<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1994
REGISTRATION NO. 33-55769
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
POLARIS INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3700 41-1790959
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1225 HIGHWAY 169 NORTH
MINNEAPOLIS, MN 55441
(612) 542-0500
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------------
JOHN H. GRUNEWALD
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
POLARIS INDUSTRIES INC.
1225 HIGHWAY 169 NORTH
MINNEAPOLIS, MN 55441
(612) 542-0500
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------
Copies of all communications to:
<TABLE>
<S> <C> <C> <C>
ANDRIS A. BALTINS GEORGE R. KROUSE, JR. HILLEL M. BENNETT BLAINE V. FOGG
KAPLAN, STRANGIS AND KAPLAN, P.A. SIMPSON THACHER & BARTLETT STROOCK & STROOCK & LAVAN SKADDEN, ARPS, SLATE, MEAGHER & FLOM
90 SOUTH 7TH STREET 425 LEXINGTON AVENUE 7 HANOVER SQUARE 919 THIRD AVENUE
MINNEAPOLIS, MN 55402 NEW YORK, NY 10017 NEW YORK, NY 10004 NEW YORK, NY 10022
(612) 375-1138 (212) 455-2730 (212) 806-6014 (212) 735-3900
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) (1) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value...................... 18,423,184 $35.313 $650,577,897 $224,337.21
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933 based on the
average of the high and low prices of BACs of Polaris Industries Partners
L.P. on the American Stock Exchange on September 28, 1994.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
POLARIS INDUSTRIES INC.
Dear BAC Holder:
You are cordially invited to attend a Special Meeting of the holders of
units of Beneficial Assignment of Class A Limited Partnership Interests ("BACs")
of Polaris Industries Partners L.P. (the "Partnership") which will be held at
Holiday Inn West, Highway 394, Minneapolis, Minnesota on Tuesday, December __,
1994 commencing at 9:00 a.m. local time.
At the Special Meeting, you will vote on a proposal -- sponsored by the
senior operating management of Polaris (the "Sponsors") and recommended by EIP
Associates L.P., the General Partner -- to convert the Partnership to corporate
form (the "Conversion"). After the consummation of the Conversion, the business
currently conducted by the Partnership will be conducted by Polaris Industries
Inc., a newly formed Minnesota corporation (the "Corporation"), with the same
operating management, but without involvement by the General Partner.
In the Conversion, each BAC will be exchanged for one share of Common Stock
of the Corporation. BAC holders and holders of previously granted rights to
acquire BACs will receive, in exchange for their BACs and upon exercise of such
rights, 88.6%, and affiliates of the General Partner will receive, in exchange
for their interests in the General Partner and its affiliates, 11.4%, of the
Corporation's Common Stock to be outstanding immediately following the
Conversion (assuming exercise of such rights). This allocation of ownership
resulted from negotiations between certain of the Sponsors and the General
Partner. The Sponsors own approximately 9.1% of the outstanding BACs and have no
economic interest in the General Partner. The allocation was determined by
reference to the rights of the General Partner and BAC holders under the
agreement governing the Partnership, pursuant to which the General Partner and
its affiliates receive 20.8% of Partnership distributions and an annual
management fee of $500,000 and are entitled to reimbursement of certain
expenses. Such distributions and fees totalled approximately $10.3 million in
1993 and will exceed $11 million in 1994. These arrangements and payments will
end upon consummation of the Conversion.
Subject to legal and contractual requirements and the financial requirements
of the business, the Sponsors intend to recommend that the Corporation's Board
of Directors establish an initial cash dividend rate of $0.15 per share per
quarter, and pay three special cash distributions, each of $1.92 per share,
payable during each of the last three quarters of 1995 (reduced to the extent
that any cash distributions declared and paid by the Partnership after January
1, 1995 exceed, on a quarterly basis, $0.15 per BAC). Thus, it is expected that
BAC holders who hold Common Stock from the date of the Conversion through 1997
will receive a total of $7.56 per share for the years 1995, 1996 and 1997 -- the
amount per BAC they would have received had the Conversion not occurred and the
Partnership maintained its existing cash distribution policy (i.e. $2.52 per BAC
per annum). The Sponsors believe that such distributions should ease the
transition in the Corporation's ownership between primarily income-oriented
investors in the Partnership and the growth-oriented and institutional investors
that are expected to invest in the Corporation.
The General Partner and the Sponsors believe that the Conversion is fair to
BAC holders and recommend that BAC holders approve the Conversion proposal. In
arriving at their recommendation, the General Partner and the Sponsors gave
consideration to a number of factors including the fairness opinions of Smith
Barney Inc. and Dillon, Read & Co. Inc., each delivered to the Partnership and
each to the effect that, based upon the considerations and subject to the
assumptions and limitations set forth in their opinions, each of the allocation
of ownership between BAC holders and affiliates of the General Partner and the
consideration to be received by BAC holders in the Conversion is fair, from a
financial point of view, to BAC holders.
BAC holders are urged to review carefully the attached Proxy Statement,
which contains a detailed description of the proposed Conversion and describes
certain risk factors, conflicts of interest and other considerations for BAC
holders. The Conversion is subject to the approval of BAC holders described
below and certain other conditions more fully set forth in the Proxy Statement,
including, among others, the receipt of all necessary government approvals,
appraisal rights not being sought with respect to more than 5% of the
outstanding BACs, and the receipt of certain tax opinions. Such conditions may
be waived by the Corporation and/or the General Partner. In addition, the
General Partner has the right to terminate the agreement relating to the
Conversion if it determines that as a result of any subsequent development, such
termination is necessary to discharge its fiduciary duties to BAC holders.
<PAGE>
It is important that your BACs be represented at the Special Meeting.
Accordingly, whether or not you plan to attend the Special Meeting, please sign,
date and promptly return the enclosed proxy card in the postage-paid envelope
that has been provided to you for your convenience. The Conversion Proposal will
require (i) the approval of BAC holders holding a majority of BACs outstanding
and (ii) the approval of unaffiliated BAC holders (BAC holders other than the
Sponsors and affiliates of the General Partner) holding a majority of BACs held
by them. Failure to forward a proxy or to vote in person at the Special Meeting
will have the same effect as if a BAC holder had voted against the Conversion
Proposal. BAC holders who do not vote for the Conversion Proposal and who follow
the procedures described in the Proxy Statement are entitled to exercise
appraisal rights.
Because of the significance of the proposed Conversion, your participation
in the Special Meeting, in person or by proxy, is especially important. THE
GENERAL PARTNER AND THE SPONSORS URGE YOU TO VOTE "FOR" THE CONVERSION PROPOSAL.
Sincerely,
Victor K. Atkins, Jr. W. Hall Wendel, Jr.
President, EIP Capital Corporation, Chief Executive Officer, Polaris
Managing General Partner of EIP Industries Capital Corporation, and
Associates L.P., the General Partner Chairman of the Board and Chief
Executive Officer, Polaris Industries
Inc.
IF YOU HAVE ANY QUESTIONS CONCERNING THE CONVERSION OR NEED ASSISTANCE IN VOTING
YOUR BACS, PLEASE CALL D.F. KING & CO., INC., THE INFORMATION AGENT FOR THE
CONVERSION, TOLL FREE AT 1-800-488-8075.
2
<PAGE>
NOVEMBER , 1994
NOTICE OF SPECIAL MEETING OF BAC HOLDERS
TO BE HELD ON DECEMBER , 1994
To the Holders of BACs of Polaris Industries Partners L.P.:
NOTICE IS HEREBY GIVEN that a special meeting (the "Special Meeting") of the
holders ("BAC Holders") of units of Beneficial Assignment of Class A Limited
Partnership Interests ("BACs") of Polaris Industries Partners L.P., a Delaware
limited partnership (the "Partnership"), will be held at Holiday Inn West,
Highway 394, Minneapolis, Minnesota on December , 1994 at 9:00 a.m., local
time.
At the Special Meeting, BAC Holders will vote upon a proposal (the
"Conversion Proposal") that, if approved and implemented, will result in the
conversion of the Partnership to corporate form (the "Conversion"). The
Conversion will be accomplished by merging a subsidiary partnership of Polaris
Industries Inc., a newly formed Minnesota corporation (the "Corporation"), into
the Partnership (the "Merger"). Upon consummation of the Merger, each BAC will
be exchanged for one share of common stock, par value $.01 per share (the
"Common Stock"), of the Corporation. If the Conversion Proposal is approved and
the Conversion is effected, (i) the Corporation will, directly and indirectly,
own 100% of the Partnership and will continue to conduct the business and
operations of Polaris Industries L.P. (the "Operating Partnership" or
"Polaris"), and (ii) BAC Holders and holders of previously granted rights to
acquire BACs ("First Rights") will receive, in exchange for their BACs and upon
exercise of such First Rights, as the case may be, 88.6% of the Common Stock of
the Corporation, and affiliates of the General Partner will receive, in exchange
for their interests in the General Partner and its affiliates, the remaining
11.4% of the Common Stock of the Corporation (after giving effect to the
exercise of such First Rights).
The Merger, Conversion and related matters are more fully described in the
attached Proxy Statement/Prospectus, which (together with the annexes thereto
and the documents incorporated by reference therein) forms a part of this Notice
and is incorporated herein by reference.
The Conversion Proposal will require (i) the approval of BAC Holders holding
a majority of BACs outstanding and (ii) the approval of unaffiliated BAC Holders
(BAC Holders other than the Sponsors and affiliates of the General Partner)
holding a majority of BACs held by them. Only BAC Holders of record at the close
of business on Monday, November _, 1994 are entitled to notice of and to vote at
the Special Meeting.
You are cordially invited to attend the Special Meeting. If you cannot
attend, please sign and date the accompanying form of proxy and return it
promptly in the enclosed envelope. If you attend the meeting, you may vote in
person regardless of whether you have given your proxy. Any proxy may be revoked
at any time before it is exercised, as indicated herein. Failure to forward a
proxy or to vote in person at the Special Meeting will have the same effect as
if a BAC Holder had voted against the Conversion Proposal.
By Order of EIP Associates L.P., the
General Partner
Victor K. Atkins, Jr., President and
Secretary, EIP Capital Corporation,
Managing General Partner of the
General Partner
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN AND
PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENVELOPE PROVIDED, WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU HAVE ANY QUESTIONS
CONCERNING THE CONVERSION OR NEED ASSISTANCE IN VOTING YOUR BACS, PLEASE CALL
D.F. KING & CO., INC., THE INFORMATION AGENT FOR THE CONVERSION, TOLL FREE AT
1-800-488-8075.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1994
PROXY STATEMENT/PROSPECTUS
POLARIS INDUSTRIES INC.
18,423,184 SHARES OF COMMON STOCK
This Proxy Statement (which is also a Prospectus) relates to the issuance of
common stock, par value $.01 per share (the "Common Stock"), of Polaris
Industries Inc., a Minnesota corporation, which has been newly formed by certain
members of the senior operating management of Polaris Industries Capital
Corporation, a Delaware corporation ("PICC"). PICC and its affiliates manage
Polaris Industries L.P., a Delaware limited partnership, 99% of which is owned
by Polaris Industries Partners L.P., a Delaware limited partnership. In this
Proxy Statement, Polaris Industries Inc. is referred to as the "Corporation,"
Polaris Industries Partners L.P. is referred to as the "Partnership," PICC, its
affiliates and Polaris Industries L.P. collectively are referred to as the
"Operating Partnership," and the term "Polaris" refers to the business and
operations of the Operating Partnership. Other frequently used capitalized terms
are defined in the Glossary of Defined Terms attached as Annex A to this Proxy
Statement.
This Proxy Statement is being sent by EIP Associates L.P., a Delaware
limited partnership (the "General Partner"), which is the general partner of the
Partnership, to the holders of units of Beneficial Assignment of Class A Limited
Partnership Interests in the Partnership ("BACs") in connection with the
solicitation by the General Partner of proxies (each, a "Proxy") to be voted at
a special meeting (the "Special Meeting") of holders of BACs ("BAC Holders") in
Minneapolis, Minnesota on Tuesday, December __, 1994 (the "Meeting Date"), and
at any adjournment or postponement thereof. At the Special Meeting, BAC Holders
will vote upon a proposal (the "Conversion Proposal") that, if approved, will
result in the conversion of the Partnership to corporate form (the
"Conversion"). The Conversion will be accomplished by merging a subsidiary
partnership of the Corporation into the Partnership (the "Merger"). Upon
consummation of the Merger, each BAC will be exchanged for one share of Common
Stock of the Corporation. If the Conversion Proposal is approved and the
Conversion is effected, (i) the Corporation will, directly and indirectly, own
100% of the Partnership and will continue to conduct the business and operations
of the Operating Partnership, and (ii) BAC Holders and holders of rights to
acquire BACs ("First Rights") previously granted will receive, in exchange for
their BACs and upon exercise of such First Rights, as the case may be, 88.6% of
the Common Stock of the Corporation, and affiliates of the General Partner will
receive, in exchange for their interests in the General Partner and its
affiliates, the remaining 11.4% of the Common Stock of the Corporation, after
giving effect to the exercise of such First Rights (the "Exchange Ratio").
The Conversion Proposal is sponsored by the senior operating management of
the Operating Partnership (the "Sponsors") who own an aggregate of approximately
9.1% of outstanding BACs and who have no economic interest in the General
Partner. The Exchange Ratio was determined with reference to the existing
economic interests of the General Partner and BAC Holders referred to above and
the rights of the General Partner under various provisions of the amended and
restated partnership agreement governing the Partnership (the "Partnership
Agreement"). Currently, and for the foreseeable future, the General Partner and
its affiliates receive 20.8% of the Partnership's distributions and $500,000 per
year in management fees and are entitled to certain expense reimbursements from
the Partnership. These arrangements and payments will end upon consummation of
the Conversion.
The Sponsors and the General Partner recommend that BAC holders vote "FOR"
the Conversion Proposal for the reasons set forth under "The Conversion --
Reasons for the Conversion" and "-- Alternatives to the Conversion" in this
Proxy Statement.
Subject to legal and contractual requirements and the financial requirements
of the business, the Sponsors intend to recommend that the Corporation's Board
of Directors establish an initial cash dividend rate of $0.15 per share per
quarter, and pay three special cash distributions, each of $1.92 per share,
payable during each of the last three quarters of 1995 (reduced to the extent
that any cash distributions declared and paid by the Partnership after January
1, 1995 exceed, on a quarterly basis, $0.15 per BAC) (the "Proposed
Distributions"). Thus, it is expected that BAC Holders who retain the Common
Stock they receive in the Conversion through 1997 will receive a total of $7.56
per share for the years 1995, 1996 and 1997 -- the amount per BAC that BAC
Holders would have received had the Conversion not occurred and the Partnership
maintained its existing cash distribution policy.
THE GENERAL PARTNER AND THE SPONSORS BELIEVE THAT THE CONVERSION IS FAIR TO
BAC HOLDERS AND RECOMMEND THAT BAC HOLDERS VOTE "FOR" THE CONVERSION PROPOSAL.
(CONTINUED ON NEXT PAGE)
------------------------
NEITHER THIS TRANSACTION NOR THESE SECURITIES HAVE BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION
OR THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
NOVEMBER , 1994
<PAGE>
(COVER PAGE CONTINUED)
The Conversion involves certain additional factors that should be considered
by all BAC Holders. The effects of the Conversion may differ for each BAC Holder
and may be disadvantageous to some, depending upon their individual
circumstances and investment objectives. See "Risk Factors, Conflicts of
Interest and Other Considerations" and "The Conversion." In particular, BAC
Holders should consider, among other factors described herein, that:
- Because of the Conversion, BAC Holders will forego the potential future
tax benefits associated with an investment in a partnership (I.E. no tax
paid at the Partnership level on its taxable income) immediately, rather
than beginning after December 31, 1997.
- The General Partner may be viewed as having a conflict of interest with
BAC Holders with respect to the determination of the Exchange Ratio in the
Conversion. The General Partner will benefit from the elimination of
liability of the General Partner for obligations and liabilities of
Polaris after the Conversion. In addition, BAC Holders were not
represented separately in establishing the terms of the Conversion. Such
representation might have caused the terms of the Conversion to be
different in material respects from those described herein.
- The Corporation is under no legal obligation to make the Proposed
Distributions and the timing and amount of future dividends and
distributions will be at the discretion of the Board of Directors of the
Corporation and will depend, among other things, on the future after-tax
earnings, operations, capital requirements, borrowing capacity and
financial condition of the Corporation and general business conditions.
- The Corporation expects to incur indebtedness in excess of that incurred
by the Partnership, including indebtedness to finance the special cash
distributions referred to above if such distributions are declared by the
Board of Directors of the Corporation. Incurrence of indebtedness by the
Corporation could have important consequences to investors in the
Corporation's securities. There can be no assurance that the Corporation's
future operating results will be sufficient for payment of the
Corporation's indebtedness and other commitments.
- Prior to the Conversion there will have been no public market for the
Common Stock. The Common Stock may trade at prices substantially below the
historical trading levels of BACs. If a large number of holders of Common
Stock were to offer their shares for sale immediately after consummation
of the Conversion, the market price of the Common Stock could decline
substantially absent a corresponding demand for Common Stock from
institutional and retail investors.
- All costs and expenses to be incurred by the Partnership in connection
with the Conversion, estimated to be approximately $9 million, will be
paid by the Partnership whether or not the Conversion is consummated. An
additional $2 million is expected to be paid by the Partnership only if
the Conversion is consummated.
In addition to the factors noted above, an investment in Polaris (whether in
partnership or corporate form) is subject to risks associated with operating
conditions, competitive factors, economic conditions, seasonal factors, industry
conditions, regulatory developments and equity market conditions.
The Conversion Proposal will require (i) the approval of BAC Holders holding
a majority of the BACs outstanding and (ii) the approval of unaffiliated BAC
Holders (BAC Holders other than the Sponsors and affiliates of the General
Partner) holding a majority of BACs held by them. See "Voting and Proxy
Information." Such approval will bind all BAC Holders (other than those who
exercise Appraisal Rights) regardless of whether some fail to vote in favor of
the Conversion Proposal. See "Appraisal Rights." The affiliates of the General
Partner and members of the senior operating management of the Operating
Partnership, who own approximately 14% of outstanding BACs in the aggregate,
have advised the Partnership that they will vote in favor of the Conversion
Proposal. Failure to forward a Proxy or to vote in person at the Special Meeting
will have the same effect as if a BAC Holder had voted against the Conversion
Proposal.
This Proxy Statement and the related form of Proxy are first being sent to
BAC Holders on or about November , 1994.
Application has been made to list the Common Stock on the American Stock
Exchange and the Pacific Stock Exchange.
2
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT, AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE PARTNERSHIP, THE GENERAL PARTNER OR THE CORPORATION. THIS
PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROXY STATEMENT NOR ANY SALES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
PARTNERSHIP OR THE CORPORATION SINCE THE DATE HEREOF.
UNTIL 25 DAYS AFTER THE DATE OF THIS PROXY STATEMENT, ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROXY STATEMENT.
AVAILABLE INFORMATION
The Partnership is (and following the Conversion, the Corporation will be)
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files (and
will file) reports and other information with the Securities and Exchange
Commission (the "SEC"). Such reports and other information may be inspected and
copied at the public reference facilities maintained by the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the SEC's Regional Offices at Seven
World Trade Center, 13th Floor, New York, New York 10048, and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and
copies may be obtained at the prescribed rates from the Public Reference Section
of the SEC at its principal office in Washington, D.C. Such reports and other
information concerning the Partnership can also be inspected at the office of
the American Stock Exchange, 86 Trinity Place, New York, New York 10006, and the
Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104, the
exchanges on which the BACs are listed (and on which application has been made
to list the Common Stock).
The Corporation has filed with the SEC a Registration Statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Proxy Statement, which
constitutes part of the Registration Statement, omits certain of the information
contained in the Registration Statement and the exhibits and schedules thereto
on file with the SEC pursuant to the Securities Act and the rules and
regulations of the SEC thereunder. Statements contained in this Proxy Statement
as to the contents of any contract or other document are necessarily summaries
of such documents, are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement, including exhibits and schedules
thereto, is on file at the offices of the SEC and may be obtained upon payment
of the fee prescribed by the SEC, or may be examined without charge at the
public reference facilities of the SEC described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT EXHIBITS,
UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE
AVAILABLE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROXY STATEMENT
IS DELIVERED, UPON WRITTEN OR ORAL REQUEST ADDRESSED TO POLARIS INDUSTRIES
PARTNERS L.P., 1225 HIGHWAY 169 NORTH, MINNEAPOLIS, MINNESOTA 55441, ATTENTION:
JOHN H. GRUNEWALD, EXECUTIVE VICE PRESIDENT, FINANCE AND ADMINISTRATION,
TELEPHONE NUMBER (612) 542-0500. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER __, 1994.
The following documents of the Partnership have been filed with the SEC and
are incorporated herein by reference: (a) Annual Report on Form 10-K for the
fiscal year ended December 31, 1993; (b) Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1994 and June 30, 1994; and (c) Current
Reports on Form 8-K dated August 25, 1994 and October 14, 1994.
All documents filed by the Partnership pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part hereof from the date of
filing of such documents.
Any statement contained in a document incorporated by reference herein shall
be deemed to be modified or superseded for purposes hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated herein) modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to constitute a part
hereof except as so modified or superseded.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................... 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................... 3
SUMMARY................................................................. 6
Overview of the Conversion............................................ 6
Risk Factors, Conflicts of Interest and Other Considerations.......... 7
Reasons for the Conversion............................................ 9
Existing Economic Interests of the Partners........................... 11
Alternatives to the Conversion........................................ 11
Allocation of Common Stock Between BAC Holder Interests and General
Partner Interests.................................................... 14
Fairness Opinions..................................................... 14
Recommendation of the General Partner and the Sponsors................ 14
Summary of Certain Federal Income Tax Considerations.................. 14
Conditions to the Conversion.......................................... 15
Consequences if Conversion Proposal is Not Approved or the Conversion
is Not Consummated................................................... 15
Management and Compensation........................................... 16
Voting at the Special Meeting......................................... 16
Appraisal Rights...................................................... 17
List of BAC Holders................................................... 17
The Partnership and the Corporation................................... 17
SUMMARY OF SELECTED FINANCIAL INFORMATION............................... 19
RISK FACTORS, CONFLICTS OF INTEREST AND OTHER CONSIDERATIONS............ 20
Risks, Conflicts of Interest and Considerations Related to the
Conversion........................................................... 20
Adverse Tax Implications............................................ 20
Potential Conflicts of Interest..................................... 20
No Independent Representation....................................... 20
No Assurance of Future Distributions................................ 21
Effects of Additional Indebtedness.................................. 21
Uncertainty Regarding Market Price for Common Stock................. 21
Changes in Ownership Rights......................................... 21
Changes in Voting Rights............................................ 22
Elimination of General Partner Liability for Polaris Obligations.... 22
Changes in Fiduciary Obligations.................................... 22
Future Dilution of Common Stock..................................... 23
Costs of Conversion................................................. 23
Risks for Nonapproving BAC Holders.................................. 23
Provisions That May Discourage Changes of Control................... 23
Risks Related to the Business......................................... 23
Product Safety and Regulation....................................... 23
Informal Supply Arrangements........................................ 24
Competition......................................................... 25
Effects of Weather.................................................. 25
Product Liability................................................... 25
Warranties and Product Recalls...................................... 25
THE CONVERSION.......................................................... 26
The Partnership....................................................... 26
Background of the Conversion.......................................... 26
Reasons for the Conversion............................................ 29
<CAPTION>
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<S> <C>
Changes in Tax Status of the Partnership............................ 29
Proposed Distribution Equivalency................................... 29
Anticipated Reduction of Partnership Tax Benefit to Investors....... 30
Greater Access to Capital Markets and Expansion of Investor Base.... 30
Enhanced Growth Potential........................................... 30
Ability to Diversify................................................ 31
Tax Reporting....................................................... 31
Direct Election of the Board of Directors........................... 31
Structure of the Conversion........................................... 31
Existing Economic Interests of the Partners........................... 33
Benefit Plans after the Conversion.................................... 34
Alternatives to the Conversion........................................ 34
Continuance of the Partnership; No Cessation of Trading............. 34
Continuance of the Partnership; Cessation of Trading................ 35
Continuance of the Partnership; Cessation of Trading and Exchange
Offer of Stock in New Corporate Limited Partner.................... 35
Continuance of the Partnership; Cessation of Trading and Exchange
Offer of Debt Securities........................................... 35
Conversion to Corporation with Cash and Stock....................... 35
Conversion by Liquidation........................................... 35
Management Buyout or Other Strategic Sale........................... 36
Conversion Pursuant to Section 17.5 of the Partnership Agreement.... 36
Liquidation and Winding Up of the Partnership....................... 36
Future Alternatives Available to Polaris............................ 37
Fairness Opinions..................................................... 37
Opinion of Smith Barney............................................. 37
Opinion of Dillon Read.............................................. 41
Other............................................................... 44
Recommendation of the General Partner and the Sponsors................ 44
Effective Time........................................................ 45
Description of the Merger Agreement................................... 45
Consequences if Conversion Proposal is Not Approved or the Conversion
is Not Consummated................................................... 46
Costs of the Conversion............................................... 47
Exchange of Certificates.............................................. 47
COMPARATIVE RIGHTS OF BAC HOLDERS AND HOLDERS OF COMMON STOCK........... 48
Taxation.............................................................. 48
Distributions and Dividends........................................... 48
Voting Rights......................................................... 49
Rights to Call Special Meetings and Submit Proposals.................. 49
Removal of General Partner and Directors of the Corporation........... 50
Liquidation Rights.................................................... 50
Assessments and Limited Liability..................................... 50
Transferability....................................................... 51
Redemption Rights..................................................... 51
Change of Control..................................................... 51
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Management and Compensation........................................... 51
Indemnification....................................................... 52
Fiduciary Duties...................................................... 52
Limits on Management's Liability...................................... 52
Appraisal Rights...................................................... 53
Duration of Investment................................................ 53
Right to Investor Lists............................................... 53
Inspection of Books and Records....................................... 53
Dilution.............................................................. 54
Investment Policy..................................................... 54
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................... 54
Summary of Tax Consequences to BAC Holders............................ 55
Partnership Status and Taxation of the Partnership.................... 55
General Tax Treatment of the Merger and Issuance of Common Stock...... 55
Certain Tax Consequences of the Merger and Issuance of Common Stock to
BAC Holders.......................................................... 56
Other Tax Issues Affecting BAC Holders................................ 58
Exercise of Appraisal Rights.......................................... 58
Tax Consequences to the Corporation and the Partnership............... 58
Post-Conversion Treatment of the Corporation and Its Shareholders..... 59
Unrelated Business Taxable Income..................................... 60
Other Tax Aspects..................................................... 60
Proposed Legislation.................................................. 61
ACCOUNTING TREATMENT OF THE CONVERSION.................................. 61
VOTING AND PROXY INFORMATION............................................ 61
Voting Procedures..................................................... 61
Vote Required; Quorum................................................. 61
Proxies............................................................... 62
Revocation of Proxies................................................. 62
Solicitation of Proxies............................................... 62
Information Agent..................................................... 63
Independent Auditors.................................................. 63
APPRAISAL RIGHTS........................................................ 63
BUSINESS................................................................ 67
Industry Background................................................... 67
Products.............................................................. 67
Manufacturing Operations.............................................. 68
Production Scheduling................................................. 69
Sales and Marketing................................................... 69
Engineering, Research and Development................................. 70
Competition........................................................... 71
Product Safety and Regulation......................................... 71
Product Liability..................................................... 73
Effects of Weather.................................................... 73
Employment............................................................ 73
Properties............................................................ 73
Legal Proceedings..................................................... 74
CAPITALIZATION.......................................................... 75
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION................. 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................................... 78
Results of Operations............................................... 78
Cash Distributions.................................................. 80
Net Income Per BAC.................................................. 80
<CAPTION>
PAGE
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<S> <C>
Liquidity and Capital Resources..................................... 81
Inflation and Exchange Rates........................................ 82
MARKET PRICES AND DISTRIBUTIONS......................................... 83
MANAGEMENT.............................................................. 84
Directors and Executive Officers of EIPCC............................. 84
Directors and Executive Officers of PICC.............................. 85
Directors and Executive Officers of the Corporation after the
Conversion........................................................... 86
Executive Compensation................................................ 88
Summary Compensation Table............................................ 88
Death and Disability Benefits and Deferred Compensation............... 88
Long-Term Incentive Compensation...................................... 89
Retirement Savings Plan............................................... 91
Purchase of BACs...................................................... 91
Compensation Committee Interlocks and Insider Participation........... 91
Director Compensation................................................. 91
Certain Relationships and Related Transactions........................ 91
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......... 93
SUMMARY OF CERTAIN PROVISIONS OF THE PARTNERSHIP AGREEMENT.............. 95
Management of the Partnership......................................... 95
Liability of the General Partner and BAC Holders to Third Parties..... 95
Dissolution and Liquidation........................................... 95
Voting Rights of BAC Holders.......................................... 96
Removal of the General Partner........................................ 96
Withdrawal of the General Partner..................................... 96
Additional General Partners........................................... 96
Effect of Removal, Bankruptcy, Death, Dissolution, Incompetency or
Withdrawal of the General Partner.................................... 96
Reimbursement of General Partner Expenses............................. 97
Amendments............................................................ 97
Designation of Tax Matters Partner.................................... 97
Reorganization of the Partnership..................................... 97
Applicable law........................................................ 98
Books and Records..................................................... 98
Transferability of the BACs........................................... 98
DESCRIPTION OF CAPITAL STOCK............................................ 98
Common Stock.......................................................... 98
Preferred Stock....................................................... 98
Voting................................................................ 99
Board of Directors.................................................... 99
Anti-takeover Provisions.............................................. 99
Limitation of Liability............................................... 100
Transfer Agent and Registrar.......................................... 100
RESALE OF COMMON STOCK.................................................. 101
LEGAL MATTERS........................................................... 101
EXPERTS................................................................. 101
INDEX TO FINANCIAL STATEMENTS........................................... F-1
ANNEX A -- Glossary of Defined Terms.................................... A-1
ANNEX B -- Fairness Opinion of Smith Barney Inc. ....................... B-1
ANNEX C -- Fairness Opinion of Dillon, Read & Co. Inc. ................. C-1
ANNEX D -- Merger Agreement............................................. D-1
</TABLE>
5
<PAGE>
SUMMARY
THE FOLLOWING IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ALL
RESPECTS BY THE MORE DETAILED INFORMATION SET FORTH ELSEWHERE IN THIS PROXY
STATEMENT AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN. A GLOSSARY OF
FREQUENTLY USED CAPITALIZED AND OTHER SPECIALIZED TERMS IS ATTACHED AS ANNEX A.
BAC HOLDERS ARE URGED TO REVIEW CAREFULLY THE ENTIRE PROXY STATEMENT AND TO
REQUEST SUCH DOCUMENTS INCORPORATED BY REFERENCE HEREIN AS THEY DESIRE.
OVERVIEW OF THE CONVERSION
This Proxy Statement relates to a proposal (the "Conversion Proposal") by
the senior operating management of Polaris Industries Capital Corporation, a
Delaware Corporation ("PICC"), who conduct the business and operations of
Polaris Industries L.P. (PICC, its affiliates and Polaris Industries L.P.
collectively are referred to as the "Operating Partnership"), to convert Polaris
Industries Partners L.P., a Delaware limited partnership (the "Partnership"),
from a publicly traded limited partnership to a publicly traded corporation (the
"Conversion"). The Conversion Proposal is sponsored by W. Hall Wendel, Jr.,
Chief Executive Officer, Kenneth D. Larson, President and Chief Operating
Officer, John H. Grunewald, Executive Vice President, Finance and
Administration, James Bruha, Vice President -- Manufacturing, Charles A. Baxter,
Vice President -- Engineering and Product Safety, Ed Skomoroh, Vice President --
Sales and Marketing and Michael W. Malone, Chief Financial Officer and Treasurer
(collectively, the "Sponsors"). Such individuals together comprise the senior
operating management of the Operating Partnership and own in the aggregate
approximately 9.1% of the outstanding units of Beneficial Assignment of Class A
Limited Partnership Interests ("BACs") in the Partnership. Polaris Industries
Inc. (the "Corporation") was formed recently by certain of the Sponsors in
contemplation of the Conversion. Subsequent to consummation of the Conversion,
the business currently conducted by the Partnership will be conducted by the
Corporation with the same operating management, but without involvement by EIP
Associates L.P., a Delaware limited partnership (the "General Partner").
Pursuant to the terms of an Agreement and Plan of Conversion, dated as of
September 29, 1994, among the Corporation, the Partnership, the General Partner,
the Operating Partnership, EIP Capital Corporation ("EIPCC"; the managing
general partner of the General Partner) and the other parties thereto (the
"Merger Agreement"), if the Conversion Proposal is approved and the Conversion
is implemented, (i) each BAC will be exchanged tax-free for one share of common
stock, par value $.01 per share ("Common Stock"), of the Corporation and each
right to receive BACs ("First Rights") previously granted will be converted into
the right to receive one share of Common Stock of the Corporation, (ii) the
Corporation will, directly and indirectly, own 100% of the Partnership and will
continue to conduct the business and operations of the Operating Partnership,
and (iii) BAC Holders (including affiliates of the General Partner) and holders
of previously granted First Rights will receive, in exchange for their BACs and
upon exercise of such First Rights, as the case may be, 88.6% of the Common
Stock of the Corporation, and affiliates of the General Partner will receive, in
exchange for their interests in the General Partner and its affiliates, the
remaining 11.4% of the Common Stock of the Corporation, each after giving effect
to the exercise of such First Rights (the "Exchange Ratio").
The Exchange Ratio was agreed to after extended discussions and negotiations
beginning in early June 1994 between W. Hall Wendel, Jr., the Chief Executive
Officer of Polaris, and certain other members of the senior operating management
of the Operating Partnership, who have no economic interest in the General
Partner, and affiliates of the General Partner. The Exchange Ratio was
determined with reference to the existing economic interests of the General
Partner and BAC Holders referred to above and the rights of the General Partner
under various provisions of the Partnership Agreement. Currently and for the
foreseeable future, the General Partner and its affiliates receive 20.8% of the
Partnership's distributions and $500,000 per year in management fees and are
entitled to
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<PAGE>
certain expense reimbursements from the Partnership. Such distributions and fees
totalled approximately $10.3 million in 1993 and will aggregate more than $11
million in 1994. These arrangements and payments will end upon consummation of
the Conversion. See "The Conversion -- Existing Economic Interests of the
Partners" and "The Conversion -- Background of the Conversion."
Subject to legal and contractual requirements and the financial requirements
of the business, the Sponsors intend to recommend that the Corporation's Board
of Directors establish an initial cash dividend rate of $0.15 per quarter, and
pay three special cash distributions, each of $1.92 per share, payable during
each of the last three quarters of 1995 (reduced to the extent that any cash
distributions declared and paid by the Partnership after January 1, 1995 exceed,
on a quarterly basis, $0.15 per BAC) (the "Proposed Distributions"). Thus, it is
expected that BAC Holders who hold Common Stock from the date of the Conversion
through 1997 will receive a total of $7.56 per share for the years 1995, 1996
and 1997 -- the amount per BAC they would have received had the Conversion not
occurred and the Partnership maintained its existing cash distribution policy
(I.E. $2.52 per BAC per annum). The Sponsors and the General Partner believe
that such distributions should ease the transition in the Corporation's
ownership between primarily income-oriented investors in the Partnership and the
growth-oriented and institutional investors that are expected to invest in the
Corporation.
The affirmative vote by holders of (i) a majority of BACs outstanding on the
Record Date and (ii) a majority of BACs held on the Record Date by BAC Holders
other than the Sponsors and affiliates of the General Partner ("Unaffiliated BAC
Holders"), is required to approve the Conversion Proposal. Since the approval of
the Conversion Proposal by BAC Holders and Unaffiliated BAC Holders is a
condition to the consummation of the Conversion, the Conversion will not occur
if the requisite vote is not obtained. The affiliates of the General Partner
(including Victor K. Atkins, Jr., a general partner of the General Partner and
the President of EIPCC) and the Sponsors own approximately 14% of outstanding
BACs in the aggregate, and they have advised the Partnership that they each will
vote in favor of the Conversion Proposal. See "Voting and Proxy Information --
Vote Required; Quorum."
Subsequent to the consummation of the Conversion, the business currently
conducted by the Partnership will be conducted by the Corporation with the same
operating management and pursuant to substantially the same operating plan as
the Partnership, but without involvement by the General Partner.
Except as required to accommodate the change to corporate form, all of the
existing employee benefit plans of the Partnership and the Operating Partnership
are expected to be assumed and adapted for use by the Corporation on
substantially the same terms. Without limiting the generality of the foregoing,
upon the Conversion, each of the outstanding First Rights representing the right
to receive BACs under an employee benefit plan, whether vested or unvested, will
be deemed to constitute the right to receive on the same terms and conditions as
were applicable under such First Rights, the same number of shares of Common
Stock as the holder of such First Rights would have been entitled to receive
pursuant to the Merger had such holder received BACs upon exercise of such First
Rights immediately prior to the Merger.
NOTHING IN THE MERGER AGREEMENT OR IN THIS PROXY STATEMENT SHALL BE
INTERPRETED TO ALTER THE FIDUCIARY DUTY OF THE GENERAL PARTNER SET FORTH IN THE
PARTNERSHIP AGREEMENT OR UNDER DELAWARE LAW, INCLUDING THE POSSIBLE OBLIGATION
OF THE GENERAL PARTNER TO UNILATERALLY TERMINATE THE MERGER AGREEMENT IF SUCH
TERMINATION SHOULD BE NECESSARY TO DISCHARGE SUCH FIDUCIARY DUTY.
RISK FACTORS, CONFLICTS OF INTEREST AND OTHER CONSIDERATIONS
In evaluating the Conversion, BAC Holders should take into account the
following risk factors, conflicts of interest and other special considerations,
which are discussed at greater length herein under "Risk Factors, Conflicts of
Interest and Other Considerations" and "The Conversion."
- Because of the Conversion, BAC Holders will forego the potential future
tax benefits associated with an investment in a partnership (I.E. no tax
paid at the Partnership level on its taxable income) immediately, rather
than beginning after December 31, 1997. The General Partner has
7
<PAGE>
participated in efforts to have the December 31, 1997 deadline extended or
eliminated. To date such efforts have been inconclusive. Such efforts, in
which the General Partner has ceased to participate, may or may not be
successful in the future. See "Risk Factors, Conflicts of Interest and
Other Considerations -- Risks, Conflicts of Interest and Considerations
Related to the Conversion -- Adverse Tax Implications."
- The General Partner may be viewed as having a conflict of interest with
BAC Holders with respect to the determination of the Exchange Ratio in the
Conversion. Furthermore, the General Partner will benefit from the
elimination of liability of the General Partner for obligations and
liabilities of Polaris after the Conversion. In addition, BAC Holders were
not represented separately in establishing the terms of the Conversion.
Such independent representation might have caused the terms of the
Conversion to be different in material respects from those described
herein. See "Risk Factors, Conflicts of Interest and Other Considerations
-- Risks, Conflicts of Interest and Considerations Related to the
Conversion -- Potential Conflicts of Interest" and "-- No Independent
Representation."
- The Corporation is under no legal obligation to make the Proposed
Distributions and the timing and amount of future dividends and
distributions will be at the discretion of the Board of Directors of the
Corporation and will depend, among other things, on the future after-tax
earnings, operations, capital requirements, borrowing capacity and
financial condition of the Corporation and general business conditions.
There can be no assurance that the foregoing dividends or distributions
will be adopted or maintained by the Corporation. See "Risk Factors,
Conflicts of Interest and Other Considerations -- Risks, Conflicts of
Interest and Considerations Related to the Conversion -- Change in
Distribution Policy."
- After the Conversion, the Corporation expects to incur indebtedness in
excess of that previously incurred by the Partnership, including
indebtedness to finance the Proposed Distributions if such distributions
are declared by the Board of Directors of the Corporation. No commitments
from lenders for such financing have been obtained. Incurrence of
indebtedness by the Corporation could have important consequences to
investors in the Corporation's securities, including the following: (i)
the Corporation's ability to obtain additional financing in the future may
be limited; (ii) a portion of the Corporation's income from operations and
cash flow will be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Corporation
for its operations; and (iii) the agreements relating to the indebtedness
are likely to contain financial and other restrictive covenants, the
failure to comply with which may result in an event of default which, if
not cured or waived, could adversely affect the Corporation. There can be
no assurance that the Corporation's future operating results will be
sufficient for payment of the Corporation's indebtedness and other
commitments. See "Risk Factors, Conflicts of Interest and Other
Considerations -- Risks, Conflicts of Interest and Considerations Related
to the Conversion -- Effects of Additional Indebtedness."
- Prior to the Conversion, there will have been no public market for the
Common Stock. The Common Stock may trade at prices substantially below the
historical trading levels of BACs. If a large number of holders of Common
Stock were to offer their shares for sale immediately after consummation
of the Conversion, in the absence of a corresponding demand for Common
Stock from institutional and retail investors, the market price of the
Common Stock could decline substantially. See "Risk Factors, Conflicts of
Interest and Other Considerations -- Risks, Conflicts of Interest and
Considerations Related to the Conversion -- Uncertainty Regarding Market
Price for Common Stock."
- As a result of the Conversion, BAC Holders will lose certain rights
associated with their ownership of BACs, including, in particular, receipt
of future quarterly distributions from the Partnership of Net Cash from
Operations (after giving effect to appropriate reserves). See "Comparative
Rights of BAC Holders and Holders of Common Stock."
8
<PAGE>
- The fiduciary duties of a general partner to limited partners may differ
from those of corporate directors to shareholders. Therefore, situations
may occur in which owners of Common Stock of the Corporation would have
less recourse, on the basis of breach of fiduciary duty, against directors
of the Corporation than they would have had against the General Partner.
See "Risk Factors, Conflicts of Interest and Other Considerations --
Risks, Conflicts of Interest and Considerations Related to the Conversion
-- Changes in Fiduciary Obligations" and "Comparative Rights of BAC
Holders and Holders of Common Stock -- Fiduciary Duties" and "-- Limits on
Management's Liability."
- Transaction costs of approximately $9 million will be paid by the
Partnership, whether or not the Conversion is consummated. An additional
$2 million is expected to be paid by the Partnership only if the
Conversion is consummated. See "Risk Factors, Conflicts of Interest and
Other Considerations -- Risks, Conflicts of Interest and Considerations
Related to the Conversion -- Costs of Conversion."
- If the Conversion Proposal is approved by the required vote of BAC Holders
and Unaffiliated BAC Holders, all BAC Holders (other than those who
exercise Appraisal Rights) will be bound by such approval even though
they, individually, may not have voted in favor of the Conversion
Proposal. See "Risk Factors, Conflicts of Interest and Other
Considerations -- Risks, Conflicts of Interest and Considerations Related
to the Conversion -- Risks for Nonapproving BAC Holders" and "Appraisal
Rights."
In addition to the factors noted above, an investment in Polaris (whether in
partnership or corporate form) is subject to risks associated with operating
conditions, competitive factors, economic conditions, weather conditions,
regulatory developments and equity market conditions. See "Risk Factors,
Conflicts of Interest and Other Considerations -- Risks Related to the
Business."
REASONS FOR THE CONVERSION
The General Partner and the Sponsors believe that the following are the
principal reasons to consummate the Conversion at this time:
- Under current law the Partnership will be treated as a corporation for
federal income tax purposes after December 31, 1997, unless the
Partnership takes action to prevent trading in BACs thereafter. See
"Certain Federal Income Tax Considerations -- Partnership Status and
Taxation of the Partnership." For the reasons more fully set forth in this
Proxy Statement (see "The Conversion -- Alternatives to the Conversion"),
the General Partner and the Sponsors did not consider cessation of trading
of BACs or otherwise reducing the liquidity of the BACs after 1997 an
advantageous way to preserve the tax status of the Partnership. The
Sponsors and General Partner also did not believe that continuing to
operate as a partnership while being taxed as a corporation after 1997
would be advantageous to BAC Holders.
- The General Partner and the Sponsors believe it is advantageous for the
Partnership to convert to corporate form now because: (i) the Conversion
will resolve uncertainty about the Partnership's future tax and
organizational status, which uncertainty would otherwise increase as
December 31, 1997 approaches, (ii) the receipt of shares of Common Stock
in the Conversion can be effected on a tax-free basis under current law
and (iii) the Conversion is facilitated by the Partnership's strong
financial performance, currently favorable equity market conditions
generally and other factors set forth below. See "The Conversion --
Reasons for the Conversion." Accordingly, the General Partner and the
Sponsors believe that it is advantageous for the Partnership to convert to
corporate form at the present time rather than postponing such a
transaction until 1997, which could result in the Partnership's inability
to consummate such a transaction in an orderly manner under favorable
circumstances.
- The Conversion is not expected to adversely affect the anticipated amount
of cash distributions to be received by investors through 1997. After the
Conversion, and subject to legal and contractual limitations and the
financial requirements of the business, the Sponsors intend to
9
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recommend that the Corporation's Board of Directors pay the Proposed
Distributions. Assuming the Corporation makes such distributions, each BAC
Holder who continues to hold Common Stock received in the Conversion
through 1997 will receive from the Partnership and the Corporation cash
distributions and dividends during the period commencing January 1, 1995
and ending December 31, 1997 equal in amount to cash distributions ($7.56
per BAC) that BAC Holders would have received from the Partnership had the
Conversion not occurred and the Partnership maintained its existing
distribution policy. The Sponsors believe the Proposed Distributions
should ease the transition in the Corporation's ownership between
primarily income-oriented investors in the Partnership and the
growth-oriented and institutional investors that are expected to invest in
the Corporation. See "Market Prices and Distributions."
- The tax benefits to BAC Holders of the Partnership continuing to operate
in partnership form (i.e. one level of income tax) are anticipated to
diminish over time. Distributions to BAC Holders have remained relatively
constant during the past three years and it is unlikely that the
Partnership will increase the present level of cash distributions even if
its taxable income was to continue to increase, because Polaris' continued
growth could require reinvesting significant amounts of cash in its
business. Accordingly, absent the Conversion, assuming income growth
continues in 1994 and subsequent years, BAC Holders may be required to
report and pay tax on additional taxable income from the Partnership
without a corresponding increase in cash distributions. It is expected
that this disparity between taxable income and cash distributions will
continue to increase in the foreseeable future and will be substantial, at
least in 1994. See "The Conversion -- Reasons for the Conversion --
Anticipated Reduction of Partnership Tax Benefit to Investors."
- The Conversion is expected to provide Polaris with greater access to
capital markets at a potentially lower cost of capital and thereby enhance
its ability to fund future growth. In this regard, the Conversion should
expand Polaris' potential investor base to a broader array of investors
(e.g. pension plans, mutual funds and other institutional investors) who
do not typically invest in publicly traded limited partnerships because of
tax considerations and administrative burdens. Conversion also should
result in increased research coverage of Polaris by investment analysts.
Such factors should result in greater trading activity and liquidity for
the Common Stock, as compared to the BACs. See "The Conversion -- Reasons
for the Conversion -- Greater Access to Capital Markets and Expansion of
Investor Base."
- Operating in corporate form should provide Polaris with greater
flexibility to consummate acquisitions, including the use of its capital
stock as acquisition currency and the ability to diversify into other
lines of business without the constraints that presently are placed by the
tax laws on publicly traded partnerships. Polaris believes the advantages
of doing business in corporate form are demonstrated by the fact that
Polaris is one of the few remaining substantial manufacturing concerns in
the United States organized as a publicly traded partnership. See "The
Conversion -- Reasons for the Conversion -- Enhanced Growth Potential" and
"-- Ability to Diversify."
- The Conversion will simplify Polaris' organizational structure and reduce
significantly costs of tax reporting for Polaris and investors in Polaris.
See "The Conversion -- Reasons for the Conversion -- Tax Reporting."
- The General Partner will be replaced by a Board of Directors of the
Corporation, which will be elected directly by holders of Common Stock.
See "The Conversion -- Reasons for the Conversion -- Direct Election of
the Board of Directors."
THE GENERAL PARTNER AND THE SPONSORS BELIEVE THAT THE CONVERSION IS FAIR TO
BAC HOLDERS AND RECOMMEND THAT BAC HOLDERS VOTE "FOR" THE CONVERSION PROPOSAL.
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EXISTING ECONOMIC INTERESTS OF THE PARTNERS
Currently, the holders of BACs and General Partner interests in the
Partnership have rights to quarterly distributions of the proceeds of available
cash flow from operations of the Partnership and the proceeds of certain capital
transactions by the Partnership.
The Partnership currently makes quarterly distributions of Cash Available
for Distribution (generally cash flow from operations and sales of assets or
refinancings, after deducting such reserves as the General Partner, in its sole
discretion, determines to be necessary for Partnership expenses, debt payments,
capital improvements, replacements and contingencies) in the following manner:
<TABLE>
<CAPTION>
INTERESTS OF
GENERAL PARTNER
CASH AVAILABLE INTERESTS OF AND ITS
FOR DISTRIBUTION BAC HOLDERS AFFILIATES
- --------------------------------------------------------------- --------------- -----------------
<S> <C> <C>
Net Cash From Operations....................................... 79.2% 20.8%
Net Cash from Sales or Refinancings (after return of capital to
BAC Holders of $10 per BAC)................................... 98.0% 2.0%
</TABLE>
For a more detailed description of rights of the General Partner and BAC Holders
to Cash Available for Distribution, see "The Conversion -- Existing Economic
Interests of the Partners" and "Comparative Rights of BAC Holders and Holders of
Common Stock -- Distributions and Dividends."
In addition, if the General Partner is removed without cause, it can compel
any successor to purchase its General Partner interest at "fair market value."
See "Comparative Rights of BAC Holders and Holders of Common Stock -- Removal of
General Partner and Directors of the Corporation -- BACs."
ALTERNATIVES TO THE CONVERSION
The alternatives to the Conversion that were considered by the Sponsors
were: (a) continuance of the Partnership with no cessation of trading, (b)
continuance of the Partnership and cessation of trading before 1998, (c)
conversion of the Partnership, with a single cash and stock distribution, (d)
conversion by liquidation, (e) a management buyout or other strategic sale of
the Partnership and (f) liquidation and winding up of the Partnership. The
alternatives to the Conversion that were considered by the General Partner, in
addition to (a), (b), (c) and (f), were: (g) continuance of the Partnership,
with cessation of trading and an exchange offer of stock in a new corporate
limited partner, (h) continuance of the Partnership, with cessation of trading
and an exchange offer of debt securities and (i) a conversion pursuant to
Section 17.5 of the Partnership Agreement.
- CONTINUANCE OF THE PARTNERSHIP; NO CESSATION OF TRADING. The Sponsors and
the General Partner believe that the Conversion is a more beneficial
alternative to BAC Holders than the continuance of the Partnership in its
current form and that any benefits to be derived through the Partnership's
current form are outweighed by the potential long term benefits
anticipated to be derived from the Conversion. Under current law, after
December 31, 1997, absent a cessation of trading, the Partnership would be
treated as a corporation for tax purposes. See "The Conversion --
Alternatives to the Conversion" and "-- Reasons for the Conversion."
- CONTINUANCE OF THE PARTNERSHIP; CESSATION OF TRADING. The Sponsors and the
General Partner considered continuing the Partnership and, before January
1998, delisting the BACs from the American Stock Exchange and Pacific
Stock Exchange and prohibiting, except in very limited circumstances,
transfers of BACs. Such a transaction would create a private security with
virtually no liquidity or trading market value, but would preserve the
current tax status of the Partnership after December 31, 1997. The
Sponsors and the General Partner believed that the loss of liquidity
resulting from such an alternative would be adverse to the interests of
BAC Holders and the Partnership and therefore did not pursue this
alternative. See "The Conversion -- Alternatives to the Conversion --
Continuance of the Partnership; Cessation of Trading."
11
<PAGE>
- CONTINUANCE OF THE PARTNERSHIP; CESSATION OF TRADING AND EXCHANGE OFFER OF
STOCK IN NEW CORPORATE LIMITED PARTNER. The General Partner considered
continuing the Partnership and, before January 1998, delisting the BACs
and, except in very limited circumstances, prohibiting the transfer of
BACs. At the same time, a new corporate limited partner would be admitted
to the Partnership and BAC Holders would be given the opportunity to
exchange their BACs for publicly traded shares of common stock in such
corporation. However, exchanging BAC Holders would forego the potential
future tax benefits associated with an investment in a partnership, and
non-exchanging BAC Holders would be left with little, if any, liquidity.
In addition, the General Partner believed this alternative would further
complicate rather than simplify the capital structure of the Partnership
and would not provide the benefits of operating in corporate form
described under "Reasons for the Conversion" above. See "The Conversion --
Alternatives to the Conversion -- Continuance of the Partnership;
Cessation of Trading and Exchange Offer of Stock in New Corporate Limited
Partner."
- CONTINUANCE OF THE PARTNERSHIP; CESSATION OF TRADING AND EXCHANGE OFFER OF
DEBT SECURITIES. The General Partner considered continuing the Partnership
and, before January 1998, delisting the BACs and, except in very limited
circumstances, prohibiting the transfer of BACs. At the same time, BAC
Holders would be given the opportunity to exchange their BACs for publicly
traded debt securities of the Partnership. Although such a transaction
would preserve the current tax status of the Partnership, the General
Partner believed it would not be optimal in that the Partnership could
have burdensome leverage, the exchange might have adverse tax consequences
to the electing BAC Holders, there could be no assurance of a liquid
market in the debt securities, the non-exchanging BAC Holders would have
little, if any, liquidity and such a transaction would generally not
provide the benefits of operating in corporate form described under
"Reasons for the Conversion" above. See "The Conversion -- Alternatives to
the Conversion -- Continuance of the Partnership; Cessation of Trading and
Exchange Offer of Debt Securities."
- CONVERSION TO CORPORATION WITH CASH AND STOCK. The Sponsors proposed to
the General Partner that the Partnership be converted to a corporation in
a transaction in which BAC Holders and affiliates of the General Partner,
in exchange for their respective interests in the Partnership, would each
receive a one-time cash distribution, as well as stock in the corporation
surviving the transaction. The Sponsors proposed that the cash
distribution be paid to BAC Holders, the General Partner and its
affiliates in accordance with their respective economic interests and that
the stock be distributed in accordance with the respective capital
accounts of the partners. The General Partner felt that such a transaction
would result in the successor corporation being burdened at the outset
with significant indebtedness to pay such a one-time cash distribution and
would reduce financial flexibility for the successor corporation going
forward. In addition, the General Partner was concerned that the
distribution would, in effect, be fully taxable to BAC Holders and the
General Partner and its affiliates and did not believe that the proposed
terms recognized the fair value of the General Partner's independent
economic interest in the Partnership (on a going concern basis). The
Sponsors did not pursue this transaction because of the General Partner's
concerns. See "The Conversion -- Alternatives to the Conversion --
Conversion to Corporation with Cash and Stock."
- CONVERSION BY LIQUIDATION. The Sponsors also considered a transaction
whereby the Partnership would be converted to a corporation in a
transaction in which BAC Holders, the General Partner and its affiliates
would, in exchange for their respective interests in the Partnership, each
receive a one-time liquidating distribution consisting of cash and new
common stock in the corporation surviving the transaction. Pursuant to the
terms of the Partnership Agreement, liquidating distributions would be
made in accordance with partners' capital accounts. Accordingly, the
General Partner and its affiliates would receive approximately 2% of the
cash and stock distributed. (For a more detailed description of the
procedures required to effectuate a liquidation of the Partnership, see
"The Conversion -- Alternatives to the Conversion --
12
<PAGE>
Liquidation and Winding Up of the Partnership"). The Sponsors did not
propose this transaction to the General Partner because of uncertainties
under the Partnership Agreement of the Sponsors' ability to consummate
such a transaction in a timely and tax effective manner, without the
recommendation of the General Partner. The Sponsors believed that the
General Partner's cooperation in such a transaction would be unlikely,
since its terms did not recognize the fair value of the General Partner's
independent economic interest in the Partnership (on a going concern
basis) and because it understood that the General Partner believed that it
had no duty to cooperate in a transaction which did not fairly value such
economic interest and which the General Partner believed would constitute
a termination without cause of the General Partner. See "The Conversion --
Existing Economic Interests of the Partners."
- MANAGEMENT BUYOUT OR OTHER STRATEGIC SALE. The Sponsors also considered
proposing a management buyout or other strategic sale of the Partnership.
These alternatives would not provide BAC Holders with their continuing
equity interest in the Partnership and might not be able to be
accomplished on a tax-advantaged basis. The Sponsors did not propose such
transactions to the General Partner because they believed that, in the
long term, the value of the Common Stock would exceed the value of cash
and securities that would be distributed to BAC Holders in a management
buyout or other strategic sale. See "The Conversion -- Alternatives to the
Conversion -- Management Buyout or Other Strategic Sale."
- CONVERSION PURSUANT TO SECTION 17.5 OF THE PARTNERSHIP AGREEMENT. Section
17.5 of the Partnership Agreement permits the General Partner, in response
to the tax law amendment treating publicly traded partnerships as
corporations, in its sole discretion and without any partner consent, to
convert the Partnership into a corporation in whatever manner and by
whatever method the General Partner determines. See "Summary of Certain
Provisions of the Partnership Agreement -- Reorganization of the
Partnership." Under such section of the Partnership Agreement, the General
Partner is required to effectuate the conversion so that, to the extent
possible, the respective interests of BAC Holders and the General Partner
in the assets and income of the successor entity immediately following
such conversion are substantially equivalent to such interests immediately
prior thereto. The General Partner is required to appoint two independent
appraisers to determine the value of such interests. The General Partner
decided not to proceed with a conversion under Section 17.5 in light of
the proposal by the Sponsors which it believed was fair to both BAC
Holders and the General Partner and which involved the additional
procedural step of being submitted to BAC Holders and Unaffiliated BAC
Holders for approval. See "The Conversion -- Alternatives to the
Conversion -- Conversion Pursuant to Section 17.5 of the Partnership
Agreement."
- LIQUIDATION AND WINDING UP OF THE PARTNERSHIP. The General Partner and the
Sponsors rejected this alternative because liquidation would not provide
BAC Holders and the General Partner with any continuing equity interest in
the Partnership and would be unlikely to be accomplished on a
tax-advantaged basis. The General Partner would not be able to determine
with any certainty prior to dissolution whether and at what price there
would be any buyers for the Partnership's assets. The General Partner
believes that in the long term the value of the Partnership as a going
concern, whether or not the Conversion is effected, to the General Partner
and BAC Holders would exceed the value of the proceeds of a liquidation.
See "The Conversion -- Alternatives to the Conversion -- Liquidation and
Winding Up of the Partnership."
- FUTURE ALTERNATIVES AVAILABLE TO POLARIS. The General Partner and the
Sponsors believe that other long-term strategies available to Polaris,
such as diversification and acquisition of assets, or a management buyout
or other strategic sale, are not adversely affected (and, in some cases,
should be enhanced) by the decision to convert from partnership to
corporate form and can be considered by the Corporation in the future if
the Conversion is consummated. No other
13
<PAGE>
transaction currently is being considered by the Partnership as an
alternative to the Conversion, although the Partnership may from time to
time explore other alternatives if the Conversion is not consummated,
including a conversion pursuant to Section 17.5 of the Partnership
Agreement. See "The Conversion -- Alternatives to the Conversion -- Future
Alternatives Available to Polaris."
ALLOCATION OF COMMON STOCK BETWEEN BAC HOLDER INTERESTS AND GENERAL PARTNER
INTERESTS
Upon consummation of the Conversion, BAC Holders (including the Sponsors and
affiliates of the General Partner) and holders of previously granted First
Rights will receive, in exchange for their BACs and upon exercise of such First
Rights, as the case may be, 88.6% of the Common Stock of the Corporation, and
affiliates of the General Partner will receive, in exchange for their interests
in the General Partner and its affiliates, the remaining 11.4% of the Common
Stock of the Corporation, after giving effect to the exercise of such First
Rights.
The Exchange Ratio was agreed to after extended discussions and negotiations
beginning in early June 1994 between W. Hall Wendel, Jr., the Chief Executive
Officer of Polaris, and certain other members of the senior operating management
of the Operating Partnership, who have no economic interest in the General
Partner, and representatives of the General Partner. The Exchange Ratio was
determined with reference to the existing economic interests of the General
Partner and BAC Holders referred to above and the rights of the General Partner
under various provisions of the Partnership Agreement. Currently and for the
foreseeable future, the General Partner and its affiliates receive 20.8% of the
Partnership's distributions and $500,000 per year in management fees and are
entitled to certain expense reimbursements from the Partnership. Such
distributions and fees totalled approximately $10.3 million in 1993 and will
aggregate more than $11 million in 1994. These arrangements and payments will
end upon consummation of the Conversion. See "The Conversion -- Background of
the Conversion" and "-- Existing Economic Interests of the Partners."
FAIRNESS OPINIONS
On September 29, 1994, each of Smith Barney Inc. ("Smith Barney") and
Dillon, Read & Co. Inc. ("Dillon Read") delivered to the Partnership its written
opinion to the effect that, as of the date of such opinion and based upon and
subject to certain matters as stated therein, each of the Exchange Ratio and the
consideration to be received by BAC Holders in the Conversion is fair, from a
financial point of view, to such holders. The full text of the written opinions
of Smith Barney and Dillon Read dated September 29, 1994, which set forth the
assumptions made, matters considered and limitations on the review undertaken,
are attached as Annex B and Annex C to this Proxy Statement and are incorporated
herein by reference. BAC holders are urged to read these opinions carefully in
their entirety. See "The Conversion -- Fairness Opinions."
RECOMMENDATION OF THE GENERAL PARTNER AND THE SPONSORS
As a result of their review of the business, properties and financial
condition of the Partnership, their review of the terms of the Conversion, their
analysis of the benefits and disadvantages of, and the alternatives to, the
Conversion, and their review of fairness opinions from Smith Barney and Dillon
Read, each to the effect that each of the Exchange Ratio and the consideration
to be received by BAC Holders in the Conversion is fair, from a financial point
of view, to BAC Holders, the General Partner and the Sponsors believe that the
Conversion is fair to BAC Holders and recommend that BAC Holders approve the
Conversion Proposal. See "The Conversion -- Fairness Opinions" and "--
Recommendation of the General Partner and the Sponsors."
SUMMARY OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the Conversion, each BAC Holder will receive one share of Common Stock in
exchange for each BAC. BAC Holders will not be subject to federal income tax on
the receipt of the shares of Common Stock and their tax basis in the shares
received will be determined with reference to the tax basis of
14
<PAGE>
their BACs immediately prior to the Conversion. BAC Holders are advised that the
precise tax treatment to an individual BAC Holder will depend on each BAC
Holder's particular situation. See "The Conversion" and "Certain Federal Income
Tax Considerations."
The receipt by the Corporation of the BACs and other interests in connection
with the Conversion will not be taxable to the Corporation.
For federal income tax purposes, the formation of the transitory partnership
(the "Transitory Partnership") and its merger into the Partnership will be
disregarded. The Partnership will continue its existence, with the Corporation,
EIPCC and the General Partner as its sole partners. The merger of the Operating
Partnership into the Partnership will not be a taxable event for the Partnership
or the Operating Partnership.
As a corporation, the Corporation's net income, which will include the
Partnership's net income, will be subject to federal corporation income tax.
Distributions to shareholders, including the Proposed Distributions, if and when
made, will be taxable as ordinary dividend income to the extent of the
Corporation's earnings and profits and will be classified as investment or
portfolio income. Sales of shares of Common Stock which are held as capital
assets will produce capital gain or loss to the selling shareholder. See
"Certain Federal Income Tax Considerations."
CONDITIONS TO THE CONVERSION
The Merger Agreement provides that neither the Corporation nor the
Partnership will be obligated to consummate the Conversion unless the following
conditions are satisfied or waived: (i) approval of the Conversion Proposal by
the affirmative vote of the holders of more than 50% of the outstanding BACs,
and by the affirmative vote of the holders of more than 50% of the outstanding
BACs held by Unaffiliated BAC Holders, (ii) listing of the Common Stock on the
American Stock Exchange and the Pacific Stock Exchange subject to official
notice of issuance, (iii) the receipt of certain necessary government approvals,
following certain government imposed waiting periods (including under the HSR
Act, if applicable) and the making of certain necessary governmental filings;
(iv) effectiveness of a Registration Statement under the Securities Act of 1933,
as amended, relating to the Common Stock to be issued in the Merger, and the
absence of any stop order or proceeding seeking a stop order with respect to
such Registration Statement; (v) the absence of any court order or legal
restraint preventing consummation of the Merger; (vi) Appraisal Rights not being
sought with respect to more than 5% of the outstanding BACs (which condition may
be waived by the Corporation); (vii) no withdrawal of the Smith Barney or Dillon
Read fairness opinions; (viii) the Corporation's receipt of a favorable opinion
of its special tax counsel, Skadden, Arps, Slate, Meagher & Flom, as to certain
matters related to the tax free nature of the Conversion to BAC Holders; and
(ix) the Partnership's receipt of a favorable opinion of its special counsel,
Stroock & Stroock & Lavan, as to certain matters related to the tax free nature
of the Conversion to BAC Holders and affiliates of the General Partner
transferring their partnership interests in the general partners of the
Partnership and the Operating Partnership and their stock of EIPCC to the
Corporation (such affiliates, the "Transferors"). See "The Conversion --
Description of the Merger Agreement -- Conditions."
CONSEQUENCES IF CONVERSION PROPOSAL IS NOT APPROVED OR THE CONVERSION IS NOT
CONSUMMATED
If the Conversion Proposal is not approved by BAC Holders and Unaffiliated
BAC Holders, or if the Conversion is not consummated for any other reason, the
Partnership expects to continue to operate as an ongoing business in its current
form and to continue making cash distributions at recent historical levels. As
discussed under "-- Reasons for the Conversion," if Polaris continues to operate
in partnership form, BAC Holders may be required to report taxable income from
the Partnership that exceeds the amount of its cash distributions, and it is
likely that BAC Holders will experience, on a per BAC basis, increasing taxable
income without a corresponding increase in cash distributions. If current tax
laws remain unchanged and if before 1998 the Partnership fails to take action to
cease trading of BACs, the Partnership will be treated as a corporation for
federal income tax purposes. No other transaction currently is being considered
by the Partnership as an alternative to the Conversion, although the Partnership
may from time to time explore other alternatives, including conversion
15
<PAGE>
pursuant to Section 17.5 of the Partnership Agreement. See "The Conversion --
Alternatives to the Conversion" and "The Conversion -- Consequences if
Conversion Proposal is Not Approved or the Conversion is Not Consummated."
MANAGEMENT AND COMPENSATION
The Partnership is managed exclusively by the General Partner. The General
Partner and its affiliates are entitled to receive 20.8% of distributions from
the Partnership, which approximated $9.8 million in 1993 and which are expected
to approximate $10.6 million in 1994. See "The Conversion -- Existing Economic
Interests of the Partners." Since the Partnership's inception, EIPCC, the
managing general partner of the General Partner, has been paid an annual
management fee of $500,000 a year and been entitled to be reimbursed for certain
expenses. These arrangements and payments will end upon the consummation of the
Conversion.
As authorized by Minnesota law and provided by the Corporation's Articles of
Incorporation, the Corporation will be managed by and under the direction of its
Board of Directors, any member of which may be removed, with or without cause,
by the holders of 75% of the voting power of all outstanding shares then
entitled to vote at an election of directors. Pursuant to the voting agreement
between Victor K. Atkins, Jr., a general partner of the General Partner and the
President of EIPCC, the managing general partner of the General Partner, and W.
Hall Wendel, Jr. described under "The Conversion -- Background of the
Conversion," Mr. Atkins has agreed that, for so long as he owns no less than 3%
of the outstanding voting securities of the Corporation, he will vote such
securities in favor of the Corporation's nominees for election to the Board of
Directors of the Corporation.
W. Hall Wendel, Jr., the Operating Partnership's Chief Executive Officer,
who owns approximately 5.4% of outstanding BACs, and other members of the senior
operating management of the Operating Partnership, will become the officers of
the Corporation at the time of the Conversion and will continue to operate
Polaris after the Conversion. See "Management."
The Corporation will assume the Operating Partnership's existing employee
benefit plans. Except as required to accommodate the change to corporate form,
all of the existing employee benefit plans of the Partnership and the Operating
Partnership are expected to be adapted for use by the Corporation on
substantially the same terms. Without limiting the generality of the foregoing,
upon the Conversion, each of the outstanding First Rights representing the right
to receive BACs under an employee benefit plan, whether vested or unvested ,
will be deemed to constitute the right to receive, on the same terms and
conditions as were applicable under such First Rights, the same number of shares
of Common Stock as the holder of such First Rights would have been entitled to
receive pursuant to the Merger had such holder received BACs upon exercise of
such First Rights immediately prior to the Merger.
VOTING AT THE SPECIAL MEETING
<TABLE>
<S> <C>
The Special Meeting.......... The Special Meeting will be held at Holiday Inn West,
Highway 394, Minneapolis, Minnesota on Tuesday, December ,
1994 at 9:00 a.m., local time.
Voting....................... Each BAC entitles the holder thereof to one vote. Only BAC
Holders of record on November , 1994 (the "Record Date") are
entitled to vote at the Special Meeting.
BACs Outstanding............. On the Record Date, 16,010,441 BACs were outstanding.
Approval Required............ The Conversion Proposal will require (i) the approval of BAC
Holders holding a majority of the BACs outstanding on the
Record Date and (ii) the approval of Unaffiliated BAC
Holders holding a majority of BACs held by such persons on
the Record Date. The Sponsors and affiliates of the General
Partner, owning, in the aggregate, approximately 14% of
outstanding BACs, have advised the Partnership that they
will vote "FOR" the Conversion Proposal.
</TABLE>
16
<PAGE>
APPRAISAL RIGHTS
BAC Holders who have not voted in favor of, or consented in writing to, the
Conversion Proposal will be entitled to contractual rights of appraisal
("Appraisal Rights") that are intended to be substantially identical to
statutory rights of appraisal that stockholders of a Delaware corporation have
under the Delaware General Corporation Law. BAC Holders who demand Appraisal
Rights will not be entitled to receive any portion of the consideration to be
received in the Merger, but will have the right to receive the value of their
interests in the Partnership as determined in a separate proceeding and any
distribution declared by the Partnership prior to the Conversion provided they
were BAC Holders on the record date for such distribution. It is a condition to
the consummation of the Merger that Appraisal Rights not be exercised by BAC
Holders holding BACs representing more than 5% of the outstanding BACs (although
this condition may be waived by the Corporation). See "The Conversion --
Description of the Merger Agreement -- Conditions." For a more complete
description of the procedures that must be followed to perfect Appraisal Rights,
see "Appraisal Rights."
LIST OF BAC HOLDERS
A list of all registered BAC Holders of the Partnership may be obtained by
any BAC Holder from the Partnership upon written request to the Partnership, at
1225 Highway 169 North, Minneapolis, Minnesota 55441, Attention: John H.
Grunewald, Executive Vice President, Finance and Administration, and at such BAC
Holder's sole cost and expense, provided that such request is for a purpose that
is reasonably related to such BAC Holder's interest in the Partnership.
THE PARTNERSHIP AND THE CORPORATION
The Partnership was formed under the Delaware Revised Uniform Limited
Partnership Act for the purpose of acquiring, through the Operating Partnership,
substantially all of the business and assets of Northwestern Equipment
Manufacturing Company (then known as Polaris Industries Inc.), a Minnesota
corporation ("Northwestern"), in 1987. Concurrently with the acquisition, the
Partnership completed a public offering of $110 million of BACs. The funds
received from the public offering were used by the Partnership to acquire an 80%
undivided interest in substantially all of the assets of Northwestern. The
remaining 20% was contributed by Northwestern to the Operating Partnership in
exchange for additional BACs and Class B BACs (which have since been converted
into BACs). See "The Conversion -- The Partnership."
The primary objectives of the Partnership are: (i) cash distributions from
the operations of the Partnership sufficient to provide BAC Holders with not
less than a 12% cumulative, noncompounded annual return on the initial purchase
price of the BACs (as reduced by any distributions from sales and refinancings
of the property of the Partnership), (ii) capital appreciation as a result of
expanding distributable cash flow, and (iii) preservation and protection of the
Partnership's capital. While the Partnership believes that it has to date
achieved these objectives, the Partnership has no present intention of
increasing the present level of cash distributions in the foreseeable future
even if there is an increase in taxable income. See "Market Prices and
Distributions."
Polaris designs, engineers and manufactures snowmobiles, all terrain
vehicles ("ATVs") and motorized water scooters also known as personal watercraft
("PWC") and markets these products, together with related accessories, through
dealers and distributors located principally in the United States, Canada and
Europe. Polaris designs its products to provide superior performance and
convenience at competitive prices.
Total revenues have grown from approximately $243 million in 1989 to
approximately $528 million in 1993 (in excess of a 20% compound growth rate).
Operating income has grown from approximately $26 million to approximately $53
million over the same period (in excess of a 19% compound growth rate). For the
nine months ended September 30, 1994 total revenues increased approximately 52%
over the first nine months of 1993, while operating income increased more than
50% during the same period.
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<PAGE>
Polaris' principal product lines include:
SNOWMOBILES:Polaris was founded in the mid-fifties as a manufacturer
of a "gas powered sled," the forerunner of the Polaris snowmobile.
Polaris has the largest share of the snowmobile market. Polaris produces
a full line of snowmobiles including utility, economy, high performance
and competition models with list prices for the 1994 model year ranging
from approximately $2,450 to $8,150. Polaris believes its snowmobile has
a long standing reputation for quality, dependability and performance.
Polaris also believes that industry sales of snowmobiles were
approximately 171,000 units for the season ended March 31, 1994,
representing a 10% increase in units sold worldwide over the prior year.
ALL TERRAIN VEHICLES: Polaris also manufactures four-and six-wheel
ATVs with balloon-style tires designed for off-road use in recreation
and for utility purposes on farms, ranches and construction sites. Its
line of ATVs consists of ten models with list prices for the 1994 model
year ranging from approximately $2,900 to $6,200. Polaris ATVs offer a
number of features developed by Polaris which it believes provide for
enhanced control and stability. Polaris estimates worldwide demand for
ATVs reached approximately 247,000 units in calendar 1993 representing
an increase of approximately 13% over calendar 1992. Polaris believes it
was the only major ATV manufacturer to chart a material increase in
market share in 1993.
PERSONAL WATERCRAFT: Polaris' most significant new product was the
introduction in 1992 of the Polaris PWC. PWC are sit down versions of
water scooter vehicles designed for principally recreational use on
lakes, rivers, bays and oceans. List prices for Polaris PWC ranged from
$5,500 to $6,300 for the 1994 model year. Polaris estimates that the
worldwide market for PWC was approximately 122,000 units in 1993, an
increase of 27% over 1992. Polaris believes it is well positioned to
take advantage of the opportunities in this growing market by utilizing
its established reputation for quality and performance through its more
than 1,200 PWC dealers worldwide.
Introduction of ATVs and PWC has significantly reduced Polaris' dependence
on a single product line. In 1989 sales of snowmobiles accounted for 67% of
total revenues. By 1993 sales of snowmobiles accounted for 50% of total revenues
with sales of PWC (9%), ATVs (26%) and clothing, accessories and parts (15%)
accounting for the rest. In addition to reducing dependence on a single product
line, the introduction of PWC and ATVs has improved Polaris' plant utilization,
reducing seasonal and employee downtime and improved Polaris' penetration of its
dealer network by providing dealers with Polaris products to sell throughout the
year.
Polaris currently employs approximately 2,650 full and part time workers,
principally in its design and manufacturing facility in Roseau, Minnesota, and
its manufacturing facility in Osceola, Wisconsin. It also recently entered into
a lease, with an option to purchase, of an existing facility in Spirit Lake,
Iowa which will be converted to PWC production, with snowmobiles and ATVs
produced in the off season. Polaris maintains its executive offices at 1225
Highway 169 North, Minneapolis, Minnesota 55441 and the telephone number at that
address is (612) 542-0500.
The Corporation is a Minnesota corporation which has been newly formed by
certain of the Sponsors in connection with the Conversion. The principal
executive offices of the Corporation are located at 1225 Highway 169 North,
Minneapolis, Minnesota 55441, and the telephone number at that address is (612)
542-0500.
18
<PAGE>
SUMMARY OF SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER BAC AND PRO FORMA PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- --------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Sales............................................... $242,618 $296,147 $297,677 $383,818 $528,011 $385,153 $ 584,725
-------- -------- -------- -------- -------- -------- ---------
Income before provision for income taxes............ 26,865 33,010 33,430 39,681 53,270 35,988 56,618
Provision for Income Taxes.......................... 675 1,647 1,968 4,980 7,457 4,546 6,007
-------- -------- -------- -------- -------- -------- ---------
Net income.......................................... $ 26,190 $ 31,363 $ 31,462 $ 34,701 $ 45,813 $ 31,442 $ 50,611
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Net income applicable to limited partners (1)....... $ 24,701 $ 24,840 $ 24,918 $ 27,483 $ 36,284 $ 24,902 $ 40,084
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Net income per BAC.................................. $ 1.65 $ 1.65 $ 1.65 $ 1.73 $ 2.25 $ 1.54 $ 2.46
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
UNAUDITED PRO FORMA INFORMATION (2)
Income before provision for income taxes............ $ 26,865 $ 33,010 $ 33,430 $ 39,681 $ 51,539 $ 35,619 $ 53,646
Provision for income taxes.......................... 9,670 11,885 12,035 14,285 18,555 12,825 19,313
-------- -------- -------- -------- -------- -------- ---------
Net income.......................................... $ 17,195 $ 21,125 $ 21,395 $ 25,396 $ 32,984 $ 22,794 $ 34,333
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Net income per share................................ $ 1.01 $ 1.23 $ 1.25 $ 1.41 $ 1.81 $ 1.25 $ 1.86
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
Weighted average number of common and common
equivalent shares outstanding (3).................. 17,088 17,136 17,162 17,968 18,215 18,225 18,415
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
CASH FLOW DATA
Cash flow from operating activities................. $ 44,447 $ 54,782 $ 46,642 $ 55,316 $ 79,323 $ 43,116 $ 77,801
Cash purchases of property and equipment............ 7,065 7,158 15,988 12,295 18,126 13,055 20,544
Cash distributions to partners...................... 32,514 42,582 42,581 44,025 46,493 34,641 37,322
Cash distributions per BAC.......................... 2.27 2.50 2.50 2.50 2.51 1.88 1.89
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
UNAUDITED PRO FORMA INFORMATION (2 and 4)
Dividends........................................... 10,925 8,193 8,193
Dividends per share................................. 0.60 0.45 0.45
Special cash distribution........................... 104,877 69,918
Special cash distribution per share................. 5.76 3.84
-------- -------- -------- -------- -------- -------- ---------
-------- -------- -------- -------- -------- -------- ---------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -----------------------------------
------------------------------------------------ 1994
1989 1990 1991 1992 1993 1993 1994 PRO FORMA(2)
-------- -------- -------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents........... $ 27,886 $ 32,025 $ 20,098 $ 19,094 $ 33,798 $ 14,514 $ 53,733 $ 53,733
Net increase (decrease) in cash and
cash equivalents................... 12,287 4,139 (11,927) (1,004) 14,704 (4,580) 19,935 19,935
Current assets...................... 60,344 66,893 59,200 74,999 109,748 110,705 178,443 190,443
Total assets........................ 137,628 138,704 135,509 146,681 180,548 181,030 250,377 292,377
Total liabilities................... 38,875 46,602 52,646 69,054 98,055 102,327 149,399 160,399
General Partner's capital
(deficit).......................... (419) (2,753) (5,066) (7,105) (7,397) (7,921) (4,817) --
Limited Partners' capital........... 99,172 94,855 87,929 84,732 89,890 86,624 105,795 --
Stockholders' equity (5)............ -- -- -- -- -- -- -- 131,978
Net book value per weighted average
BAC and BAC equivalents............ 6.59 6.13 5.50 4.89 5.12 4.88 6.19 --
Net book value per share (3 and
5)................................. -- -- -- -- -- -- -- 7.17
<FN>
- ----------------------------------
(1) Represents net income to BAC Holders after allocation to the General
Partner and its affiliates and therefore does not represent all of the net
income of the Partnership.
(2) The unaudited pro forma data are derived from the financial statements of
the Partnership as if the Conversion had occurred on January 1, 1993 for
the statements of operations and cash flows data and as of September 30,
1994, for the balance sheet data. Such periods have been adjusted to
eliminate the General Partner's annual fee of $500,000. The pro forma
statements of operations and cash flows exclude the $11 million estimated
costs of the Conversion, which will be recognized at the time of the
Conversion. Adjustments have been made to the pro forma statements of
operations and cash flows to provide for interest expense on long-term
borrowings of approximately $70,000,000 anticipated to be incurred in the
third and fourth quarters of 1993, the year of the special pro forma cash
distributions. Further, the pro forma statements of operations and cash
flows assume the additional debt will be repaid at $8.75 million per
quarter, commencing in 1994, the year following the pro forma special
distributions. All periods have been adjusted to reflect a provision for
income taxes calculated at a rate of 36%. Such rate reflects a combined
federal and state statutory rate, net of related research and development
credits and anticipated foreign sales corporation benefits. See Note 10 of
Notes to Financial Statements for additional information regarding the pro
forma adjustments.
(3) Pro forma weighted average number of common and common equivalent shares
outstanding and the number of shares of common stock utilized to calculate
the unaudited pro forma net book value per share includes shares to be
issued to BAC Holders, to affiliates of the General Partner and to
employees in connection with First Rights granted but not yet converted to
BACs.
(4) Pro forma stockholder dividends, special cash distribution and the related
per share amounts reflect the Sponsors' intent to recommend that the
Corporation's Board of Directors establish an initial dividend rate of
$0.15 per share per quarter, and pay three special nonrecurring cash
distributions, each of $1.92 per share, payable during each of the last
three quarters of 1995. Such recommendation is subject to approval by the
Corporation's Board of Directors, legal and contractual limitations and the
financial requirements of the business.
(5) Pro forma stockholders' equity includes estimated amounts related to the
recording of expenses for the transaction and for deferred tax assets,
which will be recalculated when the conversion is completed and actual
temporary differences can be determined. The change in deferred tax assets
could be material. Pro forma net book value per share is adjusted for
shares to be issued to affiliates of the General Partner and for shares to
be issued for First Rights granted but not yet converted to BACs. For
purposes of this transaction, assets and liabilities will be recorded at
historical cost.
</TABLE>
19
<PAGE>
RISK FACTORS, CONFLICTS OF INTEREST
AND OTHER CONSIDERATIONS
BEFORE COMPLETING THE ENCLOSED FORM OF PROXY, EACH BAC HOLDER SHOULD
CAREFULLY READ THIS ENTIRE PROXY STATEMENT, INCLUDING THE ANNEXES AND THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE, AND SHOULD GIVE PARTICULAR ATTENTION
TO THE FOLLOWING CONSIDERATIONS.
RISKS, CONFLICTS OF INTEREST AND CONSIDERATIONS RELATED TO THE CONVERSION
ADVERSE TAX IMPLICATIONS
A primary disadvantage of converting to corporate form is tax related. The
Corporation will pay taxes on its taxable income, and shareholders will pay
taxes on after-tax earnings of the Corporation distributed to them as dividends.
In contrast, the Partnership generally pays no income tax and its partners pay
tax on their distributive share (whether or not actually distributed) of the
Partnership's taxable income. See "Selected Historical and Pro Forma Financial
Information -- Unaudited Pro Forma Information" for the pro forma provision for
income taxes for fiscal year 1993 had Polaris been operating as a corporation
throughout such year. Under current law, the Partnership would be taxed as a
corporation after December 31, 1997 if the BACs continued to be actively traded.
The General Partner has participated in efforts to have the December 31, 1997
deadline extended or eliminated. To date such efforts have been inconclusive.
Such efforts, in which the General Partner has ceased to participate, may or may
not be successful in the future. See "Certain Federal Income Tax Considerations
- -- Partnership Status and Taxation of the Partnership."
POTENTIAL CONFLICTS OF INTEREST
DETERMINATION OF EXCHANGE RATIO. There is a potential conflict of interest
between the General Partner and BAC Holders with respect to the determination of
the Exchange Ratio in the Conversion. The Exchange Ratio was determined after
extended discussions and negotiations between affiliates of the General Partner
and W. Hall Wendel, Jr. and other members of the Sponsors with reference to the
existing economic interests of the General Partner and BAC Holders and the
rights of the General Partner under various provisions of the Partnership
Agreement. BAC Holders were not separately represented in such discussions.
Since the Sponsors have no economic interest in the General Partner and
collectively own approximately 9.1% of the outstanding BACs, their interests in
the determination of the Exchange Ratio should be closely aligned with those of
BAC Holders generally. However, Victor K. Atkins, Jr. and W. Hall Wendel, Jr.
have also entered into an agreement which provides, among other matters, that as
long as he owns 3% of the outstanding Common Stock, Mr. Atkins will vote his
shares of Common Stock in favor of the Corporation's nominees for election to
its Board of Directors. Mr. Wendel is expected to be nominated to serve as
Chairman of the Board of Directors of the Corporation. Accordingly, execution of
such an agreement may be viewed as involving potential conflicts of interests
between the Sponsors and BAC Holders generally.
REDUCTION IN LIABILITY. As a result of the Conversion, affiliates of the
General Partner will benefit from the elimination of its potential liability for
obligations and liabilities of Polaris after the Conversion. Because BAC Holders
are not liable for obligations and liabilities of the Partnership, BAC Holders
will not realize this benefit from the Conversion. This may present a conflict
of interest to the General Partner in recommending the Conversion to BAC
Holders.
For additional information concerning the potential conflicts of interest
among the General Partner, the Sponsors and BAC Holders in the Conversion, see
"The Conversion -- Background of the Conversion," "-- Fairness Opinions" and "--
Recommendation of the General Partner and the Sponsors."
NO INDEPENDENT REPRESENTATION
The Conversion was proposed by certain of the Sponsors and negotiated with
the General Partner without independent representation of BAC Holders.
Independent representation on behalf of BAC
20
<PAGE>
Holders might have caused the terms of the Conversion to be different in
material respects from those described herein. In addition, Dillon Read and
Smith Barney, the independent investment banking firms that were retained on
behalf of the Partnership to render their opinions as to the fairness, from a
financial point of view, of the Exchange Ratio and the consideration to be
received in the Conversion by BAC Holders, were not separately selected by BAC
Holders.
NO ASSURANCE OF FUTURE DISTRIBUTIONS
The Corporation is under no legal or contractual obligation to make the
Proposed Distributions and the timing and amount of future dividends and
distributions will be at the discretion of the Board of Directors and will
depend, among other things, on the future after-tax earnings, operations,
capital requirements, borrowing capacity, and financial condition of the
Corporation and general business conditions. In addition, the revolving credit
line of the Partnership, which will be in place immediately following the
Conversion, is insufficient in amount to fund, and contains restrictions on the
ability of the Partnership to borrow for funding the Proposed Distributions if
such distributions are declared by the Board of Directors of the Corporation.
Although the Corporation believes it will be able to secure additional lines of
credit (or waivers with respect to the existing credit line) on terms and
conditions acceptable to the Corporation, the Corporation has no commitment for
such lines of credit and does not intend to seek such commitment prior to the
effective date of the Conversion. Accordingly, there can be no assurance that
the foregoing dividends or distributions will be adopted or maintained by the
Corporation.
EFFECTS OF ADDITIONAL INDEBTEDNESS
Incurrence of additional indebtedness by the Corporation, to fund the
Proposed Distributions or otherwise, could have important consequences to
investors in the Corporation's securities, including the following: (i) the
Corporation's ability to obtain additional financing in the future may be
limited, (ii) a portion of the Corporation's income from operations and cash
flow will be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Corporation for
operations and (iii) the agreements relating to the indebtedness are likely to
contain financial and other restrictive covenants, the failure to comply with
which may result in an event of default which, if not cured or waived, could
adversely affect the Corporation. There can be no assurance that the
Corporation's future operating results will be sufficient for payment of the
Corporation's indebtedness and other commitments.
UNCERTAINTY REGARDING MARKET PRICE FOR COMMON STOCK
At present, there is no trading market for the Common Stock. Application has
been made to list the Common Stock on the American Stock Exchange and the
Pacific Stock Exchange under the trading symbol "SNO." There can be no assurance
that holders of the Common Stock will be able to sell their shares at favorable
prices or that the per share trading prices for the Common Stock will be
comparable to the trading prices for BACs prior to consummation of the
Conversion. A large number of shares of Common Stock may be traded by former BAC
Holders immediately following completion of the Conversion for various reasons,
including in connection with the anticipated transition from primarily
income-oriented to principally growth-oriented investors. If a large number of
holders of Common Stock were to offer their shares for sale, in the absence of a
corresponding demand for Common Stock from institutional and retail investors,
the market price of the Common Stock could decline substantially. Various
anti-takeover provisions which would apply to the Corporation after the
Conversion could also have a negative effect on the market price of the Common
Stock. See "-- Provisions That May Discourage Changes of Control" below.
CHANGES IN OWNERSHIP RIGHTS
As a result of the Conversion, BAC Holders will lose certain rights
associated with their ownership of BACs, including, in particular, receipt of
future quarterly distributions from the Partnership of Net Cash from Operations
(after giving effect to appropriate reserves), and will acquire instead rights
21
<PAGE>
associated with their ownership of shares of Common Stock. A comparison of these
rights and related factors, which may relate to, or be inconsistent with,
investment objectives of BAC Holders, is set forth in "Comparative Rights of BAC
Holders and Holders of Common Stock."
CHANGES IN VOTING RIGHTS
The Conversion will effect a change in the voting rights of BAC Holders. BAC
Holders are entitled to one vote per BAC on matters submitted to BAC Holders for
a vote, including amendments to the Partnership Agreement, mergers and other
extraordinary transactions. Most amendments to the Partnership Agreement require
the approval of BAC Holders who own two-thirds of outstanding BACs. The General
Partner is not permitted to vote its general partner interest on matters voted
upon by BAC Holders, although the General Partner's consent is required to
effect any merger of the Partnership under Delaware law and for certain other
matters to be voted on by BAC Holders. The Sponsors and affiliates of the
General Partner in the aggregate beneficially own approximately 14% of
outstanding BACs and have the right to vote such BACs on matters voted upon by
BAC Holders.
Each share of Common Stock received upon the Conversion will entitle its
holder to cast one vote on matters as to which voting is permitted or required
by Minnesota law. Generally, matters requiring the vote of the Common Stock are
approved by the affirmative vote of the holders of a majority of the Common
Stock at a meeting of shareholders at which a quorum is present, except for
removal of directors, class voting under certain situations and the
anti-takeover provisions of Minnesota law. Unlike the general partner interest
now held by the General Partner, the Common Stock to be received in exchange for
the general partner interest and interests in its affiliates (approximately
11.4% of the outstanding shares of Common Stock, after giving effect to the
exercise of previously granted First Rights), together with the Common Stock
received in exchange for the BACs already held by affiliates of the General
Partner, will be entitled to vote on all matters submitted to shareholders
together with all other outstanding shares of Common Stock. Mr. Atkins has
agreed that for so long as Mr. Atkins owns no less than 3% of the outstanding
Common Stock of the Corporation, he will vote his shares of Common Stock in
favor of the Corporation's nominees for election to its Board of Directors.
However, the General Partner will not have any exceptional veto or class voting
rights. See "The Conversion -- Background of the Conversion" and "Comparative
Rights of BAC Holders and Holders of Common Stock -- Voting Rights."
ELIMINATION OF GENERAL PARTNER LIABILITY FOR POLARIS OBLIGATIONS
Affiliates of the General Partner will benefit from the elimination of its
liability for obligations and liabilities of Polaris after the Conversion. Under
Delaware law, as a general partner of the Partnership, the General Partner is
liable to the extent of its assets for the debts and obligations of the
Partnership. If the Conversion is consummated, the affiliates of the General
Partner will be shareholders of the Corporation and will not have liability for
the debts and obligations of the Corporation. See "-- Potential Conflicts of
Interest" above.
CHANGES IN FIDUCIARY OBLIGATIONS
A general partner in a limited partnership owes fiduciary duties of good
faith, loyalty and fair dealing to all the limited partners. Under Minnesota
law, a director of a corporation must discharge the duties of the position of
director in good faith, in a manner the director reasonably believes to be in
the best interests of the corporation, and with the care an ordinarily prudent
person in a like position would exercise under similar circumstances. In
addition, the Corporation's Articles of Incorporation limit the potential
liabilities of the directors for breach of their fiduciary duties. Therefore,
situations may occur in which owners of Common Stock of the Corporation would
have less recourse, on the basis of breach of fiduciary duty, against directors
of the Corporation than they would have had against the General Partner. See
"Comparative Rights of BAC Holders and Holders of Common Stock -- Fiduciary
Duties" and "-- Limits on Management's Liability."
22
<PAGE>
FUTURE DILUTION OF COMMON STOCK
The Corporation will be permitted to issue additional equity or debt
securities, including shares of preferred stock. The Corporation has no present
intention to issue additional equity securities other than shares of Common
Stock to be issued in connection with assumption and adaption of employee
benefit plans by the Corporation on substantially the same terms as are
currently in effect in the Partnership. Issuances of additional shares of Common
Stock or shares of preferred stock could adversely affect the shareholders'
equity interest in the Corporation and the market price of the Common Stock, and
the interests in the assets, liabilities, cash flow and results of operations of
the Corporation represented by the shares of Common Stock issued pursuant to the
Conversion may be diluted. Issuances of additional shares may be more likely
after the Conversion because the General Partner and the Sponsors believe that
one of the advantages of the Conversion is that the corporate form will expand
the potential investor base, provide Polaris with greater access to equity
markets and permit its use of capital stock as acquisition currency. Holders of
Common Stock will not be entitled to preemptive rights. Under the current
partnership structure, the General Partner has the right to cause the issuance
of authorized but unissued BACs which dilute the BAC Holders' interest but not
the General Partner's interest.
COSTS OF CONVERSION
Transaction costs of approximately $9 million will be paid by the
Partnership, whether or not the Conversion is completed. An additional $2
million is expected to be paid by the Partnership only if the Conversion is
consummated. For a more detailed discussion of the costs and expenses expected
to be incurred, see "The Conversion -- Costs of the Conversion."
RISKS FOR NONAPPROVING BAC HOLDERS
If the Conversion Proposal is approved, all BAC Holders (other than those
who exercise Appraisal Rights) will be bound by such approval even though they,
individually, may not have voted in favor of the Conversion Proposal.
Non-approving BAC Holders who exercise Appraisal Rights will not be entitled to
receive shares of Common Stock. See "Appraisal Rights."
PROVISIONS THAT MAY DISCOURAGE CHANGES OF CONTROL
The Corporation's Articles of Incorporation and By-laws, and Minnesota law,
contain certain provisions that may have the effect of encouraging persons
considering an acquisition or takeover of the Corporation to negotiate with the
Board of Directors rather than to pursue non-negotiated acquisitions or takeover
attempts that a shareholder might consider to be in the shareholders' best
interest, including offers that might result in a premium over market price for
the Common Stock. These provisions include a classified board of directors,
authorization for the Board of Directors to issue classes or series of preferred
stock, super-majority provisions relating to removal of directors and a
prohibition on shareholder action by less than unanimous written consent. See
"Description of Capital Stock -- Anti-takeover Provisions."
The Partnership Agreement contains many provisions which vest in the General
Partner the right to manage the business of the Partnership and restrict the
right of BAC Holders to approve transactions of a type which generally are
subject to shareholder approval in the case of a corporation. The Partnership
does not hold annual meetings of BAC Holders and does not permit BAC Holders to
vote on many of the matters upon which shareholders of the Corporation will be
permitted to vote.
RISKS RELATED TO THE BUSINESS
The following risk factors are relevant to an investment in Polaris, whether
in partnership or corporate form. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
PRODUCT SAFETY AND REGULATION
Snowmobiles, all-terrain vehicles ("ATVs") and personal watercraft ("PWC")
are motorized vehicles that may be operated at high speeds and in a careless or
reckless manner. Accidents involving
23
<PAGE>
property damage, personal injuries and deaths occur in the use of snowmobiles,
ATVs and PWC. With respect to ATVs, the Consumer Products Safety Commission (the
"CPSC") has found a greater incidence of such occurrences with three-wheel ATVs.
Polaris presently manufactures only four-wheel and six-wheel ATVs. The CPSC has
conducted investigations regarding the safety of ATVs, and has made
recommendations regarding their regulation, marketing and use. Such
recommendations include that the ATV industry voluntarily cease marketing ATVs
intended for use by children under 12 years of age; that warning labels be
placed on ATVs intended for use by adults, stating that such ATVs are not
recommended for children under age 16; and that the CPSC work closely with
states and other federal agencies to develop practical, uniform state
regulations. In February 1987, the CPSC formally requested that the United
States Department of Justice (the "Justice Department") initiate an enforcement
action against the ATV industry seeking a recall of three-wheel ATVs and
four-wheel ATVs intended for use by children under age 16 and requiring that ATV
purchasers receive "hands on" training. In addition, in May 1987 the CPSC issued
a safety alert advising of the potential risks associated with three-and
four-wheel ATVs.
In May 1987, Polaris responded to the CPSC's proposed enforcement action
indicating its willingness to adopt additional warning labels and notices to
consumers and its support of various actions designed to enhance vehicle and
user safety. On December 30, 1987, Polaris reached an agreement with the CPSC
calling for the repurchase of all three-wheel ATVs remaining in the hands of its
distributors and dealers, the provision of additional safety oriented
point-of-purchase materials in all Polaris ATV dealerships, and the addition of
a mandatory "hands on" consumer and dealer safety training program designed to
give all Polaris ATV dealers and consumers maximum exposure to safe riding
techniques, as outlined by the Specialty Vehicle Institute of America. Polaris
conditions its ATV warranties described in "Business -- Product Liability" on
completion of the mandatory "hands on" consumer training program.
In June 1989, the CPSC conducted an "undercover" survey of 227 ATV dealers
selected randomly, including Polaris. Based on the survey results, the degree of
compliance of Polaris' dealers with the provisions of the consent decree was
better than the industry average in some areas and worse in others. Pursuant to
an agreement with the CPSC, Polaris has procedures in place for ascertaining
dealer compliance with the provisions of the CPSC consent decree, including
random "undercover" on-site inspections of dealerships to ensure compliance with
the age restriction. Polaris has notified its dealers that it will terminate any
dealer it determines to have violated the provisions of the CPSC consent decree
and to date has terminated five dealers for such reason.
The Partnership does not believe that the agreement with the CPSC has had or
will have a material adverse effect on the Partnership or Polaris. Nevertheless,
there can be no assurance that future recommendations or regulatory actions by
the CPSC, the Justice Department or individual states would not have an adverse
effect on the Partnership or Polaris. Certain state attorneys general have
asserted that the CPSC agreement is inadequate and have indicated that they will
seek stricter ATV regulation. The Partnership is unable to predict the outcome
of such action or the possible effect on its ATV business.
Certain states have proposed certain legislation involving more stringent
emission standards for two-cycle engines, the engines used on Polaris'
snowmobiles, ATVs and PWC. In addition, certain materials used in snowmobile,
ATV and PWC manufacturing which are toxic, flammable, corrosive, or reactive are
classified by federal and state governments as "hazardous materials." Finally,
local ordinances are and may from time to time be considered and adopted which
restrict the use of PWC to specified hours and locations.
For a more detailed description of the above risks related to Polaris'
business, see "Business -- Product Safety and Regulation."
INFORMAL SUPPLY ARRANGEMENTS
Pursuant to informal agreements between Polaris and Fuji Heavy Industries in
Japan ("Fuji"), Fuji has been the exclusive manufacturer of the Polaris two
cycle snowmobile engines since 1968. Fuji has manufactured engines for Polaris'
ATV products since their introduction in the spring of 1985 and
24
<PAGE>
also supplies engines for the PWC products. Such engines are developed by Fuji
to the specific requirements of Polaris. In the fall of 1987, Fuji became a
Partnership investor. Polaris believes its relationship with Fuji to be
excellent. With the absence of a written agreement, if the informal relationship
were terminated by Fuji, Polaris may be unable to enforce any rights, and
interruption in the supply of engines would adversely affect Polaris' production
pending the establishment of substitute supply arrangements. Currently, Polaris
is in the process of investigating manufacturing alternatives for its engines to
reduce the risk of dependence on a single supplier and to minimize the effect of
fluctuations in the Japanese yen. Polaris anticipates no significant
difficulties in obtaining substitute supply arrangements for other raw materials
or components for which it relies upon limited sources of supply. There can be
no assurance that alternate supply arrangements will be made on satisfactory
terms.
COMPETITION
The snowmobile, ATV and PWC markets in the United States and Canada are
highly competitive. Competition in such markets is based upon a number of
factors, including price, quality, reliability, styling, product features and
warranties. At the dealer level, competition is based on a number of factors
including sales and marketing support programs (such as financing and
cooperative advertising). Certain of Polaris' competitors are more diversified
and have financial and marketing resources which are substantially greater than
those of Polaris. In addition, Polaris' products compete with many other
recreational products for the discretionary spending of consumers, and, to a
lesser extent, with other vehicles designed for utility applications.
EFFECTS OF WEATHER
Lack of snowfall in any year in any particular region of the United States
or Canada may adversely affect snowmobile retail sales in that region. Polaris
seeks to minimize this potential effect by stressing pre-season sales and
shifting dealer inventories from one location to another. However, there is no
assurance that weather conditions would not have a material effect on Polaris'
sales of snowmobiles, ATVs or PWC.
PRODUCT LIABILITY
Product liability claims are made against Polaris from time to time. Since
its inception in 1981 through September 30, 1994, Polaris has paid an aggregate
of less than $1.4 million in product liability claims and had accrued $4.4
million at September 30, 1994, for the possible payment of pending claims.
Polaris believes such accruals are adequate. Polaris does not believe that the
outcome of any pending product liability litigation will have a material adverse
effect on the operations of Polaris. However, no assurance can be given that its
historical claims record, which did not include PWC prior to 1992, will not
change or that material product liability claims against Polaris will not be
made in the future.
Polaris' product liability insurance limits and coverages have been
adversely affected by the general decline in the availability of liability
insurance. As a result of the high cost of premiums and in view of the
historically small amount of claims paid by Polaris, Polaris has been
self-insured since June 1985. Adverse determination of material product
liability claims made against Polaris would have a material adverse effect on
Polaris' financial condition.
WARRANTIES AND PRODUCT RECALLS
Polaris warrants its snowmobiles, ATVs and PWC under a "limited warranty"
for a period of one year, six months, and one year, respectively. For certain of
its products, Polaris also offers for sale to its consumers an extended warranty
contract for an additional one-year period. Although Polaris employs quality
control procedures, a product is sometimes distributed which needs repair or
replacement. Historically, product recalls have been administered through
Polaris' dealers and distributors and have not had a material effect on Polaris'
business.
25
<PAGE>
THE CONVERSION
THE PARTNERSHIP
The Partnership was formed under the Delaware Revised Uniform Limited
Partnership Act on April 7, 1987 for the purpose of acquiring, through the
Operating Partnership, substantially all of the business and assets of Polaris'
predecessor, Northwestern. The acquisition took place on September 9, 1987.
Concurrently with the acquisition, the Partnership completed a public offering
of $110 million of BACs. The funds received from the public offering were used
by the Operating Partnership to acquire an 80% undivided interest in
substantially all of the assets of Northwestern. The remaining 20% was
contributed by Northwestern to the Operating Partnership in exchange for
additional BACs and Class B BACs (which have since been converted into BACs).
The primary objectives of the Partnership are: (i) cash distributions from
the operations of the Partnership sufficient to provide BAC Holders with not
less than a 12% cumulative, noncompounded annual return on the initial purchase
price of the BACs (as reduced by any distributions from sales and refinancings
of the property of the Partnership), (ii) capital appreciation as a result of
expanding distributable cash flow and (iii) preservation and protection of the
Partnership's capital. Based on the history of the Partnership's distributions
and recent sale prices for the BACs, management believes that it has to date
achieved these objectives. Distributions to BAC Holders have remained relatively
constant during the past three years and it is unlikely that the Partnership
will increase the present level of cash distributions (i.e. $2.52 per BAC per
annum) even if Polaris' taxable income was to continue to increase, because
financing Polaris' continued growth could be expected to require reinvesting
significant amounts of cash in the business. See "Market Prices and
Distributions."
Neither the Sponsors nor the General Partner believe that the Partnership
has experienced any material adverse financial developments since December 31,
1993, and are not aware of any fact that would make it likely that the
Partnership will experience any material adverse financial developments in the
forseeable future.
BACKGROUND OF THE CONVERSION
Pursuant to amendments to the Internal Revenue Code of 1986 (as amended, the
"Code") adopted in 1987 and a transition rule adopted thereunder (collectively,
the "1987 Code Amendments"),the Partnership will be treated as a corporation for
federal income tax purposes subsequent to December 31, 1997 if the BACs continue
to be publicly traded. From time to time, certain members of the senior
operating management of the Operating Partnership have considered and discussed
with various representatives of the General Partner what actions to take in
response to the 1987 Code Amendments including the possibility of converting the
Partnership to a corporation. See "The Conversion -- Reasons for the Conversion
- -- Changes in Tax Status of the Partnership."
Commencing in early 1994, certain members of the senior operating management
held a series of discussions with various investment banking firms, including
Smith Barney Inc. ("Smith Barney"), regarding various strategic alternatives
available to Polaris, including, but not limited to, the conversion of the
Partnership to a corporation. During 1994, Smith Barney made several
presentations to the senior operating management of the Operating Partnership
and representatives of the General Partner and delivered certain written
materials to such parties analyzing alternatives to the Conversion. Such
alternatives are more fully described under "The Conversion -- Alternatives to
the Conversion" below.
In June and July 1994, representatives of Smith Barney and certain members
of the senior operating management had several discussions with Victor K.
Atkins, Jr., who is the President and principal shareholder of EIPCC (the
managing general partner of the General Partner) and the individual general
partner of the General Partner, in which it was proposed to Mr. Atkins that the
General Partner pursue a conversion of the Partnership to corporate form in
which the Partnership would incur indebtedness and BAC Holders and the General
Partner and its affiliates would receive a one-time taxable cash distribution,
as well as stock in the new corporation, for their interests in the
26
<PAGE>
Partnership. During these discussions, Mr. Atkins stated that he would consider
the proposal and suggested he needed additional time to do so. In addition, Mr.
Atkins stated that he would continue to study other alternatives and indicated
that he believed it desirable to continue to seek relief for the Partnership
from the 1987 Code Amendments so that the Partnership could remain a partnership
and be treated as a partnership for federal income tax purposes after 1997.
At a meeting on July 29, 1994 between Mr. Atkins and representatives of
Smith Barney, Mr. Atkins stated that he thought a conversion of the Partnership
to corporate form might be advisable and deserved further consideration and
study. However, he said that he did not believe he was in a position to propose
a conversion pending the resolution of a lawsuit brought on March 5, 1993
against him, EIPCC, Paul Bagley (a director of EIPCC) and others by Lehman
Brothers Inc. ("Lehman Brothers"), the owner of a limited partner interest in
the General Partner. Lehman Brothers had initiated such litigation to challenge
Mr. Atkins' control over, and equity ownership in, the General Partner.
Settlement discussions between Mr. Atkins and Lehman Brothers commenced in July
1994, at which time the discovery phase of the litigation had ended and the
parties were preparing for trial. Mr. Atkins also indicated that he felt it
would be preferable for the longer-term interests of BAC Holders and the
successor entity that any conversion be accomplished on an equity-only, as
opposed to a leveraged, basis. See "Management -- Directors and Executive
Officers of EIPCC."
On July 29, 1994, Mr. Wendel advised Mr. Atkins, telephonically, that Mr.
Wendel and other members of the senior operating management favored a conversion
of the Partnership in which BAC Holders and the General Partner and its
affiliates would receive a one-time cash distribution and stock in the new
corporation. At that time, Mr. Atkins reiterated the position which he had
conveyed earlier to Smith Barney regarding the litigation with Lehman Brothers
and the form of the transaction.
On August 11, 1994, representatives of Smith Barney met with a
representative of Lehman Brothers to advise Lehman Brothers of Smith Barney's
discussions with members of the senior operating management and Mr. Atkins. The
Lehman Brothers representative, while noting that Lehman Brothers did not
control the General Partner, said that Lehman Brothers would not oppose a
conversion of the Partnership, provided that such conversion was in the best
interests of BAC Holders and that upon such conversion the General Partner and
its affiliates would receive fair and adequate consideration for their interests
in the Partnership.
During the period between August 12, 1994 and August 22, 1994, Mr. Wendel
and Smith Barney had discussions regarding the views of the General Partner and
the terms of an engagement of Smith Barney by Mr. Wendel and possibly other BAC
Holders if a consensual plan of conversion with the General Partner could not be
effected.
On August 23, 1994, Mr. Wendel and other members of the senior operating
management, together with legal and financial advisors, met with Mr. Atkins and
representatives of Lehman Brothers and the Partnership's legal advisor. Mr.
Wendel outlined to the General Partner the basis for management's belief that a
conversion of the Partnership to a corporation would be desirable at the present
time. Mr. Wendel and his advisors then suggested to the General Partner that
such conversion be accomplished in a transaction in which BAC Holders and the
General Partner and its affiliates would each receive a one-time taxable cash
distribution as well as stock in the corporation surviving the transaction. Mr.
Wendel said that if the General Partner would not support such a conversion
transaction, the Sponsors intended to propose such a transaction directly to BAC
Holders. Representatives of the General Partner and Lehman Brothers agreed that
converting the Partnership into a corporation was desirable at the present time,
but they disagreed with the method proposed for accomplishing such conversion.
The General Partner then proposed that the conversion be accomplished in a
transaction in which BAC Holders and the affiliates of the General Partner
receive only stock in the surviving corporation. The General Partner stated such
a method was preferable to the leveraged transaction proposed by Mr. Wendel. See
"The Conversion -- Alternatives to the Conversion." Mr. Wendel and other members
of the senior operating management agreed to consider an all-equity conversion.
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<PAGE>
On August 24 and 25, 1994, Mr. Wendel and John F. Grunewald, Executive Vice
President, Finance and Administration of Polaris, together with Smith Barney and
their respective legal advisors, met with Mr. Atkins, representatives of Lehman
Brothers and the Partnership's legal advisors. At that time, Mr. Wendel proposed
to the representatives of the General Partner that (i) the Partnership be
converted to a corporation in a transaction in which BAC Holders and the
affiliates of the General Partner would receive only equity in the corporation
surviving the transaction and (ii) consummation of the transaction be
conditioned upon receipt of approval of the Conversion Proposal by BAC Holders
and the receipt by the Partnership of an opinion of counsel to the effect that
the receipt of such equity by BAC Holders and affiliates of the General Partner
would be tax free for federal income tax purposes. Mr. Wendel in consultation
with his advisors and consultants then negotiated with the representatives of
the General Partner concerning the appropriate percentage allocation of the
surviving corporation's equity between BAC Holders and the General Partner and
its affiliates. After extensive negotiations, based in part on the General
Partner's and the Operating General Partner's interests in distributions from
the Partnership and the Operating Partnership, respectively, as described under
"Existing Economic Interests of the Partners" below, and the $500,000 management
fee that the Partnership has paid EIPCC annually since the Partnership's
inception, the parties ultimately agreed that BAC Holders together with holders
of previously granted First Rights outstanding at the time of such Conversion
would receive 88.6% of the stock of the surviving corporation (including upon
exercise of such First Rights) and the affiliates of the General Partner would
receive the remaining 11.4% in exchange for their interests in the General
Partner and its affiliates (after giving effect to exercise of such First
Rights). On behalf of the Partnership, Smith Barney was engaged as financial
advisor and Smith Barney orally advised the Partnership that the consideration
to be received by BAC Holders in the proposed transaction was fair, from a
financial point of view, to BAC Holders. The General Partner also advised Mr.
Wendel that its willingness to proceed with the proposed transaction was
conditioned upon receipt of a fairness opinion from a second investment banking
firm.
On August 25, 1994, all parties to the action commenced by Lehman Brothers
described above entered into a settlement agreement pursuant to which the action
was subsequently dismissed with prejudice. See "Management -- Directors and
Executive Officers of EIPCC."
On August 25, 1994, Mr. Wendel and Mr. Atkins entered into an agreement
providing, among other things, that (i) each of Mr. Atkins and Mr. Wendel will
vote their BACs in favor of the Conversion, (ii) subject to his fiduciary duties
as advised by counsel, Mr. Atkins will work diligently to proceed with the
Conversion and submit the Conversion Proposal to BAC Holders for their approval
as soon as possible, (iii) each of Mr. Atkins and Mr. Wendel will use his best
efforts to see that the business and affairs of Polaris will be conducted and
distributions will be made only in the ordinary course and consistent with past
practice and (iv) for so long as Mr. Atkins owns no less than 3% of the
outstanding Common Stock of the Corporation, he will vote such securities in
favor of the Corporation's nominees for election to its Board of Directors. In
addition, the agreement states that it is understood that Mr. Atkins does not
desire to and will not serve as an officer or director of the Corporation or its
subsidiaries following consummation of the Conversion. On the same day, the
Partnership issued a press release announcing its intention to undertake a plan
of conversion.
On August 29, 1994, representatives of the General Partner and counsel for
the Partnership and the Sponsors discussed with representatives of Lazard Freres
& Co. ("Lazard") the possibility of Lazard being engaged to render an opinion as
to the fairness, from a financial point of view, of the consideration to be
received in the Conversion to BAC Holders. On September 14, 1994, a
representative of Lazard advised representatives of the General Partner and
counsel to Smith Barney that Lazard had decided not to accept the possible
engagement. At no time did Lazard express any opinion as to the fairness or lack
of fairness of the consideration to be received in the Conversion, from a
financial point of view or otherwise.
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<PAGE>
On September 16, 1994, Dillon Read was engaged by the Partnership to render
its opinion to the Partnership as to the fairness, from a financial point of
view, to BAC Holders of the consideration to be received by BAC Holders in the
Conversion. See "The Conversion -- Fairness Opinions."
In order to attempt to ease the transition between primarily income-oriented
investors in the Partnership and the growth-oriented and institutional investors
expected to invest in the Corporation following the Conversion, representatives
of the Sponsors and Smith Barney met with representatives of the General Partner
during the week of September 19 to discuss the anticipated dividend policy of
the Corporation after the Conversion. They concluded that it would be in the
best interests of current and future security holders of the Partnership and the
Corporation that there be some continuation of cash dividends for three calendar
quarters after the Conversion at a level approximating that of the cash
distributions which the Partnership has paid in recent years. In this regard,
the General Partner and the Sponsors agreed that some degree of leverage for the
Corporation would be appropriate if necessary in connection therewith. See
"Market Prices and Distributions."
REASONS FOR THE CONVERSION
The Sponsors and the General Partner believe that the following are the
principal reasons to consummate the Conversion at this time. These factors are
closely interrelated, and relative weights were not assigned to them.
CHANGES IN TAX STATUS OF THE PARTNERSHIP. The Partnership currently is
treated as a partnership for federal income tax purposes under a grandfather
provision of the 1987 Code Amendments. Assuming no cessation of trading of BACs,
under the 1987 Code Amendments, this tax treatment ends immediately if the
Partnership engages in a substantial new line of business, and in any event,
ends on December 31, 1997, after which the Partnership will be treated as a
corporation for federal income tax purposes. Thus, under current law, the
principal advantage of conducting business as a publicly traded partnership will
cease for the Partnership on December 31, 1997 unless the Partnership takes
action to prevent trading in BACs thereafter or unless such provision is
eliminated or extended. The General Partner has participated in efforts to have
the grandfather protection made permanent or further extended, but these efforts
have been inconclusive. Such efforts, in which the General Partner has ceased to
participate, may or may not be successful in the future.
The General Partner and the Sponsors did not consider delisting the BACs
from the American Stock Exchange and the Pacific Stock Exchange, prohibiting the
transfer of BACs, except in very limited circumstances, and otherwise reducing
liquidity an advantageous way to preserve the tax status of the Partnership. The
General Partner and the Sponsors also did not believe that continuing to operate
as a partnership while being taxed as a corporation after 1997 would be
advantageous to BAC Holders. Instead, the General Partner and the Sponsors
believe that it is advantageous for the Partnership to convert to corporate form
now because: (i) the Conversion will resolve uncertainty about the Partnership's
future tax and organizational status, which uncertainty necessarily would
otherwise increase as December 31, 1997 approaches, (ii) the receipt of shares
in the Conversion can be effected on a tax-free basis under current law and
(iii) the Conversion is facilitated by the Partnership's strong financial
performance, currently favorable equity market conditions generally and other
factors set forth below. Accordingly, the General Partner and the Sponsors
believe that it is advantageous for the Partnership to convert to corporate form
at the present time rather than postpone such a transaction until 1997 and that
any potential benefit derived from maintaining the Partnership's current form is
outweighed by the (i) long-term benefits to be derived from the Conversion and
(ii) the risk that postponing such a conversion until a later date, when many
partnerships losing the benefit of the grandfather provision similarly are
expected to convert to corporate form, could result in the Partnership's
inability to consummate such a transaction in an orderly manner under favorable
circumstances.
PROPOSED DISTRIBUTION EQUIVALENCY. The Conversion is not expected to
adversely affect the anticipated amount of cash distributions to be received by
investors through 1997. After the Conversion and subject to legal and
contractual limitations and the financial requirements of the business,
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<PAGE>
the Sponsors intend to recommend that the Corporation's Board of Directors pay
the Proposed Distributions of $0.15 per share per quarter and three special cash
distributions, each of $1.92 per share, payable during the last three quarters
of 1995 (reduced to the extent that any cash distributions declared and paid by
the Partnership after January 1, 1995 exceed, on a quarterly basis, $0.15 per
BAC). Assuming the Corporation makes such distributions, each BAC Holder who
continues to hold Common Stock received in the Conversion through 1997 will
receive from the Partnership and the Corporation cash distributions and
dividends during the period commencing January 1, 1995 and ending December 31,
1997 equal in amount to cash distributions ($7.56 per BAC) that BAC Holders
would have received from the Partnership had the Conversion not occurred and the
Partnership maintained its existing distribution policy. The Sponsors believe
that the Proposed Distributions should ease the transition in the Corporation's
ownership between primarily income-oriented investors in the Partnership and the
growth-oriented and institutional investors that are expected to invest in the
Corporation. See "Market Prices and Distributions."
ANTICIPATED REDUCTION OF PARTNERSHIP TAX BENEFIT TO INVESTORS. The tax
benefits to BAC Holders of the Partnership continuing to operate in partnership
form (i.e. one level of income tax) are anticipated to diminish over time.
Distributions to BAC Holders have remained relatively constant during the past
three years and the Partnership has no present intention of increasing the
present level of cash distributions even if its taxable income continues to
increase, because Polaris' continued growth could require reinvesting
significant amounts of cash in its business. Accordingly, absent the Conversion,
assuming income growth continues in 1994 and subsequent years, BAC Holders will
be required for such years to report and pay tax on their share of the
Partnership's taxable income, which could exceed, by a substantial amount, the
amount of their cash distributions. The disparity between taxable income and
cash distributions is expected to increase for the forseeable future, and will
be greater for those BAC Holders that have held BACs for longer periods of time
and purchased their BACs at lower prices. Increases in taxable income are likely
to correspond to increases in book income of the Partnership which, for the
nine-month period ended September 30, 1994, increased by over 50% compared to
the same period in 1993.
GREATER ACCESS TO CAPITAL MARKETS AND EXPANSION OF INVESTOR BASE. The
General Partner and the Sponsors expect the Corporation will benefit from a
simpler and more readily understandable capital structure which should result in
greater access to capital markets than the Partnership, potentially enabling the
Corporation to raise capital on more favorable terms than are now available to
the Partnership. In this regard, the General Partner and the Sponsors expect
that the Conversion should ultimately expand Polaris' potential investor base to
a broader array of investors (e.g. pension plans, mutual funds and other
institutional investors) that do not typically invest in publicly traded limited
partnership securities because of various tax and administrative reasons. In
addition, the General Partner and the Sponsors anticipate that the Common Stock
(as compared to the BACs) should receive broadened investor interest through
increased review and evaluation by investment research analysts. Although there
can be no assurance in this regard, such factors should result in greater
activity and liquidity for the Common Stock, as compared to the BACs.
ENHANCED GROWTH POTENTIAL. The General Partner and the Sponsors believe
that current industry conditions may provide opportunities for Polaris to grow
through acquisitions of businesses and assets. In certain cases, Polaris may
want to be able to issue equity securities in payment of the purchase price for
such acquisitions, and the General Partner and the Sponsors believe that in
certain circumstances an equity interest in a corporation will be a more
attractive acquisition currency to prospective sellers than BACs. From time to
time Polaris contacts, and is contacted by, others concerning the acquisition by
Polaris of assets of others in complementary lines of business. Occasionally,
the sellers might have been willing to consider receiving equity of Polaris in
payment of the asset purchase price if Polaris were reorganized as a
corporation. None of these potential transactions progressed to the stage of an
agreement in principle and no discussions are currently taking place concerning
the issuance of Polaris' equity in payment of the purchase price of businesses
or assets.
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ABILITY TO DIVERSIFY. Under current tax laws, the Partnership is unable to
enter into new lines of business without having to operate such businesses under
substantial constraints (if it is to maintain its partnership tax status). By
converting to corporate form, Polaris should have the ability, when appropriate,
without constraint insofar as current tax laws are concerned, to enter into new
lines of business that may present favorable opportunities, although the
Partnership currently has no specific plans to enter into new lines of business.
Polaris believes the advantages of doing business in corporate form are
demonstrated by the fact that Polaris is one of the few remaining manufacturing
concerns in the United States organized as a publicly traded partnership.
TAX REPORTING. The General Partner and the Sponsors believe that the
complexities of tax reporting associated with partnership investments are
regarded as unduly burdensome by many BAC Holders under current conditions,
although there are proposals before Congress to simplify the procedures and
eliminate the Schedule K-1 reporting requirement. The ownership of Common Stock
rather than BACs will greatly simplify reporting with respect to an investment
in Polaris on each BAC Holder's individual federal and state income tax returns
for future years and will avoid the current requirement of multi-state income
tax filings. Furthermore, such simplification of Polaris' organizational
structure and tax reporting also will result in administrative and cost savings
to the Corporation.
DIRECT ELECTION OF THE BOARD OF DIRECTORS. The Partnership is managed by
the General Partner, which is in turn managed by the Managing General Partner.
BAC Holders do not participate in the election of the Board of Directors of the
Managing General Partner. After the Conversion, the Corporation will be managed
by the Corporation's Board of Directors, which will be elected directly by the
holders of Common Stock. As a result, holders of Common Stock will have an
opportunity to evaluate, on an annual basis, the performance of the Corporation
and to vote their shares for the election of directors accordingly, subject to
the limitations on election and removal of the Board of Directors due to the
staggered nature of the Board of Directors of the Corporation and subject to the
agreement between Mr. Atkins and Mr. Wendel with respect to the voting of shares
held by Mr. Atkins. See "Comparative Rights of BAC Holders and Holders of Common
Stock" and "Description of Capital Stock."
FOR THE REASONS SET FORTH BELOW UNDER "RECOMMENDATION OF THE GENERAL PARTNER
AND THE SPONSORS," THE GENERAL PARTNER AND THE SPONSORS BELIEVE THE CONVERSION
IS FAIR TO BAC HOLDERS. THE GENERAL PARTNER AND THE SPONSORS RECOMMEND THAT BAC
HOLDERS VOTE "FOR" THE CONVERSION PROPOSAL.
STRUCTURE OF THE CONVERSION
Pursuant to the terms of the Merger Agreement, if the Conversion Proposal is
approved by BAC Holders and the other conditions thereto are satisfied or
waived, the Conversion will be effected as described below. Each of the
following steps is part of an integrated transaction, and all such steps must be
completed to effect the Conversion.
MERGER OF PICC WITH EIPCC. PICC, which is the managing general partner of
the Operating General Partner, will be merged with and into EIPCC. As a result,
EIPCC will become the managing general partner of the Operating General Partner.
TRANSFER OF EIPCC COMMON STOCK TO THE CORPORATION. The stockholders of
EIPCC will transfer all of their shares of EIPCC common stock to the Corporation
in exchange for shares of Common Stock. As a result, EIPCC will become a wholly
owned subsidiary of the Corporation and the former owners of EIPCC will own
shares of Common Stock.
TRANSFER OF INTERESTS IN THE GENERAL PARTNER TO THE CORPORATION. The owners
of partnership interests in the General Partner, other than EIPCC, will transfer
their partnership interests in the General Partner to the Corporation in
exchange for shares of Common Stock. As a result, the Corporation will directly
and indirectly (through EIPCC) own all of the partnership interests in the
General Partner, and the former owners of the General Partner, other than EIPCC,
will own shares of Common Stock.
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TRANSFER OF INTERESTS IN THE OPERATING GENERAL PARTNER TO THE
CORPORATION. The owners of partnership interests in the Operating General
Partner, other than EIPCC, will transfer their partnership interests to the
Corporation in exchange for shares of Common Stock. As a result, the Corporation
will directly and indirectly (through EIPCC) own all of the partnership
interests in the Operating General Partner, and the former owners of the
Operating General Partner, other than EIPCC, will own shares of Common Stock.
FORMATION OF TRANSITORY PARTNERSHIP. The Corporation will form a new
Delaware limited partnership (the "Transitory Partnership"), with itself as a
limited partner and EIPCC as a general partner.
MERGER. Pursuant to the terms of the Merger Agreement, the Transitory
Partnership will be merged with and into the Partnership, with the Partnership
as the surviving partnership. At the Effective Time of the Merger (as defined
below under "-- Effective Time"), each outstanding BAC (other than BACs held by
persons who have exercised Appraisal Rights) will automatically be exchanged for
one share of Common Stock, and each previously granted First Right will
automatically be converted into the right to receive one share of Common Stock.
As a result of the Merger, the Corporation and EIPCC will be limited partners of
the Partnership, and the General Partner will remain general partner of the
Partnership.
MERGER OF THE OPERATING GENERAL PARTNER AND THE OPERATING PARTNERSHIP WITH
PARTNERSHIP. The Operating Partnership and the Operating General Partner will
be merged with and into the Partnership. As a result the Partnership will own
the business and operations of the Operating Partnership and the Corporation
will become a general partner in the Partnership and EIPCC's general partnership
interest in the Operating Partnership will be converted into a limited
partnership interest in the Partnership.
CONTINUATION OF THE PARTNERSHIP, THE GENERAL PARTNER AND EIPCC. As a result
of the Conversion, the Corporation will directly and indirectly (through EIPCC
and the General Partner) own all of the general and limited partnership
interests in the Partnership. For a period of at least two years after the date
the Conversion is consummated, the Corporation will keep the Partnership, the
General Partner and EIPCC in existence and will not cause the Partnership or the
General Partner to cease being treated as a partnership for federal income tax
purposes.
As a result of the foregoing transactions, (i) the Corporation will,
directly and indirectly, own 100% of the Partnership and will conduct the
business and operations of Polaris after the Conversion, and (ii) BAC Holders
and holders of previously granted First Rights will receive, in exchange for
their BACs and upon exercise of such First Rights, as the case may be, 88.6% of
the Common Stock of the Corporation, and affiliates of the General Partner will
receive, in exchange for their interests in the General Partner and its
affiliates, the remaining 11.4% of the Common Stock of the Corporation, after
giving effect to the exercise of such First Rights.
The transaction was structured as described above for the following reasons:
(i) The integrated transaction including, in particular, formation and
existence of the Transitory Partnership and its subsequent merger with and into
the Partnership, provides a means of assuring that, upon approval of the
Conversion Proposal by BAC Holders, all BAC Holders (other than those exercising
Appraisal Rights) would participate in the exchange of their BACs for shares of
Common Stock and the Partnership and all its affiliated entities would either be
dissolved or directly or indirectly wholly owned by the Corporation.
(ii) For federal income tax purposes, the Merger will be treated as an
exchange by BAC Holders of their BACs for shares of Common Stock in a tax-free
transaction qualifying under Section 351 of the Code. As a result of such
treatment, the tax basis of the Partnership's assets following the Conversion
will be increased to reflect each BAC Holder's tax basis in its BACs, resulting
in substantial additional
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depreciation deductions to the Corporation after the Conversion. See "Certain
Federal Income Tax Considerations -- General Tax Treatment of the Merger and
Issuance of Common Stock" and "-- Tax Consequences to the Corporation and the
Partnership."
(iii) Legislation has been proposed that in certain circumstances would tax
the distribution of marketable securities by a partnership. Although this
provision is not directed at the type of transaction being proposed, structuring
the transaction in the manner described above provides additional assurance that
the provisions of the proposed legislation, if enacted, will not apply to the
issuance of shares of Common Stock to BAC Holders and affiliates of the General
Partner. See "Certain Federal Income Tax Considerations -- Proposed
Legislation."
EXISTING ECONOMIC INTERESTS OF THE PARTNERS
Currently, BAC Holders, the General Partner and an affiliate, through their
interests in the Partnership, and the Operating General Partner have rights to
quarterly distributions of the proceeds of available cash flow from operations
of the Operating Partnership and the proceeds of certain capital transactions by
the Operating Partnership.
BAC Holders and the General Partner and its affiliate, the Operating General
Partner, currently receive quarterly distributions of Cash Available for
Distribution (generally cash flow from operations and sales of assets or
refinancings, after deducting such reserves as the General Partner, in its sole
discretion, determines to be necessary for Partnership expenses, debt payments,
capital improvements, replacements and contingencies) in the following manner:
<TABLE>
<CAPTION>
INTERESTS OF GENERAL
INTERESTS OF PARTNER AND ITS
CASH AVAILABLE FOR DISTRIBUTION BAC HOLDERS AFFILIATES
- ------------------------------------------------------- --------------- -------------------------
<S> <C> <C>
Net Cash From Operations............................... 79.2% 20.8%
Net Cash from Sales or Refinancings (after return of
capital to BAC Holders of $10 per BAC)................ 98.0% 2.0%
</TABLE>
The Operating General Partner receives 1% of all distributions (from
operations and from sales and refinancings) from the Operating Partnership.
Currently, the General Partner receives 20% and BAC Holders receive 80% of Net
Cash From Operations (as defined in the Partnership Agreement) from the
Partnership, after the 1% distribution to the Operating General Partner, so long
as distributions to BAC Holders have provided them with a 15% per annum
cumulative, noncompounded yield on the adjusted initial issuance price of BACs.
The percentages in the above table reflect the various interests of the General
Partner and its affiliates in these distributions. The 20.8% interest of the
General Partner and its affiliates in Net Cash From Operations is derived by
adding the 1% received by the Operating General Partner of Net Cash From
Operations plus 20% of the remaining 99% of Net Cash From Operations
distributable to the General Partner and the BAC Holders. After the 1%
distribution to the Operating General Partner, the General Partner also receives
1% and BAC Holders receive 99% of Net Cash From Sales or Refinancings (as
defined in the Partnership Agreement) from the Partnership after BAC Holders
have received a return of the initial adjusted issuance price of the BACs ($10
per BAC after giving effect to the two-for-one split in 1993).
If distributions from the Partnership at any time do not provide BAC Holders
with the specified return, distributions would be made instead 1% to the General
Partner and 99% to BAC Holders until BAC Holders had received the specified
return. Based on BAC Holders' prior distributions, current level of return and
on the Partnership's business, results of operations and financial condition,
the General Partner does not expect BAC Holders' return to fall below the
specified return in the foreseeable future. Consequently, the General Partner
should continue to receive 20% of cash distributions by the Partnership for the
foreseeable future. See "Comparative Rights of BAC Holders and Holders of Common
Stock -- Distributions and Dividends -- BACs."
Distributions and fees to the General Partner and its affiliates, including
EIPCC, totalled approximately $10.3 million in 1993 and will exceed $11 million
in 1994. EIPCC, the managing general
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partner of the General Partner, has been paid an annual management fee of
$500,000 and has been entitled to be reimbursed for certain expenses since the
Partnership's inception. These arrangements and payments will end upon
consummation of the Conversion.
In addition, if the General Partner is removed without cause, it can compel
its successor to purchase its General Partner interest at "fair market value."
For a definition of "fair market value," see "Comparative Rights of BAC Holders
and Holders of Common Stock -- Removal of General Partner and Directors of the
Corporation -- BACs."
Upon the formation of the Partnership and the Operating Partnership, the
General Partner and the Operating General Partner each made $100 in capital
contributions for their respective partnership interests. The General Partner
and the Operating General Partner received their respective general partnership
interests in exchange for structuring and completing the acquisition of Polaris
by the Partnership and acting in the roles of general partners of the
Partnership and the Operating Partnership, in which roles the general partners
were responsible for the management of the respective partnerships and assumed
unlimited liability for all partnership obligations (including, in the case of
Mr. Atkins, the individual general partner of the general partners, unlimited
personal liability).
BENEFIT PLANS AFTER THE CONVERSION
Except as required to accommodate the change to corporate form, all of the
existing employee benefit plans of the Partnership and the Operating Partnership
are expected to be adapted for use by the Corporation on substantially the same
terms. The employee benefit plans of the Partnership and Operating Partnership
in effect at the date that the Conversion is consummated will, to the extent
practicable, remain in effect until otherwise determined by the Corporation. In
the case of benefit plans which are continued and under which the employees'
interests are based upon BACs, such interests shall be based on Common Stock in
an equitable manner.
Without limiting the generality of the foregoing, upon the Conversion, each
of the previously granted First Rights representing the right to receive BACs
under an employee benefit plan, whether vested or unvested, will be deemed to
constitute the right to receive on the same terms and conditions as were
applicable under such First Rights, the same number of shares of Common Stock as
the holder of such First Rights would have been entitled to receive pursuant to
the Merger had such holder received BACs upon exercise of such First Rights
immediately prior to the Merger.
ALTERNATIVES TO THE CONVERSION
As discussed above under "The Conversion -- Background of the Conversion,"
the Conversion was proposed to the General Partner by the Sponsors. The General
Partner participated in determining the structure of the Conversion and
recommends that BAC Holders vote to approve the Conversion Proposal. See "The
Conversion -- Recommendation of the General Partner and the Sponsors" below.
The alternatives to the Conversion that were considered by the Sponsors
were: (a) continuance of the Partnership with no cessation of trading, (b)
continuance of the Partnership and cessation of trading before 1998, (c)
conversion of the Partnership, with a single cash and stock distribution, (d)
conversion by liquidation, (e) a management buyout or other strategic sale of
the Partnership and (f) liquidation and winding up of the Partnership. The
alternatives to the Conversion that were considered by the General Partner, in
addition to (a), (b), (c) and (f) were: (g) continuance of the Partnership, with
cessation of trading and an exchange offer of stock in a new corporate limited
partner, (h) continuance of the Partnership, with cessation of trading and an
exchange offer of debt securities and (i) a conversion pursuant to Section 17.5
of the Partnership Agreement
CONTINUANCE OF THE PARTNERSHIP; NO CESSATION OF TRADING. The Sponsors and
the General Partner believe that the Conversion is a more beneficial alternative
to BAC Holders than the continuance of the Partnership in its current form and
that any benefit derived through the Partnership's current
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form are outweighed by the potential long term benefits anticipated to be
derived from the Conversion. Under current law, after December 31, 1997, absent
a cessation of trading, the Partnership would be treated as a corporation for
tax purposes. See "The Conversion -- Reasons for the Conversion" above.
CONTINUANCE OF THE PARTNERSHIP; CESSATION OF TRADING. The Sponsors and the
General Partner considered continuing the Partnership and, before January 1988,
delisting the BACs from the American Stock Exchange and Pacific Stock Exchange
and prohibiting, except in very limited circumstances, transfers of BACs. Such a
transaction would create a private security with virtually no liquidity or
trading market value, but would preserve the current tax status of the
Partnership after December 31, 1997. The Sponsors and the General Partner
believed that the loss of liquidity resulting from such an alternative would be
adverse to the interests of BAC Holders and the Partnership and therefore did
not pursue such a transaction.
CONTINUANCE OF THE PARTNERSHIP; CESSATION OF TRADING AND EXCHANGE OFFER OF
STOCK IN NEW CORPORATE LIMITED PARTNER. The General Partner considered
continuing the Partnership and, before January 1998, delisting the BACs and,
except in very limited circumstances, prohibiting the transfer of BACs. At the
same time, a new corporate limited partner would be admitted to the Partnership
and BAC Holders would be given the opportunity to exchange their BACs for
publicly traded shares of common stock in such corporation. However, exchanging
BAC Holders would forego the potential future tax benefits associated with an
investment in a partnership, and non-exchanging BAC Holders would be left with
little, if any, liquidity. In addition, the General Partner believed that this
alternative would further complicate rather than simplify the capital structure
of the Partnership and would not provide the benefits of operating in corporate
form described under "The Conversion -- Reasons for the Conversion."
CONTINUANCE OF THE PARTNERSHIP; CESSATION OF TRADING AND EXCHANGE OFFER OF
DEBT SECURITIES. The General Partner considered continuing the Partnership and,
before January 1998, delisting the BACs and, except in very limited
circumstances, prohibiting the transfer of BACs. At the same time, BAC Holders
would be given the opportunity to exchange their BACs for publicly traded debt
securities of the Partnership. Although such a transaction would preserve the
current tax status of the Partnership, the General Partner believed that it
would not be optimal in that the Partnership could have burdensome leverage, the
exchange might have adverse tax consequences to the electing BAC Holders, there
could be no assurance of a liquid market in the debt securities, the
non-exchanging BAC Holders would have little, if any, liquidity and such a
transaction would generally not provide the benefits of operating in corporate
form described under "The Conversion -- Reasons for the Conversion."
CONVERSION TO CORPORATION WITH CASH AND STOCK. The Sponsors proposed to the
General Partner that the Partnership be converted to a corporation in a
transaction in which BAC Holders and the affiliates of the General Partner, in
exchange for their respective interests in the Partnership, would each receive a
one-time cash distribution, as well as stock in the corporation surviving the
transaction. The Sponsors proposed that the cash distribution be paid to BAC
Holders, the General Partner and its affiliates in accordance with their
respective economic interests and that the stock be distributed in accordance
with the respective capital accounts of the partners. The General Partner felt
that such a transaction would result in the successor corporation being burdened
at the outset with significant indebtedness to pay such a one-time cash
distribution and would reduce financial flexibility for the successor
corporation going forward. In addition, the General Partner was concerned that
the distribution would, in effect, be fully taxable to BAC Holders and the
General Partner and its affiliates and did not believe that the proposed terms
recognized the fair value of the General Partner's independent economic interest
in the Partnership (on a going concern basis). The Sponsors did not pursue this
transaction because of the General Partner's concerns.
CONVERSION BY LIQUIDATION. The Sponsors also considered a transaction
whereby the Partnership could be converted to a corporation in a transaction in
which BAC Holders, the General Partner and its affiliates, in exchange for their
respective interests in the Partnership, would each receive a
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one-time liquidating distribution consisting of cash and new common stock in the
corporation surviving the transaction. Pursuant to the terms of the Partnership
Agreement, liquidating distributions would be made in accordance with partners'
capital accounts. Accordingly, the General Partner and its affiliates would
receive approximately 2% of the cash and stock distributed. (For a more detailed
description of the procedures required to effectuate a liquidation of the
Partnership, see "The Conversion -- Liquidation and Winding Up of the
Partnership"). The Sponsors did not propose this transaction to the General
Partner because of uncertainties under the Partnership Agreement of the
Sponsors' ability to consummate such a transaction in a timely and tax effective
manner without the recommendation of the General Partner. The Sponsors believed
that the General Partner's cooperation in such a transaction would be unlikely,
since its terms did not recognize the fair value of the General Partner's
independent economic interest in the Partnership (on a going concern basis) and
because they understood that the General Partner believed that it had no duty to
cooperate in a transaction which did not fairly value such economic interest and
which the General Partner believed would constitute a termination without cause
of the General Partner. See "The Conversion -- Existing Economic Interests of
the Partners."
MANAGEMENT BUYOUT OR OTHER STRATEGIC SALE. The Sponsors also considered
proposing a management buyout or other strategic sale of the Partnership. These
alternatives would not provide BAC Holders with their continuing equity interest
in the Partnership and might not be able to be accomplished on a tax-advantaged
basis. The Sponsors did not propose such transactions to the General Partner
because they believed that, in the long term, the value of the Common Stock
would exceed the value of cash and securities that would be distributed to BAC
Holders in a management buyout or other strategic sale.
CONVERSION PURSUANT TO SECTION 17.5 OF THE PARTNERSHIP AGREEMENT. Section
17.5 of the Partnership Agreement permits the General Partner, in response to
the tax law amendment treating publicly traded partnerships as corporations, in
its sole discretion and without any partner consent, to convert the Partnership
into a corporation in whatever manner and by whatever method the General Partner
determines. See "Summary of Certain Provisions of the Partnership Agreement --
Reorganization of the Partnership." Under such section of the Partnership
Agreement, the General Partner is required to effectuate the conversion so that,
to the extent possible, the respective interests of BAC Holders and the General
Partner in the assets and income of the successor entity immediately following
such conversion are substantially equivalent to such interests immediately prior
thereto. The General Partner is required to appoint two independent appraisers
to determine the value of such interests. The General Partner decided not to
proceed with a conversion under Section 17.5 in light of the proposal by the
Sponsors which it believed was fair to both BAC Holders and the General Partner
and which involved the additional procedural step of being submitted to BAC
Holders and Unaffiliated BAC Holders for approval.
LIQUIDATION AND WINDING UP OF THE PARTNERSHIP. Under the Partnership
Agreement, two-thirds in interest of BAC Holders may vote to dissolve the
Partnership. Upon dissolution of the Partnership, the General Partner is
required to liquidate the assets of the Partnership as promptly as is consistent
with obtaining the fair value thereof and apply and distribute the proceeds
thereof. In the event the General Partner determines that an immediate sale of
part or all of the Partnership's assets would cause undue loss to the General
Partner and BAC Holders, the General Partner, in order to avoid such loss, may
defer liquidation of and withhold from distribution for a reasonable time any
assets of the Partnership except those necessary to satisfy the Partnership's
debts and obligations. No BAC Holder has the right to demand or receive proceeds
other than cash upon dissolution and termination of the Partnership. In the
event of a dissolution and sale of the Partnership's assets, the General Partner
and Operating General Partner would receive approximately 2% of distributions
and BAC Holders would receive approximately 98%, after BAC Holders had received
a return of their capital.
The General Partner and the Sponsors rejected this alternative because a
liquidation would not provide BAC Holders and the General Partner with any
continuing equity interest in the Partnership and would be unlikely to be
accomplished on a tax-advantaged basis. The General Partner would not
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be able to determine with any certainty prior to dissolution whether and at what
price there would be any buyers for the Partnership's assets. The General
Partner believes that in the long term the value of the Partnership as a going
concern, whether or not the Conversion is effected, to the General Partner and
BAC Holders would exceed the value of the proceeds of a liquidation.
FUTURE ALTERNATIVES AVAILABLE TO POLARIS. The General Partner and the
Sponsors believe that other long-term strategies available to Polaris, such as
diversification and acquisition of assets, or a management buyout or other
strategic sale, are not adversely affected (and, in some cases, should be
enhanced) by the decision to convert from partnership to corporate form and can
be considered by the Corporation in the future if the Conversion is consummated.
No other transaction currently is being considered by the Partnership as an
alternative to the Conversion, although the Partnership may from time to time
explore other alternatives if the Conversion is not consummated, including a
conversion pursuant to Section 17.5 of the Partnership Agreement.
FAIRNESS OPINIONS
OPINION OF SMITH BARNEY
The Partnership has retained Smith Barney to act as its financial advisor in
connection with the Conversion. In connection with its engagement, Smith Barney
has delivered to the Partnership its written opinion, dated September 29, 1994,
to the effect that, as of the date of such opinion and based upon and subject to
certain matters as stated therein, each of the consideration to be received by
the holders of BACs and the Exchange Ratio in the Conversion is fair, from a
financial point of view, to such holders.
In rendering its opinion, Smith Barney, among other things, reviewed the
Merger Agreement and certain other related agreements, this Proxy Statement and
the partnership agreements of the Partnership and the Operating Partnership and
held discussions with certain of the senior operating management of the
Operating Partnership ("Management") and representatives and advisors of the
Partnership to discuss the business, operations and prospects of the
Partnership. Smith Barney also examined certain publicly available business and
financial information relating to the Partnership as well as internal financial
statements, forecasts and other financial and operating data concerning the
Partnership prepared by Management. Smith Barney reviewed the financial terms of
the Conversion as set forth in the Merger Agreement in relation to, among other
things, current and historical market prices and trading volumes of the BACs,
historical and projected earnings and operating data of the Partnership, and the
capitalization and financial condition of the Partnership. Smith Barney
considered, to the extent publicly available, the financial terms of certain
other similar transactions which Smith Barney considered comparable to the
Conversion and analyzed certain financial, stock market and other publicly
available information relating to the businesses of other companies whose
operations Smith Barney considered comparable to those of the Partnership. In
addition to the foregoing, Smith Barney conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as it deemed necessary to arrive at its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information publicly available or furnished to or otherwise reviewed
by or discussed with Smith Barney. With respect to financial forecasts and other
information furnished to or otherwise reviewed by or discussed with Smith
Barney, Smith Barney assumed that such forecasts and other information were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Management as to the expected future financial performance of
the Partnership. Smith Barney assumed, with the Partnership's consent, that no
material change has occurred in the business, operations, financial condition or
prospects of Polaris as set forth in this Proxy Statement. Smith Barney did not
express any opinion as to what the value of the Common Stock actually will be
when issued to holders of BACs pursuant to the Conversion or the prices at which
the Common Stock will trade subsequent to the Conversion. In addition, Smith
Barney did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the
Partnership. Smith Barney was
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not asked to and did not express an opinion as to the relative merits of the
Conversion as compared to any alternative business strategies that might exist
for the Partnership or the effect of any other transaction in which the
Partnership might engage. Smith Barney was not asked to solicit third-party
indications of interest in acquiring all or any part of the Partnership. Smith
Barney's opinion is necessarily based upon financial, stock market and other
conditions and circumstances existing and disclosed to Smith Barney as of the
date of its opinion. No limitation was imposed by the Partnership on the scope
of the investigation by Smith Barney in connection with its fairness opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED SEPTEMBER 29,
1994, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. BAC HOLDERS ARE URGED TO READ THIS OPINION
CAREFULLY IN ITS ENTIRETY. SMITH BARNEY'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY BAC HOLDERS AND THE EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW TO BAC HOLDERS AND HAS BEEN PROVIDED SOLELY
FOR THE USE OF THE GENERAL PARTNER IN ITS EVALUATION OF THE CONVERSION, DOES NOT
ADDRESS ANY OTHER ASPECT OF THE CONVERSION OR ANY RELATED TRANSACTION AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY BAC HOLDER AS TO HOW SUCH HOLDER SHOULD
VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET
FORTH IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
In preparing its opinion to the Partnership, Smith Barney performed a
variety of financial and comparative analyses, including those described below.
The summary of such analyses does not purport to be a complete description of
the analyses underlying Smith Barney's opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analyses and the application
of those methods to the particular circumstances and, therefore, such an opinion
is not necessarily susceptible to summary description. In arriving at its
opinion, Smith Barney did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of such analysis and factor. Accordingly, Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Smith Barney made
numerous assumptions with respect to the Partnership, the Operating Partnership,
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of the
Partnership. The estimates contained in such analyses are not necessarily
indicative of actual values or predictive of actual future results or values,
which may be significantly more or less favorable than suggested by such
analyses. In addition, analyses relating to the value of the businesses or
securities do not purport to be appraisals or to reflect the prices at which the
businesses or securities may actually be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples of
a group of eight selected comparable outdoor product corporations comprised of:
Anthony Industries, Arctco Inc., Brunswick Corp., Coleman Co. Inc., Harley
Davidson Inc., Huffy Corporation, Outboard Marine Corporation and Winnebago
Industries (collectively the "Comparable Companies").
Smith Barney compared market values as multiples of, among other things,
historical net income and projected 1994 and 1995 net income. The multiples of
latest twelve months ("LTM") net income and projected 1994 and 1995 net income
of the Comparable Companies were between the following ranges: (i) LTM net
income: 13.8x to 29.0x (with a mean of 19.5x and a median of 19.2x); (ii)
projected 1994 income: 11.9x to 22.9x (with a mean of 17.7x and a median of
17.9x); and (iii) projected 1995 net income: 10.4x to 18.9x (with a mean of
14.7x and a median of 13.7x). Smith Barney also compared adjusted market value
(equity market value, plus the book value of debt and preferred stock, less cash
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and cash equivalents) to, among other things, historical earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The multiples of LTM
EBITDA of the Comparable Companies were 4.9x to 11.9x (with a mean of 8.9x and a
median of 8.6x).
Smith Barney also compared the profit margins, debt to capitalization
ratios, historical revenue and net income growth, returns on average assets and
equity, and projected earnings per share ("EPS") growth of the Comparable
Companies. All projected EPS figures for the Comparable Companies were based on
the consensus net income estimates of selected investment banking firms and all
estimates for the Corporation were based on internal estimates prepared by
management. All multiples were based on closing stock prices as of September 23,
1994.
Smith Barney applied a range of trading multiples representative of the
Comparable Companies to pro forma historical and projected operating data of the
Corporation (derived by adjusting such operating data of the Partnership to
reflect consummation of the Conversion, but not for payment of the Special
Distributions or for any borrowings to finance the same, and application of a
36% corporate tax rate) to arrive at a range of implied equity values for the
shares of Common Stock to be exchanged for the BACs pursuant to the Conversion.
Smith Barney applied multiples of 9.0x to 10.0x to LTM EBITDA, multiples of
19.0x to 22.0x to LTM net income, multiples of 18.0x to 20.0x to projected 1994
net income, and multiples of 14.0x to 17.0x to projected 1995 net income. Based
on the average of such valuation methodologies Smith Barney arrived at an
implied equity valuation range of $43.25 to $49.60 per share of Common Stock.
Smith Barney also applied the trading multiples of Arctco Inc., based on an
Arctco closing stock price as of September 23, 1994 of $19.75, to arrive at an
implied equity value for the shares of Common Stock to be issued in exchange for
the BACs pursuant to the Conversion. Smith Barney believes Arctco is the most
appropriate of the Comparable Companies for valuation purposes, given the
similarity of Arctco's products, markets and general business conditions to
those of the Partnership. Smith Barney applied Arctco's multiple of 20.4x to LTM
net income, Arctco's multiple of 18.6x to projected 1994 net income, Arctco's
multiple of 16.0x to projected 1995 net income, Arctco's multiple of 17.6x to
LTM cash flow, Arctco's multiple of 1.9x to LTM sales, Arctco's multiple of
11.9x to LTM EBITDA and Arctco's multiple of 13.2x to LTM earnings before
interest and taxes. Based on the average of such valuation methodologies Smith
Barney arrived at an implied equity valuation of $53.56 per share of Common
Stock.
No company used in the Comparable Company analyses as a comparison is
identical to the Partnership. Accordingly, an analysis of the results of the
foregoing is not entirely mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics and other factors that could affect the public trading value of
the Comparable Companies or the company to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Smith Barney performed a discounted cash
flow analysis of the projected free cash flows of the Corporation for the four
fiscal years ended December 31, 1998, assuming the Conversion occurs December
31, 1994 and a 36% corporate tax rate. Smith Barney also assumed among other
things, discount rates of 12%, 14% and 16% and terminal multiples of EBITDA of
7.5x to 8.5x. Smith Barney performed these analyses on the operating projections
prepared by Management. These analyses resulted in an implied equity valuation
range per share of Common Stock of $43.76 to $55.83 and a composite implied
equity valuation range of $47.30 to $51.77.
Smith Barney then derived an implied equity valuation range of $45.28 to
$50.69 for the shares of Common Stock to be exchanged for BACs in the Conversion
by averaging the composite values derived through the Comparable Company
analyses and the Discounted Cash Flow analyses described above. This range was
compared to $36.50, the average of the closing market price of a BAC on the five
trading days preceding August 25, 1994, the day the Partnership announced its
intent to convert to a corporation (the "Announcement Date"). The range of
premiums of such implied Common Stock price over such average market price for a
BAC was 24.1% to 38.9%.
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VALUATION OF GENERAL PARTNER INTERESTS. Smith Barney also analyzed the
value of the Common Stock to be exchanged for the interests of the General
Partner in the Partnership and the Operating Partnership pursuant to the Merger
Agreement (the "General Partner Consideration") using the equity values implied
by the Comparable Company, Arctco trading multiples, and Discounted Cash Flow
analyses described above. Based on the Comparable Company analysis, Smith Barney
estimated the range of the implied value of the General Partner Consideration to
be $82.7 million to $102.6 million, with a composite valuation of $89.8 million.
Based on the Arctco trading multiples, Smith Barney estimated the range of the
implied value of the General Partner Consideration to be $91.2 million to $114
million with a composite value of $103.3 million. Based on the Discounted Cash
Flow analysis, Smith Barney estimated the range of the value of the General
Partner Consideration to be $99.7 million to $108.3 million with a composite
valuation of $104.5 million. Smith Barney then averaged the composite values
derived from the three valuation methodologies and derived an average implied
equity value of the General Partner Consideration of $99.2 million.
Smith Barney then analyzed the value of the General Partner's current
interests in the Partnership. Smith Barney performed a discounted cash flow
analysis of the projected distributions made by the partnership to the General
Partner through 2037, assuming (i) that the Partnership remains in limited
partnership form through 2037, but pays corporate taxes at 36% beginning in 1998
("Scenario One"), and (ii) that the Partnership remains in limited partnership
form through 2037, but delists the BACs in 1997 ("Scenario Two"). Smith Barney
also assumed discount rates of 12%, 14% and 16% for the purposes of its
analysis. Smith Barney calculated the present value of the General Partner's
interest assuming normal distributions of $2.52 per BAC plus the General
Partner's interests, a 5% annual growth rate in distributions after 1998 and a
14.0% discount rate, which resulted in an implied present value of $112.5
million. Smith Barney calculated the present value of the maximum future
distributions to the General Partner (I.E., the Partnership distributes 100% of
distributable cash flow) assuming Scenario One, which resulted in an implied
present value of $169.6 million. Smith Barney calculated the net present value
of the maximum future distributions to the General Partner (I.E., the
Partnership distributes 100% of distributable cash flow) assuming Scenario Two,
which resulted in an implied present value of $232.6 million.
Smith Barney also analyzed the implied current equity value of the General
Partner's interest in the Partnership by multiplying the number of BACs
outstanding by the average market price on the five trading days preceding the
Announcement Date, adjusting that value to reflect a 100% interest in the
Partnership rather than the 79.2% interest in the Partnership's net cash from
operations attributable to the BACs and assigning 20.8% of such value for the
General Partner's interests. This resulted in an implied current equity value of
$156.5 million. Smith Barney then compared the results of the discounted cash
flow and implied current equity value analysis to $99.2 million, which
represented the average of the composite values of the General Partner
Consideration described above.
OTHER FACTORS AND COMPARATIVE ANALYSES. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other comparative
analyses, including among other things, a review of (i) the projected financial
results of the Partnership, the Operating Partnership and the Corporation, (ii)
the history of trading prices for the BACs and the relationship between
movements of the BACs and movements of the common stock of the Comparable
Companies, (iii) the treatment of general partner interests in selected
partnership conversions, (iv) certain pro forma effects on the Corporation
resulting from the Conversion and (v) the pro forma ownership of the
Corporation.
The Partnership entered into an engagement letter with Smith Barney on
August 25, 1994 pursuant to which the Partnership has agreed to pay Smith Barney
a transaction fee of $5 million, comprised of a retainer fee of $1.5 million,
which was payable upon execution of the engagement letter, an opinion fee of
$1.5 million, payable upon delivery of Smith Barney's opinion, and the remainder
of which is payable upon consummation of the Conversion. The Partnership has
agreed to reimburse Smith Barney for its out-of-pocket expenses, including
reasonable fees and disbursements of counsel.
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The Partnership has also agreed, in a separate letter agreement, to indemnify
Smith Barney and its affiliates, their respective directors, officers, agents
and employees and each person, if any, controlling Smith Barney or any of its
affiliates against certain liabilities, including liabilities under the federal
securities laws and expenses related to Smith Barney's engagement.
Smith Barney is a nationally recognized investment banking firm and is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. The
Partnership selected Smith Barney as its financial advisor on the basis of such
expertise and Smith Barney's reputation. Other than acting as financial advisor
in connection with the Conversion (and delivery of its fairness opinion), Smith
Barney has not previously rendered investment banking services to the
Partnership in the past two years. In the ordinary course of its business, Smith
Barney may, from time to time, buy and sell securities of the Partnership.
OPINION OF DILLON READ
Dillon Read has rendered its opinion to the Partnership that each of the
Exchange Ratio and the consideration to be received by the BAC Holders in the
conversion is fair, from a financial point of view, to the BAC Holders. DILLON
READ'S OPINION, DATED SEPTEMBER 29, 1994, IS SET FORTH IN FULL AS ANNEX C TO
THIS PROXY STATEMENT, AND SHOULD BE READ IN ITS ENTIRETY. Dillon Read's opinion
does not constitute a recommendation to any BAC Holder as to how such holder
should vote at the Special Meeting. The summary of the opinion of Dillon Read
set forth in this Proxy Statement is qualified in its entirety by reference to
the full text of such opinion.
In connection with rendering its opinion and as more fully set forth
therein, Dillon Read relied upon, without independent verification, the accuracy
and completeness of this Proxy Statement, including the description under
"Certain Federal Income Tax Considerations" of the tax consequences to the
Partnership and the BAC Holders of the Conversion, as well as other information
that was publicly available or furnished to Dillon Read by the Partnership,
including the Merger Agreement and information provided during discussions with
management. In addition, Dillon Read compared certain financial and operating
data of the Partnership with that of certain other publicly traded corporations
whose operations Dillon Read believed to be comparable to those of the
Partnership, reviewed market prices and trading volumes of the BACs, reviewed
the cash distributions that were made to the BAC Holders and the General Partner
and the prospects for future cash distributions to the BAC Holders and the
General Partner, compared the financial terms of the conversion as set forth in
the Merger Agreement with the financial terms of selected partnership
conversions which Dillon Read believed to be comparable to those of the
Conversion and conducted such additional analyses as Dillon Read deemed
appropriate. Dillon Read did not make or obtain any independent appraisal or
valuation of the assets or liabilities of the Partnership.
In rendering its opinion, Dillon Read assumed that financial forecasts and
other information furnished to or otherwise reviewed by Dillon Read, were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of management of the Partnership as to the expected future
financial performance of the Partnership. Dillon Read also assumed that no
material change has occurred in the business, operations, financial condition or
prospects of the Partnership as set forth in this Proxy Statement. Dillon Read
did not express any opinion as to what the value of the Common Stock actually
will be when issued to BAC Holders or the prices at which the Common Stock will
trade subsequent to the Conversion. Dillon Read's opinion is based upon
economic, monetary and market conditions existing on the date of its opinion.
Dillon Read was not requested to, and did not, recommend the decision to effect
the Conversion or determine the Exchange Ratio or express any opinion as to
whether any alternative transactions to the Conversion may be more or less
favorable to the BAC Holders. Dillon Read was not asked to solicit third-party
indications of interest in acquiring all or any part of the Partnership.
In preparing its opinion, Dillon Read performed a variety of financial and
comparative analyses, including those described below. The summary of such
analyses does not purport to be a complete
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description of the analyses underlying Dillon Read's opinion. The preparation of
a fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not necessarily susceptible to summary
description. In arriving at its opinion, Dillon Read did not attribute any
particular weight to each analysis or factor considered by it, but rather made
qualitative judgements as to the significance and relevance of such analysis and
factor. Accordingly, Dillon Read believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying such analyses and its opinion. In its analyses,
Dillon Read made numerous assumptions with respect to the Partnership, industry
performance, general business, economic market and financial conditions and
other matters, many of which are beyond the control of the Partnership. The
estimates contained in such analyses are not necessarily indicative of actual
values or of actual future results or values, which may be significantly more or
less favorable than suggested by such analyses. In addition, analyses relating
to the value of the businesses or securities do not purport to be appraisals or
to reflect the prices at which the businesses or securities may actually be
sold. Accordingly, such analyses and estimates are inherently subject to
substantial uncertainty.
COMPARABLE COMPANY ANALYSIS. Using publicly available information, Dillon
Read analyzed among other things, the financial performance, market values and
trading multiples of a group of eight selected comparable corporations engaged
in the sporting goods industry: Anthony Industries, Arctco Inc., Brunswick
Corp., Coleman Co. Inc., Harley Davidson Inc., Huffy Corporation, Johnson
Worldwide Associates, Inc., and Outboard Marine Corporation (collectively, the
"Sporting Goods Comparable Companies").
Financial information analyzed included (i) market valuations and multiples
thereof, including LTM net income and projected 1994 and 1995 net income and
(ii) market valuation adjusted for net debt and book value of preferred stock
and multiples thereof, including (x) LTM sales, (y) LTM EBITDA, and (z) LTM
operating income. Dillon Read applied a range of trading multiples
representative of the Sporting Goods Comparable Companies to pro forma
historical and projected operating data of the Corporation (derived by applying
a 36% tax rate to Partnership net income) to arrive at an implied equity value
for the shares of Common Stock to be exchanged for the BACs pursuant to the
Conversion. Dillon Read's analysis consisted of applying trading multiples of
the Sporting Goods Comparable Companies to: (a) a multiple of 8.6x the
Corporation's LTM EBITDA, (b) a multiple of 12.3x the Corporation's LTM
Operating Income, (c) a multiple of 19.9x the Corporation's LTM net income, (d)
a multiple of 17.2x the Corporation's projected 1994 net income and (e) a
multiple of 13.9x the Corporation's projected 1995 net income. The above
analysis yielded implied equity values per share of Common Stock ranging from
$41.25 to $48.91. Dillon Read also compared the profit margins, debt to
capitalization ratios, historical revenue and net income growth, returns on
average assets and equity, and projected earnings per share ("EPS") growth of
the Sporting Goods Comparable Companies. All projected EPS figures for the
Sporting Goods Comparable Companies were based on the consensus net income
estimates of selected investment banking firms and all estimates for the
Corporation were based on internal estimates prepared by management of the
Partnership. All multiples were based on closing stock prices as of September
23, 1994.
Dillon Read also applied the average trading multiples of Arctco Inc. and
Harley Davidson Inc. to arrive at an implied equity value for the shares of
Common Stock to be issued in exchange for the BACs pursuant to the Conversion.
Dillon Read believes Arctco and Harley Davidson are more closely comparable to
the Partnership than certain of the other Sporting Goods Comparable Companies.
Dillon Read's analysis is based upon (a) Arctco's and Harley Davidson's average
multiple of 21.6x the Corporation's LTM net income, (b) an average multiple of
19.0x the Corporation's projected 1994 net income, (c) an average multiple of
16.9x the corporation's projected 1995 net income, (d) an average multiple of
14.3x the Corporation's LTM EBITDA, and (e) an average multiple of 12.2x the
Corporation's LTM EBIT. The above analysis yielded implied equity values per
share of Common Stock
42
<PAGE>
ranging from $44.82 to $51.96. No company used in the Sporting Goods Comparable
Company analyses as a comparison is identical to the Partnership. Accordingly,
an analysis of the results of the foregoing is not entirely mathematical,
rather, it involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the public trading value of the Sporting Goods Comparable Companies or the
company to which they are being compared.
ANALYSIS OF RELATIVE ALLOCATION OF EQUITY INTEREST TO THE LIMITED
PARTNERS. Dillon Read performed discounted cash flow valuations of the
Partnership assuming that the Partnership remains in limited partnership form
through 2037 but begins paying taxes at 36% in 1998, while maintaining cash
distributions as a percentage of cash available for distribution at levels
similar to or higher than those currently paid. These projections were prepared
by Dillon Read in consultation with Partnership management. For the period 2005
to 2037 Dillon Read varied the annual percentage growth of the Partnership's
cash distributions from 2.5% to 7.5% in order to assess the relative value of
the General Partner's interests compared to the BAC Holders' interests under
these various growth scenarios. Assuming dissolution of the Partnership in the
year 2037 pursuant to the terms of the Partnership Agreement, discount rates of
9.0%, 9.5% and 10% and terminal multiples of 10.0, 10.5 and 11.0x 2037 projected
net income, the relative interest of the BAC Holders ranges from 79.6% to 82.4%.
ANALYSIS OF COMPARABLE CONVERSION TRANSACTIONS. Dillon Read analyzed the
terms and allocations of economic interest between general and limited partners
of selected conversions of publicly traded limited partnerships to corporate
form. The limited partners' interest in these partnerships ranged from 75%-99%
of distributable cash from operations and 80%-100% of the proceeds from sales of
partnership assets, while the limited partners' interest in the common stock of
the newly formed corporate entities in these conversions ranged from 85% to 100%
of the total common stock outstanding. Each of these partnership structures has
its own unique characteristics, and each of these conversions was undertaken
considering its own unique circumstances; therefore none of the partnerships or
conversion transactions utilized for comparison is identical to the Partnership
or to the Conversion. An analysis of the results of such comparison is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the comparable
partnerships and conversion transactions and other factors that could affect the
allocation of common stock between the general and limited partners in the
comparable conversions.
For its services rendered in connection with its opinion, Dillon Read has
received a fee of $1.5 million, of which one-half was payable upon execution of
the engagement letter between Dillon Read and the Partnership. The remaining
one-half was payable upon delivery of the opinion (whether or not favorable). In
addition, the Partnership has agreed to reimburse Dillon Read for certain
out-of-pocket expenses and has agreed to indemnify Dillon Read against certain
liabilities, including certain liabilities under the federal securities laws.
The fee was negotiated between the Partnership and Dillon Read.
Dillon Read is an internationally recognized investment banking firm
engaged, among other things, in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities
and private placements. In 1989 and 1990 Dillon Read performed general financial
advisory services for the Partnership and received customary compensation for
such services. In addition, in the ordinary course of its business, Dillon Read
may trade the BACs for its own account and for the account of customers and it
may at any time hold a long or short position in such securities. The
Partnership selected Dillon Read to render the opinion because of its expertise
and its familiarity with the operations of the Partnership.
43
<PAGE>
OTHER
Representatives of the General Partner discussed with representatives of
Lazard the possibility of engaging Lazard, but Lazard decided not to accept the
possible engagement. Lazard was not requested to, and did not, render any
opinion in connection with the Conversion or otherwise. See "The Conversion --
Background of the Conversion."
RECOMMENDATION OF THE GENERAL PARTNER AND THE SPONSORS
As a result of their review of the business, properties and financial
condition of the Partnership, their review of the terms of the Conversion, their
analysis of the benefits and disadvantages of, and alternatives to, the
Conversion, and their review of the fairness opinions from Smith Barney and
Dillon Read, each to the effect that each of the Exchange Ratio and the
consideration to be received in the Conversion is fair, from a financial point
of view, to BAC Holders, the General Partner and the Sponsors believe that the
Conversion is fair to BAC Holders and recommend that BAC Holders approve the
Conversion Proposal. No particular weight was assigned to any one factor in
arriving at their recommendation.
The General Partner's and the Sponsors' determination to recommend that the
Partnership convert to corporate form is based on their belief that the
Conversion will result in the benefits to BAC Holders described above under "--
Reasons for the Conversion." The General Partner and the Sponsors also
considered the potential disadvantages of the Conversion, as described under
"Risk Factors, Conflicts of Interest and Other Considerations," but believe that
the advantages of the Conversion outweigh the potential disadvantages.
In making their recommendation, the General Partner and the Sponsors also
gave significant weight to the analysis of the Conversion and the alternatives
to the Conversion described above under "-- Alternatives to the Conversion." For
the reasons described thereunder, the General Partner and the Sponsors believe
that the Conversion is attractive and fair when compared to the viable
alternatives they considered and that it is in the best interests of BAC Holders
to consummate the Conversion at this time.
The General Partner and the Sponsors believe that the allocation of Common
Stock between BAC Holders and the General Partner in the Partnership is fair to
BAC Holders. This belief is principally based on the fairness opinions of Smith
Barney and Dillon Read and the other considerations described under "The
Conversion -- Background of the Conversion" and "-- Existing Economic Interests
of the Partners." The General Partner also took into account the requirement
that the Conversion would be subject to approval by BAC Holders holding a
majority of the outstanding BACs and Unaffiliated BAC Holders holding a majority
of BACs held by such persons.
The General Partner and the Sponsors sought to provide procedural fairness
to the BAC Holders in connection with the consideration of the Conversion by (i)
obtaining the fairness opinions from Smith Barney and Dillon Read that each of
the Exchange Ratio and the consideration to be received in the Conversion is
fair, from a financial point of view, to BAC Holders, (ii) giving BAC Holders
who do not vote for the Conversion Proposal the right to exercise Appraisal
Rights, and (iii) implementing the Conversion only if approved by the
affirmative vote of BAC Holders holding a majority of BACs outstanding and
Unaffiliated BAC Holders holding a majority of BACs held by such persons.
Through these arrangements, the General Partner and the Sponsors sought to
minimize the extent to which the determination of the terms of the Conversion
was subject to conflicts of interest among the General Partner, the Sponsors and
BAC Holders.
In reaching a recommendation with respect to the Conversion, the General
Partner and the Sponsors also considered the consequences to the Partnership,
the General Partner and BAC Holders if the Conversion is not consummated, as
discussed under "The Conversion -- Consequences if Conversion Proposal is Not
Approved or the Conversion is Not Consummated" below and other information about
the Conversion and the Corporation included in this Proxy Statement.
44
<PAGE>
EFFECTIVE TIME
If the Conversion Proposal is approved at the Special Meeting, the
Conversion is expected to be effected as soon as practicable on or after the
Meeting Date (the "Effective Time").
DESCRIPTION OF THE MERGER AGREEMENT
The following summary of certain provisions of the Merger Agreement is
incomplete and is qualified by reference to the full text of the Merger
Agreement, a copy of which is attached to this Proxy Statement as Annex D.
CLOSING. The Merger Agreement provides that the Merger and other
transactions outlined under "The Conversion -- Structure of the Conversion" (the
"Transactions") shall be consummated at closings to be held on the date of the
Special Meeting of BAC Holders or on such other date as the Corporation and the
Partnership may agree (the "Closing").
PARTNERSHIP DISTRIBUTIONS PENDING CLOSING. Pending the Closing, the
Partnership expects to continue to make quarterly cash distributions to BAC
Holders, the General Partner and the Operating General Partner in the same
amounts as prior distributions in 1994 ($.63 per BAC per quarter), with the
final Partnership cash distribution for the quarter in which the Closing takes
place to be prorated based on the number of days in such quarter prior to the
Closing and to be paid within 30 days after the Closing. Affiliates of the
General Partner will be entitled to receive the cash distributions otherwise
payable to the General Partner and the Operating General Partner which are not
paid until after the Closing.
CONDITIONS. Consummation of the Conversion is subject to certain
conditions, including (i) approval of the Conversion Proposal by the affirmative
vote of the holders of more than 50% of the outstanding BACs, and by the
affirmative vote of the holders of more than 50% of the outstanding BACs held by
Unaffiliated BAC Holders, (ii) listing of the Common Stock on the American and
Pacific Stock Exchanges subject to official notice of issuance, (iii) the
receipt of certain necessary governmental approvals, the expiration of certain
government imposed waiting periods (including under the HSR Act, if applicable)
and the making of certain necessary governmental filings, (iv) effectiveness of
a Registration Statement under the Securities Act of 1933, as amended, relating
to the Common Stock to be issued in the Merger and the absence of any stop order
or proceeding seeking a stop order with respect to such Registration Statement,
(v) the absence of any court order or legal restraint preventing consummation of
the Merger, (vi) Appraisal Rights not being sought with respect to more than 5%
of the outstanding BACs (which condition may be waived by the Corporation),
(vii) no withdrawal of the Smith Barney or Dillon Read fairness opinions, (viii)
the Corporation's receipt of a favorable opinion of its special tax counsel,
Skadden, Arps, Slate, Meagher & Flom, as to certain matters related to the
tax-free nature of the Conversion to BAC Holders and (ix) the Partnership's
receipt of a favorable opinion of its special counsel, Stroock & Stroock &
Lavan, as to certain matters related to the tax-free nature of the Conversion to
BAC Holders and the Transferors who are transferring their partnership interest
in the General Partner and the Operating Partnership and their stock of EIPCC to
the Corporation.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Conversion Proposal
by BAC Holders, (a) by mutual consent of the Corporation and the General
Partner, (b) by either the Corporation or the General Partner if the
Transactions shall not have been consummated before April 15, 1995 (unless such
failure is due to the willful action or failure to act in breach of the Merger
Agreement by the party seeking termination) and (c) by the General Partner as
described in the following sentence. The Merger Agreement provides that nothing
contained therein shall alter the General Partner's fiduciary duties to BAC
Holders, including the right to terminate the Merger Agreement if the General
Partner, as advised by counsel, determines that, as a result of developments
occurring after the date of the Merger Agreement, such termination is necessary
to discharge its fiduciary duties.
REPRESENTATIONS, INDEMNITIES AND COVENANTS. The Merger Agreement contains
representations and indemnities by the Transferors to the Corporation, which
survive the consummation of the
45
<PAGE>
Transactions, with respect to such matters as their ability to comply with their
obligations under the Merger Agreement; that such compliance will not result in
liabilities to the Partnership or the Corporation; and that the General Partner,
the Operating General Partner, EIPCC and PICC do not have certain tax or other
liabilities. It also contains covenants by the Partnership and the Operating
Partnership to conduct their businesses in the ordinary course and consistent
with past practices pending consummation of the Transaction, and covenants by
PICC, EIPCC, the General Partner and the Operating General Partner not to take
certain actions with respect to their organization and capitalization, and
covenants by the parties thereto to use reasonable best efforts to satisfy
conditions and consummate the Transactions as soon as practicable.
INDEMNIFICATION. The Merger Agreement requires the Partnership, prior to
the Conversion, and the Corporation, after the Conversion, to indemnify each
person who is, or becomes prior to the Conversion, a director, officer,
employee, shareholder or partner of the Partnership, the Operating Partnership,
EIPCC, PICC, the Operating General Partner, the General Partner or the
Corporation, or an employee, agent or affiliate of such person, in each case to
the full extent a partnership is permitted under Delaware law to indemnify such
persons or entities and a corporation is permitted under Minnesota Law to
indemnify its own directors, officers, employees, agents and affiliates; and
that such persons will be indemnified by the Corporation for any expenses and
liabilities incurred by them which is based on or arises out of the fact that
such person served in one of the capacities described above. The Merger
Agreement requires the Partnership and Corporation to indemnify the General
Partner and its affiliates and their partners, officers, directors, employees
and agents for any expenses and liabilities incurred by them based on, arising
out of or pertaining to the Merger Agreement and the Transactions to the maximum
extent permitted by law.
COSTS AND EXPENSES. The Merger Agreement provides that all costs and
expenses incurred by the parties in connection with the Merger Agreement and the
Transactions shall be paid by the Partnership whether or not the Transactions
are consummated.
EMPLOYEE BENEFIT PLANS; FIRST RIGHTS. The Merger Agreement provides that
the employee benefit plans of the Operating Partnership in effect at the date of
the Merger Agreement shall, to the extent practicable, remain in effect and be
adapted to the Corporation's corporate form, and that plans under which the
employees' interests are based on BACs will be based on Common Stock in an
equitable manner. Following consummation of the Transactions, First Rights,
whether vested or unvested, shall be deemed to constitute the right to receive,
on the same terms and conditions presently applicable, the same number of shares
of Common Stock as the holders thereof would have received in the Merger had
BACs been issued in respect thereof immediately prior to the Merger (one share
for each BAC).
APPRAISAL RIGHTS. The Merger Agreement provides that BAC Holders who have
not voted for the Merger and who have demanded appraisal rights in the manner
provided in the Merger Agreement will be entitled to exercise the rights of
appraisal that are provided therein. See "Appraisal Rights."
REGISTRATION RIGHTS. The Merger Agreement provides that, at or prior to the
Closing, the Corporation and the two Transferors receiving the most Common Stock
in the Transactions shall enter into a registration rights agreement providing
such Transferors with demand and piggyback registration rights with respect to
such Common Stock. The number of demand registrations will be limited to four
(two for each such Transferor), each demand for registration must cover at least
300,000 shares and no demand for registration may be made within six months
after the effective date of a prior demand registration statement. Generally,
such Transferors will pay the expenses of demand registrations and the
Corporation will pay the expenses of piggyback registrations.
CONSEQUENCES IF CONVERSION PROPOSAL IS NOT APPROVED OR THE CONVERSION IS NOT
CONSUMMATED
If the Conversion Proposal is not approved by BAC Holders and Unaffiliated
BAC Holders, or if the Conversion is not consummated for any other reason, the
Partnership currently expects to continue to operate as an ongoing business in
its current form and to continue making cash distributions at recent historical
levels. As discussed above under "-- Reasons for the Conversion," if Polaris
continues to operate in partnership form, BAC Holders may be required to report
and pay tax on taxable income from the Partnership that exceeds the amount of
its cash distributions, and it is likely
46
<PAGE>
that BAC Holders will experience, on a per BAC basis, increasing taxable income
relative to cash actually received. If current tax laws remain unchanged, and if
before 1998 the Partnership fails to take action to cease trading BACs, the
Partnership will be treated as a corporation for federal income tax purposes. No
other transaction currently is being considered by the Partnership as an
alternative to the Conversion, although the Partnership may from time to time
explore other alternatives, including conversion pursuant to Section 17.5 of the
Partnership Agreement. See "The Conversion -- Alternatives to the Conversion."
COSTS OF THE CONVERSION
All costs and expenses incurred by the Partnership in connection with the
Conversion will be paid by the Partnership out of available cash, whether or not
the Conversion is consummated. The following is an estimate of certain
anticipated fees and expenses to be incurred by the Partnership in connection
with the Conversion:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fees.......... $ 225,000
Stock exchange listing fees................................... 25,000
Legal fees and expenses....................................... 3,550,000
Financial advisory fees and expenses.......................... 6,550,000
Accounting fees and expenses.................................. 275,000
Solicitation fees and expenses................................ 200,000
Printing and engraving expenses............................... 150,000
Miscellaneous................................................. 25,000
-----------
Total..................................................... $11,000,000
-----------
-----------
</TABLE>
EXCHANGE OF CERTIFICATES
BAC Holders should not send any certificates with the enclosed Proxy. They
should retain such certificates until they receive further instructions if the
Conversion is consummated.
Promptly after the Effective Time, the Corporation will mail to all BAC
Holders of record a letter of transmittal containing instructions with respect
to the surrender of certificates for BACs in exchange for certificates
representing shares of Common Stock. Upon surrender to the Corporation of one or
more certificates for BACs, together with a properly completed letter of
transmittal, there will be issued and mailed to former BAC Holders of record at
the Effective Time a certificate or certificates representing the number of
shares of Common Stock to which such holder is entitled. From and after the
Effective Time, each such certificate for BACs will evidence only the right to
receive certificates representing shares of Common Stock.
No dividends or other distributions with respect to the Common Stock payable
to the holders of record thereof after the Effective Time will be paid to the
holder of any unsurrendered certificates for BACs until such certificates are
surrendered for exchange, at which time accumulated dividends will be paid,
without interest, subject to any applicable escheat laws.
If any certificate representing Common Stock is to be issued in a name other
than that in which the certificate for BACs surrendered in exchange thereof is
registered on the books of the Partnership as of the Effective Time, it will be
a condition of such issuance that (i) the certificate so surrendered be properly
endorsed and otherwise in proper form for transfer and (ii) the person
requesting such exchange pay to the Corporation any transfer or other taxes
required by reason of the issuance of a certificate representing Common Stock in
any name other than that of the registered owner of the certificate surrendered,
or the person requesting such exchange establish to the satisfaction of the
Corporation that such tax has been paid or is not applicable.
After the Effective Time, there will be no further registration of transfers
of BACs that were issued and outstanding immediately before such time. If, after
the Effective Time, certificates representing BACs are presented for transfer,
they will be cancelled and exchanged for one or more certificates representing
shares of Common Stock.
47
<PAGE>
COMPARATIVE RIGHTS OF BAC HOLDERS AND HOLDERS OF COMMON STOCK
The following summary compares a number of differences between ownership of
BACs and ownership of shares of Common Stock and the effects relating thereto.
TAXATION
<TABLE>
<CAPTION>
BACS COMMON STOCK
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Under current law, the Partnership is not a taxpaying The Corporation will pay federal and state tax on its
entity. Rather, each BAC Holder includes its share of net income. Shareholders will not be taxed with respect
the Partnership's income or loss, as the case may be, to Corporation income, but will generally be taxed with
without regard to the cash distributed to BAC Holders, respect to dividends received from the Corporation to
in computing taxable income. Generally, cash the extent of accumulated earnings and profits for tax
distributions to BAC Holders are not taxable, unless purposes.
distributions exceed a BAC Holder's basis in a BAC.
Under current tax law, the Partnership will be taxed as No portion of the earnings of, or any dividends from,
a corporation if it engages in a substantially new line the Corporation will constitute unrelated business
of business or, in any event, at the end of 1997, if the taxable income to tax-exempt shareholders, except to the
BACs remain publicly tradeable. extent that investment in stock of the Corporation is
debt-financed.
Substantially all of the Partnership's taxable income
constitutes unrelated business taxable income and,
therefore, is taxable to BAC Holders that are tax-exempt
organizations.
DISTRIBUTIONS AND DIVIDENDS
<CAPTION>
BACS COMMON STOCK
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
The Partnership Agreement provides that the
General Partner will make quarterly distributions of Net The By-laws of the Corporation provide that the Board of
Cash From Operations and Net Cash From Sales or Directors has the authority and discretion to declare
Refinancings. The Operating General Partner receives 1% dividends and other distributions upon the shares of the
of all distributions from the Operating Partnership. The Corporation to the extent permitted by law. Holders of
General Partner receives 20% and BAC Holders receive 80% Common Stock will have no contractual right to
of Net dividends.
Cash From Operations from the Partnership so long as the The Sponsors intend to recommend that the Corporation's
distributions to BAC Holders provide them a 15% per Board of Directors pay the Proposed Distributions. See
annum cumulative, noncompounded yield on the adjusted "Market Prices and Distributions." However, subject to
initial issuance price of the BACs. If the distributions legal and contractual limitations, dividends will be
made in such proportions do not provide BAC Holders with paid at the discretion of the Board of Directors and
such return, distributions will be made instead 1% to will depend, among other things, on the future earnings,
the General Partner and 99% to BAC Holders until BAC operations, capital requirements, borrowing capacity,
Holders have received such return. The General Partner and financial condition of the Corporation and general
believes, based on prior distributions, that such business conditions, and there can be no assurance that
threshold return will continue to be met for the the foregoing dividends and distributions will be paid.
foreseeable future. To date, the BAC Holders have
received distributions substantially in excess of a 15%
per annum cumulative (noncompounded) yield on the
adjusted initial issuance price of the BACs. The General
Partner receives 1% of Net Cash From Sales or
Refinancings from the Partnership after BAC Holders have
received a return of the adjusted initial issuance price
of the BACs ($10 per BAC).
For the years ended December 31, 1993, 1992 and 1991,
cash distributions per BAC aggregating $2.51, $2.50 and
$2.50, respectively, were declared by the Partnership.
See "Market Prices and Distributions."
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
VOTING RIGHTS
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
Except as described below, BAC Holders do not
have the right to participate in the Under Minnesota law and the Corporation's
management or control of the Partnership's Articles of Incorporation and By-laws,
business. Each BAC Holder is entitled to one shareholders have voting rights with respect
vote per BAC on matters submitted to BAC to (i) the election of directors, (ii) the
Holders for a vote. Two-thirds in interest of removal of directors, (iii) certain mergers
BAC Holders, without the concurrence of the and share exchanges involving the
General Partner, may (i) subject to certain Corporation, (iv) the sale, lease, transfer
exceptions described below, amend the or other disposal of substantially all of the
Partnership Agreement, (ii) approve or assets of the Corporation other than in the
disapprove the sale of all or substantially regular course of business, (v) the
all of the Partnership assets, except in dissolution of the Corporation, (vi)
connection with the Partnership's dissolution amendments to the Corporation's Articles of
and liquidation for a reason other than such Incorporation, and (vii) any other matters
sale, (iii) dissolve the Partnership, and designated by the Board of Directors. Each
(iv) remove a General Partner and elect a share of Common Stock entitles its holder to
replacement. If a General Partner has been cast one vote on each matter presented to
removed without cause, the removed Gener- shareholders. There is no cumulative voting.
al Partner can compel any successor to Approval of any matter submitted to
acquire its general partnership interest at shareholders requires the affirmative vote of
the then fair market value of such interest. the greater of (a) a majority of the voting
See "-- Removal of General Partner and power of the shares present and entitled to
Directors of the Corporation." Amendments to vote on that item of business or (b) a
the Partnership Agreement altering the majority of the voting power of the minimum
rights, powers, fees or duties of the General number of shares entitled to vote that would
Partner, the interest of the General Partner constitute a quorum for the transaction of
in profits, losses and distributions, provi- business at a duly held meeting of
sions relating to changes in the General shareholders; except that the Corporation's
Partner or any of the terms of the First Articles of Incorporation, pursuant to
Rights require the consent of the General Minnesota law, provide that the affirmative
Partner. The General Partner may in some vote of the holders of at least 75% of the
circumstances amend the Partnership Agreement voting power of all outstanding shares enti-
without the consent of BAC Holders to correct tled to vote is required for the removal of a
certain deficiencies or comply with certain director, with or without cause, from office.
legal requirements.
If the Corporation has more than one class of
stock outstanding in the future, class voting
will
Under Delaware law, a merger requires the ap- be required on certain matters that generally
proval of the General Partner and approval of have a material adverse effect on shares of a
a majority in interest of BAC Holders, unless particular class.
otherwise provided in the relevant
partnership agreement. The Partnership
Agreement is silent as to mergers.
RIGHTS TO CALL SPECIAL MEETINGS AND SUBMIT PROPOSALS
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnership Agreement provides that the Special meetings of shareholders may be
General Partner or BAC Holders holding at called for any purpose or purposes at any
least 10% of the outstanding BACs may call a time, by (i) the Corporation's chief
meeting of the Partnership. The Partnership executive officer, (ii) the Corporation's
Agreement provides that any request for a chief financial officer, (iii) by the Board
meeting must state the purpose of the of Directors or any two or more members
proposed meeting and the matters to be acted thereof, or (iv) a shareholder or
upon at such meeting, and no matter may be shareholders holding 10% or more of the
acted upon at the meeting other than as set voting power of all shares entitled to vote;
forth in such request or as otherwise except that a special meeting for the pur-
permitted by the General Partner. pose of considering any action to directly or
indirectly facilitate or effect a business
combination, including any action to change
or otherwise affect the composition of the
Board of Directors for that purpose, must be
called by 25% or more of the voting power of
all shares entitled to vote.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
REMOVAL OF GENERAL PARTNER AND DIRECTORS OF THE CORPORATION
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
BAC Holders may, by vote of two-thirds in Under the Corporation's Articles of
interest, remove any General Partner from the Incorporation, the Corporation will have a
Partnership with or without cause and consent classified or staggered Board of Directors
to the appointment of a replacement therefor. and any one or all of the directors may be
If the General Partner is removed for cause, removed at any time, with or without cause,
the removed General Partner shall transfer, by the affirmative vote of the holders of 75%
for no consideration, its entire general of the voting power of all outstanding shares
partnership interest to any successor chosen entitled to vote, voting together as a single
by BAC Holders. If a General Partner has been class.
removed without cause, the removed General
Partner can compel any successor to purchase
its general partnership interest at the then
"fair market value" of such interest. The
then fair market value of the removed General
Partner's interest shall be the sum of (i)
the present value of such interest over the
life of the Partnership plus (ii) the present
value of the annual management fee of
$500,000 over the life of the Partnership.
The fair market value shall be determined by
agreement of the removed General Partner and
its successor, or if they cannot agree, by
arbitration.
LIQUIDATION RIGHTS
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
Upon liquidation of the Partnership, BAC In the event of a liquidation of the
Holders share in any assets available for Corporation, the holders of Common Stock
distribution in accordance with the would be entitled to share ratably in any
applicable provisions of the Partnership assets remaining after the satisfaction of
Agreement. The liquidation provisions obligations to creditors and any liquidation
generally provide that the assets of the preferences of any series of preferred stock
Partnership remaining after the payment of of the Corporation that may be then out-
all of its debts and liabilities, and the standing. Under the Articles of
establishment of a reasonable reserve in Incorporation, the Board of Directors is
connection therewith, will be distributed to authorized to issue up to 20,000,000 shares
the General Partner and BAC Holders in of preferred stock in one or more series and
accordance with their respective capital to fix and determine relative rights and
account balances. preferences, including with respect to
preferences on liquidation.
ASSESSMENTS AND LIMITED LIABILITY
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
Under the terms of the Partnership Agreement, Shares of Common Stock will be fully paid and
BAC Holders are not subject to additional nonassessable. Shareholders generally will
assessments. The liability of BAC Holders not be personally liable for obligations of
with respect to the activities of the the Corporation. In certain circumstances,
Partnership is generally limited to their they may be liable for amounts distributed or
original capital contributions, any returned to them.
additional capital contributions, and their
share of assets and undistributed profits. In
certain circumstances, they may be liable for
amounts distributed or returned to them.
Under Delaware law, BAC Holders may be
personally liable for the obligations of the
Partnership to the extent that they, in
addition to exercising their rights as BAC
Holders, also take part in the control of
Partnership business.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
TRANSFERABILITY
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The BACs are listed for trading on the The Common Stock will be freely transferable
American Stock Exchange and the Pacific Stock and application will be made for listing the
Exchange. The Partnership may restrict or Common Stock on the American Stock Exchange
terminate transferability to prevent and the Pacific Stock Exchange.
termination of the Partnership under federal
tax law or to preserve the tax status of the
Partnership as a partnership.
REDEMPTION RIGHTS
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
There are no mandatory or optional redemption The Common Stock is not subject to mandatory
provisions in the Partnership Agreement. or optional redemption.
CHANGE OF CONTROL
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
There is no provision in the Delaware Revised Minnesota law (i) restricts specified
Uniform Limited Partnership Act or in the transactions with a shareholder acquiring 10%
Partnership Agreement, except as described or more of the voting shares of the
above under "-- Removal of General Partner Corporation unless the share acquisition or
and Directors of the Corporation," that transaction is approved by the Board of
restricts change of control transactions with Directors prior to the acquisition of such
partners. Changes in management can only be 10% interest, and (ii) requires approval by
effected by removal of the General Partner. disinterested shareholders of any acquisition
of voting power above specified levels of
ownership of the Common Stock. The
Corporation will have a classified or
staggered Board of Directors, and its Ar-
ticles of Incorporation require a 75% vote of
all outstanding shares to remove a director,
with or without cause, which may have the
effect of making a change of control move
difficult. See "Description of Capital Stock
-- Anti-takeover Provisions."
MANAGEMENT AND COMPENSATION
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The business and affairs of the Partnership The business and affairs of the Corporation
are managed by the General Partner subject to are managed by or under the direction of the
certain narrow limitations. Pursuant to the Board of Directors of the Corporation. The
Management Agreement, EIPCC, the managing individuals who will become directors of the
general partner of the General Partner, Corporation on or before consummation of the
receives an annual management fee of Conversion are described in "Management --
$500,000. In addition, the General Partner Directors and Executive Officers of the
and its affiliates are entitled to Corporation after the Conversion." The
reimbursement from the Partnership for the Articles of Incorporation of the Corporation
actual out-of-pocket costs of direct provide that for so long as the Board of
telephone and travel expenses incurred by Directors consists of three or more persons,
them on Partnership business, direct directors shall be divided into three
out-of-pocket fees, expenses and charges paid classes, with each class of directors serving
by them to third parties for rendering legal, a three-year term, staggered among the
consulting, auditing, accounting, book- classes. Approximately one-third of the Board
keeping and computer services, expenses of of Directors will be elected annually by
preparing and distributing reports to BAC shareholders to serve for three-year terms.
Holders, the cost of compliance with all An affirmative vote of 75% of the voting
state and federal regulatory requirements and power of all outstanding shares entitled to
stock exchange listing fees and charges and vote is required for the removal of a
other payments to third parties for services director, with or without cause, from office.
rendered to the Partnership. The General
Partner and Operating General Partner also
receive their respective allocated shares of
Partnership distributions. See "-- Dis-
tributions and Dividends."
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
INDEMNIFICATION
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnership Agreement provides that the The Corporation is required by Minnesota law
Partnership will indemnify the General to indemnify all officers and directors of
Partner, its employees, agents or affiliates the Corporation for expenses and liabilities
against any liability, loss or damage (including attorneys' fees) incurred as the
(including attorneys' fees) incurred by any result of proceedings against them in
such person in connection with the connection with their capacities as officers
Partnership in respect of services or duties or directors. In order to be entitled to in-
performed on behalf of the Partnership, demnification with respect to a purported act
provided that any such liability, loss or or omission, an officer or director must (i)
damage did not result from such person's have acted in good faith, (ii) have received
actual fraud, gross negligence, willful or no improper personal benefit, (iii) in the
wanton misconduct or breach of fiduciary case of a criminal proceeding, have had no
duty. In addition, any act or omission, if reasonable cause to believe the conduct to be
done or omitted to be done in reliance on the unlawful, and (iv) reasonably believed that
opinion of independent legal counsel, public the conduct was in the best interests of the
accountants or consultants selected with Corporation. See, also, the description of
reasonable care, will be conclusively the indemnification provisions of the Merger
presumed to have been done or omitted in good Agreement under "The Conversion --
faith and not to constitute gross negligence Description of the Merger Agreement."
or willful or wanton misconduct. See, also,
the description of the indemnification
provisions of the Merger Agreement under "The
Conversion -- Description of the Merger
Agreement."
FIDUCIARY DUTIES
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
Under Delaware law, the General Partner of Under Minnesota law, a director of a
the Partnership has fiduciary duties of good corporation must discharge the duties of the
faith, loyalty and fair dealing to BAC position of director in good faith, in a
Holders in the management of Partnership manner the director reasonably believes to be
affairs. in the best interests of the corporation, and
with the care an ordinarily prudent person
would exercise under similar circumstances.
LIMITS ON MANAGEMENT'S LIABILITY
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
As a general matter of Delaware law, the The Corporation's Articles of Incorporation
General Partner has liability for the payment contains a provision that limits the
of the obligations and debts of the liability of the Corporation's directors as
Partnership unless limitations on such permitted by the Minnesota Business
liability are stated in the document or Corporation Act. The provision eliminates
instrument evidencing the obligation. Under personal liability of a director to the
the Partnership Agreement, none of the Corporation or its shareholders for monetary
General Partner, its employees, agents or damages for a breach of fiduciary duty. The
affiliates will have any liability to the provision does not change the liability of a
Partnership or BAC Holders for any liability, director for a breach of duty of loyalty to
loss or damage that did not result from such the Corporation or to shareholders, acts or
person's actual fraud, gross negligence, omissions not in good faith or which involve
willful or wanton misconduct or breach of intentional misconduct or a knowing violation
fiduciary duty. of the law, or an act or omission for which
the liability of a director is expressly
provided for in an applicable statute, or in
respect of any transaction from which a
director received an improper personal gain.
Pursuant to the Articles of Incorporation,
the liability of directors will be further
limited or eliminated without action by
shareholders if Minnesota law is amended to
further limit or eliminate the personal
liability of directors.
An officer of the Corporation is required by
Minnesota law to discharge duties in good
faith, in a manner which the officer believes
to be in the best interests of the
Corporation, and with the care which an
ordinary prudent person in a like position
would exercise under similar circumstances.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
APPRAISAL RIGHTS
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
Generally, none. However, the Merger Subject to certain exceptions, Minnesota law
Agreement provides for rights similar to the provides that a shareholder who does not
appraisal rights of common stock under the approve of a proposed amendment to the
Delaware General Corporation Law in Articles of Incorporation that materially and
connection with the Merger. See "Appraisal adversely affects certain rights or
Rights." preferences of the dissenting shareholder or
certain fundamental corporate changes may
obtain payment of the fair value of such dis-
senting shareholder's shares.
DURATION OF INVESTMENT
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnership Agreement provides that the Minnesota law and the Corporation's Articles
Partnership is to be dissolved and its of Incorporation provide that the Corporation
affairs wound up on the first to occur of (i) shall have a perpetual existence. Therefore,
December 31, 2037, (ii) the bankruptcy of the investors in the Corporation would have to
Partnership, (iii) the retirement, death, sell their shares of Common Stock in order to
dissolution, legal disability or the passage liquidate their investment.
of 120 days after the bankruptcy of a General
Partner, subject to the right of any re-
maining General Partner(s) or, in lieu
thereof, the vote of all BAC Holders to
continue the Partnership, (iv) the sale or
other disposition of all or substantially all
of the assets of the Partnership or of the
Operating Partnership, (v) the vote by two-
thirds in interest of BAC Holders to dissolve
the Partnership, or (vi) the happening of any
other event causing the dissolution of the
Partnership under the laws of the State of
Delaware.
RIGHT TO INVESTOR LISTS
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
Any BAC Holder or (a duly authorized Under Minnesota law, upon written request, at
representative of a BAC Holder) has the right reasonable times and for a proper purpose, a
to receive by mail, upon written request to shareholder shall have the right to examine
the Partnership and at such BAC Holder's sole and copy relevant corporate records including
cost and expense, a copy of a list of names the Corporation's share register.
and addresses of BAC Holders and the number
of BACs owned by each of them, provided that
such request is for a purpose that is
reasonably related to such BAC Holder's
interest in the Partnership.
INSPECTION OF BOOKS AND RECORDS
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnership Agreement provides that books Under Minnesota law, upon written request, at
and records of account be kept at the reasonable times and for a proper purpose, a
principal place of business of the shareholder shall have the right to examine
Partnership and be open to inspection by any and copy relevant corporate records including
BAC Holder (or by an authorized the Corporation's share register.
representative of a BAC Holder) upon rea-
sonable notice and during ordinary business
hours.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
DILUTION
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The Partnership Agreement permits the The Board of Directors of the Corporation is
issuance of additional BACs, pursuant to authorized to issue up to 80,000,000 shares
which the interests in the assets, of Common Stock and up to 20,000,000 shares
liabilities, cash flow and results of of preferred stock. At the completion of the
operations of the Partnership represented by Conversion, 18,110,684 shares of Common Stock
the BACs, but not the general partnership and no shares of preferred stock will be
interest, may be diluted. Issuance of outstanding and 312,500 shares of Common
additional BACs could dilute the existing BAC Stock will be reserved for issuance for
Holders' equity interests in the Partnership, previously granted First Rights under
but not the general partnership interest. employee compensation plans. Issuance of
additional authorized shares of Common Stock
as well as issuance of shares of preferred
stock could dilute the existing shareholders'
equity interest in the Corporation.
INVESTMENT POLICY
<CAPTION>
BACS COMMON STOCK
- --------------------------------------------- ---------------------------------------------
<S> <C>
The purpose of the Partnership was to The Corporation may engage in any and all
acquire, own and operate Polaris through the activities permitted by law. The Corporation
Operating Partnership. The Operating may borrow money and make acquisitions.
Partnership may engage in any and all
activities related to or incidental to the
foregoing activities. The Partnership and the
Operating Partnership have the power to
borrow money.
</TABLE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material federal income tax
considerations relating to the Conversion. The discussion reflects, as to those
matters noted, the opinion of Stroock & Stroock & Lavan, counsel to the
Partnership and the General Partner. The discussion does not address all aspects
of taxation that may be relevant to particular taxpayers in light of their
personal circumstances, or to certain types of taxpayers (including dealers in
securities, insurance companies, non-U.S. persons, financial institutions and
tax-exempt entities) subject to special treatment under the federal income tax
laws, and the opinion of counsel set forth herein, to the extent relevant, is
not addressed to such persons. The Partnership and the General Partner have not
requested and do not intend to request a ruling from the Internal Revenue
Service (the "Service") concerning any of the matters discussed herein. An
opinion of counsel is not binding on the Service or the courts, and no assurance
can be given that the Service will not challenge the tax treatment of certain
matters discussed herein or, if it does, that it will be unsuccessful.
Accordingly, each BAC Holder should consult its tax advisor as to the specific
tax consequences of the Conversion and the receipt of Common Stock, including
the application and effect of state or local income and other tax laws.
The following discussion is based on existing provisions of the Code,
existing and proposed regulations, existing administrative interpretations and
court decisions. Future legislation, regulations, administrative interpretations
or court decisions could significantly change such authorities either
prospectively or retroactively.
54
<PAGE>
SUMMARY OF TAX CONSEQUENCES TO BAC HOLDERS
In the Conversion, each BAC Holder will receive one share of Common Stock
for each BAC held. The tax treatment of the Conversion to a BAC Holder is
expected to be as follows:
- BAC Holders will not recognize gain or loss on the receipt of shares of
Common Stock in exchange for their BACS.
- BAC Holders' tax basis in Common Stock received will be determined with
reference to the tax basis of their BACs exchanged therefor immediately
prior to the Conversion.
The precise tax treatment to individual BAC Holders will depend on each BAC
Holder's particular situation.
With respect to the tax consequences to BAC Holders who exercise Appraisal
Rights, see "--
Exercise of Appraisal Rights" below.
PARTNERSHIP STATUS AND TAXATION OF THE PARTNERSHIP
Each of the Partnership and the Operating Partnership is properly classified
for federal income tax purposes as a partnership rather than an association
taxable as a corporation. The Partnership received a ruling from the Service
that its manufacture and production of personal watercraft did not constitute a
new line of business for purposes of maintaining its status as a grandfathered
publicly-traded partnership.
Currently, the Partnership is not itself subject to federal income tax.
Rather, each BAC Holder is subject to income tax based on its allocable share of
Partnership taxable income, gain, loss, deduction, and credits, whether or not
any cash is actually distributed to such BAC Holder. The federal income tax
benefits resulting from the pass-through nature of the Partnership, however, are
offset in part by the additional administrative expenses associated with tax
reporting and other costs associated with operating in partnership form.
The Revenue Act of 1987 amended the Code to treat certain publicly-traded
partnerships as corporations rather than partnerships for federal income tax
purposes. Under a transition rule, however, an existing publicly-traded
partnership, such as the Partnership, will not be classified as a corporation
until the earlier of (i) the partnership's first taxable year beginning after
December 31, 1997, or (ii) the time at which the partnership adds a new line of
business that is substantial. In certain circumstances, an activity conducted by
a corporation controlled by an existing partnership may be treated as an
activity of the existing partnership if the effect of the arrangement, based
upon all the facts and circumstances, is to permit the partnership to engage in
an activity the income from which is not subject to a corporate-level tax and
which would be a new line of business if conducted directly by the partnership.
Under the above-described transition rule, the Partnership will be taxed as a
corporation no later than its taxable year beginning on January 1, 1998. At that
time the Partnership will be treated as if it had transferred all of its assets
(subject to its liabilities) to a newly formed corporation in exchange for the
stock of the corporation, and then distributed such stock to its partners in
liquidation of their interests in the Partnership. Upon classification as a
corporation for tax purposes, the Partnership would be subject to federal income
tax on its earnings at a current maximum effective rate of 35%.
GENERAL TAX TREATMENT OF THE MERGER AND ISSUANCE OF COMMON STOCK
The Partnership has been a Delaware limited partnership since it began
operations in 1987. As two of the steps forming part of a single integrated
transaction resulting in BAC Holders becoming shareholders of the Corporation,
(i) pursuant to the Merger, the Transitory Partnership will merge with and into
the Partnership, with the Partnership surviving, and (ii) shares of Common Stock
will be issued by the Corporation directly to BAC Holders in exchange for their
BACs.
There is no specific authority dealing with the merger of a new limited
partnership into an existing limited partnership under circumstances similar to
the Merger. Accordingly, counsel cannot predict with certainty how the Merger
and issuance of Common Stock will be treated for federal
55
<PAGE>
income tax purposes. However, counsel is of the opinion that (i) the formation
and existence of the Transitory Partnership, and its subsequent merger with and
into the Partnership, will be disregarded for federal income tax purposes, and
(ii) BAC Holders will be treated as exchanging directly their BACs for shares of
Common Stock in an exchange described in Section 351(a) of the Code, pursuant to
which BAC Holders should not recognize gain or loss. The Partnership will be
treated as continuing in existence for federal income tax purposes, following a
constructive termination and reconstitution, with the Corporation, EIPCC, and
the General Partner as the sole partners.
Counsel's opinion that (i) the formation and existence of the Transitory
Partnership, and its subsequent merger with and into the Partnership, will be
disregarded for federal income tax purposes, and (ii) BAC Holders will be
treated as exchanging directly their BACs for Common Stock of the Corporation,
is based on the federal income tax treatment of analogous transactions involving
corporations rather than partnerships. It is well settled, and the Service has
issued published rulings to the effect that, if a parent corporation forms a
transitory subsidiary corporation and merges it into a another corporation to
enable the parent to acquire the stock of such other corporation, the merger of
the transitory subsidiary corporation into such other corporation will be
ignored, and the shareholders of the target corporation will be treated as
receiving directly from the parent corporation stock or other property of the
parent in exchange for their shares of the target. In addition, the Service has
issued private letter rulings addressing the treatment of transactions in which
a corporation forms a transitory partnership and merges it into an existing
partnership as a means of transforming the partners of the existing partnership
into shareholders of the corporation. The conclusions expressed in the private
letter rulings are consistent with the treatment of the Merger and issuance of
Common Stock expressed above. BAC Holders should be aware that, unlike published
rulings, private letter rulings cannot be cited as authority, and may be relied
upon only by the taxpayer requesting the ruling, although the conclusions
expressed therein are indicative of the Service's thinking on a particular
matter.
The Partnership and the Corporation intend to treat, for federal income tax
purposes, the Merger and issuance of Common Stock in accordance with the
positions reflected in the foregoing opinions and to prepare reports and tax
information accordingly. Except as otherwise noted, the following discussion
assumes the correctness of such treatment.
CERTAIN TAX CONSEQUENCES OF THE MERGER AND ISSUANCE OF COMMON STOCK TO BAC
HOLDERS
NONRECOGNITION OF GAIN OR LOSS. Section 351(a) of the Code provides, in
general, that no gain or loss is recognized upon the transfer by one or more
persons of property (such as partnership interests) to a corporation solely in
exchange for stock in such corporation if, immediately after the exchange, such
person or persons are in control of the corporation to which the property was
transferred. Section 368(c) of the Code defines control as the ownership of
stock possessing at least 80% of the total combined voting power of all classes
of stock entitled to vote and at least 80% of the total number of shares of all
other classes of stock. Section 351(b) of the Code provides that if money or
other property ("boot") is received in addition to stock in an otherwise
qualifying transaction, taxable income must be recognized in an amount equal to
the lesser of (i) any gain realized on the exchange or (ii) the amount of boot
received. For this purpose, gain realized is generally equal to the excess, if
any, of (x) the amount of cash and the fair market value of stock and other
property received from the corporation over (y) the adjusted basis of property
transferred to the corporation. In determining realized gain, a Partner's share
of partnership liabilities is treated as cash received upon the transfer.
Section 357(c) of the Code generally provides that if the sum of the liabilities
assumed in the Section 351 exchange exceeds the aggregate tax basis of the
assets transferred in the exchange, such excess is treated as gain from the sale
or exchange of the assets transferred. Section 752 of the Code generally
provides that a partner's tax basis for its partnership interest includes its
share of the liabilities of the partnership, as determined under Treasury
regulations. A published ruling issued by the Service holds that upon the
transfer of a partnership interest to a corporation in a Section 351
transaction, the transferor's share of partnership liabilities is treated as
assumed by the corporation for purposes of Section 357(c) of the Code.
56
<PAGE>
Assuming the Merger and issuance of Common Stock is treated for federal
income tax purposes in the manner described above under "-- General Tax
Treatment of the Merger and Issuance of Common Stock," it is counsel's opinion
that the exchange by BAC Holders of their BACs for shares of Common Stock will
be treated as part of a transaction described in Code Section 351(a).
Accordingly, BAC Holders will incur no federal income tax liability as a result
of the exchange of their BACs for shares of Common Stock. BAC Holders will not
be permitted to recognize a loss on the exchange. This conclusion is based on
the assumption that (i) BAC Holders exchanging BACs and the affiliates of the
General Partner exchanging their interests in the General Partner and its
affiliates (together, the "Transferors") to the Corporation as steps in the
integrated transaction consisting of the Merger and issuance of Common Stock and
related transactions will own, immediately after such transfers, more than 80%
of the only class of stock of the Corporation and (ii) not more than 20% of the
shares of Common Stock transferred to the Transferors pursuant to the Conversion
will be subsequently disposed of pursuant to contracts or other formal or
informal agreements entered into prior to the Conversion (the "Control
Assumption"). If the Control Assumption were not correct, each BAC Holder would
recognize gain or loss on the Conversion as if the BAC Holder had sold its
interest in the Partnership in a taxable transaction for an amount equal to the
value of the Common Stock received in the Conversion. Counsel is not aware of
any contracts or other formal or informal agreements entered into by persons
receiving shares of Common Stock to dispose of such shares. Notwithstanding the
above, any BAC Holders who are treated as receiving shares of Common Stock in
exchange for services will be taxed on the receipt of the Common Stock to the
extent of the value thereof.
Based on information provided by the Partnership's independent accountants,
no portion of the liabilities of the Partnership has ever been allocated to BAC
Holders. In this circumstance, a BAC Holder's share of liabilities of the
Partnership cannot exceed the tax basis of such BAC Holder's BACs, eliminating
the possibility of any gain recognition by a BAC Holder on the exchange of BACs
for shares of Common Stock under Section 357(c) of the Code.
BASIS AND HOLDING PERIOD OF COMMON STOCK. It is counsel's opinion that the
basis of the Common Stock that a BAC Holder receives will be equal to the
aggregate basis of its BACs immediately prior to the Merger.
A former BAC Holder's holding period for Common Stock received in the
Conversion will include such BAC Holder's holding period for BACs, provided such
BAC Holder held the BACs as capital assets at the time of the Conversion. Under
a ruling issued by the Service, to the extent the Common Stock received by a BAC
Holder is attributable to the holder's share of Partnership unrealized
receivables, substantially appreciated inventory and certain other items
including depreciation recapture ("Section 751 assets") that are neither Section
1231 assets nor capital assets of the Partnership, the BAC Holder's holding
period for such Common Stock would commence on the day following the date of the
Conversion. Due to such allocation, former BAC Holders would have a split
holding period for their Common Stock. The Corporation intends to advise former
BAC Holders of the Corporation's estimate of the percentage of such "Section
751" assets that were held by the Partnership on the date of the Merger.
If the Control Assumption described above is not correct and a BAC Holder's
exchange of BACs for Common Stock is treated as a taxable transaction, each BAC
Holder's basis in the Common Stock received would be equal to the value of the
Common Stock received in the Conversion, and each BAC Holder's holding period in
the shares of Common Stock received would begin on the day following the date of
the Conversion.
57
<PAGE>
OTHER TAX ISSUES AFFECTING BAC HOLDERS
PARTNERSHIP INCOME AND LOSS FOR YEAR OF MERGER. Because the Partnership is
characterized as a partnership for federal income tax purposes, each BAC Holder
currently is required to take into account its allocable share of each item of
income, gain, loss, deduction and credit generated by the Partnership. For the
year in which the Merger occurs, BAC Holders will be allocated the income,
gains, losses, deductions and credits generated by the Partnership for the
period ending with the Merger regardless of the amount of cash attributable to
such net income that is distributed to BAC Holders. If a BAC Holder's taxable
year differs from the calendar year, there could be a "bunching" of more than
one year of the Partnership's income or loss in such BAC Holder's tax return for
such taxable year. The General Partner intends to advise BAC Holders as to the
amount of income allocated to them for the period ending with the Merger.
EXERCISE OF APPRAISAL RIGHTS
RECOGNITION OF TAXABLE GAIN OR LOSS. Except as described below, a BAC
Holder that holds its BACs as capital assets at the time of the Merger and that
exercises its Appraisal Rights probably will recognize capital gain or loss at
the time of the Merger equal to the difference between the amount realized by
such BAC Holder and such BAC Holder's basis in its BACs. For this purpose, the
amount realized generally should equal the trading value of the BACs held by
such BAC Holder immediately prior to the Merger. Ordinary interest income (or
capital loss) should be recognized by such BAC Holder upon the receipt of
payment pursuant to the exercise of such BAC Holder's Appraisal Rights to the
extent such payment exceeds (or is less than) the amount realized by such BAC
Holder at the time of the Merger, as described above. BAC Holders should consult
their tax advisors to determine the amount of gain or loss they would recognize
on their exercise of Appraisal Rights.
CHARACTER OF GAIN OR LOSS. A portion of any gain realized at the time of
the Merger as a result of the exercise of Appraisal Rights (as described above)
will be taxed as ordinary income pursuant to Section 751(a) of the Code to the
extent that such gain is attributable to a BAC Holder's share of the
Partnership's Section 751 assets. The Corporation intends to provide former BAC
Holders with information to assist them in determining the portion of their gain
attributable to the Partnership's Section 751 assets.
Under certain circumstances, a BAC Holder that exercises Appraisal Rights
may be taxed on ordinary income attributable to Section 751 assets in excess of
the amount of gain otherwise recognized by reason of the Conversion; in which
case such BAC Holder would also have a capital loss equal to the amount of such
excess ordinary income. Alternatively, such ordinary income may be recognized
even if a BAC Holder incurs a net taxable loss by reason of the Conversion.
CAPITAL GAINS AND LOSSES. In the case of individuals, there is currently a
maximum tax rate differential of 11.6 percentage points between long-term
capital gains and ordinary income. That is, ordinary income generally is taxed
at a maximum rate of 39.6%, whereas net long-term capital gains are taxed at a
maximum rate of 28%. Under present law, gain recognized on a capital asset held
for more than one year on the date of disposition is treated as long-term
capital gain. Net capital losses of individuals are deductible against ordinary
income only to the extent of $3,000 per year, but are fully deductible against
other capital gains of the taxpayer.
TAX CONSEQUENCES TO THE CORPORATION AND THE PARTNERSHIP
The following discussion assumes that the Merger and issuance of Common
Stock will be treated for federal income tax purposes in the manner described
above under "-- General Tax Treatment of the Merger and Issuance of Common
Stock." In counsel's opinion, the acquisition by the Corporation of the various
partnership interests (including the BACs) and other interests as a result of
the Merger and issuance of Common Stock and related transactions will not give
rise to the recognition of gain or loss by the Corporation or the Partnership,
and the basis of the BACs received by the Corporation in exchange for shares of
Common Stock will be determined by reference to the tax basis of the BACs in the
hands of the exchanging BAC Holders immediately prior to the Conversion.
58
<PAGE>
The acquisition of BACs by the Corporation will result in a constructive
termination of the Partnership for federal income tax purposes under Section 708
of the Code. This section provides that a "sale or exchange" (which includes a
transfer in connection with a Section 351 transaction) of 50% or more of the
total interest in a partnership's capital and profits within a 12-month period
terminates a partnership for tax purposes. Upon such termination, there is a
hypothetical liquidation and distribution of the partnership's assets to the
transferees of the partnership interests and the remaining partners, and a
hypothetical contribution of the assets to the partnership, which for tax
purposes is considered a new partnership. The constructive termination of the
Partnership under Section 708 of the Code will result in the deferral or loss of
substantial depreciation deductions for the year in which the Conversion occurs
and subsequent years, but is not expected to produce other material adverse tax
consequences to the Corporation or the Partnership.
As part of the Conversion, the Operating Partnership will be merged with the
Partnership. The merger of the Operating Partnership and the transfer of its
assets to the Partnership will not result in the recognition of gain or loss to
the Partnership or the Operating Partnership.
The computation of the Partnership's adjusted tax basis in its assets
subsequent to the Conversion and constructive termination of the Partnership
should be determined by reference to the Corporation's basis in the BACs it
acquires in the Conversion. Such computation will depend in part on
determinations of the adjusted tax basis and the relative fair market values of
the assets held by the Partnership prior to the Merger and the effect of Section
743 of the Code on the adjusted tax basis of the Partnership's assets. The
technical rules governing these matters are complex, and there can be no
assurance that the Service will not challenge the manner in which the
Partnership computes the adjusted tax basis of its assets, and depreciation and
amortization with respect thereto.
POST-CONVERSION TREATMENT OF THE CORPORATION AND ITS SHAREHOLDERS
TAXATION OF THE CORPORATION'S INCOME AND LOSSES. The Corporation will be
the common parent corporation of an affiliated group of corporations (the
"Group") (which will include EIPCC), which will file a consolidated federal
income tax return. The group's net income, which will include the Partnership's
net income, will be subject to federal corporate income and state income,
franchise and other taxes.
DISTRIBUTIONS BY THE CORPORATION. In general, any money or property
distributed by the Corporation to its shareholders, other than in complete
liquidation of the Corporation or redemption of all or a portion of a
shareholder's interest in the Corporation (if certain tests contained in Section
302(b) of the Code are satisfied), will be taxable as ordinary dividend income,
classified as investment or portfolio income, to the extent of the Corporation's
accumulated or current earnings and profits for the taxable year of the
distribution. If such distribution exceeds the Corporation's earnings and
profits, the excess will be treated as a non-taxable return of capital, reducing
the shareholder's adjusted basis in the Common Stock (but not below zero); any
remaining portion of the distribution will be taxable to the shareholder as
capital gain if the Common Stock is held as a capital asset. The Corporation
will have no accumulated earnings and profits as it begins operations following
consummation of the Conversion.
In counsel's opinion, the three anticipated special distributions should
constitute corporate distributions rather than additional consideration to BAC
Holders in exchange for their BACs. The right to these additional distributions
belongs solely to the holders of the underlying shares on the applicable record
date. In this sense, the right to the distributions is an attribute of the stock
and not personal to the BAC Holders participating in the Conversion. Counsel's
characterization of the anticipated additional distributions as corporate
distributions is supported by a published ruling of the Service, which treated
additional dividend rights on shares issued by the acquiring corporation in a
reorganization in a similar manner. There can be no assurance that the Service
will not assert that any such additional distributions constitute additional
consideration to the BAC Holders in exchange for their BACs, and if such
treatment were upheld, it is anticipated that any such distributions would be
fully taxable to the BAC Holders.
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Dividends received by domestic corporate shareholders generally will be
eligible for a 70% dividends received deduction under Section 243 of the Code;
such deduction is increased to 80% in the case of a holder of 20% or more of the
Corporation's stock. BAC Holders receiving distributions on Common Stock may
also be affected by the taxable income limitations set forth in Section 246(b),
the holding period requirements of Section 246(c), the debt-financed portfolio
stock limitations of Section 246(a), and the "extraordinary dividend" rules of
Section 1059 of the Code.
Distributions made by the Corporation in connection with a complete
liquidation of the Corporation or a redemption of all or a portion of a
shareholder's interest in the Corporation will be treated as amounts received
from the sale or exchange of the Common Stock, unless the redemption is treated
as a dividend under Section 302 of the Code.
GAIN OR LOSS ON SALE OR EXCHANGE OF COMMON STOCK. Any gain or loss from the
sale or exchange of the Common Stock will be characterized as capital gain or
loss provided the Common Stock is held as a capital asset, unless the Common
Stock is disposed of in a redemption treated as a dividend under Section 302 of
the Code or in another reorganization transaction treated as a dividend. Gain or
loss will be measured by the difference between the amount realized and the
former BAC Holder's adjusted tax basis in the Common Stock sold or exchanged,
and will be a long-term capital gain or loss if the former BAC Holder's holding
period for the Common Stock sold or exchanged is more than one year, and
otherwise will be a short-term capital gain or loss. See "-- Exercise of
Appraisal Rights -- Capital Gains and Losses" above.
UNRELATED BUSINESS TAXABLE INCOME
Certain persons otherwise generally exempt from federal income taxes (such
as pension plans and other exempt organizations) are taxed under Section 511 of
the Code on unrelated business taxable income. Currently, substantially all
taxable income generated by the Partnership is considered unrelated business
taxable income for tax-exempt organizations. Dividends distributed by the
Corporation, and gain from the sale or exchange of Common Stock, will not be
taxed under Section 511 of the Code, except to the extent that the Common Stock
is debt-financed property as that term is defined in Section 514 of the Code.
OTHER TAX ASPECTS
STATE AND LOCAL INCOME, INHERITANCE AND ESTATE TAXES. In addition to
federal income taxes, BAC Holders may be subject to other taxes, such as state
or local income taxes, that may be imposed by various jurisdictions and may be
required to file tax returns through the date of the Merger in those states in
which the Partnership or the Operating Partnership carries on business, or in
which properties owned by either are located. BAC Holders may also be subject to
income, intangible property, estate and inheritance taxes in their states of
domicile. Counsel has expressed no opinion on these matters, and BAC Holders
should consult their advisors with regard to their liability for state and local
income, inheritance, estate and other taxes, as a result of the Merger and
issuance of Common Stock or otherwise.
REPORTING OF THE EXCHANGE. Under Treasury regulations, each BAC Holder who
receives shares of Common Stock in the Conversion must provide certain
information concerning the exchange with its federal income tax return for the
year in which the Conversion occurs. A BAC Holder also will be required to
attach to such income tax return a statement setting forth certain information
with respect to such BAC Holder's share of Section 751 assets and related
matters. The Corporation intends to provide former BAC Holders with information
that will assist them in meeting these requirements.
BACK-UP WITHHOLDING. Under the back-up withholding rules of the Code,
holders of Common Stock may be subject to back-up withholding at the rate of 31%
with respect to dividends paid by the Corporation on the Common Stock unless
such holder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number and certifies under penalty of perjury that the taxpayer
identification number is
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correct and that the holder is not subject to back-up withholding because of a
failure to report all dividends and interest income. Any amount withheld under
these rules will be credited against the holder's federal income tax liability.
The Corporation may require holders of Common Stock to establish an exemption
from back-up withholding or to make arrangements satisfactory to the Corporation
with respect to the payment of back-up withholding.
PROPOSED LEGISLATION
Legislation has been proposed as a part of the implementation of the Uruguay
Round of the General Agreement on Tariffs and Trade which would tax certain
distributions of marketable securities by a partnership. The legislation in its
proposed form would not change the tax treatment to BAC Holders upon the
exchange of their BACs for Company Common Stock, as described above. Counsel
cannot predict whether such legislation will be enacted and, if so, in what form
and whether if such legislation is enacted, such legislation will adversely
affect the tax treatment to BAC Holders and affiliates of the General Partner
transferring interests in the Conversion.
ACCOUNTING TREATMENT OF THE CONVERSION
The Corporation will account for the transaction as a reorganization of
affiliated entities, with the assets and liabilities of the Partnership recorded
at their historical cost basis, except that it will also record deferred tax
assets in accordance with Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, relating to the temporary differences for certain
assets and liabilities at the date of conversion as discussed in Note 1 under
the paragraph "Income Taxes." The costs of the conversion, estimated to be $11
million, will be accounted for as an expense in the statement of operations at
the time of the conversion. Additionally, the Corporation will receive a
significant step-up in the tax basis of the assets and liabilities acquired from
the Partnership and, as a result, will record additional deferred tax assets at
the conversion transaction date. The ultimate determination of the deferred tax
assets discussed in this paragraph will be calculated based on the actual
temporary differences existing at the conversion transaction date. See "Selected
Historical and Pro Forma Financial Information."
VOTING AND PROXY INFORMATION
VOTING PROCEDURES
Under the Partnership Agreement, Polaris Industries Holdings Inc., a
Delaware corporation (the "Initial Limited Partner"), will vote for the sole
benefit of, and in accordance with the written instructions of, BAC Holders with
respect to their BACs held as of the record date for the Special Meeting, with
each BAC Holder being entitled to direct the vote of one Class A Limited
Partnership Interest of the Partnership in respect of each BAC so held. The
General Partner has set the close of business on Monday, November __, 1994 as
the Record Date for the determination of BAC Holders entitled to vote at the
Special Meeting.
VOTE REQUIRED; QUORUM
Approval of the Conversion Proposal will require the affirmative vote of (i)
BAC Holders holding a majority of BACs on the Record Date and (ii) Unaffiliated
BAC Holders (BAC Holders other than the Sponsors and the affiliates of the
General Partner) holding a majority of the BACs held by such persons. The
presence, in person or by proxy, of BAC Holders holding an aggregate of more
than 50% of the outstanding BACs (8,005,221) (including the Initial Limited
Partner acting for and at the direction of BAC Holders) will constitute a quorum
at the Special Meeting. If no choice is specified on a signed proxy delivered to
the Partnership, the BAC Holder returning such proxy will be deemed to have
consented to the Conversion Proposal. As of the Record Date, there were
16,010,441 BACs outstanding. The Sponsors and the affiliates of the General
Partner owning, in the aggregate, approximately 14% of the outstanding BACs,
have advised the Partnership that they will vote in favor of the
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Conversion Proposal. For further information concerning the ownership of BACs by
management and affiliates of the General Partner, see "Security Ownership of
Certain Beneficial Owners and Management."
PROXIES
The accompanying form of Proxy is designed to permit each BAC Holder to
approve, disapprove or to abstain from approving the Conversion Proposal. When a
BAC Holder's Proxy is marked to abstain with respect to the Conversion Proposal,
the BACs represented by the Proxy will be deemed by the General Partner to
constitute disapproval of the Conversion Proposal. Failure to forward a Proxy or
to vote at the Special Meeting will have the same effect as if a BAC Holder had
specified on the Proxy disapproval of the Conversion Proposal.
BAC Holders are urged to promptly return the enclosed Proxy, signed and
dated, in the enclosed postage prepaid envelope to the address set forth below
or by hand delivery to the location indicated below:
Polaris Industries Partners L.P.
c/o Corporate Election Services
P.O. Box 1150
Pittsburgh, PA 15230-9954
To be effective, Proxies must be properly completed, executed, and delivered
to the Partnership as described above on or before the date of the Special
Meeting, unless extended by the General Partner in its sole discretion for as
long as the General Partner deems necessary. The laws of the State of Delaware
pertaining to the validity and use of corporate proxies will govern the validity
and use of Proxies given by BAC Holders, except to the extent such laws are
inconsistent with the Partnership Agreement.
REVOCATION OF PROXIES
BAC Holders will be permitted to revoke their Proxies at any time on or
before the date of the Special Meeting. A BAC Holder who returns a Proxy may
revoke the Proxy at any time on or before that date by (i) giving written notice
to Polaris Industries Partners L.P., c/o Corporate Election Services, P.O. Box
1150, Pittsburgh, PA 15230-9954, of that revocation, (ii) delivering a
later-dated Proxy to the Partnership at the address listed above, or (iii)
voting in person at the Special Meeting.
Delivery of a written notice of revocation may be made in person or by mail.
Any written notice of revocation must specify the name of the BAC Holder as it
appears on the Proxy, must include the number of BACs to which it relates and
must be properly executed.
SOLICITATION OF PROXIES
This solicitation is being made by the General Partner on behalf of the
Partnership. The Partnership will pay the cost of soliciting Proxies and will
reimburse brokerage houses and other nominees for their reasonable expenses of
forwarding proxy materials to beneficial owners of BACs. The Partnership has
retained D.F. King & Co., Inc. to act as Information Agent with respect to the
Conversion. The Information Agent will solicit Proxies from holders of BACs by
mail, telephone, telegram, personal interview or other means and will provide
copies of this Proxy Statement and related proxy materials to holders of BACs.
In connection with such engagement, the Information Agent will receive a fee of
$55,000 and will be reimbursed by the Partnership for reasonable out-of-pocket
expenses, but none of the compensation paid to the Information Agent will be
contingent on the outcome of the solicitation efforts or the result of the
solicitation with respect to the Conversion Proposal or based on the number of
affirmative votes received. In addition, the Partnership and certain directors,
officers and regular employees or representatives of the Partnership, the
Corporation and the General Partner may solicit Proxies by telephone, telegram
or personal interview, as will persons employed by the Information Agent. In
addition, representatives of Polaris may meet with brokers, research analysts
and other
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members of the investment community to discuss the Conversion. Representatives
of Polaris may also contact BAC Holders in person or by telephone, or arrange
meetings with BAC Holders to discuss the Conversion.
INFORMATION AGENT
D.F. King & Co., Inc. has agreed to provide certain services as the
Information Agent for a fee of $55,000 and reimbursement of its expenses.
Requests for assistance regarding the Conversion or the Merger and for copies of
related documents should be directed to the Information Agent at the address and
telephone number set forth on the back cover page of this Proxy Statement.
INDEPENDENT AUDITORS
Representatives of McGladrey & Pullen, the Partnership's independent
auditors, are expected to be present at the Special Meeting and will have an
opportunity to make a statement if they desire to do so and will be available to
respond to appropriate questions.
APPRAISAL RIGHTS
Although neither the Partnership Agreement nor federal or Delaware law
provides any rights for dissenting BAC Holders to have their respective BACs
appraised or redeemed in connection with the Conversion, the Merger Agreement
provides that BAC Holders who satisfy the conditions described below will be
entitled to the rights of appraisal that are provided in Article VII of the
Merger Agreement ("Appraisal Rights") and are similar to statutory rights of
appraisal that stockholders of a Delaware corporation possess under Section 262
("Section 262") of the General Corporation Law of the State of Delaware (the
"DGCL"). However, it is a condition to the Corporation's obligations under the
Merger Agreement (which can be waived by the Corporation) that BAC Holders
owning more than 5% of the outstanding BACs shall have not notified the General
Partner of their intention to exercise their contractual rights of appraisal
under the Merger Agreement in connection with the Conversion. The following
summary of the provisions of Article VII of the Merger Agreement is not intended
to be a complete statement of the relevant provisions of the Merger Agreement
and is qualified in its entirety by reference to the Merger Agreement which is
annexed to this Proxy Statement as Annex D.
If a BAC Holder elects to exercise Appraisal Rights in accordance with the
Merger Agreement, such BAC Holder must satisfy all of the following conditions:
(a) on or before the fifth day prior to the Meeting Date, such BAC
Holder must deliver to the Partnership a written objection to the Conversion
and a notice that, if the Conversion is consummated, such BAC Holder will
exercise Appraisal Rights with respect to all BACs owned by such person,
which objection and notice should reasonably inform the Partnership of the
identity of the BAC Holder and that such BAC Holder demands Appraisal Rights
with respect to the BACs owned by such holder; and
(b) such BAC Holder must not vote in favor of the Conversion (a failure
to vote will satisfy this condition, but voting in favor of or delivering a
Proxy in favor of the Conversion or an unmarked proxy will, in and of
itself, constitute a waiver of such BAC Holder's right to appraisal and will
nullify any previously filed written demand for appraisal); and
(c) such BAC Holder must hold the BACs for which appraisal is sought on
the Record Date and continuously through the Effective Time, and otherwise
comply with the provisions of the Merger Agreement relating to Appraisal
Rights.
The written demand referred to in clause (a) above must be in addition to
and separate from any Proxy abstaining from or voting against the approval of
the Conversion Proposal. Neither voting against, abstaining from voting, nor
failing to vote on the Conversion, will constitute a demand for appraisal within
the meaning of the Merger Agreement.
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Within ten days after the Effective Time, the Corporation will notify by
mail each BAC Holder who has complied with clauses (a) and (b) above that the
Merger has been effected (including the date thereof).
Any BAC Holder who has complied with the requirements of the Merger
Agreement which are described above shall be entitled to receive from the
Corporation, upon a written request made within 120 days after the Effective
Time, a statement setting forth the aggregate number of BACs not voted in favor
of the Conversion and with respect to which demands for appraisal have been
received, and the aggregate number of holders thereof. Such statement shall be
mailed to such BAC Holder within ten days after the later of the date such
request is received and the expiration of the period for delivery of demands for
appraisal.
Within 120 days after the Effective Time, the Corporation or any BAC Holder
who has qualified for an appraisal of BACs under the provisions of the Merger
Agreement may file a petition in the Delaware Court of Chancery (the "Delaware
Court") asking for a finding and determination of the Fair Value (as defined) of
the BACs of all holders of BACs who have perfected Appraisal Rights pursuant to
the Merger Agreement. Notwithstanding the foregoing, any BAC Holder may withdraw
a demand for appraisal within 30 days after the Effective Time (or thereafter
with the Corporation's written approval), provided that no payment for such BACs
has been made, and receive the shares of Common Stock to be issued pursuant to
the Conversion.
Upon the filing of any such petition by a BAC Holder, service of a copy
thereof shall be made upon the Corporation, which shall within 20 days after
such service file in the office of the Register in Chancery of the Delaware
Court in which such petition was filed (the "Register in Chancery") a duly
verified list containing the names and addresses of all BAC Holders who have
demanded appraisal of their BACs in accordance with clauses (a) and (b) above
and not withdrawn such demand. If such petition shall be filed by the
Corporation, the petition shall be accompanied by such a duly verified list. The
Register in Chancery, if so ordered by the Delaware Court, shall give notice of
the time and place fixed for the hearing of such petition by certified or
registered mail to the Corporation and BAC Holders on such list (at the
addresses contained thereon). Such notice shall also be given by one or more
publications at least one week before the day of the hearing in a newspaper of
general circulation in the City of Wilmington, Delaware or such other
publication as the Delaware Court deems advisable. The forms of the notices by
mail and by publication shall be approved by the Delaware Court and the costs
thereof shall be borne by the Corporation.
If a petition for appraisal is timely filed, at the hearing on such
petition, the Delaware Court will determine BAC Holders who have become entitled
to Appraisal Rights and will appraise the BACs owned by such BAC Holders,
determining their Fair Value, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the Fair Value (which interest may be
simple or compound, as the Delaware Court may direct). In determining such Fair
Value and fair rate of interest, the Delaware Court will take into account all
relevant factors. Upon application by the Corporation or any BAC Holder entitled
to participate in the appraisal proceeding, the Delaware Court may in its
discretion permit discovery or other pre-trial proceedings and may proceed to
trial upon the appraisal prior to the final determination of BAC Holders
entitled to an appraisal. Any BAC Holder whose name appears on the duly verified
list filed by the Corporation with the Delaware Court pursuant to the preceding
paragraph may participate fully in all proceedings until it is finally
determined that he or she is not entitled to Appraisal Rights pursuant to the
Merger Agreement as described herein.
The Delaware Court shall direct payment of the Fair Value, together with
interest, if any, by the Corporation to BAC Holders entitled thereto, and the
Corporation shall make such payment forthwith. The Delaware Court's decree shall
be enforceable as other decrees in the Delaware Court. Upon payment of the
judgment, the dissenting BAC Holders shall cease to have any interest in their
BACs or the Corporation.
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BAC Holders considering seeking appraisal of their BACs should bear in mind
that dissenting BAC Holders have no right to receive any shares of Common Stock
with respect to such BACs, and that the Fair Value of the BACs determined under
the Merger Agreement could be more than, the same as, or less than the value of
the Common Stock which they would have received in the Conversion had they not
sought appraisal of their BACs. The costs of the appraisal proceeding may be
determined by the Delaware Court and assessed against the parties to the
proceeding as the Delaware Court deems equitable in the circumstances. Upon
application of a BAC Holder, the Delaware Court may order all or a portion of
the expenses incurred by any BAC Holder in connection with the appraisal
proceeding (including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts) to be charged pro rata against the value of all
the BACs entitled to an appraisal. In the absence of such a determination or
assessment, each party bears its own expenses.
In the event that the foregoing procedures cannot be followed, the Merger
Agreement provides that the Corporation shall implement alternative procedures
designed to produce results substantially similar to those that would be
effected if Section 262 of the DGCL applied to the Merger. The Merger Agreement
provides that if the Delaware Court shall refuse to recognize the rights and
procedures in accordance with Section 262 set forth herein with respect to
dissenting BAC Holders or shall otherwise refuse to follow the procedures set
forth in the Merger Agreement to be followed by it, then the Corporation, within
45 days after learning of such refusal by the Delaware Court, shall make
application to the American Arbitation Association, Inc., Philadelphia Branch,
to select an independent appraiser (the "Special Appraiser") to determine the
Fair Value of the BACs held by all such dissenting BAC Holders. Within 30 days
after the Corporation is notified of the selection of the Special Appraiser, the
Company shall deliver or mail to each dissenting BAC Holder a written notice
stating that a Special Appraiser has been selected and identifying such Special
Appraiser. From and after the delivery or mailing of such notice, all petitions,
lists and other documents that would have been filed with the Delaware Court
pursuant to the Merger Agreement shall be filed with the Special Appraiser and
the Special Appraiser shall retain, maintain and make available such documents
to the Corporation and the dissenting BAC Holders. If any such documents shall
have already been filed with the Delaware Court, the Corporation, at its
expense, shall obtain copies of such documents for the Special Appraiser. The
Special Appraiser shall give any notices that would have been given by, and
perform the functions and take the actions that would have been performed and
taken by, the Delaware Court pursuant the procedures set forth above. The Fair
Value finally determined by the Special Appraiser shall be final and binding
upon all dissenting BAC Holders and the Corporation, and the provisions of the
Merger Agreement with respect to the effect of such determination shall be
applicable as nearly as practicable.
From and after the Effective Time, no BAC Holder who has duly demanded
Appraisal Rights in compliance with the Merger Agreement shall be entitled to
receive any portion of the shares of Common Stock of the Corporation, to vote
such BACs for any purposes, to exercise any other rights of a BAC Holder, or to
receive payment of distributions on such BACs (other than those payable to
holders of record of BACs as of a date prior to the Effective Time); provided,
that if no petition for an appraisal is filed within the time provided by the
Merger Agreement, or if a BAC Holder delivers to the Corporation a written
withdrawal of demand for an appraisal and an approval of the Conversion
Proposal, either within 30 days after the Effective Time or thereafter with the
written approval of the Corporation, then the right of such BAC Holder to an
appraisal will cease. Notwithstanding the foregoing, no appraisal proceeding in
the Delaware Court shall be dismissed with respect to any dissenting BAC Holder
without the approval of the Delaware Court, and such dismissal may be
conditioned on such terms as the Delaware Court deems just.
Failure to take any required step in connection with the exercise of
Appraisal Rights may result in the termination or waiver of such rights. If any
BAC Holder who demands Appraisal Rights with respect to the BACs fails to
perfect, or effectively withdraws or loses, its right to appraisal, each BAC of
such BAC Holder will be converted into shares of Common Stock in accordance with
the Merger Agreement. A BAC Holder will fail to perfect, or effectively lose,
its right to appraisal if no petition for
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appraisal is filed with the Delaware Court within 120 days of the Effective
Time, or if such BAC Holder delivers to the Corporation a written withdrawal of
its demand for appraisal and acceptance of the Conversion (except that any such
attempt to withdraw made more than 30 days after the Effective Time will require
the written approval of the Corporation), or if, after the hearing of a petition
for appraisal, the Delaware Court shall determine that such BAC Holder is not
entitled to the relief provided by the Merger Agreement. In any such case, such
BAC Holder shall be bound by the Conversion and receive shares of Common Stock
in accordance with the terms of the Merger Agreement.
The remedy of Appraisal Rights provided in the Merger Agreement to a BAC
Holder objecting to the Conversion is the exclusive remedy for the recovery of
the value of such holder's BACs or money damages to such BAC Holder with respect
to the Conversion.
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BUSINESS
Polaris designs, engineers and manufactures snowmobiles, four-and six-wheel
all terrain recreational and utility vehicles ("ATVs"), and personal watercraft
("PWC") and markets them, together with related accessories, clothing and
replacement parts through dealers and distributors principally located in the
United States, Canada and Europe. Snowmobiles, ATVs, PWC and clothing,
accessories and parts, accounted for the following approximate percentages of
Polaris' sales for the periods indicated.
<TABLE>
<CAPTION>
CLOTHING,
YEAR ENDED ACCESSORIES
DECEMBER 31, SNOWMOBILES ATVS PWC AND PARTS
- -------------------- ------------ ----- ------ ------------
<S> <C> <C> <C> <C>
1993................ 50% 26% 9% 15%
1992................ 54 25 7 14
1991................ 60 25 0 15
</TABLE>
INDUSTRY BACKGROUND
SNOWMOBILES. In the early 1950s, a predecessor to Polaris produced a "gas
powered sled" which became the forerunner of the Polaris snowmobile. Snowmobiles
have been manufactured under the Polaris name since 1954.
Originally conceived as a utility vehicle for northern, rural environments,
the snowmobile gained popularity as a recreational vehicle. From the mid-1950s
through the late 1960s, over 100 producers entered the snowmobile market and
snowmobile sales reached a peak of approximately 495,000 units in 1971. The
Polaris product survived the industry decline in which snowmobile unit sales
fell to a low point of approximately 87,000 units in 1983 and the number of
snowmobile manufacturers serving the North American market declined to four:
Yamaha, Bombardier, Arctco and Polaris. Polaris estimates that industry sales of
snowmobiles on a world wide basis was approximately 171,000 units for the season
ended March 31, 1994.
ALL TERRAIN VEHICLES. ATVs are four-wheel and six-wheel vehicles with
balloon style tires designed for off road use and traversing rough terrain,
swamps and marshland. ATVs are used for recreation, in such sports as fishing
and hunting, as well as for utility purposes on farms, ranches and construction
sites.
ATVs were introduced to the North American market in 1971 by Honda. By 1980,
the number of ATV units sold in the North American market had increased to
approximately 140,000 units. Other Japanese motorcycle manufacturers, Yamaha,
Kawasaki and Suzuki, entered the North American market in the late 1970s and
early 1980s. In 1985, the number of three-and four-wheel ATVs sold in North
America peaked at approximately 650,000 units. Polaris estimates that since
declining from that level the industry has stabilized and begun growing slowly
with approximately 247,000 ATVs sold worldwide during calendar year 1993.
PERSONAL WATERCRAFT. PWC are sit-down versions of water scooter vehicles,
and designed for use on lakes, rivers, oceans and bays. PWC are used primarily
for recreational purposes and are designed for one, two or three passengers.
Polaris entered the PWC market in 1992. Polaris estimates that the worldwide
market for PWC was approximately 122,000 units in 1993. Other major PWC
manufacturers are Yamaha, Bombardier, Kawasaki and Arctco.
PRODUCTS
SNOWMOBILES. Polaris produces a full line of snowmobiles, consisting of
twenty-six models, ranging from utility and economy models to performance and
competition models, with 1994 suggested retail prices ranging from approximately
$2,450 to $8,150. Polaris snowmobiles are sold principally in the United States,
Canada and Europe. Polaris has the largest share of the worldwide snowmobile
market.
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Polaris believes that the Polaris snowmobile has a long-standing reputation
for quality, dependability and performance. Polaris believes that it and its
predecessors were the first to develop several features for commercial use in
snowmobiles, including independent front suspension, variable transmission,
hydraulic disc brakes, liquid cooled engines and brakes, a three cylinder
engine, and electronic fuel injection. Polaris also markets a full line of
snowmobile accessories, such as luggage, tow hitches, hand warmers, specialized
instrumentation, reverse gear, special traction products, cargo racks, oils,
lubricants, paints and parts.
For the year ended December 31, 1993, snowmobiles accounted for
approximately 50% of Polaris' sales.
ALL TERRAIN VEHICLES. Polaris entered the ATV market in the spring of 1985
with both a three-wheel and a four-wheel product. Polaris initially produced
1,700 three-wheel ATVs, but discontinued its manufacture of the three-wheel
model to concentrate exclusively on the four-wheel and six-wheel products, which
provide more stability for the rider. Polaris' line of ATVs, consisting of ten
models, includes general purpose, sport and four-and six-wheel drive utility
models, with 1994 suggested retail prices ranging from approximately $2,900 to
$6,200.
Polaris' ATV features the totally automatic Polaris variable transmission
which requires no manual shifting and a MacPherson strut front suspension, which
Polaris believes enhances control and stability. Polaris' ATV is also the only
ATV in its class that uses a two cycle engine and chain drive, which Polaris
believes improves performance and efficiency.
Prior to 1989, the ATV industry experienced some softness arising from
publicity surrounding safety-related and environmental concerns. However,
management believes that this market has stabilized somewhat since 1989 and has
begun to resume modest growth.
For the year ended December 31, 1993, ATVs accounted for approximately 26%
of Polaris' sales.
PERSONAL WATERCRAFT. Polaris' most significant recent new product
development was the introduction in 1992 of the Polaris SL650 personal
watercraft, Polaris' first entry into this expanding product category. In 1993
the Polaris SL750 was added for even more power and performance. The SL650 and
SL750 have the industry's first three-cylinder engines developed specifically
for PWC. The introduction of the PWC capitalized on Polaris' engineering,
production and distribution strengths, and also reduced Polaris' dependence on
any single product line for overall sales and profitability. In late 1993
Polaris introduced a new, three passenger PWC, the Polaris SLT750. The 1994
suggested retail prices for Polaris' PWC range from approximately $5,500 to
$6,300. Management believes Polaris is well positioned to take advantage of
opportunities in this growing market through its network of nearly 1,200 PWC
dealers.
For the year ended December 31, 1993, PWC accounted for approximately 9% of
Polaris' sales.
CLOTHING, ACCESSORIES AND REPLACEMENT PARTS. Polaris produces or supplies a
variety of replacement parts and accessories for its snowmobiles, ATVs and PWC.
Polaris also markets a full line of recreational clothing, which includes suits,
helmets, gloves, boots, hats, sweaters and jackets for its snowmobile, ATV and
PWC lines. The clothing is designed to Polaris' specifications, purchased from
independent vendors and sold by Polaris through its dealers and distributors
under the Polaris brand name. Replacement parts and accessories are also
marketed by Polaris.
For the year ended December 31, 1993, clothing, accessories and parts
accounted for approximately 15% of Polaris' sales.
MANUFACTURING OPERATIONS
Polaris' products are assembled at its manufacturing facility at Roseau,
Minnesota. Since snowmobiles, ATVs and PWC incorporate similar technology,
substantially the same equipment and personnel are employed in their production.
Polaris emphasizes vertical integration in its manufacturing process, which
includes machining, stamping, welding, clutch assembly and balancing, painting,
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cutting and sewing, and manufacture of foam seats. Engines, fuel tanks, hoods
and hulls, tracks, tires and instruments, and certain other component parts are
purchased from third party vendors. Polaris manufactures a number of other
components for its snowmobiles, ATVs and PWC. Raw materials or standard parts
are readily available from multiple sources for the components manufactured by
Polaris. Polaris' work force is familiar with the use, operation and maintenance
of the product, since many employees own snowmobiles, ATVs and PWC. In August of
1991, Polaris acquired an additional manufacturing facility in Osceola,
Wisconsin in order to bring more component parts manufacturing in-house. In
August 1994, Polaris signed a one-year lease agreement for a 223,000 square foot
assembly facility located on 24 acres of land in Spirit Lake, Iowa. Polaris has
an option to purchase the facility for $1.85 million at the end of the lease
term. Polaris anticipates utilizing the facility to assemble its PWC product
line, and potentially certain snowmobile and ATV models in the future.
Pursuant to informal agreements between Polaris and Fuji, Fuji has been the
exclusive manufacturer of the Polaris two-cycle snowmobile engines since 1968.
Fuji has manufactured engines for Polaris' ATV products since their introduction
in the spring of 1985 and also supplies engines for the PWC product. Such
engines are developed by Fuji to the specific requirements of Polaris. In the
fall of 1987 Fuji became an investor in the Partnership.
Polaris believes its relationship with Fuji to be excellent. If, however,
its informal relationship were terminated by Fuji, interruption in the supply of
engines would adversely affect Polaris' production pending the establishment of
substitute supply arrangements. Currently, Polaris is in the process of
investigating manufacturing alternatives for its engines to reduce the risk of
dependence on a single supplier and to minimize the effect of Japanese yen
currency fluctuations. Polaris anticipates no significant difficulties in
obtaining substitute supply arrangements for other raw materials or components
for which it relies upon limited sources of supply.
Polaris' products are shipped from its manufacturing facilities by a
contract carrier.
PRODUCTION SCHEDULING
Since snowmobiles are used principally in the northern United States, Canada
and northern Europe in what is referred to as the "snow belt," sales of
snowmobiles to consumers begin in the fall and continue during the winter
season. Orders for each year's production of snowmobiles are placed in the
spring and orders for ATVs and PWC are placed in fall and winter, after meetings
with dealers and distributors, and units are built to order each year. In
addition, non-refundable deposits made by consumers to dealers in the spring for
snowmobiles assist in production planning. The budgeted volume of units to be
produced each year is sold to dealers and distributors prior to production.
Sales activity at the dealer level is monitored on a monthly basis for each of
snowmobiles, ATVs and PWC.
Manufacture of snowmobiles commences in the spring and continues through
late autumn or early winter. Polaris manufactures PWC during the winter and
spring months. Since May 1993, Polaris has the ability to manufacture ATVs year
round. Generally, Polaris commences ATV production in late autumn and continues
through early autumn of the following year. For the past several years, Polaris
has had virtually no carryover inventory at the dealer level of its production
of snowmobiles, ATVs and PWC.
SALES AND MARKETING
With the exception of Illinois, upper Michigan, eastern Wisconsin and
offshore markets, where Polaris sells its snowmobiles through independent
distributors, Polaris sells its snowmobiles directly to dealers in the snowbelt
regions of the United States. Over the past several years, Polaris has placed an
increasing emphasis on dealer-direct as opposed to distributor sales. Snowmobile
sales in Europe are handled through distributors. See Note 7 of Notes to
Financial Statements for discussion of foreign and domestic operations and
export sales.
Most dealers and distributors of Polaris snowmobiles also distribute
Polaris' ATVs and PWC. In the southern region of the United States, where
snowmobiles are not used, Polaris has established a
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direct dealer network. Since the beginning of 1986, Polaris has arranged
approximately 500 dealerships in the southern United States. Unlike its
competitors, which market their ATV products principally through their
affiliated motorcycle dealers, Polaris also sells its ATVs and PWC through lawn
and garden, boat and marine, and farm implement dealers.
Dealers and distributors sell Polaris' products under contractual
arrangements pursuant to which the dealer or distributor is authorized to market
specified products, required to carry certain replacement parts and perform
certain warranty and other services. The dealer and distributor contracts may be
canceled by either party on specified notice. Changes in dealers and
distributors take place from time to time. Polaris believes that a sufficient
number of qualified dealers and distributors exists in all areas to permit
orderly transition whenever necessary.
Polaris has arrangements with Transamerica Commercial Finance Corporation,
The Bank of Nova Scotia and ITT Commercial Finance, a division of ITT Industries
of Canada, to provide floor plan financing for its dealers and distributors.
Substantially all of Polaris' sales of snowmobiles, ATVs and PWC are financed
under arrangements in which Polaris is paid within a few days of shipment of its
product. Polaris participates in the cost of dealer and distributor financing
and is required to repurchase products from the finance companies under certain
circumstances and subject to certain limitations. Polaris has not historically
recorded a sales return allowance because it has not been required to repurchase
a significant number of units in the past. However, there can be no assurance
that this will continue to be the case. If necessary, Polaris will record a
sales return allowance at the time of sale should management anticipate material
repurchases of units financed through the finance companies. See Note 4 of Notes
to Financial Statements.
Polaris does not directly finance the purchase of Polaris snowmobiles, ATVs
or PWC by consumers. However, retail financing plans are offered by certain of
the dealers and Polaris has programs to make consumer financing available to its
dealers through unaffiliated third parties.
Polaris' marketing activities are designed primarily to promote and
communicate directly with consumers and secondarily to assist the selling and
marketing efforts of its dealers and distributors. From time to time Polaris
makes available discount or rebate programs or other incentives for its dealers
and distributors to remain price competitive in order to accelerate reduction of
retail inventories. Polaris advertises its products directly using print
advertising in the industry press and in user group publications, on billboards,
and, less extensively, on television and radio. Polaris also provides media
advertising and partially underwrites dealer and distributor media advertising
to a degree and on terms which vary by product and from year to year. Most
dealer and distributor advertising appears in newspapers and on radio. Each
season Polaris produces a promotional film for its snowmobiles, ATVs and PWC
which is available to dealers for use in the showroom or at special promotions.
Polaris also provides product brochures, leaflets, posters, dealer signs, and
miscellaneous other promotional items for use by dealers.
ENGINEERING, RESEARCH AND DEVELOPMENT
Polaris employs approximately 180 persons who are engaged in the development
and testing of existing products and research and development of new products
and improved production techniques. Polaris believes that Polaris and its
predecessors were the first to develop, for commercial use, independent front
end suspension for snowmobiles, the long travel rear suspension for snowmobiles,
direct drive of the snowmobile track, the use of liquid cooling in snowmobile
engines and brakes, the use of hydraulic brakes in snowmobiles, the three
cylinder engine in snowmobiles and PWC, the use of electronic fuel injection in
snowmobile engines, the adaptation of the MacPherson strut front suspension and
"on demand" four-wheel drive systems for use in ATVs and the application of a
forced air cooled variable power transmission system to ATVs.
Polaris utilizes internal combustion engine testing facilities to design and
optimize engine configurations for its products. Polaris utilizes specialized
facilities for matching engine, exhaust system and clutch performance parameters
in its products to achieve desired fuel consumption, power output,
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noise level and other objectives. Polaris' engineering shop is equipped to make
small quantities of new product prototypes for testing by Polaris' testing teams
and for the planning of manufacturing procedures. In addition, Polaris'
manufacturing facility in northern Minnesota has a proving ground where each of
the products is extensively tested under actual use conditions.
Polaris expended for research and development approximately $4.8 million for
1991, $6.3 million for 1992 and $9.6 million for 1993, which amounts were
included as a component of the cost of sales in the period incurred.
COMPETITION
The snowmobile, ATV and PWC markets in the United States and Canada are
highly competitive. Competition in such markets is based upon a number of
factors, including price, quality, reliability, styling, product features and
warranties. At the dealer level, competition is based on a number of factors
including sales and marketing support programs (such as financing and
cooperative advertising). Certain of Polaris' competitors are more diversified
and have financial and marketing resources which are substantially greater than
those of Polaris. See "-- Industry Background."
Polaris snowmobiles, ATVs and PWC are competitively priced and management
believes Polaris' sales and marketing support programs for dealers are
substantially the same as those provided by its competitors. Polaris' products
compete with many other recreational products for the discretionary spending of
consumers, and, to a lesser extent, with other vehicles designed for utility
applications.
PRODUCT SAFETY AND REGULATION
Snowmobiles, ATVs and PWC are motorized machines which may be operated at
high speeds and in a careless or reckless manner. Accidents involving property
damage, personal injuries and deaths occur in the use of snowmobiles, ATVs and
PWC.
Laws and regulations have been promulgated or are under consideration in a
number of states relating to the use or manner of use of snowmobiles, ATVs and
PWC. State approved trails and recreational areas for snowmobile and ATV use
have been developed in response to environmental and safety concerns. Polaris
has supported laws and regulations pertaining to safety and noise abatement and
believes that its products would be no more adversely affected than those of its
competitors by the adoption of any pending laws or regulations.
In September 1986, the staff of the Consumer Products Safety Commission
("CPSC") ATV Task Force issued a report on regulatory options for ATVs. The Task
Force found, among other things, that: children under 12 years of age are
typically unable to operate any size ATV safely; the dynamic stability of
four-wheel ATVs is better than that of three-wheel ATVs; the risk of accident is
less on a four-wheel ATV (although the risk of death and serious injuries is
equal for three-and four-wheel ATVs once an accident has occurred); and the
number of fatal head injuries could be substantially reduced by the use of
proper helmets. Based on its findings, the Task Force recommended that the ATV
industry voluntarily cease marketing ATVs intended for use by children under 12
years of age. It proposed that warning labels be placed on ATVs intended for use
by children under age 14 stating that these ATVs are not recommended for use by
children under 12, and on adult-sized ATVs stating that these ATVs are not
recommended for use by children under the age of 16. Warning labels were
recommended for use on all ATVs stating that operator training is necessary to
reduce risk of injury or death. The Task Force further recommended that the CPSC
disseminate to the public information regarding ATVs, including findings
describing the relative safety among ATV models. The CPSC staff was directed to
carry out further technical work addressing the performance characteristics of
adult-size ATVs, and to intervene in the development of the ATV voluntary
regulatory standard.
In addition, based upon its findings that most states have not enacted laws
regulating ATVs, the Task Force recommended that the CPSC work closely with
states and other federal agencies to develop practical, uniform state
legislation. Topics to be addressed included minimum operator age
recommendations, licensing or certification standards requiring operator
training, helmet requirements, and prohibitions on the use of alcohol and
controlled-substances while operating ATVs.
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In December 1986, in a follow-up measure to the Task Force Report, the CPSC
voted unanimously to continue efforts with the ATV industry to develop a
voluntary standard regarding the dynamic stability characteristics of ATVs. The
staff was directed to develop an extensive notice program that expands upon the
warning label recommendations proposed by the Task Force. In addition, the CPSC
voted to ask a federal court to declare three-wheel ATVs to be an "imminent
danger". In February 1987, the CPSC formally requested that the Justice
Department initiate an enforcement action against the ATV industry seeking a
voluntary recall of all three-wheel ATVs and four-wheel ATVs sold with the
intention that they be used by children under 16, as well as a requirement that
ATV purchasers receive "hands-on" training. The requested enforcement action
also would call for "direct notice and wide-spread public notice" of the recall.
In May 1987, the CPSC issued a safety alert advising consumers of the potential
risks associated with three-and four-wheel ATVs, and recommending certain safety
measures, including proper training and the use of helmets.
Except for 1,700 three-wheel models initially produced, Polaris manufactures
only four-wheel and six-wheel ATVs. Polaris has always placed warning labels on
its ATVs stating that they are designed for use only by persons aged 16 or older
(which warning was revised in 1987 to provide that only adults over age 18
should operate the vehicle), that operators should always wear proper safety
helmets and that riders should complete proper training prior to operating an
ATV. In May 1987, Polaris responded to the CPSC's proposed enforcement action by
letter, indicating its willingness to adopt additional warning labels and
notices to consumers and its support of various actions designed to enhance
vehicle and user safety.
On December 30, 1987, Polaris reached an agreement with the CPSC regarding
ATV safety. The agreement called for the repurchase of all three-wheel ATVs
remaining in the hands of its distributors and dealers, the provision of
additional safety oriented point-of-purchase materials in all Polaris ATV
dealerships, and the addition of a mandatory "hands on" consumer and dealer
safety training program designed to give all Polaris ATV dealers and consumers
maximum exposure to safe riding techniques, as outlined by the Specialty Vehicle
Institute of America. Polaris conditions its ATV warranties described below
under "-- Product Liability" on completion of the mandatory "hands on" consumer
training program.
Pursuant to the agreement with the CPSC, Polaris has procedures in place for
ascertaining dealer compliance with the provisions of the CPSC consent decree,
including random "undercover" on-site inspections of dealerships to ensure
compliance with the age restriction. In June 1989, the CPSC conducted an
"undercover" survey of 227 ATV dealers selected randomly from a national listing
of dealers representing the five major manufacturers of ATVs, including Polaris.
The study allegedly demonstrated varying degrees of consistency in adherence to
the provisions of the consent decrees regarding not recommending adult-size ATVs
for use by children. The study allegedly demonstrated that some dealers were
ignoring the age restriction completely. The CPSC survey also allegedly
demonstrated non-compliance among certain dealers with point-of-sale information
provisions in the consent decree. Such provisions require the attachment of
safety hang tags to all ATVs and the display of safety posters.
Based on the survey results, the degree of compliance of Polaris' dealers
with the provisions of the consent decree was better than the industry average
in some areas and worse in others. Polaris continually attempts to assure that
its dealers are in compliance with the provisions of the CPSC consent decree.
Polaris has notified its dealers that it will terminate any dealer it determines
to have violated the provisions of the CPSC consent decree. To date, it has
terminated five dealers for such reason.
The Partnership does not believe that the agreement with the CPSC has had or
will have a material adverse effect on the Partnership or Polaris. Nevertheless,
there can be no assurance that future recommendations or regulatory actions by
the CPSC, the Justice Department or individual states would not have an adverse
effect on the Partnership or Polaris. Certain state attorneys-general
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have asserted that the CPSC agreement is inadequate and have indicated that they
will seek stricter ATV regulation. The Partnership is unable to predict the
outcome of such action or the possible effect on its ATV business.
Certain states, notably California and New York, have proposed certain
legislation involving more stringent emissions standards for two-cycle engines.
Such engines are used on Polaris' snowmobiles, ATVs and PWC. However, Polaris
has developed and currently sells a four-cycle engine for its ATVs which
produces lower-emissions. Polaris currently is unable to predict whether such
legislation will be enacted and, if so, the ultimate impact on Polaris and its
operations. Finally, local ordinances are and may from time to time be
considered and adopted which restrict the use of PWC to specified hours and
locations.
PRODUCT LIABILITY
Product liability claims are made against Polaris from time to time. Since
its inception in 1981 through September 30, 1994, Polaris has paid an aggregate
of less than $1.4 million in product liability claims and had accrued $4.4
million at September 30, 1994 for the possible payment of pending claims.
Polaris believes such accruals are adequate. Polaris does not believe that the
outcome of any pending product liability litigation will have a material adverse
effect on the operations of Polaris. However, no assurance can be given that its
historical claims record, which did not include ATVs prior to 1985, or PWC prior
to 1992, will not change or that material product liability claims against
Polaris will not be made in the future.
Polaris' product liability insurance limits and coverages have been
adversely affected by the general decline in the availability of liability
insurance. As a result of the high cost of premiums, and in view of the
historically small amount of claims paid by Polaris, Polaris has been
self-insured since June 1985. Adverse determination of material product
liability claims made against Polaris would have a material adverse effect on
Polaris' financial condition. See Note 8 of Notes to Financial Statements.
Polaris warrants its snowmobiles, ATVs and PWC under a "limited warranty"
for a period of one year, six months, and one year, respectively. For certain of
its products, Polaris also offers for sale to its consumers an extended warranty
contract for an additional one year period. Although Polaris employs quality
control procedures, a product is sometimes distributed which needs repair or
replacement. Historically, product recalls have been administered through
Polaris' dealers and distributors and have not had a material effect on Polaris'
business.
EFFECTS OF WEATHER
Lack of snowfall in any year in any particular region of the United States
or Canada may adversely affect snowmobile retail sales in that region. Polaris
seeks to minimize this potential effect by stressing pre-season sales (see "--
Production Scheduling") and shifting dealer inventories from one location to
another. However, there is no assurance that weather conditions would not have a
material effect on Polaris' sales of snowmobiles, ATVs or PWC.
EMPLOYMENT
Polaris employs a total of approximately 2,650 persons. Approximately 525 of
its employees are salaried. Polaris considers its relations with its personnel
to be excellent.
Historically, Polaris' snowmobile business was seasonal, resulting in
significant differences in employment levels during the year. Despite such
variations in employment levels, employee turnover was not high. With the
introduction of the ATV line in 1985, Polaris' employment levels have become
more stable. Polaris' employees have not been represented by a union since July
1982.
PROPERTIES
Polaris owns its principal manufacturing facility in Roseau, Minnesota. The
facility consists of approximately 456,000 square feet of manufacturing space
located on approximately 100 acres. In
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August of 1991, Polaris acquired, for $8 million, a fabricating facility in
order to bring more component parts manufacturing in-house. This facility
consists of a 190,000 square foot plant situated on 38 acres and is located in
Osceola, Wisconsin. Polaris makes ongoing capital investments in its facilities.
These investments have increased production capacity for ATVs, snowmobiles and
PWC. The Partnership believes that Polaris' manufacturing facilities are
adequate in size and suitability for its present manufacturing needs.
Polaris owns all tooling and machinery (including heavy presses,
conventional and computer-controlled welding facilities for steel and aluminum,
assembly lines, paint lines, and sewing lines) used in the manufacture of its
products. Although Polaris holds numerous patents and uses various registered
trademarks and names, it believes that the loss of any of them would not have a
material effect on its business.
Polaris leases its headquarters and warehousing facilities in Minneapolis,
Minnesota and in Winnipeg, Manitoba. The Minneapolis facilities are leased from
related parties pursuant to a lease that will terminate in 1997. See "Management
- -- Certain Relationships and Related Transactions." Polaris does not anticipate
any difficulty in securing alternate facilities on competitive terms, if
necessary, upon the termination of either lease.
In August 1994, Polaris signed a one-year lease agreement for a 223,000
square foot assembly facility located on 24 acres of land in Spirit Lake, Iowa.
Polaris has an option to purchase the facility for $1.85 million at the end of
the lease term. Polaris anticipates utilizing the facility to assemble its PWC
product line, and potentially certain snowmobile and ATV models in the future.
LEGAL PROCEEDINGS
Polaris is involved in a number of legal proceedings, none of which is
expected to have a material effect on the financial condition or the business of
Polaris.
Injection Research Specialists commenced an action in June 1990 against
Polaris in Colorado federal court alleging various claims arising out of
Polaris' advertisement and sale of electronic fuel injection snowmobiles.
Injection Research Specialists seeks compensatory and punitive damages, its fees
and costs, and injunctive relief. Fuji and UNISIA Japanese Electronic Control
Systems also are parties to the action. Polaris has filed counterclaims in that
action and has instructed its counsel to contest the matter vigorously.
Management does not believe that any judgement rendered against it in this
matter would have a material adverse effect on the financial condition of
Polaris.
In 1990, the Canadian income tax authorities proposed certain adjustments,
principally relating to the original purchase price allocation to the Canadian
subsidiary and transfer pricing matters for additional income taxes payable by
Polaris' Canadian subsidiary for 1987 and 1988. The resolution of these proposed
adjustments may also affect the Partnership's Canadian income tax expense for
years subsequent to 1988. The Partnership was recently informed of the Canadian
income tax authorities' intent to initiate an audit of the tax years 1989
through 1992. Management intends to vigorously contest a substantial amount of
the proposed adjustments, and the ultimate liability, if any, cannot be
reasonably estimated. Management does not believe that the outcome of this
matter will have a materially adverse impact on the financial position or
continuing operations of Polaris. See Note 8 of Notes to Financial Statements.
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CAPITALIZATION
The following table sets forth the historical capitalization of the
Partnership and the pro forma capitalization of the Corporation as if the
Conversion took place on September 30, 1994.
<TABLE>
<CAPTION>
POLARIS POLARIS
INDUSTRIES INDUSTRIES
PARTNERS L.P. INC.
HISTORICAL PRO FORMA
------------- ---------
(IN THOUSANDS)
<S> <C> <C>
Partners' Capital:
General Partner (deficit)........................ $ (4,817) $
Limited Partners................................. 97,016
First rights assigned capital value.............. 8,779
-------------
100,978
-------------
Stockholders' Equity: (1)
Preferred stock $.01 par value, authorized
20,000,000 shares; no issued and outstanding
shares..........................................
Common stock $.01 par value, authorized
80,000,000 shares; issued and outstanding
18,110,684 shares............................... 181
Additional paid-in capital....................... 100,797
Retained earnings (2)............................ 31,000
---------
131,978
---------
Total capitalization........................... $ 100,978 $ 131,978
------------- ---------
------------- ---------
<FN>
- ------------------------
(1) See the unaudited pro forma financial statements and notes thereto included
in the Partnership financial statements for additional information
regarding pro forma adjustments.
(2) Represents the effect on the Stockholders' Equity of recording deferred tax
assets of $42 million at the date of the transaction, less
transaction-related expenses of $11 million.
</TABLE>
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SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected financial data of the Partnership
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
notes thereto included elsewhere in this Prospectus. The selected statements of
operations data, cash flow data and balance sheet data as of and for each of the
fiscal years in the five-year period ended December 31, 1993, have been derived
from the financial statements of the Partnership which have been audited by
McGladrey & Pullen, independent public accountants. The selected statements of
operations data, cash flow data and balance sheet data as of and for the nine
months ended September 30, 1993 and 1994, have been derived from the
Partnership's unaudited financial statements which, in the opinion of
management, include all adjustments, consisting solely of normal recurring
adjustments, necessary for a fair presentation of results for these periods and
as of these dates. Results for interim periods are not necessarily indicative of
the results that may be expected for the entire fiscal year or for other interim
periods. The following unaudited pro forma data have been prepared based on the
historical financial statements of Polaris Industries Partners L.P. adjusted for
the transactions described in Note 10 of the Notes to Financial Statements.
(IN THOUSANDS, EXCEPT PER BAC AND PRO FORMA PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Sales............................................... $242,618 $296,147 $297,677 $383,818 $528,011 $385,153 $584,725
-------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes............ 26,865 33,010 33,430 39,681 53,270 35,988 56,618
Provision for income taxes.......................... 675 1,647 1,968 4,980 7,457 4,546 6,007
-------- -------- -------- -------- -------- -------- --------
Net income.......................................... $ 26,190 $ 31,363 $ 31,462 $ 34,701 $ 45,813 $ 31,442 $ 50,611
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net income applicable to limited partners (1)....... $ 24,701 $ 24,840 $ 24,918 $ 27,483 $ 36,284 $ 24,902 $ 40,084
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net income per BAC.................................. $ 1.65 $ 1.65 $ 1.65 $ 1.73 $ 2.25 $ 1.54 $ 2.46
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
UNAUDITED PRO FORMA INFORMATION (2)
Income before provision for income taxes............ $ 26,865 $ 33,010 $ 33,430 $ 39,681 $ 51,539 $ 35,619 $ 53,646
Provision for income taxes.......................... 9,670 11,885 12,035 14,285 18,555 12,825 19,313
-------- -------- -------- -------- -------- -------- --------
Net income.......................................... $ 17,195 $ 21,125 $ 21,395 $ 25,396 $ 32,984 $ 22,794 $ 34,333
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Net income per share................................ 1.01 1.23 1.25 1.41 $ 1.81 $ 1.25 $ 1.86
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Weighted average number of common and common
equivalent shares outstanding (3).................. 17,088 17,136 17,162 17,968 18,215 18,225 18,415
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
CASH FLOW DATA
Cash flow from operating activities................. $ 44,447 $ 54,782 $ 46,642 $ 55,316 $ 79,323 $ 43,116 $ 77,801
Cash purchases of property and equipment............ 7,065 7,158 15,988 12,295 18,126 13,055 20,544
Cash distributions to partners...................... 32,514 42,582 42,581 44,025 46,493 34,641 37,322
Cash distributions per BAC.......................... 2.27 2.50 2.50 2.50 2.51 1.88 1.89
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
UNAUDITED PRO FORMA INFORMATION (2 and 4)
Dividends........................................... 10,925 8,193 8,193
Dividends per share................................. 0.60 0.45 0.45
Special cash distribution........................... 104,877 69,918
Special cash distribution per share................. 5.76 3.84
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
YEARS ENDED DECEMBER 31, ------------------------------------
---------------------------------------------------- 1994
1989 1990 1991 1992 1993 1993 1994 PRO FORMA(2)
-------- -------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents.......... $ 27,886 $ 32,025 $ 20,098 $ 19,094 $ 33,798 $ 14,514 $ 53,733 $ 53,733
Net increase (decrease) in cash and
cash equivalents.................. 12,287 4,139 (11,927) (1,004) 14,704 (4,580) 19,935 19,935
Current assets..................... 60,344 66,893 59,200 74,999 109,748 110,705 178,443 190,443
Total assets....................... 137,628 138,704 135,509 146,681 180,548 181,030 250,377 292,377
Total liabilities.................. 38,875 46,602 52,646 69,054 98,055 102,327 149,399 160,399
General Partner's capital
(deficit)......................... (419) (2,753) (5,066) (7,105) (7,397) (7,921) (4,817) --
Limited Partners' capital.......... 99,172 94,855 87,929 84,732 89,890 86,624 105,795 --
Stockholders' equity (5)........... -- -- -- -- -- -- -- 131,978
Net book value per weighted average
BAC and BAC equivalents........... 6.59 6.13 5.50 4.89 5.12 4.88 6.19 --
Net book value per share (3 and
5)................................ -- -- -- -- -- -- -- 7.17
<FN>
- ------------------------------
(1) Represents net income to BAC Holders after allocation to the General
Partner and its affiliates and therefore does not represent all of the net
income of the Partnership.
(2) The unaudited pro forma data are derived from the financial statements of
the Partnership as if the Conversion had occurred on January 1, 1993 for
the statements of operations and cash flows data and as of September 30,
1994, for the balance sheet data. Such periods have been adjusted to
eliminate the General Partner's annual fee of $500,000. The pro forma
statements of operations and cash flows exclude the $11 million estimated
costs of the Conversion, which will be recognized at the time of the
Conversion. Adjustments have been made to the pro forma statements of
operations and cash flows to provide for interest expense on long-term
borrowings of approximately $70 million anticipated to be incurred in the
third and fourth quarters of 1993, the year of the special pro forma cash
distributions. Further, the pro forma statements of operations and cash
flows assume the additional debt will be repaid at $8.75 million per
quarter, commencing in 1994, the year following the pro forma special
distributions. All periods have been adjusted to reflect a provision for
income taxes calculated at a rate of 36%. Such rate reflects a combined
federal and state statutory rate, net of related research and development
credits and anticipated foreign sales corporation benefits. See Note 10 of
Notes to Financial Statements for additional information regarding the pro
forma adjustments.
(3) Pro forma weighted average number of common and common equivalent shares
outstanding and the number of shares of common stock utilized to calculate
the unaudited pro forma net book value per share include shares to be
issued to BAC Holders, to the affiliates of the General Partner and to
employees in connection with First Rights granted but not yet converted to
BACs.
(4) Pro forma stockholder dividends, special cash distribution and the related
per share amounts reflect the Sponsors' intent to recommend that the
Corporation's Board of Directors establish an initial dividend rate of
$0.15 per share per quarter, and pay three special nonrecurring cash
distributions, each of $1.92 per share, payable during each of the last
three quarters of 1995. Such recommendation is subject to approval by the
Corporation's Board of Directors, legal and contractual limitations and the
financial requirements of the business.
(5) Pro forma stockholders' equity includes estimated amounts related to the
recording of expenses for the transaction and for deferred tax assets,
which will be recalculated when the conversion is completed and actual
temporary differences can be determined. The change in deferred tax assets
could be material. Pro forma net book value per share is adjusted for
shares to be issued to affiliates of the General Partner and for shares to
be issued for First Rights granted but not yet converted to BACs. For
purposes of this transaction, assets and liabilities will be recorded at
historical cost.
</TABLE>
77
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(HISTORICAL AND PRO FORMA)
The following discussion pertains to the results of operations and financial
position of the Partnership for each of the three years ended December 31, 1991,
1992 and 1993, and the nine-month periods ended September 30, 1993 and 1994, and
should be read in conjunction with the financial statements included elsewhere
herein. Due to the seasonal nature of the snowmobile, all terrain vehicle (ATV)
and personal watercraft (PWC) businesses in which the Partnership is engaged,
and to certain changes in production and shipping cycles, results of interim
periods are not necessarily indicative of the results to be expected for the
complete year.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1994
Sales for the nine months ended September 30, 1994, increased to $584.7
million, representing a 52% increase over the $385.2 million of sales for the
same period in 1993. Total finished goods shipments for the 1994 period have
increased 43% over the same period in 1993. The Partnership's increase in sales
in the 1994 period is primarily attributable to the broadening of the three
product lines and the continued popularity of all Polaris products. Additional
factors include the growth of the worldwide snowmobile market, the continuing
favorable U.S. economy and an aggressive pricing strategy.
Snowmobile unit sales volume increased 16% during the 1994 period, primarily
because of continued growth in sales of the high performance, lightweight XLT
model.
ATV unit sales volume increased 45% during the 1994 period, primarily
because of the continued growth in the utility and sports-enthusiasts' markets
and the addition of a dedicated ATV production line with corresponding
improvement in product availability at the dealer level.
PWC unit sales volume increased 160% during the 1994 period, primarily
because of the fast growth in the PWC market and due to the introduction of
models aimed at both the family and sports rider market segments.
The average sales per unit in the 1994 period increased by 3% for
snowmobiles, 11% for ATVs and 3% for PWC, principally through the introduction
and sale of more high-performance models that have a higher selling price than
economy models.
The gross margin percentage decreased to 24% for the nine months ended
September 30, 1994, compared to 27% for the comparable period in 1993. This
decrease in percentage is primarily a result of: (a) the change in product mix
towards a greater percentage of sales from ATVs and PWC which generate lower
gross margins than snowmobiles; (b) continued increases in raw material purchase
prices for certain component parts because of the weakening of the U.S. dollar
in relation to the Japanese yen; and (c) strengthening of the U.S. dollar in
relation to the Canadian dollar which results in lower gross margins from the
Partnership's Canadian subsidiary operation.
Operating expenses increased $19.9 million (30%) for the nine-month period
ended September 30, 1994 as a result of the sales volume increase, but as a
percentage of sales, decreased to 14.7% for the nine-month period ended
September 30, 1994, compared to 17.1% for the comparable period of 1993. The
percentage decrease is due primarily to the Partnership's ability to support an
increasing level of sales without a ratable increase in operating expenses,
principally personnel.
The change in non-operating expense (income) for the 1994 nine-month period
is primarily attributable to investment income generated by higher cash and cash
equivalent balances during the 1994 period compared to the 1993 period.
78
<PAGE>
Income tax expense increased $1.5 million for the 1994 nine-month period
compared to the same period for 1993. This increase is attributable primarily to
additional reserves established relating to the Canadian income tax examination
in process.
YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
Sales for 1993 were $528.0 million, an increase of 38% over 1992 sales of
$383.8 million. Sales for 1992 increased 29% over 1991 sales of $297.7 million.
____Management believes its success in the snowmobile market is attributable to
its product superiority, aggressive consumer promotional programs and strong
dealer network. The 1993 sales increase resulted from the introduction of new
models and the continued success of other popular models, including the XLT
Special. Snowmobile unit sales volume increased over the prior year by 13% in
1992 and 26% in 1993.
In 1993, the Partnership's ATV product line sales grew by 41% over 1992
sales as industry retail sales rose to the highest level in history. ATV unit
sales volume increased by 24% in 1992 over the prior year. Management believes
it has been successful by targeting the all-purpose segment of the ATV market
with new and improved products. The Partnership introduced several new models in
1993, including the Sportsman 4x4.
Manufacturing and sales of PWC commenced in the first quarter of 1992 with
the introduction of the SL650 model. In 1993 the Partnership added the SL750 and
the three-passenger SLT750 models designed for families and sports riders. PWC
unit sales volume increased 62% in 1993 over the initial shipments of PWC
product in 1992.
Except in 1993, when snowmobile sales per unit remained the same due to the
dilutive effect of the Canadian currency exchange rates, average sales per unit
have increased for each Polaris product line in each of the years 1991, 1992 and
1993. In each such year, the Partnership introduced and sold more high
performance models. The average snowmobile sales per unit increased over the
prior year by 4% in 1991 and 1992 and remained flat in 1993. The average ATV
sales per unit increased over the prior year by 3% in 1991, 4% in 1992 and 5% in
1993. The average PWC sales per unit increased 11% in 1993 over the prior year.
The gross profit percentage decreased from 32% in 1991 to 30% in 1992 and to
27% in 1993 primarily due to an aggressive pricing strategy, changes in the
product mix and foreign exchange rates. The growing ATV and PWC businesses
provide a lower gross profit percentage than does the snowmobile business. Raw
material purchase prices have increased since 1991 for certain component parts
because of the weakening of the U.S. dollar in relation to the Japanese yen.
Strengthening of the U.S. dollar in relation to the Canadian dollar throughout
1993 has caused gross margin erosion of the Partnership's Canadian subsidiary
operation. Additionally, warranty expenses have increased during the past three
years as a result of the emphasis on technological innovation and introduction
of new high-performance models.
The Partnership continually invests in new product development, particularly
in the areas of innovation and product diversification. New product development
and research costs are recorded as cost of sales in the statement of operations.
Research and development expenses, and the related percent to sales, were $4.8
million (1.6%) in 1991, $6.3 million (1.7%) in 1992 and $9.6 million (1.8%) in
1993. The Partnership incurred tooling expenditures for new products of $5.2
million in 1991, $7.1 million in 1992, and $9.3 million in 1993.
Operating expenses as a percentage of sales were 21.5% in 1991, 19.3% in
1992 and 17.2% in 1993. Operating expenses as a percentage of sales have
decreased because the Partnership has been able to increase sales without
incurring a ratable amount of general and administrative expenses. In addition,
because of the strong demand and competitive pricing for the Partnership's
products, sales and marketing program expenses have remained relatively
constant.
The provision for income taxes is increasing at a rate greater than the
growth in income from the Canadian subsidiary because the Partnership continues
to accrue for certain of the proposed Canadian income tax adjustments.
79
<PAGE>
CASH DISTRIBUTIONS
Since its inception, the Partnership has paid or declared the following
quarterly cash distributions per BAC to the BAC holders (restated to reflect the
two-for-one split effective August 1993):
<TABLE>
<CAPTION>
QUARTER
YEAR 1 2 3 4 TOTAL
- --------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ .073 $ .30 $ .373
1987..................................................... $ .30 $ .30 .30 .30 1.20
1989..................................................... .77 .375 .375 .75 2.27
1990..................................................... .625 .625 .625 .625 2.50
1991..................................................... .625 .625 .625 .625 2.50
1992..................................................... .625 .625 .625 .625 2.50
1993..................................................... .625 .625 .63 .63 2.51
1994..................................................... .63 .63 .63 N/A 1.89
---------
Total.................................................... $ 15.74
N/A = Not announced
</TABLE>
Cumulative cash distributions have exceeded a 15% annual return on the
original $10 per BAC investment (as adjusted for the two-for-one split effective
August, 1993). Accordingly as provided for in the Partnership Agreement, cash
distributions have been, and will continue to be, allocated 79.2% to Limited
Partners and 20.8% to the General Partner as long as such distributions
cumulatively exceed a 15% annual return.
The Partnership has no present intention of increasing cash distributions
even if its taxable income increases. Accordingly, if income continues to grow,
BAC Holders will be required to report and pay tax on their share of the
Partnership's taxable income, which is expected to exceed, by a substantial
amount, at least in 1994, the amount of their cash distributions. Increases in
taxable income are likely to correspond to increases in book income of the
Partnership which, for the nine-month period ended September 30, 1994, increased
by over 50% compared to the same period in 1993. The disparity between taxable
income and cash distributions is expected to increase for the foreseeable
future, and will be greater for those BAC Holders that have held BACs for longer
periods of time and purchased their BACs at lower prices.
NET INCOME PER BAC
Historically, net income per unit has differed significantly from cash
distributions per unit of the Partnership for the following reasons:
i.) Distributable cash has generally exceeded financial net income
because of the significant amount of non-cash expenses recorded for the
amortization of intangibles and First Rights. These expenses reduce reported
net income but do not affect cash available for distributions. BAC holders'
capital may decline if cash distributions exceed financial reporting net
income.
ii.) Cash distributions are made to actual units outstanding while net
income per unit is diluted for the impact of BAC equivalents outstanding
(e.g., First Rights granted). There were approximately 1,573,000, 1,565,000
and 1,198,000 BAC equivalents included in the net income per unit
computation in 1991, 1992, and 1993, respectively, which had the effect of
reducing net income per unit by $0.19 in each of 1991 and 1992 and $0.18 in
1993. There were approximately 1,227,000 and 350,000 BAC equivalents
included in the net income per unit computation for the periods ended
September 30, 1993 and 1994, which had the effect of reducing net income per
unit by $0.13 and $0.05, respectively. The 850,000 Second Rights which were
converted to BACs in January 1994 have been included as BAC equivalents in
the net income per unit calculation since the first quarter of 1992.
80
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of funds have been cash provided by
operating activities, a seasonal line of credit and a dealer financing program
provided by third parties. The Partnership's primary uses of funds have been for
distributions to partners, capital investments and for new product development.
During the nine months ended September 30, 1994, the Partnership generated
net cash from operating activities of $77.8 million, which was utilized to fund
distributions of $37.3 million and cash capital expenditures of $20.5 million.
In 1993, the Partnership generated net cash from operating activities of $79.3
million, which was utilized to fund distributions of $46.5 million and cash
capital expenditures of $18.1 million. At September 30, 1994, cash and cash
equivalents totaled $53.7 million, an increase of $19.9 million from December
31, 1993. Working capital totaled $29.0 million at September 30, 1994, an
increase of $17.3 million from December 31, 1993.
The seasonality of production and shipments causes working capital
requirements to fluctuate during the year. The Operating Partnership has a $40
million unsecured bank line of credit arrangement expiring May 1, 1995 with
interest charged at the prime interest rate, CD-based or LIBOR-based rates. In
connection with this arrangement, the Operating Partnership has agreed to
certain limitations on distributions from the Operating Partnership to the
Partnership in certain circumstances. At September 30, 1994, the Operating
Partnership had no short-term debt under this line of credit and had utilized
its bank line to the extent of letters of credit outstanding of $17.5 million
related to purchase obligations for raw materials.
The Partnership has arrangements with unrelated finance companies to provide
floor plan financing for its distributors and dealers. These arrangements
provide liquidity by financing distributor and dealer purchases of snowmobiles,
ATVs and PWC without the use of working capital. Substantially all of the sales
of snowmobiles, ATVs and PWC are financed under these arrangements whereby the
Partnership receives payment within a few days of shipment of the product. The
amount financed by distributors and dealers under these arrangements at December
31, 1993, and September 30, 1994, was approximately $64.9 million and $203.9
million, respectively. The Partnership participates in the cost of dealer and
distributor financing up to certain limits. The Partnership has agreed to
repurchase products repossessed by the finance companies to an annual maximum of
15% of the average amount outstanding during the prior calendar year. The
Partnership's financial exposure under these agreements is limited to the
difference between the amount paid to the finance companies and the amount
received on the resale of the repossessed product. No material losses have been
incurred under these agreements. However, an adverse change in the economy could
cause this situation to change and thereby require the Partnership to repurchase
financed units. Management intends to record a sales allowance when it becomes
probable that returns under this program will be material.
The Partnership has made capital investments to increase production capacity
and efficiency and for new product development. Over the past several years
these investments have included the introduction of the PWC product line, the
introduction of new snowmobile and ATV models to broaden those product lines,
the expansion of manufacturing capacity, the purchase of enhanced fabrication
and assembly equipment, and the continuing development and implementation of
systems and programs to improve quality and efficiency and to reduce costs.
Improvements in manufacturing capacity include the $8.0 million purchase of a
component parts fabrication facility in 1991, the addition of an assembly line
dedicated to year-round production of ATVs in 1993, improvements in plant
lay-out and the expansion to a new leased assembly facility in 1994. The
Partnership anticipates that capital expenditures for 1994 will approximate $36
million.
Revenue Canada, the Canadian income tax authorities, has proposed
adjustments to the 1987 and 1988 income tax returns of the Partnership's
Canadian subsidiary. The resolution of these proposed adjustments may also
affect the Partnership's Canadian income tax returns for years subsequent to
1988. The Partnership has been informed of Revenue Canada's intent to initiate
audits of the tax years 1989 through 1992. The proposed adjustments relate
primarily to the original purchase price
81
<PAGE>
allocation of the Canadian subsidiary and certain transfer pricing matters.
Management intends to vigorously contest a substantial amount of the proposed
adjustments and the ultimate additional liability cannot be reasonably
determined. Management does not believe the outcome of this matter will have a
materially adverse impact on the financial position or continuing operations of
the Partnership. At September 30, 1994, the Partnership had accrued $10.2
million for income taxes.
The proposed conversion of the Partnership will significantly impact future
liquidity and capital resources, as a result of (a) the proposed plan to make
special distributions aggregating approximately $104.9 million ($5.76 per share)
to be paid in three equal installments during each of the last three quarters of
1995, (b) the proposed plan to pay regular quarterly dividends of $0.15 per
share, or approximately $10.9 million per year, (c) the Partnership's incurrence
of approximately $11 million in expenses in connection with the proposed
conversion, and (d) the Corporation's payment of corporate federal, state and
certain foreign income taxes on current earnings, which are estimated to be
approximately 36% of pre-tax income. The Sponsors anticipate that a total of
approximately $70 million in debt will be incurred in the third and fourth
quarters of 1995 to finance the special distributions. As a result, the
Corporation will be required to obtain financing in addition to the
Partnership's current bank line of credit. The Sponsors believe that requisite
financing can be obtained on acceptable terms.
At this time, management is not aware of any other factors that would have a
materially adverse impact on cash flows beyond 1994.
INFLATION AND EXCHANGE RATES
The Partnership does not believe that inflation has had a material impact on
the results of its operations. However, the changing relationship of the U.S.
Dollar to the Canadian dollar and Japanese yen has had a material impact from
time-to-time.
The principal competitors in ATVs are Japanese companies and one of the
significant snowmobile and PWC competitors is a Japanese company. Over the past
several years, weakening of the U.S. dollar in relation to the yen has resulted
in higher raw material purchase prices. On average, in 1993 approximately 32% of
the standard cost of each snowmobile, 24% of the standard cost of each ATV, and
44% of the standard cost of each PWC consist of material purchased from Japanese
suppliers.
The Partnership operates in Canada through a wholly-owned subsidiary. Sales
of the Canadian subsidiary comprised 20% of total Polaris sales in 1993.
Strengthening of the U.S. dollar in relation to the Canadian dollar throughout
1993 has caused unfavorable foreign currency fluctuations from prior periods
resulting in lower gross margin levels.
In the past, the Partnership has been a party to, and in the future may
enter into, foreign exchange hedging contracts for both the Japanese yen and the
Canadian dollar to minimize the impact of exchange rate fluctuations within each
year. To date, such contracts have not had a material impact on earnings.
82
<PAGE>
MARKET PRICES AND DISTRIBUTIONS
The BACs are listed on the American Stock Exchange and the Pacific Stock
Exchange under the symbol "SNO". At November , 1994, there were approximately
[18,860] holders of record of the BACs. The following table sets forth the high
and low sale prices per BAC as reflected on the composite tape for the periods
indicated, all as adjusted to reflect the two-for-one unit split which became
effective on August 18, 1993:
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1992
- ------------------------------------------------------------------------
First Quarter........................................................... $20 $18 1/16
Second Quarter.......................................................... 22 1/2 19
Third Quarter........................................................... 24 1/2 21 1/8
Fourth Quarter.......................................................... 23 3/4 21 1/16
1993
- ------------------------------------------------------------------------
First Quarter........................................................... 26 9/16 21 13/16
Second Quarter.......................................................... 30 15/16 25 13/16
Third Quarter........................................................... 36 27 15/16
Fourth Quarter.......................................................... 38 1/2 32 1/4
1994
- ------------------------------------------------------------------------
First Quarter........................................................... 37 3/8 29 1/8
Second Quarter.......................................................... 35 7/8 30 1/8
Third Quarter........................................................... 39 32 1/8
Fourth Quarter (through November 8)..................................... 46 7/8 37 5/8
</TABLE>
The closing sale price as reflected on the composite tape on November ,
1994, the last trading day prior to the mailing of this Proxy Statement, was
. The average closing price during the ten trading days ending August
24, 1994, the last trading day before the Partnership publicly announced the
planned Conversion, was $36.
The Partnership paid the following distributions per unit to BAC Holders
during the years ended December 31, on or about the 15th day of the months
indicated, all as adjusted for the two-for-one unit split which became effective
on August 18, 1993:
<TABLE>
<CAPTION>
1994 1993 1992 1991
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
February............................................ $ 0.630 $ 0.625 $ 0.625 $ 0.625
May................................................. 0.630 0.625 0.625 0.625
August.............................................. 0.630 0.625 0.625 0.625
November............................................ -- 0.630 0.625 0.625
</TABLE>
On December 1, 1993, the Partnership declared a regular quarterly
distribution of $0.63 per BAC to holders of record on December 15, 1993. This
distribution was paid on February 15, 1994. On March 1, 1994 the Partnership
declared a first quarter 1994 distribution of $0.63 per BAC which was paid on
May 16, 1994 to holders of record as of March 15, 1994. On May 23, 1994, the
Partnership declared a second quarter distribution of $0.63 per BAC which was
paid on August 15, 1994 to holders of record as of June 15, 1994. On August 25,
1994 the Partnership declared a third quarter distribution of $0.63 per BAC, to
be paid on November 15, 1994 to holders of record as of September 15, 1994.
If the Conversion is completed between the date of a declaration of a
distribution to the General Partner, its affiliates and the BAC Holders, and the
date of payment of such distribution, the Merger Agreement provides that persons
who were BAC Holders on the record date for the distribution will receive such
distribution and that the Transferors transferring interests in EIPCC, the
General Partner and the Operating General Partner will receive their pro rata
shares of the distribution otherwise payable to the General Partner and the
Operating General Partner. In addition, if the Conversion is completed in a
fiscal quarter before declaration of the regular quarterly distribution, the
83
<PAGE>
Partnership intends to pay a cash distribution to BAC Holders of record on the
closing date of the Merger equal to the pro rata portion of $0.63 corresponding
to the portion of the Partnership's fiscal quarter ending on the Effective Date.
The Transferors transferring interests in EIPCC, the General Partner and the
Operating General Partner will receive their pro rata shares of such special
cash distribution otherwise payable to the General Partner and the Operating
General Partner.
The Corporation, which was formed solely for the purpose of facilitating the
Conversion, has no independent assets or operations. Hence no dividends have
been paid on the Common Stock. The Sponsors, who will be the senior management
of the Corporation following the Conversion, have determined to recommend that
the Corporation's Board of Directors adopt a cash dividend distribution policy,
a principal purpose of which will be to provide that the total amount of cash
distributions made by the Partnership per BAC and cash dividends paid by the
Corporation per share of Common Stock during the period commencing January 1,
1995 and ending December 31, 1997, will be equal to the amount ($7.56 per BAC)
which BAC Holders would have received in cash distributions from the Partnership
with respect to such period if the Conversion had not taken place. The Sponsors
believe that such a policy would help facilitate the orderly transition in the
capital markets during the months following the Conversion from primarily
income-oriented investors to primarily growth-oriented and institutional
investors expected to invest in the Corporation.
Accordingly, the Sponsors intend to recommend that the Corporation's Board
of Directors pay the Proposed Distributions (i.e. an initial cash dividend rate
of $0.15 per share of Common Stock per quarter and, in addition, pay special
cash distributions for each of the last three quarters of 1995 in an amount per
share equal to one-third of (a) $5.76 less (b) the amount per BAC of any cash
distributions declared and paid by the Partnership on or after January 1, 1995
to the extent such distributions exceed $.15 per BAC). As stated above, the
Partnership expects to continue to pay quarterly distributions of $0.63 per BAC
until the closing of the Conversion, with the distribution for the quarter
during which the closing occurs being prorated based on the number of days in
such quarter prior to the closing.
The payment of dividends and distributions by the Corporation will be at the
discretion of its Board of Directors, will be subject to legal and contractual
limitations, and will depend upon the future earnings, operations, financial
condition and capital and other requirements of the Corporation. There can be no
assurance that the foregoing dividend and distribution policy will be adopted or
that dividends and distributions in the amounts set forth above will in fact be
paid. However, the General Partner and the Sponsors, after consultation with
their financial and legal advisors, believe that the Corporation will be in a
position to pay dividends and distributions in the amounts set forth above. See
"Risk Factors, Conflicts of Interest and Other Considerations -- Risks,
Conflicts of Interest and Considerations Related to the Conversion -- Change in
Distribution Policy."
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF EIPCC
The General Partner, or an affiliate, manages the overall business of the
Partnership and the Operating Partnership. The General Partner is managed by
EIPCC, its managing general partner. EIPCC also acts as the management agent for
the Partnership. The directors and executive officers of EIPCC are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- --------------------------------------------------
<S> <C> <C>
Paul Bagley 51 Chairman and Director
Victor K. Atkins, Jr. 49 President, Secretary, Treasurer and Director
</TABLE>
Paul Bagley has been Chairman of EIPCC since April 1987. He is Chairman and
Chief Executive Officer of FCM Fiduciary Capital Management, a registered
investment advisor, and a Managing Partner of Stone Pine Capital, Inc. Mr.
Bagley is also the Chairman and Chief Executive Officer of American National
Security, Inc. ("ANS"). He is a director of America First Financial Fund 1987A,
84
<PAGE>
and a director and member of the executive committee of Eureka Bank, a federal
savings bank. Mr. Bagley also serves as Chairman of the Board of Directors of
Silver Screen Management, Inc., International Film Investors, Inc. and Franchise
Finance Corporation of America II. Prior to October 1988, Mr. Bagley was with
Shearson Lehman Hutton Inc., or its predecessor firm, E.F. Hutton & Company Inc.
("Hutton") since 1968, most recently as a Managing Director. Mr. Bagley is a
graduate of the University of California at Berkeley and the Harvard Business
School.
Victor K. Atkins, Jr. has been President of EIPCC and Chairman of Polaris
Industries Capital Corporation ("PICC") since April 1987. Mr. Atkins also served
as Chairman and director of Houston Biotechnology Inc. between May 1992 and June
1994, and has been President and a director of ANS since April 1991. Mr. Atkins
is a graduate of Harvard College and the Harvard Business School.
EIPCC, Victor K. Atkins, Jr. and Paul Bagley were among the defendants in a
lawsuit filed on March 5, 1993 by EIP Holdings L.P., a shareholder of EIPCC,
Lehman Brothers Inc. and others, which sought the replacement of these two
directors and monetary damages of unspecified amounts from the defendants. On
March 8, 1993, certain of the defendants in the above action brought an action
against one of the plaintiffs in the above action and others seeking, among
other things, a determination that the two defendant directors had been properly
elected as directors of EIPCC. On August 25, 1994, all the parties to the March
5, 1993 action entered into a settlement agreement. The March 8, 1993 action has
been dismissed as moot. In connection with the settlement agreement, EIP
Holdings L.P. is no longer a shareholder in EIPCC and cancelled the agreement
pursuant to which it was entitled to elect one of the EIPCC board members.
Accordingly, such member has resigned as a director of EIPCC. Pursuant to the
settlement agreement, the litigation was subsequently dismissed with prejudice.
The settlement does not effect the operations of the Operating Partnership or
distributions to BAC Holders.
The day-to-day administration and operation of the Operating Partnership is
managed by the Operating General Partner. The Operating General Partner is
managed by its managing general partner, PICC, a wholly-owned subsidiary of
EIPCC.
DIRECTORS AND EXECUTIVE OFFICERS OF PICC
The directors and executive officers of PICC are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- --------------------------------------------------
<S> <C> <C>
Victor K. Atkins, Jr. 49 Chairman, Secretary and Director
W. Hall Wendel, Jr. 51 Chief Executive Officer and Director
Paul Bagley 51 Director
Kenneth D. Larson 54 President, Chief Operating Officer
John H. Grunewald 58 Executive Vice President, Finance and
Administration
James Bruha 54 Vice President - Manufacturing
Charles A. Baxter 46 Vice President - Engineering and Product Safety
Ed Skomoroh 56 Vice President - Sales and Marketing
Michael W. Malone 36 Chief Financial Officer and Treasurer
</TABLE>
W. Hall Wendel, Jr. has served as Chief Executive Officer of PICC, the
Managing General Partner of Polaris Industries Associates L.P., which is the
Operating General Partner of Polaris Industries L.P., since 1987. From 1981 to
1987, Mr. Wendel was Chief Executive Officer of the predecessor of Polaris,
which was formed to purchase the snowmobile assets of the Polaris E-Z-Go
Division of Textron. Before that time, Mr. Wendel was President of the Polaris
E-Z-Go Division for two years and prior thereto, held marketing positions as
Vice President of Sales and Marketing and National Sales Manager since 1974.
85
<PAGE>
Kenneth D. Larson has been President and Chief Operating Officer of PICC
since October 1988. Prior thereto, Mr. Larson was Executive Vice President of
the Toro Company responsible for its commercial, consumer and international
equipment businesses, and had held a number of general management positions
since joining Toro Company in 1975.
John H. Grunewald has been Executive Vice President, Finance and
Administration of PICC since September 1993. Prior to joining Polaris, Mr.
Grunewald was employed for 16 years by Pentair, Inc., a diversified manufacturer
of industrial products, most recently as Executive Vice President, Chief
Financial Officer and Secretary.
James Bruha has been Vice President, Manufacturing since October 1989. Prior
to joining Polaris in February 1989, Mr. Bruha held a variety of management
positions with the Toro Company for the previous 17 years, including materials
and operations management responsibilities for three different Toro divisions.
Charles A. Baxter has been Vice President - Engineering of Polaris since
June 1981 and prior thereto, since 1970, was employed as Director of Engineering
of the Polaris Division of Textron.
Ed Skomoroh was elected Vice President, Sales and Marketing in October 1988.
Prior thereto he was Vice President, Polaris Canada and President, Secretary and
Director of Polaris Industries Inc., an Ontario corporation and a wholly-owned
subsidiary of the Partnership. Mr. Skomoroh joined Polaris in 1982 as General
Manager, Canada, and was, for more than one year prior thereto, the General
Manager for the Canadian operations of Arctic Enterprises, Inc., a snowmobile
manufacturer.
Michael W. Malone has been Chief Financial Officer and Treasurer of Polaris
since January 1993. Prior thereto he was Assistant Treasurer of the PICC. Mr.
Malone joined Polaris in 1984 after four years with Arthur Andersen & Co.
The Board of Directors of PICC currently has two standing committees, the
Compensation Committee and the Audit Committee. Victor K. Atkins, Jr. and Paul
Bagley are the members of each such Committee.
DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION AFTER THE CONVERSION
The individuals listed below will be the directors and officers of the
Corporation immediately upon completion of the Conversion:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- --------------------------------------------------
<S> <C> <C>
W. Hall Wendel, Jr. 51 Chairman and Chief Executive Officer, Director
Beverly F. Dolan 67 Director(1)
Robert S. Moe 63 Director(1)
Kenneth D. Larson 54 President and Chief Operating Officer, Director(1)
Stephen G. Shank 50 Director(1)
Gregory R. Palen 39 Director(1)
Andris A. Baltins 49 Director(1)
John H. Grunewald 58 Executive Vice President, Chief Financial Officer
and Secretary
James Bruha 54 Vice President-Manufacturing
Charles A. Baxter 46 Vice President-Engineering and Product Safety
Ed Skomoroh 56 Vice President-Sales and Marketing
Michael W. Malone 36 Vice President and Treasurer
<FN>
- ------------------------
(1) Messrs. Dolan, Moe, Larson, Shank, Palen and Baltins have consented to
serve as directors of the Corporation upon completion of the Conversion.
</TABLE>
86
<PAGE>
The Board of Directors of the Corporation will be divided into three classes
serving staggered three-year terms. The term of office of Messrs. Larson and
Baltins is to expire in 1995; the term of office of Messrs. Moe and Dolan is to
expire in 1996; and the term of office of Messrs. Wendel, Palen and Shank is to
expire in 1997.
Beverly F. Dolan was the Chairman and Chief Executive Officer of Textron,
Inc., a multi-industry company with operations in aerospace technology,
commercial products and financial services, from 1986 through 1992. Since 1992,
he has been an investor. Mr. Dolan is a director of Textron, Inc.; First Union
Corporation, a bank holding company; Ruddick Corporation, a multi-industry
company with operations in retail grocery, thread manufacturing and printing;
and FPL Group, Inc., a Florida electrical power producer. Mr. Dolan served on
President Bush's Export Council and was elected Vice Chairman of the council in
November 1990.
Robert S. Moe was Executive Vice President and Treasurer of PICC or Polaris
from 1981 through 1992. Since 1992, he has been an investor.
Stephen G. Shank has been the President and Chief Executive Officer of
Learning Ventures, Inc., a provider of education programs, since September 1991.
Prior thereto, from 1988, he was Chairman and Chief Executive Officer of Tonka
Corporation, a marketer and manufacturer of toy and game products. Mr. Shank is
a director of National Computer Systems, Inc., an information services company,
and Advance Circuits, Inc., a manufacturer of printed circuit boards and
electronic interconnect devices. In addition, Mr. Shank is a director of various
private and non-profit corporations.
Gregory R. Palen has been the Chairman and Chief Executive Officer of
Spectro Alloys, an aluminum manufacturing company since 1989 and Chief Executive
Officer of Palen/Kimball Company, a heating and air conditioning company, since
1980. He is a director of Valspar Corporation, a paint and coatings
manufacturing company. In addition, Mr. Palen is a director of various private
and non-profit corporations.
Andris A. Baltins has been a member of the law firm of Kaplan, Strangis &
Kaplan, P.A. since 1978. He is a director of Affinity Group, Inc., a
membership-based marketing company. In addition, Mr. Baltins is a director of
various private and non-profit corporations.
87
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by
Polaris Industries L.P. to each of the chief executive officer and the four most
highly compensated executive officers, each of whom will continue in such
positions with the Corporation if the Conversion Proposal is approved and the
Conversion is consummated, for services rendered in all capacities for the year
ended December 31, 1993:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------- -----------
------------------------ OTHER ANNUAL RESTRICTED OPTIONS LTIP ALL OTHER
NAME & PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION STOCK(2) /SARS PAYOUTS(3) COMPENSATION(4)
- ---------------------------------------- ---- -------- -------- ------------ ---------- ------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Hall Wendel, Jr. 1993 $240,000 $328,800 $ -0- $ 7,075
Chief Executive Officer 1992 240,000 249,600 3,736,049 6,866
1991 240,000 144,000 1,457,861 6,667
Kenneth D. Larson 1993 185,433 278,149 744,002 7,075
Chief Operating Officer 1992 183,750 199,920 858,297 6,866
and President 1991 183,750 115,763 765,000 6,667
Charles A. Baxter 1993 150,000 144,000 -0- 7,075
Vice President-- 1992 150,000 118,500 1,245,335 6,866
Engineering and Product 1991 150,000 85,500 485,966 6,667
Safety
Ed Skomoroh 1993 129,402 121,636 248,045 7,075
Vice President--Sales 1992 129,402 102,228 286,069 6,866
and Marketing 1991 129,402 73,759 765,000 6,667
James Bruha 1993 121,346 120,133 248,045 7,075
Vice President-- 1992 120,000 102,000 597,414 6,866
Manufacturing 1991 120,000 78,000 121,482 6,667
<FN>
- ------------------------------
(1) Bonus payments are reported for the year in which the related services were
performed.
(2) In 1994 an additional 127,500 First Rights were granted pursuant to the
Management Plan, including 8,000, 10,000, 5,000, 5,000, and 15,000 to
Messrs. Wendel, Larson, Baxter, Skomoroh and Bruha, respectively. These
First Rights will convert to shares of Common Stock on January 1, 1997
(50%) and the remainder convert on January 1, 1998 (50%) if the Conversion
is consummated.
(3) These payments are First Rights which converted on December 28, 1993 for
1993, December 28, 1992 for 1992 and January 1, 1992 for 1991.
(4) Includes Operating Partnership matching contributions to the 401(k)
retirement savings plan.
</TABLE>
In addition, EIPCC, the managing general partner of the General Partner,
acts as management agent (the "Management Agent") in the performance of certain
administrative services on behalf of the Partnership and receives an annual
management fee in the amount of $500,000 pursuant to a Management Agreement (the
"Fee"). The Fee is applied towards salaries, overhead and other expenses of the
Management Agent in connection with the administration of the Partnership. If
the Merger is approved and the Conversion is consummated, the Management
Agreement will be terminated and the Fee will no longer be paid.
DEATH AND DISABILITY BENEFITS AND DEFERRED COMPENSATION
An agreement with Mr. Wendel provides benefits in the event of death,
disability, retirement or severance. If, during the term of his employment, Mr.
Wendel becomes totally disabled, the Operating Partnership will pay monthly
disability payments of $4,167 during his lifetime until age 65. In the event of
the death of Mr. Wendel during his employment or while receiving disability
payments, the Operating Partnership will pay Mr. Wendel's designated beneficiary
a total of $500,000 in monthly payments over ten years. In the event of
termination of employment without cause, the Operating Partnership will pay
$500,000, in monthly installments over ten years commencing on Mr. Wendel's
88
<PAGE>
65th birthday or, if later, retirement. In the event of voluntary termination of
employment by Mr. Wendel, the Operating Partnership will pay $50,000 for each
full year of service (including the period during which disability payments are
received) after September 14, 1982, up to $500,000 in monthly installments over
ten years commencing on Mr. Wendel's 65th birthday or, if later, retirement.
LONG-TERM INCENTIVE COMPENSATION
MANAGEMENT AND EMPLOYMENT PLANS. The Partnership Agreement provides for the
issuance of up to 2,400,000 First Rights to acquire BACs as an incentive for
operating management and employees of the Operating Partnership. Of such First
Rights, 900,000 were reserved for issuance to non-management employees of the
Operating Partnership (the "Employee Plan") and 1,500,000 were reserved for
issuance to middle management and senior management (the "Management Plan"). As
described below, as of the date hereof, 1,865,497 First Rights have already
automatically converted into BACs, and the Partnership has already satisfied the
criteria for automatic conversion of the remaining First Rights into BACs.
The Employee and the Management Plans are administered by a committee (the
"Bonus Committee") consisting of Victor K. Atkins, Jr., W. Hall Wendel, Jr. and
John H. Grunewald. Any actions taken by the Bonus Committee (with respect to the
Employee and the Management Plans) must be consistent with the respective
members' fiduciary obligations to the Partnership. Any actions of the Bonus
Committee (with respect to the Employee and the Management Plans) are reviewed
by the Board of Directors of PICC and shall be deemed appropriate unless such
Board establishes otherwise. In addition to being President, Secretary,
Treasurer and Director of EIPCC and the individual general partner of the
General Partner, Mr. Atkins is also Chairman of PICC and the individual general
partner of the Operating General Partner and a director of PICC. Mr. Wendel is
Chief Executive Officer of the Operating Partnership and a director of PICC. Mr.
Grunewald is Executive Vice President--Finance and Administration of the
Operating Partnership. Mr. Wendel and Mr. Grunewald are participants in, and
have been granted significant First Rights under, the Management Plan. No First
Rights have been or will be granted to Mr. Atkins.
As of the date hereof, 2,177,997 First Rights have been issued. Of the
amount, (i) 1,670,641 First Rights were converted into BACs and remain
outstanding, (ii) 194,856 First Rights were canceled pursuant to a program (no
longer in effect) adopted to assist First Rights plan participants in the
payment of personal income tax in exchange for the cancellation of First Rights
that were scheduled to convert to BACs, and (iii) 312,500 First Rights will
convert into BACs on various dates in the future. 222,003 First Rights remain
available for future issuance at the times and subject to the conditions
specified by the Committee, in its discretion. The existing First Rights will be
assumed by the Corporation, with only such changes as are necessary to reflect
conversion to corporate form.
No First Rights may be granted under either plan after December 31, 1999,
and the First Rights expire January 1, 2003.
If any employee who has been issued First Rights under the Management Plan
ceases to be an employee for any reason other than death, before all of the BACs
relating to First Rights granted to such employee have been issued, such First
Rights relating to unissued BACs shall terminate and no additional BACs shall be
issued to him or her under the Management Plan.
If a non-management employee who has been issued First Rights under the
Employee Plan is terminated for any reason other than for cause, he or she shall
be entitled to receive all or a portion (depending on years of service with the
Operating Partnership) of the BACs issuable with respect to First Rights granted
to him, at such times and under such conditions as are set forth in the Employee
Plan and such First Rights.
89
<PAGE>
The following table sets forth the numbers of First Rights granted since
inception of the Management Plan to the following officers of the Operating
Partnership, as well as those First Rights which have converted as of December
31, 1993:
<TABLE>
<CAPTION>
REMAINING RIGHTS
RIGHTS RIGHTS REMAINING VALUE AT DECEMBER
GRANTED CONVERTED RIGHTS 31, 1993
--------- --------- ----------- -----------------
<S> <C> <C> <C> <C>
W. Hall Wendel, Jr..................... 248,000 240,000 8,000 $ 270,000
Kenneth D. Larson...................... 110,000 100,000 10,000 337,500
Charles A. Baxter...................... 85,000 80,000 5,000 168,750
Ed Skomoroh............................ 65,000 60,000 5,000 168,750
James Bruha............................ 55,000 40,000 15,000 506,250
</TABLE>
BONUS AND PROFIT SHARING PLANS. In addition to the issuance of First
Rights, bonus and profit sharing plans have been established for employees who
meet minimum service requirements and will be assumed by the Corporation, with
only such changes as are necessary to reflect conversion to corporate form.
Bonuses and profit sharing awards will be paid to the employees determined by
the Bonus Committee in amounts determined by it. All actions taken by the Bonus
Committee are to be consistent with the respective members' fiduciary
obligations to the Partnership. The actions of the Bonus Committee are reviewed
by the Board of Directors of PICC and deemed appropriate unless the Board
establishes otherwise. Bonus awards are granted each year, based on "Pre-Tax
Distributable Cash Flow," which means for any year, the pre-tax earnings of the
Operating Partnership, without regard to any amounts payable pursuant to the
bonus pool, as adjusted to (a) add the sum of (1) depreciation and amortization
of fixed assets, tooling, inventory valuation step-up, intangible assets and
goodwill and (2) compensation expense recorded in connection with the First
Rights employee benefit plans, and to (b) subtract the sum of (1) capital
expenditures of the Operating Partnership, and (2) permitted administrative
expenses of both the Operating Partnership and the Partnership (exclusive of the
annual management fee payable by the Partnership to the Management Agent), up to
a maximum of the following:
<TABLE>
<CAPTION>
PERCENTAGE
PARTICIPATION
PRE-TAX DISTRIBUTABLE CASH FLOW IN INCREMENT
- -------------------------------------------------------------------------------- -----------------
<S> <C>
$0 -- $12,000,000....................................................... 0%
$12,000,001 -- $15,000,000...................................................... 5%
$15,000,001 -- $20,000,000...................................................... 10%
$20,000,001 -- $25,000,000...................................................... 15%
$25,000,001 -- $30,000,000...................................................... 20%
$30,000,001 or more............................................................. 25%
</TABLE>
In general, the Bonus Committee will consider factors such as the previous
year's bonus, base compensation, responsibilities and performance of the
individual employee and performance of the Operating Partnership as a whole in
determining bonus awards.
In addition to the above computation, the Bonus Committee may, in its
discretion, grant a certain amount of profits to be distributed to employees
relating to an historical profit sharing plan. In the event with respect to any
year the Bonus Committee does not grant awards in an amount equal to the maximum
amount for such year, the difference between the maximum and actual amount of
the award may, at the discretion of the Bonus Committee, be carried over to a
subsequent year and added to the maximum amount with respect to which awards may
be granted in such subsequent year. Awards will be paid in cash, in a lump sum,
not later than 30 days following the completion of the Partnership's audit for
such year. An employee designated by the Bonus Committee shall be eligible to
receive an award if he or she is employed to the last day of the Partnership's
fiscal year. It is intended that the bonus and profit sharing plans shall
continue indefinitely; provided, however, that since
90
<PAGE>
January 1, 1993, the Board of PICC has had the power to terminate the plans. The
allocations to the bonus and profit sharing plans for the years ended December
31, 1993, 1992, and 1991, were $16,236,000, $11,411,000, and $9,475,000,
respectively.
RETIREMENT SAVINGS PLAN
Effective June 1, 1985, Northwestern, the predecessor company, adopted a
Retirement Savings Plan (the "Plan") for all employees who meet minimum service
requirements. Such Plan was adopted by the Operating Partnership and will be
assumed by the Corporation, with only such changes as are necessary to reflect
conversion to corporate form. The Plan is intended to qualify as a retirement
plan under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended. Under the Plan, employees may save up to 15% of their income through
payroll deductions. The Operating Partnership may, if it elects, also make
contributions which match the employee contributions up to 4% of the employee's
income. The Operating Partnership's matching contribution immediately vests in
the employee's account. Amounts in a participant's account are distributable
upon termination of employment.
The Board of Directors of PICC may, at any time, amend or terminate the
Plan. As of December 31, 1993, substantially all of the eligible employees
participated in the Plan through payroll deductions. The Operating Partnership
contributed matching contributions of approximately $1,099,000 under the plan
for the year ended December 31, 1993, $898,000 for the year ended December 31,
1992, and $766,000 for the year ended December 31, 1991. For the year ended
December 31, 1993 the Partnership made matching contributions to Messrs. Wendel,
Larson, Baxter, Skomoroh and Bruha of approximately $7,075 each.
PURCHASE OF BACS
The Operating General Partner may, in its sole discretion, implement a
program to enable employees of the Operating Partnership to purchase BACs. To
date, no such program has been implemented.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to 1994, levels of base compensation and participation in the bonus
and profit sharing pool were established by senior management of the Operating
Partnership, including Messrs. Wendel, Grunewald and Larson, and were subject to
approval by the Board of Directors of PICC. At December 31, 1993, the Board of
Directors of PICC consisted of Messrs. Wendel, Atkins and Bagley. Late in 1993,
the Board of Directors established a Compensation Committee consisting of
Messrs. Atkins and Bagley to establish levels of base compensation and
participation in the bonus and profit sharing pool for officers of the Operating
Partnership for subsequent fiscal years. Messrs. Bagley and Atkins do not
participate in the bonus and profit sharing pool.
DIRECTOR COMPENSATION
After consummation of the Conversion, the Corporation intends to pay
directors who are not also employees (Messrs. Baltins, Dolan, Palen and Shank)
an annual director's fee of $27,500, at least $5,000 of which is payable in
restricted stock of the Corporation. Fees are proposed to be paid quarterly and
restrictions on restricted stock are proposed to lapse upon cessation of board
membership.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Operating Partnership leases offices and warehouse space in a suburb of
Minneapolis, Minnesota from 1225 North County Road 18 Limited Partnership ("1225
Partnership"). The partners of the 1225 Partnership are former stockholders of
Northwestern, including W. Hall Wendel, Jr., Mr. Robert S. Moe and Charles A.
Baxter, who own (either directly or through their immediate families) 1,687,200
BACs. On October 27, 1988, Northwestern was liquidated and its assets were
distributed to its stockholders. Under the lease entered into in 1983, and
amended in 1990, the Operating Partnership leases 60,127 square feet of
warehouse space and 31,733 square feet of office space from the 1225
Partnership. The lease is on a "triple net" basis and provides for annual rent
of
91
<PAGE>
$2.50 per square foot of warehouse space and $5.50 per square foot of office
space and is adjusted annually by increases in the consumer price index, not to
exceed 3.5% annually. Total lease payments for the years ended December 31,
1993, 1992, and 1991, were $443,000, $429,000, and $415,000, respectively. The
term of the lease expires in 1997.
The Operating Partnership has assumed the liabilities of Northwestern under
such lease agreement and has succeeded to the rights of Northwestern with
respect to the 1225 Partnership. Any future transactions with the 1225
Partnership or any other related party will be on terms which management
believes are no less favorable to the Operating Partnership or the Corporation
than those which could reasonably be obtained from an unaffiliated party.
Management does not believe that any of the arrangements with the 1225
Partnership will have any material impact on operating results.
Andris A. Baltins, who has consented to serve as a director of the
Corporation upon completion of the Conversion, is a member of the law firm of
Kaplan, Strangis and Kaplan, P.A., which provides legal services to the
Corporation and has provided legal services to the Partnership and its
subsidiaries. Of the $11 million in fees and expenses estimated to be incurred
in connection with the Conversion, it is estimated that Kaplan, Strangis and
Kaplan, P.A. will receive fees of approximately $1 million.
92
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November , 1994, the number of BACs,
and, upon completion of the Conversion, the number of shares of Common Stock
beneficially owned by (i) each person who is a director of EIPCC or PICC, (ii)
each person who has been nominated as a director of the Corporation, (iii) each
of the chief executive officer and the four most highly compensated executive
officers other than the chief executive officer of the Operating Partnership,
(iv) all directors of PICC, EIPCC and executive officers of PICC as a group (in
the case of BACs) and all directors, nominees for director and proposed
executive officers of the Corporation (in the case of shares of Common Stock),
and (v) those persons known to the Partnership who beneficially own more than 5%
of any class of voting securities.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP (1)
------------------------------------------------
BACS SHARES OF COMMON STOCK
---------------------- ----------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ---------------------------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Victor K. Atkins, Jr. (2) 425,132 2.66% 1,408,665 7.78%
President, Secretary, Treasurer and Director of EIPCC and Chairman
and Director of PICC
Paul Bagley (3) 18,475 * 18,475 *
Chairman and Director of EIPCC and Director of PICC
W. Hall Wendel, Jr. (4) 988,800 6.18% 988,800 5.46%
Chief Executive Officer of the Operating Partnership and Director of
PICC
Kenneth D. Larson (5) 105,376 * 105,376 *
President and Chief Operating Officer of PICC, Director (6)
Charles A. Baxter 280,000 1.75% 280,000 1.55%
Vice President--Engineering and Product Safety of PICC
Ed Skomoroh 49,020 * 49,020 *
Vice President--Sales and Marketing of PICC
James Bruha 7,460 * 7,460 *
Vice President--Manufacturing of PICC
Beverly F. Dolan -0- -0- -0- -0-
Director (6)
Stephen G. Shank -0- -0- -0- -0-
Director (6)
Gregory R. Palen -0- -0- -0- -0-
Director (6)
Andris A. Baltins (7) 4,550 * 4,550 *
Director (6)
Robert S. Moe (8) 418,400 2.61% 418,400 2.31%
Director (6)
Lehman Brothers Holdings Inc. (9) 325,507 2.03% 1,375,628(10) 7.6 %
All directors and executive officers as a group 1,897,086 11.85% 1,876,429 10.36%
<FN>
- ------------------------------
* Represents less than 1%.
(1) Unless otherwise indicated, beneficial ownership disclosed consists of sole
voting and investment power.
</TABLE>
93
<PAGE>
<TABLE>
<S> <C>
(2) Includes certain shares which may be received by LBHI. See footnote (10)
below.
(3) Includes 11,475 BACs (shares) held indirectly by Mr. Bagley by virtue of
his 12% ownership of the outstanding stock of Boker Orr Corporation (of
which he is President), a 12.5% limited partner of EIP I L.P. Also includes
800 BACs (shares) held in trusts for Mr. Bagley's children, as to which he
disclaims any beneficial interest. Also includes 6,200 BACs (shares) owned
by Mr. Bagley and his spouse in several joint accounts. Also has an
interest in an indeterminate number of shares pursuant to a partnership
agreement among a subsidiary of LBHI and Boker Orr Corporation. See
footnote (10) below.
(4) Includes 128,000 BACs (shares) held in a trust for Mr. Wendel's daughter as
to which he disclaims any beneficial interest.
(5) Includes 100 BACs (shares) held in a trust for Mr. Larson's child and
10,200 BACs (shares) owned by Mr. Larson's spouse, as to which he disclaims
any beneficial interest.
(6) Has agreed to serve as a director upon completion of the Conversion.
(7) Other members of the law firm of Kaplan, Strangis and Kaplan, P.A., of
which Mr. Baltins is a member and which serves as counsel for the
Corporation, beneficially own 39,750 BACs (shares).
(8) Includes 222,400 BACs (shares) held in a trust for Mr. Moe's children, as
to which he disclaims any beneficial interest.
(9) Includes BACs owned by certain wholly owned subsidiaries of Lehman Brothers
Holdings Inc.
(10) Does not include shares which may be received by LBHI, subject to certain
conditions not in the control of LBHI, pursuant to the preferred return set
forth in the partnership agreement of the General Partner. Includes shares
that may be beneficially owned by Boker Orr Corporation and not LBHI
pursuant to a partnership agreement among a subsidiary of LBHI and Boker
Orr Corporation. See footnotes (2) and (3) above.
</TABLE>
The business address for Mr. Atkins is 33 Flying Point Road, Southampton,
New York 11968.
The business address for Mr. Bagley is c/o Stone Pine Capital Ltd., 410 17th
Street, Suite 400, Denver, Colorado 80202.
The business address for Messrs. Wendel, Larson, Baxter, Skomoroh and Bruha
is 1225 Highway 169 North, Minneapolis, Minnesota 55441.
The address for LBHI is 3 World Financial Center, New York, New York 10285.
In connection with the Conversion, Mr. Wendel and Mr. Atkins entered into an
agreement dated as of August 25, 1994 (the "Agreement"). The Agreement provides,
among other things, that for so long as Mr. Atkins owns no less than 3% of the
outstanding voting securities, he will vote such securities in favor of the
Corporation's nominees for election to the Board of Directors of the
Corporation. It is understood that Mr. Atkins does not desire to and will not
serve as an officer or director of the Corporation or its subsidiaries following
consummation of the Conversion.
94
<PAGE>
SUMMARY OF CERTAIN PROVISIONS
OF THE PARTNERSHIP AGREEMENT
The Partnership Agreement is the governing instrument which establishes the
Partnership's right under the laws of the State of Delaware to operate under its
name as a limited partnership and contains the rules under which the Partnership
will be operated. Many of the principal provisions of the Partnership Agreement
have been summarized elsewhere in this Proxy Statement under various headings,
in particular under "Comparative Rights of BAC Holders and Holders of Common
Stock," and certain other provisions of the Partnership Agreement are summarized
below. For complete information, however, reference is made to the Partnership
Agreement.
The following statements and other statements in this Prospectus concerning
the Partnership Agreement and related matters are merely a summary, do not
purport to be complete and in no way modify or amend the Partnership Agreement.
MANAGEMENT OF THE PARTNERSHIP
The General Partner, whose express duties and responsibilities are set forth
in the Partnership Agreement, has full, complete and exclusive discretion to
manage and control the Partnership. The BAC Holders have no authority to
participate in or have any control over the Partnership business and have no
authority or right to act for or bind the Partnership.
LIABILITY OF THE GENERAL PARTNER AND BAC HOLDERS TO THIRD PARTIES
The General Partner is liable for all general obligations of the Partnership
to the extent not paid by the Partnership. All decisions made for or on behalf
of the Partnership by the General Partner are binding upon the Partnership. The
General Partner is not liable for the nonrecourse obligations of the
Partnership.
No BAC Holder is personally liable for the debts, liabilities, contracts or
any other obligations of the Partnership and shall only be liable to make the
payments of its Capital Contribution to the Partnership as and when due, unless,
in addition to the exercise of its rights and powers as a BAC Holder, he or she
takes part in the control of the business of the Partnership.
The Delaware Revised Uniform Limited Partnership Act and the Partnership
Agreement provide that, in certain circumstances, the BAC Holders may be liable
to return amounts previously distributed to them.
DISSOLUTION AND LIQUIDATION
The Partnership shall continue in full force and effect until December 31,
2037, unless terminated earlier as a result of:
(1) the bankruptcy of the Partnership;
(2) the retirement (including resignation or removal), death,
dissolution, legal disability or the passage of 120 days after the
bankruptcy of a General Partner, unless the remaining general partners (or
in the case of a General Partner who is at that time the sole General
Partner), all of the BAC Holders agree to continue the business of the
Partnership within 90 days of the occurrence of such an event;
(3) the sale or other disposition of all or substantially all of the
assets of the Partnership or of the Operating Partnership;
(4) an election to dissolve the Partnership by two-thirds in interest of
the BAC Holders; or
(5) the occurrence of any other event causing the dissolution of the
Partnership under the laws of the State of Delaware.
Upon dissolution of the Partnership, the Partnership's assets will be
liquidated and the proceeds of liquidation will be applied to the payment of
obligations of the Partnership to third parties and the
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setting up of any reserves for contingencies that the General Partner considers
necessary. All remaining net assets will then be distributed among the General
Partner and the BAC Holders in proportion to their respective Capital Accounts.
VOTING RIGHTS OF BAC HOLDERS
The BAC Holders do not have the right to participate in the management or
control of the Partnership's business. The Partnership Agreement provides,
however, that the Initial Limited Partner will vote its Class A Interests as
directed by the BAC Holders. Accordingly, the Initial Limited Partner voting at
the direction of the BAC Holders by vote of two-thirds in interest thereof may,
among other matters:
(a) amend the Partnership Agreement, provided that the concurrence of
the General Partner is required for any amendment which modifies the
compensation or distributions to which the General Partner or its Affiliates
are entitled, or which affects the duties of the General Partner or modifies
the First Rights;
(b) approve or disapprove the sale of all or substantially all of the
Partnership's assets in one transaction or in a related series of
transactions, except in connection with the Partnership's dissolution and
liquidation, in which case the General Partner will have exclusive
authority;
(c) dissolve the Partnership; or
(d) remove any General Partner and consent to the admission of a
replacement therefor.
The General Partner may at any time call a meeting of BAC Holders and is
required to give notice of such a meeting within 10 days of receipt of a written
request therefor signed by ten percent or more in interest of the BAC Holders.
REMOVAL OF THE GENERAL PARTNER
The BAC Holders may, by vote of two-thirds in interest, vote to remove any
General Partner from the Partnership with or without cause and consent to the
appointment of a replacement therefor.
WITHDRAWAL OF THE GENERAL PARTNER
The General Partner may not withdraw voluntarily from the Partnership or
sell, transfer or assign all or any portion of its interest in the Partnership,
unless a substitute general partner has been admitted in accordance with the
terms of the Partnership Agreement. Among other things, the Partnership
Agreement requires that the Partnership's accountants render an opinion that the
net worth of the substitute general partner is sufficient to maintain the status
of the Partnership as a partnership for Federal income tax purposes.
ADDITIONAL GENERAL PARTNERS
With the consent of two-thirds in interest of the BAC Holders, the General
Partner may at any time designate one or more persons as additional general
partners, provided that the interests of the BAC Holders are not reduced
thereby. The designation must meet the conditions set out in the Partnership
Agreement and comply with the provisions of the Delaware Revised Uniform Limited
Partnership Act with respect to admission of an additional general partner. In
addition to the requirement that the admission of a person as successor or
additional general partner have the consent of the two-thirds in interest of the
BAC Holders, the Partnership Agreement requires, among other things, that (i)
such person agrees to and executes the Partnership Agreement, and (ii) counsel
for the Partnership renders an opinion that such person's admission is in
accordance with the Delaware Revised Uniform Limited Partnership Act.
EFFECT OF REMOVAL, BANKRUPTCY, DEATH, DISSOLUTION, INCOMPETENCY OR WITHDRAWAL OF
THE GENERAL PARTNER
In the event of a removal, bankruptcy, death, dissolution, incompetency or
withdrawal of the General Partner, the General Partner will cease to be a
general partner of the Partnership and (except for removal without cause) its
interest in the Partnership will be assigned to any remaining or successor
general partners so that the remaining or successor general partners have not
less than a
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1% interest in the Partnership. Any such interest not so assigned will be
retained by the General Partner, but will be converted into a limited
partnership interest. The General Partner will remain liable for Partnership
obligations arising prior to such removal, bankruptcy, death, dissolution,
incompetency or withdrawal. In the event that the General Partner is removed
without cause, the successor general partner has the obligation to acquire the
interest of the General Partner in the Partnership at its fair market value,
unless the General Partner elects to have its interest converted to a limited
partnership interest. The fair market value will be the sum of the present value
of the general partnership interest of the General Partner over the life of the
Partnership plus the present value of the Management Fee over the life of the
Partnership. If the General Partner is removed for cause, the removed General
Partner shall transfer, for no consideration, its general partnership interest
to any successor General Partner chosen by BAC Holders, but the rights of the
General Partner as a Rights Holder will not be affected. Any disputes as to the
fair market value of the General Partner's interest in the Partnership will be
settled through arbitration.
REIMBURSEMENT OF GENERAL PARTNER EXPENSES
The Partnership will reimburse the General Partner for certain of its
expenses. Such reimbursements may include reimbursement for actual out-of-pocket
expenses incurred on Partnership business, direct out-of-pocket fees and
expenses and charges for rendering legal, consulting, auditing, accounting,
bookkeeping and computer services. The Partnership will not reimburse the
General Partner for any salaries or fringe benefits of its officers, directors
or employees, whether or not they are providing services to the Partnership, or
for any items of general overhead, such as rent, utilities or the use of
computer or office equipment.
AMENDMENTS
In addition to amendments adopted by two-thirds in interest of the BAC
Holders, the Partnership Agreement may be amended by the General Partner,
without the consent of the BAC Holders, in certain limited respects if such
amendments are for the benefit of or not adverse to the interests of the BAC
Holders. Also, the power of attorney contained in the Partnership Agreement
empowers the General Partner to amend the Partnership Agreement to admit
additional or substitute BAC Holders into the Partnership if such admission is
effected in accordance with the terms of the Partnership Agreement.
DESIGNATION OF TAX MATTERS PARTNER
Pursuant to Section 6231 of the Code and the Regulations thereunder and the
Partnership Agreement, the General Partner is designated the "tax matters
partner" for purposes of Federal income tax audits of Partnership income, gain,
loss, deduction or credit.
REORGANIZATION OF THE PARTNERSHIP
If legislation is passed, or if effective Treasury Department Regulations
are adopted, which would have the effect of reclassifying the Partnership as an
association taxable as a corporation for Federal income tax purposes, or if for
any other reason the Partnership is treated as an association taxable as a
corporation for Federal income tax purposes, the General Partner may, at its
sole discretion and without the consent or approval of any other partner, take
whatever action it deems necessary in the best interests of the Partnership,
including the dissolution or reorganization of the Partnership into a newly
organized corporation or other legal entity formed for such purpose, in whatever
manner and by whatever method the General Partner determines in its sole
discretion. The General Partner shall effectuate such reorganization so that, to
the extent possible and legally permissible under the circumstances, the
respective interests of the BAC Holders and General Partner in the assets and
income of the successor entity immediately following such reorganization are
substantially equivalent to such interests immediately prior thereto. The
General Partner shall appoint two independent appraisers to determine the value
of the foregoing interests. If such appraisers are unable to agree on any
valuation, the value shall be the average of the two determinations.
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APPLICABLE LAW
The Partnership Agreement shall be construed and enforced in accordance with
the laws of the State of Delaware.
BOOKS AND RECORDS
The fiscal year of the Partnership will be the year ending December 31. The
books and records of the Partnership shall be maintained at the office of the
Partnership. Such books and records shall be available there for examination by
any BAC Holder, or any duly authorized representative of such BAC Holder, upon
reasonable notice. Any BAC Holder, or any duly authorized representative of such
BAC Holder, shall, upon paying the costs of collection, duplication and mailing,
be entitled to a copy of the list of the names and addresses of the BAC Holders.
TRANSFERABILITY OF THE BACS
A transfer or assignment of 50% or more of the capital and profits interests
of the Partnership within a 12-month period will terminate the Partnership for
Federal income tax purposes, which may result in adverse tax consequences to
holders of BACs. In order to protect against such a termination, the Partnership
Agreement permits the General Partner to defer any transfers or assignments of
BACs as a group at any time after the General Partner determines that such a
transfer or assignment may result in the termination of the Partnership for tax
purposes, provided that the General Partner believes that the resulting
termination of the Partnership for tax purposes would have a material adverse
effect on the financial interests of the holders of BACs. The transferring
holders of BACs will be notified of such deferral, and any deferred transfers or
assignments will be effected (in chronological order to the extent practicable)
as of the first day of the next succeeding period as of which such transfers or
assignments can be effected without either termination of the Partnership for
tax purposes or any adverse effects from such termination, as the case may be.
In addition, any transfer of BACs which would result in a termination of the
Partnership for Federal income tax purposes will be void and have no effect to
the full extent permitted by law. The Partnership may also restrict or terminate
transferability to preserve the tax status of the Partnership as a partnership.
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Conversion, the authorized capital stock of the
Corporation will consist of 80,000,000 shares of Common Stock, par value $.01
per share, and 20,000,000 shares of preferred stock, issuable in series. Of such
authorized shares, 18,110,684 shares of Common Stock will be issued and
outstanding immediately following the Conversion. All such outstanding shares of
Common Stock will be fully paid and nonassessable.
COMMON STOCK
Holders of Common Stock have no preemptive rights to purchase or subscribe
for securities of the Corporation and the Common Stock is not convertible or
subject to redemption by the Corporation.
Subject to the rights of holders of any class of capital stock of the
Corporation having any preference or priority over the Common Stock, none of
which will be outstanding upon consummation of the Conversion, the holders of
the Common Stock are entitled to dividends in such amounts as may be declared by
the Board of Directors of the Corporation from time to time out of funds legally
available for such payments and, in the event of liquidation, to share ratably
in any assets of the Corporation remaining after payment in full of all
creditors and provisions for any liquidation preferences on any outstanding
preferred stock ranking prior to the Common Stock.
PREFERRED STOCK
The Board of Directors, without further action by the shareholders, is
authorized to issue up to 20,000,000 shares of preferred stock in one or more
series and to fix and determine as to any series all the relative rights and
preferences of shares in such series, including, without limitation,
preferences,
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limitations or relative rights with respect to redemption rights, if any, voting
rights, if any, dividend rights and preferences on liquidation. The Corporation
has no present intention to issue any preferred stock, but may determine to do
so in the future.
VOTING
Holders of Common Stock are entitled to cast one vote per share on matters
submitted to a vote of shareholders. No holder of Common Stock will be entitled
to any cumulative voting rights. Approval of any matter submitted to
shareholders requires the affirmative vote of the greater of (a) a majority of
the voting power of the shares present and entitled to vote on that item of
business or (b) a majority of the voting power of the minimum number of shares
entitled to vote that would constitute a quorum for the transaction of business
at a duly held meeting of shareholders; except that the Corporation's Articles
of Incorporation provide that the affirmative vote of holders of at least 75% of
the voting power of all outstanding shares entitled to vote is required for the
removal of a director, with or without cause, from office. If the Corporation
has more than one class of stock outstanding in the future, class voting will be
required on certain matters that generally have a material adverse effect on
shares of a class.
BOARD OF DIRECTORS
The Corporation's Articles of Incorporation provide that the business and
affairs of the Corporation shall be managed by or under the direction of a Board
of Directors consisting of not less than one (not less than three after there is
more than one shareholder) nor more than 15 persons, who need not be
shareholders. The number of directors may be increased by shareholders or the
Board of Directors or decreased by the shareholders from the number of directors
on the Board of Directors immediately prior to the effective date of the
Articles of Incorporation, provided, however, that any change in the number of
directors on the Board of Directors shall be approved by the affirmative vote of
not less than 75% of the voting power of all outstanding shares entitled to
vote, entitled to be cast by the holders of the then outstanding voting shares,
voting together as a single class, unless such change shall have been approved
by a majority of the entire Board of Directors. The directors will be divided
into three classes, designated Class I, Class II and Class III. The term of the
initial Class I directors shall terminate on the date of the 1995 annual meeting
of shareholders, the term of the initial Class II directors shall terminate on
the date of the 1996 annual meeting of shareholders, and the term of the initial
Class III directors shall terminate on the date of the 1997 annual meeting of
shareholders. At each succeeding meeting of annual shareholders beginning in
1995, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. Removal of a director from
office, with or without cause, requires the affirmative vote of not less than
75% of the voting power of all outstanding shares entitled to vote, voting
together as a single class.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Corporation's Articles of Incorporation and
By-laws and the Minnesota Business Corporation Act ("MBCA") could have an
anti-takeover effect. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Corporation's Board of
Directors and management and in the policies formulated by the Board of
Directors and to discourage an unsolicited takeover of the Corporation if the
Board of Directors determines that such takeover is not in the best interests of
the Corporation and its shareholders. However, these provisions could have the
effect of discouraging certain attempts to acquire the Corporation or remove
incumbent management even if some, or a majority of, shareholders deemed such an
attempt to be in their best interests.
ARTICLES OF INCORPORATION PROVISIONS. Pursuant to the Corporation's
Articles of Incorporation, at such time that the Board of Directors consists of
three or more persons, the Board of Directors of the Corporation shall be
divided into three classes serving staggered three-year terms. In accordance
with the MBCA, Directors can be removed from office, with or without cause, only
by the affirmative vote of holders of 75% of the outstanding shares entitled to
vote.
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BY-LAW PROVISIONS. The By-laws provide that any action required or
permitted to be taken by the shareholders of the Corporation may be effected
only at a regular or special meeting of shareholders and prohibits shareholder
action by less than unanimous written consent in lieu of a meeting. Special
meetings of shareholders may be called by a shareholder or shareholders holding
10% of the voting power of all shares entitled to vote; except that a special
meeting for the purpose of considering any action to directly or indirectly
facilitate or effect a business combination, including any action to change or
otherwise affect the composition of the Board of Directors for that purpose,
must be called by 25% or more of the voting power of all shares entitled to
vote.
MINNESOTA CONTROL SHARE/FAIR PRICE LAW. Section 671 of the MBCA provides
that, generally, a person who becomes the beneficial owner of 20% or more of the
voting power of the shares of the Corporation in the election of directors may
exercise only an aggregate of 20% of the voting power of the Corporation's
shares in the absence of special shareholders' approval. That approval can only
be obtained by resolution adopted by (i) the affirmative vote of the holders of
the majority of the voting power of all shares entitled to vote, including all
shares held by the acquiring person, and (2) the affirmative vote of the holders
of the majority of the voting power of all shares entitled to vote, excluding
all "interested shares" (shares held by the acquiring person, any officer of the
Corporation or any director of the Corporation who is also an officer of the
Corporation). If the shareholders approve a share acquisition that would
increase the acquiring person's beneficial interest to 20% or more, but less
than 33 1/3%, of the voting power of the Corporation's shares, a similar
shareholder vote is required to permit the acquiring person to exercise voting
power with respect to 33 1/3% or more of the outstanding shares upon becoming
beneficial owner of shares otherwise entitled to one-third or more of the voting
power of the Corporation's shares. A similar shareholder vote generally is
necessary to permit the acquiring person to exercise the majority of voting
power following acquisition of shares otherwise entitled to the majority of such
voting power.
Section 673 of the MBCA restricts transactions with a shareholder acquiring
10% or more of the voting power of the shares of the Corporation entitled to
vote unless the share acquisition or the transaction has been approved by the
Board of Directors prior to the acquisition of the 10% interest. For four years
after the 10% threshold is exceeded (absent prior board approval), the
Corporation cannot have a sale of substantial assets, merger, loan, substantial
issuance of stock, plan of liquidation or reincorporation involving such
shareholder or its affiliates.
Section 675 of the MBCA generally provides that, in the absence of
disinterested director approval, an offeror may not acquire shares of the
Corporation from a shareholder within two years following the offeror's last
purchase of shares of the same class pursuant to a takeover offer, unless the
shareholder is afforded a reasonable opportunity at that time to dispose of the
shares to the offeror on terms substantially equivalent to the terms of the
earlier takeover offer.
LIMITATION OF LIABILITY
As permitted by Minnesota law, the Corporation's Articles of Incorporation
provide that directors of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) relating to prohibited dividends or distributions or the
repurchase or redemption of stock, or (iv) for any transaction from which the
director derives an improper personal benefit.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank, N.A.
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RESALE OF COMMON STOCK
Shares of Common Stock received by persons who may be deemed to be
"affiliates" of the Partnership may be sold by those persons only (i) in
accordance with the provisions of Rule 145 under the Securities Act, (ii)
pursuant to an effective registration statement under the Securities Act, or
(iii) in transactions that are exempt from registration under the Securities
Act. Rule 145 provides, in general, that those shares of Common Stock may be
sold by such persons during the two years following the date the shares were
acquired from the Corporation if (a) there is available adequate current public
information with respect to the Corporation and (b) the number of shares of
Common Stock sold within any three-month period does not exceed the greater of
1% of the total number of outstanding shares of Common Stock or the average
weekly trading volume of the Common Stock during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the SEC
and (c) the shares of Common Stock are sold in transactions directly with a
"market maker" or in "brokers' transactions" within the meaning of Rule 144
under the Securities Act. Rule 145 further provides that during the third year
following the date the shares were acquired from the Corporation such persons
may sell such shares if they are not affiliates of the Corporation and there is
available adequate public information with respect to the Corporation, and
thereafter such persons may sell such shares without restriction if they are
not, and have not been for at least three months, affiliates of the Corporation.
The Corporation has entered into an agreement with affiliates of the General
Partner affording them certain registration rights. See also "The Conversion --
Description of the Merger Agreement -- Registration Rights."
LEGAL MATTERS
The validity of the shares of Common Stock under Minnesota law and certain
legal matters in connection with the offering of the Common Stock hereby will be
passed upon for the Corporation by Kaplan, Strangis & Kaplan, P.A., Minneapolis,
Minnesota. Certain legal matters in connection with the offering of the Common
Stock hereby will be passed upon for the Partnership by Simpson Thacher &
Bartlett (a partnership which includes professional corporations), New York, New
York, and Stroock & Stroock & Lavan, New York, New York. Certain federal income
tax matters set forth under "Certain Federal Income Tax Considerations," will be
passed upon by Stroock & Stroock & Lavan.
EXPERTS
The financial statements of Polaris Industries Partners L.P. as of December
31, 1993 and 1992 and for each of the three years in the period ended December
31, 1993, and the balance sheet of Polaris Industries Inc. as of September 23,
1994, included in this Proxy Statement and the Registration Statement of which
this Proxy Statement forms a part, have been audited by McGladrey & Pullen,
independent auditors, as set forth in their reports appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONTENTS PAGE
- ---------------------------------------------------------------------------------------------------------- ---------
<S> <C>
POLARIS INDUSTRIES PARTNERS L.P.
Independent Auditor's Report on the Financial Statements.................................................. F-2
Financial Statements
Balance Sheets as of December 31, 1992 and 1993, and September 30, 1994 (unaudited)..................... F-3
Statements of Operations for the years ended December 31, 1991, 1992 and 1993, and the nine-month
periods ended September 30, 1993 and 1994 (unaudited).................................................. F-4
Statements of Partners' Capital for the years ended December 31, 1991, 1992 and 1993, and the nine-month
period ended September 30, 1994 (unaudited)............................................................ F-5
Statements of Cash Flows for the years ended December 31, 1991, 1992 and 1993, and the nine-month
periods ended September 30, 1993 and 1994 (unaudited).................................................. F-6
Notes to Financial Statements for the years ended December 31, 1991, 1992 and 1993, and the nine-month
periods ended September 30, 1993 and 1994 (unaudited).................................................. F-7
POLARIS INDUSTRIES INC.
Independent Auditor's Report on the Balance Sheet......................................................... F-15
Balance Sheet and Note to Financial Statement as of September 23, 1994.................................... F-16
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Partners
Polaris Industries Partners L.P.
We have audited the accompanying balance sheets of POLARIS INDUSTRIES
PARTNERS L.P. (a Delaware limited partnership) as of December 31, 1992 and 1993,
and the related statements of operations, partners' capital and cash flows for
each of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Polaris Industries Partners
L.P. as of December 31, 1992 and 1993, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
McGLADREY & PULLEN
Minneapolis, Minnesota
February 11, 1994, except for Notes 9 and 10
as to which the date is October 14, 1994
F-2
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, SEPTEMBER 30, 1994
-------------------- ------------------------
1992 1993 HISTORICAL PRO FORMA
--------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current Assets
Cash and cash equivalents......................................... $ 19,094 $ 33,798 $ 53,733 53,733
Trade receivables................................................. 16,875 21,340 42,114 42,114
Inventories (Note 3).............................................. 37,576 52,057 78,645 78,645
Prepaid expenses and other........................................ 1,454 2,553 3,951 3,951
Deferred tax assets (Note 10)..................................... 12,000
--------- --------- ----------- -----------
Total current assets.......................................... 74,999 109,748 178,443 190,443
--------- --------- ----------- -----------
Deferred Tax Assets (Note 10)....................................... 30,000
--------- --------- ----------- -----------
Property and Equipment
Land, buildings and improvements.................................. 9,558 10,737 13,165 13,165
Equipment and tooling............................................. 43,580 56,480 70,508 70,508
--------- --------- ----------- -----------
53,138 67,217 83,673 83,673
Less accumulated depreciation..................................... 19,691 27,486 37,970 37,970
--------- --------- ----------- -----------
33,447 39,731 45,703 45,703
--------- --------- ----------- -----------
Intangibles
Cost in excess of net assets of business acquired, net of
amortization of $4,199 1992; $4,968 1993 and $5,534 1994......... 26,479 25,710 25,144 25,144
Dealer network, net of amortization of $33,523 1992; $39,811 1993
and $44,000 1994................................................. 10,477 4,189
Other, net of amortization of $2,202 1992; $2,311 1993 and $2,394
1994............................................................. 1,279 1,170 1,087 1,087
--------- --------- ----------- -----------
38,235 31,069 26,231 26,231
--------- --------- ----------- -----------
$ 146,681 $ 180,548 $ 250,377 $ 292,377
--------- --------- ----------- -----------
--------- --------- ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Accounts payable.................................................. $ 24,946 $ 36,122 $ 65,500 $ 65,500
Distributions payable (Notes 2 and 10)............................ 11,127 11,851 12,735 12,735
Accrued expenses:
Compensation (Note 5)........................................... 14,404 20,060 23,865 23,865
Sales promotion programs........................................ 2,749 3,691 12,539 12,539
Warranties...................................................... 5,705 11,412 13,013 13,013
Other........................................................... 6,493 7,165 11,590 22,590
Income taxes payable (Note 8)..................................... 3,630 7,754 10,157 10,157
--------- --------- ----------- -----------
Total current liabilities..................................... 69,054 98,055 149,399 160,399
--------- --------- ----------- -----------
Commitments and Contingencies (Notes 4, 5, 6, 8, and 10)
Partners' Capital (Notes 2, 4, and 5)
General Partner................................................... (7,105) (7,397) (4,817)
Limited Partners:
BACs (issued and outstanding, 14,504 units 1992, 14,936 units
1993 and 16,010 units 1994).................................... 76,139 81,069 97,016
First Rights:
Assigned capital value........................................ 9,102 8,821 8,779
Deferred compensation......................................... (509)
Stockholders' Equity (Note 10)
Preferred stock $0.01 par value, authorized 20,000 shares, no
issued and outstanding shares....................................
Common stock $0.01 par value, authorized 80,000 shares, issued and
outstanding 18,111 shares........................................ 181
Additional paid-in capital........................................ 100,797
Retained earnings................................................. 31,000
--------- --------- ----------- -----------
77,627 82,493 100,978 131,978
--------- --------- ----------- -----------
$ 146,681 $ 180,548 $ 250,377 $ 292,377
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Pro Forma Net Book Value Per Share (Note 10) $ 7.17
-----------
-----------
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT AND PRO FORMA PER SHARE DATA)
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
----------------------------------
FOR THE NINE MONTHS
FOR THE FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER ENDED SEPTEMBER 30, YEAR ENDED
31, DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------- -------------------- ------------ --------------------
1991 1992 1993 1993 1994 1993 1993 1994
--------- --------- --------- --------- --------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................................ $ 297,677 $ 383,818 $ 528,011 $ 385,153 584,725 $ 528,011 $ 385,153 $ 584,725
Cost of Sales........................ 201,883 269,199 383,916 282,420 443,093 383,916 282,420 443,093
--------- --------- --------- --------- --------- ------------ --------- ---------
Gross profit..................... 95,794 114,619 144,095 102,733 141,632 144,095 102,733 141,632
--------- --------- --------- --------- --------- ------------ --------- ---------
Operating Expenses
Selling, general and
administrative.................... 50,968 61,931 77,402 55,460 74,808 76,902 55,085 74,433
First Rights compensation.......... 5,548 4,570 6,300 5,029 6,140 6,300 5,029 6,140
Amortization of intangibles........ 7,560 7,427 7,166 5,378 4,838 7,166 5,378 4,838
--------- --------- --------- --------- --------- ------------ --------- ---------
Total operating expenses......... 64,076 73,928 90,868 65,867 85,786 90,368 65,492 85,411
--------- --------- --------- --------- --------- ------------ --------- ---------
Operating income................. 31,718 40,691 53,227 36,866 55,846 53,727 37,241 56,221
Nonoperating Expense (Income), net... (1,712) 1,010 (43) 878 (772) (43) 878 (772)
Interest Expense (Note 10)........... -- -- -- -- -- 2,231 744 3,347
--------- --------- --------- --------- --------- ------------ --------- ---------
Income before income taxes....... 33,430 39,681 53,270 35,988 56,618 51,539 35,619 53,646
Provision for Income Taxes (Notes 8
and 10)............................. 1,968 4,980 7,457 4,546 6,007 18,555 12,825 19,313
--------- --------- --------- --------- --------- ------------ --------- ---------
Net Income....................... $ 31,462 $ 34,701 $ 45,813 $ 31,442 $ 50,611 $ 32,984 $ 22,794 $ 34,333
------------ --------- ---------
------------ --------- ---------
Allocation of Net Income to General
Partner (Note 2).................... 6,544 7,218 9,529 6,540 10,527
--------- --------- --------- --------- ---------
Net income applicable to Limited
Partners........................ $ 24,918 $ 27,483 $ 36,284 $ 24,902 $ 40,084
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per unit.............. $ 1.65 $ 1.73 $ 2.25 $ 1.54 $ 2.46
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per share............. $ 1.81 $ 1.25 $ 1.86
------------ --------- ---------
------------ --------- ---------
Weighted Average Number of BACs and
BAC Equivalents Outstanding......... 15,062 15,868 16,115 16,125 16,315
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted Average Number of Common and
Common Equivalent Shares
Outstanding......................... 18,215 18,225 18,415
------------ --------- ---------
------------ --------- ---------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENTS OF PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED PARTNERS' INTEREST
----------------------------------------------
FIRST RIGHTS
------------------------ TOTAL
GENERAL ASSIGNED LIMITED
PARTNER'S CAPITAL DEFERRED PARTNERS'
INTEREST BACS VALUE COMPENSATION INTEREST TOTAL
----------- --------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990.................. $ (2,753) $ 81,624 $ 21,154 $ (7,923) $ 94,855 $ 92,102
First Rights grants and amortization...... -- -- 309 5,239 5,548 5,548
Cancellation of 192 First Rights.......... -- (1,319) (2,349) -- (3,668) (3,668)
Net income for the year................... 6,544 24,918 -- -- 24,918 31,462
Cash distributions declared............... (8,857) (33,724) -- -- (33,724) (42,581)
----------- --------- --------- ------------- --------- ---------
Balance, December 31, 1991.................. (5,066) 71,499 19,114 (2,684) 87,929 82,863
First Rights conversion to BACs........... -- 12,407 (12,407) -- -- --
First Rights grants and amortization...... -- -- 2,395 2,175 4,570 4,570
Net income for the year................... 7,218 27,483 -- -- 27,483 34,701
Cash distributions declared............... (9,257) (35,250) -- -- (35,250) (44,507)
----------- --------- --------- ------------- --------- ---------
Balance, December 31, 1992.................. (7,105) 76,139 9,102 (509) 84,732 77,627
First Rights conversion to BACs........... -- 6,042 (6,072) -- (30) (30)
First Rights grants and amortization...... -- -- 5,791 509 6,300 6,300
Net income for the year................... 9,529 36,284 -- -- 36,284 45,813
Cash distributions declared............... (9,821) (37,396) -- -- (37,396) (47,217)
----------- --------- --------- ------------- --------- ---------
Balance, December 31, 1993.................. (7,397) 81,069 8,821 -- 89,890 82,493
First Rights conversion to BACs
(unaudited).............................. -- 6,122 (6,182) -- (60) (60)
First Rights grants and amortization
(unaudited).............................. -- -- 6,140 -- 6,140 6,140
Net income for the nine months
(unaudited).............................. 10,527 40,084 -- -- 40,084 50,611
Cash distributions declared (unaudited)... (7,947) (30,259) -- -- (30,259) (38,206)
----------- --------- --------- ------------- --------- ---------
Balance, September 30, 1994 (unaudited)..... $ (4,817) $ 97,016 $ 8,779 $ -- $ 105,795 $ 100,978
----------- --------- --------- ------------- ---------
----------- --------- --------- ------------- ---------
Less general partner's negative capital
account balance (unaudited).............. (4,817)
---------
Amount available to the limited partner
interest assuming a liquidation at net
book value at September 30, 1994
(unaudited).............................. $ 100,978
---------
---------
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED DECEMBER ENDED SEPTEMBER 30,
31,
------------------------------- --------------------
1991 1992 1993 1993 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income............................................. $ 31,462 $ 34,701 $ 45,813 $ 31,442 $ 50,611
Adjustments to reconcile net income to cash flow from
operating activities
Depreciation......................................... 6,270 9,830 12,446 9,034 14,572
Amortization......................................... 7,560 7,427 7,166 5,378 4,838
First Rights compensation............................ 5,548 4,570 6,300 5,029 6,140
Changes in current operating items
Trade receivables.................................. (1,350) (6,372) (4,465) (17,307) (20,774)
Inventories........................................ (4,584) (10,528) (14,481) (21,986) (26,588)
Accounts payable................................... 2,711 11,605 11,176 20,289 29,378
Other.............................................. (975) 4,083 15,368 11,237 19,624
--------- --------- --------- --------- ---------
Net cash provided by operating activities........ 46,642 55,316 79,323 43,116 77,801
Cash Flows From Investing Activities
Purchase of property and equipment..................... (15,988) (12,295) (18,126) (13,055) (20,544)
--------- --------- --------- --------- ---------
Distributable cash................................... 30,654 43,021 61,197 30,061 57,257
Cash Distributions to Partners........................... (42,581) (44,025) (46,493) (34,641) (37,322)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents....... (11,927) (1,004) 14,704 (4,580) 19,935
Cash and Cash Equivalents
Beginning.............................................. 32,025 20,098 19,094 19,094 33,798
--------- --------- --------- --------- ---------
Ending................................................. $ 20,098 $ 19,094 $ 33,798 $ 14,514 $ 53,733
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental Schedule of Noncash Investing and Financing
Activities
BAC repurchase liability............................... 3,668
Asset purchase note payable............................ 1,500
Capital lease obligation............................... 840
---------
---------
</TABLE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA
----------------------------------
FOR THE YEAR
ENDED FOR THE NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------ --------------------
1993 1993 1994
------------ --------- ---------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income................................................................ $ 32,984 $ 22,794 $ 34,333
Adjustments to reconcile net income to cash flow from operating activities
Depreciation............................................................ 12,446 9,034 14,572
Amortization............................................................ 7,166 5,378 4,838
First Rights compensation............................................... 6,300 5,029 6,140
Deferred income taxes................................................... 3,231 2,423 2,423
Changes in current operating items
Trade receivables..................................................... (4,465) (17,307) (20,774)
Inventories........................................................... (14,481) (21,986) (26,588)
Accounts payable...................................................... 11,176 20,289 29,378
Other................................................................. 15,368 11,237 19,624
------------ --------- ---------
Net cash provided by operating activities........................... 69,725 36,891 63,946
------------ --------- ---------
Cash Flows From Investing Activities
Purchase of property and equipment........................................ (18,126) (13,055) (20,544)
------------ --------- ---------
Cash Flows From Financing Activities
Proceeds from long-term borrowings........................................ 70,000 35,000 --
Payments on long-term borrowings.......................................... -- -- (26,250)
Stockholder dividends..................................................... (10,925) (8,193) (8,193)
Stockholder special cash distribution..................................... (104,877) (69,918) --
------------ --------- ---------
Net cash used in financing activities................................. (45,802) (43,111) (34,443)
------------ --------- ---------
Increase (decrease) in cash and cash equivalents...................... 5,797 (19,275) 8,959
Cash and Cash Equivalents
Beginning................................................................. 19,094 19,094 33,798
------------ --------- ---------
Ending (deficit).......................................................... $ 24,891 $ (181) $ 42,757
------------ --------- ---------
------------ --------- ---------
Supplemental Schedule of Noncash Investing and Financing Activities
Pro forma payments for income taxes..................................... $ 11,098 $ 8,279 $ 13,306
------------ --------- ---------
------------ --------- ---------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 1. PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: Polaris Industries Partners L.P. (Partners) is a Delaware
limited partnership. Operations are conducted through Polaris Industries L.P.
(the Operating Partnership), a Delaware limited partnership, and its
wholly-owned Canadian subsidiary. Partners is the sole limited partner of the
Operating Partnership. The Operating Partnership is engaged in a single industry
segment consisting of the design, engineering and manufacture of recreational
and utility vehicles and markets them together with related parts and
accessories through a network of dealers, distributors and its Canadian
subsidiary. The combined activities of Partners and the Operating Partnership
(including the Canadian subsidiary) are referred to herein as activities of the
Partnership.
The general partner of Partners is EIP Associates L.P. (the General
Partner), a Delaware limited partnership. The managing general partner of the
General Partner is EIP Capital Corporation (the Managing General Partner). The
Managing General Partner, through a series of affiliates, is the general partner
of the Operating Partnership. The Managing General Partner, directly or through
its affiliates, receives a) an annual management fee of $500,000 for the
performance of certain administrative services on behalf of the Partnership, b)
a 1 percent general partner interest in the Operating Partnership, and c) a
right to cash distributions from the Partnership (see Note 2).
PARTNERSHIP AGREEMENT: The Partnership Agreement of Partners authorizes the
issuance of a total of 40,000,000 BACs. One BAC represents one Assigned Class A
Beneficial Limited Partnership Interest.
See Note 2 regarding the distribution of Partnership funds and the
allocation of Partnership profits and losses.
BASIS OF PRESENTATION: The financial statements of the Partnership include
the accounts of Partners and the Operating Partnership and its Canadian
subsidiary. All significant inter-company transactions and balances have been
eliminated in the combination.
REVENUE RECOGNITION: Revenues are recognized at the time of delivery to the
dealer or distributor customer. The Partnership has not historically recorded an
allowance for product returns because such returns, whether in the normal course
of business or resulting from repossession under its customer financing program
(see Note 4), have not been material. However, management intends to record a
return allowance when it becomes probable such returns will be material. The
Partnership provides for estimated sales promotion expenses at the time of sale
to the dealer or distributor customer.
CASH EQUIVALENTS: Cash in excess of daily requirements is invested in money
market funds of quality financial institutions in amounts which frequently
exceed federally insured limits. The Partnership has not experienced any losses
on these funds. Such investments have maturities of less than three months and
are deemed to be cash equivalents for purposes of the statements of cash flows.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization are provided
using the straight-line method based on the estimated useful life of individual
assets over the following periods:
<TABLE>
<CAPTION>
YEARS
----------
<S> <C>
Buildings and improvements.............. 10 - 20
Equipment and tooling................... 3 - 7
Cost in excess of net assets of business
acquired............................... 40
Dealer network.......................... 7
Other intangibles....................... 5 - 17
</TABLE>
F-7
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 1. PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
Fully depreciated tooling is eliminated from the Partnership's accounting
records annually.
The Partnership reviews its intangibles quarterly to determine potential
impairment by comparing the carrying value of the intangibles with the
anticipated future operating income and discounted cash flows of the business.
PRODUCT WARRANTIES: The Partnership provides for estimated normal and
extended warranty costs at the time of sale to distributors and dealers and for
other costs associated with specific items at the time their existence and
amounts are determinable.
INCOME TAXES: The Partnership is not a taxpaying entity for United States
federal and state income tax purposes. As a result, the taxable income or loss,
which may vary significantly from the financial reporting income or loss, is
includable in tax returns of the individual BAC holders.
The Partnership's Canadian subsidiary is a corporation which is subject to
Canadian federal and provincial income taxes, at a current combined effective
rate of 44 percent. Income tax expense on the accompanying statements of
operations includes a provision for income taxes on the annual earnings of the
Canadian subsidiary. There are no significant temporary differences relating to
the financial reporting and the tax bases of assets and liabilities of the
Canadian subsidiary.
Publicly traded partnerships are scheduled to become taxable entities in the
United States for years beginning after December 31, 1997. However, the
Partnership would become a taxable entity prior to January 1, 1998, if it were
to add a substantial new line of business.
Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, requires public enterprises not subject to income taxes to disclose the
net differences between the tax bases and the reported amounts of the
enterprise's assets and liabilities. The principal temporary differences related
to elements of the Partnership's United States partnership income tax return and
its financial statement were as follows (in thousands):
<TABLE>
<CAPTION>
TAX BASIS IN EXCESS
OF (LESS THAN)
REPORTED AMOUNTS
--------------------
DECEMBER 31,
1993
--------------------
<S> <C>
Inventories............................. $ 4,077
Property and equipment.................. (6,924)
Accrued expenses........................ 26,858
First Rights compensation............... 8,821
--------
$32,832
--------
--------
</TABLE>
FOREIGN CURRENCY: The Partnership's Canadian subsidiary maintains its books
of record using Canadian currency and uses United States currency as the
functional currency. Canadian assets and liabilities are translated at the
foreign exchange rates in effect at the balance sheet date. Revenues and
expenses are translated at the average foreign exchange rate in effect.
Translation and exchange gains and losses are reflected in earnings.
RESEARCH AND DEVELOPMENT COSTS: Research and development costs are charged
to operations as incurred and totaled $4,761,000, $6,345,000 and $9,554,000 for
1991, 1992 and 1993, respectively and $6,813,000 and $7,579,000 for the
nine-month periods ended September 30, 1993 and 1994. These costs are included
as a component of cost of sales on the accompanying statements of operations.
F-8
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 1. PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION (UNAUDITED): The financial statements and
notes related thereto as of September 30, 1994, and for the nine-month periods
ended September 30, 1993 and 1994, are unaudited, but, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the financial position and
results of operations. The operating results for the interim periods are not
necessarily indicative of the operating results to be expected for a full fiscal
year or for other interim periods.
NOTE 2. CASH DISTRIBUTIONS AND THE ALLOCATION OF PROFITS AND LOSSES
CASH DISTRIBUTIONS FROM OPERATIONS: Cash distributions from operations are
determined at the discretion of the General Partner and are allocated 79.2
percent to the limited partners and 20.8 percent to the General Partner.
CASH DISTRIBUTIONS ON SALE OR REFINANCING: Cash distributions on sale or
refinancing of the Partnership would be allocated in accordance with the
Partnership agreement.
ALLOCATION OF PROFITS AND LOSSES: Net income is allocated to the general
and limited partners in proportion to the cash distributions to them. Since cash
distributions have exceeded net income, this method results in a negative
capital balance for the General Partner. Captions are presented on the statement
of partners' capital to emphasize that in a current liquidation at book value,
the amount available to limited partners cannot be expected to exceed the total
net assets of the Partnership.
NET INCOME PER UNIT: Net income per unit (which differs from taxable
income) is calculated based on the weighted average number of BACs and BAC
equivalents outstanding during each period. BAC equivalents represent the number
of BACs issuable upon conversion of the First Rights outstanding. Beginning in
1992, 850,000 Second Rights have been included as BAC equivalents in the net
income per unit calculation. If the Second Rights had been included as BAC
equivalents in prior periods, net income per unit would have been $1.57 in 1991.
NOTE 3. INVENTORIES
The major components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
---------------- 30,
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Raw materials................. $15,214 $21,571 $26,648
Service parts................. 19,616 23,379 28,319
Finished goods................ 2,746 7,107 23,678
------- ------- -------
$37,576 $52,057 $78,645
------- ------- -------
------- ------- -------
</TABLE>
NOTE 4. FINANCING
BANK FINANCING: The Operating Partnership has an unsecured bank line of
credit arrangement to meet seasonal short-term financing needs with a maximum
available of $40,000,000. Interest is charged at the prime interest rate,
C.D.-based or LIBOR-based rates, and the agreement is scheduled for renewal on
May 1, 1995. The Operating Partnership holds substantially all net assets of the
Partnership and has agreed to certain limitations on distributions to Partners.
CUSTOMER FINANCING PROGRAM: Unrelated finance companies provide floor plan
financing to distributors and dealers on the purchase of the Partnership's
products. The amount financed by distributors and dealers under these
arrangements at December 31, 1993, and September 30, 1994, was approximately
$64,855,000 and $203,895,000, respectively. The Partnership has agreed to
repurchase products repossessed by the finance companies to an annual maximum of
15 percent of the
F-9
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 4. FINANCING (CONTINUED)
average amounts outstanding during the prior calendar year. The Partnership's
financial exposure under these arrangements is limited to the difference between
the amount paid to the finance companies and the amount received on the resale
of the repossessed product. No material losses have been incurred under these
agreements during the periods presented.
As a part of its marketing program, the Partnership will from time to time
pay a specified portion of the floor plan interest expense payable by its
distributors and dealers.
NOTE 5. EMPLOYEE BENEFIT PLANS
The Partnership has various employee benefit plans for management and
employees of the Operating Partnership. Cash and noncash compensation expense
recorded under these plans was $14,197,000, $15,969,000 and $22,538,000 for
1991, 1992 and 1993, respectively, and $16,117,000 and $24,777,000 for the
nine-month periods ended September 30, 1993 and 1994, respectively. Accrued
compensation includes approximately $11,411,000 and $16,236,000 for certain of
these plans at December 31, 1992 and 1993, respectively, and $19,001,000 at
September 30, 1994. A summary of these plans follows:
FIRST RIGHTS TO ACQUIRE BACS: The Partnership Agreement of Partners
provides for the issuance of up to 2,400,000 First Rights to acquire BACs as an
incentive for management and employees of the Operating Partnership. Of such
First Rights, 900,000 have been reserved for issuance to employees (the Employee
Plan) and 1,500,000 have been reserved for issuance to middle management and
senior management (the Management Plan). First Rights will not be granted after
December 31, 1999, and expire January 1, 2003.
First Rights under the Employee Plan are vested when granted. First Rights
under the Management Plan contain no vesting provisions and terminate if
employment ceases prior to the issuance of the related BACs.
The First Rights require no cash payments by the recipients and began
converting to BACs beginning January 1, 1992. At December 31, 1993, the
Partnership has achieved cash distribution levels which provide for the
conversion of all 2,400,000 First Rights to BACs.
As of December 31, 1993, and September 30, 1994, 135,060 and 215,500 First
Rights under the Management Plan and 183,200 and 97,000 First Rights under the
Employee Plan, respectively, are outstanding as summarized below:
<TABLE>
<CAPTION>
OUTSTANDING
AT END OF
GRANTED CONVERTED FORFEITED YEAR
--------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
1991.................................... 135,300 -- -- 1,680,806
1992.................................... 105,000 (1,205,784) -- 580,022
1993.................................... 171,594 (433,356) -- 318,260
--------- ---------- --- -------------
--------- ---------- --- -------------
September 30, 1994...................... 220,597 (226,357) -- 312,500
--------- ---------- --- -------------
--------- ---------- --- -------------
</TABLE>
Prior to 1993, the Partnership recorded these rights at the fair market
value of a BAC on the date of grant, with a corresponding charge to deferred
compensation for certain portions of the management plan which is included in
partners' capital accounts.
Effective in 1993, the Partnership recognizes compensation expense in the
year of grant, since the cash distribution criteria have been achieved.
F-10
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 5. EMPLOYEE BENEFIT PLANS (CONTINUED)
BONUS AND PROFIT SHARING PLANS: A bonus pool has been established for
employees with amounts determined annually at the discretion of a Partnership
management committee. In addition, the Partnership has a profit sharing plan
covering substantially all employees and an employee retirement savings plan.
NOTE 6. LEASES
The Partnership leases warehouse and office space from a partnership
controlled by certain BAC holders (certain executive officers of the Operating
Partnership) under an operating lease agreement expiring in April 1997. The
lease requires payments of $458,000 annually plus taxes, utilities, insurance
and other operating costs. In addition, the Partnership leases other buildings
and equipment from unrelated parties under noncancelable operating leases. Total
rent expense under all lease agreements was $1,301,000, $1,564,000 and
$1,643,000 for 1991, 1992 and 1993, respectively, and $1,183,000 and $1,345,000
for the nine-month periods ended September 30, 1993 and 1994, respectively.
Future minimum payments, exclusive of other costs, required under
noncancelable operating leases at December 31, 1993, are (in thousands):
<TABLE>
<S> <C>
Years ending December 31:
1994.................................. $912
1995.................................. 908
1996.................................. 570
1997.................................. 272
1998.................................. 41
</TABLE>
In August 1994, the Partnership signed a one-year lease for a manufacturing
facility in Spirit Lake, Iowa. Lease payments are $10,000 monthly and the
Partnership has an option to purchase the facility for $1,850,000 at the end of
the lease term.
NOTE 7. FOREIGN OPERATIONS
United States operations include export sales of $18,563,000, $21,091,000
and $27,179,000 for 1991, 1992, and 1993, respectively, and $19,005,000 and
$28,959,000 for the nine-month periods ended September 30, 1993 and 1994,
respectively.
The following data relates to Canadian operations (in thousands of United
States dollars):
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------
1991 1992 1993 1993 1994
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales................................... $75,477 $99,286 $106,664 $79,218 $88,329
Operating income........................ 4,851 6,541 6,887 4,856 5,961
Identifiable assets..................... 14,679 16,639 15,248 21,836 25,481
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
MAJOR SUPPLIER: During 1991, 1992 and 1993, purchases totaling 24 percent,
26 percent and 26 percent, respectively, and 31 percent for each of the
nine-month periods ended September 30, 1993 and 1994, respectively, of the
Partnership's cost of sales were from a single supplier.
PRODUCT LIABILITY: The Partnership is subject to product liability claims
in the normal course of business and has elected not to insure for product
liability losses. The costs resulting from any losses are charged to operating
expenses when it is probable a loss has been incurred and the amount of the
F-11
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
loss is determinable. At December 31, 1992 and 1993, and September 30, 1994, the
Partnership has accrued $2,458,000, $3,513,000 and $4,380,000, respectively, in
connection with product liability claims.
WORKERS' COMPENSATION: The Partnership is self-insured for workers'
compensation losses. The costs resulting from any losses are charged to expense
when it is probable a loss has been incurred and the amount of the loss is
determinable.
HEALTH BENEFITS:__The Partnership is self-insured for employee health
benefits. The costs resulting from any losses are charged to expense when it is
probable a loss has been incurred and the amount of the loss is determinable.
CANADIAN INCOME TAX LITIGATION: In 1990, the Canadian income tax
authorities proposed certain adjustments, principally relating to the original
purchase price allocation to the Canadian subsidiary and transfer pricing
matters, for additional income taxes payable by the Partnership's Canadian
subsidiary for 1987 and 1988. The resolution of these proposed adjustments may
also affect the Partnership's Canadian income tax expense for years subsequent
to 1988. The Partnership was recently informed of the Canadian income tax
authorities' intent to initiate an audit of the tax years 1989 through 1992.
Management intends to vigorously contest a substantial amount of the proposed
adjustments, and the ultimate liability, if any, cannot be reasonably estimated.
Management does not believe that the outcome of this matter will have a
materially adverse impact on the financial position or continuing operations of
the Partnership. Income tax expense reflected on the accompanying statements of
operations includes a provision related to certain of the proposed Canadian
income tax adjustments.
LITIGATION: The Partnership is a defendant in lawsuits and subject to
claims arising in the normal course of business. While it is not feasible to
predict or determine the outcome of any of these cases, it is the opinion of
management that their outcomes will not have a material adverse effect on the
financial position or operations of the Partnership.
LETTERS OF CREDIT: At December 31, 1993, and September 30, 1994, the
Partnership has open letters of credit totaling approximately $11,822,000 and
$17,503,000. The amounts outstanding are reduced as inventory purchases
pertaining to the contracts are received.
NOTE 9. SUBSEQUENT EVENTS
In August 1994, EIP Capital Corporation (the Managing General Partner), its
president, and two of its directors settled a lawsuit filed by a minority
shareholder of the Managing General Partner, with no resulting impact on the
Partnership's financial statements.
NOTE 10. PROPOSED CONVERSION FROM PARTNERSHIP TO CORPORATE STRUCTURE AND PRO
FORMA FINANCIAL INFORMATION
On August 25, 1994, the Partnership announced plans to convert from its
current limited partnership structure to a taxable C corporation structure. The
proposed conversion must be approved by the Partnership's Limited Partners and
will be effected through the formation of a new corporation (Polaris Industries
Inc.).
Polaris Industries Inc. will issue 16,010,441 shares of $0.01 par value
common stock to the Partnership's Limited Partners in exchange for their limited
partner interests, 2,100,243 shares of such common stock to affiliates of the
General Partner in exchange for the entire general partnership interests and
rights and ultimately 312,500 shares of such common stock to the holders of
312,500 First Rights that are issued and outstanding at September 30, 1994. This
conversion will be a tax-free
F-12
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 10. PROPOSED CONVERSION FROM PARTNERSHIP TO CORPORATE STRUCTURE AND PRO
FORMA FINANCIAL INFORMATION (CONTINUED)
transaction for the Limited Partners, the affiliates of the General Partner and
the Partnership. This transaction will include the merger of certain affiliates
of the Managing General Partner as described in Note 1, which are individually
and jointly immaterial to the Partnership's financial statements.
Management of Polaris Industries Inc. has expressed its intent to establish
an initial annual cash dividend of $0.15 per share per quarter in the year after
the successful completion of the Conversion transaction. In addition, subject to
the approval of the Board of Directors, management of Polaris Industries Inc.
has expressed its intent to declare a special cash distribution of $5.76 per
share payable in three equal installments of $1.92 each during each of the last
three quarters of 1995 (reduced to the extent that any distributions declared
and paid by the Partnership after January 1, 1995 exceed, on a quarterly basis,
$.15 per BAC). Management expects to incur indebtedness of approximately
$70,000,000 in connection with the payment of the special distribution.
Polaris Industries Inc. will account for the transaction as a reorganization
of affiliated entities, with the assets and liabilities of the Partnership
recorded at their historical cost basis, except that it will also record
deferred tax assets in accordance with Statement of Financial Accounting
Standards No. 109, ACCOUNTING FOR INCOME TAXES, relating to the temporary
differences for certain assets and liabilities at the date of conversion as
discussed in Note 1 under the paragraph "Income Taxes." The costs of the
conversion, estimated to be $11,000,000, will be accounted for as an expense in
the statement of operations at the time of the Conversion. Additionally, Polaris
Industries Inc. will receive a significant step-up in the tax basis of the
assets and liabilities acquired from the Partnership and, as a result, will
record additional deferred tax assets at the Conversion transaction date. The
ultimate determination of the deferred tax assets discussed in this paragraph
will be calculated based on the actual temporary differences existing at the
Conversion transaction date. Polaris Industries Inc. will record a provision for
U.S. federal, Canadian and state income taxes on its earnings.
The unaudited pro forma financial information has been prepared based on the
historical financial statements of the Partnership as if the conversion
transaction had occurred at the beginning of the earliest pro forma period
presented for the statements of operations and cash flows and as of the date
presented for the balance sheet.
A summary of the unaudited pro forma adjustments to the statements of
operations and cash flows for the year ended December 31, 1993, and for the
nine-month periods ended September 30, 1993 and 1994, follows:
1) Selling, general and administrative expenses have been reduced for
the $500,000 annual management fee paid to the Managing General Partner.
2) A provision for income taxes has been calculated at a rate of 36
percent. Such rate reflects a combined federal and state statutory rate, net
of related research and development credits and foreign sales corporation
benefits.
3) A special distribution on Polaris Industries Inc. common stock of
$5.76 per share payable in three equal installments of $1.92 each during
each of the last three quarters of the earliest pro forma period presented,
and future regular dividends estimated at $0.15 per share per quarter were
recorded in the pro forma financial statements.
F-13
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION PERTAINING TO THE NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1993 AND 1994 IS UNAUDITED.)
NOTE 10. PROPOSED CONVERSION FROM PARTNERSHIP TO CORPORATE STRUCTURE AND PRO
FORMA FINANCIAL INFORMATION (CONTINUED)
4) In connection with the proposed special cash distribution, interest
expense has been recorded at 8.5 percent on the approximate $70,000,000
expected to be borrowed during the third and fourth quarters subsequent to
the Conversion. The debt is expected to be repaid over a two-year period
following the fourth quarter subsequent to the Conversion.
A summary of the unaudited pro forma adjustments to the September 30, 1994
balance sheet follows:
1) Deferred tax assets of $12,000,000 were recorded for the temporary
differences that existed at December 31, 1993, between the tax bases and
reported amounts of assets and liabilities as discussed in Note 1.
2) Deferred tax assets of $30,000,000 have been recorded for the
estimated step-up in the tax bases of the assets and liabilities of Polaris
Industries Inc. resulting from the Conversion transaction. Estimated
temporary differences as of December 31, 1993, were used for purposes of
this calculation. Deferred taxes resulting from the step-up in basis will be
recalculated when the Conversion is completed and the actual temporary
differences can be determined. The change in deferred tax assets could be
material.
3) Expenses of the Conversion transaction are estimated to be
$11,000,000 and were recorded at the balance sheet date as an accrued
expense. These expenses are excluded from the pro forma statements of
operations and cash flows.
NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER UNIT
DATA)
<TABLE>
<CAPTION>
NET
INCOME
GROSS NET PER UNIT
SALES PROFIT INCOME (NOTE 2)
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
1992:
First Quarter......................... $ 70,227 $ 16,788 $ 2,133 $ .11
Second Quarter........................ 85,467 24,288 6,181 .31
Third Quarter......................... 121,548 40,211 15,850 .78
Fourth Quarter........................ 106,576 33,332 10,537 .52
-------- -------- --------
Totals.............................. $383,818 $114,619 $34,701 $ 1.73
-------- -------- -------- ---------
-------- -------- -------- ---------
1993:
First Quarter......................... $107,115 $ 25,748 $ 6,138 $ .30
Second Quarter........................ 111,235 28,389 6,542 .32
Third Quarter......................... 166,803 48,596 18,762 .92
Fourth Quarter........................ 142,858 41,362 14,371 .71
-------- -------- --------
Totals.............................. $528,011 $144,095 $45,813 $ 2.25
-------- -------- -------- ---------
-------- -------- -------- ---------
1994:
First Quarter......................... $145,471 $ 31,260 $ 8,566 $ .42
Second Quarter........................ 180,884 36,994 10,542 .51
Third Quarter......................... 258,370 73,378 31,503 1.53
-------- -------- --------
Totals.............................. $584,725 $141,632 $50,611 $ 2.46
-------- -------- -------- ---------
-------- -------- -------- ---------
</TABLE>
F-14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholder
Polaris Industries Inc.
We have audited the accompanying balance sheet of POLARIS INDUSTRIES INC. (a
Minnesota corporation) as of September 23, 1994. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Polaris Industries Inc. as of
September 23, 1994, in conformity with generally accepted accounting principles.
McGLADREY & PULLEN
Minneapolis, Minnesota
September 23, 1994
F-15
<PAGE>
POLARIS INDUSTRIES INC.
BALANCE SHEET
SEPTEMBER 23, 1994
ASSETS
<TABLE>
<S> <C>
Investment in Polaris Industries Partners L.P.
(3,000 BACs at $22.50)........................... $ 67,500
--------
--------
</TABLE>
STOCKHOLDER EQUITY
<TABLE>
<S> <C>
Preferred stock $.01 par value, authorized
20,000,000 shares, no issued and outstanding
shares........................................... $ --
Common stock $.01 par value, authorized 80,000,000
shares, issued and outstanding 3,000 shares...... 30
Additional paid-in capital........................ 67,470
--------
Total stockholder equity.................... $ 67,500
--------
--------
</TABLE>
NOTE 1. THE CORPORATION
Polaris Industries Inc. (Polaris) is a Minnesota corporation formed on
September 23, 1994, as the successor business of Polaris Industries Partners
L.P. (Partners) in a proposed transaction that would result in the Conversion of
the limited partnership to corporate form. Partners is a Delaware limited
partnership whose operations are conducted through Polaris Industries L.P. (the
Operating Partnership), also a Delaware limited partnership, and its
wholly-owned Canadian subsidiary. Partners is the sole limited partner of the
Operating Partnership. The Operating Partnership is engaged in a single industry
segment consisting of the design, engineering, and manufacture of recreational
and utility vehicles, and markets them, together with related parts and
accessories, through a network of dealers and distributors, and its Canadian
subsidiary. Polaris will continue the operations of the Operating Partnership.
At September 23, 1994, there were no operations of Polaris.
The stockholder transferred 3,000 BACs of Partners to capitalize Polaris.
The BACs are recorded at the historical cost basis of the stockholder.
F-16
<PAGE>
ANNEX A
GLOSSARY OF DEFINED TERMS
<TABLE>
<S> <C>
1987 Code Amendments to the Code adopted in 1987 and a transition
Amendments......... rule adopted thereunder, pursuant to which the
Partnership will be treated as a corporation for federal
income tax purposes subsequent to December 31, 1997 if
the BACs continue to be publicly traded.
Agreement........... An Agreement dated as of August 25, 1994, entered into
by Mr. Wendel and Mr. Atkins in connection with the
Conversion, which provides, among other matters, that
Mr. Atkins, for as long as he owns not less than 3% of
the outstanding Common Stock, will vote his Shares in
favor of the Corporation's nominees to the Board of
Directors.
Appraisal Rights.... The rights of appraisal which are provided in Article
VII of the Merger Agreement.
ATVs................ All terrain recreational and utility vehicles.
BAC Holders......... The holders of BACs.
BACs................ Units of Beneficial Assignment of Class A Limited
Partnership Interests.
Bonus Committee..... A committee consisting of Victor K. Atkins, Jr., W. Hall
Wendel, Jr. and John H. Grunewald which determines the
amount of bonuses and profit sharing awards which will
be paid to the employees of the Operating Partnership
and which administers the Employee Plan and Management
Plan.
Closing............. The date of the Special Meeting of BAC Holders or such
other date as the Corporation and the Partnership may
agree on which the closings shall be held to consummate
the Transactions.
Code................ The Internal Revenue Code of 1986, as amended.
Common Stock........ Common stock, par value $.01 per share, of the
Corporation.
Control The assumption that (i) the Transferors will own,
Assumption......... immediately after such transfers, more than 80% of the
only class of stock of the Corporation and (ii) that not
more than 20% of the shares of Common Stock transferred
to the Transferors pursuant to the Conversion will be
subsequently disposed of pursuant to contracts or other
formal or informal agreements entered into prior to the
Conversion.
Conversion.......... The conversion of the Partnership to corporate form.
Conversion The proposal to be voted upon by BAC Holders at the
Proposal........... Special Meeting.
Corporation......... Polaris Industries Inc., a Minnesota corporation.
CPSC................ The Consumer Products Safety Commission.
Delaware Court...... The Delaware Court of Chancery.
DGCL................ The General Corporation Law of the State of Delaware.
Dillon Read......... Dillon, Read & Co. Inc., a Connecticut corporation.
Effective Time...... The date on which the Conversion will become effective.
EIPCC............... EIP Capital Corporation, a Delaware corporation, which
is managing general partner of the General Partner.
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
Employee Plan....... Reservation of 900,000 First Rights to acquire BACs for
issuance to non-management employees of the Operating
Partnership.
Exchange Act........ The Securities Exchange Act of 1934, as amended.
Exchange Ratio...... The percentage of Common Stock of the Corporation to be
received by (i) BAC Holders and holders of previously
received First Rights in exchange for their BACs and
upon exercise of such First Rights, as the case may be,
and (ii) affiliates of the General Partner in exchange
for their interests in the General Partner and its
affiliates. In the Conversion, BAC Holders (including
affiliates of the General Partner) and holders of
previously received First Rights will receive 88.6% of
the Common Stock and affiliates of the General Partner
will receive 11.4% of the Common Stock, after giving
effect to the exercise of such First Rights.
Fair Value.......... The value of the BACs as of the day immediately
preceding the Effective Time, excluding any appreciation
or depreciation in such value arising from the
accomplishment or expectation of the Conversion, as
determined by the Delaware Court of Chancery.
Fee................. An annual management fee in the amount of $500,000
received by EIPCC, pursuant to a Management Agreement,
in return for acting as Management Agent.
First Rights........ Currently outstanding rights to acquire BAC.
General Partner..... EIP Associates L.P., a Delaware limited partnership,
which is the general partner of the Partnership.
Group............... An affiliated group of corporations (which will include
EIPCC) which has, as the common parent corporation, the
Corporation.
Information Agent... D.F. King & Co., Inc., a Delaware corporation.
Initial Limited Polaris Industries Holdings Inc., a Delaware
Partner............ corporation.
Justice
Department......... The United States Department of Justice.
Lehman Brothers..... Lehman Brothers Inc., a Delaware corporation.
Management Agent.... EIPCC, the managing general partner of the General
Partner, acting as management agent in the performance
of certain administrative services on behalf of the
Partnership.
Management Plan..... The reservation of 1,500,000 First Rights to acquire
BACs for issuance to middle management and senior
management of the Operating Partnership.
MBCA................ The Minnesota Business Corporation Act.
Meeting Date........ , 1994, the date of the Special Meeting of BAC Holders
in Minneapolis, Minnesota. At the Special
Meeting, the holders of BACs will vote upon the
Conversion Proposal.
Merger.............. The merger of the Transitory Partnership with and into
the Partnership, with the Partnership surviving,
pursuant to which, among other matters, each BAC (other
than BACs held by persons who have exercised Appraisal
Rights) will automatically be exchanged for one share of
Common Stock, and each outstanding First Right will
automatically be converted into the right to receive one
share of Common Stock.
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
Merger Agreement.... The Agreement and Plan of Conversion, dated as of
September 29, 1994, among the Corporation, the
Partnership, the General Partner, the Operating
Partnership, EIPCC and the other parties thereto.
Northwestern........ Northwestern Equipment Manufacturing Company, a
Minnesota corporation, formerly Polaris Industries Inc.,
the predecessor of the Partnership.
Operating Polaris Industries L.P., a Delaware limited partnership;
Partnership........ and the collective reference to PICC, its affiliates and
Polaris Industries L.P.
Operating General Polaris Industries Associates L.P., the general partner
Partner............ of the Operating Partnership.
Partnership......... Polaris Industries Partners L.P., a Delaware limited
partnership.
Partnership The amended and restated partnership agreement governing
Agreement.......... the Partnership.
PICC................ Polaris Industries Capital Corporation, a Delaware
corporation.
Plan................ A Retirement Savings Plan adopted by Polaris Industries,
Inc, the predecessor Company, for all employees who meet
minimum service requirements. The Plan was adopted by
the Operating Partnership.
Polaris............. The business and operations of the Operating
Partnership.
Proposed The initial cash dividend rate of $0.15 per quarter and
Distributions...... three special cash distributions, each of $1.92 per
share (reduced to the extent that any cash distributions
declared and paid by the Partnership after January 1,
1995 exceed, on a quarterly basis, $0.15 per BAC),
payable during each of the last three quarters of 1995,
which the Sponsors intend to recommend to the
Corporation's Board of Directors.
Proxy............... A proxy to be voted at the Special Meeting.
PWC................. Personal watercraft.
Record Date......... , 1994, the date set for the determination of BAC
Holders entitled to vote at the Special
Meeting.
Register in The office of the Register in Chancery of the Delaware
Chancery........... Court in which a BAC Holder has filed a petition
demanding a determination of the Fair Value of the BACs
of all holders of BACs who have perfected Appraisal
Rights pursuant to the Merger Agreement.
SEC................. The Securities and Exchange Commission.
Section 751 Partnership unrealized receivables, substantially
assets............. appreciated inventory and certain other items including
depreciation recapture.
Securities Act...... The Securities Act of 1933, as amended.
Service............. The Internal Revenue Service.
Smith Barney........ Smith Barney Inc., a Delaware corporation.
SNO................. The symbol under which the Partnership's BACs are listed
on the American and Pacific Stock Exchanges.
Special Appraiser... An independent appraiser selected by the American
Arbitration Association, Inc. to determine the Fair
Value of the BACs held by dissenting BAC Holders.
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
Special Meeting..... The special meeting of BAC Holders to be held at Holiday
Inn West, Highway 394, Minneapolis, Minnesota, on the
Meeting Date to vote upon the proposed Conversion.
Sponsors............ The following officers of the Operating Partnership: W.
Hall Wendel, Jr., Chief Executive Officer, Kenneth D.
Larson, President and Chief Operating Officer, John H.
Grunewald, Executive Vice President, Finance and
Administration, James Bruha, Vice
President--Manufacturing, Charles A. Baxter, Vice
President--Engineering and Product Safety, Ed Skomoroh,
Vice President--Sales and Marketing and Michael W. Ma-
lone, Chief Financial Officer and Treasurer.
Transactions........ The Merger and certain other related transactions
contemplated by the Merger Agreement.
Transferors......... Affiliates of the General Partner transferring their
interests in the General Partner and its affiliates to
the Corporation as steps in the integrated transaction
consisting of the Merger and issuance of Common Stock
and related transactions.
Transitory A newly formed Delaware subsidiary limited partnership
Partnership........ of the Corporation to be merged into the Partnership,
with the Partnership surviving, in which Merger all BAC
Holders and holders of currently outstanding First
Rights will receive one share of Common Stock in
exchange for each BAC held by them.
Unaffiliated BAC BAC Holders on the Record Date other than the Sponsors,
Holders............ the General Partner and its affiliates.
</TABLE>
A-4
<PAGE>
ANNEX B
[Letterhead of Smith Barney]
Polaris Industries Partners L.P. September 29, 1994
1225 Highway 169 North
Minneapolis, Minnesota 55441
Attention: General Partner
Gentlemen:
In connection with the proposed conversion of Polaris Industries Partners
L.P. (the "Partnership") to corporate form (the "Conversion"), you have
requested our opinion as to the fairness, from a financial point of view, to
holders of Units of Beneficial Assignment of Class A Limited Partnership
Interests ("BACs") of the Partnership of the consideration to be received by
holders of BACs and the Exchange Ratio (as defined herein) in the Conversion.
The Conversion is subject to the conditions set forth in the Agreement and Plan
of Conversion dated September 29, 1994 (the "Conversion Agreement") by and among
Polaris Industries Inc. (the "Corporation"), the Partnership, Polaris Industries
L.P. (the "Operating Partnership" or "Polaris"), EIP Associates L.P. (the
"General Partner"), Polaris Industries Associates L.P., Polaris Industries
Capital Corporation, EIP Capital Corporation, and the other parties named
therein. The Conversion Agreement provides for, among other things, (i) the
merger of a newly formed transitory partnership, wholly owned directly or
indirectly by the Corporation with and into the Partnership (the "Merger"), with
the Partnership as the surviving entity, whereby the holders of BACs (together
with the holders of the previously granted first rights (the "First Rights"))
will receive, in exchange therefor, 88.6% of the common stock, par value $.01
per share, of the Corporation ("Common Stock"), after giving effect to the
exercise of such First Rights, and (ii) the transfers by affiliates of the
General Partner of their interests in the General Partner and its affiliates in
exchange for 11.4% of the Common Stock (after giving effect to the exercise of
such First Rights). The 88.6% of the Common Stock to be received by BAC holders
(and holder of such First Rights upon exercise) and the 11.4% of the Common
Stock (after giving effect to the exercise of such First Rights) to be received
by affiliates of the General Partner are referred to herein as the "Exchange
Ratio."
In arriving at our opinion, we have reviewed the Conversion Agreement and
certain related agreements, the Preliminary Proxy Statement dated September 29,
1994, and the limited partnership agreements of the Partnership and the
Operating Partnership, and held discussions with certain senior operating
management of the Operating Partnership ("Management") and representatives and
advisors of the Partnership to discuss the business, operations and prospects of
Polaris and the Partnership. We have examined certain publicly available
business and financial information relating to the Partnership as well as
internal financial statements, forecasts and other financial and operating data
concerning the Partnership prepared by Management. We have reviewed the
financial terms of the Conversion as set forth in the Conversion Agreement in
relation to, among other things: current and historical market prices and
trading volumes of the BACs; historical and projected earnings and operating
data of the Partnership; the capitalization and financial condition of the
Partnership; and the pro forma effect of the Conversion. We also considered, to
the extent publicly available, the financial terms of certain other similar
transactions which we considered comparable to the Conversion and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations we considered
comparable to those of the Partnership. In addition to the foregoing, we
conducted such other analyses and examinations and considered such other
financial, economic and market criteria as we deemed appropriate in arriving at
our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information publicly available or furnished to
B-1
<PAGE>
or otherwise reviewed by or discussed with us. With respect to financial
forecasts and other information furnished to or otherwise reviewed by or
discussed with us, we assumed that such forecasts and other information were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of Management as to the expected future financial performance of
the Partnership. We have also assumed, with your consent, that no material
change has occurred in the business, operations, financial condition or
prospects of Polaris as set forth in the Preliminary Proxy Statement.
We are not expressing any opinion as to what the value of the Common Stock
actually will be when issued to holders of BACs or the prices at which the
Common Stock will trade subsequent to the Conversion. We have not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Partnership. We have not been asked
to express an opinion as to the relative merits of the Conversion as compared to
any alternative business strategies that might exist for the Partnership or the
effect of any other transaction in which the Partnership might engage. We were
not asked to solicit third-party indications of interest in acquiring all or any
part of the Partnership. Our opinion is necessarily based upon financial, stock
market and other conditions and circumstances existing and disclosed to us as of
the date hereof.
Smith Barney has been engaged to render financial advisory services to the
Partnership in connection with the Conversion and will receive a fee for our
services, a portion of which is contingent upon consummation of the Conversion.
We also will receive a fee for the delivery of this opinion. In the ordinary
course of business, we and our affiliates may actively trade the BACs for our
own account or for the account of our customers and, accordingly, may at any
time hold a position in such securities.
It is understood that this opinion is for the information of the Partnership
only and may not be used for any other purpose without prior written consent,
except that we hereby consent to the reference of this letter in, and its
inclusion as an attachment or exhibit to, the Registration Statement on Form S-4
to be filed by the Corporation with the Securities and Exchange Commission in
connection with the Proxy Statement contained therein which will be mailed to
the BAC holders.
Based upon and subject to the foregoing, our experience as investment
bankers and other factors we deemed relevant, we are of the opinion that, as of
the date hereof, each of the consideration to be received by the holders of BACs
and the Exchange Ratio in the Conversion is fair, from a financial point of
view, to the holders of BACs.
Very truly yours,
SMITH BARNEY INC.
B-2
<PAGE>
ANNEX C
[LETTERHEAD OF DILLON, READ & CO. INC.]
September 29, 1994
Polaris Industries Partners L.P.
1225 Highway 169 North
Minneapolis, Minnesota 55441
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders ("BAC Holders") of units of Beneficial Assignment of Class
A Limited Partnership Interests ("BACs") in Polaris Industries Partners L.P., a
Delaware Limited Partnership (the "Partnership"), of the Exchange Ratio (as
defined below) and the consideration to be received by such BAC Holders in a
proposed conversion (the "Conversion") of the Partnership to corporate form. We
understand that the Conversion will be effected through the merger (the
"Merger") of an indirect wholly-owned subsidiary partnership of Polaris
Industries Inc., a newly formed Minnesota corporation (the "Corporation") into
the Partnership, pursuant to which (i) the BAC Holders (together with the
holders of the previously granted first rights (the "First Rights")) will
receive, in exchange therefor, 88.6% of the Common Stock, par value $.01 per
share, of the Corporation (the "Common Stock") after giving effect to the
exercise of such First Rights and (ii) affiliates of EIP Associates L.P., the
general partner of the Partnership (the "General Partner"), will receive, in
exchange for their interests in the General Partner and its affiliates, the
remaining 11.4% of the Common Stock (after giving effect to the exercise of such
First Rights) (the "Exchange Ratio"), as described in the Preliminary Proxy
Statement/ Prospectus furnished to us by the Partnership substantially in the
form to be filed with the Securities and Exchange Commission (the "Preliminary
Proxy Statement/Prospectus").
Dillon, Read & Co. Inc. has, in the past, performed general financial
advisory services for, and received compensation from, the Partnership. In the
ordinary course of our business we may trade the BACs for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
In connection with our opinion, we have reviewed the Preliminary Proxy
Statement/Prospectus and the Agreement and Plan of Conversion dated September 29
as well as financial and other information that was publicly available or
furnished to us by the Partnership, including information provided during
discussions with management of the Partnership. In addition, we have compared
certain financial and operating data of the Partnership with that of various
other publicly traded corporations whose operations we believed to be comparable
to those of the Partnership, reviewed market prices and trading volumes for the
BACs, reviewed the cash distributions that have been paid to BAC Holders and the
General Partner and the prospects for future cash distributions to the BAC
Holders and the General Partner, reviewed the terms of selected partnership
conversions which we believed to be comparable to the Conversion and conducted
such other financial studies, analyses and investigations as we deemed
appropriate for purposes of the opinion.
In our review and analysis, and in arriving at our opinion, we have, with
your consent, assumed and relied upon the accuracy and completeness in all
material respects of the information contained in the Preliminary Proxy
Statement/Prospectus, including the description of the tax consequences to the
Partnership and the BAC Holders of the Conversion, and all financial information
that was publicly available or furnished or otherwise communicated to us by the
Partnership and have not attempted to verify independently any of such
information. We have also assumed, with your consent, that no material change
has occurred in the business, operations, financial condition or prospects of
the Partnership as set forth in the Preliminary Proxy Statement/Prospectus. We
have not made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the
C-1
<PAGE>
Partnership, nor have we been furnished with any such evaluation or appraisal.
We are not expressing any opinion as to what the value of the Common Stock
actually will be when issued to BAC Holders or the prices at which the Common
Stock will trade subsequent to the Conversion. Our opinion is based upon
economic, monetary and market conditions existing on the date hereof. You have
not requested us to express, and we are not expressing, any opinion with respect
to the decision to effect the Conversion or as to whether any alternative
transactions to the Conversion may be more or less favorable to the BAC Holders.
We were not asked to solicit third-party indications of interest in acquiring
all or any part of the Partnership.
Based upon, and subject to, the foregoing, it is our opinion that, as of the
date hereof, each of the Exchange Ratio and the consideration to be received by
the BAC Holders in the Conversion is fair, from a financial point of view, to
the BAC Holders.
Very truly yours,
Dillon, Read & Co. Inc.
C-2
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ANNEX D
POLARIS INDUSTRIES INC.
POLARIS INDUSTRIES PARTNERS L.P.
------------------
AGREEMENT AND PLAN OF CONVERSION
------------------------
DATED AS OF
SEPTEMBER 29, 1994
------------------------
D-1
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TABLE OF CONTENTS
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AGREEMENT AND PLAN OF CONVERSION
ARTICLE I -- THE PICC MERGER.................................................................................... D-6
Section 1.1 The PICC Merger................................................................... D-6
Section 1.2 Effects of the PICC Merger........................................................ D-6
ARTICLE II -- THE EIPCC STOCK EXCHANGE.......................................................................... D-6
Section 2.1 The EIPCC Stock Exchange.......................................................... D-6
ARTICLE III -- THE PARTNERSHIP GP EXCHANGE...................................................................... D-7
Section 3.1 The Partnership GP Exchange....................................................... D-7
ARTICLE IV -- THE OPERATING PARTNERSHIP GP EXCHANGE............................................................. D-7
Section 4.1 The Operating Partnership GP Exchange............................................. D-7
ARTICLE V -- THE MERGER......................................................................................... D-7
Section 5.1 Formation of PTP.................................................................. D-7
Section 5.2 The Merger........................................................................ D-7
Section 5.3 Effects of the Merger............................................................. D-8
ARTICLE VI -- THE OPERATING PARTNERSHIP MERGER.................................................................. D-8
Section 6.1 The Operating Partnership Merger.................................................. D-8
Section 6.2 Effects of the Operating Partnership Merger....................................... D-8
ARTICLE VII -- CONVERSION OF UNITS IN THE MERGER................................................................ D-9
Section 7.1 Conversion of Units............................................................... D-9
Section 7.2 Exchange of Certificates.......................................................... D-9
Section 7.3 Procedures for Dissent by Record Holders of Units................................. D-10
Section 7.4 Provisions Affecting Remedies of Dissenting Unitholders........................... D-13
ARTICLE VIII -- THE CLOSINGS.................................................................................... D-14
Section 8.1 The Closings...................................................................... D-14
Section 8.2 Deliveries at the First Closing................................................... D-14
Section 8.3 Deliveries at the Second Closing.................................................. D-14
Section 8.4 Deliveries at the Third Closing................................................... D-15
Section 8.5 Deliveries at the Fourth Closing.................................................. D-15
Section 8.6 Deliveries at the Fifth Closing................................................... D-16
Section 8.7 Deliveries at the Sixth Closing................................................... D-16
ARTICLE IX -- JOINT AND SEVERAL REPRESENTATIONS AND WARRANTIES OF CERTAIN PARTNERSHIP ENTITIES..................
D-16
Section 9.1 Organization...................................................................... D-16
Section 9.2 Capitalization.................................................................... D-16
Section 9.3 Authority......................................................................... D-17
ARTICLE X -- SEVERAL REPRESENTATIONS AND WARRANTIES OF CERTAIN PARTNERSHIP ENTITIES.............................
D-17
Section 10.1 Representations and Warranties of the EIPCC Stockholders.......................... D-17
Section 10.2 Representations and Warranties of the Partnership GP Partners..................... D-19
Section 10.3 Representations and Warranties of the Operating Partnership GP Partners........... D-21
ARTICLE XI -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................... D-22
Section 11.1 Organization...................................................................... D-22
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Section 11.2 Capitalization.................................................................... D-23
Section 11.3 Authority......................................................................... D-23
Section 11.4 No Activity....................................................................... D-23
ARTICLE XII -- COVENANTS........................................................................................ D-23
Section 12.1 Conduct of Business of Certain Partnership Entities............................... D-23
Section 12.2 Conduct of Business of the Company................................................ D-25
Section 12.3 Reasonable Best Efforts........................................................... D-25
Section 12.4 Letter of the Partnership's Accountants........................................... D-25
Section 12.5 Access to Information............................................................. D-25
Section 12.6 Unitholders Meeting............................................................... D-26
Section 12.7 Legal Conditions to Merger........................................................ D-26
Section 12.8 Affiliates........................................................................ D-26
Section 12.9 Stock Exchange Listing............................................................ D-26
Section 12.10 Employee Benefit Plans............................................................ D-26
Section 12.11 Partnership Plans................................................................. D-26
Section 12.12 Fees and Expenses................................................................. D-27
Section 12.13 Brokers or Finders................................................................ D-27
Section 12.14 Indemnification................................................................... D-27
Section 12.15 Indemnification of The Transferors, The Partnership GP, The Operating Partnership
GP, EIPCC, PICC and Agents....................................................... D-28
Section 12.16 Preservation of Partnership, Partnership GP and EIPCC............................. D-30
Section 12.17 Notification of Certain Matters................................................... D-30
Section 12.18 Publicity......................................................................... D-31
Section 12.19 Certain Tax Matters............................................................... D-31
Section 12.20 Registration Rights............................................................... D-33
Section 12.21 Delivery of Documents............................................................. D-33
Section 12.22 Partnership Distributions......................................................... D-33
ARTICLE XIII -- CONDITIONS...................................................................................... D-34
Section 13.1 Conditions to Each Party's Obligation To Effect the Transactions Contemplated
Hereby........................................................................... D-34
Section 13.2 Conditions to Obligations of The Company.......................................... D-34
Section 13.3 Conditions to Obligations of the Partnership Entities............................. D-35
ARTICLE XIV -- INDEMNITIES...................................................................................... D-36
Section 14.1 EIPCC Stockholders' Indemnity..................................................... D-36
Section 14.2 Partnership GP Partners Indemnity................................................. D-36
Section 14.3 Operating Partnership GP Partners Indemnity....................................... D-37
Section 14.4 General Tax Indemnity............................................................. D-37
Section 14.5 Exception to Certain Indemnities.................................................. D-37
Section 14.6 Indemnification of W. Hall Wendel, Jr. and the Company............................ D-37
Section 14.7 Procedures for Indemnification.................................................... D-38
ARTICLE XV -- TERMINATION AND AMENDMENT......................................................................... D-39
Section 15.1 Termination....................................................................... D-39
Section 15.2 Effect of Termination............................................................. D-39
Section 15.3 Amendment......................................................................... D-39
ARTICLE XVI -- MISCELLANEOUS.................................................................................... D-39
Section 16.1 Fiduciary Duties.................................................................. D-39
Section 16.2 Nonsurvival of Representations and Warranties..................................... D-39
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Section 16.3 Notices........................................................................... D-39
Section 16.4 Interpretation.................................................................... D-40
Section 16.5 Counterparts...................................................................... D-40
Section 16.6 Entire Agreement; No Third Party Beneficiaries.................................... D-40
Section 16.7 Governing Law..................................................................... D-40
Section 16.8 Specific Performance.............................................................. D-40
Section 16.9 Assignment; Successors............................................................ D-41
ANNEX I -- List of Partnership GP Partners
ANNEX II -- List of Operating Partnership GP Partners
ANNEX III -- List of EIPCC Stockholders
EXHIBIT A -- Form of Registration Rights Agreement
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D-4
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AGREEMENT AND PLAN OF CONVERSION
AGREEMENT AND PLAN OF CONVERSION, dated as of September 29, 1994, by and
among Polaris Industries Inc., a Minnesota corporation (the "Company"); Polaris
Industries Partners L.P., a Delaware limited partnership (the "Partnership");
Polaris Industries L.P., a Delaware limited partnership owned by the Partnership
(the "Operating Partnership"); EIP Associates L.P., a Delaware limited
partnership and the general partner of the Partnership (the "Partnership GP");
Polaris Industries Associates L.P., a Delaware limited partnership and the
general partner of the Operating Partnership (the "Operating Partnership GP");
EIP Capital Corporation, a Delaware corporation and the managing general partner
of the Partnership GP ("EIPCC"); Polaris Industries Capital Corporation, a
Delaware corporation wholly owned by EIPCC and the managing general partner of
the Operating Partnership GP ("PICC"); the partners of the Partnership GP named
on Annex I attached hereto (the "Partnership GP Partners"); the partners of the
Operating Partnership GP named on Annex II hereto (the "Operating Partnership GP
Partners"); and the stockholders of EIPCC named on Annex III hereto (the "EIPCC
Stockholders"). The Partnership, the Operating Partnership, the Partnership GP,
the Operating Partnership GP, PICC, EIPCC, the Partnership GP Partners, the
Operating Partnership GP Partners and the EIPCC Stockholders are collectively
referred to herein as the "Partnership Entities". The Partnership GP Partners,
the Operating Partnership GP Partners and the EIPCC Stockholders are
collectively referred to herein as the "Transferors."
WHEREAS, the parties hereto desire to convert the structure of the
Partnership from that of a master limited partnership to that of a corporation
(the "Conversion") through consummation of the following transactions
(collectively, the "Transactions"):
(i) First, PICC shall be merged with and into EIPCC, with EIPCC as the
surviving corporation (the "PICC Merger"); (ii) Second, the EIPCC
Stockholders, owning all the issued and outstanding capital stock of EIPCC,
shall transfer such capital stock to the Company in exchange for shares of
Company Common Stock (as hereinafter defined) (the "EIPCC Stock Exchange");
(iii) Third, the Partnership GP Partners, owning all the issued and
outstanding partnership interests of the Partnership GP not presently owned
by EIPCC, shall transfer such partnership interests to the Company in
exchange for shares of Company Common Stock (the "Partnership GP Exchange");
(iv) Fourth, the Operating Partnership GP Partners, owning all the issued
and outstanding partnership interests of the Operating Partnership GP not
presently owned by PICC, shall transfer such partnership interests to the
Company in exchange for shares of Company Common Stock (the "Operating
Partnership GP Exchange"); (v) Fifth, the Company and EIPCC shall form a new
Delaware limited partnership named PTP LP, or such other name as they
determine ("PTP"), with the Company as PTP's sole limited partner and EIPCC
as PTP's sole general partner; (vi) Sixth, PTP shall be merged with and into
the Partnership (the "Merger"), in which the Partnership shall be the
surviving partnership with the Partnership GP as the Partnership's general
partner and the Company and EIPCC as the Partnership's limited partners and
the outstanding Units of Beneficial Assignment of Class A Limited
Partnership Interests of the Partnership (the "Units") shall be converted
into shares of Company Common Stock; and (vii) Seventh, the Operating
Partnership and the Operating Partnership GP shall be merged with and into
the Partnership (the "Operating Partnership Merger"), in which the
Partnership shall be the surviving partnership with the Partnership GP and
the Company as the Partnership's general partners, and the Company and EIPCC
as the Partnership's limited partners;
WHEREAS, pursuant to the Merger, each Unit then outstanding (other than
Units to be cancelled pursuant to Section 7.1(a) hereof and Units as to which
the holders thereof shall have exercised appraisal rights pursuant to Section
7.3 hereof, if any) shall be converted into one share of common stock, par value
$.01 per share of the Company ("Company Common Stock");
WHEREAS, pursuant to the EIPCC Stock Exchange, the Partnership GP Exchange
and the Operating Partnership GP Exchange, the Transferors shall collectively
receive in the aggregate 2,100,243 shares of Company Common Stock (the
"Transferors' Number");
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WHEREAS, as a result of the Transactions, EIPCC will be wholly owned by the
Company; the Partnership GP will be wholly owned by the Company (as a general
partner and limited partner) and EIPCC (as managing general partner); the
Partnership will be wholly owned by the Company (as a general partner and a
limited partner), the Partnership GP (as a general partner), and EIPCC (as a
limited partner); the Partnership Entities (other than EIPCC, the Partnership
GP, the Partnership and the Transferors) will cease to exist; and the
Transferors (other than in their capacities as Unitholders) will own 11.4% of
Company Common Stock to be issued and outstanding after giving effect to the
exercise of previously granted First Rights (as defined herein) and the
Unitholders together with holders of outstanding First Rights (upon exercise of
such First Rights) will own in the aggregate 88.6% of the Company Common Stock
to be issued and outstanding after giving effect to the exercise of such First
Rights;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE PICC MERGER
Section 1.1 THE PICC MERGER. Upon the terms and subject to the conditions
hereof, at the First Closing (as hereinafter defined), a certificate of merger
(the "PICC Certificate of Merger") shall be duly prepared, executed and
acknowledged by EIPCC, the surviving corporation in the PICC Merger, and
thereafter delivered to the Secretary of State of the State of Delaware, for
filing, as provided in the Delaware General Corporation Law (the "DGCL"). The
PICC Merger shall become effective upon the filing of the PICC Certificate of
Merger with the Secretary of State of the State of Delaware (the "PICC Effective
Time").
Section 1.2 EFFECTS OF THE PICC MERGER. The PICC Merger shall have the
effects set forth in the DGCL. Without limiting the generality of the foregoing,
and subject thereto, at the PICC Effective Time, all the properties, rights,
privileges, powers and franchises of PICC shall vest in EIPCC, as the surviving
corporation in the PICC Merger, and all debts, liabilities and duties of PICC
shall become the debts, liabilities and duties of EIPCC. In addition, from and
after the PICC Effective Time, all outstanding shares of PICC capital stock
shall be cancelled without consideration and cease to exist.
ARTICLE II
THE EIPCC STOCK EXCHANGE
Section 2.1 THE EIPCC STOCK EXCHANGE.
(a) Upon the terms and subject to the conditions hereof, at the Second
Closing (as hereinafter defined), the Company shall acquire from each of the
EIPCC Stockholders and each of the EIPCC Stockholders shall assign, transfer,
convey and deliver to the Company, the shares of common stock, par value $1.00
per share, of EIPCC owned by such EIPCC Stockholders, as set forth opposite the
EIPCC Stockholders' names on Annex III hereto, together constituting all the
issued and outstanding shares of capital stock of EIPCC (the "EIPCC Common
Stock"), free and clear of all liens, charges, pledges, security interests,
claims and encumbrances whatsoever (collectively, "Liens").
(b) As payment in full for the EIPCC Common Stock being acquired by it from
the EIPCC Stockholders hereunder, and against delivery thereof as aforesaid, at
the Second Closing, the Company shall issue to each of the EIPCC Stockholders a
number of shares of Company Common Stock equal to the Transferors' Number
multiplied by the fraction set forth opposite such EIPCC Stockholder's name on
Annex III hereto.
D-6
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ARTICLE III
THE PARTNERSHIP GP EXCHANGE
Section 3.1 THE PARTNERSHIP GP EXCHANGE.
(a) Upon the terms and subject to the conditions hereof, at the Third
Closing (as defined herein), the Company shall acquire from each of the
Partnership GP Partners, and each of such Partnership GP Partners shall assign,
transfer, convey and deliver to the Company, the partnership interests in the
Partnership GP owned by such Partnership GP Partners, as set forth opposite the
Partnership GP Partners' names on Annex I hereto (the "Partnership GP
Interests"), constituting (together with EIPCC's interest in the Partnership GP)
all the issued and outstanding partnership interests of the Partnership GP, free
and clear of all Liens.
(b) As payment in full for the Partnership GP Interests being acquired by it
from the Partnership GP Partners hereunder, and against delivery thereof as
aforesaid, at the Third Closing, the Company shall issue to each of the
Partnership GP Partners a number of shares of Company Common Stock equal to the
Transferors' Number multiplied by the fraction set forth opposite such
Partnership GP Partner's name on Annex I hereto.
ARTICLE IV
THE OPERATING PARTNERSHIP GP EXCHANGE
Section 4.1 THE OPERATING PARTNERSHIP GP EXCHANGE.
(a) Upon the terms and subject to the conditions hereof, at the Fourth
Closing (as hereinafter defined), the Company shall acquire from each of the
Operating Partnership GP Partners, and each of such Operating Partnership GP
Partners shall assign, transfer, convey and deliver to the Company, the
partnership interests in the Operating Partnership GP owned by the Operating
Partnership GP Partners, as set forth opposite the Operating Partnership GP
Partners' names on Annex II hereto (the "Operating Partnership GP Interests"),
constituting (together with EIPCC's interest in the Operating Partnership GP)
all the issued and outstanding partnership interests of the Operating
Partnership GP, free and clear of all Liens.
(b) As payment in full for the Operating Partnership GP Interests being
acquired by it from the Operating Partnership GP Partners hereunder, and against
delivery thereof as aforesaid, at the Fourth Closing, the Company shall issue to
each of the Operating Partnership GP Partners a number of shares of Company
Common Stock equal to the Transferors' Number multiplied by the fraction set
forth opposite such Operating Partnership GP Partners' name on Annex II hereto.
ARTICLE V
THE MERGER
Section 5.1 FORMATION OF PTP. Upon the terms and subject to the conditions
hereof, at the Fifth Closing (as hereinafter defined), a certificate of limited
partnership (the "PTP Certificate of Limited Partnership") shall be duly
prepared, executed and acknowledged by EIPCC, the general partner of PTP, and
delivered to the Secretary of State of the State of Delaware, for filing, as
provided in the Delaware Revised Uniform Limited Partnership Act (the "DRULPA").
PTP shall be formed upon the filing of the PTP Certificate of Limited
Partnership with the Secretary of State of the State of Delaware. PTP shall be
formed by EIPCC, as general partner, and the Company as limited partner and
shall be capitalized with $100 in capital, with $90 being contributed by the
Company and $10 being contributed by EIPCC. PTP shall qualify as a partnership
for federal income tax purposes.
Section 5.2 THE MERGER. Upon the terms and subject to the conditions
hereof, at the Fifth Closing, immediately following the consummation of the
transactions set forth in Section 5.1 hereof a
D-7
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certificate of merger (the "Certificate of Merger") shall be duly prepared,
executed and acknowledged by the Partnership, the surviving partnership in the
Merger, and delivered to the Secretary of State of the State of Delaware, for
filing, as provided in the DRULPA. The Merger shall become effective upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware (the "Effective Time"). The partnership agreement of the Partnership,
as in effect immediately prior to the Effective Time shall be the Partnership
Agreement of the Partnership following the Effective Time unless and until
amended in accordance with the terms thereof and applicable law.
Section 5.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DRULPA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges,
powers and franchises of PTP shall vest in the Partnership as the surviving
Partnership in the Merger, and all debts, liabilities and duties of PTP shall
become the debts, liabilities and duties of the Partnership. In addition, at the
Effective Time, all outstanding Units (other than Units to be cancelled pursuant
to Section 7.1(a) hereof, and other than Units as to which the holders thereof
shall have exercised appraisal rights pursuant to Section 7.3 hereof, if any)
will be converted into shares of Company Common Stock as provided in Article VII
hereof; at the Effective Time, EIPCC's general partnership interest in PTP shall
be converted into a limited partnership interest of 0.0001% in the Partnership
and EIPCC's capital contribution to PTP shall be returned; and at the Effective
Time, the Company's limited partnership interest in PTP shall be converted into
a limited partnership interest in the Partnership and the Company's capital
contribution to PTP shall be returned. The partnership interests of the
Partnership GP in the Partnership and the partnership interests of the Company
and EIPCC in the Partnership GP shall not be affected by the Merger.
ARTICLE VI
THE OPERATING PARTNERSHIP MERGER
Section 6.1 THE OPERATING PARTNERSHIP MERGER. Upon the terms and subject
to the conditions hereof, at the Sixth Closing (as hereinafter defined), a
certificate of merger (the "Operating Partnership Certificate of Merger") shall
be duly prepared, executed and acknowledged by the Partnership, the surviving
partnership in the Operating Partnership Merger, and delivered to the Secretary
of State of the State of Delaware, for filing, as provided in the DRULPA. The
Operating Partnership Merger shall become effective upon the filing of the
Operating Partnership Certificate of Merger with the Secretary of State of the
State of Delaware (the "Operating Partnership Effective Time"). The partnership
agreement of the Partnership, as in effect immediately prior to the Operating
Partnership Effective Time, shall be the Partnership Agreement of the
Partnership following the Operating Partnership Effective Time unless and until
amended in accordance with the terms thereof and applicable law.
Section 6.2 EFFECTS OF THE OPERATING PARTNERSHIP MERGER. The Operating
Partnership Merger shall have the effects set forth in the DRULPA. Without
limiting the generality of the foregoing, and subject thereto, at the Operating
Partnership Effective Time, all the properties, rights, privileges, powers and
franchises of the Operating Partnership and the Operating Partnership GP shall
vest in the Partnership, as the surviving partnership in the Operating
Partnership Merger, and all debts, liabilities and duties of the Operating
Partnership and the Operating Partnership GP shall become the debts, liabilities
and duties of the Partnership. In addition, from and after the Operating
Partnership Effective Time, all outstanding interests in the Operating
Partnership shall be cancelled without consideration and cease to exist; and at
the Operating Partnership Effective Time, (i) the Company's general partnership
interest and limited partnership interest in the Operating Partnership GP shall
be converted into a general partnership interest and a limited partnership
interest in the Partnership; and (ii) EIPCC's general partnership interest in
the Operating Partnership GP shall be converted into a limited partnership
interest in the Partnership.
D-8
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ARTICLE VII
CONVERSION OF UNITS IN THE MERGER
Section 7.1 CONVERSION OF UNITS. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any Units (each a
"Unitholder"):
(a) CANCELLATION OF UNITS HELD BY THE COMPANY. All Units that are owned
by the Company or any Subsidiary (as hereinafter defined) of the Company
shall be cancelled and retired and shall cease to exist and no capital stock
of the Company or other consideration shall be delivered in exchange
therefor. As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect or remove a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party together with its
Subsidiaries.
(b) EXCHANGE RATIO FOR UNITS. Each Unit issued and outstanding at the
Effective Time (other than Units to be cancelled in accordance with Section
7.1(a) and other than Units as to which the holders thereof shall have
exercised appraisal rights pursuant to Section 7.3 hereof, if any) shall be
converted into one (1) (the "Conversion Number") fully paid and
nonassessable share of Company Common Stock (the "Conversion
Consideration"). At the Effective Time, such Units shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease
to exist, and each holder of a certificate representing any such Units shall
cease to have any rights with respect thereto, except the right to receive a
certificate representing shares of Company Common Stock and Distributions
(as defined in Section 12.22 hereof).
Section 7.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, the Company shall deposit
with Norwest Bank, Minnesota, N.A. (the "Exchange Agent"), for the benefit of
the holders of Units, for exchange in accordance with this Article VII, through
the Exchange Agent, certificates representing the shares of Company Common Stock
(such shares of Company Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 7.1 in exchange for certificates
which immediately prior to the Effective Time represented outstanding Units.
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
the Company shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding Units (the "Certificates") whose Units were converted
pursuant to Section 7.1 into shares of Company Common Stock (i) a letter of
transmittal (which shall be in such form and have such provisions as the Company
and the Partnership GP may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing shares of Company Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by the Company, together with such letter of transmittal, duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of shares of Company
Common Stock which such holder has the right to receive pursuant to the
provisions of this Article VII, and the Certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership of Units which
is not registered in the transfer records of the Partnership, a certificate
representing the proper number of shares of Company Common Stock may be issued
to a transferee if the Certificate is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable transfer taxes have been paid. Until surrendered
as contemplated by this Section 7.2, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender a certificate representing shares of Company Common Stock.
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(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED UNITS. No dividends or other
distributions declared or made after the Effective Time with respect to Company
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Company
Common Stock which such holder is entitled to receive upon the surrender thereof
in accordance with this Section 7.2 until the holder of record of such
Certificate shall so surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing shares of Company
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to such shares of
Company Common Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to surrender payable with
respect to such shares of Company Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN UNITS. All certificates representing
shares of Company Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Units (except the
right to receive previously declared but unpaid distributions from the
Partnership), and there shall be no further registration of transfers on the
transfer books of the Partnership of the Units which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Partnership or the Company for any reason,
they shall be cancelled and exchanged as provided in this Article VII.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the Certificate holders for one year after the
Effective Time shall be delivered to the Company, upon demand, and any
Certificate holders who have not theretofore complied with this Article VII
shall thereafter look only to the Company for payment of their claim for
certificates representing shares of Company Common Stock and any dividends or
distributions with respect to Company Common Stock.
(f) NO LIABILITY. None of the Company, the Partnership or any Partnership
Entity shall be liable to any holder of Units, Certificates or Company Common
Stock, as the case may be, for such securities (or dividends or distributions
with respect thereto) delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
Section 7.3 PROCEDURES FOR DISSENT BY RECORD HOLDERS OF UNITS. (a)
Notwithstanding anything in this Agreement to the contrary, Units that are
outstanding immediately prior to the Effective Time and are held by Unitholders
who did not vote for the Merger and who shall have delivered to the Executive
Vice President, Finance and Administration, of the Company a written objection
in accordance with clause (i) of Section 7.3(b) (each a "Dissenting Unitholder")
shall not be deemed converted into the Conversion Consideration, but the
Unitholders thereof shall be entitled to payment of the Fair Value (as defined
below) of such Units in accordance with the provisions of Sections 7.3 and 7.4
hereof ("Appraisal Rights"); PROVIDED, HOWEVER, that if the right of any
Dissenting Unitholder to be paid the Fair Value of his or her Units shall cease
in accordance with clause (iii) of Section 7.3(b) or otherwise, such Units shall
be deemed to have been exchanged as of the Effective Time for the Conversion
Consideration without interest thereon. Any Unitholder seeking Appraisal Rights
must (A) hold his or her Units for which appraisal is sought on the Record Date,
(B) continuously hold such Units through the Effective Time, and (C) otherwise
comply with the following provisions of this Section 7.3. "Fair Value" as used
herein shall mean, with respect to the Units, the value thereof as of the day
immediately preceding the Effective Time, excluding any appreciation or
depreciation in such value arising from the accomplishment or expectation of the
Merger or the Transactions.
(b) (i) A Unitholder who desires to exercise his or her right to dissent to
the Merger (and thereby his Appraisal Rights) must be a holder of record on, and
have filed with the Partnership on or before, the fifth day prior to the date of
the Unitholders' meeting referred to in Section 12.6 hereof (the
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"Meeting Date"), a written objection to the Merger and a notice stating that the
Unitholder's right to dissent will be exercised if the Merger is effected and
giving the Unitholder's address, to which notice shall be delivered or mailed in
that event. Such objection and notice must have (A) reasonably informed the
Partnership of the identity of the Unitholder and that such Unitholder demands
Appraisal Rights with respect to his or her Units and (B) be separate from any
proxy relating to the Merger.
(ii) If the Merger is effected, the Company shall, within 10 days after the
Merger is effected, mail to each Unitholder of record at the Effective Time who
filed an objection and notice pursuant to clause (i) of this Section 7.3(b) and
did not vote in favor of the Merger written notice that the Merger has been
effected (including the date thereof).
(iii) Any Unitholder who (A) voted in favor of the Merger or delivered a
proxy in favor of the Conversion or an unmarked proxy, or (B) failed to make the
written objection and notice in accordance with clause (i) of this Section
7.3(b), shall not be entitled to Appraisal Rights but shall otherwise be bound
by the Merger. Neither voting against, abstaining from voting, nor failing to
vote on the Merger by any Unitholder, will constitute a demand by such
Unitholder for Appraisal Rights within the meaning of Section 7.3(a) hereof or
this Section 7.3(b).
(c) At any time within 120 days after the Effective Time, any Dissenting
Unitholder who has complied with the requirements of Section 7.3(b) hereof, upon
written request, shall be entitled to receive from the Company a statement
setting forth the aggregate number of Units not voted in favor of the Merger and
with respect to which demands for Appraisal Rights have been received and the
aggregate number of Unitholders who hold such Units. Such written statement
shall be mailed to the requesting Dissenting Unitholder within 10 days after the
later of his written request for such a statement is received by the Company and
the expiration of the period for delivery of demands for appraisal.
(d) At any time within the period of 120 days after the Effective Time, any
Dissenting Unitholder or the Company may file a petition in the Delaware Court
of Chancery (the "Chancery Court") asking for a finding and determination of the
Fair Value of the Dissenting Unitholder's Units. Upon the filing of any such
petition by the Dissenting Unitholder, service of a copy thereof shall be made
upon the Company, which shall, within 20 days after service, file in the office
of the Register in Chancery of the Chancery Court in which such petition was
filed (the "Register in Chancery") a duly verified list containing the names and
addresses of all Unitholders who have demanded payment for their Units and not
withdrawn such demand in accordance with Section 7.3(b) hereof. If the petition
shall be filed by the Company, the petition shall be accompanied by such a duly
verified list. The Register in Chancery, if so ordered by the Chancery Court,
shall give notice of the time and place fixed for the hearing of the petition by
certified or registered mail to the Company and to the Unitholders named on the
list at the addresses therein stated. Such notice shall also be given by one or
more publications, at least one week prior to the scheduled date of the hearing,
in a newspaper of general circulation in the City of Wilmington, Delaware or
such other publication as the Chancery Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Chancery Court, and
the costs thereof shall be borne by the Company. All Dissenting Unitholders thus
notified and the Company shall thereafter be bound by the final judgment of the
Chancery Court.
(e) At the hearing on the petition, the Chancery Court shall determine the
Dissenting Unitholders who have complied with the provisions of this Section 7.3
and have become entitled to the valuation of and payment for their Units. After
determining the Unitholders entitled to Appraisal Rights, the Chancery Court
shall appraise the Units, determining their Fair Value, together with a fair
rate of interest, if any, to be paid upon the amount determined to be the Fair
Value. In determining such Fair Value, the Chancery Court shall take into
account all relevant factors. In determining the fair rate of interest, the
Chancery Court may consider all relevant factors, including the rate of interest
which the Company would have had to pay to borrow money during the pendency of
the proceeding. The Chancery Court shall have power to examine any of the books
and records of the
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Company. Upon application by the Company or by any Unitholder entitled to
participate in the proceeding, the Chancery Court may, in its discretion, permit
discovery or other pretrial proceedings and may proceed to trial upon the
appraisal prior to the final determination of the Unitholders entitled to an
appraisal. Any Dissenting Unitholder whose name appears on the list filed by the
Company pursuant to Section 7.3(d) may participate fully in all proceedings
until it is finally determined that he or she is not entitled to Appraisal
Rights under Section 7.3 and 7.4 hereof.
(f) The Chancery Court shall by its judgment determine the Fair Value of the
Units of the Dissenting Unitholders entitled to payment for their Units and
shall direct the payment of that Fair Value, together with interest, if any,
thereon, by the Company to the Dissenting Unitholders entitled to payment.
Interest may be simple or compound, as the Chancery Court may direct. The
Chancery Court's judgment shall be enforceable as other judgments in the
Chancery Court. Upon payment of the judgment, the Dissenting Unitholders shall
cease to have any interest in their Units or the Company. The costs of the
proceeding shall be allotted between the parties in the manner that the Chancery
Court determines to be equitable under the circumstances. Upon application of a
Dissenting Unitholder, the Chancery Court may order all or a portion of the
expenses incurred by any Dissenting Unitholder in connection with the
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the Units whose Fair Value is determined pursuant to the proceeding. In the
absence of such a determination of assessment by the Chancery Court, each party
shall bear his, her or its own expenses.
(g) Each Unit acquired by the Company pursuant to the payment of the
judgment entered for the Fair Value of the Units, as provided in this Section
7.3, shall be cancelled and of no force or effect.
(h) The remedy provided by this Section 7.3 to a Dissenting Unitholder
objecting to the Merger is the exclusive remedy for the recovery of the value of
his or her Units or money damages to the Unitholder with respect to the Merger.
If the Company complies with the requirements of this Section 7.3, any
Dissenting Unitholder who fails to comply with the requirements of this Section
7.3 shall not be entitled to bring suit for the recovery of the value of his or
her Units or money damages to the Dissenting Unitholder with respect to the
Merger.
(i) Without limitation of the generality of Section 7.3(c) hereof, if the
Chancery Court shall refuse to recognize the rights and procedures set forth in
Sections 7.3 and 7.4 hereof with respect to Dissenting Unitholders, or shall
otherwise refuse to follow the procedures set forth in this Section 7.3 to be
followed by it, then the Company within 45 days after learning of such refusal
by the Chancery Court, shall make application to the American Arbitration
Association ("AAA"), Philadelphia Branch, to select an independent appraiser
(the "Special Appraiser") to determine the Fair Value of the Units held by all
such Dissenting Unitholders. Within 30 days after the Company is notified of the
selection of the Special Appraiser, the Company shall deliver or mail to each
Dissenting Unitholder a written notice stating that a Special Appraiser has been
selected in accordance with this Section 7.3(i) and specifying the name and
address of the Special Appraiser. From and after the delivery or mailing of such
notice, all petitions, lists and other documents that would have been filed
under Section 7.3(d) or (e) hereof with the Register in Chancery and the
Chancery Court shall be filed instead with the Special Appraiser. The Special
Appraiser shall retain all such documents filed with him in clearly-identifiable
files, shall maintain an index or log listing all such documents and the time
and date on which they were filed, and shall make all such documents and files
available to the Company and any Dissenting Unitholders during the same business
hours as those that are maintained by the clerks of the Chancery Court. If any
such documents shall have already been filed with the Register in Chancery and
the Chancery Court, the Company, at its expense, shall obtain copies of such
documents from the applicable clerk of the Chancery Court and shall file such
copies with the Special Appraiser. The Special Appraiser shall give any notices
that would have been given by the Chancery Court or its clerk pursuant to
Sections 7.3(d), (e) and (f) hereof. The Special Appraiser shall perform the
functions and take the actions that would have been performed and taken by the
Chancery Court under Sections 7.3(d), (e) and (f) hereof. In doing so, the
Special Appraiser shall follow the procedures set forth in such Sections as
nearly as practicable. The Fair Value finally determined by the Special
Appraiser shall be
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final and binding upon all such Dissenting Unitholders and the Company, and the
other provisions of Sections 7.3 and 7.4 hereof with respect to the effect of
such determination and the rights of Dissenting Unitholders (including, without
limitation, pursuant to Section 7.3(h) hereof) shall be applicable as nearly as
practicable. Should the Special Appraiser die or become unable or unwilling to
serve, the Company shall promptly make application to the AAA for selection of a
substitute Special Appraiser, who shall have the same powers and duties as the
original Special Appraiser and who shall obtain from the original Special
Appraiser (or his estate) all documents and files pertaining to the Merger.
Section 7.4 PROVISIONS AFFECTING REMEDIES OF DISSENTING UNITHOLDERS.
(a) Subject to the right of a Dissenting Unitholder pursuant to Section
7.4(b) hereof to withdraw his or her demand for payment, from and after the
Effective Time, any Dissenting Unitholder who has demanded payment for his or
her Units in accordance with Section 7.3 shall not thereafter be entitled to
vote, to exercise any other rights of a Unitholder or to receive payment of any
distributions with respect thereto, except the right to receive payment for his
or her Units pursuant to the provisions of Section 7.3 hereof, the right to
receive distributions payable to the Dissenting Unitholders on or prior to the
Effective Date and the right to maintain an appropriate action to obtain relief
on the grounds that the Merger would be or was fraudulent or unfair, and the
respective Units for which payment has been demanded shall not thereafter be
considered outstanding for the purposes of any subsequent vote of Unitholders.
(b) Any Dissenting Unitholder who has demanded payment for his or her Units
in accordance with Section 7.3 hereof may withdraw such demand by delivering to
the Company a written notice of such withdrawal and a consent to the Merger;
PROVIDED that (i) no such demand may be withdrawn after payment for his or her
Units and (ii) any such notice of withdrawal delivered later than 30 days after
the Effective Time shall not be effective without the consent of the Company;
PROVIDED, FURTHER, that if any such notice of withdrawal is delivered after any
petition has been filed pursuant to Section 7.3 hereof asking for a finding and
determination of the Fair Value of such Units, dismissal of the appraisal
proceeding with respect to such Units shall be subject to approval by the
Chancery Court or, if applicable, the Special Appraiser. If, however, such
demand shall be withdrawn as hereinbefore provided, or if no petition asking for
a finding and determination of Fair Value of such Units by the Chancery Court
shall have been filed within the time provided in Section 7.3 hereof, or if
after the hearing of a petition filed pursuant to Section 7.3 hereof, the
Chancery Court shall determine that such Unitholder is not entitled to the
relief provided by Section 7.3 hereof, then, in any such case, such Unitholder
and all persons claiming under him or her shall be bound by the Merger and
entitled to receive the Conversion Consideration, the right of such Unitholder
to be paid the Fair Value of his or her Units shall cease, and his or her status
as a Unitholder of Units exchanged in the Merger shall be restored without
prejudice to any proceedings that may have been taken by the Company during the
interim, and such Unitholder shall be entitled to receive any distributions made
with respect to such Conversion Consideration in the interim.
(c) The provisions of Sections 7.3 and 7.4 hereof relating to the procedures
to be followed to determine the Fair Value of the Units shall be conformed as
nearly as practicable to the procedure required to be followed in connection
with the exercise of dissenters' rights by a stockholder of a corporation formed
under the DGCL as set forth in Section 262 of the DGCL. In the event that such
procedures cannot be followed, then the Company shall implement alternative
procedures designed to produce results substantially similar to those that would
be effected if Section 262 of the DGCL applied to the Merger.
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ARTICLE VIII
THE CLOSINGS
Section 8.1 THE CLOSINGS. Each of the Transactions set forth herein and
each of the closings of such Transactions as set forth below are contingent
upon, and shall not be consummated unless, all of the Transactions set forth
herein and all of the closings of such Transactions as set forth below are
consummated as provided herein.
(a) Upon the terms and conditions hereof, the closing of the transactions
contemplated by Article I hereof (the "First Closing") shall take place at the
offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, NY 10017
(the "Place of Closing") at 10:00 a.m., New York City time, on the Meeting Date,
or at such other date, time and place as the Company and the Partnership GP
shall agree (the "Closing Date").
(b) The closing of the transactions contemplated by Article II hereof (the
"Second Closing") shall take place at the Place of Closing on the Closing Date
promptly following consummation of the First Closing.
(c) The closing of the transactions contemplated by Article III hereof (the
"Third Closing") shall take place at the Place of Closing on the Closing Date
promptly following consummation of the Second Closing.
(d) The closing of the transactions contemplated by Article IV hereof (the
"Fourth Closing") shall take place at the Place of Closing on the Closing Date
promptly following consummation of the Third Closing.
(e) The closing of the transactions contemplated by Article V hereof (the
"Fifth Closing") shall take place at the Place of Closing on the Closing Date
promptly following consummation of the Fourth Closing.
(f) The closing of the transactions contemplated by Article VI hereof (the
"Sixth Closing") shall take place at the Place of Closing on the Closing Date
promptly following consummation of the Fifth Closing.
Section 8.2 DELIVERIES AT THE FIRST CLOSING. At the First Closing, EIPCC
shall cause the PICC Merger to become effective pursuant to Article I hereof,
and shall execute, deliver and file, or cause to be executed, delivered and
filed, all such other documents, instruments or writings required to effect the
PICC Merger, required to be delivered pursuant to this Agreement or otherwise
required in connection herewith.
Section 8.3 DELIVERIES AT THE SECOND CLOSING.
(a) At the Second Closing, the EIPCC Stockholders shall deliver or cause to
be delivered (unless previously delivered) the following to the Company:
(i) stock certificates representing the EIPCC Common Stock accompanied
by stock powers duly endorsed in blank or accompanied by duly executed
instruments of transfer, with all necessary transfer tax and other revenue
stamps affixed thereto;
(ii) the stock books, stock ledgers, minute books and corporate seal of
EIPCC and PICC;
(iii) written resignations of all directors and officers of EIPCC and
PICC; and
(iv) all other documents, instruments and writings required to be
delivered by the EIPCC Stockholders to the Company pursuant to this
Agreement or otherwise required in connection herewith.
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(b) At the Second Closing, the Company shall deliver or cause to be
delivered (unless previously delivered) the following to the EIPCC Stockholders:
(i) one or more unlegended certificates, in definitive form and
registered in the names of the EIPCC Stockholders or their assignees,
representing the shares of the Company Common Stock to be issued to them
pursuant to Section 2.1(b) hereof; PROVIDED, that, in the event any transfer
or other taxes become payable by reason of the issuance of any certificate
representing Company Common Stock in any name other than that of a EIPCC
Stockholder, such assignee must pay such tax to the Company or must
establish to the satisfaction of the Company that such tax has been paid or
is not payable; and
(ii) all other documents, instruments and writings required to be
delivered by the Company to the EIPCC Stockholders pursuant to this
Agreement or otherwise required in connection herewith.
Section 8.4 DELIVERIES AT THE THIRD CLOSING.
(a) At the Third Closing, the Partnership GP Partners shall deliver or cause
to be delivered (unless previously delivered) to the Company duly executed
assignments of the Partnership GP Interests; and EIPCC shall deliver to the
Company, (i) written resignations of all directors and officers of the
Partnership GP (or of the individuals holding similar offices or performing
comparable functions at the Partnership GP); and (ii) all other documents,
instruments and writings required to be delivered by the Partnership GP Partners
to the Company pursuant to this Agreement or otherwise required in connection
herewith.
(b) At the Third Closing, the Company shall deliver or cause to be delivered
(unless previously delivered) the following to the Partnership GP Partners:
(i) one or more unlegended certificates, in definitive form and
registered in the names of the Partnership GP Partners or their assignees,
representing the shares of Company Common Stock to be issued to them
pursuant to Section 3.1(b) hereof; PROVIDED, that, in the event any transfer
or other taxes become payable by reason of the issuance of any certificate
representing Company Common Stock in any name other than that of a
Partnership GP Partner, such assignee must pay such tax to the Company or
must establish to the satisfaction of the Company that such tax has been
paid or is not payable; and
(ii) all other documents, instruments and writings required to be
delivered by the Company, to the Partnership GP Partners pursuant to this
Agreement or otherwise required in connection herewith.
Section 8.5 DELIVERIES AT THE FOURTH CLOSING.
(a) At the Fourth Closing, the Operating Partnership GP Partners shall
deliver or cause to be delivered (unless previously delivered) to the Company
duly executed assignments of the Operating Partnership GP Interests; and EIPCC
shall deliver to the Company (i) written resignations of all directors and
officers of the Operating Partnership GP (or of the individuals holding similar
offices or performing comparable functions at the Operating Partnership GP); and
(ii) all other documents, instruments and writings required to be delivered by
the Operating Partnership GP Partners to the Company pursuant to this Agreement
or otherwise required in connection herewith.
(b) At the Fourth Closing, the Company shall deliver or cause to be
delivered (unless previously delivered) the following to the Operating
Partnership GP Partners:
(i) one or more unlegended certificates, in definitive form and
registered in the names of the Operating Partnership GP Partners or their
assignees, representing the shares of Company Common Stock to be issued to
them pursuant to Section 4.1(b) hereof; PROVIDED, that, in the event
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any transfer or other taxes become payable by reason of the issuance of any
certificate representing Company Common Stock in any name other than that of
a Operating Partnership GP Partner, such assignee must pay such tax to the
Company or must establish to the satisfaction of the Company that such tax
has been paid or is not payable; and
(ii) all other documents, instruments and writings required to be
delivered by the Company, to the Operating Partnership GP Partners pursuant
to this Agreement or otherwise required in connection herewith.
Section 8.6 DELIVERIES AT THE FIFTH CLOSING.
(a) At the Fifth Closing, the Company and EIPCC shall execute, deliver and
file, or cause to be executed, delivered and filed, all such documents,
instruments or writings required to effect the formation of PTP as set forth in
Section 5.1 hereof, required to be delivered pursuant to this Agreement or
otherwise required in connection herewith.
(b) At the Fifth Closing, immediately following consummation of the
deliveries set forth in clause (a) above, the Partnership shall cause the Merger
to become effective pursuant to Article V hereof, and shall execute, deliver and
file, or cause to be executed, delivered and filed, all such other documents,
instruments or writings required to effect the Merger, required to be delivered
pursuant to this Agreement or otherwise required in connection herewith, and
shall return the Company's and EIPCC's capital contributions in PTP.
Section 8.7 DELIVERIES AT THE SIXTH CLOSING. At the Sixth Closing, the
Partnership shall cause the Operating Partnership Merger to become effective
pursuant to Article VI hereof, and shall execute, deliver and file, or cause to
be executed, delivered and filed, all such other documents, instruments or
writings required to effect the Operating Partnership Merger, required to be
delivered pursuant to this Agreement or otherwise required in connection
herewith.
ARTICLE IX
JOINT AND SEVERAL
REPRESENTATIONS AND WARRANTIES OF
CERTAIN PARTNERSHIP ENTITIES
The Partnership, the Operating Partnership, the Partnership GP, the
Operating Partnership GP, PICC, EIPCC and Victor K. Atkins, Jr., as general
partner of the Partnership GP and the Operating Partnership GP, jointly and
severally represent and warrant to the Company as follows:
Section 9.1 ORGANIZATION. Each of the Partnership and the Operating
Partnership is a limited partnership duly organized, validly existing and in
good standing under the limited partnership laws of the jurisdiction of its
organization and has all requisite partnership power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not have a material adverse effect on the
Partnership and the Operating Partnership taken as a whole. As used in this
Agreement, any reference to any event, change or effect being material or having
a material adverse effect on or with respect to an entity (or group of entities
taken as a whole) means such event, change or effect is materially adverse to
the business, properties, assets, results of operations, financial condition or
prospects of such entity (or such group of entities taken as a whole) or the
ability of such entity (or such group of entities) to consummate any of the
Transactions in accordance with this Agreement.
Section 9.2 CAPITALIZATION. As of the date hereof, (a)(i) 16,010,441 Units
are issued and outstanding and (ii) the Partnership GP is the sole general
partner in the Partnership and (b)(i) all the limited partnership interests in
the Operating Partnership are validly issued and owned by the Partnership free
and clear of all Liens and (ii) the Operating Partnership GP is the sole general
partner in the Operating Partnership. As of the date hereof 534,503 Units were
reserved for issuance
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upon the exercise of rights ("First Rights") pursuant to the Operating
Partnership's 1987 Employee Ownership Plan (the "Employee Plan") and 1987
Management Ownership Plan (the "Management Plan" and together with the Employee
Plan, the "Partnership Plans") and First Rights in respect of 312,500 Units have
been granted and are outstanding. As of the date hereof, no bonds, debentures,
notes or other indebtedness having the right to vote (or convertible into
securities having the right to vote) ("Voting Debt") of the Partnership or the
Operating Partnership are issued or outstanding. Except as set forth above,
there are no existing options, warrants, calls, subscriptions or other rights or
other agreements or commitments of any character relating to the issued or
unissued Units or other partnership interests or Voting Debt of the Partnership
or the Operating Partnership or obligating the Partnership or the Operating
Partnership to issue, transfer or sell or cause to be issued, transferred or
sold any Units or other partnership interests or Voting Debt of, or other equity
interests in, the Partnership or the Operating Partnership or securities
convertible into or exchangeable for such Units or other partnership interests
or equity interests or obligating the Partnership or the Operating Partnership
to grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement or commitment. There are no outstanding contractual
obligations of the Partnership or the Operating Partnership to repurchase,
redeem or otherwise acquire any Units or other partnership interests of the
Partnership or the Operating Partnership.
Section 9.3 AUTHORITY. Each of the Partnership and the Operating
Partnership has the requisite partnership power and authority to execute and
deliver this Agreement and to consummate the Transactions contemplated hereby
(other than, with respect to the Merger, the approval and adoption of the
proposal to effect the Conversion (the "Conversion Proposal") by the required
vote of the Unitholders). The execution, delivery and performance of this
Agreement by each of the Partnership and the Operating Partnership and the
consummation by the Partnership and the Operating Partnership of the
Transactions contemplated hereby have been duly authorized by all necessary
partnership action on the part of the Partnership and the Operating Partnership
and no other partnership action on the part of the Partnership or the Operating
Partnership is necessary to authorize this Agreement or to consummate the
Transactions so contemplated (other than, with respect to the Merger, the
approval and adoption of the Conversion Proposal by the required vote of the
Unitholders). This Agreement has been duly executed and delivered by the
Partnership and the Operating Partnership.
ARTICLE X
SEVERAL REPRESENTATIONS AND
WARRANTIES OF CERTAIN PARTNERSHIP ENTITIES
Section 10.1 REPRESENTATIONS AND WARRANTIES OF THE EIPCC STOCKHOLDERS. Mr.
Atkins represents and warrants to the Company with respect to clauses (a), (b),
(c)(ii), (d) (to the extent applicable to EIPCC or PICC), (e) and (g) of this
Section 10.1 and each of the EIPCC Stockholders severally and not jointly
represents and warrants to the Company with respect to clauses (c)(i), (d) (to
the extent applicable to the EIPCC stockholders) and (f) of this Section 10.1,
as follows:
(a) ORGANIZATION. Each of EIPCC and PICC is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business as now being conducted except where the failure to be so organized,
existing and in good standing or to have such power and authority would not
have a material adverse effect on EIPCC and PICC. The EIPCC Stockholders
will provide the Company with true and correct copies of the Certificate of
Incorporation and By-laws of EIPCC and PICC, together with all amendments
thereto.
(b) CAPITALIZATION. As of the date hereof, (i) the issued and
outstanding capital stock of EIPCC consists of 70 shares of EIPCC Common
Stock, and (ii) all of the issued and outstanding capital stock of PICC (the
"PICC Common Stock") is owned beneficially and of record by EIPCC. No Voting
Debt of EIPCC or PICC is issued or outstanding. Except for this Agreement,
there are
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no options, warrants, calls, subscriptions or other rights or other
agreements or commitments of any character relating to the issued or
unissued capital stock or Voting Debt of EIPCC or PICC or obligating EIPCC
or PICC to issue, transfer or sell or cause to be issued, transferred or
sold any shares of capital stock or Voting Debt of, or other equity or
partnership interests in, EIPCC or PICC or of any of their Subsidiaries or
securities convertible into or exchangeable for such shares or equity
interests or obligating EIPCC or PICC to grant, extend or enter into any
such option, warrant, call, subscription or other right, agreement or
commitment.
(c) AUTHORITY. (i) Such EIPCC Stockholder has the requisite power and
authority and full legal capacity to execute, deliver and perform this
Agreement and to consummate the Transactions contemplated hereby. This
Agreement has been duly executed and delivered by such EIPCC Stockholder and
assuming this Agreement constitutes a valid and binding obligation of the
Company, constitutes a valid and binding obligation of such EIPCC
Stockholder enforceable against such person in accordance with its terms.
(ii) Each of EIPCC and PICC has requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this
Agreement by each of EIPCC and PICC and the consummation by each of EIPCC
and PICC of the Transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of each of EIPCC and PICC and
no other corporate proceedings on the part of EIPCC or PICC is necessary to
authorize this Agreement or to consummate the transactions so contemplated.
This Agreement has been duly executed and delivered by each of EIPCC and
PICC and assuming this Agreement constitutes a valid and binding obligation
of the Company, constitutes a valid and binding obligation of each of EIPCC
and PICC enforceable against it in accordance with its terms.
(d) CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the Securities Act, state
securities or blue sky laws, the HSR Act, the DGCL, the DRULPA, the laws of
other states in which EIPCC is qualified to do or is doing business, neither
the execution, delivery or performance of this Agreement by such EIPCC
Stockholder nor the consummation by such EIPCC Stockholder of the
transactions contemplated hereby nor compliance by such EIPCC Stockholder
with any of the provisions hereof will (i) conflict with or result in any
breach of any provision of the certificate of incorporation or by-laws of
EIPCC, (ii) require any filing with, or permit, authorization, consent or
approval of, any Governmental Entity (except where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings
would not have a material adverse effect on such EIPCC Stockholder, EIPCC or
PICC), (iii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
lease, contract, agreement or other instrument or obligation to which such
EIPCC Stockholder, EIPCC or PICC is a party or by which any of them or any
of their properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to such EIPCC
Stockholder, EIPCC or PICC, except, in the case of clauses (iii) or (iv),
for violations, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on such EIPCC Stockholder, EIPCC
or PICC; provided, however, the representations in this clause (d) shall
apply to the EIPCC Stockholders in their individual capacity only and shall
not be deemed to apply to such EIPCC Stockholders in any other capacity.
(e) SUBSIDIARIES; UNITS. (i) Other than PICC, the Operating Partnership
GP, the Operating Partnership and wholly owned Subsidiaries of the Operating
Partnership, EIPCC has no Subsidiaries. EIPCC owns its direct and indirect
interests in PICC, the Operating Partnership GP and the Operating
Partnership free and clear of any and all Liens. EIPCC does not own, and
prior to the Effective Time will not acquire, any Units.
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(ii) Other than the Operating Partnership GP and the Operating
Partnership and wholly owned Subsidiaries of the Operating Partnership, PICC
has no Subsidiaries. PICC owns its general partnership interest in the
Operating Partnership GP free and clear of any and all Liens. PICC does not
own, and prior to the Effective Time will not acquire, any Units.
(f) OWNERSHIP OF SHARES; TITLE. Such EIPCC Stockholder is the owner of
record and beneficially of the shares of EIPCC Common Stock set forth
opposite such EIPCC Stockholder's name on Annex III hereto. Such EIPCC
Stockholder has not received any notice of any adverse claim to the
ownership of any such EIPCC Common Stock and does not have any reason to
know of any such adverse claim that may be justified. On the Closing Date,
such EIPCC Stockholder shall have good and transferable title to the EIPCC
Common Stock set forth opposite such EIPCC Stockholder's name on Annex III
hereto, free and clear of all Liens. The delivery of certificates for the
EIPCC Common Stock owned by such EIPCC Stockholder to the Company pursuant
to this Agreement will transfer to the Company good and transferable title
to the EIPCC Common Stock set forth opposite such EIPCC Stockholder's name
on Annex III hereto free and clear of all Liens.
(g) NO LIABILITIES. (i) EIPCC has not engaged in any business or
activity of any kind, or entered into any agreement or arrangement with any
person or entity, except, in each case, in connection with its ownership of
100% of the capital stock of PICC and serving as managing general partner of
the Partnership GP. EIPCC has not incurred, directly or indirectly, any
liabilities or obligations, except for liabilities or obligations incurred
by EIPCC acting in its capacity as managing general partner of the
Partnership GP (such liabilities being referred to as "Partnership GP
Liabilities").
(ii) PICC has not engaged in any business or activity of any kind, or
entered into any agreement or arrangement with any person or entity except,
in each case, in connection with serving as a general partner of the
Operating Partnership GP. PICC has not incurred, directly or indirectly, any
liabilities or obligations, except for liabilities or obligations incurred
by PICC acting in its capacity as general partner of the Operating
Partnership GP (such liabilities being herein referred to as "Operating
Partnership GP Liabilities").
Section 10.2 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP GP
PARTNERS. Mr. Atkins represents and warrants to the Company with respect to
clauses (a), (b), (d) (to the extent applicable to the Partnership GP), (e) and
(g) of this Section 10.2 and each of the Partnership GP Partners severally and
not jointly represents and warrants to the Company with respect to clauses (c),
(d) (to the extent applicable to such Partnership GP Partner) and (f) of this
Section 10.2, as follows:
(a) ORGANIZATION. The Partnership GP is a limited partnership duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted except where the failure to be so organized, existing and in
good standing or to have such power and authority would not have a material
adverse effect on the Partnership GP. The Partnership GP Partners will
provide the Company with true and correct copies of the partnership
agreement and certificate of limited partnership of the Partnership GP,
together with all amendments thereto.
(b) CAPITALIZATION. Annex I hereto sets forth all of the outstanding
Partnership GP Interests. No Voting Debt of the Partnership GP is issued or
outstanding. Except for this Agreement, there are no options, warrants,
calls, subscriptions or other rights or other agreements or commitments of
any character relating to the issued or unissued partnership interests or
Voting Debt of the Partnership GP or obligating the Partnership GP to issue,
transfer or sell or cause to be issued, transferred or sold any partnership
interests or Voting Debt of, or other equity interests in, the Partnership
GP or of any of its Subsidiaries or securities convertible into or
exchangeable for such partnership interests or equity interests or
obligating the Partnership GP to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement or commitment.
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(c) AUTHORITY. Such Partnership GP Partner has the requisite power and
authority to execute, deliver and perform this Agreement and to consummate
the Transactions contemplated hereby. The execution, delivery and
performance of this Agreement by such Partnership GP Partner and the
consummation of the Transactions contemplated hereby, have been duly
authorized by all necessary action on the part of such Partnership GP
Partner, as applicable, and no other action on the part of such Partnership
GP Partner is necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by such Partnership GP Partner and assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a
valid and binding obligation of such Partnership GP Partner enforceable
against it in accordance with its terms.
(d) CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the Securities Act, state
securities or blue sky laws, the HSR Act, the DGCL, the DRULPA, the laws of
other states in which the Partnership GP is qualified to do or is doing
business, neither the execution, delivery or performance of this Agreement
by such Partnership GP Partner nor the consummation by such Partnership GP
Partner of the transactions contemplated hereby nor compliance by such
Partnership GP Partner with any of the provisions hereof will (i) conflict
with or result in any breach of any provision of the partnership agreement
of the Partnership GP or such Partnership GP Partner, as applicable, or the
certificate of incorporation or by-laws of such Partnership GP Partner, as
applicable, (ii) require any filing with, or permit, authorization, consent
or approval of, any Governmental Entity (except where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings
would not have a material adverse effect on such Partnership GP Partner or
the Partnership GP), (iii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give
rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, lease, contract, agreement or other instrument or
obligation to which such Partnership GP Partner or the Partnership GP or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to such
Partnership GP Partner or the Partnership GP, except, in the case of clauses
(iii) or (iv), for violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on such
Partnership GP Partner or the Partnership GP; provided, however, the
representations in this clause (d) shall apply to the Partnership GP
Partners in their individual capacity only and shall not be deemed to apply
to such Partnership GP Partners in any other capacity.
(e) SUBSIDIARIES; UNITS. Other than the Partnership, the Operating
Partnership and wholly owned Subsidiaries of the Operating Partnership, the
Partnership GP has no Subsidiaries. The Partnership GP owns its partnership
interest in the Partnership free and clear of any and all Liens. The
Partnership GP does not own, and prior to the Effective Time will not
acquire, any Units.
(f) OWNERSHIP OF PARTNERSHIP INTERESTS; TITLE. Such Partnership GP
Partner is the owner of record and beneficially of the Partnership GP
Interests set forth opposite such Partnership GP Partner's name on Annex I
hereto. Such Partnership GP Partner has not received any notice of any
adverse claim to the ownership of any such Partnership GP Interests and does
not have any reason to know of any such adverse claim that may be justified.
On the Closing Date, such Partnership GP Partner shall have good and
transferable title to the Partnership GP Interests set forth opposite such
Partnership GP Partner's name on Annex I hereto, free and clear of all
Liens. The delivery of assignments for the Partnership GP Interests owned by
such Partnership GP Partners to the Company pursuant to this Agreement will
transfer to the Company good and transferable title to the Partnership GP
Interests set forth opposite such Partnership GP Partner's name on Annex I
hereto free and clear of all Liens.
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(g) NO LIABILITIES. The Partnership GP has not engaged in any business
or activity of any kind, or entered into any agreement or arrangement with
any person or entity, except in each case in connection with serving as the
general partner of the Partnership. The Partnership GP has not incurred,
directly or indirectly, any liabilities or obligations, except for
liabilities or obligations incurred by the Partnership GP acting in its
capacity as general partner of the Partnership (such liabilities being
herein referred to as "Partnership Liabilities").
Section 10.3 REPRESENTATIONS AND WARRANTIES OF THE OPERATING PARTNERSHIP GP
PARTNERS. Mr. Atkins represents and warrants to the Company with respect to
clauses (a), (b), (d) (to the extent applicable the to the Operating Partnership
GP), (e) and (g) of this Section 10.3 and each of the Operating Partnership GP
Partners severally and not jointly represents and warrants to the Company with
respect to clauses (c), (d) (to the extent applicable to such Operating
Partnership GP Partner) and (f) of this Section 10.3, as follows:
(a) ORGANIZATION. The Operating Partnership GP is a limited partnership
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted except where the failure to be so organized, existing and in
good standing or to have such power and authority would not have a material
adverse effect on the Operating Partnership GP. The Operating Partnership GP
Partners will provide the Company with true and correct copies of the
partnership agreement and certificate of limited partnership of the
Operating Partnership GP, together with all amendments thereto.
(b) CAPITALIZATION. Annex II hereto sets forth all of the outstanding
Operating Partnership GP Interests. No Voting Debt of the Operating
Partnership GP is issued or outstanding. Except for this Agreement, there
are no existing options, warrants, calls, subscriptions or other rights or
other agreements or commitments of any character relating to the issued or
unissued partnership interests or Voting Debt of the Operating Partnership
GP or obligating the Operating Partnership GP to issue, transfer or sell or
cause to be issued, transferred or sold any partnership interests or Voting
Debt of, or other equity interests in, the Operating Partnership GP or of
any of its Subsidiaries or securities convertible into or exchangeable for
such partnership interests or equity interests or obligating the Operating
Partnership GP to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement or commitment.
(c) AUTHORITY. Such Operating Partnership GP Partner has the requisite
power and authority to execute, deliver and perform this Agreement and to
consummate the Transactions contemplated hereby. The execution, delivery and
performance of this Agreement by such Operating Partnership GP Partner and
the consummation of the Transactions contemplated hereby, have been duly
authorized by all necessary action on the part of such Operating Partnership
GP Partner, as applicable, and no other action on the part of such Operating
Partnership GP Partner is necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by such Operating Partnership GP Partner and assuming
this Agreement constitutes a valid and binding obligation of the Company,
constitutes a valid and binding obligation of such Operating Partnership GP
Partner enforceable against it in accordance with its terms.
(d) CONSENTS AND APPROVALS; NO VIOLATIONS. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements of, the Exchange Act, the Securities Act, state
securities or blue sky laws, the HSR Act, the DGCL, the DRULPA, the laws of
other states in which the Operating Partnership GP is qualified to do or is
doing business, neither the execution, delivery or performance of this
Agreement by such Operating Partnership GP Partner nor the consummation by
such Operating Partnership GP Partner of the transactions contemplated
hereby nor compliance by the Operating Partnership GP Partner with any of
the provisions hereof will (i) conflict with or result in any breach of any
provision of
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the partnership agreement of the Operating Partnership GP, or the
certificate of incorporation or by-laws of such Operating Partnership GP
Partner, as applicable, (ii) require any filing with, or permit,
authorization, consent or approval of, any Governmental Entity (except where
the failure to obtain such permits, authorizations, consents or approvals or
to make such filings would not have a material adverse effect on such
Operating Partnership GP Partner or the Operating Partnership GP), (iii)
result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
lease, contract, agreement or other instrument or obligation to which such
Operating Partnership GP Partner or the Operating Partnership GP is a party
or by which any of them or any of their properties or assets may be bound or
(iv) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to such Operating Partnership GP Partner or the
Operating Partnership GP, except, in the case of clauses (iii) or (iv), for
violations, breaches or defaults which would not, individually or in the
aggregate, have a material adverse effect on such Operating Partnership GP
Partner or the Operating Partnership GP; provided, however, the
representations in this clause (d) shall apply to the Operating Partnership
GP Partners in their individual capacity only and shall not be deemed to
apply to such Operating Partnership GP Partners in any other capacity.
(e) SUBSIDIARIES; UNITS. Other than the Operating Partnership and
wholly owned Subsidiaries of the Operating Partnership, the Operating
Partnership GP has no Subsidiaries. The Operating Partnership GP owns its
general partnership interest in the Operating Partnership free and clear of
any and all Liens. The Operating Partnership GP does not own, and prior to
the Effective Time will not acquire, any Units.
(f) OWNERSHIP OF PARTNERSHIP INTERESTS; TITLE. Such Operating
Partnership GP Partner is the owner of record and beneficially of the
Operating Partnership GP Interests set forth opposite such Operating
Partnership GP Partner's name on Annex II hereto. Such Operating Partnership
GP Partner has not received any notice of any adverse claim to the ownership
of any such Operating Partnership GP Interests and does not have any reason
to know of any such adverse claim that may be justified. On the Closing
Date, such Operating Partnership GP Partner shall have good and transferable
title to the Operating Partnership GP Interests set forth opposite such
Operating Partnership GP Partner's name on Annex II hereto, free and clear
of all Liens. The delivery of assignments for the Operating Partnership GP
Interests owned by such Operating Partnership GP Partner to the Company
pursuant to this Agreement will transfer to the Company good and
transferable title to the Operating Partnership GP Interest set forth
opposite such Operating Partnership GP Partner's name on Annex II hereto,
free and clear of all Liens.
(g) NO LIABILITIES. The Operating Partnership GP has not engaged in any
business or activity of any kind, or entered into any agreement or
arrangement with any person or entity, except, in each case, in connection
with serving as the general partner of the Operating Partnership. The
Operating Partnership GP has not incurred, directly or indirectly, any
liabilities or obligations, except for liabilities or obligations incurred
by the Operating Partnership GP acting in its capacity as general partner of
the Operating Partnership (such liabilities being herein referred to as
"Operating Partnership Liabilities").
ARTICLE XI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Partnership Entities as follows:
Section 11.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being
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conducted and as contemplated to be conducted following the Conversion, except
where the failure to be so organized, existing and in good standing or to have
such power and authority would not have a material adverse effect on the
Company.
Section 11.2 CAPITALIZATION. As of the date hereof, the authorized capital
stock of the Company consists of: (i) 80,000,000 shares of Company Common Stock,
of which 3,000 shares were issued and outstanding and none of which were held in
treasury; and (ii) 20,000,000 shares of preferred stock, par value $.01 per
share, none of which are issued and outstanding. All the outstanding shares of
the Company's capital stock are, and all shares of Company Common Stock which
are to be issued to Unitholders pursuant to the Merger or issued to the
Transferors pursuant to the Transactions set forth in this Agreement, or which
may be issued pursuant to the Partnership Plans after the Merger will be, when
issued in accordance with the respective terms thereof, duly authorized, validly
issued, fully paid and non-assessable and free of any preemptive rights in
respect thereto. No Voting Debt of the Company is issued or outstanding. Except
as set forth above and except for shares of Company Common Stock that may be
issued pursuant to the Partnership Plans and except for this Agreement, there
are no existing options, warrants, calls, subscriptions or other rights or other
agreements or commitments of any character relating to the issued or unissued
capital stock or Voting Debt of the Company or obligating the Company to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interests in, the Company or
securities convertible into or exchangeable for such shares or equity interests
or obligating the Company to grant, extend or enter into any such option,
warrant, call, subscription or other right, agreement or commitment.
Section 11.3 AUTHORITY. The Company has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the Merger
and the other Transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
or to consummate the transactions so contemplated. This Agreement has been duly
executed and delivered by the Company and assuming this Agreement constitutes a
valid and binding obligation of the Partnership Entities, constitutes a valid
and binding obligation of the Company enforceable against it in accordance with
its terms.
Section 11.4 NO ACTIVITY. The Company has not engaged in any business or
activity of any kind, or entered into any agreement or arrangement with any
person or entity or incurred, directly or indirectly, any material liabilities
or obligations, except in connection with its incorporation and capitalization,
the Merger and the other Transactions and the negotiation of this Agreement. The
Company owns at least 3,000 Units.
ARTICLE XII
COVENANTS
Section 12.1 CONDUCT OF BUSINESS OF CERTAIN PARTNERSHIP ENTITIES.
(a) CONDUCT OF BUSINESS OF THE OPERATING PARTNERSHIP AND THE
PARTNERSHIP. Except as contemplated by this Agreement and the transactions
contemplated hereby, or with the prior written consent of the Company, and
subject to the provisions of Section 16.1 hereof, during the period from the
date of this Agreement to the Effective Time, the Operating Partnership and the
Partnership each will conduct its operations only in the ordinary and usual
course of business consistent with past practice and not take any action that
would or is reasonably likely to result in any of the conditions to the
Transactions set forth in Article XIII not being satisfied or would materially
impair the ability of such party to consummate any of the Transactions in
accordance with the terms hereof or materially delay such consummation.
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<PAGE>
(b) CONDUCT OF BUSINESS OF PICC AND EIPCC. Except as contemplated by this
Agreement and the transactions contemplated hereby, or with the prior written
consent of the Company, during the period from the date of this Agreement to the
Effective Time, the EIPCC Stockholders will not, directly or indirectly, sell,
transfer, pledge or otherwise convey all or any part of their interest in EIPCC
or PICC, or take any action that would or is reasonably likely to result in any
of the conditions to the Transactions set forth in Article XIII not being
satisfied or would materially impair the ability of such party to consummate any
of the Transactions in accordance with the terms hereof or materially delay such
consummation. Except as otherwise expressly provided in this Agreement and the
transactions contemplated hereby, EIPCC and PICC, prior to the Effective Time,
without the prior written consent of the Company, will not:
(i) adopt any amendment to its certificate of incorporation or by-laws;
(ii) issue, reissue, sell, deliver or pledge or authorize or propose the
issuance, reissuance, sale, delivery or pledge of additional shares of
capital stock of any class or securities convertible into capital stock of
any class, or any rights, warrants or options to acquire any of the
foregoing;
(iii) adjust, split, combine, subdivide, reclassify or redeem, purchase
or otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any shares of its capital stock or any of its other securities; or
(iv) sell, lease, transfer, pledge or dispose of EIPCC's interest in PICC
or PICC's interest in the Operating Partnership GP.
(c) CONDUCT OF BUSINESS OF THE PARTNERSHIP GP. Except as contemplated by
this Agreement and the transactions contemplated hereby, or with the prior
written consent of the Company, during the period from the date of this
Agreement to the Effective Time, the Partnership GP Partners will not, directly
or indirectly, sell, transfer, pledge or otherwise convey all or any part of
their interest in the Partnership GP, or take any action that would or is
reasonably likely to result in any of the conditions to the Transactions set
forth in Article XIII not being satisfied or would materially impair the ability
of such party to consummate any of the Transactions in accordance with the terms
hereof or materially delay such consummation. Except as otherwise expressly
provided in this Agreement and the transactions contemplated hereby, the
Partnership GP, prior to the Effective Time, without the prior written consent
of the Company, will not:
(i) adopt any amendment to its partnership agreement;
(ii) issue, reissue, sell, deliver or pledge or authorize or propose the
issuance, reissuance, sale, delivery or pledge of additional Units or other
partnership interests, or securities convertible into Units or other
partnership interests, or any rights, warrants or options to acquire any of
the foregoing;
(iii) adjust, split, combine, subdivide, reclassify or redeem, purchase
or otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any Units or other partnership interests or any of its other securities; or
(iv) sell, lease, transfer, pledge or dispose of the Partnership GP's
interest in the Partnership.
(d) CONDUCT OF BUSINESS OF THE OPERATING PARTNERSHIP GP. Except as
contemplated by this Agreement and the transactions contemplated hereby, or with
the prior written consent of the Company, during the period from the date of
this Agreement to the Effective Time, the Operating Partnership GP Partners will
not, directly or indirectly, sell, transfer, pledge or otherwise convey all or
any part of their interest in the Operating Partnership GP, or take any action
that would or is reasonably likely to result in any of the conditions to the
Transactions set forth in Article XIII not
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being satisfied or would materially impair the ability of such party to
consummate any of the Transactions in accordance with the terms hereof or
materially delay such consummation. Except as otherwise expressly provided in
this Agreement and the transactions contemplated hereby, the Operating
Partnership GP, prior to the Effective Time, without the prior written consent
of the Company, will not:
(i) adopt any amendment to its partnership agreement;
(ii) issue, reissue, sell, deliver or pledge or authorize or propose the
issuance, reissuance, sale, delivery or pledge of additional Units or other
partnership interests, or securities convertible into Units or other
partnership interests, or any rights, warrants or options to acquire any of
the foregoing;
(iii) adjust, split, combine, subdivide, reclassify or redeem, purchase
or otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any Units or other partnership interests or any of its other securities; or
(iv) sell, lease, transfer, pledge or dispose of its interest in the
Operating Partnership.
Section 12.2 CONDUCT OF BUSINESS OF THE COMPANY. Prior to the Effective
Time, the Company shall not engage in any business or activity other than in
connection with, or in furtherance of, its capitalization, the consummation of
the Transactions contemplated hereby and the Conversion generally.
Section 12.3 REASONABLE BEST EFFORTS. Subject to the terms and conditions
of this Agreement, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement including, without limitation, (i) the prompt preparation and
filing with the SEC of the S-4 and the Proxy Statement, (ii) such actions as may
be required to have the S-4 declared effective under the Securities Act and to
have the Proxy Statement cleared by the SEC, in each case as promptly as
practicable, including by consulting with each other as to, and responding
promptly to, any SEC comments with respect thereto, and (iii) such actions as
may be required to be taken under applicable state securities or Blue Sky laws
in connection with the issuance of shares of Company Common Stock contemplated
hereby. Each party shall promptly consult with the other with respect to,
provide any necessary information with respect to and provide the other (or its
counsel) copies of, all filings made by such party with any Governmental Entity
in connection with this Agreement and the transactions contemplated hereby. In
addition, if at any time prior to the Effective Time any event or circumstances
relating to any of the parties hereto, or any of their respective officers,
directors, or general partners, should be discovered by the party hereto, and
which should be set forth in an amendment or supplement to the S-4 or the Proxy
Statement, the discovering party shall promptly inform the other parties of such
event or circumstance.
Section 12.4 LETTER OF THE PARTNERSHIP'S ACCOUNTANTS. The Partnership
shall use its reasonable best efforts to cause to be delivered to the
Partnership and the Company a letter of McGladrey & Pullen, the Partnership's
independent auditors, dated a date within two business days before the date on
which the S-4 shall become effective and addressed to the Partnership and the
Company, in form and substance reasonably satisfactory to the Partnership and
the Company and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4, which letter shall be brought down to the Effective Time.
Section 12.5 ACCESS TO INFORMATION. Upon reasonable notice, the Operating
Partnership, the Partnership, the Partnership GP, the Operating Partnership GP,
PICC, and EIPCC, on the one hand, and the Company, on the other hand, shall each
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such
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period, each of the Operating Partnership, the Partnership, the Partnership GP,
the Operating Partnership GP, PICC, and EIPCC and the Company shall furnish
promptly to the other (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Unless otherwise required by law, the parties will hold any
such information which is nonpublic in confidence until such time as such
information otherwise becomes publicly available through no wrongful act of
either party, and in the event of termination of this Agreement for any reason
each party shall promptly return all nonpublic documents obtained from any other
party, and any copies made of such documents, to such other party.
Section 12.6 UNITHOLDERS MEETING. The Partnership GP shall call a meeting
of Unitholders to be held as promptly as practicable for the purpose of voting
upon the Conversion Proposal and related matters. Subject to the provisions of
Section 16.1 hereof the Partnership GP will recommend to Unitholders approval of
such matters.
Section 12.7 LEGAL CONDITIONS TO MERGER. Each of the parties hereto will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on itself with respect to the Merger and the
other Transactions (which actions shall include, without limitation, furnishing
all information required under the HSR Act and in connection with approvals of
or filings with any Governmental Entity and will promptly cooperate with and
furnish information to each other in connection with any such requirements
imposed upon any of them in connection with the Merger and the other
Transactions). Each of the parties hereto will take all reasonable actions
necessary to obtain (and will cooperate with each other in obtaining) any
consent, authorization, order or approval of, or any exemption by, any
Governmental Entity or other public or private third party, required to be
obtained or made by any party hereto in connection with the Merger or the other
Transactions or the taking of any action contemplated thereby or by this
Agreement.
Section 12.8 AFFILIATES. Prior to the Closing Date the Partnership GP
shall deliver to the Company a letter identifying all persons who are, at the
time this Agreement is submitted for approval to the Unitholders of the
Partnership, "affiliates" of the Partnership for purposes of Rule 145 under the
Securities Act. The Partnership GP shall use its reasonable best efforts to
cause each such person to deliver to the Company on or prior to the Closing Date
executed affiliates' letters in customary form.
Section 12.9 STOCK EXCHANGE LISTING. The Company shall use its reasonable
best efforts to cause the shares of Company Common Stock to be issued in the
Merger to be approved for listing on the American Stock Exchange (the "ASE") and
the Pacific Stock Exchange ("PSE") and any other national securities exchange on
which shares of Company Common Stock may at such time be listed, subject to
official notice of issuance, prior to the Closing Date. The Units will be
delisted at or immediately after the Effective Time.
Section 12.10 EMPLOYEE BENEFIT PLANS. The benefit plans of the Operating
Partnership in effect at the date of this Agreement shall, to the extent
practicable, remain in effect until otherwise determined after the Effective
Time. The Company shall take only such action necessary to adapt such plans to
the Company's corporate form. In the case of benefit plans which are continued
and under which the employees' interests are based upon Units, the Company and
the Partnership agree that such interests shall be based on Company Common Stock
in an equitable manner (and in the case of any such interests outstanding at the
Effective Time, on the basis of the Conversion Number).
Section 12.11 PARTNERSHIP PLANS. (a) At the Effective Time, each of the
outstanding First Rights representing the right to receive Units under a
Partnership Plan, whether vested or unvested, shall be deemed to constitute the
right to receive, on the same terms and conditions as were applicable under such
First Rights, the same number of shares of Company Common Stock as the holder of
such
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First Rights would have been entitled to receive pursuant to the Merger had such
holder been distributed Units in exchange for such First Rights immediately
prior to the Effective Time (not taking into account whether or not such First
Rights were in fact convertible).
(b) As soon as practicable after the Effective Time, the Company shall
deliver to the participants in the Partnership Plans appropriate notices setting
forth such participants' rights pursuant thereto and the grants or awards
pursuant to the Partnership Plans shall continue in effect following the
Effective Time on the same terms and conditions (subject to the adjustments
required by this Section 12.11 after giving effect to the Merger).
(c) The Company shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Company Common Stock for delivery
under the Partnership Plans assumed in accordance with this Section 12.11.
Section 12.12 FEES AND EXPENSES. Whether or not the Transactions are
consummated, all costs and expenses incurred by the parties hereto in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the Partnership.
Section 12.13 BROKERS OR FINDERS. Each of the Company, on the one hand,
and the Partnership, on the other hand, represents, as to itself, its
subsidiaries, if any, and its affiliates, that no agent, broker, investment
banker, financial advisor or other firm or person is or will be entitled to any
brokers' or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except Smith Barney
Inc. and Dillon, Read & Co., Inc., each of whose fees and expenses will be paid
by the Partnership in accordance with the Partnership's agreements with such
firms, and each of the Company, on the one hand, and the Partnership, on the
other hand, agree to indemnify and hold the other harmless from and against any
and all claims, liabilities or obligations with respect to any other fees,
commissions or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or its affiliate.
Section 12.14 INDEMNIFICATION.
(a) The Partnership shall, and from and after the Effective Time, the
Company shall, indemnify, defend and hold harmless each person who is now, or
has been at any time prior to the date of this Agreement or who becomes prior to
the Effective Time, an officer, director, employee, shareholder or partner of
EIPCC, PICC, the Partnership, the Operating Partnership, the Operating
Partnership GP, the Partnership GP or the Company or an employee, agent or
affiliate of such person (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses, liabilities or judgments, or amounts that are paid in
settlement with the approval of the indemnifying party (which approval shall not
be unreasonably withheld) of, or in connection with, any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was an officer, director,
employee, shareholder or partner of EIPCC, PICC, the Partnership, the Operating
Partnership, the Operating Partnership GP, the Partnership GP or the Company or
an employee, agent or affiliate of such person, whether pertaining to any matter
existing or occurring at or prior to the Effective Time and whether asserted or
claimed prior to, or at or after, the Effective Time ("Indemnified Liabilities")
in each case to the full extent a partnership is permitted under Delaware law to
indemnify such persons or entities and a corporation is permitted under the
Minnesota Business Corporation Act (the "Minnesota BCA") to indemnify its own
directors, officers, employees, agents, and affiliates, as the case may be and
the Partnership (and after the Effective Time, the Company) will pay expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the full extent permitted by law upon receipt of any
undertaking to repay such expenses if and when requested to do so by applicable
law. Without limiting the foregoing, in the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Party (whether
arising before or after the Effective Time), (i) the Indemnified Parties may
retain counsel satisfactory to them and the Partnership (and after the Effective
Time, them and the Company), (ii) the Partnership (and after the Effective Time,
the Company) shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received,
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and (iii) the Partnership (and after the Effective Time, the Company) will use
all reasonable efforts to assist in the vigorous defense of any such matter,
provided that neither the Partnership nor the Company shall be liable for any
settlement of any claim effected without its written consent, which consent,
however, shall not be unreasonably withheld. Any Indemnified Party wishing to
claim indemnification under this Section 12.14, upon learning of any such claim,
action, suit, proceeding or investigation, shall notify the Partnership (and
after the Effective Time, the Company) (but the failure so to notify the
Partnership or the Company, as the case may be, shall not relieve the
Partnership or the Corporation, as the case may be, from any liability which it
may have under this Section 12.14 except to the extent such failure prejudices
such party), and shall deliver to the Partnership (and after the Effective Time,
the Company) the undertaking referred to above. The Indemnified Parties as a
group may retain only one law firm to represent them with respect to each such
matter unless there is, under applicable standards of professional conduct, a
conflict on any significant issue between the positions of any two or more
Indemnified Parties.
(b) The provisions of this Section 12.14 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
Section 12.15 INDEMNIFICATION OF THE TRANSFERORS, THE PARTNERSHIP GP, THE
OPERATING PARTNERSHIP GP, EIPCC, PICC AND AGENTS.
(a) DEFINITIONS. For purposes of this Section 12.15 only, the following
terms shall have the following meanings:
(i) "Agent" means any person who is or was a partner, director, officer,
employee, consultant or other agent of the Partnership GP, EIPCC, the
Operating Partnership GP, PICC or the Company, or any of their predecessor
entities, or is or was serving at the request of, for the convenience of, or
to represent the interests of, the Partnership GP, EIPCC, the Operating
Partnership GP, PICC or the Company or any of their predecessor entities.
(ii) "Enforcement Proceeding" means any Proceeding in which the
Indemnitee is a party concerning the interpretation or enforcement of the
rights of the Indemnitee under this Section 12.15.
(iii) "Expenses" includes all direct and indirect costs of any type or
nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements, claims, damages, judgments, losses, and liabilities
of any type or nature whatsoever or amounts that are paid in settlement, and
other out-of-pocket costs) actually and reasonably incurred by the
Indemnitee either in connection with the investigation, defense,
adjudication, settlement or appeal of a Proceeding or in connection with
establishing or enforcing a right to indemnification under this Agreement, a
partnership agreement, applicable law or otherwise.
(iv) "Indemnitee" means individually or collectively, as the case may be,
the Transferors and their affiliates (including their respective officers,
directors, employees and partners), the Partnership GP, EIPCC, PICC, the
Operating Partnership GP, an Agent, or any of them.
(v) "Proceeding" means any threatened, pending or completed action,
suit, investigation or other proceeding whether civil, criminal,
administrative, investigative or any other type whatsoever.
(b) INDEMNIFICATION. The Partnership (and from and after the Effective
Time, the Partnership and the Company, as a separate and independent obligation
of each shall, to the maximum extent permitted by each under applicable law,
indemnify, defend and hold harmless the Indemnitee against all Expenses if the
Indemnitee was or is a party or is threatened to be made a party to any
Proceeding based (in whole or in part) on, arising (in whole or in part) out of,
or pertaining to this Agreement, the Merger or any other Transactions.
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(c) ADVANCEMENT OF EXPENSES. Prior to the final disposition of a
Proceeding, the Partnership (and from and after the Effective Time, the
Partnership and the Company, as a separate and independent obligation of each)
shall, not later than seven (7) calendar days after a written request by the
Indemnitee is sent, advance to the Indemnitee, all Expenses incurred, accrued,
or reasonably expected by the Indemnitee, in its sole discretion, to be incurred
within sixty (60) calendar days from such request, by the Indemnitee in
connection with the investigation, defense, adjudication, settlement or appeal
of any such Proceeding based (in whole or in part) on, arising (in whole or in
part) out of, or pertaining to this Agreement, the Merger or any other
Transactions; PROVIDED, HOWEVER, that the Indemnitee gives a written undertaking
to repay such Expenses advanced if, and only to the extent that, a court having
jurisdiction pursuant to Section 12.15(i)(1) hereof shall ultimately determine
that the Indemnitee is not entitled to be indemnified by the Partnership (and
from and after the Effective Time, the Company) for such Expenses. All funds
requested hereunder by the Indemnitee shall be deemed to be reasonable unless
and until the Partnership (and from and after the Effective Time, the Company)
shall prove, by clear and convincing evidence, in a court having jurisdiction
pursuant to Section 12.15(i)(1), that the funds requested are not reasonable.
Further, if the Partnership (and from and after the Effective Time, the Company)
shall not advance the funds requested by the Indemnitee within the time period
set forth herein, the Partnership (and from and after the Effective Time, the
Company) shall pay to the Indemnitee, in addition to the amount requested,
interest on the amount requested, from the time of the request, at the highest
rate permitted under the law of the State of Delaware until said amount is paid
in full.
(d) PROCEEDINGS INVOLVING THIS AGREEMENT. Notwithstanding any other
provision in this Agreement to the contrary, the Partnership (and from and after
the Effective Time, the Partnership and the Company, as a separate and
independent obligation of each shall, to the maximum extent permitted by each
under applicable law, indemnify, defend and hold harmless the Indemnitee against
all Expenses incurred by the Indemnitee in connection with any Enforcement
Proceeding unless a court having jurisdiction pursuant to Section 12.15(i)(1)
hereof finds that each of the claims and/or defenses of the Indemnitee in any
such Enforcement Proceeding was frivolous or made in bad faith. Prior to the
final disposition of an Enforcement Proceeding, the Partnership (and from and
after the Effective Time, the Company) shall, not later than seven (7) calendar
days after a written request by the Indemnitee is sent, advance to the
Indemnitee all Expenses incurred, accrued, or reasonably expected by the
Indemnitee, in its sole discretion, to be incurred within sixty (60) calendar
days from such request, by the Indemnitee in connection with any such
Enforcement Proceeding; provided, however, that the Indemnitee gives a written
undertaking of the kind referred to in the proviso to Section 12.15(c) hereof.
All funds requested hereunder by the Indemnitee shall be deemed to be reasonable
unless and until the Partnership (and from and after the Effective Time, the
Company) shall prove, by clear and convincing evidence, in a court having
jurisdiction pursuant to Section 12.15(i)(1), that the funds requested are not
reasonable. Further, if the Partnership (and from and after the Effective Time,
the Company) shall not advance the funds requested by the Indemnitee within the
time period set forth herein, the Partnership (and from and after the Effective
Time, the Company), shall pay to the Indemnitee, in addition to the amount
requested, interest on the amount requested, from the time of the request, at
the highest rate permitted under the law of the State of Delaware until said
amount is paid in full.
(e) NOTICE OF PROCEEDINGS AND DEFENSE.
(i) NOTICE. Promptly after receipt by the Indemnitee of notice of the
commencement or the threat of commencement of any Proceeding with respect to
which the Indemnitee believes that the Indemnitee may be entitled to
Indemnification or the advancement of Expenses under this Agreement, the
Indemnitee shall notify in writing the Partnership (and from and after the
Effective Time, the Company) of the commencement or the threat of
commencement thereof; PROVIDED, HOWEVER, that the failure so to notify the
Partnership (and from and after the Effective
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Time, the Company) shall not relieve the Partnership (and from and after the
Effective Time, the Company) from any liability which it may have under this
Section 12.15 except to the extent such failure prejudices such party.
(ii) DEFENSE. In the event any Proceeding is brought against the
Indemnitee, the Indemnitee may retain counsel satisfactory to it and the
Partnership and the Company will use all reasonable efforts to assist in the
vigorous defense of any such matter.
(f) NON-EXCLUSIVITY. The benefits provided the Indemnitees under this
Agreement shall not be deemed exclusive of any other rights which the Indemnitee
may have under any law, other agreements or otherwise and shall inure to the
benefit of the heirs, executors and administrators of the Indemnitee.
(g) INTERPRETATION. The parties hereto intend for this Agreement to be
interpreted and enforced so as to provide indemnification and advancement of
Expenses to the Indemnitee to the fullest extent now or hereafter permitted by
applicable law and, in the event that the validity, legality or enforceability
of any provision of this Agreement is in question, such provision shall be
interpreted in a manner such that the provision will be valid, legal and
enforceable.
(h) PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under this
Agreement to indemnification by the Partnership or the Company for some or a
portion of any Expenses incurred in connection with any Proceeding but is not
entitled to indemnification for the full amount thereof, the Partnership (and
from and after the Effective Time, the Company) shall indemnify the Indemnitee
for such full amount thereof less the portion thereof to which a court having
jurisdiction pursuant to Section 12.15(i)(1) hereof determines the Indemnitee is
not entitled.
(i) CONSENT TO JURISDICTION AND ENFORCEMENT.
(1) The Partnership, the Company and the Indemnitee each hereby irrevocably
consent to the jurisdiction of the courts of the States of Delaware and
Minnesota for all purposes in connection with any dispute, action or proceeding
which arises out of or relates to this Section 12.15 and agree that any action
instituted under this Section 12.15 shall be brought only in the state courts of
the States of Delaware or Minnesota.
(2) In the event of any dispute of any type whatsoever under this Agreement
involving the obligations of the Partnership or the Company to indemnify or
advance Expenses to the Indemnitee, the Partnership or the Company, as the case
may be, shall have the burden of proving by clear and convincing evidence that
the Partnership or the Company, as the case may be, is not so obligated to
indemnify or advance Expenses to the Indemnitee.
(j) NO OBLIGATIONS TO MITIGATE. Under no circumstances shall the
Indemnitee be required or obligated to seek recovery from third parties or
otherwise mitigate its losses in order to maintain a claim against the
Partnership or the Company. The Partnership and the Company agree that the
failure to pursue such recovery or mitigate loss will in no way reduce the
amounts recoverable by Indemnitee from the Partnership or the Company.
Section 12.16 PRESERVATION OF PARTNERSHIP, PARTNERSHIP GP AND EIPCC. For a
period of two years after the Effective Time, the Company will not dissolve,
liquidate, merge, or transfer all or substantially all the assets out of, or
otherwise cause the discontinuance of the existence of, EIPCC, the Partnership
or the Partnership GP or cause the Partnership and the Partnership GP to cease
being treated as partnerships for federal income tax purposes.
Section 12.17 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to the Partnership GP, and the Partnership Entities shall give
prompt notice to the Company, of (a) the occurrence, or non-occurrence, of any
known event the occurrence, or non-occurrence, of which would be likely to cause
(i) any representation or warranty contained in this Agreement to be untrue or
inaccurate or (ii) any covenant, condition or agreement contained in this
Agreement not to be complied with or satisfied and (b) any known failure of the
Company or any of the Partnership
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Entities, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 12.17 shall
not limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 12.18 PUBLICITY. Except as otherwise required by law or the rules
of the ASE and PSE, for so long as this Agreement is in effect, none of the
parties hereto shall, or shall permit any of their subsidiaries or affiliates
to, issue or cause the publication of any press release or other public
announcement with respect to the transactions contemplated by this Agreement
without the written consent of the Company and the Partnership GP, which consent
shall not be unreasonably withheld.
Section 12.19 CERTAIN TAX MATTERS.
(a) The Company and Victor K. Atkins, Jr. (or his designee, collectively
"Atkins") agree that Atkins will duly and timely prepare and file all federal,
state and local tax returns and information reports required to be filed by the
Partnership, the Operating Partnership, the Partnership GP and the Operating
Partnership GP, including without limitation the federal Form 1065 and Schedules
K-1, required for any taxable year of any of such entities ending on or before
the Closing Date. The parties hereto acknowledge that a termination for federal
income tax purposes pursuant to Section 708(b)(1)(B) of the Code (a
"Termination") will occur with respect to the Partnership, the Operating
Partnership, the Partnership GP and the Operating Partnership GP on the Closing
Date, and that as a consequence of such Termination, the taxable year of each of
such entities will end on such date. Atkins agrees to prepare and file the above
mentioned returns consistent with past practice. Atkins will not make any
election related to taxes or change any method of accounting for taxes with
respect to such returns or reports without the prior written consent of the
Company except that Atkins may make an election to adjust the basis of
partnership assets under section 754 of the Code for any of such partnerships if
such election has not already been made. At least ten (10) business days prior
to their respective due dates, Atkins will forward a copy to the Company of all
proposed income tax returns required to be filed by the Partnership, the
Operating Partnership, the Partnership GP and the Operating Partnership GP for
the taxable year ending on the Closing Date (each a "Final Year Income Tax
Return"), and, absent prior written notice from the Company, Atkins agrees not
to file any Final Year Income Tax Return for at least ten (10) business days
following the Company's receipt of such Final Year Income Tax Return; provided,
however, the filing of any such Final Year Income Tax Return shall be within the
sole discretion of Atkins.
(b) In the event any tax return or report of the Partnership, the Operating
Partnership, the Partnership GP and the Operating Partnership GP, relating to
any taxable year of any of such entities ending on or prior to the Closing Date
is examined by the Internal Revenue Service or any other taxing authority, the
Company, upon receipt of actual notice of such examination by it or any of its
Subsidiaries, shall give Atkins prompt written notice thereof and keep Atkins
fully informed as to the conduct of any such tax audits and any subsequent
administrative or judicial proceedings relating thereto. Subject to applicable
Treasury Regulations, Atkins shall be permitted to act as the "Tax Matters
Partner" within the meaning of Section 6231(a)(7) of the Code (and in any
similar capacity under applicable state or local tax law) as to the Partnership,
the Operating Partnership, the Partnership GP and the Operating Partnership GP
with respect to the taxable years of any of such entities ending on or prior to
the Closing Date. In the event Atkins is not permitted to act as the Tax Matters
Partner of the Partnership, the Operating Partnership, the Partnership GP or the
Operating Partnership GP in accordance with the preceding sentence for any
reason, but the Company (or any of its affiliates) is permitted to act as the
Tax Matters Partner of any of such entities, the Company (or such affiliate)
shall act in such capacity for such entity at the direction and control of
Atkins to the fullest extent permitted by law. Each of Atkins and the Company
shall keep the other party fully informed, through written communications or
otherwise, of any examination, audit, or administrative or judicial proceeding
referred to above. Atkins agrees not to settle or otherwise compromise any issue
in any examination, audit, or administrative or judicial proceeding referred to
above without the prior
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written consent of the Company, such consent not to be unreasonably withheld, if
Atkins receives a written statement from the Company's auditors or counsel
stating that such settlement or compromise of such issue will adversely affect
the Company to a material extent.
(c) From and after the Closing Date, the Company shall afford to Atkins and
his attorneys, accountants, and other authorized representatives, free and full
access to the books and records of the Partnership, the Operating Partnership,
the Partnership GP and the Operating Partnership GP in connection with (i) any
examination or audit by the Internal Revenue Service or any other taxing
authority of any tax return or report of any of such entities relating to any
taxable year of any of such entities ending on or prior to the Closing Date or
(ii) the preparation by Atkins of any federal, state and local tax returns and
information reports required to be filed by the Partnership, the Operating
Partnership, the Partnership GP and the Operating Partnership GP for any taxable
year of any of such entities ending on or prior to the Closing Date, provided
that the access of Atkins to the books and records of the Partnership, the
Operating Partnership, the Partnership GP and the Operating Partnership GP shall
not unreasonably interfere with the operations of any of such entities. The
Company shall cause the Partnership, the Operating Partnership, the Partnership
GP and the Operating Partnership GP to make available, as reasonably requested,
their personnel (including technical), agents and other representatives who are
responsible for preparing or maintaining information, records or other
documents, or who may have particular knowledge with respect to any such matter.
The books and records of the Partnership, the Operating Partnership, the
Partnership GP and the Operating Partnership GP shall be preserved by the
Company for a period of five years after the Closing Date or such longer period
as shall reasonably be requested, in writing, by Atkins to permit the completion
of any audit of taxes or subsequent administrative or judicial proceedings
relating thereto for any period ending on or prior to the Closing Date, and
Atkins shall have the right to make copies thereof.
(d) The Company will indemnify and reimburse Atkins for all reasonable
expenses, including, without limitation, legal and accounting fees, travel and
telephone expenses, claims, liabilities, losses and damages incurred in
connection with performing the duties described above including his duties in
connection with any audit or administrative or judicial proceeding with respect
to the tax liability of the Partnership or the Operating Partnership, PROVIDED,
HOWEVER, that the Company shall not indemnify or otherwise reimburse Atkins for
any such expenses, claims, liabilities, losses or damages to the extent they
were incurred as a result of the gross negligence or willful misconduct of
Atkins. The Company will pay any such expenses to Atkins not later than seven
days after written request by him, and in advance of the final disposition of
any such action, audit or proceeding.
(e) The Company and each of the EIPCC Stockholders agree that the EIPCC
Stockholders (or their designee) shall duly and timely prepare and file any
federal, state and local tax returns and information reports required to be
filed by EIPCC and PICC for any taxable year of any of such entities ending on
or before or including the Closing Date. The EIPCC Stockholders shall provide
the Company with a copy of all such tax returns and reports promptly after their
filing.
(f) In the event any tax return or report of EIPCC or PICC relating to any
taxable year of any of such entities ending on or before or including the
Closing Date is examined by the Internal Revenue Service or any other taxing
authority, the Company, upon receipt of actual notice of such examination by it
or any of its Subsidiaries, shall give the EIPCC Stockholders prompt written
notice thereof and keep the EIPCC Stockholders fully informed as to the conduct
of any such tax audits and any subsequent administrative or judicial proceedings
relating thereto. The EIPCC Stockholders (or their designee) shall have the sole
right to control any such audit or proceeding, refund claims and litigation, and
to contest, resolve and defend any assessment, notice of deficiency or other
adjustment or proposed adjustment relating to any and all taxes for any such
taxable years. In the event the EIPCC Stockholders are not permitted to act in
the capacity described above for any reason but the Company (or any of its
affiliates) is permitted to act in such capacity, the Company (or such
affiliate) shall act in
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such capacity at the direction and control of the EIPCC Stockholders (or their
designee) to the fullest extent possible. The EIPCC Stockholders agree to keep
the Company fully informed as to the conduct and status of any such audit,
proceeding, refund claim or litigation.
(g) From and after the Closing Date, the Company shall afford to the EIPCC
Stockholders and their attorneys, accountants, and other authorized
representatives, free and full access to the books and records of EIPCC and PICC
in connection with (i) any examination or audit by the Internal Revenue Service
or any other taxing authority of any tax return or report of any of such
entities relating to any taxable year of any of such entities ending on or
before or including the Closing Date or (ii) the preparation by the EIPCC
Stockholders (or their designee) of any federal, state and local tax returns and
information reports required to be filed by EIPCC or PICC for any taxable year
of any of such entities ending on or before or including the Closing Date,
provided that the access of the EIPCC Stockholders (or their designee) to the
books and records of EIPCC or PICC shall not unreasonably interfere with the
operations of any of such entities. The Company shall cause EIPCC or PICC to
make available, as reasonably requested, their personnel (including technical),
agents and other representatives who are responsible for preparing or
maintaining information, records or other documents, or who may have particular
knowledge with respect to any such matter. The books and records of EIPCC and
PICC shall be preserved by the Company for a period of five years after the
Closing Date or such longer period as shall reasonably be requested, in writing,
by the EIPCC Stockholders to permit the completion of any audit of taxes or
subsequent administrative or judicial proceedings relating thereto for any
period ending on or prior to or including the Closing Date, and the EIPCC
Stockholders shall have the right to make copies thereof.
Section 12.20 REGISTRATION RIGHTS. At or prior to the Closing Date, the
Company and the Transferors shall enter into a registration rights agreement
substantially in the form attached hereto as Exhibit A.
Section 12.21 DELIVERY OF DOCUMENTS. At the request of the Company
following the Closing, and at the Company's expense, the Partnership GP shall
deliver or cause to be delivered (if not previously delivered) to the Company at
its business address all documents, files and records of EIPCC, PICC, the
Partnership GP and the Operating Partnership GP.
Section 12.22 PARTNERSHIP DISTRIBUTIONS.
(a) For each full calendar quarter prior to the Effective Time, the
Partnership shall continue to pay regular quarterly distributions to
Unitholders, on the one hand, and the Partnership GP and Operating Partnership
GP, on the other hand, in the same amounts as the quarterly distributions
heretofore paid to such persons in 1994 and otherwise consistent with past
practice ("Regular Distributions").
(b) If the Effective Time occurs prior to the end of a calendar quarter, the
Partnership shall make a final regular quarterly distribution (as described in
(a) above) to Unitholders of record immediately prior to the Effective Time, on
the one hand, and the Partnership GP and the Operating Partnership GP, on the
other hand; PROVIDED, HOWEVER, that such regular quarterly distribution shall be
pro rated for the period from the beginning of the calendar quarter during which
the Effective Time occurs to the Effective Time (the "Final Distribution," and
together with Regular Distributions, the "Distributions"). The Final
Distribution shall be paid no later than 30 days after the Effective Time.
(c) Notwithstanding the foregoing, the Transferors will receive their pro
rata share of all distributions otherwise payable to the Partnership GP and the
Operating Partnership GP which are not paid until after the Closing.
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ARTICLE XIII
CONDITIONS
Section 13.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
TRANSACTIONS CONTEMPLATED HEREBY. The respective obligations of the parties to
effect the Transactions contemplated hereby shall be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
(a) UNITHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the affirmative vote of (x) the holders of more than 50% of Units
(excluding Units held by the Partnership GP, affiliates of the Partnership
GP and senior operating management of the Operating Partnership) and (y) the
holders of Units entitled to cast more than 50% of the total number of votes
entitled to be cast.
(b) STOCK EXCHANGE LISTING. The shares of Company Common Stock
issuable to the Unitholders pursuant to this Agreement shall have been
authorized for listing on the ASE and the PSE, subject to official notice of
issuance.
(c) OTHER APPROVALS. All authorizations, consents, orders or approvals
of, or declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity the failure to obtain which would have a
material adverse effect on the Company or the Partnership and the Operating
Partnership, taken as a whole, shall have been filed, occurred or been
obtained. The Company shall have received all state securities or "Blue Sky"
permits and other authorizations necessary to issue the Company Common Stock
pursuant to this Agreement.
(d) REGISTRATION STATEMENT. The S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop order or
proceeding seeking a stop order.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger shall be in effect (each party agreeing to
use all reasonable efforts to have any such order reversed or injunction
lifted).
(f) HSR APPROVAL. Any applicable waiting period under the HSR Act
shall have expired or been terminated.
(g) FAIRNESS OPINIONS. Neither of the fairness opinions delivered to
the Partnership by Smith Barney Inc. and Dillon, Read & Co. Inc. shall have
been rescinded prior to the Effective Time.
Section 13.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
the Company to effect the Merger and the other transactions contemplated hereby
are subject to the satisfaction, on or prior to the Closing Date, of the
following conditions unless waived by Company:
(a) REPRESENTATIONS AND WARRANTIES. (i) The aggregate effect of all
inaccuracies in the representations and warranties of the Partnership
Entities set forth in this Agreement does not and will not have a material
adverse effect on the Partnership and the Operating Partnership taken as a
whole and (ii) the representations and warranties of the Partnership
Entities contained in this Agreement shall be true and correct in all
material respects as of the date hereof, and, as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement, and the Company shall have received a certificate of each
of the Partnership Entities signed by the general partner or the chief
executive officer, or individually, as appropriate, to such effect with
respect to the representations and warranties made by such Partnership
Entity.
(b) PERFORMANCE OF OBLIGATIONS OF THE PARTNERSHIP ENTITIES. The
Partnership Entities shall have performed in all material respects all
obligations required to be performed by them under
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this Agreement at or prior to the Closing Date, and the Company shall have
received certificates of each of the Partnership Entities signed by the
general partner or chief executive officer, or individually, as appropriate,
to such effect.
(c) TAX OPINION. The Company shall have received an opinion of
Skadden, Arps, Slate, Meagher & Flom, special tax counsel to the Company, in
form and substance reasonably acceptable to the Company substantially to the
effect that on the basis of facts, representations and assumptions set forth
in such opinion, and in accompanying certificates signed by appropriate
officers of the Company and the Partnership or Operating Partnership, which
are consistent with the state of facts then existing, for federal income tax
purposes (i) the formation and existence of PTP and its subsequent merger
with and into the Partnership will be disregarded; (ii) the transfers of
Units by Unitholders and other property described herein by the Transferors
to the Company in exchange for Company Common Stock pursuant to the
Transactions shall, in the aggregate, constitute a transaction described in
Section 351(a) of the Code; and (iii) Unitholders should not recognize gain
or loss as a result of the exchange of their Units for Company Common Stock
pursuant to the Transactions. Insofar as relevant, such opinion will not
address the tax results to certain types of taxpayers, including taxpayers
who are not United States persons (as defined in Section 7701(a)(30) of the
Code), insurance companies, financial institutions and taxpayers holding
their Units in the capacity as dealers in securities.
(d) MATERIAL CONSENTS. All third party consents necessary to effect
the Transactions shall have been obtained, to the extent the failure to
obtain such consents would (i) materially adversely affect the Company's or
the Partnership Entities' ability to consummate the Transactions, (ii)
impose material liability on the Company or the Partnership or the Operating
Partnership, or have a material adverse effect on the Company's or the
Partnership's or the Operating Partnership's assets and properties, or (iii)
materially detract from the Company's or the Partnership's or the Operating
Partnership's assets and Properties.
(e) DISSENTING UNITHOLDERS. No more than 5% of the outstanding Units
shall be held by Dissenting Unitholders.
Section 13.3 CONDITIONS TO OBLIGATIONS OF THE PARTNERSHIP ENTITIES. The
obligation of the Partnership Entities to effect the Transactions contemplated
hereby is subject to the satisfaction of the following conditions, on or prior
to the Closing Date, unless waived by the Partnership GP:
(a) REPRESENTATIONS AND WARRANTIES. (i) The aggregate effect of all
inaccuracies in the representations and warranties of the Company set forth
in this Agreement does not and will not have a material adverse effect on
the Company and (ii) the representations and warranties of the Company
contained in Sections 11.1, 11.2 and 11.3 shall be true and correct in all
material respects as of the date hereof, and, as of the Closing Date as
though made on and as of the Closing Date, except as otherwise contemplated
by this Agreement, and the Partnership shall have received a certificate
signed on behalf of the Company by its chief executive officer to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. Company shall have
performed in all material respects all obligations required to be performed
by them under this Agreement at or prior to the Closing Date, and the
Partnership shall have received a certificate signed on behalf of the
Company by its chief executive officer of the Company to such effect.
(c) TAX OPINION. The Partnership shall have received an opinion of
Stroock & Stroock & Lavan, special counsel to the Partnership, in form and
substance reasonably acceptable to the Partnership, substantially to the
effect that on the basis of facts, representations and assumptions set forth
in such opinion, and in accompanying certificates signed by appropriate
officers of the Company and the Partnership or Operating Partnership, which
are consistent with the state of facts then existing, for federal income tax
purposes (i) the formation and existence of PTP and its subsequent merger
with and into the Partnership will be disregarded; (ii) the transfers of
Units by Unitholders and other property (described herein) by the
Transferors to the Company in
D-35
<PAGE>
exchange for Company Common Stock pursuant to the Transactions shall, in the
aggregate, constitute a transaction described in Section 351(a) of the Code;
(iii) Unitholders should not recognize gain or loss as a result of the
exchange of their Units for Company Common Stock pursuant to the
Transactions; and (iv) the Transferors should not recognize gain or loss as
a result of exchanging their partnership interests in the Partnership GP or
the Operating Partnership GP, or shares of common stock of EIPCC, as the
case may be, for shares of Company Common Stock pursuant to the Transactions
except to the extent any Transferor recognizes gain pursuant to Section
357(c) of the Code. Insofar as relevant, such opinion will not address the
tax results to certain types of taxpayers, including taxpayers who are not
United States persons (as defined in Section 7701(a)(30) of the Code),
insurance companies, financial institutions and taxpayers holding their
Units in the capacity as dealers in securities.
(d) MATERIAL CONSENTS. All third party consents necessary to effect
the Transactions shall have been obtained, to the extent the failure to
obtain such consents would (i) materially adversely affect the Company's or
the Partnership Entities ability to consummate the Transactions in the
aggregate, or (ii) impose material liability on the Partnership Entities in
the aggregate.
ARTICLE XIV
INDEMNITIES
Section 14.1 EIPCC STOCKHOLDERS INDEMNITY.
(a) Mr. Atkins agrees to indemnify the Partnership and the Company and their
respective successors and assigns from and against (i) all debts, claims,
liabilities and obligations of EIPCC that are not Partnership GP Liabilities,
(ii) all debts, claims, liabilities and obligations of PICC that are not
Operating Partnership GP Liabilities, and (iii) any breach of the
representations and warranties set forth in Sections 10.1(a), 10.1(b),
10.1(c)(ii), 10.1(d) (to the extent applicable to EIPCC or PICC), 10.1(e) and
10.1(g), and to pay all costs and expenses (including fees and disbursements of
counsel) incurred by the Partnership and the Company and their respective
successors and assigns in connection therewith.
(b) Each EIPCC Stockholder severally and not jointly agrees to indemnify the
Partnership and the Company and their respective successors and assigns from and
against any breach of any of such EIPCC Stockholder's representations and
warranties set forth in Sections 10.1(c)(i), 10.1(d) (to the extent applicable
to such EIPCC stockholder) and 10.1(f), and to pay all costs and expenses
(including fees and disbursements of counsel) incurred by the Partnership and
the Company and their respective successors and assigns in connection therewith.
Section 14.2 PARTNERSHIP GP PARTNERS INDEMNITY.
(a) Mr. Atkins agrees to indemnify the Partnership and the Company and their
respective successors and assigns from and against (i) all debts, claims,
liabilities and obligations of the Partnership GP that are not Partnership
Liabilities and (ii) any breach of any of the representations and warranties set
forth in Sections 10.2(a), 10.2(b), 10.2(d) (to the extent applicable to the
Partnership GP), 10.2(e) and 10.2(g), and to pay all costs and expenses
(including fees and disbursements of counsel) incurred by the Partnership and
the Company and their respective successors and assigns in connection therewith.
(b) Each Partnership GP Partner severally and not jointly agrees to
indemnify the Partnership and the Company and their respective successors and
assigns from and against any breach of such Partnership GP Partner's
representations and warranties set forth in Sections 10.2(c), 10.2(d) (to the
extent applicable to such Partnership GP Partner) and 10.2(f) and to pay all
costs and expenses (including fees and disbursements of counsel) incurred by the
Partnership and the Company and their respective successors and assigns in
connection therewith.
D-36
<PAGE>
Section 14.3 OPERATING PARTNERSHIP GP PARTNERS INDEMNITY.
(a) Mr. Atkins agrees to indemnify the Partnership and the Company and their
respective successors and assigns against (i) all debts, claims, liabilities and
obligations of the Operating Partnership GP that are not Operating Partnership
Liabilities and (ii) any breach of any of the representations and warranties set
forth in Sections 10.3(a), 10.3(b), 10.3(d) (to the extent applicable to the
Operating Partnership GP), 10.3(e) and 10.3(g), and to pay all costs and
expenses (including fees and disbursements of counsel) incurred by the
Partnership and the Company in connection therewith.
(b) Each Operating Partnership GP Partner severally and not jointly agrees
to indemnify the Partnership and the Company against any breach of any of such
Operating Partnership GP Partner's representations and warranties set forth in
Sections 10.3(c), 10.3(d) (to the extent applicable to such Operating
Partnership GP Partner) and 10.3(f), and to pay all costs and expenses
(including fees and disbursements of counsel) incurred by the Partnership and
the Company and their respective successors and assigns in connection therewith.
Section 14.4 GENERAL TAX INDEMNITY.
(a) Mr. Atkins shall indemnify and hold the Partnership and the Company and
their respective successors and assigns harmless from and against all
liabilities for all taxes actually imposed on and paid by each of the
Partnership GP, the Operating Partnership GP, PICC and EIPCC (the "Indemnity
Entities") for all tax periods or portions thereof of the Indemnity Entities
ending on or before the Closing Date, excluding all tax liabilities incurred by
any of the Indemnity Entities resulting from any of the Transactions; provided,
however, that Mr. Atkins' obligation to indemnify and hold harmless the above
parties shall be reduced to the extent EIP I L.P. and LB I Group Inc. are
obligated to indemnify the above parties pursuant to paragraph (b) below.
(b) EIP I L.P. and LB I Group Inc. jointly and severally shall indemnify and
hold harmless the Partnership and the Company and their respective successors
and assigns from and against 50% of all liabilities (Mr. Atkins being
responsible for the remaining 50% pursuant to paragraph (a) above) for all taxes
actually imposed on and paid by each of the Partnership GP and the Operating
Partnership GP (the "Partnership Indemnity Entities") for all tax periods or
portions thereof of the Partnership Indemnity Entities ending on or before the
Closing Date excluding all tax liabilities incurred by any of the Partnership
Indemnity Entities resulting from any of the Transactions; provided, however,
that EIP I L.P. and LB I Group Inc. shall not bear any portion of such
liabilities of the Partnership Indemnity Entities that resulted from Mr. Atkins'
own actual fraud, gross negligence, willful or wanton misconduct or, if
applicable, breach of fiduciary duty to the Partnership Indemnity Entities (any
act or omission done in reliance upon the opinion of independent legal counsel
or public accountants or other consultants selected with reasonable care will be
conclusively presumed to have been done or omitted in good faith and not to
constitute gross negligence or willful or wanton misconduct), and provided,
further, however, that the maximum liability of EIP I L.P. and LB I Group Inc.
under this paragraph shall not exceed the liability of Mr. Atkins pursuant to
paragraph (a) above and, in any event, shall not exceed $1,000,000.
Section 14.5 EXCEPTION TO CERTAIN INDEMNITIES. Notwithstanding the
provisions of Sections 14.1, 14.2 and 14.3 above requiring certain persons to
indemnify the Partnership and Corporation, and their respective successors and
assigns for certain liabilities, to the extent such persons are otherwise
entitled to be indemnified by the Partnership or the Company for such
liabilities pursuant to Sections 12.14 and 12.15 hereof or otherwise, then such
persons shall not be required to make the indemnifications to the Partnership or
the Company pursuant to Sections 14.1, 14.2 and 14.3 hereof for such
liabilities. Notwithstanding anything in this Agreement to the contrary, no
Transferor shall have any liability in respect of a Partnership Liability or an
Operating Partnership Liability.
Section 14.6 INDEMNIFICATION OF W. HALL WENDEL, JR. AND THE COMPANY. If,
after the Company has been incorporated, the Transactions contemplated by this
Agreement are not consummated for any reason and the Company subsequently
liquidates and distributes any Units to its shareholders, the Partnership shall
indemnify and hold harmless, on an after-tax basis without reduction for any tax
D-37
<PAGE>
benefit that may be realized due to a step-up in basis or otherwise, each of the
Company and W. Hall Wendel Jr. ("Wendel") for all taxes payable by the Company
and Wendel as a result of the distribution of any Units by the Company to
Wendel.
Section 14.7 PROCEDURES FOR INDEMNIFICATION.
(a) In order for the party from whom indemnity may be sought pursuant to
this Article XIV (the "Indemnitor") to be fully informed at all times concerning
its possible obligations to give indemnity to the claimant thereof under the
provisions thereof (the "Indemnitee") and to permit the amounts thereof to be
minimized, if the Indemnitee suffers or is threatened with or incurs any loss,
damage or expense for which it would be entitled to be indemnified, the
Indemnitee shall promptly give written notice to Indemnitor after obtaining
knowledge of any claim and, if such indemnity shall arise from the claim of a
third party, shall permit Indemnitor to assume the defense of any such claim or
any Proceeding (as defined in Section 12.15) resulting from such claim.
Notwithstanding the foregoing notice requirement, the right to indemnification
shall not be affected by any failure of Indemnitee to give such notice or any
delay by Indemnitee in giving such notice unless, and then only to the extent
that, the rights and remedies of indemnitor shall have been prejudiced as a
result of the failure to give, or delay in giving, such notice. Failure by
Indemnitor to notify the Indemnitee of its election to defend any such claim or
Proceeding by a third party, within fourteen days after written notice thereof
shall have been given to Indemnitor, shall be deemed a waiver by Indemnitor of
its right to defend such claim or action.
(b) If Indemnitor assumes the defense of such claim or Proceeding by a third
party, the obligations of Indemnitor hereunder as to such claim or Proceeding
shall include taking all steps necessary in the defense or settlement of such
claim or proceeding, including the retention of counsel reasonably satisfactory
to the Indemnitee, and holding the Indemnitee harmless from and against any and
all claims caused by or arising out of any settlement approved by Indemnitor or
any judgment in connection with such claim or Proceeding. Without the prior
written consent of Indemnitee, Indemnitor shall not, in the defense of such
claim or Proceeding, consent to the entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnitee of a release, in form reasonably
satisfactory to the Indemnitee, from all liability in respect of such claim or
Proceeding. Notwithstanding the foregoing, the Indemnitee will be entitled to
participate at its expense in the defense of such claim or Proceeding. If the
defendants in any such Proceeding include both the Indemnitee and Indemnitor and
the Indemnitee shall have reasonably concluded that there may be legal defenses
available to it which are different from or additional to those available to the
Indemnitor, the Indemnitee shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
Proceeding on behalf of such Indemnitee and at the expense of the Indemnitor.
(c) If Indemnitor does not assume the defense of any such claim or
Proceeding by a third party, the Indemnitee may defend against such claim or
Proceeding in such manner as it deems appropriate and, unless Indemnitor shall
deposit with Indemnitee a sum equivalent to the total amount demanded in such
claim or Proceeding plus the Indemnitee's estimate of the cost of defending the
same, the Indemnitee may settle such claim or Proceeding on such terms as it
deems appropriate and Indemnitor shall, in accordance with the provisions hereof
promptly reimburse the Indemnitee for the amount of such settlement and for all
losses and expenses incurred by Indemnitee in connection with the defense
against or settlement of such claim or Proceeding. Indemnitor agrees to
cooperate fully with the Indemnitee in the conduct of any defense against any
claim or Proceeding.
(d) Each of Indemnitor and Indemnitee will cooperate with the other in
resolving or attempting to resolve any claim and will permit the other party
access to all books and records which might be useful for such purpose, during
normal business hours and at the place where the same are normally kept, with
full right to make copies thereof or extracts therefrom at the cost of the
copying party.
(e)_The provisions of this Section 14.7 are subject to the provisions of
Section 12.9.
D-38
<PAGE>
ARTICLE XV
TERMINATION AND AMENDMENT
Section 15.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the Conversion
Proposal by the Unitholders of the Partnership or the Company:
(a) by mutual consent of the Company and the Partnership GP;
(b) by either the Company or the Partnership GP if the Transactions
shall not have been consummated before April 15, 1995 (unless the failure to
so consummate the Transactions before such date shall be due to the wilful
action or failure to act of the party seeking to terminate this Agreement
which action or failure to act constitutes a breach of this Agreement); and
(c) by the Partnership GP in accordance with the provisions of Section
16.1 hereof.
Section 15.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement by either the Partnership GP or the Company as provided in Section
15.1, this Agreement shall forthwith become void and there shall be no liability
or obligation on the part of the Company or the Partnership Entities or their
respective officers or directors, other than the provisions of Sections 12.12,
12.13, 12.14, 12.15, and 12.18; provided, however that any such termination
shall not relieve any party from liability for willful breach of any of its
covenants or agreements set forth in this Agreement.
Section 15.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors or
general partners, at any time before or after approval of the matters presented
in connection with the Merger by the Unitholders of the Partnership or of the
Company, but, after any such approval, no amendment shall be made which by law
requires further approval by such Unitholders without such further approval.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
ARTICLE XVI
MISCELLANEOUS
Section 16.1 FIDUCIARY DUTIES. Nothing contained in this Agreement shall
be deemed to alter the Partnership GP's fiduciary duties to Unitholders under
the Partnership's partnership agreement or the DRULPA, including, but not
limited to, the right to terminate this Agreement if the Partnership GP, as
advised by counsel, determines that as a result of any developments occurring
after the date of this Agreement, such termination is necessary to discharge its
fiduciary duties.
Section 16.2 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Articles X and XI shall survive the
Effective Time in perpetuity. All other representations and warranties in this
Agreement shall not survive the Effective Time.
Section 16.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to the Company, to
Polaris Industries Inc.
1225 North Highway 169
Minneapolis, Minnesota 55441
Attention: John H. Grunewald,
Executive Vice President,
Chief Financial Officer and Secretary
D-39
<PAGE>
with a copy to
Kaplan, Strangis and Kaplan, P.A.
90 South 7th Street
Minneapolis, Minnesota 55402
Attention: Andris A. Baltins, Esq.
and
(b) if to any of the Partnership Entities (other than the Transferors), to
EIP Capital Corporation
33 Flying Point Road
Southampton, New York 11963
Attention: Victor K. Atkins, Jr.
with a copy to
Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004
Attention: Hillel M. Bennett, Esq.
and
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: George R. Krouse, Jr., Esq.
and
(c) if to any of the Transferors, to the addresses set forth on Annex I, II
or III, respectively.
Section 16.4 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof" and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
September 29, 1994.
Section 16.5 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 16.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein), (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 12.14, 12.15 or
14.6 is not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder.
Section 16.7 GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law.
Section 16.8 SPECIFIC PERFORMANCE. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached,
D-40
<PAGE>
irreparable damage would occur, no adequate remedy at law would exist and
damages would be difficult to determine, and that the parties shall be entitled
to specific performance of the terms hereof, in addition to any other remedy at
law or equity.
Section 16.9 ASSIGNMENT; SUCCESSORS. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
and against the parties and their respective heirs, executors, administrators,
successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
POLARIS INDUSTRIES INC.
By: /s/ W. HALL WENDEL, JR.
--------------------------------------
Name: W. Hall Wendel, Jr.
Title: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
POLARIS INDUSTRIES PARTNERS L.P.
By: EIP Associates L.P.
Its General Partner
By: EIP Capital Corporation
Its General Partner
By: /s/ VICTOR K. ATKINS, JR.
--------------------------------------
Name: Victor K. Atkins, Jr.
Title: PRESIDENT
POLARIS INDUSTRIES L.P.
By: Polaris Industries Associates L.P.
Its General Partner
By: Polaris Industries Capital Corporation
Its General Partner
By: /s/ VICTOR K. ATKINS, JR.
--------------------------------------
Name: Victor K. Atkins, Jr.
Title: CHAIRMAN
D-41
<PAGE>
EIP ASSOCIATES L.P.
By: EIP Capital Corporation
Its General Partner
By: /s/ VICTOR K. ATKINS, JR.
--------------------------------------
Name: Victor K. Atkins, Jr.
Title: PRESIDENT
POLARIS INDUSTRIES ASSOCIATES L.P.
By: POLARIS INDUSTRIES CAPITAL
CORPORATION
Its General Partner
By: /s/ VICTOR K. ATKINS, JR.
--------------------------------------
Name: Victor K. Atkins, Jr.
Title: CHAIRMAN
POLARIS INDUSTRIES CAPITAL CORPORATION
By: /s/ VICTOR K. ATKINS, JR.
--------------------------------------
Name: Victor K. Atkins, Jr.
Title: CHAIRMAN
EIP CAPITAL CORPORATION
By: /s/ VICTOR K. ATKINS, JR.
--------------------------------------
Name: Victor K. Atkins, Jr.
Title: PRESIDENT
D-42
<PAGE>
THE PARTNERSHIP GP PARTNERS
(as set forth on Annex I hereto)
------------------------------------------
/s/ VICTOR K. ATKINS, JR.
Victor K. Atkins, Jr., the general partner
EIP I, L.P., a limited partner
By: EIP I, Inc.
Its General Partner
By: /s/ RON HIRAM
--------------------------------------
Name: Ron Hiram
Title: PRESIDENT
LB I GROUP INC., a limited partner
By: /s/ RON HIRAM
--------------------------------------
Name: Ron Hiram
Title: VICE PRESIDENT
THE OPERATING PARTNERSHIP GP PARTNERS
(as set forth on Annex II hereto)
LB I GROUP INC., a limited partner
By: /s/ RON HIRAM
--------------------------------------
Name: Ron Hiram
Title: VICE PRESIDENT
/s/ VICTOR K. ATKINS, JR.
------------------------------------------
VICTOR K. ATKINS, JR., A GENERAL PARTNER
/S/ G. A. MYLES
------------------------------------------
G.A. Myles, a limited partner
D-43
<PAGE>
THE EIPCC STOCKHOLDERS
(as set forth on Annex III hereto)
/s/ VICTOR K. ATKINS, JR.
------------------------------------------
Victor K. Atkins, Jr.
/s/ NANCY FLAHERTY
------------------------------------------
Nancy Flaherty
/s/ WALTER D. O'HEARN
------------------------------------------
Walter D. O'Hearn
/s/ ANN ROGERS EGAN
------------------------------------------
Ann Rogers Egan
D-44
<PAGE>
ANNEX I
PARTNERSHIP GP PARTNERS
<TABLE>
<CAPTION>
PERCENTAGE
OF
PARTNERSHIP TRANSFERORS'
PARTNERSHIP GP PARTNER GP INTERESTS NUMBER
- -------------------------------------------------- ---------------------- ----------
<S> <C> <C>
EIP I L.P......................................... 45% ltd. partner 41.0526%
c/o Lehman Brothers Holdings, Inc.
3 World Financial Ctr.
New York, NY 10285
Victor K. Atkins, Jr.............................. 40% gen'l partner 36.4912%
(LESS PRIORITY DISTRIBUTION TO LB I GROUP, INC.,
PURSUANT TO THE PARTNERSHIP GP PARTNERSHIP AGREEMENT)
c/o EIP Capital Corporation
33 Flying Point Road
Southampton, NY 11968
LB I Group Inc.................................... 5% ltd. partner 4.5614%
(PLUS PRIORITY DISTRIBUTION FROM VICTOR K. ATKINS, JR.,
PURSUANT TO THE PARTNERSHIP GP PARTNERSHIP AGREEMENT)
c/o Lehman Brothers Holdings Inc.
3 World Financial Ctr.
New York, NY 10285
--
----------
TOTAL..................................... 90% 82.1052%
--
--
----------
----------
</TABLE>
D-45
<PAGE>
ANNEX II
OPERATING PARTNERSHIP GP PARTNERS
<TABLE>
<CAPTION>
PERCENTAGE
OF
OPERATING PARTNERSHIP TRANSFERORS'
OPERATING PARTNERSHIP GP PARTNER GP INTERESTS NUMBER
- -------------------------------------------------- ---------------------- ----------
<S> <C> <C>
LB I Group Inc.................................... 50% ltd. partner 4.3860%
c/o Lehman Brothers Holdings, Inc.
3 World Financial Ctr.
New York, NY 10285
Victor K. Atkins, Jr.............................. 40% gen'l partner 3.5087%
c/o EIP Capital Corporation
33 Flying Point Road
Southampton, NY 11968
G.A. Myles........................................ 5% ltd. partner .4386%
c/o EIP Capital Corporation
33 Flying Point Road
Southampton, NY 11968
--
----------
TOTAL..................................... 95% 8.3333%
--
--
----------
----------
</TABLE>
D-46
<PAGE>
ANNEX III
EIPCC STOCKHOLDERS
<TABLE>
<CAPTION>
PERCENTAGE
OF
NUMBER TRANSFERORS'
EIPCC STOCKHOLDER OF SHARES NUMBER
- -------------------------------------------------- ---------- ----------
<S> <C> <C>
Victor K. Atkins, Jr.............................. 50 6.8296%
c/o EIP Capital Corporation
33 Flying Point Road
Southampton, NY 11968
Walter D. O'Hearn, Jr............................. 10 1.3659%
c/o Keane Securities Co., Inc.
50 Broadway, 13th Floor
New York, NY 10004
Ann Rogers Egan................................... 5 .6830%
c/o EIP Capital Corporation
33 Flying Point Road
Southampton, NY 11968
Nancy A. Flaherty................................. 5 .6830%
167 Nancy Lane
Wyckoff, NJ 07481
--
----------
TOTAL..................................... 70 9.5615%
--
--
----------
----------
</TABLE>
D-47
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation is required by Minnesota law to indemnify all officers and
directors of the Corporation for expenses and liabilities (including attorneys'
fees) incurred as the result of proceedings against them in connection with
their capacities as officers or directors. In order to be entitled to
indemnification with respect to a purported act or omission, an officer or
director must (i) have acted in good faith, (ii) have received no improper
personal benefit, (iii) in the case of a criminal proceeding, have had no
reasonable cause to believe the conduct to be unlawful, and (iv) reasonably
believed that the conduct was in the best interests of the Corporation.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The exhibits filed as part of this Registration Statement are listed below.
The pages contained in the executed copy of the Registration Statement filed
with exhibits thereto have been numbered sequentially in the lower right hand
corner of each page. The exhibits described below may be found in such copy of
the registration statement at the relevant page described under the column
"Sequential Page Number" on the Exhibit Index attached hereto.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------
<S> <C> <C>
(2) Agreement and Plan of Conversion, dated as of September 29, 1994 (included as Annex D)
to the Proxy Statement/Prospectus.
(3)(a) Articles of Incorporation of Polaris Industries Inc., as amended.
(b)* By-laws of Polaris Industries Inc.
(4) * Specimen stock certificate of Polaris Industries Inc.
(5) * Opinion of Kaplan, Strangis & Kaplan, P.A.
(8) * Opinion of Stroock & Stroock & Lavan.
(10)(a)* Certificate of Limited Partnership of Polaris Industries Partners L.P.
(b)* Certificate of Limited Partnership of Polaris Industries L.P.
(c) Amended and Restated Limited Partnership Agreement of Polaris Industries Partners
L.P., incorporated by reference to Exhibit A to the Prospectus contained in the Form
S-1.
(d)* Amendment to Amended and Restated Limited Partnership Agreement of Polaris Industries
Partners L.P.
(e) Form of Beneficial Assignment Certificate, incorporated by reference to Exhibit 4(a)
to the Form S-1.
(f) Profit Sharing Plan, incorporated by reference to Exhibit 10(f) to the Form S-1.
(g) Retirement Savings Plan, incorporated by reference to Exhibit 10(g) to the Form S-1.
(h) 1987 Management Ownership Plan, incorporated by reference to Exhibit 10(h) to the Form
S-1.
(i) 1987 Employee Ownership Plan, incorporated by reference to Exhibit 10(i) to the Form
S-1.
(j) Management Bonus Plan, incorporated by reference to Exhibit 10(j) to the Form S-1.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------
<S> <C> <C>
(k) Minutes of Meeting of Board of Directors of Polaris Industries Capital Corporation,
dated March 3, 1988, incorporated by reference to Exhibit 10(j) to the Form 10-K for
Polaris Industries Partners L.P., dated as of April 11, 1988.
(l) Management Agreement, incorporated by reference to Exhibit 10(k) to the Form S-1.
(m) Plymouth, Minnesota, Executive Office Lease, incorporated by reference to Exhibit
10(m) to the Form S-1.
(n) Transamerica Commercial Finance Corporation, formerly Borg Warner Acceptance
Corporation Repurchase Agreement, incorporated by reference to Exhibit 10(p) to the
Form S-1.
(o) First Bank National Association, formerly First National Bank of Minneapolis Line of
Credit Agreement, incorporated by reference to Exhibit 19 to the Quarterly Report on
Form 10-Q for Polaris Industries Partners L.P., dated as of November 12, 1987.
(p) Intentionally Omitted.
(q) Subsidiaries of Polaris Industries Partners L.P., incorporated by reference to Exhibit
22 to the Form 10-K for Polaris Industries partners L.P., dated as of April 11, 1988.
(r) Consent of McGladrey & Pullen incorporated by reference to Exhibit 24 to the Form 10-K
for Polaris Industries Partners L.P., dated as of December 31, 1993.
(s) Form of Registration Rights Agreement.
(11) Computation of Net Income Per Unit (not covered by Auditor's Report).
(23)(a) Consent of Kaplan, Strangis & Kaplan, P.A. (contained in Exhibit 5).
(b) Consent of Stroock & Stroock & Lavan (contained in Exhibit 8).
(c) Consent of McGladrey & Pullen.
(99)(a) Fairness Opinion of Smith Barney Shearson Inc. (included as Annex B to the Proxy
Statement/Prospectus).
(b) Fairness Opinion of Dillon, Read & Co. Inc. (included as Annex C to the Proxy
Statement/Prospectus).
(c)** Consent of Beverly F. Dolan to be named as a prospective director of Polaris
Industries Inc., dated September 15, 1994.
(d)** Consent of Kenneth D. Larson to be named as a prospective director of Polaris
Industries Inc., dated September 15, 1994.
(e)** Consent of Robert S. Moe to be named as a prospective director of Polaris Industries
Inc., dated September 20, 1994.
(f) Consent of Stephen G. Shank to be named as a prospective director of Polaris
Industries Inc., dated October 7, 1994.
(g) Consent of Gregory R. Palen to be named as a prospective director of Polaris
Industries Inc., dated October 7, 1994.
(h) Consent of Andris A. Baltins to be named as a prospective director of Polaris
Industries Inc., dated October 19, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------------- --------------------------------------------------------------------------------------
<S> <C> <C>
(i) Form of Proxy Card.
(b) Financial Statement Schedules:
Independent Auditor's Report on Financial Statement Schedules.
Schedule VIII -- Valuation and Qualifying Accounts.
Schedule IX -- Short-Term Borrowings.
Schedule X -- Supplementary Income Statement Information.
<FN>
- ------------------------
* To be filed by amendment.
** Previously filed.
</TABLE>
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The undersigned Registrant hereby undertakes that every prospectus: (i) that
is filed pursuant to paragraph (l) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Polaris Industries Inc., has duly caused this Amendment to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 9th day of November, 1994.
POLARIS INDUSTRIES INC.
By:_ ______/S/_W. HALL WENDEL, JR.____
TITLE: Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ -------------------------------- -----------------------
<C> <S> <C>
Chairman of the Board and Chief
/S/W. HALL WENDEL, JR. Executive Officer and Director November 9, 1994
W. Hall Wendel, Jr. (Principal Executive Officer)
Executive Vice President, Chief
/S/JOHN H. GRUNEWALD Financial Officer and Secretary
John H. Grunewald (Principal Financial and November 9, 1994
Accounting Officer)
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITOR'S REPORT
ON FINANCIAL STATEMENT SCHEDULES
To the Partners
Polaris Industries Partners L.P.
Our audit of the financial statements of POLARIS INDUSTRIES PARTNERS L.P. (a
Delaware limited partnership) included schedules VIII, IX and X contained
herein, for the years ended December 31, 1991, 1992, and 1993.
In our opinion, such schedules present fairly the information required to be
set forth therein in conformity with generally accepted accounting principles.
MCGLADREY & PULLEN
Minneapolis, Minnesota
February 11, 1994, except for Notes 9 and 10
as to which the date is October 14, 1994
S-1
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END OF
OF PERIOD EXPENSE DEDUCTIONS PERIOD
----------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
For the Year Ended December 31, 1991:
Allowance for doubtful accounts............................. $ 403 $ 156 $ (161)(a) $ 398
Warranty reserve............................................ 3,370 7,017 (5,649)(b) 4,738
Product liability claims reserve............................ 1,822 500 (166)(c) 2,156
Workers' compensation claims reserve........................ 64 341 (225)(d) 180
For the Year Ended December 31, 1992:
Allowance for doubtful accounts............................. 398 176 (295)(a) 279
Warranty reserve............................................ 4,738 7,230 (6,263)(b) 5,705
Product liability claims reserve............................ 2,156 500 (198)(c) 2,458
Workers' compensation claims reserve........................ 180 471 (349)(d) 302
For the Year Ended December 31, 1993:
Allowance for doubtful accounts............................. 279 482 (196)(a) 565
Warranty reserve............................................ 5,705 14,220 (8,513)(b) 11,412
Product liability claims reserve............................ 2,458 1,250 (195)(c) 3,513
Workers' compensation claims reserve........................ 302 351 (390)(d) 263
<FN>
- ------------------------
(a) Uncollected receivables written off, net of recoveries.
(b) Warranty credits issued, net of recoveries.
(c) Claims paid, net of recoveries.
(d) Workers' compensation claims paid.
</TABLE>
S-2
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
SCHEDULE IX -- SHORT-TERM BORROWINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD (A) PERIOD (B)
- ------------------------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
For the Year Ended December 31, 1991:
Note payable to bank.............................. $ -- -- $ 9,000 $ 8,500 8.50%
For the Year Ended December 31, 1992:
Note payable to bank.............................. -- -- 23,900 11,500 6.28
For the Year Ended December 31, 1993:
Note payable to bank.............................. -- -- 3,900 -- 6.00
<FN>
- ------------------------
(a) Average amount outstanding during the period is computed by dividing the
total month-end outstanding principal balances by the number of months the
note was outstanding.
(b) Weighted average interest rate disclosed is equal to actual interest rate
on amounts outstanding.
</TABLE>
S-3
<PAGE>
POLARIS INDUSTRIES PARTNERS L.P.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992, AND 1993 1991 1992 1993
- ------------------------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Maintenance and repairs........................................................ $ * $ * $ *
Depreciation and amortization of intangibles................................... 7,560 7,427 7,166
Taxes, other than payroll and income taxes..................................... * * *
Royalties...................................................................... * * *
Advertising costs.............................................................. 19,489 24,232 29,914
<FN>
- ------------------------
* Less than 1 percent of total sales.
</TABLE>
S-4
<PAGE>
MINNESOTA SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
BEFORE COMPLETING THIS FORM, READ INSTRUCTIONS LISTED BELOW.
CORPORATE NAME:
POLARIS INDUSTRIES INC.
This amendment is effective on the day it is filed with the Secretary of State,
unless you indicate another date, no later than 30 days after filing with the
Secretary of State.
------------------------
The following amendment(s) of articles regulating the above corporation were
adopted: (insert full text of newly amended article(s), indicating which
article(s) is (xxx) being amended or added.) If the full text of the amendment
will not fit in the space provided, attach additional numbered pages.
(Total number of pages including this form 3.)
SEE AMENDMENT ATTACHED
This amendment has been approved pursuant to MINNESOTA STATUTES CHAPTER 302A OR
317A. I certify that I am authorized to execute this amendment and I further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in section 609.48 as if I had signed this
amendment under oath.
/s/ W Hall Wendel Jr
----------------------------
(Signature of Authorized Person)
INSTRUCTIONS FOR OFFICE USE ONLY
1. Type or print with black ink.
2. A Filing Fee of: $ 36.00 made payable to the
Secretary of State.
3. Mail or bring completed forms to:
Secretary of State
180 State Office Building
100 Constitution Ave.
St. Paul, MN 55155-1299
(612) 296-2503
<PAGE>
The Articles of Incorporation of Polaris Industries Inc. are hereby amended to
replace and supercede Article X thereof in its entirety with a new Article X
to read in its entirety as follows:
ARTICLE X
CLASSIFICATION OF THE BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by or under
the direction of a Board of Directors. Unless and until the Corporation shall
have more than one shareholder, the Board of Directors shall consist of one
person. Thereafter, the Board of Directors shall consist of not less than three
nor more than fifteen persons, who need not be shareholders. The number of
directors may be increased by the shareholders or Board of Directors or
decreased by the shareholders from the number of directors on the Board of
Directors immediately prior to the effective date of this Article X, provided,
however, that any change in the number of directors on the Board of Directors
(including, without limitation, changes at annual meetings of shareholders)
shall be approved by the affirmative vote of not less than seventy-five percent
(75%) of the voting power of all outstanding shares entitled to vote, entitled
to be cast by the holders of all then outstanding voting shares, voting
together as a single class, unless such change shall have been approved by a
majority of the entire Board of Directors. If such change shall not have been
so approved, the number of directors shall remain the same. In the event that
the Board of Directors shall consist of three or more persons, the directors
shall be divided into three classes, designated Class I, Class II and III. Each
class shall consist, as nearly as may be possible, of one-third number of
directors constituting the entire Board of Directors.
The term of the initial Class I directors shall terminate on the date of
the 1995 annual meeting of shareholders; the term of the initial Class II
directors shall terminate on the date of the 1996 annual meeting of
shareholders; and the term of the initial Class III directors shall terminate on
the date of the 1997 annual meeting of shareholders. At each succeeding annual
meeting of shareholders beginning in 1995, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class. In
no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting of
the year in which the director's term expires and until a successor shall be
elected and qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Removal of a director
<PAGE>
Exhibit (10)(s)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of , 19 , by and between Polaris Industries Inc., a
Minnesota corporation (the "Company"), and and
(collectively, the "Shareholders").
RECITALS
A. The Company is issuing shares of Common Stock, $.01 par value, of the
Company to the Shareholders (collectively, the "Shares") in connection with the
conversion of Polaris Industries Partners L.P. into corporate form.
A. The Shareholders are executing affiliate letters in connection with the
receipt of their Shares.
B. The Company desires to grant to each Shareholder certain registration
rights with respect to the Shares held by such Shareholder or any transferees
from time to time.
C. The parties hereto desire to set forth the terms and conditions of the
Company's covenants and agreements in respect of the registration of the Shares
with the Securities and Exchange Commission and all applicable state securities
agencies.
D. In consideration of the premises and the mutual agreements contained
herein, the parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS.
As used in this Agreement, the following capitalized terms shall have the
following meanings:
ADVICE: See the last paragraph of Section 5 hereof.
COMMON STOCK: Shares of the Company's common stock, $.01 par value, as the
same may be constituted from time to time.
COMPANY NOTICE: See Section 4(a) hereof.
DEMAND REGISTRATION: See Section 3(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder, as in effect from time to time.
HOLDER: The Shareholders or any transferees of the Shareholders with
respect to the Shares other than transferees who do not receive Registrable
Securities.
PERSON: An individual, partnership, corporation, joint venture, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
PIGGYBACK NOTICE: See Section 4(a) hereof.
PIGGYBACK REGISTRATION STATEMENT: See Section 4(a) hereof.
PROSPECTUS: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments and all material incorporated by
reference in such Prospectus.
REGISTRATION EXPENSES: See Section 6 hereof.
REGISTRABLE SECURITIES: (i) The Shares and (ii) any securities issued or
issuable with respect to the Shares by way of a stock dividend or stock split or
other distribution or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. A Share ceases
to be a Registrable Security when (i) it has been effectively registered under
the Securities Act and
<PAGE>
disposed of in accordance with the Registration Statement covering it, (ii) it
has been distributed pursuant to Rule 145(d) (or any similar provisions then in
force) under the Securities Act with the result that the transferor is not
deemed to be engaged in a distribution, (iii) it has otherwise been transferred
and no further restriction on transfer remains or (iv) it no longer is
outstanding.
REGISTRATION STATEMENT: Any registration statement of the Company which
covers Registrable Securities pursuant to the provisions of this Agreement,
including (i) the Prospectus, (ii) amendments and supplements to such
Registration Statement, (iii) post-effective amendments, (iv) all exhibits and
all material incorporated by reference in such Registration Statement, (v) any
registration statement pursuant to a Demand Registration and (vi) any Piggyback
Registration Statement.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations thereunder, as in effect from time to time.
SEC: The Securities and Exchange Commission.
SHARES: See Recital A.
SHAREHOLDERS: As defined in the preamble.
UNDERWRITTEN OFFERING: The offering and sale of securities of the Company
covered by any Registration Statement pursuant to a firm commitment underwriting
to an underwriter at a fixed price for reoffering or pursuant to agency or best
efforts arrangements with an underwriter.
Unless the context otherwise requires: (i) "or" is not exclusive; and (ii) words
in the singular include the plural and words in the plural include the singular.
2. SECURITIES SUBJECT TO THIS AGREEMENT.
The securities entitled to the benefits of this Agreement are the
Registrable Securities but, with respect to any particular Registrable Security,
only so long as such security continues to be a Registrable Security.
3. DEMAND REGISTRATION.
(a) REQUESTS FOR REGISTRATION. At any time after the date hereof, any
Holder or Holders may make a written request to the Company for
registration with the SEC under and in accordance with the provisions of the
Securities Act of all or part of his Registrable Securities (a "Demand
Registration"). All requests made pursuant to this Section 3(a) shall
specify the number of Registrable Securities to be registered and the
intended methods of disposition thereof. Promptly after receipt of any such
request the Company will give written notice of such requested registration
to all other Holders of Registrable Securities and thereupon will, as
expeditiously as possible, use its best efforts to effect the registration
under the Securities Act of (i) the Registrable Securities which the Company
has been so requested to register in the Demand Registration, and (ii) all
other Registrable Shares requested to be registered pursuant to the first
sentence. Upon the receipt of such notice from the Company, each Holder
shall be entitled for a period of 15 days from the date of receipt of such
notice to deliver a written request to the Company specifying the number of
his Registrable Securities to be included in such Demand Registration.
(b) NUMBER OF, AND LIMITATIONS ON, REGISTRATIONS. The Holders will be
entitled to request an aggregate of four Demand Registrations, provided
that [Shareholder 1] and/or its transferees and [Shareholder 2] and/or its
transferees in any event each shall be entitled to submit the initial
written request for a Demand Registration in respect of two Demand
Registrations. The Company will not be obligated to register any Registrable
Securities pursuant to such a Demand Registration (i) unless there is
requested to be included in such registration at least 300,000 Shares
(subject to such adjustments as may be necessary by reason of the occurrence
of an event contemplated by clause (ii) of the first sentence of the
definition of Registrable Securities) or (ii) if a prior Demand Registration
was declared effective within a period commencing 6 months prior
2
<PAGE>
to the date of the written request for such Demand Registration and such
prior Demand Registration was maintained effective for a period of not less
than 120 days, or such shorter period during which all Registrable
Securities covered by such prior Demand Registration were sold or withdrawn.
(c) EFFECTIVE REGISTRATION -- EXPENSES. In any registration initiated as
a Demand Registration pursuant to this Section 3, each Holder and the
Company will pay its share of all Registration Expenses, pro rata, based on
the relation that the number of Registrable Securities registered by each
bears to the total number of shares of Common Stock registered in such
offering, whether or not the Registration Statement has become effective;
provided, however, that in the event that any Registrable Securities are
excluded from a Piggyback Registration Statement pursuant to Section 4(a),
the Registration Expenses of the next Demand Registration shall be borne
exclusively by the Company.
(d) SELECTION OF UNDERWRITERS. If any of the Registrable Securities
covered by a Demand Registration are to be sold in an Underwritten
Offering, the investment banker or investment bankers and manager or
managers that will administer the offering will be selected by the Holders.
(e) REDUCTION. If a Demand Registration pursuant to this Section 3
involves an underwritten offering and the managing underwriter advises the
Company in writing that, in its opinion, the number of securities requested
to be included in such registration (including securities of the Company
which are not Registrable Securities) exceeds the number which can be sold
in such offering, the Company will include in such registration only the
Registrable Securities requested to be included in such registration.
4. PIGGYBACK REGISTRATION RIGHTS.
(a) REQUESTS FOR PIGGYBACK REGISTRATION. The Company covenants and
agrees with each Holder that in the event the Company proposes to file at
any time and from time to time a registration statement on any form for the
general registration of securities under the Securities Act with respect to
the offering of any class of security (other than in connection with an
offering solely to the Company's employees pursuant to a registration
statement on Form S-8 under the Securities Act or an offering pursuant to a
registration statement on Form S-4 under the Securities Act, or any
successor forms thereto), whether or not for sale for its own account (a
"Piggyback Registration Statement"), then the Company shall in each such
case promptly give written notice (a "Company Notice") to each Holder of
such proposed filing, and such notice shall offer to each Holder the
opportunity to include in such Piggyback Registration Statement such number
of Registrable Securities as each may request. Upon the written request of
any such Holder (a "Piggyback Notice") made within fifteen (15) days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be sold by such Holder), the Company will use its
best efforts to effect the registration under the Securities Act of all
Registrable Securities which the Company has been so requested to register
by the Holders thereof. Notwith-standing the foregoing, the Company shall
not be obligated to register the Registrable Securities of any Holder (i)
unless a Piggyback Notice shall have been received by the Company within
fifteen (15) days of receipt of the Company Notice by such Holder, or (ii)
if the Company shall, within ten (10) calendar days after receipt of a
Piggyback Notice, have delivered to any Holder whose Registrable Securities
shall have been the subject of a Piggyback Notice an opinion of counsel
reasonably satisfactory to said Holder to the effect that the proposed
transfer can be made without registration in accordance with Rule 145(d)
under the Securities Act or any other exemption from the registration
provisions thereof (other than Rule 144A).
The Company shall use its best efforts to cause the underwriter of a
proposed offering, if any, to permit the Holders holding Registrable Securities
requested to be included in the Piggyback Registration Statement to include such
Registrable Securities in the proposed offering on terms and conditions at least
as favorable to the Holders holding such Registrable Securities as those offered
with respect to
3
<PAGE>
the other securities of the Company included therein. Notwithstanding the
foregoing, if the managing underwriter shall advise the Company in writing that,
in its opinion, the distribution of the Registrable Securities requested to be
included in the Piggyback Registration Statement concurrently with the
securities being registered by the Company would materially adversely affect the
price, timing or distribution of such securities by the Company, then the
Company will include in such registration (i) first, 100% of the securities the
Company proposes to sell and (ii) second, to the extent of the number of
Registrable Securities requested to be included in such registration, which, in
the opinion of such managing underwriter, can be sold without having the adverse
effect referred to above, the number of Registrable Securities which the Holders
have requested to be included in such registration, such amount to be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder (provided that
any Shares thereby allocated to any such Holder that exceed such Holder's
request will be reallocated among the remaining requesting Holders in like
manner).
(b) ADDITIONAL OBLIGATIONS OF THE COMPANY. In connection with the
registration of Registrable Securities in accordance with Section 4(a)
above, the Company agrees to pay all Registration Expenses in connection
with the registration of the Registrable Securities under the Securities
Act.
5. REGISTRATION PROCEDURES.
Whenever either Holder has requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will promptly take all such
actions as may be necessary or desirable to permit the sale of such Registrable
Securities in accordance with the intended method or methods of disposition
thereof, and pursuant thereto the Company will as expeditiously as possible:
(a) with respect to a request to file a Registration Statement covering
Registrable Securities made pursuant to Section 3 hereof, use its best
efforts to prepare and file with the SEC, not later than 90 days after
receipt of such request (which 90-day period may be extended by the Company
for up to an additional 90 days if at the time of such request the Company
is engaged in negotiations looking toward its participation in a material
merger, acquisition or other form of business combination or, if by reason
of such transaction, the Company is not in a position to timely prepare and
file the Registration Statement) a Registration Statement on a form for
which the Company then qualifies which is satisfactory to the Company and
the Holders (unless the offering is made on an underwritten basis, including
on a best efforts underwriting basis, in which event the managing
underwriter or underwriters shall determine the form to be used) and which
form shall be available for the sale of the Registrable Securities in
accordance with the intended method or methods of distribution thereof, and
use its best efforts to cause such Registration Statement to become
effective; the Company shall not file any Registration Statement pursuant to
Section 3 hereof or any amendment thereto or any Prospectus or any
supplement thereto (including such documents incorporated by reference) to
which the Holders or the underwriters, if any, shall reasonably object in
light of the requirements of the Securities Act or any other applicable laws
or regulations;
(b) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto (excluding documents to be incorporated by
reference therein), the Company will within five days of filing, furnish to
the Holders and the underwriters, if any, copies of all such documents in
substantially the form proposed to be filed (including documents
incorporated therein by reference), to enable the Holders and the
underwriters, if any, to review such documents prior to the filing thereof,
and the Company shall make such reasonable changes thereto (including
changes to, or the filing of amendments reflecting such changes to,
documents incorporated by reference) as may be reasonably requested by the
Holders and the managing underwriter or underwriters, if any;
(c) subject to the five-day review period required by paragraph (b)
above, prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as
4
<PAGE>
may be necessary to keep the Registration Statement continuously effective
for a period of not less than 120 days or such longer period as is required
for the intended method of distribution, or such shorter period which will
terminate when all Registrable Securities covered by such Registration
Statement have been sold or withdrawn; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Securities Act; and comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable
period in accordance with the intended methods of disposition by the Holders
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(d) notify the Holders and the managing underwriters, if any, promptly,
and (if requested by any such Person) confirm such advice in writing, (1)
when the Prospectus or any Prospectus supplement or post-effective amendment
has been filed, and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective, (2) of any
request by the SEC for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (3) of the
issuance by the SEC of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of the
Company contemplated by paragraph (o) below cease to be true and correct,
(5) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (6) of the happening of any event which makes any statement
made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in the Registration Statement, the Prospectus or any document
incorporated therein by reference in order to make the statements therein
not misleading;
(e) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(f) as promptly as practicable after filing with the SEC of any document
which is incorporated by reference into the Registration Statement or the
Prospectus (after initial filing of the Registration Statement) provide
copies of such document to counsel to the Holders and to the managing
underwriters;
(g) furnish to the Holders and each managing underwriter, without
charge, at least one signed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference) and a reasonable number of
conformed copies of all such documents;
(h) deliver to the Holders and the underwriters, if any, as many copies
of the Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons may reasonably request; the Company
consents to the use of the Prospectus or any amendment or supplement thereto
by the Holders and the underwriters, if any, in connection with the offering
and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(i) prior to the date on which the Registration Statement is declared
effective, use its best efforts to register or qualify or cooperate with the
Holders and the underwriters, if any, and their respective counsel in
connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any seller or underwriter reasonably requests in writing
and do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by
the Registration Statement; provided that the Company will not be required
to qualify generally
5
<PAGE>
to do business in any jurisdiction where it is not then so qualified or to
take any action which would subject it to general service of process in any
such jurisdiction where it is not then so subject;
(j) cooperate with the Holders and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any
restrictive legends; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable
Securities to the underwriters;
(k) use its best efforts to cause the Registrable Securities covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States as may be
necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities;
(l) upon the occurrence of any event contemplated by paragraph (d)(6)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(m) use its best efforts to cause all Registrable Securities covered by
the Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed if requested by the
Holders or the managing underwriters, if any;
(n) provide a transfer agent and registrar for all Registrable
Securities;
(o) enter into such agreements (including an underwriting agreement) and
take all such other actions in connection therewith as the Holders or the
managing underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration (1) make
such representations and warranties to the Holders and the underwriters, if
any, in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings and confirm the accuracy of
the same if and when requested, and matters relating to the compliance of
the Registration Statement and the Prospectus with the Securities Act; (2)
obtain opinions of counsel to the Company and updates thereof (which counsel
and opinions (in form, scope and substance) shall be reasonably satisfactory
to the managing underwriters) addressed to the Holders and the underwriters,
if any, covering the matters customary in underwritten primary offerings and
such other matters as may be reasonably requested by the Holders and
underwriters, if any; (3) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants addressed to the
Holders and the underwriters, if any, such letters to be in customary form
and covering matters of the type customarily covered in "cold comfort"
letters by underwriters in connection with primary underwritten offerings;
(4) if an underwriting agreement is entered into, the same shall set forth
in full the indemnification and contribution provisions and procedures of
Sections 7 and 8 hereof with respect to all parties to be indemnified
pursuant to said Section; and (5) the Company shall deliver such documents
and certificates as may be requested by the Holders and the managing
underwriters, if any, to evidence compliance with clause (1) above and with
any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The above shall be done at each
closing under such underwriting or similar agreement or as and to the extent
required thereunder;
(p) make available for inspection during normal business hours by the
Holders, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained
by any such seller or underwriter, all financial and other
6
<PAGE>
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
PROVIDED, that any records, information or documents that are designated by
the Company in writing as confidential shall be kept confidential by such
Persons;
(q) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of
the Securities Act, no later than 45 days after the end of any 12-month
period (1) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwriting
offering, and (2) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said 12-month periods.
The Company may require the Holders to furnish to the Company such
information and documents regarding the distribution of such securities and the
seller as the Company may from time to time reasonably request in writing.
The Holders each agree by acquisition of such Registrable Securities that,
upon receipt of any notice from the Company of the happening of any event of the
kind described in Section 5(d)(6) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 5(l) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus, and,
if so directed by the Company, each Holder will, or will request the
underwriters to, deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice. If the Company shall give such notice, the time periods
mentioned in Section 5(c) hereof shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
Section 5(d)(6) to and including the date when the Holders shall have received
the copies of the supplemented or amended prospectus contemplated by Section
5(l) hereof or the Advice.
6. REGISTRATION EXPENSES.
Except as otherwise provided herein, "Registration Expenses" include all
expenses incident to the Company's performance of or compliance with this
Agreement, including without limitation all registration and filing fees,
including with respect to filings required to be made with the National
Association of Securities Dealers, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities and determination of their eligibility for investment
under the laws of such jurisdictions as the managing underwriters or holders of
a majority of the Registrable Securities being sold may designate), printing
expenses, messenger, telephone and delivery expenses, and fees and disbursements
of counsel for the Company, the Holders and of all independent certified public
accountants (including the expenses of any special audit and "cold comfort"
letters required by or incident to such performance), the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by the Company are
then listed, rating agency fees, securities acts liability insurance if the
Holders so require, and the reasonable fees and expenses of any special experts
retained by the Holders or by the Company at the request of the managing
underwriters in connection with such registration. The Company shall, in any
event, pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties) and the expense of any annual audit, which are not "Registration
Expenses" for purposes of this Agreement. In no event shall the Company be
liable for the payment of any discounts, commissions or fees of
7
<PAGE>
underwriters, selling brokers, dealer managers or similar industry professionals
relating to the distribution of the Registrable Securities or for the fees and
expenses of more than one law firm for all Holders.
7. INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company will indemnify and hold
harmless, to the full extent permitted by law, each Holder, its officers
and directors, their agents and each Person who controls each such Holder
(within the meaning of the Securities Act) against all losses, claims,
damages, liabilities (or actions in respect thereto) and expenses to which
any such Person may be subject, under the Securities Act or otherwise, and
reimburse all such Persons for any legal or other expenses incurred with
investigating or defending against any such losses, claims, damages or
liabilities, insofar as such losses, claims, damages or liabilities arise
out of or are based upon any untrue or alleged untrue statement of a
material fact contained in a Registration Statement, Prospectus or
preliminary prospectus or any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same arise out of
or are based upon an untrue statement of a material fact or omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, which statement or omission is made
therein in reliance upon and in conformity with information furnished in
writing to the Company by such Holder, expressly for use therein. The
Company will also indemnify underwriters, selling brokers, dealer managers
and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of each Holder of
Registrable Securities.
(b) INDEMNIFICATION BY HOLDERS. Each Holder will, severally and not
jointly, indemnify and hold harmless, to the full extent permitted by law,
the Company, its directors and officers and each Person who controls the
Company (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities (or actions in respect thereto) and expenses to
which any such Person may be subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are
based upon any untrue or alleged untrue statement of a material fact
contained in a Registration Statement or Prospectus or preliminary
prospectus or any omission or alleged omission of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only if and to the extent, that such untrue
or alleged untrue statement or omission or alleged omission is made therein
in reliance upon and in conformity with the information furnished in writing
by such Holder specifically for inclusion therein. In no event shall the
liability of a Holder hereunder be greater in amount than the dollar amount
of the proceeds received by such Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall
be entitled to receive indemnities from underwriters, selling brokers,
dealer managers and similar securities industry professionals participating
in the distribution, to the same extent as provided above with respect to
information so furnished in writing by such Persons.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
unless in such indemnified party's reasonable judgment a conflict of
interest may exist between such indemnified and indemnifying parties with
respect to such claim, permit such indemnifying party to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party
and in that case the indemnified party shall have the right to participate
in the conduct of such defense provided that it will pay for the fees of its
own counsel. Whether or not such defense is assumed by the indemnifying
party, the indemnifying party will not be subject to any liability for any
settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving of the claimant
8
<PAGE>
or plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
8. CONTRIBUTION.
(a) If the indemnification provided for in Section 7 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities
or expenses in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and indemnified parties in connection with
the actions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall be
determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 7, any legal or other fees
or expenses reasonably incurred by such party in connection with any
investigation or proceeding;
(b) The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata
allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding any other provision hereof, in no event shall the
contribution obligation of any Holder be greater in amount than the excess
of (i) the dollar amount of the proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such contribution
obligation over (ii) the dollar amount of any damages that such Holder has
otherwise been required to pay by reason of the untrue or alleged untrue
statement or omission or alleged omission giving rise to such obligation. No
person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution
from any person or entity who was not guilty of such fraudulent
misrepresentation; and
(c) If indemnification is available under Section 7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided
in Section 7 without regard to the relative fault of said indemnifying party
or indemnified party or any other equitable consideration provided for in
this Section 8.
9. PUBLIC INFORMATION.
For a period of three years after the date of this Agreement, the Company
shall cause "adequate current public information" (as such term is used in Rule
144 promulgated under the Securities Act) to be maintained and shall timely file
all reports required pursuant to the Exchange Act.
10. MISCELLANEOUS.
(a) REMEDIES. Without limiting the rights of any Holder to pursue all
other legal and equitable remedies available for any breach of the
provisions of this Agreement, including recovery of damages, each will be
entitled to specific performance of their rights under this Agreement. The
Company expressly agrees that monetary damages would not be adequate
compensation for any loss incurred by any Holder by reason of a breach by
the Company of the provisions of this Agreement and that such Holder would
sustain irreparable harm, and therefore the Company
9
<PAGE>
further agrees that any such Holder shall be entitled to specific
performance to prevent any such breach or any continuing breach hereof and
the Company waives the defense in any action for specific performance that a
remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its
securities which is inconsistent with the rights granted to the Holders in
this Agreement or otherwise conflicts with the provisions hereof. The
Company has not previously entered into any agreement with respect to its
securities granting any registration rights to any Person.
(c) NOTICES. All notices, requests, demands and other communications
provided for by this Agreement shall be in writing (including telecopier
or similar writing) and shall be deemed to have been given at the time when
mailed in any general or branch office of the United States Postal Service,
enclosed in a registered or certified postpaid envelope, or sent by Federal
Express or other similar overnight courier service, addressed to the address
of the parties stated below or to such changed address as such party may
have fixed by notice or, if given by telecopier, when such telecopy is
transmitted and the appropriate answerback is received.
(i) If to the Company:
Attention:
(ii) If to [Shareholder 1]:
(iii) If to [Shareholder 2]:
(d) SUCCESSORS AND ASSIGNS. This Agreement is solely for the benefit of
the parties and their respective successors and assigns, including any
Holder. Nothing herein shall be construed to provide any rights to any other
entity or individual.
(e) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document.
(f) HEADINGS. Section headings are for convenience only and do not
control or affect the meaning or interpretation of any terms or provisions
of this Agreement.
(g) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York governing contracts to
be made and performed therein without giving effect to principles of
conflicts of law, and, with respect to any dispute arising out of this
Agreement, each party hereby consents to the exclusive jurisdiction of the
courts sitting in such State.
(h) SEVERABILITY. Should any part, term, condition or provision hereof
or the application thereof be declared illegal, invalid or otherwise
unenforceable or in conflict with any other law by a court of competent
jurisdiction, the validity of the remaining parts, terms, conditions or
provisions of this Agreement shall not be affected thereby, and the illegal,
invalid or unenforceable portions of this Agreement shall be and hereby are
redrafted to conform with applicable law, while leaving the remaining
portions of this Agreement intact, except to the extent necessary to conform
to the redrafted portions hereof.
(i) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the parties and supersedes all proposals,
commitments, writings, negotiations, discussions, agreements and
understandings, oral or written, of every kind and nature between them
concerning the subject matter hereof. This Agreement may not be amended or
otherwise modified except in a writing signed by both parties hereto. No
discharge of the terms hereof shall be deemed valid unless by full
performance by the parties or by a writing signed by the parties. A waiver
by any party of any breach or violation of any this Agreement shall not be
deemed or construed as a waiver of any other breach or violation hereof.
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<PAGE>
(j) ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
POLARIS INDUSTRIES INC.
By: __________________________________
Name:
Title:
___________________________________
[Shareholder 1]
___________________________________
[Shareholder 2]
11
<PAGE>
EXHIBIT (11)
POLARIS INDUSTRIES PARTNERS L.P.
COMPUTATION OF NET INCOME PER UNIT
(NOT COVERED BY AUDITOR'S REPORT)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, TOTAL
1993 1993 1993 1993 1993
----------- --------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Total Net Income for Period...................... $ 6,138 $ 6,542 $ 18,762 $ 14,371 $ 45,813
Allocated To
General partner................................ 1,277 1,361 3,902 2,989 9,529
----------- --------- ------------- ------------ ---------
Limited partners............................... $ 4,861 $ 5,181 $ 14,860 $ 11,382 $ 36,284
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
Average BACs..................................... 14,899 14,899 14,899 14,917 14,917
Average First Rights............................. 377 377 376 348 348
Average Second Rights............................ 850 850 850 850 850
----------- --------- ------------- ------------ ---------
Total BACs and equivalents................... 16,126 16,126 16,125 16,115 16,115
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
Income Per Unit.................................. $ .30 $ .32 $ .92 $ .71 $ 2.25
----------- --------- ------------- ------------ ---------
----------- --------- ------------- ------------ ---------
</TABLE>
<PAGE>
EXHIBIT (23)(C)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report, dated February 11, 1994, except
for Notes 9 and 10 as to which the date is October 14, 1994, on the financial
statements of Polaris Industries Partners L.P. (a Delaware Limited Partnership)
included in or made a part of this Registration Statement. We also consent to
the reference to our Firm under the captions "Experts" and "Selected Financial
Data and Summary of Operations" in such Prospectus.
McGLADREY & PULLEN
Minneapolis, Minnesota
November 9, 1994
<PAGE>
Exhibit (99)(f)
Mr. W. Hall Wendel, Jr.
Polaris Industries Inc.
5500 Norwest Center
Minneapolis, Minnesota 55402
RE: POLARIS INDUSTRIES INC. (THE "COMPANY")
REGISTRATION STATEMENT ON FORM S-4
Dear Mr. Wendel:
I hereby consent to my identification in the Proxy Statement on Form S-4
for the merger of Polaris Industries Partners, L.P. and a wholly-owned indirect
subsidiary of the Company (the "Merger") as a person who has consented to
serve as a director of the Company upon completion of the Merger pursuant
to the Registration Statement.
Very truly yours,
/s/ Stephen G. Shank
Date: October 7, 1994
<PAGE>
Exhibit (99)(g)
Mr. W. Hall Wendel, Jr.
Polaris Industries Inc.
5500 Norwest Center
Minneapolis, Minnesota 55402
RE: POLARIS INDUSTRIES INC. (THE "COMPANY")
REGISTRATION STATEMENT ON FORM S-4
Dear Mr. Wendel:
I hereby consent to my identification in the Proxy Statement on Form S-4
for the merger of Polaris Industries Partners, L.P. and a wholly-owned indirect
subsidiary of the Company (the "Merger") as a person who has consented to
serve as a director of the Company upon completion of the Merger pursuant
to the Registration Statement.
Very truly yours,
/s/ G. Palen
Date: October 7, 1994
<PAGE>
Exhibit (99)(h)
Mr. W. Hall Wendel, Jr.
Polaris Industries Inc.
5500 Norwest Center
Minneapolis, Minnesota 55402
RE: POLARIS INDUSTRIES INC. (THE "COMPANY")
REGISTRATION STATEMENT ON FORM S-4
Dear Mr. Wendel:
I hereby consent to my identification in the Proxy Statement on Form S-4
for the merger of Polaris Industries Partners, L.P. and a wholly-owned indirect
subsidiary of the Company (the "Merger") as a person who has consented to
serve as a director of the Company upon completion of the Merger pursuant
to the Registration Statement.
Very truly yours,
/s/ Andris A. Baltins
Date: October 19, 1994
<PAGE>
EXHIBIT (99)(I)
POLARIS INDUSTRIES PARTNERS L.P.
PROXY FOR MEETING OF BAC HOLDERS TO BE HELD
DECEMBER , 1994 AND ANY ADJOURNMENT THEREOF
The undersigned BAC Holder hereby instructs the Initial Limited Partner to
vote all Class A Limited Partnership Interests of the Partnership which the
undersigned is entitled to direct the voting of (PLEASE CHECK ONE):
/ / FOR / / AGAINST / / ABSTAIN
a proposal (the "Conversion Proposal") to approve the Agreement and Plan of
Conversion, dated as of September 29, 1994, by and among Polaris Industries
Partners L.P. (the "Partnership"), Polaris Industries Inc. (the "Corporation"),
EIP Associates L.P., Polaris Industries L.P., EIP Capital Corporation and the
other persons named therein, pursuant to which, among other matters, a newly
formed subsidiary partnership of the Corporation will be merged with and into
the Partnership, with the Partnership as the surviving entity, and each BAC then
outstanding will be exchanged for one share of Common Stock of the Corporation.
Capitalized terms used but not defined herein shall have the meanings set
forth in the Proxy Statement/ Prospectus distributed by order of EIP Associates
L.P., the general partner of the Partnership (the "General Partner"), on or
about November , 1994. THIS PROXY IS SOLICITED ON BEHALF OF THE GENERAL
PARTNER.
THE GENERAL PARTNER AND THE SPONSORS RECOMMEND THAT BAC HOLDERS VOTE "FOR"
THE CONVERSION PROPOSAL.
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This Proxy Card, when properly executed, constitutes an instruction to the
Initial Limited Partner to vote for, against or to abstain with respect to the
Conversion Proposal as directed herein by the undersigned BAC Holder. IF NO
DIRECTION IS MADE, THIS PROXY CARD, WHEN SIGNED AND DELIVERED, WILL CONSTITUTE
AN INSTRUCTION TO VOTE FOR THE CONVERSION PROPOSAL. ABSTENTION OR FAILURE TO
FORWARD A PROXY OR TO VOTE AT THE SPECIAL MEETING WILL HAVE THE SAME EFFECT AS
IF A BAC HOLDER HAD VOTED "AGAINST" THE CONVERSION PROPOSAL.
Please sign exactly as name appears below. When BACs are held by joint
tenants, both must sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Signature(s):
- ------------------------------------------
Title (if any):
- ------------------------------------------
Title (if any):
DATED: ________________________________________________________________________,
1994
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
