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FOUNTAIN POWERBOAT INDUSTRIES, INC.
FORM 10-K
ANNUAL REPORT
FOR THE YEAR ENDED JUNE 30, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
___ SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For fiscal year ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
___ SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to .
----- -----
Commission File Number: 0-14712
FOUNTAIN POWERBOAT INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0160250
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
P.O.Drawer 457, Whichard's Beach Rd., Washington, N.C. 27889
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (919) 975-2000
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $19,310,614 at September 20,
1996 based upon a closing price of $11.875 per share on such date
for the Company's Common Stock.
As of September 15, 1996 there were 3,029,072 shares of the
Company's Common Stock issued of which 10,000 shares are owned by
the Company's subsidiary Fountain Powerboats, Inc. and are regarded
as treasury shares.
Documents incorporated by reference: None.
PART I
Item 1. Business.
Background.
Fountain Powerboat Industries, Inc. (the "Company"), through its
wholly-owned subsidiary, Fountain Powerboats, Inc. (the "Subsidiary"),
designs, manufactures, and sells offshore sport boats, sport cruisers,
and sport fishing boats intended for that segment of the recreational power
boat market where speed, performance, and quality are the main criteria for
purchase. The Company's strategy in concentrating on that segment of the
market is to maximize its use of the reputation of its Chairman and
President, Reginald M. Fountain, Jr., as an internationally recognized
power boat racer and designer. The Company also has made specialized high
performance boats for the United States Government.
The Company's products are sold through a network of authorized
dealers worldwide. The Company has targeted that segment of the market in
which purchase decisions are generally predicated to a relatively greater
degree on the product's image, style, speed, performance, quality, and
safety and to a lesser degree on the product's price or other economic
considerations.
The Company was organized January 30, 1985 pursuant to the laws of the
State of Nevada under the name TOV Ventures, Ltd.(TOV), and acquired
Fountain Powerboats, Inc. during August, 1986. Prior to the acquisition, it
had never conducted any operations. During 1985 TOV sold, pursuant to a
Registration Statement filed with the Securities and Exchange Commission,
512,500 shares of its Common Stock (after giving effect to a one for ten
reverse stock split and the cancellation of 5,875,000 shares of its Common
Stock on May 16, 1986) to its directors, officers, and certain other
individuals. All share numbers have been adjusted for the foregoing stock
split and a one-for-two reverse stock split effected February 4, 1994.
Fountain Powerboats, Inc., a North Carolina corporation, has been in
operation since 1979 and was privately held at the time it was acquired by
TOV. At that time the two shareholders of Fountain Powerboats, Inc.
exchanged the stock of that company held by them for 1,487,500 shares of
Common Stock of TOV. Existing shareholders of TOV retained 512,500 shares
of Common Stock. TOV then changed its name to Fountain Powerboat
Industries, Inc.
-2-
Products.
Each of the Company's products is based upon a deep V-shaped fiberglass
hull with a V-shaped pad and a notched transom. This design enables the
boat to move along the water at high speed on its pad and achieve
performance and stability standards which the Company believes are greater
than those offered by its competitors. As a result, the Company maintains
that its boats are among the fastest, best-handling, and safest boats of
their kind.
In Fiscal 1994, the Company developed new, high performance hull
designs for its boats. These new "positive-lift" designs increase speed
significantly by incorporating radically different keel lines with steps in
the hull bottoms. Handling and fuel economy are also substantially improved
with the new designs. The Company is seeking patent protection for these
new hull designs.
All of the Company's sport boats are of inboard/outdrive design
propelled by single, twin, or triple gasoline engines ranging from 415 HP to
more than 1,000 HP each. In addition to its standard sport boat product
line, Fountain builds custom race boats designed specifically for
competition. The Company also produces outboard and inboard powered center
console and cabin model offshore sport fishing boats and luxury cruisers.
Introduced early in Fiscal 1992, the 47' Sport Cruiser is the flagship
of the Fountain fleet. Its hull design is based upon that of the Company's
47' Superboat and 42' manufacturer's Super-Vee boats which won 8 out of 10
races in a recent twelve month period. This model features a walk-in cabin,
enclosed head with shower, complete galley with refrigerator and microwave
oven, as well as, a very extensive list of standard equipment.
With most of the amenities of a traditional cruising yacht, the
Fountain 47' Sport Cruiser is capable of speeds in excess of 60 mph with
standard triple MerCruiser 502 EFI engines. A high performance diesel
engine version is available for international use. This boat was named
"The Outstanding Offshore Performance Boat" for 1992 and 1993 by Powerboat
Magazine and "Best of the Best" for 1992 by Boating Magazine. Depending
primarily upon the customer's choice of engines, the retail price of this
boat is from $333,000 to $450,000.
The Company's new 47' Lightning Sport Boat is available with a wide
range of engine options and amenities which make it suitable for long range
cruising at high speeds in relatively rough offshore waters. Its sleek
styling makes it particularly attractive. Depending primarily upon the
type of engines selected, this boat retails at prices ranging from $333,000
to $450,000.
-3-
The 42' Lightning Sport Boat operates at a maximum speed of 60 to 95
mph and is very stable even in relatively rough offshore waters. This
boat's standard features include an integrated swim platform, flush deck
hatches, and an attractively appointed cockpit and cabin. This boat was
cited by Powerboat Magazine as "The Outstanding Offshore Performance Boat"
for 1988 and 1990. It retails at prices ranging from $137,000 to $300,000,
depending primarily upon the type of engines selected. Equipped with
special racing engines, this model set a new world speed record for V-hulled
boats in February, 1996 at 131.941 mph.
Introduced in Fiscal 1991, the 38' Sport Cruiser offers a scaled down
version of the many amenities found on the 47' Sport Cruiser. This model
has successfully incorporated the performance type sport boat's features
without compromising the comforts found in a cruiser. Depending primarily
upon the customer's choice of engines, the retail price of this boat is
from $191,000 to $375,000.
The 38' Fever Sport Boat operates at maximum speeds of between 60 and
100 mph. Its retail price ranges from $160,000 to $276,000, depending
primarily upon the type of engines selected. This model was cited by
Powerboat Magazine as "Offshore Performance Boat of the Year" for 1989 and,
again, for 1991. It also captured an award from The Hot Boat Magazine for
"Boat of the Year" for 1991.
The 35' Lightning Sport Boat is similar in design to the 38' Fever, but
operates at maximum speeds between 66 and 105 mph. Because of its smaller
size and lighter weight, this model can achieve greater speeds than a 38'
Fever when equipped with the same size engines. The 35' Lightning was
named by Powerboat Magazine "Offshore Boat of the Year" for 1981 and 1995.
It has also captured that magazine's title "Outstanding Offshore Performance
Boat" for 1980, 1981, 1982, 1983, 1984, and 1987. This boat retails at
prices ranging from $140,000 to $275,000, depending primarily upon the type
of engines selected.
Fountain's 32' Fever Sport Boat was introduced during Fiscal 1991 to
satisfy the market's demand for a mid-size sport boat between the 29' Fever
and the 35' Lightning. This model combines many of the advantages of both
the 29' model and the 35' model. Depending primarily upon the customer's
choice of engines, the retail price of this boat is from $121,000 to
$141,000.
-4-
The 29' Fever II is the smallest twin engine boat in the Fountain
sport boat line. It operates at maximum speeds of 64 to 80 mph and retails
between $106,000 and $124,000, depending primarily upon the type of engines
chosen.
Fountain's 27' Fever sport boat has a single engine. It was added to
the line in order to enable the first time offshore performance boat buyer
to acquire a Fountain power boat at a very affordable price. This model
won an award from Powerboat Magazine for "The Full Size Boat of the Year"
for 1991 and 1992. It also captured that magazine's award for "Outstanding
Full-Size Workmanship" for 1995. Depending primarily upon the type of
engine selected, the retail price of this boat is from $65,000 to $90,000.
The new 24' Competition Series sport boat is also a single engine
model. It was designed to resemble Fountain's sleek 47' Superboat. This
model was named "Boat of the Year" for 1993 by Boating magazine. Depending
primarily upon the type of engine selected, the retail price of this boat is
from $50,000 to $60,000.
For several years, the Company's sole offshore sport fishing boat was
a 31' model which featured a center console design and incorporated the same
high performance, styling, and structural integrity as its sport boat
models. It has a deck configuration engineered for the knowledgeable,
experienced sport fisherman. This boat retails for $60,000, excluding
engines.
In Fiscal 1992, Fountain added substantially to its sport fishing boat
line. An all new 27' twin engine center console model and an all new 23'
single engine center console model were introduced to extend the product
line. The design, construction, and performance of these new models,
together with the proven features of the 31' center console model, make a
line which in management's view will appeal to many experienced sport
fishermen.
To further enhance its sport fishing boat line, the Company introduced
a new 31' walk around cabin model based upon the proven 31' center console
hull design. This model features a deck design which incorporates a walk-in
cabin, enclosed head with shower, and a full galley. With twin outboard
engine power, this model is produced either as a fishing boat for the
serious angler or as a purely recreational sport boat type cruiser.
During Fiscal 1993, the Company introduced both 23' and 27' walk
around cabin fishing boats with outboard engine power and a new 32' walk
around cabin model fishing boat with inboard power. Other new product
introductions for Fiscal 1994 are 25' and 27' walk around cabin model
fishing boats with inboard power.
-5-
For Fiscal 1997, the Company plans to introduce two luxury wide beam
sport yachts, a 57' model and a 65' model. These state-of-the-art high
performance yachts will incorporate many amenities not currently available
in competitor's models. The Company also plans to design and build a 31'
wide beam walk around cuddy cabin sport fishing boat.
Following is a table showing the number of boats completed and shipped
in each of the last three fiscal years by product line:
Fiscal Fiscal Fiscal
1996 1995 1994
Sport boats........... 295 293 184
Sport cruisers........ 20 15 6
Sport fishing boats... 109 93 92
-------- -------- --------
424 401 282
======== ======== ========
The Company conducts research and development projects for the design
of its plugs and molds for hull, deck, and small parts production. The
design, engineering, and tooling departments currently employ approximately
29 full-time employees. Amounts spent on design research and development
and to build new plugs and molds in recent years were:
Design Construction
Research & of New Plugs
Development and Molds
Fiscal 1996............. $ 234,425 $ 878,513
Fiscal 1995............. 134,828 767,102
Fiscal 1994............. 157,433 674,394
For Fiscal 1997, planned design research and development expenses are
$240,000 and plug and mold construction expenditures are approximately
$1,014,000. These expenditures will be primarily to complete the tooling
needed to produce two luxury high performance sport yachts, a 57' model and
a 65' model. Also, work will be started on a 31' wide beam walk around
cuddy cabin sport fishing boat. Tooling expenditures will also be made for
other modifications to existing models.
-6-
Manufacturing capacity is sufficient to accommodate approximately 40
to 50 boats in various stages of construction at any one time. The Company
shipped 424 boats in Fiscal 1996, 401 boats in Fiscal 1995, and 282 boats
in Fiscal 1994.
Construction of a boat takes approximately five weeks. The Company
currently has the ability to manufacture approximately 500 boats per year.
The Company can expand its manufacturing capacity by adding additional
personnel, plant, equipment, and tooling.
The manufacturing process for the hulls and decks consists primarily
of the "laying-up" by hand of resins and high quality bi-directional and
tri-directional woven fiberglass mats around a foam core in molds designed
and constructed by the Company's engineering and tooling department. This
creates a composite structure with strong outer and inner skins with a
thicker core in between. The "laying-up" of woven fiberglass mats by hand,
rather than using chopped fiberglass and mechanical blowers, results in
superior strength and appearance. The resin used to bind the composite
structure together is vinylester which is approximately five times stronger
than the polyvinyl used by most other fiberglass boat manufacturers. Decks
are bonded to the hulls using bonding agents, rivets, screws, and fiberglass
to achieve a strong, unitized construction.
The Company manufactures many metal, plexiglass, plastic, and upholstery
parts (such as gas tanks, seat frames, brackets, T-tops, and windscreens) to
assure that its quality standards are met. All other component parts and
materials used in the manufacture of the Company's boats are readily
available from a variety of suppliers at comparable prices exclusive of
discounts. However, where practicable, the Company purchases certain
supplies and materials from a limited number of suppliers in order to obtain
the benefit of volume discounts.
Certain materials used in boat manufacturing, including the resins
used to make the decks and hulls, are toxic, flammable, corrosive, or
reactive and are classified by the federal and state governments as
"hazardous materials." Control of these substances is regulated by the
Environmental Protection Agency and state pollution control agencies which
require reports and inspect facilities to monitor compliance with their
regulations. The Company's cost of compliance with environmental
regulations has not been material. The Company's manufacturing facilities
are regularly inspected by the Occupational Safety and Health Administration
and by state and local inspection agencies and departments. The Company
believes that its facilities comply with substantially all regulations.
-7-
The Company, however, has been informed that it may incur or may have
incurred liability for remediation of ground water contamination at two
hazardous waste disposal sites resulting from the disposal of a hazardous
substance at those sites by a third-party contractor of the Subsidiary.
(See Item 3. Legal Proceedings.)
Recreational power boats must be certified by the manufacturer to
meet U.S. Coast Guard specifications. In addition, their safety is subject
to federal regulation under the Boat Safety Act of 1971, as amended,
pursuant to which boat manufacturers may be required to recall products for
replacement of parts or components that have demonstrated defects affecting
safety. The Company has never had to conduct a product recall.
Sales and Marketing.
Sales are made through approximately 50 dealers throughout the United
States. The Company also has a dealer in Canada. These dealers are not
exclusive to the Company and carry the boats of other companies including
some which may be competitive with the Company's products. The territories
served by any dealer are not exclusive to the dealer. However, the Company
uses discretion in locating new dealers in an effort to protect the
interests of the existing dealers.
Following is a table of sales by geographic area for the last three
fiscal years:
Fiscal '96 Fiscal '95 Fiscal '94
United States............. $40,545,235 $38,220,232 $21,416,888
Canada, Mexico, Central
and South America.... 658,738 -0- 187,458
Europe and
the Middle East..... 394,078 309,165 635,866
Asia..................... -0- 197,932 -0-
---------- ---------- ----------
Total.................... $41,598,051 $38,727,329 $22,240,212
========== ========== ==========
-8-
The Company has a limited international advertising program and is
seeking additional distribution for its products in foreign markets. In
general, the Company requires payment in full or an irrevocable letter of
credit from a domestic bank before it will ship a boat overseas.
Consequently, there is no credit risk associated with its foreign sales nor
risk related to foreign currency fluctuations.
For Fiscal 1996 one dealer accounted for 10.2% of sales and three
other dealers each accounted for more than 5% of sales. For Fiscal 1995 one
dealer accounted for 9.8% of sales and four other dealers each accounted for
more than 5% of sales. The Company believes that the loss of any particular
dealer would not have a materially adverse effect on sales.
Field sales representatives call upon existing dealers and develop
new dealers. The field sales force is headed by the Subsidiary's National
Director of Sales who is responsible for developing a full dealer
organization for both sport boats, including sport cruisers, and sport
fishing boats. The Company is seeking to establish separate sport boat and
fishing boat dealers in most marketing areas due to the specialization of
each type of boat and the different sales programs required.
Although a sales order can be cancelled at any time, most boats are
pre-sold to a dealer before entering the production line. The Company
generally has been able to sell any boat for which the order has been
cancelled to another dealer. To date, cancellations have not had any
material effect on the Company. The Company normally does not manufacture
boats for inventory.
The Company ships boats to its dealers on a cash on delivery basis.
However, approximately one-half of the Company's shipments are made pursuant
to commercial dealer "floor plan financing" programs in which the Company
participates on behalf of its dealers. Under these arrangements, a dealer
establishes lines of credit with one or more third-party lenders for the
purchase of showroom inventory.
When a dealer purchases a boat pursuant to a floor plan arrangement,
it draws against its line of credit and the lender pays the invoice cost of
the boat, net of shipping charges, directly to the Company. Generally,
payment is made to the Company within seven business days. When the dealer
in turn sells the boat to a retail customer, the dealer repays the lender,
thereby restoring its available credit line.
-9-
For the 1997 model year (which commenced July 1, 1996), the Company
has made arrangements to pay all interest charged by certain floor plan
lenders for as long as six months. This and other incentives to the dealers
have resulted in relatively level month to month production and sales.
After six months, the free interest program ends and interest will be
charged to the dealer at the rate set by the lender. The dealer will make
curtailment payments (equity investments in the boats) as required by his
particular commercial lender. Similar sales promotion programs were in
effect during Fiscal 1996, 1995, and 1994.
Each dealer's floor plan credit facilities are secured by the dealer's
inventory, and, perhaps, other personal and real property. In connection
with the dealers' floor plan arrangements, the Company (together with
substantially all other major manufacturers) has agreed to repurchase any of
its boats which a lender repossesses from a dealer and returns to the
Company. In the event that a dealer defaults under a credit line, the
lender may then invoke the manufacturers' repurchase agreements with respect
to that dealer. In that event, all repurchase agreements of all
manufacturers supplying a defaulting dealer are generally invoked regardless
of the boat or boats with respect to which the dealer has defaulted (See
also Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations).
The Company participates in floor plan arrangements with several major
third-party lenders on behalf of its dealers, most of whom have financing
arrangements with more than one lender.
Except as described above or where it has a direct repurchase
agreement with a dealer, the Company is under no material obligation to
repurchase boats from its dealers. From time to time the Company will
voluntarily repurchase a boat for the convenience of the dealer or for
another dealer who needs a particular model not readily available from the
factory.
The marketing of boats to retail customers is primarily the
responsibility of the dealer, whose efforts are supplemented by the Company
through advertising in boating magazines and participation in regional,
national, and international boat shows.
Additionally, in order to further promote its products, for Fiscal
1990 and 1991 the Company developed a racing program. This entailed the
construction of specially designed race boats which were entered in major
national offshore boat races. As of August 30, 1991, Fountain race boats
won 8 of 10 major races. The result of this record of victories by a major
manufacturer is that the Company's products won a reputation for very fast
and safe hull designs, durable construction, and mechanical reliability.
-10-
The Company believes that the favorable publicity generated by its
winning race boats has contributed significantly to its sales volume.
Although the Company curtailed its racing program for Fiscal 1992 and sold
all of its race boats, the fact that its racing program was so successful in
Fiscal 1990 and Fiscal 1991 has, the Company believes, significantly
benefited its sales volume in subsequent years. Since Fiscal 1992, the
Company has limited its participation in racing to partial support of
customer owned and driven Fountain race boats. These Fountain race boats
were, in general, very successful in the various racing circuits in which
they competed.
As part of the marketing program for its new line of sport fishing
boats, the Company sponsored several outstanding sport fishermen in the
Southern Kingfish Association's King Mackerel Tournaments. This competitive
circuit is held throughout the Southeast. In Fiscal 1992, the Company's
boats and sponsored fishermen dominated the tournaments by winning four of
the top five spots. One Fountain fisherman, Clayton Kirby, was named
"Angler of the Year" and finished in first place. Again, in Fiscal 1993,
first place was taken by a Fountain fisherman. Fountain fishermen also won
second place and 11 of the top 15 spots in Fiscal 1993. Since Fiscal 1993,
the Foutain fishing team has continued to place high in the final standings.
The Southern Kingfish Association's tournaments are held weekly and attract
from one hundred to one thousand entrants with prizes ranging up to
$350,000. The winning participation by Fountain sport fishing boats has
given them favorable exposure to serious sport fishermen, in particular with
respect to the superior performance of Fountain's fishing boat line.
Sales Order Backlog.
The sales order backlog as of the end of August, 1996 was for
approximately 250 boats having an estimated sales value of $25,000,000.
This compares to the sales order backlog as of the end of August, 1995 for
200 boats having an approximate sales value of $20,000,000 and to the
backlog as of the end of August, 1994 for 84 boats having an approximate
sales value of $8,567,000.
-11-
Product Warranty:
The Company warrants the deck and hull of its boats against defects in
material and workmanship for a period of three years. Engines included in
the boats are warranted by the engine manufacturer. Warranty expenses of
$391,648 were incurred in Fiscal 1996 and were charged-off against net
income. A reserve for warranty expenses estimated to be incurred in future
years has been recorded and amounted to $410,000 at June 30, 1996.
Competition.
Competition within the power boat manufacturing industry is intense.
While the high performance sports boat market comprises only a small segment
of all boats manufactured, the higher prices commanded by these boats make
it a significant market in terms of total dollars spent. The manufacturers
that compete directly with the Company in its market segment include:
Wellcraft Division of Genmar Industries, Inc.
Formula, a division of Thunderbird Products Corporation
Cigarette Racing Team, Inc.
Baja Boats, Inc.
Apache Boats, Inc.
The Company believes that in its market segment, speed, performance,
quality, and safety are the main competitive factors, with styling and price
being somewhat lesser considerations.
Employees.
At August 18, 1996 the Company had 326 employees, of whom seven were
executive and management personnel. Sixteen were engaged primarily in
administrative positions including accounting, personnel, marketing and
sales activities. Twenty-nine were employed in engineering, tooling, and
design. The balance were engaged in manufacturing operations. None of the
Company's employees are party to a collective bargaining agreement. The
Company considers its employee relations to be satisfactory. The Company is
an affirmative action, equal opportunity employer.
-12-
Item 2. Properties.
The Company's executive offices and manufacturing facilities are
located on 62 acres along the Pamlico River in Beaufort County, North
Carolina. All of the land, buildings and improvements are owned by the
Company and are held as collateral on notes and mortgages payable having a
balance of $5,500,467 at June 30, 1995.
The operating facility contains seven buildings totalling 167,250
square feet located on fifteen acres. The buildings consist of the
following:
Approximate
Square Footage Principal Use
Building 1.......... 13,200 Executive offices, shipping
and receiving, and paint shop.
Building 2.......... 7,200 Final prep shop.
Building 3.......... 63,800 Lamination, woodworking,
upholstery, final assembly,
inventory, and cafeteria.
Building 4.......... 14,250 Metal fabrication shop.
Building 5.......... 26,300 Tooling and research &
development.
Building 6.......... 18,500 Mold storage.
Building 7.......... 12,000 Racing, service, and warranty.
Building 8.......... 12,000 Lamination extension area.
Total............... 167,250
========
Site improvements include a boat ramp and docking facilities along a
600 foot canal leading to the Pamlico River. In addition, approximately
200,000 square feet of concrete paving surrounds the buildings and provides
for employee parking. Thirty-five unimproved acres are owned and available
for future expansion.
-13-
Item 3. Legal Proceedings.
The Company has been notified by the United States Environmental
Protection Agency (the "EPA") and the North Carolina Department of
Environment, Health and Natural Resources ("NCDEHNR") that it has been
identified as a potentially responsible party (a "PRP") and may incur, or
may have incurred, liability for the remediation of ground water
contamination at the Spectron/Galaxy Waste Disposal Site located in Elkton,
Maryland (notice from the EPA dated June 7, 1989) and the Seaboard Disposal
Site, located in High Point, North Carolina, also referred to as the
Jamestown, North Carolina site (notice from the EPA dated July 10, 1991),
resulting from the disposal of hazardous substances at those sites by a
third-party contractor of the Company. The Company has been informed that
the EPA and NCDEHNR ultimately may identify a total of between 1,000 and
2,000, or more, PRP's with respect to each site. The amounts of the
hazardous substances generated by the Company, which were disposed of at
both sites, are believed to be minimal in relation to the total amount of
hazardous substances disposed of by all PRP's at the sites. At present, the
environmental conditions at the sites, to the Company's knowledge, have not
been fully determined by the EPA and NCDEHNR, respectively, and the Company
is not able to determine at this time the amount of any potential liability
it may have in connection with remediation at either site. Without any
acknowledgement or admission of liability, the Company has made payments of
approximately $3,279 to date as a nonperforming cash-out participant in an
EPA-supervised response and removal program at the Elkton, Maryland site,
and in a NCDEHNR-supervised removal and preliminary assessment program at
the Jamestown, North Carolina site. A cash-out proposal for the next phase
of the project is expected to be forthcoming from the PRP Group for the
Elkton, Maryland site within the near future. According to the PRP Group,
the Company's full cash-out amount is estimated to be approximately $10,000
for the Elkton, Maryland site, based upon an estimated 3,304 gallons of
waste disposed of at that site by the Company's third party contractor. A
cash-out proposal in the approximate amount of $66,000 based upon an
estimated 19,245 gallons of waste is anticipated from the PRP Group for the
Jamestown, North Carolina site following completion of a remedial
investigation and feasibility study in early 1998, according to the PRP
Group administrator. Any such cash-out agreement will be subject to
approval by EPA and NCDEHNR, respectively. The Company has accrued the
estimated $76,000 liability related to these matters in the accompanying
financial statements.
-14-
The Company has received a demand letter dated February 22, 1996, from
the representative and agent for a famous professional basketball player,
for damages in connection with an advertisement for the Company which used
the basketball player's name. The monetary demand is for $1,000,000 if
the claim is resolved prior to the institution of a lawsuit, which also has
been threatened. The Company has put its primary and umbrella liability
insurance carriers on notice, and they are researching various coverage
issues. At this time, the parties involved, including the primary insurance
carrier's representative have agreed to a meeting to discuss potential
resolution of the matter. The Company has accrued the $10,000 liability
insurance deductible for this claim in the accompanying financial
statements. The Company intends to vigorously defend its interests in this
matter unless a reasonable and equitable settlement can be made.
A former vendor has instituted a lawsuit for $10,960 plus costs and
interest. The Company has counterclaimed for damages in a greater amount
and intends to vigorously defend its interest in this matter unless an
equitable settlement can be reached.
There were four product liability lawsuits brought against the Company
at June 30, 1996. In the Company's opinion, these lawsuits are without
merit. Therefore, these lawsuits are being defended vigorously. The
Company carries sufficient product liability insurance to cover attorney's
fees and any losses which may occur from these lawsuits over and above the
insurance deductibles.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to the Shareholders for a vote during the
last quarter of Fiscal 1996.
-15-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's common stock, $.01 par value, was listed and began
trading on the NASDAQ National Market System (under the symbol "FPWR") on
August 28, 1996. Prior to that time the Company's common stock was traded
on the American Stock Exchange (under the symbol "FPI").
The following table contains certain historical high and low price
information relating to the common stock for the past quarters indicated.
Amounts shown reflect high and low sales prices of the common stock on the
American Stock Exchange:
Quarter Ended High Low
September 30, 1994..... $4.38 $2.25
December 31, 1994...... 6.63 2.75
March 31, 1995......... 7.25 5.25
June 30, 1995.......... 6.25 4.50
September 30, 1995..... 8.25 5.38
December 31, 1995...... 6.13 5.25
March 31, 1996......... 6.00 5.25
June 30, 1996.......... 11.88 5.69
The Company has not declared or paid any dividends since its inception.
Any decision as to the future payment of dividends will depend on the
Company's earnings, financial position, and such other factors as the Board
of Directors deems relevant. The payment of dividends by the Company is
restricted by the terms of its loan agreement with MetLife Capital
Corporation which provides that, without the consent of the lender, and
other than for reasonable operating costs, expenses and liabilities, the
Company may not pay any dividends on its capital stock in excess of its net
profits after taxes plus depreciation and less current maturities of long
term debt (See Note 5 to the Company's Consolidated Financial Statements
included herein). Also, a North Carolina corporation generally may not pay
a dividend or make any other shareholder distribution if thereafter it would
not be able to pay its debts as they become due in the usual course of
business, or its total assets would be less than the sum of its total
liabilities.
The number of shareholders of record for the Company's common
stock as of September 10, 1996 was 214.
-16-
Item 6. Selected Financial Data.
Fountain Powerboat Industries, Inc. and Subsidiary
SELECTED FINANCIAL DATA
Fiscal Years 1992 through 1996
Year Ended June 30,
Operations Statement Data: _______________________________________________________________
(Period Ended) 1996 1995 1994 1993 1992
____________________ ___________ ___________ __________ ___________ ___________
Sales............... $41,598,051 $38,727,329 $22,240,212 $27,232,360 $27,783,378
Net income (loss)... 3,680,034 2,047,876 (2,993,344) 146,433 (1,529,930)
Income (loss) per share 1.22 .68 (1.00) .04 (.66)
Weighted average shares
outstanding 3,019,072 3,019,072 2,968,571 2,932,500 2,311,185
Fully diluted earnings
(loss)per share... 1.15 .68 N/A N/A N/A
Fully diluted weighted
average shares
outstanding....... 3,200,159 3,026,463 N/A N/A N/A
Balance Sheet Data
(At Period End)
_____________________
Current assets..... $ 8,378,341 $ 6,185,727 $ 5,635,619 $ 5,011,591 $ 6,607,386
Total assets....... 18,498,104 16,334,757 16,266,787 16,211,026 17,957,207
Current liabilities 6,180,476 6,081,298 14,976,570 5,920,743 8,878,176
Long-term debt..... 5,433,184 7,049,049 133,683 6,440,403 5,377,084
Stockholders' equity (1) 6,884,444 3,204,410 1,156,534 3,849,880 3,701,947
_________________________________
(1) The Company has not paid any dividends since its inception.
-17-
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
As described more fully below at "Business Environment", approximately
half of the Company's shipments to dealers were financed through so-called
"100% floor plan arrangements" with third-party lenders pursuant to which
the Company may be required to repurchase boats repossessed by the lenders
if the dealer defaults under his credit arrangements. The other half of
shipments were C.O.D. or payment prior to shipment.
Generally, the Company recognizes a sale when a boat is shipped to a
customer, legal title and all other incidents of ownership have passed from
the Company to the customer, and payment is received from the dealer's
third-party commercial lender or from the customer. This is the method of
sales recognition believed to be in use by most boat manufacturers.
The Company has developed criteria for determining whether a shipment
should be recorded as a sale or as a deferred sale (a balance sheet
liability). The criteria for recording a sale are that the boat has been
completed and shipped to a customer, that title and all other incidents of
ownership have passed to the customer, and that there is no direct
commitment to repurchase the boat or to pay floor plan interest beyond the
normal sales program terms.
At June 30, 1993, the Company estimated the balances in deferred sales
to be $242,230 and in deferred cost of sales to be $191,229. As of June 30,
1994, the Company estimated the balances in deferred sales to be $1,100,000
and in deferred cost of sales to be $850,000. The differences between the
estimates for deferred sales and deferred cost of sales at June 30, 1993
and June 30, 1994 had the effect of decreasing the gross margin on sales
and net income after taxes for the year by $198,999 ($0.07 per share).
The increase in deferred sales from $242,230 at June 30, 1993 to
$1,100,000 at June 30, 1994 was because of an increase in the number of
instances in which the Company made commitments to dealers to pay the
interest on floor plan financed boats in excess of the time period specified
in its written sales program for the year and to an increase in the number
of direct repurchase agreements the Company had in effect with its dealers.
-18-
At June 30, 1995, the Company estimated the balances in deferred sales
to be $197,541 and in deferred cost of sales to be $183,393. The
differences between the estimates for deferred sales and deferred cost of
sales at June 30, 1994 and June 30, 1995 had the effect of increasing the
gross margin on sales and net income after taxes for the year by $235,852
($.08 per share).
At June 30, 1996, there were no commitments to dealers to pay the
interest on floor plan financed boats in excess of the time period specified
in the Company's written sales program and there were no direct repurchase
agreements. This was because of much improved market conditions and strong
ongoing consumer demand for boats. Therefore, there were no deferred sales
or cost of sales estimated at June 30, 1996. The differences between the
estimates for deferred sales and deferred cost of sales at June 30, 1995 and
June 30, 1996 had the effect of increasing the gross margin on sales and net
income after taxes for the year by $14,148.
The Company has a contingent liability to repurchase boats where it
participates in the floor plan financing made available to its dealers by
third-party finance companies. Sales to participating dealers are approved
by the respective finance companies. If a participating dealer does not
satisfy its obligation to the lender and the boat is subsequently
repossessed by the lender, then the Company can be required to repurchase
the boat. The Company had a contingent liability of approximately
$7,200,000 at June 30, 1996, $7,700,000 at June 30, 1995, and $8,400,000 at
June 30, 1994 for the shipment of boats which remained uncollected by the
finance companies at those dates. The lesser contingent liability at
June 30, 1996 is due to fewer boats being floor planned by dealers with
finance companies. Of the foregoing contingent liability amounts, $197,541
is reflected as deferred sales in the accompanying consolidated balance
sheets as of June 30, 1995 (See Note 9 to the Consolidated Financial
Statements). Additionally, at June 30, 1996 and June 30, 1995, the Company
had recorded a $207,359 reserve for losses which may be reasonably expected
to be incurred on boat repurchases in future years.
Business Environment.
Sales for Fiscal 1996 were $41,598,051, a 7% increase from sales for
Fiscal 1995. Improved sales volume for Fiscal 1996 was in line with a
general improvement in the overall recreational boating industry and the
result of additional production capacity. Also, the Company continued its
highly effective advertising and marketing programs throughout Fiscal 1996.
-19-
Sales for Fiscal 1995 were $38,727,329, an 74% increase from sales for
Fiscal 1994. Sales for Fiscal 1994 were $22,240,212. For the last five
months of Fiscal 1994, the Company was unable to obtain the high performance
engines it needed. The shortage of high performance engines seriously
reduced the Company's sales volume over the last five months of the year.
Engine deliveries were resumed in July, 1994.
In Fiscal 1996, the Company continued to advertise and market
aggressively. Management believes that the Company's advertising,
marketing, racing, and tournament fishing programs, as well as, its
reputation as the builder of the highest quality, best performing, and
safest high performance boats in the industry, all contributed to increased
sales for Fiscal 1996.
Typically, each dealer's floor plan credit facilities are secured by
the dealer's inventory, and, perhaps, other personal and real property. In
connection with the dealers' floor plan arrangements, the Company (as well
as substantially all other major manufacturers) has agreed in most
instances to repurchase, under certain circumstances, any of its boats which
a lender repossesses from a dealer and returns to the Company. In the event
that a dealer defaults under a credit line, the lender may invoke the
manufacturers' repurchase agreements with respect to that dealer. In that
event, all repurchase agreements of all manufacturers supplying a defaulting
dealer are generally invoked regardless of the boat or boats with respect to
which the dealer has defaulted.
Except where there is a direct repurchase agreement with the customer,
the Company is under no obligation to repurchase boats from its dealers,
although it will on occasion voluntarily assist a dealer in selling a boat
or repurchase a boat for the convenience of a dealer.
No boats were repurchased in Fiscal 1996 and Fiscal 1994 in connection
with floor plan arrangements. Five boats were repurchased during Fiscal
1995 in connection with floor plan arrangements. At June 30, 1996, the
Company had recorded a $207,359 reserve for losses which may be reasonably
expected to beincurred on boat repurchases in future years.
Results of Operations.
Net income for Fiscal 1996 was $3,680,034, or $1.22 per share
outstanding. This compares to net income for Fiscal 1995 of $2,047,876, or
$.68 per share. The net loss for Fiscal 1994 was $2,993,344, or $1.00 per
share.
-20-
The improvement in earnings for Fiscal 1996 was the result of greater
sales volume, price increases, production efficiencies, and a favorable
sales mix. The mix of sales continued to be weighted with sales of the
Company's larger, higher margin sport boats. Income for the year also
included a non-recurring $800,000 discount earned for the early retirement
of indebtedness to a vendor.
Net income for Fiscal 1995 was up primarily because of substantially
improved sales volume. Sales were $38,727,329, or up by 74% from the
previous year. Price increases and production efficiencies also contributed
to increased earnings for the year.
The loss for Fiscal 1994 is primarily attributable to lesser sales
volume. Sales for Fiscal 1994 were $22,240,212. The sales mix for Fiscal
1994 was unfavorable and overall sales volume through February, 1994 was
less than anticipated. Fewer boats were sold and they were generally
smaller and less profitable.
In Fiscal 1994, at the Miami boat show in mid-February, the new
"positive-lift" hull design was introduced. This new hull design
significantly increases speed, improves handling, and results in much better
fuel economy. Subsequent to the introduction of this new design, the
Company received many orders for large, profitable sport boats having the
new "positive-lift" hull.
As the Company's sales order volume improved, it began to greatly
increase its level of purchases of high performance engines and other
critical components. Unfortunately, the high perfomance engines and certain
other critical components were not available on a timely basis. This caused
serious and prolonged delays in the Company's boat production. Many costly
inefficiencies were incurred in its manufacturing operations as a
consequence of not having the necessary high performance engines and
components on a timely basis. By July, 1994, most of these supply problems
had been resolved. Most of the sales orders that were not completed in the
fourth quarter of Fiscal 1994 because of delayed deliveries of critical
components were completed in the first quarter of Fiscal 1995.
The Company's gross profit margin as a percentage of sales increased
to 22.29% in Fiscal 1996 from 20.07% for Fiscal 1995. The increase in the
gross margin percentage was due to price increases and the sales mix of
larger, higher margin sport boats. Greater sales volume and production
efficiencies also contributed to an improved gross margin for Fiscal 1996.
-21-
The Company's gross profit margin as a percentage of net sales
increased to 20.07% for Fiscal 1995 as compared to 7.79% for Fiscal 1994.
The increase in gross margin for Fiscal 1995 was primarily due to increased
volume. Price increases and production efficiencies also contributed to
the improved margin.
Depreciation expense was $1,536,479 for Fiscal 1996, $1,628,867 for
Fiscal 1995, and $1,527,042 for Fiscal 1994. Depreciation expense by asset
category was as follows:
Fiscal Fiscal Fiscal
1996 1995 1994
Land improvements......$ 20,595 $ 18,849 $ 18,849
Buildings.............. 260,580 269,460 268,945
Molds & plugs.......... 980,104 1,076,746 1,007,534
Machinery & equipment.. 225,654 216,089 171,053
Furniture & fixtures... 11,114 12,094 17,838
Transportation equip... 38,432 35,629 42,823
---------- ---------- ----------
$1,536,479 $1,628,867 $1,407,180
========== ========== ==========
The $92,388 decrease in depreciation expense for Fiscal 1996 is due to
an excess of molds becoming fully depreciated over new molds commencing to
be depreciated during the year. Those particular molds which are now fully
depreciated are still in active service.
Following is a schedule of the net fixed asset additions during Fiscal
1996 and Fiscal 1995:
Fiscal 1996 Fiscal 1995
Buildings................... $ 255,781 $ 80,560
Molds and plugs............. 878,513 767,102
Machinery & equipment....... 376,241 348,533
Furniture & fixtures........ 6,270 2,044
Transportation equipment.... (33,925) -0-
---------- ----------
$1,482,880 $1,198,239
========== ==========
-22-
Selling expenses were $4,285,923 for Fiscal 1996, $3,897,086 for Fiscal
1995, and $2,854,476 for Fiscal 1994. The Company continued to promote its
products primarily by magazine advertising in Fiscal 1996. Advertising
expense was $849,627 for Fiscal 1996, $977,787 for Fiscal 1995, and $837,973
for Fiscal 1994. These advertising expenditures increased the Company's
visibility in the recreational marine industry and promoted its boat sales.
Management believes that advertising is necessary in order to maintain the
Company's sales volume and dealer base.
Additionally, in an effort to further promote its products, the
Company continued its offshore racing and tournament fishing programs.
These programs cost $867,743 in Fiscal 1996, $576,741 in Fiscal 1995, and
$341,735 in Fiscal 1994. As previously noted, the Company curtailed its
offshore racing program in Fiscal 1992 and sold its last remaining race
boat, but continued a limited racing program and its tournament fishing
program. The Company believes that its highly successful racing and
tournament fishing programs for Fiscal 1996 and prior years will benefit
future years as well.
Selling expenses compared for the past three fiscal years were as
follows:
Fiscal '96 Fiscal '95 Fiscal '94
Offshore racing and
tournament fishing... $ 867,743 $ 576,741 $ 341,735
Advertising............. 849,627 977,787 837,973
Salaries & commissions.. 578,170 752,206 363,610
Boat shows.............. 285,321 388,710 260,719
Dealer incentives....... 954,234 938,563 740,722
Other selling expenses.. 750,828 263,079 309,717
--------- --------- ---------
$4,285,923 $3,897,006 $2,854,476
========= ========= =========
General and administrative expenses include the finance, accounting,
legal, personnel, data processing, and administrative operating expenses of
the Company. These expenses were $1,904,988 for Fiscal 1996, $1,415,637 for
Fiscal 1995, and $1,433,449 for Fiscal 1994. Most of the increase for
Fiscal 1996 over Fiscal 1995 was in executive compensation, travel expense,
and attorneys' fees.
Interest expense was $747,337 for Fiscal 1996, $989,359 for Fiscal
1995, and $739,224 for Fiscal 1994. The decrease in interest expense for
Fiscal 1996 is from lesser outstanding indebtedness.
-23-
During Fiscal 1996 some trucks were sold yielding a gain of $22,906.
During Fiscal 1995 some miscellaneous fixed assets were sold yielding a loss
amounting to $23,015. No fixed assets were sold in Fiscal 1994.
Included in other income for Fiscal 1996 is a non-recurring $800,000
discount earned for the early retirement of indebtedness to a vendor.
Included in other income for Fiscal 1995 is the non-recurring gain on the
settlement of a state sales and use tax assessment amounting to $169,552.
Also included in other income for Fiscal 1996 are $610,420 of technical
consulting fees earned by Mr. Fountain and assigned to the Company. These
consulting fees amounted to $452,911 for Fiscal 1995 and to $294,437 for
Fiscal 1994. Under the terms of his current consulting contract, Mr.
Fountain's consulting fees will be reduced by approximately 65% for Fiscal
1997 and will end entirely after Fiscal 1997.
Liquidity and Financial Resources.
Operations in Fiscal 1996 provided $3,902,750 in cash. Net income
plus depreciation expense provided cash amounting to $5,216,513. However,
relatively large amounts were needed to finance increases in accounts
receivable and inventories. The ending cash balance was $1,360,619.
Operations for the prior fiscal year consumed $1,138,745 in cash.
Net income plus depreciation expense provided cash amounting to $3,676,743.
However, relatively large amounts were needed to finance an increase in
accounts receivable, a decrease in accounts payable, and a reduction in
customer deposits. The ending cash balance was $490,807.
For Fiscal 1994, operations provided $1,069,797 in cash. This
combined with the beginning cash balance of $711,523 was sufficient to meet
the Company's needs for the year. The ending cash balance was $675,711.
Investing activities for Fiscal 1996 required $1,451,677, including
expenditures for addtional molds and plugs amounting to $878,513 and for
other property, plant, and equipment amounting to $604,367.
Investing activities for the prior fiscal year required $1,164,239,
including expenditures for additional molds and plugs amounting to $767,102
and for other property, plant, and equipment amounting to $431,137.
-24-
For Fiscal 1994, investing activities required $1,013,400, including
expenditures for additional molds and plugs amounting to $677,394 and for
other property, plant, and equipment amounting to $336,006.
Financing activities for Fiscal 1996 used $1,581,261. Included in
this amount is $2,192,528 of indebtedness to a vendor which was retired
entirely during the year. Debt repayments to MetLife Capital Corporation
and others amounted to $627,637.
Financing activities for the prior year provided $2,118,080. Included
in this amount is $2,600,000 of indebtedness to a vendor which was converted
from a short-term trade payable to a long-term note payable. Debt
repayments to MetLife Capital Corporation and others amounted to $928,632.
For Fiscal 1994, financing activities used $92,209. Additional long-
term debt, primarily from capitalized lease obligations, provided $169,838.
A new line of credit with ITT Commercial Finance secured by engines provided
an additional $152,287. The Company also cancelled $300,000 of indebtedness
to a shareholder, Mr. R. M. Fountain, Jr., with the issuance of 86,572
additional common shares to Mr. Fountain and to Triangle Finance Ltd. Debt
repayments amounted to $414,394.
The net increase in cash for Fiscal 1996 was $869,812. For Fiscal
1997, the Company anticipates that the $1,360,619 beginning cash balance
and the amounts expected to be provided from Fiscal 1997 operations will be
sufficient to meet most of the Company's liquidity needs for the year.
However, planned capital expenditures for Fiscal 1997 are substantially
greater than for Fiscal 1996. The Company intends to increase its
production capacity, principally for new products, in Fiscal 1997.
Therefore, the Company has arranged for a substanial asset leasing line of
credit for new production equipment. The Company is also negotiating for
other additional lines of credit.
Effective December 31, 1993, the Company refinanced its indebtedness
to MetLife Capital Corporation. A $2,000,000 revolving loan was
incorporated into the long-term debt and the total amount was amortized over
ten years with a call at the end of the fifth year. The interest rate on
the debt was fixed at 8 1/2%. The new monthly payment amounts very closely
approximate what the principal and interest payment amounts were prior to
the refinancing. The indebtedness is secured by a first lien on all of the
Company's assets, except engines manufactured by Mercury Marine. An
additional $76,194 was borrowed in the transaction. The total amount of the
debt to MetLife at December 31, 1993 was $6,683,200 after the refinancing.
The indebtedness to MetLife was $6,003,799 at June 30, 1995 and $5,500,467
at June 30, 1996.
-25-
The loan agreement with MetLife was amended January 1, 1995, to revise
certain financial ratio requirements that the Company had previously not
attained. After, the revision of the financial ratio requirements and at
June 30, 1995 and 1996, the Company was in compliance with all of the
MetLife financial ratio requirements.
In June of 1994, the Company arranged for a line of credit from
Deutsche Financial Services for engine purchases. At June 30, 1994 the
amount owed to Deutsche was $152,287, at June 30, 1995 the amount owed was
$534,185, and at June 30, 1996 the amount owed was $1,173,089. The maximum
amount of the line of credit from Deutsche is $1,200,000. The debt is
secured by a first lien on all engine inventory and by a $200,000
irrevocable letter of credit.
In December, 1995, the Company borrowed $600,000 from G.E. Capital
Corporation for the purpose of retiring its indebtedness to a vendor. This
debt to G.E. Capital Corporation is scheduled for repayment over forty
months at 9.00% interest. It is secured by various boat molds and product
tooling and by an irrevocable bank letter of credit for $200,000. The
unpaid balance at June 30, 1996 was $538,044.
Effects of Inflation.
The Company has not been materially affected by the moderate inflation
of recent years. Since most of the Company's plant and equipment are
relatively new, expenditures for replacements are not expected to be
a factor in the near-term future.
When raw material costs increase because of inflation, the Company
attempts to minimize the effect of these increases by using alternative,
less costly materials, or by finding less costly sources for the materials
it uses. When the foregoing measures are not possible, its selling prices
are increased to recover the cost increases.
The Company's products are targeted at that segment of the power boat
market where retail purchasers are generally less significantly affected by
price or other economic conditions. Consequently, management believes that
the impact of inflation on sales and the results of operations will not be
material.
Cautionary Statement for Purposes of "Safe Harbor" Under the
Private Securities Reform Act of 1995.
The Company may from time to time make forward-looking statements,
including statements projecting, forecasting, or estimating the Company's
performance and industry trends. The achievement of the projections,
forecasts, or estimates contained in these statements is subject to certain
-26-
risks and uncertainties, and actual results and events may differ materially
from those projected, forecasted, or estimated.
The applicable risks and uncertainties include general economic and
industry conditions that affect all businesses, as well as, matters that are
specific to the Company and the markets its serves. For example, the
achievement of projections, forecasts, or estimates contained in the
Company's forward-looking statements may be impacted by national and
international economic conditions; compliance with governmental laws and
regulations; accidents and acts of God; and all of the general risks
associated with doing business.
Risks that are specific to the Company and its markets include but are
not limited to compliance with increasingly stringent environmental laws and
regulations; the cyclical nature of the industry; competition in pricing and
new product development from larger companies with substantial resources;
the concentration of a substantial percentage of the Company's sales with a
few major customers, the loss of, or change in demand from, any of which
could have a material impact upon the Company; labor relations at the
Company and at its customers and suppliers; and the Company's single-source
supply and just-in-time inventory stategies for some critical boat
components, including high performance engines, which could adversely affect
production if a single-source supplier is unable for any reason to meet the
Company's requirements on a timely basis.
-27-
Item 8. Financial Statements and Supplementary Data.
INDEX
Page No.
Independent Auditors' Report........................ 29
Consolidated Balance Sheets -
June 30, 1996 and 1995........................... 30
Consolidated Statements of Operations -
Years Ended June 30, 1996, 1995, and 1994........ 31
Consolidated Statements of Stockholders' Equity -
Years Ended June 30, 1996, 1995, 1994............ 32
Consolidated Statements of Cash Flows -
Years Ended June 30, 1996, 1995, 1994............ 33-34
Notes to Consolidated Financial Statements.......... 35-51
-28-
PRITCHETT, SILER & HARDY, P.C.
Certified Public Accountants
430 East 400 South
Salt Lake City, Utah 84111
(801) 328-2727
To the Board of Directors
FOUNTAIN POWERBOAT INDUSTRIES, INC.
Washington, North Carolina
We have audited the accompanying consolidated balance sheets of Fountain
Powerboat Industries, Inc. and Subsidiary as of June 30, 1996 and 1995, and
the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended June 30, 1996, 1995 and 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of Fountain
Powerboat Industries, Inc. and Subsidiary as of June 30, 1996 and 1995, and
the results of their operations and their cash flows for the years ended
June 30, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
/s/ PRITCHETT, SILER & HARDY, P.C.
PRITCHETT, SILER & HARDY, P.C.
August 1, 1996
-29-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
ASSETS 1996 1995
CURRENT ASSETS:
Cash............................ $ 1,360,619 $ 490,807
Accounts receivable, less allowance for
doubtful ccounts of $27,000 for 1996
and $30,000 for1995............. 2,853,684 1,898,854
Inventories (Notes 1 and 2)....... 4,009,195 3,407,726
Deferred cost of sales (Note 1)... 0 183,393
Prepaid expenses.................. 154,843 204,947
___________ ___________
Total current assets............ $ 8,378,341 $ 6,185,727
PROPERTY, PLANT, AND EQUIPMENT,
NET (Notes 3 and 5)............... $ 9,928,186 $ 9,990,082
OTHER ASSETS....................... $ 191,577 $ 158,948
___________ ___________
$18,498,104 $16,334,757
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4)............ $ 1,173,089 $ 534,185
Current maturities of
long-term debt (Note 5)......... 767,254 1,371,554
Accounts payable.................. 1,713,760 1,800,592
Accounts payable -
related parties (Note 11)....... 0 4,769
Accrued expenses.................. 1,599,602 1,109,848
Accrued income taxes.............. 80,804 42,641
Customer deposits................. 228,608 412,809
Allowance for boat
repurchases (Note 9)............ 207,359 207,359
Warranty reserve.................. 410,000 400,000
Deferred sales (Note 1)........... 0 197,541
___________ ___________
Total current liabilities....... $ 6,180,476 $ 6,081,298
LONG-TERM DEBT,
less current maturities (Note 5) $ 5,433,184 $ 7,049,049
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Note 6):
Common stock, par value $.01 per share,
authorized 200,000,000 shares;
issued 3,029,072 shares........ $ 30,291 $ 30,291
Additional paid-in capital........ 9,297,450 9,297,450
Accumulated deficit............... (2,332,549) (6,012,583)
___________ ___________
$ 6,995,192 $ 3,315,158
Less treasury stock,
at cost, 10,000 shares............ (110,748) (110,748)
___________ ___________
$ 6,884,444 $ 3,204,410
___________ ___________
$18,498,104 $16,334,757
___________ ___________
See Notes to Consolidated Financial Statements.
-30-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
____________________________________
1996 1995 1994
____ _____ ______
Net sales.................. $41,598,051 $38,727,329 $22,240,212
Cost of sales.............. 32,326,371 30,953,992 20,507,755
___________ ___________ ___________
Gross margin............... $ 9,271,680 $ 7,773,337 $ 1,732,457
___________ ___________ ___________
Selling expense............ $ 4,285,923 $ 3,897,086 $ 2,831,924
Selling expense -
related parties (Note 11) 0 0 22,552
General & administrative expense 1,729,399 1,297,173 1,324,901
General & admin. -
related parties (Note 11) 175,589 118,464 108,548
___________ ___________ ___________
$ 6,190,911 $ 5,312,723 $ 4,287,925
___________ ___________ ___________
Operating income (loss)... $ 3,080,769 $ 2,460,614 $(2,555,468)
___________ ___________ ___________
Non-operating (income) / expense:
Other income (Note 12) $(1,404,500) $ (642,277) $ (301,348)
Interest expense..... 744,627 989,359 721,224
Interest expense -
related parties (Note 11) 2,710 0 18,000
(Gain) loss on disposal of
assets (Note 3) (22,906) 23,015 0
____________ __________ ___________
$ (680,069) $ 370,097 $ 437,876
____________ __________ ___________
Income (loss) before income taxes $ 3,760,838 $ 2,090,517 $(2,993,344)
Current tax expense
(benefit) (Note 7).... 80,804 42,641 0
Deferred tax expense
(benefit) (Note 7)... 0 0 0
___________ ___________ ___________
Net income (loss).............. $ 3,680,034 $ 2,047,876 $(2,993,344)
___________ ___________ ___________
Earnings (loss) per share (Note 6) $ 1.22 $ .68 $ (1.00)
___________ ___________ ___________
Weighted average shares
outstanding (Note 6) 3,019,072 3,019,072 2,968,571
___________ ___________ ___________
Fully diluted earnings (loss)
per share (Note 6).......... $ 1.15 $ .68 $ N/A
___________ ___________ ___________
Fully diluted weighted average
shares outstanding (Note 6) 3,200,159 3,026,463 N/A
___________ ___________ ___________
See Notes to Consolidated Financial Statements.
-31-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1996, 1995, and 1994
Total
Common Stock Additional Treasury Stock Stock-
_____________________ Paid-in Accumulated ________________ holders'
Shares Amount Capital deficit Shares Amount Equity
___________ _______ __________ ___________ _______ ______ ___________
Balance, June 30, 1993 $ 2,942,500 $29,425 $8,998,316 $(5,067,113) 10,000 $110,748 $3,849,880
Additional common
stock shares issued
January 31, 1994, net
of costs of issuance 86,572 866 299,134 0 0 0 300,000
Net loss for the year
ended June 30, 1994 0 0 0 (2,993,344) 0 0 (2,993,344)
Other adjustments 0 0 0 (2) 0 0 (2)
__________ _______ __________ ___________ _______ ________ __________
Balance, June 30, 1994 3,029,072 $30,291 $9,297,450 $(8,060,459) 10,000 $110,748 $1,156,534
Net profit for the year
ended June 30, 1995 0 0 0 2,047,876 0 0 2,047,876
__________ _______ __________ ___________ ______ ________ __________
Balance, June 30, 1995 3,029,072 $30,291 $9,297,450 $(6,012,583) 10,000 $110,748 $3,204,410
Net profit for the year
ended June 30, 1996 0 0 0 3,680,034 0 0 3,680,034
__________ _______ __________ ___________ ______ ________ __________
Balance, June 30, 1996 3,029,072 $30,291 $9,297,450 $(2,332,549) 10,000 $110,748 $6,884,444
__________ _______ __________ ___________ ______ ________ __________
See Notes to Consolidated Financial Statements.
-32-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
____________________________________
1996 1995 1994
__________ __________ __________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................. $ 3,680,034 $ 2,047,876 $(2,993,344)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation expense........ 1,536,479 1,628,867 1,527,042
(Gain) loss on disposal of
property, plant, and equipment (22,906) 23,015 0
Non-cash expenses........... 0 0 0
Change in assets and liabilities:
Accounts receivable....... (954,830) (1,486,475) 1,134,853
Inventories............... (601,469) 89,224 (1,245,651)
Prepaid expenses.......... 50,104 (4,369) 109,729
Other assets.............. (32,629) (5,505) 54,625
Accounts payable.......... (86,832) (3,129,557) 1,553,863
Accounts payable -
related parties........ (4,769) (8,031) 12,800
Accrued expenses.......... 489,754 304,078 79,945
Accrued expenses -
related parties........ 0 0 (15,673)
Accrued income taxes...... 38,163 42,641 0
Customer deposits......... (184,201) (447,016) 587,609
Allowance for boat returns 0 (42,641) 0
Warranty reserve.......... 10,000 85,000 65,000
Deferred sales net of deferred
cost of sales.......... (14,148) (235,852) 198,999
__________ __________ __________
Net cash provided by (used in)
operating activities... $ 3,902,750 $(1,138,745) $ 1,069,797
__________ __________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property,
plant, and equipment.......... $ 31,203 $ 34,000 $ 0
Investment in additional molds and
related plugs................. (878,513) (767,102) (677,394)
Purchases of other property,
plant, and equipment........... (604,367) (431,137) (336,006)
__________ __________ __________
Net cash (used in) investing
activities............... $(1,451,677) $(1,164,239) $(1,013,400)
__________ __________ __________
-33-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Year Ended June 30,
____________________________________
1996 1995 1994
__________ __________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on
engine floor plan agreement.... $ 638,904 $ 390,136 $ 152,287
Net borrowings (repayments) on
advance from shareholder....... 0 0 (100,000)
Proceeds from issuance of
additional common stock........ 0 0 100,000
Costs of issuance of
additional common stock........ 0 0 0
Proceeds from issuance of
long-term debt (Note 5)........ 600,000 2,656,576 169,898
Repayment of long-term debt....... (2,820,165) (928,632) (414,394)
__________ __________ __________
Net cash provided by (used in)
financing activities........ $(1,581,261) $2,118,080 $ (92,209)
__________ __________ __________
Net increase (decrease) in cash..... $ 869,812 $ (184,904) $ (35,812)
Beginning cash balance.............. 490,807 675,711 711,523
__________ __________ __________
Ending cash balance................. $ 1,360,619 $ 490,807 $ 675,711
__________ __________ __________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash payments (receipts) for:
Interest - unrelated parties..... $ 744,627 $ 989,359 $ 730,510
- related parties....... 2,710 0 18,000
- capitalized........... 0 0 (9,286)
__________ __________ __________
$ 747,337 $ 989,359 $ 739,224
__________ __________ __________
Income taxes paid................ $ 42,641 $ 0 $ 0
__________ __________ __________
Non-cash transactions:
On January 31, 1994, the Company issued 57,715 shares of common stock valued
at $200,000 as payment on an advance from a shareholder (Notes 6 & 11).
See Notes to Consolidated Financial Statements.
-34-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of the Business and Significant Accounting Policies.
Nature of the Business:
The Company manufactures high-performance deep water sport
boats which it sells to dealers. Its offices and plant are
located in Washington, North Carolina and it has been in business
since 1979. The Company employs approximately 350 people and is
an equal opportunity, affirmative action employer. For Fiscal
1996 one dealer accounted for 10.2% of sales and three other
dealers each accounted for more than 5% of sales. For Fiscal 1995
one dealer accounted for 9.8% of sales and four other dealers each
accounted for more than 5% of sales.
A summary of the Company's significant accounting policies
follows:
Principles of consolidation:
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Fountain Powerboats,
Inc. together with its five subsidiaries, as follows:
Fountain Aviation, Inc.
Fountain Sportswear, Inc.
Fountain Trucking, Inc.
Fountain Unlimited, Inc.
Fountain Power, Inc.
All significant intercompany accounts and transactions have
been eliminated in consolidation. Fountain Aviation, Inc.,
Fountain Unlimited, Inc., and Fountain Power, Inc. were not active
during Fiscal 1996.
Fiscal year:
The Company's fiscal year-end is June 30th, which is its
natural business year-end.
Revenue recognition:
Income from the sale of boats is recognized at the time of
shipment when title and all other incidents of ownership transfer
to a dealer or other customer. If not all of the criteria for
recording a sale are met, then the recognition of the sale and the
related cost of
-35-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition (Continued).
the sale are deferred until such time as all of the criteria are,
in fact, met. At June 30, 1993, the Company estimated the
balances in deferred sales to be $242,230 and in deferred cost of
sales to be $191,119. The differences between the estimates for
deferred sales and deferred cost of sales at June 30, 1992 and
June 30, 1993 had the effect of increasing the gross margin on
sales and net income after taxes for Fiscal 1993 by $250,929 ($.08
per share). At June 30, 1994, the Company estimated the balances
in deferred sales to be $1,100,000 and in deferred cost of sales
to be $850,000. The differences between the estimates for
deferred sales and deferred cost of sales at June 30, 1993 and
June 30, 1994 had the effect of decreasing the gross margin on
sales and net income after taxes for Fiscal 1994 by $198,999 ($.07
per share). At June 30, 1995, the Company estimated the balances
in deferred sales to be $197,541 and in deferred cost of sales to
be $183,393. The differences between the estimates for deferred
sales and deferred cost of sales at June 30, 1994 and June 30,
1995 had the effect of increasing the gross margin on sales and
net income after taxes for Fiscal 1995 by $235,852 ($.08 per
share). At June 30, 1996, the Company estimated that there were
no deferred sales or deferred cost of sales. The differences
between the estimates for deferred sales and deferred cost of
sales at June 30, 1995 and June 30, 1996 had the effect of
increasing the gross margin on sales and net income after taxes
for Fiscal 1996 by $14,148.
Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments with a maturity of
three months or less to be cash equivalents. The Company had
$1,260,619 and $390,807 in excess of federally insured amounts in
its bank accounts at June 30, 1996 and 1995, respectively.
Inventories:
Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method.
Property, Plant, and Equipment and Depreciation:
Property, plant, and equipment is carried at cost.
Depreciation on property, plant, and equipment is calculated using
the straight-line method and is based upon the estimated useful
lives of the assets.
-36-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Boat Repurchases:
The Company provides an allowance for boats financed by
dealers under floor plan finance arrangements that may be
repurchased from finance companies under certain circumstances
where the Company has a repurchase agreement with the lender. The
allowance provides for all reasonably anticipated future losses to
be incurred on boat repurchases including the cost of bringing
repurchased boats to saleable condition (see also Note 9).
Warranties:
The Company warrants the entire deck and hull, including its
supporting bulkhead and stringer system, against defects in
materials and workmanship for a period of three years. The
Company has accrued a reserve for these anticipated future
warranty costs.
Income Taxes:
Effective for the year ended June 30, 1994, the Company
adopted FASB Statement No. 109, "Accounting for Income Taxes."
There was no cumulative effect for the change in accounting
principle (see Note 7).
Earnings (Loss) Per Share:
The computations of primary and fully diluted earnings (loss)
per share amounts are based upon the weighted average number of
outstanding common shares during the periods, plus, when their
effect is dilutive, additional shares assuming the exercise of
certain vested stock options, reduced by the number of shares
which could be purchased from the proceeds from the exercise of
the stock options assuming they were exercised. The fully diluted
earnings per share for the year ended June 30, 1994 is not
presented because its effect is antidilutive.
Restatement:
The financial statements have been restated for all periods
presented to reflect a one-for-two reverse stock split effected
February 4, 1994 (see Note 6).
-37-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Estimates:
The preparation of 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, the disclosures of contingent assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimated by
management.
Note 2. Inventories.
Inventories consist of the following:
June 30,
----------------------
1996 1995
---------- ----------
Parts and supplies...................... $3,095,379 $2,707,702
Work-in-process......................... 715,133 704,354
Trailers................................ 38,414 37,158
Finished goods........................ 260,269 48,512
---------- ----------
$4,109,195 $3,497,726
Reserve for obsolescence................ (100,000) (90,000)
---------- ----------
$4,009,195 $3,407,726
========== ==========
Note 3. Property, Plant, and Equipment.
Property, plant, and equipment consists of the following:
Estimated
Useful June 30,
Lives -----------------------
in Years 1996 1995
-------- ----------- ----------
Land and related improvements..... 10-30 $ 986,116 $ 986,116
Buildings and related improvements 10-30 6,199,699 5,943,918
Construction-in-progress.......... N/A 6,287 7,466
Production molds and related plugs 8 9,974,486 9,095,973
Machinery and equipment........... 3-5 2,843,480 2,467,986
Furniture and fixtures............ 5 464,932 458,650
Transportation equipment.......... 5 199,326 239,634
----------- -----------
$20,674,326 $19,199,743
Accumulated depreciation.................. 10,746,140 9,209,661
----------- -----------
$ 9,928,186 $ 9,990,082
=========== ===========
-38-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant, and Equipment (Continued).
Construction costs of production molds for new and existing
product lines are capitalized and depreciated over an estimated
useful life of eight years. Depreciation starts when the
production mold is placed in service to manufacture the product.
The costs include the direct materials, direct labor, and an
overhead allocation based on a percentage of direct labor. All of
the Company's production molds were completed and were in service
at June 30, 1996. Production molds not put into service amounted
to $7,466 at June 30, 1995.
As part of the acquisition cost of property, plant, and equipment,
interest expense was capitalized amounting to $9,286 for Fiscal
1994. No interest was capitalized for Fiscal 1995 and 1996.
The Company sold fixed assets and realized gains amounting to
$22,906 for Fiscal 1996. For Fiscal 1995, the Company incurred
losses on fixed assets sold amounting to $23,015. During Fiscal
1994, the Company did not sell or otherwise dispose of any of its
fixed assets.
Note 4. Accounts and Notes Payable.
During Fiscal 1996, the Company retired its interest bearing
indebtedness to Mercury Marine. Most of the amount owing to
Mercury Marine was repaid from the Company's operating funds, but,
additionally, $600,000 was borrowed from G.E. Capital Corporation
on a long-term basis to repay Mercury.
At June 30, 1996, the Company had a note amounting to
$1,173,089 payable to Deutsche Financial Services for engine
purchases financed by Deutsche. At June 30, 1995 the amount of
this note was $534,185. The note bears interest from 2% to 4%
over prime and is secured by the engines purchased and by a
$200,000 irrevocable bank letter of credit.
Note 5. Long-term Debt and Pledged Assets.
Effective December 31, 1993, the Company refinanced its
indebtedness to MetLife Capital Corporation. The $2,000,000 short-
term revolving loan was incorporated into the long-term debt and
the total amount was amortized over ten years with a call at the
end of the fifth year. The interest rate on the debt was fixed at
8 1/2%. The new monthly payment amounts very closely approximated
what the principal
-39-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-term Debt and Pledged Assets (Continued).
and interest payment amounts were prior to the refinancing.
An additional $76,194 was borrowed in the transaction. The total
amount of the debt to MetLife at December 31, 1993 was $6,683,200
after the refinancing.
The indebtedness to MetLife was $5,456,566 at June 30, 1996
and $6,003,799 at June 30, 1995. The indebtedness to MetLife is
secured by a first deed of trust on all real property owned by the
Company, a first lien security interest in all machinery,
equipment, furniture, and fixtures, and by the assignment of a
$1,000,000 life insurance policy.
The loan agreement with MetLife provides, among other things,
that the Company may not:
1. Pay dividends in excess of net income plus
depreciation expense less the current maturities
of long-term debt.
2. Purchase fixed assets during any year costing
more than $500,000 (excluding production molds).
3. Dispose of any assets outside the ordinary
course of business in excess of $20,000 per
transaction, or $200,000 annually.
4. Guarantee, assume, or endorse the obligation of
any person, firm, or corporation in excess of
$1,000,000.
The loan agreement was amended effective December 31, 1994 to
require the Company to attain the following financial ratios
as of the fiscal year-end June 30, 1996:
1. Minimum stockholders' equity of at least
$5,500,000.
2. Current ratio of not less than 1.1 to 1.
3. Maximum debt to net worth ratio of 3.0 to 1.
4. Minimum debt and capital expenditure service
coverage (net income plus depreciation divided
by the current portion of the long-term debt
plus capital expenditures) of at least 1.5
times.
5. Minimum interest and rent service coverage
(earnings before interest and taxes plus rent
expense divided by interest expense plus rent
expense) of at least 3.25 times.
-40-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Long-term Debt and Pledged Assets (Continued).
The Company was in compliance with all of the foregoing
financial ratio requirements as of June 30, 1996. For Fiscal
1995, it was also in compliance with the financial ratio
requirements then in effect. For Fiscal 1994, the Company
received waivers of the financial ratio requirements from MetLife.
The Company has been current on all of its scheduled payments of
both principal and interest to MetLife.
In December, 1995, the Company borrowed $600,000 from G.E.
Capital Corporation for the purpose of retiring its indebtedness
to Mercury Marine. This debt is scheduled for repayment over
forty months at 9.00% interest. It is secured by various boat
molds and product tooling and by an irrevocable bank letter of
credit for $200,000. The unpaid balance at June 30, 1996 was
$538,044.
The Company has various other long-term contracts payable,
which for the most part are capital lease obligations for periods
ranging from three to five years. These obligations have imputed
interest rates ranging from 5% to 14% and amounted to $161,927 at
June 30, 1996 and $216,038 at June 30, 1995. These other
obligations are secured by the leased assets, which consist of
specific vehicles, machines, and items of equipment.
The current portion of long-term debt was $767,254 at June
30, 1996 and $1,371,554 at June 30, 1995. The estimated aggregate
maturities required on long-term debt at June 30, 1996 are as
follows:
Fiscal 1997...................$ 767,254
" 1998................... 831,116
" 1999................... 4,602,068
" 2000................... -0-
" 2001................... -0-
Later years................... -0-
----------
$ 6,200,438
==========
Note 6. Common Stock, Options, and Treasury Stock.
The Company issued no additional common shares during Fiscal
1995 and Fiscal 1996. In Fiscal 1994, the Company's Board of
Directors authorized the issuance of 86,572 additional common
shares to Mr. Reginald M. Fountain, Jr., the Company's Chairman,
President, Chief Executive Officer, and Chief Operating Officer in
consideration for the cancellation of a $300,000 debt to Mr.
Fountain. He had loaned
-41-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock, Options, and Treasury Stock (Continued).
the Company $300,000 in November, 1992 on an unsecured basis
to supplement its working capital. The additional shares were
issued at a price of $3.50 per share to Mr. Fountain and to
Triangle Finance Ltd., a client of Eurocapital, Inc. Mr. Federico
Pignatelli is the U.S. representative of Eurocapital, Inc. and
also is a director of the Company. Mr. Fountain cancelled two-
thirds of the total amount of the debt ($202,000, including
$200,000 principal and $2,000 of accrued interest) for 57,715
common shares. Triangle Finance Ltd. repaid one-third of the
total amount of the debt ($101,000, including $100,000 principal
and $1,000 of accrued interest) for 28,857 common shares. The
Board of Directors determined that the price of $3.50 per share
was fair to the Company after consideration of such factors as the
common stock's book value, its then current market price, and
previous private placements.
Effective February 4, 1994, the Company amended its Articles
of Incorporation and effectuated a one-for-two reverse stock split
of its common stock. The total number of authorized shares was
not changed, but remained at 200,000,000 and the par value per
share remained at $.01. The earnings per share computations in
the accompanying consolidated statements of operations reflect the
reverse split for all periods presented. Elsewhere in the
accompanying consolidated financial statements and notes thereto,
the per share amounts and number of shares amounts are also based
upon the number of shares after the one-for-two reverse stock
split. Following the reverse split, the weighted average shares
outstanding were 3,019,072 for Fiscal 1995 and Fiscal 1996, and
2,968,571 for Fiscal 1994.
Under the terms of the Company's 1986 stock option plan,
options may be granted to purchase up to 200,000 shares of the
Company's common stock at a price of no less than 100% of the fair
market value on the date of grant as determined by the Board of
Directors. Options may be exercised for a ten-year period from
the date of grant. During Fiscal 1995, options to purchase 20,000
shares were granted to each of two key employees. No options have
been exercised.
The following table summarizes the activity relating to the
Company's 1986 stock option plan:
-42-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock, Options, and Treasury Stock (Continued).
Fiscal
-------------------------
Price Range 1996 1995 1994
----------- ------- ------- -------
Options outstanding,
beginning of the year $5.38-$13.94 52,500 16,250 17,500
Granted.................$5.38-$ 5.50 -0- 40,000 -0-
Cancelled...............$7.90-$13.94 12,500 3,750 1,250
------ ------ ------
Options outstanding,
end of the year...... $5.38-$ 5.50 40,000 52,500 16,250
====== ====== ======
Options exercisable,
end of the year.................... 40,000 52,500 16,250
====== ====== ======
Remaining options available
under the plan..................... 160,000 147,500 183,750
======= ======= =======
The 1986 stock option plan terminates on December 5, 1996,
and, accordingly, no additional options may be granted under the
1986 plan after that date.
On June 21, 1995, a special meeting of the shareholders was
held to vote upon the adoption of the 1995 stock option plan. The
new plan as adopted by the shareholders allowed up to 300,000
common stock options to be granted by the Board of Directors to
employees or directors of the Company on either a qualified or non-
qualified basis. Subsequently, on August 4, 1995, the Board
unanimously voted to grant the entire 300,000 stock options
authorized under the 1995 stock option plan to Mr. Reginald M.
Fountain, Jr. at $7.00 per share on a non-qualified basis. None
of the options granted to Mr. Fountain under the 1995 stock option
plan have been exercised.
Effective March 23, 1995, the Board of Directors authorized
the issuance of 20,000 shares stock options to each of the
Company's four outside directors at $5.375 per share on a non-
qualified basis. Since the 80,000 total stock options authorized
represented less than five percent of the Company's outstanding
common stock, no shareholder or regulatory approval was required
for the issuance of these options.
-43-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Stock, Options, and Treasury Stock (Continued).
The Company's subsidiary, Fountain Powerboats, Inc., owns
10,000 shares of its common stock. This common stock is accounted
for as treasury stock at its acquisition cost of $110,748 ($11.07
per share) in these financial statements.
Note 7. Income Taxes.
The Company adopted Statement of Financial Accounting
Standards No. 109 Accounting for Income Taxes (FASB 109) during
Fiscal 1994. FASB 109 requires the Company to provide a net
deferred tax asset or liability equal to the expected future tax
benefit or expense of temporary reporting differences between book
and tax accounting and any available operating loss or tax credit
carryforwards. The financial statements for years prior to 1994
have not been restated and there was no cumulative effect for the
change in accounting principle.
At June 30, 1996 and 1995, the totals of all deferred tax
assets were $1,917,494 and $3,509,457. The totals of all deferred
tax liabilities were $893,349 and $911,479. The amount of and
ultimate realization of the benefits from the deferred tax assets
for income tax purposes is dependent, in part, upon the tax laws
in effect, the Company's future earnings, and other future events,
the effects of which cannot be determined. Because of the
uncertainty surrounding the realization of the deferred tax
assets, the Company has established valuation allowances of
$1,024,145 and $2,597,978 as of June 30, 1996 and 1995,
respectively, which have been offset against the deferred tax
assets. The net decrease in the valuation allowance during the
year ended June 30, 1996, was $1,573,833.
The Company has available at June 30, 1996, unused operating
loss carryforwards of approximately $2,900,000, which may be
applied against future taxable income and which expire in various
years through 2009.
The components of income tax expense from continuing
operations for the years ended June 30, 1996, 1995, and 1994
consist of the following:
-44-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes (Continued).
1996 1995 1994
Current income tax expense:
Federal.....................$ 80,804 $ 41,431 $ -0-
State....................... -0- 1,210 -0-
--------- - ---------- ----------
Net current tax expense.....$ 80,804 $ 42,641 $ -0-
========== ========== ==========
The Company incurred current tax expense amounting to $80,804
for Fiscal 1996 and $42,641 for Fiscal 1995 as a result of the
alternative minimum income tax.
Deferred tax expense (benefit) resulted from:
June 30,
1996 1995 1994
Excess of tax over financial
accounting depreciation...$ (18,130) $ 67,663 $ 281,789
Warranty reserves........... (4,200) (35,700) (27,300)
Accrued vacations........... (3,765) (5,137) (1,830)
Dealer incentive interest
reserves.................. 42,000 7,258 (145)
Bad debt reserves........... 1,260 1,260 (8,725)
Deferred sales and cost, net 5,942 99,058 (83,580)
Excess contributions
carryforwards............. -0- 1,298 (766)
Inventory adjustment-Sec.263A (12,304) (16,648) (30,176)
(Increase) decrease in
NOL carryforwards......... 1,646,237 805,215 (1,366,704)
Increase (decrease) in
valuation allowance....... (1,573,833) (797,651) 1,237,437
Allowance for obsolete
inventory................. (4,200) (16,800) -0-
Alternative minimum tax
credits................... (79,007) (41,431) -0-
Investment tax credits...... -0- (86,294) -0-
Allowance for boat repurchases -0- 17,909 -0-
----------- ----------- ----------
Net deferred tax expense....$ -0- $ -0- $ -0-
=========== =========== ==========
Deferred income tax expense results primarily from the
reversal of temporary timing differences between tax and financial
statement income.
-45-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes (Continued).
A reconciliation of income tax expense at the statutory rate
to income tax expense at the Company's effective rate is as
follows:
June 30,
1996 1995 1994
Computed tax at the expected
federal statutory rate...... 34.00% 34.00% 34.00%
Excess of tax over financial
accounting depreciation..... .43 (3.16) 8.94
Warranty reserves............. .10 1.67 (.87)
State income taxes, net of
federal benefit............. 5.28 5.28 5.28
Accrued vacation.............. .09 .24 (.06)
Bad debt reserve.............. (.03) (.06) (.28)
Deferred sales and cost, net.. (.14) (4.62) (2.65)
Excess contributions
carryforwards............... -0- (.06) (.02)
(Increase) decrease in
NOL carryforwards........... (38.82) (37.59) (43.10)
Obsolete inventory reserve.... .10 .78 -0-
Allowance for boat repurchases -0- (.84) -0-
Alternative minimum tax credits 1.86 1.93 -0-
Dealer incentive interest reserve (.99) (.34) -0-
Investment tax credits........ -0- 4.03 -0-
Sec. 263A inventory adjustment .29 .78 (1.24)
--------- --------- ---------
Effective income tax rates.... 2.17% 2.04% 0.00%
========= ========= =========
The following temporary differences gave rise to the deferred
tax asset (liability) at June 30, 1996 and 1995:
June 30,
1996 1995
Excess of tax over financial
accounting depreciation.............. $ (893,349) $(911,479)
Warranty reserve........................ 172,200 168,000
Obsolete inventory reserve.............. 42,000 37,800
Accrued vacations....................... 39,957 36,192
Allowance for boat repurchases.......... 87,091 87,091
Dealer incentive interest reserves...... 21,000 63,000
Bad debt reserve........................ 11,340 12,600
Deferred sales and cost, net............ -0- 5,942
Inventory adjustments - Sec. 253A....... 118,626 106,322
NOL carryforwards....................... 1,218,548 2,864,785
Alternative minimum tax credits......... 120,438 41,431
Investment tax credits.................. 86,294 86,294
-46-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8. Research and Development.
The Company expenses the costs of researching and developing
new products and components as the costs are incurred. Research
and development costs are included in the cost of sales and
amounted to $234,425 for Fiscal 1996, $134,828 for Fiscal 1995,
and $157,433 for Fiscal 1994.
Note 9. Commitments and Contingencies.
The Company entered into a one-year employment agreement in
1989 with its Chairman, Mr. R.M. Fountain, Jr. The agreement
provides for automatic one-year renewals at the end of each year
subject to Mr. Fountain's continued employment.
The Company makes available through third-party finance
companies floor plan financing for many of its dealers. Sales to
participating dealers are approved by the respective finance
companies. If a participating dealer does not satisfy its
obligations under the floor plan financing agreement in effect
with its commercial lender(s) and boats are subsequently
repossessed by the lender(s), then under certain circumstances the
Company may be required to repurchase the repossessed boats if it
has executed a repurchase agreement with the lender(s). At June 30,
1996, the Company had a contingent liability to repurchase
boats in the event of dealer defaults and if repossessed by the
commercial lenders amounting to approximately $7,200,000. The
Company has reserved for the reasonably anticipated future losses
it might incur upon the repossession and repurchase of boats from
commercial lenders. At June 30, 1996, the allowance for boat
repurchases was $207,359. Also, in connection with one of its
floor plan agreements with a lender, the Company has provided an
irrevocable standby letter of credit in the amount of $250,000 as
security for the lender.
The Company regularly pays a portion of dealers' interest
charges for floor plan financing for up to six months. These
interest charges amounted to $704,736 for Fiscal 1996, $708,655
for Fiscal 1995, and $731,722 for Fiscal 1994. They are included
in the accompanying consolidated statements of operations as part
of selling expense.
The Company has been notified by the United States
Environmental Protection Agency (the "EPA") and the North Carolina
Department of Environment, Health and Natural Resources
("NCDEHNR") that it has been identified as a potentially
responsible party (a "PRP") and may incur, or may have incurred,
liability for the remediation of ground water contamination at the
Spectron/Galaxy Waste Disposal Site
-47-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments and Contingencies (Continued).
located in Elkton, Maryland and the Seaboard Disposal Site,
located in High Point, North Carolina, also referred to as the
Jamestown, North Carolina site, resulting from the disposal of
hazardous substances at those sites by a third party contractor of
the Company. The Company has been informed that the EPA and
NCDEHNR ultimately may identify a total of between 1,000 and
2,000, or more, PRP's with respect to each site. The amounts of
hazardous substances generated by the Company, which were disposed
of at both sites, are believed to be minimal in relation to the
total amount of hazardous substances disposed of by all PRP's at
the sites. At present, the environmental conditions at the sites,
to the Company's knowledge, have not been fully determined by the
EPA and NCDEHNR, respectively, and the Company is not able to
determine at this time the amount of any potential liability it
may have in connection with remediation at either site. Without
any acknowledgement or admission of liability, the Company has
made payments of approximately $3,279 to date as a nonperforming
cash-out participant in an EPA-supervised response and removal
program at the Elkton, Maryland site, and in a NCDEHNR-supervised
removal and preliminary assessment program at the Jamestown,
North Carolina site. A cash-out proposal for the next phase of the
project is expected to be forthcoming from the PRP Group for the
Elkton, Maryland site within the near future. According to the
PRP Group, the Company's full cash-out amount is estimated to be
approximately $10,000 for the Elkton, Maryland site, based upon an
estimated 3,304 gallons of waste disposed of at that site by the
Company. A cash-out proposal in the approximate amount of $66,000
based on an estimated 19,245 gallons of waste is anticipated from
the PRP Group for the Jamestown, North Carolina site following
completion of a remedial investigation and feasibility study in
early 1998, according to the PRP Group administrator. Any such
cash-out agreement will be subject to approval by EPA and NCDEHNR,
respectively. The Company has accrued the estimated $76,000
liability related to these matters in the accompanying financial
statements.
The Company has received a demand letter dated February 22,
1996, from the representative and agent for a famous professional
basketball player, for damages in connection with an advertisement
for the Company which used the basketball player's name. The
monetary demand is for $1,000,000 if the claim is resolved prior
to institution of a lawsuit, which also has been threatened. The
Company has put its primary and umbrella liability insurance
carriers on notice, and they are researching various coverage
issues. At this time, the parties involved, including the primary
insurance carrier's representative, have agreed to a meeting to
-48-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Commitments and Contingencies (Continued).
discuss a potential resolution of the matter. The Company
has accrued the $10,000 liability insurance deductible for this
claim in the accompanying financial statements. The Company
intends to vigorously defend its interests in this matter unless a
reasonable and equitable settlement can be made.
A former vendor has instituted a lawsuit for $10,960 plus
costs and interest. The Company has counterclaimed for damages in
a greater amount and intends to vigorously defend its interest in
this matter unless an equitable settlement can be reached.
There were four product liability lawsuits brought against
the Company at June 30, 1996. In the Company's opinion, these
lawsuits are without merit. Therefore, these lawsuits are being
defended vigorously. The Company carries sufficient product
liability insurance to cover attorney's fees and any losses which
may occur from these lawsuits over and above the insurance
deductibles.
Note 10. Export Sales.
The Company had export sales of $1,052,816 for Fiscal 1996,
$507,097 for Fiscal 1995, and $823,324 for Fiscal 1994. Export
sales were to customers in the following geographic areas:
Fiscal
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Americas...................$ 658,738 $ -0- $ 187,458
Asia....................... -0- 197,932 -0-
Middle East and Europe..... 394,078 309,165 635,866
---------- ---------- ----------
$ 1,052,816 $ 507,097 $ 823,324
========== ========== ==========
Note 11. Transactions with Related Parties.
The Company paid or accrued the following amounts for
services rendered or for interest on indebtedness to Mr. Reginald
M. Fountain, Jr., the Company's Chairman, President, Chief
Executive Officer, and Chief Operating Officer, or to entities
owned or controlled by him:
-49-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Transactions with Related Parties (Continued).
Fiscal
-------------------------------------
1996 1995 1994
Greenwood Helicopters $ -0- $ -0- $ 22,552
Eastbrook Apartments 8,705 12,540 17,368
Village Green Apartments 6,675 1,455 -0-
R.M. Fountain, Jr.
- airplane rentals 155,499 104,469 91,180
R.M. Fountain, Jr.
- interest on loans 2,710 -0- 18,000
R.M. Fountain, Jr.
- other misc. 2,000 -0- -0-
--------- --------- ---------
$ 175,589 $ 118,464 $ 149,100
========= ========= =========
During Fiscal 1993, the Company borrowed $300,000 on an
unsecured basis from Mr. Fountain at an interest rate of 12%.
Effective January 31, 1994, the Company's Board of Directors
authorized the issuance of 86,572 additional common shares in
consideration for the cancellation of this $300,000 debt to Mr.
Fountain. The additional shares were issued at a price of $3.50
per share to Mr. Fountain and to Triangle Finance Ltd., a client
of Eurocapital, Inc. Mr. Federico Pignatelli is the president of
Eurocapital, Inc. and also is a director of the Company. Mr.
Fountain cancelled two-thirds of the total amount of the debt
($202,000, including $200,000 principal and $2,000 of accrued
interest) for 57,715 common shares. Triangle Finance Ltd. repaid
one-third of the total amount of the debt ($101,000, including
$100,000 principal and $1,000 of accrued interest) for 28,857
common shares. The Board of Directors determined that the price
of $3.50 per share was fair to the Company after consideration of
such factors as the common stock's book value, its then current
market price, and recent private placements.
During the fourth quarter of Fiscal 1996, the Company
borrowed $170,000 from Mr. Fountain to supplement its working
capital. This loan was unsecured with interest at 12%. The loan
was entirely repaid to Mr. Fountain by June 30, 1996.
-50-
FOUNTAIN POWERBOAT INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Other Non-operating Income.
Included in other non-operating income is a non-recurring
$800,000 discount earned for the early retirement of a long-term,
interest bearing note payable to a vendor. The vendor's
discounting of the note payable was in consideration for the early
repayment and for services the Company provided in the
development, promotion, and marketing of the vendor's products in
conjunction with the Company's offshore fishing boat line.
Also included in other non-operating income are consulting
fees earned by Mr. Fountain amounting to $610,420 for Fiscal 1996,
$452,911 for Fiscal 1995, and $294,437. Mr. Fountain has assigned
these consulting fees to the Company. Under the terms of his
current consulting contract, his consulting fees will be reduced
by approximately 65% for Fiscal 1997 and will end entirely after
Fiscal 1997.
*******
-51-
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
The Company's independent auditors, Pritchett, Siler & Hardy,
Salt Lake City, Utah is the successor firm to Peterson, Siler & Stevenson,
also of Salt Lake City, Utah, which performed the audit of the Company's
financial statements in prior years including Fiscal 1995 and 1994.
There were no disagreements with the independent auditors on
accounting and financial disclosure matters.
-52-
PART III
Item 10. Directors and Executive Officers of Registrant.
The current directors of Registrant and its Subsidiary are
as follows:
REGINALD M. FOUNTAIN, JR., age 56, founded the Company's Subsidiary during
1979 and has served as its Chief Executive Officer from its organization.
He became a director and President of the Company upon its acquisition of
the Subsidiary in August, 1986. Mr. Fountain presently serves as Chairman,
President, Chief Executive Officer, and Chief Operating Officer of the
Company and its Subsidiary. From 1971 to 1979, Mr. Fountain was a world
class race boat driver, and was the Unlimited Class World Champion in 1976
and 1978.
GARY GARBRECHT, age 53, became a director of the Company on February 26,
1992. Mr. Garbrecht is the President and sole shareholder of Mach
Performance, a propeller and high performance boating accessories
manufacturer. From June, 1988 to July, 1991, he was President of Aronow
Powerboats, a former manufacturer of high performance sport boats. Prior to
that time, and until its sale to OMC in 1989, Mr. Garbrecht owned Second
Effort, a manufacturer of high performance boats. Mr. Garbrecht has over
thirty years experience in racing and recreational boating.
GARY E. MAZZA, III, age 58, became a director of the Company on December 28,
1993. Mr. Mazza is a practicing attorney in the business, tax and
international areas of the law in Annapolis, Maryland. He also practices
law in New york and Virginia. He is the Chairman of Triangle Tractor &
Trailer, Inc., a Director of the American Red Cross of Maryland, and an
Adjunct Professor at the Univeristy of Maryland. He is the founder,
Executive Vice President, and General Counsel for Aerovias Quisqueana,
C. por A., Santo Domingo, Dominican Republic. Prior to entering private
practice, Mr. Mazza was the Director of the Legal Education Institute at the
U.S. Department of Justice from 1977 to 1981. Prior to 1977, he served as
the Director of Legal Training for the U.S. Civil Service Commission and as
Senior Legal Advisor for the U.S. Indian Claims Commission. His honors
include the New York State Attorney General's Achievement Award. Mr. Mazza
is a highly decorated retired United States Army Colonel.
-53-
FEDERICO PIGNATELLI, age 43, became a director of the Company on April 8,
1992. Mr. Pignatelli is the U.S. representative of Eurocapital Partners,
Ltd., an investment banking firm. From 1989 to April, 1992, he was a
Managing Director at Gruntal & Company, an investment banking firm. From
1988 to 1989, he was General Manager of Euromobiliare Ltd., a subsidiary of
Euromobiliare, SpA, a publicly held investment and merchant bank in Italy
and Senior Vice President of New York and Foreign Securities Corporation,
an institutional brokerage firm in New York. From 1986 to 1988, he was
Managing Director at Ladenburg, Thalmann & Co., an investment banking firm.
From 1980 to 1986, he was Assistant Vice President of E.F. Hutton
International. Prior to 1980, he was a financial journalist. Mr.
Pignatelli was elected as a director of the Company pursuant to the right
of Eurocapital Partners, Ltd. to designate one member of the Board of
Directors in connection with a private placement of the Company's Common
Stock. Mr. Pignatelli also serves as chairman of BioLase Technology, Inc.,
a company which produces medical and dental lasers and endodontic products.
Formerly, he served as a director of MTC Electronic Technologies Co., Ltd.,
a NASDAQ/NMS company, and of CST Entertainment Imaging, Inc., an American
Stock Exchange Company engaged in colorizing black and white film.
MARK SPENCER, age 41, became a director on February 26, 1992. He is founder
of Spencer Communications, an advertising public relations firm specializing
in the marine industry, in 1987. Previously, Mr. Spencer began his
journalism career at Powerboat Magazine in 1976. He was named Executive
Editor of Powerboat Magazine in 1981 and served in that capacity until 1987.
During the last seven years Mr. Spencer has served as an on camera expert
commentator for ESPN covering the boating industry.
In addition to Mr. Fountain who is listed above as a director, other
executive officers of the Company are as follows:
ALLAN L. KREHBIEL, C.P.A., age 53, was appointed Vice President - Finance
and Chief Financial Officer in May, 1991. Mr. Krehbiel had been Controller
since April, 1991, when he was hired by the Company. He is a Certified
Public Accountant and has had ten years experience as the Chief Financial
Officer/Controller of Revere Aluminum Building Products, Inc. (and its
successor, Noranda Building Products Company) and of Hunter Douglas Building
Products Division (and its successor, Alumark Corporation).
-54-
BLANCHE C. WILLIAMS, age 62, has been Corporate Secretary and Treasurer of
the Company since August, 1986, and has held the same positions with the
Company's Subsidiary since it was formed during 1979. Mrs. Williams also
served as Executive Assistant to the President from 1979 to 1988.
Item 11. Executive Compensation.
The following table sets forth the compensation awarded, paid to or
earned by the Company's Chief Executive Officer, who was the only executive
officer of the Company whose compensation exceeded $100,000 in Fiscal 1996,
1995, and 1994:
Name and Principal Fiscal Annual Compensation Long-term
___________________
Position Year Salary(1) Bonus(2) Compensation
_______________________ _____ ________ _________ ____________
Reginald M. Fountain, Jr. 1996 $232,154 $199,984 $ -0-
Chairman, President, Chief 1995 211,650 106,438 -0-
Executive Officer, and 1994 187,200 -0- -0-
Chief Operating Officer (4)
________________________________________________
(1) The Board of Directors increased Mr. Fountain's annual base salary to
$285,000 for the period March 30, 1995 to March 30, 1996 and to
$350,000 thereafter. Previously, effective October 6, 1992, the Board
had increased his salary to $187,200 and effective August 30, 1991 had
increased his salary to $115,000. The amounts shown do not include the
value of certain personal benefits received in addition to cash
compensation. The aggregate value of such personal benefits received
was less than ten percent (10%) of the total cash compensation paid.
(2) The bonuses paid to Mr. Fountain for Fiscal 1995 and 1996 were
authorized by the Board on May 1, 1994. His bonus represents 5% of
net income after the profit sharing distribution, if any, but before
income taxes limited to a maximum of $250,000. Mr. Fountain received
no bonus for Fiscal 1994.
(3) Mr. Fountain does not participate in the Company's 401(k) Plan and has
no other long-term compensation, other than stock options.
(4) Effective June 23, 1992, Mr. Fountain was also elected to the positions
of President and Chief Operating Officer of both the Company and its
Subsidiary.
-55-
The following table contains information concerning the grant of stock
options to the named executive officer in Fiscal 1995:
Name..................................... Reginald M. Fountain, Jr.
Number of securities underlying
options/SARS granted................... 300,000
Per cent of total options/SARS granted
to employees in the fiscal year........ 100%
Exercise price........................... $7.00
Expiration date.......................... 8/04/05
Potential realizable value of assured
stock appreciation for option term
based on a per share market price of
the common stock on the last trading
day prior to the day of grant of $7.00:
Five percent........................ $1,320,678
Ten percent......................... $3,346,859
The following table contains information concerning the exercise of
stock options and employment related options and information concerning
unexercised stock options held as of July 31, 1995 by the named executive
officer:
Name..................................... Reginald M. Fountain, Jr.
Shares acquired on exercise.............. -0-
Market value at time of exercise less
exercise price, or value realized..... -0-
Number of unexercised options & warrants:
Exercisable options................... 320,000
Non-Exercisable....................... -0-
Value of unexercised in-the-money options
at June 30, 1996, exercisable......... $1,461,750 (1)
(1) The closing sale price of the Common stock on Friday, June 28, 1996
was $11.50. Value equals the difference between market value and
exercise price.
-56-
In October, 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock Based Compensation". SFAS No. 123
permits a company to choose either a new fair value based method of
accounting for its stock based compensation arrangements or to comply with
the current APB Opinion 25 intrinsic value based method adding pro forma
disclosure of net income and earnings per share computed as if the fair
value based method had been applied in the financial statements. SFAS No.
123 is effective for fiscal years beginning after December 15, 1995. The
Company will adopt SFAS No. 123 in 1997 using pro forma disclosures of net
income and earnings per share. The impact of stock options on the Company's
pro forma disclosures of net income and earnings per share calculations is
not known as the Company has not yet implemented the provision of the SFAS.
Directors' Compensation.
Directors of the Company currently do not receive any fees or other
compensation for their services as directors, but they are reimbursed for
travel and other out-of-pocket expenses in connection with their attendance
at meetings of the Board of Directors.
In Fiscal 1995, each non-employee director (Messrs. Pignatelli, Mazza,
Garbrecht, and Spencer) was granted non-qualified stock options to purchase
20,000 common shares at $5.375 per share. These non-qualified stock options
awarded to the outside directors were not under any of the Company's
existing stock option plans.
Employment Agreement.
Reginald M. Fountain, Jr. serves as the Company's President, Chief
Executive Officer, and Chief Operating Officer pursuant to an employment
agreement entered into during 1989. The agreement provides for a one-year
term and for automatic renewals at the end of each year for additional one-
year periods until terminated. Under the agreement, Mr. Fountain received
a base salary approved by the Board of Directors and an annual cash bonus
based upon the Company's net profits before taxes. On May 1, 1994, the
Board of Directors authorized an increase in the annual bonus payment to Mr.
Fountain to 5% of net income after the profit sharing distribution but
before income taxes limited to a maximum of $250,000. Bonuses of $199,984
for Fiscal 1996 and $106,438 for Fiscal 1995 were paid to Mr. Fountain. No
bonus was paid to him for Fiscal 1994. The agreement terminates upon death
or permanent disability. The current agreement replaced a similar agreement
with Mr. Fountain that had been in effect since December, 1986.
-57-
Profit Sharing Plan.
No Profit Sharing Plan was authorized for Fiscal 1996 or Fiscal 1994.
On May 1, 1994, the Board of Directors authorized a Profit Sharing Plan
applicable to all eligible employees for Fiscal 1995. The profit sharing
calculations were based upon the consolidated audited net income for the
full fiscal year before income taxes. The actual profit sharing
distribution for Fiscal 1995 was $376,614 and was paid in full to the
eligible employees on August 12, 1995.
Stock Option Plans.
During 1987, shareholders of the Company approved the 1986 Incentive
Stock Option Plan. The Plan is administered by the Board of Directors which
may, in its discretion, from time to time, grant to officers and key
employees options to purchase shares of the Company's common stock.
Directors who are not officers or employees of the Company or its Subsidiary
are not eligible to be granted options under the 1986 Plan.
The 1986 Plan provides that the purchase price per share of common
stock provided for in options granted shall not be less than 100% of the
fair market value of the stock at the time the option is granted. However,
in the case of an optionee who possesses more than 10% of the total combined
voting power of all classes of the Company's stock, the purchase price shall
not be less than 110% of the fair market value of the stock on the date
of the grant.
No consideration is payable to the Company by an optionee at the time
an option is granted. Upon exercise of an option, payment of the purchase
price of the common stock being purchased shall be made to the Company in
cash, or at the discretion of the Board of Directors, by surrender of a
promissory note from the optionee, or by surrender of shares of common stock
already held by the optionee which shall be valued at their fair market
value on the date the option is exercised, or by any combination of the
foregoing. Also, payment may be in installments, and upon such other terms
and conditions as the Board of Directors, in its discretion, shall approve.
Under the 1986 Plan, the aggregate fair market value of shares with
respect to which options are exercisable for the first time by an employee
in any calendar year generally may not exceed $100,000.
-58-
The term of each option granted under the Plan is determined by the
Board of Directors, but may in no event be more than ten years from the date
such option is granted. However, in the case of an option granted to a
person who, at the time the option is granted, owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, the term of the option may not be for a period of more than five
years from the date of grant. Unless the Board of Directors determines
otherwise, no options may be exercised for one year after the date of grant.
Thereafter, an option may be exercised either in whole or in installments as
shall be determined by the Board of Directors at the time of the grant for
each option granted. All rights to purchase stock pursuant to an option,
unless sooner terminated or expired, shall expire ten years from the date
option was granted.
Upon the termination of an optionee's employment with the Company, his
option shall be limited to the number of shares for which the option is
exercisable by him on the date of his termination of employment, and shall
terminate as to any remaining shares. However, if the employment of an
optionee is terminated for "cause" (as defined in the Plan), the optionee's
rights under any then outstanding option immediately terminate at the time
of his termination of employment. No option shall be transferrable by an
optionee otherwise than by will or the laws of descent and distribution.
Under the 1986 Plan, a maximum of 200,000 shares of the Company's
common stock have been reserved for issuance. In the event of a stock
dividend paid in shares of the common stock, or a recapitalization,
reclassification, split-up or combination of shares of such stock, the Board
of Directors shall have the authority to make appropriate adjustments in the
numbers of shares subject to outstanding options and the option prices
relating thereto, and in the total number of shares reserved for the future
granting of options under to the Plan.
During 1989 the Board of Directors amended the Plan to delete a
provision requiring that options granted to any one employee be exercised
only in the sequential order in which they were granted. That provision at
one time was, but is no longer, required by the Internal Revenue Code, as
amended, to be contained in incentive stock option plans.
During Fiscal 1995 options to purchase 20,000 shares were awarded to
Mr. Fountain at $5.9125 ($5.375 x 110%) per share and options to purchase
20,000 shares were awarded to the Chief Financial Officer at $5.500 per
share. Of the options granted in previous years, all had expired by
June 30, 1996. The remaining options available for grant under the 1986
Plan are for 160,000 common shares.
-59-
No options granted to any person under the 1986 Plan have been
exercised. The 1986 Plan terminates on December 5, 1996, and, accordingly,
no additional options may be granted after that date.
On June 21, 1995, a Special Meeting of the shareholders was held to
vote upon the adoption of the 1995 Stock Option Plan. The new Plan as
adopted by the Shareholders allowed for up to 300,000 common stock options
to be granted by the Board of Directors to employees or directors of the
Company on either a qualified or non-qualified basis. Subsequently, on
August 4, 1995, the Board unanimously voted to grant the entire 300,000
stock options authorized under the 1995 Stock Option Plan to Mr. Reginald M.
Fountain, Jr. at $7.00 per share on a non-qualified basis. None of the
options granted to Mr. Fountain under the 1995 Plan have been exercised.
The expiration date of the options granted to Mr. Fountain is August 4, 2005.
During Fiscal 1995, each of the four non-employee directors was
granted non-qualified stock options to purchase 20,000 common shares at
$5.375 per share. These non-qualified stock options awarded to the
outside directors were not under any of the Company's existing stock option
plans.
401(k) Payroll Savings Plan.
During Fiscal 1991, the Company initiated a 401(k) Payroll Savings
Plan (the "401(k) Plan") for all employees. Eligible employees may elect to
defer up to fifteen percent of their salaries. The amounts deferred by the
employees are fully vested at all times. The Company matches twenty-five
percent of the employees' deferred salary amounts limited to a maximum of
five percent of their salaried amounts, or a maximum of one and one-fourth
percent of their salaries. Amounts contributed by the Company vest at a
rate of twenty percent per year of service. Mr. Fountain, by his own
election, does not participate in the 401(k) Plan. There are no
postretirement benefit plans in effect.
Performance Table.
The following table was prepared by Standard & Poor's Compustat
Services, Inc. It compares the Company's cumulative total shareholder
return with a stock market performance indicator (S. & P. 500 Index) and an
industry index (S. & P. Leisure Time). The table assumes a base point of
June 30, 1991 to be equal to $100.00. Accumulated returns are noted
through June 30, 1996. Each time period covered by the table gives the
dollar value of the investment assuming monthly reinvestment of dividends.
The Company has never paid any dividends.
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TOTAL SHAREHOLDER RETURNS-DIVIDENDS REINVESTED
ANNUAL RETURN PERCENTAGE
YEARS ENDING
COMPANY/INDEX JUN92 JUN93 JUN94 JUN95 JUN96
- ------------------------------------------------------------------------
FOUNTAIN POWERBOAT INDS INC 25.00 14.02 -55.81 142.11 100.00
S & P 13.41 13.63 1.41 26.07 25.00
LEISURE TIME 7.86 2.71 31.39 -5.29 31.98
INDEXED RETURNS
YEARS ENDING
COMPANY/INDEX JUN91 JUN92 JUN93 JUN94 JUN95 JUN96
- ---------------------------------------------------------------------------
FOUNTAIN POWERBOAT INDS INC 100 125.00 107.46 47.50 115.00 230.00
S & P 500 INDEX 100 113.41 128.87 130.68 164.75 207.59
LEISURE TIME 100 107.86 110.78 145.55 137.84 181.92
As can be seen from the table, the total return to shareholders of the
Company's common stock over the past five years has been greater than the
S. & P. 500 stocks and the S. & P. Leisure Time stocks.
Board Report on Executive Compensation.
The entire Board of Directors, including its Chairman, Mr. Reginald M.
Fountain, Jr., who also serves as the Company's President, Chief Executive
Officer, and Chief Operating Officer has prescribed unanimously the
compensation amounts for the Company's executive officers. These
compensation amounts are deemed adequate by the Board based upon its
judgment as to the qualifications, experience, and performance of the
individual executive officers, as well as, the Company's size, complexity,
growth, and financial performance.
Upon the resignation of the Company's President and Chief Operating
Officer on June 23, 1992, Mr. Fountain was elected to these positions in
addition to his duties as Chairman and Chief Executive Officer. Recognizing
his increased responsibilities, the Board, acting unanimously, subsequently
increased his base salary from $115,000 per year to $187,200 effective
October 6, 1992. During Fiscal 1995, recognizing the Company's much
improved financial performance under his leadership, the Board increased Mr.
Fountain's salary to $285,000 for the period March 30, 1995 through March 30,
1996, and to $350,000 thereafter.
The entire Board has also approved Mr. Fountain's employment agreement
with the Company, more fully described above on Page 56, under "Employment
Agreement", which provides for a minimum base salary and an annual cash
bonus equal to five percent of the Company's net profits after profit
sharing distribution but before income taxes limited to a maximum of
$250,000. Bonuses were paid to Mr. Fountain for Fiscal 1995 amounting to
$106,438 and for Fiscal 1996 amounting to $199,984. Mr. Fountain received
no bonus for Fiscal 1994.
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Compliance with Section 16.
Mr. Reginald M. Fountain, Jr. did not timely file one Form 4 in Fiscal
1996 with respect to the granting of 300,000 common stock options in August,
1995.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Principal Shareholders. The following table sets forth the beneficial
ownership of the Company's Common Stock as of September 15, 1996, by each
person known to the Company to beneficially own more than five percent (5%)
of the Company's Common Stock. This table has been prepared based upon
information provided to the Company by each shareholder:
Amount of
Name and Beneficial Percent of
Address Ownership Class (3)
- ------------------------ --------------- ---------
Reginald M. Fountain, Jr.
P.O. Drawer 457
Whichard's Beach Road
Washington, N.C. 27889 1,712,915 (1) 51.30%
Triglova Finanz, A.G.
P.O. Box 1824
52nd Street
Urbanization Obarrio
Torre Banco Sur, 10th Floor
Panama City, Republic of Panama 272,500 (2) 9.00%
_______________________________________________
(1) Mr. Fountain has sole voting and investment power with respect to all
shares shown as beneficially owned. Includes options to acquire
320,000 shares of common stock.
(2) The Company is informed that the shares shown as beneficially owned by
Triglova Finanz, A.G. are owned directly by it, and it claims shared
voting and investment power with respect to all such shares with Mr.
Filippo Dollfus De Vockersberg, C/O Fider Service, 1 Via Degli Amadio
6900, Lugano, Switzerland. Mr. Dollfus has been authorized to act as
attorney-in-fact for Triglova Finanz, A.G., and, therefore, claims
shared voting and investment power with respect to such shares.
(3) The percentage for each person is calculated on the basis of the
Company's total outstanding shares less the 10,000 shares owned by the
Company's Subsidiary.
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Directors and Officers. The following table sets forth the beneficial
ownership of the Company's common stock as of September 15, 1996, for each
of the Company's current directors, and for all directors and officers of
the Company as a group.
Amount of
Name and Beneficial Percent of
Address Ownership Class
------------ ------------ ---------
Reginald M. Fountain, Jr.(1) 1,712,915 (2) 51.30%
Gary D. Garbrecht (1) 20,000 (2) (3)
Mark L. Spencer (1) 20,000 (2) (3)
Federico Pignatelli (1) 20,000 (2) (3)
Gary E. Mazza, III (1) 20,000 (2) (3)
Allan L. Krehbiel (1) 20,000 (2) (3)
Blanche C. Williams (1) 100 (3)
All directors and officers
as a group (7 persons) 1,813,015 (2) 52.71%
(1) The address of each person is P.O. Drawer 457, Whichard's Beach Road,
Washington, North Carolina 27889. Except as otherwise indicated, to
the best knowledge of management of the Company, each of the persons
listed or included in the group has sole voting and investment power
over all shares shown as beneficially owned. Percentages for each
person listed and for the group are calculated on the basis of the
Company's total outstanding shares less the 10,000 shares owned by the
Company's Subsidiary.
(2) For Mr. Fountain, includes options to purchase 320,000 shares of
common stock held. For Messrs. Garbrecht, Spencer, Pignatelli, Mazza,
and Krehbiel, includes options to purchase 20,000 common shares by
each person.
(3) Less than 1%.
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Item 13. Certain Relationships and Related-Party Transactions.
During the fourth quarter of Fiscal 1996, the Company borrowed
$170,000 from Mr. Fountain to supplement its working capital. This loan
was unsecured with interest at 12%. The Company paid Mr. Fountain $2,710 in
interest. The loan was entirely repaid by June 30, 1996.
Mr. Fountain loaned the Company $300,000 in November, 1992 to
supplement the Company's working capital. The loan was unsecured and bore
interest at the rate of 12% per annum. Effective January 31, 1994, the
Company's Board of Directors authorized the issuance of 86,572 additional
common stock shares in consideration for the cancellation of this $300,000
debt to Mr. Fountain. The additional shares were issued at a price of $3.50
per share to Mr. Fountain and to Triangle Finance Ltd., a client of
Eurocapital, Ltd. Mr. Federico Pignatelli is the U.S. representative of
Eurocapital, Ltd. and is also a director of the Company. Mr. Fountain
cancelled two-thirds of the total amount of the debt ($202,000, including
$200,000 of principal and $2,000 of accrued interest) for 57,715 common
shares. Triangle Finance Ltd. repaid one-third of the total amount of the
debt ($101,000, including $100,000 of principal and $1,000 of accrued
interest) for 28,857 common shares. The Board of Directors determined that
the price of $3.50 per share was fair to the Company after consideration of
such factors as the common stock's book value, its then current market price,
and recent private placements.
In Fiscal 1994, the Company paid Mr. Fountain interest amounting to
$18,000 due on the $300,000 loan which was converted to common stock
effective January 31, 1994. No interest was paid to Mr. Fountain in Fiscal
1995. The Company also paid rentals at what it believes to be their fair
market values during the last three fiscal years to Mr. Fountain or to
entities owned by him as follows:
Fiscal Fiscal Fiscal
1996 1995 1994
Greenwood Helicopters.....$ -0- $ -0- $ 22,552
Eastbrook Apartments...... 8,705 12,540 17,368
Village Green Apartments.. 6,675 1,455 -0-
R.M. Fountain, Jr.
- airplane rentals 155,499 104,469 91,180
R.M. Fountain, Jr.
- other misc. 2,000 -0- -0-
-------- -------- --------
$172,879 $118,464 $131,100
======== ======== ========
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The rentals paid to Greenwood Helicopters are for the use of a
helicopter primarily for aerial photography of the Company's boats and plant
site. The rentals paid to Eastbrook Apartments and Village Green Apartments
are primarily for temporary lodging for relocating and transient Company
personnel and visitors. The rentals paid for the airplane are based upon
the actual hours that the airplane was used for Company business plus a
monthly stand-by charge for the exclusive use of the airplane. During
Fiscal 1993, Mr. Fountain purchased the airplane from the Company together
with a parcel of real estate located at Morehead, North Carolina. The
Company recorded a profit on these transactions with Mr. Fountain amounting
to $117,126.
Mr. Gary D. Garbrecht is a director of the Company and the President
and sole shareholder of Mach Performance, Inc. which supplies the Company's
Subsidiary with some of its requirements for propellers and other accessory
items. The Company paid Mach Performance, Inc. $191,709 in Fiscal 1996,
$254,696 in Fiscal 1995, and $89,433 in Fiscal 1994.
Mr. Gary E. Mazza,III, a distinguished attorney, businessman,
educator, and retired United States Army Colonel was elected to the Board of
Directors on December 28, 1993. He is Mr. Fountain's father-in-law. The
Company paid Mr. Mazza $1,079 in Fiscal 1996 and $1,743 in Fiscal 1995. No
amount was paid to him in Fiscal 1994.
Mr. Federico Pignatelli was elected to the Board of Directors as the
designee of Eurocapital, Ltd., the Company's investment banking firm in
connection with a private placement of the Company's Common Stock. No
amounts were paid to Mr. Pignatelli or to Eurocapital, Ltd., or to any of
their affiliates, in Fiscal 1996, 1995, or Fiscal 1994.
Mr. Mark L. Spencer is a director of the Company and the President and
sole shareholder of Spencer Communications, Inc. which furnishes advertising
and public relations services to the Company. The Company paid Spencer
Communications, Inc. $265,985 in Fiscal 1996, $138,116 in Fiscal 1995, and
$124,872 in Fiscal 1994.
The Company believes that all of the above transactions were on terms
which were not more favorable than would have been obtained from non-
affiliated parties.
-65-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8 and Form 8-K.
(a) The following documents are filed as a part of this Report:
(1) Financial Statements. The following consolidated
financial statements of the Company and its Subsidiary are
included in Part II, Item 8, herein:
Page No.
Independent Auditors' Report..................... 29
Consolidated Balance Sheets -
June 30, 1996 and 1995....................... 30
Consolidated Statements of Operations -
Years Ended June 30, 1996, 1995, 1994........ 31
Consolidated Statements of Stockholders' Equity -
Years Ended June 30, 1996, 1995, 1994........ 32
Consolidated Statements of Cash Flows -
Years Ended June 30, 1996, 1995, 1994....... 33-34
Notes to Consolidated Financial Statements...... 35-51
(2) Exhibits. The following exhibits are filed with this
report or incorporated by reference to a previous filing:
Page No.
3.1 - Certificate of Incorporation of the Company
(Incorporated by reference to the Company's
Registration Statement filed on Previously
October 2, 1986)............................ Filed
3.2 - Amendments to Certificate of Incorporation
of the Company (Incorporated by reference
to Amendment No. 1 to the Company's
Registration Statement filed on Previously
December 2, 1986).......................... Filed
3.3 - Amendment to Certificate of Incorporation
of the Company (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10-K Previously
for the fiscal year ended June 30, 1991).... Filed
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Page No.
3.4 - By-laws of the Company (Incorporated by
reference to Amendment No. 1 to the
Company's Registration Statement filed on Previously
December 2, 1986)........................... Filed
3.5 - Certificate of Amendment to the Articles
of Incorporation, Consent Action in
Writing of the Majority Stockholders,
and Resolutions Adopted by Unanimous
Written Consent of the Board of Directors
for the one-for-two reverse stock split Previously
of February 4, 1994........................ Filed
4.1 - Form of Warrant Agreement (Incorporated by
reference to Amendment No. 2 to the
Company's Registration Statement filed on Previously
December 10, 1986).......................... Filed
4.2 - Form of Stock Certificate (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K for Previously
the fiscal year ended October 1, 1989)...... Filed
4.3 - Form of Warrant Certificate (Incorporated by
reference to Amendment No. 2 to the
Company's Registration Statement filed Previously
on December 10, 1986)....................... Filed
10.1 - 1986 Incentive Stock Option Plan
(Incorporated by reference to Amendment
No. 1 to the Company's Registration Previously
Statement filed on December 2, 1986)........ Filed
10.2 - Employment Agreement dated May 31, 1989
between Reginald M. Fountain, Jr. and the
Company's Subsidiary (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K Previously
for the fiscal year ended October 1, 1989).. Filed
10.3 - Employment Agreement dated May 31, 1989
between Leon P. Smith and the Company's
Subsidiary (Incorporated by reference to
the exhibit filed with the Registrant's
Annual Report on Form 10K for the fiscal Previously
year ended October 1, 1989)................ Filed
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Page No.
10.5 - Loan Agreement dated May 23, 1989
by and between Fountain Powerboats, Inc.
and MetLife Financial Acceptance
Corporation (Incorporated by reference to
the exhibit filed with the Registrant's
Annual Report on Form 10K for the fiscal Previously
year ended October 1, 1989)................ Filed
10.6 - Revolving Loan and Security Agreement,
dated May 23, 1989 by and between Fountain
Powerboats, Inc. and MetLife Financial
Acceptance Corporation (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K Previously
for the fiscal year ended October 1, 1989) Filed
10.7 - First modification of Loan Agreement dated
August 29, 1990 by and between Fountain
Powerboats, Inc. and MetLife Financial
Acceptance Corporation (Incorporated by
reference to the exhibit filed with the
Registrant's Annual Report on Form 10K Previously
for the fiscal year ended July 1, 1990).... Filed
10.8 - First Modification of Revolving Loan and
Security Agreement dated August 29, 1990
by and between Fountain Powerboats Inc.
and MetLife Financial Acceptance
Corporation (Incorporated by reference
to the exhibit filed with the Registrant's
Annual Report on Form 10-K for the fiscal Previously
year ended July 1, 1990)................... Filed
10.9 - Loan and Security Agreement with MetLife Previously
Capital Corporation dated December 31, 1993. Filed
10.10 - Consulting and Marketing Agreement with
the Mercury Marine division of the Previously
Brunswick Corporation dated March 22, 1991.. Filed
10.11 - Loan Extension and Amendment Agreement with
the Mercury Marine division of the Previously
Brunswick Corporation dated July 11, 1994.. Filed
10.12 - Amendment to Consulting and Marketing
Agreement with the Mercury Marine division
of the Brunswick Corporation dated Previously
July 11, 1994.............................. Filed
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Page No.
10.13 - Standstill Agreement with the Mercury Marine
division of the Brunswick Corporation dated Previously
July 11, 1994.............................. Filed
10.14 - Amendment No. One dated September 24, 1994
to Loan and Security Agreement of December Previously
31, 1993 with MetLife Capital Corporation.. Filed
10.15 - Consent to Loan Restructure dated January Previously
1, 1995 from MetLife Capital Corporation... Filed
10.16 - Amendment No. Two dated January 1, 1995
to Loan and Security Agreement of December Previously
31, 1993 with MetLife Capital Corporation... Filed
10.17 - Second Loan Extension, Consolidation and
Amendment Agreement dated February 24, 1995
with Brunswick Corporation, Mercury Marine Previously
Division.................................... Filed
10.18 - Modification of Deeds and Trust and Assign-
ment of Rents, Issues and Profits dated
February 24, 1995 with Brunswick Corporation, Previously
Mercury Marine Division..................... Filed
10.19 - Consulting and Marketing Agreement dated
February 24, 1995 with Brunswick Corporation, Previously
Mercury Marine Division..................... Filed
10.20 - Supply Agreement dated February 24, 1995
with Brunswick Corporation, Mercury Marine Previously
Division.................................... Filed
10.21 - Master Security Agreement dated December 21,
1995 with G. E. Capital Corporation......... 72 - 75
10.22 - Promissory Note dated December 21, 1995 with
G. E. Capital Corporation................... 76 - 77
10.23 - Collateral Schedule No. 001 dated December
21, 1995 with G. E. Capital Corporation..... 78 - 79
10.24 - Letter of Credit Agreement dated December 21,
1995 with G. E. Capital Corporation......... 80 - 81
21 - List of Subsidiaries....................... 82
(b) No Amendments on Form 8 or Current Reports on Form 8-K were filed by
the Registrant during the fiscal year ended June 30, 1996.
-69-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FOUNTAIN POWERBOAT INDUSTRIES, INC.
By: /s/ REGINALD M. FOUNTAIN, JR.
Reginald M. Fountain, Jr.
Chairman, President, and Chief
Executive Officer
Date: September 25, 1996
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ REGINALD M. FOUNTAIN, JR. September 25, 1996
Reginald M. Fountain, Jr.
Chairman, President, and Chief
Executive Officer
/s/ GARY D. GARBRECHT September 25, 1996
Gary D. Garbrecht
Director
/s/ GARY E. MAZZA, III September 25, 1996
Gary E. Mazza,III
Director
/s/ FEDERICO PIGNATELLI September 25, 1996
Federico Pignatelli
Director
/s/ MARK L. SPENCER September 25, 1996
Mark L. Spencer
Director
/s/ ALLAN L. KREHBIEL September 25, 1996
Allan L. Krehbiel
Vice President, Chief Financial
Officer, and Designated Principal
Accounting Officer
-70-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
UNDER THE SECURITIES ACT OF 1934
FOUNTAIN POWERBOAT INDUSTRIES, INC.
COMMISSION FILE NO. 0-14712
-71-
3000 (3/91)
MASTER SECURITY AGREEMENT
THIS MASTER SECURITY AGREEMENT, made as of DEC 21 1995 ("Agreement"), by
and between General Electric Capital Corporation, a New York corporation
with an address at 6100 Fairview Road Suite 1450, Charlotte, NC ("Secured
Party"), and Fountain Powerboats, Inc., a corporation organized and existing
under the laws of the State of North Carolina with its chief executive
offices located at Whichards Beach Road (P.O. Drawer 457), Washington, North
Carolina 27889("Debtor").
In consideration of the promises herein contained and of certain other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Debtor and Secured Party hereby agree as follows:
1. CREATION OF SECURITY INTEREST.
Debtor hereby gives, grants and assigns to Secured Party, its successors
and assigns forever, a security interest in and against any and all property
listed on any collateral schedule now or hereafter annexed hereto or made a
part hereof ("Collateral Schedule"), and in and against any and all
additions, attachments, accessories and accessions thereto, any and all
substitutions, replacements or exchanges therefor, and any and all insurance
and/or other proceeds thereof (all of the foregoing being hereinafter
individually and collectively referred to as the "Collateral"). Theforegoing
security interest is given to secure the payment and performance of any and
all debts, obligations and liabilities of any kind, nature or description
whatsoever (whether primary, secondary, direct, contingent, sole, joint or
several, or otherwise, and whether due or to become due) of Debtor to
Secured Party, now existing or hereafter arising,including but not limited
to the payment and performance of certain Promissory Notes from time to time
identified on any Collateral Schedule (collectively "Notes" and each a
"Note"), and any renewals, extensions and modifications of such debts,
obligations and liabilities (all of the foregoing being hereinafter referred
to as the "Indebtedness").
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.
Debtor hereby represents, warrants and covenants as of the date hereof
and as of the date of execution of each Collateral Schedule hereto that:
(a) Debtor is, and will remain, duly organized, existing and in good
standing under the laws of the State set forth in the first paragraph of
this Agreement, has its chief executive offices at the location set forth
in such paragraph, and is, and will remain, duly qualified and licensed in
every jurisdictionwherever necessary to carry on its business and operations:
(b) Debtor has adequate power and capacity to enter into, and to perform
its obligations, under this Agreement, each Note and any other documents
evidencing, or given in connection with, any of the Indebtedness (all of the
foregoing being hereinafter referred to as the "Debt Documents' );
(c) This Agreement and the other Debt Documents have been duly
authorized, executed and delivered by Debtor and constitute legal, valid and
binding agreements enforceable under all applicable laws in accordance with
their terms, except to the extent that the enforcement of remedies may be
limited under applicable bankruptcy and insolvency laws;
(d) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into
or performance by, Debtor of any of the Debt Documents, except such as may
have already been obtained;
(e) The entry into, and performance by, Debtor of the Debt Documents
will not (i) violate any of the organizational documents of Debtor or any
judgment, order, law or regulation applicable to Debtor, or (ii) result in
any breach of, constitute a default under, or result in the creation of any
lien, claim or encumbrance on any of Debtor's property (except for liens in
favor of Secured Party) pursuant to, any indenture mortgage, deed of trust,
bank loan, credit agreement, or other agreement or instrument to which
Debtor is a party;
(f) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or
affecting Debtor which could. in the aggregate, have a material adverse
effect on Debtor, its business or operations, or its ability to perform its
obligations under the Debt Documents;
(g) All financial statements delivered to Secured Party in connection
with the Indebtedness have been prepared in accordance with generally
accepted accounting principles, and since the date of the most recent
financial statement, there has been no material adverse change;
(h) The Collateral is not, and will not be, used by Debtor for personal,
family or household purposes;
(i) The Collateral is, and will remain, in good condition and repair and
Debtor will not be negligent in the care and use thereof;
(j) Debtor is, and will remain, the sole and lawful owner, and in
possession of, the Collateral, and has the sole right and lawful authority
to grant the security interest described in this Agreement; and
(k) The Collateral is, and will remain, free and clear of all liens,
claims and encumbrances of every kind, nature and description, except for
(i) liens in favor of Secured Party, (ii) liens for taxes not yet due or for
taxes being contested in good faith and which do not involve, in the
reasonable judgment of Secured Party, any risk of the sale, forfeiture or
loss of any of the Collateral, and (iii) inchoate materialmen's, mechanic's,
repairmen's and similar liens arising by operation of law in the normal
course of business for amounts which are not delinquent (all of such
permitted liens being hereinafter referred to as "Permitted Liens").
3. COLLATERAL. 4060713 001
(a Until the declaration of any default hereunder, Debtor shall remain
in possession of the Collateral; provided, however, that Secured Party shall
have the right to possess (i) any chattel paper or instrument that
constitutes a part of the Collateral, and (ii) any other Collateral which
because of its nature may require that Secured Party's security interest
therein be perfected by possession. Secured Party, its successors and
assigns, and their respective agent, shall have the right to examine and
inspect any of the Collateral at any time during normal business hours.
Upon any request from Secured Party, Debtor shall provide Secured Party with
notice of the then current location of the Collateral.
(b) Debtor shall (i) use the Collateral only in its trade or business,
(ii) maintain all of the Collateral in good condition and working order,
-72-
(iii) use and maintain the Collateral only in compliance with all applicable
laws, and (iv) keep all of the Collateral free and clear of all liens.
claims and encumbrances (except for Permitted Liens).
(c) Debtor shall not, without the prior written consent of Secured Party,
(i) part with possession of any of the Collateral (except to Secured Party
or for maintenance and repair), (ii) remove any of the Collateral from the
continental United States, or (iii) sell, rent, lease, mortgage, grant a
security interest in or otherwise transfer or encumber (except for Permitted
Liens) any of the Collateral.
(d) Debtor shall pay promptly when due all taxes, license fees,
assessments and public and private charges levied or assessed on any of the
Collateral, on the use thereof. or on this Agreement or any of the other
Debt Documents. At its option, Secured Party may discharge taxes, liens,
security interests or other encumbrances at any time levied or placed on the
Collateral and may pay for the maintenance, insurance and preservation of
the Collateral or to effect compliance with the terms of this Agreement or
any of the other Debt Documents. Debtor shall reimburse Secured Party, on
demand, for any and all costs and expenses incurred by Secured Party in
connection therewith and agrees that such reimbursement obligation shall be
secured hereby.
(e) Debtor shall, at all times, keep accurate and complete records of
the Collateral, and Secured Party, its successors and assigns, and their
respective agents. shall have the right to examine, inspect, and make
extracts from all of Debtor's books and records relating to the Collateral
at any time during normal business hours.
(f) If agreed by the parties, Secured Party may. but shall in no event
be obligated to, accept substitutions and exchanges of property for property,
and additions to the property, constituting all or any part of the
Collateral. Such substitutions, exchanges and additions shall be
accomplished at any time and from time to time, by the substitution of a
revised Collateral Schedule for the Collateral Schedule now or hereafter
annexed. Any property which may be substituted, exchanged or added as
aforesaid shall constitute a portion of the Collateral and shall be subject
to the security interest granted herein. Additions to, reductions or
exchanges of, or substitutions for, the Collateral, payments on account of
any obligation or liability secured hereby, increases in the obligations
and liabilities secured hereby, or the creation of additional obligations
and liabilities secured hereby, may from time to time be made or occur
without affecting the provisions of this Agreement or the provisions of any
obligation or liability which this Agreement secures.
(g) Any third person at any time and from time to time holding all or
any portion of the Collateral shall be deemed to, and shall, hold the
Collateral as the agent of, and as pledge holder for, Secured Party. At any
time and from time to time, Secured Party may give notice to any third
person holding all or any portion of the Collateral that such third person
is holding the Collateral as the agent of, and as pledge holder for, the
Secured Party.
4. INSURANCE.
The Collateral shall at all times be held at Debtor's risk, and Debtor
shall keep it insured against loss or damage by fire and extended coverage
perils, theft, burglary. and for any or all Collateral which are vehicles,
for risk of loss by collision, and where requested by Secured Party, against
other risks as required thereby, for the full replacement value thereof,
with companies, in amounts and under policies acceptable to Secured Party.
Debtor shall, if Secured Party so requires, deliver to Secured Party
policies or certificates of insurance evidencing such coverage. Each policy
shall name Secured Party as loss payee thereunder, shall provide for coverage
to Secured Party regardless of the breach by Debtor of any warranty or
representation made therein, shall not be subject to co-insurance, and shall
provide for thirty (30) days written notice to Secured Party of the
cancellation or material modification thereof. Debtor hereby appoints
Secured Party as its attorney in fact to make proof of loss, claim for
insurance and adjustments with insurers, and to execute or endorse all
documents, checks or drafts in connection with payments made as a result of
any such insurance policies. Proceeds of insurance shall be applied, at the
option of Secured Party, to repair or replace the Collateral or to reduce
any of the Indebtedness secured hereby.
5. REPORTS. 4060713 001
(a) Debtor shall Promptly notify Secured Party in the event of(i) any
change in the name of Debtor, (ii) any relocation of its chief executive
offices, (iii) any relocation of any of the Collateral, (iv) any of the
Collateral being lost, stolen, missing, destroyed, materially damaged or
worn out, or (v) any lien, claim or encumbrance attaching or being made
against any of the Collateral other than Permitted Liens.
(b) Debtor agrees to furnish its annual financial statements and such
interim statements as Secured Party may require in form satisfactory to
Secured Party. Any and all financial statements submitted and to be
submitted to Secured Party have and will have been prepared on a basis of
generally accepted accounting principles, and are and will be complete and
correct and fairly present Debtor's financial condition as at the date
thereof. Secured Party may at any reasonable time examine the books and
records of Debtor and make copies thereof.
6. FURTHER ASSURANCES.
(a) Debtor shall, upon request of Secured Party, furnish to Secured
Party such further information, execute and deliver to Secured Party such
documents and instruments (including, without limitation, Uniform Commercial
Code financing statements) and do such other acts and things, as Secured
Party may at any time reasonably request relating to the perfection or
protection of the security interest created by this Agreement or for tile
purpose of carrying out the intent of this Agreement. Without limiting the
foregoing, Debtor shall cooperate and do all acts deemed necessary or
advisable by Secured Party to continue in Secured Party a perfected first
security interest in the Collateral, and shall obtain and furnish to Secured
Party any subordinations, releases, landlord, lessor, or mortgagee waivers,
and similar documents as may be from time to time requested by, and which
are in form and substance satisfactory to, Secured Party.
(b) Debtor hereby grants to Secured Party the power to sign Debtor's
name and generally to act on behalf of Debtor to execute and file
applications for title, transfers of title, financing statements, notices of
lien and other documents pertaining to any or all of the Collateral. Debtor
shall, if any certificate of tide be required or permitted by law for any of
the Collateral, obtain such certificate showing the lien hereof with respect
to the Collateral and promptly deliver same to Secured Party.
(c) Debtor shall indemnify and defend the Secured Party, its successors
and assigns, and their respective directors. officers and employees, from
and against any and all claims, actions and suits (including, without
limitation, related attorneys' fees) of any kind, nature or description
whatsoever arising, directly or indirectly, in connection with any of the
Collateral.
7. EVENTS OF DEFAULT.
Debtor shall be in default under this Agreement and each of the other
Debt Documents upon the occurrence of any of the following "Event(s) of
Default":
(a) Debtor fails to pay any installment or other amount due or coming
due under any of the Debt Documents within ten (10)d ays after its due, datc;
-73-
(b) Any attempt by Debtor, without the prior written consent of Secured
Party, to sell, rent, lease, mortgage, grant a security interest in, or
otherwise transfer or encumber (except for Permitted Liens) any of the
Collateral;
(c) Debtor fails to procure. or maintain in effect at all times, any of
the insurance on the Collateral in accordance with Section 4 of this
Agreement;
(d) Debtor breaches any of its other obligations under any of the Debt
Documents and fails to cure the same within thirty (30) days after written
notice thereof;
(e) Any warranty. representation or statement made by Debtor in any of
the Debt Documents or otherwise in connection with any of the Indebtedness
shall be false or misleading in any material respect;
(f) Any of the Collateral being subjected to, or being threatened with,
attachment, execution, levy, seizure or confiscation in any legal proceeding
or otherwise;
(g) Any default by Debtor under any other agreement between Debtor and
Secured Party;
(h) Any dissolution, termination of existence. merger, consolidation,
change in controlling ownership, insolvency, or business failure of Debtor
orany guarantor or other obligor for any of the Indebtedness (collectively
"Guarantor"), or if Debtor or any Guarantor is a natural person, any death
or incompetency of Debtor or such Guarantor;
(i) The appointment of a receiver for all or of any part of the property
of Debtor or any Guarantor, or any assignment for the benefit of creditors
by Debtor or any Guarantor; or
(j) The filing of a petition by Debtor or any Guarantor under any
bankruptcy. insolvency or similar law. or the filing of any such petition
against Debtor or any Guarantor if the same is not dismissed within thirty
(30) days of such filing.
8. REMEDIES ON DEFAULT.
(a) Upon the occurrence of an Event of Default under this Agreement, the
Secured Party, at its option. may declare any or all of the Indebtedness,
including without limitation the Notes, to be immediately due and payable,
without demand or notice to Debtor or any Guarantor. The obligations and
liabilities accelerated thereby shall bear interest (both before and after
any judgment) until paid in full at the lower of eighteen percent (18%) per
annum or the maximum rate not prohibited by applicable law.
(b) Upon such declaration of default, Secured Party shall have all of
the rights and remedies of a Secured Party under the Uniform Commercial Code,
and under any other applicable law. Without limiting the foregoing, Secured
Party shall have the right to (i) notify any account debtor of Debtor or any
obligor on any instrument which constitutes pan of the Collateral to make
payment to the Secured Party, (ii) with or without legal process, enter any
premises where the Collateral may be and take possession and/or remove said
Collateral from said premises, (iii) sell the Collateral at public or
private sale, in whole or in part, and have the right to bid and purchase at
said sale, and/or (iv) lease or otherwise dispose of all or part of the
Collateral, applying proceeds therefrom to the obligations then in default.
If requested by Secured Party, Debtor shall promptly assemble the Collateral
and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties. Secured Party
may also render any or all of the Collateral unusable at the Debtor's
premises and may dispose of such Collateral on such premises without
liability for rent or costs. Any notice which Secured Party is required to
give to Debtor under the Uniform Commercial Code of the time and place of
any public sale or the time after which any private sale or other intended
disposition of the Collateral is to be made shall be deemed to constitute
reasonable notice if such notice given to the last known address of Debtor
at least five (5) days prior to such action.
4060713 001
(c) Proceeds from any sale or lease or other disposition shall be
applied: first. to all costs of repossession, storage, and disposition
including without limitation attorneys', appraisers', and auctioneers' fees;
second, to discharge the obligations then in default; third, to discharge
any other Indebtedness of Debtor to Secured Party, whether as obligor,
endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in
paying or settling liens and claims against the Collateral; and lastly, to
Debtor, if there exists any surplus. Debtor shall remain fully liable for
any deficiency.
(d) In the event this Agreement, any Note or any other Debt Documents
are placed in the hands of an attorney for collection of money due or to
become due or to obtain performance of any provision hereof. Debtor agrees
to pay all reasonable attorneys' fees incurred by Secured Party, and further
agrees that payment of such fees is secured hereunder. Debtor and Secured
Party agree that such fees to the extent not in excess of twenty percent
(20%) of subject amount owing after default (if permitted by law, or such
lesser sum as may otherwise be permitted by law) shall be deemed reasonable.
(e) Secured Party's rights and remedies hereunder or otherwise arising
are cumulative and may be exercised singularly or concurrently. Neither the
failure nor any delay on the part of the Secured Party to exercise any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege preclude any
other or further exercise thereof or the exercise of any other right, power
or privilege. Secured Party shall not be deemed to have waived any of its
rights hereunder or under any other agreement, instrument or paper signed by
Debtor unless such waiver be in writing and signed by Secured Party. A
waiver on any one occasion shall not be construed as a bar to or waiver of
any right or remedy on any future occasion.
(f) DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE
INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY
RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED
TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
DEBTOR AND SECURED PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
(INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO T-HIS AGREEMENT. ANY OTHER DEBT DOCUMENTS,
OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY
RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9. MISCELLANEOUS.
-74-
(a) This Agreement, any Note and/or any of the other Debt Documents may
be assigned, in whole or in part, by Secured Party without notice to Debtor,
and Debtor hereby waives any defense, counterclaim or cross-complaint by
Debtor against any assignee, agreeing that Secured Party shall be solely
responsible therefor.
(b) All notices to be given in connection with this Agreement shall be
in writing, shall be addressed to the parties at their respective addresses
set forth hereinabove (unless and until a different address may be specified
in a written notice to the other party), and shall be deemed given (i) on
the date of receipt if delivered in hand or by facsimile transmission,
(ii) on the next business day after being sent by express mail, and (iii) on
the fourth business day after being sent by regular, registered or certified
mail. As used herein, the term 'business day' shall mean and include any
day other than Saturdays, Sundays, or other days on which commercial banks
in New York, New York are required or authorized to be closed.
(c) Secured Party may correct patent errors herein and fill in all blanks
herein or in any Collateral Schedule consistent with the agreement of the
parties.
(d) Time is of the essence hereof. This Agreement shall be binding,
jointly and severally, upon all parties described as the "Debtor" and their
respective heirs, executors, representatives, successors and assigns, and
shall inure to the of Secured Parry, its successors and assigns.
(e) This Agreement and its Collateral Schedules constitute the entire
agreement between the parties with respect to the subject matter hereof and
supercede all prior understandings (whether written, verbal or implied) with
respect thereto. This Agreement and its Collateral Schedules shall not be
changed or terminated only or by course of conduct, but only by a writing
signed by both parties hereto. Section headings contained in this Agreement
have been included for convenience only, and shall not affect the
construction or interpretation hereof.
(f) This Agreement shall continue in full force and effect until all of
the Indebtedness has been indefensibly paid in full to Secured Party. The
surrender, upon payment or otherwise, of any Note or any of the other
documents evidencing any of the Indebtedness shall not affect the right
of Secured Party to retain the Collateral for such other Indebtedness as
may then exist or as it may be reasonably contemplated will exist in the
future. This Agreement shall automatically be reinstated in the event that
Secured Party is ever required to return or restore the payment of all or
any portion of the Indebtedness (all as though such payment had never been
made).
IN WITNESS WHEREOF, Debtor and Secured Parry, intending to be legally bound
hereby, have duty executed this Agreement in one or more counterparts, each
of which shall be deemed to be an original, as of the day and year first
aforesaid.
SECURED PARTY: DEBTOR:
General Electric Capital Fountain Powerboats,
Corporation Inc.
By: Amanda White By: R.M. Fountain, Jr.
Title: Regional Credit Analyst Title: Chairman, CEO, COO, President
4060?73 001
-75-
3400 FR/ME (7/92)
PROMISSORY NOTE
DEC 21 1995
__________________________
(Date)
Whichards Beach Road, (P.O. Drawer 457), Washington, Beaufort
County, North Carolina 27889
_________________________________________________________________
_______________________
(Address of Maker)
FOR VALUE RECEIVED. Fountain Powerboats, Inc. ("Maker") promises,
jointly and severally if more than one, to pay to the order of General
Electric Capital Corporation or any subsequent holder hereof (each, a
"Payee") at its office located at 6100 Fairview Road Suite 1450, Charlotte,
NC 28210 or at such other place as Payee or the holder hereof may designate,
the principal sum of Six hundred thousand and 00/100 Dollars ($600,000.00),
with interest thereon, from the date hereof through and including the dates
of payment, at a fixed interest rate of nine and zero hundredths percent
(9.00 %) per annum, to be paid in lawful money of the United States, in
forty-one (41) consecutive monthly installments of principal and interest of
Sixteen thousand seven hundred six and 71/100 Dollars ($16,706.71) each
("Periodic installment") and a final installment which shall be in the
amount of the total outstanding principal and interest. The first
Periodic Installment shall be due and payable on February 1, 1996 and the
following Periodic Installments and the final installment shall be due and
payable on the same day of each succeeding month (each, a "Payment Date").
Such installments have been calculated on the basis of a 360 day year of
twelve 30-day months. Each payment may, at the option of the Payee, be
calculated and applied on an assumption that such payment would be made on
its due datc.
The acceptance by Payee of any payment which is less than payment in full of
all amounts due and owing at such time shall not constitute a waiver of
Payee's right to receive payment in full at such time or at any prior or
subsequent time.
The Maker hereby expressly authorizes the Payee to insert the date value is
actually given in the blank space on the face hereof and on all related
documents pertaining hereto.
This Note may be secured by a security agreement, chattel mortgage, pledge
agreement or like instrument (each of which is hereinafter called a
"Security Agreement.")
Time is of the essence hereof. If any installment or any other sum due
under this Note or any Security Agreement is not received within fifteen
(15) days after its due date, the Maker agrees to pay, in addition to the
amount of each such installment or other sum, a late payment charge of four
percent (4%) of the amount of said installment or other sum, but not
exceeding any lawful maximum. If (i) Maker fails to make payment of any
amount due hereunder within ten (10) days after the same becomes due and
payable; or (ii) Maker is in default under, or fails to perform under any
term or condition contained in any Security Agreement, then the entire
principal sum remaining unpaid, together with all accrued interest thereon
and any other sum payable under this Note or any Security Agreement, at the
election of Payee, shall immediately become due and payable, with interest
thereon at the lesser of eighteen percent (18%) per annum or the highest
rate not prohibited by applicable law from the date of such accelerated
maturity until paid (both before and after any judgment).
The Maker may prepay in full, but not in part, its entire indebtedness
hereunder upon payment of an additional sum as a premium equal to the
following percentages of the original principal balance for the indicated
period:
Prior to the first annual anniversary date of this Note: two percent (2%)
Thereafter and prior to the second annual anniversary
date of this Note: one percent (1%)
Thereafter and prior to the third annual anniversary date
of this Note: one percent (1%)
Thereafter and prior to the fourth annual anniversary
date of this Note: one percent (1%)
Thereafter and prior to the fifth annual anniversary
date of this Note: zero percent (O%)
and zero percent (O%) thereafter, plus all other sums due hereunder or
under any Security Agreement.
4060713 001
It is the intention of the parties hereto to comply with the applicable
usury laws; accordingly, it is agreed that, notwithstanding any provision to
the contrary in this Note or any Security Agreement, in no event shall this
Note or any Security Agreement require the payment or permit the
collection of interest in excess of the maximum amount permitted by
applicable law. If any such excess interest is contracted for, charged or
received under this Note or any Security Agreement, or if all of the
principal balance shall be prepaid, so that under any of such circumstances
the amount of interest contracted for, charged or received under this Note
or any Security Agreement on the principal balance shall exceed the maximum
amount of interest permitted by applicable law, then in such event (a) the
provisions of this paragraph shall govern and control, (b) neither Maker
nor any other person or entity now or hereafter liable for the payment
hereof shall be obligated o pay the amount of such interest to the extent
that it is in excess of the maximum amount of interest permitted by
applicable law, (c) any such excess which may have been collected shall be
either applied as a credit against the then unpaid principal balance or
refunded to Maker, at the option of the Payee, and (d) the effective rate
of interest shall be automatically reduced to the maximum lawful contract
rate allowed under applicable law as now or hereafter construed by the
courts having jurisdiction thereof. It is further agreed that without
limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Note or any Security
Agreement which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of the
indebtedness evidenced hereby, all interest at any time contracted for,
charged or received from Maker or otherwise by Payee in connection with such
indebtedness; provided, however, that if any applicable state law is amended
or the law of the United States of America preempts any applicable state
law, so that it becomes lawful for the Payee to receive a greater interest
per annum rate than is presently allowed, the Maker agrees that, on the
effective date of such amendment or preemption, as the case may be, the
lawful maximum hereunder shall be increased to the maximum interest per
annum rate allowed by the amended state law or the law of the United States
of America.
The Maker and all sureties, endorsers, guarantors or any others (each such
person, other than the Maker, an "Obligor") who may at any time become
liable for the payment hereof jointly and severally consent hereby to any
and all extensions of time, renewals, waivers or modifications of, and all
substitutions or releases of, security or of any party primarily or
secondarily liable on this Note or any Security Agreement or any term and
provision of either, which may be made, granted or consented to by Payee,
and agree that suit may be brought and maintained against any one or more of
them, at the election of Payee without joined of any other as a party
thereto, and that Payee shall not be required first to foreclose, proceed
against, or exhaust any security hereof in order to enforce payment of this
Note. The Maker and each Obligor hereby waives presentment, demand for
payment, notice of nonpayment, protest. notice of protest, notice of
dishonor, and all other notices in connection herewith, as well as filing of
suit (if permitted by law) and diligence in collecting this Note or
enforcing any of the security hereof, and agrees to pay (if permitted by law)
all expenses incurred in collection, including Payee's actual attorneys'
fees. Maker and each Obligor agrees that fees not in excess of twenty
percent (20%) of the amount then due shall be deemed reasonable.
-76-
THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS NOTE, ANY OF THE RELATEDDOCUMENTS, ANY DEALINGS BETWEEN:
MAKER AND PAYEE RELATING TO THE SUBJECT OF THIS TRANSACTION OR ANY RELATED
TRANSACTIONS, AND/OR T., [E RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
(INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS
IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, AN, RELATED DOCUMENTS, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED
TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
This Note and any Security Agreement constitute the entire agreement of the
Maker and Payee with respect to the subject matter hereof and supercedes all
prior understandings, agreements and representations. express or implied.
No Variation or modification of this Note, or any waiver of any of its
provisions or conditions, shall be valid unless in writing and signed by an
authorized representative of Maker and Payee. Any such waiver, consent,
modification or change shall be effective only in the specific instance and
for the specific purpose given.
Any provision, in this Note or any Security Agreement which is in conflict
with any statute, law or applicable rule shall be deemed omitted, modified
or altered to conform thereto.
Fountain Powerboats, Inc.
By: R.M. FOUNTAIN, Jr.
GERALD R. WHITHELD
(Witness) (Signature)
GERALD R. WHITHELD R.M. FOUNTAIN , Jr.
(Print Name) Print name (and title, if applicable)
4601 SIX FOCKS RD. 56-1277497
(Address) RALEIGH, NC 27609 (Federal tax identification
number)
4060713 001
-77-
(5/91)
COLLATERAL SCHEDULE NO. 001
THIS COLLATERAL SCHEDULE NO. 001 is annexed to and made a part of that
certain Master Security Agreement dated as of DEC 21 1995 between General
Electric Capital Corporation as Secured Party and Fountain Powerboats, Inc.
as Debtor and describes collateral in which Debtor has granted Secured Party
a security interest in connection with the Indebtedness (as defined in the
Security Agreement) including without limitation that certain Promissory
Note dated DEC 21 1995 in the original principal amount of $600,000.00.
Description Year/Model Serial Number Location
Fountain Asset # 27' Fever Sport Boat: Washington, NC
721 27' II Fixture Molds
845 27' Vent Mold
857 27' Proto Dev
1088 27' SB Dash Mold
1096 27' SB Dash Mold/Plug
1106 27' Hull mold
1237 MLD.MA. 27' SB Hull 2
1283 27' SB Deck Splash
1322 27' SB Deck Splash
1397 Pos. Lift 27' SB
32' Fever Sport Boat:
1093 Mold Maint/32SB Hull
1100 27'/32' Dash Mld/Plg
1142 29'/32' SB Eng. Vent
1178 Mold Maint/32' SB DK
1390 Mold Maint/32' SB
1401 Pos. Lift 32' SB
35' Lightning Sport Boat:
722 33' Radar Arch Mold
730 27 II Footbox Mold
736 27 SB Deck & Hull
740 33LB Dec & Hull
741 33SB Deck & Hull
1077 35' Fuel Fill Mold
1099 35' Eng. Hatch Plug
1162 Mold Maint/35' Deck
1203 35' L Deck & Mold
1380 Mold Maint. 35' S.B.
1391 Mold Maint. 35' S.B.
1392 Mold Maint. 35' S.B.
1402 Pos. Lift 35' S.B.
38' Sport Boat and Sport Cruiser:
742 36 Radar Arch
743 36 Windscreen Brkt
744 36 Deck Mold
745 36SB Deck & Hull
746 36SB Mold Foot Boxes
754 36 Radar Arch Modifi
837 38C Deck Splashes
841 33SC Deck Prep
876 38' Radar Arch Tool
877 38' S.C. Patterns
891 38' S.C. Deck Mold
893 38' S.B. Venturi Mold
1008 38' S.C. Side Store
1104 38' SB Eng. hatch Mld.
1164 Mold Maint/38' SC HL
1179 Mold Maint/38' SC HL
1236 MLD.MA 38' Deck #2
1240 MLD. MA 38' SC Deck
1246 38' SC Windshld Mold
1268 38' SC Eng. Vent
1300 38' SC Step Insert
1371 38' SC Step Insert
1393 Mold Maint. 38' S.B.
1394 Mold Maint. 38' S.B.
1403 Pos. lift 38' S.B.
-78-
1404 38' S.C. Deck & Liner
1455 38' S.C. Tooling
1479 38' Lightning Deck
37' Fishboats (All Models)
725 31 Liner Plug
739 31SF Deck & Hull
838 31SF Hull
840 31SF LNR Strge Bx
846 31SF Seat Box Doors
847 31SF Lnr. Strg Bx Mo
875 31' Cuddy Splash Plug
902 31' Cuddy Splash Plug
931 31' Cuddy Int. Pattrn
933 31; Cuddy Liner Mold
934 31' Cuddy Liner Plug
947 31' 32' S.F. Liner/Deck/Pl
948 31' S.F. Cab. Deck Mold
949 31' S.F. Cab. Deck Plug
951 31' S.F. Cab. Linr Plug
964 31' S.F. Cab. Design RT
975 31' S.F. Cuddy Design
976 31' S.F. Cuddy Molds
998 31' S.F. Cuddy Design
1009 31' S.F. Cuddy Parts
1010 31' S.F. Cuddy Store
1024 31' S.F. Cuddy Deck Mold
1025 31' S.F. Cuddy I/B Dk Mld
1140 31' S.F. Cuddy I/B Dk Plg
1141 31' I/B Liner Plug
1152 32' Deck & Liner Mld.
1195 32' Cuddy I/B Dk Mld
1196 31' I/B Liner Mold
1199 31' SF Fuel Tank Lid
1202 Modify 32' Liner MLD
1238 MLD.MA. 31' SF Liner
1239 MLD.MA 31' SF Deck
1244 31' SF Eng. Box Mld
1247 31' SF Livewell Mold
1265 32' I/O S.F.C. Plug
1269 31' S.F. Livewell
1271 35' S.B. Deck Splash
1284 31' SF Livewell
1299 31' SF Livewell Mold
1325 31' SF Livewell Mold
1326 31' SF Eng. Box Lid
1346 Mold Maint. 31' S.F.
1351 31' C.C. Open Bow Mold
SECURED PARTY: DEBTOR:
General Electric Capital Fountain Powerboats,
Corporation Inc.
By: AMANDA WHITE By: R.M. FOUNTAIN, Jr.
Title: Region Credit Analyst Title: Chairman, CEO, COO, President
Date: DEC 21 1995 Date: DEC 21 1995
4060713 001
-79-
LETTER OF CREDIT AGREEMENT
THIS LETTER OF CREDIT AGREEMENT, date DEC 21 1995 ("Agreement") between
Fountain Powerboats, Inc. a organized and existing under the laws of
the State of NC ("Debtor), and General Electric Capital Corporation, a
New York corporation ("Secured Party").
RECITALS,:
WHEREAS,Debtor desires to borrow from Secured Party the principal sum
of $200,000.00 US Dollars (US $200,000.00 ) to be evidenced by a promissory
note of even date herewith (said note, as the same may bc from time to time
extended, amendcd, restated or otherwise modified, being hereinafter
referred to as the "Note") and secured by a security intcrest in, or lien
on, certain equipment or othcr collateral (collectively, "Equipment")
pursuant to a security agreement or chattel mortgage of even date herewith
(said agreement or mortgage, as the same may be from time to time cxtended,
amendcd, restated or otherwise modificd, being hereinafter referred to as
the "Security Agreement"); and
WHEREAS, Secured Party is unwilling to enter into the aforesaid loan
transaction unless and until Debtor provides Secured Party with certain
additional assurances in the form of a letter of credit as hereinafter
described,
NOW, THEREFORE, in consideration of the above premises and promises herein
contained. and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree as follows:
1. Concurrently with the execution or this Agreement, Debtor shall, at
its sole cost and expense and as additional security for the prompt payment
and performance of all of its obligations (whether now existing or hereafter
arising) under the Note and the Security Agreement, deliver or cause to be
delivered to Secured Party an irrevocable standby letter of credit ("Letter
or Credit") which shall be (i) in the amount of $ 200,000. 00 US Dollars
(US $200,000.00), (ii) issued by a bank which is acceptable to Secured
Party in its sole discretion, (iii) substantially in the form of Exhibit A
attached hereto (or in such other form as may be acceptable to Secured Party
in its sole discretion), and (iv) for an initial term of one year with
automatic annual renewals thereafter (without amendment except for extension
of the then current expiry date by an additional year) until Debtor has
received written notice from Secured Party to the effect that the Letter of
Credit is being released in its entirety. After all of Debtor's obligations
under the Note and the Security Agreement have been indefeasibly paid and
performed in full, Secured Party shall, upon the request of Debtor, release
the Letter of Credit and provide Debtor with a written notice to that effect.
If requested by Secured Party, the Letter of Credit shall, at Debtor's sole
cost and expense, be accompanied by an opinion of counsel regarding its due
authorization, execution, and enforceability (which opinion shall be in
form and substance, and from counsel, acceptable to Secured Party in its
sole discretion).
2. Debtor shall be in default under this Agreement, the Note and the
Security Agreement if for any reason whatsoever: (a) Secured Party fails
to receive the Letter of Credit in the time and mariner required herein;
(b) the Letter of Credit is not automatically renewed as required in Section
I hereof at least thirty days prior to the expiry of such Letter of Credit;
(c) Secured Party receives any notice to the effect that the Letter of
credit will not be automatically renewed as required herein; or (d) Debtor
otherwise breaches any or its obligations hereunder or (e) Issuer fails to
comply with any other terms, agreements or conditions of any Letter of
Credit. The foregoing events of default are in addition to, not in lieu of,
those set forth in the Note and the Security Agreement.
3. Upon the occurrence of any default under this Agreement, the Note or
the Security Agreement, or upon the filing of any petition by or against
Debtor under any bankruptcy, insolvency or similar laws, then in any such
event and at any time thereafter Secured Party shall have the right, with
or without notice to or demand upon Debtor, to draw upon the Letter of
Credit, by presenting to the issuer one or more sight drafts and any other
necessary documents, and to receive (in a lump sum or in several sums from
time to time at the sole discretion of the Secured Party) and retain an
amount not to exceed, in the aggregate, that available under the Letter of
Credit.
4. If Secured Party draws on the Letter of Credit, the proceeds
received by Secured Party therefrom shall be applied: first, towards costs
and expenses (including, without limitation, reasonable attorneys' fees and
disbursements) incurred by Secured Party in connection with such draw or in
otherwise enforcing its rights and remedies hereunder; second, towards any
principal, interest or other sums of any kind then due and unpaid by Debtor
under the Note and the Security Agreement and third, towards the principal
balance and any other sums of any kind outstanding under the Note and the
Security Agreement in the inverse order of maturity. Once all obligations
of Debtor under the Note and the Security Agreement have been, indefeasibly
paid and performed in full, any remaining excess proceeds from the Letter of
Credit shall be remitted by Secured Party to Debtor. In any event, Debtor
shall remain liable for any deficiency on the Note or the Security Agreement.
5. Secured Party's rights and remedies under this Agreement (including,
without limitation, the right to draw upon the Letter of Credit), the Note,
the Security Agreement or otherwise are cumulative and may be exercised
singularly or concurrently. Neither any failure nor delay on the part of
Secured Party to draw upon the Letter of Credit or to exercise any other
rights or remedies shall operate as a waiver thereof, nor shall any single
or partial exercise of any right or remedy preclude any other or further
exercise thereof or of any other right or remedy howsoever arising. Under
no circumstances shall Secured Party be deemed or construed to have waived
its fight to draw upon the Letter of Credit or to exercise any of its other
rights or remedies unless such waiver is in writing and executed by a duly
authorized representative of Secured Party. A waiver of any right or remedy
on any one occasion shall not operate as a waiver of such right or remedy on
any future occasion or as a waiver of any other right or remedy.
6. DEBTOR AND SECURED PARTY HEREBY UNCONDITIONALLY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR IN CONNECTION WITH, DIRECTLY OR INDIRECTLY. THIS
AGREEMENT, THE LETTER OF CREDIT, ANY DOCUMENTS RELATING HERETO OR THERETO,
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER HEREOF OR THEREOF,
AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN THEM. THE SCOPE
OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES
THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AN,) ALL OTHER COMMON LAW AND
STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE
LETTER OF CREDIT, OR ANY DOCUMENTS RELATING HERETO OR THERETO. IN THE EVENT
OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO TRIAL BY
THE COURT.
7. Any notices to be given in connection herewith shall be delivered
in the manner contemplated by the Security Agreement. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and supersedes all prior understandings (whether written,
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verbal, implied or otherwise) with respect thereto. None of the terms
hereof may be amended, waived or otherwise modified except pursuant to a
written instrument duly executed by, the party to be charged. Secured Party
may assign its rights hereunder at any time, but Debtor may not do so
without the prior written consent of Secured Party. This Agreement shall
be binding upon, and shall inure to the benefit of, Secured Party, Debtor,
and their respective successors and permitted assigns.
IN WHEREOF, Debtor and Secured Party have caused their duty authorized
representatives to execute and deliver this Agreement on the year and day
first above written.
DEBTOR: SECURED PARTY:
Fountain Powerboats, Inc. General Electric Capital
Corporation
By: R.M. FOUNTAIN, Jr. By: AMANDA WHITE
Title: Chairman, CEO, COO, President Title: Region Credit Analyst
Date: DEC 21 1995 Date: DEC 21 1995
4060?73 001
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Exhibit 21
FOUNTAIN POWERBOAT INDUSTRIES, INC.
SUBSIDIARY
PERCENTAGE OF VOTING SECURITIES OWNED
NAME
OWNED ADDRESS INCORPORATION
Fountain Powerboats, Inc. Washington, NC North Carolina
100%
FOUNTAIN POWERBOATS, INC.
SUBSIDIARIES
Fountain Aviation, Inc. Washington, NC North Carolina
100%
Fountain Fashions, Inc. Washington, NC North Carolina
100%
Fountain Unlimited, Inc. Washington, NC North Carolina
100%
Fountain Power, Inc. Washington, NC North Carolina
100%
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