,176 9,460,801
Long-term debt..................... 7,049,049 133,683 6,440,403 5,377,084 5,767,773
Stockholders' equity (1)........... 3,204,410 1,156,534 3,849,880 3,701,947 2,446,565
- -----------------------------------
<FN>
(1) The Company has not paid any dividends since its inception.
</TABLE>
-18-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
As described more fully below at "Business Environment",
approximately half of the Company's shipments to dealers were
financed through so-called "100% floor plan arrangements" with
third-party lenders pursuant to which the Company may be required
to repurchase boats repossessed by the lenders if the dealer
defaults under his credit arrangements. The other half of
shipments were C.O.D. or payment prior to shipment.
Generally, the Company recognizes a sale when a boat is
shipped to a customer, legal title and all other incidents of
ownership have passed from the Company to the customer, and
payment is received from the dealer's third-party commercial
lender or from the customer. This is the method of sales
recognition believed to be in use by most boat manufacturers.
The Company has developed criteria for determining whether a
shipment should be recorded as a sale or as a deferred sale (a
balance sheet liability). The criteria for recording a sale are
that the boat has been completed and shipped to a customer, that
title and all other incidents of ownership have passed to the
customer, and that there is no direct commitment to repurchase
the boat or to pay floor plan interest beyond the normal sales
program terms.
At June 30, 1992, the Company estimated the balances in
deferred sales to be $1,062,887 and in deferred cost of sales to
be $760,957. As of June 30, 1993, the Company estimated the
balances in deferred sales to be $242,230 and in deferred cost of
sales to be $191,229. The differences between the estimates for
deferred sales and deferred cost of sales at June 28, 1992 and
June 30, 1993 had the effect of increasing the gross margin on
sales and net income after taxes for the year by $250,929 ($0.08
per share). The allowance for estimated losses to be incurred on
boats repurchased was reduced by $50,000 to $250,000.
The decrease in deferred sales from $1,062,887 at June 28,
1992 to $242,230 at June 30, 1993 was because of a decrease in
the number of instances in which the Company made commitments to
dealers to pay the interest on floor plan financed boats in
excess of the time period specified in its written sales program
for the year and to a decrease in the number of direct repurchase
agreements the Company had in effect with its dealers.
-19-
At June 30, 1994, the Company estimated the balances in
deferred sales to be $1,100,000 and in deferred cost of sales to
be $850,000. The differences between the estimates for deferred
sales and deferred cost of sales at June 30, 1993 and June 30,
1994 had the effect of decreasing the gross margin on sales and
net income after taxes for the year by $198,999 ($.07 per share).
At June 30, 1995, the Company estimated the balances in
deferred sales to be $197,541 and in deferred cost of sales to be
$183,393. The differences between the estimates for deferred
sales and deferred cost of sales at June 30, 1994 and June 30,
1995 had the effect of increasing the gross margin on sales and
net income after taxes for the year by $235,852 ($.08 per share).
Additionally, the Company has a contingent liability to
repurchase boats where it participates in the floor plan
financing made available to its dealers by third-party finance
companies. Sales to participating dealers are approved by the
respective finance companies. If a participating dealer does not
satisfy its obligation to the lender and the boat is subsequently
repossessed by the lender, then the Company can be required to
repurchase the boat. The Company had a contingent liability of
approximately $7,700,000 at June 30, 1995, $8,400,000 at June 30,
1994, and $6,300,000 at June 30, 1993 for the shipment of boats
which remained uncollected by the finance companies at those
dates. The lesser contingent liability at June 30, 1995 is due
to fewer boats being floor planned by dealers with finance
companies. Of the foregoing contingent liability amounts,
$197,541 and $1,100,000 are reflected as deferred sales in the
accompanying consolidated balance sheets as of June 30, 1995 and
June 30, 1994, respectively (See Note 9 to the Consolidated
Financial Statements). Additionally, at June 30, 1995 the
Company had recorded a $207,359 reserve for losses which may be
reasonably expected to be incurred on boat repurchases in future
years. At June 30, 1994, the amount of the reserve was $250,000,
reflecting a larger number of boats floor planned by dealers with
finance companies.
Business Environment.
Sales for Fiscal 1995 were $38,727,329, a 74% increase from
sales for Fiscal 1994. Sales for Fiscal 1995 excluded $197,541
of deferred sales as of June 30, 1995 but included $1,100,000 of
deferred sales as of June 30, 1994. Improved sales volume for
Fiscal 1995 was in line with a general improvement in the overall
recreational boating industry. Also, the Company continued its
highly effective advertising and marketing programs throughout
Fiscal 1995.
-20-
Sales for Fiscal 1994 were $22,240,212, an 18% decrease from
sales for Fiscal 1993. Sales for Fiscal 1994 excluded $1,100,000
of deferred sales as of June 30, 1994 but included $242,230 of
deferred sales as of June 30, 1993. In Fiscal 1994, no boats
were sold to the U.S. Government. For the last five months of
Fiscal 1994, the Company was unable to obtain the high
performance engines it needed. The shortage of high performance
engines seriously reduced the Company's sales volume over the
last five months of the year. The engine supply problem was
solved in July, 1994.
Sales for Fiscal 1993 were $27,232,360. Fiscal 1993 sales
excluded $242,230 of deferred sales as of June 30, 1993 but
included $1,062,887 of deferred sales as of June 30, 1992. Sales
for Fiscal 1993 included 27 boats sold to the U.S. Government
amounting to $1,457,880.
In Fiscal 1995, the Company continued to advertise and
market aggressively. Management believes that the Company's
advertising, marketing, racing, and tournament fishing programs,
as well as, its reputation as the builder of the highest quality,
best performing, and safest high performance boats in the
industry, all contributed
to increased sales for Fiscal 1995. Management also believes
that the repeal effective January 1, 1993 of the federal luxury
tax on boats sold for more than $100,000 has had and will have a
very beneficial effect upon the Company's sales of large boats.
Typically, each dealer's floor plan credit facilities are
secured by the dealer's inventory, and, perhaps, other personal
and real property. In connection with the dealers' floor plan
arrangements, the Company (as well as substantially all other
major manufacturers) has agreed in most instances to repurchase,
under
certain circumstances, any of its boats which a lender
repossesses from a dealer and returns to the Company. In the
event that a dealer defaults under a credit line, the lender may
invoke the manufacturers' repurchase agreements with respect to
that dealer. In that event, all repurchase agreements of all
manufacturers supplying a defaulting dealer are generally invoked
regardless of the boat or boats with respect to which the dealer
has defaulted.
Except where there is a direct repurchase agreement with the
customer, the Company is under no obligation to repurchase boats
from its dealers, although it will on occasion voluntarily assist
a dealer in selling a boat or repurchase a boat for the
convenience of a dealer.
Five boats were repurchased during Fiscal 1995 in connection
with floor plan arrangements. No boats were repurchased in
Fiscal 1994 in connection with floor plan arrangements. Twelve
boats were repurchased in Fiscal 1993. At June 30, 1995, the
Company had recorded a $207,359 reserve for losses which may be
reasonably expected to be incurred on boat repurchases in future
years.
-21-
Results of Operations.
The net income for Fiscal 1995 was $2,047,876, or $.68 per
share outstanding. This compares to a net loss for Fiscal 1994
of $2,993,344, or $1.00 per share. Net inome for Fiscal 1993 was
$146,433, or $.04 per share.
The improvement in earnings for Fiscal 1995 was the result
of much greater sales volume. Sales were $38,727,329, up by 74%
from the previous year. The mix of sales was heavily weighted
with sales of the Company's larger, higher margin sport boats.
Price increases and production efficiencies also contributed to
increased earnings for the year.
The loss for Fiscal 1994 is primarily attributable to lesser
sales volume. Sales for Fiscal 1994 were $22,240,212, or down by
18% from Fiscal 1993 sales. The sales mix for Fiscal 1994 was
unfavorable and overall sales volume through February, 1994 was
less than anticipated. Fewer boats were sold and they were
generally smaller and less profitable.
Last year, in Fiscal 1994, at the Miami boat show in mid-
February, the new "positive-lift" hull design was introduced.
This new hull design significantly increases speed, improves
handling, and results in much better fuel economy. Subsequent to
the introduction of this new design, the Company received many
orders for large, profitable sport boats having the new "positive-
lift" hull.
As the Company's sales order volume improved, it began to
greatly increase its level of purchases of high performance
engines and other critical components. Unfortunately, the high
perfomance engines and certain other critical components were not
available on a timely basis. This caused serious and prolonged
delays in the Company's boat production. Many costly
inefficiencies were incurred in its manufacturing operations as a
consequence of not having the necessary high performance engines
and components on a timely basis. By July, 1994, most of these
supply problems had been resolved. Most of the sales orders that
were not completed in the fourth quarter of Fiscal 1994 because
of delayed deliveries of critical components were completed in
the first quarter of Fiscal 1995.
The Company's gross profit margin as a percentage of sales
increased to 20.07% from 7.79% for Fiscal 1994. The increase in
the gross margin percentage was due to price increases and the
sales mix of larger, higher margin sport boats. Greater sales
volume and production efficiencies also contributed to an
improved gross margin for Fiscal 1995.
-22-
The Company's gross profit margin as a percentage of net
sales decreased to 7.79% for Fiscal 1994 as compared to 16.74%
for Fiscal 1993. The decline in gross margin for Fiscal 1994 was
due to lesser sales volume, manufacturing inefficiencies caused
by shortages of critical components, and an unfavorable sales mix
of smaller, less profitable boats earlier in the year.
Depreciation expense was $1,628,867 for Fiscal 1995,
$1,527,042 for Fiscal 1994, and $1,407,180 for Fiscal 1993.
Depreciation expense by asset category was as follows:
Fiscal Fiscal Fiscal
1995 1994 1993
Land improvements......$ 18,849 $ 18,849 $ 18,711
Buildings.............. 269,460 268,945 268,135
Molds & plugs.......... 1,076,746 1,007,534 832,174
Machinery & equipment.. 216,089 171,053 208,416
Furniture & fixtures... 12,094 17,838 29,206
Transportation equip... 35,629 42,823 50,538
---------- ---------- ----------
$ 1,628,867 $ 1,527,042 $ 1,407,180
========== ========== ==========
The $101,825 increase in depreciation expense for Fiscal
1995 is due to increased product molds being completed and put
into service during the year and to purchases of additional
machinery and equipment. The depreciation expense associated
with product molds increased by $69,212 and with machinery and
equipment by $43,095 in Fiscal 1995. The $119,862 increase in
depreciation expense for Fiscal 1994 was due to additional
product molds completed and put into service during the year.
Following is a schedule of the net fixed asset additions
during Fiscal 1995:
Buildings......................................$ 80,560
Molds and plugs................................ 767,102
Machinery & equipment.......................... 348,533
Furniture & fixtures........................... 2,044
----------
$1,198,239
==========
-23-
Selling expenses were $3,897,086 for Fiscal 1995, $2,854,476
for Fiscal 1994, and $2,909,935 for Fiscal 1993. The Company
continued to promote its products primarily by magazine
advertising in Fiscal 1995. Advertising expense was $977,787 for
Fiscal 1995, $837,973 for Fiscal 1994, and $762,194 for Fiscal
1993. These advertising expenditures increased the Company's
visibility in the recreational marine industry and promoted its
boat sales. Management believes that advertising is necessary in
order to maintain the Company's sales volume and dealer base.
Additionally, in an effort to further promote its products,
the Company continued its offshore racing and tournament fishing
programs. These programs cost $576,741 in Fiscal 1995, $341,735
in Fiscal 1994, and $348,623 in Fiscal 1993. As previously
noted, the Company curtailed its offshore racing program in
Fiscal 1992 and sold its last remaining race boat, but continued
a limited racing program and its tournament fishing program. The
Company believes that its highly successful racing and tournament
fishing programs for Fiscal 1995 and prior years will benefit
future years as well.
Selling expenses compared for the past three fiscal years
were as follows:
Fiscal '95 Fiscal '94 Fiscal '93
Offshore racing and
tournament fishing...$ 576,741 $ 341,735 $ 348,623
Advertising............. 977,787 837,973 762,194
Salaries & commissions.. 752,206 363,610 541,689
Boat shows............. 388,710 260,719 332,781
Dealer incentives....... 938,563 740,722 682,933
Other selling expenses.. 263,079 309,717 241,715
--------- --------- ---------
$3,897,086 $2,854,476 $2,909,935
========= ========= =========
General and administrative expenses include the finance,
accounting, legal, personnel, data processing, and administrative
operating expenses of the Company. These expenses were
$1,415,637 for Fiscal 1995, $1,433,449 for Fiscal 1994, and
$1,349,058 for Fiscal 1993. Most of the decrease for Fiscal 1995
over Fiscal 1994 was in legal fees.
Interest expense was $989,359 for Fiscal 1995, $739,224 for
Fiscal 1994, and $527,239 for Fiscal 1993. Most of the increase
in interest expense for Fiscal 1994 is from interest paid to
Mercury Marine prior to the refinancing of the indebtedness to
Mercury in February, 1995. After the February refinancing of the
Mercury debt the interest rate paid was less.
-24-
During Fiscal 1995 some miscellaneous fixed assets were sold
yielding a gain amounting to $23,015. No fixed assets were sold
in Fiscal 1994. The net gain on the sale of fixed assets for
Fiscal 1993 amounted to $112,189.
Included in other income for Fiscal 1995 is the gain on the
settlement of a state sales and use tax assessment amounting to
$169,552. Also included in other income are $452,911 of
consulting fees paid by Mercury Marine for Mr. Fountain's
services as a technical consultant to Mercury. These consulting
fees amounted to $294,437 for Fiscal 1994 and to $237,520 for
Fiscal 1993.
Liquidity and Financial Resources.
Operations in Fiscal 1995 consumed $1,138,745 in cash. Net
income plus depreciation expense provided cash amounting to
$3,676,743. However, relatively large amounts were needed to
finance an increase in accounts receivable, a decrease in
accounts payable, and a reduction in customer deposits. The
ending cash balance was $490,807.
For the prior fiscal year, operations provided $1,069,797 in
cash. This combined with the beginning cash balance of $711,523
was sufficient to meet the Company's needs for the year. The
ending cash balance was $675,711. For Fiscal 1993, operations
provided $649,601 and the ending cash balance was $711,523.
Investing activities for Fiscal 1995 required $1,164,239,
including expenditures for additional molds and plugs amounting
to $767,102 and for other property, plant, and equipment
amounting to $431,137.
For the prior fiscal year, investing activities required
$1,013,400, including expenditures for additional molds and plugs
amounting to $677,394 and for other property, plant, and
equipment amounting to $336,006. For Fiscal 1993, investing
activities required $1,102,203.
Financing activities for Fiscal 1995 provided $2,118,080.
Included in this amount is $2,600,000 of indebtedness to Mercury
Marine which was converted from a short-term trade payable to a
long-term note payable. Debt repayments to Mercury Marine,
MetLife Capital Corporation, and others amounted to $928,632.
-25-
For the prior fiscal year, financing activities used
$92,209. Additional long-term debt, primarily from capitalized
lease obligations, provided $169,838. A new line of credit with
ITT Commercial Finance secured by engines provided an additional
$152,287. The Company also cancelled $300,000 of indebtedness to
a shareholder, Mr. R. M. Fountain, Jr., with the issuance of
86,572 additional common shares to Mr. Fountain and to Triangle
Finance Ltd. Debt repayments amounted to $414,394. For Fiscal
1993, financing activities used $665,471.
The net decrease in cash for Fiscal 1995 was $184,904. For
Fiscal 1996, the Company anticipates that the $490,807 beginning
cash balance and the amounts expected to be provided from Fiscal
1996 operations will be sufficient to meet the Company's
liquidity needs for the year. Planned capital expenditures for
Fiscal 1996 are $1,012,000.
Effective December 31, 1993, the Company refinanced its
indebtedness to MetLife Capital Corporation. A $2,000,000
revolving loan was incorporated into the long-term debt and the
total amount was amortized over ten years with a call at the end
of the fifth year. The interest rate on the debt was fixed at 8
1/2%. The new monthly payment amounts very closely approximate
what the principal and interest payment amounts were prior to the
refinancing. The indebtedness is secured by a first lien on all
of the Company's assets, except engines manufactured by Mercury
Marine. An additional $76,194 was borrowed in the transaction.
The total amount of the debt to MetLife at December 31, 1993 was
$6,683,200 after the refinancing. The indebtedness to MetLife
was $6,466,253 at June 30, 1994 and $6,003,799 at June 30, 1995.
The loan agreement with MetLife was amended January 1, 1995,
to revise certain financial ratio requirements that the Company
had previously not attained. After, the revision of the
financial ratio requirements and at June 30, 1995, the Company
was in compliance with all of the MetLife financial ratio
requirements.
By agreements dated February 24, 1995, but effective January
1, 1995, the Company refinanced its indebtedness to Mercury
Marine. The new loan agreement provides for fixed monthly
payments over a five year term, for additional quarterly payments
based upon the volume of engine purchases from Mercury, and for
annual payments commencing on August 25, 1995, equal to 5% of the
net income before interest, taxes, and depreciation expense for
the fiscal year ending immediately prior to the payment date.
The interest rate on this indebtedness is fixed at 8 1/2%.
However, in the restucture of its loan agreement with MetLife
described in the preceding
-26-
paragraph, the Company agreed not to make this annual payment if
it were not in compliance with, or such payment would cause it to
violate, the MetLife financial ratio covenants. All amounts not
previously repaid are due and payable on December 1, 1999. If
the Company has met its payment obligations in a timely manner
and reduces the principal amount of the debt to $800,000 by
December 1, 1997, the last $800,000 of the loan shall be forgiven
by Mercury. The debt is secured by a subordinated lien on the
Company's assets, a pledge by Mr. Fountain of substantially all
of his shares of the Company's common stock, and by a personal
guarantee from Mr. Fountain for the amount of the indebtedness
not to exceed $1,000,000.
In June of 1994, the Company arranged for a line of credit
from Deutsche Financial Services for engine purchases. At June
30, 1994 the amount owed to Deutsche was $152,287 and at June 30,
1995 the amount owed was $534,185. The maximum amount of the
line of credit from Deutsche is $750,000. The debt is secured by
a first lien on all engine inventory and by a $200,000
irrevocable letter of credit.
Effects of Inflation.
The Company has not been materially affected by the moderate
inflation of recent years. Since most of the Company's plant and
equipment are relatively new, expenditures for replacements are
not expected to be a factor in the near-term future.
When raw material costs increase because of inflation, the
Company attempts to minimize the effect of these increases by
using alternative, less costly materials, or by finding less
costly sources for the materials it uses. When the foregoing
measures are not possible, its selling prices are increased to
recover the cost increases.
The Company's products are targeted at that segment of the
power boat market where retail purchasers are generally less
significantly affected by price or other economic conditions.
Consequently, management believes that the impact of inflation on
sales and the results of operations will not be material.
-27-
Item 8. Financial Statements and Supplementary Data.
INDEX
Page No.
Independent Auditors' Report........................ 29
Consolidated Balance Sheets -
June 30, 1995 and 1994........................... 30
Consolidated Statements of Operations -
Years Ended June 30, 1995, 1994, and 1993........ 31
Consolidated Statements of Stockholders' Equity -
Years Ended June 30, 1995, 1994, 1993............ 32
Consolidated Statements of Cash Flows -
Years Ended June 30, 1995, 1994, 1993............ 33-34
Notes to Consolidated Financial Statements.......... 35-51
-28-
PETERSON, SILER & STEVENSON, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
430 East 400 South
Salt Lake City, Utah 84111
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina
We have audited the accompanying consolidated balance sheets of
Fountain Powerboat Industries, Inc. and Subsidiary as of June 30,
1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years
ended June 30, 1995, 1994 and 1993. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by
us present fairly, in all material respects, the financial
position of Fountain Powerboat Industries, Inc. and Subsidiary as
of June 30, 1995 and 1994, and the results of their operations
and their cash flows for the years ended June 30, 1995, 1994 and
1993 in conformity with generally accepted accounting principles.
/s/ PETERSON, SILER & STEVENSON, P.C.
August 4, 1995
-29-
<TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1995 and June 30, 1994
<CAPTION>
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................ $ 490,807 $ 675,711
Accounts receivable, less allowance for doubtful
accounts at $30,000 (Note 4)..................... 1,898,854 412,379
Inventories (Notes 1, 2, and 4)..................... 3,407,726 3,496,950
Deferred cost of sales (Note 1)..................... 183,393 850,000
Prepaid expenses.................................... 204,947 200,579
----------- -----------
Total current assets......................... $ 6,185,727 $ 5,635,619
----------- -----------
PROPERTY, PLANT, AND EQUIPMENT, NET (Notes 3 and 5).... $ 9,990,082 $10,477,725
----------- -----------
OTHER ASSETS........................................... $ 158,948 $ 153,443
----------- -----------
$ 16,334,757 $16,266,787
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4).............................. $ 534,185 $ 152,287
Current maturities of long-term debt (Note 5)....... 1,371,554 6,550,738
Accounts payable.................................... 1,800,592 4,930,149
Accounts payable - related parties (Note 11)........ 4,769 12,800
Accrued expenses.................................... 1,109,848 805,771
Accrued income taxes................................ 42,641 0
Customer deposits................................... 412,809 859,825
Allowance for boat repurchases (Note 9)............. 207,359 250,000
Warranty reserve.................................... 400,000 315,000
Deferred sales (Note 1)............................. 197,541 1,100,000
----------- -----------
Total current liabilities.................... $ 6,081,298 $14,976,570
----------- -----------
LONG-TERM DEBT, less current maturities (Note 5)....... $ 7,049,049 $ 133,683
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Note 6):
Common stock, par value $.01 per share,
authorized 200,000,000 shares;
issued 3,029,072 shares.......................... $ 30,291 $ 30,291
Additional paid-in capital.......................... 9,297,450 9,297,450
Accumulated deficit................................. (6,012,583) (8,060,459)
----------- -----------
$ 3,315,158 $ 1,267,282
Less treasury stock, at cost, 10,000 shares............ (110,748) (110,748)
----------- -----------
$ 3,204,410 $ 1,156,534
----------- -----------
$ 16,334,757 $16,266,787
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
-30-
</TABLE>
<TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended
-----------------------------------------
June 30, June 30, June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................. $38,727,329 $22,240,212 $27,232,360
Cost of sales............................. 30,953,992 20,507,755 22,674,944
----------- ----------- -----------
Gross margin.............................. $ 7,773,337 $ 1,732,457 $ 4,557,416
----------- ----------- -----------
Selling expense........................... $ 3,897,086 $ 2,831,924 $ 2,891,064
Selling expense - related parties (Note 11) 0 22,552 18,871
General & administrative expense.......... 1,297,173 1,324,901 1,290,943
General & admin. - related parties (Note 11) 118,464 108,548 58,115
----------- ----------- -----------
$ 5,312,723 $ 4,287,925 $ 4,258,993
----------- ----------- -----------
Operating income (loss)................... $ 2,460,614 $(2,555,468) $ 298,423
----------- ----------- -----------
Non-operating (income) / expense:
Other income ........................ $ (642,277) $ (301,348) $ (263,060)
Interest expense..................... 989,359 721,224 505,185
Interest expense -
related parties (Note 11)........ 0 18,000 22,054
(Gain) loss on disposal of assets
(Note 3)......................... 23,015 0 (112,189)
----------- ----------- -----------
$ 370,097 $ 437,876 $ 151,990
----------- ----------- -----------
Income (loss) before income taxes......... $ 2,090,517 $(2,993,344) $ 146,433
Current tax expense (benefit) (Note 7).... 42,641 0 0
Deferred tax expense (benefit) (Note 7)... 0 0 0
----------- ----------- -----------
Net income (loss)......................... $ 2,047,876 $(2,993,344) $ 146,433
=========== =========== ===========
Earnings (loss) per share (Note 6)........ $ .68 $ (1.00) $ .04
=========== =========== ===========
Weighted average shares outstanding (Note 6) 3,019,072 2,968,571 2,932,500
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
-31-
</TABLE>
<TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1995, 1994, and, 1993
<CAPTION>
Total
Common Stock Additional Treasury Stock Stock-
--------------------- Paid-in Accumulated ------------------- holders'
Shares Amount Capital deficit Shares Amount Equity
----------- -------- ----------- ------------ -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992........ 2,942,500 $ 29,425 $ 8,996,816 $ (5,213,546) 10,000 $ 110,748 $ 3,701,947
Refund of stock issuance costs 0 0 1,500 0 0 0 1,500
Net profit for the year ended
June 30, 1993.............. 0 0 0 146,433 0 0 146,433
Other adjustments............. 0 0 0 0 0 0 0
----------- -------- ----------- ------------ -------- --------- -----------
Balance, June 30, 1993........ 2,942,500 $ 29,425 $ 8,998,316 $ (5,067,113) 10,000 $ 110,748 $ 3,849,880
Additional common stock shares
issued January 31, 1994, net
of costs of issuance.... 86,572 866 299,134 0 0 0 300,000
Net loss for the year ended
June 30, 1994.............. 0 0 0 (2,993,344) 0 0 (2,993,344)
Other adjustments............. 0 0 0 (2) 0 0 (2)
----------- -------- ----------- ------------ -------- --------- -----------
Balance, June 30, 1994........ 3,029,072 $ 30,291 $ 9,297,450 $ (8,060,459) 10,000 $ 110,748 $ 1,156,534
Net profit for the year ended
June 30, 1995.............. 0 0 0 2,047,876 0 0 2,047,876
----------- -------- ----------- ------------ -------- --------- -----------
Balance, June 30, 1995........ 3,029,072 $ 30,291 $ 9,297,450 $ (6,012,583) 10,000 $ 110,748 $ 3,204,410
=========== ======== =========== ============ ======== ========= ===========
<FN>
See Notes to Consolidated Financial Statements.
-32-
</TABLE>
<TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended
-----------------------------------------
June 30, June 30, June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ 2,047,876 $(2,993,344) $ 146,433
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation expense.............. 1,628,867 1,527,042 1,407,180
(Gain) loss on disposal of
property, plant, and equipment 23,015 0 (111,330)
Non-cash expenses................. 0 0 0
Change in assets and liabilities:
Accounts receivable............ (1,486,475) 1,134,853 (411,749)
Inventories.................... 89,224 (1,245,651) 544,268
Prepaid expenses............... (4,369) 109,729 (224,525)
Other assets................... (5,505) 54,625 (43,261)
Accounts payable............... (3,129,557) 1,553,863 (323,688)
Accounts payable -
related parties............ (8,031) 12,800 0
Accrued expenses............... 304,078 79,945 (192,484)
Accrued expenses -
related parties............ 0 (15,673) 15,673
Accrued income taxes........... 42,641 0 0
Customer deposits.............. (447,016) 587,609 144,013
Allowance for boat returns..... (42,641) 0 (50,000)
Warranty reserve............... 85,000 65,000 0
Deferred sales net of deferred
cost of sales............... (235,852) 198,999 (250,929)
----------- ----------- -----------
Net cash provided by (used in)
operating activities........ $(1,138,745) $ 1,069,797 $ 649,601
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property,
plant, and equipment................ $ 34,000 $ 0 $ 475,231
Investment in additional molds and
related plugs....................... (767,102) (677,394) (1,251,214)
Purchases of other property, plant,
and equipment....................... (431,137) (336,006) (326,220)
----------- ----------- -----------
Net cash (used in) investing
activities.................. $(1,164,239) $(1,013,400) $(1,102,203)
----------- ----------- -----------
<FN>
-33-
</TABLE>
<TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<CAPTION>
Year Ended
-----------------------------------------
June 30, June 30, June 30,
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on
engine floor plan agreement......... $ 390,136 $ 152,287 $ 0
Net borrowings (repayments) on
advance from shareholder............ 0 (100,000) 300,000
Proceeds from issuance of
additional common stock............. 0 100,000 0
Costs of issuance of
additional common stock............. 0 0 1,500
Proceeds from issuance of
long-term debt...................... 2,656,576 169,898 0
Repayment of long-term debt............ (928,632) (414,394) (966,971)
----------- ----------- -----------
Net cash provided by (used in)
financing activities............ $ 2,118,080 $ (92,209) $ (665,471)
----------- ----------- -----------
Net increase (decrease) in cash........... $ (184,904) $ (35,812) $(1,118,073)
Beginning cash balance.................... 675,711 711,523 1,829,596
----------- ----------- -----------
Ending cash balance....................... $ 490,807 $ 675,711 $ 711,523
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments (receipts) for:
Interest - unrelated parties..... $ 989,359 $ 730,510 $ 545,805
- related parties....... 0 18,000 22,054
- capitalized........... 0 (9,286) (40,620)
----------- ----------- -----------
$ 989,359 $ 739,224 $ 527,239
=========== =========== ===========
Income taxes..................... $ 0 $ 0 $ 0
=========== =========== ===========
<FN>
Non-cash transactions:
On January 31, 1994, the Company issued 57,715 shares of common stock valued at
$200,000 as payment on an advance from a shareholder (Notes 6 & 11).
See Notes to Consolidated Financial Statements.
-34-
</TABLE>
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
Nature of the Business:
The Company manufactures high-performance deep water sport
boats which it sells to dealers. Its offices and plant are
located in Washington, North Carolina and it has been in business
since 1979. The Company employs approximately 330 people and is
an equal opportunity, affirmative action employer. For Fiscal
1995 one dealer accounted for 9.8% of sales and four other dealers
each accounted for more than 5% of sales. For Fiscal 1994 one
dealer accounted for 9% of sales.
A summary of the Company's significant accounting policies
follows:
Principles of consolidation:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Fountain Powerboats,
Inc. together with its three subsidiaries, as follows:
Fountain Aviation, Inc.
Fountain Sportswear, Inc.
Fountain Trucking, Inc.
All significant intercompany accounts and transactions have
been eliminated in consolidation. Fountain Aviation, Inc. was not
active after April, 1995.
Fiscal year:
The Company's fiscal year-end is June 30th, which is its
natural business year-end.
Revenue recognition:
Income from the sale of boats is recognized at the time of
shipment when title and all other incidents of ownership transfer
to a dealer or other customer. If not all of the criteria for
recording a sale are met, then the recognition of the sale and the
related cost of the sale are deferred until such time as all of
the criteria are, in fact, met. At fiscal year-end June 30, 1992,
the Company deferred the recognition of revenues amounting to
$1,062,887 (recorded as a balance sheet liability) and the related
cost of sales amounting to $760,957 (recorded as a balance sheet
asset). Recognition of these
-35-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition (Continued).
revenues was deferred because the boat sales did not meet all of
the criteria for recognition as sales. At June 30,
1993, the Company estimated the balances in deferred sales to
be $242,230 and in deferred cost of sales to be $ 191,119. The
differences between the estimates for deferred sales and deferred
cost of sales at June 30, 1992 and June 30, 1993 had the effect of
increasing the gross margin on sales and net income after taxes
for Fiscal 1993 by $250,929 ($.08 per share). At June 30, 1994,
the Company estimated the balances in deferred sales to be
$1,100,000 and in deferred cost of sales to be $850,000. The
differences between the estimates for deferred sales and deferred
cost of sales at June 30, 1993 and June 30, 1994 had the effect of
decreasing the gross margin on sales and net income after taxes
for Fiscal 1994 by $198,999 ($.07 per share). At June 30, 1995,
the Company estimated the balances in deferred sales to be
$197,541 and in deferred cost of sales to be $183,393. The
differences between the estimates for deferred sales and deferred
cost of sales at June 30, 1994 and June 30, 1995 had the effect of
increasing the gross margin on sales and net income after taxes
for Fiscal 1995 by $235,852 ($.08 per share).
Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents. The Company had
$390,807 and $575,711 in excess of federally insured amounts in
its bank accounts at June 30, 1995 and 1994, respectively.
Inventories:
Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method.
Property, Plant, and Equipment and Depreciation:
Property, plant, and equipment is carried at cost.
Depreciation on property, plant, and equipment is calculated using
the straight-line method and is based upon the estimated useful
lives of the assets.
-36-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Boat Repurchases:
The Company provides an allowance for boats financed by
dealers under floor plan finance arrangements that may be
repurchased from finance companies under certain circumstances
where the Company has a repurchase agreement with the lender. The
allowance provides for all reasonably anticipated future losses to
be incurred on boat repurchases including the cost of bringing
repurchased boats to saleable condition (see also Note 9).
Warranties:
The Company warrants the entire deck and hull, including its
supporting bulkhead and stringer system, against defects in
materials and workmanship for a period of three years. The
Company has accrued a reserve for these anticipated future
warranty costs.
Income Taxes:
Effective for the year ended June 30, 1994, the Company
adopted FASB Statement No. 109, "Accounting for Income Taxes."
There was no cumulative effect for the change in accounting
principle (see Note 7).
Earnings (Loss) Per Share:
Earnings (loss) per share amounts are based on the weighted
average number of shares and share equivalents outstanding during
the periods. The per share amounts are computed based upon the
number of shares outstanding after the February 4, 1994 one-for-
two reverse stock split. After the one-for-two reverse stock
split the weighted average shares outstanding were 3,019,072 for
1995, 2,968,571 for 1994, and 2,932,500 for 1993.
Restatement:
The financial statements have been restated for all periods
presented to reflect a one-for-two reverse stock split effected
February 4, 1994 (see Note 6).
-37-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2. Inventories.
Inventories consist of the following:
June 30, June 30,
1995 1994
---------- ----------
Parts and supplies.........................$2,707,702 $1,607,872
Work-in-process............................ 704,354 1,432,233
Trailers................................... 37,158 28,570
Finished goods............................. 48,512 478,275
---------- ----------
$3,497,726 $3,546,950
Reserve for obsolescence................... (90,000) (50,000)
---------- ----------
$3,407,726 $3,496,950
========== ==========
Note 3. Property, Plant, and Equipment.
Property, plant, and equipment consists of the following:
Estimated
Useful
Lives June 30, June 30,
in Years 1994 1994
-------- ----------- ----------
Land and related improvements..... 10-30 $ 986,116 $ 986,116
Buildings and related improvements 10-30 5,943,918 5,863,358
Construction-in-progress.......... N/A 7,466 9,763
Production molds and related plugs 8 9,095,973 8,328,871
Machinery and equipment........... 3-5 2,467,986 2,149,276
Furniture and fixtures............ 5 458,650 481,501
Transportation equipment.......... 5 239,634 239,634
----------- -----------
$19,199,743 $18,058,519
Accumulated depreciation.................. 9,209,661 7,580,794
----------- -----------
$ 9,990,082 $10,477,725
=========== ===========
-38-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant, and Equipment (Continued).
Construction costs of production molds for new and existing
product lines are capitalized and depreciated over an estimated
useful life of eight years. Depreciation starts when the
production mold is placed in service to manufacture the product.
The costs include the
direct materials, direct labor, and an overhead allocation
based on a percentage of direct labor. Production molds not yet
put into service amounted to $7,466 at June 30, 1995 and $9,763 at
June 30, 1994.
Effective July 1, 1992, the Company changed its estimate of the
useful lives of its production molds from 5 years to 8 years.
This had the effect of reducing the depreciation expense
associated with the Company's investment in molds by approximately
$500,000 for Fiscal 1993.
As part of the acquisition cost of property, plant, and
equipment, interest expense was capitalized amounting to $9,286
for Fiscal 1994 and $40,620 for Fiscal 1993. No interest was
capitalized for Fiscal 1995.
During Fiscal 1995, the Company sold or otherwise disposed of
fixed assets and incurred losses upon the disposals amounting to
$23,015. During Fiscal 1994, the Company did not sell or
otherwise dispose of any of its fixed assets. During Fiscal 1993,
the Company sold its airplane and a deep-water testing facility
located at Morehead, North Carolina to Mr. Fountain (See Note 11).
The sales of these two assets resulted in a gain to the Company
amounting to $117,126 which was included in other income.
Note 4. Accounts and Notes Payable.
Pursuant to an agreement dated March 22, 1991, among the
Company, Mr. Reginald M. Fountain, Jr., and the Mercury Marine
Division of the Brunswick Corporation, Mercury Marine established
a purchasing line of credit for the Company which is secured by a
subordinated lien on the Company's assets and a pledge by Mr.
Fountain of substantially all of his shares of the Company's
common stock. At June 30, 1994, the purchasing line of credit
from Mercury Marine was temporarily increased from $2,000,000 to a
maximum of $2,900,000.
-39-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounts and Notes Payable (Continued).
Of this amount, $2,847,516 was utilized at June 30, 1994.
The agreement expired on June 30, 1994 and was extended until
February 24, 1995. A new agreement was entered into on February
24, 1995, and took effect on January 1, 1995. The new agreement
requires the Company to use Mercury engines and accessories
exclusively until the earliest of December 1, 1999, or until
12,000 engines have been purchased, or until the Company's
indebtedness to Mercury is paid in full. Also, as part of the
agreement, Mercury pays the Company for certain consulting
services provided by Mr. Fountain and for appropriate endorsements
for Mercury's products at the rate of 5.5% of products purchased
until June 30, 1996 and at the rate of 2.0% until the end of the
consulting agreement on June 30, 1997. The new loan agreement
provides for fixed monthly payments over a five year term, for
additional quarterly payments based upon the volume of engine
purchases from Mercury, and for annual payments commencing on
August 25, 1995, amounting to five percent of net income before
interest, taxes, and depreciation expense for the fiscal year
ending immediately prior to the payment date. The interest rate
on this indebtedness is fixed at 8 1/2%. However, in the
restructure of its loan agreement with MetLife described below,
the Company agreed not to make this annual payment if it were not
in compliance with, or such payment would cause it to violate, the
MetLife financial ratio requirements. All amounts not previously
repaid are due and payable on December 1, 1999. If the Company
has met its payment obligations in a timely manner and reduces the
principal amount of the debt to $800,000 by December 1, 1997, then
the last $800,000 of the loan shall be forgiven by Mercury. The
debt is secured in the same manner as the previously established
purchasing line of credit, and, additionally, Mr. R.M. Fountain,
Jr. has personally guaranteed it up to a maximum of $1,000,000.
At June 30, 1994, the Company had a note amounting to
$152,287 payable to ITT Commercial Finance (now Deutsche Financial
Services) for engine purchases financed by Deutsche. At June 30,
1995 the amount of this note was $534,185.
-40-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-term Debt and Pledged Assets.
Effective December 31, 1993, the Company refinanced its
indebtedness to MetLife Capital Corporation. The $2,000,000 short-
term revolving loan was incorporated into the long-term debt and
the total amount was amortized over ten years with a call at the
end of the fifth year. The interest rate on the debt was fixed at
8 1/2%. The new monthly payment amounts very closely approximated
what the principal and interest payment amounts were prior to the
refinancing. An additional $76,194 was borrowed in the
transaction. The total amount of the debt to MetLife at December
31, 1993 was $6,683,200 after the refinancing.
The indebtedness to MetLife was $6,003,799 at June 30, 1995,
$6,466,253 at June 30, 1994, and $6,824,099 at June 30, 1993. The
indebtedness to MetLife is secured by a first deed of trust on all
real property owned by the Company, a first lien security interest
in all machinery, equipment, furniture, and fixtures, and by the
assignment of a $1,000,000 life insurance policy.
The loan agreement with MetLife provides, among other things,
that the Company may not:
1. Pay dividends in excess of net income plus
depreciation expense less the current maturities of
long-term debt.
2. Purchase fixed assets during any year costing
more than $500,000 (excluding production molds).
3. Dispose of any assets outside the ordinary
course of business in excess of $20,000 per
transaction, or $200,000 annually.
4. Guarantee, assume, or endorse the obligation of
any person, firm, or corporation in excess of
$1,000,000.
The loan agreement was amended effective December 31, 1994 to
require the Company to attain the following financial ratios as of
the fiscal year-end June 30, 1995:
1. Minimum stockholders' equity of at least
$3,000,000.
2. Current ratio of not less than 1.0 to 1.
-41-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-Term Debt and Pledged Assets (Continued).
3. Maximum debt to net worth ratio of 5.0 to 1.
4. Minimum debt and capital expenditure service
coverage (net income plus depreciation divided by the
current portion of the long-term debt plus capital
expenditures) of at least 1.25 times.
5. Minimum interest and rent service coverage
(earnings before interest and taxes plus rent expense
divided by interest expense plus rent expense) of at
least 2.00 times.
The Company was in compliance with all of the foregoing
financial ratio requirements as of June 30, 1995. For Fiscal 1994
and 1993, the Company received waivers of the financial ratio
requirements from MetLife. The Company has been current on all of
its scheduled payments of both principal and interest to MetLife.
The Company has various other long-term contracts payable,
which for the most part are capital lease obligations for periods
ranging from three to five years. These obligations have imputed
interest rates ranging from 5% to 14% and amounted to $216,038 at
June 30, 1995 and and $218,168 at June 30, 1994. These other
obligations are secured by the leased assets, which consist of
specific vehicles, machines, and items of equipment.
The current portion of long-term debt was $1,371,554 at June
30, 1995 and $6,550,738 at June 30, 1994. The estimated aggregate
maturities required on long-term debt at June 30, 1995 are as
follows:
Fiscal 1996...................$ 1,371,554
" 1997................... 1,488,697
" 1998................... 1,152,769
" 1999................... 4,407,583
" 2000................... -0-
Later years................... -0-
----------
$ 8,420,603
==========
-42-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6. Common Stock, Options, and Treasury Stock.
The Company issued no additional common shares during Fiscal
1995. In Fiscal 1994, the Company's Board of Directors authorized
the issuance of 86,572 additional common shares to Mr. Reginald M.
Fountain, Jr., the Company's Chairman, President, Chief Executive
Officer, and Chief Operating Officer in consideration for the
cancellation of a $300,000 debt to Mr. Fountain. He had loaned
the Company $300,000 in November, 1992 on an unsecured basis to
supplement its working capital. The additional shares were issued
at a price of $3.50 per share to Mr. Fountain and to Triangle
Finance Ltd., a client of Eurocapital, Inc. Mr. Federico
Pignatelli is the U.S. representative of Eurocapital, Inc. and
also is a director of the Company. Mr. Fountain cancelled two-
thirds of the total amount of the debt ($202,000, including
$200,000 principal and $2,000 of accrued interest) for 57,715
common shares. Triangle Finance Ltd. repaid one-third of the
total amount of the debt ($101,000, including $100,000 principal
and $1,000 of accrued interest for 28,857 common shares. The
Board of Directors determined that the price of $3.50 per share
was fair to the Company after consideration of such factors as the
common stock's book value, its then current market price, and
previous private placements.
Effective February 4, 1994, the Company amended its Articles
of Incorporation and effectuated a one-for-two reverse stock split
of its common stock. The total number of authorized shares was
not changed, but remained at 200,000,000 and the par value per
share remained at $.01. The earnings per share computations in
the accompanying consolidated statements of operations reflect the
reverse split for all periods presented. Elsewhere in the
accompanying consolidated financial statements and notes thereto,
the per share amounts and number of shares amounts are also based
upon the number of shares after the one-for-two reverse stock
split. Following the reverse split, the weighted average shares
outstanding were 3,019,072 for Fiscal 1995, 2,968,571 for Fiscal
1994, and 2,932,500 for Fiscal 1993.
Under the terms of the Company's 1986 stock option plan,
options may be granted to purchase up to 200,000 shares of the
Company's common stock at a price of no less than 100% of the fair
market value on the date of grant as determined by the Board of
Directors. Options may be exercised for a ten-year period from
the date of grant. During Fiscal 1995, options to purchase 20,000
shares were granted to each of two key employees. No options have
been exercised.
-43-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock, Options, and Treasury Stock (Continued).
The following table summarizes the activity relating to the
Company's 1986 stock option plan:
Price Range 1995 1994 1993
------------- ------- ------- --------
Options outstanding,
beginning of the year $7.90-$13.94 16,250 17,500 21,250
Granted.................$5.38-$ 5.50 40,000 -0- -0-
Cancelled.............. $7.90-$ 8.30 3,750 1,250 3,750
------ ------- -------
Options outstanding,
end of the year...... $5.38-$13.94 52,500 16,250 17,500
====== ====== ======
Options exercisable,
end of the year.................... 52,500 16,250 17,500
====== ====== ======
Remaining options available
under the plan..................... 147,500 183,750 182,500
======= ======= =======
The 1986 stock option plan terminates on December 5, 1996,
and, accordingly, no additional options may be granted under the
1986 plan after that date.
On June 21, 1995, a special meeting of the shareholders was
held to vote upon the adoption of the 1995 stock option plan. The
new plan as adopted by the shareholders allowed up to 300,000
common stock options to be granted by the Board of Directors to
employees or directors of the Company on either a qualified or non-
qualified basis. Subsequently, on August 4, 1995, the Board
unanimously voted to grant the entire 300,000 stock options
authorized under the 1995 stock option plan to Mr. Reginald M.
Fountain, Jr. at $7.00 per share on a non-qualified basis. None
of the options granted to Mr. Fountain under the 1995 stock option
plan have been exercised.
Effective March 23, 1995, the Board of Directors authorized
the issuance of 20,000 shares stock options to each of the
Company's four outside directors at $5.375 per share on a non-
qualified basis. Since the 80,000 total stock options authorized
represented less than five percent of the Company's outstanding
common stock, no shareholder or regulatory approval was required
for the issuance of these options.
-44-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock, Options, and Treasury Stock (Continued).
The Company's subsidiary, Fountain Powerboats, Inc., owns
10,000 shares of its common stock. This common stock is accounted
for as treasury stock at its acquisition cost of $110,748 ($11.07
per share) in these financial statements.
Note 7. Income Taxes.
The Company adopted Statement of Financial Accounting
Standards No. 109 Accounting for Income Taxes (FASB 109) during
Fiscal 1994. FASB 109 requires the Company to provide a net
deferred tax asset or liability equal to the expected future tax
benefit or expense of temporary reporting differences between book
and tax accounting and any available operating loss or tax credit
carryforwards. The financial statements for years prior to 1994
have not been restated and there was no cumulative effect for the
change in accounting principle.
At June 30, 1995 and 1994, the totals of all deferred tax
assets were $3,509,457 and $4,280,235. The totals of all deferred
tax liabilities were $911,479 and $884,606. The amount of and
ultimate realization of the benefits from the deferred tax assets
for income tax purposes is dependent, in part, upon the tax laws
in effect, the Company's future earnings, and other future events,
the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the deferred tax
assets, the Company has established valuation allowances of
$2,597,978 and $3,395,629 as of June 30, 1995 and 1994,
respectively, which have been offset against the deferred tax
assets. The net decrease in the valuation allowance during the
year ended June 30, 1995, was $797,651.
The Company has available at June 30, 1995, unused operating
loss carryforwards of approximately $6,820,000, which may be
applied against future taxable income and which expire in various
years through 2009.
The components of income tax expense from continuing
operations for the years ended June 30, 1995, 1994, and 1993
consist of the following:
-45-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes (Continued).
1995 1994 1993
Current income tax expense:
Federal.....................$ 41,431 $ -0- $ -0-
State....................... 1,210 -0- -0-
---------- ---------- ----------
Net current tax expense.....$ 42,641 $ -0- $ -0-
========== ========== ==========
The Company incurred current tax expense amounting to $42,641
as a result of the alternative minimum income tax.
Deferred tax expense (benefit) resulted from:
June 30,
1995 1994 1993
Excess of tax over financial
accounting depreciation...$ 67,663 $ 281,789 $ -0-
Warranty reserves........... (35,700) (27,300) -0-
Accrued vacations........... (5,137) (1,830) -0-
Dealer incentive interest
reserves.................. 7,258 (145) -0-
Bad debt reserves........... 1,260 (8,725) -0-
Deferred sales and cost, net 99,058 (83,580) -0-
Excess contributions
carryforwards............. 1,298 (766) -0-
Inventory adjustment-Sec.263A (16,648) (30,176) -0-
(Increase) decrease in
NOL carryforwards......... 805,215 (1,366,704) 51,709
Increase (decrease) in
valuation allowance....... (797,651) 1,237,437 (51,709)
Allowance for obsolete
inventory................. (16,800) -0- -0-
Alternative minimum tax
credits................... (41,431) -0- -0-
Investment tax credits...... (86,294) -0- -0-
Allowance for boat repurchases 17,909 -0- -0-
----------- ----------- ----------
Net deferred tax expense....$ -0- $ -0- $ -0-
=========== =========== ==========
Deferred income tax expense results primarily from the
reversal of temporary timing differences between tax and financial
statement income.
-46-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes (Continued).
A reconciliation of income tax expense at the statutory rate
to income tax expense at the Company's effective rate is as
follows:
June 30,
1995 1994 1993
Computed tax at the expected
federal statutory rate...... 34.00% 34.00% 28.00%
Excess of tax over financial
accounting depreciation..... (3.16) 8.94 -0-
Warranty reserves............. 1.67 (.87) -0-
State income taxes, net of
federal benefit............. 5.28 5.28 7.00
Accrued vacation.............. .24 .06 -0-
Bad debt reserve.............. (.06) (0.28) -0-
Deferred sales and cost, net.. (4.62) (2.65) -0-
Excess contributions
carryforwards............... (.06) (0.02) -0-
(Increase) decrease in
NOL carryforwards........... (37.59) (43.10) (35.00)
Obsolete inventory reserve.... .78 -0- -0-
Allowance for boat repurchases (.84) -0- -0-
Alternative minimum tax credits 1.93 -0- -0-
Dealer incentive interest reserve (.34) -0- -0-
Investment tax credits........ 4.03 -0- -0-
Sec. 263A inventory adjustment .78 (1.24) -0-
--------- --------- ---------
Effective income tax rates.... 2.04% 0.00% 0.00%
========= ========= =========
The following temporary differences gave rise to the deferred
tax asset (liability) at June 30, 1995:
June 30,
1995 1994
Excess of tax over financial
accounting depreciation.............. $(911,479) $(843,816)
Warranty reserve........................ 168,000 132,300
Obsolete inventory reserve.............. 37,800 21,000
Accrued vacations....................... 36,192 31,055
Allowance for boat repurchases.......... 87,091 105,000
Dealer incentive interest reserves...... 83,000 70,258
Bad debt reserve........................ 12,600 13,860
Deferred sales and cost, net............ 5,942 105,000
Inventory adjustments - Sec. 253A....... 106,322 89,674
NOL carryforwards....................... 2,864,785 3,670,000
Alternative minimum tax credits......... 41,431 -0-
Investment tax credits.................. 86,294 -0-
Excess contribution carryforward........ -0- 1,298
-47-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Research and Development.
Research and development costs expensed were $134,828 for
Fiscal 1995, $157,433 for Fiscal 1994, and $88,858 for Fiscal
1993.
Note 9. Commitments and Contingencies.
The Company entered into a one-year employment agreement in 1989
with its Chairman, Mr. R.M. Fountain, Jr. The agreement provides
for automatic one-year renewals at the end of each year subject to
Mr. Fountain's continued employment.
The Company makes available through third-party finance
companies floor plan financing for many of its dealers. Sales to
participating dealers are approved by the respective finance
companies. If a participating dealer does not satisfy its
obligations under the floor plan financing agreement in effect
with its commercial lender(s) and boats are subsequently
repossessed by the lender(s), then under certain circumstances the
Company may be required to repurchase the repossessed boats if it
has executed a repurchase agreement with the lender(s). At June
30, 1995, the Company had a contingent liability to repurchase
boats in the event of dealer defaults and if repossessed by the
commercial lenders amounting to approximately $7,700,000. The
Company has reserved for the reasonably anticipated future losses
it might incur upon the repossession and repurchase of boats from
commercial lenders. At June 30, 1995, the allowance for boat
repurchases was $207,359. Also, in connection with one of its
floor plan agreements with a lender, the Company has provided an
irrevocable standby letter of credit in the amount of $250,000 as
security for the lender.
The Company regularly pays a portion of dealers' interest
charges for floor plan financing for up to six months. These
interest charges amounted to $708,655 for Fiscal 1995, $731,722
for Fiscal 1994, and $682,933 for Fiscal 1993. They are included
in the accompanying consolidated statements of operations as part
of selling expense.
The Company has been notified by the United States
Environmental Protection Agency (the "EPA") and the North Carolina
Department of Environment, Health and Natural Resources
("NCDEHNR") that it has been identified as a potentially
responsible party (a "PRP") and may incur, or may have incurred,
liability for the remediation of ground water contamination at the
Spectron/Galaxy Waste Disposal Site
-48-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments and Contingencies (Continued).
located in Elkton, Maryland and the Seaboard Disposal Site,
located in High Point, North Carolina, also referred to as the
Jamestown, North Carolina site, resulting from the disposal of
hazardous substances at those sites by a third party contractor of
the Company. The Company has been informed that the EPA and
NCDEHNR ultimately may identify a total of between 1,000 and
2,000, or more, PRP's with respect to each site. The amounts of
hazardous substances generated by the Company, which were disposed
of at both sites, are believed to be minimal in relation to the
total amount of hazardous substances disposed of by all PRP's at
the sites. At present, the environmental conditions at the sites,
to the Company's
knowledge, have not been fully determined by the EPA and
NCDEHNR, respectively, and the Company is not able to determine at
this time the amount of any potential liability it may have in
connection with remediation at either site. Without any
acknowledgement or admission of liability, the Company has made
payments of approximately $3,000 to date as a nonperforming cash-
out participant in an EPA-supervised response and removal program
at the Elkton, Maryland site, and in a NCDEHNR-supervised removal
and preliminary assessment program at the Jamestown, North
Carolina site. A cash-out proposal for the next phase of the
project is expected to be forthcoming from the PRP Group for the
Elkton, Maryland site within the near future. The Company's full
cash-out amount is likely to be less than $10,000 for the Elkton,
Maryland site, based upon an estimated 3,304 gallons of waste
disposed of at that site by the Company. A cash-out proposal is
expected to be forthcoming from the PRP Group for the Jamestown,
North Carolina site by mid-1996, following completion of a
remedial investigation and feasibility study. No estimate of the
likely cash-out amount for the Company for the Jamestown, North
Carolina site is available at present. Any such cash-out
agreement will be subject to approval by EPA and NCDEHNR,
respectively.
There were six product liability lawsuits brought against the
Company at June 30, 1995. In the Company's opinion, these
lawsuits are without merit. Therefore, these lawsuits are being
defended vigorously. The Company carries sufficient product
liability insurance to cover attorney's fees and any losses which
may occur from these lawsuits over and above the insurance
deductibles.
-49-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10. Export Sales.
The Company had export sales of $507,097 for Fiscal 1995,
$823,324 for Fiscal 1994, and $3,377,307 for Fiscal 1993. Export
sales were to customers in the following geographic areas:
1995 1994 1993
----------- ----------- -----------
Americas...................$ -0- $ 187,458 $ 163,886
Asia....................... 197,932 -0- 2,797,532
Middle East and Europe..... 309,165 635,866 415,889
---------- ---------- ----------
$ 507,097 $ 823,324 $ 3,377,307
========== ========== ==========
Note 11. Transactions with Related Parties.
The Company paid or accrued the following amounts for
services rendered or for interest on indebtedness to Mr. Reginald
M. Fountain, Jr., the Company's Chairman, President, Chief
Executive Officer, and Chief Operating Officer, or to entities
owned or controlled by him:
Year Ended
-------------------------------------
June 30, June 30, June 30,
1995 1994 1993
Greenwood Helicopters $ -0- $ 22,552 $ 18,871
Eastbrook Apartments 12,540 17,368 16,392
Village Green Apartments 1,455 -0- -0-
R.M. Fountain - airplane
rental 104,469 91,180 41,723
R.M. Fountain - interest -0- 18,000 22,054
--------- --------- ---------
$ 118,464 $ 149,100 $ 99,040
========= ========= =========
-50-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions with Related Parties (Continued).
During Fiscal 1993, the Company borrowed $300,000 on an
unsecured basis from Mr. Fountain at an interest rate of 12%.
Effective January 31, 1994, the Company's Board of Directors
authorized the issuance of 86,572 additional common shares in
consideration for the cancellation of this $300,000 debt to Mr.
Fountain. The additional shares were issued at a price of $3.50
per share to Mr. Fountain and to Triangle Finance Ltd., a client
of Eurocapital, Inc. Mr. Federico Pignatelli is the president of
Eurocapital, Inc. and also is a director of the Company. Mr.
Fountain cancelled two-thirds of the total amount of the debt
($202,000, including $200,000 principal and $2,000 of accrued
interest) for 57,715 common shares. Triangle Finance Ltd. repaid
one-third of the total amount of the debt ($101,000, including
$100,000 principal and $1,000 of accrued interest) for 28,857
common shares. The Board of Directors determined that the price
of $3.50 per share was fair to the Company after consideration of
such factors as the common stock's book value, its then current
market price, and recent private placements.
During Fiscal 1993, the Company sold an airplane and a deep-
water testing facility located at Morehead, North Carolina for
$464,966 to Mr. Fountain. He assumed the underlying debt
obligations for these properties in the amount of $464,966 as the
consideration he paid. The sales of the two assets resulted in a
gain to the Company amounting to $117,126 which was included in
other income for Fiscal 1993. The Company has continued to use
the airplane it sold to Mr. Fountain and has paid him rentals for
its use. The rentals are based upon the actual hours that the
airplane has been flown on Company business.
---END OF FINANCIAL STATEMENTS AND FOOTNOTES---
-51-
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
-52-
PART III
Item 10. Directors and Executive Officers of Registrant.
The current directors of Registrant and its Subsidiary are
as follows:
REGINALD M. FOUNTAIN, JR., age 55, founded the Company's
Subsidiary during 1979 and has served as its Chief Executive
Officer from its organization. He became a director and
President of the Company upon its acquisition of the Subsidiary
in August, 1986. Mr. Fountain presently serves as Chairman,
President, Chief Executive Officer, and Chief Operating Officer
of the Company and its Subsidiary. From 1971 to 1979, Mr.
Fountain was a world class race boat driver, and was the
Unlimited Class World Champion in 1976 and 1978.
GARY GARBRECHT, age 52, became a director of the Company on
February 26, 1992. Mr. Garbrecht is the President and sole
shareholder of Mach Performance, a propeller and high performance
boating accessories manufacturer. From June, 1988 to July, 1991,
he was President of Aronow Powerboats, a former manufacturer of
high performance sport boats. Prior to that time, and until its
sale to OMC in 1989, Mr. Garbrecht owned Second Effort, a
manufacturer of high performance boats. Mr. Garbrecht has over
thirty years experience in racing and recreational boating.
GARY E. MAZZA, III, age 57, became a director of the Company on
December 28, 1993. Mr. Mazza is a practicing attorney in the
business, tax and international areas of the law in Annapolis,
Maryland. He also practices law in New york and Virginia. He is
the Chairman of Triangle Tractor & Trailer, Inc., a Director of
the American Red Cross of Maryland, and an Adjunct Professor at
the Univeristy of Maryland. He is the founder, Executive Vice
President, and General Counsel for Aerovias Quisqueana, C. por
A., Santo Domingo, Dominican Republic. Prior to entering private
practice, Mr. Mazza was the Director of the Legal Education
Institute at the U.S. Department of Justice from 1977 to 1981.
Prior to 1977, he served as the Director of Legal Training for
the U.S. Civil Service Commission and as Senior Legal Advisor for
the U.S. Indian Claims Commission. His honors include the New
york State Attorney General's Achievement Award. Mr. Mazza is a
highly decorated retired United States Army Colonel.
-53-
FEDERICO PIGNATELLI, age 42, became a director of the Company on
April 8, 1992. Mr. Pignatelli is the U.S. representative of
Eurocapital Partners, Ltd., an investment banking firm. From
1989 to April, 1992, he was a Managing Director at Gruntal &
Company, an investment banking firm. From 1988 to 1989, he was
General Manager of Euromobiliare Ltd., a subsidiary of
Euromobiliare, SpA, a publicly held investment and merchant bank
in Italy and Senior Vice President of New York and Foreign
Securities Corporation, an institutional brokerage firm in New
York. From 1986 to 1988, he was Managing Director at Ladenburg,
Thalmann & Co., an investment banking firm. From 1980 to 1986,
he was Assistant Vice President of E.F. Hutton International.
Prior to 1980, he was a financial journalist. Mr. Pignatelli was
elected as a director of the Company pursuant to the right of
Eurocapital Partners, Ltd. to designate one member of the Board
of Directors in connection with a private placement of the
Company's Common Stock. Mr. Pignatelli also serves as chairman
of BioLase Technology, Inc., a company which produces medical and
dental lasers and endodontic products. Formerly, he served as a
director of MTC Electronic Technologies Co., Ltd., a NASDAQ/NMS
company, and of CST Entertainment Imaging, Inc., an American
Stock Exchange Company engaged in colorizing black and white
film.
MARK SPENCER, age 40, founded Spencer Communications, an
advertising public relations firm specializing in the marine
industry, in 1987. Previously, Mr. Spencer began his journalism
career at Powerboat Magazine in 1976. He was named Executive
Editor of Powerboat Magazine in 1981 and served in that capacity
until 1987. During the last seven years Mr. Spencer has served
as an on camera expert commentator for ESPN covering the boating
industry.
In addition to Mr. Fountain who is listed above as a
director, other executive officers of the Company are as follows:
ALLAN L. KREHBIEL, C.P.A., age 52, was appointed Vice President -
Finance and Chief Financial Officer in May, 1991. Mr. Krehbiel
had been Controller since April, 1991, when he was hired by the
Company. He is a Certified Public Accountant and has had ten
years experience as the Chief Financial Officer/Controller of
Revere Aluminum Building Products, Inc. (and its successor,
Noranda Building Products Company) and of Hunter Douglas Building
Products Division (and its successor, Alumark Corporation).
-54-
BLANCHE C. WILLIAMS, age 61, has been Corporate Secretary and
Treasurer of the Company since August, 1986, and has held the
same positions with the Company's Subsidiary since it was formed
during 1979. Mrs. Williams also served as Executive Assistant to
the President from 1979 to 1988.
Item 11. Executive Compensation.
The following table sets forth the compensation awarded,
paid to or earned by the most highly compensated executive
officers of the Company whose compensation exceeded $100,000:
Name and Principal Fiscal Annual Compensation Long-term
Position Year Salary(1) Bonus(2) Compensation
Reginald M. Fountain, Jr. 1995 $211,650 $106,438 $ -0-
Chairman, President, Chief 1994 187,200 -0- -0-
Executive Officer, and 1993 173,315 -0- -0-
Chief Operating Officer (4)
(1) The Board of Directors increased Mr. Fountain's annual base
salary to $285,000 for the period March 30, 1995 to March
30, 1996 and to $350,000 thereafter. Previously, effective
October 6, 1992, the Board had increased his salary to
$187,200 and effective August 30, 1991 had increased his
salary to $115,000. The amounts shown do not include the
value of certain personal benefits received in addition to
cash compensation. The aggregate value of such personal
benefits received was less than ten percent (10%) of the
total cash compensation paid.
(2) The bonus amount payable to Mr. Fountain for Fiscal 1995 was
authorized by the Board on May 1, 1994. The bonus represents
5% of net income after the profit sharing disbribution but
before income taxes limited to a maximum of $250,000.
Mr. Fountain received no bonuses for Fiscal 1994 or Fiscal
1993.
(3) Mr. Fountain does not participate in the Company's 401(k)
Plan and has no other long-term compensation, other than
stock options.
(4) Effective June 23, 1992, Mr. Fountain was also elected to
the positions of President and Chief Operating Officer of
both the Company and its Subsidiary.
-55-
Directors' Compensation.
Directors of the Company currently do not receive any fees
or other compensation for their services as directors, but they
are reimbursed for travel and other out-of-pocket expenses in
connection with their attendance at meetings of the Board of
Directors.
In Fiscal 1995, each non-employee director (Messrs.
Pignatelli, Mazza, Garbrecht, and Spencer) was granted non-
qualified stock options to purchase 20,000 common shares at
$5.375 per share. These non-qualified stock options awarded to
the outside directors were not under any of the Company's
existing stock option plans.
Employment Agreement.
Reginald M. Fountain, Jr. serves as the Company's President,
Chief Executive Officer, and Chief Operating Officer pursuant to
an employment agreement entered into during 1989. The agreement
provides for one-year term and for automatic renewals at the end
of each year for additional one-year periods until terminated.
Under the agreement, Mr. Fountain received a base salary approved
by the Board of Directors and an annual cash bonus based upon the
Company's net profits before taxes. On May 1, 1994, the Board of
Directors authorized an increase in the annual bonus payment to
Mr. Fountain to 5% of net income after the profit sharing
distribution but before income taxes limited to a maximum of
$250,000. A bonus of $106,438 was paid to Mr. Fountain for
Fiscal 1995. No bonuses were paid to him for Fiscal 1994 or
1993. The agreement terminates upon death or permanent
disability. The current agreement replaced a similar agreement
with Mr. Fountain that had been in effect since December, 1986.
Profit Sharing Plan.
On May 1, 1994, the Board of Directors authorized a Profit
Sharing Plan applicable to all eligible employees for the fiscal
year ended June 30, 1995. The profit sharing calculations were
based upon the consolidated audited net income for the full
fiscal year before income taxes.
The amount of the profit sharing distribution was determined
in accord with the following schedule:
-56-
Audited Net Income Profit Sharing
Before Income Taxes Per cent Amount
First $ 500,000.................. 5% $ 25,000
Next 500,000.................. 10 50,000
Next 500,000.................. 15 75,000
Next 500,000.................. 20 100,000
Next 500,000.................. 25 125,000
Next 500,000.................. 30 150,000
Over 3,000,000.................. 0 -0-
---------
Maximum total profit sharing...................$ 525,000
=========
As indicated in the foregoing schedule, the maximum amount
of Fiscal 1995 net income before income taxes that was subject to
profit sharing was limited to $3,000,000 and the maximum amount
of profit sharing distribution was limited to $525,000. The
actual profit sharing distribution for the year was $376,614 and
was paid in full to the eligible employees on August 12, 1995.
All employees were eligible for this profit sharing
distribution after 120 days of employment and provided that they
were continuously employed by the Company through the fiscal year-
end. If an employee was employed for 120 days, then for purposes
of the profit sharing distribution, all of the employee's service
for the year was taken into account, including his first 120
days. Whatever portion of the fiscal year the eligible employee
worked was then rounded up to the nearest whole month of service.
The profit sharing distribution to the individual employee was
based upon the employee's months of service. For example, if a
new employee had worked six months and ten days, then his service
was rounded up to a full seven months. The profit sharing
distribution to the employee was then based upon the employee's
months of service.
Recognizing that every employee is important to the
Company's success, the profit sharing amount was divided equally
amongst the employees with each employee at every level receiving
an equal amount except as provided above for employees who had
less than twelve months of service. For employees who had less
than twelve months of service, their shares in the profit sharing
distribution were pro-rated and reduced in accordance with their
months of service.
The purpose of the Profit Sharing Plan for Fiscal 1995 was
to give every employee an additional incentive to do the very
best job that he or she could possibly do in Fiscal 1995.
-57-
Management believes that the Profit Sharing Plan for Fiscal
1995 very successfully motivated all of the Company's employees
to achieve profitable operations for the year. Therefore,
management will propose a similar plan for Fiscal 1996 to the
Board for its approval.
Stock Option Plans.
During 1987, shareholders of the Company approved the 1986
Incentive Stock Option Plan. The Plan is administered by the
Board of Directors which may, in its discretion, from time to
time, grant to officers and key employees options to purchase
shares of the Company's common stock. Directors who are not
officers or employees of the Company or its Subsidiary are not
eligible to be granted options under the 1986 Plan.
The 1986 Plan provides that the purchase price per share of
common stock provided for in options granted shall not be less
than 100% of the fair market value of the stock at the time the
option is granted. However, in the case of an optionee who
possesses more than 10% of the total combined voting power of all
classes of the Company's stock, the purchase price shall not be
less than 110% of the fair market value of the stock on the date
of the grant.
No consideration is payable to the Company by an optionee at
the time an option is granted. Upon exercise of an option,
payment of the purchase price of the common stock being purchased
shall be made to the Company in cash, or at the discretion of the
Board of Directors, by surrender of a promissory note from the
optionee, or by surrender of shares of common stock already held
by the optionee which shall be valued at their fair market value
on the date the option is exercised, or by any combination of the
foregoing. Also, payment may be in installments, and upon such
other terms and conditions as the Board of Directors, in its
discretion, shall approve.
Under the 1986 Plan, the aggregate fair market value of
shares with respect to which options are exercisable for the
first time by an employee in any calendar year generally may not
exceed $100,000.
The term of each option granted under the Plan is determined
by the Board of Directors, but may in no event be more than ten
years from the date such option is granted. However, in the case
of an option granted to a person who, at the time the option is
granted, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company, the
term of
-58-
the option may not be for a period of more than five years from
the date of grant. Unless the Board of Directors determines
otherwise, no options may be exercised for one year after the
date of grant. Thereafter, an option may be exercised either in
whole or in installments as shall be determined by the Board of
Directors at the time of the grant for each option granted. All
rights to purchase stock pursuant to an option, unless sooner
terminated or expired, shall expire ten years from the date
option was granted.
Upon the termination of an optionee's employment with the
Company, his option shall be limited to the number of shares for
which the option is exercisable by him on the date of his
termination of employment, and shall terminate as to any
remaining
shares. However, if the employment of an optionee is terminated
for "cause" (as defined in the Plan), the optionee's rights under
any then outstanding option immediately terminate at the time of
his termination of employment. No option shall be transferrable
by an optionee otherwise than by will or the laws of descent and
distribution.
Under the 1986 Plan, a maximum of 200,000 shares of the
Company's common stock have been reserved for issuance. In the
event of a stock dividend paid in shares of the common stock, or
a recapitalization, reclassification, split-up or combination of
shares of such stock, the Board of Directors shall have the
authority to make appropriate adjustments in the numbers of
shares subject to outstanding options and the option prices
relating thereto, and in the total number of shares reserved for
the future granting of options under to the Plan.
During 1989 the Board of Directors amended the Plan to
delete a provision requiring that options granted to any one
employee be exercised only in the sequential order in which they
were granted. That provision at one time was, but is no longer,
required by the Internal Revenue Code, as amended, to be
contained in incentive stock option plans.
During Fiscal 1995 options to purchase 20,000 shares were
awarded to Mr. Fountain at $5.9125 ($5.375 x 110%) per share and
options to purchase 20,000 shares were awarded to the Chief
Financial Officer at $5.500 per share. Of the options granted in
previous years, an aggregate of 12,500 shares remain outstanding
under the 1986 Plan at an average exercise price of $11.684 per
share. The remaining options available for grant under the 1986
Plan are for 147,500 common shares.
No options granted to any person under the 1986 Plan have
been exercised. The 1986 Plan terminates on December 5, 1996,
and, accordingly, no additional options may be granted after
that date.
-59-
On June 21, 1995, a special meeting of the shareholders was
held to vote upon the adoption of the 1995 Stock Option Plan.
The new Plan as adopted by the Shareholders allowed for up to
300,000 common stock options to be granted by the Board of
Directors to employees or directors of the Company on either a
qualified or non-qualified basis. Subsequently, on August 4,
1995, the Board unanimously voted to grant the entire 300,000
stock options authorized under the 1995 Stock Option Plan to Mr.
Reginald M. Fountain, Jr. at $7.00 per share on a non-qualified
basis. None of the options granted to Mr. Fountain under the
1995 Plan have been exercised. The expiration date of the
options granted to Mr. Fountain is August 4, 2005.
During Fiscal 1995, each of the four non-employee directors
was granted non-qualified stock options to purchase 20,000 common
shares at $5.375 per share. These non-qualified stock options
awarded to the outside directors were not under any of the
Company's existing stock option plans.
401(k) Payroll Savings Plan.
During Fiscal 1991, the Company initiated a 401(k) Payroll
Savings Plan (the "401(k) Plan") for all employees. Eligible
employees may elect to defer up to fifteen percent of their
salaries. The amounts deferred by the employees are fully vested
at all times. The Company matches twenty-five percent of the
employees' deferred salary amounts limited to a maximum of five
percent of their salaried amounts, or a maximum of one and one-
fourth percent of their salaries. Amounts contributed by the
Company vest at a rate of twenty percent per year of service.
Mr. Fountain, by his own election, does not participate in the
401(k) Plan. There are no postretirement benefit plans in
effect.
Performance Graph.
The following line graph was prepared by Standard & Poor's
Compustat Services, Inc. It compares the Company's cumulative
total shareholder return with a stock market performance
indicator (S. & P. 500 Index) and an industry index (S. & P.
Leisure Time). The graph assumes a base point of June 30, 1990
to be equal to $100.00. Accumulated returns are plotted through
June 30, 1995. Each time period covered by the graph gives the
dollar value of the investment assuming monthly reinvestment of
dividends. The Company has never paid any dividends.
-60-
---- GRAPH DESCRIBED BELOW----
As can be seen from the graph, the total return to
shareholders of the Company's common stock over the past five
years has been somewhat less than the S. & P. 500 stocks but
greater than the S. & P. Leisure Time stocks.
Board Report on Executive Compensation.
The entire Board of Directors, including its Chairman, Mr.
Reginald M. Fountain, Jr., who also serves as the Company's
President, Chief Executive Officer, and Chief Operating Officer
has prescribed unanimously the compensation amounts for the
Company's executive officers. These compensation amounts are
deemed adequate by the Board based upon its judgment as to the
qualifications, experience, and performance of the individual
executive officers, as well as, the Company's size, complexity,
growth, and financial performance.
-61-
Upon the resignation of the Company's President and Chief
Operating Officer on June 23, 1992, Mr. Fountain was elected to
these positions in addition to his duties as Chairman and Chief
Executive Officer. Recognizing his increased responsibilities,
the Board, acting unanimously, subsequently increased his base
salary from $115,000 per year to $187,200 effective October 6,
1992. During Fiscal 1995, recognizing the Company's much
improved financial performance under his leadership, the Board
increased Mr. Fountain's salary to $285,000 for the period March
30, 1995 through March 30, 1996, and to $350,000 thereafter.
The entire Board has also approved Mr. Fountain's employment
agreement with the Company, more fully described above on Page
56, under "Employment Agreement", which provides for a minimum
base salary and an annual cash bonus equal to five percent of the
Company's net profits after profit sharing distribution but
before income taxes limited to a maximum of $250,000. The bonus
paid to Mr. Fountain for Fiscal 1995 was $106,438. Mr. Fountain
received no bonuses for Fiscal 1994 and 1993.
Compliance with Section 16.
Each of Messrs. Mazza, Pignatelli, Spencer, Fountain,
Krehbiel, and Garbrecht did not file a Form 4, on one occasion,
with respect to 20,000 common stock options granted to each of
them during Fiscal 1995.
-62-
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Principal Shareholders. The following table sets forth the
beneficial ownership of the Company's Common Stock as of
September 15, 1995, by each person known to the Company to
beneficially own more than five percent (5%) of the Company's
Common Stock. This table has been prepared based upon
information provided to the Company by each shareholder:
Amount of
Name and Beneficial Percent of
Address Ownership Class (3)
Reginald M. Fountain, Jr.
P.O. Drawer 457
Whichard's Beach Road
Washington, N.C. 27889 1,679,915 (1) 50.20%
Triglova Finance, S.A.
P.O. Box 1824
52nd Street
Urbanization Obarrio
Torre Banco Sur, 10th Floor
Panama City, Republic of Panama 250,500 (2) 8.30%
_______________________________________________
(1) Mr. Fountain has sole voting and investment power with
respect to all shares shown as beneficially owned.
However, pursuant to an agreement of February 24, 1995,
among the Company, Mr. Fountain, and the Mercury Marine
Division of the Brunswick Corporation, substantially all of
his stock is pledged to Mercury Marine as security for a
note payable to Mercury Marine. (See the "Liquidity and
Financial Resources" section above at page 26, paragraph 5
for a description of the agreement of February 24, 1995 with
Mercury Marine). Includes options to acquire 320,000 shares
of common stock.
(2) The Company is informed that the shares shown as
beneficially owned by Triglova Finance, S.A. are owned
directly by it, and it claims shared voting and
investment power with respect to all such shares with
Mr. Filippo Dollfus De Vockersberg, C/O Fider Service,
1 Via Degli Amadio 6900, Lugano, Switzerland. Mr.
Dollfus has been authorized to act as attorney-in-fact for
Triglova Finance, S.A., and, therefore, claims shared voting
and investment power with respect to such shares.
(3) The percentage for each person is calculated on the basis of
the Company's total outstanding shares less the 10,000
shares owned by the Company's Subsidiary.
-63-
Directors and Officers. The following table sets forth the
beneficial ownership of the Company's common stock as of
September 15, 1995, for each of the Company's current directors,
and for all directors and officers of the Company as a group.
Amount of
Name and Beneficial Percent of
Address Ownership Class
Reginald M. Fountain, Jr.(1) 1,679,915 (2) 50.20%
Gary D. Garbrecht (1) 20,000 (2) (3)
Mark L. Spencer (1) 20,000 (2) (3)
Federico Pignatelli (1) 20,000 (2) (3)
Gary E. Mazza, III (1) 20,000 (2) (3)
Allan L. Krehbiel (1) 20,000 (2) (3)
Blanche C. Williams (1) 100 (3)
All directors and officers
as a group (7 persons) 1,800,015 (2) 52.20%
(1) The address of each person is P.O. Drawer 457, Whichard's
Beach Road, Washington, North Carolina 27889. Except as
otherwise indicated, to the best knowledge of management of
the Company, each of the persons listed or included in the
group has sole voting and investment power over all shares
shown as beneficially owned. Percentages for each person
listed and for the group are calculated on the basis of the
Company's total outstanding shares less the 10,000 shares
owned by the Company's Subsidiary.
(2) For Mr. Fountain, includes options to purchase 320,000
shares of common stock held. For Messrs. Garbrecht,
Spencer, Pignatelli, Mazza, and Krehbiel, includes
options to purchase 20,000 common shares by each person.
(3) Less than 1%.
-64-
Item 13. Certain Relationships and Related-Party Transactions.
Mr. Fountain loaned the Company $300,000 in November, 1992
to supplement the Company's working capital. The loan was
unsecured and bore interest at the rate of 12% per annum.
Effective January 31, 1994, the Company's Board of Directors
authorized the issuance of 86,572 additional common stock shares
in consideration for the cancellation of this $300,000 debt to
Mr. Fountain. The additional shares were issued at a price of
$3.50 per share to Mr. Fountain and to Triangle Finance Ltd., a
client of Eurocapital, Ltd. Mr. Federico Pignatelli is the U.S.
representative of Eurocapital, Ltd. and is also a director of the
Company. Mr. Fountain cancelled two-thirds of the total amount
of the debt ($202,000, including $200,000 of principal and $2,000
of accrued interest) for 57,715 common shares. Triangle Finance
Ltd. repaid one-third of the total amount of the debt ($101,000,
including $100,000 of principal and $1,000 of accrued interest)
for 28,857 common shares. The Board of Directors determined that
the price of $3.50 per share was fair to the Company after
consideration of such factors as the common stock's book value,
its then current market price, and recent private placements.
In Fiscal 1994, the Company paid Mr. Fountain interest
amounting to $18,000 due on the $300,000 loan which was converted
to common stock effective January 31, 1994. The interest paid to
him on the loan while it was outstanding during Fiscal 1993 was
$22,054. For Fiscal 1992, a similar loan was made by Mr.
Fountain to the Subsidiary and the interest paid was $48,624. No
interest was paid to Mr. Fountain in Fiscal 1995. The Company
also paid rentals at what it believes to be their fair market
values during the last three fiscal years to Mr. Fountain or to
entities owned by him as follows:
Fiscal Fiscal Fiscal
1995 1994 1993
Greenwood Helicopters.....$ -0- $ 22,552 $ 18,871
Eastbrook Apartments...... 12,540 17,368 16,392
Village Green Apartments.. 1,455 -0- -0-
R.M. Fountain - airplane
rental 104,469 91,180 41,723
-------- -------- --------
$118,464 $131,100 $ 76,986
======== ======== ========
-65-
The rentals paid to Greenwood Helicopters are for the use of
a helicopter primarily for aerial photography of the Company's
boats and plant site. The rentals paid to Eastbrook Apartments
and Village Green Apartments are primarily for temporary lodging
for relocating and transient Company personnel and visitors. The
rentals paid for the airplane are based upon the actual hours
that the airplane was used for Company business plus a monthly
stand-by charge for the exclusive use of the airplane. During
Fiscal 1993, Mr. Fountain purchased the airplane from the Company
together with a parcel of real estate located at Morehead, North
Carolina. The Company recorded a profit on these transactions
with Mr. Fountain amounting to $117,126.
Mr. Gary D. Garbrecht is a director of the Company and the
President and sole shareholder of Mach Performance, Inc. which
supplies the Company's Subsidiary with some of its requirements
for propellers and other accessory items. The Company paid Mach
Performance, Inc. $254,696 in Fiscal 1995, $89,433 in Fiscal
1994, and $123,749 in Fiscal 1993.
Mr. Gary E. Mazza,III, a distinguished attorney,
businessman, educator, and retired United States Army Colonel was
elected to the Board of Directors on December 28, 1993. He is
Mr. Fountain's father-in-law. The Company paid Mr. Mazza $1,743
in Fiscal 1995. No amounts were paid to him in Fiscal 1994 or
1993.
Mr. Federico Pignatelli was elected to the Board of
Directors as the designee of Eurocapital, Ltd., the Company's
investment banking firm in connection with a private placement of
the Company's Common Stock. No amounts were paid to Mr.
Pignatelli or to Eurocapital, Ltd., or to any of their
affiliates, in Fiscal 1995, 1994, or Fiscal 1993.
Mr. Mark L. Spencer is a director of the Company and the
President and sole shareholder of Spencer Communications, Inc.
which furnishes advertising and public relations services to the
Company. The Company paid Spencer Communications, Inc. $138,116
in Fiscal 1995, $124,872 in Fiscal 1994, and $177,724 in Fiscal
1993.
The Company believes that all of the above transactions were
on terms which were not more favorable than would have been
obtained from non-affiliated parties.
-66-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8 and Form 8-K.
(a) The following documents are filed as a part of this Report:
(1) Financial Statements. The following consolidated
financial statements of the Company and its Subsidiary are
included in Part II, Item 8, herein:
Page No.
Independent Auditors' Report..................... 29
Consolidated Balance Sheets -
June 30, 1995 and 1994....................... 30
Consolidated Statements of Operations -
Years Ended June 30, 1995, 1994, 1993........ 31
Consolidated Statements of Stockholders' Equity -
Years Ended June 30, 1995, 1994, 1993........ 32
Consolidated Statements of Cash Flows -
Year Ended June 30, 1995, 1994, 1993........ 33-34
Notes to Consolidated Financial Statements...... 35-51
(2) Exhibits. The following exhibits are filed with this
report or incorporated by reference to a previous filing:
Page No.
3.1 - Certificate of Incorporation of the Company
(Incorporated by reference to the Company's
Registration Statement filed on
October 2, 1986)...........................
3.2 - Amendments to Certificate of Incorporation
of the Company (Incorporated by reference
to Amendment No. 1 to the Company's
Registration Statement filed on
December 2, 1986)...........................
3.3 - Amendment to Certificate of Incorporation
of the Company (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K
for the fiscal year ended June 30, 1991)....
-67-
Page No.
3.4 - By-laws of the Company (Incorporated by
reference to Amendment No. 1 to the
Company's Registration Statement filed on
December 2, 1986)...........................
3.5 - Certificate of Amendment to the Articles
of Incorporation, Consent Action in
Writing of the Majority Stockholders,
and Resolutions Adopted by Unanimous
Written Consent of the Board of Directors
for the one-for-two reverse stock split
of February 4, 1994........................
4.1 - Form of Warrant Agreement (Incorporated by
reference to Amendment No. 2 to the
Company's Registration Statement filed on
December 10, 1986)..........................
4.2 - Form of Stock Certificate (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K for
the fiscal year ended October 1, 1989)......
4.3 - Form of Warrant Certificate (Incorporated by
reference to Amendment No. 2 to the
Company's Registration Statement filed
on December 10, 1986).......................
10.1 - 1986 Incentive Stock Option Plan
(Incorporated by reference to Amendment
No. 1 to the Company's Registration
Statement filed on December 2, 1986)........
10.2 - Employment Agreement dated May 31, 1989
between Reginald M. Fountain, Jr. and the
Company's Subsidiary (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K
for the fiscal year ended October 1, 1989)..
10.3 - Employment Agreement dated May 31, 1989
between Leon P. Smith and the Company's
Subsidiary (Incorporated by reference to
the exhibit filed with the Registrant's
Annual Report on Form 10K for the fiscal
year ended October 1, 1989)................
-68-
Page No.
10.5 - Loan Agreement dated May 23, 1989
by and between Fountain Powerboats, Inc.
and MetLife Financial Acceptance
Corporation (Incorporated by reference to
the exhibit filed with the Registrant's
Annual Report on Form 10K for the fiscal
year ended October 1, 1989)................
10.6 - Revolving Loan and Security Agreement,
dated May 23, 1989 by and between Fountain
Powerboats, Inc. and MetLife Financial
Acceptance Corporation (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K
for the fiscal year ended October 1, 1989)
10.7 - First modification of Loan Agreement dated
August 29, 1990 by and between Fountain
Powerboats, Inc. and MetLife Financial
Acceptance Corporation (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K
for the fiscal year ended July 1, 1990)....
10.8 - First Modification of Revolving Loan and
Security Agreement dated August 29, 1990
by and between Fountain Powerboats Inc.
and MetLife Financial Acceptance
Corporation (Incorporated by reference
to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the fiscal
year ended July 1, 1990)...................
10.9 - Loan and Security Agreement with MetLife
Capital Corporation dated December 31, 1993. Previously Filed
10.10 - Consulting and Marketing Agreement with
the Mercury Marine division of the
Brunswick Corporation dated March 22, 1991. Previously Filed
10.11 - Loan Extension and Amendment Agreement with
the Mercury Marine division of the
Brunswick Corporation dated July 11, 1994. Previously Filed
10.12 - Amendment to Consulting and Marketing
Agreement with the Mercury Marine division
of the Brunswick Corporation dated
July 11, 1994.....................Previously Filed
-69-
Page No.
10.13 - Standstill Agreement with the Mercury Marine
division of the Brunswick Corporation dated
July 11, 1994...............Previously Filed
10.14 - Amendment No. One dated September 24, 1994
to Loan and Security Agreement of December
31, 1993 with MetLife Capital Corporation.. 73
10.15 - Consent to Loan Restructure dated January
1, 1995 from MetLife Capital Corporation... 74
10.16 - Amendment No. Two dated January 1, 1995
to Loan and Security Agreement of December
31, 1993 with MetLife Capital Corporation... 75
10.17 - Second Loan Extension, Consolidation and
Amendment Agreement dated February 24, 1995
with Brunswick Corporation, Mercury Marine
Division.................................... 76 -104
10.18 - Modification of Deeds and Trust and Assign-
ment of Rents, Issues and Profits dated
February 24, 1995 with Brunswick Corporation,
Mercury Marine Division..................... 105 -109
10.19 - Consulting and Marketing Agreement dated
February 24, 1995 with Brunswick Corporation,
Mercury Marine Division..................... 110 -115
10.20 - Supply Agreement dated February 24, 1995
with Brunswick Corporation, Mercury Marine
Division.................................... 116 -124
21 - List of Subsidiaries....................... 125
(b) No Amendments on Form 8 or Current Reports on Form 8-K were
filed by the Registrant during the fiscal year ended June 30,
1995.
-70-
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.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
By: Reginald M. Fountain, Jr.
Chairman, President, and Chief
Executive Officer
Date: September 28, 1995
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
September 28 ,1995
/s/ Reginald M. Fountain, Jr.
Chairman, President, and Chief
Executive Officer
September 28,1995
/s/ Gary D. Garbrecht
Director
September 28,1995
/s/ Gary E. Mazza,III
Director
September 28,1995
/s/ Federico Pignatelli
Director
September 28,1995
/s/ Mark L. Spencer
Director
September 28,1995
/s/ Allan L. Krehbiel
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
-71-
DATE FILED: SEPTEMBER 28, 1995 SEC FILE NO. 0-147
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS
TO
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
UNDER THE SECURITIES ACT OF 1934
FOUNTAIN POWERBOAT INDUSTRIES, INC.
AMENDMENT NO. ONE
Amendment No. One to that certain Loan and Security
Agreement dated December 31, 1993 ("Agreement") for the
transaction by and between Fountain Powerboats, Inc. ("Borrower")
and MetLife Capital Corporation ("MetLife").
W I T N E S S E T H:
WHEREAS, the parties entered into the Agreement as aforesaid; and
WHEREAS, the parties now desire to amend the Agreement in certain
respects;
NOW, THEREFORE, it is agreed as follows:
Section 6.15 Negative Covenants. is amended to include the
following additional section:
(l)Enter into any agreement to renew, finance or
restructure any existing debt, obligation or undertaking
of Borrower which would increase the interest rate
payable with respect to, or substantially modify the
existing payment terms of, such debt, obligation or
undertaking.
IN WITNESS WHEREOF, the parties have executed the Amendment No.
One this 23rd day of September, 1994.
Lender: METLIFE CAPITAL CORPORATIONBorrower: FOUNTAIN POWERBOATS, INC.
By: /s/ Michael E. Taft By:
/s/ Reginald M. Fountain, Jr.
(Print Name): Michael E. Taft (Print Name):Reginald
M. Fountain, Jr.
Title: EVP Title: Chairman, CEO,
President
By: /s/ Allan L. Krehbiel
(Print Name): Allan L. Krehbiel
Title: Chief Financial Officer
METLIFE CAPITAL
CONSENT TO LOAN RESTRUCTURE
Reference is made to that Loan and Security Agreement ("the
Loan Agreement") dated December 31, 1993 by and between Fountain
Powerboats, Inc., a North Carolina corporation ("Borrower") and
MetLife Capital Corporation, a Delaware corporation ("MetLife"),
including Amendment No. One thereto, dated September 23rd, 1994,
and Amendment No. Two thereto, dated as of January 1, 1995.
A. Borrower and MetLife entered into the Loan Agreement in
connection with a loan by MetLife to Borrower in the original
principal amount of $6,683,200.40(the "MetLife Loan").
B. Borrower also has entered into a loan and credit
arrangement (the "Mercury Loan") with Brunswick Corporation,
Mercury Marine Division, a Delaware corporation ("Mercury"), the
original structure of which we examined by MetLife at the time of
documenting and advancing the MetLife Loan.
C. Borrower has now requested MetLife to permit Borrower to
restructure the Mercury Loan in accordance with the terms and
conditions of that Second Loan Extension, Consolidation and
Amendment Agreement (the "Restructure Agreement"), dated with an
effective date of January 1, 1995, by and between Borrower,
Mercury and Reginald M. Fountain, Jr., including the Amended and
Restated Note (the "Mercury Restated Note"), dated with an
effective Date January 1, 1995, in the principal amount of
$2,600,000.00, made by Borrower payable to the order of Mercury.
A copy of the Mercury Restated Note is attached hereto as Exhibit
A.
D. Pursuant to Section 6.15(l) of the Loan Agreement (as
added by Amendment No. One to the Agreement), Borrower is not
permitted to restructure any existing debt without the express
prior written consent of MetLife.
E. MetLife is willing to permit the restructure of the
Mercury Loan in accordance with the terms of the Restructure
Agreement and Mercury Restated Note provided the Loan Agreement
is amended to provide, inter alia, (i) for the modification of
certain financial covenants, and (ii) that Borrower not make the
payments anticipated in paragraph 4 of Schedule "A" to the
Mercury Restated Note upon certain circumstances, all as more
fully set forth in Amendment No. Two to the Agreement, a copy of
which is attached hereto as Exhibit B.
F. Borrower and MetLife have executed and delivered
Amendment No. Two to the Agreement as of the 1st day of January,
1995.
NOW, THEREFORE, based upon and in reliance on the amendments
to the Loan Agreement set forth in Amendment No. Two to the
Agreement, MetLife hereby (i) consents to the restructuring of
the Mercury Loan in accordance with the terms and conditions of
the Restructure Agreement and the Mercury Restated Note, and (ii)
confirms that the restructuring of the Mercury Loan in accordance
with the Restructure Agreement and the Mercury Restated Note
shall not constitute a default of Borrower under any loan
agreements by and between Borrower and MetLife, including, but
not limited to, the Loan Agreement.
This Consent to Loan Restructure is dated as of this 1st day
of January, 1995.
METLIFE CAPITAL CORPORATION
By /s/ Michael E. Taft
Michael E. Taft, EVP
(print name and title)
Exhibits
A - Amended and Restated Note
B - Amendment No. Two to Agreement
MET LIFE CAPITAL
FOUNTAIN POWERBOATS, INC.
P.O. Drawer 457
Washington, NC 27889
(919) 975-2000 - FAX (919) 975-6793
March 3, 1995
VIA FEDERAL EXPRESS
Mr. Michael E. Taft
Executive Vice President
MetLife Capital Corporation
10900 N.E. 8th Street, Suite 1300
Bellevue, WA 98004
Re: Amendment No. Two
Dear Mike:
Enclosed is the executed Amendment No. Two to the Loan and
Security Agreement of December 31, 1993. Thank you for your
cooperation, assistance, and patience in this matter.
Sincerely,
FOUNTAIN POWERBOATS, INC.
/s/ Al Krehbiel
Al Krehbiel, C.F.O.
Enclosure
cc: R.M. Fountain (w/enclosure)
AMENDMENT NO. TWO
This Amendment No. Two (the "Amendment"), dated as of the
1st day of January, 1995, is made with reference to that certain
Loan and Security Agreement (the "Loan Agreement") dated December
31, 1993 by and between Fountain Powerboats, Inc., a North
Carolina corporation ("Borrower") and MetLife Capital
Corporation, a Delaware corporation ("MetLife"), including
Amendment No. One thereto, dated September 23rd, 1994, between
Borrower and MetLife.
A. Borrower and MetLife entered into the Loan Agreement in
connection with a loan by MetLife to Borrower in the original
principal amount of $6,683,200.40(the "Loan").
B. Borrower also has entered into a loan and credit
arrangement (the "Mercury Loan") with Brunswick Corporation,
Mercury Marine Division, a Delaware corporation ("Mercury"), the
original structures of which were examined by MetLife at the time
of documenting and advancing the Loan.
C. Borrower has now requested MetLife to permit Borrower to
restructure the Mercury Loan in accordance with the terms and
conditions of that Second Loan Extension, Consolidation and
Amendment Agreement (the "Restructure Agreement"), dated with an
effective date of January 1, 1995, by and between Borrower,
Mercury and Reginald M. Fountain, Jr., including the Amended and
Restated Note (the "Mercury Restated Note"), dated with an
effective Date January 1, 1995, in the principal amount of
$2,600,000.00, made by Borrower payable to the order of Mercury.
D. MetLife is willing to permit the restructure of the
Mercury Loan in accordance with the terms of the Restructure
Agreement and Mercury Restated Note provided the Loan Agreement
is amended as set forth in this Agreement.
NOW, THEREFORE, in recognition of the premises and other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties covenant and agree as
follows:
1. The first sentence of Section 6.13(a) of the Loan
Agreement is deleted in its entirety and replaced by the
following sentence:
a.Maintain at least the following minimum Tangible Net
Worth: (i) $3,000,000 at the end of fiscal year 1995;
(ii) $3,625,000 at the end of the first quarter of
fiscal year 1996, (iii) $4,250,000 at the end of the
second quarter of fiscal year 1996, (iv) $4,875,000 at
the end of the third quarter of fiscal year 1996, (v)
$5,500,000 at the end of fiscal year 1996 and at the end
of each fiscal year thereafter for so long as this
Agreement remains in effect.
2. Subsections (i) and (ii) and (iii) of Section 6.13(b) of
the Loan Agreement are deleted in their entirety and replaced
with the following subsections:
(i)1:1 at the end of fiscal year 1995; (ii) 1.10:1 at
the end of fiscal year 1996; and (iii) 1.25:1 at the end
of each fiscal year thereafter for so long as this
Agreement remains in effect.
AMENDMENT NO. TWO (CONTINUED)
3. Section 6.13(c) of the Loan Agreement is deleted in its
entirety.
4. Subsections (i), (ii), (iii) and (iv) of Section 6.13(d)
of the Loan Agreement are deleted in their entirety and replaced
with the following subsections:
(i)5.00:1 at the end of fiscal year 1995, and (ii)
3.00:1 at the end of fiscal year 1996 and the end of
each fiscal year thereafter for so long as this
Agreement remains in effect.
5. Section 6.13(e) of the Loan Agreement is deleted in its
entirety and replaced with the following provision:
f.Maintain a minimum debt and capital expenditure
service ratio of at least (i) 1.25:1 at the end of
fiscal year 1995, and 1.50:1 at the end of fiscal year
1996 and at the end of each fiscal year thereafter for
so long as this Agreement remains in effect. For
purposes hereof, "debt and capital expenditure service
ratio" shall mean cash flow (meaning after tax net
profits plus depreciation) divided by the sum of the
current portion of long term debt plus capital
expenditures.
6. A new Section 6.13(g) is added to the Loan Agreement as
follows:
g.Maintain minimum interest and rent coverage of at
least: (i) 2.00:1 at the end of fiscal year 1995, and
(ii) 3.25 at the end of fiscal year 1996 and at the end
of each fiscal year thereafter for so long as this
Agreement remains in effect. For purposes hereof,
"interest and rent coverage" shall mean earnings before
interest, rent and taxes divided by the sum of interest
and rent expense.
7. A new subsection is added to Section 6.15 of the Loan
Agreement as follows:
(m) Make payment to Brunswick Corporation, Mercury
Marine Division ("Mercury"), of all or any part of the
annual payment of 5% of earnings before interest and
taxes plus depreciation (an "Earnings Payment"), as
indicated in paragraph 4 of Schedule "A" to that Amended
and Restated Note, effective date January 1, 1995, in
the principal amount of $2,600,000, made by Borrower
payable to the order of Mercury, if (i) at the time an
Earnings Payment is due, Borrower is not in compliance
with the financial covenants set forth in Section 6.13
herein, or (ii) after giving effect to any Earnings
Payment then due, Borrower would not be in compliance
with the financial covenants set forth in Section 6.13.
Any Earnings Payment not made due to the restrictions
set forth in this Section 6.13(m) may be made by
Borrower at the end of the quarter following the due
date of such deferred payments, or at the end of any
subsequent quarter, so long as the payment will not
result in a violation of subparagraphs (i) or (ii) of
this Section 6.15(m).
AMENDMENT NO. TWO (CONTINUED)
8. Except as modified and amended in this Amendment, the
Loan Agreement is and shall remain in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, the parties execute and deliver this
Amendment as of the date first written above.
FOUNTAIN POWERBOATS, INC. METLIFE CAPITAL CORPORATION
By /s/ Reginald M. Fountain, Jr. By /s/ Michael E. Taft
Reginald M. Fountain, Jr. Michael E. Taft, EVP
(print name and title) (print name and title)
Chairman, President, Chief
Executive Officer, and
Chief Operating Officer
MetLife Capital
NORTH CAROLINA
BEAUFORT COUNTY
SECOND LOAN EXTENSION, CONSOLIDATION AND AMENDMENT AGREEMENT
This SECOND LOAN EXTENSION, CONSOLIDATION AND AMENDMENT
AGREEMENT, with an effective date of January 1, 1995 ("Second
Amendment"), by and among FOUNTAIN POWERBOATS, INC., a North
Carolina Corporation ("Borrower"), REGINALD M. FOUNTAIN, JR.
("Fountain") and BRUNSWICK CORPORATION, MERCURY MARINE DIVISION
("Lender").
W I T N E S S E T H:
WHEREAS:
(a) Borrower and Lender are
parties to that certain Revolving Credit Loan Agreement
dated December 15, 1992 (the "Loan Agreement") as well as
that certain Revolving Credit Security Agreement dated
December 15, 1992 ("Security Agreement");
(b) Borrower executed in favor of
and delivered to Lender that certain Revolving Credit
Promissory Note dated December 15, 1992 ("Original Note");
(c) Borrower executed to Edward J.
Harper, II, ("Trustee") in favor of Lender that certain
Revolving Credit Deed of Trust dated December 15, 1992,
which was filed on December 15, 1992 in the Beaufort County
Registry in Book 970, Page 27 ("Original Deed of Trust");
(d) Borrower executed in favor of
and delivered to Lender that certain Assignment of Rents,
Issues and Profits dated December 15, 1992 which was filed
on December 15, 1992 in book 970, Page 41, Beaufort County
Registry ("Assignment of Rents");
(e) Fountain individually executed
in favor of and delivered to Lender that certain Pledge of
Securities dated March 22, 1993 ("Pledge");
(f) Borrower, Fountain and Lender
executed that Loan Extension and Amendment Agreement dated
July 11, 1994 ("First Amendment") which provided for a
modification of certain of the aforesaid loan documents;
(g) Pursuant to the First
Amendment, Borrower executed and delivered to Lender a
Supplemental Promissory Note in the principal amount of
$874,452.03 dated July 11, 1994 ("Supplemental Note"); and
(h) To secure the Supplemental
Note, Borrower executed to Trustee for the benefit of Lender
a Deed of Trust dated July 11, 1994 which was filed in Book
1007, Page 685, Beaufort County Registry ("Supplemental Deed
of Trust"); and
WHEREAS, the aforesaid documents are collectively referred
to herein as the "Loan Documents", the Original Note and the
Supplemental Note are collectively referred to herein as the
"Notes," and the Original Deed of Trust and Supplemental Deed of
Trust are collectively referred to herein as the "Deeds of
Trust"; and
WHEREAS, Lender has agreed to extend the term of and amend
certain provisions of the Loan Documents, including but not
limited to the payment terms, provided that Borrower and Fountain
agree to the terms of this Second Amendment as set forth below;
and
WHEREAS, The Notes and Deeds of Trust are in default by
reason of Borrower's failure to make all principal and interest
payments as required thereunder. As of January 1, 1995, the
aggregate balance of principal and interest for the Notes is Two
Million Six Hundred Thousand and 00/100 Dollars ($2,600,000.00);
and
WHEREAS, Borrower, Lender and Fountain are entering into
this Second Amendment in order to evidence and confirm the
extension of the maturity dates and amendments to the Loan
Documents as set forth in this Second Amendment.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties agree to the modification of the Loan Documents,
notwithstanding anything contained therein, as follows:
(1) The maturity date of the Notes and Deeds of Trust, and as
applicable, of the other Loan Documents, shall be December 1,
1999.
(2) The interest rate which shall accrue on the outstanding
principal balance of the Notes shall be at the fixed interest
rate of eight and one-half percent (8.5%) per annum for the
period beginning January 1, 1995 and ending December 1, 1999.
(3) Payments of principal and interest shall be made pursuant to
the Amended and Restated Note, a copy of which is attached hereto
and incorporated by reference as Exhibit A ("Amended Note").
(4) Borrower acknowledges and agrees that as of the date hereof,
Borrower is in default under the Loan Documents. Borrower
acknowledges that Trustee has properly perfected its security
interest in and to the personal property and securities described
in the Loan Documents and that the real property described in the
Deeds of Trust is properly encumbered by the Deeds of Trust.
(5) Borrower hereby waives and releases any and all notices,
cure periods, defenses, set-offs and claims which Borrower may be
entitled to or may raise against Lender arising out of the Loan
Documents or any oral or written correspondence or transactions
in connection with the Loan Documents prior to the execution of
this Second Amendment.
(6) This Second Amendment is subject to Borrower's satisfaction
of the following conditions precedent, or Lender's written waiver
thereof:
(a) Borrower shall provide to
Lender endorsements to title insurance polices numbered
93J19100-M and 94J25333-M issued by Fidelity National Title
Insurance Company ("Title Polices") which are satisfactory
to Lender and which insure Lender's lien position on the
property as described in the Title Policies (the
"Property"), subject only to such exceptions as are
currently reflected in the Title Policies;
(b) Borrower shall execute,
acknowledge and deliver to Lender or Fidelity National Title
Insurance Company any documents or instruments required in
connection with this Second Amendment or the endorsement to
the Title Policies;
(c) Borrower shall execute,
acknowledge and deliver to Lender an exclusive engine Supply
Agreement and MerCruiser OEM Purchase Agreement both in form
and substance satisfactory to Lender (collectively, the
"Supply Agreement");
(d) Borrower shall provide to
Lender all required consents of MetLife Capital Corporation
("MetLife") pursuant to that certain Loan and Security
Agreement dated December 31, 1993 by and between Borrower
and MetLife including Amendments dated September 23, 1994
and January 1, 1995 and any other loan documents or
agreements entered into between Borrower and MetLife;
(e) Borrower shall execute and
deliver to Lender for recordation the Modification in a form
attached hereto as Exhibit B and shall execute and deliver
to Lender the Amended Note; and
(f) Borrower shall deliver to
Lender corporate resolutions of Borrower RMF
and Fountain Powerboat Industries, Inc., in a form and
substance Initials
satisfactory to Lender, authorizing the execution, delivery
and RMF
performance of the Loan Documents and the Supply Agreement. Initials
(7) Borrower hereby represents, warrants and covenants to Lender
that:
(a) The execution, delivery and
performance of this Second Amendment will not conflict with
any provision of any law or regulation to which Borrower is
subject, or conflict with, result in a breach of, or
constitute a default under any of the terms, conditions or
provisions of any agreement or instrument to which Borrower
is a party or by which it is bound, or any order or decree
applicable to Borrower, or result in the creation or
imposition of any lien on any of Borrower's assets or
property, which would materially and adversely affect the
ability of Borrower to carry out its obligations under this
Second Amendment and the Notes and Deeds of Trust as
modified herein;
(b) There is no action, suit or
proceeding pending or threatened against Borrower or the
Property in any court or by or before any other government
agency or instrumentality which would materially and
adversely affect the ability of Borrower to carry out its
obligations under this Second Amendment and the Loan
Documents as modified. The execution and delivery of this
Second Amendment will not result in a conflict with or
violation of any law, rule, regulation, judgment or court
order affecting Borrower or the Property;
(c) Borrower holds fee simple
title to the Property free and clear of all encumbrances,
liens, claims, leases or tenancies except as reflected by
the Title Policies;
(d) All real and personal property
taxes for Borrower on the Property have been dully filed and
paid through 1994;
(e) The Property has not been used
for Hazardous Waste storage, treatment or disposal during or
prior to Borrower's ownership of the Property and Borrower
has not transported or caused to be transported to the
Property, stored or caused to be stored on the Property,
released or been made aware of the existence of any release
on the Property, or disposed of or caused to be disposed of
on the Property any "oil" as defined in the North Carolina
Oil Pollution and Hazardous Substances Control Act, N.C.G.S.
Section 143-215.77, or "hazardous waste" as defined in the
Resource Conservation and Recovery Act of 1976 (as amended),
42 U.S.C. Section 6901 et seg., or "hazardous substances" as
defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (as amended) 42
U.S.C. Section 9601 et seg.; Borrower is in material
compliance with all federal, state and local environmental
laws, regulations or ordinances and has received no notice
that is the subject of any federal or state investigation
the purpose of which is to evaluate whether any remedial or
other action is needed at the Property; there is no
contamination of soils, surface water or ground water
beneath the surface of the Property by oil, hazardous waste
or hazardous substances;
(f) Borrower has no intention of
filing any voluntary petition or initiating any voluntary
proceedings under the Federal Bankruptcy Code or similar
state legislation to obtain relief from creditors and any
reorganization, insolvency, receivership or similar
proceedings, and has no knowledge of any threatened
involuntary bankruptcy proceedings affecting Borrower;
(g) Borrower currently has in
force insurance policies covering the Property which comply
with the property insurance requirements set forth in the
Loan Documents;
(h) Borrower does not have the
right to disbursement of additional loan proceeds pursuant
to the Loan Documents;
(i) The outstanding aggregate
principal balance and accrued interest of the Notes is Two
Million Six Hundred Thousand and 00/100 Dollars
($2,600,000.00);
(j) The Loan Documents, Guaranty,
and Supply Agreement are valid and enforceable obligations
of the Borrower and Fountain. Borrower is a North Carolina
corporation duly organized and validly existing with full
power and authority to execute, deliver and perform pursuant
to the Loan Documents and Supply Agreement (including this
Second Amendment, the Amended Note, and the Modification of
Deeds of Trust and Assignment of Rents, Issues and Profits
(Modifications)).
(8) Borrower hereby releases and forever discharges Lender and
all of its subsidiaries, affiliates, divisions, officers,
directors, employees, agents, attorneys, advisors, successors and
assigns (collectively, the "Released Parties") from any and all
claims, demands, debts, liabilities, contracts, obligations,
accounts, torts, causes of action or claims for relief of
whatever kind or nature, whether known or unknown, whether
suspected or unsuspected, which Borrower may have or which may
hereafter be asserted or accrue against the Released Parties or
any of them, resulting from or in any way relating to any act or
omission done or committed by the Released Parties, or any of
them prior to the date hereof with respect to the Property or
Loan Documents. This release relates to all claims which now
exist or may hereafter arise as a result of acts or omissions
occurring before the effective date hereof, whether or not known
or suspected hereto. Borrower expressly acknowledges that
although it may be that ordinarily a general release does not
extend to claims about which the releasing party does not know or
suspect to exist in its favor, or which if known must have
materially affected its settlement with the party released, it
has carefully considered and taken into account in determining to
enter into this Second Amendment the possible existence of such
unknown losses or claims. Borrower expressly waives any and all
rights conferred upon it by any statute or rule of law which
provides that a release does not extend to claims about which the
claimant does not know or suspect to exist in its favor at the
time of executing the release. This release shall constitute a
complete defense to any claim, cause of action, defense,
contract, liability, and indebtedness or obligation released
pursuant to this release. Nothing in this release shall be
construed as an admission by Lender or any Released Party that
any defenses, indebtedness, obligation, liability, claim or cause
of action exists which is within the scope of those hereby
released.
(9) Borrower represents and warrants that Borrower has not
heretofore assigned or transferred or purported to assign or
transfer to any person any matter released hereunder or any
portion thereof or interest therein, and Borrower agrees to
indemnify, defend and hold the Released Parties harmless from and
against any and all claims based on or arising out of any such
assignment or transfer or purported assignment or transfer.
(10) Fountain has entered into this Second Amendment for the
purpose of confirming his agreement to provide a guaranty of the
loan pursuant to the Guaranty Agreement attached hereto as
Exhibit "C" (the "Guaranty"), which said Guaranty is provided in
consideration of the agreement of Lender to enter into this
Second Amendment and to modify and extend the loan evidenced by
the Loan Documents. Fountain has also entered into this
agreement to confirm and ratify that the pledge of shares of
capital stock of Borrower which has been given by Fountain to
Lender shall continue to serve as security for the loan evidenced
by the Loan Documents as modified herein and by the Amended Note.
(11) Borrower agrees that it will execute such other documents as
may be required by Lender in its sole discretion to complete this
Second Amendment or to accomplish the intended purposes of this
Second Amendment.
(12) Borrower acknowledges that by accepting payment of any sum
set forth herein by Borrower, Lender does not waive in any manner
Lender's right to require prompt payment when due of all other
sums evidence by the Notes and secured by the Deeds of Trust, as
modified herein, and to declare a default for failure of Borrower
to comply fully with the terms and conditions of the Notes and
the Deeds of Trust. The waiver of any default of Borrower under
the Notes or the Deeds of Trust, as modified, shall not be or be
deemed to be a waiver of any other or similar default by Borrower
after such waiver.
(13) This Second Amendment and all provisions hereof, shall
extend to and be binding upon and inure to the benefit of the
respective heirs, legatees, legal representatives, successors and
assigns of the parties hereto.
(14) The Notes, Deeds of Trust, and all Loan Documents are hereby
modified in accordance with this Second Amendment. All
references to a particular loan documents in the Loan Documents
shall be deemed to refer to said loan document as amended by this
agreement.
(15) Borrower shall reimburse Lender for all reasonable
attorney's fees and any expenses arising from and after the date
hereof, incurred by Lender in connection with the enforcement of
Lender's rights under this Second Amendment and each of the other
Loan Documents, as modified.
(16) The parties hereto expressly disclaim any intent to effect a
novation or an extinguishment or discharge of any of the
Borrower's obligations under the Loan Documents. Except as
expressly modified, herein, each Loan Document remains in full
force and effect and is hereby confirmed and ratified in all
respect.
(17) The phrase "Mercury Marine, a division of Brunswick
Corporation" appearing anywhere in any of the Loan Documents
shall be deemed to mean Brunswick Corporation, Mercury Marine
Division.
(18) This Second Amendment contains the entire agreement between
the parties relating to the transactions contemplated hereby, and
all prior or contemporaneous agreements, understandings,
representations and statements, oral or written are merged
herein. No modification or amendment of this Second Amendment or
any waiver of any provision hereof shall be effective, unless the
same is in writing signed by the party against whom enforcement
is sought.
(19) If any of the provisions of this Second Amendment shall be
deemed invalid or unenforceable, the remainder of this Second
Amendment shall not be affected thereby and shall remain valid
and enforceable to the fullest extent permitted by law.
(20) This agreement shall be governed by and construed in
accordance with the laws in the State of North Carolina.
(21) This agreement may be executed in one or more counterparts,
each of which shall be an original, but all of which together
shall constitute one original instrument.
(22) All representations and warranties contained in this
agreement shall survive the closing of the restructuring
transaction and modifications contained herein.
IN WITNESS WHEREOF, the corporate parties have caused this
instrument to be executed by their duly authorized officers and
their corporate seals affixed hereto and Fountain has affixed his
hand and seal effective as of the day and year first above
written.
FOUNTAIN POWERBOATS, INC.
By: /s/ R.M. Fountain, Jr.
_____________ President
ATTEST:
/s/ June A. Thomason
Assistant Secretary
[Corporate Seal]
BRUNSWICK CORPORATION
MERCURY MARINE DIVISION
By:______________
______________
Vice President
ATTEST:
___________________________
Assistant Secretary
[Corporate Seal]
/s/ Reginals M. Fountain, Jr., (SEAL)
Reginald M. Fountain, Jr.
EXHIBIT A
AMENDED AND RESTATED NOTE
$2,600,000.00 Effective Date: January 1,
1995
(the "Effective Date")
For value received, Fountain Powerboats, Inc., a North
Carolina corporation ("Maker"), promises to pay to the order of
Brunswick Corporation, Mercury Marine division, a Delaware
corporation (the "Lender") at its office located at 3003 N.
Perkins Rd., Stillwater, Oklahoma 74075, or at such other place
as the holder may hereafter designate, the sum of TWO MILLION SIX
HUNDRED THOUSAND DOLLARS ($2,600,000.00). Interest on all unpaid
principal shall accrue at the rate of eight and one half percent
(8.5%) per annum from the Effective Date hereof until paid.
Principal and interest shall be payable pursuant to the terms set
forth in Schedule A, attached hereto, and expressly made a part
of this Note. Interest shall be calculated on the basis of the
actual number of days elapsed over a year of 365 days.
The Maker and all sureties, endorsers and guarantors of this
note waive demand, presentment for payment, notice of non-
payment, protest, notice of protest, all pleas of division and
discussion and all other notice, filing of suit and diligence in
collecting this note or enforcing any of the security herefor,
and agree to any substitution, exchange or release of any such
security or the release of any party primarily or secondarily
liable hereon and further agree that it will not be necessary for
any holder hereof, in order to enforce payment by them of this
note, to first institute suit or exhaust its remedies against any
maker or others liable herefor, or to enforce its rights against
any security herefor, and consent to any extensions or
postponements of time of payment of this note or any other
indulgences with respect hereto, without notice thereof to any of
them and hereby bind themselves in solido for the payment hereof
in principal, interest, costs and attorneys' fees.
It is agreed that in case it shall become necessary to
institute legal proceedings for the recovery of the amount of
this note, or any part hereof, or in case it shall be necessary
to employ counsel to collect, or to attempt to collect, same,
Maker will pay all reasonable fees of the attorney(s)-at-law who
may be employed for that purpose, as allowed by North Carolina
law.
Upon the occurrence of any of the following, this note
shall, at the option of holder, ipso facto and at once and
without notice or demand, mature, and all remaining unpaid
installments hereon shall immediately become due: (i) failure of
the Maker to pay any installment hereof within (10) days of the
date same is due; (ii) violation by Maker or any other party of
any of the terms or provisions of, or failure of Maker or any
other party to fulfill any of its obligations under, any mortgage
or security agreement securing this note; (iii) commencement of
foreclosure proceedings against Maker, or seizure of any assets
of Maker, by MetLife Capital Corporation, its successors or
assigns; (iv) Maker shall be adjudicated a bankrupt, or a trustee
or receiver shall be appointed for the Maker or for all or any
part of the property of Maker in any involuntary or voluntary
proceeding for the reorganization, dissolution, liquidation or
winding-up of Maker; or (v) occurrence of an Event of Default or
a default in any of the terms, conditions or covenants contained
in the security instruments securing this Amended and Restated
Note including, but not limited to the "Security Documents", as
defined below, or any amendments and supplements thereto.
This note is secured by the following instruments:
(a) Revolving Credit Loan
Agreement dated December 15, 1992 (the "Loan Agreement") as
well as that certain Revolving Credit Security Agreement
dated December 15, 1992 ("Security Agreement"), both by and
between Maker and Lender;
(b) Revolving Credit Deed of Trust
dated December 15, 1992 executed by Maker to Edward J.
Harper, II, as trustee (the "Trustee"), which was filed on
December 15, 1992 in the Beaufort County Registry in Book
970, Page 27 ("Original Deed of Trust");
(c) Assignment of Rents, Issues
and Profits executed by Maker in favor of Lender dated
December 15, 1992 which was filed on December 15, 1992 in
Book 970, Page 41, Beaufort County Registry ("Assignment of
Rents");
(d) Pledge of Securities executed
by Reginald M. Fountain, Jr. ("Fountain") in favor of Lender
dated March 22, 1993 ("Pledge");
(e) Loan Extension and Amendment
Agreement by and among Maker, Fountain and Lender dated July
11, 1994 ("First Amendment") which provided for a
modification of certain of the aforesaid loan documents;
(f) Deed of Trust executed by
Maker to the Trustee for the benefit of Lender dated July
11, 1994 filed in Book 1007, Page 685, Beaufort County
Registry ("Supplemental Deed of Trust");
(g) Second Loan Extension,
Consolidation and Amendment Agreement with effective date as
of January 1, 1995 by and among Maker, Fountain and Lender;
(h) Modification of Deeds of Trust
and Assignment of Rents, Issues and Profits with effective
date as of January 1, 1995 by and among Maker, Fountain,
Trustee, and Lender;
(i) Guaranty Agreement with
effective date as of January 1, 1995 executed by Fountain
and in favor of Lender; and
(j) Supply Agreement dated as of
the Execution Date hereof by and between Maker and Lender.
The aforesaid documents are collectively referred to herein as
the "Security Documents". It is agreed that, in addition to any
other acceleration rights contained herein, this note shall at
once become due and payable at the option of the legal holder
hereof pursuant to the default provisions contained in the
Security Documents.
This note is given in substitution for and consolidation of
that certain Revolving Credit Promissory Note dated December 15,
1992 drawn by Maker and payable to the order of Lender (the
"Original Note"), as modified by the First Amendment, and that
certain Supplemental Promissory Note in the principal amount of
$874,452.03 dated July 11, 1994 drawn by Maker and payable to the
order of Lender (the "Supplemental Note") (the Original Note and
Supplemental Note are herewith collectively referred to as the
"Original Notes"). Nothing contained in this note shall be
construed or is intended: (a) as a novation of the Original
Notes or the collateral securing same; (b) to be deemed as
payment of any amount of principal or interest on the Original
Notes; or (c) to release, cancel, terminate or otherwise impair
the status, validity, perfection or priority of the liens created
by the collateral securing the Original Notes, and the Maker
hereby ratifies, confirms and approves the continuing existence,
validity, perfection, priority and binding effect of all
collateral securing the Original Notes, including, without
limitation, the Pledge, the Assignment of Rents, the Original
Deed of Trust, the Supplemental Deed of Trust, and any
amendments, modifications, or supplements thereto.
Notwithstanding anything herein, or construed to the
contrary, the Maker and Lender agree that it shall not be deemed,
construed or intended that this note shall bear interest at a
rate higher than the highest contract rate allowed by law in the
state of North Carolina, or by applicable federal law, whichever
is greater.
The failure of the holder hereof to exercise any of its
rights hereunder in any instance shall not constitute a waiver
thereof in that or any other instance.
This note, in whole or in part, shall be fully assignable by
the holder hereof without the consent of Maker; however, Maker
shall have no right to assign this note, in whole or in part,
without the prior written consent of the holder of this note.
This note shall be governed by and construed in accordance
with the laws of the State of North Carolina.
IN WITNESS WHEREOF, Maker has caused this instrument to be
executed by its duly authorized corporate officer and its
corporate seal affixed hereto all on this 24th day of February,
1995 (the "Effective Date").
FOUNTAIN POWERBOATS, INC.
By: /s/
R. M. Fountain, Jr.
President
ATTEST:
/s/ June A. Thomason
Assistant Secretary
[Corporate Seal]
SCHEDULE "A"
to
AMENDED AND RESTATED NOTE
This Schedule A is made a part of that certain Amended and
Restated Note with Effective Date as of January 1, 1995 by and
between Brunswick Corporation, Mercury Marine division, as
Holder, and Fountain Powerboats, Inc., as Maker.
The principal sum shall bear interest on the unpaid
principal amount at an annual rate of eight and one-half percent
(8.5%). Payments of principal and interest shall be due as
follows:
1. One (1) payment (principal and interest) in the amount
of $70,000.00 shall be due and payable simultaneously
with the execution and delivery of the Note.
2. Fifty-Eight (58) successive monthly installment payments
(principal and interest) each in the amount of
$35,000.00 shall be due and payable beginning on March
1, 1995 and continuing thereafter on the 1st day of each
successive month for a period of five (5) years from and
after the Effective Date, until and including December
1, 1999, when all of the total outstanding unpaid
principal and accrued, unpaid interest shall be
immediately due and payable.
3. Nineteen (19) quarterly payments (principal and
interest) in the amount of $300.00 per stern drive
marine engine and $170.00 per outboard marine engine
purchased by Maker, its affiliates, parent companies
and/or subsidiaries, from Brunswick Corporation, Mercury
Marine division during the previous calendar quarter
shall be due and payable on the following dates: April
25, 1995, July 25, 1995, October 25, 1995, January 25,
1996, April 25, 1996, July 25, 1996, October 25, 1996,
January 25, 1997, April 25, 1997, July 25, 1997, October
25, 1997, January 25, 1998, April 25, 1998, July 25,
1998, October 25, 1998, January 25, 1999, April 25,
1999, July 25, 1999 and October 25, 1999.
4. Five (5) annual payments (principal and interest) shall
be due and payable beginning on August 25, 1995, and
continuing on the 25th day of August of each successive
year thereafter up to and including August 25, 1999 in
the amount of five percent (5%) of Maker's prior fiscal
year-end earnings EBITD (before interest, taxes and
depreciation) (computed using a fiscal year ending on
June 30th of each year).
5. Notwithstanding the payment amounts referred to above, a
final "balloon" payment in the amount of all total
outstanding unpaid principal and accrued, unpaid
interest shall be additionally due and payable on
December 1, 1999.
6. All payment amounts referred to above shall be first
applied to interest and then to principal reduction.
Notwithstanding anything herein, or construed to the
contrary, the Maker and Holder hereof agree that the Holder shall
forgive and discharge Maker from the last $800,000.00 of payments
due hereunder, provided that (a) Maker reduces the Note balance
of unpaid principal and accrued, unpaid interest to the sum of
$800,000.00 on or before December 1, 1997 (the "Early Payoff
Date"); and (b) Maker timely makes all payments required under
the Note prior to the Early Payoff Date.
Payments shall continue on the same day of each succeeding
month, quarter, or year, as set forth above, until principal and
interest are fully paid.
EXHIBIT "B"
PREPARED BY AND MAIL TO: Michael G. Winters
SMITH HELMS MULLISS & MOORE,
L.L.P.
Post Office Box 27525
Raleigh, North Carolina 27611
NORTH CAROLINA
BEAUFORT COUNTY MODIFICATION OF DEEDS OF TRUST
AND
ASSIGNMENT OF RENTS, ISSUES AND
PROFITS
THIS MODIFICATION OF DEEDS OF TRUST AND ASSIGNMENT OF RENTS,
ISSUES AND PROFITS is made as of the effective date of January 1,
1994 for the Trustee by and among FOUNTAIN POWERBOATS, INC., a
North Carolina corporation ("Borrower"); SMITH HELMS MULLISS &
MOORE ("Substitute Trustee"); and BRUNSWICK CORPORATION, Mercury
Marine Division, a Delaware Corporation ("Lender").
W I T N E S S E T H
WHEREAS, Borrower is indebted to Lender as evidenced by a
Revolving Credit Promissory Note dated December 15, 1992 in the
original principal amount of Two Million and No/100's Dollars
($2,000,000.00) ("Original Note"); and
WHEREAS, the Original Note is secured by certain property,
("Property") described I that Revolving Credit Deed of Trust
dated December 15, 1992 from Borrower as Grantor to Edward J.
Harper, II as trustee for the benefit of Lender, recorded on
December 15, 1992 in Book 970, Page 27, Beaufort County Registry
("Original Deed of Trust"); and
WHEREAS, the Original Note is further secured by that
Assignment of Rents, Issues and Profits entered into between
Borrower and Lender on December 15, 1992 and recorded in Book
970, Page 41, Beaufort County Registry ("Assignment"); and
WHEREAS, pursuant to the terms of that certain Loan
Extension and Amendment Agreement dated July 11, 1994 ("Extension
Agreement") Borrower executed and delivered to Lender that
certain Supplemental Promissory Note dated July 11, 1994
("Supplemental Note") in the original principal amount of Eight
Hundred Seventy-Four Thousand Four Hundred Fifty-Two and 03/100's
Dollars ($874,452.03) to evidence the obligation of Borrower to
Lender for the amounts in addition to the Two Million and
No/100's Dollars obligation reflected in the Original Note; and
WHEREAS, in order to secure the obligations of the
Supplemental Note, Borrower executed a Deed of Trust to Edward J.
Harper, II as trustee for the benefit of Lender dated July 11,
1994, recorded September 1, 1994 in Book 1007, Page 685, Beaufort
County Registry ("Supplemental Deed of Trust"); and
WHEREAS, pursuant to the terms of that certain Second Loan
Extension, Consolidation and Amendment Agreement entered into
between Borrower, Reginald M. Fountain, Jr., and Lender, Borrower
has executed an Amended and Restated Promissory Note with an
effective date of January 1, 1995 ("Amended Note");
WHEREAS, in order to continue to secure the loan evidenced
by the Original Note, the Supplemental Note, and no evidenced by
the Amended Note, the parties hereto have agreed to modify the
Original Deed of Trust and the Supplemental Deed of Trust
(collectively referred to herein as the "Deeds of Trust") as set
forth herein; and
WHEREAS, Substitute Trustee has been substituted as trustee
on the Original Deed of Trust and the Supplemental Deed of Trust
by instrument recorded in the Beaufort County Registry.
NOW, THEREFORE, for and in consideration of the premises,
the sum of Ten and No/100's Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as
follows:
1. As of January 1, 1995, the outstanding balance of
principal and accrued interest is in the total amount of Two
Million Six Hundred Thousand and 00/100 Dollars ($2,600,000.00).
2. The loans evidenced by the Original Note and the
Supplemental Note will mature on December 1, 1999, at which time
a final payment of all unpaid principal and interest shall be
due. The maturity date of the Deeds of Trust shall be December
1, 1999.
3. The term "Beneficiary" as used in the Deeds of Trust
shall mean Brunswick Corporation, Mercury Marine Division. The
Assignment of Rents is modified to reflect that the correct name
of the party of the second part is Brunswick Corporation, Mercury
Marine Division.
4. The Parties hereto acknowledge and agree that the
provisions of this Agreement constitute amendments to, and not a
novation of, the indebtedness formerly evidenced by the Original
Note and the Supplemental Note. This Modification of Deeds of
Trust and Assignment of Rents, Issues and Profits does not
constitute a cancellation or payment of the indebtedness formerly
evidenced by the Original Note or the Supplemental Note or the
transfer of property to secure the indebtedness formerly
evidenced by the Original Note or the Supplemental Note.
5. Borrower hereby ratifies, restates, and confirms all of
the covenants, representations and warranties contained in the
Deeds of Trust. Borrower has no claims, offsets or defenses with
respect to payment of the principal amount as provided in the
Original Note or Supplemental Note.
6. Borrower represents and warrants as of the date hereof
that it holds title to an indefeasible estate in fee simple in
the Property and the Property is free and clear of all liens,
charges and encumbrances whatsoever except the lien of the Deeds
of Trust and those liens and encumbrances shown in title policies
issued by Fidelity National Title Insurance Company of
Pennsylvania bearing Policy Number 93J19100-M and 94J25333-M.
7. Except as herein specifically modified and amended, the
terms and conditions of the Deeds of Trust and the Assignment
shall remain in full force and effect as therein provided. This
Modification shall be binding upon the Parties, their successors
and assigns.
IN WITNESS WHEREOF, the corporate parties have caused this
instrument to be executed by their duly authorized corporate
officers and their corporate seals affixed hereto and the Trustee
has affixed his hand and seal all effective as of the day and
year first above written.
FOUNTAIN POWERBOATS, INC.
By: /s/ R. M. Fountain, Jr.
President
ATTEST:
/s/ June A. Thomason
Assistant Secretary
[CORPORATE SEAL]
BRUNSWICK CORPORATION,
MERCURY
MARINE DIVISION
By:______________
______________
Vice President
ATTEST:
___________________________
Assistant Secretary
[Corporate Seal]
SUBSTITUTE TRUSTEE
SMITH HELMS MULLISS & MOORE,
L.L.P.
By:________________________
(SEAL)
Partner
NORTH CAROLINA
Bertie County
I, a Notary Public of the county and state foresaid, certify
that June A. Thomason, personally came before me this day and
acknowledged that he/she is Assistant Secretary of FOUNTAIN
POWERBOATS, INC., a North Carolina corporation, and that by
authority duly given and as the act of the corporation, the
foregoing instrument was signed in its name by its CEO and
President, sealed with its corporate seal and attested by him/her
as its Assistant Secretary.
Witness my hand and official stamp or seal, this the 24th
day of February, 1995.
Notary Public
My Commission Expires:
6-27-97
State of Illinois
County of Lake
I, a Notary Public of the county and state aforesaid,
certify that ___________________________, personally came before
me this day and acknowledged that he/she is Assistant Secretary
of BRUNSWICK CORPORATION, MERCURY MARINE DIVISION, a Delaware
corporation, and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed in its name
by its Vice President, sealed with its corporate seal and
attested by him/her as its Assistant Secretary.
Witness my hand and official stamp or seal, this the ____
day of January, 1995.
Notary Public
My Commission Expires:
NORTH CAROLINA
Wake County
I, a Notary Public of the county and state aforesaid,
certify that ___________________________, General Partner of
Smith Helms Mulliss & Moore, Substitute Trustee, personally
appeared before me this day and acknowledged the due execution of
the foregoing instrument.
Witness my hand and official stamp or seal, this the ____
day of January, 1995.
Notary Public
My Commission Expires:
EXHIBIT C
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT, with an effective date as of
January 1, 1995 (the "Guaranty"), is given by REGINALD M.
FOUNTAIN, JR., (the `Guarantor"),; and extended to BRUNSWICK
CORPORATION, MERCURY MARINE DIVISION, a Delaware corporation
("Lender") for the benefit of FOUNTAIN POWERBOATS, INC., a North
Carolina corporation ("Borrower")
R E C I T A L S:
WHEREAS:
1. (a) Borrower and Lender are
parties to that certain Revolving Credit Loan Agreement
dated December 15, 1992 (the "Loan Agreement") as well as
that certain Revolving Credit Security Agreement dated
December 15, 1992 ("Security Agreement");
(b) Borrower executed in favor of and delivered to Lender
that certain Revolving Credit Promissory Note dated December
15, 1992 ("Original Note");
(c) Borrower executed to Edward J. Harper, II, ("Trustee")
in favor of Lender that certain Revolving Credit Deed of
Trust dated December 15, 1992, which was filed on December
15, 1992 in the Beaufort County Registry in Book 970, Page
27 ("Original Deed of Trust");
(d) Borrower executed in favor of and delivered to Lender
that certain Assignment of Rents, Issues and Profits dated
December 15, 1992 which was filed on December 15, 1992 in
Book 970, Page 41, Beaufort County Registry ("Assignment of
Rents");
(e) Fountain individually executed in favor of and
delivered to Lender that certain Pledge of Securities dated
March 22, 1993 ("Pledge");
(f) Borrower, Fountain and Lender executed that Loan
Extension and Amendment Agreement dated July 11, 1994
("First Amendment") which provided for a modification of
certain of the aforesaid loan documents;
(g) pursuant to the First Amendment, Borrower executed and
delivered to Lender a Supplemental Promissory Note in the
principal amount of $874,452.03 dated July 11, 1994
("Supplemental Note");
(h) to secure the Supplemental Note, Borrower executed to
Trustee for the benefit of Lender a Deed of Trust dated July
11, 1994 which was filed in Book 1007, Page 685, Beaufort
County Registry ("Supplemental Deed of Trust"); and
(i) Borrower, Lender and Guarantor have entered into that
Second Loan Extension, Consolidation and Amendment Agreement
("Second Amendment"), an Amended and Restated Note ("Amended
Note") and Modification of Deeds of Trust and Assignment of
Rents, Issues and Profits ("Modifications"), all with an
effective date of January 1, 1995, which provided for a
modification of the Loan Documents as defined herein.
(j) Borrower and Lender have entered into an exclusive
engine Supply Agreement dated February 24, 1995.
2. WHEREAS, the aforesaid documents are collectively
referred to herein as the "Loan Documents", the Original Note,
the Supplemental Note and the Amended Note are collectively
referred to herein as the "Notes," and the Original Deed of Trust
and Supplemental Deed of Trust are collectively referred to
herein as the Deeds of Trust; and
3. The Guarantor is a shareholder of Borrower's parent
corporation, Fountain Powerboat Industries, Inc.; and
4. Without this Guaranty the Lender would be unwilling to
make the extension and modify; and
5. Because of the direct benefit to the Guarantor form the
extension and modification of the loan to the Borrower, the
Guarantor agrees to guarantee to the Lender the obligations of
the Borrower as set forth herein.
NOW, THEREFORE, in consideration of the Lender agreeing to
the extension and modification of the loan to Borrower and for
other good and valuable consideration the receipt and sufficiency
of which are hereby acknowledged:
1. Guaranty of Payment. The Guarantor hereby
unconditionally guarantees to the Lender the payment, when due,
by acceleration or otherwise, of the Indebtedness. The maximum
liability of Guarantor under this Guaranty shall be the sum of
One Million and no/100ths Dollars ($1,000,000.00). For the
purposes hereof, the term "Indebtedness" shall include any and
all indebtedness of the Borrower to the Lender, including without
limitation, all principal, interest, fees and expenses, evidenced
by the Notes, the Loan Agreement, the Deeds of Trust, the Second
Amendment, and the Modification, or arising in connection with
the loan, whether existing now or arising hereafter, as such
Indebtedness may be modified, extended or renewed from time to
time. The guaranty of the Guarantor as set forth in this section
is a guaranty of payment and not of collection.
2. Subordination.
(a) Any indebtedness of the Borrower to the Guarantor now
or hereafter existing, together with any interest thereon,
shall be, and such indebtedness is hereby, deferred,
postponed and subordinated to the Indebtedness.
(b) Any lien or charge on the Property (as defined in the
Loan Agreement), all rights therein and thereto, and on the
revenue and income to be realized therefrom, which the
Guarantor may have or obtain as security for any loans shall
be, and such lien or charge hereby is, subordinated to the
Deeds of Trust and all other Loan Documents and to the
Indebtedness.
3. Release of Collateral, Parties Liable, etc.
(a) The Guarantor agrees that the whole or any part of
the security now or hereafter held for the Indebtedness may be
exchanged, compromised, or surrendered from time to time; that
the Lender shall have no obligation to protect, perfect, secure
or insure any such security interests, liens or encumbrances now
or hereafter held for the Indebtedness or the properties subject
thereto; that the time or place of payment of the Indebtedness
may be changed or extended, in whole or in part, to a time
certain or otherwise, and may be renewed or accelerated, in whole
or in part; that the Borrower may be granted indulgences
generally, that any of the provisions of the Loan Agreement, the
Note, or any other documents executed in connection with this
transaction, may be modified, amended or waived; that any party
(including any co-guarantor) liable for the payment thereof may
be granted indulgences or released; and that any deposit balance
for the credit of the Borrower or any other party liable for the
payment of the Indebtedness or liable upon any security therefor
may be released, in whole or in part, at, before and/or after the
stated, extended or accelerated maturity of the Indebtedness, all
without notice to or further assent by the Guarantor, who shall
remain bound thereon, notwithstanding any such exchange,
compromise, surrender, extension, renewal, acceleration,
modification, indulgence or release.
(b) Notwithstanding the foregoing, Guarantor shall be
released from his monetary obligations hereunder to the extent
that Borrower's failure to pay the Indebtedness, prior to
acceleration of the Indebtedness, is solely the direct and
proximate result of a material default by Lender of its engine
supply obligations to Borrower under the terms of that certain
MerCruiser OEM Purchase Agreement dated on or about the date of
execution hereof, by and among Borrower, Lender, and, if
applicable, Borrower's buying group, and any extensions,
renewals, and replacements thereof (the "Purchase Agreement").
For purposes hereof, Lender shall not be considered to be in
material default to the Purchase Agreement for failure or refusal
to ship engines to Borrower for credit related reasons.
4. Waiver of Rights. The Guarantor expressly waives: (a)
notice of acceptance of this Guaranty by the Lender and of all
extensions of credit to the Borrower by the Lender; (b)
presentment and demand for payment of any of the Indebtedness;
(c) protest and notice of dishonor or of default to the Guarantor
or to any other party with respect to the Indebtedness or with
respect to any security therefor; (d) notice of the Lender
obtaining, amending, substituting for, releasing, waiving or
modifying any security interest, liens, or encumbrances now or
hereafter securing the Indebtedness, or the Lender's
subordinating, compromising, discharging or releasing such
security interests, liens or encumbrances; (e) demand for
payment under this Guaranty; and (f) any right to assert
against the Lender, as a defense, counterclaim, set-off, or cross-
claim any defense (legal or equitable), set-off, counterclaim or
claim which the Guarantor may now or hereafter have against the
Lender or the Borrower, but such waiver shall not prevent the
Guarantor from asserting against the Lender in a separate action,
any claim, action, cause or action, or demand that the Guarantor
might have, whether or not arising out of this Guaranty.
5. Primary Liability of the Guarantor. The Guarantor agrees
that this Guaranty may be enforced by the Lender without the
necessity at any time of resorting to or exhausting any other
security or collateral and without the necessity at any time of
having recourse to the Notes or the Property through foreclosure
proceedings under the Deeds of Trust or otherwise, and the
Guarantor hereby waives any rights it may otherwise have under
N.C. Gen. State. Sections 26-7 et. seg. inclusive and the right
to require the Lender to proceed against the Borrower or any co-
guarantor or to require the Lender to pursue any other remedy or
enforce any other right. The Guarantor further agrees that the
Guarantor shall have no right of reimbursement or indemnity
whatsoever, nor shall the Guarantor have any right of recourse to
security for the debts and obligations of the Borrower to the
Lender, unless and until all of the debts and obligations of the
Borrower to the Lender have been paid in full. The Guarantor
further agrees that nothing contained herein shall prevent the
Lender from suing on the Notes or foreclosing the Deeds of Trust
or from exercising any other rights available to it under the
Notes, the Deeds of Trust or the Loan Agreement, or any other
instrument of security if neither the Borrower nor the Guarantor
timely performs the obligation of the Borrower thereunder, and
the exercise of any of the aforesaid rights and the completion of
any foreclosure proceedings shall not constitute a discharge of
any of the Guarantor's obligations hereunder; it being the
purpose and intent of the Guarantor that the Guarantor's
obligations hereunder shall be absolute, independent and
unconditional under any and all circumstances. Neither the
Guarantor's obligations under this Guaranty nor any remedy for
the enforcement thereof shall be impaired, modified, changed or
released in any manner whatsoever by an impairment, modification,
change, release or limitation of the liability of the Borrower or
any co-guarantor or by reason of the Borrower's or any co-
guarantor's bankruptcy or insolvency. The Guarantor acknowledges
that the term "Indebtedness" as used herein includes any payments
made by the Borrower to the Lender and subsequently recovered by
the Borrower or a trustee for the Borrower pursuant to the
Borrower's bankruptcy or insolvency. At any time the Lender is
entitled to exercise its remedies hereunder, it may in its
discretion elect to demand payment or performance. In the event
the Lender elects to demand performance, it shall at all times
thereafter have the right to demand payment until all of the
Indebtedness has been paid in full. In the event the Lender
elects to demand payment, it shall at all times thereafter have
the right to demand performance until all of the Indebtedness has
been paid in full.
6. Attorneys' Fees and Costs of Collection. If at any time
or times hereafter the Lender employs counsel to pursue
collection, to intervene, to sue for enforcement of the terms
hereof or of the Notes, or to file a petition, complaint, answer,
motion or other pleading in any suit or proceeding relating to
this Guaranty or the Notes, then in such event, all of the
reasonable attorneys' fees relating thereto shall be an
additional liability of the Guarantor to the Lender, payable on
demand.
7. Security Interests and Setoff. As security for the
Guarantor's obligations hereunder, the Guarantor agrees that (a)
in the event the Guarantor fails to pay his obligations hereunder
when due and payable under this Guaranty, any of the Guarantor's
assets of any kind, nature or description (including, without
limitation, deposit accounts) in the possession, control or
custody of the Lender, may, without notice to the Guarantor, be
reduced to cash or the like and applied by the Lender in
reduction or payment of the Guarantor's obligations hereunder;
(b) all security interests, liens and encumbrances heretofore,
now and at any time or times hereafter granted by the Guarantor
to the Lender shall also secure the Guarantor's obligations
hereunder; and (c) the Lender shall have the right, immediately
and without further action by it, to set off against the
Indebtedness all money owed by the Lender in any capacity to the
Guarantor, whether or not due, and the Lender shall be deemed to
have made a charge against any such money immediately upon the
occurrence of such obligation becoming due even though such
charge is made or entered on the books of the Lender subsequent
thereto.
8. Term of Guaranty; Warranties. This Guaranty shall
continue in full force and effect until the Indebtedness is fully
paid, performed and discharged. This Guaranty covers the
Indebtedness whether presently outstanding or arising subsequent
to the date hereof including all amounts advanced by the Lender
in stages or installments. The Guarantor warrants and represents
to the Lender, (i) that this Guaranty is binding upon and
enforceable against the Guarantor, in accordance with its terms,
(ii) that the execution and delivery of this Guaranty do not
violate or constitute a breach of any agreement to which the
Guarantor is a party or of any applicable laws, (iii) that there
is no litigation, claim, action or proceeding pending, or, to the
best knowledge of the Guarantor, threatened against the Guarantor
which would materially adversely affect the financial condition
of the Guarantor or his ability to fulfill his obligations
hereunder. Guarantor agrees to submit annually to the Lender
current financial statements in a form satisfactory to Lender.
In addition to net worth information, these statements must
disclose contingent liability and income information. Guarantor
agrees to promptly inform the Lender of the adverse determination
of any litigation, claim, action or proceeding or the institution
of any litigation, claim, action or proceeding against Guarantor
which does or could materially adversely affect the financial
condition of the Guarantor or his ability to fulfill his
obligations hereunder. This Guaranty is binding on and
enforceable against the Guarantor, his heirs, personal
representatives, executors, successors and assigns.
9. Further Representations and Warranties. The Guarantor
further represents to the Lender that the Guarantor has knowledge
of the Borrower's financial condition and affairs and represents
and agrees that he will keep so informed while this Guaranty is
in force. The Guarantor agrees that the Lender will have no
obligation to investigate the financial condition or affairs of
the Borrower for the benefit of the Guarantor nor to advise the
Guarantor of any fact respecting, or any change in, the financial
condition or affairs of the Borrower which might come to the
knowledge of the Lender at any time, whether or not the Lender
knows or believes or has reason to know or believe that any such
fact or change is unknown to the Guarantor or might (or does)
materially increase the risk of the Guarantor as guarantor or
might (or would) affect the willingness of the Guarantor to
continue as guarantor with respect to the Indebtedness.
10. Additional Liability of the Guarantor. If the
Guarantor is or becomes liable for any indebtedness owing by the
Borrower to the Lender by endorsement or otherwise than under
this Guaranty, such liability shall not be in any manner impaired
or reduced hereby but shall have all and the same force and
effect it would have had if this Guaranty had not existed and the
Guarantor's liability hereunder shall not be in any manner
impaired or reduced thereby.
11. Cumulative Rights. All rights of the Lender
hereunder or otherwise arising under any documents executed in
connection with or as security for the Indebtedness are separate
and cumulative and may be pursued separately, successively or
concurrently, or not pursued, without affecting or limiting any
other right of the Lender and without affecting or impairing the
liability of the Guarantor.
12. Usury. Notwithstanding any other provisions herein
contained, no provision of this Guaranty shall require or permit
the collection from the Guarantor of interest in excess of the
maximum rate or amount that the Guarantor may be required or
permitted to pay pursuant to any applicable law.
13. Multiple Counterparts; Pronouns; Captions;
Severability. This Guaranty may be executed in multiple
counterparts, each of which shall be deemed an original but all
of which shall constitute but one and the same document. The
pronouns used in this instrument shall be construed as masculine,
feminine or neuter as the occasion may require. Captions are for
reference only and in no way limit the terms of this Guaranty.
Invalidation of any one or more of the provisions of this
Guaranty shall in no way affect any of the other provisions
hereof, which shall remain in full force and effect.
14. Lender Assigns. This Guaranty is intended for and
shall inure to the benefit of the Lender and each and every
person who shall from time to time be or become the owner or
holder of any of the Indebtedness, and each and every reference
herein to the "Lender" shall include and refer to each and every
successor or assignee of the Lender at any time holding or owning
any part of or interest in any part of the Indebtedness. This
Guaranty shall be transferable and negotiable with the same force
and effect, and to the same extent, that the Indebtedness is
transferable and negotiable, it being understood and stipulated
that upon assignment or transfer by the Lender of any of the
Indebtedness the legal holder or owner of said Indebtedness (or a
part hereof or interest therein thus transferred or assigned by
the Lender) shall (except as otherwise stipulated by the Lender
in its assignment) have and may exercise all of the rights
granted to the Lender under this Guaranty to the extent of that
part of or interest in the Indebtedness thus assigned or
transferred to said person. The Guarantor expressly waives
notice of transfer or assignment of the Indebtedness, or any part
thereof, or of the rights of the Lender hereunder. Failure to
give notice will not affect the liability of the Guarantor
hereunder.
15. Application of Payments. The Lender may apply any
payments received by it from any source against that portion of
the Indebtedness (principal, interest, court costs, attorneys'
fees or other) in such priority and fashion as it may deem
appropriate.
16. Notices. All notices required to be given hereunder
shall be in writing and shall be deemed served at the earlier of
(i) receipt or (ii) seventy two (72) hours after deposit in
registered, certified or first-class United States mail, postage
prepaid, and addressed to the parties at the following address,
or such other addresses as may from time to time be designated by
written notice given as herein required:
to the Guarantor:
Reginald M. Fountain, Jr.
Old Fort Shores RMF
Whichards Beach Road
Washington, North Carolina 27884
and R.M. Fountain, Jr., Eastbrook Apts, P.O. Box 3316
Greenville, NC 27886 RMF
to the Lender:
Brunswick Corporation
ATTN: Legal Department
1 N. Field Court
Lake Forest, Illinois 60045-4811
Personal delivery to a party or to any office, partner, agent or
employee of such party at its address herein shall constitute
receipt. Rejection or other refusal to accept or inability to
deliver because of changed address of which no notice has been
received shall also constitute receipt. Notwithstanding the
foregoing, no notice of change of address shall be effective
until the date of receipt thereof. This section shall not be
construed in any way to affect or impair any waiver of notice or
demand herein provided or to require giving of notice or demand
to or upon the Guarantor in any situation or for any reason.
17. Governing Law. This Guaranty shall be deemed to be a
contract made under, and for all purposes shall be construed in
accordance with, the internal laws and judicial decisions of the
State of North Carolina. The Guarantor and the Lender agree that
any dispute arising out of this Guaranty shall be subject to the
jurisdiction of both the state and federal courts in North
Carolina for that purpose, the Guarantor hereby submits to the
jurisdiction of the state and federal court of North Carolina.
The Guarantor further agrees to accept service of process out of
any of the beforementioned courts in any such dispute by
registered or certified mail addressed to the Guarantor.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty
under seal effective as of the day and year first above written.
/s/ Reginald M. Fountain, Jr. (SEAL)
Reginald M. Fountain, Jr.
Execution Date: February 24, 1994
NORTH CAROLINA
Bertie County
I, _________________________, a Notary Public do hereby
certify that Reginald M. Fountain, Jr. personally appeared before
me this day and acknowledged the due execution of the foregoing
instrument.
WITNESS my hand and official seal this the 24th day of
February, 1995.
Notary Public
My Commission Expires:
6-27-97
[NOTARIAL SEAL/STAMP]
PREPARED BY AND MAIL TO: Michael G. Winters
SMITH HELMS MULLISS & MOORE,
L.L.P.
Post Office Box 27525
Raleigh, North Carolina 27611
NORTH CAROLINA
BEAUFORT COUNTY MODIFICATION OF DEEDS OF TRUST
AND
ASSIGNMENT OF RENTS, ISSUES AND
PROFITS
THIS MODIFICATION OF DEEDS OF TRUST AND ASSIGNMENT OF RENTS,
ISSUES AND PROFITS is made as of the effective date of January 1,
1994 for the Trustee by and among FOUNTAIN POWERBOATS, INC., a
North Carolina corporation ("Borrower"); SMITH HELMS MULLISS &
MOORE ("Substitute Trustee"); and BRUNSWICK CORPORATION, Mercury
Marine Division, a Delaware Corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Borrower is indebted to Lender as evidenced by a
Revolving Credit Promissory Note dated December 15, 1992 in the
original principal amount of Two Million and No/100's Dollars
($2,000,000.00) ("Original Note"); and
WHEREAS, the Original Note is secured by certain property,
("Property") described I that Revolving Credit Deed of Trust
dated December 15, 1992 from Borrower as Grantor to Edward J.
Harper, II as trustee for the benefit of Lender, recorded on
December 15, 1992 in Book 970, Page 27, Beaufort County Registry
("Original Deed of Trust"); and
WHEREAS, the Original Note is further secured by that
Assignment of Rents, Issues and Profits entered into between
Borrower and Lender on December 15, 1992 and recorded in Book
970, Page 41, Beaufort County Registry ("Assignment"); and
WHEREAS, pursuant to the terms of that certain Loan
Extension and Amendment Agreement dated July 11, 1994 ("Extension
Agreement") Borrower executed and delivered to Lender that
certain Supplemental Promissory Note dated July 11, 1994
("Supplemental Note") in the original principal amount of Eight
Hundred Seventy-Four Thousand Four Hundred Fifty-Two and 03/100's
Dollars ($874,452.03) to evidence the obligation of Borrower to
Lender for the amounts in addition to the Two Million and
no/100's Dollars obligation reflected in the Original Note; and
WHEREAS, in order to secure the obligations of the
Supplemental Note, Borrower executed a Deed of Trust to Edward J.
Harper, II as trustee for the benefit of Lender dated July 11,
1994, recorded September 1, 1994 in Book 1007, Page 685, Beaufort
County Registry ("Supplemental Deed of Trust"); and
WHEREAS, pursuant to the terms of that certain Second Loan
Extension, Consolidation and Amendment Agreement entered into
between Borrower, Reginald M. Fountain, Jr., and Lender, Borrower
has executed an Amended and Restated Promissory Note with an
effective date of January 1, 1995 ("Amended Note");
WHEREAS, in order to continue to secure the loan evidenced
by the Original Note, the Supplemental Note, and no evidenced by
the Amended Note, the parties hereto have agreed to modify the
Original Deed of Trust and the Supplemental Deed of Trust
(collectively referred to herein as the "Deeds of Trust") as set
forth herein; and
WHEREAS, Substitute Trustee has been substituted as trustee
on the Original Deed of Trust and the Supplemental Deed of Trust
by instrument recorded in the Beaufort County Registry.
NOW, THEREFORE, for and in consideration of the premises,
the sum of Ten and No/100's Dollars ($10.00) and other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as
follows:
1. As of January 1, 1995, the outstanding balance of
principal and accrued interest is in the total amount of Two
Million Six Hundred Thousand and 00/100 Dollars ($2,600,000.00).
2. The loans evidenced by the Original Note and the
Supplemental Note will mature on December 1, 1999, at which time
a final payment of all unpaid principal and interest shall be
due. The maturity date of the Deeds of Trust shall be December
1, 1999.
3. The term "Beneficiary" as used in the Deeds of Trust
shall mean Brunswick Corporation, Mercury Marine Division. The
Assignment of Rents is modified to reflect that the correct name
of the party of the second part is Brunswick Corporation, Mercury
Marine Division.
4. The Parties hereto acknowledge and agree that the
provisions of this Agreement constitute amendments to, and not a
novation of, the indebtedness formerly evidenced by the Original
Note and the Supplemental Note. This Modification of Deeds of
Trust and Assignment of Rents, Issues and Profits does not
constitute a cancellation or payment of the indebtedness formerly
evidenced by the Original Note or the Supplemental Note or the
transfer of property to secure the indebtedness formerly
evidenced by the Original Note or the Supplemental Note.
5. Borrower hereby ratifies, restates, and confirms all of
the covenants, representations and warranties contained in the
Deeds of Trust. Borrower has no claims, offsets or defenses with
respect to payment of the principal amount as provided in the
Original Note or Supplemental Note.
6. Borrower represents and warrants as of the date hereof
that it holds title to an indefeasible estate in fee simple in
the Property and the Property is free and clear of all liens,
charges and encumbrances whatsoever except the lien of the Deeds
of Trust and those liens and encumbrances shown in title policies
issued by Fidelity National Title Insurance Company of
Pennsylvania bearing Policy Number 93J19100-M and 94J25333-M.
7. Except as herein specifically modified and amended, the
terms and conditions of the Deeds of Trust and the Assignment
shall remain in full force and effect as therein provided. This
Modification shall be binding upon the Parties, their successors
and assigns.
IN WITNESS WHEREOF, the corporate parties have caused this
instrument to be executed by their duly authorized corporate
officers and their corporate seals affixed hereto and the Trustee
has affixed his hand and seal all effective as of the day and
year first above written.
FOUNTAIN POWERBOATS, INC.
By: /s/ R. M. Fountain, Jr.
President
ATTEST:
/s/ June A. Thomason
Assistant Secretary
[CORPORATE SEAL]
BRUNSWICK CORPORATION,
MERCURY
MARINE DIVISION
By:______________
______________
Vice President
ATTEST:
___________________________
Assistant Secretary
[Corporate Seal]
SUBSTITUTE TRUSTEE
SMITH HELMS MULLISS & MOORE,
L.L.P.
By:________________________
(SEAL)
Partner
NORTH CAROLINA
Bertie County
I, a Notary Public of the county and state aforesaid,
certify that June A. Thomason, personally came before me this day
and acknowledged that he/she is Assistant Secretary of FOUNTAIN
POWERBOATS, INC., a North Carolina corporation, and that by
authority duly given and as the act of the corporation, the
foregoing instrument was signed in its name by its CEO and
President, sealed with its corporate seal and attested by him/her
as its Assistant Secretary.
Witness my hand and official stamp or seal, this the 24th
day of February, 1995.
Notary Public
My Commission Expires:
6-27-97
State of Illinois
County of Lake
I, a Notary Public of the county and state aforesaid,
certify that ___________________________, personally came before
me this day and acknowledged that he/she is Assistant Secretary
of BRUNSWICK CORPORATION, MERCURY MARINE DIVISION, a Delaware
corporation, and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed in its name
by its Vice President, sealed with its corporate seal and
attested by him/her as its Assistant Secretary.
Witness my hand and official stamp or seal, this the ____
day of January, 1995.
Notary Public
My Commission Expires:
NORTH CAROLINA
Wake County
I, a Notary Public of the county and state aforesaid,
certify that ___________________________, General Partner of
Smith Helms Mulliss & Moore, Substitute Trustee, personally
appeared before me this day and acknowledged the due execution of
the foregoing instrument.
Witness my hand and official stamp or seal, this the ____
day of January, 1995.
Notary Public
My Commission Expires:
CONSULTING AND MARKETING AGREEMENT
This Agreement dated the 24th day of February, 1995 (the
"Effective Date") between Reginald M. Fountain, Jr. (hereinafter
RMF), Fountain Powerboats, Inc. (hereinafter FP) and Brunswick
Corporation, Mercury Marine division (hereinafter MM).
WHEREAS, MM manufactures and sells Mercury, Mariner and
MerCruiser outboard and stern drive marine engine products and
Quicksilver products ("Products");
WHEREAS, FP is a boat builder and installs Mercury, Mariner and
MerCruiser products in its boats for resale to the hi-performance
offshore boat market;
WHEREAS, RMF is Chairman of the Board, Chief Executive Officer
and a stockholder of FP's parent company, Fountain Powerboats
Industries, Inc. (hereinafter FPI);
WHEREAS, RMF is a boat builder, competitive driver and motor
sports celebrity in saltwater fishing and national and world
championship offshore powerboat racing, and has name recognition
associated with hi-performance boating and powerboat racing; and
WHEREAS, RMF, individually, and as Chairman of the Board, Chief
Executive Officer and Stockholder of FPI, in interested in
providing consulting and marketing services to MM in exchange for
compensation to FP as set forth below;
WHEREAS, FP is interested in providing marketing services to MM
which services will benefit both MM and FP;
WHEREAS, there are three specific purposes for this Agreement:
1.To receive and compensate RMF personal promotional and
consulting services;
2.To jointly enhance and promote the performance image and
reputation of FP and MM's MerCruiser stern drive product
line; and
3.To increase the image and reputation of FP and MM's
Mercury and Mariner outboards in the saltwater offshore
performance boat market.
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto have agreed as
follows:
1. This Agreement will be from the Effective Date through and
including June 30, 1997.
2. The specific terms and conditions of this Agreement are
confidential and shall not be disclosed to third parties by
either party except with approval of all parties or as
required by law. This obligation of confidentiality shall
continue beyond the termination of this Agreement. Any and
all MM or FP confidential information or material acquired
by MM or FP and RMF during the period of this agreement is
the sole property of the company of origin, and shall not be
disclosed to anyone without specific written permission from
the company of origin.
SECTIONS 3-10
SERVICES FP AND RMF WILL PROVIDE MM
3. RMF will provide consulting services to MM including media
work; video promotional pieces; and attendance at dealer
meetings, trade meetings, shows and sales meeting.
Additionally, RMF will provide appropriate endorsements and
the license to use his image and likeness in promotion
activities as further detailed in following Section 4 and 5.
The total time involvement in all promotional requests by MM
events will not exceed twenty (20) days per year.
Reasonable expenses for travel including, but not limited to
the use of the FP plane and pilot, lodging, and meals
incurred by RMF as a result of participating in these events
will be reimbursed by MM.
4. GENERAL PROMOTION PROVISIONS
4.1FP retains the right to RMF's image and likeness for all
literature, advertising and promotional programs. MM may
use RMF and his endorsement of its products in any and
all areas deemed prudent with the consent of FP, which
consent will not be reasonably withheld.
4.2RMF shall provide such endorsements for MM Products as MM
shall reasonably request.
4.3RMF shall participate as an advisor to the management of
MM on technical issues related to offshore fishing boats,
offshore performance boats and offshore powerboat racing.
4.4RMF shall cooperate with and drive for MM in the event MM
elects to conduct boat driving seminars or
demonstrations.
4.5RMF shall conduct autograph sessions and personal
appearances at race sites, trade shows and dealer
meetings as reasonably requested by MM.
4.6RMF shall cooperate with MM in the event MM elects to
produce a RMF/FP/MM racing poster.
4.7RMF shall not promote or publicly reference third party
equipment or service providers (i.e. Troy Dennis) which
by direct or indirect reference could be construed to
reflect negatively on MM Products or services.
4.8RMF shall always present Brunswick's boat and MM's
Products and services in a positive light. Any RMF
behavior or comments that reflect negatively on MM or its
Products or services will be deemed a breach of this
Agreement.
5. RACING AND FISHING PROMOTION PROVISIONS
5.1RMF and FP shall display the following Mercury Outboard
or MerCruiser Stern Drive identification at all race or
tournament fishing events during the term of this
Agreement, all to be supplied by MM at is expense and in
reasonable quantities.
5.1.1 A 2.5 inch by 5 inch or larger Mercury Outboard or
MerCruiser Stern Drive patch shall be affixed to
the exposed collar and upper-most left chest of
RMF's driving uniform.
5.1.2 A 5 inch by 12 inch or larger Mercury Outboard or
MerCruiser Stern Drive patch shall be affixed to
the upper back of RMF's driving uniform.
5.1.3 A MerCruiser decal, not less than 3 inches in
length, shall be affixed to the front of RMF's race
helmet.
5.1.4 A 12 inch by 37 inch or larger Mercury Outboard or
MerCruiser decal shall be affixed to each side of
the boat near the driver cockpit.
5.1.5 A minimum of two (2) 12 inch by 37 inch or larger
Mercury Outboard or MerCruiser decals shall be
placed on each FP race support vehicle, i.e. truck,
trailers, etc.
5.1.6 Two (2) Mercury Outboard or MerCruiser decals shall
be placed and prominently displayed in FP's pit
area at each race or fishing event.
5.2Cowlings on Mercury Outboards used by FP shall be kept
graphically and structurally intact.
5.3FP shall display all Mercury Outboard or MerCruiser
identifications in a readable upright position.
5.4FP shall mention Mercury Outboards or MerCruiser in, and
print logos on, all FP press releases, newsletters, or
other materials that are distributed.
5.5FP shall retain all above stated Mercury Outboard or
MerCruiser identification when participating in programs
for any and all additional sponsors, such as print and
electronic media advertising, point-of-purchase materials
and personal appearances. Furthermore, Mercury Outboard
or MerCruiser identification shall be greater than or
equal to the identification of the most prominent
additional sponsor.
6. FP and RMF will provide technical consulting to MM in the
development and refining of hi-performance offshore
powerboat propulsion. The emphasis of the consulting work
as well as product development by FP will be on developing
and expanding the outboard hi-performance market.
7. At the same time FP and RMF will endeavor to promote Mercury
Outboards, Mariner Outboards and MerCruiser Stern Drives a
the high quality propulsion leaders in the saltwater fishing
boat builder, dealer and retail marketplaces.
8. RMF agrees that he, and all other parties competing for FP,
shall use Mercury Outboard or MerCruiser and Quicksilver
Products exclusively in all racing events for the term of
this Agreement. FP nor RMF shall not assist directly or
indirectly in design, construction, testing, or racing of
boats utilizing any power, except their own, not built or
supplied by MM for the term of this Agreement.
9. CONSULTING FEES
In exchange for the services performed by RMF in sections
heretofore mentioned, MM will provide RMF the following:
A consulting fee based on the dollar amount of Product
purchases from Brunswick will be paid to RMF quarterly and
calculated as follows:
Date of Purchase Consulting Fee
__________________________________________________________
1. Date of Execution thru
June 30, 1996 5.5%
2. July 1, 1996 - June 30, 1997 2.0%
MISCELLANEOUS CONSIDERATIONS
10. It is understood that the services to be rendered under this
Agreement are personal services of RMF. In the event of the
death of RMF this Agreement may immediately be terminated by
MM.
If is the sole and reasonable judgment of MM, RMF becomes so
incapacitated as to be incapable of continuing services
under this Agreement, MM may terminate this Agreement upon
thirty (30) days written notice. In the event RMF ceases to
hold title as Chairman of the Board and Chief Executive
Officer or FP this Agreement may be immediately terminated
by MM.
11. If any party breaches this Agreement, then the non-breaching
party shall give the breaching party notice of the breach.
If the breach is not corrected by the breaching party within
thirty (30) days of receiving notice of the breach, then the
non-bearing party may, upon notice to the breaching party,
immediately terminate this Agreement.
12. No party shall be under obligation, either express or
implied, to enter into a new agreement with the other party
upon expirations of this Agreement or in the event of
termination prior to expiration.
13. Under no circumstances is RMF or MM deemed to be the agent,
employee or representative of the other. The relationship
between RMF and MM shall be as an independent contractor.
14. In the event either party becomes insolvent or subject to
any bankruptcy proceedings whether voluntary or involuntary;
assigns any of its assets for the benefit of creditors; or
is unable to meet its obligations, this Agreement shall
immediately terminate and all obligations of the other party
shall cease.
15. The parties hereto hereby agree that that certain Consulting
and Marketing Agreement dated March 22, 1991 by and among
MM, Fountain Powerboat Industries, Inc. and RMF has been
terminated and is no longer in effect. The parties hereto
hereby release each other from any liability and/or claims
under such agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first written above.
BURNSWICK CORPORATION,
FOUNTAIN POWERBOATS, INC. Mercury Marine Division
By: /s/ Reginald M. Fountain Jr. By: /s/
Title: Chairman, CEO, President Title: VP Finance
REGINALD M. FOUNTAIN, JR. FOUNTAIN POWERBOAT INDUSTRIES, INC.
(individually) (with respect to Paragraph 15 only)
By: /s/ Reginald M. Fountain Jr.By: /s/ Reginald M. Fountain
Jr.
Title: Title: Chairman, CEO, President
SUPPLY AGREEMENT
Supply Agreement dated February 24, 1995 by and between
Brunswick Corporation d/b/a Mercury Marine, a Delaware
corporation, with offices located at 3003 N. Perkins Rd.,
Stillwater, Oklahoma 74075 ("Brunswick") and Fountain Powerboats,
Inc., a North Carolina corporation, located at Route 2,
Whichard's Beach Road, Post Office Drawer 457, Washington, North
Carolina 27889 (the "Company").
W I T N E S E T H
WHEREAS, Brunswick and the Company are parties to a Second
Loan Extension, Consolidation and Amendment Agreement with
effective date as of January 1, 1995 (the "Second Extension
Agreement"); and
WHEREAS, pursuant to the Second Extension Agreement,
Brunswick has agreed to restructure credit already extended to
the Company; and
WHEREAS, it is a condition precedent to such restructuring
of credit by Brunswick that, among other things, the Company
shall have executed and delivered to Brunswick a Supply Agreement
as set forth herein;
NOW, THEREFORE, in consideration of the premises and in
order to induce Brunswick to restructure such credit under the
Second Extension Agreement, the Company hereby agrees with
Brunswick as follows:
1. Term. The term of this Supply Agreement shall be from
the date hereof to the later of (i) December 1, 1999 or (ii) such
time as the Company pursuant to this Supply Agreement purchases
from Brunswick a total of 12,000 outboard motors or stern drive
or inboard engines. However, the Company may terminate this
Supply Agreement effective December 1, 1999 or earlier by
notifying Brunswick 45 days in advance of the termination date,
provided that on such termination date the Company pays Brunswick
in full the principal amount and accrued interest amount then
outstanding of the Company's Amended and Restated Note with
effective date as of January 1, 1995 payable to Brunswick in the
original principal amount $2,600,000.00 (the "Note").
2. Purchased Products. During the term of this Supply
Agreement the Company will purchase form Brunswick, and Brunswick
will sell to the Company, subject to availability, 100% of the
Company's requirements for outboard motors, stern drive or
inboard engines, remote controls, throttle and shift cables,
propellers, K-planes and other accessories which other
accessories are competitively priced with styling acceptable to
the Company (all of such products are the "Purchased Products"),
except that (i) the Company may purchase from other parties
products in categories which Brunswick does not manufacturer and
(ii) the Company may purchase from other parties products which
are unavailable from Brunswick due to production shortage.
(Brunswick reserves the right to allocate Products among the
Company and Brunswick's other customers as it deems just and
equitable.)
3. Terms of Sale. The Company shall immediately enter into
a "MerCruiser OEM Purchase Agreement," or such other existing
Brunswick original equipment manufacturer sales and marketing
program for which the Company qualifies (the "Program"), which
Program will contain the terms of sale of the Products to the
Company, except to the extent that it is inconsistent with this
Agreement. Immediately upon any termination of the Company's
participation in such Program, by expiration thereof or
otherwise, the Company shall either renew or enter into a new
Program for the unexpired term of this Agreement, which Program
will contain the terms of sale of the Products to the Company,
except to the extent that it is inconsistent with this Agreement.
If the Company purchase of the Products is made as part of a
buying group, the Company shall be entitled to receive any
discounts negotiated between Brunswick and such buying group.
4. Product Modification. Brunswick reserves the right to
change the design, discontinue or limit the manufacture of
Products at any time without notice or obligation to modify
earlier manufactured Products. Brunswick also from time to time
announces products in development or anticipated for the Product
line. The Company recognizes that such products can remain in
development for extended periods due to unanticipated
difficulties beyond its control. Brunswick cannot be responsible
for failures to introduce anticipated Products, the introduction
of which may be delayed due to developmental difficulties or
events beyond its control, or which it may, in the exercise of
its discretion, decide not to introduce for any reason. The
announcement of any anticipated Product should and must not be
regarded as a promise or guarantee of any kind that the product
will ultimately reach the market in the same configuration as
announced, or at all.
5. Relationship. The relationship between the Company and
Brunswick with respect to this Agreement is solely that of buyer
and seller. It is understood and agreed that the Company is not,
nor shall at any time represent itself to be, the agent,
employee, representative or partner of Brunswick with respect to
the sale or distribution of Products or any other matter related
to this Agreement. The Company shall not enter into any contract
or commitment in the name or on behalf of Brunswick.
6. Assignment. This Agreement may not be assigned or
transferred by the Company without the prior written consent of
Brunswick. Any assignment of this Agreement without such
consent, any change in majority ownership of capital stock of the
Company, or any change in the principal management, shall, at
Brunswick's option, automatically terminate this Agreement.
7. Default. The Company will immediately notify Brunswick
of the occurrence of any of the following Events of Default. The
occurrence of an Event of Default occurring during the term of
this Agreement shall, at the option of Brunswick, terminate this
Agreement. "Event of Default" are:
a. (i) the Company becomes insolvent or takes or fails to
take any action which constitutes an admission of inability
to pay its debts as they mature; (ii) the Company makes a
general assignment for the benefit of creditors or to an
agent authorized to liquidate any substantial amount of its
assets; (iii) the Company becomes the subject of an "order
of relief" within the meaning of the United States
Bankruptcy Code, whether voluntarily or involuntarily; (iv)
bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings are instituted by or against the
Company; (v) the Company applies for or consents to the
appointment of a receiver trustee or liquidation for any
assets or properties;
b. the Company ceases to exist;
c. the Company fails to perform any obligations owed to
Brunswick under this Agreement, any applicable Program, or
under any other supply or purchase agreement;
d. the occurrence of an Event of Default or a default in any
of the terms, conditions or covenants contained in the
instruments set forth below:
(1.) Revolving Credit Loan Agreement dated December 15,
1992 as well as that certain Revolving Credit Security
Agreement dated December 15, 1992 ("Security
Agreement"), both by and between the Company and
Brunswick;
(2.) Revolving Credit Deed of Trust dated December 15,
1992 executed by the Company to Edward J. Harper, II, as
trustee (the "Trustee"), which was filed on December 15,
1992 in the Beaufort County Registry in Book 970, Page
27 ("Original Deed of Trust");
(3.) Assignment of Rents, Issues and Profits executed
by the Company in favor of Brunswick dated December 15,
1992 which was filed on December 15, 1992 in Book 970,
Page 41, Beaufort County Registry;
(4.) Pledge of Securities executed by Reginald M.
Fountain, Jr. ("Fountain") in favor of Brunswick dated
March 22, 1993;
(5.) Loan Extension and Amendment Agreement by and
among the Company, Fountain and Brunswick dated July 11,
1994 which provided for a modification of certain of the
aforesaid loan documents;
(6.) Deed of Trust executed by the Company to the
Trustee for the benefit of Brunswick dated July 11, 1994
according to Book 1007, Page 685, Beaufort County
Registry;
(7.) Second Loan Extension and Amendment Agreement
effective as of January 1, 1995 by and among the
Company, Fountain and Brunswick;
(8.) Modification of Deeds of Trust and Assignment of
Rents, Issues and Profits effective as of January 1,
1995 by and among the Company, Fountain, Trustee and
Brunswick;
(9.) Guaranty Agreement effective as of January 1, 1995
executed by Fountain and in favor of Brunswick; and
(10.) Amended and Restated Note effective as of January
1, 1995 payable by the Company to the order of Brunswick
in the amount of $2,600,000.00.
e. sale by the Company of a majority of its assets to third
parties other than in the ordinary course of business;
f. the occurrence of any event which allows the acceleration
of the maturity of any indebtedness of the Company to any
person, corporation, or entity other than Brunswick; or
g. an event occurs which materially impairs the prospect of
payment or performance by the Company in accordance with
this Agreement.
8. Severability. Each of the provisions contained in this
Agreement shall be severable, and the unenforceability of one
shall not affect the enforceability of any others or of the
remainder of this Agreement.
9. Waiver. The failure of any party to enforce any
condition or part of this Agreement at any time shall not be
construed as a waiver of that condition or part, nor shall it
forfeit any rights to future enforcement thereof.
10.Headings. The headings and captions of the sections and subsections
of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part hereof.
11.Counterparts. More than one counterpart of this Agreement may be
executed by the parties hereto, and each fully executed counterpart shall
be deemed an original.
12.Notices. All communications, notices and consents provided for
herein shall be in writing and be given in person or by means of telex,
telecopy or other wire transmission (with request for assurance
of receipt in a manner typical with respect to communications of
that type) or by mail, and shall become effective (x) on delivery
if given in person (y) on the date of transmission if sent by
telex, telecopy or other wire transmission, or (z) four business
days after being deposited in the mails, with proper postage for
first-class registered or certified mail, prepaid.
Notices shall be addressed as follows:
If to the Company:
Fountain Powerboats, Inc.
Route 2, Whichard's Beach Road
Post Office Drawer 457
Washington, North Carolina 27889
Attn: Reginald M. Fountain, Jr.
Telecopy Number: 919-975-6793
If to Brunswick:
Cliff Williams
Mercury Marine
3003 N. Perkins Rd.
Stillwater, Oklahoma 74075
Telecopy Number: 405-743-5370
and
Brunswick Corporation
1 N. Field Court
Lake Forest, IL 60045
Attention: General Counsel
Telecopy Number: 708-735-4330
provided, however, that if either party shall have designated a
different address by notice to the other, then to the last
address so designated.
13. Modification. This Agreement may not be amended,
supplemented or otherwise modified except by an instrument in
writing signed by all of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed pursuant to proper authorization as
of the date first above written.
BRUNSWICK CORPORATION FOUNTAIN POWERBOATS, INC.
By: ________________________ By: /s/ Reginald M. Fountain,
Jr.
Title: VP Finance Title: Chairman, CEO,
President
Attest: Attest:
_____________________________ /s/ June A. Thomason
Assistant Secretary Assistant Secretary
[Corporate Seal] [Corporate Seal]
Exhibit 21
FOUNTAIN POWERBOAT INDUSTRIES, INC.
SUBSIDIARY
PERCENTAGE OF VOTING SECURITIES OWNED
NAME ADDRESS INCORPORATION
OWNED
Fountain Powerboats, Inc. Washington, NC North Carolina
100%
FOUNTAIN POWERBOATS, INC.
SUBSIDIARIES
Fountain Aviation, Inc. Washington, NC North Carolina
100%
Fountain Fashions, Inc. Washington, NC North Carolina
100%
Fountain Trucking, Inc. Washington, NC North Carolina
100%
-125-
Exhibit 21
FOUNTAIN POWERBOAT INDUSTRIES, INC.
SUBSIDIARY
PERCENTAGE OF VOTING SECURITIES OWNED
NAME
OWNED ADDRESS INCORPORATION
Fountain Powerboats, Inc. Washington, NCNorth Carolina
100%
FOUNTAIN POWERBOATS, INC.
SUBSIDIARIES
Fountain Aviation, Inc. Washington, NCNorth Carolina
100%
Fountain Fashions, Inc. Washington, NCNorth Carolina
100%
Fountain Trucking, Inc. Washington, NCNorth Carolina
100%
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 491
<SECURITIES> 0
<RECEIVABLES> 1,929
<ALLOWANCES> 30
<INVENTORY> 3,408
<CURRENT-ASSETS> 6,186
<PP&E> 19,200
<DEPRECIATION> 9,210
<TOTAL-ASSETS> 16,335
<CURRENT-LIABILITIES> 6,081
<BONDS> 7,049
<COMMON> 30
0
0
<OTHER-SE> 3,174
<TOTAL-LIABILITY-AND-EQUITY> 16,335
<SALES> 38,727
<TOTAL-REVENUES> 38,727
<CGS> 30,954
<TOTAL-COSTS> 30,954
<OTHER-EXPENSES> 5,313
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 989
<INCOME-PRETAX> 2,090
<INCOME-TAX> 43
<INCOME-CONTINUING> 2,048
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 2,048
<EPS-PRIMARY> .68
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