AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1995
REGISTRATION NO. 33-58779
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-3
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 (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</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 TO:
ANDRIS A. BALTINS GEORGE R. KROUSE, JR.
KAPLAN, STRANGIS AND KAPLAN, P.A. SIMPSON THACHER & BARTLETT
90 SOUTH SEVENTH STREET 425 LEXINGTON AVENUE
MINNEAPOLIS, MN 55402 NEW YORK, NY 10017
(612) 375-1138 (212) 455-2730
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, 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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE><CAPTION>
PROPOSED MAXIMUM
NUMBER OF SHARES PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock ($.01 par
value)..................... 1,236,852 $46.56 $57,587,829 $19,857.87
</TABLE>
(1) Includes 136,852 shares subject to the over-allotment option granted to the
Underwriters.
(2) Estimated solely for the purpose of determining the registration fee.
Excludes proceeds from contemporaneous sale of 600,000 shares of Common
Stock.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED MAY 23, 1995
PROSPECTUS
1,100,000 SHARES
POLARIS INDUSTRIES INC.
COMMON STOCK
-------------------
The above shares of common stock, par value $.01 per share ("Common
Stock"), of Polaris Industries Inc. ("Polaris" or the "Company") are being sold
by certain shareholders of the Company (the "Selling Shareholders") through the
Underwriters named herein (the "Offering").
Contemporaneously with the Offering, 600,000 shares of Common Stock will be
sold by one of the Selling Shareholders to Fuji Heavy Industries Ltd. ("Fuji").
Fuji also has agreed to purchase from such Selling Shareholder certain
additional shares of Common Stock to the extent that the over-allotment option
described below is not fully exercised by the Underwriters in connection with
the Offering. Fuji will pay such Selling Shareholder a price per share equal to
the lesser of $65 or the Price to Public set forth in the table below. See
"Principal and Selling Shareholders" and "Sale of Shares to Fuji." The Company
will not receive any proceeds from the sale of shares in the Offering or to
Fuji.
The Common Stock is listed on the New York Stock Exchange and the Pacific
Stock Exchange under the symbol "PII." On May 19, 1995, the last reported sale
price of the Common Stock as reflected on the composite tape was $ 45 7/8.
Management of the Company has recommended to the Board of Directors the
continuation of a regular cash dividend with respect to the Common Stock through
1995 at the rate of $0.15 per share per quarter and the payment of two special
cash distributions, each of $1.92 per share, during the third and fourth
quarters of 1995. The next such special cash distribution is payable on July 5,
1995 to holders of record as of June 9, 1995. See "Market Prices" and
"Dividends."
-------------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) SHAREHOLDERS(2)
Per Share................. $ $ $
Total(3).................. $ $ $
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Selling Shareholders estimated at
$ . Excludes proceeds from contemporaneous sale of shares of Common
Stock to Fuji by one of the Selling Shareholders.
(3) One of the Selling Shareholders has granted the Underwriters a 30-day option
to purchase up to 136,852 additional shares of Common Stock to cover
over-allotments. If this option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Selling Shareholders will be
$ , $ and $ , respectively. See "Underwriting."
-------------------
The shares of Common Stock offered by the several Underwriters are being
offered, subject to prior sale, when, as and if issued to and accepted by them,
subject to approval of certain legal matters by counsel for the Underwriters.
The Underwriters reserve the right to withdraw, cancel or modify such offer and
to reject orders in whole or in part. It is expected that delivery of the shares
of Common Stock will be made in New York, New York on or about , 1995.
-------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
PIPER JAFFRAY INC.
, 1995
<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>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Registration
Statement, of which this Prospectus forms a part, as well as reports, proxy
statements and other information filed by the Company, may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street N.W., Washington, D.C. 20549, and at the Commission's regional
offices at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, New York, New York 10048.
Copies of such material may be obtained at the prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street N.W., Washington, D.C.
20549. Reports and other information concerning the Company can also be
inspected at the office of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005, and the Pacific Stock Exchange, 301 Pine Street, San
Francisco, California 94104.
The Company has filed with the Commission a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. The Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at the
addresses set forth in the preceding paragraph. Statements contained herein
concerning the provisions of any documents are necessarily summaries of such
documents, and, in each instance, such statement is qualified in its entirety by
reference to the applicable document filed with the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission by the
Company, are hereby incorporated herein by reference: Annual Report on Form 10-K
of the Company for the fiscal year ended December 31, 1994 and Quarterly Report
on Form 10-Q of the Company for the quarterly period ended March 31, 1995. All
documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to the
completion of the offering being made hereby shall be deemed to be incorporated
herein by reference and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statements as modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon written or oral request of such person, a
copy of any or all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus (other than certain exhibits to
such documents). Requests for such documents may be made by writing to the
principal executive offices of the Company at Polaris Industries Inc., 1225
Highway 169 North, Minneapolis, Minnesota 55441 (Attention: Investor Relations)
or by calling (612) 542-0500.
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SHARES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE PACIFIC
STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED
AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
This summary does not purport to be complete and is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus. Terms not defined in this summary are defined elsewhere herein.
THE COMPANY
Polaris is a leading manufacturer of snowmobiles, all-terrain vehicles
("ATVs"), and personal watercraft ("PWC") and also markets related parts,
garments and accessories ("PG&A"). In recent years, the Company has increased
its share of the growing market for each of its product lines. Since 1990, the
Company's sales have increased at a 29% compound annual rate, with sales of $826
million in 1994, up 56% from $528 million in 1993. Management believes that
sales have increased, in part, by Polaris' responding to customer demand for
innovative products which emphasize ease of use, safety and reliability at
competitive prices. In this regard, the Company estimates that approximately 70%
of its 1994 sales were derived from products, models and model variations
introduced in the past three years. Polaris products are sold worldwide through
nearly 2,000 dealers in North America and 55 distributors.
Snowmobiles. The Company's original product line, snowmobiles, accounted for
approximately $363 million (44%) of 1994 sales, and the Company believes that it
has the largest share of the worldwide snowmobile market. Since 1990, the
Company's snowmobile unit sales have increased at a 12% compound annual rate,
including a 34% increase in 1994 as compared to 1993. Although specific
information with respect to industry sales in each of the Company's product
lines is not consistently and reliably available, management currently estimates
that worldwide snowmobile industry retail unit sales volume has grown at a
compound annual rate of more than 8% since the season ended March 31, 1991, with
worldwide industry retail unit sales reaching approximately 210,000 units in the
season ended March 31, 1995, up more than 20% over the comparable 1994 season.
The Company attributes its increased market penetration, in part, to its product
development efforts, strong dealer organization and competitive pricing. The
Company offers a broad line of snowmobiles (36 models) ranging from models
targeted at entry-level buyers to high performance models which provide more
features, comfort and performance. The Company's recent innovation, the XTRA
("extra length travel") suspension system, greatly enhances vehicle stability
and rider comfort and has drawn praise from industry publications. Approximately
1,200 Polaris dealers, concentrated in the northern United States and Canada,
carry part or all of the Polaris snowmobile line.
All-Terrain Vehicles. The Company began producing ATVs in 1985, and in 1994
ATV sales accounted for approximately $243 million (29%) of the Company's sales.
Although specific information with respect to industry sales in each of the
Company's product lines is not consistently and reliably available, management
currently estimates that worldwide ATV industry retail unit sales volume has
grown at a compound annual rate of more than 10% since 1990, while the Company's
ATV unit sales volume during this period has increased at a compound annual rate
of 36%. Management believes that the Company had the third largest share of the
worldwide ATV market in 1994 and that market demand for Polaris' ATV products
has been significantly influenced by product innovations, including: automatic
transmissions instead of motorcycle-type manual transmissions; single-lever
brakes instead of separate levers for front and rear brakes; "on demand"
all-wheel drive; and floor boards instead of motorcycle-type foot pegs. The
Company currently offers 12 ATV models, with products for utility, sports and
recreational applications. Polaris ATVs are distributed through approximately
1,700 dealers.
Personal Watercraft. The Company entered the PWC market in 1992, and in 1994
PWC sales accounted for approximately $115 million (14%) of the Company's sales.
The industry has experienced rapid growth in recent years with the introduction
of sit-down models, which have been better received by consumers than the
original stand-up models of the Company's competitors. Although specific
information with respect to industry sales in each of the Company's product
lines is not consistently and reliably available, management currently estimates
that, since 1992, worldwide PWC industry retail
3
<PAGE>
unit sales volume grew at a compound annual rate of approximately 29%. The
Company believes that the most significant factor contributing to the growth of
its PWC business has been product innovations such as the incorporation of three
cylinder engines in its PWC models. This growth has been supported by the
expansion of Polaris' dealer network outside the traditional snowmobile markets.
The Company currently offers five PWC models through approximately 1,200 dealers
in North America and anticipates broadening its PWC product line in the near
future.
Parts, Garments and Accessories. PG&A are an important contributor to the
Company's earnings and accounted for approximately $105 million (13%) of the
Company's sales in 1994. Approximately half of PG&A sales consist of aftermarket
parts, with the balance consisting of garments and accessories. The Company
produces its own key aftermarket parts, while garments and some parts and
accessories production are contracted out to third parties. All PG&A products
are sold through the Polaris dealer network.
The Company follows a build-to-order philosophy for all of its product
lines. Most orders are received from dealers well in advance of the respective
selling seasons, and the Company generally does not set final production levels
until it has received dealer orders. For example, a new snowmobile model line is
introduced to dealers and consumers in mid-March and orders are taken from
dealers through April. To assist in gauging demand and preparing production
schedules, the Company has implemented a program, "Snow-Check", in which many of
its retail customers place non-refundable deposits with dealers during this
period in exchange for incentives and to ensure availability and priority
shipment of their desired model. Snowmobiles are manufactured from the spring
until late fall or early winter, with deliveries to dealers beginning in May and
ending in December. The "sell-through" by dealers to consumers begins in the
fall and continues through the winter season. Management believes that this
system facilitates efficient scheduling and execution of production and helps
avoid excessive build-up of inventories. Polaris also maintains contact with its
dealers to monitor field inventories which allows for products to be shifted to
areas of highest demand during the selling season. For the past several years,
dealers have experienced only minimal amounts of unsold inventory carryover of
Polaris snowmobiles at the end of each selling season.
Snowmobiles, ATVs and PWC incorporate similar technology in their design and
production, and snowmobiles and PWC are characterized by seasonally opposite
sales and production cycles. At the Company's main assembly facility in Roseau,
Minnesota, substantially the same equipment and personnel are employed in the
production of all types of vehicles, allowing the Company to operate that
facility at relatively high utilization rates throughout the year. The Company
strives to keep costs low and as variable as possible. It purchases such major
components as fuel tanks, hoods and hulls, tracks, tires and instruments from
multiple sources, while engines have been supplied solely by Fuji since 1968.
In-house processes employed in the fabrication of components include machining,
stamping, welding, painting and the cutting and sewing of foam seats.
The Company's predecessor was founded in 1954. In 1987, a predecessor to
Lehman Brothers Inc. sponsored a transaction in which the Company's predecessor
became a publicly-owned master limited partnership (the "Partnership"), and
Units of Beneficial Assignment of Class A Limited Partnership Interests
("BACs"), representing limited partnership interests in the Partnership, were
sold to the public. Affiliates of Lehman Brothers Inc. and others held interests
in the general partner of the Partnership. BACs were traded on the American
Stock Exchange and the Pacific Stock Exchange until December 1994. In December
1994, the Partnership converted to corporate form (the "Conversion") and BAC
holders and affiliates of the general partner (including affiliates of Lehman
Brothers Inc.) received shares of the Company's Common Stock in exchange for
their BACs and interests in the general partner, respectively.
The Company's Common Stock trades on the New York Stock Exchange and the
Pacific Stock Exchange under the symbol "PII."
4
<PAGE>
THE TRANSACTIONS
<TABLE>
<S> <C>
COMMON STOCK:
TO BE SOLD IN THE OFFERING... 1,100,000 shares*
TO BE SOLD TO FUJI........... 600,000 shares*
DIVIDENDS AND DISTRIBUTIONS.... Management of the Company has recommended to the Board of
Directors the continuation of a regular cash dividend with
respect to the Common Stock through 1995 at the rate of
$0.15 per share per quarter and the payment of two special
cash distributions, each of $1.92 per share, during the
third and fourth quarters of 1995. The next such special
cash distribution is payable on July 5, 1995 to holders of
record as of June 9, 1995. See "Market Prices" and
"Dividends--Common Stock."
COMMON STOCK OUTSTANDING
(BEFORE AND AFTER THE
TRANSACTIONS).................. 18,216,258 shares
PROCEEDS OF THE TRANSACTIONS... The Company will not receive any proceeds from the sale of
Common Stock in the transactions described herein.
</TABLE>
------------
* Does not include 136,852 shares subject to the over-allotment option granted
by one of the Selling Shareholders to the Underwriters, which shares will be
purchased by Fuji to the extent such option is not exercised by the
Underwriters in connection with the Offering.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in connection with an investment in the Common Stock.
5
<PAGE>
SUMMARY OF SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth a summary of selected financial data of the
Company. The comparability of the information reflected in the summary is
materially affected by the Conversion to corporate form on December 22, 1994,
which resulted in the Company recording a net deferred tax asset of $65.0
million, Conversion expenses of $12.3 million and a corresponding net increase
in 1994 net income (see Notes 1 and 5 of Notes to the Financial Statements). Pro
forma data for 1994 and prior years is presented to assist in comparing the
continuing results of operations of the Company exclusive of the Conversion
expenses and as if the Company were a taxable corporation with the pro forma
provision for income taxes calculated at an effective tax rate of 38% for each
period presented (see Note 10 of Notes to the Financial Statements).
<TABLE><CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ -------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Sales.......................... $296,147 $297,677 $383,818 $528,011 $826,286 $145,471 $254,793
Gross profit................... 89,349 88,440 104,926 130,287 183,283 27,858 46,715
Operating income*.............. 30,812 31,718 40,691 53,227 87,977 9,838 19,617
Net income**................... 20,465 20,727 24,602 33,027 54,703 6,144 12,940
Net income per share**......... $ 1.19 $ 1.21 $ 1.37 $ 1.81 $ 2.97 $ 0.33 $ 0.70
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents...... $ 32,025 $ 20,098 $ 19,094 $ 33,798 $ 62,881 $ 38,878
Current assets................. 66,893 59,200 74,999 109,748 206,489 190,820
Total assets................... 138,704 135,509 146,681 180,548 331,166 319,859
Current liabilities............ 46,602 52,646 69,054 98,055 161,457 173,334
Shareholders' equity/Partners'
capital....................... 92,102 82,863 77,627 82,493 169,709 146,525
</TABLE>
------------
* Operating income for the year ended December 31, 1994 is presented on a pro
forma basis to exclude Conversion expenses of $12.3 million which were
incurred in December of 1994.
** Net income and net income per share are presented on a pro forma basis for
all periods, except for the three months ended March 31, 1995, to reflect a
provision for income taxes calculated at an effective rate of 38%. Net income
and net income per share for the year ended December 31, 1994 have been
further adjusted to exclude Conversion expenses of $12.3 million which were
incurred in December of 1994.
6
<PAGE>
RISK FACTORS
Prospective purchasers of Common Stock should consider carefully the
following specific investment considerations, as well as the other information
set forth in this Prospectus.
EXPOSURE TO CHANGES IN FOREIGN CURRENCY EXCHANGE RATES
Approximately 28% of Polaris' 1994 cost of sales was attributable to
purchases from Japanese suppliers. Accordingly, the Company has substantial
adverse exposure to a strengthening Japanese yen. Although its principal
Japanese supplier, Fuji, has agreed to share a portion of the exchange rate
risk, Polaris currently bears most of this risk. In addition, approximately 16%
of the Company's 1994 sales were made through its Canadian subsidiary, also
exposing Polaris to the adverse effects of a weakening Canadian dollar. The
weakening Canadian dollar has also strengthened the competitive position of one
of the Company's direct competitors based in Canada. Management believes that
currency fluctuations have had and may continue to have a significant adverse
impact on the Company's gross margin.
COMPETITION
The snowmobile, ATV and PWC markets are highly competitive. Competition in
such markets is based upon a number of factors, including brand loyalty, price,
quality, reliability, styling, product innovations and 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 the Company's competitors are more diversified and have financial and
marketing resources which are substantially greater than those of the Company.
In addition, the Company's 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
As a manufacturer of outdoor motorized equipment, the Company's sales may be
impacted by weather conditions. For example, 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. The Company seeks to minimize this potential effect
by stressing pre-season sales (see "Business--Production Scheduling") and
shifting dealer inventories from one location to another during the selling
season. However, there is no assurance that certain weather conditions would not
have a material adverse effect on the Company's sales. While snowfall in the
winter of 1994 in the United States was generally lighter than in the previous
year, based on orders of snowmobiles to date, the company curently expects its
production of snowmobiles for calender 1995 to increase from calender 1994
production. However, there is no assurance that orders received for 1995 will
correspond to final shipments or that increased production will correspond to or
result in an increase in net sales.
PRODUCT SAFETY AND REGULATION
Snowmobiles, ATVs and PWC are motorized vehicles that 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. With respect to ATVs, the Consumer Products Safety Commission (the "CPSC")
has found a greater incidence of such occurrences with three-wheel ATVs. The
Company presently manufactures only four-wheel and six-wheel ATVs, having
discontinued production of three-wheel vehicles in 1985. 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
children under age 14 stating that such ATVs are not recommended for use by
children under age 12, and on adult-sized ATVs stating that such ATVs are not
recommended for use by children under age 16; that warning labels be placed on
all ATVs stating that operator training is necessary to reduce risk of injury or
death; and that the CPSC work closely with states and other federal agencies to
develop practical,
7
<PAGE>
uniform state regulations. The Company does not believe that compliance with the
CPSC regulations has had or will have a material adverse effect on the Company.
However, certain state attorneys general have asserted that the CPSC agreement
is inadequate and have indicated that they will seek stricter ATV regulation.
The Company is unable to predict the outcome of such action or the possible
effect on its ATV business.
Certain states have proposed legislation involving more stringent emission
standards for two-cycle engines, the predominant engines used on the Company's
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 have been and may from time to time be considered and adopted
which restrict the use of PWC to specified hours and locations. There can be no
assurance that recommendations or regulatory actions by the CPSC, the Justice
Department or individual states would not have an adverse effect on the Company
and markets for its products.
PRODUCT LIABILITY
Product liability claims are made against the Company from time to time. The
Company has self-insured for product liability claims since June 1985. Between
1981 and March 31, 1995, the Company and its predecessors paid an aggregate of
less than $1.6 million in product liability claims, and, at March 31, 1995, the
Company had accrued $5.3 million for the defense and possible payment of pending
claims. The Company believes such accruals are adequate. The Company does not
believe that the outcome of any pending product liability litigation will have a
material adverse effect on the operations of the Company. 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 the Company will not be made in the future. Adverse determination
of material product liability claims made against the Company would have a
material adverse effect on the Company's financial condition.
WARRANTIES AND PRODUCT RECALLS
The Company warrants its snowmobiles, ATVs, and PWC under a "limited
warranty" for a period of one year, six months, and one year, respectively.
Although the Company employs quality control procedures, a product is sometimes
distributed which needs repair or replacement. Historically, product recalls
have been administered through the Company's dealers and distributors and have
not had a material effect on the Company's business. However, no assurance can
be given that its historical claims record will not change adversely as a result
of the Company's growth or otherwise.
INFORMAL SUPPLY ARRANGEMENTS
Pursuant to informal agreements between the Company and Fuji, Fuji has been
the sole manufacturer of the Company's two-cycle snowmobile engines since 1968.
Fuji has manufactured engines for the Company's ATV products since their
introduction in the spring of 1985 and also supplies engines for its PWC
products. Such engines are developed by Fuji to the specific requirements of the
Company. Polaris believes its relationship with Fuji to be excellent. If,
however, its informal relationship were terminated, interruption in the supply
of engines would materially adversely affect the Company's production, pending
the establishment of substitute supply arrangements. The Company recently
entered into an agreement with Fuji for the manufacture of engines in the U.S.
which is expected by management of the Company to lessen the Company's
dependence on a single source for engines. However, the benefits of this
arrangement are not expected to be significant for some time.
The Company anticipates no significant difficulties in obtaining substitute
supply arrangements for other raw materials or components for which it currently
utilizes limited sources of supply.
8
<PAGE>
NO ASSURANCE OF FUTURE DIVIDENDS
While organized as a partnership the Company made regular distributions to
its BAC holders. In connection with the Conversion to corporate form, senior
management of the Company recommended to the Company's Board of Directors the
dividend payments described below under "Dividends-- Common Stock." However, the
Company is under no legal or contractual obligation to declare or to pay
dividends, and the timing and amount of future cash dividends and distributions
is at the discretion of the Board of Directors of the Company and will depend,
among other things, on the future after-tax earnings, operations, capital
requirements, borrowing capacity, and financial condition of the Company and
general business conditions.
SHARES ELIGIBLE FOR FUTURE SALE
As set forth on the cover page of this Prospectus, contemporaneously with
the Offering Fuji is purchasing a minimum of 600,000 (and a maximum of 736,852
if the over-allotment option is not exercised in full by the Underwriters)
shares of Common Stock directly from one of the Selling Shareholders. Future
sales of substantial amounts of Common Stock in the public market by Fuji or
other large shareholders, or the perception that such sales may occur, could
have a material adverse effect on the market price of the Common Stock. Fuji and
other large shareholders have certain rights to require registration of shares
of Common Stock owned by each of them. See "Shares Eligible for Future Sale,"
"Security Ownership of Directors, Officers and Selling Shareholders" and "Sale
of Shares to Fuji."
9
<PAGE>
THE COMPANY
The Company 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 parts, garments and
accessories ("PG&A"), through dealers and distributors principally located in
the United States, Canada and Europe. Snowmobiles, ATVs, PWC and PG&A accounted
for the following dollar amounts (rounded to the nearest million) and
approximate percentages of the Company's sales for the periods indicated:
<TABLE><CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994
----------- ----------- -----------
$ % $ % $ %
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Snowmobiles.......................... $209 54% $263 50% $363 44%
ATVs................................. 95 25 141 26 243 29
PWC.................................. 26 7 47 9 115 14
PG&A................................. 54 14 77 15 105 13
---- --- ---- --- ---- ---
Total........................... $384 100% $528 100% $826 100%
---- --- ---- --- ---- ---
---- --- ---- --- ---- ---
</TABLE>
Snowmobiles. The Company produces a full line of snowmobiles, consisting of
36 models, ranging from utility and economy models to high performance models,
with current suggested retail prices ranging from approximately $3,000 to
$8,500. The Company's snowmobiles are sold principally in the United States and
Canada through approximately 1,200 dealers. The Company believes it has the
largest market share of the worldwide snowmobile market. The Company believes
that the Polaris snowmobile has a long-standing reputation for quality,
dependability and performance and that the Company and its predecessors were the
first to develop several features for commercial use in snowmobiles, including
independent front suspension, variable transmissions, hydraulic disc brakes,
liquid cooled engines and brakes, and a three cylinder engine.
All Terrain Vehicles. The Company entered the ATV market in the spring of
1985 with both three-wheel and four-wheel products. The Company produced
approximately 1,700 three-wheel models prior to discontinuing their production
in 1985. It currently produces only four-wheel and six-wheel ATV products, which
provide more stability for the rider than earlier three-wheel versions. The
Company's line of ATVs, consisting of 12 models marketed through approximately
1,700 dealers, includes general purpose, sport, recreational and utility four-
and six-wheel drive models, with current suggested retail prices ranging from
approximately $2,950 to $6,300. The Company's ATVs feature the totally automatic
Polaris Variable Transmission which requires no manual shifting and a
MacPhersonTM strut front suspension, which the Company believes enhances control
and stability. The Company's ATVs are also the only ATVs in their class that use
a two-cycle engine in combination with a chain drive, which the Company believes
improves performance and efficiency. In addition, certain of its models feature
"on demand" all-wheel drive, which the Company believes is available only on
Polaris ATVs.
Personal Watercraft. In 1992, the Company introduced the SL650 personal
watercraft, the Company's first entry into this product category. In 1993, the
Company added its SL750 with increased power and performance. Management
believes that, when introduced, the SL650 and SL750 had the industry's first
three cylinder engines developed specifically for PWC. The introduction of PWC
utilized the Company's engineering, production and distribution strengths, and
also reduced the Company's dependence on its then existing product lines for
overall sales and earnings. In late 1993, the Company introduced a three
passenger PWC, the Polaris SLT750, and in March 1995, introduced a high
performance PWC, the Polaris SLX. The current suggested retail prices for the
Company's PWC range from approximately $5,000 to $7,000. PWC growth has been
supported by the expansion of Polaris' dealer network outside the traditional
snowmobile markets, with approximately 1,200 dealers in North America currently
offering the Polaris PWC product line.
10
<PAGE>
Parts, Garments and Accessories. The Company produces or supplies a variety
of replacement parts and accessories for its snowmobiles, ATVs and PWC. The
Company also markets sportswear and 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 the Company's
specifications, purchased from independent vendors and sold by the Company
through its dealers and distributors under the Polaris brand name. Replacement
parts and accessories are also marketed by the Company.
The Company's principal executive offices are located at 1225 Highway 169
North, Minneapolis, Minnesota 55441, and its telephone number is (612) 542-0500.
MARKET PRICES
During 1993, and through December 22, 1994, BACs of the Partnership traded
on the American Stock Exchange ("AMEX") and the Pacific Stock Exchange ("PSE")
under the symbol "SNO." In connection with the Conversion, on December 23, 1994,
the Common Stock (into which each BAC was converted on a one-for-one basis)
commenced trading on the AMEX and the PSE under the symbol "SNO." On February
24, 1995, the Common Stock began trading on the New York Stock Exchange (in lieu
of the AMEX) and on the PSE under the symbol "PII."
COMMON STOCK
The following table sets forth the high and low closing sale prices of the
Common Stock on the aforementioned exchanges for the calendar periods indicated
subsequent to the Conversion:
HIGH LOW
-------------- --------------
1994
----
Fourth Quarter (from December 23)............ 51 5/8 50 3/8
1995
-----
First Quarter................................ 49 7/8 43 3/4
Second Quarter (through May 19).............. 49 1/2 42 7/8
As of March 13, 1995, there were approximately 4,820 holders of record of
the Common Stock.
The last reported sale price of the Common Stock as reflected on the
composite tape as of a recent date is set forth on the cover page of this
Prospectus.
BACS
The following table sets forth the high and low closing sale prices of the
BACs on the AMEX and PSE for the calendar periods indicated prior to the
Conversion, all as adjusted to reflect a two-for-one BAC split which became
effective on August 18, 1993:
HIGH LOW
-------------- --------------
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 December 22)............ 52 1/4 37 5/8
11
<PAGE>
DIVIDENDS
COMMON STOCK
In connection with the Conversion, management recommended to the Company's
Board of Directors that it 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 the second, third and fourth calendar quarters of 1995.
The Board of Directors of the Company declared the following regular cash
dividends and special cash distributions per share which were paid or are
payable during 1995, as follows:
REGULAR SPECIAL
------- -------
1995
----
First Quarter.................................. $0.15 --
Second Quarter................................. 0.15 $1.92
Third Quarter (a).............................. 0.15 1.92
------------
(a) On May 10, 1995 the Board of Directors of the Company declared a regular
dividend of $0.15 per share, payable on August 15, 1995 to holders of record
as of August 3, 1995, and a special cash distribution of $1.92 per share,
payable on July 5, 1995 to holders of record as of June 9, 1995. If, as
expected, the sale of the shares of Common Stock pursuant to the Offering is
not consummated until after June 9, 1995, purchasers of Common Stock in the
Offering will not be entitled to receive the special cash distribution
payable on July 5, 1995.
BACS
Prior to the Conversion, the Partnership declared the following cash
distributions per BAC during the years ended December 31, 1993 and 1994, all as
adjusted for a two-for-one split which became effective on August 18, 1993:
1993 1994
------ -----
First Quarter................................................. $0.625 $0.63
Second Quarter................................................ 0.625 0.63
Third Quarter................................................. 0.63 0.63
Fourth Quarter................................................ 0.63 0.63
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of factors or restrictions that may reduce
future payments of dividends by the Company.
12
<PAGE>
PROCEEDS OF OFFERING
The Company will not receive any proceeds from the sale of Common Stock in
the transactions described herein.
CAPITALIZATION
The following table sets forth the short-term debt and capitalization of the
Company at March 31, 1995 (in thousands, except share and per share data):
Short-term debt.................................................... $ 0
--------
--------
Long-term debt..................................................... $ 0
--------
Shareholders' equity
Preferred stock $0.01 par value, authorized
20,000,000 shares, no issued and outstanding shares............. $ 0
Common stock $0.01 par value, authorized
80,000,000 shares, issued and outstanding 18,206,258 shares..... 182
Additional paid-in capital........................................ 108,806
Compensation payable in common stock.............................. 8,928
Retained earnings................................................. 28,609
--------
Total shareholders' equity.................................... 146,525
--------
Total capitalization.......................................... $146,525
--------
--------
13
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth selected financial data of the Company 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, 1994, have been derived
from the financial statements of the Company which have been audited by
McGladrey & Pullen, LLP, independent public accountants. The selected statements
of operations data, cash flow data and balance sheet data as of and for the
three months ended March 31, 1994 and 1995, have been derived from the Company'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 the results of operations and financial position for these
periods and as of these dates. The comparability of the information reflected in
the selected financial data is materially affected by the Conversion to
corporate form on December 22, 1994, which resulted in the Company recording a
net deferred tax asset of $65.0 million, Conversion expenses of $12.3 million
and a corresponding net increase in 1994 net income (see Notes 1 and 5 of Notes
to the Financial Statements). Pro forma data for 1994 and prior years is
presented to assist in comparing the continuing results of operations of the
Company exclusive of the Conversion expenses and as if the Company were a
taxable corporation with the pro forma provision for income taxes calculated at
an effective tax rate of 38% for each period presented (see Note 10 of Notes to
the Financial Statements). Management believes that the substantial percentage
increases in sales and net income during the first quarter of 1995 over the
first quarter of 1994 are not indicative of the results that may be expected for
the full year ending December 31, 1995.
<TABLE><CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Sales................. $296,147 $297,677 $383,818 $528,011 $826,286 $145,471 $254,793
% change from prior
period............ 22% 1% 29% 38% 56% 36% 75%
Gross profit.......... $ 89,349 $ 88,440 $104,926 $130,287 $183,283 $ 27,858 $ 46,715
% of sales.......... 30% 30% 27% 25% 22% 19% 18%
Operating expense data
Amortization of
intangibles and
First Rights
compensation...... $ 12,116 $ 13,108 $ 11,997 $ 13,466 $ 14,321 $ 3,573 $ 1,829
Conversion costs.... -- -- -- -- 12,315 -- --
Other operating
expenses.......... 46,421 43,614 52,238 63,594 80,985 14,447 25,269
% of sales........ 16% 15% 14% 12% 10% 10% 10%
Operating income*..... $ 30,812 $ 31,718 $ 40,691 $ 53,227 $ 87,977 $ 9,838 $ 19,617
% of sales.......... 10% 11% 11% 10% 11% 7% 8%
Net income data
Net income.......... $ 31,363 $ 31,462 $ 34,701 $ 45,813 $128,950 $ 8,566 $ 12,940
Net income per
unit.............. $ 1.65 $ 1.65 $ 1.73 $ 2.25 -- $ 0.42 --
Net income per
share............. -- -- -- -- $ 7.00 -- $ 0.70
Pro forma data**
Pro forma net
income............ $ 20,465 $ 20,727 $ 24,602 $ 33,027 $ 54,703 $ 6,144 --
Pro forma net income
per share......... $ 1.19 $ 1.21 $ 1.37 $ 1.81 $ 2.97 $ 0.33 --
</TABLE>
-------------------
* Operating income for the year ended December 31, 1994 is presented on a pro
forma basis to exclude Conversion expenses of $12.3 million which were
incurred in December of 1994.
** Net income and net income per share are presented on a pro forma basis for
all periods, except for the three months ended March 31, 1995, to reflect a
provision for income taxes calculated at an effective rate of 38%. Net income
and net income per share for the year ended December 31, 1994 have been
further adjusted to exclude Conversion expenses of $12.3 million which were
incurred in December of 1994.
14
<PAGE>
<TABLE><CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CASH FLOW DATA
Cash flow from (used
in) operating
activities.......... $ 54,782 $ 46,642 $ 55,316 $ 79,323 $111,669 $(9,431) $ 3,074
Purchases of property
and equipment....... 7,158 15,988 12,295 18,126 32,529 5,474 11,624
Cash distributions/
dividends
declared............ 42,582 42,581 44,507 47,217 50,942 12,735 37,673
Cash distributions
declared per unit... $ 2.50 $ 2.50 $ 2.50 $ 2.51 $ 2.52 $ 0.63 --
Cash dividends
declared per
share............... -- -- -- -- -- -- $ 0.15
Special cash
distributions
declared per
share............... -- -- -- -- -- -- 1.92
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------------------
1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents...... $ 32,025 $ 20,098 $ 19,094 $ 33,798 $ 62,881 $ 38,878
Current assets................. 66,893 59,200 74,999 109,748 206,489 190,820
Total assets................... 138,704 135,509 146,681 180,548 331,166 319,859
Current liabilities............ 46,602 52,646 69,054 98,055 161,457 173,334
Shareholders' equity/Partners'
capital...................... 92,102 82,863 77,627 82,493 169,709 146,525
</TABLE>
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(HISTORICAL AND PRO FORMA)
The Company 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 parts, garments and
accessories ("PG&A"), through dealers and distributors principally located in
the United States, Canada and Europe. Snowmobiles, ATVs, PWC and PG&A accounted
for the following dollar amounts (rounded to the nearest million) and
approximate percentages of the Company's sales for the periods indicated:
YEAR ENDED DECEMBER 31,
---------------------------------------------
1992 1993 1994
----------- ----------- -----------
$ % $ % $ %
---- --- ---- --- ---- ---
Snowmobiles................. $209 54% $263 50% $363 44%
ATVs........................ 95 25 141 26 243 29
PWC......................... 26 7 47 9 115 14
PG&A........................ 54 14 77 15 105 13
---- --- ---- --- ---- ---
Total................. $384 100% $528 100% $826 100%
---- --- ---- --- ---- ---
---- --- ---- --- ---- ---
The following discussion pertains to the results of operations and financial
position of the Company for each of the three years in the period ended December
31, 1994 and the three-month periods ended March 31, 1994 and 1995, and should
be read in conjunction with the Financial Statements included elsewhere herein.
Due to the seasonal nature of the snowmobile, ATV and PWC businesses in which
the Company is engaged, certain changes in production and shipping cycles,
currency exchange rate fluctuations and other factors, results of interim
periods are not necessarily indicative of the results to be expected for the
complete year.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1995 vs. Three Months Ended March 31, 1994
Sales increased to $254.8 million in the first quarter of 1995, representing
a 75% increase over the $145.5 million of sales for the comparable period in
1994. Total finished goods unit shipments for the 1995 period increased 85% over
the comparable period in 1994. The increase in sales is attributable to the
significant increase in sales of ATVs and PWC, due largely to continued strong
demand and enhanced manufacturing capacity compared with the first quarter of
1994.
ATV unit sales volume in the first quarter of 1995 increased 119% over the
comparable period in 1994, primarily because of the continued growth in the
utility and sports-enthusiasts' markets and the improvement in product
availability at the dealer level as a result of manufacturing capacity
expansions.
PWC unit sales volume in the first quarter of 1995 increased 41% over the
comparable period in 1994, primarily because of the growth in the PWC market and
the introduction of models aimed at both the family and sports rider market
segments. All Polaris PWC are now being assembled at the Company's new
manufacturing facility in Spirit Lake, Iowa.
Sales of PG&A in the first quarter of 1995 increased 26% over the comparable
period in 1994, as a result of increased sales volumes of the other product
lines.
Gross profit of $46.7 million in the first quarter of 1995 represents a 68%
increase over gross profit of $27.9 million for the comparable period in 1994.
The gross profit margin percentage decreased to 18.3% for the first quarter of
1995 from 19.2% for the comparable period in 1994. This decrease in
16
<PAGE>
gross margin percentage is primarily a result of: (a) continued increases in raw
material purchase prices for engines and certain other component parts because
of the weakening of the U.S. dollar in relation to the Japanese yen; (b)
increased warranty expenses; and (c) strengthening of the U.S. dollar in
relation to the Canadian dollar which results in lower gross margins from the
Company's Canadian subsidiary operation.
Operating expenses in the first quarter of 1995 increased $9.1 million over
the comparable period in 1994 as a result of the sales volume increase, but as a
percentage of sales, decreased to 10.6% for the first quarter of 1995 compared
to 12.4% for the comparable period in 1994. The percentage decrease is due
primarily to the Company's supporting an increasing level of sales without a
corresponding increase in selling and administrative expenses.
The increase in nonoperating income in the first quarter of 1995 over the
comparable period in 1994 is primarily attributable to investment income
generated by higher cash and cash equivalent balances during the first quarter
of 1995 compared to the comparable period in 1994.
Year Ended December 31, 1994 vs. Year Ended December 31, 1993
Sales increased to $826.3 million in 1994, representing a 56% increase over
the $528.0 million of sales in 1993. Total finished goods unit shipments for
1994 increased 52% over 1993. The increase in sales 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 market
for all three product lines, the continuing favorable U.S. economy and a
competitive pricing strategy.
Snowmobile unit sales volume increased 34% during 1994, primarily because of
the introduction of new models, including the XLT Special and RXL with Polaris'
new XTRA suspension system.
ATV unit sales volume increased 55% during 1994, primarily because of the
continued growth in the utility and sports-enthusiasts' markets and the
improvement in product availability at the dealer level as a result of the
dedicated ATV production line. The average per unit sales price increased by 11%
for ATVs in 1994, principally through the sale of new, more high-performance
models that have a higher selling price than economy models. The Company
introduced several new models in 1994, including the Magnum, Xplorer and
Scrambler.
PWC unit sales volume increased 146% during 1994, primarily because of the
fast growth in the PWC market and the introduction of models aimed at both the
family and sports-rider market segments.
Sales of PG&A increased 36% in 1994 as a result of the increased sales
volume of all three product lines.
Gross profit increased to $183.3 million in 1994, representing a 41%
increase over gross profit of $130.3 million. The gross profit margin decreased
to 22.2% for 1994, from 24.7% for 1993. This decrease in gross margin 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 engines
and certain other component parts because of the weakening U.S. dollar in
relation to the Japanese yen; (c) strengthening of the U.S. dollar in relation
to the Canadian dollar which results in lower gross margins from the Company's
Canadian subsidiary operation; and (d) increased warranty expenses.
The Company has continued to invest in new product development, particularly
in the areas of innovation and product diversification. New product research and
development costs are recorded as cost of sales in the statements of operations.
Research and development expenses were $13.5 million (1.6% of sales) in 1994 and
$11.1 million (2.1% of sales) in 1993. In addition, the Company incurred
17
<PAGE>
tooling expenditures for new products of $12.6 million in 1994 and $9.3 million
in 1993. In 1994, more than 70% of sales came from products introduced in the
past three years.
Operating expenses (exclusive of $12.3 million of costs of conversion to a
corporation) increased $18.2 million in 1994 as a result of the sales volume
increases, but as a percentage of sales, decreased to 11.5% in 1994, from 14.6%
in 1993. The percentage decrease is due primarily to the Company supporting an
increasing level of sales without a corresponding increase in selling and
administrative expenses.
Income tax expense (exclusive of the income tax adjustment for the change in
tax status) increased $4.5 million in 1994 compared to 1993. This increase is
attributable primarily to additional reserves established relating to certain
open tax years in the United States and Canada, some of which are under audit by
Revenue Canada (see Note 8 of Notes to the Financial Statements).
Pro forma information is presented in the Statements of Operations to assist
in comparing the continuing results of operations of the Company exclusive of
the conversion costs and as if the Company were a taxable corporation for each
period presented. The pro forma provision for income taxes was calculated at an
effective tax rate of 38%. Pro forma net income increased 66% to $54.7 million
in 1994 from $33.0 million in 1993. Pro forma net income as a percent of sales
was 6.6% and 6.3% in 1994 and 1993, respectively. Pro forma net income per share
increased 64% to $2.97 in 1994 from $1.81 in 1993.
Year Ended December 31, 1993 vs. Year Ended December 31, 1992
Sales for 1993 were $528.0 million, an increase of 38% over 1992 sales of
$383.8 million. Total finished goods unit shipments for 1993 increased 34% over
1992.
Management believes Polaris' success in the snowmobile market is
attributable to product superiority, aggressive consumer promotional programs
and a strong dealer network. The 1993 sales increase resulted from the
introduction of new models and the continued success of other popular models,
including the lightweight XLT model. Snowmobile unit sales volume increased by
26% in 1993 over 1992.
In 1993, the Company's ATV product lines sales grew by 41% over 1992 sales
as retail sales rose to the highest level in Polaris' history. Management
believes Polaris has been successful by targeting the all-purpose segment of the
ATV market with new and improved products. Polaris 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 Company 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
products in 1992.
Sales of related parts, garments and accessories increased 43% in 1993 over
1992 as a result of the increased finished goods shipments.
Gross profit increased to $130.3 million in 1993, a 24% increase over 1992.
However, the gross profit margin decreased to 24.7% in 1993 compared to 27.3% in
1992, primarily due to an aggressive pricing strategy, changes in the product
mix and foreign exchange rates. The growing ATV and PWC businesses provided a
lower gross profit percentage than did the snowmobile business. Raw material
purchase prices increased for engines and certain other 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 caused gross
margin erosion of the Canadian subsidiary operation.
Operating expenses increased $12.8 million in 1993, but as a percentage of
sales decreased to 14.6% in 1993 from 16.7% in 1992. Operating expenses as a
percentage of sales decreased because the Company was able to increase sales
without incurring a corresponding amount of general and administrative expenses.
In addition, because of the strong demand and competitive pricing for the
18
<PAGE>
Company's products, sales and marketing program expenses remained relatively
constant between 1993 and 1992.
The provision for income taxes in 1993 increased over the prior year at a
rate greater than the growth in income from the Canadian subsidiary because the
Company continued to accrue for open tax years in the United States and Canada
(see Note 8 of Notes to the Financial Statements).
CASH DIVIDENDS AND SPECIAL DISTRIBUTIONS
Since its inception, and prior to the Conversion in 1994, the Partnership
paid cumulative cash distributions to holders of its BACs in the amount of
$16.37 per BAC, which, together with cash distributions paid to its general
partner, aggregated $282.4 million.
On January 26, 1995, the Board of Directors of the Company declared a
regular dividend of $0.15 per share to holders of record on February 6, 1995,
payable on February 15, 1995, and a special cash distribution of $1.92 per share
to holders of record on March 17, 1995, payable on April 1, 1995. On April 18,
1995, the Board of Directors of the Company declared a regular cash dividend of
$0.15 per share to holders of record on May 3, 1995, payable on May 15, 1995.
Management has recommended to the Company's Board of Directors that it establish
an initial cash dividend rate of $0.15 per share per quarter, and pay two
additional special cash distributions, each of $1.92 per share, payable during
the third and fourth quarters of 1995. The next such special cash distribution
is payable on July 5, 1995 to holders of record as of June 9, 1995. Management
expects to incur indebtedness of up to $70 million in connection with the
payment of the special cash distributions. However, the timing and amount of
future dividends and distributions will be at the discretion of the Board of
Directors of the Company and will depend, among other things, on continuing
levels of performance and the financial strength of the Company. There can be no
assurance that the recommended dividends or cash distributions for 1995 will be
declared and paid.
LIQUIDITY AND CAPITAL RESOURCES
Polaris' primary sources of funds have been cash provided by operating
activities, a line of credit and a dealer financing program provided by third
parties. Polaris' primary uses of funds have been for cash distributions to
partners, capital investments and for new product development.
During the first quarter of 1995, Polaris generated net cash from operating
activities of $3.1million, which, together with existing cash balances, was
utilized to fund cash distributions and dividends totalling $15.5 million and
capital expenditures of $11.6 million. During the year ended December 31, 1994,
Polaris generated net cash from operating activities of $111.7 million, which
was utilized to fund cash distributions to partners of $50.1 million and capital
expenditures of $32.5 million. At March 31, 1995, cash and cash equivalents
totaled $38.9 million, a decrease of $24.0 million from December 31, 1994.
Working capital totaled $17.5 million at March 31, 1995, a decrease of $27.5
million from December 31, 1994.
At March 31, 1995, the Company had no short-term debt and had utilized its
bank line to the extent of letters of credit outstanding of $18.2 million
related to purchase obligations for raw materials. The seasonality of production
and shipments causes working capital requirements to fluctuate during the year.
On May 8, 1995, the Company entered into a $125 million unsecured bank line of
credit arrangement with First Bank National Association, Bank of America
Illinois and First Union National Bank of North Carolina, as Managers and Banks,
expiring March 31, 1998. Borrowings under the line of credit bear interest at a
reference rate determined from time to time by First Bank National Association
or at a LIBOR-based interest rate plus an applicable margin.
The Company 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 the Company's working capital.
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Substantially all of the sales of snowmobiles, ATVs and PWC are financed under
these arrangements whereby the Company receives payment within a few days of
shipment of the product. The amount financed by distributors and dealers under
these arrangements at December 31, 1994 and March 31, 1995, was approximately
$108.0 million and $214.0 million, respectively. From time to time, the Company
participates in the cost of dealer and distributor financing up to certain
limits. The Company 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 Company'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 arrangements. However, an adverse
change in the economy could cause this situation to change and thereby require
the Company to repurchase financed units. Management intends to record a sales
allowance when it becomes probable that returns under this program will be
material.
The Company has made capital investments to increase production capacity,
quality 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, the expansion of computer-aided engineering
and design systems, installation of a new state-of-the-art metals paint system,
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 layout and the
expansion to a new leased assembly facility in 1994. The Company anticipates
that capital expenditures, including tooling, for 1995 will approximate $45
million.
The Canadian income tax authorities have proposed adjustments to the 1987
and 1988 income tax returns of the Canadian subsidiary. The resolution of these
proposed adjustments may also affect the Canadian income tax returns for years
subsequent to 1988. The Company has been informed of the Canadian income tax
authorities' intent to initiate audits of the tax years 1989 through 1991. The
proposed adjustments relate primarily to the original purchase price allocation
of the Canadian subsidiary and certain transfer pricing matters. Management
continues to vigorously contest a certain amount of the proposed adjustments.
Management does not believe the outcome of this matter will have a materially
adverse impact on the financial position or continuing operations of the
Company. At March 31, 1995, the Company has accrued U.S. $15.0 million for
income taxes related to certain open tax years in the United States and Canada.
The Conversion, effective in December 1994, will significantly impact future
liquidity and capital resources. Management has recommended to the Company's
Board of Directors that it make special cash distributions aggregating
approximately $105 million during 1995. As a corporation, the Company will be
responsible for payment of corporate federal, state and certain foreign income
taxes on current earnings. The combined tax rate is estimated to be
approximately 38% of pre-tax income, net of related research and development
credits and foreign sales corporation benefits. As a result of the Conversion,
the Company has recorded a deferred tax asset of $65 million in 1994 which will
have the effect of reducing income taxes payable in future periods.
Management believes that existing cash balances, cash flow to be generated
from operating activities and available borrowing capacity under its line of
credit arrangement will be sufficient to fund operations, regular dividends,
special cash distributions and capital expenditure requirements for 1995. At
this time, management is not aware of any factors that would have a materially
adverse impact on cash flow beyond 1995.
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INFLATION AND EXCHANGE RATES
The Company does not believe that inflation has had a material impact on the
results of its operations. However, the changing relationships of the U.S.
dollar to the Canadian dollar and Japanese yen have had a material impact from
time-to-time (and may be expected to be material in the future).
Over the past several years, weakening of the U.S. dollar in relation to the
Japanese yen has resulted in higher raw material purchase prices. During 1994,
purchases totaling 28% of the Company's cost of sales were from Japanese
suppliers. The material weakening of the U.S. dollar in relation to the yen
during the latter part of the first quarter of 1995 did not have a material
effect on the Company's cost of sales during the first quarter of 1995 due to
the timing of engine purchases. However, the Company anticipates that in future
periods the devaluation of the U.S. dollar in relation to the yen will have an
adverse impact on the cost of sales. Management believes that such cost
increases also affect its principal competitors in ATVs, and, to varying
degrees, some of its snowmobile and PWC competitors.
The Company operates in Canada through a wholly-owned subsidiary. Sales of
the Canadian subsidiary comprised 16% of total Company sales in 1994.
Strengthening of the U.S. dollar in relation to the Canadian dollar has caused
unfavorable foreign currency fluctuations from prior periods resulting in lower
gross margin levels.
In the past, the Company 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. At
March 31, 1995, the Company had certain open contracts to purchase Japanese yen
and to sell Canadian dollars which mature throughout 1995.
In February 1995, the Company entered into an agreement with Fuji to build
engines in the United States for recreational and industrial products. Potential
advantages to the Company of participation in this arrangement include reduced
foreign exchange risk, lower shipping costs and less dependence on a single
source for engines in the future. However, such benefits are not expected to be
significant for some time.
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BUSINESS
INDUSTRY BACKGROUND
Although specific information with respect to industry sales in each of the
Company's product lines is not consistently and reliably available, management
believes that the markets for each of Polaris' product lines are growing.
Management currently estimates that in 1994 worldwide snowmobile industry retail
unit sales volume increased by more than 20%, worldwide ATV industry retail unit
sales volume increased by more than 10%, and worldwide PWC industry retail unit
sales volume increased by approximately 30%.
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
Company's product survived the industry decline in which snowmobile retail 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 Motor ("Yamaha"), Bombardier Inc. ("Bombardier"), Arctco, Inc. ("Arctco")
and the Company. The Company currently estimates that industry sales of
snowmobiles on a worldwide basis were approximately 210,000 units for the season
ended March 31, 1995.
All Terrain Vehicles. The Company entered the ATV market in 1985. Polaris
currently manufactures only four-wheel and six-wheel ATV 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 Motor. By
1980, the number of ATV units sold in the North American market had increased to
approximately 140,000 units. Other Japanese vehicle manufacturers, including
Yamaha, Kawasaki Heavy Industries, Ltd. ("Kawasaki") and Suzuki Motor, entered
the North American market in the late 1970s and early 1980s. In August 1994,
Arctco announced its intention to enter the ATV market commencing in 1995. In
1985, the number of three- and four-wheel ATVs sold in North America peaked at
approximately 650,000 units. The Company estimates that since declining from
that level to approximately 187,000 units in 1990, unit volume has been growing,
with approximately 290,000 ATVs sold worldwide during 1994.
Personal Watercraft. PWC are sit-down versions of water scooter vehicles,
and are 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. The Company entered the PWC market in 1992. The Company estimates
that the worldwide market for PWC was approximately 160,000 units in 1994. Other
major PWC manufacturers are Yamaha, Bombardier, Kawasaki and Arctco.
MARKETING AND DISTRIBUTION
With the exception of Illinois, upper Michigan, eastern Wisconsin and
offshore markets, where the Company sells its snowmobiles through independent
distributors, the Company sells its snowmobiles directly to dealers in the
snowbelt regions of the United States and Canada. Over the past several years,
the Company has placed an increasing emphasis on dealer-direct as opposed to
distributor sales. Snowmobile sales in Europe are handled through independent
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, the Company has established
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a direct dealer network. Since the beginning of 1986, the Company has
established approximately 500 dealerships in the southern United States. Unlike
its current competitors, which market their ATV products principally through
their affiliated motorcycle dealers, the Company also sells its ATVs and PWC
through lawn and garden, boat and marine, and farm implement dealers.
Dealers and distributors sell the Company's 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. The Company believes that a
sufficient number of qualified dealers and distributors exists in all areas to
permit orderly transition whenever necessary.
The Company has arrangements with Transamerica Commercial Finance Company,
Canadian Imperial Bank of Commerce, 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 the Company's sales of
snowmobiles, ATVs and PWC are financed under arrangements in which the Company
is paid within a few days of shipment of its product. The Company 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. The Company 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, the Company will record a sales return allowance at
the time of sale should management anticipate material repurchases of units
financed through the finance companies. See Notes 1 and 4 of Notes to the
Financial Statements.
The Company does not directly finance the purchase of its snowmobiles, ATVs
or PWC by consumers. However, retail financing plans are offered by certain of
the dealers and the Company has programs to make consumer financing available to
its dealers through unaffiliated third parties.
The Company's 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 the Company
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. The Company 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. The Company 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 the Company produces a promotional film for its snowmobiles, ATVs and PWC
which is available to dealers for use in the showroom or at special promotions.
The Company also provides product brochures, leaflets, posters, dealer signs,
and other miscellaneous promotional items for use by dealers. It is anticipated
that during 1995 the Company will centralize its sales, marketing and dealer and
distributor support activities in a wholly-owned subsidiary corporation.
MANUFACTURING OPERATIONS
Snowmobiles, ATVs and PWC incorporate similar technology, with substantially
the same equipment and personnel employed in their production. Much of the
Company's workforce is generally familiar with the use, operation and
maintenance of the products since many employees own snowmobiles, ATVs and PWC.
The Company's production philosophy is to be a low-cost producer and to keep
its costs as variable as possible. The Company purchases such major components
as fuel tanks, hoods and hulls, tracks, tires and instruments from multiple
sources, while engines have been supplied solely by Fuji since 1968. The Company
has, in recent years, increased the number of components fabricated in-house.
In-house
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processes employed in the fabrication of components include machining, stamping,
welding, painting, and the cutting and sewing of foam seats.
The Company's snowmobile and ATV products currently are assembled at its
facility in Roseau, Minnesota. In August 1994, the Company signed a one-year
lease agreement for a 223,000 square foot assembly facility located on 24 acres
of land in Spirit Lake, Iowa, and expects to exercise its option to purchase the
facility for $1.85 million at the end of the lease term. The Company is
utilizing the facility to assemble its PWC product line, and may use it to
assemble certain snowmobiles and ATV models in the future. In August 1991, the
Company acquired a facility in Osceola, Wisconsin in order to fabricate more
components in-house.
Fuji has been the sole manufacturer of the Polaris two-cycle snowmobile
engines since 1968 pursuant to informal agreements between the Company and Fuji.
Fuji has manufactured engines for the Company's ATV products since their
introduction in the spring of 1985 and also supplies engines for Polaris' PWC
products. Such engines are developed by Fuji to the specific requirements of the
Company. The Company believes its relationship with Fuji to be excellent. If,
however, its informal relationship were terminated, interruption in the supply
of engines would adversely affect the Company's production pending the
establishment of substitute supply arrangements.
In February 1995, the Company and Fuji entered into an agreement to form
Robin Manufacturing U.S.A., Inc. ("Robin"). Under the terms of the agreement,
the Company has initially invested $800,000 for a 40% ownership interest in
Robin, which will build engines in the United States for recreational and
industrial products. Management anticipates that, through Robin, the Company
may, in the future, experience reduced foreign exchange risk, lower shipping
costs and less dependence on a single source for engines. However, such benefits
are not expected to be significant for some time.
The Company's products are shipped from its manufacturing facilities by a
contract carrier.
PRODUCTION SCHEDULING
Snowmobiles are used principally in the northern United States, Canada and
northern Europe in what is referred to as the "snow belt." Delivery of
snowmobiles to consumers begins in the fall and continues 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 facilitate production planning. 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. The Company manufactures PWC during the fall,
winter and spring months. Since May 1993, the Company has the ability to
manufacture ATVs year round. Generally, the Company commences ATV production in
late autumn and continues through early autumn of the following year. For the
past several years, the Company has had virtually no carryover inventory at the
dealer level of its production of snowmobiles, ATVs and PWC.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company employs approximately 220 persons who are engaged in research,
development and testing of products and improved production techniques. The
Company believes that the Company 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 adaptation of the MacPhersonTM strut front suspension and "on demand"
all-wheel drive systems for use in ATVs and the application of a forced-air
cooled variable power transmission system to ATVs.
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The Company utilizes internal combustion engine testing facilities to design
and optimize engine configurations for its products. The Company utilizes
specialized facilities for matching engine, exhaust system and clutch
performance parameters in its products to achieve desired fuel consumption,
power output, noise level and other objectives. The Company's engineering shop
is equipped to make small quantities of new product prototypes for testing by
the Company's testing teams and for the planning of manufacturing procedures. In
addition, the Company's manufacturing facility in Roseau, Minnesota has a
testing ground where each of the products is extensively tested under actual use
conditions.
The Company expended for research and development approximately $7.4 million
in 1992, $11.1 million in 1993 and $13.5 million in 1994, 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 brand loyalty, price, quality, reliability, styling, product
innovations and 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 the Company's
competitors are more diversified and have financial and marketing resources
which are substantially greater than those of the Company. See "--Industry
Background."
Polaris snowmobiles, ATVs and PWC are competitively priced and management
believes the Company's sales and marketing support programs for dealers are
comparable to those provided by its competitors. The Company's 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. The
Company 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 CPSC ATV Task Force issued a report on
regulatory options for ATVs. 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.
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. 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.
Except for approximately 1,700 three-wheel units produced in 1985, the
Company manufactures only four-wheel and six-wheel ATVs. The Company 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.
On December 30, 1987, the Company 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. The Company conditions its ATV warranties described below
under "--Product Liability and Warranties" on completion of the mandatory "hands
on" consumer training program.
Pursuant to the agreement with the CPSC, the Company 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.
The Company continually attempts to assure that its dealers are in
compliance with the provisions of the CPSC consent decree. The Company 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 Company does not believe that the agreement with the CPSC has had or
will have a material adverse effect on the Company. 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
Company. Certain state attorneys general have asserted that the CPSC agreement
is inadequate and have indicated that they will seek stricter ATV regulation.
The Company 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 the Company's snowmobiles, ATVs and PWC. However, the
Company has developed and currently sells a four-cycle engine for its ATVs which
produces lower emissions. The Company currently is unable to predict whether
such legislation will be enacted and, if so, the ultimate impact on the Company
and its operations. Finally, local ordinances have been and may from time to
time be considered and adopted which restrict the use of PWC to specified hours
and locations. The existence of such restrictions can adversely affect market
demand for PWC.
PRODUCT LIABILITY AND WARRANTIES
The Company and its predecessors have self-insured for product liability
claims since June 1985.
Product liability claims are made against the Company from time to time.
Between 1981 and March 31, 1995, the Company and its predecessors have paid an
aggregate of less than $1.6 million in product liability claims. At March 31,
1995, the Company had accrued $5.3 million for the defense and possible payment
of pending claims. The Company believes such accruals are adequate. The Company
does not believe that the outcome of any pending product liability litigation
will have a material adverse effect on the operations of the Company. However,
no assurance can be given that its historical claims
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record, which did not include ATVs prior to 1985, or PWC prior to 1992, will not
change or that material product liability claims against the Company will not be
made in the future. Adverse determination of material product liability claims
made against the Company would have a material adverse effect on the Company's
financial condition. See Note 8 of Notes to the Financial Statements.
The Company warrants its snowmobiles, ATVs and PWC under a "limited
warranty" for a period of one year, six months, and one year, respectively.
Although the Company employs quality control procedures, a product is sometimes
distributed which needs repair or replacement. Historically, product recalls
have been administered through the Company's dealers and distributors and have
not had a material effect on the Company's business.
EMPLOYMENT
The Company employed a total of approximately 3,100 persons at March 31,
1995. Approximately 650 of its employees are salaried. The Company considers its
relations with its personnel to be excellent.
Historically, the Company's 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, the Company's employment levels have
become more stable. The Company's employees have not been represented by a union
since July 1982.
The Company's compensation plans are such that a significant percentage of
compensation of all employees is directly tied to the financial performance of
the Company through a profit-sharing program.
PROPERTIES
The Company 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 August 1991, the Company acquired 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 in Osceola, Wisconsin. The Company makes ongoing capital investments in
its facilities. In August 1994, the Company signed a one-year lease agreement
for a 223,000 square foot assembly facility located on 24 acres of land in
Spirit Lake, Iowa. The Company has an option to purchase the facility for $1.85
million at the end of the lease term, which it currently intends to exercise.
The Company currently uses the facility to assemble its PWC product line, and
may use it to assemble certain snowmobile and ATV models in the future. These
investments have increased production capacity for ATVs, snowmobiles and PWC.
The Company believes that its manufacturing facilities are adequate in size and
suitability for its present manufacturing needs.
The Company 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 the Company 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.
The Company leases 92,000 square feet of headquarters and warehousing
facilities in Minneapolis, Minnesota from related parties pursuant to a lease
that will terminate in 1997. See "Management-- Certain Relationships and Related
Transactions." Polaris also leases an additional 45,000 square feet of warehouse
space in Minneapolis, Minnesota and 42,000 square feet of office and warehouse
space in Winnipeg, Manitoba. The Company does not anticipate any difficulty in
securing alternate facilities on competitive terms, if necessary, upon the
termination of any of its leases.
LEGAL PROCEEDINGS
The Company 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
the Company.
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Injection Research Specialists commenced an action in June 1990 against the
Company in Colorado federal court alleging various claims arising out of the
Company's 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. The Company has filed counterclaims in
that action and has instructed its counsel to contest the matter vigorously.
Management does not believe that any judgment rendered against it in this matter
would have a material adverse effect on the financial condition of the Company.
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 Company's Canadian subsidiary for 1987 and 1988. The resolution of these
proposed adjustments may also affect the Company's Canadian income tax expense
for years subsequent to 1988. The Company has been informed of the Canadian
income tax authorities' intent to initiate an audit of the tax years 1989
through 1991. Management intends to vigorously contest a substantial amount of
the proposed adjustments. 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 Company. See Note 8 of Notes to the Financial
Statements.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of March 31, 1995
are:
NAME AGE POSITION
---------------------------------- --- ----------------------------------
W. Hall Wendel, Jr................ 52 Chairman and Chief Executive
Officer, Director
Kenneth D. Larson................. 54 President and Chief Operating
Officer, Director
Beverly F. Dolan.................. 67 Director
Robert S. Moe..................... 63 Director
Stephen G. Shank.................. 51 Director
Gregory R. Palen.................. 39 Director
Andris A. Baltins................. 49 Director
John H. Grunewald................. 58 Executive Vice President, Chief
Financial Officer and Secretary
Charles A. Baxter................. 47 Vice President-Engineering and
Product Safety
Ed Skomoroh....................... 57 Vice President-Sales and Marketing
Jeffrey A. Bjorkman............... 35 Vice President-Manufacturing
Michael W. Malone................. 36 Vice President and Treasurer
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. The term of office of Messrs. Moe and Dolan expires
in 1996; the term of office of Messrs. Wendel, Palen and Shank expires in 1997;
and the term of office of Messrs. Larson and Baltins expires in 1998.
W. Hall Wendel, Jr. is the Chairman and Chief Executive Officer of the
Company and was Chief Executive Officer of Polaris Industries Capital
Corporation ("PICC"), the managing general partner of Polaris Industries
Associates L.P. which was the operating general partner of Polaris Industries
L.P., from 1987 through the Conversion in 1994. From 1981 to 1987, Mr. Wendel
was Chief Executive Officer of the predecessor of the Company. 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. Mr. Wendel is Chairman of the Board of
Directors and Chairman of the Executive Committee of the Board of Directors of
the Company.
Kenneth D. Larson has been the President and Chief Operating Officer of the
Company since the Conversion. He was the President and Chief Operating Officer
of PICC from October 1988 through December 1994. Prior thereto, Mr. Larson was
Executive Vice President of Toro Company responsible for its commercial,
consumer and international equipment business, and held a number of general
management positions after joining Toro Company in 1975. Mr. Larson serves as a
director and a member of the audit committee of Featherlite Trailers, a
manufacturer of stock and car trailers and as a director and a member of the
compensation committee of Destron Fearing Corp., a manufacturer of animal
identification devices. Mr. Larson also is a director of various private
corporations. Mr. Larson serves on the Executive Committee of the Board of
Directors of the Company.
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,
Mr. Dolan has been a private investor and currently serves as 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 also served on President Bush's Export Council and was
elected Vice Chairman of that Council in November 1990. Mr. Dolan is Chairman of
the Compensation Committee of the Board of Directors of the Company.
29
<PAGE>
Robert S. Moe was Executive Vice President and Treasurer of PICC or its
predecessor from 1981 through 1992. Since 1992, he has been a private investor.
Mr. Moe serves on the Compensation Committee and the Executive Committee of the
Board of Directors of the Company.
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. Mr. Shank is also a director of various private
and non-profit corporations. Mr. Shank is the Chairman of the Audit Committee of
the Board of Directors of the Company.
Gregory R. Palen has been 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 painting and coating manufacturing
company. Mr. Palen is also a director of various private and non-profit
corporations. Mr. Palen serves on the Audit Committee of the Board of Directors
of the Company.
Andris A. Baltins has been a member of the law firm of Kaplan, Strangis and
Kaplan, P.A. since 1979. He is a director of Affinity Group, Inc., a
membership-based marketing company. Mr. Baltins is also a director of various
private and non-profit corporations. Mr. Baltins serves on the Audit Committee
and the Compensation Committee of the Board of Directors of the Company.
John H. Grunewald is Executive Vice President, Chief Financial Officer and
Secretary of the Company. He served as Executive Vice President, Finance and
Administration of PICC from September 1993 until the Conversion. Prior to
joining the Company, 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.
Charles A. Baxter is Vice President--Engineering and Product Safety of the
Company. He served as Vice President, Engineering of PICC and its predecessor
from June 1981 until the Conversion. Prior thereto, since 1970, he was employed
as Director of Engineering of the Polaris E-Z-Go Division of Textron.
Ed Skomoroh is Vice President--Sales and Marketing of the Company. He served
as Vice President, Sales and Marketing of the Operating Company from 1988 until
the Conversion. 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 a predecessor to the Company 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.
Jeffrey A. Bjorkman has been Vice President--Manufacturing of the Company
since January 1995, and prior thereto, held positions of Plant Manager and
Manufacturing Engineering Manager since July 1990. Prior to joining the Company,
Mr. Bjorkman was employed by General Motors Corporation in various management
positions for nine years.
Michael W. Malone is Vice President and Treasurer of the Company. Prior to
the Conversion, he served as Chief Financial Officer and Treasurer of PICC from
January 1993. Prior thereto and since 1986, he was Assistant Treasurer of PICC
and its predecessor. Mr. Malone joined a predecessor to the Company in 1984
after four years with Arthur Andersen & Co.
30
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1994, 1993 and 1992 of those persons who were, as of December
31, 1994, (i) the Chief Executive Officer and (ii) the four other most highly
paid executive officers whose total annual salary and bonus exceeded $100,000
during the fiscal year ended December 31, 1994 (the "Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE><CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------------
---------------------------------- PAYOUTS
OTHER RESTRICTED AWARDS ----------
ANNUAL STOCK ------------ LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR ($) ($)(A) ($)(B) ($)(C) (#) ($) ($)(D)
-------------------------- ---- -------- -------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. Hall Wendel, Jr........ 1994 $240,000 $480,000 -- $282,000 0 $0 $6,000
Chairman of the Board and 1993 $240,000 $328,800 -- $0 0 $0 $7,075
Chief Executive Officer 1992 $240,000 $249,600 -- $0 0 $3,736,049 $6,866
Kenneth D. Larson......... 1994 $190,000 $437,000 -- $352,500 0 $0 $6,000
Chief Operating Officer 1993 $185,433 $278,149 -- $0 0 $744,002 $7,075
and President 1992 $183,750 $199,920 -- $0 0 $858,297 $6,866
John H. Grunewald......... 1994 $170,000 $340,000 -- $352,500 0 $0 $5,231
Executive Vice President 1993 $42,500 $31,875 -- $337,500 0 $0 $0
and Chief Financial 1992 N/A N/A N/A N/A N/A N/A N/A
Officer(E)
Charles A. Baxter......... 1994 $150,000 $205,500 -- $176,250 0 $0 $6,000
Vice President-- 1993 $150,000 $144,000 -- $0 0 $0 $7,075
Engineering and Product 1992 $150,000 $118,500 -- $0 0 $1,245,335 $6,866
Safety
Ed Skomoroh............... 1994 $129,400 $177,281 -- $176,250 0 $0 $6,000
Vice President-- 1993 $129,402 $121,636 -- $0 0 $248,045 $7,075
Sales and Marketing 1992 $129,402 $102,228 -- $0 0 $286,069 $6,866
</TABLE>
------------
<TABLE>
<C> <S>
(A) Bonus payments are reported for the year in which the related services were performed.
(B) The Company provides health club memberships, club dues, financial planning and tax preparation,
Execucare coverage, as well as standard employee medical, dental, and disability coverage to its
senior executives. The value of all such "Other Annual Compensation" is less than the minimum of
$50,000 or 10% of the total cash compensation for each person reported above.
(C) On March 1, 1994, an aggregate of 112,000 First Rights were granted to Polaris employees pursuant
to the 1987 Management Ownership Plan, including 8,000, 10,000, 10,000, 5,000, and 5,000 for
Messrs. Wendel, Larson, Grunewald, Baxter and Skomoroh, respectively. In addition, 10,000 First
Rights were granted to Mr. Grunewald in September 1993. One-half of these First Rights convert to
stock on January 1, 1997 (50%) and the remainder convert on January 1, 1998 (50%). These are the
total outstanding restricted shares or stock units held by the Chief Executive Officer and other
four highest paid executive officers as of December 31, 1994. The share price at the close of
business on December 31, 1994 was $51.625; therefore, the value of the total outstanding
restricted shares for the Executive Officers at the end of the fiscal year was $413,000,
$516,250, $1,032,500, $258,125 and $258,125 respectively, for Messrs. Wendel, Larson, Grunewald,
Baxter and Skomoroh.
(D) Consists of Company matching contributions to the 401(k) retirement savings plan.
(E) Mr. John H. Grunewald was hired on September 27, 1993.
</TABLE>
The Company did not maintain a stock option plan or stock appreciation
rights plan during the fiscal year ended December 31, 1994. No awards were made
by the Company to any Executive Officers under any long term incentive plans
during the fiscal year ended December 31, 1994 other than the First Rights
grants referred to in footnote (C) above.
31
<PAGE>
The Company does not maintain any defined benefit or actuarial pension plan
under which benefits are determined primarily by final compensation and years of
service.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
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 Company 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
Company 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 Company will pay a total of $500,000 in monthly installments
over ten years commencing on Mr. Wendel's 65th birthday or, if later,
retirement. In the event of voluntary termination of employment by Mr. Wendel,
the Company will pay $50,000 for each full year of service (including the period
during which disability payments were 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors, which was established
on December 22, 1994, consists of Beverly F. Dolan, Robert S. Moe and Andris A.
Baltins. Mr. Moe was Executive Vice President and Treasurer of a predecessor of
the Company from 1981 through 1992. Mr. Baltins is a member of the law firm of
Kaplan, Strangis and Kaplan, P.A., which provided legal services to the
Partnership and the Company during 1994. Of the approximately $12.3 million in
fees and expenses incurred in connection with the conversion of the Partnership
to corporate form in 1994, Kaplan, Strangis and Kaplan, P.A. was paid an
aggregate amount of approximately $1 million. Kaplan, Strangis and Kaplan, P.A.
is expected to continue to provide certain legal services to the Company during
1995. See "Legal Matters."
COMPENSATION COMMITTEE EXECUTIVE COMPENSATION PHILOSOPHY
Levels of base compensation and participation in bonus and profit-sharing
pools for executive officers of the Partnership for 1994 were established by a
compensation committee of the board of directors of the operating general
partner of the Partnership. Members of that compensation committee do not
currently serve as directors or officers of the Company.
The Compensation Committee of the Board of Directors of the Company was
established in December 1994. The Company's future compensation programs will be
tied closely to Company performance and aimed at enabling the Company to attract
and retain the best possible executive talent, aligning the financial interests
of the Company's management with those of its shareholders and rewarding those
executives commensurately with their ability to achieve increases in shareholder
value. It is anticipated that in the future, compensation for each of the
Company's executive officers will consist of a base salary, an annual
performance-based bonus, benefits, perquisites and stock options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Polaris Industries Partners, L.P., a partnership wholly owned by the Company
("PIP"), leases office and warehouse space in a suburb of Minneapolis, Minnesota
from 1225 North County Road 18 Limited Partnership (the "1225 Partnership"). Mr.
Wendel, Mr. Moe and Mr. Baxter are among the partners in the 1225 Partnership.
Under the lease, which was entered into in 1983, and amended in 1990, PIP 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 $2.50 per square foot of warehouse space and $5.50 per square
foot of office space and is adjusted annually by increases
32
<PAGE>
in the consumer price index, not to exceed 3.5% annually. Total lease payments
for the years ending 1992, 1993 and 1994 were $429,000, $443,000 and $456,000,
respectively. The lease expires in 1997.
Mr. Baltins, a member of the Board of Directors, is also a member of the law
firm of Kaplan, Strangis and Kaplan, P.A. which provided legal services to the
Partnership and the Company in 1994. Of the approximately $12.3 million in fees
and expenses incurred in connection with the Conversion, Kaplan, Strangis and
Kaplan, P.A. was paid an aggregate amount of approximately $1 million. Kaplan,
Strangis and Kaplan, P.A. is expected to continue to provide certain legal
services to the Company in 1995. See "Legal Matters."
BONUS AND PROFIT SHARING PLAN
The Company currently maintains a bonus and profit sharing plan for its
employees. Individual awards under the plan, granted each year, are based upon
levels of the Company's "pre-tax cash flow" and individual employee
responsibility and performance. During March 1995, the Company made cash award
payments under this plan for 1994 performance aggregating approximately $25
million, which amounts had been accrued by the Company at December 31, 1994. See
Note 6 of Notes to the Financial Statements.
STOCK OPTION PLAN
The Company has a stock option plan, the Polaris Industries Inc. 1995 Stock
Option Plan (the "Stock Option Plan"), under which stock options awards may be
made to employees of the Company. The Stock Option Plan will remain effective
until March 15, 2005 unless terminated earlier by the Board of Directors.
The maximum number of shares of Common Stock allocated to the Stock Option
Plan is 900,000 shares. As of May 19, 1995, options with respect to 169,700
shares of Common Stock have been granted under the Stock Option Plan. Such
options are exercisable on or after May 10, 1998. No employee of the Company may
receive options in respect of more than 400,000 shares in any calendar year. The
exercise price for a stock option must be at least equal to the fair market
value of the Common Stock at the time of awarding of the stock option.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee is comprised solely of
nonemployee directors of the Company who are not eligible to participate in the
Stock Option Plan. Any employee of the Company may be selected by the
Compensation Committee to receive an award under the Stock Option Plan.
Presently, there are approximately 2,850 employees eligible to participate in
the Stock Option Plan.
The options to be granted under the Stock Option Plan will be subject to
restrictions on exercise, such as exercise in periodic installments or upon
attainment of specified performance criteria, as determined by the Compensation
Committee. Stock options granted under the Stock Option Plan will not be
transferable except by will or the laws of descent and distribution and may be
exercised only by a participant during his or her lifetime. Unless otherwise
determined by the Compensation Committee and provided in the applicable option
agreement, options will be exercisable within 30 days of any termination of
employment other than termination due to disability, death or normal retirement.
The options will be exercisable within one year of a termination of employment
by reason of disability, death or normal retirement but an Incentive Stock
Option will not be exercisable more than three months after retirement.
The Stock Option Plan may be terminated or amended at any time.
33
<PAGE>
DEFERRED COMPENSATION PLAN FOR DIRECTORS
The Company maintains a deferred compensation plan for directors, the
Polaris Industries Inc. Deferred Compensation Plan for Directors (the "Deferred
Compensation Plan"), under which directors who are not officers or employees of
the Company ("Outside Directors") will receive annual awards of Common Stock
Equivalents and can elect to defer all or a portion of their cash directors'
fees and have the deferred amounts deemed invested in additional Common Stock
Equivalents. These "Common Stock Equivalents" are phantom stock units, i.e.,
each Common Stock Equivalent represents the economic equivalent of one share of
Common Stock. Dividends will be credited to Outside Directors as if the Common
Stock Equivalents were outstanding shares of Common Stock. Such dividends will
be converted into additional Common Stock Equivalents. The Deferred Compensation
Plan will remain effective until the close of business on May 10, 2005, unless
terminated earlier by the Board.
As of each quarterly date on which retainer fees are payable to Outside
Directors, each Outside Director will automatically receive an award of Common
Stock Equivalents having a fair market value
of $1,250.
An Outside Director can also defer all or a portion of the retainer and/or
meeting fees that would otherwise be paid to him or her in cash. Such deferred
amounts will be converted into additional Common Stock Equivalents based on the
then fair market value of the Common Stock.
As soon as practicable after an Outside Director's Board service terminates,
he or she will receive a distribution of a number of shares of Common Stock
equal to the number of Common Stock Equivalents then credited to him or her
under the Deferred Compensation Plan. Upon the death of an Outside Director, the
shares will be issued to his or her beneficiary. Upon a change in control of the
Company (as defined in the Deferred Compensation Plan), however, each Outside
Director will receive a cash payment equal to the value of his or her
accumulated Common Stock Equivalents.
A maximum of 50,000 shares of Common Stock will be available for issuance
under the Deferred Compensation Plan. The Deferred Compensation Plan may be
terminated or amended at any time.
EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors has adopted, and the Company's shareholders
have approved, the Polaris Industries Inc. Employee Stock Purchase Plan (the
"Stock Purchase Plan"). The effective date of the Stock Purchase Plan is January
1, 1997 or such earlier date as the Board of Directors may determine.
Under the Stock Purchase Plan, options ("Purchase Options") to purchase up
to an aggregate of 500,000 shares of Common Stock may be granted to eligible
employees.
The Stock Purchase Plan will be administered by a committee appointed by the
Board of Directors (the "Stock Purchase Plan Committee"). None of the members of
the Stock Purchase Plan Committee will be eligible to purchase Common Stock
under the Stock Purchase Plan. The Stock Purchase Plan Committee will establish
such rules and procedures as are necessary or advisable to administer the Stock
Purchase Plan.
Each employee of the Company who is customarily employed on a full-time or
part-time basis and who is regularly scheduled to work more than 20 hours per
week will be eligible to participate in the Stock Purchase Plan after completing
six months of employment. An employee may not receive a Purchase Option under
the Stock Purchase Plan if, immediately after the Purchase Option is granted,
the employee would own stock possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company. Approximately 2,300
employees would be eligible to participate in the Stock Purchase Plan if it were
to be implemented at the present time.
34
<PAGE>
In addition, no participant will be granted a Purchase Option under the
Stock Purchase Plan or an option under any other employee stock purchase plan
maintained by the Company to the extent that the participant's right to purchase
shares of Common Stock under all such options would accrue at a rate at which
the fair market value of the shares (determined at the time the option is
granted) would exceed $25,000 for each calendar year in which any of the options
granted to such employee is outstanding at any time. Also, unless the Stock
Purchase Plan Committee otherwise determines, executive officers of the Company
will not be eligible to participate in the Stock Purchase Plan.
The Common Stock purchased under the Stock Purchase Plan will be paid for by
payroll deductions. On the first day of each month, a participant will be deemed
to have been granted a Purchase Option for the maximum number of whole shares of
Common Stock that can be purchased at the applicable option price with the
payroll deductions credited to his account for that month. The applicable option
price will be an amount equal to 85% of the averages of the closing prices per
share of Common Stock on the New York Stock Exchange (or other stock exchange or
stock quotation system on which the Common Stock is then quoted or traded) as of
the first day and the last day of the month.
If any participant's employment with the Company terminates for any reason,
any unexercised Purchase Options granted to such participant will terminate as
of the date of the termination of the participant's employment. The Company
promptly will refund to the participant the amount of payroll deductions then
credited to the participant's account, and will deliver to the participant one
or more stock certificates representing the number of shares of Common Stock
credited to the participant under the Plan.
The Employee Stock Purchase Plan may be terminated or amended at any time.
35
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, OFFICERS AND SELLING SHAREHOLDERS
All of the shares of Common Stock being offered hereby are being sold by the
Selling Shareholders named below.
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of May 19, 1995, assuming the exercise of all
options, if any, exercisable on, or within 60 days of, such date, by (i) each
director, (ii) the Chief Executive Officer and each of the other four most
highly compensated executive officers of the Company, (iii) all executive
officers and directors as a group and (iv) the Selling Shareholders. Other than
as set forth in the table below, there are no persons known to the Company to
beneficially own more than 5% of the Common Stock.
<TABLE><CAPTION>
BENEFICIAL OWNERSHIP(1)
--------------------------------------------------------
BEFORE OFFERING AFTER OFFERING
-------------------------- --------------------------
FULLY FULLY
DILUTED DILUTED
NUMBER OF NUMBER OF
BENEFICIAL OWNER SHARES OWNED PERCENTAGE SHARES OWNED PERCENTAGE
---------------------------------------------- ------------ ---------- ------------ ----------
DIRECTORS AND EXECUTIVE OFFICERS
----------------------------------------------
<S> <C> <C> <C> <C>
W. Hall Wendel, Jr.(2)........................ 997,800 5.5% 997,800 5.5%
Chairman of the Board of Directors and Chief
Executive Officer
Kenneth D. Larson(3).......................... 108,376 * 108,376 *
President and Chief Operating Officer and
Director
John H. Grunewald............................. 7,000 * 7,000 *
Executive Vice President, Chief Financial
Officer and Secretary
Charles A. Baxter............................. 281,000 1.5% 281,000 1.5%
Vice President--Engineering and Product
Safety
Ed Skomoroh................................... 49,020 * 49,020 *
Vice President--Sales and Marketing
Beverly F. Dolan.............................. 1,000 * 1,000 *
Director
Stephen G. Shank.............................. 400 * 400 *
Director
Gregory R. Palen.............................. 1,600 * 1,600 *
Director
Andris A. Baltins(4).......................... 7,550 * 7,550 *
Director
Robert S. Moe(5).............................. 418,400 2.3% 418,400 2.3%
Director
All directors and executive officers as a
group (12 persons)........................... 1,895,208 10.4% 1,895,208 10.4%
<CAPTION>
SELLING SHAREHOLDERS
----------------------------------------------
<S> <C> <C> <C> <C>
LB I Group Inc.(6)............................ 1,336,852 7.3% 0(7) 0
President and Fellows of Harvard College...... 500,000 2.7% 0 0
</TABLE>
------------
* Represents less than 1%.
(1) Unless otherwise indicated, beneficial ownership disclosed consists of sole
voting and investment power.
(2) Includes 28,000 shares held in a trust for Mr. Wendel's daughter and 100,000
shares held in the Hall and Deborah Wendel Foundation of which Mr. Wendel is
president, as to which Mr. Wendel disclaims any beneficial interest.
(3) Includes 100 shares held in a trust for Mr. Larson's child and 10,200 shares
owned by Mr. Larson's spouse, as to which he disclaims any beneficial
interest.
(Footnotes continued on following page)
36
<PAGE>
(Footnotes continued from preceding page)
(4) Includes 1,000 shares held in trust for Mr. Baltins' children and 2,000
shares held in trust for one of Mr. Baltins' parents. 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 Company, beneficially own an
aggregate of 39,750 shares.
(5) Includes 222,400 shares held in a trust for Mr. Moe's children, as to which
he disclaims any beneficial interest.
(6) LB I Group Inc. ("LB I Group") is a wholly-owned subsidiary of Lehman
Brothers Holdings Inc.
(7) Assumes sale of 600,000 shares to Fuji contemporaneous with the Offering and
exercise of the over-allotment option by the Underwriters. See "Sale of
Shares to Fuji."
The business address for Mr. Wendel is 1225 Highway 169 North, Minneapolis,
Minnesota 55441.
The address for LB I Group is 3 World Financial Center, New York, New York
10285.
The address for President and Fellows of Harvard College is c/o Harvard
Management Company, Inc., 600 Atlantic Avenue, Boston, Massachusetts 02210.
In connection with the Conversion, Mr. Wendel and Victor K. Atkins, Jr., the
former general partner of the Partnership prior to the Conversion, entered into
an agreement dated as of August 25, 1994 which provides, among other things,
that for so long as Mr. Atkins owns no less than 3% of the outstanding shares of
the Common Stock, he will vote such shares in favor of the Company's nominees
for election to the Board of Directors.
SHARES ELIGIBLE FOR FUTURE SALE
The Company currently has, and upon completion of the Offering will have,
18,216,258 shares of Common Stock outstanding. Of these shares, all of the
shares sold in the Offering will be freely tradeable without restriction or
further registration under the Securities Act, unless held by "affiliates" of
the Company.
Of the outstanding shares of Common Stock, approximately 1.5 million shares
held by Fuji and certain other large shareholders will be subject to certain
restrictions on resale for purposes of the Securities Act. These shares may not
be sold unless they are registered under the Securities Act or unless an
exemption from registration, such as the exemption provided by Rule 144 under
the Securities Act, is available. Pursuant to Rules 144 and 145, such shares are
eligible for sale, subject to the volume limitation described below.
The Company has agreed not to offer, sell, contract to sell or otherwise
dispose of, directly or indirectly, any Common Stock, or any securities
convertible into or exchangeable for Common Stock, until the 90th day following
the closing date of the Offering without the consent of the Representatives of
the Underwriters, subject to certain exceptions. The Company is permitted to
issue Common Stock in connection with certain acquisition, merger and business
combination transactions, none of which is currently contemplated by management.
In general, under Rule 144 as currently in effect, a shareholder (or
shareholders whose shares are aggregated) who has beneficially owned "restricted
securities" for at least two but less than three years, and any affiliate of the
Company who has owned shares for at least two years, is entitled to sell within
any three-month period a number of shares that does not exceed the greater of 1%
of the outstanding shares of the Company's Common Stock (182,062 shares
immediately after the Offering) or the average weekly trading volume in the
Company's Common Stock on the New York Stock Exchange during the four calendar
weeks preceding such sale. Sales under Rule 144 are also subject to certain
provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A shareholder (or
shareholders whose shares are aggregated) who is not an affiliate of the Company
for at least 90 days prior to a proposed transaction and who has
37
<PAGE>
beneficially owned "restricted securities" for at least three years is entitled
to sell such shares under Rule 144 without regard to the limitations described
above.
Pursuant to certain registration rights agreements with the Company, Mr.
Atkins and his permitted transferees have been granted certain demand
registration rights. In addition, Mr. Atkins and his permitted transferees are
entitled to exercise incidental or "piggyback" registration rights with respect
to certain offerings of shares of Common Stock. Mr. Atkins has waived such
rights with respect to the Offering. After the sale of the shares to Fuji, Fuji
will have similar demand and piggyback registration rights. See "Sale of Shares
to Fuji."
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 80,000,000 shares of
Common Stock, par value $.01 per share, and 20,000,000 shares of preferred
stock, issuable in series.
COMMON AND PREFERRED STOCK
As of May 19, 1995, 18,216,258 shares of Common Stock were issued and
outstanding, and 485,200 shares were issuable upon exercise of outstanding
options. All such outstanding shares of Common Stock are fully paid and
nonassessable. Holders of Common Stock have no preemptive rights to purchase or
subscribe for securities of the Company and the Common Stock is not convertible
or subject to redemption by the Company.
Subject to the rights of holders of any class of capital stock of the
Company having any preference or priority over the Common Stock, none of which
are outstanding as of the date of this Prospectus, the holders of the Common
Stock are entitled to dividends in such amounts as may be declared by the Board
of Directors of the Company 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 Company 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.
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, limitations or relative rights with respect to redemption rights,
if any, voting rights, if any, dividend rights and preferences on liquidation.
The Company 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 Company'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 Company 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.
38
<PAGE>
BOARD OF DIRECTORS
The Company's Articles of Incorporation provide that the business and
affairs of the Company shall be managed by or under the direction of a Board of
Directors consisting of not less than three 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 are divided into
three classes, designated Class I, Class II and Class III. The term of the
initial Class I directors terminates on the date of the 1998 annual meeting of
shareholders, the term of the initial Class II directors terminates on the date
of the 1996 annual meeting of shareholders, and the term of the initial Class
III directors terminates on the date of the 1997 annual meeting of shareholders.
At each succeeding meeting of annual shareholders beginning in 1996, 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 Company's Articles of Incorporation and By-laws
and the Minnesota Business Corporations 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 Company's Board of Directors and
management and in the policies formulated by the Board of Directors and to
discourage an unsolicited takeover of the Company if the Board of Directors
determines that such takeover is not in the best interests of the Company and
its shareholders. However, these provisions could have the effect of
discouraging certain attempts to acquire the Company 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 Company's Articles of
Incorporation, the Board of Directors of the Company is 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.
BY-LAW PROVISIONS. The By-laws provide that any action required or permitted
to be taken by the shareholders of the Company 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 Company in the election of directors may
exercise only an aggregate of 20% of the voting power of the Company'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
Company or any director of the
39
<PAGE>
Company who is also an officer of the Company). 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 Company'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 Company'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 Company 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 Company 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
Company 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 Company's Articles of Incorporation
provide that directors of the Company shall not be personally liable to the
Company 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 Company 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
Minnesota, N.A.
SALE OF SHARES TO FUJI
Prior to the Offering, Fuji beneficially owned 60,000 shares of Common
Stock. Pursuant to an agreement dated as of April 24, 1995, Fuji has agreed,
subject to certain conditions, to purchase 600,000 shares of Common Stock from
an affiliate of Lehman Brothers Inc. at a price per share equal to the lesser of
$65 or the public offering price in the Offering (i.e., the "Price to Public"
appearing on the cover page of this Prospectus) (such lesser amount, the "Fuji
Purchase Price"). The closing of such purchase will be contemporaneous with, and
is conditioned upon, the closing of the sale of the shares offered hereby by the
Underwriters. In addition, Fuji has agreed to purchase from Lehman Brothers Inc.
or its affiliates any shares not purchased by the Underwriters pursuant to the
over-allotment option granted to them at a price per share equal to the Fuji
Purchase Price (subject to adjustment in the event the Company declares a
dividend in excess of $0.15 per share with a record date after the sale of the
600,000 shares to Fuji and prior to such subsequent sale). If such
over-allotment option is not exercised by the Underwriters, after consummation
of such transactions, Fuji will beneficially own 796,852 shares of Common Stock,
or approximately 4.4% of the Common Stock outstanding. If such over-allotment
option is exercised in full by the Underwriters, after consummation of such
transactions Fuji will beneficially own 660,000 shares of Common Stock, or
approximately 3.6% of the Common Stock outstanding. See "Underwriting."
40
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), acting through their
representatives, Lehman Brothers Inc., Goldman, Sachs & Co. and Piper Jaffray
Inc. (the "Representatives"), have severally agreed, subject to the terms and
conditions of an Underwriting Agreement with the Selling Shareholders and the
Company (the "Underwriting Agreement"), to purchase from the Selling
Shareholders the aggregate number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase all of
such shares if any are purchased. Under certain circumstances, the commitments
of non-defaulting Underwriters may be increased as set forth in the Underwriting
Agreement.
NUMBER OF
UNDERWRITERS SHARES
---------------------------------------------------------------- ---------
Lehman Brothers Inc. ...........................................
Goldman, Sachs & Co. ...........................................
Piper Jaffray Inc. .............................................
---------
Total..................................................... 1,100,000
---------
---------
The Underwriters are permitted to sell shares of Common Stock to each other
for purposes of resale at the initial public offering price, less an amount not
greater than the selling concession.
LB I Group has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to 136,852 additional shares of
Common Stock to cover over-allotments, if any, at the initial public offering
price, less the underwriting discount. If the Underwriters exercise this option,
each of the Underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of the option shares
as the number of shares of Common Stock to be purchased by that Underwriter
shown in the foregoing table bears to the 1,100,000 shares of Common Stock
initially offered hereby.
Prior to the Offering, LB I Group beneficially owned 7.3% of the outstanding
Common Stock on a fully diluted basis. Under Schedule E to the By-Laws of the
National Association of Securities Dealers, Inc. (the "NASD"), LB I Group may be
deemed an affiliate of Lehman Brothers Inc. The Offering is being conducted in
accordance with Schedule E, which provides that, among other things, when an
NASD member participates in the underwriting of an affiliate's equity
securities, the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with this requirement, Goldman, Sachs & Co. has served in such
role and will recommend a price in compliance with the requirements of Schedule
E. In connection with the Offering, Goldman, Sachs & Co. in its role as
qualified independent underwriter has performed due diligence investigations and
reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. In addition, the
Underwriters may not confirm sales to any discretionary account without the
prior specific written approval of the customer.
Fuji has agreed to purchase 600,000 shares from an affiliate of Lehman
Brothers Inc., as set forth in "Sale of Shares to Fuji" above. Fuji also has
agreed to purchase from Lehman Brothers Inc. or its affiliates up to 136,852
additional shares of Common Stock to the extent that the over-allotment option
described above is not fully exercised by the Underwriters.
The Underwriters propose initially to offer the shares of Common Stock to
the public at the public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a
41
<PAGE>
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share on sales
to certain other dealers. After the initial public offering of the Common Stock,
the public offering price, concession and discount may be changed.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities which may be incurred in
connection with the offering of the Common Stock and the exercise of the
over-allotment option, including liabilities under the Securities Act.
Without the consent of the Representatives, the Company has agreed not to,
for a period of 90 days following the date of the Offering, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares, subject to certain exceptions.
The Company is permitted to issue Common Stock in connection with certain
acquisition, merger and business combination transactions, none of which is
currently contemplated by management.
LEGAL MATTERS
The validity of the shares of Common Stock under Minnesota law will be
passed upon for the Company by Kaplan, Strangis and Kaplan, P.A., Minneapolis,
Minnesota. Andris A. Baltins, a member of the Board of Directors of the Company,
is also a member of the law firm of Kaplan, Strangis and Kaplan, P.A. Certain
legal matters in connection with the offering of the Common Stock being made
hereby will be passed upon for the Underwriters by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), New York, New York.
Simpson Thacher & Bartlett acted as special counsel to the Partnership in
connection with the Conversion. Simpson Thacher & Bartlett will rely upon
Kaplan, Strangis and Kaplan, P.A. with respect to matters of Minnesota law;
and Kaplan, Strangis and Kaplan, P.A. will rely upon Simpson Thacher & Bartlett
with respect to matters of New York law.
EXPERTS
The financial statements of Polaris Industries Inc. (formerly Polaris
Industries Partners, L.P.) as of December 31, 1994 and 1993, and for each of the
three years in the period ended December 31, 1994, included in this Prospectus
and the Registration Statement of which this Prospectus forms a part, have been
audited by McGladrey & Pullen, LLP, independent public accountants, as set forth
in their report appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE><CAPTION>
CONTENTS PAGE
-------------------------------------------------------------------------------------- ----
<S> <C>
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS.............................. F-2
FINANCIAL STATEMENTS
Balance sheets as of December 31, 1993 and 1994 and March 31, 1995 (unaudited)........ F-3
Statements of operations for the years ended December 31, 1992, 1993 and 1994, and the
three-month periods ended March 31, 1994 and 1995 (unaudited)....................... F-4
Statements of shareholders' equity for the years ended December 31, 1992, 1993 and
1994, and the three-month period ended March 31, 1995 (unaudited)................... F-5
Statements of cash flows for the years ended December 31, 1992, 1993 and 1994, and the
three-month periods ended March 31, 1994 and 1995 (unaudited)....................... F-6
Notes to financial statements for the years ended December 31, 1992, 1993 and 1994,
and the three-month periods ended March 31, 1994 and 1995 (unaudited)............... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
POLARIS INDUSTRIES INC.
Minneapolis, Minnesota
We have audited the accompanying balance sheets of POLARIS INDUSTRIES INC.
(formerly Polaris Industries Partners L.P.) as of December 31, 1993 and 1994,
and the related statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Polaris Industries Inc. as
of December 31, 1993 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles.
MCGLADREY & PULLEN, LLP
Minneapolis, Minnesota
February 2, 1995, except for Note 12
as to which the date is May 10, 1995
F-2
<PAGE>
POLARIS INDUSTRIES INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE><CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (Note 2)..................... $ 33,798 $ 62,881 $ 38,878
Trade receivables...................................... 21,340 29,700 26,005
Inventories (Note 3)................................... 52,057 88,714 105,365
Prepaid expenses and other............................. 2,553 5,194 4,572
Deferred tax assets (Note 5)........................... -- 20,000 16,000
-------- -------- -----------
Total current assets............................. 109,748 206,489 190,820
-------- -------- -----------
Deferred Tax Assets (Note 5)............................. -- 45,000 44,000
-------- -------- -----------
Property and Equipment at cost
Land, buildings and improvements....................... 10,737 14,913 17,065
Equipment and tooling.................................. 56,480 77,116 86,637
-------- -------- -----------
67,217 92,029 103,702
Less accumulated depreciation.......................... 27,486 38,368 44,464
-------- -------- -----------
39,731 53,661 59,238
-------- -------- -----------
Intangibles
Cost in excess of net assets of business acquired, net
of amortization of $4,968, 1993; $5,722, 1994 and
$5,910, 1995......................................... 25,710 24,956 24,768
Dealer network, net of amortization of $39,811, 1993;
$44,000, 1994 and $44,000, 1995...................... 4,189 -- --
Other, net of amortization of $2,311, 1993; $2,421,
1994 and $2,448, 1995................................ 1,170 1,060 1,033
-------- -------- -----------
31,069 26,016 25,801
-------- -------- -----------
$180,548 $331,166 $ 319,859
-------- -------- -----------
-------- -------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable....................................... $ 36,122 $ 58,932 $ 68,074
Distributions payable.................................. 11,851 12,736 34,956
Accrued expenses:
Compensation (Note 6)................................ 20,060 33,349 12,158
Warranties........................................... 11,412 23,838 22,676
Other................................................ 10,856 17,447 20,606
Income taxes payable (Notes 5 and 8)................... 7,754 15,155 14,864
-------- -------- -----------
Total current liabilities........................ 98,055 161,457 173,334
-------- -------- -----------
Commitments and Contingencies (Notes 4, 6, 8, 9 and 12)
Partners' Capital........................................ 82,493 -- --
Shareholders' Equity (Notes 6 and 8)
Preferred stock $0.01 par value, authorized 20,000,000
shares, no issued and outstanding shares................. -- -- --
Common stock $0.01 par value, authorized 80,000,000
shares, issued and outstanding, 18,110,684 shares
1994 and 18,206,258 shares 1995...................... -- 181 182
Additional paid-in capital............................. -- 103,935 108,806
Compensation payable in common stock................... -- 12,251 8,928
Retained earnings...................................... -- 53,342 28,609
-------- -------- -----------
82,493 169,709 146,525
-------- -------- -----------
$180,548 $331,166 $ 319,859
-------- -------- -----------
-------- -------- -----------
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
POLARIS INDUSTRIES INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
FOR THE THREE
FOR THE YEARS ENDED DECEMBER MONTHS
31, ENDED MARCH 31,
------------------------------ -------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales..................................... $383,818 $528,011 $826,286 $145,471 $254,793
Cost of Sales............................. 278,892 397,724 643,003 117,613 208,078
-------- -------- -------- -------- --------
Gross profit...................... 104,926 130,287 183,283 27,858 46,715
-------- -------- -------- -------- --------
Operating Expenses
Selling, general and administrative..... 52,238 63,594 80,985 14,447 25,269
First Rights compensation............... 4,570 6,300 9,268 1,786 1,614
Amortization of intangibles............. 7,427 7,166 5,053 1,787 215
Conversion (Note 1)..................... -- -- 12,315 -- --
-------- -------- -------- -------- --------
Total operating expenses.......... 64,235 77,060 107,621 18,020 27,098
-------- -------- -------- -------- --------
Operating income.................. 40,691 53,227 75,662 9,838 19,617
Nonoperating Expense (Income), net........ 1,010 (43) (254) (72) (1,255)
-------- -------- -------- -------- --------
Income before income taxes........ 39,681 53,270 75,916 9,910 20,872
Provision for Income Taxes (Notes 5
and 8).................................. 4,980 7,457 11,966 1,344 7,932
-------- -------- -------- -------- --------
34,701 45,813 63,950 8,566 12,940
Income Tax Adjustment for Change in Tax
Status (Note 5)......................... -- -- (65,000) -- --
-------- -------- -------- -------- --------
Net income........................ $ 34,701 $ 45,813 $128,950 $ 8,566 $ 12,940
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Income Per Share (Note 1)............. $ 7.00 $ 0.70
-------- --------
-------- --------
Weighted Average Number of Common and
Common Equivalent Shares Outstanding
(Note 1)................................ 17,968 18,215 18,423 18,407 18,523
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Pro Forma Information (Note 10)
-------------------------------
Income before income taxes.............. $ 39,681 $ 53,270 $ 88,231 $ 9,910
Provision for income taxes.............. 15,079 20,243 33,528 3,766
-------- -------- -------- --------
Net income........................ $ 24,602 $ 33,027 $ 54,703 $ 6,144
-------- -------- -------- --------
Net income per share.................... $ 1.37 $ 1.81 $ 2.97 $ 0.33
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
POLARIS INDUSTRIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE><CAPTION>
PARTNERS' CAPITAL
-----------------------------------------------------
LIMITED PARTNERS' INTEREST
-------------------------------------------
SHAREHOLDERS' EQUITY FIRST RIGHTS
------------------------------------------ ---------------------- TOTAL
ADDITIONAL COMPENSATION GENERAL ASSIGNED LIMITED
COMMON PAID-IN PAYABLE IN RETAINED PARTNERS' CAPITAL DEFERRED PARTNERS'
STOCK CAPITAL COMMON STOCK EARNINGS INTEREST BACS VALUE COMPENSATION INTEREST TOTAL
------ ---------- ------------ -------- -------- -------- -------- ------------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Cash distributions
declared........... -- -- -- -- (9,257) (35,250) -- -- (35,250) (44,507)
Net income for the
year............... -- -- -- -- 7,218 27,483 -- -- 27,483 34,701
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
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
Cash distributions
declared........... -- -- -- -- (9,821) (37,396) -- -- (37,396) (47,217)
Net income for the
year............... -- -- -- -- 9,529 36,284 -- -- 36,284 45,813
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
Balance, December 31,
1993................ -- -- -- -- (7,397) 81,069 8,821 -- 89,890 82,493
First Rights
conversion to
BACs............... -- -- -- -- -- 5,778 (5,838) -- (60) (60)
First Rights
grants.............. -- -- -- -- -- -- 9,268 -- 9,268 9,268
Cash distributions
declared........... -- -- -- -- (10,596) (40,346) -- -- (40,346) (50,942)
Net income for the
year (Note 1)...... -- -- -- 53,342 15,726 59,882 -- -- 59,882 128,950
Conversion (Note1)... 181 103,935 12,251 -- 2,267 (106,383) (12,251) -- (118,634) --
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
Balance, December 31,
1994................ 181 103,935 12,251 53,342 -- -- -- -- -- 169,709
First Rights
conversion to
common stock
(unaudited)........ 1 4,871 (4,937) -- -- -- -- -- -- (65)
Rights grants
(unaudited)........ -- -- 1,614 -- -- -- -- -- -- 1,614
Dividends declared
($2.07 per share)
(unaudited)........ -- -- -- (37,673 ) -- -- -- -- -- (37,673)
Net income for the
three months
(unaudited)........ -- -- -- 12,940 -- -- -- -- -- 12,940
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
Balance, March 31, 1995
(unaudited).......... $182 $108,806 $ 8,928 $28,609 $ -- $ -- $ -- $ -- $ -- $146,525
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
------ ---------- ------ -------- -------- -------- -------- ----- --------- --------
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
POLARIS INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE><CAPTION>
FOR THE THREE
MONTHS ENDED MARCH
FOR THE YEARS ENDED DECEMBER 31, 31,
-------------------------------- -------------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities
Net income............................. $ 34,701 $ 45,813 $128,950 $ 8,566 $12,940
Adjustments to reconcile net income to
cash flow from operating activities
Depreciation......................... 9,830 12,446 18,599 4,418 6,047
Amortization......................... 7,427 7,166 5,053 1,787 215
First Rights compensation............ 4,570 6,300 9,268 1,786 1,614
Deferred income taxes................ -- -- (65,000) -- 5,000
Changes in current operating items
Trade receivables.................. (6,372) (4,465) (8,360) 571 3,695
Inventories........................ (10,528) (14,481) (36,657) (21,196) (16,651)
Accounts payable................... 11,605 11,176 22,810 6,326 9,142
Accrued expenses................... 1,167 12,977 32,306 (11,528) (19,194)
Income taxes payable............... 3,154 4,124 7,401 (523) (291)
Other.............................. (238) (1,733) (2,701) 362 557
-------- -------- -------- -------- -------
Net cash provided by (used in)
operating activities........... 55,316 79,323 111,669 (9,431) 3,074
-------- -------- -------- -------- -------
Cash Flows From Investing Activities
Purchase of property and equipment..... (12,295) (18,126) (32,529) (5,474) (11,624)
-------- -------- -------- -------- -------
Cash Flows From Financing Activities
Cash distributions to partners......... (44,025) (46,493) (50,057) (11,851) (12,736)
Cash dividends to shareholders......... -- -- -- -- (2,717)
-------- -------- -------- -------- -------
Net cash used in financing
activities..................... (44,025) (46,493) (50,057) (11,851) (15,453)
-------- -------- -------- -------- -------
Increase (decrease) in cash and
cash equivalents............... (1,004) 14,704 29,083 (26,756) (24,003)
Cash and Cash Equivalents
Beginning.............................. 20,098 19,094 33,798 33,798 62,881
-------- -------- -------- -------- -------
Ending................................. $ 19,094 $ 33,798 $ 62,881 $ 7,042 $38,878
-------- -------- -------- -------- -------
-------- -------- -------- -------- -------
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: Polaris Industries Inc. (the Corporation) was formed for the
purpose of effecting the conversion of Polaris Industries Partners L.P., a
Delaware limited partnership (the Partnership), from a publicly traded limited
partnership to a publicly traded corporation on December 22, 1994 (the
Conversion). The Corporation issued 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 common stock to the affiliates of EIP
Associates L.P. (the General Partner) in exchange for the entire general
partnership interests and rights and ultimately 312,500 shares of common stock
to the holders of 312,500 First Rights. As a result of the Conversion, the
Corporation owns all of the general and limited partnership interests in the
Partnership. The Corporation had no operations prior to the conversion and is
continuing the business of the Partnership with the same operating management,
but without management involvement by the General Partner. The activities of the
Partnership and the Corporation are referred to herein as activities of the
Company.
The Conversion has been accounted for as a reorganization of affiliated
entities, with the assets and liabilities of the Partnership recorded at their
historical cost basis, except that deferred taxes relating to the temporary
differences between the financial reporting and the income tax bases of certain
assets and liabilities at the date of the Conversion were recorded by the
Corporation (Note 5). The statements of operations, shareholders' equity and
cash flows for 1992, 1993 and for 1994 through the date of the Conversion
reflect the operations of the Partnership. The costs of the Conversion were
recorded as an expense of the Corporation in the statement of operations at the
time of the Conversion. Other than the effect of recording deferred taxes and
the costs of the Conversion, net income for the year ended December 31, 1994,
has been prorated between retained earnings of the Corporation and partners'
capital of the Partnership for purposes of the statement of shareholders'
equity.
Business: The Company 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, garments and accessories through a
network of dealers, distributors and its Canadian subsidiary.
Basis of presentation: The financial statements of the Company include the
accounts of the Corporation, the Partnership and its Canadian subsidiary. All
significant intercompany transactions and balances have been eliminated in the
combination.
Cash equivalents: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
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 lives of individual
assets over the following periods:
YEARS
-----
Buildings and improvements......................................... 10-20
Equipment and tooling.............................................. 1-7
Cost in excess of net assets of business acquired.................. 40
Other intangibles.................................................. 5-17
Fully depreciated tooling is eliminated from the accounting records
annually.
F-7
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
The Company reviews its intangibles quarterly to determine potential
impairment by comparing the carrying value of the intangibles with expected
future net cash flows provided by operating activities of the business. Should
the sum of the expected future net cash flows be less than the carrying value,
the Company would determine whether an impairment loss should be recognized. An
impairment loss would be measured by comparing the amount by which the carrying
value exceeds the fair value of the business. Fair value will be determined
based on appraised market value. To date, management has determined that no
impairment of intangibles exists.
Product warranties: The Company 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.
Reclassification: For the years ended December 31, 1992 and 1993, the
Company has reclassified certain expenses to be consistent with the
classification adopted for the current year's statement of operations
presentation.
Foreign currency: The 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.
Foreign exchange contracts: The Company enters into foreign exchange
contracts to hedge certain of its purchase commitments denominated in foreign
currencies and transfers of funds from its Canadian subsidiary. Market value
gains and losses are recognized at the time of purchase or transfer of funds.
Revenue recognition: Revenues are recognized at the time of delivery to the
dealer or distributor. The Company 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
Company provides for estimated sales promotion expenses at the time of sale to
the dealer or distributor customer.
Research and development costs: Research and development costs are charged
to operations as incurred and totalled $7,396,000, $11,145,000, and $13,465,000
for 1992, 1993 and 1994, respectively, and $2,587,000 and $3,942,000 for the
three months ended March 31, 1994 and 1995, respectively. These costs are
included as a component of cost of sales on the accompanying statements of
operations.
Net income per share: Net income per share is calculated based on the
weighted average number of common and common equivalent shares outstanding
during 1994 as if the conversion transaction discussed above occurred at the
beginning of the year. Common equivalent shares represent the number of shares
issuable upon conversion of the Rights outstanding. Net income per share is not
applicable for 1992 or 1993 because the Company was a partnership in those
years.
Cash distributions from operations: Prior to the Conversion, cash
distributions from operations were determined at the discretion of the General
Partner and were allocated 79.2 percent to the limited partners and 20.8 percent
to the General Partner.
F-8
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Interim financial information (unaudited): The financial statements and
notes related thereto as of March 31, 1995, and for the three-month periods
ended March 31, 1994 and 1995, are unaudited, but in the opinion of management
include 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 year or for other
interim periods.
NOTE 2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following (in thousands):
<TABLE><CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1993 1994 1995
------- ------- ---------
<S> <C> <C> <C>
Cash on deposit with United States financial
institutions........................................ $ 522 $ 10 $ 11
Cash on deposit with a Canadian financial institution
(in US dollars)..................................... 3,469 12,553 2,588
Investment in institutional and government fund....... 29,807 20,352 31,330
Commercial paper...................................... -- 29,966 4,949
------- ------- ---------
$33,798 $62,881 $38,878
------- ------- ---------
------- ------- ---------
</TABLE>
The Company maintains cash in deposit accounts which frequently exceed
United States and Canadian insured limits. Management places deposits with
financial institutions only after evaluating the institution's financial
strength.
The Company invests in an institutional and government fund, consisting of a
portfolio of money market instruments with an average weighted maturity of not
more than 90 days, including those of the United States government, banker's
acceptances, time deposits, certificate of deposits and certain high grade
commercial paper, nonconvertible corporate debt and loan participation interest.
The Company also invests in commercial paper, consisting of corporate debt
securities with maturities of not more than 90 days. At December 31, 1994 and
March 31, 1995, the investment in corporate debt securities is diversified among
five and two high credit quality issuers in various industries, respectively.
The commercial paper is classified as available for sale and as such, is stated
at fair value, which at December 31, 1994 and March 31, 1995, approximated
amortized cost. During the year ended December 31, 1994, and the three-month
periods ended March 31, 1994 and 1995, the Company purchased $109,966,000,
$8,963,000 and $54,554,000 of commercial paper, respectively, and realized
proceeds of $80,000,000, $4,000,000 and $80,000,000, respectively, from sales of
commercial paper.
F-9
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 3. INVENTORIES
The major components of inventories are as follows (in thousands):
DECEMBER 31,
------------------ MARCH 31,
1993 1994 1995
------- ------- ---------
Raw materials................................ $21,571 $32,717 $ 31,772
Service parts................................ 23,379 29,067 27,703
Finished goods............................... 7,107 26,930 45,890
------- ------- ---------
$52,057 $88,714 $ 105,365
------- ------- ---------
------- ------- ---------
NOTE 4. FINANCING
Bank financing: The Company 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 expires on May 1, 1995. Subsequent to year
end, the Company entered into a $125,000,000 unsecured bank line of credit
arrangement to replace such line of credit arrangement. See Note 12.
Customer financing program: Unrelated finance companies provide floor plan
financing to distributors and dealers on the purchase of the Company's products.
The amount financed by distributors and dealers under these arrangements at
December 31, 1994 and March 31, 1995, was approximately $108,000,000 and
$214,000,000, respectively. The Company has agreed to repurchase products
repossessed by the finance companies to an annual maximum of 15 percent of the
average amounts outstanding during the prior calendar year. The 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
Company will from time to time pay a specified portion of the floor plan
interest expense payable by its distributors and dealers.
Cash payment for interest amounted to $6,764,000, $8,348,000 and $12,121,000
in 1992, 1993 and 1994, respectively, and $1,536,000 and $4,432,000 for the
three months ended March 31, 1994 and 1995, respectively.
NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS
The Partnership was not a taxpaying entity for United States federal and
state income tax purposes and its taxable income was passed through to the BAC
holders and to the General Partner. The Canadian subsidiary is a corporation
which is subject to Canadian federal and provincial income taxes, at a current
combined effective rate of 44 percent.
Pretax income from continuing operations of the Corporation for the three
months ended March 31, 1995, was taxed by the following jurisdictions (in
thousands):
Domestic................................................. $18,760
Foreign.................................................. 2,112
-------
$20,872
-------
-------
F-10
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS--(CONTINUED)
The provision for income taxes charged to operations for the three months
ended March 31, 1995, consists of the following (in thousands):
Current:
U.S. federal............................................ $1,545
State................................................... 234
Foreign................................................. 1,153
------
2,932
------
Deferred:
U.S. federal............................................ 4,342
State................................................... 658
Foreign................................................. --
------
5,000
------
$7,932
------
------
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income for the three months
ended March 31, 1995, due to the following (in thousands):
Computed "expected" income tax expense.................... $7,306
Increase (decrease) in income taxes resulting from:
State taxes, net of federal tax benefit................. 1,044
Lower rates on earnings of foreign operations........... (209)
Tax credits............................................. (209)
------
Reported income tax expense............................... $7,932
------
------
A provision has not been made for U.S. or additional foreign taxes on
$18,738,000 of undistributed earnings of the Company's Canadian subsidiary.
Those earnings have been and will continue to be reinvested. These earnings
could become subject to additional tax if they were remitted as dividends, if
foreign earnings were lent to the Company, or if the Company should sell its
stock in the subsidiary. Management believes that foreign tax credits would
largely eliminate any U.S. tax on the dividends.
F-11
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS--(CONTINUED)
As a result of the Conversion, the Corporation, as a taxable entity,
recorded a net deferred tax asset of $65,000,000 with a corresponding credit to
income tax expense, for the year ended December 31, 1994. Net deferred tax
assets consist of the following components as of December 31, 1994 and March 31,
1995 (in thousands):
<TABLE><CAPTION>
DECEMBER 31, MARCH 31,
1994 1995
------------ ---------
<S> <C> <C>
Current assets:
Inventories........................................................ $ 5,100 $ 2,300
Accrued expenses................................................... 13,300 12,400
Compensation payable in common stock............................... 1,600 1,300
------------ ---------
Total current................................................ 20,000 16,000
------------ ---------
Noncurrent assets:
Cost in excess of net assets of business acquired(a)............... 39,500 39,000
Property and equipment............................................. 1,700 2,000
Compensation payable in common stock............................... 3,800 3,000
------------ ---------
Total noncurrent............................................. 45,000 44,000
------------ ---------
Less valuation allowance............................................. -- --
------------ ---------
Total........................................................ $ 65,000 $60,000
------------ ---------
------------ ---------
</TABLE>
(a) The Corporation received a step-up in the tax basis of the assets of the
Partnership, which resulted in a deferred tax asset. There was no step-up
for financial statement purposes.
The Company made cash payments for income taxes of $1,483,000, $3,227,000
and $4,119,000 in 1992, 1993 and 1994, respectively, and $1,719,000 and
$4,002,000 for the three months ended March 31, 1994 and 1995, respectively.
NOTE 6. EMPLOYEE BENEFIT PLANS
The Company has various employee benefit plans for management and employees.
A summary of these plans follows:
Bonus and profit sharing plans: A bonus and profit sharing plan has been
established with amounts determined annually based upon a predetermined formula.
In addition, the Company has an employee retirement savings plan.
Compensation payable in common stock: The Company has an employee benefit
plan which provides for the issuance of rights which convert to shares of common
stock as an incentive for management and employees. The rights require no cash
payments by the recipients. Of such rights, 900,000 have been reserved for
issuance to nonmangement employees (the Employee Plan) and 1,500,000 have been
reserved for issuance to middle management and senior management (the Management
Plan). Rights will not be granted after December 31, 1999, and expire January 1,
2003.
Rights under the Employee Plan are vested when granted. Rights under the
Management Plan are earned but contain vesting provisions up to three years and
terminate if employment ceases prior to the issuance of the related common
stock.
F-12
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 6. EMPLOYEE BENEFIT PLANS--(CONTINUED)
As of December 31, 1994, 215,500 rights under the Management Plan and 97,000
rights under the Employee Plan, were outstanding as summarized below. As of
March 31, 1995, 215,500 rights under the Management Plan and 100,000 rights
under the Employee Plan were outstanding as summarized below.
<TABLE><CAPTION>
OUTSTANDING
AT END
PERIOD ENDED GRANTED CONVERTED FORFEITED OF PERIOD
-------------------------------------------------- ------- ---------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1992................................. 105,000 (1,205,784) -- 580,022
December 31, 1993................................. 171,594 (433,356) -- 318,260
December 31, 1994................................. 220,597 (226,357) -- 312,500
March 31, 1995.................................... 100,000 (97,000) -- 315,500
------- ---------- --- -----------
------- ---------- --- -----------
</TABLE>
The Company records the rights at fair market value on the date of grant and
accrues the related compensation expense throughout the year. However, prior to
1993, deferred compensation was recognized for portions of rights granted under
the Management Plan, since certain conversion criteria had not been achieved at
that date.
Cash and noncash compensation expense recorded under these employee benefit
plans was $15,969,000, $22,538,000 and $37,512,000 for 1992, 1993 and 1994,
respectively, and $5,787,000 and $6,895,000 for the three-month periods ended
March 31, 1994 and 1995, respectively. Accrued compensation includes
approximately $16,236,000, $28,243,000 and $5,847,000 for certain of these plans
at December 31, 1993 and 1994, and March 31, 1995, respectively.
Subsequent to year end, the Company adopted certain new benefit plans. See
Note 12.
NOTE 7. FOREIGN OPERATIONS
United States operations include export sales (excluding sales in Canada) of
$21,091,000, $27,179,000 and $36,049,000 for 1992, 1993 and 1994, respectively,
and $8,209,000 and $13,692,000 for the three-month periods ended March 31, 1994
and 1995, respectively.
The following data relates to Canadian operations (in thousands of United
States dollars):
<TABLE><CAPTION>
FOR THE YEARS ENDED DECEMBER FOR THE THREE MONTHS
31, ENDED MARCH 31,
------------------------------- ---------------------
1992 1993 1994 1994 1995
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Sales................................. $99,286 $106,664 $129,689 $15,636 $28,216
Operating income...................... 6,541 6,887 12,116 1,365 2,308
Identifiable assets................... 16,639 15,248 19,620 14,929 20,066
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
Dividends: On January 26, 1995, the Board of Directors of the Company
declared a regular dividend of $0.15 per share to holders of record on February
6, 1995, payable on February 15, 1995, and a special cash distribution of $1.92
per share to holders of record on March 17, 1995, payable on April 1, 1995.
Management has recommended to the Company's Board of Directors that it establish
an initial cash dividend rate of $0.15 per share per quarter and pay two
additional special cash distributions, each of $1.92 per share, payable during
the third and fourth quarters of 1995. See Note 12.
F-13
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Management expects to incur indebtedness of up to $70,000,000 in connection with
the payment of the special cash distributions.
Canadian income tax examination: 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 Company's Canadian
subsidiary for 1987 and 1988. The resolution of these proposed adjustments may
also affect the Company's Canadian income tax expense for years subsequent to
1988. The Company was informed of the Canadian income tax authorities' intent to
initiate an audit of the tax years 1989 through 1991. Management continues to
vigorously contest certain of the proposed adjustments. 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 Company. Income taxes
payable reflected on the accompanying December 31, 1993 and 1994 and March 31,
1995, balance sheets include $6,824,000, $14,265,000 and $15,015,000,
respectively, related to certain open tax years in Canada and the United States.
Product liability: The Company is subject to product liability claims in the
normal course of business and has elected not to insure for product liability
losses. The estimated costs resulting from any losses are charged to operating
expenses when it is probable a loss has been incurred and the amount of the loss
is determinable. At December 31, 1993 and 1994 and March 31, 1995, the Company
has accrued $3,513,000, $4,957,000, and $5,315,000, respectively, in connection
with product liability claims.
Litigation: The Company is a defendant in lawsuits and subject to claims
arising in the normal course of business. While it is not feasible to 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 Company.
Workers' compensation and health benefits: The Company is self-insured for
workers' compensation losses and 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.
Major supplier: During 1992, 1993 and 1994, purchases totaling 26 percent,
and for the three months ended March 31, 1995, purchases totaling 28 percent, of
the Company's cost of sales were from a single supplier. The Company has agreed
with the supplier to share the impact of fluctuations in the exchange rate
between the U.S. dollar and the Japanese yen.
Derivative financial instruments: The Company enters into foreign exchange
contracts to hedge certain of its purchase commitments denominated in foreign
currencies and transfers of funds from its Canadian subsidiary. The purpose of
the Company's foreign exchange contracts is to protect it from the risk that the
eventual dollar cash flows resulting from the purchase commitments and transfers
of funds from its Canadian subsidiary will be adversely affected by changes in
exchange rates. At December 31, 1994, the Company had no open foreign exchange
contracts. At March 31, 1995, the Company had contracts maturing to July 26,
1995, to purchase US$61,600,000 of yen and contracts maturing to December 29,
1995 to sell US$52,428,000 of Canadian dollars.
Letters of credit: At December 31, 1994 and March 31, 1995, the Company has
open letters of credit totaling approximately $15,500,000 and $18,200,000,
respectively. The amounts outstanding are reduced as inventory purchases
pertaining to the contracts are received.
F-14
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 8. COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Leases: The Company leases warehouse and office space from a partnership
controlled by certain directors under an operating lease agreement expiring in
1997. The lease requires payments of $458,000 annually plus other costs. In
addition, the Company leases other buildings and equipment from unrelated
parties under noncancelable operating leases. Total rent expense under all lease
agreements was $1,564,000, $1,643,000 and $1,570,000 for 1992, 1993 and 1994,
respectively and $423,000 and $566,000 for the three months ended March 31, 1994
and 1995, respectively. Future minimum payments, exclusive of other costs,
required under noncancelable operating leases at December 31, 1994, total
$1,797,000 cumulatively through 1998.
NOTE 9. ROBIN MANUFACTURING U.S.A., INC.
Subsequent to year end, the Company entered into an agreement with Fuji
Heavy Industries Ltd. to form Robin Manufacturing U.S.A., Inc. (Robin). Under
the agreement, the Company will initially invest $800,000 for a 40 percent
ownership position in Robin. Robin will build engines in the United States for
recreational and industrial products.
NOTE 10. PRO FORMA INFORMATION
Pro forma information is presented to assist in comparing the continuing
results of operations of the Company for 1992, 1993 and 1994 exclusive of the
Conversion costs and as if the Company was a taxable corporation for these
years. The pro forma provision for income taxes has been calculated at a rate of
38 percent, which reflects a combined federal and state statutory rate, net of
related research and development credits and foreign sales corporation benefits.
The weighted average number of BACs and BAC equivalents has been retroactively
adjusted to reflect the issuance of an equal number of shares of common stock to
the Partnership's Limited Partners in exchange for the number of BACs
outstanding and the issuance of 2,100,243 shares of common stock to the
affiliates of the General Partner in exchange for the general partnership
interests.
F-15
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE><CAPTION>
PRO FORMA
PRO FORMA NET INCOME
GROSS NET NET INCOME PER SHARE
SALES PROFIT INCOME (NOTE 10) (NOTE 10)
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1992:
First Quarter....................... $ 70,227 $ 15,613 $ 2,133 $ 1,642 $ .09
Second Quarter...................... 85,467 22,293 6,181 4,441 .25
Third Quarter....................... 121,548 36,343 15,850 10,815 .60
Fourth Quarter...................... 106,576 30,677 10,537 7,704 .43
-------- -------- -------- ----------
Totals.............................. $383,818 $104,926 $ 34,701 $ 24,602 $ 1.37
-------- -------- -------- ---------- -----
-------- -------- -------- ---------- -----
1993:
First Quarter....................... $107,115 $ 23,264 $ 6,138 $ 4,703 $ .26
Second Quarter...................... 111,235 26,996 6,542 4,702 .26
Third Quarter....................... 166,803 43,044 18,762 12,907 .70
Fourth Quarter...................... 142,858 36,983 14,371 10,715 .59
-------- -------- -------- ----------
Totals.............................. $528,011 $130,287 $ 45,813 $ 33,027 $ 1.81
-------- -------- -------- ---------- -----
-------- -------- -------- ---------- -----
1994:
First Quarter....................... $145,471 $ 27,858 $ 8,566 $ 6,144 $ .33
Second Quarter...................... 180,884 34,252 10,542 7,348 .40
Third Quarter....................... 258,370 63,673 31,503 21,611 1.18
Fourth Quarter...................... 241,561 57,500 78,339 19,600 1.06
-------- -------- -------- ----------
Totals.............................. $826,286 $183,283 $128,950 $ 54,703 $ 2.97
-------- -------- -------- ---------- -----
-------- -------- -------- ---------- -----
</TABLE>
NOTE 12. SUBSEQUENT EVENTS
Bank financing: On May 8, 1995, the Company entered into a $125,000,000
unsecured bank line of credit arrangement to meet seasonal short-term financing
needs with a maximum availability of $125,000,000. Interest is charged at a
LIBOR-based interest rate plus an applicable margin or at a reference rate
determined from time to time by First Bank National Association, and the
agreement expires on March 31, 1998. Pursuant to the bank line of credit
agreement, the Company has agreed to certain financial, operating and reporting
covenants.
Dividends: On April 18, 1995, the Board of Directors of the Company declared
a regular dividend of $0.15 per share, payable on May 15, 1995 to holders of
record on May 3, 1995. On May 10, 1995, the Board of Directors of the Company
declared a regular dividend of $0.15 per share, payable on August 15, 1995, to
holders of record on August 3, 1995 and a special cash distribution of $1.92 per
share payable on July 5, 1995 to holders of record on June 9, 1995.
Employee benefit plans: On May 10, 1995, the Company's shareholders approved
a new stock option plan, a deferred compensation plan for directors and an
employee stock purchase plan. A summary of these plans follows:
. Stock option plan--The stock option plan provides for the issuance of
stock option awards as an incentive for management and employees. The
maximum number of shares of common stock allocated to the stock option
plan is 900,000 shares. The exercise price for a stock option must be at
least equal to the fair market value of the common stock at the time of
awarding of the stock option. The options will be subject to restrictions
on exercise, such as exercise in periodic
F-16
<PAGE>
POLARIS INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION PERTAINING TO THE THREE-MONTH PERIODS ENDED MARCH 31, 1994 AND 1995
IS UNAUDITED)
NOTE 12. SUBSEQUENT EVENTS--(CONTINUED)
installments or upon attainment of specified performance criteria. The
stock option plan will remain effective until March 15, 2005, unless
terminated earlier by the board of directors.
. Deferred compensation plan for directors--Under the deferred compensation
plan, directors who are not officers or employees of the Company (Outside
Directors) will receive quarterly awards of Common Stock Equivalents
having a fair market value of $1,250 and can elect to convert all or a
portion of their cash directors' fees into Common Stock Equivalents.
Common Stock Equivalents will be converted to common shares when an
Outside Director's board service ends. A maximum of 50,000 shares of
common stock will be available for issuance under the deferred
compensation plan which will remain effective until May 10, 2005, unless
terminated earlier by the board of directors.
. Employee stock purchase plan--Under the stock purchase plan, options to
purchase up to an aggregate of 500,000 shares of common stock may be
granted to eligible employees. Employees of the Company, other than
executive officers, who are regularly scheduled to work more than 20 hours
per week will be eligible to participate in the stock purchase plan after
completing six months of employment. The purchase price will be an amount
equal to 85% of the averages of the closing prices per share of common
stock on the New York Stock Exchange as of the first and last days of the
month. Unexercised purchase options granted to a participant terminate
upon termination of employment. The effective date of the stock purchase
plan is January 1, 1997 or such earlier date as the board of directors may
determine. The plan may be terminated at any time.
On May 10, 1995, options with respect to 169,700 shares of common stock were
granted under the stock option plan. Such options are exercisable on or after
May 10, 1998.
F-17
<PAGE>
---------------------------------------- ---------------------------------------
---------------------------------------- ---------------------------------------
NO DEALER, SALESPERSON OR OTHER
INDIVIDUAL HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY 1,100,000 SHARES
REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR POLARIS
REPRESENTATIONS MUST NOT BE RELIED INDUSTRIES INC.
UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF COMMON STOCK
AN OFFER TO BUY, THE COMMON STOCK
IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Available Information................ 2 -----------------
Incorporation of Certain Information PROSPECTUS
by Reference....................... 2 , 1995
Prospectus Summary................... 3 ---------------
Risk Factors......................... 7
The Company.......................... 10
Market Prices........................ 11
Dividends............................ 12
Proceeds of Offering................. 13
Capitalization....................... 13
Selected Historical and Pro Forma
Financial Data..................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations (Historical and Pro LEHMAN BROTHERS
Forma)............................. 16
Business............................. 22
Management........................... 29 GOLDMAN, SACHS & CO.
Security Ownership of Directors,
Officers and Selling
Shareholders....................... 36 PIPER JAFFRAY INC.
Shares Eligible for Future Sale...... 37
Description of Capital Stock......... 38
Sale of Shares to Fuji............... 40
Underwriting......................... 41
Legal Matters........................ 42
Experts.............................. 42
Index to Financial Statements........ F-1
---------------------------------------- ---------------------------------------
---------------------------------------- ---------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Registration Fee............................................... $29,491 *
NASD Filing Fee................................................ 9,053 *
Printing and Engraving Expenses (estimate)..................... 125,000 *
Legal Fees and Expenses (estimate)............................. 200,000 *
Accounting Fees and Expenses (estimate)........................ 85,000 *
Blue Sky Fees and Expenses (estimate).......................... 10,000 *
Miscellaneous (estimate)....................................... 1,500 *
----------
Total (estimate)............................................... $460,044
----------
----------
------------
* To be borne by selling shareholders.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is required by Minnesota law to indemnify all officers and
directors of the Company 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 Company.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- ------------------------------------------------------------------------------------
<C> <S>
1.1 --Form of Underwriting Agreement.
4.1 --Stock certificate.
5.1 --Opinion of Kaplan, Strangis and Kaplan, P.A. regarding the legality of the shares
of Common Stock being registered.
23.1 --Consent of McGladrey & Pullen, LLP, independent public accountants.
23.2 --Consent of Kaplan, Strangis and Kaplan, P.A. (included in their opinion filed as
Exhibit 5.1).
24.1* --Power of Attorney.
</TABLE>
------------
* Previously Filed.
ITEM 17. UNDERTAKINGS
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 15 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
II-1
<PAGE>
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 registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND 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 MAY 19, 1995.
POLARIS INDUSTRIES INC.
By /s/ W. HALL WENDEL, JR.
...................................
Name: 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 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON MAY 19,
1995.
<TABLE>
<CAPTION>
SIGNATURES TITLE
--------------------------------------------- ---------------------------------------------
<S> <C>
/s/ W. HALL WENDEL, JR. Chairman of the Board, Chief Executive
............................................. Officer and Director (Principal Executive
W. Hall Wendel, Jr. Officer)
/s/ KENNETH D. LARSON President, Chief Operating Officer and
............................................. Director
Kenneth D. Larson
/s/ JOHN H. GRUNEWALD Executive Vice President, Chief Financial
............................................. Officer and Secretary (Principal Financial
John H. Grunewald and Accounting Officer)
* Director
.............................................
Beverly F. Dolan
* Director
.............................................
Robert S. Moe
* Director
.............................................
Stephen G. Shank
* Director
.............................................
Gregory R. Palen
* Director
.............................................
Andris A. Baltins
*By: /s/ JOHN H. GRUNEWALD
.......................................
John H. Grunewald, Attorney-in-Fact
</TABLE>
* John H. Grunewald pursuant to a Power of Attorney executed by each of the
directors listed above whose name is marked by an "*" and filed as an exhibit
hereto does hereby sign and execute this registration statement on behalf of
such directors.
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ------------------------------------------------------------------------------ ----
<C> <S> <C>
1.1 --Form of Underwriting Agreement.
4.1 --Stock Certificate
5.1 --Opinion of Kaplan, Strangis and Kaplan, P.A. regarding the legality of the
shares of Common Stock being registered.
23.1 --Consent of McGladrey & Pullen, LLP, independent public accountants.
23.2 --Consent of Kaplan, Strangis and Kaplan, P.A. (included in their opinion
filed as Exhibit 5.1).
</TABLE>
Exhibit 1.1
1,100,000 Shares
POLARIS INDUSTRIES INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
June __, 1995
LEHMAN BROTHERS INC.
GOLDMAN, SACHS & CO.
PIPER JAFFRAY INC.
As Representatives of the several
Underwriters named in Schedule 1,
Three World Financial Center
New York, New York 10285
Dear Sirs:
Certain shareholders of Polaris Industries Inc., a Minnesota
corporation (the "Company"), named in Schedule 2 hereto (the "Selling
Shareholders") propose to sell to the underwriters named in Schedule 1 hereto
(the "Underwriters") an aggregate of 1,100,000 shares (the "Firm Shares") of the
Company's Common Stock, par value $.01 per share (the "Common Stock"). In
addition, an affiliate of Lehman Brothers Inc., as Selling Shareholder (the
"Principal Selling Shareholder"), proposes to grant to the Underwriters an
option to purchase up to an additional 136,852 shares of the Common Stock on the
terms and for the purposes set forth in Section 3 (the "Option Shares"). The
Firm Shares and the Option Shares, if purchased, are hereinafter collectively
called the "Shares." Contemporaneously with the sale of the Firm Shares to the
Underwriters, separately the Principal Selling Shareholder will sell 600,000
shares of Common Stock (the "Fuji Shares") to Fuji Heavy Industries Ltd.
("Fuji"). This is to confirm the agreement concerning the purchase of the
Shares from the Selling Shareholders by the Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees that:
(a) A registration statement on Form S-3 with respect to the
Shares and the Fuji Shares has (i) been prepared by the Company in
conformity with the requirements of the Securities Act of 1933 (the
"Securities Act") and the rules and regulations (the "Rule and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission under
the Securities Act and (iii) become effective under the Securities
Act. Copies of such registration statement have been delivered by the
Company to you as the representatives (the "Representatives") of the
Underwriters. As used in this Agreement, "Effective Time" means the
date and the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary
<PAGE>
2
Prospectus" means each prospectus included in such registration
statement, or amendments thereof, before it became effective under the
Securities Act and any prospectus filed with the Commission by the
Company with the consent of the Representatives pursuant to Rule
424(a) of the Rules and Regulations; "Registration Statement" means
such registration statement, as amended at the Effective Time,
including any documents incorporated by reference therein at such time
and all information contained in the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations in
accordance with Section 6(a) hereof and deemed to be a part of the
registration statement as of the Effective Time pursuant to paragraph
(b) of Rule 430A of the Rules and Regulations; and "Prospectus" means
such final prospectus, as first filed with the Commission pursuant to
paragraph (1) or (4) of Rule 424(b) of the Rules and Regulations.
Reference made herein to any Preliminary Prospectus or to the
Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein pursuant to Item 12 of Form S-3
under the Securities Act, as of the date of such Preliminary
Prospectus or the Prospectus, as the case may be, and any reference to
any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any document filed
under the Securities Exchange Act of 1934 (the "Exchange Act") after
the date of such Preliminary Prospectus or the Prospectus, as the case
may be, and incorporated by reference in such Preliminary Prospectus
or the Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to include any
annual report of the Company filed with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act after the Effective Time
that is incorporated by reference in the Registration Statement. The
Commission has not issued any order preventing or suspending the use
of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration Statement or
the Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to
the requirements of the Securities Act and the Rules and Regulations
and do not and will not, as of the applicable effective date (as to
the Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided
that no representation or
<PAGE>
3
warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with information furnished to the Company (i) by a Selling
Shareholder or (ii) through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus,
when they were filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; and any further documents so filed and
incorporated by reference in the Prospectus, when such documents are
filed with Commission, will conform in all material respects to the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Company and each of its subsidiaries (as defined in
Section 17) have been duly formed and are validly existing as
corporations or partnerships in good standing under the laws of their
respective jurisdictions of formation, are duly qualified to do
business and are in good standing as foreign corporations or
partnerships in each jurisdiction in which their respective ownership
or lease of property or the conduct of their respective businesses
requires such qualification and is subject to liability or disability
by reason of failure to be so qualified in any such jurisdiction, and
have all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are engaged;
and none of the subsidiaries of the Company (other than Polaris
Industries Partners L.P. (the "Significant Subsidiary")) is a
"significant subsidiary", as such term is defined in Rule 405 of the
Rules and Regulations.
(e) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus; and all of the issued shares of capital
stock or partnership interests, as the case may be, or partnership
interests, as the case may be, of
<PAGE>
4
each subsidiary of the Company have been duly and validly authorized
and issued and are fully paid and non-assessable and (except for
directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or
claims.
(f) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Company or any of its subsidiaries or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of
their properties or assets; and except for the registration of the
Shares under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Shares by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby.
(g) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have
been waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any securities
being registered pursuant to any other registration statement filed by
the Company under the Securities Act.
(h) Except as described in the Prospectus with respect to the
conversion of Polaris Industries Partners L.P. into the Company, the
Company has not sold or issued any shares of Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulations D or S of,
<PAGE>
5
the Securities Act, other than shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee
compensation plans or pursuant to outstanding options, rights or
warrants.
(i) The Company and its subsidiaries, taken as a whole, have not
sustained, since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus, any material
loss or interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since such
date, there has not been any change in the capital stock, partnership
interests or long-term debt of the Company or any of its subsidiaries
or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general
affairs, management, financial position, shareholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole, otherwise than as described or referred to in the Prospectus.
(j) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included or incorporated by reference in the Prospectus present fairly
the financial condition and results of operations of the entities
purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved.
(k) McGladrey & Pullen, who have certified certain financial
statements of the Company, whose report appears in the Prospectus or
is incorporated by reference therein and who have delivered the
initial letter referred to in Section 9(f) hereof, are independent
public accountants as required by the Securities Act and the Rules and
Regulations.
(l) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not, in the materially
affect the value of such property and do not in the aggregate,
materially adversely affect the business or financial condition of the
Company and its subsidiaries, taken as a whole; and all real property
and buildings held under lease by the Company and its subsidiaries are
held by them under valid, subsisting and
<PAGE>
6
enforceable leases, with such exceptions as do not, in the aggregate,
materially adversely affect the business or the financial condition of
the Company and its subsidiaries, taken as a whole.
(m) Other than as described or referred to in the Prospectus,
the Company and each of its subsidiaries own or possess adequate
rights to use all material patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights and licenses necessary for the conduct of
their respective businesses and have no reason to believe that the
conduct of their respective businesses will conflict with, and, except
as described in the Prospectus, have not received any notice of any
claim of conflict with, any such rights of others, which would have a
material adverse effect on the Company and its subsidiaries, taken as
a whole.
(n) Other than as described or referred to in the Prospectus,
there are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
or assets of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, would have a material adverse effect on the consolidated
financial position, shareholders' equity, results of operations,
business or prospects of the Company and its subsidiaries; and to the
best of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(o) The conditions for use of Form S-3, as set forth in the
General Instructions thereto, have been satisfied.
(p) There are no contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations.
(q) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers,
shareholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(r) No labor disturbance by the employees of the Company exists
or, to the knowledge of the Company, is imminent which might be
expected to have a material
<PAGE>
7
adverse effect on the consolidated financial position, shareholders'
equity, results of operations, business or prospects of the Company
and its subsidiaries.
(s) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(t) Other than as described or referred to in the Prospectus,
the Company has filed all federal, state and local income and
franchise tax returns required to be filed through the date hereof and
has paid all taxes due thereon, and no tax deficiency has been
determined adversely to the Company or any of its subsidiaries which
has had (nor does the Company have any knowledge of any tax deficiency
which, if determined adversely to the Company or any of its
subsidiaries, might have) a material adverse effect on the
consolidated financial position, shareholders' equity, results of
operations, business or prospects of the Company and its subsidiaries.
(u) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not issued or granted any
securities other than pursuant to employee plans described or referred
to in the Prospectus.
(v) The Company (i) makes and keeps accurate books and records
and (ii) maintains internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of its financial statements and to
maintain accountability for its assets, (C) access to its assets is
permitted only in accordance with management's authorization and (D)
the reported accountability for
<PAGE>
8
its assets is compared with existing assets at reasonable intervals.
(w) Each of the Company and its subsidiaries is not (i) in
violation of its charter or by-laws, (ii) in default in any material
respect, and no event has occurred which, with notice or lapse of time
or both, would constitute such a default, in the due performance or
observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound
or to which any of its properties or assets is subject or (iii) in
violation in any material respect of any law, ordinance, governmental
rule, regulation or court decree to which it or its property or assets
may be subject or has failed to obtain any material license, permit,
certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its
business, in each case with such exceptions as do not materially
adversely affect the business or financial condition of the Company
and its subsidiaries, taken as a whole.
(x) The Company is not a party to any agreement, arrangement or
understanding with respect to the acquisition of any other company,
whether by stock acquisition, merger or other business combination,
nor does it have any current intention to enter into any such
agreement, arrangement or understanding in the next 180 days.
2. Representations, Warranties and Agreements of the Selling
Shareholders. Each Selling Shareholder severally represents and warrants to and
agrees with each of the Underwriters and the Company that:
(a) The Selling Shareholder has, and immediately prior to the
First Delivery Date (as defined in Section 5 hereof) (in the case of
the Principal Selling Shareholder, also immediately prior to the
Second Delivery Date, as defined in Section 5 hereof) will have, good
and valid title to the shares of Common Stock to be sold by such
Selling Shareholder hereunder on such date, free and clear of all
liens, encumbrances, equities or claims; and upon delivery of such
shares and payment therefor pursuant hereto, good and valid title to
such shares, free and clear of all liens, encumbrances, equities or
claims, will pass to the several Underwriters.
(b) The Selling Shareholder has full right, power and authority
to enter into this Agreement; the execution, delivery and performance
of this Agreement by
<PAGE>
9
the Selling Shareholder and the consummation by the Selling
Shareholder of the transactions contemplated to be performed by it
hereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Selling Shareholder is a party or by which
the Selling Shareholder is bound or to which any of the property or
assets of the Selling Shareholder is subject, nor will such actions
result in any violation of the provisions of the charter or by-laws of
the Selling Shareholder or any statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Selling Shareholder or the property or assets of
the Selling Shareholder; and, except for the registration of the
Shares under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Exchange Act and applicable state securities laws in
connection with the purchase and distribution of the Shares by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of this
Agreement by the Selling Shareholder and the consummation by the
Selling Shareholder of the transactions contemplated hereby.
(c) To the extent that any statements or omissions made in the
Registration Statement, the Prospectus or any amendment or supplement
thereto are made in reliance upon and in conformity with information
furnished to the Company by the Selling Shareholder specifically for
use therein, the Registration Statement did, and the Prospectus and
any amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
3. Purchase of the Shares by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, each Selling Shareholder hereby agrees to sell
the number of shares of the Firm Shares set opposite its name in Schedule 2
hereto, severally and not jointly, to the several Underwriters, and each of the
Underwriters, severally and not jointly, agrees to purchase the number of shares
of the Firm Shares set opposite that Underwriter's name in Schedule 1 hereto.
Each Underwriter shall be obligated to purchase from each Selling Shareholder
that number of shares of the Firm Shares which represents the same proportion of
the number of
<PAGE>
10
shares of the Firm Shares to be sold by each Selling Shareholder as the number
of shares of the Firm Shares set forth opposite the name of such Underwriter in
Schedule 1 represents of the total number of shares of the Firm Shares to be
purchased by all of the Underwriters pursuant to this Agreement. The respective
purchase obligations of the Underwriters with respect to the Firm Shares shall
be rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine.
In addition, the Principal Selling Shareholder hereby grants to the
Underwriters an option to purchase up to 136,852 shares of the Option Shares.
Such option is granted solely for the purpose of covering over-allotments in the
sale of Firm Shares and is exercisable as provided in Section 5 hereof. Shares
of the Option Shares shall be purchased severally for the account of the
Underwriters in proportion to the number of shares of the Firm Shares set forth
opposite the name of such Underwriters in Schedule 1 hereto. The respective
purchase obligations of each Underwriter with respect to the Option Shares shall
be rounded among the Underwriters to avoid fractional shares, as the
Representatives may determine. The price of both the Firm Shares and any Option
Shares shall be $_____ per share.
The Selling Shareholders shall not be obligated to deliver any of the
Firm Shares to be delivered on the First Delivery Date, and the Principal
Selling Shareholder shall not be obligated to deliver any of the Option Shares
to be delivered on the Second Delivery Date, as the case may be, except upon
payment for all the Shares to be purchased on each such Delivery Date as
provided herein.
4. Offering of the Shares by the Underwriters; Contemporaneous Sale.
Upon authorization by the Representatives of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions described in the Prospectus. In addition, contemporaneously with
such offering of the Firm Shares by the several Underwriters, the Principal
Selling Shareholder will sell the Fuji Shares to Fuji; provided that under no
circumstances will the Representatives or any Underwriter be liable to the
Company or to any other person for any action taken or omitted in connection
with, or as a consequence of, such sale of the Fuji Shares to Fuji.
5. Delivery of and Payment for the Shares. Delivery of and payment
for the Firm Shares shall be made at the office of Lehman Brothers Inc., 3 World
Financial Center, New York, New York 10285, at 10:00 A.M., New York City time,
on the fifth full business day following the date of this Agreement or at such
other date or place as shall be determined by agreement between the
Representatives and the Selling Shareholders. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Selling Shareholders shall deliver or cause to be delivered certificates
representing the Firm Shares to the Representatives for the account of each
Underwriter against
<PAGE>
11
payment to or upon the order of the Selling Shareholders of the purchase price
by certified or official bank check or checks payable in New York Clearing House
(next-day) funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of each Underwriter hereunder. Upon delivery, the Firm Shares shall
be registered in such names and in such denominations as the Representatives
shall request in writing not less than two full business days prior to the First
Delivery Date. For the purpose of expediting the checking and packaging of the
certificates for the Shares, the Selling Shareholders shall make the
certificates representing the Shares available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement, the option granted in Section 3 may be exercised by written notice
being given to the Principal Selling Shareholder by the Representatives. Such
notice shall set forth the aggregate number of shares of the Option Shares as to
which the option is being exercised, the names in which the shares of the Option
Shares are to be registered, the denominations in which the shares of the Option
Shares are to be issued and the date and time, as determined by the
Representatives, when the shares of the Option Shares are to be delivered;
provided, however, that this date and time shall not be earlier than the First
Delivery Date nor earlier than the second business day after the date on which
the option shall have been exercised nor later than the fifth business day after
the date on which the option shall have been exercised. The date and time the
shares of the Option Shares are delivered are sometimes referred to as the
"Second Delivery Date" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "Delivery Date").
Delivery of and payment for the Option Shares shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be determined by agreement between the
Representatives and the Principal Selling Shareholder) at 10:00 A.M., New York
City time, on the Second Delivery Date. On the Second Delivery Date, the
Principal Selling Shareholder shall deliver or cause to be delivered the
certificates representing the Option Shares to the Representatives for the
account of each Underwriter against payment to or upon the order of the
Principal Selling Shareholder of the purchase price by certified or official
bank check or checks payable in New York Clearing House (next-day) funds. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Option Shares shall be registered in such names
and in such denominations as the Representatives shall request in the aforesaid
written notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Shares, the Principal Selling
<PAGE>
12
Shareholder shall make the certificates representing the Option Shares available
for inspection by the Representatives in New York, New York, not later than 2:00
P.M., New York City time, on the business day prior to the Second Delivery Date.
6. Further Agreements of the Company in favor of the Underwriters.
The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement or, if applicable, such earlier time as may
be required by Rule 430A(a)(3) under the Securities Act; to make no
further amendment or any supplement to the Registration Statement or
to the Prospectus prior to the last Delivery Date except as permitted
herein; to advise the Representatives, promptly after it receives
notice thereof, of the time when any amendment to the Registration
Statement has been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof; to file promptly all reports and
any definitive proxy or information statements required to be filed by
the Company with the Commission pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of the Prospectus
and for so long as the delivery of a prospectus is required in
connection with the offering or sale of the Shares; to advise the
Representatives, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Shares for
offering or sale in any jurisdiction, of the initiation or threatening
of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and, in the
event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain its withdrawal;
(b) To furnish promptly to each of the Representatives and to
counsel for the Underwriters a signed copy of the Registration
Statement as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and exhibits
filed therewith;
<PAGE>
13
(c) To deliver promptly to the Representatives such number of
the following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto (in
each case excluding exhibits other than this Agreement and the
computation of per share earnings), (ii) each Preliminary Prospectus,
the Prospectus and any amended or supplemented Prospectus and (iii)
any document incorporated by reference in the Prospectus (excluding
exhibits thereto); and, if the delivery of a prospectus is required at
any time after the Effective Time in connection with the offering or
sale of the Shares and if at such time any events shall have occurred
as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary to amend or supplement the Prospectus or to file
under the Exchange Act any document incorporated by reference in the
Prospectus in order to comply with the Securities Act or the Exchange
Act, to notify the Representatives and, upon their request, to file
such document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time request of an amended or
supplemented Prospectus which will correct such statement or omission
or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any (i) amendment to the
Registration Statement or supplement to the Prospectus, any document
incorporated by reference in the Prospectus or (ii) any Prospectus
pursuant to Rule 424 of the Rules and Regulations, to furnish a copy
thereof to the Representatives and counsel for the Underwriters and
obtain the consent of the Representatives to the filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver
to the Representatives an earnings statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
<PAGE>
14
of the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives promptly upon demand copies of all
materials furnished by the Company to its shareholders and all public
reports and all reports and financial statements furnished by the
Company to the New York Stock Exchange and each other national
securities exchange upon which the Common Stock may be listed pursuant
to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Shares; provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any jurisdiction;
and
(i) For a period of 90 days from the date of the Prospectus, not
to offer for sale, sell or otherwise dispose of (or enter into any
transaction which is designed to, or could be expected to, result in
the disposition by any person of), directly or indirectly, any shares
of Common Stock (other than the Shares and shares issued pursuant to
employee benefit plans, qualified stock option plans or other employee
compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights), or sell or grant
options, rights or warrants with respect to any shares of Common Stock
(other than the grant of options pursuant to option plans existing on
the date hereof), without the prior written consent of the
Representatives.
7. Further Agreements of the Selling Shareholders. Each Selling
Shareholder agrees with each of the Underwriters and the Company:
(a) That the Shares to be sold by the Selling Shareholder
hereunder are subject to the interest of the Underwriters and that the
obligations of the Selling Shareholder hereunder shall not be
terminated by any act of the Selling Shareholder, by operation of law
or the occurrence of any other event; and
<PAGE>
15
(b) To deliver to the Representatives prior to the First
Delivery Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Shareholder is a non-United States
person) or Form W-9 (if the Selling Shareholder is a United States
person).
8. Expenses. Each of the Selling Shareholders severally agrees to
pay promptly, on demand, its pro rata share, based on the relation that the
number of such Shareholder's shares of Common Stock registered under the
Registration Statement bears to the total number of shares of Common Stock
registered under the Registration Statement, of the filing fees payable under
the Securities Act with respect to the Registration Statement and any amendments
and exhibits thereto, and of the following expenses based on the relation that
the number of Firm Shares set opposite such Selling Shareholder's name in
Schedule II hereto bears to the total number of Firm Shares hereunder: (a) the
costs incident to the preparation, printing and filing by direct electronic
transmission of the Registration Statement and any amendments and exhibits
thereto; (b) the costs of distributing the Registration Statement as originally
filed and each amendment thereto and any post-effective amendments thereof
(including, in each case, exhibits), any Preliminary Prospectus, the Prospectus
and any amendment or supplement to the Prospectus or any document incorporated
by reference therein, all as provided in this Agreement; (c) the costs of
reproducing and distributing this Agreement; (d) the costs of distributing the
terms of agreement relating to the organization of the underwriting syndicate
and selling group to the members thereof by mail, telex or other means of
communication; (e) the filing fees incident to securing any required review by
the National Association of Securities Dealers, Inc. of the terms of sale of the
Shares; (f) the fees and expenses of qualifying the Shares under the securities
laws of the several jurisdictions as provided in Section 6(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); (g) the expenses of the Company in
complying with the undertakings contained in section 6 hereof, other than
subsection 6(i); (h) the fees, disbursements and expenses of the Company's
counsel and accountants in connection with the preparation and filing of the
Registration Statement; (i) all fees and expenses of a qualified independent
underwriter; and (j) all other costs and expenses incident to the performance of
the obligations of the Company and the Selling Shareholders under this
Agreement; provided that, except as provided in this Section 8 and in Section
13, the Underwriters shall pay their own costs and expenses, including the costs
and expenses of their counsel, any transfer taxes on the Shares which they may
sell and the expenses of advertising any offering of the Shares made by the
Underwriters, and the Selling Shareholders shall pay the fees and expenses of
their counsel, and any transfer taxes payable in connection with their
respective sales of Shares to the Underwriters; and provided, further, that the
Company shall, in any event, pay its internal expenses (including, without
limitation,
<PAGE>
16
all salaries and ordinary course expenses of its officers and employees
performing legal or accounting duties) and the expense of any annual audit.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Shareholders contained herein, to the performance by the Company
and the Selling Shareholders of their respective obligations hereunder, and to
each of the following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied
with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of
Simpson Thacher & Bartlett, counsel for the Underwriters, is material
or omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to made
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Shares,
the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby, shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company and the Selling
Shareholders shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to pass
upon such matters.
(d) Kaplan, Strangis and Kaplan, P.A. shall have furnished to
the Representatives its written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form
and substance satisfactory to the Representatives, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good
<PAGE>
17
standing under the laws of Minnesota and its Significant
Subsidiary has been duly organized and is validly existing as a
partnership in good standing under the laws of Delaware, and each
has the power and authority necessary to own or hold its
respective property and conduct its business as described in the
Prospectus;
(ii) The authorized capital of the Company is as set forth
in the Prospectus, and all of the issued shares of capital stock
of the Company (including the Shares) have been duly authorized
and validly issued, are fully paid and non-assessable and conform
in all material respects to the description thereof contained in
the Prospectus; and all of the issued shares of capital stock or
partnership interests of each wholly owned subsidiary of the
Company have been duly and validly authorized and issued and are
fully paid, non-assessable and (except for directors' qualifying
shares) are owned directly or indirectly by the Company. To the
best of such counsel's knowledge, such shares and partnership
interests are free and clear of all liens, encumbrances, equities
or claims;
(iii) There are no preemptive or other rights to subscribe
for or to purchase, nor any restriction upon the voting or
transfer of, any of the Shares pursuant to the Company's charter
or by-laws or any agreement or other instrument known to such
counsel;
(iv) To the best of such counsel's knowledge and other than
as described or referred to in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property or
assets of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, might have a material adverse effect on the
consolidated financial position, shareholders' equity, results of
operations, business or prospects of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(v) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration
<PAGE>
18
Statement has been issued and no proceeding for that purpose is
pending or threatened by the Commission;
(vi) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the Rules and
Regulations, and the documents incorporated by reference in the
Prospectus (other than the financial statements and related
schedules therein, as to which such counsel need express no
opinion), when they were filed with Commission, complied as to
form in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission
thereunder;
(vii) To the best of such counsel's knowledge, there are
no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described or filed as exhibits to
the Registration Statement or incorporated therein by reference
as permitted by the Rules and Regulations;
(viii) This Agreement has been duly authorized, executed
and delivered by the Company; and
(ix) Neither the execution nor the delivery of this
Agreement nor consummation of the transactions contemplated
hereby will, to the best knowledge of such counsel, conflict with
or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject, nor will
such actions result in any violation of the provisions of the
charter or by-laws of the Company or any of its subsidiaries or
any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any
<PAGE>
19
of their properties or assets; and, except for the registration
of the Shares under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may
be required under the Exchange Act and applicable state
securities laws in connection with the purchase and distribution
of the Shares by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the
execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated
hereby.
In rendering such opinion, such counsel may state that its opinion
is limited to matters governed by the Federal laws of the United
States of America, the laws of the State of Minnesota, the State of
Delaware, or the State of New York, as the case may be. Insofar as the
opinion relates to matters of New York law, such counsel may rely on
the opinion of Simpson Thacher & Bartlett without independent
examination of the laws of such jurisdiction. Such opinion may contain
qualifications including, without limitation, a qualification
to the fact that, as used in such opinion, the expressions "to the
best of such counsel's knowledge" or words of similar effect shall be
interpreted consistent with the following statement of fact:
During the course of such counsel's representation of the
Company no information has come to such counsel's attention which
would give it actual knowledge or notice of the existence or
absence of such facts. Such counsel has not undertaken any
independent investigation or inquiry to determine the existence
or absence of such facts, and no inferences as to the existence
or absence of such facts should be drawn from such
representation. Such counsel is not regularly engaged by the
Company or its subsidiaries in respect of litigation matters and
would have no reason to have knowledge of proceedings or defaults
against the Company or its subsidiaries.
Such counsel shall also have furnished to the Representatives a
written statement, addressed to the Underwriters and dated the First
Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) such counsel has acted as
counsel to the Company on a regular basis, has acted as counsel to the
Company in connection with previous financing transactions and has
acted as counsel to the Company in connection with the preparation of
the Registration Statement, and (y) based on the foregoing, no facts
have come to the attention of such counsel which lead it to believe
that (I) the Registration Statement, as of the Effective Date and as
of the Delivery Date, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein not misleading,
or that the Prospectus as of its date and as of the Delivery Date
contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading or (II) any documents incorporated by
reference in the Prospectus, when they were filed with the Commission,
contained an untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The foregoing opinion and statement may be qualified by a statement to
the effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement or the Prospectus except for the statements
made in the Prospectus under the captions "Description of Capital
Stock," insofar as such statements relate to the Shares and concern
legal
<PAGE>
20
matters and may be qualified by a statement to the effect that such
counsel has not verified or passed upon and does not assume any
responsibility in respect of financial statements or other financial
or statistical data contained in the Registration Statement or the
Prospectus.
(e) Counsel for each of the Selling Shareholders shall have
furnished to the Representatives its written opinion, as counsel to
such Selling Shareholder, addressed to the Underwriters and dated the
Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that:
(i) Such Selling Shareholder has full right, power and
authority to enter into this Agreement; the execution, delivery
and performance of this Agreement by such Selling Shareholder and
the consummation by such Selling Shareholder of the transactions
contemplated hereby will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute
a default under, any statute, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to
such counsel to which such Selling Shareholder is a party or by
which such Selling Shareholder is bound or to which any of the
property or assets of such Selling Shareholder is subject, nor
will such actions result in any violation of the provisions of
the charter or by-laws of such Selling Shareholder or any statute
or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over
such Selling Shareholder or the property or assets of such
Selling Shareholder; and, except for the registration of the
Shares under the Securities Act and such consents, approvals,
authorizations, registrations, qualifications, filings or
registrations as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Shares by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement by
such Selling Shareholder and the consummation by such Selling
Shareholder of the transactions contemplated hereby;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder;
<PAGE>
21
(iii) Immediately prior to the sale of the Shares to the
Underwriters pursuant to this Agreement, such Selling Shareholder
was the sole registered owner of the Shares to be sold by it and
such Selling Shareholder had full power, right and authority to
sell such Shares; upon payment for and delivery of the Shares at
the Closing in the manner provided in this Agreement, assuming
that the Underwriters have purchased such Shares in good faith
and without notice of any adverse claim, the Underwriters will
acquire all of the rights of such Selling Shareholder in the
Shares, free of any adverse claim, any lien in favor of the
Company and any restriction on transfer imposed by the Company.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United
States of America, the laws of the State of Delaware or the
Commonwealth of Massachusetts, as the case may be, (ii) in rendering
the opinion in Section 9(e)(iii) above, rely upon a certificate of
each Selling Shareholder in respect of matters of fact as to ownership
of and liens, encumbrances, equities or claims on the Shares sold by
such Selling Shareholder; provided that such counsel shall furnish
copies thereof to the Representatives and state that it believes that
both the Underwriters and it are justified in relying upon such
certificate.
(f) Simpson Thacher & Bartlett shall have furnished to the
Representatives its written opinion, as counsel to the Underwriters,
addressed to the Underwriters and dated such Delivery Date, in form
and substance satisfactory to the Representatives.
(g) With respect to the letter of McGladrey & Pullen delivered
to the Representatives concurrently with the execution of this
Agreement (the "initial letter"), the Company shall have furnished to
the Representatives a letter (the "bring-down letter") of such
accountants, addressed to the Underwriters and dated such Delivery
Date (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with
the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii)
stating, as of the date of the bring-down letter (or, with respect to
matters involving changes or developments since the respective dates
as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date of
the bring-down letter), the conclusions and findings of such firm with
respect to the financial information and other matters covered by the
initial letter and (iii)
<PAGE>
22
confirming in all material respects the conclusions and findings set
forth in the initial letter.
(h) The Representatives shall have received a letter from
Goldman, Sachs & Co., addressed to the Underwriters and dated the
First Delivery Date, confirming that they are "qualified independent
underwriters" as defined in Schedule E to the By-Laws of the National
Association of Securities Dealers, Inc. with respect to the Company,
and stating, as of the date of such letter, the conclusions and
findings of such firm with respect to the information and other
matters covered by their letter delivered to the Representatives
concurrently with the execution of this Agreement and confirming in
all material respects the conclusions and findings set forth in such
prior letter.
(i) The Company shall have furnished to the Representatives a
certificate, dated the First Delivery Date and executed on its behalf
by a duly authorized senior officer of the Company and its chief
financial officers stating, in such person's capacity as an executive
officer, that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of the Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Sections 9(a) and 9(j)
have been fulfilled; and
(ii) The Registration Statement and the Prospectus have been
examined and, (A) as of the Effective Date and as of the Delivery
Date, the Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not omit to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) since the
Effective Date no event has occurred which should have been (and
was not) set forth in a supplement or amendment to the
Registration Statement or the Prospectus.
(j) Each Selling Shareholder shall have furnished to the
Representatives a certificate, dated the First Delivery Date, signed
by, or on behalf of, the Selling Shareholder stating that the
representations, warranties and agreements of the Selling Shareholder
contained herein are true and correct as of the First Delivery Date
and that the Selling Shareholder has complied with all agreements
contained herein to be performed by the Selling Shareholder at or
prior to the First Delivery Date.
<PAGE>
23
(k) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the Effective Date of the Registration Statement
any loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree,
otherwise than as described or referred to in the Prospectus or (ii)
since such date there shall not have been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or
any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as described or referred to in the
Prospectus, the effect of which, in any such case described in clause
(i) or (ii), is, in the judgment of the Representatives, so material
and adverse as to make it impracticable or inadvisable to proceed with
the public offering or the delivery of the Shares on the terms and in
the manner contemplated in the Prospectus.
(l) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall
have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the
Shares on the terms and in the manner contemplated in the Prospectus.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance satisfactory to counsel
for the Underwriters.
<PAGE>
24
10. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Underwriter,
each Selling Shareholder, each of the directors of each Underwriter and each
Selling Shareholder, and each person, if any, who controls any Underwriter or
any Selling Shareholder from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not limited
to, any loss, claim, damage, liability or action relating to purchases and sales
of Shares), to which any Underwriter, any Selling Shareholder or any controlling
person or any of them may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, any Preliminary Prospectus or the
Prospectus, or in any amendment or supplement thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading; and shall reimburse
each Underwriter, each Selling Shareholder and each such controlling person
promptly upon demand for any legal or other expenses reasonably incurred by that
Underwriter, Selling Shareholder or controlling person in connection with
investigating, defending or preparing to defend against, or appearing as a
third-party witness in connection with, any such loss, claim, damage, liability
or action as such expenses are incurred notwithstanding the possibility that
payments for such expenses might later be held to be improper, in which case the
person receiving them shall promptly refund them; provided, however, that the
Company shall not be liable in any such case to such person to the extent that
any such loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment thereof or supplement thereto in reliance upon
and in conformity with information furnished to the Company by such person or
through the Representatives by or on behalf of such person specifically
for inclusion therein. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Underwriter, any Selling
Shareholder or to any controlling person of any of them.
(b) Each of the Selling Shareholders, severally and not jointly,
shall indemnify and hold harmless the Company and each Underwriter, each of the
Company's directors, each of the officers of the Company who signed the
Registration Statement, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Shares), to which the Company, such
Underwriter, director, officer or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim, damage, liability
or action arises out of, or
<PAGE>
25
is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, any Preliminary
Prospectus, or the Prospectus or in any amendment or supplement thereto
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but in the case of clauses (i) and (ii) above only to the extent
that the untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
to the Company by that Selling Shareholder specifically for inclusion therein,
and shall reimburse the Company and each Underwriter and each such director,
officer or controlling person for any legal or other expenses reasonably
incurred by the Company and that Underwriter or director, officer or controlling
person in connection with investigating or defending or preparing to defend
against or appearing as a third-party witness in connection with any such
loss, claim, damage, liability or action as such expenses are incurred
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case the entity receiving them shall promptly
refund them; provided, however, that the Selling Shareholders shall not be
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus or the Prospectus or in any
such amendment thereto or supplement thereof in reliance upon and in conformity
with information furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein. Notwithstanding
the provisions of this Section 10(b), the aggregate liability of any Selling
Shareholder under this Section 10(b) shall not exceed the proceeds received by
the Selling Shareholder from the sale of Shares under this Agreement. The
foregoing indemnity agreement is in addition to any liability which the
Selling Shareholders may otherwise have to the Company and any Underwriter,
director, officer or controlling person.
(c) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company and each Selling Shareholder, each of their directors,
each of their officers who signed the Registration Statement, and each person,
if any, who controls the Company or any Selling Shareholder within the meaning
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof (including, but not limited
to, all losses, claims, damages, liabilities or actions relating to purchases
and sales of the Shares), to which the Company, any Selling Shareholder or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement, any
Preliminary Prospectus or the Prospectus or in any amendment thereto or
supplement thereto or (ii) the omission or alleged omission to state therein a
<PAGE>
26
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with information furnished in writing to the
Company through the Representatives by or on behalf of that Underwriter
specifically for inclusion therein, and shall reimburse the Company and each
Selling Shareholder and any such director, officer or controlling person
promptly upon demand for any legal or other expenses reasonably incurred by the
Company and each Selling Shareholder or any such director, officer or
controlling person in connection with investigating, defending or preparing to
defend against or appearing as a third-party witness in connection with any such
loss, claim, damage, liability or action as such expenses are incurred
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case the entity receiving them shall promptly
refund them. The foregoing indemnity agreement is in addition to any liability
which any Underwriter may otherwise have to the Company and each Selling
Shareholder or any such director, officer or controlling person.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement of that action; provided, however, that
the failure to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the extent it has
been materially prejudiced by such failure and, provided further, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have to an indemnified party otherwise than under this Section 10.
If any such claim or action shall be brought against an indemnified party, and
it shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it wishes, jointly with
any other similarly notified indemnifying party, to assume the defense thereof
with counsel satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representatives shall have the right to employ counsel to represent jointly
the Representatives and those other Underwriters and their respective
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriters against the Company
or any Selling Shareholder under this Section 10 if, in the reasonable judgment
of the Representatives, it is advisable for the Representatives and those
Underwriters and controlling persons to be jointly represented by separate
counsel, and in that event the fees and
<PAGE>
27
expenses of such separate counsel shall be paid by the Company or the Selling
Shareholders, as the case may be; and provided, further, that the Selling
Shareholders shall have the right to employ separate counsel to represent each
of the Selling Shareholders and their respective controlling persons who may be
subject to liability arising out of any claim in respect of which indemnity may
be sought by any Selling Shareholder against the Company or the Underwriters
under this Section 10 if, in the reasonable judgment of the Selling
Shareholders, it is advisable for the Selling Shareholders and controlling
persons to be represented by separate counsel, and in that event the fees and
expenses of such separate counsel shall be paid by the Company or the
Underwriters, as the case may be.
(e) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10(a), 10(b) or 10(c) in respect of any loss, claim, damage
or liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Shareholders on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other with
respect to such offering shall be deemed to be in the same proportion as the
total net proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Company and the Selling
Shareholders, on the one hand, and the total underwriting discounts and
commissions received by the Underwriters with respect to the sale of the Shares
purchased under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the Shares under this Agreement, in each case as
set forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Selling Shareholders or
the Underwriters, the intent of the parties and their relative knowledge, access
to information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that it would
not be just and equitable if contributions pursuant to this Section 10(e) were
to be determined by pro rata allocation
<PAGE>
28
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 10(e) shall be deemed to include, for
purposes of this Section 10(e), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 10(e), the aggregate liability
of any Selling Shareholder under this Section 10(e) shall not exceed the
proceeds received by the Selling Shareholder from the sale of Shares under
this Agreement. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 10(e) are several in proportion to their respective underwriting
obligations and not joint.
(f) The Underwriters severally confirm that the statements with
respect to the public offering of the Shares set forth in the last paragraph on
the outside cover page of, in the last paragraph on the inside cover page of,
and under the caption "Underwriting" in, the Prospectus are correct and
constitute the only information furnished in writing to the Company by or on
behalf of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus.
11. Defaulting Underwriters.
If, on the Delivery Date, any Underwriter defaults in the performance
of its obligations under this Agreement, the remaining non-defaulting
Underwriters shall be obligated to purchase the Shares which the defaulting
Underwriter agreed but failed to purchase on the Delivery Date in the respective
proportions which the number of Shares set opposite the name of each remaining
non-defaulting Underwriter in Schedule 1 hereto bears to the total number of
Shares set opposite the names of all the remaining non-defaulting Underwriters
in Schedule 1 hereto; provided, however, that the remaining non-defaulting
Underwriters shall not be obligated to purchase any of the Shares on the First
Delivery Date if the total number of Shares which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such date exceeds 9.09% of the
total number of Shares to be purchased on the First Delivery Date, and any
remaining non-defaulting Underwriter shall not be obligated to purchase more
than 110% of the number of Shares which it agreed to purchase on the First
Delivery Date pursuant to the terms of Section 3. If the foregoing maximums are
exceeded, the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representatives who so agree,
<PAGE>
29
shall have the right, but shall not be obligated, to purchase, in such
proportion as may be agreed upon among them, all the Shares to be purchased on
the First Delivery Date. If the remaining Underwriters or other underwriters
satisfactory to the Representatives do not elect to purchase the Shares which
the defaulting Underwriter or Underwriters agreed but failed to purchase on the
First Delivery Date, this Agreement shall terminate without liability on the
part of any non-defaulting Underwriter or the Company or the Selling
Shareholders, except that the Selling Shareholders will continue to be liable
for the payment of expenses to the extent set forth in Sections 8 and 13. As
used in this Agreement, the term "Underwriter" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed in
Schedule 1 hereto who, pursuant to this Section 11, purchases Shares which a
defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Selling Shareholders for damages caused by its
default, including reimbursement of expenses reasonably incurred by such Selling
Shareholder in connection with the offering of the Shares. If other underwriters
are obligated or agree to purchase the Shares of a defaulting or withdrawing
Underwriter, either the Representatives or the Selling Shareholders may postpone
the First Delivery Date for up to seven full business days in order to effect
any changes that in the opinion of counsel for the Company, counsel for the
Selling Shareholders or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or arrangement.
12. Termination.
The obligations of the Underwriters hereunder may be terminated by the
Representatives by notice given to and received by the Company and the Selling
Shareholders prior to delivery of and payment for the Firm Shares if, prior to
that time, any of the events described in Sections 9(j) or 9(k) shall have
occurred or if the Underwriters shall decline to purchase the Shares for any
reason permitted under this Agreement.
13. Reimbursement of Underwriters' and the Company's Expenses. If
(a) any Selling Shareholder shall fail to tender Shares for delivery to the
Underwriters for any reason permitted under this Agreement or (b) the
Underwriters shall decline to purchase the Shares for any reason permitted under
this Agreement (including the termination of this Agreement pursuant to Section
12), the Selling Shareholders shall reimburse the Underwriters and the Company
for the fees and expenses of their counsel and for such other out-of-pocket
expenses as shall have been incurred by them in connection with this Agreement
and the proposed purchase of the Shares, as the case may be, and promptly upon
demand the Selling Shareholders shall pay the full amount thereof to the
Representatives and the Company. If this Agreement is terminated
<PAGE>
30
pursuant to Section 11 by reason of the default of one or more Underwriters,
neither Selling Shareholder shall be obligated to reimburse any defaulting
Underwriter on account of those expenses but shall, nevertheless, reimburse the
Company on account of its expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-528-8822);
(b) if to the Company, shall be delivered or sent by mail, telex
or facsimile transmission to the address of the Company set forth in
the Registration Statement, Attention: John H. Grunewald (Fax:
612-542-0595);
(c) if to any Selling Shareholder, shall be delivered or sent by
mail, telex or facsimile transmission to such Selling Shareholder at
the address set forth on Schedule 2 hereto;
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and
the Selling Shareholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc., on behalf of the Representatives.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, the
Selling Shareholders and their respective personal representatives and
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company and the Selling Shareholders contained
in this Agreement shall also be deemed to be for the benefit of the person or
persons, if any, who control any Underwriter within the meaning of Section 15 of
the Securities Act and (B) the indemnity agreement of the Underwriters contained
in Section 10(c) of this Agreement shall be deemed to be for the benefit of
directors of the Company, officers of the Company who have signed the
Registration Statement and any person controlling the Company within the meaning
of Section 15 of the Securities Act and directors of the Selling Shareholders
and any persons controlling the Selling Shareholders. Nothing in this
<PAGE>
31
Agreement is intended or shall be construed to give any person, other than the
persons referred to in this Section 15, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
16. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Selling Shareholders and the
Underwriters contained in this Agreement or made by or on behalf on them,
respectively, pursuant to this Agreement, shall survive the delivery of and
payment for the Shares and shall remain in full force and effect, regardless of
any investigation made by or on behalf of any of them or any person controlling
any of them.
17. Definition of the Terms "Business Day" and "Subsidiary". For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
<PAGE>
32
If the foregoing correctly sets forth the agreement among the Company,
the Selling Shareholders and the Underwriters, please indicate your acceptance
in the space provided for that purpose below.
Very truly yours,
POLARIS INDUSTRIES INC.
By
--------------------------------
Name:
Title:
THE SELLING SHAREHOLDERS:
LB I Group Inc.
By
--------------------------------
Name:
Title:
President and Fellows
of Harvard College
By
--------------------------------
Name:
Title:
Accepted:
LEHMAN BROTHERS INC.
GOLDMAN, SACHS & CO.
PIPER JAFFRAY INC.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By LEHMAN BROTHERS INC.
By
-------------------------------------
Authorized Representative
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
------------ ---------
Lehman Brothers Inc. . . . . . . . . . . . . . . . . .
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . .
Piper Jaffray Inc.. . . . . . . . . . . . . . . . . .
_________
Total . . . . . . . . . . . . . . . . . . . . . 1,100,000
=========
<PAGE>
SCHEDULE 2
Name and address of Selling Shareholder Number of Shares
--------------------------------------- ----------------
LB I Group Inc. 600,000
Three World Financial Center
New York, New York 10285
President and Fellows
of Harvard College 500,000
Cambridge, Massachusetts
_________
Total 1,100,000
=========
EXHIBIT 4.1
[Form of Polaris Industries Inc. Common Stock Certificate]
EXHIBIT 5.1
May 22, 1995
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Polaris Industries Inc.
Ladies and Gentlemen:
We have acted as counsel to Polaris Industries Inc., a Minnesota corporation
(the "Company"), in connection with the Registration Statement on Form S-3 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), relating to
the proposed sale of up to 1,100,000 shares (the "Sale Shares") of the Company's
Common Stock, par value $.01 (the "Common Stock") by certain shareholders of the
Company. The Common Stock is described in the prospectus included in the
Registration Statement to which this opinion is an exhibit.
We have examined an executed copy of the Registration Statement (including
the exhibits thereto), the Articles of Incorporation of the Company filed with
the Secretary of State of the State of Minnesota and such corporate records,
documents and other instruments and have made such other examinations and
inquiries as we have deemed necessary to enable us to express the opinions set
forth herein.
Based upon the foregoing and subject to the qualifications and limitations
stated herein, we are of the opinion that:
The Sale Shares have been duly authorized and are validly issued, fully
paid and nonassessable.
The opinions set forth herein relate solely to the laws of the State of
Minnesota and the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the prospectus forming a part of the Registration Statement.
Very truly yours,
KAPLAN, STRANGIS AND KAPLAN, P.A.
By /s/ JAMES C. MELVILLE
...................................
James C. Melville
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-3 of
our report, dated February 2, 1995, except for Note 12 as to which the date is
May 10, 1995, relating to the financial statements of Polaris Industries Inc.,
and to the reference to our Firm under the captions "Experts" and "Selected
Historical and Pro Forma Financial Data" in the Prospectus.
MCGLADREY & PULLEN, LLP
/S/ MCGLADREY & PULLEN, LLP
......................................
Minneapolis, Minnesota
May 22, 1995
