-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VJ5L05eUk7YWZW0TlyqrzMGwVNktBV98xugykGUgiocVL5nkAqWKpE+QQ1pJYIXi PwViwtkFJlSzH68YSFe9hg== 0001047469-99-037045.txt : 19991227 0001047469-99-037045.hdr.sgml : 19991227 ACCESSION NUMBER: 0001047469-99-037045 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19990928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENMAR HOLDINGS INC CENTRAL INDEX KEY: 0000823619 STANDARD INDUSTRIAL CLASSIFICATION: SHIP & BOAT BUILDING & REPAIRING [3730] IRS NUMBER: 411591614 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-85447 FILM NUMBER: 99718612 BUSINESS ADDRESS: STREET 1: 100 S FIFTH ST STREET 2: STE 2400 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6123397900 MAIL ADDRESS: STREET 1: 100 SOUTH FIFTH ST STREET 2: STE 2400 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 S-1/A 1 S-1/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1999 REGISTRATION NO. 333-85447 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- GENMAR HOLDINGS, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 3732 41-1778106 (State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer of Classification Code Number) Identification Incorporation or Organization) Number)
100 SOUTH FIFTH STREET SUITE 2400 MINNEAPOLIS, MINNESOTA 55402 (612) 339-7900 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) MARY P. MCCONNELL, ESQ. GENMAR HOLDINGS, INC. 100 SOUTH FIFTH STREET SUITE 2400 MINNEAPOLIS, MINNESOTA 55402 (612) 339-7900 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) -------------------------- COPIES TO: STEPHEN M. BESEN, ESQ. H. WATT GREGORY, III, ESQ. WEIL, GOTSHAL & MANGES LLP GIROIR, GREGORY, HOLMES & HOOVER, PLC 767 FIFTH AVENUE 111 CENTER STREET, SUITE 1900 NEW YORK, NEW YORK 10153 LITTLE ROCK, ARKANSAS 72201 (212) 310-8000 (501) 372-3000 -------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. -------------------------- If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ________________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ________________ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / ________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. / / -------------------------- 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 SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1999 THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT CONFIRM SALES OF THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS 6,500,000 SHARES [LOGO] COMMON STOCK ------------------ Genmar Holdings, Inc. is offering 6,500,000 shares of its common stock. This is our initial public offering and no public market currently exists for our shares. We have applied to have our common stock listed on the Nasdaq National Market under the symbol "GNMR." We estimate that the initial public offering price will be between $11.00 and $13.00 per share. INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ---------------------
PER SHARE TOTAL ---------- ---------- Public Offering Price................................................. $ $ Underwriting Discount................................................. $ $ Proceeds to Genmar.................................................... $ $
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Genmar has granted the underwriters a 30-day option to purchase up to an additional 975,000 shares of common stock at the public offering price less the underwriting discount above, solely to cover over-allotments, if any. Stephens Inc. expects to deliver the shares of common stock on October , 1999. STEPHENS INC. U.S. BANCORP PIPER JAFFRAY The date of this prospectus is October , 1999. [INSIDE FRONT COVER] [GENMAR LOGO] [PICTURE OF CARVER BOAT] [PICTURE OF GLOBE WITH WORDS "TECHNOLOGY," "INNOVATION" AND "QUALITY"] [PICTURE OF CRESTLINER BOAT] A HISTORY OF INNOVATION, A WORLD OF OPPORTUNITIES. [AQUASPORT LOGO] As the second largest [CARVER YACHTS LOGO] manufacturer of motorized [CRESTLINE LOGO] recreational boats in the United [GLASTRON LOGO] States, Genmar produces some [LARSON LOGO] of the industry's leading brands. [LOGIC LOGO] These names extend around the [LUND LOGO] world through our network of [NOVA LOGO] approximately 1,300 independent [RANGER BOATS LOGO] authorized dealers who are in [TROJAN YACHTS LOGO] all 50 states and approximately [WELLCRAFT LOGO] 30 foreign countries. [PICTURE OF WELLCRAFT BOAT] [INSIDE SPREAD] [A 2-PAGE SPREAD DEPICTING GENMAR TECHNOLOGY] [LEFT PAGE] We have recently introduced new manufacturing processes that allow us to produce higher quality boats more efficiently and with substantially fewer regulated air emissions. We believe these innovations have positioned us to enter new markets and considerably increase our market share in the recreational boat industry. VEC Virtual Engineered Composites Virtual Engineered Composites (VEC) is an innovative closed-mold fiberglass manufacturing process that improves production efficiency and substantially reduces regulated air emissions relative to traditional processes. Genmar believes VEC technology introduces a new level of automation and quality control to boat manufacturing. [3 DEPICTIONS OF UTILIZATION OF VEC TECHNOLOGY] [RIGHT PAGE] Roplene Roplene construction is a closed rotational mold technology, proprietary to our Logic division, that uses advanced recyclable polyethylene materials and produces minimal regulated air emissions in the manufacturing process. This technology allows us to produce highly durable boats, which are marketed as the World's Toughest Boats.-TM- [3 DEPICTIONS OF UTILIZATION OF ROPLENE CONSTRUCTIONS] Robotics Robotics are becoming increasingly important to Genmar's manufacturing processes. [PICTURE OF ROBOTICS] [GENMAR LOGO] TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 1 Risk Factors................................... 7 Special Note Regarding Forward-Looking Statements................................... 13 Use of Proceeds................................ 14 Dividend Policy................................ 14 Capitalization................................. 15 Dilution....................................... 16 The Company.................................... 17 Selected Financial Data........................ 19 Unaudited Pro Forma Financial Data............. 21 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 24 PAGE ----- Business....................................... 36 Management..................................... 50 Certain Transactions........................... 57 Principal Stockholders......................... 60 Description of Capital Stock................... 62 Shares Eligible for Future Sale................ 65 Underwriting................................... 66 Legal Matters.................................. 68 Experts........................................ 68 Additional Information......................... 69 Index to Consolidated Financial Statements..... 70
------------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. ------------------------ Until 1999, all dealers effecting transactions in the common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ------------------------ Unless otherwise indicated, all information in this prospectus: - Except for the audited historical consolidated financial statements, reflects a 9-for-1 split of our common stock after giving effect to the spin-off of Hatteras; - Reflects the issuance of 5,593,500 shares of common stock in exchange for outstanding warrants; - Assumes a public offering price of $12.00 per share; - Assumes the filing of our amended and restated certificate of incorporation, which, among other things, will authorize 200,000,000 shares of common stock; and - Assumes no exercise of the underwriters' over-allotment option. PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. YOU SHOULD READ THIS ENTIRE PROSPECTUS CAREFULLY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. GENMAR HOLDINGS, INC. OVERVIEW We are the second largest manufacturer of motorized recreational boats in the United States. We produce boats under the leading brand names of Aquasport, Carver, Crestliner, Glastron, Larson, Logic, Lund, Nova, Ranger, Scarab, Trojan and Wellcraft. We sell our products through an established network of approximately 1,300 independent authorized dealers in all 50 states and approximately 30 foreign countries. We have recently introduced new manufacturing processes that allow us to produce higher quality boats more efficiently and with substantially fewer regulated air emissions. We believe these innovations have positioned us to enter new markets and substantially increase our market share in the recreational boating industry. Since 1996, when we installed our current management team, we have focused on improving our operations and profitability. Our management team has improved our manufacturing efficiency, refined our current products and evaluated future product offerings. We have also increased coordination among our business units and provided incentives to our entire management team to accomplish key manufacturing and marketing goals. As a result of these initiatives, our net revenues and operating profit (excluding operations we will spin off, as discussed on page 3) have increased to $614.4 million and $35.9 million, respectively, for the year ended June 30, 1999 from $490.3 million and $16.9 million, respectively, for the twelve months ended June 30, 1997, representing compound annual growth of 11.9% and 45.7%, respectively. OUR NEW TECHNOLOGIES Over the past several years, we have been exploring new technologies to improve the traditional boat manufacturing process. Recently, we have acquired and developed new technologies to reduce manufacturing and warranty costs, improve plant working conditions, enhance product quality and potentially establish new standards for manufacturing in the recreational boat industry. These technologies are: - VEC-TM-. Virtual Engineered Composites, or VEC technology, is an innovative closed-mold fiberglass manufacturing process that improves production efficiency and substantially reduces regulated air emissions relative to traditional processes. We believe the VEC technology introduces a new level of automation and quality control to boat manufacturing. Early in 1999, we began producing boats using our VEC technology, and we plan to integrate VEC systems into most of our fiberglass operations over the next two years, marketing these boats as premium products. In August 1999, we received the 1999 Minnesota Governor's Award for Excellence in Pollution Prevention from the Minnesota Office of Environmental Assistance for our VEC technology. - ROPLENE-TM- CONSTRUCTION. Roplene construction is a closed rotational mold technology, proprietary to our Logic division, that uses advanced recyclable polyethylene materials and produces minimal regulated air emissions in the manufacturing process. This technology allows us to produce highly durable boats, which we market as the World's Toughest Boats-TM- to entry-level buyers at a lower cost than comparable fiberglass boats. This technology was awarded the New Product Award (Small Company Category) in 1998 by the National Society of Professional Engineers and the North Carolina Governor's New Product Award in 1997. INDUSTRY Total U.S. retail sales of new motorized recreational boats were approximately $7.5 billion in 1998, an increase from $4.1 billion in 1992. This increase in sales has been fueled by the overall strength of the U.S. economy, rapid growth in the number and wealth of consumers in the 35 to 54 years age range, our target age group, and by demand for boats from the estimated 35 million adult anglers in the United States. Despite recent growth in the recreational boat industry, we believe we are uniquely positioned to take advantage of the following challenges that our industry faces: - Labor-intensive manufacturing processes which remain largely unautomated; - Increasingly strict environmental standards derived from governmental regulations and customer sensitivities; - A lack of focus on comprehensive customer service and support by many dealers and manufacturers; and - A high degree of fragmentation and competition among more than 3,700 domestic recreational boat manufacturers. STRATEGY OUR OPERATING STRATEGY emphasizes our proprietary technologies, allowing us to: - Deliver a superior quality product; - Lower unit costs through increased automation in our plants; - Realize economies of scale through our buying power; - Exceed current environmental quality standards for manufacturers in our industry; and - Explore opportunities to license or apply our technologies in other marine and non-marine industries, such as the construction, transportation and recreation industries. OUR MARKETING STRATEGY seeks to increase market share by enabling us to: - Leverage our brand names through innovative programs with marketing partners; - Expand our international presence by continuing to build dedicated sales, marketing and distribution systems; and - Strengthen our dealer organization by expanding our network and providing superior customer service and support. From time to time we also consider and make acquisitions in order to complement our existing product lines, expand our geographic presence and strengthen our manufacturing and operating technologies. 2 OPERATING RESULTS WITHOUT HATTERAS Hatteras is a luxury yacht construction company that we have historically operated as a separate division. As we have refined the focus of our business, we have determined that Hatteras does not fit strategically with our other operations. Accordingly, we will spin off Hatteras to our current stockholders immediately prior to the completion of this offering. The results of our recreational boat segment, representing our operations without Hatteras, are summarized below.
FOR THE YEAR ENDED JUNE 30, ---------------------------------- 1997 1998 1999 ---------- ---------- ---------- (IN THOUSANDS) Net revenues............................................. $ 490,313 $ 505,910 $ 614,406 Gross profit............................................. 81,754 98,356 121,872 Operating profit......................................... 16,930 27,601 35,948 ------------------- Backlog at August 31..................................... $ 145,000 $ 185,000 $ 310,000
------------------------ Our principal executive offices are located at 100 South Fifth Street, Suite 2400, Minneapolis, Minnesota 55402. Our telephone number at that location is (612) 339-7900 and our web site address is WWW.GENMAR.COM. WE DO NOT INTEND FOR INFORMATION CONTAINED ON OUR WEB SITE TO CONSTITUTE PART OF THIS PROSPECTUS. 3 THE OFFERING The number of shares of common stock outstanding after this offering includes the issuance of 5,593,500 shares in exchange for outstanding warrants, 916,667 shares issued in connection with the acquisition of Pyramid Operating Systems, Inc. and approximately 225,000 shares issued under employee stock awards, and excludes approximately 2,562,500 shares issuable upon the exercise of senior executive, director and employee stock options to be granted concurrently with this offering. Common stock offered......................... 6,500,000 shares Common stock outstanding after this 28,867,897 shares offering................................... Use of proceeds.............................. We intend to use the net proceeds from this offering to repay outstanding indebtedness, to build and equip a new manufacturing facility and for general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol....... GNMR
4 SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following summary historical and pro forma consolidated financial information should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this prospectus and the sections of this prospectus captioned "Unaudited Pro Forma Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The balance sheet data as of June 30, 1999 and the statement of operations data for the years ended June 30, 1998 and June 30, 1999 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The unaudited statement of operations data for the twelve months ended June 30, 1997 were derived from our unaudited consolidated financial statements which are not included in this prospectus. The unaudited pro forma data as of and for the year ended June 30, 1999 reflect the spin-off of Hatteras using the $20.0 million of spin-off proceeds to repay debt, and reduced interest expense from our debt refinancing. The pro forma as adjusted amounts also give effect to the acquisition of Pyramid, reduced interest expense associated with the repayment of debt and additional depreciation expense associated with our new plant and equipment additions, using the net proceeds from this offering. The pro forma as adjusted statement of operations amounts do not reflect non-recurring charges we will incur relating to awards under our phantom stock plan and the issuance of approximately 225,000 shares under employee stock awards, and extraordinary charges related to the early retirement of our debt. The pro forma balance sheet amounts reflect these charges, but do not reflect interest savings. In our opinion, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the unaudited statement of operations data for the twelve months ended June 30, 1997 have been reflected therein. The summary pro forma as adjusted consolidated financial information as of and for the year ended June 30, 1999 were derived from our unaudited pro forma financial data which are included elsewhere in this prospectus.
PRO FORMA FOR THE AS ADJUSTED TWELVE MONTHS FOR THE YEAR ENDED FOR THE YEAR ENDED JUNE 30, ENDED JUNE 30, JUNE 30, 1997 ---------------------- 1999 (UNAUDITED) 1998 1999 (UNAUDITED) ------------- ---------- ---------- -------------- STATEMENT OF OPERATIONS DATA: Net revenues.......................... $ 574,802 $ 585,943 $ 704,656 $ 618,654 Gross profit.......................... 88,526 105,292 137,409 121,336 Operating profit...................... 13,467 23,598 37,468 30,595 Income (loss) before income taxes and extraordinary item.................. (8,764) 4,592 21,445 24,857 Income tax benefit (provision)........ (635) (550) 19,500 19,500(a) Net income (loss)..................... $ (9,399) $ 2,858 $ 40,945 $ 44,357 Pro forma basic and diluted earnings per share(b)........................ $ 2.36 $ 1.54 ---------- -------------- ---------- -------------- Pro forma basic and diluted weighted average shares outstanding(b)....... 17,370 28,868 ---------- -------------- ---------- -------------- ADDITIONAL DATA: EBITDA(c)............................. $ 21,488 $ 32,372 $ 46,419 $ 39,183 Gross profit margin................... 15.4% 18.0% 19.5% 19.6% Operating profit margin............... 2.3% 4.0% 5.3% 4.9%
AS OF JUNE 30, 1999 --------------------------------------- PRO FORMA PRO FORMA AS ADJUSTED HISTORICAL (UNAUDITED) (UNAUDITED) ---------- -------------- ----------- BALANCE SHEET DATA: Working capital....................................................... $ 41,544 $ 28,972 $ 17,386 Total assets.......................................................... 320,763 256,987 277,767 Long-term debt, net of current maturities............................. 116,129 101,540 42,540 Stockholders' equity(a)(b)............................................ 42,202 26,783 99,487
5 (a) During 1999, we recorded a reduction in our valuation allowance against our deferred tax assets, resulting in an overall tax benefit of $19.5 million. Tax expense assuming a statutory rate of 38% would have been $9.5 million and pro forma net income would have been $15.4 million, or $0.53 per share. (b) Historical 1999 per share data reflects a 10-for-1 stock split, as it does not give effect to the Hatteras spin-off which will occur immediately prior to the offering. The pro forma as adjusted amounts reflect a 9-for-1 stock split after giving effect to the Hatteras spin-off through the exchange by our current stockholders of one out of every ten of their Genmar shares for one Hatteras share. The pro forma as adjusted amounts also reflect the shares issued in this offering, the shares issued in exchange for outstanding warrants, the shares issued to acquire Pyramid and the shares issued under employee stock awards. Our stock split will be effected immediately prior to the closing of this offering. For comparability purposes, all share and per share data above reflects this split even though this split has not been reflected in our audited financial statements included elsewhere in this prospectus. (c) EBITDA represents operating income plus depreciation and goodwill amortization expense. EBITDA data, which is not a measure of financial performance under generally accepted accounting principles, should not be construed as a substitute for operating income, net income or cash flows from operations in analyzing our operating performance, financial position and cash flows. We have included EBITDA data because we believe that this data is commonly used by certain investors to evaluate a company's performance. Not all companies calculate non-GAAP measures in the same manner; accordingly, the EBITDA presentation herein may not be comparable to similarly titled measures reported by other companies. 6 RISK FACTORS YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS AND OTHER INFORMATION DESCRIBED IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE THE PRINCIPAL RISKS FACING OUR COMPANY, BUT ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES THAT WE DO NOT PRESENTLY KNOW ABOUT OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO ADVERSELY IMPACT OUR BUSINESS OPERATIONS. NEGATIVE CONSEQUENCES ASSOCIATED WITH THE FOLLOWING RISKS WOULD LIKELY CAUSE OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS TO SUFFER. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF THE MONEY YOU PAID TO BUY OUR COMMON STOCK. OUR BUSINESS IS ADVERSELY AFFECTED BY ECONOMIC DOWNTURNS. Our operations are highly dependent upon the health of the overall economy and a number of cyclical economic factors relating to or affecting consumer spending. During times of economic downturn, consumer discretionary spending levels decrease. This may result in disproportionately large declines in the sale of expensive items, including motorized recreational boats. Sales of our products are also influenced by local, national and international economic conditions, and are particularly vulnerable to increases in interest rates, shortages or increases in the price of fuel and the imposition of or increases in sales and excise taxes. For example, following a general economic recession and the imposition of a luxury tax on certain recreational boats, annual boating sales of new motorized recreational boats declined from their peak of $8.0 billion in 1988 to a low of $4.1 billion in 1992. Since that time, sales have increased each year and rose to $7.5 billion in 1998. See "Business--Industry Overview." Additionally, rising or volatile interest rates or shrinking availability of credit could have a negative impact on consumers' or dealers' ability or willingness to obtain financing from lenders to purchase our products. This could also adversely affect our ability to sell our products. IF OUR NEW TECHNOLOGIES DO NOT YIELD COMMERCIALLY VIABLE PRODUCTS OR EFFECTIVELY COMPETE WITH OTHER NEW TECHNOLOGIES, WE MAY NOT BE ABLE TO IMPLEMENT SUCCESSFULLY OUR BUSINESS STRATEGY. Our business strategy depends on, among other things, our successful development and implementation of our VEC and Roplene technologies. We have utilized VEC technology to produce boats since March 1999. Revenues from sales of boats produced with VEC technology represent less than one percent of our total revenues for that period. The VEC technology and related processes will require further development and modification to be applied successfully across our fiberglass product lines, and we cannot be certain that boats built with the VEC technology will achieve broad commercial acceptance in the marketplace. The VEC technology has potential application in both marine and non-marine industries. We cannot assure you, however, that we will be able to expand its potential applications. We have previously experimented with other closed-mold technologies in our manufacturing processes, but have found them to be unacceptable for commercial production of large parts. Other closed-mold technologies could be further developed, however, and could outperform our VEC technology in the marketplace, in which case our profitability could suffer. In addition, we are currently manufacturing and selling boats constructed with Roplene technology. We cannot, however, assure you that these boats will gain widespread acceptance among dealers and consumers. 7 Our development of the VEC and Roplene technologies is subject to the risks generally inherent in the development of new manufacturing technologies. These risks include: - Delays and unplanned expenditures in product development; - Emergence of equivalent or superior competing technologies; - High unit costs for production runs; and - Competition between new and existing product lines. If either the products made from, or the manufacturing processes based upon, the VEC or Roplene technology fail to meet our expectations, the implementation of our business strategy could be materially and adversely affected. See "Business--Technology." WE RELY ON PROPRIETARY RIGHTS TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THE FAILURE OR LIMITATION OF WHICH COULD MATERIALLY HARM OUR BUSINESS. Our success and ability to implement our business strategy is partially dependent on our proprietary technology and processes. To the extent any of our operations may be limited or we are required to incur additional costs as a result of the loss, limitation or infringement of any of these proprietary technologies and processes, our business may be adversely affected. We rely primarily on a combination of U.S. patents, trademarks, trade secrets, operating know-how and license and confidentiality agreements with third parties to protect our proprietary rights. See "Business--Patents and Trademarks." When legally permissible and appropriate, we file applications to obtain patents and register our trademarks and service marks in the United States and in foreign countries where we currently sell our products or reasonably expect to sell our products in the near future. We cannot assure you that any patents will issue as a result of our pending or future patent applications, or that existing or future patents will afford adequate protection against competitors. Our protective efforts may not be sufficiently broad to exclude others from adopting and practicing our technologies, or independently developing similar technologies. We cannot assure you that any of our patents or trademarks will not be invalidated, or circumvented or found to infringe the rights of others. In the event of infringement, we may be required to modify our technology or processes, obtain licenses or pay license fees. We may not be able to do so in a timely manner or upon acceptable terms and conditions, which would restrict our ability to compete with others and could have a material adverse effect on our operations. INTENSE COMPETITION IN OUR INDUSTRY COULD ADVERSELY AFFECT OUR SALES OR PROFIT MARGINS. Competition within the motorized recreational boat industry is intense. We face competition at the local, regional, national and international levels. Our largest competitors and their principal lines include: - Brunswick Corporation (Bayliner, Sea Ray and Boston Whaler); and - Outboard Marine Corporation (Four Winns, Stratos and Lowe). Brunswick may have greater financial and other resources than our company, and both Brunswick and Outboard Marine are vertically integrated operations that manufacture engines as well as boats. Our vertically integrated competitors may be better positioned than our company to allocate costs and enhance the marketing of their products because they also manufacture and sell engines along with their boats. We also compete directly with smaller boat manufacturers and the used boat market and indirectly with other recreational products and activities. We cannot assure you that we can continue to increase or maintain our current market share or profit margins. See "Business--Competition." 8 PROBLEMS WITH THIRD-PARTY ENGINE SUPPLIERS COULD LIMIT OUR SUPPLY OF ENGINES. We purchase our engines from third parties. We also pre-rig certain boats with specified engine controls so the dealer can install the appropriate engine. By purchasing or pre-rigging engines from third parties, including Brunswick and Outboard Marine, we are subject to the following risks: - Delays in shipments; - Work stoppages; and - Termination of supply agreements. The occurrence of any of these events or the loss of any of these suppliers could adversely affect our business until alternative supply arrangements are secured. We cannot assure you that we will be able to obtain engines from other suppliers in sufficient quantities to meet our near-term production schedules or on substantially similar terms to our current engine purchase arrangements. In addition, engines obtained from alternative sources may not meet customer preferences. See "Business-- Suppliers." WE ARE VULNERABLE TO FLUCTUATIONS IN THE COST AND SUPPLY OF COMMODITY RAW MATERIALS. We purchase commodity raw materials, such as aluminum, fiberglass and resin, from various suppliers. Commodity raw material prices are subject to fluctuations in price. We generally secure our commodity raw material requirements through fixed-price supply agreements which run for one- to three-year periods. If the prices of our raw materials increase, we may not be able to pass these increases along to our customers. This would reduce our profits and could have a material adverse effect on our results of operations. See "Business--Suppliers." PRODUCT LIABILITY AND WARRANTY CLAIMS COULD SUBJECT US TO UNFORESEEN COSTS, INCLUDING LITIGATION. We are exposed to potential product liability risks inherent in the manufacturing, marketing and use of our boats. Product failures, flaws or defects, or inadequate disclosure of product-related risks could result in product failure or injury to, or death of, consumers. The occurrence of any of these conditions or events could result in product liability claims or a recall of, or safety alerts relating to, our products, any of which could have a material adverse effect on our business, results of operations or financial condition. Additionally, although we maintain product liability insurance, we cannot assure you that our insurance will be available or sufficient to satisfy all claims that may be made against us or that we will be able to continue to obtain insurance in the future at satisfactory rates, in adequate amounts or at all. Future product liability claims, regardless of their ultimate outcome, or future product recalls, could result in costly litigation and could have a material adverse effect on our business, results of operations and financial condition, and to our reputation and ability to attract and retain customers. We are also subject to warranty risks. All of our boats are subject to standard limited warranties. We do not maintain insurance to cover warranty claims, and we cannot assure you that future warranty claims and related costs would not have a material adverse effect on our business, results of operations or financial condition. See "Business--Legal Proceedings." We intend to provide a limited lifetime warranty for boats constructed with our VEC and Roplene technologies. If these technologies do not prove to be as successful as we expect, these extended warranties could result in significant increases in warranty costs with potentially negative effects on our business, results of operations or financial condition. 9 OUR OPERATIONS ARE SUBJECT TO NUMEROUS LOCAL, STATE AND FEDERAL REGULATIONS RELATING TO SAFETY AND THE ENVIRONMENT. COMPLIANCE WITH ENVIRONMENTAL REGULATIONS COULD RESTRICT OUR OPERATIONS OR REQUIRE SIGNIFICANT EXPENDITURES. Our operations are subject to regulation, supervision and licensing under various local, state and federal environmental statutes, ordinances and regulations. We are required to maintain various permits, relating principally to air emissions, which are subject to renewal, modification and, in some instances, revocation. Our failure to satisfy those regulations and requirements could have a material adverse effect on our business, results of operations or financial condition. Furthermore, limitations on air emissions imposed by our current permits may restrict our ability to expand production at certain of our existing facilities. See "Business--Regulation and Environmental." Certain materials used in boat manufacturing are toxic, flammable, corrosive or reactive and classified by state and federal governments as "hazardous materials." Control of hazardous materials is regulated by the U.S. Environmental Protection Agency and state environmental protection agencies. If it is ever determined that our operations have resulted in hazardous waste contamination, the costs of cleaning up those wastes could be substantial and could have a material adverse effect on our business, financial condition and results of operations. We cannot predict our future regulatory compliance costs with precision and we cannot be certain of any costs that we may be forced to incur in connection with our historical on-site or off-site waste disposal. In connection with our Wellcraft facilities in Florida, we have agreed to conduct certain remedial action related to soil and groundwater contamination. We are also subject to potentially significant remedial requirements with respect to certain formerly owned or operated properties for which we have retained liability for any contamination. Although it is impossible to predict the ultimate cost of any penalties or required remedial action, we believe that we have established adequate reserves to cover those expenses. Laws and regulations protecting the environment may, in certain circumstances, impose "strict liability." This means that we could be held liable for environmental damage without regard to our negligence or fault. In addition, changes in existing regulations or the adoption of new regulations in the future could require us to make material capital expenditures or could have a material adverse effect on our company. WE COULD BE ADVERSELY AFFECTED IF BOATING LICENSING REQUIREMENTS OR OTHER RESTRICTIONS ARE IMPLEMENTED. Certain states have required or are considering requiring a license to operate a recreational boat. These licensing requirements are not expected to be unduly restrictive. They may, however, discourage potential first-time buyers, which could, in turn, adversely affect our business. In addition, certain state and local governmental authorities are contemplating regulatory efforts to restrict boating activities on certain inland bodies of water. While the scope of these potential regulations is not yet known, their adoption and enforcement could have a material adverse effect on our business. SEASONALITY IN THE MOTORIZED RECREATIONAL BOAT INDUSTRY COULD ADVERSELY AFFECT OUR QUARTERLY OPERATING RESULTS. The motorized recreational boat industry is seasonal, with seasonality varying in different geographic markets. During the fiscal year ended June 30, 1999, net revenues for the quarterly periods ended September 30, December 31, March 31 and June 30 represented 20.7%, 23.4%, 26.0% and 29.9%, respectively, of our net revenues for the year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Seasonality and Fluctuations in Quarterly Results of Operations." Our business can also be affected by weather patterns. For example, drought conditions, reduced rainfall levels or excessive rain, may force particular boating areas to close or render boating dangerous or inconvenient in those areas. This could curtail customer demand for our products. These factors could represent potential material adverse risks to us and our future operating performance. 10 THE LOSS OF ANY OF OUR KEY EXECUTIVES COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATIONS. Our success over the past three years has been primarily the result of a manufacturing and marketing strategy implemented by our senior management team, particularly Irwin L. Jacobs, the Chairman of our Board of Directors, Grant E. Oppegaard, our President and Chief Executive Officer, and Roger R. Cloutier II, our Executive Vice President and Chief Financial Officer. Our loss of the services of any of these individuals could have a material adverse effect on our results of operations and financial condition. Mr. Jacobs is a non-executive Chairman and devotes a significant portion of his time to other activities, including Jacobs Management Corporation, unrelated to our company. Mr. Cloutier is also employed by Jacobs Management, and in the past has devoted a portion of his time to the activities of Jacobs Management. None of these individuals has an employment agreement with our company, although Messrs. Oppegaard and Cloutier each would be subject to non-competition restrictions if he left our employment. CERTAIN OF OUR OFFICERS, DIRECTORS AND STOCKHOLDERS WILL EFFECTIVELY CONTROL MANY ASPECTS OF OUR CORPORATE GOVERNANCE. Upon completion of the offering, our directors, executive officers and persons associated with them will own beneficially an aggregate of approximately 58.9% of the issued and outstanding shares of common stock (approximately 57.0% if the underwriters' over-allotment option is exercised in full). As a result of this ownership, those persons will have the power effectively to control our company, including: - The election of directors, - The determination of matters requiring stockholder approval; and - Other matters pertaining to corporate governance. This concentration of ownership also may have the effect of delaying or preventing a change in control of our company. SOME OF THE TRANSACTIONS IN WHICH WE ENGAGE MAY FAVOR AFFILIATES. In the past, we have engaged in various transactions with our stockholders or their affiliates. For example, we sponsor certain professional bass fishing tournaments of Operation Bass, Inc., an affiliate of Irwin L. Jacobs, our Chairman, and certain of our executive officers. We are also party to a management services agreement with Jacobs Management, one of our stockholders and an affiliate of Mr. Jacobs. In addition, certain of our stockholders have loaned money to us. We may engage in similar transactions in the future, some of which may be with our affiliates. We have a policy requiring that all material affiliate transactions be approved by a majority of our disinterested directors and be conducted on terms no less favorable than could be obtained in a transaction with an unaffiliated third party. See "Certain Transactions." A SIGNIFICANT INCREASE IN FUEL PRICES OR TAXES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. Almost all of the boats sold by us are powered by diesel or gasoline engines. A significant increase in the price or tax on the sale, or an interruption in the supply of diesel or gasoline fuel on a regional, national or international basis could adversely affect our sales and operating results. At various times in the past, diesel or gasoline fuel has been difficult to obtain, and we cannot assure you that the supply of those fuels will not be interrupted. 11 WE COULD LOSE REVENUES AND INCUR SIGNIFICANT COSTS IF OUR SYSTEMS OR SUPPLIERS ARE NOT Y2K COMPLIANT. As the end of the century nears, there is a widespread concern that many existing computer programs that use only the last two digits to refer to a year will not properly recognize a year that begins with digits "20" instead of "19." If not corrected, many computer applications could fail, create erroneous results, or cause unanticipated systems failures, among other problems. Our failure, or the failure of one or more of our key suppliers, customers or distributors, to successfully address Y2K issues could have a material adverse effect on our business, results of operations, financial condition and prospects. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000." WE MAY INCUR ADDITIONAL COSTS AS A RESULT OF OUR GUARANTEE OF CERTAIN OBLIGATIONS OF HATTERAS, OUR FORMER LUXURY YACHT DIVISION. Immediately prior to the completion of this offering, we will spin off the operations of Hatteras to our current stockholders. Under the terms of that transaction, we will guarantee for a period of one-year an aggregate of $5.0 million of Hatteras' obligations under its new $25.0 million credit facility. See "The Company" and "Certain Transactions." If Hatteras is unable to fulfill its obligations under its credit facility, we could be required to perform under our guarantee and have to pay out funds that would otherwise be applied to maintaining or improving our own operations. In addition, our funds may be insufficient for these purposes. The lenders or other parties to whom Hatteras may now or in the future be indebted could also seek to establish claims against us for repayment of funds owed by Hatteras. If the Hatteras creditors were successful in their claims against us, these events could have a material adverse effect on our business, results of operations or financial condition. YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR INVESTMENT. The initial public offering price per share will exceed our net tangible book value per share. If you purchase shares in this offering, you will incur immediate and substantial dilution in your investment. See "Dilution" for a calculation of the extent to which your investment will be diluted. FUTURE SALES BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. Following this offering, we will have a large number of shares of common stock outstanding and available for resale beginning at various points in time in the future. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market following this offering, or the perception that these sales could occur. These sales also might make it more difficult for us to sell equity securities in the future at a time and at a price that we consider appropriate. Also, the shares issued to acquire Pyramid are subject to registration rights, which become effective nine months following this offering. In connection with this offering, our directors and officers and certain of our stockholders, who hold a total of 18,771,948 shares of common stock, have agreed, subject to certain exceptions, not to sell their shares for 180 days after the date of this prospectus without the consent of Stephens Inc. See "Shares Eligible for Future Sale" and "Underwriting." 12 THERE HAS BEEN NO PRIOR MARKET FOR OUR STOCK, AND OUR STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE. Prior to the offering, there has been no public market for our common stock. We cannot predict the extent to which investor interest in us will lead to the development of an active trading market in our stock or how liquid that market might become. The initial public offering price for the shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in any future trading market. Recent market conditions for newly public companies indicate that we are likely to experience significant fluctuations in the market price of our common stock. Future public announcements concerning our company could also cause the market price of the common stock to fluctuate, including announcements regarding: - Quarterly operating results or expectations; - Changes in earnings estimates published by analysts; - Changes in governmental regulations; - Events within or affecting the recreational boat industry; - Events relating to our suppliers or competitors; or - Acquisitions. From time to time the stock market experiences significant price and volume fluctuations. The volatility of the overall market could adversely affect the market price of our common stock and our future ability to raise equity in the public markets. These fluctuations, as well as general economic, political and market conditions, such as recessions, could adversely affect the market price of our stock. See "Underwriting." SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and elsewhere in this prospectus are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, or those of our industry, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by those forward-looking statements. These risks and uncertainties are discussed in "Risk Factors" and elsewhere in this prospectus. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of those terms or comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of those statements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform those statements to actual results. 13 USE OF PROCEEDS The net proceeds we will receive from the sale of the 6,500,000 shares of common stock offered by this prospectus, assuming an initial public offering price of $12.00 per share, are estimated to be $71.0 million ($81.9 million if the underwriters' over-allotment option is exercised in full), after deducting the estimated underwriting discount and offering expenses. Immediately prior to the completion of this offering, we expect to receive $20.0 million from the spin-off of Hatteras as repayment of intercompany indebtedness owed to us at the time of the spin-off. We intend to use the offering proceeds and the Hatteras spin-off proceeds, as follows: - $45.0 million to repay in full our new senior term loan; - $30.0 million to repay in part our subordinated term loan; - $12.0 million to build and equip a new manufacturing facility utilizing our VEC technology and other new process equipment; and - the remainder for other general corporate purposes, including working capital and capital expenditures. Our new senior term loan is due on June 30, 2002 and bears interest at an annual rate based on the interbank eurodollar market rate plus 2.5%. On September 22, 1999, the interest rate on our senior term loan was 7.9%. Our subordinated term loan is due on October 21, 2002 and bears interest at an alternate base rate on any particular date equal to the greater of the interbank eurodollar market rate in effect on that date or the federal funds rate in effect on that date plus 0.5%. On September 22, 1999, the interest rate on our subordinated term loan, adjusted to reflect our full cash borrowing cost, was 7.5%. The weighted average interest rate on all of our borrowings outstanding as of September 22, 1999 was 7.7%. In August 1999, we borrowed $25.0 million under our new senior term loan to repay a $25.0 million subordinated note held by Irwin L. Jacobs, our Chairman. On September 7, 1999, we borrowed an additional $20.0 million under our new senior term loan and approximately $7.0 million under our new revolving credit facility, and redeemed the remaining $25.6 million of our 13.5% notes due 2001 at 106.5% of par. DIVIDEND POLICY We have not declared or paid any cash dividends on our capital stock since inception and we do not expect to pay any cash dividends in the foreseeable future. We currently intend to retain any future earnings to support the growth and development of our business and technologies. Any future declaration of dividends will be subject to the discretion of our board of directors. 14 CAPITALIZATION The following table sets forth our capitalization as of June 30, 1999: - On a historical basis; - On a pro forma basis to reflect our debt refinancing, including the resulting extraordinary charge of $5.7 million from early extinguishment of debt, and the spin-off of Hatteras with the $20.0 million of spin-off proceeds used to repay our debt; and - On a pro forma as adjusted basis to reflect the effects of this offering at $12.00 per share, the mid-point of the price range set forth on the cover of this prospectus, and the application of the estimated net proceeds including the resulting extraordinary charge of $3.6 million from early extinguishment of debt, and the following transactions which will occur concurrently with this offering: - Our acquisition of Pyramid; - A $5.7 million charge for awards under our phantom stock plan; - 5,593,500 shares issued in exchange for outstanding warrants; and - Approximately 225,000 shares issued under employee stock awards, resulting in a charge of $2.7 million.
PRO FORMA HISTORICAL PRO FORMA(A) AS ADJUSTED(B) ----------- ------------- -------------- (IN THOUSANDS) DEBT: Revolving credit facility........................................... $ -- $ 8,297 $ 4,297 Senior term loan.................................................... -- 25,000 -- Subordinated term loan.............................................. 60,000 60,000 30,000 Senior subordinated notes........................................... 25,584 -- -- Stockholder notes................................................... 25,406 4,104 4,104 Other debt obligations.............................................. 6,161 5,161 5,161 ----------- ------------- -------------- Total debt........................................................ 117,151 102,562 43,562 ----------- ------------- -------------- STOCKHOLDERS' EQUITY: Common stock........................................................ 17 156 289 Paid-in capital..................................................... 117,945 117,806 202,373 Accumulated deficit................................................. (75,256) (90,675) (102,671) Accumulated other comprehensive income (loss)....................... (504) (504) (504) ----------- ------------- -------------- Total stockholders' equity........................................ 42,202 26,783 99,487 ----------- ------------- -------------- Total capitalization.................................................. $ 159,353 $ 129,345 $ 143,049 ----------- ------------- -------------- ----------- ------------- --------------
- ------------------------ (a) Excludes approximately 2,562,500 shares issuable upon the exercise of senior executive, director and employee stock options to be granted concurrently with this offering. (b) See "Unaudited Pro Forma Financial Data" elsewhere in this prospectus for specific details. 15 DILUTION As of June 30, 1999, we had a net tangible book value of negative $2.5 million, or $(.14) per share of common stock. Net tangible book value represents the amount of tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Our pro forma net tangible book value as of June 30, 1999, would have been $49.8 million, or $1.73 per share taking into account the sale of the shares offered by this prospectus at an assumed offering price of $12.00 per share, the application of proceeds therefrom and the resulting extraordinary charges from early extinguishment of debt, the Hatteras spin-off and the exchange of shares in connection therewith, the issuance of shares of our common stock in connection with the acquisition of Pyramid, shares issued in exchange for outstanding warrants, shares issued under employee stock awards and payments triggered under our phantom stock plan. The pro forma net tangible book value assumes that the proceeds to us, net of offering expenses and underwriting discount, will be approximately $71.0 million. This represents an immediate net increase in pro forma net tangible book value to existing stockholders attributable to the pro forma adjustments and new investors of $1.87 per share and the immediate dilution of $10.27 per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share........................... $ 12.00 Net tangible book value per share at June 30, 1999...................... $ (.14) Decrease attributable to the pro forma adjustments described above...... (.59) Increase per share attributable to new investors........................ 2.46 --------- Pro forma net tangible book value per share after this offering........... 1.73 --------- Dilution per share to new investors....................................... $ 10.27 --------- ---------
16 THE COMPANY Genmar Holdings, Inc. is a Delaware corporation that was organized in March 1994 to combine the operations of Minstar, Inc. and Miramar Marine Corporation. Both Minstar and Miramar were private boat manufacturers under the control of investor groups led by Irwin L. Jacobs, our Chairman. Many of our operating divisions have been manufacturing boats under our various brand names since the 1940s and 1950s. RECENT ACQUISITIONS PYRAMID OPERATING SYSTEMS, INC. In March 1999, we acquired 8.7% of the outstanding shares of Pyramid Operating Systems, Inc. On June 18, 1999, we entered into an agreement to purchase the remaining shares of Pyramid for a net purchase price of $11.0 million, payable in shares of our common stock. We will complete the acquisition of Pyramid at the same time that we close the offering. Assuming an initial public offering price of $12.00 per share, 916,667 shares of our common stock will be issued to Pyramid stockholders. As a result of this transaction, Pyramid will become our wholly-owned subsidiary and we will own all rights to the VEC technology and process. We have also entered into a management agreement with Pyramid under which we presently oversee the operations of Pyramid. Since June 30, 1999, we have provided $1.4 million of short-term working capital financing to Pyramid and expect to continue to fund approximately $350,000 per month through the closing. Pyramid has advised us that prior to the date of our acquisition agreement, it had invested approximately $12.0 million in the development and commercialization of the VEC technology. We have granted registration rights to the Pyramid stockholders. The purchase agreement provides that, within nine months after the closing of the transaction, we are required to file a registration statement with the Commission covering the shares of common stock received by Pyramid stockholders in the acquisition. We are obligated to maintain the effectiveness of that registration statement for two years. For a period of 20 years after the closing of the acquisition, the purchase agreement provides, among other things, that the former Pyramid stockholders will have the right to participate in the non-marine application of the VEC technology, as follows: - If we determine to spin-out a new entity that will use non-marine applications of the VEC technology as a core technology of its business, the current Pyramid stockholders will have a right to acquire an aggregate of 5% of the equity ownership of the new entity at a 25% discount from the equity value established in the spin-out. This right will be exercisable for 30 days from notification of the completion of the spin-out. - If we sell or license non-marine applications of the VEC technology to third parties instead of spinning-out a new entity, the Pyramid stockholders will be entitled to receive an aggregate of 5% of the sales or licensing proceeds. LOGIC MARINE CORPORATION. On May 11, 1999, we acquired substantially all of the assets of Logic Marine Corporation, a manufacturer of fishing and recreational boats, for consideration consisting of $500,000 in cash at closing, a promissory note for $500,000 payable in May 2000, $597,000 in assumed liabilities and an earn-out of up to $450,000 over three years based on net revenues from sales of Logic boats. Logic Marine has advised us that prior to this acquisition, it had invested approximately $10.5 million in the development and commercialization of the Roplene technology. The Logic product line is now manufactured by our subsidiary, Genmar Logic LLC, utilizing Roplene technology. These boats are currently produced at the Logic facilities in North Carolina. See "Business--Technology--Roplene Construction Manufacturing." 17 HORIZON MARINE, L.C. On December 21, 1998, we acquired substantially all of the assets of Horizon Marine, L.C., an aluminum boat manufacturer, for consideration consisting of $2.3 million in cash at closing and the assumption of approximately $3.5 million in liabilities of which $2.7 million were paid at or immediately subsequent to closing. There is also a five-year earn-out of up to $5.2 million, $200,000 of which was pre-paid at closing. The earn-out is based on gross revenues from sales of products produced at this facility and can be adjusted for the achievement of certain gross profit percentages and for the value of warranty claims, from sales of products produced at this facility. We manufacture and market the range of products that we acquired from Horizon through our subsidiary, Genmar Manufacturing of Kansas, LLC, under the brand name Nova, including fish and cruise pontoon and bass boats, as well as trailers, and parts and accessories. We intend to centralize the production and distribution of our aluminum products sold in the southern United States through this subsidiary. HATTERAS SPIN-OFF Hatteras is a luxury yacht construction company, which we have owned since 1985. Hatteras' large custom-made luxury yachts have an average sales price of approximately $1.6 million. Hatteras targets a narrow market of very wealthy individuals who can afford large luxury yachts. Hatteras is fundamentally different from our recreational boat operations which operate as production line manufacturing companies. We believe that Hatteras does not fit strategically with our other operations. As a result, immediately prior to the completion of this offering, we will spin off Hatteras to our current stockholders by having stockholders exchange one out of every ten of their Genmar shares for one Hatteras share. Under the terms of that transaction, $21.9 million of tangible net assets and $7.8 million of unamortized goodwill associated with Hatteras will be distributed to our current stockholders together with substantially all the liabilities associated with the Hatteras business. Hatteras will borrow $20.0 million from its new $25.0 million credit facility and will pay us $20.0 million in cash to repay intercompany debt owed to us. The Hatteras spin-off will reduce our stockholders' equity before the offering by $9.7 million. In addition, for a period of one year, we will guarantee an aggregate amount of $5.0 million of Hatteras' obligations under its new credit facility. For a discussion of our plans to use these funds, see "Use of Proceeds." 18 SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected historical and pro forma consolidated financial information should be read in conjunction with our consolidated financial statements and the notes thereto appearing elsewhere in this prospectus and the sections of this prospectus captioned "Unaudited Pro Forma Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The balance sheet data as of December 31, 1994, 1995, 1996 and June 30, 1997 and the statement of operations data for the years ended December 31, 1994 and 1995 were derived from our audited consolidated financial statements not included in this prospectus. The balance sheet data as of June 30, 1998 and 1999 and the statement of operations data for the years ended December 31, 1996, June 30, 1998 and June 30, 1999 and the six months ended June 30, 1997 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected pro forma as adjusted financial information as of and for the year ended June 30, 1999 were derived from our unaudited pro forma financial data which are included elsewhere in this prospectus. The pro forma as adjusted data for the year ended June 30, 1999 reflects the spin-off of Hatteras, using the $20.0 million of spin-off proceeds to repay debt, and reduced interest expense from our debt refinancing. The pro forma as adjusted amounts also give effect to the acquisition of Pyramid, reduced interest expense associated with the repayment of debt and additional depreciation expense associated with our new plant and equipment additions, using the net proceeds from this offering. The pro forma as adjusted statement of operations amounts do not reflect non-recurring charges we will incur relating to awards under our phantom stock plan and the issuance of approximately 225,000 shares under employee stock awards, and extraordinary charges related to the early retirement of our debt. The pro forma balance sheet amounts reflect these charges, but do not reflect interest savings.
PRO FORMA AS ADJUSTED FOR THE FOR THE YEAR ENDED JUNE 30, YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX JUNE 30, ------------------------------- MONTHS ENDED ---------------------------- 1999 1994 1995 1996 JUNE 30, 1997 1998 1999 (UNAUDITED) --------- --------- --------- ------------- ------------- ------------- ----------- STATEMENT OF OPERATIONS DATA: Net revenues.................. $ 499,435 $ 548,559 $ 618,056 $ 260,848 $ 585,943 $ 704,656 $ 618,654 Cost of products and services.................... 417,072 468,270 521,663 222,448 480,651 567,247 497,318 --------- --------- --------- ------------- ------------- ------------- ----------- Gross profit.................. 82,363 80,289 96,393 38,400 105,292 137,409 121,336 New product and technology development................. 8,942 11,347 8,537 5,012 11,292 10,996 13,341 Selling and administrative expenses.................... 58,829 66,171 64,653 31,888 70,402 88,945 77,400 --------- --------- --------- ------------- ------------- ------------- ----------- Operating profit.............. 14,592 2,771 23,203 1,500 23,598 37,468 30,595 Interest expense.............. (22,674) (23,862) (22,190) (11,026) (18,702) (16,098) (5,871) Investment and other income (loss), net................. (8,834) 15,477 122 (176) (304) 75 133 --------- --------- --------- ------------- ------------- ------------- ----------- Income (loss) before income taxes and extraordinary item........................ (16,916) (5,614) 1,135 (9,702) 4,592 21,445 24,857 Income tax benefit (provision)................. (1,040) (2,090) (860) (246) (550) 19,500 19,500(a) --------- --------- --------- ------------- ------------- ------------- ----------- Income (loss) before extraordinary item.......... (17,956) (7,704) 275 (9,948) 4,042 40,945 44,357 Extraordinary loss on extinguishment of debt...... (6,624) -- -- -- (1,184) -- -- --------- --------- --------- ------------- ------------- ------------- ----------- Net income (loss)............. $ (24,580) $ (7,704) $ 275 $ (9,948) $ 2,858 $ 40,945 $ 44,357 --------- --------- --------- ------------- ------------- ------------- ----------- --------- --------- --------- ------------- ------------- ------------- -----------
19
PRO FORMA AS ADJUSTED FOR THE FOR THE YEAR ENDED JUNE 30, YEAR ENDED FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX JUNE 30, ------------------------------- MONTHS ENDED ---------------------------- 1999 1994 1995 1996 JUNE 30, 1997 1998 1999 (UNAUDITED) --------- --------- --------- ------------- ------------- ------------- ----------- Pro forma basic and diluted earnings (loss) per share(b).................... $ 2.36 $ 1.54 ------------- ----------- ------------- ----------- Pro forma basic and diluted weighted average shares outstanding(b).............. 17,370 28,868 ------------- ----------- ------------- ----------- ADDITIONAL DATA: EBITDA(c)..................... $ 22,596 $ 11,036 $ 31,297 $ 5,563 $ 32,372 $ 46,419 $ 39,183 Gross profit margin........... 16.5% 14.6% 15.6% 14.7% 18.0% 19.5% 19.6% Operating profit margin....... 2.9% 0.5% 3.8% 0.6% 4.0% 5.3% 4.9% BALANCE SHEET DATA: Working capital............... $ 73,568 $ 75,267 $ 48,418 $ 47,764 $ 29,712 $ 41,544 $ 17,386 Total assets.................. 345,572 306,678 271,203 258,279 244,622 320,763 277,767 Long-term debt, net of current maturities.................. 164,161 151,445 124,552 135,238 117,778 116,129 42,540 Stockholders' equity (deficit)................... 14,232 6,618 6,869 (3,133) 1,293 42,202 99,487(a)(b)
- -------------------------- (a) During 1999, we recorded a reduction in our valuation allowance against our deferred tax assets, resulting in an overall tax benefit of $19.5 million. Tax expense assuming a statutory rate of 38% would have been $9.5 million and pro forma net income would have been $15.4 million, or $0.53 per share. (b) Historical 1999 per share data reflects a 10-for-1 stock split, as it does not give effect to the Hatteras spin-off which will occur immediately prior to the offering. The pro forma as adjusted amounts reflect a 9-for-1 stock split after giving effect to the Hatteras spin-off through the exchange by our current stockholders of one out of every ten of their Genmar shares for one Hatteras share. The pro forma as adjusted amounts also reflect the shares issued in this offering, the shares issued in exchange for outstanding warrants, the shares issued to acquire Pyramid and the shares issued under employee stock awards. (c) EBITDA represents operating income plus depreciation and goodwill amortization expense. EBITDA data, which is not a measure of financial performance under generally accepted accounting principles, should not be construed as a substitute for operating income, net income or cash flows from operations in analyzing our operating performance, financial position and cash flows. We have included EBITDA data, because we believe that this data is commonly used by certain investors to evaluate a company's performance. Not all companies calculate non-GAAP measures in the same manner; accordingly, the EBITDA presentation herein may not be comparable to similarly titled measures reported by other companies. 20 UNAUDITED PRO FORMA FINANCIAL DATA The unaudited pro forma consolidated statement of operations for the year ended June 30, 1999 and the unaudited pro forma consolidated balance sheet as of June 30, 1999, include our historical operations. The pro forma financial statements give effect to the spin-off of Hatteras and the effects of our debt refinancing, as if they had occurred on July 1, 1998 for the statement of operations and as of June 30, 1999 for the balance sheet. This information has been prepared by our management and derived from our historical statements of operations and balance sheets. The pro forma as adjusted amounts reflect the effects of the offering and include the acquisition of Pyramid which will be completed at the time of the offering and the reduction in interest expense and increase in depreciation expense to give effect to the application of our estimated net offering proceeds. See "Use of Proceeds." The unaudited pro forma consolidated statement of operations is not designed to represent what our results of operations actually would have been had these transactions been completed as of the dates indicated, or to project our results of operations for any future period. This information should be read in conjunction with "Capitalization," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," our consolidated financial statements and accompanying notes and other financial information included elsewhere in this prospectus. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA) -------------------------------------------------------------------- PRO FORMA EFFECTS OF PRO FORMA AS AS REPORTED ADJUSTMENTS(A) PRO FORMA OFFERING(B) ADJUSTED ----------- -------------- ----------- ----------- ------------- Net revenues................................ $ 704,656 $ (90,250) $ 614,406 $ 4,248 $ 618,654 Cost of products and services............... 567,247 (74,713) 492,534 4,784 497,318 ----------- -------------- ----------- ----------- ------------- Gross profit................................ 137,409 (15,537) 121,872 (536) 121,336 New product and technology development...... 10,996 (1,404) 9,592 3,749 13,341 Selling and administrative.................. 88,945 (12,613) 76,332 1,068 77,400 ----------- -------------- ----------- ----------- ------------- Operating profit............................ 37,468 (1,520) 35,948 (5,353) 30,595 Interest expense............................ (16,098) 5,353(c) (10,745) 4,874 (5,871) Investment and other income................. 75 58 133 -- 133 ----------- -------------- ----------- ----------- ------------- Income before income taxes.................. 21,445 3,891 25,336 (479) 24,857 Income tax benefit(d)....................... 19,500 -- 19,500 -- 19,500 ----------- -------------- ----------- ----------- ------------- Net income excluding extraordinary charges................................... $ 40,945 $ 3,891 $ 44,836 $ (479) $ 44,357 ----------- -------------- ----------- ----------- ------------- ----------- -------------- ----------- ----------- ------------- Basic and diluted earnings per share as reported.................................. $ 2.36 ----------- ----------- Basic and diluted weighted average shares outstanding............................... 17,370 ----------- ----------- Basic and diluted pro forma earnings per share(e).................................. $ 1.54 ------------- ------------- Basic and diluted weighted average shares outstanding(e)............................ 28,868 ------------- -------------
21 (a) Reflects the spin-off of Hatteras and reduced interest expense from our debt refinancing and repayment of debt from Hatteras' spin-off proceeds. The adjustments do not include an extraordinary charge of $5.7 million resulting from our debt refinancing as it is nonrecurring in nature. (b) Includes Pyramid's operating loss of $4.5 million, including $510,000 of additional goodwill amortization expense assuming an amortization period of 25 years, Pyramid interest expense of $198,000 and additional depreciation expense of $857,000 related to our new plant and equipment. Reflects a reduction of interest expense of $5.1 million related to using proceeds from this offering to repay debt. Excludes the following nonrecurring charges which will be recorded concurrently with this offering: - A $5.7 million charge for awards under our phantom stock plan triggered by this offering; - A charge of approximately $2.7 million resulting from the issuance of shares to non-management employees; and - An extraordinary charge of $3.6 million resulting from the early extinguishment of debt using proceeds from this offering. (c) Reflects a $1.9 million reduction in interest expense from the Hatteras spin-off and application of the repayment of debt from Hatteras spin-off proceeds and a $3.5 million reduction in interest expense from our debt refinancing. (d) During 1999, we recorded a reduction in our valuation allowance against our deferred tax assets, resulting in an overall tax benefit of $19.5 million. Tax expense assuming a statutory rate of 38% would have been $9.5 million and pro forma net income would have been $15.4 million, or $0.53 per share. (e) Weighted average shares outstanding is computed as follows: Stock outstanding before offering....................... 1,737 --------- --------- Effect of 9-for-1 stock split after the Hatteras spin-off.............................................. 15,633 Shares issued in exchange for outstanding warrants...... 5,593 Shares issued to acquire Pyramid........................ 917 Shares issued to under employee stock awards............ 225 Shares issued to public................................. 6,500 --------- 28,868 --------- ---------
22 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 (IN THOUSANDS)
HATTERAS PRO FORMA DEBT ACQUISITION EFFECTS OF PRO FORMA AS REPORTED ADJUSTMENTS(A) REFINANCING(B) PRO FORMA OF PYRAMID(C) OFFERING(D) AS ADJUSTED ----------- --------------- --------------- ----------- --------------- ------------- ----------- ASSETS Current assets: Cash and cash equivalents.......... $ 24,856 $ -- $ $ 24,856 $ (4,600) $ -- $ 20,256 Accounts receivable, net.................. 41,339 (825) -- 40,514 250 -- 40,764 Inventories............ 113,931 (45,172) -- 68,759 290 -- 69,049 Prepaid expenses....... 2,939 (343) -- 2,596 (450) -- 2,146 Deferred tax asset..... 8,000 -- -- 8,000 -- -- 8,000 ----------- --------------- ------- ----------- ------- ------------- ----------- Total current assets............. 191,065 (46,340) 144,725 (4,510) -- 140,215 Property and equipment, net.................. 65,537 (10,390) -- 55,147 5,635 12,000 72,782 Other assets........... 19,454 -- 740 20,194 (1,515) (3,570) 15,109 Goodwill............... 44,707 (7,786) -- 36,921 12,740 -- 49,661 ----------- --------------- ------- ----------- ------- ------------- ----------- $ 320,763 $ (64,516) $ 740 $ 256,987 $ 12,350 $ 8,430 $ 277,767 ----------- --------------- ------- ----------- ------- ------------- ----------- ----------- --------------- ------- ----------- ------- ------------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....... $ 56,241 $ (10,606) $ -- $ 45,635 $ 500 $ -- $ 46,135 Accrued liabilities.... 80,091 (14,034) -- 66,057 850 5,726 72,633 Customer deposits...... 9,783 (9,128) -- 655 -- -- 655 Accrued income taxes... 2,384 -- -- 2,384 -- -- 2,384 Current maturities of long-term debt....... 1,022 -- -- 1,022 -- -- 1,022 ----------- --------------- ------- ----------- ------- ------------- ----------- Total current liabilities........ 149,521 (33,768) -- 115,753 1,350 5,726 122,829 Long-term debt........... 116,129 (21,000) 6,411 101,540 -- (59,000) 42,540 Other noncurrent liabilities............ 12,911 -- -- 12,911 -- -- 12,911 ----------- --------------- ------- ----------- ------- ------------- ----------- Stockholders' equity: Common stock........... 17 139 -- 156 9 124 289 Paid-in capital........ 117,945 (139) -- 117,806 10,991 73,576 202,373 Accumulated deficit.... (75,256) (9,748) (5,671) (90,675) -- (11,996) (102,671) Cumulative translation adjustment........... (504) -- -- (504) -- -- (504) ----------- --------------- ------- ----------- ------- ------------- ----------- Total stockholders' equity............. 42,202 (9,748) (5,671) 26,783 11,000 61,704 99,487 ----------- --------------- ------- ----------- ------- ------------- ----------- $ 320,763 $ (64,516) $ 740 $ 256,987 $ 12,350 $ 8,430 $ 277,767 ----------- --------------- ------- ----------- ------- ------------- ----------- ----------- --------------- ------- ----------- ------- ------------- -----------
- ------------------------------ (a) Reflects our stock split, the spin-off of Hatteras and our repayment of debt from Hatteras' spin-off proceeds. See "The Company." (b) Reflects our debt refinancing and the related extraordinary loss of $5.7 million due to early extinguishment of debt. (c) Reflects our acquisition of Pyramid through the issuance of new stock. (d) Reflects the issuance of the shares offered hereby and use of the proceeds from this offering for our new plant and equipment additions and the repayment of debt with the resulting extraordinary loss of $3.6 million due to early extinguishment of debt. Includes the following transactions which will be recorded concurrently with this offering: - Awards triggered under our phantom stock plan resulting in a charge $5.7 million. - The issuance of 5,593,500 shares in exchange for outstanding warrants. - The issuance of approximately 225,000 shares under employee stock awards and the corresponding $2.7 million charge. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements included in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those set forth under "Risk Factors" and included in other portions of this prospectus. Our fiscal year ends June 30. When we refer to years it means the twelve months ended June 30, unless otherwise indicated. We manufacture motorized recreational boats, and sell our products through a network of over 1,300 dealers throughout the world. We currently conduct and report our business in two segments, the recreational boat segment and the luxury yacht segment. Following the spin-off of Hatteras, we will operate only in the recreational boat segment. RECREATIONAL BOAT SEGMENT Our recreational boat segment is comprised of our various high volume production line manufacturing operations. We generate revenues primarily from the sale of boats with inboard, stern drive and outboard engines. Certain of our outboard boats are sold with engines purchased from others and installed at our factories, and we refer to these as "packaged" sales. Certain other of our outboard boats are sold without the engine installed, and we refer to these sales as "non-packaged" sales. Typically these non-packaged boats are sold with engine controls and cabling, known as rigging, pre-installed at our factories. In exchange for equipping a boat in this manner, we receive a fee from the engine manufacturer whose controls and cabling we have pre-installed in the boat. For a packaged sale, our revenues and cost of products reflect the sale and related cost of the outboard engine, while for a non-packaged sale, our revenues reflect only the rigging fee. Consequently, comparable outboard boats sold packaged generate higher total revenues but a lower margin as a percentage of revenues than those sold non-packaged. Accordingly, shifts in our outboard sales mix between packaged and non-packaged can affect our revenues and margins. The size of the products we sell also affects our revenues and margins. Our margins generally increase as the size of the product increases. Product sales mix can also affect our margins in other ways. In a given size category, outboard products generally produce higher margins than stern drive or inboard products. In terms of revenues generated in 1999, substantially all of our aluminum product sales, and approximately one-third of our fiberglass product sales, were outboard products. Also, on a relative basis, certain of our models command premium pricing in the market, and generally produce higher margins, as compared to our other models. We also generate revenues from the sale of parts, accessories and clothing, and in certain circumstances from product delivery fees. Such items, however, do not have a significant impact on changes in our revenues from year to year, nor are revenues related to these items material to our total revenues. Cost of products and services consists of all costs related to the manufacture and assembly of our products, including material, labor and overhead costs, as well as production tooling and related tooling maintenance costs for models already in production. Also included are costs related to warranty, customer service, transportation and engineering. 24 New product and technology development consists of all costs related to developing new product offerings, including all developmental engineering and tooling costs. Also included are costs related to the development of new manufacturing technologies, such as our VEC and Roplene technologies. We believe the development of new product and manufacturing technologies is a key element of our future business strategy, and with the acquisition of the VEC technology, we expect to significantly increase our new product and technology development expenses, and potentially, our expenses related to developing the non-marine commercial aspects of our new technology. Selling and administrative expenses consist of salaries, commissions and other costs for our sales and marketing personnel, expenses related to the development and execution of marketing concepts and materials and costs to participate in various industry retail trade shows. Also included are compensation and other expenses related to our executive, administrative, finance and management information systems personnel, fees for professional services and amortization of goodwill. We expect selling and administrative expenses to change based on our sales levels and operating performance. Under our current management incentive plan, if our operating performance exceeds targeted operating profits, our management compensation costs can increase significantly. In July 1999, we refinanced our senior bank debt. With a portion of the proceeds, we immediately repaid at its face amount a $25.0 million subordinated note, which bore interest at 9% at the time of repayment, payable to Irwin L. Jacobs. On September 7, 1999, we used the remaining $20.0 million of the senior term loan and approximately $7.0 million under our new revolving credit facility to redeem the remaining $25.6 million of our 13.5% notes at 106.5% of par. At the time of issuance, the subordinated note payable to Irwin L. Jacobs was deemed to have a below-market interest rate, and a debt discount of $8.6 million was recorded at issuance to impute a market yield to maturity. In connection with these transactions, we recorded an extraordinary loss of $5.7 million on early extinguishment of debt, including $3.7 million of unaccreted discount associated with the subordinated note. Upon completion of this offering, we will incur an additional extraordinary loss of $3.6 million on early extinguishment of debt resulting from applications of proceeds from this offering to repay debt and charges to our operating earnings in the amounts of $8.4 million, related to a $5.7 million payout which will be triggered under our existing senior management phantom stock option plan and $2.7 million, related to employee stock awards. See "Management--Executive Compensation." LUXURY YACHT SEGMENT The luxury yacht segment consists solely of Hatteras. Immediately prior to the completion of this offering, we will spin off Hatteras to our current stockholders. Hatteras builds 55 to 65 yachts per year, the average sale price of which is approximately $1.6 million. Hatteras sells these yachts to very wealthy customers who usually are sophisticated and experienced in yachting. Unlike our recreational boat segment, which we view in terms of a production line manufacturing company, we view this segment to be much like a custom construction company. Historically, Hatteras has recognized revenue on most of its products at the time it ships a completed luxury yacht. On larger products, over 75 feet in length, Hatteras uses the percentage of completion method of revenue recognition if a retail customer has specifically ordered the yacht. Given the high cost of each yacht, the timing of product completions and shipments can have a material impact on our periodic results of operations. 25 RESULTS OF OPERATIONS CONSOLIDATED BASIS The following table sets forth our operating results on a consolidated basis for the periods indicated. In early 1997, we changed our fiscal year end from December 31 to June 30 to better correspond with the industry's model cycle. Accordingly, the comparison of our fiscal year ended June 30, 1998 to the six month period ended June 30, 1997 is not meaningful. Information presented for the twelve months ended June 30, 1997 is unaudited.
FOR THE TWELVE MONTHS FOR THE YEAR ENDED JUNE 30, ENDED JUNE 30, 1997 ------------------------------------------------------ (UNAUDITED) 1998 1999 ------------------------------ -------------------------- -------------------------- (IN THOUSANDS, EXCEPT PERCENTAGE DATA) Net revenues.............................. $ 574,802 100.0% $ 585,943 100.0% $ 704,656 100.0% Cost of products and services............. 486,276 84.6 480,651 82.0 567,247 80.5 ------------- ----- ----------- ----- ----------- ----- Gross profit.......................... 88,526 15.4 105,292 18.0 137,409 19.5 New product and technology development.... 8,372 1.5 11,292 2.0 10,996 1.6 Selling and administrative expenses....... 66,687 11.6 70,402 12.0 88,945 12.6 ------------- ----- ----------- ----- ----------- ----- Operating profit...................... 13,467 2.3 23,598 4.0 37,468 5.3 Interest expense.......................... (21,937) (3.8) (18,702) (3.2) (16,098) (2.3) Investment and other income (loss), net... (294) -- (304) -- 75 -- ------------- ----- ----------- ----- ----------- ----- Income (loss) before income taxes and extraordinary item.................. (8,764) (1.5) 4,592 0.8 21,445 3.0 Income tax benefit (provision)............ (635) (0.1) (550) (0.1) 19,500 2.8 ------------- ----- ----------- ----- ----------- ----- Income (loss) before extraordinary item... (9,399) (1.6) 4,042 0.7 40,945 5.8 Extraordinary loss on extinguishment of debt.................................... -- -- (1,184) (0.2) -- -- ------------- ----- ----------- ----- ----------- ----- Net income (loss)..................... $ (9,399) (1.6)% $ 2,858 0.5% $ 40,945 5.8% ------------- ----- ----------- ----- ----------- ----- ------------- ----- ----------- ----- ----------- -----
REVENUES for 1999 and 1998 increased by 20.3% and 1.9%, respectively, over prior year comparable periods. Net revenues in 1999 were favorably affected by strong economic and industry conditions and a higher mix of packaged sales. Net revenue growth in 1998 was lower due to the discontinuation of one of our fiberglass brands. GROSS PROFIT MARGIN increased to 19.5% for 1999, from 18.0% for 1998 and 15.4% for 1997. These improvements were a result of higher margins in the mix of sales and increased manufacturing efficiencies. In addition, operating profit for 1999 and 1998 increased by 58.8% and 75.2%, respectively, over comparable prior year periods, and improved as a percentage of revenues to 5.3% for 1999, from 4.0% for 1998 and 2.3% for 1997. INTEREST EXPENSE for fiscal 1999 decreased by $2.6 million, or 13.9%, to $16.1 million from $18.7 million for 1998. The decrease in interest expense resulted from reduced average borrowings outstanding under our revolving credit facility, and the full year impact of the October 1997 refinancing of $74.4 million of our 13.5% notes. Interest expense for fiscal 1998 decreased by $3.2 million, or 14.7%, to $18.7 million from $21.9 million for 1997. This decrease in interest expense resulted from the October 1997 refinancing of $74.4 million of our 13.5% notes, and reduced debt discount accretion costs, partially offset by increased average borrowings outstanding under our revolving credit facility. INCOME TAX for 1999 reflects a benefit of $19.5 million. Excluding our $22.0 million reduction in the deferred tax asset valuation allowance, we would have had a tax provision of $2.5 million, resulting in an effective tax rate of 11.7%. Based on 1999 and projected future operating results, we determined it more likely than not that a portion of our deferred tax assets would be realized, and therefore reduced the related valuation allowance by $22.0 million, which is reflected in our statement of operations as an income tax benefit. We recorded no such valuation adjustments in prior periods presented. The effective tax rates for 1998 and 1997 were 12.0% and 7.3%, respectively. The effective rates differed 26 from the statutory rates primarily as a result of net operating loss carryforwards available as offsets to otherwise due federal income tax obligations. NET INCOME for 1999 increased by $38.0 million to $40.9 million, from income of $2.9 million for 1998 and a net loss of $9.4 million for 1997. The improvements in our net income were primarily attributable to the recorded tax benefits for 1999 along with the increase in operating profits. Net income excluding the impact of the tax benefit would have been $18.9 million. RECREATIONAL BOAT SEGMENT The following table sets forth operating results of our recreational boat segment for the periods indicated.
FOR THE TWELVE MONTHS FOR THE YEAR ENDED JUNE 30, ENDED JUNE 30, 1997 ------------------------------------------ (UNAUDITED) 1998 1999 -------------------- -------------------- -------------------- (IN THOUSANDS, EXCEPT PERCENTAGE DATA) Net revenues.................... $ 490,313 100.0% $ 505,910 100.0% $ 614,406 100.0% Cost of products and services... 408,559 83.3 407,554 80.6 492,534 80.2 --------- --------- --------- --------- --------- --------- Gross profit................ 81,754 16.7 98,356 19.4 121,872 19.8 New product and technology development................... 7,607 1.5 9,224 1.8 9,592 1.5 Selling and administrative expenses...................... 57,217 11.7 61,531 12.1 76,332 12.4 --------- --------- --------- --------- --------- --------- Operating profit............ $ 16,930 3.5% $ 27,601 5.5% $ 35,948 5.9% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998 REVENUES for 1999 increased by $108.5 million, or 21.4%, to $614.4 million from $505.9 million for 1998, reflecting solid increases across all of our brands both in terms of boats sold and average price per boat sold. Revenues in 1999 from sales of fiberglass products increased 17.9% from 1998, while revenues from sales of aluminum products increased 36.1%. The increase in our average price per boat sold was primarily the result of an increase in sales of products greater than 30 feet in length. In addition, our overall increase in the number of boats sold included a greater percentage of packaged outboard boats being sold compared to 1998, a trend which also contributed to our revenue increase for 1999. COST OF PRODUCTS AND SERVICES for 1999 increased by $84.9 million, or 20.9%, to $492.5 million from $407.6 million for 1998, but decreased as a percentage of revenues to 80.2% for 1999 from 80.6% for 1998. The increase in dollars was a direct result of increased sales as well as a higher percentage of sales of packaged outboard boats. The improvement in the percentage resulted primarily from improved margins related to a more favorable product mix, partially offset by the effect of our increased sales of packaged outboard boats. NEW PRODUCT AND TECHNOLOGY DEVELOPMENT costs for 1999 increased by $400,000, or 4.0%, to $9.6 million from $9.2 million for 1998, and were 1.5% of revenues for 1999, a decrease from 1.8% for 1998. This decrease in percentage was attributable to particularly high expenses in 1998 related to development of new product offerings over 30 feet in length. These costs in 1999 related primarily to various new product development initiatives, and to the development of our VEC technology. We expect product and technology development costs to increase further in 2000 as we continue our development of the VEC and Roplene technologies. SELLING AND ADMINISTRATIVE EXPENSES for 1999 increased by $14.8 million, or 24.1%, to $76.3 million from $61.5 million for 1998, and increased as a percentage of revenues to 12.4% for 1999, from 12.1% for 1998. This increase was attributable primarily to management incentive compensation and bonus 27 awards that increased by $14.5 million over the prior year, as a result of significantly exceeding our operating performance goals for the year. OPERATING PROFIT for 1999 increased by $8.3 million, or 30.2%, to $35.9 million from $27.6 million for 1998, and increased as a percentage of revenues to 5.9% for 1999, from 5.5% for 1998. This increase was attributable to a 21.4% increase in sales, favorable product mix and improved margins, offset by increased management compensation costs. YEAR ENDED JUNE 30, 1998 COMPARED TO UNAUDITED TWELVE MONTHS ENDED JUNE 30, 1997 Effective June 2, 1997, we changed our fiscal year end from December 31 to June 30, and reported a transitional audited fiscal year covering the six month period from January 1 to June 30, 1997. As a result, the comparison of our fiscal year ended June 30, 1998 to the six month period ended June 30, 1997 is not meaningful. For purposes of the following discussion, we will compare our results of operations for 1998 to our unaudited results of operations for the twelve months ended June 30, 1997. REVENUES for 1998 increased by $15.6 million, or 3.2%, to $505.9 million from $490.3 million for 1997. The increase in revenues was attributable to an increase in the average price per boat sold. Excluding net revenues of $10.3 million of a fiberglass product line which we closed in 1997, the increase in revenues for 1998 would have been 5.4%. COST OF PRODUCTS AND SERVICES for 1998 decreased by $1.0 million, or 0.2%, to $407.6 million from $408.6 million for 1997, and decreased as a percentage of revenues to 80.6% for 1998 as compared to 83.3% for 1997. This decrease resulted primarily from improved margins related to product mix. Excluding costs associated with the discontinued fiberglass product line, the costs would have increased by $11.5 million and would have compared to costs as a percentage of revenues of 82.5% for 1997. NEW PRODUCT AND TECHNOLOGY DEVELOPMENT costs for 1998 increased by $1.6 million, or 21.3%, to $9.2 million from $7.6 million for 1997, and at 1.8% of revenues for 1998, were increased from 1.5% for 1997. This increase was attributable to particularly high expenses in 1998 related to increased development of new products over 30 feet in length. SELLING AND ADMINISTRATIVE EXPENSES for 1998 increased by $4.3 million, or 7.5%, to $61.5 million from $57.2 million for 1997, and at 12.1% of revenues for 1998, were increased from 11.7% for 1997. This increase was attributable to increased variable selling and marketing expenses and increased management incentive compensation. Excluding costs associated with the discontinued fiberglass product line, these costs would have increased by $6.3 million and would have compared to costs as a percentage of revenues of 11.5% for 1997. OPERATING PROFIT for 1998 increased by $10.7 million, or 63.0%, to $27.6 million from $16.9 million for 1997, and increased as a percentage of revenues to 5.5% for 1998, from 3.5% for 1997. Excluding the impact of the product line discontinuation, operating profit would have increased by $6.5 million and would have compared to operating profit as a percentage of revenues of 4.4% for 1997. This increase was attributable to increased sales and improved product margins. SEASONALITY AND FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS Various factors, including seasonality, can contribute to fluctuations in our revenues and costs for our recreational boat segment and in our operating earnings by quarter. As is typical in the boating industry, we undergo a model year changeover during the period from June to August, during which time we convert our manufacturing facilities to production of new models. Margins during our first fiscal quarter are adversely affected by the additional costs and 28 production inefficiencies associated with this model year changeover. We have begun to introduce certain new models throughout the year to minimize the impact of model year changeover costs. On a relative basis, our revenues reach their highest levels during the third and fourth quarters of the year, due primarily to the onset of the peak retail selling season for our products. However, we attempt to smooth our production levels by offering financial incentives to our dealers to take delivery of our product at a relatively constant rate throughout the year. Costs related to such dealer incentives are generally heaviest during the first and second quarters of our fiscal year. We host various dealer conferences during the period from July to August to introduce our new product offerings. In addition, we provide financial assistance, in the form of cooperative marketing incentives earned on their purchases of our product, to our dealers who participate in various retail trade shows throughout the year. These retail trade shows are most heavily concentrated in the months of January to March, or directly preceding the peak spring retail season. Selling and marketing expenses related to these efforts are more significant during our first and third fiscal quarters. Under a program we operated on a limited basis from 1992 to 1996, we provided direct floor plan financing to certain dealers who were unable to secure such financing on favorable terms from conventional third party sources. During 1996, we decided to discontinue this program. In winding down and disengaging from this program, we incurred larger than normal levels of receivable write-offs, which were charged to operating earnings in the fiscal years 1996, 1997 and 1998. With completion of the wind-down process, and based on our historical trends, provisions and write-offs for fiscal year 1999 represent a more normal level of activity in this area. The following table sets forth certain quarterly historical financial information for the past three fiscal years. Operating results achieved for any quarter do not necessarily indicate what operating results for any future period may be.
FOR THE QUARTER ENDED, -------------------------------------------------- SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 ------------ ------------ ---------- ---------- (IN THOUSANDS, EXCEPT PERCENTAGE DATA) 1997 Net revenues................................................. $ 128,419 $ 126,075 $ 114,085 $ 121,734 Percent of total annual segment revenues..................... 26.2% 25.7% 23.3% 24.8% Gross profit................................................. 19,343 21,179 18,016 23,216 Operating profit............................................. 3,452 4,331 1,551 7,596 1998 Net revenues................................................. $ 115,203 $ 118,284 $ 132,354 $ 140,069 Percent of total annual segment revenues..................... 22.8% 23.4% 26.2% 27.6% Gross profit................................................. 19,795 20,610 25,915 32,036 Operating profit............................................. 4,793 4,552 6,484 11,772 1999 Net revenues................................................. $ 127,115 $ 143,571 $ 159,670 $ 184,050 Percent of total annual segment revenues..................... 20.7% 23.4% 26.0% 29.9% Gross profit................................................. 21,994 26,529 30,760 42,589 Operating profit............................................. 3,428 9,727 9,134 13,659
29 LUXURY YACHT SEGMENT The following table sets forth operating results for the periods indicated of our luxury yacht segment, which we will spin-off to our current stockholders immediately prior to the consummation of this offering.
FOR THE TWELVE MONTHS ENDED FOR THE YEAR ENDED JUNE 30, JUNE 30, 1997 -------------------------------------------- (UNAUDITED) 1998 1999 -------------------- -------------------- -------------------- (IN THOUSANDS, EXCEPT PERCENTAGE DATA) Net revenues......................................... $ 84,489 100.0% $ 80,033 100.0% $ 90,250 100.0% Cost of products and services........................ 77,717 92.0 73,097 91.3 74,713 82.8 ---------- ------ ---------- ------ ---------- ------ Gross profit....................................... 6,772 8.0 6,936 8.7 15,537 17.2 New product and technology development............... 765 0.9 2,068 2.6 1,404 1.5 Selling and administrative expenses.................. 9,470 11.2 8,871 11.1 12,613 14.0 ---------- ------ ---------- ------ ---------- ------ Operating profit (loss)............................ $ (3,463) (4.1)% $ (4,003) (5.0)% $ 1,520 1.7% ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ---------- ------
YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998 REVENUES for 1999 increased by $10.3 million, or 12.8%, to $90.3 million from $80.0 million for 1998. The increase in revenues was primarily attributable to an increase in the average price per boat, due largely to the elimination of product offerings in this segment under 50 feet in length. COST OF PRODUCTS AND SERVICES for 1999 increased by $1.6 million, or 2.2%, to $74.7 million from $73.1 million for 1998, but decreased as a percentage of revenues to 82.8% for 1999 from 91.3% for 1998. The improvement over 1998 was attributable to reduced overhead, improved efficiencies and less product discounting. NEW PRODUCT AND TECHNOLOGY DEVELOPMENT costs for 1999 decreased by $700,000, or 32.1%, to $1.4 million from $2.1 million for 1998, and at 1.5% of revenues for 1999, were decreased from 2.6% for 1998. This decrease was attributable to a narrowing of our product offerings resulting in lower expenditures. SELLING AND ADMINISTRATIVE EXPENSES for 1999 increased by $3.7 million, or 42.2%, to $12.6 million from $8.9 million for 1998, and increased as a percentage of revenues to 14.0% for 1999, from 11.1% for 1998. This increase was attributable primarily to increased costs related to the testing of a new marketing initiative for luxury yacht ownership, incentive compensation resulting from exceeding our operating performance goals for 1999, increased legal expenses, expenses related to Y2K preparation efforts and increased variable selling and marketing costs. OPERATING PROFIT for 1999 increased by $5.5 million, to $1.5 million from a loss of $4.0 million for 1998. The improvement resulted from increased revenues and improved margins, partially offset by increased selling and administrative expenses. YEAR ENDED JUNE 30, 1998 COMPARED TO UNAUDITED TWELVE MONTHS ENDED JUNE 30, 1997 REVENUES for 1998 decreased by $4.5 million, or 5.3%, to $80.0 million from $84.5 million for 1997. The decrease in revenues, on unit sales that were essentially even between years, was primarily attributable to increased dealer incentives intended to reduce product in our dealer pipeline. COST OF PRODUCTS AND SERVICES for 1998 decreased by $4.6 million, or 5.9%, to $73.1 million from $77.7 million for 1997, and decreased as a percentage of revenues to 91.3% for 1998 as compared to 92.0% for 1997. This decrease resulted primarily from improved margins related to product mix. 30 NEW PRODUCT AND TECHNOLOGY DEVELOPMENT costs for 1998 increased by $1.3 million, to $2.1 million from $800,000 for 1997, and at 2.6% of revenues for 1998, were increased from 0.9% for 1997. This increase was attributable to particularly high expenses in 1998 related to increased development of new products, and to the capitalization of certain of these expenditures in 1997. SELLING AND ADMINISTRATIVE EXPENSES for 1998 decreased by $600,000, or 6.3%, to $8.9 million from $9.5 million for 1997, and at 11.1% of revenues for 1998, were decreased from 11.2% for 1997. The decrease was attributable to decreased variable selling and marketing expenses and decreased incentive compensation costs. OPERATING PROFIT for 1998 decreased by $500,000, or 15.6%, to a loss of $4.0 million from a loss of $3.5 million for 1997. The change between years was primarily attributable to increased dealer incentive costs as mentioned above. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities for 1999 increased by $35.2 million, to $50.7 million from $15.5 million for 1998. Total cash provided by operating activities for 1999 consisted of $28.2 million generated by our operating results, net of non-cash charges and other items, and $22.5 million generated from changes in working capital items. Working capital at June 30, 1999 totaled $41.5 million, including cash and cash equivalents of $24.9 million, as compared to working capital of $29.7 million at June 30, 1998, including cash and cash equivalents of $2.7 million. The change in working capital, excluding cash, represented a decrease of $10.4 million for fiscal 1999, and resulted primarily from increased accounts payable and accrued liabilities. Cash used in investing activities for 1999 increased by $16.5 million, to $20.3 million from $3.8 million for 1998. The increase for 1999 was primarily attributable to the cash component of the total consideration paid for acquisitions and increased capital expenditures. We used $500,000 for Logic Marine, $5.2 million for Horizon, and $2.2 million for our initial investment in Pyramid. In addition, we realized $900,000 from the sale of a closed manufacturing facility and certain other equipment in 1999, and in 1998 we realized $4.2 million from the sale of a note receivable. Capital expenditures for 1999 increased by $4.8 million, to $12.9 million, from $8.1 million for 1998. This increase was primarily attributable to incremental expenditures related to manufacturing facility and equipment improvements, certain capitalized tooling projects and purchases of transportation equipment used to deliver our products. We anticipate that capital expenditures for 2000 will be approximately $25.0 million, including approximately $12.0 million to construct and equip our new manufacturing facility, including the purchase of certain robotic equipment and computerized tooling and design equipment related to our VEC technology. The remaining expenditures will be principally for the purchase of manufacturing and transportation equipment. We expect to fund these expenditures through operations and available bank borrowings. Cash used in financing activities for 1999 decreased by $5.1 million, to $8.3 million from $13.4 million for 1998. We repaid $12.0 million under our old senior bank term loan during 1999, $6.0 million of which was a voluntary pre-payment under that agreement. In addition, we completed a $4.0 million industrial development bond financing arrangement in connection with our acquisition of and certain planned improvements for our newly acquired Nova facility. During 1999, our old senior bank credit facility, which was due to expire in June 2000, consisted of a $35.0 million revolving credit facility, a $15.0 million term loan facility and a $23.0 million letter of credit facility. Weighted average borrowings outstanding under the old revolving credit facility during 1999 were approximately $14.5 million. At June 30, 1999, we had $35.0 million of availability under the old revolving credit facility, approximately $3.6 million of availability under the old letter of credit facility and we had prepaid and terminated the old term loan facility in its entirety. As of June 30, 31 1999, we were in compliance with all covenants under our credit facility, except the capital expenditure requirement, with such non-compliance effectively being waived upon our arrangement of our new senior bank credit facility. See Note 5 to our Consolidated Financial Statements. On July 30, 1999, we arranged a new senior bank credit facility, which expires in June 2002, consisting of a $29.0 million revolving credit facility, a $45.0 million term loan facility and a $21.0 million letter of credit facility, secured by substantially all of our assets. Borrowings under the new revolving credit facility are intended for general corporate and working capital purposes and to redeem $5.6 million of our remaining 13.5% notes. We borrowed $25.0 million under our new senior term loan and immediately repaid at its face amount a $25.0 million subordinated note held by Irwin L. Jacobs, our Chairman. On September 7, 1999, we borrowed an additional $20.0 million under our new senior term loan and approximately $7.0 million under our new revolving credit facility, and redeemed the remaining $25.6 million of our 13.5% notes due 2001 at 106.5%. Amounts under our new senior term loan and revolving credit facility bear interest at 2.5% over the interbank eurodollar market rate. As of September 22, 1999, the weighted average interest rate under the senior credit facility was 7.9%. Aggregate borrowings and outstanding letters of credit under the new senior credit facility are limited to eligible receivables, eligible inventories and eligible property, plant and equipment. Our new senior credit facility contains covenants which, among other things, restrict or limit our ability to incur other indebtedness, engage in transactions with affiliates, incur liens, make certain restricted payments, and enter into certain business combinations and asset sale transactions. The new senior credit facility also requires that we satisfy certain financial tests and ratios and restricts capital expenditures. In addition, the new senior credit facility contains provisions which may require accelerated repayment of our borrowings and/or limit our access to the facility upon the incurrence of specific events or significant changes in our financial condition, business, properties, prospects or operations. We also have $60.0 million currently outstanding under our subordinated term loan facility, which expires in October 2002. We used borrowings under this facility to repurchase $60.0 million aggregate principal amount of our 13.5% notes in October 1997. Borrowings under the subordinated term loan facility are secured by a second interest in our assets, and by letters of credit backed by certain of our stockholders. In consideration for providing these letters of credit, we issued warrants to the stockholders providing the letters of credit. We issued warrants to purchase a total of 6,580,638 shares with a fair value at the date of issuance of approximately $1.7 million. This has been reflected as debt issuance costs and as additional paid-in capital in the accompanying balance sheets. This debt issuance cost is being amortized over a period extending through October 2002. These warrants will be exchanged for an aggregate of 5,593,500 shares of common stock at the time of the offering. In addition, we reimburse these stockholders for the costs they incur in maintaining these letters of credit. Such amount was approximately $1.0 million in 1999. Immediately prior to the completion of this offering, we plan to divest Hatteras through a spin-off to our current stockholders. Hatteras will borrow $20.0 million under a separate bank credit facility to repay its intercompany debt to us. We will use such proceeds to repay $20.0 million of the $45.0 million outstanding under our new senior term loan. In connection with this transaction, we will provide a one-year guarantee, in the amount of $5.0 million, in support of Hatteras' credit facility. We anticipate net proceeds from this offering to be approximately $71.0 million. Among other uses, we plan to use such proceeds to repay the remaining $25.0 million outstanding under our new senior term loan and $30.0 million outstanding under our subordinated term loan facility. These repayments will substantially reduce our leverage, decrease our interest expense and reduce our risk related to future increases in interest rates. 32 As a result of our historical operating losses, we have net operating loss carry-forwards of approximately $146.0 million available as of June 30, 1999 to offset against future income tax obligations. We participate in certain dealer inventory floor plan financing arrangements with various financial institutions pursuant to which we may be required to repurchase products previously sold to a particular dealer in the event of default by that dealer. Repurchased inventory totaled $1.4 million during the six months ended June 30, 1997, $4.5 million in the year ended June 30, 1998 and $3.4 million in the year ended June 30, 1999. As of June 30, 1999, we were contingently liable under these agreements to repurchase products in the aggregate amount of $13.8 million. Historically we have been successful in reselling substantially all repurchased products at a slight discount to our repurchase costs. We attempt to comply with existing and/or new regulations and requirements regarding environmental matters prior to mandated dates of compliance. We are currently conducting site remediation and site investigations, where necessary. We have provided reserves, where appropriate, in amounts we believe to be adequate to cover estimated costs related to such regulatory compliance. We continuously evaluate our existing operations and investigate possible strategic acquisitions to complement existing product lines, expand geographic penetration in the marketplace and strengthen technological capabilities. Accordingly, while we do not have any arrangement, commitment or understanding with respect to any particular transaction, future acquisitions, investments and changes in operations are possible. We require substantial cash flow to fund our seasonal working capital and capital spending requirements, and the repayment of our various debt obligations. Our operating performance continues to be critical in meeting these cash flow requirements. We believe that cash flow generated from operations, borrowing capacity under our senior revolving credit facility and proceeds from this offering will provide sufficient liquidity to fund these obligations in the foreseeable future. YEAR 2000 We initiated a project in early 1998 to identify and remediate potential Year 2000 problems. The project included an extensive review of our operations, encompassing both information technology and non-IT systems, as well as our vendor, supplier and customer/dealer networks. The purpose of the project was to safeguard us from any potential, material adverse impact caused by Y2K, including any significant disruption of our operations or any failure or malfunction of our products due to Y2K-related defects. Our manufacturing facilities utilize various IT systems to provide and process data to operate and manage our business. We have nine manufacturing IT operations (excluding Hatteras) in addition to our corporate office system. Within each manufacturing IT operation, there are generally six IT functions: - the operating system; - the manufacturing system; - general ledger/financial system; - engineer-related systems; - payroll and related systems; and - desk top/personal computer systems. 33 Within each of these individual systems, our manufacturing facilities use several varieties of programs including internally developed programs, over-the-counter programs and more sophisticated programs such as Data Pro, IFS, Industri Os, MacPac and Mapics. In addition, we have non-IT systems which are integral to the mechanical operation of equipment in our manufacturing facilities. Examples of our non-IT systems include the computer chips used to operate CNC machines, overhead cranes, utility vehicles and elevators. Although there can be no assurance that a currently unforeseen Y2K-related issue will not arise and generate a material adverse impact on our operations or products, we believe that we have identified all potential, significant Y2K issues and have implemented appropriate remedial action. We further believe that our internal operating systems, including both IT and non-IT systems, are either currently Y2K compliant or that the corrective actions remaining to bring such systems into compliance will be completed appropriately in advance of January 1, 2000. We believe that the only substantive corrective action necessary relates to our newly acquired Logic operations. We are evaluating various alternatives for new systems in our Logic operations, and intend to complete installation and testing of the system prior to January 1, 2000. Like most manufacturing companies, we depend on an extensive network of third parties for critical supplies, raw materials and services. Similarly, our products are sold through an extensive network of third party dealers. We have contacted our most important vendors and dealers, specifically those vendors and dealers which could exert a material adverse impact on us if they were to have Y2K-related problems. Although there can be no assurance that these vendors and dealers have adequately assessed all of their potential Y2K issues, we have received assurance from all of our engine suppliers and most of our other major vendors that Y2K does not present a significant risk. In those instances where we have not received reasonable assurance that a particular vendor or dealer will be Y2K compliant, contingency plans, including alternative sources or stockpiling in anticipation of future requirements, have been or are being developed. At the inception of our Y2K project in 1998, we engaged the services of an outside consulting firm specializing in Y2K compliance efforts to review and assess our Y2K efforts. We have upgraded or replaced hardware and software systems, including non-IT systems with embedded chip technology, where necessary. Additional costs have been incurred to test both existing and newly installed or upgraded systems. We estimate that the cost of our Y2K-related activities, beginning in early 1998 and extending into the current year, will be approximately $3.3 million. Of the total estimated cost, approximately $2.6 million has been spent to date. We believe that we have identified and corrected potential Y2K problems throughout our key operating systems and that we will not experience any material adverse impact as a result of Y2K. We further believe that our most likely worst case Y2K scenario is a temporary disruption (defined as ranging from several hours to less than one week) of our production capability. The economic consequences of such a temporary production disruption, while undesirable, would not be material. However, because of the complexity and potential unforeseen ramifications of the Y2K issue, and our necessary reliance on third party vendors and dealers, there can be no assurance that the actual consequences of Y2K-related problems will not be material to our operations. 34 MARKET RISK We are exposed to various market risks, including changes in interest rates and pricing on certain commodity raw materials. We do not enter into derivatives contracts or other financial instruments for trading or speculative purposes. INTEREST RATES We rely on long-term variable and fixed rate debt in our capital structure. We do not currently have in place interest rate caps in connection with the floating-rate balance of our interest-sensitive liabilities. Our outstanding interest-sensitive financial instruments as of June 30, 1999, are reflected in Note 5 of the Notes to the Consolidated Financial Statements. At June 30, 1999, the carrying value of our fixed rate debt was approximately $5.8 million less than its fair value. Market risk related to our fixed rate debt is estimated as the potential increase in fair value resulting from a hypothetical one-half percent decrease in interest rates, and amounts to approximately $1.5 million. Market risk related to our variable rate debt is estimated as the potential decrease in pre-tax earnings resulting from a hypothetical one-half percent increase in interest rates. If interest rates rise immediately by one-half percent, pre-tax earnings will decrease by approximately $500,000 in 2000. MATERIALS Certain commodity raw materials, such as aluminum, fiberglass and resin, used in the manufacture of our products are subject to pricing volatility. We do not engage in hedging activities, and generally secure our commodity raw material requirements through one- to three-year supply agreements. Most of these agreements contain fixed price provisions although some are subject to quarterly price adjustments. 35 BUSINESS OVERVIEW We are the second largest manufacturer of motorized recreational boats in the United States. We produce boats under the leading brand names of Aquasport, Carver, Crestliner, Glastron, Larson, Logic, Lund, Nova, Ranger, Scarab, Trojan and Wellcraft. We sell our products through an established network of approximately 1,300 independent authorized dealers in all 50 states and approximately 30 foreign countries. We have recently introduced new technologies to our manufacturing processes that allow us to produce higher quality boats more efficiently and with fewer regulated air emissions. We believe our innovations have positioned us to enter new markets and substantially increase our market share in the recreational boating industry. Since 1996, when we installed our current management team, we have focused on improving our operations and profitability. Our management team has improved our manufacturing efficiency, refined our current products and evaluated future product offerings. We have also increased coordination among our business units and provided incentives to our entire management team to accomplish strategic manufacturing and marketing goals. INDUSTRY OVERVIEW Total U.S. retail sales of new motorized recreational boats were approximately $7.5 billion in 1998 increasing from $4.1 billion in 1992. We believe that sales of recreational power boats have grown steadily since 1971, except for the 1989 to 1992 time frame. During that four-year period, the effects of a recession, the imposition of a luxury tax, and other adverse political and economic events had a material adverse impact on sales of all boats, but particularly in the upper end of the segment including cruisers and luxury yachts. Sales trends in the recreational boating industry are influenced by several factors, including general economic growth, consumer confidence, spending habits and household income and net worth levels. Interest rates and fuel prices also have a direct impact on boat sales, as well as demographic trends at the local, regional and national level. Competition from other leisure and recreational activities, such as vacation properties and travel, can also affect sales of recreational boats. We believe the upturn in the industry from 1992 to 1998 has been fueled by the overall strength of the U.S. economy and the rapid growth in the wealth and number of consumers from the baby-boomer generation, as well as demand for boats from the estimated 35 million adult anglers in the U.S. Our target market is the 35 to 54 age group, which overlaps with the baby-boomer population. Although individuals in our target age group account for only 36% of the U.S. population over age 16, they account for over 50% of the discretionary income and represent the fastest growing segment of the U.S. population, growing at a 2.5% annual rate. STRATEGY Our operating strategy emphasizes our new proprietary technologies, allowing us to: - DELIVER A SUPERIOR QUALITY PRODUCT. Our commitment to building high quality boats has resulted in our acquiring new manufacturing technologies that we believe will yield boats of increased durability, structural integrity and consistency. We began producing VEC boats on a limited basis in early 1999, and we expect to integrate VEC systems into all our fiberglass operations for boats under 30 feet over the next two years. We plan to use our VEC process to produce premium quality boats carrying a limited lifetime warranty. Our Roplene construction technology has enabled us to produce high quality recyclable polyethylene boats, which also carry a limited lifetime warranty. We market these boats as the World's Toughest Boat-TM-, at a discount to the typical sales price of comparable entry-level fiberglass boats. 36 - LOWER UNIT COSTS THROUGH INCREASED AUTOMATION IN OUR PLANTS. Based on our experience to date, we expect the increased automation and process controls associated with our new manufacturing processes to significantly reduce our labor, quality control and warranty costs. We also hope to reduce costs by shortening our product changeover and new product development time frames. - REALIZE ECONOMIES OF SCALE THROUGH OUR BUYING POWER. We are the largest motorized recreational boat manufacturer that does not manufacture its own engines. We believe this positions us as the largest third party customer of our major engine suppliers. We intend to continue seeking the most advantageous purchasing arrangements from these suppliers, while also continuing to expand and maintain strong relationships with other engine suppliers from whom we purchase engines. We are also a significant consumer of fiberglass materials, and we intend to capitalize on our relationships with fiberglass suppliers to help us commercialize the VEC technology in areas outside our own uses. - EXCEED CURRENT ENVIRONMENTAL QUALITY STANDARDS FOR MANUFACTURERS IN OUR INDUSTRY. Our new VEC and Roplene technologies enable us to produce boats with significantly less regulated air emissions than traditional processes. Traditional open-mold processes produce air emissions, particularly styrene, whose levels are regulated by the government. Boat production can be limited by these regulations. Our new technologies eliminate a substantial amount of these emissions, thereby producing a cleaner and safer work environment, allowing us to produce more boats at existing facilities. We believe that consumers and governmental regulators alike will react positively toward these advances in manufacturing, and that our facilities which operate with these technologies will be among the leaders in creating cleaner and safer work environments in our industry. - EXPLORE OPPORTUNITIES TO LICENSE OR APPLY OUR TECHNOLOGIES IN OTHER MARINE AND NON-MARINE INDUSTRIES. We believe the VEC technology has broad potential for commercial application in areas other than fiberglass boat construction. We intend to market the technology for application to other marine products that do not compete with our business, and to develop its use, through licensing arrangements or with other partners, in areas outside the marine industry, including the construction, transportation and recreation industries. We estimate that the potential total global market for VEC-produced products could be approximately $10.0 billion. Our marketing strategy seeks to increase market share by enabling us to: - LEVERAGE OUR BRAND NAMES THROUGH INNOVATIVE PROGRAMS WITH MARKETING PARTNERS. We have developed unique programs with marketing partners to increase our exposure in the boating industry. These programs are designed to assist our dealers and each of our manufacturing facilities by promoting our products, and cross-marketing products of other companies that market to a similar customer base. Our Ranger boats, for example, serve as the manufacturer sponsor for the Wal-Mart FLW Tournament, a leading professional bass fishing tour that is televised nationally on ESPN. We are also sponsoring the Ranger Boats Millenium Tournament (M1)(SM), scheduled for a live nationwide broadcast on the Fox Television Network in November 1999. We believe our participation in these tournaments has helped establish Ranger as the premier bass fishing boat product. We intend to apply the Ranger strategy to certain other boat products such as Lund and Crestliner. Accordingly, we will sponsor the RCL (Ranger, Crestliner, Lund) tournament in June 2000. We also partner with others, including CITGO, various engine manufacturers, dealer finance companies and other organizations, to supplement our sales efforts through cross-marketing efforts and promotions. 37 - EXPAND OUR INTERNATIONAL PRESENCE BY CONTINUING TO BUILD DEDICATED SALES, MARKETING AND DISTRIBUTION SYSTEMS. Historically, our international sales have not been significant in relation to our overall sales, and we have traditionally relied on independent sales representatives to market our products. In 1998, recognizing the opportunity for international growth, we appointed a director of international sales and added a dedicated international sales and support department. We currently have relationships with more than 200 international dealers. We have arranged for floor plan financing agreements or credit insurance in most of the foreign markets we serve. We believe that our dedicated sales force, a stronger international dealer network and our increased commitment to the international market for motorized recreational boats will enable us to substantially increase our presence in the international market place. - STRENGTHEN OUR DEALER ORGANIZATION THROUGH EXPANDING OUR NETWORK AND PROVIDING SUPERIOR CUSTOMER SERVICE AND SUPPORT. We have a distribution network of over 1,300 dealers located throughout the United States and internationally. We also seek to capitalize on our strong dealer network by educating our dealers on the sales and servicing of our products and helping them provide more comprehensive customer service, with the goal of increasing customer satisfaction, customer retention and future sales. We provide promotional and incentive programs to help our dealers increase product sales. We intend to continue to strengthen our dealer network and build brand loyalty with both dealers and customers. As part of our overall strategy, we will also consider and make acquisitions in order to: - COMPLEMENT OUR EXISTING PRODUCT LINES, EXPAND OUR GEOGRAPHIC PRESENCE IN THE MARKETPLACE AND STRENGTHEN OUR MANUFACTURING AND OPERATING TECHNOLOGIES. Historically, we have expanded our business and product lines through acquisitions, including three during the past year. As a result of our recent acquisitions, we have expanded into a new market for entry-level boats with our Roplene technology, positioned our company to exploit the VEC technology in the fiberglass business, and gained the opportunity to expand our aluminum boat manufacturing presence in the southern United States with our Horizon acquisition. We will continue to evaluate acquisition opportunities that allow us to expand our geographic reach, improve our technology, or strengthen our brand offerings. 38 PRODUCTS We believe that we offer the most comprehensive range of motorized recreational boats in the industry. In particular, we seek to distinguish ourselves by offering a wide range of products to the fishing boat market and the family recreational market, as well as many smaller niche markets. The following table provides a brief description of each of our brands and its particular market focus:
BRAND AND YEAR NUMBER OF OVERALL APPROXIMATE RETAIL ESTABLISHED MODELS LENGTH PRICE RANGE DESCRIPTION - -------------------- ----------- ---------- ----------------------- --------------------------------------------------- Aquasport (1964) 12 16'-27' $12,700 to $93,000 Fiberglass offshore fishing boats. Designed for offshore and big-inland water use by dedicated experienced fishermen and promoted through our sponsorship of professional offshore fishing teams. Carver (1954) 13 32'-53' $125,000 to $750,000 Fiberglass, wide-beam, accommodation-focused cruisers. Marketed to experienced boat owners through trade magazines and boat show exhibitions. Crestliner (1946) 43 12'-24' $500 to $35,000 Aluminum fish'n ski, narrow-beam sportfishing cruisers, utility, bass and fishing boats, pontoons and deckboats. Marketed to entry-level family fishing and boating enthusiasts with industry-leading warranty. Glastron (1956) 21 16'-24' $6,000 to $49,000 Fiberglass runabouts, narrow-beam cruisers and performance boats. Encompasses affordable, entry-level to mid-range sportboats. Marketed as high value runabouts for family groups. Larson (1913) 23 16'-33' $6,000 to $150,000 Fiberglass runabouts, wide-beam and narrow-beam cruisers and deckboats. Marketed to the high-end of the largest segment of the powerboat market. Logic (1994) 16 12'-21' $1,800 to $25,000 Low-cost, entry-level polyethylene fishing and utility boats. Marketed as the World's Toughest Boats-TM- to entry-level boat buyers. Lund (1948) 60 12'-22' $1,000 to $35,000 Premium aluminum fishing boats ranging from basic utility models to tournament models. Marketed through alliances with professional fishing community. Nova (1999) 45 10'-25' $500 to $22,000 Aluminum utility boats, bass boats, pontoons and deck boats. Marketed to price-conscious and first-time boat buyers.
39
BRAND AND YEAR NUMBER OF OVERALL APPROXIMATE RETAIL ESTABLISHED MODELS LENGTH PRICE RANGE DESCRIPTION - -------------------- ----------- ---------- ----------------------- --------------------------------------------------- Ranger (1968) 47 16'-25' $10,000 to $60,000 Fiberglass and aluminum bass, multi-species and saltwater fishing boats. Marketed to professional and other experienced fishermen through sponsorship of fishing tournaments and alliances with professional fishing circuits. Trojan (1961) 4 32'-44' $100,000 to $450,000 Fiberglass express cruisers. Marketed to youthful, affluent boaters. Wellcraft (1955) 38 16'-45' $11,500 to $395,000 Fiberglass runabouts, wide-beam sport and performance cruisers, Scarab performance boats and fiberglass offshore fishing boats. Promoted through sponsorship of professional offshore racing competitions and drivers.
TECHNOLOGY FIBERGLASS MANUFACTURING TECHNOLOGY AND PROCESSES For the past 50 years, essentially the same technologies and processes have been used to produce fiberglass boats. The most common method is open-face molding which is usually a labor-intensive, manual process whereby employees hand spray and apply fiberglass and resin in layers on open molds to create boat hulls, decks, stringers and other smaller fiberglass components. This process can result in inconsistencies in the size and weight of parts, which may lead to high warranty costs. Open-face molding is typically capable of producing one hull per mold during a work day. The hand spraying of the resin and fiberglass in the open-face molding method creates styrene emissions and is subject to regulation by OSHA and the U.S. EPA and its state counterparts. OSHA standards limit the amount of styrene emissions to which an employee may be exposed without the need for respiratory protection or upgraded plant ventilation systems. The EPA and its state counterparts restrict the approved levels of styrene emissions in a particular plant's air emissions facility permit. Since the early 1990s, we have been exploring new technologies to improve labor efficiencies, product quality and plant working conditions. Eighteen months ago, we combined efforts with Pyramid Operating Systems, Inc. to continue the development of a new injection molding manufacturing process, called Virtual Engineered Composites or VEC-TM-. Pyramid has advised us that prior to the date of our acquisition agreement, it had invested approximately $12.0 million in the development and commercialization of the VEC technology. We have spent an additional $1.7 million to help develop the VEC technology. We currently own a minority interest in Pyramid and will acquire the remaining shares of Pyramid when we complete this offering. The VEC technology is designed to improve all major aspects of the existing fiberglass open-faced molding process currently used by numerous industries, including the boat manufacturing industry. In the VEC process, the production of the fiberglass parts is accomplished through a closed-mold process which substantially reduces styrene emissions. The VEC manufacturing process provides a high degree of automated manufacturing of fiberglass products with relatively low capital investment. We believe that the VEC technology has the potential to become the standard for fiberglass manufacturing in both marine and non-marine industries. 40 The VEC operating system consists of integrated software and hardware that manage the entire lamination process, including equipment, resins and process. Each facility that contains a VEC cell will be connected by dedicated digital phone lines to a remote monitoring facility where our technical experts will be available 24 hours a day, seven days a week to provide advice and technical assistance as necessary. The VEC operating process also includes a patented low-cost flexible mold system enabling us to produce a variety of parts economically. This mold system utilizes a thin composite skin in the shape of the part mounted on a water-filled pressure vessel. This composite skin can be rapidly fabricated and is readily changeable, thereby significantly improving the speed and cost of prototyping new parts. The essential advantages of the VEC operating system are that it enables the manufacturer to control the key elements of the molding process, lower unit manufacturing costs through labor savings, eliminate structural inconsistencies and variances, produce stronger products, and substantially reduce styrene emissions inherent in the open-faced lamination process. The following table illustrates the potential advantages of the new VEC technology compared to a typical open-faced molding process:
VEC-TM- VERSUS CHARACTERISTIC OPEN-FACE MOLDING IMPLICATION - --------------------------------------------- ------------------- --------------------------------------------- Tensile Modulus (overall strength)(psi)...... 15% Stronger(1) Stronger composite, allowing for lower weight parts and reduced warranty costs; uses less resin reducing materials cost Part Weight Variability (lbs.)............... 80% Less(2) Increased product consistency, easier to assemble, helps reduce warranty costs Designed Part Weight (lbs.).................. 20% Lighter(3) Lower weight parts, less resin so lower materials costs Styrene Emissions--Lamination Only (lb. 75% Less(4) More capacity in plant throughput because of Styrene per lb. Laminate).................. greater capacity in air emissions permits, better work environment Factory Floor Space (ft.)(2)................. 75% Less(2) Reduces overhead and need for additional plant capacity Cycle Time (minutes)......................... 75% Less(2) Increases production efficiency and plant throughput capacity
- ------------------------ (1) Tested at Product Design Center, Westerville, Ohio. (2) Substantiated at our manufacturing/test site. (3) Internal calculation for engineering-designed part. (4) Compilation from U.S. Environmental Protection Agency Air Pollutant Emissions Factors AP-42 Section 4.4 "Polyester Resin Plastic Products Fabrication." We have conducted extensive testing of the VEC-produced boat hulls. These tests include on-water endurance testing in a variety of conditions and aggressive operations for 200 hours per hull. At various stages in the design process, VEC-produced hulls or panel samples have been tested by independent third parties for blister resistance and ultra-violet resistance (Cook Composites); thermoshock (Enviro Lab); and tensile, flexural and impact strength (Reichhold Chemical and Product Design Center). The results of these tests validate our confidence in the quality of VEC-produced boats, enabling us to provide our customers with a limited lifetime warranty instead of the more traditional five-year structural warranty. 41 We believe that closed-molding technology for fiberglass manufacturing, such as the VEC technology, is likely to become the new standard for the fiberglass boat building industry. For us, we expect it will: - Reduce manufacturing costs and increase efficiency; - Substantially reduce fiberglass warranty issues while allowing us to issue limited lifetime structural warranties on VEC-produced hulls; - Improve our ability to produce lower cost tooling in less time than with conventional methods; - Dramatically reduce our styrene emissions associated with the traditional fiberglass lamination process; and - Provide products of a uniform interior and exterior quality. EXPANSION OF VEC We are building an estimated $12.0 million manufacturing facility that will utilize our VEC technology and other new process equipment. This facility will be located adjacent to our current Larson/Glastron facility in Little Falls, Minnesota. We expect to complete this facility by June 2000. Over the next two years, we plan to expand the use of the VEC process in our fiberglass manufacturing activities to include hulls, decking, stringers (internal structural supports) and smaller fiberglass components. OTHER VEC OPPORTUNITIES Based on fiberglass manufacturing industry research, we believe that the VEC technology and processes offer significant opportunities to both marine and non-marine industries. As we develop this technology, we plan to expand its application to other marine products that do not compete with our business, such as ski boats and sail boats. We plan to fully optimize the structural and financial benefits of the VEC process in marine applications by licensing the technology to other boat manufacturers. We plan to expand the VEC technology to non-marine applications and explore licensing opportunities with third parties in non-marine industries. We believe potential markets for VEC technology outside of the marine industry include transportation, building and construction and recreation. Target markets in transportation include truck, bus, heavy equipment and automotive after market parts. The target markets in building and construction include exterior doors, tubs and showers. The target markets in recreation include golf carts, RV components and water slides. We estimate the potential total global market for VEC-produced products could be approximately $10.0 billion. ROPLENE CONSTRUCTION MANUFACTURING Our newly-acquired subsidiary, Genmar Logic, LLC, employs Roplene construction using polyethylene and patented rotational molding manufacturing technology to produce our highly-durable line of Logic boats at low cost. This technology was awarded the New Product Award (Small Company Category) in 1998 by the National Society of Professional Engineers and the North Carolina Governor's New Product Award in 1997. Logic Marine has advised us that prior to our acquisition of Logic Marine, it had invested approximately $10.5 million in the development and commercialization of the technology. Polyethylene is stronger than fiberglass and significantly less expensive. This material in similar form has received broad acceptance in the manufacture of products such as canoes and kayaks. Rotational molding involves loading pre-measured polyethylene into a mold. The mold can be configured to form internal structural parts that connect the upper and lower surfaces of the molded item. The mold is then placed into an oven where it is rotated about both its vertical and horizontal axes. The melting polyethylene adheres to the hot mold and selectively coats the inner surface of the mold. The mold continues to rotate during the cooling cycle so that the part retains an even thickness 42 throughout the process. Once the parts are cooled, they are released from the mold. The rotational speed and heating and cooling times are all controlled throughout the process. In addition to being stronger and less expensive than fiberglass, the polyethylene materials used in making Logic boats are recyclable. MARKETING AND DISTRIBUTION MARKETING Our products are marketed worldwide through independent dealer networks. In our industry, independent dealers are the primary means by which motorized recreational boats are marketed to retail consumers. Because the boating industry is highly competitive, we are continually focused on developing unique marketing programs to assist our dealers and their sales efforts. Our internal sales force supplements our dealers' marketing efforts with various initiatives and strategies, including: - Advertising in regional, national and international boating and other recreation magazines; - Furnishing promotional assistance at regional, national or international boat shows; - Working with dealers to identify new design features for our products; - Participating in special promotional programs with other producers of consumer goods and certain retailers; and - Providing company-sponsored retail finance and other programs designed to assist our dealers in selling and marketing our products. Internationally, all brands are positioned as Genmar products under a super-brand concept to maximize leverage, expand sales for our less-established brands, and distinguish ourselves from competitors. RETAILER ALLIANCES. We use marketing programs across the United States with gas stations, marinas and high-traffic retail locations to achieve successful marketing results. We have developed exclusive or preferential relationships with CITGO, Wal-Mart Stores, Inc. (Sam's Club), Amway and Boater's World to offer complimentary or discounted items to customers and/or employees of these organizations who purchase our boats through authorized dealers. CITGO, a leading convenience store operator with over 15,000 U.S. locations, promotes our products with banners, posters and other point-of-sale items for one month each spring. We have developed a marketing partnership with the Sam's Club division of Wal-Mart Stores, Inc., which has afforded our dealers the preferential right to display and sell boats from Sam's Club locations. The Amway and Boater's World relationships provide specific benefits to purchasers of our boats when the sale results from a joint promotion. TOURNAMENT SPONSORSHIP. We believe one of our primary strengths is the manufacturing and marketing of fishing boats. Approximately 35 million adult Americans participate in recreational fishing. Ranger fiberglass fishing boats and Lund and Crestliner aluminum fishing boats are leaders in their respective market niches. Historically, these brand names have gained visibility through the sponsorship of fishing tournaments. However, beginning in 1996, through Operation Bass, Inc., an entity owned and controlled by some of our stockholders and officers, Ranger became the exclusive boat manufacturer sponsor of the Wal-Mart FLW Tournament. Broadcast on ESPN and ESPN2, this tournament is the mostly widely televised fishing tournament in the world. The tournament is also supported by other sponsors such as VISA, Coca-Cola, Chevrolet, Wal-Mart Stores, Inc., Coleman Outdoor Recreation, Fuji Photo USA, Black & Decker and Timex. We believe the tournament has generated significant media attention and has further established our Ranger boats as the leading bass-fishing product. We see this growth in fishing and tournaments as an important opportunity for marketing our fishing boat products. We are sponsoring the Ranger Boats Millennium Tournament (M1)(SM), a bi-annual event scheduled for a live nationwide broadcast on the Fox Television Network in November 1999, and the RCL (Ranger, Crestliner, Lund) Tournament in June 2000, with money payouts of approximately 43 $3.5 million and $1.4 million, respectively. In order to qualify for these events, a participant is required to own the appropriate Genmar fishing boat and be in the highest winning position of the various qualifying tournaments. We plan to continue expanding our tournament sponsorship, including those for salt-water fishing. DISTRIBUTION Our sales are made through more than 1,300 independent authorized dealers. Our boat brand success can be directly associated with the quality of our dealer organizations. Many of these dealers carry only one or two of our product lines and most are not exclusive to us. Although we have long-standing relationships with many of our dealers, dealer agreements generally are non-exclusive and for a term of one year. No single dealer accounted for more than 5% of our net revenues in the fiscal year ended June 30, 1999. We sponsor various programs to provide our dealers with marketing and financial assistance and to encourage them to offer broader lines of our products. Under these programs, we offer dealers marketing discounts for early delivery and bulk sales, as well as interest-free floor plan inventory financing for certain periods. In most cases, our boats are sold to dealers under third-party floor plan financing arrangements or cash on delivery. Foreign sales are financed primarily under letter of credit terms or with credit insurance. In a typical floor plan financing arrangement, an institutional lender agrees to provide a dealer with a line of credit in a specified amount for the purchase of inventory that secures that credit. We, in turn, agree to indemnify the lender against loss up to a specified aggregate amount arising from defaults by dealers financed by that lender. This indemnification is generally made through our repurchase of boats that have been repossessed by the lender. For the fiscal year ended June 30, 1999, 67.3% of our net revenues were financed through these floor plan financing arrangements. We do not provide financing to retail consumers. Through the use of special incentive programs, we encourage dealers to place orders for products on a consistent and continuous basis throughout the year. These programs facilitate earlier movement of our inventory into distribution, enable our plants to manufacture at a relatively constant rate throughout the year and eliminate the need to maintain a large stock of products in inventory. This reduces the impact of seasonal factors on our operations. We hold various annual dealer meetings, at which we promote our new product offerings for the new model year, which commences on July 1. We have ongoing programs aimed at maintaining inventories at the lowest possible levels. Sales are made to dealers by our own sales personnel and by independent manufacturers' representatives. Over the last two years, dealers have begun to consolidate and bring more sophistication to the sales, customer service and management areas. Throughout our organization, we have taken the opportunity to strengthen existing dealership arrangements and secure new dealer relationships. Beginning in 1998, we revised our approach to conducting our international business. Historically, we used outside organizations to manage our international distribution activities. Sales outside the United States and Canada during 1999 accounted for only 5.1% of our total revenues. Our strategy for expanding international sales combines a centralized approach to sales of individual brands, a shift in branding philosophy and the development of sales support programs customized to foreign markets. We have established a dedicated and experienced staff to conduct sales and initiate dealer relationships throughout the world. A corporate international department is responsible for sales of our individual brands, providing dealers a single, cost-efficient source of products across our entire range of offerings. We are seeking to build long-term partnerships with international dealers through in-market specialists, a multi-lingual staff and a customized approach to finance, credit, marketing and dealer support. 44 MANUFACTURING OPERATIONS Our motorized recreational boats are manufactured at nine principal locations in Arkansas, Florida, Kansas, Minnesota, North Carolina, Wisconsin and Manitoba, Canada. We intend to increase operating efficiency and improve product quality by maximizing our manufacturing capacity and by utilizing our new manufacturing technologies. We also seek further cost-savings and improved plant capacity utilization by having certain of our plants manufacture boats under several different brand names. Our recent acquisitions of operations such as Logic and Nova have increased our manufacturing capacity. MANUFACTURING PROCESSES Our fiberglass and aluminum manufacturing processes are designed to ensure the quality and durability of our products. All of our boats undergo continuous quality control inspection during assembly and again at the end of the production line. When the boat has been completed, it is loaded on our company trucks, or a common carrier's vehicle, and delivered to the dealer. FIBERGLASS. The fiberglass manufacturing process begins with the establishment of design parameters. Boats are then designed and a plug, or reverse mold, is constructed. Molds used in the boatbuilding process are cast from the plug. Prototype boats are built in the initial mold. If the prototype performs to established test criteria, additional molds are created for production. The manufacturing process begins with the application of the outside finish, or gelcoat, directly into the mold. Layers of fiberglass and resin are then applied during the lamination process over the gelcoat. After curing, the hulls and decks are removed from the molds and are trimmed and ready for final assembly which will include the installation of electrical and plumbing systems, engines, upholstery, accessories and graphics. In some operations, some items like vinyl upholstery may be outsourced to outside vendors. Our VEC technology manufacturing processes are discussed in "--Technology." ALUMINUM. In our aluminum operations, we cut the aluminum into various part patterns, bend the aluminum in accordance with design specifications, then assemble the parts by riveting or welding. We then install the electrical and plumbing systems, engines, upholstery, accessories and graphics. ROPLENE CONSTRUCTION. The Roplene construction technology offers many advantages in the boat manufacturing process. The entire hull, deck and stringer system is manufactured in a single manufacturing operation resulting in low manufacturing costs and low floor space requirements. A number of the attachment fittings for components and accessories are also assembled in this single manufacturing step. The attachment of the various components and accessories during the final stages of completion requires minimal operations. The computerized rotational molding operation minimizes the need for significant amounts of highly skilled labor. The plant contains computer control of the rotational molding operation and finishing operations, maximizing product flow and minimizing unnecessary movement of components and product. ENVIRONMENTAL ASPECTS Since the early 1990's we have been aggressive in our efforts to employ technologies to reduce regulated air emissions and the historical dependence on regulated chemicals in the manufacturing process. We have led the industry in the incorporation of low-emission resins and gelcoats into our open-face molding processes. We also employ a variety of closed-molding techniques in our operations 45 to produce small parts. In addition, we have tested other technologies for large parts. In the past, we have not been able to convert these technologies to a production scale for large parts because of high cost, labor inefficiencies and sub-standard part quality. We believe that our new VEC and Roplene technologies will address many of these problems. We have been aggressive in removing flammable and other regulated substances from the workplace, such as cleaners and adhesives, and replacing them with environmentally friendly materials that are not regulated. AUTOMATION We currently use robotic cutters and welders in some of our fiberglass and aluminum boat manufacturing operations. We have been exploring the use of robotics in our remaining facilities to further automate our manufacturing process. Many aspects of the VEC operating system are particularly well-suited to automation, which we plan to introduce to our operations as we increase production of VEC boats. Our new manufacturing facility will feature four VEC cells capable of operating around the clock. These cells will use robotics to spray gelcoat and remove parts from the mold. The parts will then move to the cut-and-trim area where robotic water jet cutters will trim the parts and make the necessary borings for the assembly process. The assembly area will feature a conveyor system designed to facilitate engine installation and advanced work aids for final boat assembly, and to minimize materials. MANAGEMENT INFORMATION SYSTEMS We use computer systems to help schedule production, manage our inventory and order supplies. Seven of our ten manufacturing facilities are supported by purchased or internally developed integrated enterprise resource planning systems. Our two newly acquired and our Canadian manufacturing facilities utilize certain limited systems to support their manufacturing and financial operations. BACKLOG We work closely with our dealers to monitor their monthly inventory levels and retail sales, in order to allow us to better manage our production and shipping requirements. Dealer sales are made pursuant to purchase orders rather than long-term contracts. Our backlog consists of purchase orders on hand, generally having delivery dates scheduled over the following six months. Our backlog for the recreational boat segment increased 92.3% to $228.4 million at July 31, 1999, compared to $118.8 million at July 31, 1998. Although customers may cancel or reschedule deliveries without penalty until the production of the order is started, we believe our backlog has historically been a reliable indicator of future revenue results. SUPPLIERS We do not manufacture the engines installed on our boats. Engines are generally specified by dealers at the time of ordering, usually on the basis of anticipated customer preference or actual customer orders. We have entered into outboard supply, pre-rig or package agreements with Mercury Marine, a division of Brunswick Corp., and Outboard Marine Corporation, as well as Yamaha, Honda and Suzuki. We believe we are the largest third-party customer of both Mercury Marine and Outboard Marine Corporation. We have also entered into gasoline inboard and sterndrive supply agreements with Mercury Marine as well as a diesel and gasoline inboard and sterndrive supply agreement with Volvo Penta of the Americas. Each of these long-term supply agreements contain incentive and/or discount provisions, effectively reducing the cost of our engine purchases if we achieve specified unit or dollar volumes. If we fail to achieve certain unit or dollar volumes as specified in these agreements, we may lose certain such discounts or incur penalties. 46 Although inboard, inboard/outdrive and outboard engines of comparable quality and cost are available from other manufacturers, in the event of a sudden interruption in the supply of engines from our principal suppliers, we could be unable to obtain engines from other suppliers in sufficient quantities to meet our near-term production schedules and customer preferences. We have agreements with suppliers of raw materials, including glass, fiberglass resin and aluminum, electronics and other parts and accessories. Although we contract for raw material supplies on a bid basis, numerous alternative raw materials suppliers exist. However, commodity raw material prices are subject to price fluctuations. If we are not able to pass along price increases to our customers, these fluctuations could have a material adverse effect on our results of operations. COMPETITION Competition within the recreational boat industry is intense, with more than 3,700 boat manufacturers operating at the national and regional levels. Our nationally recognized domestic competitors include, among others, - Brunswick, including its Bayliner, Sea Ray and Boston Whaler operations; and - Outboard Marine, including its Four Winns, Stratos and Lowe operations. Boat manufacturers also compete directly with the used boat market and indirectly with other recreational products and activities. Our boats currently compete with those of other manufacturers primarily on the basis of their reputation for performance, durability and stability, as well as for their styling and price. Pricing of boats at retail is determined solely by the dealer. PATENTS AND TRADEMARKS Historically, patents have not been significant in the motorized recreational boat industry. Trademarks and trade names do carry importance, but are generally associated with the name of a particular company or product. We own trademarks for each of our brand names, all of which have received federal registration, except Logic, for which our application is pending. Other registered trademarks, such as Scarab, together with certain styling features associated with them are licensed exclusively to us by their owners. We are also a licensee of certain hull designs developed and/or patented by others. We have applied for patent protection of certain aspects of our VEC technology. Notices of allowance have been received from the United States Patent and Trademark Office for applications covering a specific version of a mold for use in the VEC operating system and a method of forming a molded article having a marbleized appearance. There are currently three pending United States patent applications seeking broader protection of the overall VEC process, on the mold used in the process and on the remote control and monitoring aspects of the VEC operating system. We also own nine United States patents covering various aspects of the Roplene construction. These patents cover various molded boat hull and internal structure and reinforcement configurations, methods for making such structures and tooling for the Roplene construction. REGULATION AND ENVIRONMENTAL Our operations are subject to numerous federal, state and local laws and regulations related to the safety and protection of the environment. Certain materials used in boat manufacturing are toxic, flammable, corrosive or reactive and are classified by federal and state governments as "hazardous materials." Control of these substances is regulated by the U.S. Environmental Protection Agency and state environmental protection agencies, which require reports and inspect facilities to monitor compliance. In addition, under CERCLA, any generator of hazardous waste sent to a particular disposal site is potentially responsible for the cleanup, remediation and response costs required for the 47 site if the site is not properly closed by the owner or operator, irrespective of the amount of waste the generator actually sent to the site. We believe that we are in substantial compliance with all existing environmental laws and regulations. In 1995, we signed a final consent order with the Florida Department of Environmental Protection to settle all outstanding issues with respect to an acetone release at our Wellcraft plant in Sarasota, Florida. The remaining estimated cost of remediation activities required at this site ranges from $1.7 million to $2.0 million. Based on available information, we believe that our reserves as of June 30, 1999 are adequate to cover these costs. Historically, our facilities have used underground storage tanks for storing certain materials associated with our operations, including petroleum, acetone and resins. We have removed or closed in place all underground storage tanks according to applicable laws. No material issues related to soil or groundwater contamination were encountered. In addition to our current regulatory obligations, we face the risk that the past practices of some of our current and divested operations may have created conditions that give rise to liability under CERCLA and comparable state laws. With respect to these potential liabilities, we have been identified as a potentially responsible party at approximately 12 active sites. In certain instances, we also have a duty to indemnify the current owners for environmental matters related to divested operations, including those of AMF Incorporated. Excluding the matters with Wellcraft discussed above, we currently anticipate total environmental-related costs associated with our current and divested operations at approximately $2.3 million, which include CERCLA-type liabilities. These costs are likely to be incurred over a period of up to ten years. As of June 30, 1999, based on available information, we have adequate reserves to account for any potential exposure with respect to current and divested operations, and we believe that these reserves are adequate to cover any potential costs. Nevertheless, the nature and extent of CERCLA proceedings is that cleanup estimates, the allocated financial responsibilities of potentially responsible parties and the degree of regulatory scrutiny may change over time and therefore we are not certain that these estimates will ultimately reflect our exposure. Although capital expenditures related to compliance with environmental laws are expected to increase in the coming years, we do not currently anticipate that any material expenditures will be required to continue to comply with existing environmental or safety laws or regulations in connection with our ongoing operations. However, we cannot predict future costs for compliance with certainty with respect to any costs we may be forced to incur in connection with our historical on-site or off-site waste disposal. In certain circumstances laws and regulations impose "strict liability," rendering a person liable for environmental damage regardless of negligence or fault on the part of that person. In addition, modifications of existing regulations or the adoption of new regulations in the future, particularly with respect to environmental standards, could require material capital expenditures or otherwise have a material adverse effect on our operations. Motorized recreational boats must be certified by their manufacturer as meeting U.S. Coast Guard specifications. In addition, boat safety is subject to federal regulation under the Federal Boat Safety Act of 1971. The Boat Safety Act requires boat manufacturers to recall products for replacement of parts or components that have demonstrated defects affecting safety. We have conducted product recalls in the past to correct safety-related defects. None of the recalls has had a material adverse effect on us and we believe that our recall experience is consistent with prevailing industry experience. Certain states have required or are considering requiring a license to operate a recreational boat. These licensing requirements are not expected to be unduly restrictive. They may, however, discourage potential first-time buyers, which could affect our business. In addition, certain state and local governmental authorities are contemplating regulatory efforts to restrict boating activities on certain inland bodies of water. While we cannot assess the impact that these regulations would have on our 48 business until we know the scope of the regulations, they may have a material adverse effect on our business. EMPLOYEES At June 30, 1999, we had approximately 4,600 employees, none of whom were subject to a collective bargaining agreement. Approximately 4,100 of these employees were engaged in our manufacturing operations. We consider our employee relations to be good. We do not conduct significant manufacturing operations outside the United States. PROPERTIES Our corporate headquarters are located in Minneapolis, Minnesota in leased facilities. We lease or own the following manufacturing facilities:
PLANT SIZE (SQ. BRAND LOCATION FT.) OWNED/LEASED - ---------------------- ------------------------------- ----------------- ------------- Carver/Trojan Pulaski, Wisconsin 468,000 Owned Crestliner Little Falls, Minnesota 217,000 Owned Larson/Glastron Little Falls, Minnesota 361,000 Owned Logic Durham, North Carolina 69,000 Leased Lund New York Mills, Minnesota 183,000 Owned Lund Steinbach, Manitoba 87,000 Owned Nova Junction City, Kansas 21,000 Leased Nova Junction City, Kansas 106,000 Owned Ranger Flippin, Arkansas 422,000 Owned Wellcraft/Aquasport Sarasota, Florida 766,000 Owned Wellcraft Avon Park, Florida 157,000 Leased ----------------- Total 2,857,000
In connection with our acquisition of Pyramid, we will acquire an additional 56,000 square foot manufacturing facility located in Greenville, Pennsylvania. We believe that our properties are well maintained and in good operating condition. Generally, our plants are of reasonably modern, single-story construction providing for efficient manufacturing and distribution operations. LEGAL PROCEEDINGS We are parties to legal proceedings, including product liability and other claims that are considered to be incidental to our business. In light of insurance coverage and established reserves, such litigation is not, in the opinion of management, likely to have a material adverse effect on our financial position or results of operations. We and our Aquasport, Wellcraft and Genmar Industries subsidiaries have been named as defendants in COUGLAN V. AQUASPORT, ET AL., a class action suit filed in the U.S. District Court for the Southern District of Texas on June 17, 1999. The suit alleges certain claims in connection with the marketing of Aquasport boats from 1996 to 1999, and seeks monetary damages. We are currently disputing class certification and believe that we have valid defenses to the liability and damages claims. Although we plan to vigorously defend this claim, we cannot predict the ultimate resolution of this case or whether it could have a material adverse effect on our results of operations. See "--Regulation and Environmental" for a discussion of administrative proceedings involving environmental laws and regulations. 49 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Our board of directors currently consists of eight members. We plan to add an additional independent director in the near future. Our executive officers and directors, and their ages, positions and brief biographies, are as follows:
NAME AGE POSITION - ----------------------------- --- ----------------------------------------------------------------------------- Irwin L. Jacobs.............. 58 Chairman of the Board and Director Grant E. Oppegaard........... 56 President, Chief Executive Officer and Director Roger R. Cloutier II......... 46 Executive Vice President, Chief Financial Officer and Director Steven J. Kubisen............ 47 Senior Vice President--Technology and Corporate Development Mary P. McConnell............ 46 Senior Vice President, General Counsel and Secretary John S. Rosendahl............ 35 Senior Vice President--Business Development George E. Sullivan........... 55 Senior Vice President--Marketing David H. Vigdal.............. 57 Senior Vice President--Operations Mark W. Peters............... 37 Vice President and Controller Ronald V. Purgiel............ 45 Vice President--Purchasing Daniel W. Schuette........... 52 Vice President--Information Systems Bjorn Ahlstrom............... 65 Director Daniel G. DeVos.............. 41 Director Daniel T. Lindsay............ 55 Director William W. Nicholson......... 56 Director Carl R. Pohlad............... 83 Director
IRWIN L. JACOBS has served as Chairman and a director of Genmar and its predecessor entities since 1982. Mr. Jacobs was also Chief Executive Officer of Genmar from April 1994 through December 1995. Mr. Jacobs served as President and Chief Executive Officer of Minstar and our other predecessor entities from 1982 to 1994. Mr. Jacobs also holds the following positions: President and a director of Jacobs Management Corporation, a management company, since 1981; Chairman of Watkins, a company engaged in direct marketing of household and health products, since 1978; Chairman of Jacobs Trading Company, a company engaged in wholesale and retail sale of close-out merchandise, since 1989; and Chairman of Operation Bass, Inc., a tournament fishing management company, since July 1996. Since March 1997, Mr. Jacobs has been Director of IPI, Inc., a public company engaged in the franchising of business printing centers. Mr. Jacobs will serve on the board of directors of Hatteras. Mr. Jacobs served as a principal of IMR Fund, L.P., a private equity fund, from 1992 through 1999. Mr. Jacobs was a director of MEI Diversified Inc., a company associated with the management of professional beauty salons from August 1986 until November 1992. GRANT E. OPPEGAARD has served as President and Chief Executive Officer of Genmar since January 1996 and as a director since 1997. Prior to that time, Mr. Oppegaard served our company in various capacities, including as a consultant, President of Sam's Club Boat Buying Program and as Vice Chairman of Genmar. Prior to 1995, Mr. Oppegaard was Executive Vice President and Senior Operations Officer of Fingerhut, Inc., a direct marketing company. Mr. Oppegaard was hired as a business consultant by MEI Salon, a subsidiary of MEI Diversified, in December 1992. In January 1993, Mr. Oppegaard was named Chief Operating Officer of MEI Salon. Mr. Oppegaard resigned from MEI Salon in July 1993. Mr. Oppegaard's background includes general management experience in retailing, television and direct mail marketing, and manufacturing. Mr. Oppegaard will serve on the board of directors of Hatteras. 50 ROGER R. CLOUTIER II has served as Executive Vice President and Chief Financial Officer of Genmar since February 1996 and as a director since 1997. In addition, since April 1990, Mr. Cloutier has been employed by and served as Senior Vice President of Jacobs Management Corporation. Mr. Cloutier has provided and intends to continue to provide his services primarily to us and, to a much lesser extent, to Jacobs Management. From 1992 through 1999, Mr. Cloutier actively served as a Vice President of Jacobs Investors, Inc. and with the general partner to IMR Fund, L.P. Mr. Cloutier was principally responsible for the overall management of IMR Fund's investments in portfolio companies, as well as due diligence and negotiation activities relative to potential acquisitions. Mr. Cloutier was also actively involved in the management of certain of these portfolio companies. From May 1994 through October 1996, Mr. Cloutier served as a director, and eventually, Chairman of Accent Software International Ltd., a company that designed and developed multilingual word processing and intelligent agent software products. Mr. Cloutier will serve on the board of directors of Hatteras. Mr. Cloutier began his career with Arthur Andersen & Co., and is a certified public accountant. DR. STEVEN J. KUBISEN has served as Senior Vice President--Technology and Corporate Development of Genmar since July 1999. Prior to joining Genmar, Dr. Kubisen was Director of Marketing for Alcoa's Corporate Technical Center from 1997 to 1999. From 1994 to 1996, Dr. Kubisen was Vice President--New Business Development for the management-consulting firm Werner-- Gershon Associates. From 1987 to 1994, Dr. Kubisen held a number of senior management positions with GE Plastics including General Manager of GE Electromaterials and General Manager-- Technology of GE Silicones. Dr. Kubisen has a Ph.D. in Organic Chemistry from Harvard University and a B.A. from Cornell University. MARY P. MCCONNELL has served as Senior Vice President, Secretary and General Counsel of Genmar since November 1996 and as Vice President, Secretary and General Counsel from December 1995 through October 1996. From January to December 1995, Ms. McConnell was Vice President, Director of Environmental and Regulatory Affairs and Assistant General Counsel of Genmar. Prior to joining Genmar in 1995, Ms. McConnell was a partner with the law firm of Lindquist & Vennum, where she practiced since 1988. JOHN S. ROSENDAHL has served as Senior Vice President--Business Development of Genmar since August 1998. Mr. Rosendahl served as our Vice President--Operations from July 1997 to July 1998, Vice President--Finance from December 1995 to July 1997, and Vice President and Controller from March 1995 to December 1995. Prior to joining Genmar in December 1994, Mr. Rosendahl worked for ADC Telecommunications, Inc., a telecommunication equipment company, from 1991 to December 1994, and as a certified public accountant with Arthur Andersen & Co. from 1986 until 1991. GEORGE E. SULLIVAN has served as Senior Vice President--Marketing of Genmar since November 1996. From May 1995 to November 1996, Mr. Sullivan served as Vice President and General Manager of Genmar's Sam's Club Boat Buying Program. From June 1990 to May 1995, Mr. Sullivan served in various capacities at an indirect subsidiary of Genmar, Wellcraft Marine Corp., most recently as Senior Vice President of Marketing and Planning. Prior to joining Genmar, Mr. Sullivan served as Vice President of Marketing and Communications of Brunswick's Bayliner division. DAVID H. VIGDAL has served as Senior Vice President of Operations of Genmar since July 1997. Mr. Vigdal served in various positions with Fingerhut Corporation during a 23-year period, including Vice President of Administration. From 1993 to 1996, Mr. Vigdal was Executive Vice President of Administration for Premier Salons, prior to which he served as Vice President of Administration for CVN Companies, Inc. From May 1993 to December 1993, he served as Vice President-Administration of MEI Salon, a subsidiary of MEI Diversified Inc. 51 MARK W. PETERS has served as Vice President and Controller of Genmar since July 1997. From December 1995 to July 1997, Mr. Peters served as our Corporate Controller. Prior to December 1995, Mr. Peters served our company in a variety of financial management capacities, commencing in 1984. RONALD V. PURGIEL has served as Vice President--Purchasing of Genmar since 1996. Prior to joining Genmar in 1996, Mr. Purgiel was Joint Procurement Manager for Outboard Marine Corporation Boat Group from 1985 to April 1996. DANIEL W. SCHUETTE has served as Vice President--Information Systems of Genmar since February 1997 and as Director of Information Systems from December 1995 to February 1997. Prior to joining Genmar in 1995, Mr. Schuette was Manager of Operations at Burlington Northern Railroad from September 1992 to December 1995 and Manager of Strategic Planning for Grand Metropolitan-- Pillsbury from June 1990 to September 1992. BJORN AHLSTROM has served as a director of Genmar and its predecessor entities since 1987. Mr. Ahlstrom has been a director of United Jersey Bank since 1980, director of Volvo GM Heavy Truck Corporation since 1981, director of Nederman Corporation since 1990, a director of Summit Bank since 1980 and a director of CTC Industries, Inc. since 1998. Mr. Ahlstrom serves as an independent consultant to various companies, and is a special limited partner of IMR Management Partners, L.P. and IMR Fund L.P. Mr. Ahlstrom is a former President of Volvo North America Corporation, serving in that capacity from 1970 to 1991. DANIEL G. DEVOS has served as a director of Genmar since April 1994. Mr. DeVos also holds the following positions: Chairman and Chief Executive Officer of the Georgian International Group of Companies Ltd., the holding company for Ontario Regional Airline, a regional passenger shuttle company; President/CEO of Capital DP Fox Ventures, a real estate development and sports management firm; Vice President-Corporate Affairs, since 1993, member of the Policy Board, since 1989 and Executive Committee, since 1992 of Amway Corporation, a company engaged in the direct sale of consumer products; and trustee of First Union Real Estate Investments, a real estate investment trust. Mr. DeVos previously held other vice president positions at Amway Corporation. DANIEL T. LINDSAY has served as a director of Genmar and its predecessor entities since April 1982. Mr. Lindsay has served as Secretary and director of Jacobs Industries, Inc. since 1977; Secretary and director of Watkins since 1979; Executive Vice President, Secretary and director of Jacobs Management Corporation since 1981; and as Secretary and director of Jacobs Investors, Inc. and IMR General, Inc. since 1992. Mr. Lindsay has been a director of IPI, Inc. since March 1997 and was a director of Mountain Parks Financial Corporation, a company engaged in banking services, from 1980 to 1996. WILLIAM W. NICHOLSON has served as a director of Genmar since April 1996. Mr. Nicholson is a private investor and served as a consultant to Amway Corporation. Mr. Nicholson is also a limited partner of IMR Fund, L.P. Mr. Nicholson also serves as director of the following public companies: INTL Isotopes Inc., a manufacturer of radio chemistry and pharmaceutical isotopes, since 1997 and Colorado Prime Inc., a direct seller of meat products, since 1996. CARL R. POHLAD has served as a director of Genmar and its predecessor entities since April 1988. Mr. Pohlad has been President and a director of Marquette Bancshares, Inc., a multi-bank holding company, since 1993. Prior to 1993, Mr. Pohlad was President and Chief Executive Officer of Marquette Bank Minneapolis and Bank Shares Incorporated. Mr. Pohlad is currently a director and chairman of Mesaba Holdings, Inc., a regional airline, and owner, director and president of CRP Sports, Inc.; the managing general partner of the Minnesota Twins, a major league baseball franchise. Mr. Pohlad formerly served as Chairman of MEI Corporation from 1972 to 1986, and of MEI Diversified Inc. from 1986 to 1994. 52 MEI Diversified Inc., a company in which Messrs. Jacobs and Pohlad served as directors, and its subsidiaries, including MEI Salon, a company in which Messrs. Oppegaard and Vigdal served as officers, commenced voluntary cases under Chapter 11 of the United States Bankruptcy Code in February 1993. BOARD COMPOSITION Upon completion of this offering, our board of directors will consist of three classes that serve staggered three-year terms as follows:
CLASS EXPIRATION MEMBERS - ------------------------------- ---------- -------------------------------------------------------------------- Class I........................ 2000 Daniel T. Lindsay, Carl R. Pohlad Class II....................... 2001 Daniel G. DeVos, William W. Nicholson, Grant E. Oppegaard Class III...................... 2002 Irwin L. Jacobs, Bjorn Ahlstrom, Roger R. Cloutier II
BOARD COMMITTEES There is no nominating committee of the board. Nominees for director are selected by the board of directors. EXECUTIVE COMMITTEE. The executive committee provides oversight to our operations and has all the authority of the board of directors, except with respect to items requiring stockholder approval or submission. The executive committee members are Bjorn Ahlstrom, Daniel G. DeVos, William W. Nicholson and Irwin L. Jacobs. COMPENSATION COMMITTEE. The compensation committee administers the issuance of stock options under our stock option plans, makes recommendations to the board of directors regarding the various incentive programs and benefit plans, and determines salaries and incentive compensation for the executive officers. The compensation committee members are Daniel T. Lindsay, William W. Nicholson and Carl R. Pohlad. AUDIT COMMITTEE. The audit committee recommends to the board of directors the engagement of independent public accountants, reviews the scope and results of our audits, reviews our internal accounting controls and reviews the professional services furnished to us by our independent public accountants. The audit committee members are Bjorn Ahlstrom, Daniel G. DeVos and William W. Nicholson. DIRECTOR COMPENSATION In fiscal year 1999, we paid each of our outside directors annual compensation of $15,000 in addition to $2,500 for each committee meeting attended in person. Under our 1999 Director Stock Option Plan, we will grant stock options to our outside directors annually in lieu of cash fees. Initially, each director will receive a grant of 12,500 options at the offering price, and following each subsequent annual meeting will receive an automatic grant of 5,000 options at fair market value. Messrs. Jacobs, Cloutier and Oppegaard do not receive any director compensation. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The compensation committee is responsible for establishing our policies relating to and the components of executive officer compensation. None of our executive officers has served as a director or member of the compensation committee of another entity that had any executive officer who served on any of our committees or as a director of our company. 53 EXECUTIVE COMPENSATION The following table sets forth the compensation paid for services rendered in all capacities to our company during each of our last three fiscal years to the Chief Executive Officer of Genmar and to the four most highly compensated executive officers.
ANNUAL COMPENSATION(1) ----------------------------------- BONUS PAID NAME AND PRINCIPAL POSITION YEAR SALARY OR EARNED - -------------------------------------------------------------------------------- --------- ---------- ------------ Grant E. Oppegaard.............................................................. 1999 $ 459,000 $ 4,270,299 Chief Executive Officer and President 1998 425,000 474,030 1997 350,000 275,917 Roger R. Cloutier II(2)......................................................... 1999 286,000 3,519,948 Executive Vice President and Chief 1998 260,000 221,214 Financial Officer 1997 220,000 126,462 Mary P. McConnell............................................................... 1999 189,250 301,346 Senior Vice President, Secretary and 1998 174,250 94,016 General Counsel 1997 155,000 64,381 David H. Vigdal(3).............................................................. 1999 186,750 293,812 Senior Vice President--Operations 1998 168,474 94,016 1997 -- -- George Sullivan................................................................. 1999 181,750 280,252 Senior Vice President--Marketing 1998 174,250 94,016 1997 165,000 73,578
- ------------------------ (1) Compensation totals represent amounts paid or earned for the twelve months ended June 30, 1999, 1998 and 1997. (2) Compensation amounts reflect amounts paid by Jacobs Management Corporation to Mr. Cloutier, for which we reimburse Jacobs Management. (3) Mr. Vigdal joined our company in July 1997. In July 1999, we hired Steven J. Kubisen as our Senior Vice President-- Technology and Corporate Development. Dr. Kubisen's base salary is currently $200,000 per annum. Dr. Kubisen also participates in our Management Incentive Plan. CERTAIN STOCK-BASED COMPENSATION On the date of the offering, we will grant stock options or awards to certain of our officers, directors and employees: - Options to purchase an aggregate of up to 3,000,000 shares will be granted to Messrs. Jacobs, Oppegaard and Cloutier of which the grant of 2,000,000 shares will be subject to meeting certain stock price performance targets. See "--Senior Executive Option Grants" below. - Options to purchase an aggregate of approximately 1,500,000 shares will be granted to our other officers and key employees. See "--Stock Awards and Plans--1999 Stock Incentive Plan" below. - Options to purchase an aggregate of 62,500 shares will be granted to our outside directors. See "--Director Compensation" above. - An aggregate of approximately 225,000 shares of stock will be issued to all other employees who are not eligible to participate in our option plan. See "--Stock Awards and Plans--Employee Stock Award" below. 54 RETENTION BONUS AGREEMENTS On October 31, 1998, Messrs. Oppegaard and Cloutier entered into substantially identical retention bonus agreements with Jacobs Management Corporation. Under the retention bonus agreements, each individual agreed to remain employed by us in his current capacity until at least August 4, 1999, in return for which Jacobs Management agreed to fund a retention bonus for each individual in the amount of $2.9 million. The retention bonus agreements also provide that the retention bonus payments were to be instead of any benefits that these individuals would be entitled to receive under our executive severance plan unless the individual remains employed by us for at least one year after August 4, 1999. Each of these individuals has also agreed that upon receipt of the retention bonus payment, he will not participate in the recreational boat industry for a period of three years following the termination of his employment with our company, nor divulge or use any proprietary information related to us which has been obtained during his employment with our company. On August 3, 1999, our board of directors approved our assumption of these agreements from Jacobs Management and on August 4, 1999 we made the retention bonus payments described above. MANAGEMENT INCENTIVE PLAN Under our Management Incentive Plan, certain key employees receive a cash bonus up to a designated percentage of their annual base salary. The amount of the bonus is tied to a budgeted operating performance and average assets to be utilized in the business, subject to approval by our board of directors. A minimum bonus is paid out only upon achievement of the target budget. The amount of the bonus accelerates according to a scale of performance milestones, which are established annually. We measure our performance levels on an annual basis. We pay bonuses at the end of this annual period, after completion of the year end audit and approval of our board of directors. Approximately $14.2 million was paid under this plan during the fiscal year ended June 30, 1999, including an aggregate of $2.9 million to Messrs. Oppegaard, Cloutier, Vigdal and Sullivan, and Ms. McConnell. SENIOR EXECUTIVE OPTION GRANTS We will make the option grants described below to each of Messrs. Jacobs, Oppegaard and Cloutier. The options will be exercisable for a period of five years from the date of grant and will vest over a two-year period with half vesting on the first anniversary of the date of grant and the remaining amount vesting on the second anniversary of the date of grant. - An initial grant will be made on the date of the offering to purchase 500,000 shares to Mr. Jacobs and 250,000 shares to each of Messrs. Oppegaard and Cloutier, all exercisable at the offering price. - A second grant will be made if our common stock trades at an average of 150% of the offering price over a period of 30 consecutive trading days at any time within three years of the date of the offering in the following amounts: 500,000 shares to Mr. Jacobs and 250,000 shares to each of Messrs. Oppegaard and Cloutier, all exercisable at the fair market value on the date of the grant. - A third grant will be made if our common stock trades at 150% of the price on the date of the grant described immediately above over a period of 30 consecutive trading days at any time within three years of the date of the offering in the following amounts: 500,000 shares to Mr. Jacobs and 250,000 shares to each of Messrs. Oppegaard and Cloutier, all exercisable at the fair market value on the date of the grant. 55 STOCK AWARDS AND PLANS 1999 STOCK INCENTIVE PLAN Prior to this offering our board of directors will adopt and submit for approval of our stockholders the 1999 Stock Incentive Plan. A copy of the plan has been filed as an exhibit to this registration statement. We intend for the plan to provide incentives which will attract, retain and motivate highly competent persons as officers, key employees and consultants of our company. The maximum number of shares of common stock that may be delivered under the plan is an aggregate of 2,000,000 shares. The plan is administered by the compensation committee. The compensation committee is authorized, subject to the provisions of the plan, to interpret the provisions and supervise the administration of the plan. This includes determining, subject to the provisions of the plan, to whom options or other awards will be granted and the terms of each option grant or award. Our officers, key employees and consultants are eligible to participate in the plan. The selection of participants from eligible persons is within the discretion of the committee. The estimated number of officers and key employees who are eligible to participate in the plan is approximately 200. Stock options may be granted under the plan on the terms and conditions as the compensation committee approves, and generally may be exercised for a period of up to ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value on the date of grant and will vest ratably over a three-year period on each anniversary of the date of grant. At the compensation committee's discretion, however, options may be made exercisable at any other time or upon the occurrence of certain events or the achievement of certain performance targets. The plan also provides for stock appreciation rights, stock awards, performance awards and stock units. Stock options granted under the plan may be "incentive stock options" within the meaning of the Internal Revenue Code or non-qualified options. The benefits listed above may be granted singly, in combination or in tandem as determined by the committee. In connection with the offering, we granted stock options under this plan representing an aggregate of approximately 1,500,000 shares to our officers and other employees at exercise prices equal to the initial public offering price. Messrs. Vigdal and Sullivan, Dr. Kubisen and Ms. McConnell were each granted options to purchase 50,000 shares of common stock at the offering price. PHANTOM STOCK PLAN We adopted the Phantom Stock Plan in December 1997 for the benefit of members of our senior management. As of August 13, 1999, 103,000 phantom stock units were outstanding, and 95% of those had vested. The initial value was determined at the time of issuance by assigning a gross valuation to each of our subsidiaries, reducing that amount by a pro rata share of our company's net liabilities, then dividing that total by the number of outstanding shares of common stock of our company. The compensation committee of the board of directors administers and interprets the plan. In the event of certain triggering events, awards are made to the employee's account representing either an increase or decrease in the value of the employee's phantom stock units. An increase in value results in a credit to the employee's account, whereas a decrease results in a debit to the employee's account. No awards will be made for a triggering event that occurs after December 31, 2001. This offering is a triggering event under the plan. Assuming an initial per share offering price of $12.00, approximately $5.7 million will be awarded, of which approximately $3.9 million is expected to be paid upon completion of the offering with payment of the remainder to be deferred under the plan to a date not later than December 31, 2001. No further awards will be made under this plan, and following the distribution of all award amounts this plan will cease to exist. 56 EMPLOYEE STOCK AWARD In connection with this offering, we will issue 50 shares of our common stock to each of our permanent full-time employees who is not eligible to participate in our 1999 Stock Incentive Plan. We anticipate an aggregate of approximately 225,000 shares of our common stock will be granted to approximately 4,500 employees upon completion of the offering. RETIREMENT PLANS AND INSURANCE We have a retirement plan, qualified under Section 401(k) of the Internal Revenue Code of 1954, that consists of a deferred savings program which allows employees to contribute up to 15% of their pre-tax earnings and up to 10% of their after-tax earnings to the retirement plan. At the discretion of our board of directors, we may make matching contributions of up to one half of the first 6% of each participant's pre-tax contribution, subject to certain limits. The retirement plan also contains a profit sharing program whereby we, based on our profits, are permitted to make an annual contribution for the benefit of eligible employees. In addition, other retirement plans are maintained by Ranger and Carver for the benefit of their respective employees. Substantially all of our salaried and hourly employees in the United States are eligible to participate in the retirement plan. Our contributions to the deferred savings program and the profit sharing programs are vested over a five-year period. EXECUTIVE SEVERANCE PLAN We have a severance pay plan under which we make severance payments to our former executive employees according to a formula based on the job title and length of service to our company of each former employee. Our employees become eligible for payments under the plan upon completing 12 continuous months of full-time employment with us. Under our severance plan, upon termination each of our Senior Vice Presidents would be entitled to receive one year of compensation. Messrs. Oppegaard and Cloutier are not currently eligible to participate in this plan. Subsequent to August 4, 2000, they will be eligible to participate, and determination of severance to each of Messrs. Oppegaard and Cloutier would be at the discretion of our board of directors. CERTAIN TRANSACTIONS We are a party to numerous transactions with Irwin L. Jacobs and his affiliates. Our board of directors has adopted a policy, effective upon completion of this offering, requiring that all material affiliate transactions be approved by a majority of disinterested directors, and that these affiliate transactions be conducted on terms no less favorable than could be obtained from an unaffiliated third party. We believe that each of the transactions described below between Mr. Jacobs and his affiliates and ourselves has been conducted on terms no less favorable than could have been obtained from an unaffiliated third party. We are a party to a management services agreement with Jacobs Management, one of our stockholders and an affiliate of Irwin L. Jacobs. Our director, Daniel T. Lindsay, is also an Executive Vice President and director of Jacobs Management. Under the management services agreement Jacobs Management provides us with general management, financial management, employee benefit and human resource services, insurance and risk management services, acquisition evaluation and support and other financial and administrative services for an annual fee currently set at $1.95 million. In addition, we reimburse Jacobs Management the annual compensation of Roger R. Cloutier II and bonus earned in connection with his services to us. Jacobs Management has agreed to direct its employees, and its employees have agreed to continue providing such management services as currently provided by such employees to us, or as are customary for executives serving in such positions, as well as such services as our board of directors may determine are necessary from time to time. The management services agreement also provides for the payment of an additional special fee for any 57 business opportunities presented to us by Jacobs Management. No additional special fees have ever been paid under the management services agreement. On July 21, 1986, we entered into a sublease arrangement with Jacobs Management Corporation for office and storage space located at our headquarters in Minneapolis, Minnesota. During the fiscal year ended June 30, 1999, Jacobs Management Corporation made lease payments to us in the amount of $478,000 which equaled the proportionate share of our cost of the leased space based on the amount of square feet occupied by Jacobs Management Corporation. Roger R. Cloutier II, our Executive Vice President, Chief Financial Officer and one of our directors, also performs services for Jacobs Management Corporation, by whom he has been employed since 1990. Mr. Cloutier's duties and functions for Jacobs Management involve his participation in certain executive-level matters. Mr. Cloutier has provided and intends to continue to provide his services primarily to us and, to a much lesser extent, to Jacobs Management. In October 1997, we repurchased a portion of our outstanding 13.5% notes with the proceeds of our subordinated term loan credit facility. To assist us in obtaining this financing, three of our stockholders, Irwin L. Jacobs, Daniel T. Lindsay and RDV Capital Management L.P. II, an affiliate of Daniel G. DeVos, one of our directors, obtained letters of credit, aggregating $63.1 million; each of which guarantees a portion of our obligations under the subordinated term loan credit facility. We reimburse those stockholders for the costs they incur in maintaining these letters of credit. During the fiscal year ended June 30, 1999, we reimbursed an aggregate of $1.0 million of these costs. In addition, in consideration of the commitment by those stockholders to provide letters of credit in the aggregate amount of $78.8 million, including the $63.1 million of letters of credit that were ultimately issued, we issued the following warrants to purchase our common stock at $7.78 per share: - A warrant to purchase 3,453,705 shares issued to Irwin L. Jacobs; - A warrant to purchase 2,605,779 shares issued to RDV Capital Management L.P. II; and - A warrant to purchase 521,154 shares issued to Daniel T. Lindsay. Subsequent to the issuance of these warrants, Mr. Jacobs transferred warrants to purchase an aggregate of 1,379,772 shares to certain other persons. Also subsequent to the issuance of these warrants, RDV Capital Management L.P. II transferred warrants to purchase an aggregate of 260,577 shares to Grand Bank, Trustee of the RDV Corporation Supplemental Executive Retirement Plan, and warrants to purchase an aggregate of 2,345,202 shares to RDV Corporation. Simultaneous with this offering, we have agreed to exchange .85 of a share of our common stock for each share of common stock issuable under the warrants, or an aggregate of 5,593,500 shares in exchange for all outstanding warrants. Pursuant to a First Amended and Restated Note and Stock Purchase Agreement, dated August 31, 1998, between Mr. Jacobs and the State of Wisconsin Investment Board (SWIB), SWIB purchased at face value a $25.0 million demand promissory note originally issued by us at par to Mr. Jacobs in 1994. On June 17, 1999, Mr. Jacobs repurchased that note at face value from SWIB. We used a portion of the proceeds of our new senior credit facility to repay this note in full in August 1999. On November 24, 1993, Irwin L. Jacobs loaned to Minstar, Inc., one of our wholly-owned subsidiaries, approximately $4.1 million pursuant to a subordinated promissory note. Under the terms of the note, as amended, principal and any outstanding interest, calculated at the prime rate plus 1.5% per annum are due on August 3, 2000. 58 We and Irwin L. Jacobs are parties to a split-dollar insurance agreement dated April 15, 1996. Under the agreement, we pay that portion of premium amounts not paid by the owner of the policy, the Irwin L. Jacobs 1996 Irrevocable Trust. We are to be reimbursed for all premiums paid under this policy upon Mr. Jacobs' death. We are also to be reimbursed for our premiums paid if the policy were terminated and the cash value of the policy at that time were sufficient to cover all or a portion of the premiums paid. Cumulative premiums paid by us under this agreement, from July 1, 1995 to June 30, 1999, totaled $332,000. Cumulative premiums paid by the Jacobs Trust over the same period totaled $83,000. The beneficiaries under this agreement are Irwin L. Jacob's five children, with 20% of the premium amounts paid to date attributable to each child. Immediately prior to the consummation of this offering, we will spin off Hatteras to our current stockholders. Under the terms of that transaction, we will guarantee the obligations of Hatteras under its new credit facility in the aggregate amount of $5.0 million. Subsequent to completion of the transaction and until Hatteras retains additional professional employees, we and Jacobs Management Corporation will provide corporate services to Hatteras for up to one year, including legal and other management services, for which we will receive $100,000 and Jacobs Management Corporation will receive $100,000. Messrs. Jacobs, Oppegaard and Cloutier will serve on the board of directors of Hatteras. We sponsor certain professional bass fishing tournaments of Operation Bass, Inc., an affiliate of Mr. Jacobs and certain of our executive management and directors. These fishing tournaments include the Wal-Mart FLW Tour, Operation Bass EverStart Series and Red Man Tournament Trail and are televised on ESPN and ESPN2. Our agreement with Operation Bass calls for Ranger to make cash payments and provide a specified number of boats to Operation Bass. We incurred net sponsorship costs related to these activities, including cash paid or accrued and product provided, of approximately $432,000 for the year ended June 30, 1999. In November 1999, Operation Bass will conduct the Ranger Boats M1 Tournament. This event will be limited to Ranger owners and will be televised live on the Fox Television Network. In fiscal year 1999, we accrued $300,000 towards an estimated total of $600,000 we will contribute to the $3.5 million purse. We are also obligated to pay Operation Bass certain per unit amounts based upon incremental sales improvements for certain Ranger boats. We expect to conduct similar events with Operation Bass in future years, but specific terms have yet to be determined. From time to time, we record revenues from boat sales to affiliates. We believe that the terms of those sales are consistent with the terms of sales to dealers. For the year ended June 30, 1999, we recorded revenues of approximately $500,000 in connection with sales to affiliates. Under the Genmar Employee Boat Purchase Program, we offer certain of our employees the opportunity to purchase our boats and accessories at discounted prices. Under the terms of the program, full-time employees who we have employed continuously for a minimum of six months may purchase one of our boats every two years. The program is subject to change at any time at the discretion of our Chief Executive Officer. 59 PRINCIPAL STOCKHOLDERS The following table provides information regarding beneficial ownership of our common stock as of September 27, 1999, and as adjusted to reflect the sale of shares offered by this prospectus, by: - Each of our directors; - Each person (or group of affiliated persons) known by us to beneficially own more than 5% of our common stock; and - All directors and executive officers as a group. Unless otherwise indicated, each person named in the table has sole voting power and investment power or shares that power with his or her spouse with respect to all shares of capital stock listed as owned by that person. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. The number of shares of common stock outstanding used in calculating the percentage for each listed person includes any shares the person has the right to acquire within 60 days. Unless otherwise indicated, the address for each person is 100 South Fifth Street, Minneapolis, Minnesota 55402. Irwin L. Jacobs beneficially owns approximately 67% of the issued and outstanding capital shares of Jacobs Industries, Inc., while members of the Pohlad Group beneficially own the remaining shares. Watkins Incorporated is a wholly-owned subsidiary of Jacobs Industries. Irwin L. Jacobs, Carl R. Pohlad, as trustee of Revocable Trust No. 2, Jacobs Industries, PEP-SQ Limited Partnership and Watkins have entered into an agreement that grants Carl R. Pohlad the effective right to vote the percentage of shares of our common stock held by Jacobs Industries and Watkins as is equal to the percentage of equity interest in Jacobs Industries and Watkins held by all members of the Pohlad Group. Accordingly, of the 2,219,931 shares owned by Jacobs Industries, ownership of 1,479,960 shares has been attributed to Mr. Jacobs and ownership of 739,971 shares has been attributed to the Pohlad Group. Of the 75,699 shares owned by Watkins, ownership of 50,463 shares has been attributed to Mr. Jacobs and ownership of 25,236 shares has been attributed to the Pohlad Group. Mr. Daniel G. DeVos disclaims beneficial ownership of the common stock owned by RDV Capital Management L.P. II. Mr. DeVos is a stockholder of an affiliate of RDV Capital Management L.P. II.
PERCENT OF COMMON STOCK OWNED AMOUNT ------------------------ BENEFICIALLY BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING - ------------------------------------------------------------------------ ------------ ----------- ----------- GROUP CONSISTING OF: ................................................... 7,970,301(1) 37.6% 27.6% Irwin L. Jacobs Jacobs Industries, Inc. Jacobs Management Corporation Watkins, Incorporated GROUP CONSISTING OF: ................................................... 5,463,324 25.7% 18.9% RDV Capital Management L.P. II ......................................... RDV Corporation Grand Bank, Trustees of the RDV Corporation Supplemental Executive Retirement Plan 126 Ottawa, N.W. Grand Rapids, Michigan 49503
60
PERCENT OF COMMON STOCK OWNED AMOUNT ------------------------ BENEFICIALLY BEFORE AFTER NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OFFERING OFFERING - ------------------------------------------------------------------------ ------------ ----------- ----------- GROUP CONSISTING OF: ................................................... 2,699,585 (3) 12.7% 9.3% Carl R. Pohlad, individually and as Trustee of Revocable Trust No. 2 Robert C. Pohlad William M. Pohlad James O. Pohlad PEP-SQ Limited Partnership Jacobs Industries, Inc. Watkins, Incorporated 3880 Dain Bosworth Plaza 60 South Sixth Street Minneapolis, Minnesota 55402 State of Wisconsin Investment Board .................................... 1,785,249 8.4% 6.2% 121 East Wilson Street Madison, Wisconsin 53702 AB Volvo Penta ......................................................... 1,126,485 5.3% 3.9% c/o Gambro AB P.O. Box 7373 S-103 91 Stockholm Sweden Bjorn Ahlstrom.......................................................... 12,500(3) * * Roger R. Cloutier II.................................................... 88,848 * * Daniel G. DeVos......................................................... 12,500(3) * * Daniel T. Lindsay....................................................... 590,480 (4) 2.8 2.0 William W. Nicholson.................................................... 139,958(3) * * Grant E. Oppegaard...................................................... 71,703 * * ALL OFFICERS AND DIRECTORS AS A GROUP (16 PERSONS)...................... 11,585,875(5) 54.4% 40.0%
- ------------------------ * Less than 1%. (1) Includes 734,805 shares which Mr. Jacobs has agreed to purchase, see "Underwriting." (2) Includes 684,162 shares of common stock beneficially owned by a trust, of which Carl R. Pohlad is the trustee. (3) Includes options to purchase 12,500 shares of our common stock. (4) Daniel T. Lindsay is Executive Vice President and a director of Jacobs Management and Secretary and a director of Jacobs Industries. Mr. Lindsay disclaims beneficial ownership of the common stock owned by these entities. (5) Includes options to purchase 62,500 shares of our common stock. 61 DESCRIPTION OF CAPITAL STOCK THE FOLLOWING SUMMARY DESCRIPTION OF OUR CAPITAL STOCK IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, A COPY OF WHICH HAS BEEN INCLUDED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. ALL CAPITALIZED TERMS USED AND NOT DEFINED BELOW HAVE THE RESPECTIVE MEANINGS ASSIGNED TO THEM IN THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION. COMMON STOCK We are authorized to issue up to 200,000,000 shares of common stock, $0.01 par value per share. As of the date of this prospectus, there were 21,226,230 shares of common stock issued and outstanding. Holders of common stock are entitled to one vote for each share held, are not entitled to cumulative voting for the purpose of electing directors and have no preemptive or similar right to subscribe for, or to purchase, any shares of common stock or other securities to be issued by us in the future. Accordingly, the holders of more than a majority of the voting power of the shares of common stock voting generally for the election of directors will be able to elect all of our directors. Holders of shares of common stock have no exchange or conversion rights and those shares are not subject to redemption. All outstanding shares of common stock are, and upon issuance the shares of common stock offered by this prospectus will be, duly authorized, validly issued, fully paid and nonassessable. Subject to the prior rights, if any, of holders of any outstanding class or series of capital stock having a preference in relation to the common stock as to distributions upon the dissolution, liquidation and winding-up of our company and as to dividends, holders of common stock are entitled to share ratably in all of our assets which remain after payment in full of all of our debts and liabilities, and to receive ratably dividends, if any, as may be declared by our board of directors from time to time out of funds and other assets legally available for the payment of dividends. See "Dividend Policy" and "Capitalization." PREFERRED STOCK Our board of directors is authorized, without action by the holders of common stock, to issue up to 2,000,000 shares of preferred stock, $0.01 par value, in one or more series, to establish the number of shares to be included in each series and to fix the designations, preferences, relative, participating, optional and other special rights of the shares of each series and the qualifications, limitations and restrictions of those shares. These rights may include, among others, voting rights, conversion and exchange privileges, dividend rates, redemption rights, sinking fund provisions and liquidation rights that could be superior and prior to the common stock. The issuance of one or more series of the preferred stock could, under certain circumstances, adversely affect the voting power of the holders of the common stock and could have the effect of discouraging or making more difficult any attempt by a person or group to effect a change in control of our company. REGISTRATION RIGHTS For a discussion of certain registration rights we have granted to the former stockholders of Pyramid Operating Systems, see "The Company--Recent Acquisitions--Pyramid Operating Systems, Inc." 62 DELAWARE BUSINESS COMBINATION STATUTE We are a Delaware corporation and are subject to Section 203 of the Delaware General Corporation Law. In general, Section 203 prevents any "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (as therein defined) with a Delaware corporation for three years following the time that such person became an interested stockholder, unless: - Before such person became an interested stockholder, the board of directors of the corporation approved the business combination in question or the transaction which resulted in such person becoming an interested stockholder; - Upon consummation of the transaction that resulted in the interested stockholder's becoming such, the interested stockholder owns at least 85% of the voting stock of the corporation outstanding at the time such transaction commenced (excluding stock held by directors who are also officers of the corporation and by employee stock plans that do not provide employees with rights to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or - At or following the transaction in which such person became an interested stockholder, the business combination is approved by the board of directors of the corporation and authorized at a meeting of stockholders by the affirmative vote of the holders of not less than 66 2/3% of the outstanding voting stock of the corporation not owned by the interested stockholder. Under Section 203, the restrictions described above do not apply to certain business combinations proposed by an interested stockholder following the announcement (or notification) of one of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the preceding three years or who became an interested stockholder with the approval of the corporation's directors or at a time when the restrictions imposed by Section 203 did not apply in accordance with the terms thereof, and which transactions are approved or not opposed by a majority of the members of the board of directors then in office who were directors prior to any person becoming an interested stockholder during the previous three years or were recommended for election or elected to succeed such directors by a majority of such directors. CLASSIFIED BOARD OF DIRECTORS Our amended and restated certificate of incorporation divides our board of directors into three classes, with regular three-year staggered terms and initial terms of one year for the class I directors, two years for the class II directors and three years for the class III directors. This could prevent a party who acquires control of a majority of our outstanding voting stock from immediately obtaining control of the board of directors. Our stockholders do not have the right to cumulative voting in the election of directors. AMENDMENTS TO OUR CERTIFICATE AND BYLAWS Our certificate of incorporation may be amended only by the affirmative vote of the holders of at least a majority of the shares of our common stock, except for provisions relating to stockholder action by written consent and the staggered board, which may only be amended by an affirmative vote of two-thirds of the shares of our common stock. Our bylaws may be amended only by either the affirmative vote of the holders of at least a majority of the shares of our common stock or the affirmative vote of at least a majority of the board of directors. 63 STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS Our amended and restated certificate of incorporation provides that stockholders may not take action by written consent, but only at duly called annual or special meetings of stockholders. The bylaws further provide that special meetings of our stockholders may be called only by the board of directors or by stockholders holding a majority of the shares entitled to vote at the meeting. ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide advance notice to us in writing. These provisions may preclude stockholders from bringing matters before or from making nominations for directors at an annual meeting of stockholders. LIMITATION ON LIABILITY Our amended and restated certificate of incorporation provides that none of our directors will be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director except for liability for breach of the director's duty of loyalty to us or our stockholders, for acts or omissions which are not in good faith or which involve intentional misconduct or knowing violations of law and for actions leading to improper personal benefit to the director. This provision does not affect the directors' responsibilities under any other laws, such as the federal securities laws or state or federal environmental laws. INDEMNIFICATION Section 145 of the Delaware General Corporation Law provides for the power to indemnify any directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers. The indemnification provisions are not exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of the stockholders or otherwise. Our amended and restated certificate of incorporation provides a right to indemnification to the maximum extent permitted by Delaware law to all persons whom we may indemnify pursuant thereto. At present, there is no pending litigation or proceeding, and we are not aware of any threatened litigation or proceeding, that may result in a claim for such indemnification involving any director, officer, employee or agent as to which indemnification will be required or permitted under the certificate of incorporation. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock is Norwest Bank Minnesota N.A. 64 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has not been any public market for our common stock. Future sales of substantial amounts of common stock in the public market, or the prospect of such sales, could adversely affect prevailing market prices. Upon completion of this offering, 28,867,897 shares of common stock will be outstanding, assuming no exercise of the underwriters' over-allotment option. Of these shares, all of the shares sold in this offering will be freely tradeable without restriction under the Securities Act, unless purchased by an "affiliate" of ours, as that term is defined in Rule 144. The remaining 22,367,897 shares outstanding after completion of this offering are "restricted securities" as defined in Rule 144 and may be sold in the public market only in accordance with Rule 144. The following table sets forth the resale restrictions on the currently outstanding shares of our common stock other than those set forth under "Underwriting--Lock Up Agreements."
NUMBER OF SHARES MANNER OF HOLDING - ----------------- ---------------------------------------------------- 4,239,531 Held by non-affiliates 16,986,699 Held by affiliates 916,667 Held by current Pyramid stockholders 225,000 Held by grantees under employee stock awards
In general, under Rule 144, a person, including an "affiliate" of ours, who has beneficially owned restricted shares for at least one year is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of common stock (approximately 289,000 shares immediately following this offering) or the average weekly trading volume of the common stock during the four calendar weeks preceding the sale. Sales under Rule 144 are subject to certain manner of sale limitations, notice requirements and the availability of current public information about us. Rule 144(k) provides that a person who is not an "affiliate" of the issuer at any time during the three months preceding a sale and who has beneficially owned shares for at least two years is entitled to sell those shares at any time without compliance with the public information, volume limitation, manner of sale and notice provisions of Rule 144. Additionally, in general, under Rule 701 of the Securities Act as currently in effect, any of our employees, consultants or advisors who purchase shares from us in connection with a compensatory stock or option plan or other written agreement is eligible to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144. 65 UNDERWRITING GENERAL We are offering the shares of common stock described in this prospectus through a number of underwriters. Stephens Inc. and U.S. Bancorp Piper Jaffray Inc. are the representatives of the underwriters. We have entered into an underwriting agreement with the representatives dated the date of this prospectus. Each underwriter has agreed to purchase the number of shares of common stock opposite its name below:
NUMBER OF UNDERWRITER SHARES - --------------------------------------------------------------------------------- ---------- Stephens Inc..................................................................... U.S. Bancorp Piper Jaffray Inc................................................... ---------- Total........................................................................ 6,500,000 ---------- ----------
The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares are subject to approval of certain legal matters by counsel and to certain other conditions. The underwriters are obligated to take and to pay for all shares of common stock offered by this prospectus (other than those covered by the over-allotment option described below) if any of those shares are taken. On September 21, 1999, U.S. Bancorp and a bank subsidiary agreed to sell to Irwin L. Jacobs 490,005 shares of our common stock and a warrant to purchase an additional 288,000 shares of our common stock. U.S. Bancorp is the parent of U.S. Bancorp Piper Jaffray. Part of the sale of shares related to a put agreement originally entered into in 1995, entitling U.S. Bancorp to put 382,005 shares to Mr. Jacobs at any time prior to a public offering of our common stock, at a formula-derived price which is currently approximately $14.6 million. Mr. Jacobs also agreed to purchase for an aggregate of approximately $3.9 million the remaining 108,000 shares and the warrants, which will be exchanged for 244,800 shares by Mr. Jacobs on the same basis as other warrant holders. The purchase of shares and warrants is scheduled to close prior to our public offering. Mr. Jacobs will borrow the full purchase price for all of the shares and the warrants from the sellers, which loans will bear interest at a market rate, be secured by a pledge of all the shares, and be due on various dates through December 2000. U.S. Bank, N.A., a subsidiary of U.S. Bancorp, participates as a lender in connection with our new senior term loan and our subordinated term loan. U.S. Bank also provides one of the letters of credit discussed in "Certain Transactions." Further, it is anticipated that U.S. Bank or one of its affiliates will be the lead lender for the new Hatteras credit facility discussed in "The Company--Hatteras Spin-Off." All of these banking arrangements have been on an arms-length basis and on market terms. COMMISSIONS AND EXPENSES The underwriters propose to offer part of the shares directly to the public at the public offering price stated on the cover page of this prospectus and part of the shares to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. The underwriters may allow, and those dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the offering, the public offering price and any concessions may be changed by the underwriters. The representatives have advised us that the underwriters do not intend to confirm any shares to any accounts over which they exercise discretionary authority. 66 The following summarizes the underwriting discounts we will pay:
TOTAL ------------------------------ WITHOUT WITH PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT ----------- -------------- -------------- Underwriting discounts.................. $ $ $ ----------- -------------- --------------
We estimate that our share of the total expenses of the offering, excluding underwriting discounts, will be approximately $1.5 million. OVER-ALLOTMENT OPTION We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to 975,000 additional shares of common stock at the price to the public stated on the cover page of this prospectus minus the underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, in connection with the offering. If the underwriters exercise the option, each underwriter will purchase additional shares approximately in proportion to the amounts specified in the table above. STABILIZATION, SHORT POSITIONS AND PENALTY BIDS In connection with the offering, the underwriters may purchase and sell the common stock in the open market. These transactions may include over-allotment and stabilizing transactions and purchases to cover syndicate short positions created in connection with the offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the shares of common stock. Syndicate short positions involve the sale by the underwriters of a greater number of shares of common stock than they are required to purchase from us in the offering. The underwriters may also impose a penalty bid. This means that if the representatives purchase shares in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them. These activities may stabilize, maintain or otherwise affect the market price of the shares of common stock, which may be higher than the price that might otherwise prevail in the open market and may be discontinued at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. LOCK-UP AGREEMENTS We, and our officers, directors and certain stockholders have entered into lock-up agreements with the underwriters. Under those agreements, we and those holders may not offer, sell, contract to sell or otherwise dispose of any shares of common stock or any securities convertible into any class of common stock for a period of 180 days after the date of this prospectus, except with the prior consent of Stephens Inc. In considering any request to waive the lock-up, Stephens Inc. has informed us that it will likely consider a number of factors, including the then current trading price of our stock compared to the offering price, the recent trading volume of the stock relative to the number of shares sought to be sold, the identity of the potential seller, the potential seller's reason for the sale and the percentage of holdings to be sold. 67 OFFERING PRICE DETERMINATION Prior to the offering, there was no public market for our common stock. Consequently, the initial public offering price for the shares of common stock included in the offering has been determined by negotiations between us and the underwriters. Among the factors considered were: - The history of and prospects for our business and our industry; - An assessment of our management and the present state of our company's development; - Our past and present revenues and earnings; - The prospects for growth of our revenues and earnings; - The current state of the United States economy; - The current level of economic activity in the industry in which we compete and in related or comparable industries; and - Currently prevailing conditions in the United States securities markets, including current market valuations of comparable publicly traded companies. INDEMNIFICATION Pursuant to the underwriting agreement, we and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for Genmar Holdings, Inc. by Weil, Gotshal & Manges LLP, New York, New York. Certain members of Weil, Gotshal & Manges own an aggregate of 150,147 shares of common stock of Genmar Holdings, Inc. Giroir, Gregory, Holmes & Hoover, PLC, Little Rock, Arkansas is serving as counsel to the underwriters. EXPERTS The consolidated balance sheets as of June 30, 1998 and 1999, and the consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1996, the six months ended June 30, 1997 and the years ended June 30, 1998 and June 30, 1999 of Genmar Holdings, Inc. included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said report. 68 ADDITIONAL INFORMATION We have filed with the Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus, which constitutes part of the registration statement, 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. For further information about us and the common stock offered hereby, reference is made to the registration statement, which includes as exhibits certain of the contracts and other documents referred to in this prospectus. The registration statement and all amendments, exhibits and schedules thereto may be obtained as follows: - Copies may be inspected without charge at the principal office of the Commission in Washington, D.C. and copies of all or any part thereof may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549 (1-800-SEC-0330), and at the Securities and Exchange Commission's regional offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048; - Copies of such material can also be obtained at prescribed rates by mail from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and - Our filings may be viewed over the Internet at HTTP://WWW.SEC.GOV, a web site which that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Securities and Exchange Commission. 69 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE --------- Report of Independent Public Accountants................................................................... F-1 Consolidated Balance Sheets as of June 30, 1998 and 1999................................................... F-2 Consolidated Statements of Operations for the Year Ended December 31, 1996; Six Months Ended June 30, 1997 and Years Ended June 30, 1998 and 1999.................................... F-3 Consolidated Statements of Stockholders' Equity for the Year Ended December 31, 1996; Six Months Ended June 30, 1997 and Years Ended June 30, 1998 and 1999.................................... F-4 Consolidated Statements of Cash Flows for the Year Ended December 31, 1996; Six Months Ended June 30, 1997 and Years Ended June 30, 1998 and 1999................................................................... F-5 Notes to Consolidated Financial Statements................................................................. F-7 Supplemental Schedule...................................................................................... F-22
70 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Genmar Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Genmar Holdings, Inc. (a Delaware corporation) and Subsidiaries as of June 30, 1998 and 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended December 31, 1996, the six months ended June 30, 1997 and the years ended June 30, 1998 and June 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Genmar Holdings, Inc. and Subsidiaries as of June 30, 1998 and 1999, and the results of their operations and their cash flows for the year ended December 31, 1996, the six months ended June 30, 1997 and the years ended June 30, 1998 and June 30, 1999, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule listed in the index of consolidated financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Minneapolis, Minnesota, August 2, 1999 F-1 GENMAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JUNE 30 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1999 ----------- ---------- ASSETS Current assets: Cash and cash equivalents.............................................................. $ 2,736 $ 24,856 Accounts receivable, net of allowances of $1,460 and $1,647............................ 35,914 41,339 Inventories, net....................................................................... 97,570 113,931 Prepaid expenses....................................................................... 3,327 2,939 Deferred tax assets.................................................................... -- 8,000 ----------- ---------- Total current assets................................................................. 139,547 191,065 Property and equipment: Land................................................................................... 8,088 7,218 Buildings.............................................................................. 62,941 68,059 Operating equipment.................................................................... 56,304 65,883 Accumulated depreciation............................................................... (72,759) (75,623) ----------- ---------- Net property and equipment............................................................. 54,574 65,537 Other assets............................................................................. 6,407 19,454 Goodwill................................................................................. 44,094 44,707 ----------- ---------- $ 244,622 $ 320,763 ----------- ---------- ----------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................................................................... $ 36,931 $ 56,241 Accrued liabilities.................................................................... 66,117 89,874 Accrued income taxes................................................................... 761 2,384 Current maturities of long-term debt................................................... 6,026 1,022 ----------- ---------- Total current liabilities............................................................ 109,835 149,521 Long-term debt........................................................................... 117,778 116,129 Other noncurrent liabilities............................................................. 15,716 12,911 ----------- ---------- Commitments and contingencies (Note 8) Stockholders' equity: Common stock, $.01 par, 2,000 shares authorized; 1,737 issued and outstanding......................................................... 17 17 Additional paid-in capital............................................................. 117,945 117,945 Accumulated deficit.................................................................... (116,201) (75,256) Accumulated other comprehensive loss................................................... (468) (504) ----------- ---------- Total stockholders' equity........................................................... 1,293 42,202 ----------- ---------- $ 244,622 $ 320,763 ----------- ---------- ----------- ----------
The accompanying notes to consolidated financial statements are an integral part of these statements. F-2 GENMAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
FOR THE FOR THE SIX MONTHS FOR THE YEAR ENDED YEAR ENDED ENDED JUNE 30, DECEMBER 31, JUNE 30, ---------------------- 1996 1997 1998 1999 ------------ ----------- ---------- ---------- Net revenues.................................................. $ 618,056 $ 260,848 $ 585,943 $ 704,656 Cost of products and services................................. 521,663 222,448 480,651 567,247 ------------ ----------- ---------- ---------- Gross profit................................................ 96,393 38,400 105,292 137,409 New product and technology development........................ 8,537 5,012 11,292 10,996 Selling and administrative expenses........................... 64,653 31,888 70,402 88,945 ------------ ----------- ---------- ---------- Operating profit............................................ 23,203 1,500 23,598 37,468 Interest expense.............................................. (22,190) (11,026) (18,702) (16,098) Investment and other income (loss), net....................... 122 (176) (304) 75 ------------ ----------- ---------- ---------- Income (loss) before income taxes and extraordinary item.... 1,135 (9,702) 4,592 21,445 Income tax benefit (provision)................................ (860) (246) (550) 19,500 ------------ ----------- ---------- ---------- Income (loss) before extraordinary item....................... 275 (9,948) 4,042 40,945 Extraordinary loss on extinguishment of debt (Note 5)......... -- -- (1,184) -- ------------ ----------- ---------- ---------- Net income (loss)........................................... $ 275 $ (9,948) $ 2,858 $ 40,945 ------------ ----------- ---------- ---------- ------------ ----------- ---------- ---------- Basic and diluted net income (loss) per share-- Income (loss) per share before extraordinary item............. $ 0.16 $ (5.73) $ 2.33 $ 23.57 Extraordinary loss per share.................................. -- -- (0.68) -- ------------ ----------- ---------- ---------- Net income (loss) per share................................... $ 0.16 $ (5.73) $ 1.65 $ 23.57 ------------ ----------- ---------- ---------- ------------ ----------- ---------- ---------- Basic and diluted weighted average shares outstanding....... 1,737 1,737 1,737 1,737 ------------ ----------- ---------- ---------- ------------ ----------- ---------- ----------
The accompanying notes to consolidated financial statements are an integral part of these statements. F-3 GENMAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 1996; SIX MONTHS ENDED JUNE 30, 1997 AND YEARS ENDED JUNE 30, 1998 AND 1999 (IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER ------------------------ PAID-IN ACCUMULATED COMPREHENSIVE SHARES AMOUNT CAPITAL DEFICIT LOSS TOTAL ----------- ----------- ---------- ------------ --------------- --------- Balance, December 31, 1995......................... 1,737 $ 17 $ 116,234 $ (109,386) $ (247) $ 6,618 Net income....................................... -- -- -- 275 -- 275 Translation adjustment........................... -- -- -- -- (24) (24) ----- --- ---------- ------------ ----- --------- Balance, December 31, 1996......................... 1,737 17 116,234 (109,111) (271) 6,869 ----- --- ---------- ------------ ----- --------- Net loss......................................... -- -- -- (9,948) -- (9,948) Translation adjustment........................... -- -- -- -- (54) (54) ----- --- ---------- ------------ ----- --------- Balance, June 30, 1997............................. 1,737 17 116,234 (119,059) (325) (3,133) ----- --- ---------- ------------ ----- --------- Net income....................................... -- -- -- 2,858 -- 2,858 Issuance of warrants (Note 5).................... -- -- 1,711 -- -- 1,711 Translation adjustment........................... -- -- -- -- (143) (143) ----- --- ---------- ------------ ----- --------- Balance, June 30, 1998............................. 1,737 17 117,945 (116,201) (468) 1,293 ----- --- ---------- ------------ ----- --------- Net income....................................... -- -- -- 40,945 -- 40,945 Translation adjustment........................... -- -- -- -- (36) (36) ----- --- ---------- ------------ ----- --------- Balance, June 30, 1999............................. 1,737 $ 17 $ 117,945 $ (75,256) $ (504) $ 42,202 ----- --- ---------- ------------ ----- --------- ----- --- ---------- ------------ ----- ---------
The accompanying notes to consolidated financial statements are an integral part of these statements. F-4 GENMAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED FOR THE SIX JUNE 30, FOR THE YEAR ENDED MONTHS ENDED -------------------- DECEMBER 31, 1996 JUNE 30, 1997 1998 1999 ------------------ ------------- --------- --------- OPERATING ACTIVITIES: Net income (loss)....................................... $ 275 $ (9,948) $ 2,858 $ 40,945 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities, net of acquisitions: Depreciation and amortization......................... 11,618 6,211 11,470 11,565 Write-down of property and trademark.................. -- 1,124 -- -- Extraordinary loss on extinguishment of debt.......... -- -- 1,354 -- Deferred tax valuation adjustment..................... -- -- -- (22,000) Net changes in operating assets and liabilities, per accompanying schedule............................... 27,707 (19,025) 2,884 22,529 Payment of noncurrent liabilities..................... (3,900) (1,326) (4,110) (3,205) Other, net............................................ 398 88 1,032 897 -------- ------------- --------- --------- Net cash provided by (used in) operating activities, net of acquisitions............................... 36,098 (22,876) 15,488 50,731 -------- ------------- --------- --------- INVESTING ACTIVITIES: Property and equipment additions........................ (5,511) (5,088) (8,118) (12,858) Proceeds from sales of property......................... 3,966 306 111 933 Proceeds from the sale of a note receivable............. -- -- 4,208 -- Acquisitions, net of cash acquired...................... -- -- -- (6,142) Investment in Pyramid Operating Systems, Inc............ -- -- -- (2,203) -------- ------------- --------- --------- Net cash used in investing activities............... (1,545) (4,782) (3,799) (20,270) -------- ------------- --------- --------- FINANCING ACTIVITIES: Proceeds (repayments) under revolving credit facility... (28,231) 10,000 (10,000) -- Proceeds from senior term loan.......................... -- -- 15,000 -- Repayments of senior term loan.......................... -- -- (3,000) (12,000) Proceeds from subordinated term loan.................... -- -- 60,000 -- Repayments of senior subordinated notes................. -- -- (72,149) -- Proceeds from IRB financing............................. -- -- -- 4,000 Repayments of other long-term debt...................... (916) (221) (358) (38) Financing and option costs.............................. (360) (825) (2,879) (303) -------- ------------- --------- --------- Net cash provided by (used in) financing activities........................................ (29,507) 8,954 (13,386) (8,341) -------- ------------- --------- --------- Increase (decrease) in cash and cash equivalents...... 5,046 (18,704) (1,697) 22,120 -------- ------------- --------- --------- CASH AND CASH EQUIVALENTS: Balance, beginning of period............................ 18,091 23,137 4,433 2,736 -------- ------------- --------- --------- Balance, end of period.................................. $ 23,137 $ 4,433 $ 2,736 $ 24,856 -------- ------------- --------- --------- -------- ------------- --------- ---------
The accompanying notes to consolidated financial statements are an integral part of these statements. F-5 GENMAR HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
FOR THE YEAR ENDED FOR THE SIX JUNE 30, FOR THE YEAR ENDED MONTHS ENDED -------------------- DECEMBER 31, 1996 JUNE 30, 1997 1998 1999 ------------------ ------------- --------- --------- Changes in operating assets and liabilities, net of acquisitions, consist of: Accounts receivable..................................... $ 5,742 $ (689) $ 723 $ (5,179) Inventories............................................. 20,895 (6,296) 6,211 (14,952) Prepaid expenses........................................ 1,806 417 (592) 878 Accounts payable, accrued liabilities and accrued income taxes................................................. (736) (12,457) (3,458) 41,782 -------- ------------- --------- --------- Net changes......................................... $ 27,707 $ (19,025) $ 2,884 $ 22,529 -------- ------------- --------- --------- -------- ------------- --------- --------- Supplemental cash flow information: Interest paid during the period......................... $ 18,608 $ 8,315 $ 19,406 $ 14,547 Income taxes paid during the period..................... 1,108 587 67 864 -------- ------------- --------- --------- -------- ------------- --------- --------- Schedule of noncash financing and investing activities: Property and equipment additions from capital leases.... $ 362 $ -- $ -- $ -- Sale of property in exchange for notes receivable....... -- 4,594 -- -- -------- ------------- --------- --------- -------- ------------- --------- ---------
The accompanying notes to consolidated financial statements are an integral part of these statements. F-6 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BACKGROUND Genmar Holdings, Inc. (the "Company") was organized in March 1994 to combine the operations of IJ Holdings Corp. ("IJ Holdings") including its wholly-owned subsidiary, Minstar, Inc. ("Minstar"), and Miramar Marine Corporation ("Miramar"), each of which had been under the control of investor groups led by Irwin L. Jacobs, principal stockholder and Chairman of the Board of the Company. The Company is the second largest manufacturer of motorized recreational boats in the United States. The Company is focused on using innovative technologies and marketing strategies to produce and sell boats under leading brand names such as Aquasport, Carver, Crestliner, Glastron, Larson, Logic, Lund, Nova, Ranger, Scarab, Trojan and Wellcraft. The Company sells its products through an established network of independent authorized dealers in the United States and internationally. The Company operates in the recreational powerboat industry which has been subject to periodic cyclical industry downturns. The Company's ability to meet its debt service and other obligations depends on its future performance, which, in turn, is subject to general economic conditions, financial performance and business factors, including factors beyond the Company's control. 2. UNAUDITED STATEMENT OF OPERATIONS Effective June 2, 1997, the Company changed its fiscal year end from December 31 to June 30. In order to provide a meaningful comparison of current year results to a comparable prior year period, set forth below are the Company's unaudited comparative results of operations for the twelve months ended June 30, 1997 as compared to the Company's audited results of operations for the years ended June 30, 1998 and 1999 (in thousands):
FOR THE 12 FOR THE YEAR MONTHS ENDED ENDED JUNE 30, JUNE 30, 1997 ---------------------------- (UNAUDITED) 1998 1999 ------------- ------------- ------------- Net revenues........................................................ $ 574,802 $ 585,943 $ 704,656 Cost of products and services....................................... 486,276 480,651 567,247 ------------- ------------- ------------- Gross profit...................................................... 88,526 105,292 137,409 New product and technology development.............................. 8,372 11,292 10,996 Selling and administrative expenses................................. 66,687 70,402 88,945 ------------- ------------- ------------- Operating profit.................................................. 13,467 23,598 37,468 Interest expense.................................................... (21,937) (18,702) (16,098) Investment and other income (loss), net............................. (294) (304) 75 ------------- ------------- ------------- Income (loss) before income taxes and extraordinary item.......... (8,764) 4,592 21,445 Income tax benefit (provision)...................................... (635) (550) 19,500 ------------- ------------- ------------- Income (loss) before extraordinary item........................... (9,399) 4,042 40,945 Extraordinary loss on extinguishment of debt........................ -- (1,184) -- ------------- ------------- ------------- Net income (loss)................................................. $ (9,399) $ 2,858 $ 40,945 ------------- ------------- ------------- ------------- ------------- -------------
F-7 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated. FISCAL YEAR: Effective June 2, 1997, the Company changed its fiscal year end from December 31 to June 30. Accordingly, all general references to years relate to fiscal years, unless otherwise noted. RECLASSIFICATIONS: Certain amounts for the year ended December 31, 1996, the six months ended June 30, 1997 and the year ended June 30, 1998 in the accompanying consolidated financial statements have been reclassified to conform to the year ended June 30, 1999 presentation. Such reclassifications had no effect on previously reported net income (loss) or stockholders' equity. REVENUE RECOGNITION AND WARRANTY ACCRUALS: Revenue for products and services, reported net of dealer and other discounts, is recognized at the time of shipment, or when services have been performed. Through its dealers, the Company warrants its products under normal use and maintains warranty reserves pursuant to this policy. Major components, including engines, drive units and appliances, are warranted by their suppliers and not the Company. USE OF ESTIMATES: The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for such items as depreciable lives, uncollectible accounts, environmental and legal loss contingencies, the valuation of deferred income tax assets, self-insurance reserves and future warranty costs. As better information becomes available or actual amounts are determinable, the recorded estimates are revised. Consequently, operating results can be affected by revisions to prior accounting estimates. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 is effective for financial statements for fiscal years beginning after June 15, 2000. The Company anticipates implementing the reporting provisions required under SFAS No. 133 for the fiscal year beginning July 1, 2000. Management does not expect implementation of these reporting provisions to have a material impact on the Company's disclosures or results of operations. F-8 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS: Cash includes cash equivalents consisting principally of short-term investments in commercial paper with original maturities of three months or less and are recorded at cost, which approximates fair value. INVENTORIES: Inventories are stated at the lower of cost or market and include materials, labor and overhead costs. The Company uses the first-in, first-out cost method in determining cost for substantially all of its inventories. Inventories consist of the following (in thousands):
JUNE 30, JUNE 30, 1998 1999 --------- ---------- Raw materials.......................................................... $ 34,124 $ 38,813 Work in process........................................................ 42,315 59,460 Finished goods......................................................... 25,173 19,181 Reserves............................................................... (4,042) (3,523) --------- ---------- $ 97,570 $ 113,931 --------- ---------- --------- ----------
PRODUCTION TOOLING: The costs associated with the development of certain large-scale molds and processes are capitalized as operating equipment and amortized over three years using the straight-line method. The costs associated with mold maintenance and the development of all other molds and production tooling are charged to cost of products and services as incurred. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost. Depreciation and amortization for financial reporting purposes are generally provided on the straight-line method over the estimated useful lives. Useful lives of buildings are estimated at 32 to 40 years, while land improvements and building improvements are estimated at 10 to 15 years. Leasehold improvements are depreciated at the lesser of 10 years or the remaining lease term. Operating equipment has a useful life of 3 to 10 years with computer hardware and software at 3 years and certain machinery at 10 years. Major repairs and improvements are capitalized and depreciated. Maintenance, supplies and accessories are charged to expense as incurred. The cost and accumulated depreciation of property and equipment retired or otherwise disposed of are removed from the related accounts, with any residual balances charged or credited to earnings. OTHER ASSETS: Other assets, as of June 30, 1999 consist primarily of long-term deferred tax assets, deferred debt financing costs and the Company's investment in Pyramid Operating Systems, Inc. ("Pyramid"). GOODWILL: Goodwill is amortized on a straight-line basis over various periods not exceeding 40 years. The Company periodically evaluates whether events and circumstances have occurred that indicate the F-9 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. This evaluation utilizes an undiscounted future operating cash flows computation method and compares such anticipated future cash flows to the related carrying value of goodwill. Weighted average remaining amortization period is 26 years as of June 30, 1999. Accumulated amortization was $20.1 million and $21.8 million at June 30, 1998 and 1999, respectively. ACCRUED LIABILITIES: Accrued liabilities consist of the following (in thousands):
JUNE 30, JUNE 30, 1998 1999 --------- --------- Payroll and incentive related........................................... $ 13,313 $ 33,884 Sales incentives........................................................ 10,683 15,065 Insurance............................................................... 9,265 10,697 Warranty................................................................ 12,238 12,004 Interest................................................................ 3,013 2,015 Customer deposits....................................................... 11,108 9,783 Other................................................................... 6,497 6,426 --------- --------- $ 66,117 $ 89,874 --------- --------- --------- ---------
ENVIRONMENTAL MATTERS: Environmental expenditures which relate to the Company's boat manufacturing operations are charged to expense or capitalized in accordance with generally accepted accounting principles. Environmental matters that relate to conditions arising from previously divested businesses were generally recorded as liabilities prior to or at the time of divestiture and are periodically reassessed for adequacy based on current information. Liabilities relating to environmental matters are generally recorded when environmental assessments and/or remedial efforts are probable and the related costs can be reasonably estimated. Generally, the timing of these accruals coincides with the completion of a feasibility study or the Company's commitment to a formal plan of action. NET EARNINGS (LOSS) PER COMMON SHARE: Basic net earnings (loss) per common share is computed by dividing net earnings (loss) applicable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net earnings (loss) per common share is determined using the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares which might be issued upon exercise of common stock warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, since their inclusion would be anti-dilutive. COMPREHENSIVE INCOME(LOSS): Comprehensive income and its components is reported in the Consolidated Statements of Stockholders' Equity. Comprehensive income (loss) is defined as changes in the equity excluding F-10 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) changes resulting from investments by and distributions to the stockholders. The Company's only component of comprehensive loss is its cumulative translation adjustment for foreign currencies. 4. ACQUISITIONS PYRAMID OPERATING SYSTEMS, INC.: On June 18, 1999, the Company entered into an agreement to purchase the remaining shares of Pyramid for a net purchase price of $11.0 million, payable either in shares of the Company's common stock upon completion of a public offering of common stock, or on April 30, 2000 in the form of a subordinated note payable. Under this agreement, the Company has agreed to provide short-term financing to fund Pyramid's interim working capital requirements until the acquisition date. The Company has also entered into a management agreement with Pyramid under which the Company oversees the management of Pyramid until the closing of the transaction. LOGIC MARINE CORPORATION: On May 11, 1999, the Company acquired substantially all of the assets of Logic Marine Corporation ("Logic"), a manufacturer of fishing and recreational boats, for consideration consisting of $500,000 in cash at closing, a promissory note for $500,000 due in May 2000, $597,000 in assumed liabilities, and an earn-out of up to $450,000 over three years based on net sales revenues from sales of Logic boats. The acquisition was accounted for as a purchase and resulted in goodwill in the amount of $1.6 million, which represented the purchase price plus net liabilities acquired. Goodwill will be amortized over a 25-year period. Logic's results of operations since the date of acquisition are included in the accompanying consolidated financial statements. HORIZON MARINE, L.C.: On December 3, 1998, the Company acquired substantially all of the assets and certain liabilities of Horizon Marine, L.C. ("Nova"), a Kansas aluminum boat manufacturer, for consideration consisting of $2.3 million in cash at closing and the assumption of approximately $3.5 million in liabilities of which $2.7 million were paid at or immediately subsequent to closing. There is also a five-year earn-out of up to $5.2 million of which $200,000 were pre-paid at closing. The earn-out is based on gross revenues from sales of products produced at this facility and can be adjusted for the achievement of certain gross profit percentages and for the value of warranty claims, from sales of products produced at this facility. The acquisition was accounted for as a purchase and resulted in goodwill in the amount of $700,000, which represented the purchase price in excess of net assets acquired. Goodwill will be amortized over a 25-year period. Nova's results of operations since the date of acquisition are included in the accompanying consolidated financial statements. F-11 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. DEBT At the year end dates indicated below, long-term debt, net of related discounts, consisted of the following (in thousands):
INTEREST RATE, AS OF JUNE 30, JUNE 30, JUNE 30, 1999 1998 1999 ----------------- ---------- ---------- Revolving credit facility, variable rate............................... n/a $ -- $ -- Senior term loan, variable rate........................................ n/a 12,000 -- Subordinated term loan, variable rate.................................. 7.3% 60,000 60,000 Senior subordinated notes, fixed rate.................................. 13.5% 25,584 25,584 Stockholder notes, net of unamortized discount of $3.7 million as of June 30, 1999, variable rate......................................... 8.8% to 9.3% 4,104 25,406 Note payable to State of Wisconsin Investment Board, net of unamortized discount of $5.1 million as of June 30, 1998, variable rate.......... n/a 19,917 -- Other debt obligations, due in varying installments through 2005, fixed rate................................................................. 3.4% to 12.4% 2,199 6,161 ---------- ---------- Total debt......................................................... 123,804 117,151 Less-current maturities................................................ (6,026) (1,022) ---------- ---------- Total long-term debt............................................... $ 117,778 $ 116,129 ---------- ---------- ---------- ----------
Aggregate maturities of long-term debt are approximately $4.1 million in the year ending June 30, 2001, $25.6 million in the year ending June 30, 2002, $81.4 million in the year ending June 30, 2003, none in the year ending June 30, 2004 and $5.0 million thereafter. At June 30, 1999, the carrying value of long-term debt was approximately $5.8 million less than its fair value. In July 1994, the Company issued $100.0 million aggregate principal amount of 13.5% Senior Subordinated Notes due 2001 (the "13.5% Notes"). F-12 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. DEBT (CONTINUED) During fiscal year 1999, the Company's old credit facility (the "Old Credit Facility"), which would have expired in June 2000, consisted of a $35.0 million revolving credit facility, a $15.0 million term loan facility and a $23.0 million letter of credit facility. At June 30, 1999, the Old Credit Facility, as amended, consisted of a $35.0 million revolving credit facility and a $23.0 million letter of credit facility. Weighted average borrowings outstanding under the revolving credit facility during 1999 were $14.5 million. Aggregate borrowings and outstanding letters of credit under the Old Credit Facility were limited to eligible receivables and eligible inventories, as defined. Borrowings under the revolving credit facility were intended for general corporate and working capital purposes. At June 30, 1999, the Company had $35.0 million of availability under the revolving credit facility, $3.6 million of availability under letter of credit facility and had prepaid the term loan facility in its entirety. In addition, as of June 30, 1999, the Company was in compliance with all covenants under the Old Credit Facility, except the capital expenditure requirement. Such non-compliance was effectively waived upon the arrangement of the Company's new credit facility. Effective July 30, 1999, the Company arranged a new credit facility (the "New Credit Facility"), which expires in June 2002, consisting of a $29.0 million revolving credit facility, a $45.0 million term loan facility and a $21.0 million letter of credit facility. Aggregate borrowings and outstanding letters of credit under the new Credit Facility are limited to eligible receivables, eligible inventories and eligible property, plant and equipment, as defined. Borrowings under the revolving credit facility are intended for general corporate and working capital purposes and for the purchase of approximately $5.6 million aggregate principal amount of the Notes. Borrowings under the term loan facility are designated solely for the purchase of a stockholder note in the amount of $25.0 million, which was repaid on August 13, 1999, and for the purchase of approximately $20.0 million aggregate principal amount of the 13.5% Notes, which were repurchased on September 7, 1999. At the time of original issuance the stockholder note was deemed to have a below-market interest rate, and a debt discount was recorded to impute a market yield to maturity. The repayment of the stockholder note and the remaining 13.5% Notes resulted in an extraordinary loss of $5.7 million, including $3.7 million of unaccreted discount associated with the stockholder note. The New Credit Facility contains restrictive covenants which, among other things, limit the ability of the Company to incur other indebtedness, engage in transactions with affiliates, incur liens, make certain restricted payments, and enter into certain business combination and asset sale transactions. The New Credit Facility also requires the Company to satisfy certain financial tests and ratios and restricts capital expenditures. In addition, the New Credit Facility contains provisions which may require accelerated repayment of amounts outstanding thereunder and/or limit the Company's access to borrowings thereunder upon the incurrence of specific obligations or significant changes in the financial condition, business, properties, prospects or operations of the Company. On January 21, 1997, the Company paid $800,000 for an option agreement (the "Option"), with an affiliate of RDV Holdings, Inc., a stockholder of the Company, pursuant to which the Company was granted an option to purchase up to $25.0 million aggregate principal amount of the 13.5% Notes at par. The Option was exercisable at any time or from time to time, in whole or in part, through January 19, 1998. On July 1, 1997, the Company entered into an agreement (the "Tender Agreement"), with an unrelated third party, pursuant to which the third party agreed to tender certain of the 13.5% Notes held by such party, with an aggregate face value of $32.0 million, for purchase by the Company at a F-13 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. DEBT (CONTINUED) price equal to 99.0% of par. In consideration of entering into the Tender Agreement, the Company paid the third party a fee of $960,000 (3% of par). As a condition to the Tender Agreement, the holder also agreed to consent to certain proposed amendments to the indenture governing the 13.5% Notes ("Indenture"). On July 10, 1997, the Company commenced an offer to purchase and a consent solicitation (the "Tender Offer and Consent"), for to up to $75.0 million aggregate principal amount of the 13.5% Notes, including those subject to the Tender Agreement, but excluding those subject to the Option. Terms of the Tender Offer and Consent provided for the purchase of all validly tendered 13.5% Notes, as defined and subject to certain conditions, at a price equal to 99.0% of par. In addition, holders submitting valid tenders of 13.5% Notes would have, as a condition to tendering, provided their consent with respect to certain proposed amendments to the Indenture, for which consent the holder would receive a fee equal to 3.0% of par (the "Consent Fee") of the 13.5% Notes tendered by such holder. On October 20, 1997, the Company arranged a $60.0 million subordinated bank credit facility (the "Subordinated Facility"), expiring in October 2002, consisting of a $60.0 million term loan facility. These proceeds were designated solely for the purchase of up to $60.0 million aggregate principal amount of the 13.5% Notes. Borrowings under the Subordinated Facility are collateralized by a second security interest in the Company's assets and by letters of credit issued by certain stockholders of the Company. On October 20, 1997, the Company accepted for purchase $49.4 million aggregate principal amount of the 13.5% Notes tendered by holders in connection with the Tender Offer and Consent. In addition, the Company exercised the Option and purchased an additional $25.0 million aggregate principal amount of the 13.5% Notes. The purchase of the 13.5% Notes and the payment of the related Consent Fee was funded through proceeds from the Credit Facility and the Subordinated Facility. In connection with the purchase of these 13.5% Notes, the Company incurred an extraordinary loss on early extinguishment of debt of approximately $1.2 million. Pursuant to the First Amended and Restated Note and Stock Purchase Agreement, dated August 31, 1998, by and between Irwin L. Jacobs and the State of Wisconsin Investment Board (SWIB), SWIB purchased a $25.0 million demand promissory note payable by the Company to Mr. Jacobs. On June 17, 1999, Mr. Jacobs repurchased that note from SWIB. The Company used a portion of the proceeds of its new credit facility to repay this note in full in August 1999. In consideration of providing letters of credit to collateralize the Company's Subordinated Facility, the Company issued warrants to certain existing stockholders providing such letters of credit. A total of 731,182 warrants were issued in connection therewith. The fair value of the warrants issued approximated $1.7 million and has been reflected as debt issuance costs and an addition to equity in the accompanying June 30, 1998 balance sheet. This debt issuance cost is being amortized over a period extending through October 2002. In addition, the Company reimburses the stockholders for their costs incurred in maintaining these letters of credit. F-14 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES The Company utilizes the liability method to account for income taxes. The liability method requires that deferred assets and liabilities be recognized for the expected future tax effects of the temporary differences between the tax and book bases of the assets and liabilities. Components of the provision for income taxes were as follows for the year ended December 31, 1996, the six months ended June 30, 1997 and the years ended June 30, 1998 and 1999 (in thousands):
FOR THE FOR THE YEAR ENDED FOR THE YEAR SIX MONTHS JUNE 30, ENDED ENDED ------------------------------ DECEMBER 31, 1996 JUNE 30, 1997 1998 1999 ------------------- --------------- --------------- ------------- Current: Federal....................... $ -- $ -- $ 60 $ 470 State and foreign............. 860 246 490 2,030 ----- ----- ----- ------------- Total current............... 860 246 550 2,500 Change in valuation allowance................... -- -- -- (22,000) ----- ----- ----- ------------- Total......................... $ 860 $ 246 $ 550 $ (19,500) ----- ----- ----- ------------- ----- ----- ----- -------------
At June 30, 1999, the Company had total net operating loss carryforwards of approximately $146.0 million. Net operating losses of $58.0 million, $53.0 million, $23.0 million and $12.0 million expire in the years ended June 30, 2006, June 30, 2007, June 30, 2008 and June 30, 2012, respectively. Realization of $16.0 million of certain net operating loss carryforwards is limited annually under Section 382 of the Internal Revenue Code, as amended. The Company also had unused alternative minimum tax credits of approximately $5.0 million that may be available to offset future federal income tax liabilities. Temporary differences and carryforwards which give rise to deferred tax assets and liabilities consist of the following as of June 30, 1998 and 1999 (in thousands):
JUNE 30, JUNE 30, 1998 1999 ---------- ---------- Loss carryforwards.................................................... $ 62,545 $ 56,090 Liabilities retained related to previously divested businesses........ 3,202 2,194 Warranty reserves..................................................... 4,670 4,709 Insurance reserves.................................................... 4,091 4,027 Accrued rebates....................................................... 2,902 3,995 Inventory reserves.................................................... 1,294 2,207 Other................................................................. 10,007 9,343 ---------- ---------- Total deferred tax assets........................................... 88,711 82,565 Valuation allowance................................................... (86,725) (58,523) ---------- ---------- Deferred tax liability--depreciation.................................. (1,986) (2,042) ---------- ---------- Net deferred tax assets............................................... 1,986 24,042 Net deferred taxes.................................................. $ -- $ 22,000 ---------- ---------- ---------- ----------
F-15 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES (CONTINUED) Prior to 1999 the Company had determined that the realization of the loss carryforwards and net deferred tax assets did not meet the recognition criteria under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") and, accordingly, valuation allowances had been established for the entire tax benefit of these loss carryforwards and the net deferred tax assets. During 1999, the Company determined it more likely than not that a portion of the deferred tax assets would be realizable because the Company had two consecutive years of profits and future projected profits. As a result, in accordance with SFAS 109, the Company recorded a reduction in the valuation allowance of $22.0 million. The differences between income taxes computed using the federal statutory rate and the effective tax rate were as follows for the year ended December 31, 1996, the six months ended June 30, 1997 and the years ended June 30, 1998 and 1999:
FOR THE SIX FOR THE YEAR MONTHS FOR THE YEAR ENDED ENDED ENDED JUNE 30, DECEMBER 31, JUNE 30, --------------------------- 1996 1997 1998 1999 ------------- ----------- ----------- ----------- Federal statutory rate............. 34% 34% 34% 35% State income taxes, net of federal tax benefits..................... (76) 3 3 5 Nondeductible amortization & other............................ 0 0 22 5 Current utilization of NOL's....... (34) (34) (43) (31) Change in valuation allowance...... 0 0 0 (105) --- --- --- --- Effective tax rate................. (76)% 3% 16% (91)% --- --- --- --- --- --- --- ---
7. EMPLOYEE BENEFIT PLANS The Company and certain of its subsidiaries maintain defined contribution retirement plans covering substantially all full-time employees. Under certain of these plans, eligible participants may make voluntary contributions up to 25% of their compensation, as permitted by plan provisions. The plans provide for the Company to make matching and other contributions to eligible participants at the Company's discretion. The Company made contributions to these plans aggregating $1.1 million for the year ended December 31, 1996, $400,000 for the six months ended June 30, 1997, $1.2 million for the year ended June 30, 1998 and $1.4 million for the year ended June 30, 1999. 8. COMMITMENTS AND CONTINGENCIES DEALER INVENTORY FLOOR PLAN FINANCING: The Company and its subsidiaries are parties to certain dealer inventory floor plan financing arrangements with various financial institutions pursuant to which the Company may be required, in the event of default by a financed dealer, to repurchase products previously sold to such dealer. The Company repurchased $3.2 million of such dealer inventory in the year ended December 31, 1996, $1.4 million in the six months ended June 30, 1997, $4.5 million in the year ended June 30, 1998 and $3.4 million in the year ended June 30, 1999. As of June 30, 1999, the Company and certain F-16 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) subsidiaries were contingently liable under these agreements for repurchase in the amount of $13.8 million. The Company generally has not provided reserves, other than immaterial reserves at certain subsidiaries, for losses and costs which may result should the Company be required to repurchase product from a defaulting dealer. Although the ultimate loss which may be incurred as a result of such contractual obligation is uncertain, the Company believes that any such losses that may be incurred would not have a material effect on its consolidated operating results or financial position. INSURANCE MATTERS: The Company and its subsidiaries have insurance for workers' compensation, employee health, general and auto liability losses in excess of predetermined loss limits. A provision has been made in the consolidated financial statements for estimated losses resulting from claims incurred prior to the balance sheet date, which were below the amounts of the predetermined loss limits. LEASES AND COMMITMENTS: The Company, through its subsidiaries, leases certain facilities and equipment under operating lease arrangements which expire at various dates through 2004. These leases generally contain renewal options and require the Company to pay the maintenance, insurance, taxes and other expenses in addition to the minimum annual rentals. Rent expense related to operating leases was $2.2 million for the year ended December 31, 1996, $1.0 million for the six months ended June 30, 1997, $2.5 million for the year ended June 30, 1998 and $3.1 million for the year ended June 30, 1999. The Company has future lease commitments of approximately $3.6 million in 2000, $2.6 million in 2001, $1.6 million in 2002 and $600,000 thereafter. LEGAL AND ENVIRONMENTAL: The Company and its subsidiaries are defendants in legal proceedings arising in the ordinary course of business. Although the outcome of these matters cannot be determined, in the opinion of management and outside counsel, disposition of these proceedings will not have a material effect on the Company's consolidated financial position or results of operations. Historically, the Company's facilities have used underground storage tanks for storing certain materials associated with its operations, including petroleum, acetone and resins. The Company has removed or closed in place all underground storage tanks according to applicable laws. No material issues related to soil or groundwater contamination were encountered. CURRENT AND DIVESTED BUSINESSES: The Company believes it is in substantial compliance with all existing environmental laws and regulations. In 1995, The Company signed a final consent order with the Florida Department of Environmental Protection to settle all outstanding issues with respect to an acetone release at our Wellcraft plant in Sarasota, Florida. The remaining estimated cost of remediation activities required at this site ranges from $1.7 million to $2.0 million. Based on available information, reserves as of June 30, 1999 are adequate to cover these costs. F-17 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS AND CONTINGENCIES (CONTINUED) In addition, the past practices of some of the Company's current and divested operations may have created conditions that give rise to liability under CERCLA and comparable state laws. With respect to these potential liabilities, the Company has been identified as a potentially responsible party at approximately 12 active sites. In certain instances, the Company has a duty to indemnify the current owners for environmental matters related to divested operations including AMF Incorporated. Excluding the matters with Wellcraft discussed above, the Company currently anticipates total environmental-related costs associated with current and divested operations at approximately $2.3 million, which include CERCLA-type liabilities. These costs are likely to be incurred over a period of up to ten years. Payments relating to environmental matters in connection with current and divested businesses were approximately $2.7 million for the year ended December 31, 1996, $500,000 for the six months ended June 30, 1997, $1.0 million for the year ended June 30, 1998 and $900,000 for the year ended June 30, 1999. The balance of the reduction in our legal and environmental reserve balance between years was attributable to a reduction of $1.3 million in our estimated requirement on a particular EPA matter, due to a change in facts surrounding the case, and to adjustments between our current and non-current classification of amounts accrued for all such cases. As of June 30, 1999, based on available information, reserves to account for any potential exposure with respect to current and divested operations are adequate to cover any potential costs. Nevertheless, the nature and extent of CERCLA proceedings is that cleanup estimates, the allocated financial responsibilities of potentially responsible parties and the degree of regulatory scrutiny may change over time and therefore the Company is not certain that these estimates will ultimately reflect its actual exposure. Other non-current liabilities consist of the following (in thousands):
JUNE 30, JUNE 30, 1998 1999 --------- --------- Post-retirement benefits................................................ $ 1,525 $ 1,440 Insurance............................................................... 3,286 2,042 Legal and environmental................................................. 5,230 2,554 Other................................................................... 5,675 6,875 --------- --------- Total other noncurrent liabilities.................................... $ 15,716 $ 12,911 --------- --------- --------- ---------
LETTERS OF CREDIT: At June 30, 1999, the Company had outstanding letters of credit aggregating $19.4 million for which approximately $13.7 million collateralized various Company insurance programs. The remainder principally related to an industrial development revenue bond financing arrangement and to liabilities retained by the Company in connection with divested operations. 9. SEGMENT REPORTING The Company conducts and reports its business in two segments, the recreational boat segment and the luxury yachts segment, which consists solely of the Hatteras Yachts division. The segments are managed and reported separately because the recreational boats are manufactured in a high-volume assembly line environment whereas Hatteras is a custom yacht builder, similar to a construction company environment. The Company measures the success of segments by monitoring operating profit. F-18 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. SEGMENT REPORTING (CONTINUED) The Company does not allocate nonoperating gains and losses, interest expense and taxes to the segments. Both segments follow accounting policies described in Note 3, and no transactions occur between the segments. The following table illustrates information about the Company's reported operating profit or loss and segment assets. The Company does not allocate income taxes or unusual items to segments. Segment information as of and for the year ended December 31, 1996, the six months ended June 30, 1997 and the years ended June 30, 1998 and 1999 consisted of the following (in thousands):
RECREATIONAL RECREATIONAL BOATS LUXURY YACHTS TOTALS BOATS LUXURY YACHTS TOTALS ----------- ------------- --------- ----------- ------------- --------- YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30, 1997 ------------------------------------- ------------------------------------- Net revenues.............................. $ 521,199 $ 96,857 $ 618,056 $ 235,819 $ 25,029 $ 260,848 Depreciation and goodwill amortization.... 6,747 1,347 8,094 3,360 703 4,063 Operating profit (loss)................... 19,573 3,630 23,203 9,147 (7,647) 1,500 Other significant noncash items........... 3,524 -- 3,524 3,272 -- 3,272 Segment assets............................ 223,645 47,558 271,203 203,584 54,695 258,279 Expenditures for segment assets........... 3,730 1,781 5,511 3,781 1,307 5,088
YEAR ENDED JUNE 30, 1998 YEAR ENDED JUNE 30, 1999 ------------------------------------- ------------------------------------- Net revenues.............................. $ 505,910 $ 80,033 $ 585,943 $ 614,406 $ 90,250 $ 704,656 Depreciation and goodwill amortization.... 7,138 1,636 8,774 7,221 1,730 8,951 Operating profit (loss)................... 27,601 (4,003) 23,598 35,948 1,520 37,468 Other significant noncash items........... -- -- -- 2,614 -- 2,614 Segment assets............................ 192,346 52,276 244,622 265,379 55,384 320,763 Expenditures for segment assets........... 6,773 1,345 8,118 11,270 1,588 12,858
The following table reconciles operating profit to net income for the year ended December 31, 1996, the six months ended June 30, 1997 and the years ended June 30, 1998 and 1999 (in thousands):
DECEMBER 31, JUNE 30, JUNE 30, JUNE 30, 1996 1997 1998 1999 ------------ ---------- ---------- ---------- Total operating profit for reportable segments................................. $ 23,203 $ 1,500 $ 23,598 $ 37,468 Interest expense........................... (22,190) (11,026) (18,702) (16,098) Other income (loss)........................ 122 (176) (304) 75 Income tax benefit (provision)............. (860) (246) (505) 19,500 Extraordinary loss on extinguishment of debt..................................... -- -- (1,134) -- ------------ ---------- ---------- ---------- Net income (loss).......................... $ 275 $ (9,948) $ 2,853 $ 40,495 ------------ ---------- ---------- ---------- ------------ ---------- ---------- ----------
F-19 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. RELATED-PARTY TRANSACTIONS In addition to the matters discussed in Note 5, the Company pays a management fee to Jacobs Management Corporation ("JMC"), a stockholder of the Company and an affiliate of Irwin L. Jacobs, for certain consulting and management services and subleases certain office facilities to JMC. Net payments under these arrangements aggregated approximately $1.5 million for the year ended December 31, 1996, $700,000 for the six months ended June 30, 1997, $1.4 million for the year ended June 30, 1998 and $1.3 million for the year ended June 30, 1999. The Company pays interest in connection with two stockholder notes payable to Irwin L. Jacobs. These notes bear interest at the published prime rate, plus 1.0% and plus 1.5%, respectively. Payments of interest under these note agreements aggregated approximately $400,000 for the year ended December 31, 1996, $200,000 for the six months ended June 30, 1997, $400,000 for each of the years ended June 30, 1998 and 1999. From time to time the Company has recorded revenues from boat sales to affiliates. Management believes the terms of such sales were consistent with terms of sales to non-affiliated parties. Revenues recorded in connection with such sales aggregated approximately $1.3 million for the year ended December 31, 1996, none for the six months ended June 30, 1997, $700,000 for the year ended June 30, 1998, and $500,000 for the year ended June 30, 1999. The Company sponsors certain professional bass fishing tournament activities of Operation Bass, Inc., an affiliate of Irwin L. Jacobs and certain executive management of the Company. Net sponsorship costs incurred by the Company, including cash paid or accrued and product provided, related to these activities approximated $116,000 for the year ended December 31, 1996, $58,000 for the six months ended June 30, 1997, $116,000 for the year ended June 30, 1998 and $432,000 for the year ended June 30, 1999. 11. SUBSEQUENT EVENTS (UNAUDITED) The Company has filed an initial registration statement with the SEC to offer shares of its common stock to the public. In connection with this offering, the Company has committed to: (1) splitting the Company's common stock, (2) spinning off Hatteras, the Company's luxury yacht segment through stockholders exchanging one out of every ten of their Genmar shares for one Hatteras share, (3) acquiring Pyramid, (4) issuing shares of common stock in exchange for outstanding warrants, (5) issuing shares of common stock to nonmanagement employees, and (6) recording expense under the Company's phantom stock plan. F-20 GENMAR HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. SUPPLEMENTAL STATEMENTS OF OPERATIONS INFORMATION (UNAUDITED) (IN THOUSANDS)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER TOTAL ---------- ---------- ---------- ---------- ---------- YEAR ENDED DECEMBER 31, 1996 ---------------------------------------------------------- Net revenues......................................... $ 150,492 $ 153,610 $ 145,562 $ 168,392 $ 618,056 Gross profit......................................... 22,419 23,848 21,386 28,740 96,393 Operating profit..................................... 3,711 7,525 3,256 8,711 23,203 Net income (loss).................................... (1,966) 1,692 (2,252) 2,801 275 SIX MONTHS ENDED JUNE 30, 1997 ---------------------------------------------------------- Net revenues......................................... $ 120,023 $ 140,825 n/a n/a $ 260,848 Gross profit......................................... 16,557 21,843 n/a n/a 38,400 Operating profit (loss).............................. (2,799) 4,299 n/a n/a 1,500 Net loss............................................. (9,220) (728) n/a n/a (9,948) YEAR ENDED JUNE 30, 1998 ---------------------------------------------------------- Net revenues......................................... $ 132,739 $ 140,389 $ 145,986 $ 166,829 $ 585,943 Gross profit......................................... 20,257 21,830 27,616 35,589 105,292 Operating profit..................................... 3,060 2,830 5,277 12,431 23,598 Extraordinary loss................................... -- (1,184) -- -- (1,184) Net income (loss).................................... (2,593) (3,270) 796 7,925 2,858 YEAR ENDED JUNE 30, 1999 ---------------------------------------------------------- Net revenues......................................... $ 142,754 $ 169,822 $ 181,838 $ 210,242 $ 704,656 Gross profit......................................... 23,291 29,577 35,997 48,544 137,409 Operating profit..................................... 1,644 9,925 10,942 14,957 37,468 Net income (loss).................................... (2,607) 4,911 6,031 32,610 40,945
F-21 GENMAR HOLDINGS, INC. AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
CHARGE FOR BALANCE PROVISION PURPOSE THAT BALANCE BEGINNING OF CHARGED TO RESERVE WAS END OF YEAR OPERATIONS ESTABLISHED YEAR ------------- ----------- ------------ ------------- Reserve for doubtful accounts For the year ended December 31, 1996....................... $ 3,488 $ 2,297 $ (1,677) $ 4,108 ------ ----------- ------------ ------ ------ ----------- ------------ ------ For the six months ended June 30, 1997..................... $ 4,108 $ 166 $ (25) $ 4,249 ------ ----------- ------------ ------ ------ ----------- ------------ ------ For the year ended June 30, 1998........................... $ 4,249 $ 2,489 $ (5,278) $ 1,460 ------ ----------- ------------ ------ ------ ----------- ------------ ------ For the year ended June 30, 1999........................... $ 1,460 $ 1,180 $ (993) $ 1,647 ------ ----------- ------------ ------ ------ ----------- ------------ ------
F-22 [INSIDE BACK COVER] [PICTURE OF RANGER BOAT BEING USED IN WAL*MART TOURNAMENT] Ranger is the exclusive boat manufacturer sponsor of the Wal*Mart FLW Tournaments, which are broadcast on ESPN and ESPN2. Also, Fox Television Network will broadcast the $3.5 million payout Ranger Millennium Tournament (MI)-SM- event in November 1999. The 1999 Wal*Mart FLW Tour Angler of the Year, David [PICTURE OF Walker, was featured on the WHEATIES BOX] Wheaties box. David is a Ranger Boat Company pro-angler. Unique sponsorship boats are being manufactured for industry and non-industry consumer product companies to also enhance the sponsor's marketing efforts. [PICTURE OF LUND BOAT SPONSORED BY MERCURY] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 6,500,000 SHARES [LOGO] COMMON STOCK ------------ PROSPECTUS ------------------ STEPHENS INC. U.S. BANCORP PIPER JAFFRAY OCTOBER , 1999 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than the underwriting discount, payable by the Registrant in connection with the sale of the common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fees and the Nasdaq National Market listing fee.
AMOUNT TO BE PAID ------------ SEC registration fee............................................................ $ 27,800 NASD filing fee................................................................. 10,500 Nasdaq National Market listing fee.............................................. 95,000 Legal fees and expenses......................................................... 700,000 Accounting fees and expenses.................................................... 250,000 Printing and engraving.......................................................... 250,000 Transfer agent fees............................................................. 10,500 Miscellaneous................................................................... 196,200 ------------ Total..................................................................... $ 1,540,000 ------------ ------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Our amended and restated certificate of incorporation in effect as of the date hereof provides that, except to the extent prohibited by the Delaware General Corporation Law, as amended, our directors shall not be personally liable to our company or our stockholders for monetary damages for any breach of fiduciary duty. Under the DGCL, the directors have a fiduciary duty to our company which is not eliminated by this provision of the Certificate and, in appropriate circumstances, equitable remedies such as injunctive or other forms of nonmonetary relief will remain available. In addition, each director will continue to be subject to liability under the DGCL for breach of the director's duty of loyalty to our company for acts or omissions which are found by a court of competent jurisdiction to be not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are prohibited by the DGCL. This provision also does not affect the directors' responsibilities under any other laws, such as the Federal securities laws or state or Federal environmental laws. We have applied for liability insurance for its officers and directors. Section 145 of the DGCL empowers a corporation to indemnify its directors and officers and to purchase insurance with respect to liability arising out of their capacity or status as directors and officers, provided that this provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) arising under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. The DGCL provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of stockholders or otherwise. The amended and restated certificate eliminates the personal liability of directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and provides that we may fully indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was a director or officer, or is or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against II-1 expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under the amended and restated certificate. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Simultaneously with the consummation of this offering, we will issue 916,667 shares of our common stock in exchange for all the remaining outstanding common stock of Pyramid Operating Systems, Inc. pursuant to Section 4(2) of the Securities Act of 1933. In October 1997, in connection with our subordinated term loan credit facility, we issued warrants to purchase 6,580,638 shares of our common stock. Simultaneously with the completion of this offering, we will exchange .85 of a share of our common stock for each share issuable under these warrants, or 5,593,500 shares in the aggregate for all outstanding warrants, pursuant to Section 4(2) of the Securities Act of 1933. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
NUMBER DESCRIPTION - ---------- ------------------------------------------------------------------------------------------------------ *1.1 Form of Underwriting Agreement. *3.1 Amended and Restated Certificate of Incorporation. *3.2 Amended and Restated Bylaws. *4.1 Specimen Common Stock Certificate. ***5.1 Opinion of Weil, Gotshal & Manges LLP. **10.1 Agreement of Purchase and Sale of Assets by and among Horizon Marine, LC, Genmar Manufacturing of Kansas, L.L.C. and the Sole Member of Horizon Marine, LC, dated December 3, 1998. **10.2 Agreement of Purchase and Sale of Assets by and among Logic Marine Corporation, Genmar Logic LLC and the parents and stockholders of Logic Marine Corporation, dated as of May 11, 1998. **10.3 Agreement and Plan of Reorganization by and among Genmar Holdings, Inc., POS Acquisition Corporation, Pyramid Operating Systems, Inc. and the Stockholders of Pyramid Operating Systems, Inc., dated as of June 18, 1999. **10.4 Third Amended and Restated Credit Agreement among Genmar Holdings, Inc., the financial institutions named therein, The Bank of New York, as Agent and BNY Capital Markets, Inc., dated as of July 30, 1999. **10.5 Subordinated Term Loan Credit Agreement among Genmar Holdings, Inc., the financial institutions named therein, The Bank of New York, as Agent, and BNY Capital Markets, Inc. dated as of October 20, 1997. *10.6 Genmar Holdings, Inc. Fiscal 1999 Stock Incentive Plan. *10.7 Genmar Holdings, Inc. 1999 Stock Option Plan for Non-Employee Directors. *10.8 Management Services Agreement by and between Genmar Holdings, Inc. and Jacobs Management Corporation, dated April 1, 1995. *10.9 Amendment No. 1 to Management Services Agreement by and between Jacobs Management Corporation and Genmar Holdings, Inc. dated as of August 3, 1999. *10.10 Retention Bonus Agreement, dated as of October 31, 1998, by and between Jacobs Management Corporation and Grant E. Oppegaard.
II-2
NUMBER DESCRIPTION - ---------- ------------------------------------------------------------------------------------------------------ *10.11 Retention Bonus Agreement, dated as of October 31, 1998, by and between Jacobs Management Corporation and Roger R. Cloutier II. *10.12 Capital Contribution Agreement, dated , 1999, by and between Genmar Industries, Inc. and Hatteras Yachts, Inc. *10.13 Exchange and Distribution Agreement, dated , 1999, by and among Genmar Holdings, Inc., Minstar, Inc., Genmar Industries, Inc. and Hatteras Yachts, Inc. *10.14 Form of Grant for Senior Executive Officers. *21.1 Subsidiaries of the Registrant. *23.1 Consent of Arthur Andersen LLP. ***23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1). **24.1 Powers of Attorney (included on signature page to the Registration Statement). *27.1 Financial Data Schedule.
- ------------------------ * Filed herewith. ** Previously filed. *** To be supplied by amendment. (b) Financial Statement Schedules. 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 in Item 14, 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 in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person of the registrant in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (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 this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to rule 424(b)(1) or (4), or 497(h) under the Act, shall be deemed to be part of this 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 this offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in Minneapolis, Minnesota, on this 28th day of September 1999. GENMAR HOLDINGS, INC. By: /s/ ROGER R. CLOUTIER, II ----------------------------------------- Name: Roger R. Cloutier, II Title:Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated:
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- * - ------------------------------ Chairman of the Board of September 28, 1999 Irwin L. Jacobs Directors President, Chief Executive * Officer and Director - ------------------------------ (principal executive September 28, 1999 Grant E. Oppegaard officer) Executive Vice President, /s/ ROGER R. CLOUTIER II Chief Financial Officer - ------------------------------ and Director (principal September 28, 1999 Roger R. Cloutier II financial officer) * Vice President and - ------------------------------ Controller (principal September 28, 1999 Mark W. Peters accounting officer) * - ------------------------------ Director September 28, 1999 Bjorn Ahlstrom * - ------------------------------ Director September 28, 1999 Daniel G. DeVos * - ------------------------------ Director September 28, 1999 Daniel T. Lindsay
S-1
SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- * - ------------------------------ Director September 28, 1999 William W. Nicholson * - ------------------------------ Director September 28, 1999 Carl R. Pohlad * - ------------------------------ Director September 28, 1999 James O. Pohlad * - ------------------------------ Director September 28, 1999 Jerry L. Tubergen *By: /s/ ROGER R. CLOUTIER II - ------------------------------ Name: Roger R. Cloutier II Title: Attorney-in-fact
S-2 INDEX TO EXHIBITS
NUMBER DESCRIPTION - ---------- ------------------------------------------------------------------------------------------------------ *1.1 Form of Underwriting Agreement. *3.1 Amended and Restated Certificate of Incorporation. *3.2 Amended and Restated Bylaws *4.1 Specimen Common Stock Certificate. ***5.1 Opinion of Weil, Gotshal & Manges LLP. **10.1 Agreement of Purchase and Sale of Assets by and among Horizon Marine, LC, Genmar Manufacturing of Kansas, L.L.C. and the Sole Member of Horizon Marine, LC, dated December 3, 1998. **10.2 Agreement of Purchase and Sale of Assets by and among Logic Marine Corporation, Genmar Logic LLC and the parents and stockholders of Logic Marine Corporation, dated as of May 11, 1998. **10.3 Agreement and Plan of Reorganization by and among Genmar Holdings, Inc., POS Acquisition Corporation, Pyramid Operating Systems, Inc. and the Stockholders of Pyramid Operating Systems, Inc., dated as of June 18, 1999. **10.4 Third Amended and Restated Credit Agreement among Genmar Holdings, Inc., the financial institutions named therein, The Bank of New York, as Agent and BNY Capital Markets, Inc., dated as of July 30, 1999. **10.5 Subordinated Term Loan Credit Agreement among Genmar Holdings, Inc., the financial institutions named therein, The Bank of New York, as Agent, and BNY Capital Markets, Inc. dated as of October 20, 1997. *10.6 Genmar Holdings, Inc. Fiscal 1999 Stock Incentive Plan *10.7 Genmar Holdings, Inc. 1999 Stock Option Plan for Non-Employee Directors *10.8 Management Services Agreement by and between Genmar Holdings, Inc. and Jacobs Management Corporation, dated April 1, 1995 *10.9 Amendment No. 1 to Management Services Agreement by and between Jacobs Management Corporation and Genmar Holdings, Inc., dated as of August 3, 1999. *10.10 Retention Bonus Agreement, dated as of October 31, 1998, by and between Jacobs Management Corporation and Grant E. Oppegaard. *10.11 Retention Bonus Agreement, dated as of October 31, 1998, by and between Jacobs Management Corporation and Roger R. Cloutier II. *10.12 Capital Contribution Agreement, dated , 1999, by and between Genmar Industries, Inc. and Halteras Yachts, Inc. *10.13 Exchange and Distribution Agreement, dated , 1999, by and among Genmar Holdings, Inc., Minstar, Inc., Genmar Industries, Inc. and Halteras Yachts, Inc. *10.14 Form of Grant for Senior Executive Officers. *21.1 Subsidiaries of the Registrant. *23.1 Consent of Arthur Andersen LLP. ***23.2 Consent of Weil, Gotshal & Manges LLP (included in Exhibit 5.1). **24.1 Powers of Attorney (included on signature page to the Registration Statement). *27.1 Financial Data Schedule.
- ------------------------ * Filed herewith. ** Previously filed. *** To be supplied by amendment. S-3 EX-1.1 2 EXHIBIT 1.1 GENMAR HOLDINGS, INC. DRAFT 9-24-99 6,500,000 Shares Common Stock UNDERWRITING AGREEMENT ---------------------- __________, 1999 Stephens Inc. U.S. Bancorp Piper Jaffray Inc. As Representatives of the several Underwriters named in Schedule I hereto. 111 Center Street Little Rock, Arkansas 72201 Ladies and Gentlemen: Genmar Holdings, Inc., a Delaware corporation (the "Company"), confirms its agreement with the several underwriters (the "Underwriters") for whom you are acting as representatives (the "Representatives") to issue and sell 6,500,000 newly issued shares (the "Underwritten Shares") of the Company's common stock, par value $0.01 per share (the "Common Stock"), to the Underwriters. The Company's Common Stock is more fully described in the Registration Statement and the Prospectus hereinafter mentioned. For the sole purpose of covering over-allotments in connection with the sale of the Underwritten Shares, the Company proposes to grant to the Underwriters the option (the "Option") described in Section 2 hereof to purchase all or any part of an aggregate of 975,000 additional shares of Common Stock (the "Option Shares"). The Underwritten Shares and the Option Shares purchased pursuant to this Underwriting Agreement (this "Agreement") are herein collectively called the "Shares" and the proposed offering of the Underwritten Shares and, if applicable, the Option Shares by the Underwriters is hereinafter referred to as the "Public Offering." The Company has filed with the Securities and Exchange Commission (the "Commission"), pursuant to the Securities Act of 1933, as amended (the "Act"), and published rules and regulations adopted by the Commission under the Act (the "Rules"), a registration statement on Form S-1 (the "Form S-1") (File No. 333-85447), including a preliminary prospectus, relating to the Shares, and such amendments to such registration statement as may have been filed with the Commission to the date of this Agreement. The term "preliminary prospectus" means any preliminary prospectus (as referred to in Rule 430 or Rule 430A of the Rules) included at any time as a part of the registration statement. The Company has furnished to the Representatives copies of such registration statement, each amendment to it filed by the Company with the Commission and each preliminary prospectus filed by the Company with the Commission and any other offering materials used by the Company. If such registration statement has not become effective, a further amendment (the "Final Amendment") to such registration statement, including a form of final prospectus, if necessary to permit such registration statement to become effective, will promptly be filed by the Company with the Commission. If such registration statement has become effective, a final prospectus (the "Rule 430A Prospectus") containing information permitted to be omitted at the time of effectiveness by Rule 430A of the Rules will promptly be filed by the Company with the Commission in accordance with the Rules. The registration statement as amended at the time it becomes or became effective (the "Effective Date"), including financial statements and all exhibits and any information deemed to be included by Rule 430A, is called the "Registration Statement." The term "Prospectus" means the prospectus as first filed with the Commission pursuant to Rule 424(b) of the Rules, or if no such filing is required, the form of final prospectus included in the Registration Statement at the Effective Date. Any reference herein to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include any documents incorporated by reference therein on or before the Effective Date or the date of such preliminary prospectus or the Prospectus, as the case may be. Any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement, any preliminary prospectus or the Prospectus shall be deemed to refer to and include the filing of any document under the Securities Exchange Act of 1934 (the "Exchange Act") after the Effective Date or the date of any preliminary prospectus or the Prospectus, as the case may be, and deemed to be incorporated therein by reference. As the Representatives, you have advised the Company (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters and (b) the Underwriters are willing, acting severally and not jointly, to purchase the amounts of the Underwritten Shares set forth opposite their respective names in Schedule I hereto, plus their pro rata portion of the Option Shares as set forth in Section 2 hereof, if you elect to exercise the Option in whole or in part for the accounts of the several Underwriters. In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the Company and the Underwriters hereby agree as follows: 1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. (a) The Company represents and warrants to, and agrees with, each Underwriter as follows: (i) The Company has been duly organized, is in compliance with its Certificate of Incorporation, as amended and/or restated to date, and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full power and authority (corporate and other) to own its properties and conduct its business as described in the Registration Statement and Prospectus. Each subsidiary of the Company listed on Schedule II hereto (each, a "Subsidiary" and collectively, the "Subsidiaries") has been duly organized or incorporated and is validly existing as a corporation or other legally authorized entity, in good standing under the laws of the jurisdiction of its organization, with full power and authority (corporate and other) to own and lease its properties and conduct its business; the Company and the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business or the ownership or lease of their properties requires such qualifications, except where failure to be so qualified or in good standing as a foreign corporation would not in the aggregate have a material adverse effect on the financial condition, or in the business, properties, business prospects or results of operations of the Company and its Subsidiaries taken as a whole (a "Material Adverse Effect"); all of the outstanding shares of capital stock or other ownership interests of each Subsidiary are owned by the Company and have been duly authorized and validly issued, are fully paid and non-assessable and, except as set forth in the Prospectus, and except for those securing indebtedness as described in the Financial Statements to the Registration Statement, are owned by the Company free and clear of any claim, lien, encumbrance or security interest. (ii) The outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and non-assessable; the Shares have been duly authorized and, when issued and paid for as contemplated herein, will be validly issued, fully paid and non-assessable. There are no preemptive or other restrictive rights to subscribe for or to purchase, or any restriction upon the voting or transfer of any class of the Company's stock pursuant to the Company's Amended and Restated Certificate of Incorporation, Bylaws, or other governing documents or any agreement or other instrument to which the Company or any of its Subsidiaries is a party or by which any of them may be bound. Neither the filing of the Registration Statement nor the offering of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of any class of the Company's capital stock. (iii) The Shares conform to the description thereof contained in any preliminary prospectus, the Prospectus and the Registration Statement. As of the Closing Date (as defined below) and any Option Closing Date (as defined below), if applicable, the Company will have the authorized capitalization set forth under the captions "Capitalization" and "Description of Capital Stock" in the Prospectus. No further corporate approval or authority on behalf of the Company will be required for the issuance and sale of the Shares to be sold by the Company as contemplated herein. (iv) The Registration Statement has been filed with the Commission under the Act. (v) Neither the Commission nor any other agency, body, authority, court or arbitrator of competent jurisdiction has, by order or otherwise, prohibited or suspended the use of any preliminary prospectus or the Prospectus relating to the proposed offering of the Shares or instituted proceedings for that purpose. The Registration Statement, the Prospectus and any preliminary prospectus, and any amendments or supplements thereto, at the time they became or become effective (as to the Registration Statement and any amendment thereto), or at the time they were or are filed with the Commission (as to the Prospectus and any supplement thereto), conformed or conform in all material respects to the requirements of the Act and the Rules. None of the Registration Statement, the Prospectus and any preliminary prospectus, 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 supplement thereto) and as of its date (as to any preliminary prospectus) 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, HOWEVER, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or any preliminary prospectus or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, expressly for use in the preparation thereof. (vi) The consolidated financial statements of the Company and the Subsidiaries, together with related notes and schedules as set forth in the Registration Statement, present fairly in all material respects the consolidated financial position, results of operations and changes in cash flow of the Company and the Subsidiaries, at the indicated dates and for the indicated periods. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied throughout the periods involved, and all adjustments, consisting only of normal recurring adjustments or accruals, necessary for a fair presentation of results for such periods have been made. The Summary Consolidated Financial Data and the Selected Consolidated Financial Data included in the Prospectus have been compiled on a basis consistent with that of the audited and unaudited financial statements from which they were derived. The Company and its subsidiaries will maintain and keep accurate books and records and maintain internal accounting controls which provide reasonable assurance that (1) transactions are executed in accordance with management's authorization, (2) transactions are recorded as necessary to permit the preparation of the Company's consolidated financial statements and to maintain accountability for the assets of the Company and its subsidiaries, (3) access to the assets of the Company and its subsidiaries is permitted only in accordance with management's authorization, and (4) the recorded accounts of the assets of the Company and its subsidiaries are compared with existing assets at reasonable intervals. (vii) There is no action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any Subsidiary before any court or administrative or governmental agency or other body which might (A) result in any material adverse change in the financial condition, or in the business, properties, business prospects or results of operations of the Company or any of its Subsidiaries (a "Material Adverse Change"), whether or not arising in the ordinary course of business, or (B) affect the performance of this Agreement or the consummation of the transactions herein contemplated, except in either case as disclosed in the Registration Statement and the Prospectus and , except as otherwise set forth in the Registration Statement and the Prospectus, for which the Company maintains a reserve in an amount which it believes is adequate to cover potential liabilities. (viii) Except as set forth in the Registration Statement and the Prospectus, neither the Company nor any Subsidiary is in violation of any law, ordinance, governmental rule or regulation or court decree to which it is subject which violation is expected to result in a Material Adverse Change. (ix) The Company and each Subsidiary has good and marketable title to all of the material properties and assets reflected in the financial statements hereinabove described or as described in the Prospectus as being owned by them, subject to no lien, mortgage, pledge, charge or other encumbrance of any kind except those securing indebtedness described in such financial statements or as described in the Prospectus or which do not materially affect the present or proposed use of such properties or assets. The Company and the Subsidiaries occupy their leased properties under valid, subsisting and binding leases with only such exceptions as are not material and do not interfere with the conduct of the business of the Company. There exists no default under the provisions of any lease, contract or other obligation to which the Company or any Subsidiary is a party which may result in a Material Adverse Change. (x) The Company and each Subsidiary have filed all federal, State and foreign tax returns which have been required to be filed up to the date hereof, except insofar as the failure to file such returns, individually or in the aggregate, would not have a Material Adverse Effect, and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due, except for any state taxes that are being contested in good faith. (xi) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, as they may be amended or supplemented, (A) there has not been any Material Adverse Change nor to the Company's knowledge is any such change threatened, (B) there has not been any transaction entered into by the Company or any of the Subsidiaries that is material to the business, properties, business prospects or results of operations of the Company or any such Subsidiary, other than transactions in the ordinary course of business and changes and transactions contemplated by the Registration Statement and the Prospectus, as they may be amended or supplemented, and (C) there has not been any material change in the capital stock, long term debt or liabilities of the Company. (xii) The filing of the Registration Statement and related Prospectus and the execution and delivery of this Agreement have been duly authorized by the Board of Directors of the Company; this Agreement constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity, and except insofar as rights to indemnification and contribution contained herein may be limited by federal or state securities laws or related public policy. Neither the Company nor any of the Subsidiaries individually or in the aggregate are in breach or violation of or default under any indenture, mortgage, deed of trust, lease, contract, note or other agreement or instrument to which it is a party or by which it or any of its properties is bound and which breach, violation or default would, individually or in the aggregate have a Material Adverse Effect. The consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not result in a breach or violation of any of the material terms and provisions of, or constitute a default under, any indenture, mortgage, deed of trust, lease, contract, note or other agreement or instrument to which the Company or any Subsidiary is a party, or of the Company's Amended and Restated Certificate of Incorporation or By-laws or any law, decree, order, rule, writ, injunction or regulation applicable to the Company or any Subsidiary of a court or of any regulatory body or administrative agency or other governmental body having jurisdiction, except for those violations that, individually or in the aggregate, would not result in a Material Adverse Change. (xiii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and performance of its obligations hereunder (except such additional steps, if any, as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) have been obtained or made and is in full force and effect. (xiv) The Company and each Subsidiary hold all material licenses, authorizations, charters, certificates and/or permits from governmental authorities which are necessary to the conduct of their businesses and neither the Company nor any Subsidiary has received notice of any proceeding relating to the revocation or modification of any of such licenses, authorizations, charters, certificates or permits, which, individually or in the aggregate, if the subject of an unfavorable decision, would result in a Material Adverse Change. (xv) Arthur Andersen LLP, independent public accountants, who have reported on the audited consolidated financial statements of the Company and its Subsidiaries, filed with the Commission and included as part of the Registration Statement and Prospectus, are independent public accountants within the meaning of the Act, the Rules and Regulation S-X of the Commission and Rule 101 of the Code of Professional Ethics of the American Institute of Certified Public Accountants. (xvi) There are no agreements, contracts or other documents of a character required to be described in the Registration Statement or the Prospectus or required by Form S-1 to be filed as exhibits to the Registration Statement or incorporated by reference in the Registration Statement which are not described, filed or incorporated as required. (xvii) No labor dispute exists or, to the Company's knowledge, is imminent with the Company's employees or with employees of any Subsidiary which could reasonably be expected to have a Material Adverse Effect. (xviii) Except as contemplated by Section 2 hereof and as disclosed in the Prospectus and permitted by the Rules, the Company has not taken and will not take, directly or indirectly, any action designed to or which might reasonably be expected to, cause or result in a violation of Section 5 of the Act, Rule 10b-6 or Rule 102 of Regulation M under the Exchange Act, or otherwise in stabilization or manipulation of the price of the Company's Common Stock. (xix) The Company has delivered to you a true and complete copy of the Agreement and Plan of Reorganization by and among Genmar Holdings, Inc., POS Acquisition Corporation, Pyramid Operating Systems, Inc. ("Pyramid") and the stockholders of Pyramid, dated June 18, 1999, and the related attachments and exhibits (the "Pyramid Agreements"), which provide for the acquisition by way of merger (the "Pyramid Merger") by the Company, through a wholly-owned subsidiary (the "Merger Subsidiary"), of all of the outstanding capital stock of Pyramid. Neither the Company nor the Merger Subsidiary is in default under the terms of such Pyramid Agreements and, to the Company's knowledge, neither Pyramid nor its stockholders are in default under the terms of such Pyramid Agreements in any respect that is reasonably likely to result in the Company's failure to consummate the acquisition contemplated by the Pyramid Agreements on the Closing Date; all of the material conditions to which the Pyramid Merger is subject have been fulfilled, and the Company is unconditionally obligated and legally bound to consummate the Pyramid Merger. (xx) The Company and the Merger Subsidiary have the requisite power and authority to enter into the Pyramid Agreements and perform their obligations thereunder. The execution, delivery and performance of the Pyramid Agreements by the Company and the Merger Subsidiary have been duly authorized and no further corporate action is necessary to authorize such execution, delivery and performance. The Pyramid Agreements have been duly executed and delivered by the Company and the Merger Subsidiary, are in full force and effect and are valid and legally binding obligations of the parties thereto enforceable in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity, and have not been amended or modified in any material respect. (xxi) Except as contemplated by or otherwise disclosed in the Pyramid Agreements: (a) the execution and delivery of the Pyramid Agreements do not, and the consummation of the transactions contemplated thereby by the Company and the Merger Subsidiary will not, conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, the respective Certificates of Incorporation or Bylaws of either of the Company or the Merger Subsidiary, or any agreement to which either of the Company or the Merger Subsidiary is a party to or by which the Company or the Merger Subsidiary is bound, or any law, statute, rule, regulation, order, judgment or decree affecting either of the Company or the Merger Subsidiary; and (b) no consent, authorization, approval, order, license, certificate or permit of or from, or declaration of filing with, any federal, state, local or other governmental authority or any court or other tribunal and no consent, approval or waiver of any party to any agreement to which the Company or the Merger Subsidiary is subject, is required for the execution and delivery of the Pyramid Agreements or the consummation of the transactions contemplated thereby. (xxii) No action or proceedings have been instituted or threatened before a court or other body or any public authority to restrict or prohibit any of the transactions contemplated by the Pyramid Agreements. (xxiii) Except for those matters which are specifically disclosed in the Prospectus or which would not reasonably be expected to result in a Material Adverse Change: (a) each of the Company and its Subsidiaries is in compliance with all applicable environmental laws, rules and regulations ("Environmental Laws"), (b) each of the Company and its Subsidiaries has all environmental permits and approvals required to operate their businesses as presently conducted or as reasonably anticipated to be conducted, (c) neither the Company nor its Subsidiaries has received any written, or to the Company's knowledge other, communication from a governmental authority that alleges that such Company or Subsidiary is not in compliance with all Environmental Laws, (d) to the Company's knowledge, there are no circumstances that may prevent or interfere with such compliance in the future, (e) there is no claim regarding environmental matters pending or, to the Company's knowledge, threatened against the Company or any Subsidiary, (f) there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any material or substance of environmental concern, that could form the basis of any environmental claims against any of the Company or its Subsidiaries; and (g) (1) there are no on-site or off-site locations in which either of the Company or its Subsidiaries have stored, disposed or arranged for the disposal of materials or substances of environmental concern, (2) there are no underground storage tanks located on property owned or leased by the Company or its Subsidiaries, (3) there is no friable asbestos contained in or forming part of any building, building component, structure or office space owned or leased by the Company or its Subsidiaries, and (4) no polychlorinated biphenyls are used or stored at any property owned or leased by the Company or its Subsidiaries. (xxiv) Except for those matters which individually or in the aggregate, have not resulted in or are not reasonably likely to result in a Material Adverse Change, (a) the Company or its Subsidiaries own and possess all right, title and interest in and to, or have a valid license to use, all of their Intellectual Property (as defined below) free and clear of encumbrances and other interests; (b) the Company or its Subsidiaries own and possess all right, title and interest in and to all Intellectual Property necessary or required for the use and operation of the Company's personal property; (c) the Company or its Subsidiaries have full ownership rights and interests in and to all of the trade secrets used in connection with their personal property; (d) no claim by any third party contesting the validity, enforceability, use or ownership of any Intellectual Property has been made or, to the Company's knowledge, is threatened against the Company or any affiliate of the Company; (e) neither the Company nor any Subsidiary has infringed or misappropriated any Intellectual Property and, to the Company's knowledge, no such claim has been made or threatened against the Company or any Subsidiary; (f) the Company has taken reasonable and prudent steps to protect the Intellectual Property from infringement by any other individual or entity; and (g) the operations of the Company or its Subsidiaries are not reasonably likely to result in the infringement or misappropriation of any Intellectual Property rights of third parties. As used in this Agreement, "Intellectual Property" means: all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); all trade names, trademarks, trade dress, logos and all goodwill associated therewith; all copyrights, copyrightable work, and mask works; all registrations and applications and renewals for any of the foregoing; all trade secrets, manufacturing and production processes and techniques, technical and computer data, documentation and software, software licenses, all tangible embodiments thereof. To the Company's knowledge, the representations and warranties regarding Intellectual Property set forth in Section 3.9 of the Pyramid Agreements are true and correct as of the date of this Agreement. (xxv) The Company has taken all requisite corporate and other action to approve and adopt the spin-off to the Company's current stockholders of all of the outstanding capital stock of its subsidiary, Hatteras Yachts Inc., a Delaware corporation (the "Hatteras Subsidiary") which operates the Hatteras Yachts division of the Company (the "Hatteras Spin-Off"), to be effective immediately prior to the Closing. In this regard, the Company has delivered to you a true and complete copy of the Distribution Agreement by and among the Company, Minstar, Inc., Genmar Industries, Inc. and Hatteras Yachts, Inc.; the Capital Contribution Agreement between Genmar Industries, Inc., and Hatteras Yachts, Inc.; and the Shareholders' Agreement by and among Hatteras Yachts, Inc. and the Shareholders of Hatteras Yachts, Inc., together with all related attachments and exhibits (the "Hatteras Agreements"), which have been executed and delivered among the parties thereto, and which provide for the Hatteras Spin-Off and contemplate certain actions by each of the Company and the Hatteras Subsidiary at and after the time of the Hatteras Spin-Off. Neither the Company nor the Hatteras Subsidiary is in default under the terms of the Hatteras Agreements, and all of the material conditions to which the Hatteras Spin-Off is subject have been fulfilled, except for the sale of the Underwritten Shares by the Underwriters. (xxvi) The Company and the Hatteras Subsidiary have the requisite power and authority to enter into the Hatteras Agreements and perform their obligations thereunder. The execution, delivery and performance of the Hatteras Agreements by the Company and the Hatteras Subsidiary have been duly authorized and no further corporate action is necessary to authorize such execution, delivery and performance. The Hatteras Agreements have been duly executed and delivered by the Company and the Hatteras Subsidiary, are in full force and effect and are valid and legally binding obligations of the parties thereto enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and by general principles of equity, and have not been amended or modified in any material respect. (xxvii) Except as contemplated by or otherwise disclosed in the Hatteras Agreements: (a) the execution and delivery of the Hatteras Agreements do not, and the consummation of the transactions contemplated thereby by the Company and the Hatteras Subsidiary will not, conflict with or result in a breach of any of the terms, conditions or provisions of, or constitute a default under, the respective certificates of incorporation or bylaws of either the Company or the Hatteras Subsidiary, or any agreement to which either the Company or the Hatteras Subsidiary is a party or by which the Company or the Hatteras Subsidiary is bound, or any law, statute, rule, regulation, order, judgment or decree affecting either the Company or the Hatteras Subsidiary; and (b) no consent, authorization, approval, order, license, certificate or permit of or from, or declaration of filing with, any federal, state, local or other governmental authority or any court or other tribunal and no consent, approval or waiver of any party to any agreement to which the Company or the Hatteras Subsidiary is subject, is required for the execution and delivery of the Hatteras Agreements or the consummation of the transactions contemplated thereby. (xxviii) No action or proceedings have been instituted or threatened before a court or other body or any public authority seeking to restrict or prohibit any of the transactions contemplated by the Hatteras Agreements. (xxix) Upon completion of the Hatteras Spin-Off, the assets and liabilities of the Hatteras Subsidiary will consist only of those assets used in the operation of the Hatteras Yacht division of the Company, (the "Hatteras Assets"), and those liabilities assigned to the Hatteras Subsidiary by the Company in accordance with the terms of the Hatteras Agreements. (b) Any certificate signed by any officer of the Company and delivered to you or counsel for the Representatives shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. 2. PURCHASE, SALE AND DELIVERY OF THE UNDERWRITTEN SHARES. On the basis of the representations, warranties and covenants herein contained, and subject to the terms and conditions herein set forth, the Company agrees to sell each Underwriter, severally and not jointly, and each Underwriter agrees, severally and not jointly, to purchase, at a price of $_______ per share, the number of the Underwritten Shares set forth opposite the name of each Underwriter in Schedule I attached hereto, subject to adjustment in accordance with Section 10 hereof. Payment for the Underwritten Shares shall be made by wire transfer of immediately available funds to a designated account of the Company, drawn to the order of the Company, against delivery of certificates for the Shares to the Representatives for the accounts of the several Underwriters. Delivery of certificates shall be to the Representatives at 111 Center Street, Little Rock, Arkansas 72201. Payment will be made at 111 Center Street, Little Rock, Arkansas 72201, or at such other place as shall be agreed upon by the Representatives and the Company, at _______, Central Time, on ________________, 1999 or at such other appropriate time and date as you and the Company shall agree upon, such time and date of payment being herein referred to as the "Closing Date." The certificates for the Underwritten Shares will be delivered in such denominations and in such registrations as the Representatives request in writing not later than the second full business day prior to the Closing Date, and will be made available for inspection at such place as the Representatives may reasonably request, at least one full business day prior to the Closing Date. In addition, on the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an Option to the several Underwriters to purchase all or any part of the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The Option may be exercised in whole or in part at any time upon written notice (or oral notice, subsequently confirmed in writing) given not more than thirty (30) days following the date of commencement of the Public Offering, by you, as the Representatives of the several Underwriters, to the Company setting forth the number of Option Shares as to which the several Underwriters are exercising the Option and the names and denominations in which the Option Shares are to be registered. The date of delivery and payment for the Option Shares (the "Option Closing Date"), if any, shall occur no later than three business days following the date upon which notice of exercise of the Option is given to the Company. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion as the total number of Underwritten Shares being purchased by such Underwriter bears to the total number of Underwritten Shares being purchased by all Underwriters, adjusted by you in such manner to avoid fractional shares. The Option may be exercised only to cover over-allotments in the sale of the Underwritten Shares by the Underwriters. You, as the Representatives of the several Underwriters, may cancel such Option at any time prior to its expiration by giving written notice (or oral notice, subsequently confirmed in writing) of such cancellation to the Company. To the extent, if any, that the Option is exercised, payment for the Option Shares shall be made at such closing on the Option Closing Date by wire transfer of immediately available funds to a designated account of the Company, drawn to the order of the Company. Certificates for the Option Shares shall be delivered in the same manner and upon the same terms as the Underwritten Shares. 3. OFFERING BY THE UNDERWRITERS. It is understood that the Public Offering of the Underwritten Shares is to be made as soon as the Representatives deem it advisable to do so after the Registration Statement has become effective. The Underwritten Shares are to be initially offered to the public at the public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares, in accordance with an Agreement Among Underwriters which has been entered into among you and the several other Underwriters. 4. COVENANTS OF THE COMPANY. (a) The Company covenants and agrees with each of the several Underwriters that: (i) The Company will use its best efforts to cause the Registration Statement to become effective and will not, either before or after effectiveness, file any amendment thereto or supplement to the Prospectus (including a Prospectus filed pursuant to Rule 424(b) which differs from the Prospectus on file at the time the Registration Statement becomes effective) of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Act or Rules. (ii) The Company will advise the Representatives promptly of any request of the Commission or other securities regulatory agency ("Other Securities Regulator") for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, or of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose, or comparable action taken or initiated by any Other Securities Regulator, and the Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (iii) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions (including foreign jurisdictions) as the Representatives reasonably may have designated in writing, and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose; PROVIDED HOWEVER, 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 where it is not so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be reasonably required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. (iv) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any preliminary prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives on the Effective Date and thereafter from time to time during the period when delivery of a Prospectus is required under the Act as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date such number of copies of the Registration Statement, with and without exhibits, and of all amendments thereto, as the Representatives may reasonably request. (v) During the period of time in which a Prospectus relating to the Shares is required by law to be delivered, the Company shall comply with all requirements imposed upon it by the Act, as now and hereafter amended, and by the Rules, as from time to time in force, so far as is necessary to permit the continuance of sales of or dealings in the Shares as contemplated by the provisions hereof and the Prospectus. If, during the period in which a Prospectus is required by law to be delivered, any event shall occur as a result of which, in the judgment of the Company or in the opinion of counsel for the Underwriters, it becomes necessary to supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company will promptly notify the Representatives and, subject to the Representatives' prior review, prepare and file with the Commission and any appropriate Other Securities Regulator an appropriate supplement to the Prospectus (at the expense of the Company) so that the Prospectus as so supplemented will not, in light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (vi) The Company will make generally available (within the meaning of Section 11(a) of the Act) to its stockholders in the manner contemplated by Rule 158(b) under the Act, as soon as it is practicable to do so, but in any event not later than the forty-fifth day after the fiscal quarter first occurring one year after the Effective Date, an earnings statement (which need not be audited) in reasonable detail, covering a period of at least twelve consecutive months beginning after the Effective Date, which earnings statement shall satisfy the requirements of Section 11(a) of the Act. (vii) During the three year period immediately following the date hereof, the Company will furnish to its stockholders, as soon as practicable after the end of each respective period, annual reports (including consolidated financial statements audited by independent public accountants) and unaudited quarterly reports of consolidated earnings, and will furnish to the Representatives: (a) concurrently with furnishing such reports to its stockholders, consolidated statements of income of the Company and its Subsidiaries for each period in the form furnished to the Company's stockholders and certified by the Company's principal financial or accounting officer; (b) concurrently with furnishing to its stockholders, a consolidated balance sheet of the Company as at the end of such fiscal year, together with consolidated statements of income, stockholders' equity and cash flows of the Company and its Subsidiaries for such fiscal year, all in reasonable detail and accompanied by a copy of the certificate or report thereon of independent public accountants; (c) as soon as they are available, copies of all reports (financial or other) mailed to stockholders; (d) as soon as they are available, copies of all reports and financial statements furnished to or filed with the Commission, the National Association of Securities Dealers, Inc. ("NASD") or any securities exchange; (e) every press release released by the Company; and (f) any additional information of a public nature concerning the Company or its business which the Representatives may reasonably request. (viii) As soon as the Company is advised thereof, it will advise the Representatives, and confirm the advice in writing, that the Registration Statement and any amendments shall have become effective. (ix) The Company will use the net proceeds from the sale of the Shares in the manner set forth in the Prospectus under the caption "Use of Proceeds" and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (x) Other than as permitted by the Act and the Rules, the Company will not distribute any prospectus or offering materials in connection with the offering and sale of the Shares and prior to the Closing Date or, if applicable, the Option Closing Date, will not issue any press releases or other communications directly or indirectly, and will hold no press conferences with respect to the Company or any of its Subsidiaries, the financial condition, results of operations, business, properties, assets or liabilities of the Company or any of its Subsidiaries, or the offering of the Shares, without the prior written consent of the Representatives. (xi) The Company will maintain an independent institutional transfer agent and, if required by the jurisdiction of incorporation of the Company, a registrar for its Common Stock and will, as of the Effective Date, obtain approval for and use its best efforts to maintain the quotation of the Shares on the Nasdaq National Market. (xii) The Company will not, for a period of 180 days after the Effective Date of the Registration Statement, offer to sell, contract to sell, sell or otherwise dispose of any shares of the Company's Common Stock or securities convertible into shares of the Company's Common Stock without the prior written consent of Stephens Inc. Further, the Company will cause each officer and director of the Company, and each of the members of the respective groups of affiliated persons listed as principal stockholders of the Company under the caption "Principal Stockholders" in the Prospectus to furnish to the Representatives on or prior to the execution of this Agreement, a letter or letters in form and substance satisfactory to counsel for Underwriters, pursuant to which each such person shall agree not to offer for sale, sell, distribute or otherwise dispose of any shares of Common Stock of the Company during the 180 days following the Effective Date, except with the prior written consent of Stephens Inc. The foregoing covenants and agreements shall apply to any successor of the Company, including without limitation, any entity into which the Company might be converted, consolidated or merged. 5. COSTS AND EXPENSES. Whether or not the Registration Statement becomes effective, the Company will pay all costs, expenses and fees incident to the performance of the obligations of the Company under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company; the cost of printing and delivering to Underwriters copies of the Registration Statement, preliminary prospectus, the Prospectus, this Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement, the Underwriters' Questionnaire and Power of Attorney, and any blue sky survey and any supplements thereto; the filing fees of the Commission; the filing fees and expenses incident to securing any required review by the SEC and the NASD of the terms of the sale of the Shares; any applicable listing fees; the cost of printing certificates representing the Shares; the cost and charges of any transfer agent or registrar; and the expenses, including the reasonable fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification or exemption of the Shares under applicable blue sky laws and the laws of any foreign jurisdiction. Any transfer taxes imposed on the sale of the Shares to the Underwriters will be paid by the Company. The Company shall not, however, be required to pay for any of the Underwriters' expenses (other than those related to qualification or exemption under blue sky and foreign laws) except that, if this Agreement shall not be consummated because the conditions in Section 7 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 6 hereof unless such termination results from a failure to satisfy a condition due to the default or omission of any Underwriter (including any default under Section 10 hereof), or by reason of any failure, refusal or inability on the part of the Company to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on their part to be performed, unless such failure to satisfy said condition or to comply with said terms is due to the default or omission of any Underwriter (including any default under Section 10 hereof), then the Company shall reimburse the several Underwriters for all of their out-of-pocket costs and expenses, including attorneys' fees and out-of-pocket expenses, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder, but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The obligations of the several Underwriters are subject to the accuracy, as of the Closing Date and as of the Option Closing Date, of the representations and warranties of the Company contained herein, and to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) The Registration Statement shall have become effective not later than _________, Central Time, on ____________, 1999, unless a later time and date is agreed to by the Representatives, and no stop order or other order suspending the effectiveness thereof or the qualification of the Shares under any blue sky laws or the laws of any foreign jurisdiction shall have been issued and no proceeding for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated or threatened by the Commission or any Other Securities Regulator. If the Company has elected to rely upon Rule 430A of the Rules, the price of the Shares and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Act within the prescribed time period, and prior to the Closing Date, the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A under the Act. All requests for additional information on the part of the Commission or any other government or regulatory authority with jurisdiction (to be included in the Registration Statement or Prospectus or otherwise) shall be complied with to the satisfaction of the Commission or such authorities. (b) The Representatives shall have received on the Closing Date and on the Option Closing Date the opinion of Weil, Gotshal & Manges, counsel for the Company, dated the Closing Date and the Option Closing Date, as the case may be, addressed to the Underwriters in form and substance reasonably satisfactory to Giroir, Gregory, Holmes & Hoover, plc, counsel to Underwriters, to the effect that: (i) The Company is validly existing as a corporation in good standing under the laws of the State of Delaware with full corporate power and authority to own its properties and conduct its business as described in the Prospectus and the Registration Statement; each of the Subsidiaries is validly existing as a corporation or other lawfully organized entity in good standing under the laws of the State of Delaware and has corporate and other power and authority to own or lease its properties and conduct its business as described in the Prospectus and the Registration Statement; each of the Company and the Subsidiaries is duly qualified to transact business in all jurisdictions in which the conduct of its business or the ownership of the properties requires such qualification; all of the outstanding shares of capital stock or other ownership interests of each Subsidiary are owned by the Company and have been validly authorized and issued and are fully paid and non-assessable; and except as set forth in the Prospectus and the Registration Statement no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or other ownership interests in the Subsidiaries are outstanding. (ii) The Company has authorized the capital stock set forth under the caption "Description of Capital Stock" in the Prospectus; the outstanding shares of its capital stock have been duly authorized and validly issued and are fully paid and non-assessable; all of the Shares conform to the description thereof contained in the Prospectus; the Underwritten Shares, and the portion of the Option Shares, if any, to be sold pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for as contemplated by this Agreement, and free from preemptive rights pursuant to the Company's Restated Certificate of Incorporation or law. (iii) The Registration Statement has become effective under the Act, and such counsel is not aware of any stop order suspending the effectiveness of the Registration Statement. To such counsel's knowledge, no proceedings therefor have been initiated or overtly threatened by the Commission and any required filing of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the Act has been made in the manner and within the time period required by such Rule. (iv) The Registration Statement and the Prospectus comply as to form in all material respects with the requirements of the Act and the Rules (except that such counsel need not express any opinion as to the financial statements, schedules and notes thereto and the other financial, statistical and accounting information included therein). (v) The information required to be set forth in the Registration Statement in answer to each of the Items of Form S-1 is accurately and adequately set forth in all material respects or no response is required with respect to such Items. The statements in the Registration Statement under the captions "The Company - Recent Acquisitions," "Business Patents and Trademarks," "Business - Regulation and Environmental," "Business Legal Proceedings," "Management-Director Compensation" "Management-Certain Stock-Based Compensation," "ManagementRetention Bonus Agreements," "Management - Management Incentive Plan," "Management - Senior Executive Option Grants," "Management -Stock Awards and Plans," "Management - Retirement Plans and Insurance," "Management Executive Severance Plan," "Certain Transactions" and "Description of Capital Stock," in each case insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein in all material respects. (vi) To such counsel's knowledge there are no legal or governmental proceedings pending or overtly threatened to which the Company or any of its subsidiaries is a party or to which any of the properties of the Company or any of its Subsidiaries is subject that are required to be described in the Registration Statement or the Prospectus and are not so described. There are no contracts or other documents that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not so described or filed as required. (vii) This Agreement has been duly authorized, executed and delivered by the Company and is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. (viii) The execution and delivery by the Company of this Agreement and the performance by the Company of its obligations thereunder will not result in the creation of any lien, charge or claim upon any property or asset of the Company or any Subsidiary nor will such actions conflict with or constitute a default under or violate (i) any of the terms, conditions or provisions of the Restated Certificate of Incorporation or any certificate of incorporation or by-laws of the Company or its Subsidiaries, (ii) any of the terms, conditions or provisions of any material document, agreement or other instrument known to such counsel to which the Company or its Subsidiaries is a party or by which they are bound, (iii) New York, Delaware or federal law or regulation (other than state securities or blue sky laws, as to which such counsel need not express any opinion in this paragraph), or (iv) any judgment, writ, injunction, decree, order or ruling known to such counsel of any court or governmental authority binding on the Company. (ix) No consent, approval, waiver, license or authorization or other action by or filing with any New York, Delaware or federal governmental authority is required in connection with the execution and delivery by the Company of this Agreement, the consummation by the Company of the transactions contemplated hereby or the performance by the Company of its obligations hereunder, except for filings and other actions required pursuant to the Act and/or the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder and state securities or blue sky laws, as to which such counsel need not express any opinion in this paragraph, and those already obtained. (x) The Hatteras Agreements have been duly and validly executed and delivered by the Company and the Hatteras Subsidiary and (assuming the due authorization, execution and delivery thereof by each of the other parties thereto) constitute the legal, valid and binding obligation of the Company and the Hatteras Subsidiary, enforceable against each of the Company and the Hatteras Subsidiary in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity and except that (A) rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto, (B) no opinion is expressed with respect to Section ________ of the _______ Agreement, and (C) certain remedial provisions of the Hatteras Agreements are or may be unenforceable in whole or in part under the laws of the State of New York, but the inclusion of such provisions does not affect the validity of the Hatteras Agreements, and the Hatteras Agreements contain adequate provisions for the practical realization of the rights and benefits afforded thereby. (xi) Except as contemplated by or otherwise disclosed in the Hatteras Agreements: (a) neither the Company nor the Hatteras Subsidiary is, or with the giving of notice or lapse of time or both would be in violation of or in default under, nor will the execution or delivery of the Hatteras Agreements and the performance of the Company and the Hatteras Subsidiary of its obligations thereunder, result in a violation of, or constitute a default under, the respective certificates of incorporation or bylaws of either of the Company or the Hatteras Subsidiary, or any material agreement known to such counsel, to which the Company or the Hatteras Subsidiary is a party or by which either of then is bound or to which any of their properties is subject, nor will the performance of the Company or the Hatteras Subsidiary of its obligations under the Hatteras Agreements violate (i) any federal, New York or Delaware corporate law, rule or administrative regulation or (ii) any decree of any court or any governmental agency or body having jurisdiction over the Company, the Hatteras Subsidiary or their properties; and (b) no approval, consent, order, authorization, designation, declaration or filing by or with any regulatory administrative or other governmental body is necessary under federal or New York law or the corporate laws of the State of Delaware in connection with the execution and delivery of the Hatteras Agreements (other than required by applicable blue sky laws or the laws of any foreign jurisdiction, as to which such counsel need not express any opinion) except such as have been obtained or made, specifying the same. (xii) To the knowledge of such counsel, there are no legal or governmental proceedings pending or overtly threatened to which the Company or the Hatteras Subsidiary is a party seeking to restrict or prohibit any of the transactions contemplated by the Hatteras Agreements. (xiii) The transfer by the Company of the Hatteras Assets to the Hatteras Subsidiary, solely in exchange for the capital stock of the Hatteras Subsidiary, and the assumption by the Hatteras Subsidiary of the liabilities of the Company incurred in connection with the Hatteras Yacht division operated by the Company, followed by the Company's distribution of the capital stock of the Hatteras Subsidiary to the current stockholders of the Company, constitute a reorganization with the meaning of Section 368(a)(1)(D) of the Code. (xiv) Each of the Company and Hatteras is a party to a reorganization within the meaning of Section 368(b) of the Code. (xv) The Company, under Section 361(a) of the Code, will recognize no gain or loss upon or by reason of the transfer of the Hatteras Assets to the Hatteras Subsidiary, solely in exchange for the stock of the Hatteras Subsidiary and the assumption by the Hatteras Subsidiary of the liabilities of the Company incurred in connection with the operations of the Hatteras Yacht division operated by the Company. (xvi) The Company, under Section 361(c)(1) of the Code, will recognize no gain or loss upon or by reason of the distribution of all the Hatteras Subsidiary stock to the Company's stockholders. (xvii) Except as set forth in the Prospectus, no holders of Common Stock or other securities of the Company have registration rights with respect to such securities. (xviii) Except as set forth in the Prospectus, any holders of securities of the Company who have or upon the Closing will have rights to the registration of shares of Common Stock or other securities because of the filing of the Registration Statement by the Company, have waived such rights in writing. In addition to the matters set forth above, such opinion shall also include a statement to the effect that such counsel has participated in conferences with directors, officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Underwriters and representatives of counsel for the Underwriters, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and, although such counsel has not independently verified and need not pass upon and assumes no responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, no facts have come to its attention which lead it to believe that the Registration Statement, on the effective date thereof, 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 contained therein not misleading or that the Prospectus, on the date thereof or on the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need not express any view with respect to the financial statements and related notes, the financial statement schedules and the other financial ,statistical and accounting data included in the Registration Statement or Prospectus). Such opinion shall be to such further effect with respect to other legal matters relating to this Agreement as Giroir, Gregory, Holmes & Hoover, plc, counsel to the Underwriters, may reasonably request. (c) The Representatives shall have received from Giroir, Gregory, Holmes & Hoover, plc, counsel to the Underwriters, an opinion dated the Closing Date, substantially to the effects specified in subparagraphs (iii) and (iv) of paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that such counsel has participated in conferences with directors, officers and other representatives of the Company, representatives of counsel for the Company, representatives of the independent public accountants for the Company and representatives of the Underwriters at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and, although such counsel has not independently verified and need not pass upon and assumes no responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus, no facts have come to its attention which lead it to believe that the Registration Statement, on the effective date thereof, 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 contained therein not misleading or that the Prospectus, on the date thereof or on the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that such counsel need not express any view with respect to the financial statements and related notes, the financial statement schedules and the other financial, statistical and accounting data included in the Registration Statement or Prospectus). (d) The Representatives shall have received from Mary P. McConnell, Esq., Senior Vice President, Secretary and General Counsel for the Company, an opinion dated the Closing Date, and on the Option Closing Date, as the case may be, in form and substance reasonably satisfactory to Giroir, Gregory, Holmes & Hoover, plc, counsel to the Underwriters substantially to the effect specified in subparagraph (xxiii) of paragraph (a) of Section 1 above. (e) The Representatives shall have received from Briggs and Morgan, P.A., Counsel to the Company, an opinion dated the Closing Date, and on the Option Closing Date, as the case may be, in form and substance reasonably satisfactory to Giroir, Gregory, Holmes & Hoover, plc, counsel to the Underwriters, substantially to the effect specified in subparagraphs (xix)-(xxii), inclusive, of paragraph (a) of Section 1 above. (f) The Representatives shall have received on the Closing Date, and on the Option Closing Date, as the case may be, signed letters from Arthur Andersen LLP addressed to the Underwriters dated as of the Effective Date and again dated as of the Closing Date and as of the Option Closing Date, as the case may be, with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. All such letters shall be in form and substance satisfactory to the Representatives and Giroir, Gregory, Holmes & Hoover, plc, counsel to the Underwriters. (g) The Representatives shall have received a signed letter from Arthur Andersen LLP, independent public accountants, stating that their review of the Company's system of internal accounting controls to the extent they deemed necessary in establishing the scope of their examination of the Company's consolidated financial statements as of June 30, 1999 did not disclose any weakness in internal controls that they considered to be a material weakness. (h) The Representatives shall have received on the Closing Date, and on the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date and on the Option Closing Date, as the case may be, each of them severally certifies as follows: (i) (A) The representations and warranties of the Company in this Agreement are true and correct on and as of the Closing Date, and on the Option Closing Date, as the case may be, and (B) the Company has complied with all the agreements and has satisfied all of the conditions on its part to be performed or satisfied at or prior to the Closing Date, and at or prior to the Option Closing Date, as the case may be. (ii) (A) The Registration Statement has become effective under the Act; (B) no stop order suspending the effectiveness of the Registration Statement or the use or effectiveness of the Prospectus has been issued; (C) no proceedings for such purpose have been taken or, to his knowledge, are contemplated by the Commission or any Other Securities Regulator; and (D) all requests for additional information on the part of the Commission or any Other Securities Regulator have been complied with. (iii) No litigation has been instituted or, to the best of his knowledge, threatened against the Company or any Subsidiary of a character required to be disclosed in the Registration Statement which is not so disclosed; there is no contract required to be filed as an exhibit to the Registration Statement which is not so filed. (iv) He has carefully examined the Registration Statement and the Prospectus and in his opinion, on the Effective Date: (A) the statements contained in the Registration Statement and the Prospectus were true and correct, (B) such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (C) since the Effective Date, no event has occurred which should have been set forth in a supplement to or an amendment to the Registration Statement or the Prospectus in order to render any statement contained in the Registration Statement or Prospectus not misleading, which has not been so set forth in such supplement or amendment. (i) At or prior to the Closing Date, the Board of Directors of the Company shall have adopted a resolution to the effect that effective upon completion of the Offering, all material affiliate transactions between the Company or its Subsidiaries and the Company's officers, directors, principal stockholders and other affiliates shall be subject to the approval of a majority of the Company's disinterested directors and shall be on terms no less favorable to the Company than could be obtained from unaffiliated third parties. (j) The Company shall have furnished to the Representatives such additional information and further certificates and documents confirming the representations and warranties contained herein and related matters as the Representatives may reasonably have requested. (k) Since the respective dates as of which information is given in the Prospectus, there shall not have occurred any Material Adverse Change whether or not arising in the ordinary course of business. (l) The Shares shall have been approved for trading on the Nasdaq National Market. (m) The Company shall have consummated the Hatteras Spin-Off in compliance with the terms and conditions of the Hatteras Agreements and as described in the Prospectus. (n) The Company shall have consummated the Pyramid Merger by a closing into escrow, subject only to the filing of the Certificate of Merger and release of escrow on the Closing Date, and the Certificate of Merger shall have been duly filed and the escrow released prior to the Closing. (o) The Representatives shall have received from Merchant & Gould, Intellectual Property Counsel to the Company, an opinion dated the Closing Date, and on the Option Closing Date, as the case may be, in form and substance reasonably satisfactory to Giroir, Gregory, Holmes & Hoover, plc, counsel to the Underwriters substantially to the effect specified in subparagraph (xxiv) of paragraph (a) of Section 1above and to such further effect as Giroir, Gregory, Holmes & Hoover, plc may reasonably request. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects satisfactory to the Representatives and Giroir, Gregory, Holmes & Hoover, plc, counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company of such termination in writing or by confirmed telefax at or prior to the Closing Date. In such event, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the Company to sell and deliver the Shares are subject to the conditions that (a) at or before __________, Central Time, on _____________, or such later time and date as the Company and the Representatives may from time to time consent to in writing or by confirmed telefax, the Registration Statement shall have become effective, and (b) at the Closing Date no stop order suspending the effectiveness of the Registration Statement shall have been issued or proceedings therefor initiated or threatened. If either of the Conditions hereinabove provided for in this Section 7 shall not have been fulfilled when and as required by this Agreement to be fulfilled, this Agreement may be terminated by the Company by notifying the Representatives of such termination in writing or by confirmed facsimile at or prior to the Closing Date. 8. INDEMNIFICATION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act and Section 20(a) of the Exchange Act from and against any and all losses, claims, damages, liabilities, joint or several, and expenses (including costs of investigation and legal expenses) to which such Underwriter or such controlling person may become subject under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities, joint or several, and expenses (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of material fact contained in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading; provided, HOWEVER, that the Company will not be liable under this Section 8(a) to any Underwriter in any such case to the extent that any such loss, claim, damage, liability or expense arise out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any preliminary prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof and provided, further, that with respect to any preliminary prospectus, such indemnity shall not inure to the benefit of any Underwriter or controlling person if the person asserting any such losses, claims, damages, liabilities or expenses purchased the Shares that are the subject thereof from such Underwriter and if such person was not sent or given a copy of the Prospectus at or prior to confirmation of the sale of such Shares to such person in any case where such sending or giving is required by the Act and the untrue statement or omission of a material fact contained in such preliminary prospectus was corrected in the Prospectus. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter severally, but not jointly, agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, and each person, if any, who controls the Company, within the meaning of Section 15 of the Act and Section 20(a) of the Exchange Act, from and against any losses, claims, damages, liabilities, joint or several, and expenses to which the Company or any such director, officer, or controlling person may become subject, under the Act, the Exchange Act or otherwise, insofar as such losses, claims, damages, liabilities and expenses (or actions or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of material fact contained in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstance under which they were made) not misleading; provided, however, that each Underwriter will be liable under this Section 8(b) in any such case only to the extent that such untrue statement, or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any preliminary prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives expressly for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action or proceeding, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under this Section 8, and then only to the extent that the indemnifying party is actually prejudiced by the omission of such notification. In case any such action or proceeding is brought against any party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section 8 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the employment of such counsel has been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party has failed to assume the defense and employ counsel, or (iii) the named parties to any such action (including any impleaded parties) include such indemnified party and the indemnifying party, as the case may be, and such indemnified party shall have been advised in writing by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party, it being understood, however, that (A) the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all such indemnified party, which firm shall be designated in writing by the indemnified party, and that (B) all such fees and expenses shall be reimbursed as they are incurred. Subject to the foregoing provisions of this Section 8(c), the indemnifying party shall not be liable for the costs and expenses of any settlement of any action without the consent of the indemnifying party. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 8 is for any reason held to be unavailable to an indemnified party under subsection (a) or (b) above in respect to any losses, claims, damages, liabilities or expenses referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, 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 parties in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company bears to the underwriting discounts and commissions received by the Underwriters. The relative fault of a party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by each party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any such action or claim. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8, 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 were offered to the public exceeds the amount of any damages that such Underwriters have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute shall be several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any preliminary prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. 9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements of the Company and officers of the Company contained herein or in certificates delivered pursuant hereto, and the indemnity and contribution agreements contained in Section 8 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriters or any controlling person, or by or on behalf of the Company or any of its officers, directors or controlling persons, and shall survive delivery of the Underwritten Shares and, as applicable, the Option Shares to the Representatives or termination of this Agreement. 10. DEFAULT BY UNDERWRITERS. If any Underwriter shall fail to purchase and pay for the Shares which such Underwriter has agreed to purchase and pay for hereunder (otherwise than by reason of any default on the part of the Company), you, as the Representatives of the Underwriters, shall use your best efforts to procure within twenty-four hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company such amounts as may be agreed upon and upon the terms set forth herein, the Shares which the defaulting Underwriter or Underwriters failed to purchase. If during such twenty-four hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Shares agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of Shares that the defaulting Underwriter agreed to but failed to purchase does not exceed 10% of the Shares which the Underwriters are obligated to purchase hereby, the other Underwriters shall be obligated, severally, in proportion to the respective number of shares which they are obligated to purchase hereunder, to purchase the Shares which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of Shares with respect with which such default shall occur exceeds 10% of the Company's Common Stock covered hereby, the Company or you, as the Representatives of the Underwriters will have the right, by written notice given within the next twenty-four hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 10, the time of closing may be postponed for such period, not to exceed seven days, as you, as the Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriters" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 11. NOTICES. All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered or telefaxed and confirmed as follows: if to the Representatives of the Underwriters, to Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, Attention: W. Scott Davis, Head of Syndicate & Capital Markets, and to U.S. Bancorp Piper Jaffray Inc., 222 South Ninth Street, Minneapolis, Minnesota 55402, Attention: Rick Hines, with a copy to Giroir, Gregory, Holmes & Hoover, plc, 111 Center Street, Suite 1900, Little Rock, Arkansas 72201, Attention: H. Watt Gregory, III; if to the Company: to Genmar Holdings, Inc., 100 South Fifth Street, Suite 2400, Minneapolis, Minnesota 55402, Attention: Mary P. McConnell, Esq., Senior Vice President, Secretary and General Counsel, with a copy to Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153-0119, Attention: Stephen M. Besen, Esq. 12. TERMINATION. This Agreement may be terminated by notice to the Company as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) ________, Central Time, on ________________________________________; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any Material Adverse Change or a development involving a prospective Material Adverse Change, whether or not arising in the ordinary course of business, which would, in your reasonable judgment, materially impair the investment quality of the Shares, (ii) any outbreak of hostilities or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make the offering or delivery of the Shares impracticable, (iii) general suspension of trading or general trading halts in securities on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the over-the-counter market or limitation on prices (other than limitations on hours or numbers of days or trading) for securities on either such Exchange, the Nasdaq National Market or the over-the-counter market, (iv) the enactment, publication, decree or other promulgation of any federal or state statute, regulation, rule or order of any court or other governmental authority which in your reasonable opinion materially and adversely affects or will materially or adversely affect the business, business prospects or operations of the Company, (v) declaration of a banking moratorium by either federal or state authorities, or (vi) the taking of any action by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or (c) as provided in Sections 6 and 10 of this Agreement. 13. SUCCESSORS. This Agreement has been and is made solely for the benefit of the Underwriters, the Company and their respective successors, executors, administrators, heirs, and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder The term "Successors" shall not include any purchaser of the Shares merely because of such purchase. 14. MISCELLANEOUS. The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants of the Company in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of the Underwriters or controlling person or (c) delivery of any payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Arkansas, without giving effect to the choice of law or conflict of law principles thereof. If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Company and the several Underwriters in accordance with its terms. Very truly yours, GENMAR HOLDINGS, INC. By:_____________________________________ Its:____________________________________ The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. STEPHENS INC. U.S. BANCORP PIPER JAFFRAY INC. as Representatives of the several Underwriters named in Schedule I hereto By: STEPHENS INC. By: ___________________________ Authorized Officer SCHEDULE I
Name No. of Underwritten Shares - ---- -------------------------- Stephens Inc. U.S. Bancorp Piper Jaffray Inc. [list additional Underwriters] Total - -----
SCHEDULE II
List of Subsidiaries - --------------------
EX-3.1 3 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF GENMAR HOLDINGS, INC. (A DELAWARE CORPORATION) GENMAR HOLDINGS, INC., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Genmar Holdings, Inc. The corporation was originally incorporated under the name Genmar Holdings, Inc. and the original Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on March 29, 1994. B. Pursuant to Sections 228, 242 and 245 of the Delaware General Corporation Law and duly adopted in accordance therewith, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation. C. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby amended and restated in its entirety to read as follows: FIRST: The name of the Corporation is Genmar Holdings, Inc. (the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is c/o CT Corporation System, 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the Corporation in the State of Delaware at such address is CT Corporation System. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as from time to time amended (the "DGCL"). FOURTH: (a) The total number of shares of capital stock which the Corporation shall have authority to issue is 202,000,000, 200,000,000 of which shares shall be common stock having a par value of $0.01 per share ("Common Stock") and 2,000,000 of which shares shall be preferred stock having a par value of $0.01 per share. (b) Upon the filing in the Office of the Secretary of the State of Delaware of this Amended and Restated Certificate of Incorporation, each share of Common Stock issued and outstanding immediately prior to the filing of this Amended and Restated Certificate of Incorporation shall thereby be reclassified as, converted to and exchanged for, nine shares of Common Stock. Only whole shares of Common Stock will be issued. Stockholders entitled to receive fractional shares of Common Stock shall receive, in lieu thereof, a cash payment equal to the fair value of such fractional share of Common Stock. (c) DESIGNATION OF PREFERRED STOCK TERMS. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to provide for the issuance of shares of Preferred Stock in series and, by filing a certificate pursuant to the DGCL (hereinafter referred to as a "Preferred Stock Designation"), to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, privileges, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereon. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: 1. the designation of the series, which may be by distinguishing number, letter or title; 2. the number of shares of the series, which number the Board of Directors may thereafter (except where otherwise provided in the Preferred Stock Designation) increase or decrease (but not below the number of shares thereof then outstanding) in the manner permitted by law; 3. the rate of any dividends (or method of determining the dividends) payable to the holders of the shares of such series, any conditions upon which such dividends shall be paid and the date or dates or the method for determining the date or dates upon which such dividends shall be payable; 4. whether dividends, if any, shall be cumulative or noncumulative, and, in the case of shares of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on the shares of such series shall cumulate; 5. if the shares of such series may be redeemed by the Corporation, the price or prices (or method of determining such price or prices) at which, the form of payment of such price or prices (which may be cash, property or rights, including securities of the Corporation or of another corporation or other entity) for which, the period or periods within which, and the other terms and conditions upon which, the shares of such series may be redeemed, in whole or in part, at the option of the Corporation or at the option of the holder or holders thereof or upon the happening of a specified event or events, if any, including the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise; 2 6. the amount payable out of the assets of the Corporation to the holders of shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation; 7. provisions, if any, for the conversion or exchange of the shares of such series, at any time or times, at the option of the holder or holders thereof or at the option of the Corporation or upon the happening of a specified event or events, into shares of any other class or classes or any other series of the same class of capital stock of the Corporation or into any other security of the Corporation, or into the stock or other securities of any other corporation or other entity, and the price or prices or rate or rates of conversion or exchange and any adjustments applicable thereto, and all other terms and conditions upon which such conversion or exchange may be made; 8. restrictions on the issuance of shares of the same series or of any other class or series of capital stock of the Corporation, if any; and 9. the voting rights and powers, if any, of the holders of shares of the series. (d) POWERS, PRIVILEGES AND RIGHTS PERTAINING TO THE COMMON STOCK. The powers, privileges and rights pertaining to the Common Stock shall be subject to the powers, privileges, preferences and rights pertaining to the Preferred Stock and any and all series thereof. The holders of shares of Common Stock shall be entitled to one vote for each such share upon all matters and proposals presented to the stockholders on which the holders of Common Stock are entitled to vote. Except as otherwise provided by law or by another provision of the certificate of incorporation of the Corporation or by a Preferred Stock Designation, the Common Stock shall have the exclusive right to vote for the election of directors and on all other matters or proposals presented to the stockholders. Notwithstanding the foregoing, the holders of shares of Common Stock, as such, shall not be entitled to vote on any amendment of the certificate of incorporation of the Corporation (including any amendment of any provision of a Preferred Stock Designation) that solely relates to the powers, privileges, preferences or rights pertaining to one or more outstanding series of Preferred Stock, or the number of shares of any such series, and does not affect the number of authorized shares of Preferred Stock or the powers, privileges and rights pertaining to the Common Stock, if the holders of any of such series of Preferred Stock are entitled, separately or together with the holders of any other series of Preferred Stock, to vote thereon pursuant to the certificate of incorporation of the Corporation (including any Preferred Stock Designation) or pursuant to the DGCL, unless a vote of holders of shares of Common Stock is otherwise required by any provision of the Preferred Stock Designation for any such series or any other provision of the certificate of incorporation of the Corporation fixing the powers, privileges, powers and rights of any such series or the qualifications, limitations or restrictions thereon or is otherwise required by law. Holders of shares of Preferred Stock (of any series) shall not be entited to receive notice of any meeting of stockholders at which they are not entitled 3 to vote, except as may be explicitly provided by any Preferred Stock Designation. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to another provision of the certificate of incorporation of the Corporation (including any Preferred Stock Designation). FIFTH: The name and mailing address of the incorporator are Stephen M. Besen, c/o Weil, Gotshal & Manges, 767 Fifth Avenue, New York, New York 10153. SIXTH: In furtherance and not in limitation of the powers conferred by law, subject to any limitations on the percentage vote required contained elsewhere in this Certificate of Incorporation, By-laws of the Corporation may be adopted, amended or repealed by the Board of Directors of the Corporation; PROVIDED, HOWEVER, that, subject to any limitations on the percentage vote required contained elsewhere in this Certificate of Incorporation, any By-laws adopted by the Board of Directors may be amended or repealed by the stockholders entitled to vote thereon. SEVENTH: (a) Notwithstanding that approval by a lesser percentage vote may be permitted by law or by any other Article hereof, this Certificate of Incorporation shall not be amended or repealed without the affirmative vote of the holders of a majority of the combined voting power of all then outstanding Common Stock, PROVIDED, HOWEVER, that an amendment to this Article SEVENTH and Articles NINTH and TENTH hereof shall require the affirmative vote of a two-thirds of the combined voting power of all then outstanding Common Stock. (b) Notwithstanding that approval by a lesser percentage vote may be permitted by law or by any other Article hereof, and subject to the proviso contained in Article SIXTH hereof, the By-laws of the Corporation shall not be amended or repealed without either (i) the affirmative vote of at least a majority of all of the directors of the Corporation or (ii) the affirmative vote of the holders of at least a majority of the combined voting power of all then outstanding Common Stock. EIGHTH: Election of directors need not be by written ballot. NINTH: For the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and its directors and stockholders: (a) The number of Directors of the Corporation shall be fixed from time to time by affirmative vote a majority of the Directors then in office. The Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the manner specified in the By-laws of the Corporation, one class to be originally elected for a term 4 expiring at the annual meeting of stockholders to be held in 2000, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 2001, and another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 2002, with each class to hold office until its successor is elected and qualified. At each annual meeting of the stockholders of the Corporation after fiscal year 1999, the successors of the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. (b) Newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled by the affirmative vote of a majority of the remaining Directors then in office, even though less than a quorum of the Board of Directors. Any Director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until Director's successor shall have been elected and qualified. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent director. TENTH: Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders. Any such action may not be effected by consent in writing. At any annual meeting or special meeting of stockholders of the Corporation, only such business shall be conducted as shall have been brought before such meeting in the manner provided by the By-laws of the Corporation. ELEVENTH: The Corporation shall indemnify, to the full extent permitted by Section 145 of the DGCL, all persons whom it may indemnify pursuant thereto. TWELFTH: No director shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of the DGCL or shall be liable by reason that, in addition to any and all other requirements for such liability, such director (i) shall have breached his or her duty of loyalty to the Corporation or its stockholders, (ii) shall not have acted in good faith or, in failing to act, shall not have acted in good faith, (iii) shall have acted in a manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law or (iv) shall have derived an improper personal benefit. Neither the amendment nor repeal of this Article nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. 5 IN WITNESS WHEREOF, the undersigned has duly executed this Amended and Restated Certificate of Incorporation as of the __th day of __________, 1999. ____________________ Mary P. McConnell Secretary 6 EX-3.2 4 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF GENMAR HOLDINGS, INC. (a Delaware corporation) ARTICLE I STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting shall be held each year at such date and time, within or without the State of Delaware, as the Board of Directors shall determine. SECTION 2. SPECIAL MEETINGS. Special meetings of stockholders for the transaction of such business as may properly come before the meeting may be called (i) by order of the Board of Directors or, (ii) by stockholders holding together at least a majority of all the shares of the Corporation entitled to vote at the meeting. Special meetings shall be held at such date and time, within or without the State of Delaware, as may be specified by such order. SECTION 3. NOTICE OF MEETINGS. Written notice of all meetings of the stockholders shall be mailed or delivered to each stockholder not less than 10 nor more than 60 days prior to the meeting. Notice of any special meeting shall state in general terms the purpose or purposes for which the meeting is to be held. SECTION 4. STOCKHOLDER LISTS. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 5. QUORUM. Except as otherwise provided by law or the Corporation's Certificate of Incorporation, a quorum for the transaction of business at any meeting of stockholders shall consist of the holders of record of a majority of the issued and outstanding shares of the capital stock of the Corporation entitled to vote at the meeting, present in person or by proxy. At all meetings of the stockholders at which a quorum is present, all matters, except as otherwise provided by law or the Certificate of Incorporation, shall be decided by the vote of the holders of a majority of the shares entitled to vote thereat present in person or by proxy. If there be no such quorum, the holders of a majority of such shares so present or represented may adjourn the meeting from time to time, without further notice, until a quorum shall have been obtained. When a quorum is once present it is not broken by the subsequent withdrawal of any stockholder. SECTION 6. ORGANIZATION. Meetings of stockholders shall be presided over by the Chairman, if any, or if none or in the Chairman's absence the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence the President, if any, or if none or in the President's absence a Vice-President, or, if none of the foregoing is present, by a chairman to be chosen by the stockholders entitled to vote who are present in person or by proxy at the meeting. The Secretary of the Corporation, or in the Secretary's absence an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall appoint any person present to act as secretary of the meeting. SECTION 7. VOTING; PROXIES; REQUIRED VOTE. At each meeting of stockholders, every stockholder shall be entitled to vote in person or by proxy appointed by instrument in writing, subscribed by such stockholder or by such stockholder's duly authorized attorney-in-fact, and, unless the Certificate of Incorporation provides otherwise, shall have one vote for each share of stock entitled to vote registered in the name of such stockholder on the books of the Corporation on the applicable record date fixed pursuant to these By-laws. At all elections of directors the voting may but need not be by ballot and a plurality of the votes cast there shall elect. Except as otherwise required by law or the Certificate of Incorporation, any other action shall be authorized by a majority of the votes cast. SECTION 8: NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS. (a) ANNUAL MEETINGS. (i) Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders (A) pursuant to the Corporation's notice of meeting, (B) by or at the direction of the Board or (C) by any stockholder of the Corporation who was a stockholder of 2 record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-law. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(i) of this By-law, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting, provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of (a) the 60th day prior to such annual meeting, or (b) the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (A) as to each person whom the stockholder proposes to nominate for election or re-election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (2) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of the By-law to the contrary, in the event that the number of 3 directors to be elected to the Board of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. (b) SPECIAL MEETINGS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (i) by or at the direction of the Board or (ii) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this By-law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-law. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (a)(ii) of the By-law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (c) GENERAL. (i) Only such persons who are nominated in accordance with the procedures set forth in this By-law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-law. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this By-law and, if any proposed nomination or business is not in compliance with this By-law, to declare that such defective proposal or nomination shall be disregarded. 4 (ii) For purposes of this By-law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news-service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this By-law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights (A) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (B) of the holders of any series of Preferred Stock to elect directors under specified circumstances. SECTION 9. INSPECTORS. The Board of Directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not so appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, and the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by such inspector or inspectors and execute a certificate of any fact found by such inspector or inspectors. ARTICLE II BOARD OF DIRECTORS SECTION 1. GENERAL POWERS. The business, property and affairs of the Corporation shall be managed by, or under the direction of, the Board of Directors. 5 SECTION 2. QUALIFICATION; NUMBER; TERM; REMUNERATION. (a) Each director shall be at least 18 years of age. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the entire Board shall be between six (6) and eighteen (18), the exact number fixed from time to time by affirmative vote of a majority of the Directors then in office, one of whom may be selected by the Board of Directors to be its Chairman. The use of the phrase "entire Board" herein refers to the total number of directors which the Corporation would have if there were no vacancies. (b) The Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, one class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 2000, another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 2001, and another class to be originally elected for a term expiring at the annual meeting of stockholders to be held in 2002, with each class to hold office until its successor is elected and qualified. At each annual meeting of the stockholders of the Corporation after fiscal year 1999, the successors of the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. (c) Directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any Director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of Directors in which the new directorship was created or the vacancy occurred and until Director's successor shall have been elected and qualified. (d) Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. SECTION 3. QUORUM AND MANNER OF VOTING. Except as otherwise provided by law, a majority of the entire Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting from time to time to another time and place without notice. Except as otherwise required by the Certificate of Incorporation of the Corporation, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 6 SECTION 4. PLACES OF MEETINGS. Meetings of the Board of Directors may be held at any place within or without the State of Delaware, as may from time to time be fixed by resolution of the Board of Directors, or as may be specified in the notice of meeting. SECTION 5. ANNUAL MEETING. Following the annual meeting of stockholders, the newly elected Board of Directors shall meet for the purpose of the election of officers and the transaction of such other business as may properly come before the meeting. Such meeting may be held without notice immediately after the annual meeting of stockholders at the same place at which such stockholders' meeting is held. SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such times and places as the Board of Directors shall from time to time by resolution determine. SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the President or by a majority of the directors then in office. SECTION 8. NOTICE OF MEETINGS. A notice of the place, date and time and the purpose or purposes of each meeting of the Board of Directors shall be given to each director by mailing the same at least two days before the meeting, or by telegraphing or telephoning the same or by delivering the same personally not later than the day before the day of the meeting. SECTION 9. ORGANIZATION. At all meetings of the Board of Directors, the Chairman, if any, or if none or in the Chairman's absence or inability to act the President, or in the President's absence or inability to act any Vice-President who is a member of the Board of Directors, or in such Vice-President's absence or inability to act a chairman chosen by the directors, shall preside. SECTION 10. RESIGNATION. Any director may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any or all of the directors may be removed, with or without cause, by the holders of a majority of the shares of stock outstanding and entitled to vote for the election of directors. SECTION 11. VACANCIES. Unless otherwise provided in these By-laws, vacancies on the Board of Directors, whether caused by resignation, death, disqualification, removal, an increase in the authorized number of directors or otherwise, may be filled by the affirmative vote of a majority of the remaining directors, although less than a quorum, or by a sole remaining director, or at a special meeting of the stockholders, by the holders of shares entitled to vote for the election of directors. 7 SECTION 12. ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all the directors consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. ARTICLE III COMMITTEES SECTION 1. APPOINTMENT. From time to time the Board of Directors by a resolution adopted by a majority of the entire Board may appoint any committee or committees for any purpose or purposes, to the extent lawful, which shall have powers as shall be determined and specified by the Board of Directors in the resolution of appointment. SECTION 2. PROCEDURES, QUORUM AND MANNER OF ACTING. Each committee shall fix its own rules of procedure, and shall meet where and as provided by such rules or by resolution of the Board of Directors. Except as otherwise provided by law, the presence of a majority of the then appointed members of a committee shall constitute a quorum for the transaction of business by that committee, and in every case where a quorum is present the affirmative vote of a majority of the members of the committee present shall be the act of the committee. Each committee shall keep minutes of its proceedings, and actions taken by a committee shall be reported to the Board of Directors. SECTION 3. ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if all the members of the committee consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the committee. SECTION 4. TERM; TERMINATION. In the event any person shall cease to be a director of the Corporation, such person shall simultaneously therewith cease to be a member of any committee appointed by the Board of Directors. ARTICLE IV OFFICERS SECTION 1. ELECTION AND QUALIFICATIONS. The Board of Directors shall elect the officers of the Corporation, which shall include a President and a Secretary, and may include, by election or appointment, one or more Vice-Presidents (any one or more of whom may be given an additional designation of rank or function), a Treasurer and 8 such assistant secretaries, such Assistant Treasurers and such other officers as the Board may from time to time deem proper. Each officer shall have such powers and duties as may be prescribed by these By-laws and as may be assigned by the Board of Directors or the President. Any two or more offices may be held by the same person except the offices of President and Secretary. SECTION 2. TERM OF OFFICE AND REMUNERATION. The term of office of all officers shall be one year and until their respective successors have been elected and qualified, but any officer may be removed from office, either with or without cause, at any time by the Board of Directors. Any vacancy in any office arising from any cause may be filled for the unexpired portion of the term by the Board of Directors. The remuneration of all officers of the Corporation may be fixed by the Board of Directors or in such manner as the Board of Directors shall provide. SECTION 3. RESIGNATION; REMOVAL. Any officer may resign at any time upon written notice to the Corporation and such resignation shall take effect upon receipt thereof by the President or Secretary, unless otherwise specified in the resignation. Any officer shall be subject to removal, with or without cause, at any time by vote of a majority of the entire Board. SECTION 4. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors. SECTION 5. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President shall be the chief executive officer of the Corporation, and shall have such duties as customarily pertain to that office. The President shall have general management and supervision of the property, business and affairs of the Corporation and over its other officers; may appoint and remove assistant officers and other agents and employees; and may execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations and instruments. SECTION 6. VICE-PRESIDENT. A Vice-President may execute and deliver in the name of the Corporation contracts and other obligations and instruments pertaining to the regular course of the duties of said office, and shall have such other authority as from time to time may be assigned by the Board of Directors or the President. SECTION 7. TREASURER. The Treasurer shall in general have all duties incident to the position of Treasurer and such other duties as may be assigned by the Board of Directors or the President. SECTION 8. SECRETARY. The Secretary shall in general have all the duties incident to the office of Secretary and such other duties as may be assigned by the Board of Directors or the President. 9 SECTION 9. ASSISTANT OFFICERS. Any assistant officer shall have such powers and duties of the officer such assistant officer assists as such officer or the Board of Directors shall from time to time prescribe. ARTICLE V BOOKS AND RECORDS SECTION 1. LOCATION. The books and records of the Corporation may be kept at such place or places within or outside the State of Delaware as the Board of Directors or the respective officers in charge thereof may from time to time determine. The record books containing the names and addresses of all stockholders, the number and class of shares of stock held by each and the dates when they respectively became the owners of record thereof shall be kept by the Secretary as prescribed in the By-laws and by such officer or agent as shall be designated by the Board of Directors. SECTION 2. ADDRESSES OF STOCKHOLDERS. Notices of meetings and all other corporate notices may be delivered personally or mailed to each stockholder at the stockholder's address as it appears on the records of the Corporation. SECTION 3. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which 10 proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by this chapter, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. ARTICLE VI CERTIFICATES REPRESENTING STOCK SECTION 1. CERTIFICATES; SIGNATURES. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate, signed by or in the name of the Corporation by the Chairman or Vice-Chairman of the Board of Directors, or the President or Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares registered in certificate form. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. The name of the holder of record of the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the books of the Corporation. SECTION 2. TRANSFERS OF STOCK. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, shares of capital stock shall be transferable on the books of the Corporation only by the holder of record thereof in person, or by duly authorized attorney, upon surrender and cancellation 11 of certificates for a like number of shares, properly endorsed, and the payment of all taxes due thereon. SECTION 3. FRACTIONAL SHARES. The Corporation may, but shall not be required to, issue certificates for fractions of a share where necessary to effect authorized transactions, or the Corporation may pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or it may issue scrip in registered or bearer form over the manual or facsimile signature of an officer of the Corporation or of its agent, exchangeable as therein provided for full shares, but such scrip shall not entitle the holder to any rights of a stockholder except as therein provided. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates representing shares of the Corporation. SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation may issue a new certificate of stock in place of any certificate, theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate. ARTICLE VII DIVIDENDS Subject always to the provisions of law and the Certificate of Incorporation, the Board of Directors shall have full power to determine whether any, and, if any, what part of any, funds legally available for the payment of dividends shall be declared as dividends and paid to stockholders; the division of the whole or any part of such funds of the Corporation shall rest wholly within the lawful discretion of the Board of Directors, and it shall not be required at any time, against such discretion, to divide or pay any part of such funds among or to the stockholders as dividends or otherwise; and before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, thinks proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII 12 RATIFICATION Any transaction, questioned in any law suit on the ground of lack of authority, defective or irregular execution, adverse interest of director, officer or stockholder, non-disclosure, miscomputation, or the application of improper principles or practices of accounting, may be ratified before or after judgment, by the Board of Directors or by the stockholders, and if so ratified shall have the same force and effect as if the questioned transaction had been originally duly authorized. Such ratification shall be binding upon the Corporation and its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction. ARTICLE IX CORPORATE SEAL The corporate seal shall have inscribed thereon the name of the Corporation and the year of its incorporation, and shall be in such form and contain such other words and/or figures as the Board of Directors shall determine. The corporate seal may be used by printing, engraving, lithographing, stamping or otherwise making, placing or affixing, or causing to be printed, engraved, lithographed, stamped or otherwise made, placed or affixed, upon any paper or document, by any process whatsoever, an impression, facsimile or other reproduction of said corporate seal. ARTICLE X FISCAL YEAR The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors. Unless otherwise fixed by the Board of Directors, the fiscal year of the Corporation shall be the calendar year. ARTICLE XI WAIVER OF NOTICE Whenever notice is required to be given by these By-laws or by the Certificate of Incorporation or by law, a written waiver thereof, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. 13 ARTICLE XII BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC. SECTION 1. BANK ACCOUNTS AND DRAFTS. In addition to such bank accounts as may be authorized by the Board of Directors, the primary financial officer or any person designated by said primary financial officer, whether or not an employee of the Corporation, may authorize such bank accounts to be opened or maintained in the name and on behalf of the Corporation as he may deem necessary or appropriate, payments from such bank accounts to be made upon and according to the check of the Corporation in accordance with the written instructions of said primary financial officer, or other person so designated by the Treasurer. SECTION 2. CONTRACTS. The Board of Directors may authorize any person or persons, in the name and on behalf of the Corporation, to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances. SECTION 3. PROXIES; POWERS OF ATTORNEY; OTHER INSTRUMENTS. The Chairman, the President or any other person designated by either of them shall have the power and authority to execute and deliver proxies, powers of attorney and other instruments on behalf of the Corporation in connection with the rights and powers incident to the ownership of stock by the Corporation. The Chairman, the President or any other person authorized by proxy or power of attorney executed and delivered by either of them on behalf of the Corporation may attend and vote at any meeting of stockholders of any company in which the Corporation may hold stock, and may exercise on behalf of the Corporation any and all of the rights and powers incident to the ownership of such stock at any such meeting, or otherwise as specified in the proxy or power of attorney so authorizing any such person. The Board of Directors, from time to time, may confer like powers upon any other person. SECTION 4. FINANCIAL REPORTS. The Board of Directors may appoint the primary financial officer or other fiscal officer or any other officer to cause to be prepared and furnished to stockholders entitled thereto any special financial notice and/or financial statement, as the case may be, which may be required by any provision of law. ARTICLE XIII AMENDMENTS The By-laws of the Corporation may be amended or repealed by either (i) the affirmative vote of at least a majority of all of the directors of the Company or (ii) the affirmative vote of the holders of at least a majority of the then outstanding shares of the Corporation. 14 EX-4.1 5 EXHIBIT 4.1 COMMON STOCK COMMON STOCK [LOGO] INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE NW SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 372305 10 2 THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF ______________________ GENMAR HOLDINGS, INC. _____________________ TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR. WITNESS THE FACSIMILE SIGNATURES OF THE CORPORATION'S DULY AUTHORIZED OFFICERS. DATED: [SIG] SECRETARY PRESIDENT [SIG] COUNTERSIGNED AND REGISTERED: NORWEST BANK MINNESOTA, N.A. TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian TEN ENT -- as tenants by the entireties (Cust) (Minor) JT TEN -- as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act in common (State)
Additional abbreviations may also be used though not in the above list. For value received,____ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ---------------------------------------------------- - ----------------------------------------------------
- -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- _____________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________ Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated _____________________________ _____________________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE GUARANTEED BY: EX-10.6 6 EXHIBIT 10.6 GENMAR HOLDINGS, INC. FISCAL 1999 STOCK INCENTIVE PLAN 1. PURPOSE. The Genmar Holdings, Inc. Fiscal 1999 Stock Incentive Plan (the "Plan") is intended to provide incentives which will attract, retain and motivate highly competent persons as officers and key employees of, and consultants to, Genmar Holdings, Inc. (the "Company") and its subsidiaries and affiliates, by providing them opportunities to acquire shares of the Company's common stock, par value $.01 per share (the "Common Stock"), or to receive monetary payments based on the value of such shares pursuant to the Benefits (as defined below) described herein. Additionally, the Plan is intended to assist in further aligning the interests of the Company's officers, key employees and consultants to those of its other stockholders. 2. ADMINISTRATION. (a) The Plan will be administered by a committee (the "Committee") appointed by the Board of Directors of the Company from among its members (which may be the Compensation Committee) and shall be comprised, unless otherwise determined by the Board of Directors, solely of not less than two members who shall be (i) "Non-Employee Directors" within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii) "outside directors" within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The Committee is authorized, subject to the provisions of the Plan, to establish such rules and regulations as it deems necessary for the proper administration of the Plan and to make such determinations and interpretations and to take such action in connection with the Plan and any Benefits granted hereunder as it deems necessary or advisable. All determinations and interpretations made by the Committee shall be binding and conclusive on all participants and their legal representatives. No member of the Committee and no employee of the Company shall be liable for any act or failure to act hereunder, except in circumstances involving his or her bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of this Plan have been delegated. The Company shall indemnify members of the Committee and any agent of the Committee who is an employee of the Company, a subsidiary or an affiliate against any and all liabilities or expenses to which they may be subjected by reason of any act or failure to act with respect to their duties on behalf of the Plan, except in circumstances involving such person's bad faith, gross negligence or willful misconduct. (b) The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable, and the Committee, or any person to whom it has delegated duties as aforesaid, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company, or the subsidiary or affiliate whose employees have benefited from the Plan, as determined by the Committee. 3. PARTICIPANTS. Participants will consist of such officers and key employees of, and such consultants to, the Company and its subsidiaries and affiliates as the Committee in its sole discretion determines to be significantly responsible for the success and future growth and profitability of the Company and whom the Committee may designate from time to time to receive Benefits under the Plan. Designation of a participant in any year shall not require the Committee to designate such person to receive a Benefit in any other year or, once designated, to receive the same type or amount of Benefit as granted to the participant in any other year. The Committee shall consider such factors as it deems pertinent in selecting participants and in determining the type and amount of their respective Benefits. 4. TYPE OF BENEFITS. Benefits under the Plan may be granted in any one or a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock Awards, (d) Performance Awards and (e) Stock Units (each as described below, and collectively, the "Benefits"). Stock Awards, Performance Awards, and Stock Units may, as determined by the Committee in its discretion, constitute Performance-Based Awards, as described in Section 11 hereof. Benefits shall be evidenced by agreements (which need not be identical) in such forms as the Committee may from time to time approve; PROVIDED, HOWEVER, that in the event of any conflict between the provisions of the Plan and any such agreements, the provisions of the Plan shall prevail. 5. COMMON STOCK AVAILABLE UNDER THE PLAN. The aggregate number of shares of Common Stock that may be subject to Benefits, including Stock Options, granted under this Plan shall be 2,000,000 shares of Common Stock, which may be authorized and unissued or treasury shares, subject to any adjustments made in accordance with Section 13 hereof. The maximum number of shares of Common Stock with respect to which Benefits may be granted or measured to any individual participant under the Plan during the term of the Plan shall not exceed 200,000, provided, however, that the maximum number of shares of Common Stock with respect to which Stock Options and Stock Appreciation Rights may be granted to an individual participant under the Plan during the term of the Plan shall not exceed 200,000 (in each case, subject to adjustments made in accordance with Section 13 hereof). Any shares of Common Stock subject to a Stock Option or Stock Appreciation Right which for any reason is cancelled or terminated without having been exercised, any shares subject to Stock Awards, Performance Awards or Stock Units which are forfeited, any shares subject to Performance Awards settled in cash or any shares delivered to the Company as part or full payment for the exercise of a Stock Option or Stock Appreciation Right shall again be available for Benefits under the Plan. The preceding sentence shall apply only for purposes of determining the aggregate number of shares of Common Stock subject to Benefits but shall not apply for purposes of determining the maximum number of shares of Common Stock with respect to which Benefits (including the maximum number of 2 shares of Common Stock subject to Stock Options and Stock Appreciation Rights) that may be granted to any individual participant under the Plan. 6. STOCK OPTIONS. Stock Options will consist of awards from the Company that will enable the holder to purchase a number of shares of Common Stock, at set terms. Stock Options may be "incentive stock options" ("Incentive Stock Options"), within the meaning of Section 422 of the Code, or Stock Options which do not constitute Incentive Stock Options ("Nonqualified Stock Options"). The Committee will have the authority to grant to any participant one or more Incentive Stock Options, Nonqualified Stock Options, or both types of Stock Options (in each case with or without Stock Appreciation Rights). Each Stock Option shall be subject to such terms and conditions consistent with the Plan as the Committee may impose from time to time, subject to the following limitations: (a) EXERCISE PRICE. Each Stock Option granted hereunder shall have such per-share exercise price as the Committee may determine at the date of grant; PROVIDED, HOWEVER, subject to subsection (d) below, that the per-share exercise price shall not be less than 100% of the Fair Market Value (as defined below) of the Common Stock on the date the Stock Option is granted. (b) PAYMENT OF EXERCISE PRICE. The option exercise price may be paid in cash or, in the discretion of the Committee, by the delivery of shares of Common Stock of the Company then owned by the participant, or by delivery to the Company of (x) irrevocable instructions to deliver directly to a broker the stock certificates representing the shares for which the Option is being exercised, and (y) irrevocable instructions to such broker to sell such shares for which the Option is being exercised, and promptly deliver to the Company the portion of the proceeds equal to the Option exercise price and any amount necessary to satisfy the Company's obligation for withholding taxes, or any combination thereof. For purposes of making payment in shares of Common Stock, such shares shall be valued at their Fair Market Value on the date of exercise of the Option and shall have been held by the Participant for at least six months. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The Committee may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law and the purpose of the Plan, including, without limitation, in lieu of the exercise of a Stock Option by delivery of shares of Common Stock of the Company then owned by a participant, providing the Company with a notarized statement attesting to the number of shares owned, where upon verification by the Company, the Company would issue to the participant only the number of incremental shares to which the participant is entitled upon exercise of the Stock Option. The Committee may, at the time of grant, provide for the grant of a subsequent Restoration Stock Option if the exercise price is paid for by delivering previously owned shares of Common Stock of the 3 Company. Restoration Stock Options (i) may be granted in respect of no more than the number of shares of Common Stock tendered in exercising the predecessor Stock Option, (ii) shall have an exercise price equal to the Fair Market Value on the date the Restoration Stock Option is granted, and (iii) may have an exercise period that does not extend beyond the remaining term of the predecessor Stock Option. In determining which methods a participant may utilize to pay the exercise price, the Committee may consider such factors as it determines are appropriate. (c) EXERCISE PERIOD. Stock Options granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; PROVIDED, HOWEVER, that no Stock Option shall be exercisable later than ten years after the date it is granted except in the event of a participant's death, in which case, the exercise period of such participant's Stock Options may be extended beyond such period but no later than one year after the participant's death. All Stock Options shall terminate at such earlier times and upon such conditions or circumstances as the Committee shall in its discretion set forth in such option agreement at the date of grant; PROVIDED, HOWEVER, the Committee may, in its sole discretion, later waive any such condition. (d) LIMITATIONS ON INCENTIVE STOCK OPTIONS. Incentive Stock Options may be granted only to participants who are employees of the Company or one of its subsidiaries (within the meaning of Section 424(f) of the Code) at the date of grant. The aggregate Fair Market Value (determined as of the time the Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under all option plans of the Company and of any parent corporation or subsidiary corporation (as defined in Sections 424(e) and (f) of the Code, respectively)) shall not exceed $100,000. For purposes of the preceding sentence, Incentive Stock Options will be taken into account in the order in which they are granted. The per-share exercise price of an Incentive Stock Option shall not be less than 100% of the Fair Market Value of the Common Stock on the date of grant, and no Incentive Stock Option may be exercised later than ten years after the date it is granted; PROVIDED, HOWEVER, Incentive Stock Options may not be granted to any participant who, at the time of grant, owns stock possessing (after the application of the attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any parent or subsidiary corporation of the Company, unless the exercise price is fixed at not less than 110% of the Fair Market Value of the Common Stock on the date of grant and the exercise of such option is prohibited by its terms after the expiration of five years from the date of grant of such option. In addition, no Incentive Stock Option may be issued to a participant in tandem with a Nonqualified Stock Option. 4 (e) POST-EMPLOYMENT EXERCISES. The exercise of any Stock Option after termination of employment of a participant with the Company, a subsidiary of the Company or with any company providing consulting services to the Company shall be subject to such conditions as imposed by the Committee at the time of the grant and satisfaction of the conditions precedent that the participant neither (i) competes with, or takes other employment with or renders services to a competitor of, the Company, its subsidiaries or affiliates without the written consent of the Company; provided that this clause (i) shall not apply to consultants of the Company, nor (ii) conducts himself or herself in a manner adversely affecting the Company; PROVIDED, HOWEVER, that the Committee, in its sole discretion, may waive any conditions imposed in the grant letter or as set forth in (i) and (ii) above relating to the exercise of options after the date of termination of employment during the term of the option. 7. STOCK APPRECIATION RIGHTS. (a) The Committee may, in its discretion, grant Stock Appreciation Rights to the holders of any Stock Options granted hereunder. In addition, Stock Appreciation Rights may be granted independently of, and without relation to, Stock Options. A Stock Appreciation Right means a right to receive a payment in cash, Common Stock or a combination thereof, in an amount equal to the excess of (x) the Fair Market Value, or other specified valuation, of a specified number of shares of Common Stock on the date the right is exercised over (y) the Fair Market Value, or other specified valuation (which shall be no less than the Fair Market Value) of such shares of Common Stock on the date the right is granted, all as determined by the Committee; PROVIDED, HOWEVER, that if a Stock Appreciation Right is granted in tandem with or in substitution for a Stock Option, the designated Fair Market Value in the award agreement may be the Fair Market Value on the date such Stock Option was granted. Each Stock Appreciation Right shall be subject to such terms and conditions as the Committee shall impose from time to time. (b) Stock Appreciation Rights granted under the Plan shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee; PROVIDED, HOWEVER, that no Stock Appreciation Rights shall be exercisable later than ten years after the date it is granted except in the event of a participant's death, in which case, the exercise period of such participant's Stock Appreciation Rights may be extended beyond such period but no later than one year after the participant's death. All Stock Appreciation Rights shall terminate at such earlier times and upon such conditions or circumstances as the Committee shall in its discretion set forth in such right at the date of grant. 5 (c) The exercise of any Stock Appreciation Right after termination of employment of a participant with the Company, a subsidiary of the Company or with any company providing consulting services to the Company shall be subject to satisfaction of the conditions precedent that the participant neither (i) competes with, or takes other employment with or renders services to a competitor of, the Company, its subsidiaries or affiliates without the written consent of the Company; provided that this clause (i) shall not apply to consultants of the Company, nor (ii) conducts himself or herself in a manner adversely affecting the Company; PROVIDED, HOWEVER, that the Committee, in its sole discretion, may waive any conditions imposed in the grant letter or as set forth in (i) and (ii) above relating to the exercise of options after the date of termination of employment during the term of the option. 8. STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards (which may include mandatory payment of bonus incentive compensation in stock) consisting of Common Stock issued or transferred to participants with or without other payments therefor. Stock Awards may be subject to such terms and conditions as the Committee determines appropriate, including, without limitation, restrictions on the sale or other disposition of such shares, the right of the Company to reacquire such shares for no consideration upon termination of the participant's employment within specified periods, and may constitute Performance-Based Awards, as described in Section 11 hereof. The Committee may require the participant to deliver a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such an Award. The Committee may also require that the stock certificates evidencing such shares be held in custody or bear restrictive legends until the restrictions thereon shall have lapsed. The Stock Award shall specify whether the participant shall have, with respect to the shares of Common Stock subject to a Stock Award, all of the rights of a holder of shares of Common Stock of the Company, including the right to receive dividends and to vote the shares. 9. PERFORMANCE AWARDS. (a) Performance Awards may be granted to participants at any time and from time to time, as shall be determined by the Committee. Performance Awards may constitute Performance-Based Awards, as described in Section 11 hereof. The Committee shall have complete discretion in determining the number, amount and timing of awards granted to each participant. Such Performance Awards may be in the form of shares of Common Stock or Stock Units. Performance Awards may be awarded as short-term or long-term incentives. Performance targets may be based upon, without limitation, Company-wide, divisional and/or individual performance. (b) With respect to those Performance Awards that are not intended to constitute Performance-Based Awards, the Committee shall have the authority at any time to make adjustments to performance targets for any outstanding Performance Awards which the Committee deems necessary or desirable unless at the time of 6 establishment of such targets the Committee shall have precluded its authority to make such adjustments. (c) Payment of earned Performance Awards shall be made in accordance with terms and conditions prescribed or authorized by the Committee. The participant may elect to defer, or the Committee may require or permit the deferral of, the receipt of Performance Awards upon such terms as the Committee deems appropriate. 10. STOCK UNITS. (a) The Committee may, in its discretion, grant Stock Units to participants hereunder. The Committee shall determine the criteria for the vesting of Stock Units. Stock Units may constitute Performance-Based Awards, as described in Section 11 hereof. A Stock Unit granted by the Committee shall provide payment in shares of Common Stock at such time as the award agreement shall specify. Shares of Common Stock issued pursuant to this Section 10 may be issued with or without other payments therefor as may be required by applicable law or such other consideration as may be determined by the Committee. The Committee shall determine whether a participant granted a Stock Unit shall be entitled to a Dividend Equivalent Right (as defined below). (b) Upon vesting of a Stock Unit, unless the Committee has determined to defer payment with respect to such unit or a participant has elected to defer payment under subsection (c) below, shares of Common Stock representing the Stock Units shall be distributed to the participant unless the Committee provides for the payment of the Stock Units in cash or partly in cash and partly in shares of Common Stock equal to the value of the shares of Common Stock which would otherwise be distributed to the participant. (c) Prior to the year with respect to which a Stock Unit may vest, the participant may elect not to receive a distribution upon the vesting of such Stock Unit and for the Company to continue to maintain the Stock Unit on its books of account. In such event, the value of a Stock Unit shall be payable in shares of Common Stock pursuant to the agreement of deferral. (d) A "Stock Unit" means a notional account representing one share of Common Stock. A "Dividend Equivalent Right" means the right to receive the amount of any dividend paid on the share of Common Stock underlying a Stock Unit, which shall be payable in cash or in the form of additional Stock Units. 11. PERFORMANCE-BASED AWARDS. Certain Benefits granted under the Plan may be granted in a manner such that the Benefits qualify for the performance-based compensation exemption of Section 162(m) of the Code ("Performance-Based Awards"). As determined by the Committee in its sole discretion, either the granting or vesting of such Performance-Based Awards shall be based on achievement of hurdle rates and/or growth rates in one or more business criteria that apply to the individual participant, one or more business units or the Company as a whole. The business criteria shall be as 7 follows, individually or in combination: (i) net earnings; (ii) earnings per share; (iii) net sales growth; (iv) market share; (v) net operating profit; (vi) expense targets; (vii) working capital targets relating to inventory and/or accounts receivable; (viii) operating margin; (ix) return on equity; (x) return on assets; (xi) planning accuracy (as measured by comparing planned results to actual results); (xii) market price per share; and (xiii) total return to stockholders. In addition, Performance-Based Awards may include comparisons to the performance of other companies, such performance to be measured by one or more of the foregoing business criteria. With respect to Performance-Based Awards, (i) the Committee shall establish in writing (x) the performance goals applicable to a given period, and such performance goals shall state, in terms of an objective formula or standard, the method for computing the amount of compensation payable to the participant if such performance goals are obtained and (y) the individual employees or class of employees to which such performance goals apply no later than 90 days after the commencement of such period (but in no event after 25% of such period has elapsed) and (ii) no Performance-Based Awards shall be payable to or vest with respect to, as the case may be, any participant for a given period until the Committee certifies in writing that the objective performance goals (and any other material terms) applicable to such period have been satisfied. With respect to any Benefits intended to qualify as Performance-Based Awards, after establishment of a performance goal, the Committee shall not revise such performance goal or increase the amount of compensation payable thereunder (as determined in accordance with Section 162(m) of the Code) upon the attainment of such performance goal. Notwithstanding the preceding sentence, the Committee may reduce or eliminate Benefits payable upon the attainment of such performance goal. 12. FOREIGN LAWS. The Committee may grant Benefits to individual participants who are subject to the tax laws of nations other than the United States, which Benefits may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action which it deems advisable to obtain approval of such Benefits by the appropriate foreign governmental entity; PROVIDED, HOWEVER, that no such Benefits may be granted pursuant to this Section 12 and no action may be taken which would result in a violation of the Exchange Act, the Code or any other applicable law. 13. ADJUSTMENT PROVISIONS; CHANGE IN CONTROL. (a) If there shall be any change in the Common Stock of the Company or the capitalization of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spin-off, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to stockholders of the Company in order to prevent dilution or enlargement of participants' rights under the Plan, the Committee, in its sole discretion, shall adjust, in an equitable manner, as applicable, the number and kind of shares that may be issued under the Plan, the number and kind of shares subject to outstanding Benefits, the exercise price applicable to outstanding Benefits, and the Fair Market Value of the Common Stock and other value determinations applicable to outstanding Benefits; provided, however, that any such 8 arithmetic adjustment to a Performance-Based Award shall not cause the amount of compensation payable thereunder to be increased from what otherwise would have been due upon attainment of the unadjusted award. Appropriate adjustments may also be made by the Committee in the terms of any Benefits under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Benefits on an equitable basis, including modifications of performance targets and changes in the length of performance periods; provided, however, that any such arithmetic adjustment to a Performance-Based Award shall not cause the amount of compensation payable thereunder to be increased from what otherwise would have been due upon attainment of the unadjusted award. In addition, other than with respect to Stock Options, Stock Appreciation Rights, and other awards intended to constitute Performance-Based Awards, the Committee is authorized to make adjustments to the terms and conditions of, and the criteria included in, Benefits in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding the foregoing, (i) each such adjustment with respect to an Incentive Stock Option shall comply with the rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment be made which would render any Incentive Stock Option granted hereunder other than an incentive stock option for purposes of Section 422 of the Code. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on participants under the Plan. (b) Notwithstanding any other provision of this Plan, if there is a Change in Control of the Company, all then outstanding Stock Options and Stock Appreciation Rights shall immediately vest and become exercisable. For purposes of this Section 14(b), a "Change in Control" of the Company shall be deemed to have occurred upon any of the following events: (i) a change in control of the Company that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; or (ii) during any period of two (2) consecutive years, the individuals who at the beginning of such period constitute the Company's Board of Directors or any individuals who would be "Continuing Directors" (as hereinafter defined) cease for any reason to constitute at least a majority thereof; or (iii) the Company's Common Stock shall cease to be publicly traded after initially being publicly traded; or (iv) the Company's Board of Directors shall approve a sale of all or substantially all of the assets of the Company, and such transaction shall have been consummated; or (v) the Company's Board of Directors shall approve any merger, consolidation, or like business combination or reorganization of 9 the Company, the consummation of which would result in the occurrence of any event described in Section 13(b)(i) above, and such transaction shall have been consummated. For purposes of this Section 13(b), "Continuing Directors" shall mean (x) the directors of the Company in office on the Effective Date (as defined below) and (y) any successor to any such director and any additional director who after the Effective Date was nominated or selected by a majority of the Continuing Directors (or the Nominating Committee of the Board of Directors of the Company) in office at the time of his or her nomination or selection. The Committee, in its discretion, may determine that, upon the occurrence of a Change in Control of the Company, each Stock Option and Stock Appreciation Right outstanding hereunder shall terminate within a specified number of days after notice to the holder, and such holder shall receive, with respect to each share of Common Stock subject to such Stock Option or Stock Appreciation Right, an amount equal to the excess of the Fair Market Value of such shares of Common Stock immediately prior to the occurrence of such Change in Control over the exercise price per share of such Stock Option or Stock Appreciation Right; such amount to be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its discretion, shall determine. The provisions contained in the preceding sentence shall be inapplicable to a Stock Option or Stock Appreciation Right granted within six (6) months before the occurrence of a Change in Control if the holder of such Stock Option or Stock Appreciation Right is subject to the reporting requirements of Section 16(a) of the Exchange Act and no exception from liability under Section 16(b) of the Exchange Act is otherwise available to such holder. 14. NONTRANSFERABILITY. Each Benefit granted under the Plan to a participant shall not be transferable otherwise than by will or the laws of descent and distribution, and shall be exercisable, during the participant's lifetime, only by the participant. In the event of the death of a participant, each Stock Option or Stock Appreciation Right theretofore granted to him or her shall be exercisable during such period after his or her death as the Committee shall in its discretion set forth in such option or right at the date of grant and then only by the executor or administrator of the estate of the deceased participant or the person or persons to whom the deceased participant's rights under the Stock Option or Stock Appreciation Right shall pass by will or the laws of descent and distribution. Notwithstanding the foregoing, at the discretion of the Committee, an award of a Benefit other than an Incentive Stock Option may permit the transferability of a Benefit by a participant solely to the participant's spouse, siblings, parents, children and grandchildren or trusts for the benefit of such persons or partnerships, corporations, limited liability companies or other entities owned solely by such persons, including trusts for such persons, subject to any restriction included in the award of the Benefit. 15. USE OF PROCEEDS. The cash proceeds of the sale of Shares subject to the Options granted hereunder are to be added to the general funds of the Company and used for its general corporate purposes as the Board of Directors shall determine. 10 16. OTHER PROVISIONS. The award of any Benefit under the Plan may also be subject to such other provisions (whether or not applicable to the Benefit awarded to any other participant) as the Committee determines appropriate, including, without limitation, for the installment purchase of Common Stock under Stock Options, for the installment exercise of Stock Appreciation Rights, to assist the participant in financing the acquisition of Common Stock, for the forfeiture of, or restrictions on resale or other disposition of, Common Stock acquired under any form of Benefit, for the acceleration of exercisability or vesting of Benefits in the event of a change in control of the Company, for the payment of the value of Benefits to participants in the event of a change in control of the Company, or to comply with federal and state securities laws, or understandings or conditions as to the participant's employment in addition to those specifically provided for under the Plan. The Committee shall have full discretion to interpret and administer the Plan. 17. FAIR MARKET VALUE. For purposes of this Plan and any Benefits awarded hereunder, Fair Market Value shall be the closing price of the Company's Common Stock on the date of calculation (or on the last preceding trading date if Common Stock was not traded on such date) if the Company's Common Stock is readily tradeable on a national securities exchange or other market system, and if the Company's Common Stock is not readily tradeable, Fair Market Value shall mean the amount determined in good faith by the Committee as the fair market value of the Common Stock of the Company. 18. WITHHOLDING. All payments or distributions of Benefits made pursuant to the Plan shall be net of any amounts required to be withheld pursuant to applicable federal, state and local tax withholding requirements. If the Company proposes or is required to distribute Common Stock pursuant to the Plan, it may require the recipient to remit to it or to the corporation that employs such recipient an amount sufficient to satisfy such tax withholding requirements prior to the delivery of any certificates for such Common Stock. In lieu thereof, the Company or the employing corporation shall have the right to withhold the amount of such taxes from any other sums due or to become due from such corporation to the recipient as the Committee shall prescribe. The Committee may, in its discretion and subject to such rules as it may adopt (including any as may be required to satisfy applicable tax and/or non-tax regulatory requirements), permit an optionee or award or right holder to pay all or a portion of the federal, state and local withholding taxes arising in connection with any Benefit consisting of shares of Common Stock by electing to have the Company withhold shares of Common Stock having a Fair Market Value equal to the amount of tax to be withheld, such tax calculated at rates required by statute or regulation. 19. TENURE. A participant's right, if any, to continue to serve the Company or any of its subsidiaries or affiliates as an officer, employee, or otherwise, shall not be enlarged or otherwise affected by his or her designation as a participant under the Plan. 20. UNFUNDED PLAN. Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting 11 its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended. 21. NO FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan or any Benefit. The Committee shall determine whether cash, or Benefits, or other property shall be issued or paid in lieu of fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 22. DURATION, AMENDMENT AND TERMINATION. No Benefit shall be granted more than ten years after the Effective Date. The Committee may amend the Plan from time to time or suspend or terminate the Plan at any time. No amendment of the Plan may be made without approval of the stockholders of the Company if the amendment will: (i) disqualify any Incentive Stock Options granted under the Plan; (ii) increase the aggregate number of shares of Common Stock that may be delivered through Stock Options under the Plan; (iii) increase either of the maximum amounts which can be paid to an individual participant under the Plan as set forth in Section 5 hereof; (iv) change the types of business criteria on which Performance-Based Awards are to be based under the Plan; or (v) modify the requirements as to eligibility for participation in the Plan. 23. GOVERNING LAW. This Plan, Benefits granted hereunder and actions taken in connection herewith shall be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws). 24. EFFECTIVE DATE. (a) The Plan shall be effective as of [ ], the date on which the Plan was adopted by the Committee (the "Effective Date"), provided that the Plan is approved by the stockholders of the Company at an annual meeting, any special meeting or by written consent of stockholders of the Company within 12 months of the Effective Date, and such approval of stockholders shall be a condition to the right of each participant to receive any Benefits hereunder. Any Benefits granted under the Plan prior to such approval of stockholders shall be effective as of the date of grant (unless, with respect to any Benefit, the Committee specifies otherwise at the time of grant), but no such Benefit may be exercised or settled and no restrictions relating to any Benefit may lapse prior to such stockholder approval, and if stockholders fail to approve the Plan as specified hereunder, any such Benefit shall be cancelled. 12 (b) This Plan shall terminate on [ ] (unless sooner terminated by the Committee). 13 EX-10.7 7 EXHIBIT 10.7 Exhibit 10.7 GENMAR HOLDINGS, INC. 1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. PURPOSES. Genmar Holdings, Inc. (the "Company") desires to attract and retain the services of outstanding non-employee directors by affording them an opportunity to acquire a proprietary interest in the Company through automatic, non-discretionary awards of options ("Options") exercisable to purchase shares of Common Stock (as defined below), and thus to create in such directors an increased interest in and a greater concern for the welfare of the Company and its subsidiaries. The Options offered pursuant to this Genmar Holdings, Inc. 1999 Stock Option Plan for Non-Employee Directors (the "Plan") are a matter of separate inducement and are not in lieu of any other compensation for the services of any director. The Options granted under the Plan are intended to be options that do not meet the requirements for incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). As used in the Plan, the term "parent corporation" and "subsidiary corporation" shall mean a corporation coming within the definition of such terms contained in Sections 424(e) and 424(f) of the Code, respectively. 2. AMOUNT OF STOCK SUBJECT TO THE PLAN. Options granted under the Plan shall be exercisable for shares of the Company's common stock, par value $0.01 per share (the "Common Stock"). The total number of shares of Common Stock authorized for issuance under the Plan upon the exercise of Options (the "Shares"), shall not exceed, in the aggregate, 150,000 of the currently authorized shares of Common Stock of the Company, such number to be subject to adjustment in accordance with Section 13 of the Plan. Shares which may be acquired under the Plan may be either authorized but unissued Shares, Shares of issued stock held in the Company's treasury, or both. If and to the extent that Options granted under the Plan expire or terminate without having been exercised, the Shares covered by such expired or terminated Options may again be subject to a later-granted Option under the Plan. 3. EFFECTIVE DATE AND TERM OF THE PLAN The Plan shall become effective on ____________, 1999 (the "Effective Date"); PROVIDED, HOWEVER, that if the Plan is not approved by a vote of the stockholders of the Company at an annual meeting, any special meeting or by written consent of stockholders within 12 months after the Effective Date, the Plan and any Options granted under the Plan shall terminate. The Plan shall terminate at the close of business on ________, 2009 (the "Termination Date"), unless sooner terminated in accordance with its terms. 4. ADMINISTRATION The Plan shall be administered by the Board of Directors of the Company (the "Board of Directors"), which may designate from among its members a committee to exercise all power and authority of the Board of Directors at any time and from time to time to administer the Plan. (References herein to the Board of Directors shall be deemed to include references to any such committee, except as the context otherwise requires.) Subject to the express provisions of the Plan, the Board of Directors shall have authority to construe the Plan and the Options granted hereunder, to prescribe, amend and rescind rules and regulations relating to the Plan and to make all other ministerial determinations necessary or advisable for administering the Plan. However, the timing of grants of Options under the Plan and the determination of the amounts and prices of such Options shall be effected automatically in accordance with the terms and provisions of the Plan without further action by the Board of Directors. The determination of the Board of Directors on matters referred to in this Section 4 shall be conclusive. 5. ELIGIBILITY. Each member of the Board of Directors who is not an employee of the Company or any subsidiary corporation or parent corporation of the Company (or of any management company providing management services for the Company) shall be eligible to be granted Options under the Plan (the "Eligible Directors"). The Plan does not create a right in any person to participate in, or be granted Options under, the Plan. 6. OPTION GRANTS. On the Effective Date, each Eligible Director then in office shall automatically be granted an Option to purchase 12,500 Shares (subject to adjustment as provided in Section 13). Thereafter, following each subsequent annual meeting of stockholders of the Company during the term of the Plan, each Eligible Director then in office shall automatically be granted an Option to purchase 5,000 Shares (subject to adjustment as provided in Section 13). Each Option granted to an Eligible Director pursuant to the Plan shall be evidenced by a written agreement between the Company and such Eligible Director. Any Eligible Director entitled to receive an Option grant pursuant to the Plan may elect to decline the Option. 7. NO VESTING All options granted hereunder shall be fully vested and immediately exercisable as of the date of the grant. 2 8. OPTION PRICE AND PAYMENT. The price for each Share purchasable upon exercise of any Option granted hereunder shall be an amount equal to the fair market value per Share on the date of grant. For purposes of the Plan, fair market value per Share shall be the closing price for Common Stock on the date of determination (or the last preceding trading date if Common Stock was not traded on such date) if the Common Stock is readily tradeable on a national securities exchange or other market system, and if the Common Stock is not readily tradeable, fair market value per Share shall be determined in good faith by the Board of Directors. The option exercise price may be paid in cash or, in the discretion of the Board of Directors, by the delivery of shares of Common Stock of the Company then owned by the option holder or by delivery to the Company of (x) irrevocable instructions to deliver directly to a broker the stock certificates representing the shares for which the Option is being exercised, and (y) irrevocable instructions to such broker to sell such shares for which the Option is being exercised, and promptly deliver to the Company the portion of the proceeds equal to the Option exercise price and any amount necessary to satisfy the Company's obligation for withholding taxes, or any combination thereof. For purposes of making payment in shares of Common Stock, such shares shall be valued at their Fair Market Value on the date of exercise of the Option and shall have been held by the Participant for at least six months. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The Committee may prescribe any other method of paying the exercise price that it determines to be consistent with applicable law and the purpose of the Plan, including, without limitation, in lieu of the exercise of a Stock Option by delivery of shares of Common Stock of the Company then owned by a participant, providing the Company with a notarized statement attesting to the number of shares owned, where upon verification by the Company, the Company would issue to the participant only the number of incremental shares to which the participant is entitled upon exercise of the Stock Option. 9. TERMS OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE. To the extent that an Option is not exercised within the exercise period specified therein, it shall expire as to the then unexercised part. In no event shall an Option granted hereunder be exercised for a fraction of a Share or for less than one hundred Shares (unless the number purchased is the total balance for which the Option is then exercisable). A person entitled to receive Shares upon the exercise of an Option shall not have the rights of a stockholder with respect to such Shares until the date of issuance of a stock certificate to him or her for such Shares; PROVIDED, HOWEVER, that until such stock certificate is issued, any holder of an Option using previously acquired shares of Common Stock in payment of an option exercise price shall continue to have the rights of a stockholder with respect to such previously acquired shares of Common Stock. 3 10. OPTION PERIOD AND EXERCISE OF OPTIONS. Any Option granted to an Eligible Director shall be exercisable for a period beginning on the date of grant and ending ten (10) years from the date of grant of such Option, except to the extent such exercise is further limited or restricted pursuant to the provisions hereof. Each Eligible Director shall agree not to sell or otherwise dispose of Shares acquired pursuant to an Option for a period of six (6) months following the date of grant of such Option; PROVIDED, HOWEVER, that for purposes of this sentence only, any Option granted to an Eligible Director on the Effective Date shall be deemed to have been granted on the date the Plan is approved by the shareholders of the Company. Subject to the express provisions of the Plan, Options granted under the Plan shall be exercised by the optionee as to all or part of the Shares covered thereby by the giving of written notice of the exercise thereof to the Corporate Secretary of the Company at the principal business office of the Company, specifying the number of Shares to be purchased, the proposed form of payment and specifying a business day not more than ten (10) days from the date such notice is given for the payment of the purchase price against delivery of the Shares being purchased. Subject to the terms of Sections 16, 17 and 18 hereof, the Company shall cause certificates for the Shares so purchased to be delivered at the principal business office of the Company, against payment of the full purchase price, on the date specified in the notice of exercise. 11. TERMINATION OF DIRECTORSHIP. If an Eligible Director's service as a director of the Company is terminated, including for Cause (as defined below), any Option previously granted to such Eligible Director shall, to the extent not theretofore exercised, terminate and become null and void; PROVIDED, HOWEVER, that: (a) If an Eligible Director holding an outstanding Option dies, including during the three (3) month period, whichever is applicable, specified in clause (b) immediately below, such Option shall, to the extent not theretofore exercised, remain exercisable for six (6) months after such Eligible Director's death, by such Eligible Director's legatee, distributee, guardian or legal or personal representative; (b) If the service of an Eligible Director holding an outstanding Option is terminated by reason of (1) such Eligible Director's disability (as described in Section 22(e)(3) of the Code), (2) voluntary retirement from service as a director of the Company or (3) failure of the Company to nominate for re-election such Eligible Director who is otherwise eligible, except if such failure to nominate for re-election is due to any act of (A) fraud or intentional misrepresentation or (B) embezzlement, misappropriation or conversion of assets or opportunities of the Company (in which case, such Option shall terminate and no longer be exercisable), or (4) a merger, consolidation or other form of restructuring in which the Board of Directors ceases to exist, such Option shall, to the extent not theretofore exercised, remain exercisable at any time up to and including three (3) months after the date of such termination of service. 4 If an Option granted hereunder shall be exercised by the legal representative of a deceased Eligible Director or former Eligible Director, or by a person who acquired an Option granted hereunder by bequest or inheritance or by reason of the death of any Eligible Director or former Eligible Director, written notice of such exercise shall be accompanied by a certified copy of letters testamentary or equivalent proof of the right of such legal representative or other person to exercise such Option. Notwithstanding anything to the contrary contained in this Section 10, in no event shall any person be entitled to exercise any Option after the expiration of the period of exercisability of such Option, as specified therein. For purposes of this Plan, "Cause" shall mean: (a) your violation of any non-competition and/or confidentiality provisions agreed to at any time between you and the Company or its affiliates; (b) your commission of an intentional act of fraud, embezzlement, theft or dishonesty against the Company or its affiliates; (c) your conviction of, or pleading of NOLO CONTENDERE to, any crime which constitutes a felony or misdemeanor involving moral turpitude or which might, in the reasonable opinion of the Company, cause embarrassment to the Company; or (d) the gross neglect or willful failure by you to perform your duties and responsibilities in all material respects with respect to services rendered to the Company, if such breach of duty is not cured within 30 days after written notice thereof to you by the Board. For purposes of clause (d), no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that such act, or failure to act, was in the best interest of the Company. 12. USE OF PROCEEDS. The cash proceeds of the sale of Shares subject to the Options granted hereunder are to be added to the general funds of the Company and used for its general corporate purposes as the Board of Directors shall determine. 13. NON-TRANSFERABILITY OF OPTIONS. An Option granted hereunder shall not be transferable, whether by operation of law or otherwise, other than by will or the laws of descent and distribution. Except to the extent provided above, Options also may not be assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. 14. ANTI-DILUTION; ADJUSTMENT OF SHARES. Notwithstanding any other provision contained herein, in the event of any change in the Shares subject to the Plan or the capitalization of the Company through merger, consolidation, reorganization, recapitalization, stock dividend, stock split, reverse stock split, split up, spin-off, combination of shares, exchange of shares, dividend in kind or other like change in capital structure of the Company, or distribution (other than normal cash dividends) to stockholders of the Company in order to prevent dilution or enlargement of participants' rights under the Plan, the Board of Directors shall adjust, in 5 its sole discretion, in an equitable manner as applicable, the form of and the maximum number of Shares which may be acquired under the Plan pursuant to the exercise of Options, the maximum number of Shares for which Options may be granted to any one Eligible Director and the number of Shares and price per Share subject to outstanding Options. The determination of the Board of Directors as to these matters shall be conclusive and binding on the optionee. 15. RIGHT TO TERMINATE SERVICE The Plan shall not impose any obligation on the Company or on any subsidiary corporation or parent corporation thereof to continue the service of any Eligible Directors holding Options and shall not impose any obligation on the part of any Eligible Director holding Options to remain in the service of the Company or of any subsidiary corporation or parent corporation thereof. 16. PURCHASE FOR INVESTMENT Except as hereinafter provided, the Board of Directors may require the holder of an Option granted hereunder, as a condition to the exercise of such Option in the event the Shares subject to such Option are not registered pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws, to execute and deliver to the Company a written statement, in form satisfactory to the Board of Directors, in which such holder (a) represents and warrants that such holder is purchasing or acquiring the Shares acquired thereunder for such holder's own account for investment only and not with a view to the resale or distribution thereof in violation of any federal or state securities laws and (b) agrees that any subsequent resale or distribution of any of such Shares shall be made only pursuant to either (1) an effective registration statement covering such Shares under the Securities Act and applicable state securities laws or (2) specific exemptions from the registration requirements of the Securities Act and any applicable state securities laws, based on a written opinion of counsel, in form and substance satisfactory to counsel for the Company, as to the application thereto of any such exemptions. Nothing herein shall be construed as requiring the Company to register Shares subject to any Option under the Securities Act or any state securities law and, to the extent deemed necessary by the Company, Shares issued upon exercise of an Option may contain a legend to the effect that registration rights have not been granted with respect to such Shares. 17. ISSUANCE OF STOCK CERTIFICATES; LEGENDS; PAYMENT OF EXPENSES The Company may endorse such legend or legends upon the certificates for Shares issued upon exercise of Options granted pursuant to the Plan and may issue such "stop transfer" instructions to its transfer agent in respect of such Shares as the Board of Directors in its discretion, determines to be necessary or appropriate to (a) prevent a violation of, or to perfect an exemption from, the registration requirements of 6 the Securities Act or (b) implement the provisions of the Plan and any agreement between the Company and the optionee or grantee with respect to such Shares. The Company shall pay all issue or transfer taxes with respect to the issuance or transfer of Shares, as well as all fees and expenses necessarily incurred by the Company in connection with such issuance or transfer, except fees and expenses that may be necessitated by the filing or amending of a registration statement under the Securities Act, which fees and expenses shall be borne by the recipient of the Shares unless such registration statement has been filed by the Company for its own corporate purpose (and the Company so states) in which event the recipient of the Shares shall bear only such fees and expenses as are attributable solely to the inclusion of the Shares an optionee receives in the registration statement. All Shares issued as provided herein shall be fully paid and nonassessable to the extent permitted by law. 18. LISTING OF SHARES AND RELATED MATTERS If at any time the listing, registration or qualification of the Shares subject to such Option on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary as a condition of, or in connection with, the granting of an Option, or the issuance of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained. 19. AMENDMENT OF THE PLAN The Board of Directors may, from time to time, amend the Plan. 20. TERMINATION OR SUSPENSION OF THE PLAN The Board of Directors may at any time suspend or terminate the Plan. Options may not be granted while the Plan is suspended or after it is terminated. Rights and obligations under any Option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except upon the consent of the person to whom the Option was granted. The ministerial power of the Board of Directors to construe and administer any Options under Section 4 that are granted prior to the termination or the suspension of the Plan shall continue after such termination or during such suspension. 21. SAVINGS PROVISION With respect to all participants in the Plan, transaction under the Plan are intended to comply with all applicable conditions of Rule 16b-3 (or any successor provision) under the Exchange Act. To the extent any provision of the Plan or action by the Board of Directors fails to so comply, it shall be deemed null and void to the extent permitted by law and deemed advisable by the Board of Directors. 7 22. GOVERNING LAW The Plan, such Options as may be granted hereunder and all related matters shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware from time to time in effect. 23. PARTIAL INVALIDITY The invalidity or illegality of any provision herein shall not be deemed to affect the validity of any other provision. 8 EX-10.8 8 EXHIBIT 10.8 MANAGEMENT SERVICES AGREEMENT THIS MANAGEMENT SERVICES AGREEMENT made and entered into this 1st day of April, 1995, by and between JACOBS MANAGEMENT CORP., a Minnesota corporation (hereinafter referred to as "JMC"), and GENMAR HOLDINGS, INC., a Delaware corporation (hereinafter referred to as ("Holdings"). WHEREAS, JMC, through its officers, employees and staff, has considerable knowledge and experience relating to the organization and financial aspects of managing business enterprises and desires to aid and assist Holdings by providing certain advisory and other managerial services to Holdings; and WHEREAS, JMC has access through its officers to numerous business opportunities, some of which may be desirable for Holdings to entertain as additional businesses for it to pursue; and WHEREAS, Holdings desires to engage JMC and both parties desire to set forth their understandings and agreements pertaining to the engagement of JMC. NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows: 1. ENGAGEMENT OF JMC. Pursuant to the terms and conditions hereinafter set forth, Holdings does hereby appoint and engage JMC, and JMC hereby accepts its appointment and engagement by Holdings, as Holdings' management consultant and advisor with respect to the matters specified in paragraph 2 hereof. 2. SERVICES OF JMC. JMC shall provide managerial and advisory services and recommendations to Holdings regarding Holdings' management, including general management, direction and planning; financial management, analysis and planning; general accounting and administration; marketing and sales assistance; facilities management; insurance administration; tax preparation and consulting; and personnel administration and public relations. It is further agreed that JMC shall make available as often as requested by Holdings, qualified personnel to assist Holdings with any problems or questions Holdings may have in any of the above described areas. In addition, qualified JMC personnel shall monitor, examine and review the operations of Holdings on a regular basis and shall periodically report the results of such operations to its Board of Directors. 3. RESPONSIBILITIES OF OFFICERS. The parties acknowledge that Holdings has duly elected corporate officers. It is the parties intention that except for the salaried officer positions of Holdings specified on Exhibit I to the Agreement, substantially all of the responsibilities which would normally be carried out by officers of Holdings will be carried out by employees of JMC acting in their capacity as an employee of JMC. The parties further intend that, except at the written direction of the Holdings Board of Directors, and individual who is an officer of Holdings and JMC shall provide only limited administrative services, without compensation, to Holdings in his capacity as an officer of Holdings. Such limited administrative services shall include such things as signing formal documents, as well as any other action required by law of a Holdings officer. 4. HOLDINGS' RESPONSIBILITIES. Holdings shall cooperate with JMC personnel in the review and evaluation of Holdings' operating procedures and shall provide such reports and other material as JMC may reasonably request. 5. CONFIDENTIALITY. It is understood that in the course of performing its duties under this Agreement, JMC, its officers and personnel, will become aware of certain financial information which Holdings considers to be proprietary and confidential. JMC shall maintain all such information in the strictest confidence and shall not disclose such information to any third party without the prior consent of Holdings' Board of Directors. Notwithstanding the foregoing, nothing in this Agreement shall be construed as restricting or prohibiting JMC, its officers and personnel, from offering the same or similar services to other corporations or enterprises, whether or not such other business enterprises could be considered to be competitive with the business of Holdings. 6. CONSIDERATION. In consideration of JMC's services under this Agreement, Holdings shall pay to JMC a management fee of $1,800,000 per annum payable in twelve (12) equal monthly installments. Such monthly installments are due and payable in advance of the first business day of each month. If the agreement is renewed under Section 9 hereof such management fees may be at the option of JMC, increased in each year following the current year by an inflationary adjustment based on the CPI. 7. INVOICES FOR EXPENSES. JMC shall submit to Holdings all invoices for expenses incurred by JMC personnel in connection with rendering managerial services to Holdings under this Agreement. Within thirty (30) days after receipt of any or all such invoices, Holdings shall reimburse JMC for such expenses incurred. It is understood that reimbursement of such expenses shall be in addition to the fee set forth in paragraph 6 above. 8. SPECIAL FEES FOR BUSINESS OPPORTUNITIES. It is understood that JMC may present to Holdings for its consideration certain business opportunities which come to the attention of JMC and which may be appropriate for Holdings to consider and pursue. Alternatively, Holdings may request of JMC that it investigate certain business opportunities that may come before Holdings. The consideration and engagement heretofore described is not to be considered to have covered such activity, and in the event that JMC is involved in the evaluation or implementation of such a business opportunity, a fee in addition to that set forth in paragraph 6 above will be charged. 2 9. TERM OF AGREEMENT. This Agreement shall remain in effect for a period of one (1) year commencing as of the date hereof, and shall be renewable for two additional one (1) year terms unless otherwise specified and agreed to in writing. 10 SEVERABILITY. Any provisions of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. 11. AMENDMENT. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and no amendment, modification, termination or waiver of any provisions of this Agreement and no consent to any departure by any party therefrom shall in any event be effective unless the same shall be in writing and signed by all parties, and then such waiver or consent shall be effective only in the given instance and for the specific purpose for which given. 12. ASSIGNMENT PROHIBITED. The parties rights and obligations under this Agreement may not be assigned to any third party without the written consent of all the parties. 13. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Minnesota. IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first written above. JACOBS MANAGEMENT CORP. By /s/ David A. Mahler -------------------------------- Its VP -------------------------------- GENMAR HOLDINGS, INC. By /s/ James B. Farrell -------------------------------- Its VP -------------------------------- 3 EXHIBIT 1 GENMAR HOLDINGS, INC.
Position Individual - -------- ---------- President Kenneth J. Severinson Vice President, Secretary, General Counsel James B. Farrell Vice President, Controller John S. Rosendahl Vice President, Assistant General Counsel Mary McConnell
4 EX-10.9 9 EXHIBIT 10.9 AMENDMENT NO. 1 TO MANAGEMENT SERVICES AGREEMENT This Amendment is entered into as of August 3, 1999 between Jacobs Management Corp., a Minnesota corporation ("JMC") and Genmar Holdings, Inc., a Delaware corporation ("Holdings"). WHEREAS, JMC and Holdings entered into that certain Management Services Agreement dated April 1, 1995 (the "Agreement"); and WHEREAS, JMC and Holdings now wish to amend the Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Except as specified in this Amendment, all terms of the Agreement remain unchanged and in full force and effect. Capitalized terms used in this Amendment and not otherwise defined have the meanings given to them in the Agreement. 2. The last sentence of Section 2 is deleted and replaced with the following: In addition, qualified JMC personnel shall monitor, examine and review the operations of Holdings on a regular basis and shall periodically report the results of such operations to the Board of Directors of Holdings. 3. Section 3 of the Agreement is deleted in its entirety and is not replaced. 4. The first sentence of Section 6 is deleted and replaced with the following: In consideration of JMC's services under this Agreement, Holdings shall pay to JMC a management fee of $1,950,000 per annum payable in twelve (12) equal monthly installments. 5. Section 9 of the Agreement is amended in its entirety as follows: 9. TERM OF AGREEMENT. The term of this Agreement shall be for a period of one (1) year commencing April 1, 1998. Thereafter, the Agreement shall be automatically extended for successive one (1) year periods unless either party provides to the other party written notice of termination at least two (2) months prior to the end of the then-current term. IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. JACOBS MANAGEMENT CORP. By: /s/ David A. Mahler ---------------------------- Its: VP ---------------------------- GENMAR HOLDINGS, INC. By: /s/ Mary P. McConnell ---------------------------- Its: Senior VP ---------------------------- 2 EX-10.10 10 EXHIBIT 10.10 RETENTION BONUS AGREEMENT This Agreement made as of the 31st day of October, 1998, by and between JACOBS MANAGEMENT CORPORATION, a Delaware corporation ("JMC") and GRANT E. OPPEGAARD ("OPPEGAARD"); WHEREAS, JMC provides management services to Genmar Holdings, Inc. ("GENMAR") pursuant to a management agreement with Genmar; and WHEREAS, Oppegaard has accomplished significant results as the President and Chief Executive Officer of Genmar; and WHEREAS, JMC and Genmar consider that Oppegaard's continued employment as President and Chief Executive Officer of Genmar is critical to the successful conduct of Genmar's business during the period ending August 4, 1999; and WHEREAS, JMC has agreed to make the payment to Oppegaard as hereafter provided in order to retain his services for Genmar during the period ending August 4, 1999; and WHEREAS, Oppegaard has agreed to remain employed as President and Chief Executive Officer of Genmar at least until August 4, 1999 on the terms and conditions hereinafter set forth, NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter stated, the parties agree as follows: 1. JMC agrees to pay Oppegaard a retention bonus (the "RETENTION BONUS") in the amount of $2,860,000 on August 4, 1999 (the "PERFORMANCE DATE") on the express condition that he has acted continuously from the date hereof to the Performance Date as the President and Chief Executive Officer of Genmar; provided, however, if Oppegaard is not employed as President and Chief Executive Officer on the Performance Date because his employment was terminated by Genmar without cause, as hereafter defined, prior to the Performance Date or because of his death or physical or mental disability, JMC agrees to pay Oppegaard the Retention Bonus on the Performance Date. If Oppegaard is deceased on the Performance Date, the payment shall be made to the personal representative of his estate or to such other party as Oppegaard may designate by written notice to JMC. For purposes of this Retention Bonus Agreement, the occurrence of any of the following shall constitute termination of employment without cause: (a) the assignment of Oppegaard of any duties that are inconsistent in any respect with his authority, duties, responsibilities or position as President and Chief Executive Officer of Genmar (including status, office, title or reporting relationships to or by Oppegaard); (b) requiring Oppegaard to be based or spend significant time at any office or location other than that at which he was based as of the date hereof, except for travel reasonably required in the performance of his duties; or (c) any other action which results in the diminution in Oppegaard's authority, duties, responsibilities or position. 2. If Oppegaard is in fact paid the Retention Bonus as set forth in paragraph 1 hereof, Oppegaard agrees that such payment is in lieu of and a substitution for any and all benefits that he would otherwise be eligible for or entitled to under the Genmar Executive Severance Pay Plan which became effective on March 17, 1998 unless he remains employed by Genmar for at least one year after the Performance Date. If, for any reason Oppegaard is not paid the Retention Bonus as set forth in paragraph 1 hereof, Oppegaard shall be eligible for and entitled to the benefits, if any, provided to him under the provisions of the Genmar Executive Severance Pay Plan which became effective March 17, 1998. 3. In consideration of the receipt of the Retention Bonus amount specified in paragraph 1, Oppegaard agrees that upon termination of his employment for any reason he will 2 not for a period of three years after termination of his employment engage in the business of building recreational boats of any type or description either as a consultant, employee, partner, shareholder, or otherwise and that he will hold in a fiduciary capacity, for the benefit of Genmar, all secret, confidential, or proprietary information, knowledge or data related to Genmar and its respective subsidiaries which shall have been obtained by Oppegaard during his employment by Genmar and which shall not be or become public knowledge, including, but not limited to, information regarding vendors, consultants, customers, dealers and agents of Genmar. 4. Other than as specifically and expressly provided herein, this Agreement shall not constitute a contract of employment for a term and Oppegaard acknowledges that he is and remains an employee of Genmar at will. Nothing herein is intended to alter or affect the terms and conditions of employment currently in effect regarding his duties, compensation or other benefits. 5. For the purpose of this Agreement, cause is defined as: (a) Oppegaard's willful failure to perform his duties as President and Chief Executive Officer in the manner he was performing as of the date hereof; or (b) any willful act or omission by Oppegaard constituting dishonesty, fraud or other malfeasance, and any act or omission by Oppegaard constituting immoral conduct, which in any such case is materially injurious to the financial condition or business reputation of Genmar or any of its subsidiaries or Oppegaard's indictment of a felony under the laws of the United States or any state thereof or any other jurisdiction in which Genmar conducts business. (c) For purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by Oppegaard not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to Genmar's best interests. 3 6. The parties hereto agree that Genmar is a third party beneficiary of this Agreement and entitled to seek enforcement of the terms hereof. IN WITNESS WHEREOF, the undersigned have executed this Agreement the day and year first above written. JACOBS MANAGEMENT CORPORATION By: [ILLEGIBLE] -------------------------------- Its: Ex V.P. Finance --------------------------- /s/ Grant E. Oppegaard ----------------------------------- GRANT E. OPPEGAARD 4 EX-10.11 11 EXHIBIT 10.11 RETENTION BONUS AGREEMENT This Agreement made as of the 31st day of October, 1998, by and between JACOBS MANAGEMENT CORPORATION, a Delaware corporation ("JMC") and ROGER R. CLOUTIER, II ("CLOUTIER"); WHEREAS, JMC provides management services to Genmar Holdings, Inc. ("GENMAR") pursuant to a management agreement with Genmar; and WHEREAS, Cloutier has accomplished significant results as Executive Vice President and Chief Financial Officer of Genmar; and WHEREAS, JMC and Genmar consider that Cloutier's continued employment as Executive Vice President and Chief Financial Officer of Genmar is critical to the successful conduct of Genmar's business during the period ending August 4, 1999; and WHEREAS, JMC has agreed to make the payment to Cloutier as hereafter provided in order to retain his services for Genmar during the period ending August 4, 1999; and WHEREAS, Cloutier has agreed to remain employed as Executive Vice President and Chief Financial Officer of Genmar at least until August 4, 1999 on the terms and conditions hereinafter set forth, NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter stated, the parties agree as follows: 1. JMC agrees to pay Cloutier a retention bonus (the "RETENTION BONUS") in the amount of $2,860,000 on August 4, 1999 (the "PERFORMANCE DATE") on the express condition that he has acted continuously from the date hereof to the Performance Date as the Executive Vice President and Chief Financial Officer of Genmar; provided, however, if Cloutier is not employed as Executive Vice President and Chief Financial Officer on the Performance Date because his employment was terminated by Genmar without cause, as hereafter defined, prior to the Performance Date or because of his death or physical or mental disability, JMC agrees to pay Cloutier the Retention Bonus on the Performance Date. If Cloutier is deceased on the Performance Date, the payment shall be made to the personal representative of his estate or to such other party as Cloutier may designate by written notice to JMC. For purposes of this Retention Bonus Agreement, the occurrence of any of the following shall constitute termination of employment without cause: (a) the assignment of Cloutier of any duties that are inconsistent in any respect with his authority, duties, responsibilities or position as Executive Vice President and Chief Financial Officer of Genmar (including status, office, title or reporting relationships to or by Cloutier); (b) requiring Cloutier to be based or spend significant time at any office or location other than that at which he was based as of the date hereof, except for travel reasonably required in the performance of his duties; or (c) any other action which results in the diminution in Cloutier's authority, duties, responsibilities or position. 2. If Cloutier is in fact paid the Retention Bonus as set forth in paragraph 1 hereof, Cloutier agrees that such payment is in lieu of and a substitution for any and all benefits that he would otherwise be eligible for or entitled to under the Genmar Executive Severance Pay Plan which became effective on March 17, 1998 unless he remains employed by Genmar for at least one year after the Performance Date. If, for any reason Cloutier is not paid the Retention Bonus as set forth in paragraph 1 hereof, Cloutier shall be eligible for and entitled to the benefits, if any, provided to him under the provisions of the Genmar Executive Severance Pay Plan which became effective March 17, 1998. 2 3. In consideration of the receipt of the Retention Bonus amount specified in paragraph 1, Cloutier agrees that upon termination of his employment for any reason he will not for a period of three years after termination of his employment engage in the business of building recreational boats of any type or description either as a consultant, employee, partner, shareholder, or otherwise and that he will hold in a fiduciary capacity, for the benefit of Genmar, all secret, confidential, or proprietary information, knowledge or data related to Genmar and its respective subsidiaries which shall have been obtained by Cloutier during his employment by Genmar and which shall not be or become public knowledge, including, but not limited to, information regarding vendors, consultants, customers, dealers and agents of Genmar. 4. Other than as specifically and expressly provided herein, this Agreement shall not constitute a contract of employment for a term and Cloutier acknowledges that he is and remains an employee of Genmar at will. Nothing herein is intended to alter or affect the terms and conditions of employment currently in effect regarding his duties, compensation or other benefits. 5. For the purpose of this Agreement, cause is defined as: (a) Cloutier's willful failure to perform his duties as Executive Vice President and Chief Financial Officer; or (b) any willful act or omission by Cloutier constituting dishonesty, fraud or other malfeasance, and any act or omission by Cloutier constituting immoral conduct, which in any such case is materially injurious to the financial condition or business reputation of Genmar or any of its subsidiaries or Cloutier's indictment of a felony under the laws of the United States or any state thereof or any other jurisdiction in which Genmar conducts business. (c) For purposes of this definition, no act or failure to act shall be deemed "willful" unless effected by Cloutier not in good faith and without a reasonable belief that such action or failure to act was in or not opposed to Genmar's best interests. 3 6. The parties hereto agree that Genmar is a third party beneficiary of this Agreement and entitled to seek enforcement of the terms hereof. IN WITNESS WHEREOF, the undersigned have executed this Agreement the day and year first above written. JACOBS MANAGEMENT CORPORATION By: [ILLEGIBLE] ------------------------------ Its: Ex V.P. Finance ------------------------- /s/ Roger R. Cloutier, II --------------------------------- ROGER R. CLOUTIER, II 4 EX-10.12 12 EXHIBIT 10.12 EXHIBIT 10.12 CAPITAL CONTRIBUTION AGREEMENT THIS CAPITAL CONTRIBUTION AGREEMENT ("Agreement") is made this _______ day of _________________, 1999, to become effective as of _____________, 1999 (the "Effective Date") by and between GENMAR INDUSTRIES, INC., a Delaware corporation (the "Contributor") and HATTERAS YACHTS, INC., a Delaware Corporation (the "Company"). RECITALS A. Contributor has a business division (among other enterprises) which it operates under the name Hatteras Yachts (the "Hatteras Yachts Division"), which designs, manufactures and distributes premium luxury yachts. B. Company has recently been incorporated for the specific purpose of effecting the contribution, exchange and distribution transaction described in Recitals C through F below. C. Contributor and Company will become parties to an exchange and distribution agreement by and among Genmar Holdings, Inc., a Delaware corporation ("Genmar"), Minstar, Inc., a Delaware corporation ("Minstar"), Contributor and Company (the "Distribution Agreement"), pursuant to which substantially all of the assets and all of the liabilities of the Hatteras Yachts Division are to be transferred to the Company in exchange for 2,358,470 shares of Company common stock, par value $0.0001 per share, (the "Hatteras Stock"). D. Genmar is the corporate parent of Minstar, and Minstar is the corporate parent of Contributor. E. Upon and after receipt of the Hatteras Stock, Contributor will, pursuant to the terms of the Distribution Agreement, distribute the Hatteras Stock to Minstar and Minstar will thereafter distribute the Hatteras Stock to Genmar. F. Genmar will, pursuant to the terms of the Distribution Agreement, exchange and distribute the Hatteras Stock to its shareholders on a pro-rata basis in accordance with the exchange terms (the "Distribution"). 1 G. This Agreement sets forth the basic terms and conditions by which Contributor will transfer to the Company the business and operations of the Hatteras Yachts Division, including substantially all of its assets and all of its liabilities. H. This Agreement and the terms hereof are proscribed and governed by the terms of the Distribution Agreement, which Distribution Agreement shall govern in the event any term or terms of this Agreement conflict with any term or the terms of the Distribution Agreement; PROVIDED, HOWEVER, specific terms and provisions hereof or the Distribution Agreement, as applicable, shall prevail over general terms and provisions set forth herein or in the Distribution Agreement, as applicable, in the event of any such conflict no matter in which agreement such provisions or terms appear. I. Contributor and the Company wish to effect the transfers described herein pursuant to the terms of this Agreement and applicable terms of the Distribution Agreement. NOW, THEREFORE, in consideration of the foregoing recitals, the mutual covenants and agreements made herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto intending to be legally bound agree as follows: 1. CONTRIBUTION AND EXCHANGE. Subject to the terms and conditions set forth herein, the Company shall issue the Hatteras Stock to Contributor and Contributor shall receive the Hatteras Stock from the Company. 2. CONSIDERATION. On the Effective Date, Contributor, in full consideration for the Hatteras Stock to be issued pursuant to this Agreement, shall deliver to the Company, together with this Agreement, the assets of the Hatteras Yachts Division (the "Hatteras Assets") which are limited specifically to (i) the assets and interests transferred pursuant to the Bill of Transfer in substantially the form attached hereto as EXHIBIT A; PROVIDED, HOWEVER, that Contributor does not hereby or thereby transfer any interest in the assets and interests owned, used or useful to Contributor which are identified on EXHIBIT B hereto (the "Excluded Assets"), (ii) the intellectual property of the Hatteras Yachts Division transferred pursuant to the Intellectual Property Assets listing (and its attached assignment) in substantially the form attached hereto as EXHIBIT C and (iii) other intangible property of Contributor with respect to the business and operations of the Hatteras Yachts Division transferred pursuant to the Assignment and Assumption Agreement in substantially the form attached hereto as EXHIBIT D. All the Hatteras Assets to be transferred to the Company under and pursuant to this Agreement may also be referred to collectively herein as the "Contributed Assets." 2 3. ASSUMPTION OF LIABILITIES; EXCLUDED LIABILITIES. (a) Subject to the Excluded Liabilities described in Section 3(b) hereof, the Company hereby agrees to assume from and after the Effective Date any and all Liabilities (as defined below) of (i) Contributor arising from, in connection with or pursuant to the operation of the Hatteras Yachts Division, including all Liabilities and obligations under any intangible contract or agreement set forth in EXHIBIT D hereto and (ii) AMF Incorporated arising from, in connection with or pursuant to any environmental claims or investigations and any retiree benefits obligations of the Hatteras Yachts Division or its predecessor operations or entities (collectively the "Liabilities"). The term "Liabilities" as used hereunder shall also mean any and all debts, liabilities and obligations, absolute or contingent, mature or unmature, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless otherwise specified in this Agreement or the Distribution Agreement), including all trade accounts payable, accrued liabilities, liabilities and obligations arising under any law, rule, regulation, action (including any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal, including the actions set forth in EXHIBIT E hereto), threatened action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, liabilities arising under any contract, commitment or undertaking, the tax and indemnification liability, if any, arising under Section 7 hereof, tax paid or payable, loss of tax credits or net operating losses (valued at face at the time of any determination), and shall also include all (i) intercompany debt associated with, arising from or incurred in connection with the Hatteras Yachts Division (which the parties have agreed equals or approximates $20 million) and (ii) any tax or transfer fee arising from, in connection with or incident to the transfer of any assets or Liabilities hereunder. (b) Notwithstanding the provisions of Section 3(a) above, the Company shall NOT assume any liability or claim arising from or in connection with (i) that certain Agreement of Sale dated July 20, 1998 by and between Genmar Industries, Inc. and C & M Investments of High Point, Inc. with respect to that certain property known as Kivett Drive, Highpoint, North Carolina PROVIDED, HOWEVER, that the obligations (x) under the lease of such Kivett Drive property shall be a Liability hereunder and such lease is and all obligations thereunder are transferred to the Company by this Agreement and (y) for any waste disposal claims or Liabilities associated with the Kivett Drive property shall be the responsibility of Company, (ii) income tax Liabilities arising from the operations of the Hatteras Yachts Division through the Effective Date, (iii) any Liability of Genmar or its Affiliates that does not arise from, was not incurred in connection with or which was not associated with the Hatteras Yachts Division or its predecessor operations or entities or (iv) any Tax that arises out of, in connection with or incident to a final determination (that may no longer be appealed) by a federal or state taxing authority that Section 355 of the Internal Revenue Code of 1986, as amended (the "Code") (or any state counterpart) may not be applied to the transactions contemplated by the Distribution Agreement and such determination arises 3 solely from the acts or omissions of Genmar, Minstar, Contributor or their affiliates (collectively, the "Excluded Liabilities"). 4. FURTHER ACTION. (a) The Company and Contributor shall make reasonable efforts to cooperate, execute such documents and instruments and take such actions as are required to consummate the transactions contemplated herein. At any time and from time to time after the Effective Date, at the Company's request and without further consideration, Contributor will execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation and take such action as the Company may reasonably request in order to (i) more effectively transfer, convey and assign to the Company and to confirm the Company's title to and right to use and exploit the Contributed Assets, (ii) put the Company in actual possession and operating control thereof, and (iii) assist the Company in exercising all rights with respect thereto. (b) To the extent that any transfers or other actions contemplated by this Agreement shall not have been consummated prior to the Effective Date, the parties shall cooperate to effect such transfers or other actions as promptly following the Effective Date as shall be practicable, it nonetheless being agreed and understood by the parties that neither party shall be liable in any manner to any other party for any failure of any of the transfers or assumptions contemplated by this Section 4 to be consummated prior to the Effective Date. Nothing herein shall be deemed to require the transfer of any Contributed Assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that the parties shall cooperate to seek to obtain any necessary consents or approvals for the transfer of all Contributed Assets and assumption of all Liabilities contemplated to be transferred or assumed pursuant to this Agreement and EXHIBIT E hereto. (c) The transfers of the Hatteras Stock contemplated by this Agreement and the Distribution Agreement shall be effected by means of delivery of stock certificates and executed stock powers, notation on the stock record books of the applicable corporation or other legal entities involved and compliance with the additional requirements of Section 5 below. 5. ISSUANCE AND REISSUANCE OF HATTERAS STOCK. The Company agrees that upon delivery of this Agreement and the ancillary documents contemplated hereby, it shall issue the Hatteras Stock to Contributor in one or more certificates (or other appropriate documentation) as requested by Contributor. Further, upon request by Contributor, the Company will reissue the Hatteras Stock originally issued to Contributor to Contributor's designee upon (i) tender of the Hatteras Stock certificate to be reissued, duly endorsed for transfer, (ii) receipt of written instructions from Contributor as to the identity of the 4 individual(s) and entities to whom such Hatteras Stock shall be reissued, and (iii) receipt or evidence of written investment representations from each transferee individual or entity. The foregoing covenant to reissue shall at all times be subject to applicable federal and state securities laws regulating the sale and distribution of securities. The stock legend set forth in Section 5.3 of the Distribution Agreement shall be affixed to each certificate of Hatteras Stock so reissued. In order to properly effect the Distribution, Genmar shall also provide to Hatteras prior to the Distribution mailing and other address and contact information necessary for Hatteras to comply with all notice and other requirements with respect to such shareholders. 6. REPRESENTATIONS AND WARRANTIES. Each of the parties hereto understands and agrees that Contributor is not, in this Agreement or in any other agreement or document contemplated by this Agreement representing or warranting in any way (i) as to the value or freedom from encumbrance of, or any other matter concerning any Contributed Assets or (ii) as to the legal sufficiency to convey title to any Contributed Assets pursuant to this Agreement or any agreement, including, without limitation, any conveyancing and assumption instruments, it being agreed and understood that all such Contributed Assets are being transferred "as is, where is" and that the Company shall bear the economic and legal risk that any conveyances of such Contributed Asset(s) shall prove to be insufficient or that Contributor's title to any such Contributed Asset(s) shall be other than good and marketable and free from encumbrances. Similarly, each party hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any agreements or the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of, without limitation, any or all applicable laws, regulations, orders or judgments (collectively "Laws"), it being agreed and understood that the Company shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of Laws are not complied with. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all consents and approvals, to enter into all agreements and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under federal or state laws and all necessary consents, approvals, agreements, filings and applications. 7. INDEMNIFICATION. (a) Company shall be liable for any and all claims and Liabilities described in Section 3(a) herein above, including (i) any and all claims and Liabilities incurred by it subsequent to the date of its formation; (ii) any and all claims and Liabilities, including all contractual and tax liabilities, arising out of or in connection with the ownership, operation or transfer of assets or Liabilities of the Hatteras Yachts Division prior or subsequent to the 5 Effective Date (but excluding those claims and liabilities described as Excluded Liabilities in Section 3(b) hereof); (iii) any product warranty given by the Hatteras Yachts Division prior to the Effective Date, and (iv) in particular, but not by way of limitation, any and all corporate level taxes incurred by or charged to Genmar arising out of or imposed as a result of the exchange or distribution transactions if such tax so incurred or charged arises in connection with or incident to a final determination (that may no longer be appealed) by a federal or state taxing authority that (x) Section 355 of the Code (or any state counterpart) does not apply to the transactions contemplated by the Distribution Agreement or (y) the application of Section 355(e) of the Code results in a tax to Genmar and/or its affiliates by reason of an equity change of control of Hatteras after the distribution date. Company hereby agrees to indemnify and hold harmless Genmar, Minstar, Contributor and their affiliates from and against such claims and Liabilities (excluding the Excluded Liabilities described in Section 3(b) hereof), including any contractual breaches. In the event Genmar, Minstar, Contributor or their affiliates suffer or incur any Liability or expense to be borne by Company hereunder, Company irrevocably agrees to reimburse, indemnify and hold harmless Genmar, Minstar, Contributor and their affiliates for any expense or Liability associated therewith. (b) Genmar, Minstar, Contributor and their affiliates shall be NOT liable for (i) any claims and Liabilities arising out of or in connection with the ownership or operation of the Hatteras Yachts Division prior or subsequent to the Effective Date, except for the Excluded Liabilities described in Section 3(b) hereof; (ii) any breach of any contract or agreement entered into or warranty given in connection with the Hatteras Yachts Division by Genmar, Minstar, Industries or their Affiliates in connection with the Distribution; and (iii) the taxes described in Section 7(a)(iv) above. In the event Company suffers or incurs any Liability or expense to be borne by Genmar, Minstar, Contributor or their affiliates solely as set forth in this Agreement (including any claims with respect to the Excluded Liabilities described in Section 3(b) hereof) or the Distribution Agreement, Contributor agrees to reimburse, indemnify and hold harmless Company for any such expense or Liability. 8. ACCESS TO INFORMATION AND SERVICES. (a) Upon Company's request, Contributor shall arrange as soon as practicable following the Effective Date for the delivery to Company of active agreements and corporate records in the possession of Genmar, Minstar, Contributor or any of their affiliates relating to the assets, Liabilities, business and operations of the Hatteras Yachts Division, except to the extent such items (i) are already in the possession of Company or (ii) are to be maintained by Genmar or Jacobs Management Corporation pursuant to a management services agreement. Such records shall be the property of the Company, but shall be available to Genmar, Minstar, Contributor or any of their affiliates for review and 6 duplication until Company shall dispose of such records as permitted by the Distribution Agreement. (b) From and after the Effective Date: (i) Company shall afford to Contributor and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") within the Company's possession relating to the Contributed Assets, Liabilities, business and operations of the Company or the Hatteras Yachts Division, insofar as access is reasonably required by Contributor or its affiliates. (ii) Contributor shall afford to the Company and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing Information) and duplicating rights during normal business hours to Information within its possession relating to the assets, Liabilities, business and operations of the Hatteras Yachts Division as constituted prior to the Effective Date, insofar as such access is reasonably required by the Company. Information may be requested under this Section 8(b) for, without limitation, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing the transactions contemplated by this Agreement. 9. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Delaware, without regard to the principles of comity or the conflicts of laws provisions of any jurisdiction. (b) CONSTRUCTION. Each provision of this Agreement shall be interpreted in a manner to be effective and valid to the fullest extent permissible under applicable law. The Recitals to this Agreement are incorporated to this Agreement by reference. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions of this Agreement which shall remain in full force and effect. 7 (c) COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement. (d) COMPLETE AGREEMENT. This Agreement and the other agreements and documents referred to herein, shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. (e) TERMINATION. This Agreement may be terminated and abandoned at any time prior to the Effective Date by and in the sole discretion of Contributor. In the event of such termination, no party shall have any liability of any kind to any other party. (f) EXPENSES. Contributor and the Company shall each be responsible for their own costs and expenses incurred in connection with the transactions contemplated under this Agreement; PROVIDED, HOWEVER, that the Company acknowledges and agrees that Contributor will expend funds or accrue payables on the Company's behalf in order to effect the transactions contemplated by this Agreement and, if such funds are spent or such payables are accrued, the Company shall reimburse to Contributor a maximum amount of [$_____] for such expenditures or payables to the extent such costs and expenses are (i) required to be recorded as liabilities on the books of Hatteras in accordance with this Agreement or the Distribution Agreement, (ii) constitute a tax or other similar transfer fee on or relating to the transfer of any Contributed Asset or (iii) pre-authorized by Hatteras. (g) AMENDMENTS; WAIVERS. This Agreement may be amended or modified only in writing executed on behalf of the parties hereto. No waiver shall operate to waive any further or future act and no failure to object of forbearance shall operate as a waiver. (h) NOTICES. Notices hereunder shall be effective if given in writing and delivered or mailed, postage prepaid, by registered or certified mail to: If to Contributor: Genmar Industries, Inc. 100 South Fifth Street Suite 2400 Minneapolis, Minnesota 55402 Attention: General Counsel If to Company: Hatteras Yachts, Inc. 110 N. Glenburnie Road New Bern, North Carolina 28560 Attention: President 8 or to such other address as may be designated by a party in writing upon at least fifteen (15) days prior notice which was given in accordance with this Section 9(h). (i) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, provided that this Agreement and the rights and obligations contained herein or in any exhibit or schedule hereto shall not be assignable by Company, in whole or in part, without the prior written consent of Contributor and any attempt to effect any such assignment without such consent shall be void. (j) THIRD PARTY BENEFICIARIES. Except as specifically set forth in this Agreement or the Distribution Agreement there are not, and shall not be determined to be, any intended or incidental third party beneficiaries to this Agreement. No Genmar shareholder shall have any rights or interest in this Agreement prior to, and in any event only on completion of, the Distribution. [SIGNATURE PAGES TO FOLLOW] 9 IN WITNESS WHEREOF, the Parties have executed this Agreement on the date first above written. GENMAR INDUSTRIES, INC. By:___________________________ Title:________________________ HATTERAS YACHTS, INC. By:___________________________ Title:________________________ 10 EX-10.13 13 EXHIBIT 10.13 EXHIBIT 10.13 EXCHANGE AND DISTRIBUTION AGREEMENT BY AND AMONG GENMAR HOLDINGS, INC., MINSTAR, INC., GENMAR INDUSTRIES, INC. AND HATTERAS YACHTS, INC. ______________________, 1999 EXCHANGE AND DISTRIBUTION AGREEMENT TABLE OF CONTENTS
Page RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 ARTICLE II ACKNOWLEDGMENT OF MATERIAL FACTS . . . . . . . . . . . . . . . . . . . 5 2.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . .5 2.3 Schedule of Genmar Shareholders. . . . . . . . . . . . . . . . .5 ARTICLE III PRELIMINARY ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.1 Cooperation Prior to the Distribution. . . . . . . . . . . . . .5 3.2 Transfers Not Effected Prior to Distribution: Transfers Deemed Effective as of the Distribution Date. . . . . . . . . . . . . .6 3.3 No Representations or Warranties; Consents . . . . . . . . . . .6 3.4 Conveyancing and Assumption Instruments. . . . . . . . . . . . .7 ARTICLE IV CAPITAL CONTRIBUTION OF INDUSTRIES . . . . . . . . . . . . . . . . . . 7 4.1 Capital Contribution . . . . . . . . . . . . . . . . . . . . . .7 ARTICLE V THE EXCHANGE AND DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . 8 5.1 Hatteras Actions . . . . . . . . . . . . . . . . . . . . . . . .8 5.2 Genmar Actions . . . . . . . . . . . . . . . . . . . . . . . . .8 5.3 Stock Legend . . . . . . . . . . . . . . . . . . . . . . . . . .8 i ARTICLE VI MISCELLANEOUS LIABILITIES AND INDEMNIFICATION. . . . . . . . . . . . . 9 6.1 Hatteras Yachts Division Liabilities; Indemnification. . . . . .9 6.2 Genmar, Minstar and Industries Liabilities; Indemnification. . .9 ARTICLE VII ADDITIONAL ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . 9 7.1 Mutual Assurances. . . . . . . . . . . . . . . . . . . . . . . .9 ARTICLE VIII CONDITIONS TO EFFECTIVENESS OF DISTRIBUTION. . . . . . . . . . . . . .10 8.1 Board Approval . . . . . . . . . . . . . . . . . . . . . . . . 10 8.2 Taxation and Securities Laws Compliance. . . . . . . . . . . . 10 8.3 Contribution Agreement . . . . . . . . . . . . . . . . . . . . 10 8.4 Management Services Agreement. . . . . . . . . . . . . . . . . 10 8.5 Shareholders' Agreement. . . . . . . . . . . . . . . . . . . . 11 8.6 Hatteras Loan. . . . . . . . . . . . . . . . . . . . . . . . . 11 8.7 Genmar Guarantee . . . . . . . . . . . . . . . . . . . . . . . 11 8.8 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.9 Other Instruments. . . . . . . . . . . . . . . . . . . . . . . 11 8.10 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 11 8.11 Material Changes . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE IX ACCESS TO INFORMATION AND SERVICES . . . . . . . . . . . . . . . . . .12 9.1 Provision of Corporate Records . . . . . . . . . . . . . . . . 12 9.2 Access to Information. . . . . . . . . . . . . . . . . . . . . 12 9.3 Provision of Services. . . . . . . . . . . . . . . . . . . . . 12 9.4 Production of Witnesses. . . . . . . . . . . . . . . . . . . . 13 9.5 Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . 13 9.6 Retention of Records . . . . . . . . . . . . . . . . . . . . . 13 9.7 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE X TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 10.1 Tax Indemnification by Genmar. . . . . . . . . . . . . . . . . 14 10.2 Tax Indemnity and Covenant by Hatteras . . . . . . . . . . . . 14 ii 10.3 Allocation of Income Taxes . . . . . . . . . . . . . . . . . . 15 10.4 Filing Responsibility. . . . . . . . . . . . . . . . . . . . . 15 10.5 Refunds and Carrybacks . . . . . . . . . . . . . . . . . . . . 16 10.6 Cooperation and Exchange of Information. . . . . . . . . . . . 17 ARTICLE XI ADDITIONAL AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .19 11.1 Consents; Transfer of Assets and Assumption of Liabilities. . 19 11.2 Collection of Accounts . . . . . . . . . . . . . . . . . . . . 19 11.3 Hatteras Payment of Intercompany Debt. . . . . . . . . . . . . 19 11.4 Physical Inventory . . . . . . . . . . . . . . . . . . . . . . 19 11.5 Genmar Inventory and Supply Buying Group . . . . . . . . . . . 19 ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 12.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 20 12.2 Construction . . . . . . . . . . . . . . . . . . . . . . . . . 21 12.3 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 21 12.4 Complete Agreement; Construction . . . . . . . . . . . . . . . 21 12.5 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 21 12.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 12.7 Amendments; Waivers. . . . . . . . . . . . . . . . . . . . . . 21 12.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 12.9 Successors and Assigns . . . . . . . . . . . . . . . . . . . . 22 12.10 Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . 22
EXHIBITS Exhibit A - Contribution Agreement (Section 4.1) Exhibit B - Management Services Agreement (Section 8.4) Exhibit C - Shareholders' Agreement (Section 8.5) iii EXCHANGE AND DISTRIBUTION AGREEMENT THIS EXCHANGE AND DISTRIBUTION AGREEMENT (the "Agreement") is made and entered into as of the ___ day of ______________, 1999 to be effective as of the ____ day of __________, 1999 (the "Effective Date") by and among GENMAR HOLDINGS, INC., a Delaware corporation ("Genmar"), MINSTAR, INC., a Delaware corporation ("Minstar"), GENMAR INDUSTRIES, INC., a Delaware corporation ("Industries") and HATTERAS YACHTS, INC., a Delaware corporation ("Hatteras"). RECITALS A. Genmar is planning an initial public offering (the "IPO") of its common stock pursuant to a registration statement that is anticipated to become effective in 1999. B. Genmar's Board of Directors has determined that the product lines offered by the Hatteras Yachts division operated by Genmar through its Affiliate Industries (the "Hatteras Yachts Division") are inconsistent with (i) the Genmar business and strategic plan and (ii) the other marine industry product lines offered by Genmar and its Affiliates. C. Genmar is the holder of all of the issued and outstanding shares of capital stock of Minstar, which owns all of the issued and outstanding shares of capital stock of Industries. D. Genmar has caused Industries to organize Hatteras and, pursuant to this Agreement, will cause Industries to contribute certain assets and transfer certain liabilities to Hatteras, which are presently associated with the operation of the Hatteras Yachts Division business, in exchange for all of the issued and outstanding common stock of Hatteras, par value $0.0001 (the "Hatteras Stock"). E. It is the intention of Genmar to cause Industries to distribute to Minstar the Hatteras Stock immediately following its contribution and transfer of the assets and Liabilities of the Hatteras Yacht Division referred to in Recital D above. F. It is the intention of Genmar to cause Minstar to distribute the Hatteras Stock to Genmar immediately following receipt and distribution of the contribution referred to in Recital E above. G. It is the intention of Genmar to offer an exchange of stock to its shareholders whereby one (1) share of Hatteras Stock will be exchanged for one (1) share of Genmar common stock held by such Genmar shareholders on the Record Date; PROVIDED, that the number of shares of Genmar common stock that each holder of Genmar common stock will exchange for Hatteras Stock shall be equal to ten percent (10%) of the number of shares of Genmar common stock held by each holder of Genmar common stock on the Record Date (the "Exchange"). H. In connection with the transactions described above, Hatteras will borrow $25 million from a third party lendor for use as working capital and to repay $20 million of intercompany debt owed to Genmar. I. In connection with the borrowing transaction described in Recital H above, it is Genmar's intention to guarantee approximately $5 million of Hatteras' debt to the third party lendor. J. The transactions described in the Recitals above will occur prior to the IPO. K. The transactions described herein are intended to constitute a plan which will qualify, without limitation, under Sections 351, 355 and/or 368 (a) (1) (D) of the Code. NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual covenants and agreements made herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto intending to be legally bound agree as follows: ARTICLE I DEFINITIONS 1.1 GENERAL. As used in this Agreement and the Exhibits hereto, the following terms shall have the following meanings: ACTION: any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. AFFILIATE: a legal entity or association which, directly or indirectly, is controlled by, is in control of, or under common control with the legal entity or association with reference to which the term "affiliate" is used. ANCILLARY AGREEMENTS: all of the agreements, instruments, understandings, assignments or other arrangements entered into in connection with the transactions contemplated hereby, including, without limitation the Conveyancing and Assumption Instruments, the Contribution Agreement, the Management Services Agreement and the Shareholders' Agreement. 2 ASSUMED LIABILITIES: all of the Liabilities associated with the Hatteras Yachts Division business. CODE: the Internal Revenue Code of 1986, as amended, or, as the context may require, the Internal Revenue Code applicable to the pre-Distribution year in question. CONTRIBUTION AGREEMENT: shall have the meaning set forth in Section 4.1 of this Agreement. CONVEYANCING AND ASSUMPTION INSTRUMENTS: collectively, the various agreements, instruments and other documents to be entered into to effect the transfer, effective on, prior or subsequent to the Distribution Date, in the manner contemplated by this Agreement and the Ancillary Agreements. DETERMINATION: means a "determination" as defined by Section 1313(a) of the Code. DISTRIBUTION: the distribution effected in accordance with the Exchange to all holders of Genmar common stock on the Record Date of the Hatteras Stock owned by Genmar. DISTRIBUTION DATE: the date of effecting the Distribution. EFFECTIVE DATE: shall have the meaning set forth in the preamble to this Agreement. EXCHANGE: shall have the meaning set forth in the Recitals to this Agreement. GENMAR: shall have the meaning set forth in the preamble to this Agreement. HATTERAS: shall have the meaning set forth in the preamble to this Agreement. HATTERAS LOAN: shall have the meaning set forth in Section 8.6 of this Agreement. HATTERAS STOCK: shall have the meaning set forth in the Recitals to this Agreement. HATTERAS YACHTS DIVISION: shall have the meaning set forth in the Recitals to this Agreement. INCOME TAXES: means all Taxes based upon or measured by income. INDUSTRIES: shall have the meaning set forth in the preamble to this Agreement. INFORMATION: shall have the meaning set forth in Section 9.2 of this Agreement. 3 IPO: shall have the meaning set forth in the Recitals to this Agreement. IRS: means the Internal Revenue Service. JMC: shall have the meaning set forth in Section 8.4 of this Agreement. LIABILITIES: any and all debts, liabilities and obligations, absolute or contingent, mature or unmature, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising (unless otherwise specified in this Agreement), including all costs and expenses relating thereto, and those debts, liabilities and obligations arising under any law, rule, regulation, Action, threatened Action, order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. In the case of Hatteras, Liabilities shall include all intercompany debt designated by Genmar to be associated with or arising in connection with the Hatteras Yachts Division; PROVIDED, FURTHER, that such determination by Genmar shall be final and binding. MANAGEMENT SERVICES AGREEMENT: shall have the meaning set forth in Section 8.4 of this Agreement. MINSTAR: shall have meaning set forth in the preamble to this Agreement. RECORD DATE: the date determined by the board of directors of Genmar as the "Record Date" to establish the Genmar shareholders who will receive the Exchange offer and may participate in the Distribution. RETURNS: means returns, reports and forms required to be filed with respect to Taxes. SECURITY ACT: means the Securities Act of 1933, as amended. SERVICES: shall have meaning set forth in Section 9.4 of this Agreement. SHAREHOLDERS' AGREEMENT: shall have the meaning set forth in Section 8.5 of this Agreement. TAX LAWS: means the Code, and any other federal, state, county, local, or foreign laws relating to Taxes and any regulations or official administrative pronouncements released thereunder. TAXES: means all taxes (whether federal, state, local or foreign) based upon or measured by income and any other tax whatsoever, including, without limitation, gross receipts, profits, sales, use, occupation, value added, ad valorem, transfer, franchise, capital 4 stock, net worth, withholding, payroll, employment, excise, or property taxes, together with any interest or penalties imposed with respect thereto. TAXING AUTHORITY: means any governmental authority, domestic or foreign, having jurisdiction over the assessment, determination, collection, or other imposition of Tax. ARTICLE II ACKNOWLEDGMENT OF MATERIAL FACTS 2.1 ORGANIZATION. The parties acknowledge that each is duly organized, validly existing and in good standing under the laws of the State of Delaware, as applicable, with requisite corporate power to own their properties and assets and to carry on their respective businesses as presently conducted or contemplated. Genmar will, on the Distribution Date, be the owner of all of the Hatteras Stock, and all other issued and outstanding interests in capital stock of Hatteras. 2.2 AUTHORITY. The parties acknowledge that each have the full power and authority to enter into this Agreement, to carry out the transactions contemplated hereby, and all proceedings and other actions required to be taken to authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements have been properly taken and this Agreement and the Ancillary Agreements constitute valid and binding obligations of each of the parties hereto, enforceable against each of them in accordance with their respective terms. 2.3 SCHEDULE OF GENMAR SHAREHOLDERS. SCHEDULE 1 to this Agreement sets forth the Genmar Shareholders and the number of shares of Hatteras Stock to be received on the Distribution Date. ARTICLE III PRELIMINARY ACTION 3.1 COOPERATION PRIOR TO THE DISTRIBUTION. (a) COMPILATION OF HATTERAS YACHTS DIVISION DILIGENCE MATERIALS AND SCHEDULES. Hatteras, Genmar and Industries shall cooperate in compiling, preparing and scheduling such due diligence information and records as shall be deemed necessary or appropriate to enable the parties to properly and completely prepare this Agreement, the Ancillary Agreements and all Conveyancing and Assumption Instruments which may be necessary or desirable to effect the transactions contemplated by this Agreement. 5 (b) BENEFIT PLANS AND INSURANCE. All parties shall cooperate in preparing, approving and implementing any agreements or other actions which are appropriate to separate benefit plans or insurance of Genmar and Industries from benefit plans of Hatteras and the Hatteras Yachts Division, if necessary. In the event any such benefit plans or insurance coverage applicable to Hatteras continues under a contractual obligation of Genmar or any Genmar Affiliate, Hatteras shall be obligated to remit to Genmar any monies due which relate to Hatteras' coverage under such plans or policies, prior to or upon its due date. (c) SECURITIES LAW COMPLIANCE AND BLUE SKY. The parties shall take all such action as may be necessary or appropriate under the Securities Act and the securities (or blue sky laws) of states or other political subdivisions of the United States in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. (d) HATTERAS STOCK. The parties acknowledge and agree that the Hatteras Stock (i) will not be registered under the Securities Act or under any state law counterpart and (ii) may not be transferred except in accordance with applicable federal and state securities laws. 3.2 TRANSFERS NOT EFFECTED PRIOR TO DISTRIBUTION: TRANSFERS DEEMED EFFECTIVE AS OF THE DISTRIBUTION DATE. To the extent that any transfers or other actions contemplated by this Article III and Article IV hereof shall not have been consummated prior to the Distribution Date, the parties shall cooperate to effect such transfers or other actions as promptly following the Distribution Date as shall be practicable, it nonetheless being agreed and understood by the parties that neither party shall be liable in any manner to any other party for any failure of any of the transfers or assumptions contemplated by this Article III or Article IV hereof to be consummated prior to the Distribution Date. Nothing herein shall be deemed to require the transfer of any assets or the assumption of any Liabilities which by their terms or operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that the parties shall cooperate to seek to obtain any necessary consents or approvals for the transfer of all assets and assumption of all Liabilities contemplated to be transferred or assumed pursuant to this Article III and Article IV or any Ancillary Agreement. 3.3 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each of the parties hereto understands and agrees that no party hereto is, in this Agreement or in any Ancillary Agreement or in any other agreement or document contemplated by this Agreement, representing or warranting in any way (i) as to the value or freedom from encumbrance of, or any other matter concerning any assets of such party or (ii) as to the legal sufficiency to convey title to any asset pursuant to this Agreement or any Ancillary Agreement, including, without limitation, any Conveyancing and Assumption Instruments, it being agreed and understood that all such assets are being transferred "as is, where is" and that the party to which such assets are to be transferred hereunder shall bear the economic and legal risk that 6 any conveyances of such assets shall prove to be insufficient or that such party's title to any such assets shall be other than good and marketable and free from encumbrances. Similarly, each party hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any agreements or the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable agreements or the requirements of any or all applicable laws or judgments, it being agreed and understood that the party to which any assets are transferred shall bear the economic and legal risk that any necessary consents or approvals are not obtained or that any requirements of laws or judgments are not complied with. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all consents and approvals, to enter into all agreements and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under federal or state laws and all necessary consents, approvals, agreements, filings and applications. 3.4 CONVEYANCING AND ASSUMPTION INSTRUMENTS. In connection with the transfer of assets (other than capital stock) and the transfer and assumption of Liabilities between Industries and Hatteras as contemplated by this Agreement and the Ancillary Agreements, the parties shall execute or cause to be executed by the appropriate entities the Conveyancing and Assumption Instruments in such form as the parties shall agree. The transfer of the Hatteras Stock shall be effected by means of delivery of stock certificates and executed stock powers and notation on the stock record books of the applicable corporation or other legal entities involved. ARTICLE IV CAPITAL CONTRIBUTION OF INDUSTRIES 4.1 CAPITAL CONTRIBUTION. Prior to the Distribution Date, Industries will contribute cash and other assets (including unamortized goodwill) of the Hatteras Yachts Division to Hatteras in an amount based upon the book value of the assets contributed. Such contribution will be accomplished through the following steps (with such modifications as the parties may deem necessary or desirable to qualify the Distribution for non-recognition treatment under Code Sections 368(a) (1) (D), 355(a) (1) and 351: (i) Industries will transfer the assets and Liabilities of the Hatteras Yachts Division to Hatteras, in exchange for the Hatteras Stock, pursuant to a capital contribution agreement substantially in the form of EXHIBIT A hereto (the "Contribution Agreement"), (ii) Industries will distribute to Minstar the Hatteras Stock, and (iii) Minstar will distribute to Genmar the Hatteras Stock. Such steps are intended to be accomplished without any recognition of gain or loss pursuant to various Sections of the Code, including Sections 351, 355, 357, 361, 368 and 1032, and the 7 Distribution is intended to qualify under Section 355 of the Code. All of such steps and the Distribution shall be reported on all Genmar and Hatteras tax returns and other statements in accordance with such intentions, unless otherwise indicated by Genmar. Genmar and Hatteras acknowledge and agree that all of the Hatteras Stock held by Genmar will be distributed to the holders of outstanding shares of Genmar common stock in accordance with the Exchange. ARTICLE V THE EXCHANGE AND DISTRIBUTION 5.1 HATTERAS ACTIONS. Hatteras shall take all steps required by Genmar to effect the transactions contemplated by this Agreement or the Ancillary Agreements. Prior to the Distribution, and after completion of the transactions contemplated in Article IV hereof, Hatteras shall cause to be issued to Genmar a certificate or certificates representing 2,358,470 shares of Hatteras common stock. 5.2 GENMAR ACTIONS. In order to properly effect the Distribution, Genmar shall provide to Hatteras prior to the Distribution the SCHEDULE 1 list of Genmar shareholders and the number of shares of Hatteras Stock to which each such shareholder is entitled pursuant to the Exchange, as well as the mailing and other address and contact information necessary for Hatteras to comply with all notice and other requirements with respect to such shareholders. 5.3 STOCK LEGEND. Each certificate representing shares of Hatteras Stock issued to the Genmar shareholders, and any successor, shall have the following legend imprinted on the reverse of such certificate: The shares represented by this certificate were issued without registration under the Securities Act of 1933, as amended (the "Act"), and without registration under state securities laws, in reliance upon exemptions contained in the Act and such laws. No transfer of these shares or any interest therein may be made except pursuant to an effective registration statement under said laws unless Hatteras Yachts, Inc. has received an opinion of counsel satisfactory to it that such transfer or disposition does not require registration under said laws and, for any sales under Rule 144 of the Act, such evidence as it shall request for compliance with that rule. 8 ARTICLE VI MISCELLANEOUS LIABILITIES AND INDEMNIFICATION 6.1 HATTERAS YACHTS DIVISION LIABILITIES; INDEMNIFICATION. Subject to the provisions of Article X below, Hatteras shall be liable for any and all claims and Liabilities described in the Contribution Agreement, including (i) any and all claims and Liabilities incurred by Hatteras subsequent to the date of its formation; (ii) any and all claims and Liabilities, including all contractual and Tax Liabilities (including without limitation those described in Section 10.1(c) hereof), arising out of or in connection with the ownership or operation of the Hatteras Yachts Division prior or subsequent to the date the Hatteras Yachts Division assets are contributed to Hatteras (but excluding those claims and Liabilities described as Excluded Liabilities in the Contribution Agreement), and (iii) any product warranty given by the Hatteras Yachts Division prior or subsequent to the Distribution. Hatteras hereby agrees to indemnify and hold harmless Genmar, Minstar, Industries and their Affiliates from and against such claims and Liabilities, including any contractual breaches. In the event Genmar, Minstar, Industries and their Affiliates suffer or incur any Liability or expense to be borne by Hatteras hereunder, Hatteras agrees to reimburse, indemnify and hold harmless Genmar, Minstar, Industries and their Affiliates for any expense or Liability associated therewith. 6.2 GENMAR, MINSTAR AND INDUSTRIES LIABILITIES; INDEMNIFICATION. Subject to the provisions of Article X below, Genmar, Minstar, Industries and their Affiliates shall be NOT liable for any claims and Liabilities described in the Contribution Agreement, including (i) any and all claims and Liabilities incurred by Hatteras subsequent to the date of its formation, (ii) any and all claims and Liabilities, including all contractual and Tax liabilities arising out of or in connection with the ownership or operation of the Hatteras Yachts Division prior or subsequent to the date the Hatteras Yachts Division assets are contributed to Hatteras (with the exception of the Excluded Liabilities described in the Contribution Agreement) and (iii) any breach of any contract entered into or warranty given in connection with the Hatteras Yachts Division by Genmar, Minstar, Industries or their Affiliates in connection with the Distribution. In the event Hatteras suffers or incurs any Liability or expense to be borne by Genmar, Minstar, Industries or their Affiliates as set forth in this Agreement or the Ancillary Agreements, Genmar agrees to reimburse, indemnify and hold harmless Hatteras for such expense or Liability. ARTICLE VII ADDITIONAL ASSURANCES 7.1 MUTUAL ASSURANCES. The parties agree to cooperate with respect to the implementation of this Agreement and the Ancillary Agreements and to execute such further 9 documents and instruments as may be necessary to (i) confirm the transfer of the Hatteras Yachts Division assets and the Liabilities and (ii) to effect transactions contemplated hereby. Such cooperation may include joint meetings with corporate partners, suppliers, customers and others to the extent necessary to assure the orderly transition of the business and operations of the Hatteras Yachts Division as contemplated hereby; PROVIDED, HOWEVER, that nothing herein shall be deemed to obligate any of the parties to take any action or reach any understandings which may violate any applicable laws. The parties agree that they will not take any action inconsistent with this Agreement or the Ancillary Agreements in connection with the contribution and the Distribution and, if any of the parties shall take any such inconsistent action, or fail to use such best efforts, it will indemnify the other parties for any expense or Liability incurred as a consequence thereof. The parties acknowledge and agree that no tax or securities opinions have been or are anticipated to be obtained in connection with the transactions contemplated hereunder. Except as otherwise specifically provided in Section 12.6 of this Agreement, the parties shall bear their own expenses associated with the contribution of the Hatteras Yachts Division and the Distribution. ARTICLE VIII CONDITIONS TO EFFECTIVENESS OF DISTRIBUTION The Distribution shall be subject to the implementation of the portions of this Agreement which are contemplated to become effective prior to the Distribution and to the satisfaction or waiver of the following conditions: 8.1 BOARD APPROVAL. This Agreement and the Ancillary Agreements (including exhibits and schedules) shall have been approved by the Board of Directors of all parties and shall have been executed and delivered by appropriate officers of all parties. 8.2 TAXATION AND SECURITIES LAWS COMPLIANCE. The transactions contemplated hereby shall be in compliance with applicable federal and state taxation and securities laws and, if determined necessary by Genmar, Genmar shall have received a satisfactory determination with regard to exemptions from taxation and compliance with securities laws in connection with the contribution, the Distribution and related matters. 8.3 CONTRIBUTION AGREEMENT. Industries and Hatteras shall have entered into the Contribution Agreement and shall have performed all of their respective obligations thereunder required to be performed on or before the Distribution Date. 8.4 MANAGEMENT SERVICES AGREEMENT. Each of Hatteras, Genmar and Jacobs Management Corporation, a Delaware corporation ("JMC") shall on or before the Distribution Date enter into a management services agreement substantially in the form of EXHIBIT B hereto (the "Management Services Agreement") pursuant to which Genmar and 10 JMC shall provide advisory, management, administrative, legal, environmental, financial, accounting and other such services to and on behalf of Hatteras for a period of one (1) year following the Distribution Date. 8.5 SHAREHOLDERS' AGREEMENT. Each of the following shareholders of Genmar (i) Irwin L. Jacobs, (ii) Jacobs Management Corporation, (iii) Miramar Equity Holdings Partnership, (iv) Jacobs Industries, Inc., (v) Carl R. Pohlad, as Trustee of Revocable Trust No. 2 of Carl R. Pohlad created U/A dated 5/28/93, (vi) PEP Partnership, (vii) RDV Capital Management L.P. II, (viii) Orekeon Holdings AB, (ix) the State of Wisconsin Investment Board, (x) all other shareholders of Genmar and their Affiliates who will receive Distribution of Hatteras Stock hereunder, and (xi) Hatteras shall enter into a shareholders' agreement effective on and after the Distribution Date substantially in the form of Exhibit C hereto (the "Shareholders' Agreement") pursuant to which such shareholders and Hatteras shall agree to, among other things, certain transfer restrictions, purchase obligations and capital stock registration rights. 8.6 HATTERAS LOAN. On or prior to the Distribution Date, Hatteras shall have obtained and have the right to draw upon a third party lender loan (the "Hatteras Loan") in an amount not less than $25 million to be used for repayment of intercompany debt of the Hatteras Yachts Division and for working capital purposes. 8.7 GENMAR GUARANTEE. On or prior to the Distribution Date, Genmar shall have guaranteed the due performance of Hatteras under the Hatteras Loan, in an amount not to exceed $5 million, pursuant to a guarantee in form and substance mutually acceptable to Genmar and its counsel, Hatteras and the lending institution issuing the Hatteras Loan. 8.8 CONSENTS. The parties shall have received such consents, and shall have received executed copies of such agreements or amendments of agreements, as deemed necessary in connection with the completion of the transactions contemplated by this Agreement and the Ancillary Agreements. 8.9 OTHER INSTRUMENTS. All actions and other Conveyancing and Assumption Instruments deemed necessary or advisable in connection with the transactions contemplated hereby shall have been taken or executed, as the case may be, in form and substance satisfactory to the parties. 8.10 LEGAL PROCEEDINGS. No legal proceedings affecting or arising out of the transactions contemplated hereby or which could otherwise affect in a materially adverse manner shall have been commenced or threatened against any of the parties or the directors or officers of any of the parties. 11 8.11 MATERIAL CHANGES. No material adverse change shall have occurred with respect to any of the parties, the securities markets or general economic or financial conditions which shall, in the reasonable judgment of Genmar, make the transactions contemplated by this Agreement inadvisable. ARTICLE IX ACCESS TO INFORMATION AND SERVICES 9.1 PROVISION OF CORPORATE RECORDS. Upon Hatteras' request, Genmar and Industries shall arrange as soon as practicable following the Distribution Date for the delivery to Hatteras of active agreements and corporate records in the possession of Genmar, Minstar, Industries or any of their Affiliates relating to the assets, Liabilities, business and operations of the Hatteras Yachts Division, except to the extent such items (i) are already in the possession of Hatteras, (ii) are "Excluded Liabilities" or "Excluded Assets" under the Contribution Agreement or (iii) are to be maintained by Genmar or JMC pursuant to the Management Services Agreement. Such records shall be the property of Hatteras, but shall be available to Genmar, Minstar, Industries or any of their Affiliates for review and duplication until Hatteras shall dispose of such records as permitted by Section 9.7 hereof. 9.2 ACCESS TO INFORMATION. From and after the Distribution Date, Hatteras shall afford to Genmar and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to all records, books, contracts, instruments, computer data and other data and information (collectively, "Information") within Hatteras' possession relating to the assets, Liabilities, business and operations of Hatteras or the Hatteras Yachts Division, insofar as such access is reasonably required by Genmar. Genmar shall afford to Hatteras and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing Information) and duplicating rights during normal business hours to Information within Genmar's and its Affiliates' possession relating to the assets, Liabilities, business and operations of the Hatteras Yachts Division as constituted prior to the Distribution, insofar as such access is reasonably required by Hatteras. Information may be requested under this Article IX for, without limitation, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and for performing the transactions contemplated by this Agreement and the Ancillary Agreements. 9.3 PROVISION OF SERVICES. Each party to this Agreement, upon written request, shall make available to any other party, during normal business hours and in a manner that will not unreasonably interfere with such party's business, its financial, tax, accounting, legal, personnel, employee benefits and similar staff services (collectively "Services") 12 whenever and to the extent that they may be reasonably required in connection with the preparation of tax returns, audits, claims, litigation or administration of employee benefit plans, and otherwise to assist in effecting an orderly transition following the Distribution. 9.4 PRODUCTION OF WITNESSES. At all times from and after the Distribution Date, each of the parties shall use reasonable efforts to make available to the other, upon written request, its officers, directors, employees and agents as witnesses to the extent that such persons may reasonably be required in connection with legal, administrative or other proceedings in which the requesting party may from time to time be involved. 9.5 REIMBURSEMENT. A party providing Information, Services or witnesses to any other party under this Article IX shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payment for providing such Information, Services or witnesses corresponding to a reasonable pro rata share of the salary and benefits of the officers, directors, employees and agents involved, and the supplies, disbursements and other out-of- pocket expenses as may be reasonably incurred in providing such Information or Services or producing such witnesses; PROVIDED, HOWEVER, that there shall be no charge for such salary and benefits for a party's participation in an existing and known lawsuit (as determined on the Effective Date). 9.6 RETENTION OF RECORDS. Following the Distribution Date, each of the parties shall retain all Information relating to any other party, except as otherwise required by law or set forth in an Ancillary Agreement or except to the extent that such Information is in the public domain or in the possession of the other party, for the period specified for such types of Information as set forth in Industries' record retention policy (or that of its parent). 9.7 CONFIDENTIALITY. Subject to any contrary requirement of law and the right of each party to enforce its rights hereunder in any legal action or other claim or proceeding, each party shall keep strictly confidential, and shall cause its employees and agents to keep strictly confidential, any Information of or concerning the other party which it or any of its agents or employees may acquire pursuant to, or in the course of performing its obligations under, any provisions of this Agreement or any Ancillary Agreement; PROVIDED, HOWEVER, that such obligation to maintain confidentiality shall not apply to Information which (i) at the time of disclosure was in the public domain, not as a result of improper acts by the receiving party, (ii) was already independently in the possession of the receiving party at the time of disclosure, (iii) is received by the receiving party from a third party who did not receive such Information from the disclosing party under an obligation of confidentiality, or (iv) is required by law or regulation (including Tax Laws) to be disclosed, but only in the context and to the extent required by such law or regulation. 13 ARTICLE X TAX MATTERS 10.1 TAX INDEMNIFICATION BY GENMAR. Genmar shall indemnify and hold Hatteras and any successor entity thereto or Affiliate thereof harmless from and against the following Taxes arising from or attributable to the business or operations of Genmar and its Affiliates: (a) any and all Taxes arising in or attributable to any taxable period ending (or deemed, pursuant to Section 10.3, to end) on or before the Distribution Date except for state, local or foreign Taxes (not based on income) of the Hatteras Yacht Division which are (i) payable or (ii) not yet due and payable as of the Distribution Date, and are Liabilities of the Hatteras Yachts Division; (b) any several liability of such entities under Treasury Regulations Section 1.1502-6 or under any comparable or similar provision under state, local or foreign laws or regulations for periods ending on or prior to the Distribution Date; and (c) any and all corporate level Taxes arising out of or imposed in connection with the Exchange or Distribution or any of the transactions arising out of or incident to the Exchange or Distribution; PROVIDED, HOWEVER, (i) that neither Genmar, nor any of its Affiliates, shall be liable for any such corporate level Tax if such Tax arises out of, in connection with or incident to a final determination (that may no longer be appealed) by a federal or state taxing authority that (x) Section 355 of the Code (or any state counterpart) does not apply to the transactions contemplated by this Agreement and such determination arises directly or indirectly from the acts or omissions of Hatteras or (y) the application of Section 355(e) of the Code results in a Tax to Genmar and/or its Affiliates by reason of an equity change of control of Hatteras after the Distribution Date, and (ii) that Genmar shall be indemnified at the time of such determination by Hatteras for any Tax paid and/or loss of Tax benefits by use of its credits or net operating losses resulting from any Tax incurred pursuant to the determination described in sentence (i) immediately above. 10.2 TAX INDEMNITY AND COVENANT BY HATTERAS. Hatteras shall indemnify and hold Genmar, Minstar, Industries and their Affiliates and any successor entities thereto and any Affiliates thereof harmless from and against, the following Taxes arising from or attributable to the business or operations of Hatteras: (a) any and all Taxes arising in or attributable to any taxable period beginning (or deemed pursuant to Section 10.3 to begin) after the Distribution Date and Taxes and other similar transfer fees which are incurred in connection with the transfer of assets or Liabilities of the Hatteras Yachts Division; 14 (b) any and all Taxes not incurred in the ordinary course of business attributable to the acts or omissions of Hatteras or its Affiliates occurring after the Distribution Date, including any Tax arising in connection with an equity change of control of Hatteras after the Distribution Date under the provisions of Section 355(e) of the Code and, FURTHER, Hatteras shall also indemnify Genmar, Minstar, Industries and their Affiliates for any loss of Tax benefits as described in Section 10.1 (c) herein above; and (c) state, local or foreign Taxes (not based on income) arising in or attributable to any taxable period ending (or deemed pursuant to Section 10.3 to end) on or before the Distribution Date to the extent such Taxes (i) payable or (ii) not yet due and payable as of the Effective Date, and are Liabilities of the Hatteras Yachts Division. 10.3 ALLOCATION OF INCOME TAXES. (a) The parties agree that if they are permitted but not required under applicable foreign, state or local Tax laws to treat the Effective Date as the last day of a taxable period, they shall treat such day as the last day of a taxable period. The parties agree that they will treat Hatteras as if it ceased to be part of Genmar's affiliated group, within the meaning of Section 1504 of the Code, as of the close of business on the Effective Date. (b) Genmar shall be entitled to use and utilize any and all net operating losses incurred by Genmar and its Affiliates on and prior to the Distribution Date. Hatteras acknowledges and agrees that it shall not receive as an asset under the Contribution Agreement, and therefore shall not be entitled to utilize, net operating losses of the Hatteras Yachts Division. 10.4 FILING RESPONSIBILITY. (a) Genmar shall prepare and file or shall cause to have prepared and filed the following Returns with respect to such entities: (i) all income and franchise Tax Returns for any taxable period ending on or before the Distribution Date; and (ii) all other Returns required to be filed on or before the Distribution Date. (b) Hatteras shall, subject to the provisions of Section 10.4(c), prepare and file all other Returns with respect to Hatteras required to be filed (taking into account extensions) after the Distribution Date (unless such Returns will be filed by Genmar pursuant to the Management Services Agreement). 15 (c) With respect to any Return for taxable periods beginning before the Distribution Date and ending after the Distribution Date, Hatteras shall consult with Genmar concerning each such Return and shall report all items with respect to the period ending on the Distribution Date in accordance with the instructions of Genmar, unless otherwise agreed by Genmar and Hatteras. Hatteras shall provide Genmar with a copy of each proposed Return at least 30 days prior to the filing of such Return, and Genmar may provide comments to Hatteras, which comments shall be delivered to Hatteras within fifteen days of receiving such copies from Hatteras. 10.5 REFUNDS AND CARRYBACKS. (a) Genmar shall be entitled to any refunds or credits of Taxes attributable to taxable periods ending on or before the Distribution Date. (b) Hatteras shall be entitled to any refunds or credits of Taxes with respect to Hatteras attributable to taxable periods beginning after the Distribution Date. (c) Hatteras shall promptly forward to Genmar or reimburse Genmar for any refunds or credits due Genmar (pursuant to the terms of this Article X) after receipt thereof, and Genmar shall promptly forward to Hatteras (pursuant to the terms of this Article X) or reimburse Hatteras for any refunds or credits due Hatteras after receipt thereof. (d) Hatteras agrees that with respect to any Tax, Hatteras shall not have the right to carry back any item or loss, deduction or credit which arises in any taxable period ending after the Distribution Date ("SUBSEQUENT LOSS") into any taxable period ending on or before the Distribution Date. Notwithstanding the foregoing sentence, if a Subsequent Loss with respect to any Tax is carried back into any taxable period ending on or before the Distribution Date, Genmar shall be entitled to any refund or credit of Taxes realized by Hatteras as a result thereof. (e) (i) If any adjustment is made to any Return relating to Genmar or any of its Affiliates (including the Hatteras Yachts Division) for any taxable period (or portion thereof) ending on or prior to the Distribution Date (whether such adjustment is a result of or in settlement of any audit, other administrative proceeding or judicial proceeding or the filing of an amended return to reflect the consequences of any determination made in connection with any such audit or proceeding or otherwise) the benefit or detriment of such adjustment shall accrue to or be incurred by, as applicable, Genmar. (ii) If any adjustment is made to any Return relating to Hatteras or any of its Affiliates for any taxable period (or portion thereof) ending after the Distribution Date (whether as a result of or in settlement of any audit, other administrative proceeding or judicial proceeding or the filing of an amended Return to reflect the consequences of any 16 determination made in connection with any such audit or proceeding or otherwise) the benefit or detriment of such adjustment shall accrue to or be incurred by, as applicable, Hatteras. 10.6 COOPERATION AND EXCHANGE OF INFORMATION. (a) Genmar shall prepare and submit to Hatteras, after the Distribution Date, blank income Tax return workpaper packages. Hatteras shall prepare completely and accurately and submit to Genmar, within sixty (60) days of the extended income Tax return date, all information as Genmar shall reasonably request in such income Tax return workpaper packages. (b) As soon as practicable, but in any event within sixty (60) days after Genmar's request, from and after the Distribution Date, Hatteras shall provide Genmar with such cooperation and shall deliver to Genmar such information and data concerning the pre-Distribution operations of the Hatteras Yachts Division and make available such knowledgeable employees of such entities as Genmar may reasonably request, including providing the information and data required by Genmar's tax and accounting questionnaires, in order to enable Genmar to complete and file all Returns which it may be required to file with respect to the operations and business of the Hatteras Yachts Division through the Distribution Date or to respond to audits by any Taxing Authorities with respect to such operations and to otherwise enable Genmar to satisfy its internal accounting, tax and other legitimate requirements. Such cooperation and information shall include without limitation provision of powers of attorney for the purpose of signing Returns and defending audits for the periods ending on or prior to the Distribution Date and Hatteras will promptly forward copies of appropriate notices and forms or other communications received from or sent to any Taxing Authority which relate to Genmar or its obligations hereunder and provide copies of all relevant Returns, together with accompanying schedules and related workpapers, documents relating to rulings or other determinations by any Taxing Authority and records concerning the ownership and tax basis of property, which Hatteras and its Affiliates, if any, may possess. Genmar shall furnish Hatteras with its cooperation in a manner comparable to that described in this Section 10.6(b). (c) For a period of seven (7) years after the Distribution Date or such longer period as may be required by law, or as otherwise agreed to in writing by the parties, each of the parties shall retain and not destroy or dispose of all Returns (including supporting materials), books and records (including computer files) of, or with respect to its activities or Taxes, for all taxable periods ending (or deemed, pursuant to Section 10.3, to end) on or prior to the Distribution Date. (d) The parties shall cooperate in the preparation of all Returns relating in whole or in part to taxable periods ending on or before or including the Distribution Date 17 that are required to be filed after such date. Such cooperation shall include, but not be limited to, furnishing prior years' Returns or return preparation packages illustrating previous reporting practices or containing historical information relevant to the preparation of such Returns, and furnishing such other information within such party's possession requested by the party filing such Returns as is relevant to their preparation. In the case of any state, local or foreign joint, consolidated, combined, unitary or group relief system Returns, such cooperation could also relate to any other taxable periods in which one party could reasonably require the assistance of the other party in obtaining any necessary information. (e) Genmar shall have the right (but not the obligation), at its own expense, to control any audit or examination by any Taxing Authority ("Tax Audit"), initiate any claim for refund or contest, resolve and defend against any assessment, notice of deficiency, or other adjustment or proposed adjustment relating to any and all Taxes for any taxable period ending on or before the Distribution Date with respect to the Hatteras Yachts Division. Hatteras shall have the right, at its own expense, to control any other Tax Audit, initiate any other claim for refund, and contest, resolve and defend against any other assessment, notice of deficiency, or other adjustment or proposed adjustment relating to Taxes with respect to Hatteras, PROVIDED THAT, with respect to any state, local and foreign Taxes for any taxable period beginning before the Distribution Date and ending after the Distribution Date, Hatteras or Genmar, as the case may be, shall keep the other party duly informed and shall consult with each other with respect to the resolution of any issue that would adversely affect the other party, and not settle any such issue, or file any amended Return relating to any such issue, without the consent of the affected party, which consent shall not unreasonably be withheld, delayed or conditioned. Where consent to a settlement is withheld pursuant to this Section 10.6(e), the party controlling the audit or examination may nevertheless settle, continue or initiate any further proceedings at its own expense, provided that any adjustments required shall be made and treated as set forth in Section 10.5(e). (f) If Hatteras fails to provide any information requested by Genmar in the time specified herein, or if no time is specified pursuant to this Section 10.6, within a reasonable period, or otherwise fails to do any act required of it under this Section 10.6, then Hatteras shall be obligated, notwithstanding any other provision of this Agreement, to indemnify Genmar and Hatteras shall so indemnify Genmar and hold Genmar harmless from and against any and all costs, claims, penalties and damages, including, without limitation, all incremental Taxes and penalties related thereto, payable or charged as a result of such failure. 18 ARTICLE XI ADDITIONAL AGREEMENTS 11.1 CONSENTS; TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. Industries agrees to obtain consents, permits and authorizations necessary to transfer and agrees to transfer or cause to be transferred to Hatteras, as the case may be, any asset used solely in the Hatteras Yachts Division business which has not been transferred by the Distribution Date. Industries and Hatteras mutually agree to cooperate in order to obtain consents, permits and authorizations necessary to permit Hatteras to assume, and Hatteras agrees to assume from Genmar, as the case may be, any Liability of the Hatteras Yachts Division which has not been assumed by Hatteras by the Distribution Date. 11.2 COLLECTION OF ACCOUNTS. After the Distribution Date, Genmar agrees to promptly transfer or deliver to Hatteras any cash or other property received directly or indirectly after the Distribution Date by Genmar or Industries in respect of any accounts receivable arising from the operation of the Hatteras Yachts Division. 11.3 HATTERAS PAYMENT OF INTERCOMPANY DEBT. Immediately following the Distribution and upon receipt of authorization to draw down funds on the Hatteras Loan, Hatteras shall remit to Genmar $20 million by wire transfer of immediately available funds to an account or accounts specified in writing by Genmar to Hatteras at least one (1) day prior to the remittance, in full and final payment of intercompany debt associated with the Hatteras Yachts Division. Hatteras acknowledges and agrees that such debt is due and owing to Genmar and/or its Affiliates. 11.4 PHYSICAL INVENTORY. Genmar shall have the right to conduct an audit or review (by its personnel or its authorized representatives) of all inventories and supplies of the Hatteras Yachts Division. Such physical inventory shall be accurately and properly priced and costed in accordance with generally accept accounting principles consistently applied. 11.5 GENMAR INVENTORY AND SUPPLY BUYING GROUP. Subject to the provisions of this Section 11.5, for a period of ten (10) years following the Effective Date, Hatteras covenants that it will continue to be and shall continuously, at the election of Genmar and in its discretion, participate as (and shall be identified as a member of) a member of the "buying group" consortium with Genmar and its Affiliates for the purpose of purchasing product inventory and supplies, including (without limitation) wire, core mat, balsa wood, gelcoat, PCV and other forms, woven roving, coring, catalyst, plywood, hose, MRO items, graphics, abrasives, fiberglass, plastics, resin, acrylic fibers and such other inventory and supplies as may be used in the manufacture of marine industry products from time-to-time. As a member of the Genmar buying group, Hatteras shall share in all economic benefits of the 19 buying group that are realized thereby, including all rebates, on a pro-rata basis (determined by relative economic participation of the buying group members). Hatteras further covenants that Genmar and its Affiliates shall lead and direct the buying group's purchasing activities. Notwithstanding the foregoing, Hatteras shall not be obligated to participate as a member of the Genmar buying group if, with respect to any particular product, or line of products, Hatteras can demonstrate to the satisfaction of Genmar and its affiliates, that it can purchase on its own (and not in concert with others) the same or substantially equivalent inventory and supply items, individually or in the aggregate, (i) at a purchase price amount that is five percent (5%) or more lower in price than the buying group price achieved by Genmar and/or (ii) obtain other benefits that have substantial economic value, such as, but not limited to, superior quality or functionality. In the event that Hatteras determines that its purchase price for items of inventory and supplies may be so reduced and/or substantial economic benefits may be realized, and it as a result determines that it is not obligated and does not desire to participate as a member of Genmar's buying group as to that particular item of inventory or supplies it shall (i) document to Genmar's satisfaction the reduced purchase price opportunity to Genmar prior to Hatteras' commitment to any such purchases, (ii) afford Genmar and its affiliates five (5) business days to renegotiate the purchase prices and/or the economic benefits of the Genmar buying group and (iii) in the event: (y) Genmar is unsuccessful in reducing the Genmar buying group price to within five percent (5%) of the Hatteras reduced price and the substantial economic benefits are equal in all material respects, Hatteras shall make best efforts to include Genmar and its Affiliates in its buying group in the event Genmar and its Affiliates elect to so participate, or (x) Genmar is successful in reducing the Genmar buying group price within five percent (5%) of the Hatteras reduced price and the substantial economic benefits are equal in all material respects, then Hatteras shall, at Genmar's election, continue to (or again) participate as to such inventory/supply item(s) in the Genmar buying group. The foregoing covenants shall terminate upon the closing of the following: (i) the sale of a controlling equity ownership interest in Hatteras pursuant to which after such transaction the shareholders of Hatteras no longer own 51% or more of Hatteras' voting shares, or (ii) the sale of all or substantially all of Hatteras' assets. ARTICLE XII MISCELLANEOUS 12.1 GOVERNING LAW. This Agreement shall be governed by the internal laws of the State of Delaware, without regard to the principles of comity or the conflicts of laws provisions of any jurisdiction. 20 12.2 CONSTRUCTION. Each provision of this Agreement shall be interpreted in a manner to be effective and valid to the fullest extent permissible under applicable law. The Recitals to this Agreement are incorporated to this Agreement by reference. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions of this Agreement which shall remain in full force and effect. 12.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement. 12.4 COMPLETE AGREEMENT; CONSTRUCTION. This Agreement and the Ancillary Agreements and other agreements and documents referred to herein, shall constitute the entire agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter. 12.5 TERMINATION. This Agreement may be terminated and the Distribution abandoned at any time prior to the Distribution Date by and in the sole discretion of Genmar. In the event of such termination by Genmar, no party shall have any liability of any kind to any other party. In the event that the IPO, and as a result the Distribution, has not occurred by November 30, 1999, regardless of the reason therefor, then this Agreement shall automatically be terminated and no party shall have any rights against, or obligations to, any other party hereto; PROVIDED, FURTHER, that no shareholder of Genmar shall have any rights or interest in this Agreement prior to, and in any event only upon the completion of, the Distribution. 12.6 EXPENSES. Genmar and Hatteras shall each be responsible for their own costs and expenses incurred in connection with the transactions described herein; PROVIDED, HOWEVER, that Hatteras acknowledges and agrees that Genmar will expend funds or accrue payables on Hatteras' behalf in order to effect the transactions contemplated by this Agreement and the Ancillary Agreements and, if such funds are spent or such payables are accrued, Hatteras shall reimburse to Genmar a maximum amount of [$________] for such expenditures or payables to the extent such costs and expenses are (i) required to be recorded as liabilities on the books and records of Hatteras pursuant to a provision of this Agreement or the Contribution Agreement, (ii) constitute a Tax or other similar transfer fee on or relating to the transfer of any contributed asset under the Contribution Agreement or (iii) preauthorized by Hatteras. 12.7 AMENDMENTS; WAIVERS. This Agreement may be amended or modified only in writing executed on behalf of the parties hereto. No waiver shall operate to waive any further or future act and no failure to object of forbearance shall operate as a waiver. 21 12.8 NOTICES. Notices hereunder shall be effective if given in writing and delivered or mailed, postage prepaid, by registered or certified mail to: If to Genmar or Industries: Genmar Holdings, Inc. Genmar Industries, Inc. 100 South Fifth Street Suite 2400 Minneapolis, Minnesota 55402 Attention: General Counsel If to Hatteras: Hatteras Yachts, Inc. 110 N. Glenburnie Road New Bern, North Carolina 28560 Attention: President or at such other address as may be designated by a party in writing upon at least fifteen (15) days prior notice which is given in accordance with this Section 12.8. 12.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns, provided that this Agreement and the rights and obligations contained herein or in any exhibit or schedule hereto shall not be assignable by Hatteras, in whole or in part, without the prior written consent of Genmar and any attempt to effect any such assignment without such consent shall be void. 12.10 THIRD PARTY BENEFICIARIES. Except as specifically set forth in this Agreement there are not, and shall not be determined to be, any intended or incidental third party beneficiaries to this Agreement. No Genmar shareholder shall have any rights or interest in this Agreement or any Ancillary Agreement prior to, and in any event only on completion of, the Distribution. [SIGNATURE PAGE FOLLOWS] 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. GENMAR HOLDINGS, INC. By: ____________________________ Its ________________________ GENMAR INDUSTRIES, INC. By: ____________________________ Its ________________________ MINSTAR, INC. By: ____________________________ Its ________________________ HATTERAS YACHTS, INC. By: ____________________________ Its ________________________ 23 EX-10.14 14 EXHIBIT 10.14 FORM OF AGREEMENT FOR SENIOR EXECUTIVE OFFICERS GENMAR HOLDINGS, INC. 100 SOUTH FIFTH STREET, SUITE 2400 MINNEAPOLIS, MINNESOTA 55402 September ____, 1999 Re: GRANT OF STOCK OPTIONS Dear : 1. INITIAL GRANT. As partial consideration for your agreeing to continue to be a senior executive officer or Chairman of the Board of Directors of Genmar Holdings, Inc. (the "Company"), the Board of Directors of the Company (the "Board") hereby grants to you an option (the "Initial Option") to purchase _____ shares of common stock, par value $0.01, of the Company (the "Common Stock") at an exercise price of $_____ per share (the "Initial Exercise Price"). 2. SUBSEQUENT GRANTS. The Board shall grant to you the following additional options: (a) a second option (the "Second Option") to purchase _______ shares of Common Stock if the Common Stock trades at an average of 150% of the Initial Exercise Price over a period of 30 consecutive trading days at any time within three years of the date hereof at an exercise price equal to the Fair Market Value (as defined below) of the Common Stock on the date of the grant of the Second Option (the "Subsequent Exercise Price"); and (b) a third option (the "Third Option," and together with the Initial Option and the Second Option, the "Options") to purchase _______ shares of Common Stock if the Common Stock trades at an average of 150% of the Subsequent Exercise Price over a period of 30 consecutive trading days at any time within three years of the date hereof at an exercise price equal to the Fair Market Value of the Common Stock on the date of the grant of the Third Option. (c) Each of the Second Option and the Third Option shall be granted automatically hereunder without any further action on the part of the Company or the Board effective on the first business day following the end of the 30 trading day period referred to in clauses (a) and (b) above. (d) For purposes of this Section 2, "Fair Market Value" shall be the closing price of the Company's Common Stock on the date of the calculation (or on the last preceding date if Common Stock was not trading on such date) if the Company's Common Stock is readily tradable on a national securities exchange or other market system, and if the Company's Common Stock is not readily tradable, Fair Market Value shall mean the amount determined in good faith by the Board as the fair market value of the Common Stock of the Company. 3. TERM AND VESTING OF OPTIONS. (a) VESTING OF OPTIONS. Your right to exercise any Option shall vest and become exercisable as follows: (i) one-half shall vest and become fully exercisable on the first anniversary of the date of grant of such Option; and (ii) one-half shall vest and become fully exercisable on the second anniversary of the date of grant of such Option. (b) TERM. Subject to the provisions of this paragraph, the unexercised portion of any Option, unless sooner terminated as provided herein, shall expire on the fifth anniversary of the date of grant of such Option (the "Expiration Date") and, notwithstanding anything contained herein to the contrary, no portion of any Option may be exercised after such date. 4. TIME AND METHOD FOR EXERCISING AN OPTION. (a) TIME. You may exercise a vested Option in one or more installments from time to time prior to its Expiration Date, subject to the provisions of subparagraph (b), below. (b) TERMINATION. If prior to the Expiration Date, you have a Termination of Employment (as defined below), any outstanding Options will terminate on the applicable date as described below; provided, however, that none of the events described below shall extend the period of exercisability beyond its Expiration Date: (i) if you have a Termination of Employment by reason of your death, the Options shall fully vest and become immediately exercisable, shall remain exercisable for six (6) months after your death and shall be exercisable by the executor or administrator of your estate or the person or persons to whom your rights under the Options shall pass by will or the laws of descent or distribution; (ii) if you have a Termination of Employment by reason of your "permanent disability" (as defined below), the Options shall fully vest and become immediately exercisable, and shall remain exercisable for three (3) months after you became permanently disabled; PROVIDED, HOWEVER, that if you die within six (6) months following such disability and you have not exercised the Options, the Options shall remain exercisable for an additional six (6) months after your death and shall be exercisable by the executor or administrator of your estate or the person or persons to whom 2 your rights under the Options shall pass by will or the laws of descent or distribution; (iii) if you have a Termination of Employment for any reason other than for "Cause" (as defined below), death or permanent disability, your non-vested Options shall immediately become null and void and your vested Options shall remain exercisable for three (3) months after the Termination of Employment; and (iv) if you have a Termination of Employment for "Cause," the Options, to the extent not theretofore exercised, shall immediately become null and void. In the case of subparagraph (b)(i), (ii) and (iii), Options not exercised by the revised expiration date for the Options shall become null and void. (c) Upon the occurrence of a "Change in Control" (as defined below), the Options shall fully vest. (d) DEFINITIONS. The following definitions shall be applicable for purposes of this Agreement. (i) "Cause" shall mean: (a) your violation of any non-competition and/or confidentiality provisions agreed to at any time between you and the Company or its affiliates; (b) your commission of an intentional act of fraud, embezzlement, theft or dishonesty against the Company or its affiliates; (c) your conviction of, or pleading of NOLO CONTENDERE to, any crime which constitutes a felony or misdemeanor involving moral turpitude or which might, in the reasonable opinion of the Company, cause embarrassment to the Company; or (d) the gross neglect or willful failure by you to perform your duties and responsibilities in all material respects with respect to services rendered to the Company, if such breach of duty is not cured within 30 days after written notice thereof to you by the Board. For purposes of clause (d), no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that such act, or failure to act, was in the best interest of the Company. (ii) A "Change of Control" shall mean: (1) A change of control of the Company that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934; or (2) During any period of two (2) consecutive years, the individuals who at the beginning of such period constitute the Company's Board of Directors or any 3 individuals who would be "Continuing Directors" (as hereinafter defined) cease for any reason to constitute at least a majority thereof; or (3) The Company's Common Stock shall cease to be publicly traded after initially being publicly traded; or (4) The Company's Board of Directors shall approve a sale of all or substantially all of the assets of the Company, and such transaction shall have been consummated; or (5) The Company's Board of Directors shall approve any merger, consolidation, or like business combination or reorganization of the Company, the consummation of which would result in the occurrence of any event described in Section 4(d)(ii)(1) above, and such transaction shall have been consummated. For purposes of this Section 4(c)(ii), "Continuing Directors" shall mean (x) the directors of the Company in office on the date of grant of the Initial Option (the "Effective Date") and any successor to any such director and any additional director who after the Effective Date was nominated or selected by a majority of the Continuing Directors in office (or by the Nominating Committee of the Board of Directors of the Company) at the time of his or her nomination or selection. (iii) "Permanent Disability" shall mean any physical or mental disability or incapacity which, in the sole determination of the Board of Directors, renders you incapable of fully performing the services required of you in accordance with your obligations with respect to the Company or a subsidiary of the Company for a period of 180 consecutive days or for shorter periods aggregating 180 days during any period of twelve (12) consecutive months. (iv) "Termination of Employment" shall mean the earlier of (i) your termination of employment with Jacobs Management Corporation, unless you are immediately thereafter employed by the Company, or a subsidiary, (ii) the termination of the management contract between the Company and Jacobs Management Corporation, unless you are immediately thereafter employed by the Company or a subsidiary, (iii) in the event (i) or (ii) would be applicable but for your employment with the Company or a subsidiary, your termination of employment with the Company or the subsidiary, as applicable, (iv) your permanent disability or (v) your death. 4 (e) METHOD. (i) NOTICE AND PAYMENT. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of such Option by the person entitled to exercise such Option and full payment for the shares of Common Stock with respect to which the Option is exercised has been received by the Company. The consideration to be paid for the Common Stock to be issued upon exercise of the Option shall be payment in cash, by check, or with shares of the Company's Common Stock, as provided in Section (e)(ii) below. As soon as administratively practicable following the exercise of an Option in the manner set forth above, the Company shall issue or cause its transfer agent to issue stock certificates representing the shares of Common Stock purchased (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). (ii) ALTERNATIVE METHODS FOR EXERCISE OF OPTION. You may elect to exercise an Option in whole or in part by (a) delivering whole shares of the Company's Common Stock previously owned by you (whether or not acquired through the prior exercise of a stock option) having a fair market value equal to the aggregate Option price; or (b) by delivery to the Company of (x) irrevocable instructions to deliver directly to a broker the stock certificates representing the shares for which the Option is being exercised, and (y) irrevocable instructions to such broker to sell such shares and promptly deliver to the Company the portion of the proceeds equal to the Option price and any amount necessary to satisfy the Company's obligation for withholding taxes, or any combination thereof. For purposes of making payment in shares of Common Stock, such shares shall be valued at their fair market value on the date of exercise of the Option and shall have been held by you for at least six months. (iii) VOTING AND DIVIDEND RIGHTS. Until the issuance of such stock certificates (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the shares underlying the Option notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date occurs prior to the date the stock certificates are issued. 5. ANTI-DILUTION PROTECTION. In the event of any change in the shares subject to the Options granted hereunder or to the capitalization of the Company through merger, consolidation, reorganization, recapitalization, stock dividends, stock split, reverse stock split, split up, spin off, combination of shares, exchange of shares, dividends in kind or other like change in the capital structure of the Company or distribution (other than normal cash dividends) to shareholders of the Company, in order to prevent dilution or 5 enlargement of your rights under the Options, the Board of Directors shall adjust, in its sole discretion, in an equitable manner as applicable, the form of and number of shares which may be acquired pursuant to the exercise of Options and the exercise price of shares of such Options. The determination of the Board of Directors as to these matters shall be conclusive and binding. 6. NON-TRANSFERABILITY. The Options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent and distribution, and shall be exercisable, during your lifetime only by you. 7. WITHHOLDING. The Company may withhold from sums due or to become due to you from the Company an amount necessary to satisfy its obligation to withhold taxes incurred by reason of the issuance or disposition of such shares pursuant to the Options, or may require you to reimburse the Company in such amount. The Company is not required to issue any shares until you have satisfied withholding requirements, to the extent applicable. 8. NOTICES. All notices to the Company under this agreement shall be in writing and shall be delivered by personal service , facsimile or registered or certified mail (if such service is not available, then by first class mail), postage pre-paid, to such address as may be designated from time to time by the Company, and which shall initially be: Genmar Holdings, Inc. 100 South Fifth Street, Suite 2400 Minneapolis, Minnesota 55402 Attention: General Counsel All notices shall be deemed given when received. 9. NO EFFECT ON TERMS OF EMPLOYMENT. This Agreement is not a contract of employment and the terms of your employment shall not be affected hereby or by any agreement referred to herein except to the extent specifically so provided. Nothing herein shall be construed to impose any obligation on the Company to continue your employment and it shall not impose any obligation on your part to remain in the employ of the Company. 10. TRANSFER RESTRICTIONS. The Company agrees that at the time of exercise of an Option, it will use reasonable best efforts to have an effective Registration Statement on Form S-8 under the Securities Act of 1933, as amended (the "Act"), which includes a prospectus that is current with respect to the shares subject to such Option. You covenant and agree with the Company that if, at the time of exercise of such Option, there does not exist a Registration Statement on an appropriate form under the Act, which Registration Statement shall have become effective and shall include a prospectus that is current with respect to the shares subject to such Option, (a) that you are purchasing the shares for your own account and not with a view to the resale or distribution thereof; 6 (b) that any subsequent offer for sale or sale of any such shares shall be made either: (i) pursuant to a Registration Statement on an appropriate form under the Act, which Registration Statement shall have become effective and shall be current with respect to the shares being offered and sold, or (ii) a specific exemption from the registration requirements of the Act, but in claiming such exemption, you shall, prior to any offer for sale or sale of such shares, obtain a favorable written opinion from counsel for or approved by the Company as to the applicability of such exemption and (c) that you agree that the certificates evidencing such shares shall bear a legend to the effect of the foregoing. 11. SEVERABILITY OF PROVISIONS. If any provision of this agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof and this agreement shall be construed and enforced as if it did not include such provision. 12. AMENDMENT. This agreement cannot be amended except by a writing executed by the Company and you. 7 13. APPLICABLE LAW; HEADINGS. This agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, without giving effect to the conflicts of laws principles thereof. The headings in this agreement are solely for convenience of reference and shall not affect its meaning or interpretation. Very truly yours, GENMAR HOLDINGS, INC. Accepted: - ----------------------------------- Signature of Senior Executive - ----------------------------------- Name of Senior Executive Dated: 8 EX-21.1 15 EXHIBIT 21.1 EXHIBIT 21.1
ADDITIONAL NAMES UNDER STATE OR JURISDICTION WHICH CONDUCTS SUBSIDIARY INCORPORATED BUSINESS - ---------- ------------ -------- Carver Boat Corporation, LLC Delaware Carver Yachts Crestliner, Inc. Minnesota Genmar Boats Canada, Inc. Canada Genmar Industries, Inc. Delaware Lund Boats, a division of Genmar Industries, Inc. Genmar Logic, LLC Delaware Logic Boats Genmar Manufacturing of Kansas, LLC Delaware Nova Boats Larson/Glastron Boats, Inc. Delaware Larson Boats, a division of Larson/ Glastron Boats, Inc. Glastron Boats, a division of Larson/ Glastron Boats, Inc. Minstar, Inc. Delaware Wellcraft Marine Corp. Delaware Aquasport, a division of Wellcraft Marine Corp. Wood Manufacturing Company, Inc. Arkansas Ranger Boats
EX-23.1 16 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated August 2, 1999 and to all references to our Firm included in Genmar Holdings, Inc.'s registration statement, on Form S-1. /s/ ARTHUR ANDERSEN LLP Minneapolis, Minnesota, September 28, 1999 EX-27.1 17 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL YEAR ENDING JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 24,856 0 42,986 (1,647) 113,931 191,065 141,160 (75,623) 320,763 149,521 116,129 0 0 156 42,046 320,763 704,656 704,656 567,247 567,247 99,941 0 16,098 21,445 19,500 40,945 0 0 0 40,945 2.62 2.62
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