-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W0BhFV+Z66z/BI9sk/DmlPtbaq1XuODt1FQa8SZOCUt9BAhOZyunumFQbRxRsyHb 3LOnxqYjXZkC3SmLQVjMgA== 0000950124-00-001529.txt : 20000327 0000950124-00-001529.hdr.sgml : 20000327 ACCESSION NUMBER: 0000950124-00-001529 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLARIS INDUSTRIES INC/MN CENTRAL INDEX KEY: 0000931015 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS TRANSPORTATION EQUIPMENT [3790] IRS NUMBER: 411790959 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11411 FILM NUMBER: 578057 BUSINESS ADDRESS: STREET 1: 1225 HIGHWAY 169 N CITY: MINNEAPOLIS STATE: MN ZIP: 55441 BUSINESS PHONE: 6125420500 MAIL ADDRESS: STREET 1: 1225 HIGHWAY 169 N STREET 2: 425 LEXINGTON AVE CITY: MINNESOTA STATE: MN ZIP: 55441 10-K 1 FORM 10-K 1 ================================================================================ - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999, OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-11411
POLARIS INDUSTRIES INC. (Exact name of registrant as specified in its charter) MINNESOTA 41-1790959 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 2100 HIGHWAY 55, MEDINA, MN 55340 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 763-542-0500 Securities registered pursuant to Section 12(g) of the Act: None
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $.01 par value New York Stock Exchange Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None 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. Yes X 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 Common Stock of the registrant as of March 10, 2000 (based upon the closing reported sale price of the Common Stock at that date on the New York Stock Exchange) held by non-affiliates (22,165,731 shares) was approximately $656,659,780. APPLICABLE ONLY TO CORPORATE REGISTRANTS: Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. As of March 10, 2000, 24,115,666 shares of Common Stock of the registrant were outstanding. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the Registrant's Annual Report to Shareholders for the year ended December 31, 1999 furnished to the Securities and Exchange Commission (the "1999 Annual Report") are incorporated by reference into Parts II and III of this Form 10-K. 2. Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held May 18, 2000 filed with the Securities and Exchange Commission (the "2000 Proxy Statement") are incorporated by reference into Part III of this Form 10-K. - -------------------------------------------------------------------------------- ================================================================================ 2 PART I ITEM 1. DESCRIPTION OF BUSINESS Polaris Industries Inc. (the "Company"), a Minnesota corporation, was formed in 1994 for the purpose of merging (the "Merger") a subsidiary of the Company into Polaris Industries Partners L.P., a Delaware limited partnership (the "Partnership") and merging Polaris Industries L.P., a Delaware limited partnership, into the Partnership. The Merger took place on December 22, 1994. Upon consummation of the Merger, each unit of Beneficial Assignment of Class A Limited Partnership Interests of the Partnership was exchanged for one share of common stock, $.01 par value of the Company. On December 31, 1996, the Partnership was merged with and into Polaris Industries Inc., a Delaware corporation (the "Operating Subsidiary"). The Company owns 100% of the Operating Subsidiary. The term "Polaris" as used herein refers to the business and operations of the Operating Subsidiary and its predecessors, Polaris Industries Partners L.P. and Polaris Industries L.P. Polaris designs, engineers and manufactures all terrain vehicles ("ATVs"), snowmobiles, motorcycles and personal watercraft ("PWC") and markets them, together with related replacement parts, garments and accessories ("PG&A") through dealers and distributors principally located in the United States, Canada and Europe. Sales of ATVs, snowmobiles, motorcycles and PWC in North America and International sales (each of which includes PG&A for these markets) accounted for the following approximate percentages of Polaris' sales for the periods indicated.
YEAR ENDED DECEMBER 31 ATVS SNOWMOBILES MOTORCYCLES PWC INTERNATIONAL ---------------------- ---- ----------- ----------- --- ------------- 1999.......................................... 59% 28% 4% 4% 5% 1998.......................................... 57% 32% 1% 4% 6% 1997.......................................... 45% 42% N/A 7% 6%
INDUSTRY BACKGROUND All Terrain Vehicles. ATVs are four-wheel vehicles with balloon style tires designed for off road use and traversing rough terrain, swamps and marshland. ATVs are used for recreation, in such sports as fishing and hunting, as well as for utility purposes on farms, ranches and construction sites. ATVs were introduced to the North American market in 1971 by Honda. Other Japanese motorcycle manufacturers, Yamaha, Kawasaki and Suzuki entered the North American market in the late 1970s and early 1980s. Polaris entered the ATV market in 1985, Arctic Cat entered in 1995 and Bombardier entered in 1998. In 1985, the number of three- and four-wheel ATVs sold in North America peaked at approximately 650,000 units per year, then dropped dramatically to a low of 148,000 in 1989. Polaris estimates that the industry grew 25% with approximately 650,000 ATVs sold worldwide during the calendar year 1999. Snowmobiles. In the early 1950s, a predecessor to Polaris produced a "gas powered sled" which became the forerunner of the Polaris snowmobile. Snowmobiles have been manufactured under the Polaris name since 1954. Originally conceived as a utility vehicle for northern, rural environments, the snowmobile gained popularity as a recreational vehicle. From the mid-1950s through the late 1960s, over 100 producers entered the snowmobile market and snowmobile sales reached a peak of approximately 495,000 units in 1971. The Polaris product survived the industry decline in which snowmobile sales fell to a low point of approximately 87,000 units in 1983 and the number of snowmobile manufacturers serving the North American market declined to four: Yamaha, Bombardier, Arctic Cat and Polaris. Polaris estimates industry sales of snowmobiles on a worldwide basis were approximately 233,000 units for the season ended March 31, 1999. Motorcycles. Heavyweight motorcycles are over the road vehicles utilized as a mode of transportation as well as for recreational purposes. There are four segments: cruisers, touring, sport bikes, and standards. Polaris entered the worldwide motorcycle market in 1998 with an initial entry product in the cruiser segment. U.S. retail cruiser sales more than doubled from 1993 to 1999. Polaris estimates the cruiser market 3 grew 21% in 1999 with approximately 184,000 cruiser motorcycles sold in the U.S. market. Other major cruiser motorcycle manufacturers include Harley Davidson, Honda, Yamaha, Kawasaki and Suzuki. Personal Watercraft. PWC are sit-down versions of water scooter vehicles, and designed for use on lakes, rivers, oceans and bays. PWC are used primarily for recreational purposes and are designed for one, two, three or four passengers. Polaris entered the PWC market in 1992. After many years of rapid growth, the number of PWC sold peaked at approximately 225,000 units in 1996. Polaris estimates worldwide industry retail sales for PWC were approximately 134,000 units for the season ended September 30, 1999. Other major PWC manufacturers are Bombardier, Yamaha, and Kawasaki. PRODUCTS All Terrain Vehicles. Polaris entered the ATV market in the spring of 1985 with both three-wheel and four-wheel products. Polaris currently produces four-wheel ATVs, which provide more stability for the rider than the earlier three-wheel versions. Polaris' line of ATVs consisting of seventeen models includes general purpose, sport and four-wheel drive utility models, with 2000 suggested retail prices ranging from approximately $3,000 to $7,600. In addition, Polaris has a six-wheel off-road utility vehicle, a diesel ATV and the Polaris RANGER, a six-wheel off-road side by side utility and recreational vehicle. Polaris also markets a full line of ATV accessories such as winches, mowers, blades, cargo racks, utility trailers, sprayers, seeders, tires, oils, lubricants and parts. Most of Polaris' ATVs feature the totally automatic Polaris variable transmission, which requires no manual shifting, and a MacPherson strut front suspension, which enhances control and stability. Polaris' ATVs include two cycle and four cycle engines and both shaft and concentric chain drive. In 1999, Polaris introduced its first manual transmission ATV models. Prior to 1989, the ATV industry experienced some reduced demand arising from publicity surrounding safety-related and environmental concerns. However, management believes this market has stabilized since 1989 and has sustained consistent growth. For the year ended December 31, 1999, North American sales of ATVs and related PG&A accounted for approximately 59% of Polaris' sales. Snowmobiles. Polaris produces a full line of snowmobiles, consisting of twenty-nine models, ranging from utility and economy models to performance and competition models. The 2000 model year suggested United States retail prices range from approximately $1,900 to $7,900. Polaris snowmobiles are sold principally in the United States, Canada and Europe. Polaris believes it is the worldwide market share leader. Polaris believes its snowmobiles have a long-standing reputation for quality, dependability and performance. Polaris believes that it and its predecessors were the first to develop several features for commercial use in snowmobiles, including independent front suspension, variable transmission, hydraulic disc brakes, liquid cooled engines and brakes and a three cylinder engine. Polaris also markets a full line of snowmobile accessories, such as luggage, covers, tow hitches, hand warmers, specialized instrumentation, reverse gear, electric start, special traction products, cargo racks, oils, lubricants, and parts. In 1999, Polaris introduced its first children's sled, the 120 XCR. For the year ended December 31, 1999, North American sales of snowmobiles and related PG&A accounted for approximately 28% of Polaris' sales. Motorcycles. In 1998, Polaris began manufacturing an American-made V-twin cruiser motorcycle, the "Victory V92C." Design and assembly of the engine is performed in Polaris' Osceola, Wisconsin facility and final assembly is completed at Polaris' Spirit Lake, Iowa facility. The two facilities provide sufficient capacity to handle the first few years production of Victory motorcycles. In 1999, Polaris introduced its second model, a sport cruiser, the Victory V92SC. The 2000 Victory motorcycle suggested United States retail prices range from approximately $13,400 to $14,400. 2 4 For the year ended December 31, 1999, sales of Victory motorcycles and related PG&A accounted for approximately 4% of Polaris' sales. Personal Watercraft. In 1992, Polaris introduced the SL650 personal watercraft, Polaris' first entry into this product category. Polaris' 2000 line of PWC consists of eight models across the touring, performance and racing segments. Management believes that its models had the industry's first three-cylinder engines developed specifically for PWC and that its models were the first to comply with EPA 2006 requirements. The 2000 suggested retail prices for Polaris' PWC range from approximately $6,000 to $9,500. For the year ended December 31, 1999, North American sales of PWC and related PG&A accounted for approximately 4% of Polaris' sales. International. Polaris sales to customers outside of North America include snowmobiles, ATVs, PWC, and related PG&A. Polaris currently markets its products through 51 distributors in 109 countries. This is a growth opportunity for Polaris in the future from a market share perspective for existing product lines as well as the planned introduction of Victory motorcycles to selected international markets in 2000 and additional international markets over the next several years. For the year ended December 31, 1999, International sales accounted for 5% of Polaris' sales. Parts, Garments and Accessories. Polaris produces or supplies a variety of replacement parts and accessories for its snowmobiles, ATVs, motorcycles and PWC. Polaris also markets a full line of recreational clothing, which includes suits, helmets, gloves, boots, hats, sweaters and jackets for its snowmobile, ATV, motorcycle and PWC lines. The clothing is designed to Polaris' specifications, purchased from independent vendors and sold by Polaris through its dealers and distributors under the Polaris brand name. Polaris markets replacement parts and accessories. In addition, Polaris has entered into licensing agreements for products such as go-carts, mini-bikes, video games, die cast toys and vending machines. MANUFACTURING OPERATIONS Polaris' products are assembled at its original manufacturing facility in Roseau, Minnesota and at its facility in Spirit Lake, Iowa. Since snowmobiles, ATVs, motorcycles and PWC incorporate similar technology, substantially the same equipment and personnel are employed in their production. Polaris is vertically integrated in several key components of its manufacturing process, including machining, stamping, welding, clutch assembly and balancing, painting, cutting and sewing, and manufacture of foam seats. Fuel tanks, hulls, tracks, tires and instruments, and certain other component parts are purchased from third party vendors. Polaris manufactures a number of other components for its snowmobiles, ATVs, motorcycles, and PWC. Raw materials or standard parts are readily available from multiple sources for the components manufactured by Polaris. Polaris' work force is familiar with the use, operation and maintenance of the product, since many employees own snowmobiles, ATVs, motorcycles and PWC. In 1991, Polaris acquired a manufacturing facility in Osceola, Wisconsin to manufacture component parts previously produced by third party suppliers. In 1998, Victory motorcycle production began at Polaris' Spirit Lake, Iowa facility. The production includes welding, finish painting, and final assembly. Certain operations, including engine assembly, seat manufacturing, and the bending of frame tubes are conducted at the Osceola, Wisconsin facility. In 1998, Polaris completed construction of a 58,000 square foot plastic injection molding facility adjacent to the Roseau, Minnesota facility. This is a vertical integration project for Polaris in the manufacture of snowmobile hoods and certain large plastic molded parts on ATVs. Pursuant to informal agreements between Polaris and Fuji Heavy Industries Ltd. ("Fuji"), Fuji had been the exclusive manufacturer of Polaris' two-cycle snowmobile engines since 1968. Fuji has manufactured engines for Polaris' ATV products since their introduction in the spring of 1985 and also supplies engines for certain of Polaris PWC products. Fuji develops such engines to the specific requirements of Polaris. Polaris believes its relationship with Fuji to be excellent. If, however, Fuji terminated its informal relationship, interruption in the supply of engines would adversely affect Polaris' production pending the continued development of substitute supply arrangements. 3 5 Since 1995, Polaris has been designing and producing its own engines for selected models of PWC, snowmobiles and all Victory motorcycles. Polaris purchased a 90,000 square foot building adjacent to the Osceola facility to house the manufacturing of these Polaris designed and built domestic engines. In addition, in 1995, Polaris entered into an agreement with Fuji to form Robin Manufacturing, U.S.A. ("Robin"). Under the agreement, Polaris made an investment for a 40% ownership position in Robin, which builds engines in the United States for recreational and industrial products. Potential advantages to Polaris of these additional sources of engines include reduced foreign exchange risk, lower shipping costs and less dependence in the future on a single supplier for engines. Polaris anticipates no significant difficulties in obtaining substitute supply arrangements for other raw materials or components for which it relies upon limited sources of supply. A contract carrier ships Polaris' products from its manufacturing facilities. PRODUCTION SCHEDULING Polaris' products are produced and delivered throughout the year. Orders for ATVs are placed often throughout the year. Delivery of snowmobiles to consumers begins in autumn and continues during the winter season. Orders for each year's production of snowmobiles are placed in the spring. Orders for PWC are placed in autumn after meetings with dealers and distributors. Units are built to order each year. In addition, non-refundable deposits made by consumers to dealers in the spring for snowmobiles assist in production planning. The budgeted volume of units to be produced each year is substantially sold to dealers and distributors prior to production. Retail sales activity at the dealer level is monitored by Polaris for each of snowmobiles, ATVs, motorcycles and PWC and incorporated into production scheduling. In 1999, Polaris began a dealer inventory replenishment program for Victory motorcycle dealers, where rather than take firm annual orders from the dealers, Polaris continually restocks the dealer inventory upon the completion of a retail sale to the consumer. Manufacture of snowmobiles commences in the spring and continues through late autumn or early winter. Polaris manufactures PWC during the fall, winter and spring months. Since 1993, Polaris has had the ability to manufacture ATVs year round. Motorcycle manufacturing began in July 1998 and continues year round. SALES AND MARKETING Polaris products are sold through a network of over 2,000 dealers in North America and 51 distributors in 109 countries. With the exception of Illinois, upper Michigan and eastern Wisconsin, where Polaris sells its snowmobiles through an independent distributor, Polaris sells its snowmobiles directly to dealers in the snowbelt regions of the United States and Canada. Snowmobile sales in Europe and other offshore markets are handled through independent distributors. See Note 1 of Notes to Consolidated Financial Statements for discussion of international operations. Many dealers and distributors of Polaris snowmobiles also distribute Polaris' ATVs and PWC. At the end of 1998, approximately 700 dealerships were located in areas of the United States where snowmobiles are not regularly sold. Unlike its primary competitors, which market their ATV products principally through their affiliated motorcycle dealers, Polaris also sells its ATVs and PWC through lawn and garden, boat and marine, and farm implement dealers. During 1999, Polaris acquired its distributor in Australia and New Zealand and now distributes its products in those countries through its wholly owned subsidiary. Victory motorcycles are distributed direct through authorized Victory dealers. Polaris has a high quality dealer network in North America for its other product lines from which most of the current 300 Victory dealers were selected. Polaris expects to develop a Victory dealer network of approximately 500 to 600 dealers over the next three to four years. 4 6 Dealers and distributors sell Polaris' products under contractual arrangements pursuant to which the dealer or distributor is authorized to market specified products, required to carry certain replacement parts and perform certain warranty and other services. Changes in dealers and distributors take place from time to time. Polaris believes a sufficient number of qualified dealers and distributors exist in all areas to permit orderly transition whenever necessary. In 1996, Polaris entered into a partnership agreement with Transamerica Distribution Finance ("TDF") to form Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris' dealers and distributors. In 1999, Polaris Acceptance began providing other financial services to dealers, distributors and retail customers such as retail financing and extended service contracts. Under the partnership agreement, Polaris has a 50% equity interest in Polaris Acceptance and guarantees 50% of the outstanding indebtedness of Polaris Acceptance under a credit agreement between Polaris Acceptance and TDF. At December 31, 1999, Polaris' contingent liability with respect to the guarantee was approximately $170.0 million. In February 2000, the term of the partnership agreement was extended; in consideration thereof, the Polaris guarantee of the outstanding indebtedness of Polaris Acceptance was eliminated. Polaris has arrangements with Polaris Acceptance, TDF, and GE Commercial Corporation (Australia), to provide floor plan financing for its dealers and distributors. Substantially all of Polaris' North American sales of snowmobiles, ATVs, PWC and motorcycles are financed under arrangements in which Polaris is paid within a few days of shipment of its product. Polaris participates in the cost of dealer and distributor financing and is required to repurchase products from the finance companies under certain circumstances and subject to certain limitations. Polaris has not historically recorded a sales return allowance because it has not been required to repurchase a significant number of units. However, there can be no assurance that this will continue to be the case. If necessary, Polaris will record a sales return allowance at the time of sale should management anticipate material repurchases of units financed through the finance companies. See Notes 1 and 3 of Notes to Consolidated Financial Statements. Polaris has historically not directly financed the purchase of its products by consumers. In 1999, Polaris made consumer financing available through its Polaris Acceptance joint venture. Polaris is not obligated to repurchase products related to the retail financing programs but will share in the losses of the program through its 50% equity interest in Polaris Acceptance. Polaris' marketing activities are designed primarily to promote and communicate directly with consumers and secondarily to assist the selling and marketing efforts of its dealers and distributors. From time to time, Polaris makes available discount or rebate programs or other incentives for its dealers and distributors to remain price competitive in order to accelerate reduction of retail inventories. Polaris advertises its products directly using print advertising in the industry press and in user group publications, on billboards, and, less extensively, on television and radio. Polaris also provides media advertising and partially underwrites dealer and distributor media advertising to a degree and on terms which vary by product and from year to year. Polaris also co-sponsors a car on the NASCAR auto racing circuit. Each season, Polaris produces a promotional film for each of its products, which is available to dealers for use in the showroom or at special promotions. Polaris also provides product brochures, leaflets, posters, dealer signs, and miscellaneous other promotional items for use by dealers. ENGINEERING, RESEARCH AND DEVELOPMENT, AND NEW PRODUCT INTRODUCTION Polaris employs approximately 330 persons who are engaged in the development and testing of existing products and research and development of new products and improved production techniques. Polaris believes the Company and its predecessors were the first to develop, for commercial use, independent front end suspension for snowmobiles, long travel rear suspension for snowmobiles, direct drive of the snowmobile track, the use of liquid cooling in snowmobile engines and brakes, the use of hydraulic brakes in snowmobiles, the three cylinder engine in snowmobiles and PWC, the adaptation of the MacPherson strut front suspension, "on demand" four-wheel drive systems and the Concentric Drive System for use in ATVs, the application of a forced air cooled variable power transmission system to ATVs, and the diesel fuel powered ATV. 5 7 Polaris utilizes internal combustion engine testing facilities to design and optimize engine configurations for its products. Polaris utilizes specialized facilities for matching engine, exhaust system and clutch performance parameters in its products to achieve desired fuel consumption, power output, noise level and other objectives. Polaris' engineering department is equipped to make small quantities of new product prototypes for testing by Polaris' testing teams and for the planning of manufacturing procedures. In addition, Polaris maintains numerous test facilities where each of the products is extensively tested under actual use conditions. Polaris expended for research and development approximately $31.3 million for 1999, $28.4 million for 1998, and $26.7 million for 1997. These amounts were included as a component of operating expenses in the period incurred. COMPETITION The snowmobile, ATV, motorcycle and PWC markets in the United States and Canada are highly competitive. Competition in such markets is based upon a number of factors, including price, quality, reliability, styling, product features and warranties. At the dealer level, competition is based on a number of factors including sales and marketing support programs (such as financing and cooperative advertising). Certain of Polaris' competitors are more diversified and have financial and marketing resources which are substantially greater than those of Polaris. Polaris products are competitively priced and management believes Polaris' sales and marketing support programs for dealers are comparable to those provided by its competitors. Polaris' products compete with many other recreational products for the discretionary spending of consumers, and, to a lesser extent, with other vehicles designed for utility applications. PRODUCT SAFETY AND REGULATION Snowmobiles, ATVs, motorcycles and PWC are motorized machines, which may be operated at high speeds and in a careless or reckless manner. Accidents involving property damage, personal injuries and deaths occur in the use of these products. Laws and regulations have been promulgated or are under consideration in a number of states relating to the use or manner of use of Polaris products. State approved trails and recreational areas for snowmobile and ATV use have been developed in response to environmental and safety concerns. Some states may pass legislation and local ordinances or regulations have been and may from time to time be considered which restrict the use of PWC to specified hours and locations. Polaris is unable to predict the outcome of such actions or the possible effect on its PWC business. Polaris has supported laws and regulations pertaining to safety and noise abatement. Polaris believes that its products would be no more adversely affected than those of its competitors by the adoption of any pending laws or regulations. Polaris continues to monitor these activities in conjunction with industry associations and supports balanced and appropriate programs that educate the customer on safe use of the product and how to protect the environment. In September 1986, the Consumer Product Safety Commission ("CPSC") ATV Task Force issued a report on regulatory options for ATVs with recommendations for ATV marketing activities and warning labels. In February 1987, the CPSC formally requested that the Justice Department initiate an enforcement action against the ATV industry seeking a voluntary recall of all three-wheel ATVs and four-wheel ATVs sold with the intention that they be used by children under 16, as well as a requirement that ATV purchasers receive "hands-on" training. Except for 1,700 three-wheel models initially produced, Polaris manufactures only four-wheel ATVs and six-wheel off-road vehicle products. Polaris has always placed warning labels on its ATVs stating that they are designed for use only by persons of a specified minimum age, operators should always wear approved safety helmets and riders should complete proper training prior to operating an ATV. On December 30, 1987, Polaris reached an agreement with the CPSC regarding ATV safety, which was confirmed in a ten-year Consent Decree in April 1988. In April 1998, the Consent Decree with the CPSC 6 8 expired. Polaris has filed with the CPSC a Voluntary Action Plan under which Polaris undertook to continue various activities including age recommendations, dealer monitoring for ascertaining dealer compliance with safety obligations including age recommendations and training requirements, warning labels, point of purchase materials, hands on training and an information education effort. Polaris conditions its ATV warranties described below under "Warranty" on completion of the mandatory "hands on" consumer training program. In December 1998, the CPSC issued a resolution commending Polaris and certain other industry members for their ATV Action Plans. The Company does not believe the Polaris Voluntary Action Plan will have a material adverse effect on Polaris. Nevertheless, there can be no assurance that future recommendations or regulatory actions by the CPSC, the Justice Department or individual states would not have an adverse effect on the Company. Polaris will continue to attempt to assure that its dealers are in compliance with their safety obligations. Polaris has notified its dealers that it will terminate or not renew any dealer it determines has violated such safety obligations. To date, it has terminated or not renewed at least eight dealers for such reasons. In May 1998, the National Transportation Safety Board ("NTSB") issued a report regarding PWC safety and made various recommendations. Prior to May 1998, Polaris was working with and continues to work with the Coast Guard to develop standards and to evaluate PWC safety matters, including the NTSB recommendations. Polaris PWC have always complied with industry standards relevant to PWCs. California has adopted regulations setting maximum emission standards for ATVs and the federal Environmental Protection Agency ("EPA") has indicated its intent to establish emission standards for non-road engines, including ATVs and snowmobiles. The EPA already has required PWC manufacturers to gradually reduce their emission by 75% between 1999 and 2006. For the State of California, the California Air Resources Board has accelerated this scheduled emission reduction by requiring that manufacturers meet the EPA 2006 level in 2001 and that manufacturers meet further emission reductions by 2004 and 2008. Conventional two-stroke cycle engines cannot meet these more restrictive emission requirements. In 1997, Polaris signed an agreement with Outboard Marine Corporation ("OMC") licensing the Ficht fuel injection technology. During 1998, Polaris began production of a new Genesis PWC model utilizing the Ficht technology which complies with the EPA 2006 emission requirements. This technology may be used in other Polaris vehicles to meet emission standards in the future, particularly in Polaris vehicles with two-cycle engines. Polaris is unable to predict the ultimate impact of the adopted or proposed regulations on Polaris and its operations. Victory motorcycles are subject to federal and state emissions, vehicle safety and other standards. Polaris believes that its motorcycles comply fully with all such applicable standards and related regulations. PRODUCT LIABILITY Polaris' product liability insurance limits and coverages had been adversely affected by the general decline in the availability of liability insurance. As a result of the high cost of premiums, and in view of the historically small amount of claims paid by Polaris, Polaris was self-insured from June 1985 to June 1996. In June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for incidents occurring subsequent to the policy date that exceeds its self-insured retention. Product liability claims are made against Polaris from time to time. Since its inception in 1981 through December 31, 1999, Polaris has paid an aggregate of approximately $4.8 million in product liability claims and accrued $7.0 million at December 31, 1999 for the defense and possible payment of pending claims. Polaris believes such accruals are adequate. Polaris does not believe the outcome of any pending product liability litigation will have a material adverse effect on the operations of Polaris. However, no assurance can be given that its historical claims record, which did not include ATVs prior to 1985, PWC prior to 1992, or motorcycles prior to 1998, will not change or that material product liability claims against Polaris will not be made in the future. Adverse determination of material product liability claims made against Polaris would have a material adverse effect on Polaris' financial condition. See Note 8 of Notes to Consolidated Financial Statements. 7 9 WARRANTY Polaris provides a limited warranty for ATVs for a period of six months and for its snowmobiles, motorcycles and PWC for a period of one year. Although Polaris employs quality control procedures, a product is sometimes distributed which needs repair or replacement. Historically, product recalls have been administered through Polaris' dealers and distributors and have not had a material effect on Polaris' business. EFFECTS OF WEATHER Lack of snowfall in any year in any particular region of the United States or Canada may adversely affect snowmobile retail sales in that region. Polaris seeks to minimize this potential effect by stressing pre-season sales (see "Production Scheduling") and shifting dealer inventories from one location to another. However, there is no assurance that weather conditions would not have a material effect on Polaris' sales of snowmobiles, ATVs, motorcycles or PWC. EMPLOYMENT Due to the seasonality of the Polaris business and certain changes in production cycles, total employment levels vary throughout the year. Despite such variations in employment levels, employee turnover has not been high. During 1999, Polaris employed an average of approximately 3,350 persons. Approximately 1,175 of its employees are salaried. Polaris considers its relations with its personnel to be excellent. Polaris' employees have not been represented by a union since July 1982. YEAR 2000 COMPLIANCE Polaris did not experience any significant business interruptions related to the Year 2000 compliance of its computer systems. The Company is continuing to monitor potential problems but does not expect any major impact during the year. The cost of the Year 2000 compliance initiatives of approximately $1.5 million, which were expensed as incurred, was not material to Polaris' financial position. ITEM 2. PROPERTIES Polaris owns its principal manufacturing facility in Roseau, Minnesota. The facility consists of approximately 509,000 square feet of manufacturing space located on approximately 100 acres. In 1991, Polaris acquired a 190,000 square foot plant situated on 38 acres and located in Osceola, Wisconsin to fabricate component parts. In 1995, Polaris purchased a 223,000 square foot assembly facility located on 24 acres of land in Spirit Lake, Iowa. Polaris currently uses the facility to assemble PWC, certain ATV models and Victory motorcycles. In 1995, Polaris also purchased a 90,000 square foot building adjacent to the Osceola facility to house the manufacturing of Polaris designed and built domestic engines. In 1998, Polaris built a 58,000 square foot plastic injection molding facility adjacent to the Roseau, Minnesota facility. This is a vertical integration project for Polaris in the manufacture of snowmobile hoods and certain large plastic molded parts on ATVs. Polaris makes ongoing capital investments in its facilities. These investments have increased production capacity for snowmobiles, ATVs, motorcycles and PWC. The Company believes Polaris' manufacturing facilities are adequate in size and suitability for its present manufacturing needs. In 1997, Polaris completed construction of a 250,000 square foot state of the art parts, garments and accessories distribution center on 50 acres in Vermillion, South Dakota. Polaris owns all tooling and machinery (including heavy presses, conventional and computer-controlled welding facilities for steel and aluminum, assembly lines, paint lines, and sewing lines) used in the manufacture of its products. Although Polaris holds numerous patents and uses various registered trademarks and names, it believes that the loss of any of them would not have a material effect on its business. In early 2000, Polaris completed construction of, and moved into, an owned 130,000 square foot headquarters building on 33 acres of land in the Minneapolis suburb of Medina. Polaris continues to lease 92,000 square feet of office and warehouse space in Minneapolis pursuant to a lease that will terminate in 2002. Polaris also leases 42,000 square feet of office and warehouse space in Winnipeg, Manitoba, and 10,000 8 10 square feet of warehouse space in Spirit Lake, Iowa. Polaris does not anticipate any difficulty in securing alternate facilities on competitive terms, if necessary, upon the termination of any of its leases. ITEM 3. LEGAL PROCEEDINGS Revenue Canada has assessed Polaris approximately $16.0 million in taxes, penalties and interest for the period January 1, 1992 through December 31, 1994 resulting from an income tax audit for the period. Revenue Canada has asserted that Polaris over charged its Canadian subsidiary for goods and services during the audit period primarily through improper intercompany transfer pricing policies. Polaris disagrees with the assessment and is vigorously contesting it. In addition to the aforementioned matter, Polaris is involved in a number of legal proceedings, none of which is expected to have a material effect on the financial condition or the business of Polaris. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the names of the executive officers of the Company as of March 8, 2000, their ages, titles, the year first appointed as an executive officer of the Company and employment for the past five years:
NAME AGE TITLE ---- --- ----- W. Hall Wendel, Jr. ................. 57 Chairman of the Board Thomas C. Tiller..................... 38 Chief Executive Officer and President Vice President -- Engineering and General Manager Charles A. Baxter.................... 52 Engines Jeffrey A. Bjorkman.................. 40 Vice President -- Manufacturing John B. Corness...................... 45 Vice President -- Human Resources Vice President -- Finance, Chief Financial Officer and Michael W. Malone.................... 41 Secretary Richard R. Pollick................... 60 Vice President -- International Thomas H. Ruschhaupt................. 51 Vice President -- Sales and Services Ed Skomoroh.......................... 62 Vice President -- Marketing
Executive officers of the Company are elected at the discretion of the Board of Directors with no fixed term. There are no family relationships between or among any of the executive officers or directors of the Company. Mr. Wendel has served as Chairman of the Board since the Company's formation in 1994 and was Chief Executive Officer of the Company until May 1999. Mr. Wendel was the Chief Executive Officer of Polaris Industries Capital Corporation ("PICC"), which was the managing general partner of Polaris Industries Associates L.P., which was the operating general partner of Polaris Industries L.P. from 1987 to December 1994. From 1981 to 1987, Mr. Wendel was Chief Executive Officer of a predecessor of Polaris, which was formed to purchase the snowmobile assets of the Polaris E-Z-GO Division of Textron Inc. Before that time, Mr. Wendel was President of the Polaris E-Z-GO Division for two years and prior thereto, held marketing positions as Vice President of Sales and Marketing and National Sales Manager since 1974. Mr. Tiller was named President and Chief Operating Officer of the Company in July 1998. In May 1999, Mr. Tiller was promoted to his present position of Chief Executive Officer of the Company. Prior to joining Polaris, Mr. Tiller was employed by General Electric Company in various management positions for fifteen years. Mr. Baxter has been Vice President -- Engineering of the Company since December 1994 and held that position with PICC or its predecessor since 1981. Prior thereto, since 1970, Mr. Baxter was employed as Director of Engineering of the Polaris E-Z-GO Division of Textron. 9 11 Mr. Bjorkman has been Vice President -- Manufacturing of the Company since January 1995, and prior thereto held positions of Plant Manager and Manufacturing Engineering Manager since July 1990. Prior to joining Polaris, Mr. Bjorkman was employed by General Motors Corporation in various management positions for nine years. Mr. Corness has been Vice President -- Human Resources of the Company since January 1999. Prior to joining Polaris, Mr. Corness was employed by General Electric Company in various human resource positions for nine years. Before that time, Mr. Corness held various human resource positions with Maple Leaf Foods and Transalta Utilities. Mr. Malone has been Vice President -- Finance, Chief Financial Officer and Secretary of the Company since January 1997. Mr. Malone was Vice President and Treasurer of the Company from December 1994 to January 1997 and was Chief Financial Officer and Treasurer of PICC from January 1993 to December 1994. Prior thereto and since 1986, he was Assistant Treasurer of PICC or its predecessor. Mr. Malone joined Polaris in 1984 after four years with Arthur Andersen LLP. Mr. Pollick has been Vice President -- International of the Company since September 1999. Prior to joining Polaris, Mr. Pollick was employed by The Toro Company in various management positions for nineteen years. Mr. Ruschhaupt has been Vice President -- Sales and Service of the Company since March 1998. Prior to joining Polaris, Mr. Ruschhaupt was employed by Goodyear Tire and Rubber Corporation in various management positions for twenty years. Mr. Skomoroh has been Vice President -- Marketing of the Company since February 1998. Mr. Skomoroh was Vice President -- Sales and Marketing of the Company from December 1994 and held that position with PICC since October 1988. Prior thereto he was Vice President, Polaris Canada and President, Secretary and Director of Polaris Industries Inc., an Ontario corporation and a wholly owned subsidiary of Polaris Industries Partners L.P. Mr. Skomoroh joined Polaris in 1982 as General Manager, Canada, and was prior thereto the General Manager of the Canadian operations of Arctic Enterprises, Inc. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information under the caption "Investor Information" included in the Company's 1999 Annual Report is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA The information under the caption "Selected Financial Data" included in the Company's 1999 Annual Report is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "Management's Discussion and Analysis" included in the Company's 1999 Annual Report is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The information under the caption "Management's Discussion and Analysis -- Inflation and Exchange Rates" and Note 1 to the financial statements of the Registrant, included in the Company's 1999 Annual Report, are incorporated herein by reference. 10 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following financial statements of the Registrant, included in the Company's 1999 Annual Report, are incorporated herein by reference: Consolidated Balance Sheets December 31, 1999 and 1998. Consolidated Statements of Operations Years Ended December 31, 1999, 1998, and 1997. Consolidated Statements of Shareholders' Equity Years Ended December 31, 1999, 1998, and 1997. Consolidated Statements of Cash Flows Years Ended December 31, 1999, 1998, and 1997. Notes to Consolidated Financial Statements. Report of Independent Public Accountants. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (a) Directors of the Registrant The information under the caption "Election of Directors -- Information Concerning Nominees and Directors" in the Company's 2000 Proxy Statement is incorporated herein by reference. (b) Executive Officers of the Registrant Information concerning Executive Officers of the Company is included in this Report after Item 4, under "Executive Officers of the Registrant." (c) Compliance with Section 16(a) of the Exchange Act The information under the caption "Section 16 Beneficial Ownership Reporting Compliance" in the Company's 2000 Proxy Statement is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information under the caption "Executive Compensation and Other Information" and "Election of Directors -- Directors' Remuneration" in the Company's 2000 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's 2000 Proxy Statement is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Election of Directors -- Certain Relationships and Related Transactions" in the Company's 2000 Proxy Statement is incorporated herein by reference. 11 13 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) Consolidated Financial Statements Information concerning financial statements of Polaris Industries Inc. included in the Company's 1999 Annual Report are incorporated by reference to this Report under Item 8 "Financial Statements and Supplementary Data". (2) Financial Statement Schedules All supplemental financial statement schedules have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto. (3) Exhibits The Exhibits to this Report are listed in the Exhibit Index on page 14. A copy of any of these Exhibits will be furnished at a reasonable cost to any person who was a shareholder of the Company as of March 20, 2000, upon receipt from any such person of a written request for any such exhibit. Such request should be sent to Polaris Industries Inc., 2100 Highway 55, Medina, Minnesota 55340, Attention: Investor Relations. (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended December 31, 1999. (c) Exhibits Included in Item 14(a)(3) above. 12 14 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, in the City of Minneapolis, State of Minnesota on March 24, 2000. POLARIS INDUSTRIES INC. By: /s/ W. HALL WENDEL, JR. ------------------------------------ W. Hall Wendel Jr. Chairman of the Board 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 in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ W. HALL WENDEL, JR. Chairman and Director March 24, 2000 - ------------------------------------------ W. Hall Wendel, Jr. /s/ THOMAS C. TILLER Chief Executive Officer and Director March 24, 2000 - ------------------------------------------ (Principal Executive Officer) Thomas C. Tiller /s/ MICHAEL W. MALONE Vice President Finance, Chief Financial March 24, 2000 - ------------------------------------------ Officer and Secretary (Principal Michael W. Malone Financial and Accounting Officer) * Director March 24, 2000 - ------------------------------------------ Andris A. Baltins * Director March 24, 2000 - ------------------------------------------ Raymond J. Biggs * Director March 24, 2000 - ------------------------------------------ Beverly F. Dolan * Director March 24, 2000 - ------------------------------------------ Robert S. Moe * Director March 24, 2000 - ------------------------------------------ Gregory R. Palen * Director March 24, 2000 - ------------------------------------------ Stephen G. Shank * Director March 24, 2000 - ------------------------------------------ Bruce A. Thomson *By: /s/ THOMAS C. TILLER March 24, 2000 ------------------------------------- (Thomas C. Tiller Attorney-in-Fact)
Thomas C. Tiller, pursuant to Powers of Attorney executed by each of the officers and directors listed above whose name is marked by an "*" and filed as an exhibit hereto, by signing his name hereto does hereby sign and execute this Report of Polaris Industries Inc. on behalf of each of such officers and directors in the capacities in which the names of each appear above. 13 15 POLARIS INDUSTRIES INC. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 31, 1999
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.(a) Articles of Incorporation of Polaris Industries Inc. ("the Company"), as amended, incorporated by reference to Exhibit 3(a) to the Company's Registration Statement on Form S-4 (No. 33-55769) (the "Form S-4"). (b) Bylaws of the Company, incorporated by reference to Exhibit 3(b) to the Form S-4. 4. Specimen Stock Certificate of the Company, incorporated by reference to Exhibit 4 to the Form S-4. 10.(a) Agreement for Deferred Compensation and Disability Income and Amendment No. 1 thereto with W. Hall Wendel, Jr. incorporated by reference to Exhibit 10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (b) [RESERVED] (c) Polaris 401(K) Retirement Savings Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on January 11, 2000 (No. 333-94451) (d) Polaris Industries Inc. Employee Stock Ownership Plan effective January 1, 1997 (as Amended and Restated Effective January 1, 1999) (e) Polaris Industries Inc. 1999 Broad Based Stock Option Plan incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 5, 1999 (No. 333-77765) (f) Management Bonus Plan, incorporated by reference to Exhibit 10(j) to the Form S-1. (g) Polaris Industries Inc. 1995 Stock Option Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 12, 1995 (No. 33-60157). (h) Polaris Industries Inc. Deferred Compensation Plan for Directors incorporated by reference to Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (i) Joint Venture Agreement between the Company and Transamerica Commercial Finance Corporation, now known as Transamerica Distribution Finance ("TDF") dated February 7, 1996 incorporated by reference to Exhibit 10(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (j) Manufacturer's Repurchase Agreement between the Company and Polaris Acceptance dated February 7, 1996 incorporated by reference to Exhibit 10(j) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (k) Credit Agreement by and between the Company and First Bank National Association and Bank of America Illinois and First Union National Bank of North Carolina, Dated May 8, 1995 incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q dated May 15, 1995. (l) Plymouth, Minnesota, Executive Office Lease, incorporated by reference to Exhibit 10(m) to the Form S-1 ("the Executive Office Lease"). (m) Shareholder Agreement with Fuji Heavy Industries LTD., incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994.
14 16
EXHIBIT NUMBER DESCRIPTION - ------- ----------- (n) Registration Rights Agreement between and among the Company, Victor K. Atkins, EIP I Inc., EIP Holdings Inc. and LB I Group Inc., incorporated by reference to Exhibit 10(1) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (o) Amended and Restated Polaris Industries Inc. 1996 Restricted Stock Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on June 7, 1996 (No. 333-05463). (p) Polaris Industries Inc. Employee Stock Purchase Plan, incorporated by reference to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on February 3, 1997 (No. 333-21007). (q) Form of Change of Control Agreement entered into with executive officers of Company incorporated by reference to Exhibit 10(q) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (r) Amendment to Executive Office Lease dated November 22, 1996 incorporated by reference to Exhibit 10(r) to the Company's Annual Report on Form 10-K for the year ended December 31, 1996. (s) Employment Agreement between the Company and Thomas Tiller incorporated by reference to Exhibit 10(s) to the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1998. (t) Fifth Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated August 24, 1998, incorporated by reference to Exhibit 10(t) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (u) Sixth Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated December 7, 1998, incorporated by reference to Exhibit 10(u) to the Company's Annual Report on Form 10-K for the year ended December 31, 1998. (v) Seventh Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated May 10, 1999. (w) Eighth Amendment to Credit Agreement by and between the Company and U.S. Bank National Association et al. Dated December 22, 1999. (x) First Amendment to Joint Venture Agreement between the Company and TDF dated June 30, 1999. (y) Second Amendment to Joint Venture Agreement between the Company and TDF dated February 24, 2000. 13. Portions of the Annual Report to Security Holders for the Year Ended December 31, 1999 included pursuant to Note 2 to General Instruction G. 21. Subsidiaries of Registrant. 23. Consent of Arthur Andersen LLP. 24. Power of Attorney. 27.(a) Financial Data Schedule.
15 EX-10.(D) 2 EMPLOYEE STOCK OWNERSHIP PLAN 1 EXHIBIT 10(d) POLARIS INDUSTRIES INC. EMPLOYEE STOCK OWNERSHIP PLAN EFFECTIVE JANUARY 1, 1997 (as Amended and Restated Effective January 1, 1999) 2 TABLE OF CONTENTS
ARTICLE I.........................................................................................................1 INTRODUCTION......................................................................................................1 ARTICLE II........................................................................................................1 DEFINITIONS.......................................................................................................1 2.01 Account.............................................................................................1 2.02 Affiliated Company..................................................................................1 2.03 Anniversary Date....................................................................................2 2.04 Annual Addition.....................................................................................2 2.05 Beneficiary.........................................................................................2 2.06 Board of Directors..................................................................................2 2.07 Break in Continuous Service.........................................................................2 2.08 Capital Accumulation................................................................................2 2.09 Code................................................................................................2 2.10 Committee...........................................................................................2 2.11 Company.............................................................................................2 2.12 Company Stock.......................................................................................2 2.13 Company Stock Account...............................................................................2 2.14 Compensation........................................................................................3 2.15 Continuous Service..................................................................................3 2.16 Direct Rollover.....................................................................................3 2.17 Distributee.........................................................................................3 2.18 Election Period.....................................................................................3 2.19 Eligible Diversification Amount.....................................................................3 2.20 Eligible Retirement Plan............................................................................4 2.21 Eligible Rollover Distribution......................................................................4 2.22 Employee............................................................................................4 2.23 Employer............................................................................................4 2.24 Employer Contributions..............................................................................4 2.25 Employer Securities.................................................................................4 2.26 Enrollment Date.....................................................................................4 2.27 ERISA...............................................................................................5 2.28 Highly Compensated Employee.........................................................................5 2.29 Hour of Service.....................................................................................6 2.30 Loan................................................................................................6 2.31 Non-Highly Compensated Employee.....................................................................6 2.32 Other Investments Account...........................................................................7 2.33 Participant.........................................................................................7 2.34 Plan................................................................................................7
i 3 2.35 Plan Year...........................................................................................7 2.36 Qualified Participant...............................................................................7 2.37 Retirement..........................................................................................7 2.38 Section 414(s) Compensation.........................................................................7 2.39 Suspense Account....................................................................................7 2.40 Total Distribution..................................................................................7 2.41 Trust...............................................................................................7 2.42 Trust Agreement.....................................................................................8 2.43 Trust Assets........................................................................................8 2.44 Trustee.............................................................................................8 2.45 Year of Eligibility Service.........................................................................8 ARTICLE III.......................................................................................................8 ELIGIBILITY AND PARTICIPATION.....................................................................................8 3.01 Eligibility for Participation.......................................................................8 3.02 Reemployment of Participant.........................................................................9 ARTICLE IV........................................................................................................9 EMPLOYEE CONTRIBUTIONS............................................................................................9 ARTICLE V.........................................................................................................9 EMPLOYER CONTRIBUTIONS............................................................................................9 5.01 Employer Contributions..............................................................................9 ARTICLE VI.......................................................................................................10 INVESTMENT OF TRUST ASSETS.......................................................................................10 6.01 Investment of Trust Assets.........................................................................10 6.02 Diversification....................................................................................10 6.03 Exempt Loan........................................................................................11 ARTICLE VII......................................................................................................14 ALLOCATIONS......................................................................................................14 7.01 Allocations to Participants' Accounts..............................................................14 7.02 Allocable Shares...................................................................................15 7.03 Allocation Limitations.............................................................................15 7.04 Allocation of Net Income (or Loss) of the Trust....................................................16 7.05 Accounting for Allocations.........................................................................16 7.06 Nonallocation......................................................................................17 ARTICLE VIII.....................................................................................................17 EXPENSES OF THE PLAN AND TRUST...................................................................................17
ii 4 ARTICLE IX.......................................................................................................17 VOTING COMPANY STOCK AND EXERCISE OF OTHER RIGHTS................................................................17 9.01 Voting and Tender or Exchange Rights...............................................................17 ARTICLE X........................................................................................................21 CAPITAL ACCUMULATION.............................................................................................21 ARTICLE XI.......................................................................................................21 DISTRIBUTIONS....................................................................................................21 11.01 Time of Distribution to Participants..............................................................21 11.02 Benefit Forms for Participants....................................................................22 11.03 Benefit Form on a Participant's Death.............................................................22 11.04 Distribution in Company Stock.....................................................................22 11.05 Delay in Benefit Determination....................................................................23 11.06 Designated Beneficiaries..........................................................................23 11.07 Additional Distribution Requirements..............................................................23 11.08 Distributions Pursuant to Qualified Domestic Relations Orders.....................................24 ARTICLE XII......................................................................................................27 DETERMINATION OF SERVICE.........................................................................................27 12.01 Continuous Service................................................................................27 12.02 Break in Continuous Service.......................................................................28 12.03 Affiliated Companies..............................................................................29 ARTICLE XIII.....................................................................................................29 PLAN ADMINISTRATION..............................................................................................29 13.01 Named Fiduciaries.................................................................................29 13.02 Fiduciary Limitations.............................................................................29 13.03 Company Responsibilities..........................................................................29 13.04 Trustee Responsibilities..........................................................................30 13.05 Appointment of Committee..........................................................................30 13.06 Organization and Powers of the Committee..........................................................30 13.07 Indemnification...................................................................................31 ARTICLE XIV......................................................................................................32 AMENDMENT AND TERMINATION........................................................................................32 14.01 Company's Right to Amend..........................................................................32 14.02 Mandatory Amendments..............................................................................32 14.03 Termination.......................................................................................33 14.04 Employee Nonforfeitable Rights....................................................................33
iii 5 14.05 Distribution upon Termination.....................................................................33 ARTICLE XV.......................................................................................................33 GENERAL PROVISIONS...............................................................................................33 15.01 Participants'Rights...............................................................................33 15.02 Spendthrift Clause................................................................................34 15.03 Company's Liability...............................................................................34 15.04 Merger or Consolidation...........................................................................34 15.05 Governing Law.....................................................................................34 15.06 Legal Action......................................................................................34 15.07 Binding on All Parties............................................................................35 15.08 Headings..........................................................................................35 15.09 Severability of Provisions........................................................................35 15.10 Service of Process................................................................................35 15.11 USERRA............................................................................................35 15.12 Earned Income Limitation..........................................................................35 ARTICLE XVI......................................................................................................35 TOP-HEAVY COMPLIANCE PROVISIONS..................................................................................35 16.01 Purpose...........................................................................................35 16.02 Definitions.......................................................................................36 16.03 Determination of Whether Plan is "Top-Heavy.".....................................................37 16.04 Aggregation Group of Employer Plans...............................................................37 16.05 Special Minimum Contribution Becoming Operative in the Event the Plan Becomes "Top-Heavy".....................................................................................37 16.06 Pre-"Top-Heavy"Plan Terminated Participant........................................................38 16.07 Special "Top-Heavy"Reduction in Combined Benefit and Contribution Limitation..............................................................................................38 16.08 Termination of "Top-Heavy"Status..................................................................38 16.09 Multiple "Top-Heavy"Plans.........................................................................38 16.10 Effect of the Plan Becoming "Super Top-Heavy".....................................................38 ARTICLE XVII.....................................................................................................39 DIRECT ROLLOVER AND ELIGIBLE ROLLOVER DISTRIBUTIONS..............................................................39 17.01 Purpose...........................................................................................39 17.02 Definitions.......................................................................................39 ARTICLE XVIII....................................................................................................40 EXECUTION........................................................................................................40
iv 6 ARTICLE I INTRODUCTION The purposes of the Plan are to enable participating Employees to share in the growth and prosperity of the Company and to provide Participants with an opportunity to accumulate capital for their future economic security. Accordingly, Plan assets will be invested primarily in Employer Securities and up to one hundred (100) percent of the Plan assets may be invested in Company Stock. The Plan is intended to be a stock bonus plan qualified under Section 401(a) of the Code, which constitutes an employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code and Section 407(d)(6) of ERISA. All Trust Assets acquired under the Plan as a result of Employer Contributions and other additions to the Trust will be administered, distributed, and otherwise governed by the provisions of the Plan. All such assets will be held in the Trust by the Trustee in accordance with the provisions of the Trust Agreement. The Plan shall be administered by the Committee for the exclusive benefit of Participants and their Beneficiaries. ARTICLE II DEFINITIONS In the Plan, whenever the context so requires, the singular or plural and the masculine, feminine or neuter gender shall each be deemed to include the others; the terms "he," "his" and "him" shall refer to an Employee or a Participant; references to a section of the Code, the Treasury Regulations, the Labor Regulations or ERISA shall include any subsequent amendments to such section; and capitalized terms shall have the following meanings: 2.01 Account. One of the bookkeeping accounts maintained to record the allocated interest of each Participant in the Plan. Such Accounts shall include Company Stock Accounts and Other Investments Accounts. 2.02 Affiliated Company. Any corporation that is, along with the Company, a member of a controlled group of corporations (within the meaning of Section 414(b) of the Code) or any other trade or business (whether or not incorporated) which is under common control with the Company (as defined in Section 414(c) of the Code) or any member of an "affiliated service group" (as such term is defined in Section 414(m) of the Code) of which the Company is also a member or as may be provided in regulations under Section 414(o) of the Code. For purposes of Section 7.03, the preceding references to Sections 414(b) and 414(c) of the Code shall be modified by Section 415(h) of the Code. 2.03 Anniversary Date. The last day of each Plan Year and such interim dates as the Committee shall determine from time to time. 7 2.04 Annual Addition. For any Plan Year, the (a) Employer Contributions, if any, allocated to a Participant's Accounts under the Plan and (b) employer contributions and forfeitures allocated to a Participant's accounts under all other defined contribution plans maintained by the Company or an Affiliated Company. Notwithstanding the foregoing, if no more than one-third (1/3) of Employer Contributions for a Plan Year are allocated to the group of Highly Compensated Employees, Annual Additions shall not include Employer Contributions applied to the repayment of interest on a Loan of Employer Securities acquired with the proceeds of a Loan. 2.05 Beneficiary. The person (or persons) designated under Section 11.06 as entitled to receive any benefits under the Plan in the event of a Participant's death. 2.06 Board of Directors. The Board of Directors of the Company. 2.07 Break in Continuous Service. A Break in Continuous Service determined pursuant to Section 12.02. 2.08 Capital Accumulation. A Participant's vested (nonforfeitable) interest in his Accounts under the Plan as described in Article X. 2.09 Code. The Internal Revenue Code of 1986, as amended from time to time. 2.10 Committee. The Committee consisting of such persons appointed by the Board of Directors to administer the Plan and to give instructions to the Trustee. 2.11 Company. Polaris Industries Inc. and any corporation which shall be its successor. 2.12 Company Stock. Any qualifying employer security within the meaning of Section 407(d)(5) of ERISA and regulations thereunder including any share of stock, common or preferred, issued by the Company or an Affiliated Company. 2.13 Company Stock Account. An Account of a Participant which is credited with his allocable share of Company Stock purchased and paid for by the Trust or contributed or transferred to the Trust. 2.14 Compensation. The total amount of compensation that is paid by the Employer to an Employee for services rendered in the course of employment and that is includable in such Employee's gross income for the Plan Year to the extent provided by Treasury Regulation ss. 1.414(s)-1(c)(3) and Treasury Regulation ss. 1.414(s)-1(c)(4). Compensation shall include salary reduction contributions to a Cafeteria plan or cash or deferred 401(k) plan sponsored by an Employer. The maximum amount of Compensation that may be taken into account for any Plan Year shall not exceed $150,000 (or such greater amount as shall be provided pursuant to Section 401(a)(17) of the Code). 2 8 2.15 Continuous Service. Continuous Service determined pursuant to Article XII. 2.16 Direct Rollover. A payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 2.17 Distributee. An Employee or former Employee. In addition, the Employee's or former Employee's surviving spouse and the Employee's or former Employee's spouse or former spouse who is the Alternate Payee under a Qualified Domestic Relations Order, as such terms are defined in Section 414(p) of the Code and Section 11.08(c) of the Plan, are Distributees with regard to the interest of the spouse or former spouse. 2.18 Election Period. A Qualified Participant's Election Period shall be the six (6) Plan Year period beginning with the Plan Year in which the Participant attains age fifty-five (55); provided, however, that if the Participant has not completed ten (10) years of Plan participation by the Plan Year in which age fifty-five (55) is attained, the Election Period with respect to such Participant shall be the six (6) Plan Year period beginning with the Plan Year in which the Participant completes ten (10) years of Plan participation. 2.19 Eligible Diversification Amount. For any Plan Year during the Election Period of a Qualified Participant, that portion of the Qualified Participant's Accounts equal to the product of (a), (b), (c) and (d): (a) the number of shares of Company Stock allocated to such Qualified Participant's Accounts as of the Anniversary Date of the immediately preceding Plan Year; (b) plus the number of shares of Company Stock, if any, previously elected to be diversified pursuant to Section 6.02; (c) such sum multiplied by .25 or, in the case of the last year in such Qualified Participant's Election Period, .50; and (d) less the number of shares of Company Stock, if any, previously elected to be diversified pursuant to Section 6.02. 2.20 Eligible Retirement Plan. An individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code or a qualified trust described in Section 401(a) of the Code that accepts the Distributee's Eligible Rollover Distribution; provided, however, that in the case of an Eligible Rollover Distribution to a surviving spouse, an Eligible Retirement Plan only means an individual retirement plan or individual retirement annuity. 2.21 Eligible Rollover Distribution. Any distribution of all or any portion of the balance of a Participant's Accounts to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially 3 9 equal periodic payments (made not less frequently than annually) made for the life (or life expectancy) of such Distributee or the joint lives (or joint life expectancies) of such Distributee and such Distributee's designated Beneficiary or for a specified period of ten (10) years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includable in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to Employer Securities). 2.22 Employee. Any person who is employed by the Employer on an employer-employee basis. "Employee" shall also include any "leased employee" within the meaning of Section 414(n)(2) or 414(o)(2) of the Code, unless such leased employee is covered by a plan described in Section 414(n)(5) of the Code and all such leased employees do not constitute more than twenty (20) percent of the combined non-highly compensated workforce (within the meaning of Section 414(n)(5)(C)(ii) of the Code) of the Company and Affiliated Companies. 2.23 Employer. The Company or any Affiliated Company which has adopted the Plan and which has agreed to be bound by the terms of the Plan and Trust Agreement. Except where the context clearly provides otherwise, any reference in the Plan to the term "Company" shall also mean any Employer with respect to its Employees only, as though the term "Employer" was substituted for the term "Company." 2.24 Employer Contributions. Employer Contributions made to the Trust pursuant to Section 5.01. 2.25 Employer Securities. Shares of Company Stock which meet the requirements of Section 409(l) of the Code. 2.26 Enrollment Date. January 1 of the Plan Year. 2.27 ERISA. The Employee Retirement Income Security Act of 1974, as amended from time to time. 2.28 Highly Compensated Employee. (a) Effective for Plan Years beginning prior to January 1, 1997, any individual who with respect to a Plan Year: (1) was a five-percent owner (as defined by Section 416(i)(1) of the Code) at any time during such Plan Year or the preceding Plan Year; or (2) for the Plan Year preceding such Plan Year: (A) had Section 414(s) Compensation from the Company in excess of $80,000 (as such amount may be adjusted from time to time pursuant to Sections 414(q) and 415(d) of the Code), and 4 10 (B) to the extent elected by the Company with respect to such preceding Plan Year was in the top-paid group of Employees for such preceding Plan Year. For purposes of this Section 2.28, the "top-paid group of Employees" for a Plan Year shall be the group consisting of the top twenty percent of the Company's Employees when ranked on the basis of Section 414(s) Compensation paid during such Plan Year; provided, however, that the following Employees shall be excluded from the top-paid group of Employees: (i) Employees who have not completed six months of Continuous Service; (ii) Employees who normally work less than 17-1/2 hours per week; (iii) Employees who normally work during not more than six months during any Plan Year, (iv) Employees who have not attained age 21, and (v) except to the extent otherwise provided by regulations of the Secretary of the Treasury, Employees covered by a collective bargaining agreement between Employee representatives and the Employer, as determined by the Secretary of Labor. A former Employee shall be treated as a Highly Compensated Employee if (i) such Employee was a Highly Compensated Employee when such Employer separated from service or (ii) such Employee was a Highly Compensated Employee at any time after attaining age 55. For purposes of this Section 2.28, an Employee who is a nonresident alien and who receives no earned income (within the meaning of Code Section 911(d)(2)) from the Company which constitutes income from sources within the United States (within the meaning of Code Section 861(a)(3) shall not be treated as an Employee. (b) Effective for Plan Years beginning on or after January 1, 1997, "Highly Compensated Employee" means any Employee who (i) was a Five Percent Owner (as that term is defined in Section 416(i)(1) of the Code) at any time during the year or the preceding year, or (ii) for the preceding year, (A) had Compensation from the Employer in excess of $80,000 (or such other amount as may be in effect under Section 414(q) of the Code from time to time), and (ii) if the Employer elects for such preceding year, was in the Top-Paid Group of Employees. For purposes of this Section 2.28(b), the term "Top-Paid Group of Employees" means the group consisting of the top 20 percent of Employees when ranked on the basis of Compensation paid for such preceding year, but excluding (i) Employees who have not completed 6 months of service, (ii) Employees who normally work less than 17-1/2 hours per week, (iii) Employees who normally work during not more than six months during any year, (iv) Employees who have not attained age 21, and (v) except to the provided in Treasury Department Regulations, Employees who are included in a unit of Employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and the Employer. Solely for purposes of this Section 2.28(b), the term "Compensation" shall mean compensation within the meaning of Section 415(c)(3) of the Code, without regard to Sections 125, 402(e)(3) and 402(h)(1)(B) of the Code and, in the case of employer contributions made pursuant to a salary reduction agreement, without regard to Section 403(b) of the Code. A former Employee shall be treated as a Highly Compensated Employee if (i) such former Employee was a Highly Compensated Employee when such Employee separated from service, or 5 11 (ii) such Employee was a Highly Compensated Employee at any time after attaining age 55. Employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Code) from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Code) shall not be treated as Employees. 2.29 Hour of Service. Each hour for which an Employee is directly or indirectly compensated or entitled to compensation, by the Employer for the performance of duties during the applicable computation period, including hours for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by an Employer, and further including hours for which an Employee is either directly or indirectly compensated, or entitled to compensation, by the Employer, for reasons (such as vacation, sickness or disability) other than the performance of duties during the applicable computation period. Hours during which an Employee would have worked during an Employer-approved leave of absence shall also be credited. The method of determining the number of Hours of Service to be credited and the method of crediting such Hours to computation periods shall conform to the requirements set forth in Section 2530.200b-2(b) & (c) of the Department of Labor Regulations. 2.30 Loan. Any loan to the Trustee made or guaranteed by a disqualified person (within the meaning of Section 4975(e)(2) of the Code), including, but not limited to, a direct loan of cash, a purchase-money transaction, an assumption of an obligation of the Trustee, an unsecured guarantee or the use of assets of a disqualified person (within the meaning of Section 4975(e)(2) of the Code) as collateral for a loan. 2.31 Non-Highly Compensated Employee. Any eligible Employee who is not a Highly Compensated Employee. 2.32 Other Investments Account. An Account of a Participant which is credited with his share of the net income (or loss) of the Trust and Employer Contributions in other than Company Stock and which is debited with payments made to pay for Company Stock. 2.33 Participant. Any Employee who has met the eligibility requirements set forth in Article III and is participating in the Plan. 2.34 Plan. This Polaris Industries Inc. Employee Stock Ownership Plan, as hereafter amended from time to time. 2.35 Plan Year. The twelve (12) month period beginning on January 1 and ending on December 31. The Plan Year is also the limitation year for purposes of Section 415 of the Code. 2.36 Qualified Participant. Any Participant who has completed at least ten (10) years of Plan participation and attained age fifty-five (55). 2.37 Retirement. Termination of a Participant's employment with the Company or a subsidiary after he has attained age fifty-nine and one-half (59-1/2). 6 12 2.38 Section 414(s) Compensation. Compensation as described under Section 415(c)(3) of the Code and the regulations thereunder, including all amounts currently not included in an Employee's gross income by reason of Sections 125 and 402(a)(8) of the Code. Notwithstanding the foregoing, effective for limitation years beginning on or after January 1, 1998, the term "Section 415 Compensation" shall include (i) any elective deferral (as defined in Section 402(g)(3) of the Code), and (ii) any amount which is contributed or deferred by the Employer at the election of the Participant and which is not includible in the gross income of the Employee by reason of Section 125 or 457. 2.39 Suspense Account. The account maintained by the Trustee to record unallocated Employer Securities used as collateral on a Loan pursuant to Section 6.03. 2.40 Total Distribution. A distribution to a Participant or Beneficiary, within a single taxable year of such Participant or Beneficiary, of the entire balance credited to such Participant's or Beneficiary's Accounts. 2.41 Trust. The trust created by the Trust Agreement entered into pursuant to the Plan between the Company and the Trustee. 2.42 Trust Agreement. The agreement between the Company and the Trustee (or any successor Trustee) establishing the Trust and specifying the duties of the Trustee. 2.43 Trust Assets. All cash, Company Stock and other property held in the Trust for the exclusive benefit of Participants and their Beneficiaries. 2.44 Trustee. The Trustee or Trustees (and any successor Trustee) designated by the Company's Board of Directors which agrees to serve by executing the Trust Agreement. 2.45 Year of Eligibility Service. An Employee will be deemed to have completed a Year of Eligibility Service if he completes one thousand (1,000) or more Hours of Service during the twelve (12)-month period beginning on the date he first completes an Hour of Service for the Employer. If the Employee does not complete at least one thousand (1,000) Hours of Service during the first twelve (12) months of his employment, he will be deemed to have completed a Year of Eligibility Service in the first Plan Year during which he is credited with at least one thousand (1,000) Hours of Service. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.01 Eligibility for Participation. (a) Each Employee, except those described in Sections 3.01 (b) and 3.01(c) below, shall become eligible to participate in the Plan as follows: 7 13 (1) Each salaried Employee, except those described in clause (3) below, shall become a Participant in the Plan as of the Enrollment Date within the first Plan Year during which he completes at least one month of Continuous Service. (2) Each hourly paid Employee, except those described in clause (3) below, shall become a Participant in the Plan as of the Enrollment Date within the first Plan Year during which such Employee completes 480 or more Hours of Service. (3) Each part-time Employee and each seasonal Employee shall become a Participant in the Plan as of the Enrollment Date within the first Plan Year during which such Employee completes 1,000 Hours of Service provided that the Employee completes at least one month of Continuous Service during such Plan Year. (b) Employees covered by a collective bargaining agreement (as defined by the United States Secretary of Labor) between Employees' representatives and an Employer are not eligible to participate in the Plan if retirement benefits were the subject of good faith bargaining between such Employees' representatives and the Employer and such collective bargaining agreement does not provide for participation in the Plan. No Employee shall participate in the Plan while he is actually employed by a leasing organization rather than the Employer. In addition, Employees (i) who are non-resident aliens, and (ii) whose primary place of employment is not located in the United States, are not eligible to participate in the Plan. (c) Any Employee who is a temporary Employee, a student Employee or an officer shall not be eligible to participate in the Plan. (d) Notwithstanding the requirements of Section 3.01(a)(3) and Section 3.01(c), a regular part-time, seasonal or temporary Employee shall become a Participant no later than the Enrollment Date within the first Plan Year during which such Employee completes one Year of Eligibility Service. 3.02 Reemployment of Participant. A Participant who terminates employment and is subsequently reemployed by the Company shall be reinstated as a Participant as of his reemployment date. ARTICLE IV EMPLOYEE CONTRIBUTIONS Contributions by Employees to the Plan are not required or permitted. 8 14 ARTICLE V EMPLOYER CONTRIBUTIONS 5.01 Employer Contributions. (a) For each Plan Year, Employer Contributions may be paid to the Trustee in such amounts (or under such formula) as may be determined by the Board of Directors not later than the due date for filing the Company's federal income tax return, including any extensions of such due date; provided, however, that such Employer Contributions shall not be paid to the Trust in amounts which would permit the limitation described in Section 7.03 to be exceeded. (b) Employer Contributions may be paid to the Trust in cash or in shares of Company Stock, as determined by the Board of Directors; provided, however, that Employer Contributions shall be paid in cash in such amounts and at such times as needed to provide the Trust with funds sufficient to pay in full when due any principal and interest payments required by a Loan incurred by the Trustee pursuant to Article VI to finance the acquisition of Company Stock, except to the extent such principal and interest payments have been satisfied by the Trustee from cash dividends paid to it with respect to Employer Securities (whether allocated or unallocated) acquired with the proceeds of such Loan or from the proceeds of sale of Employer Securities. (c) Employer Contributions may be returned to the Employer if (i) made in excess of the amount deductible by the Employer for its taxable year (all such Employer Contributions being automatically conditioned upon such deductibility), or (ii) made because of a reasonable mistake as to the facts and circumstances existing at the time the contribution was fixed; provided, however, that such return is limited, respectively, to (i) that portion in excess of the amount deductible for the Employer's taxable year which is not necessary to enable the Trustee to make Loan payments, or (ii) that portion of the contribution attributable to a reasonable mistake of fact, and provided, further, that any such return must be made within one (1) year of the date the deduction was disallowed or the mistaken contribution was made. ARTICLE VI INVESTMENT OF TRUST ASSETS 6.01 Investment of Trust Assets. Trust Assets will be invested primarily in Employer Securities. Employer Contributions and cash dividends paid on Company Stock may be used to acquire shares of Company Stock from Company shareholders (including former Participants) or from the Company, except that any Company Stock acquired with the proceeds of a Loan shall be limited to Employer Securities. Except as otherwise provided in Section 6.02, Trust Assets not acquired with the proceeds of a Loan and not invested in Company Stock shall be invested by the Trustee in accordance with the Trust Agreement. All investments in Company Stock will be made by the Trustee only upon the direction of the Committee. The Committee may direct that all Trust Assets be invested and held in Company Stock. All purchases of 9 15 Company Stock by the Trust will be made at a price or at prices which, in the judgment of the Committee, do not exceed the fair market value of such Company Stock at the time of purchase. The Committee may direct the Trustee to sell or resell shares of Company Stock to any person, including the Company; provided, however, that any such sale to any disqualified person (as defined by Section 4975(e)(2) of the Code), including the Company, shall be made at not less than the fair market value of such shares of Company Stock. Any such sale shall be made in conformance with Section 408(e) of ERISA. Notwithstanding any other provision of the Plan, the dividends paid with respect to Company Stock may be (i) paid directly to Participants, (ii) paid to the Trustee and then distributed to Participants within 90 days thereafter, or (iii) allocated to the Accounts of Participants, as determined by the Committee in its sole discretion. 6.02 Diversification. Each Qualified Participant may, by applying to the Committee within ninety (90) days after the close of each Plan Year during such Qualified Participant's Election Period, elect to have his Eligible Diversification Amount transferred to the Polaris Industries Inc. 401(k) Retirement Savings Plan and invested in accordance with the provisions of such Plan. Such transfer shall be completed by the Committee no later than one hundred eighty (180) days after the first day of the Plan Year in which such application is made. The Committee may, in a manner consistent with the applicable requirements of the Code and regulations issued pursuant thereto, limit or prohibit diversification by Qualified Participants of de minimis amounts. 6.03 Exempt Loan. (a) The Committee may direct the Trustee to obtain Loans. Any such Loan shall meet all requirements necessary to constitute an "exempt loan" within the meaning of Treasury Regulation Section 54.4975-7(b)(1)(iii) and shall be used primarily for the benefit of Participants (and their Beneficiaries). The proceeds of any such Loan shall be used, within a reasonable time after the Loan is obtained, only to purchase Employer Securities, repay the Loan or repay any prior Loan. Any such Loan shall provide for no more than a reasonable rate of interest, as determined under Treasury Regulation Section 54.4975-7(b)(7), and must be without recourse against the Plan. The number of years to maturity under the Loan must be definitely ascertainable at all times. The only assets of the Plan that may be given as collateral for a Loan are shares of Employer Securities acquired with the proceeds of the Loan and shares of Employer Securities that were used as collateral on a prior Loan repaid with the proceeds of the current Loan. Such Employer Securities so pledged shall be placed in a Suspense Account. No person entitled to payment under a Loan shall have recourse against Trust Assets other than such collateral, Employer Contributions that are available under the Plan to meet obligations under the Loan and earnings attributable to such collateral and the investment of such Employer Contributions. All Employer Contributions paid during the Plan Year in which a Loan is made (whether before or after the date the proceeds of the Loan are received), all Employer Contributions paid thereafter until the Loan has been repaid in full and all earnings from investment of such Employer Contributions, without regard to whether any such Employer Contributions and earnings have been allocated to Participants' Other Investments Accounts, 10 16 shall be available to meet obligations under the Loan, unless otherwise provided by the Company at the time any such Employer Contribution is made. Any pledge of Employer Securities must provide for the release of an appropriate number of shares so pledged, as provided below, upon the payment of any portion of the Loan. For each Plan Year during the duration of the Loan, the number of shares of Employer Securities released from such pledge must equal the number of encumbered securities held immediately before release for the current Plan Year multiplied by a fraction, the numerator of which is the amount of principal paid for the year and the denominator of which is the sum of the numerator plus the principal to be paid for all future years. Such years will be determined without taking into account any possible extension or renewal periods. The Loan shall (i) provide for annual payments of principal and interest at a cumulative rate that is not less rapid at any time than level annual payment of such amount for ten (10) years, (ii) provide that interest included in any payment is disregarded for the purpose of the release from pledge only to the extent that it would be determined to be interest under standard loan amortization tables and (iii) provide that the duration of the Loan including renewal extension, or refinancing, shall not exceed ten (10) years. Notwithstanding the foregoing, the Committee may elect, in its sole discretion, to provide for the release of Employer Securities from the Suspense Account on the basis of both principal and interest paid during the Plan Year. If the Committee elects to apply this method, it shall be applied throughout the period of such Loan, and the limitations set forth in clauses (i), (ii) and (iii) above shall not apply to the Loan. In the event such interest is variable, the interest to be paid in future years must be computed by using the interest rate applicable as of the end of the Plan Year. If the collateral includes more than one class of Employer Securities, the number of shares of each class to be released for a Plan Year must be determined by applying the same fraction to each class. (b) Payments of principal and interest on a Loan during a Plan Year shall be made by the Trustee (as directed by the Committee) only from (i) Employer Contributions to the Trust made to meet the Plan's obligation under such Loan, earnings from such Employer Contributions and any earnings attributable to Employer Securities held as collateral for such Loan (both received during or prior to the Plan Year), less such payments in prior years; (ii) the proceeds of a subsequent Loan made to repay such prior Loan; and (iii) the proceeds of the sale of any Employer Securities held as collateral for such Loan. Such Employer Contributions and earnings must be accounted for separately by the Plan until the Loan is repaid. (c) Employer Securities released by reason of the payment of principal or interest on a Loan from amounts allocated to Participants' Other Investments Accounts shall immediately upon payment be credited pro rata to the corresponding Participants' Company Stock Accounts. In the event that cash dividends paid on Employer Securities allocated to Participants' Accounts are used to repay a Loan, before determining Participants' allocable shares of Employer Securities released from the Suspense Account for any Plan Year pursuant to Section 7.02, there shall first be allocated to the Company Stock Accounts of Participants to whose Accounts such cash dividends would have been allocated but for such Loan repayment a number of Employer Securities having a fair market value not less than the amount of the cash dividends so applied. Only that number of Employer Securities released from the Suspense Account which is in excess of the number allocated pursuant to the immediately preceding sentence shall be available for allocation pursuant to Section 7.02(a). 11 17 (d) The Employer shall contribute to the Trust amounts sufficient, after taking into account cash dividends on Employer Securities (whether allocated or unallocated) and the proceeds of sale, if any, of Employer Securities acquired with the proceeds of a Loan available for such purpose, to enable the Trust to pay principal and interest on any such Loan as they are due; provided, however, that no such Employer Contribution shall exceed the limitations in Section 7.03. In the event that such Employer Contributions are insufficient by reason of the limitations in Section 7.03 to enable the Trust to pay the principal of and interest on such Loan as they are due, then, at the election of the Committee, the Employer shall: (1) Make a Loan to the Trust, as described in Treasury Regulation Section 54.4975-7(b)(4)(iii), in an amount sufficient to meet such principal and interest payments. Such new Loan shall also meet all requirements of an "exempt loan" within the meaning of Treasury Regulation Section 54.4975-7(b)(1)(iii). Employer Securities released from the pledge of the prior Loan shall be pledged as collateral to secure the new Loan. Such Employer Securities will be released from this new pledge and allocated to the Accounts of the Participants in accordance with the applicable provisions of the Plan; or (2) Purchase any Employer Securities pledged as collateral in an amount necessary to provide the Trustee with funds sufficient to make the principal and interest payments. Any such sale by the Plan shall meet the requirements of Section 408(3) of ERISA; or (3) Do any combination of the foregoing. However, the Employer shall not, pursuant to the provisions of this Section 6.03(d), do, fail to do, cause to be done or cause to be not done any act or thing which would result in a disqualification of the Plan as a leveraged employee stock ownership plan under the Code. (e) Put Option. Shares of Employer Securities acquired with the proceeds of a Loan by the Trust shall be subject to a "put" option at the time of distribution; provided, however, that at such time the shares of Employer Securities are not publicly traded within the meaning of Treasury Regulation Section 54.4975-7(b)(1)(iv) or, if publicly traded, are subject to a trading limitation (a "trading limitation" on a security is a restriction under any federal or state securities law, any regulation thereunder or an agreement affecting the security which would make the security not as freely tradeable as one not subject to such restriction). The "put" option shall be exercisable by the Participant or Beneficiary, by the donees of either or by a person (including an estate or its distributee) to whom the Employer Securities pass by reason of the Participant's or Beneficiary's death. This "put" option provides that, for a period of at least sixty (60) consecutive days immediately following the date shares are distributed to the holder of the option and for another sixty (60) consecutive day period during the Plan Year next following the Plan Year in which shares were distributed, the holder of the option shall have the right to cause the Company, by notifying it in writing, to purchase such shares at their fair market value, as determined by the Committee. The Committee may, with the consent of the Trustee, direct the 12 18 Trustee to assume the rights and obligations of the Company at the time a "put" option is exercised, insofar as the repurchase of Employer Securities is concerned. The period during which a "put" option is exercisable shall not include any period during which the holder is unable to exercise such "put" option because the Company is prohibited from honoring it by federal or state law. The terms of payment for the purchase of such shares of Employer Securities shall be as set forth in the "put" and: (1) If the distribution constitutes a Total Distribution, payment of the fair market value of the Employer Securities shall be made in five (5) substantially equal annual payments. The first such installment shall be paid no later than thirty (30) days after exercise of the "put" option. The Company or the Plan, as the case may be, shall pay a reasonable rate of interest and provide adequate security on amounts not paid after thirty (30) days. (2) If the distribution does not constitute a Total Distribution, the Company or the Plan, as the case may be, shall pay the Participant or Beneficiary an amount equal to the fair market value of the Employer Securities repurchased no later than thirty (30) days after the "put" option is exercised. The "put" option provided for by this Section 6.03(e) shall continue to apply to shares of Employer Securities purchased by the Trustee with the proceeds of a Loan as described herein, notwithstanding any amendment to or termination of the Plan which causes the Plan to cease to be a leveraged employee stock ownership plan within the meaning of Section 4975(e)(7) of the Code. (f) Nonterminable Protections and Rights. No Employer Securities acquired with the proceeds of a Loan shall be subject to any put, call or other option, or buy-sell or similar arrangement while held by and when distributed from the Plan, other than those described in Section 6.03(e) or as otherwise required by applicable law. These protections and rights are nonterminable. ARTICLE VII ALLOCATIONS 7.01 Allocations to Participants' Accounts. (a) Separate Company Stock Accounts and Other Investments Accounts will be established to reflect Participants' interests under the Plan. Records shall be kept by the Committee from which can be determined the portion of each Other Investments Account which at any time is available to meet Loan obligations and the portion which is not so available as determined pursuant to Section 6.03. 13 19 (b) As of each Anniversary Date, the Company Stock Account maintained for each Participant under the Plan will be credited with his allocable shares of Company Stock (including fractional shares) purchased and paid for by the Trust or contributed in kind to the Trust with Employer Contributions and any stock dividends on Company Stock allocable to his Company Stock Account. Employer Securities acquired by the Trust with the proceeds of a Loan obtained pursuant to Section 6.03 shall be allocated to the Company Stock Accounts of Participants as the Employer Securities are released from the Suspense Account as provided for in Section 6.03. (c) As of each Anniversary Date, each Other Investments Account maintained for each Participant under the Plan will be credited (or debited) with its share of the net income (or loss) of the Trust, with any cash dividends on Company Stock allocable to his Company Stock Account and with Employer Contributions in cash. Each such Other Investments Account will be debited with its share of any cash payments for the acquisition of Company Stock for the benefit of Company Stock Accounts or for any payment of principal of and interest on any Loan or other debt chargeable to Participants' Company Stock Accounts; provided, however, that only the portion of each Other Investments Account which is available to meet obligations under Loans as determined pursuant to the provisions of Section 6.03(a) shall be used to pay principal or interest on a Loan. 7.02 Allocable Shares. (a) Each Plan Year, Employer Contributions not applied to pay principal of or interest on a Loan and, subject to Section 6.03(c), Employer Securities released from the Suspense Account for a Plan Year shall be allocated to the Company Stock Accounts of each Participant by multiplying the aggregate of the amounts to be allocated by a fraction, the numerator of which is such Participant's Compensation for such Plan Year and the denominator of which is the sum of the Compensation of each Participant entitled to an allocation for such Plan Year. (b) A Participant must be actively employed by the Employer on the Anniversary Date of any Plan Year in order to share in the allocation of any Employer Contributions for such Plan Year made pursuant to Section 7.02(a) except in the case of the Participant's death during such Plan Year. 7.03 Allocation Limitations. (a) For each Plan Year, the Annual Addition to the Accounts of a Participant under the Plan and to the accounts of such Participant under all other defined contribution plans maintained by the Company or any Affiliated Company, may not exceed the lesser of: (1) twenty-five (25) percent of his Section 414(s) Compensation; or (2) $30,000 or, for Plan Years beginning before January 1, 1995 if greater, one-fourth (1/4) of the defined benefit dollar limitation set forth in Section 415(b)(1) of the Code as in effect for such Plan Year. 14 20 If this limitation would be exceeded as to any Participant, the allocation of Employer Contributions shall be reduced with respect to such Participant, with a reallocation made to other Participants according to the allocable share of each as determined under Section 7.02 (to the extent not exceeding the limitation as to each). In the event the Plan is terminated and there are amounts which cannot be allocated to Participants' Accounts due to this limitation, such amounts will be returned to the Employer. If a Participant is, or was, covered under a defined benefit plan and a defined contribution plan maintained by the Employer, the sum of such Participant's defined benefit plan fraction and defined contribution plan fraction (both calculated as provided below) may not exceed one (1.0) in any Plan Year beginning before January 1, 2000. A defined benefit plan fraction is a fraction, the numerator of which is the sum of a Participant's projected annual benefits (as defined below) under all defined benefit plans (whether or not terminated) maintained by the Employer, and the denominator of which is the lesser of (i) one and one-quarter (1.25) times the dollar limitation of Section 415(b)(1)(A) of the Code in effect for a Plan Year and (ii) one and four-tenths (1.4) times such Participant's average Section 414(s) Compensation for the three (3) consecutive years that produce the highest average. A defined contribution plan fraction is a fraction, the numerator of which is the sum of the Annual Additions to a Participant's accounts under all defined contribution plans (whether or not terminated) maintained by the Employer for the current and all prior limitation years, and the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of Service with the Employer: (i) one and one-quarter (1.25) times the dollar limitation in effect under Section 415(c)(1)(A) of the Code for each such year and (ii) one and four-tenths (1.4) times the amount which may be taken into account under Section 415(c)(1)(B) of the Code. Projected annual benefit means the annual benefit to which a Participant would be entitled under the terms of the applicable defined benefit plan, if such Participant continued employment until normal retirement age (or current age, if later) and such Participant's compensation for the limitation year and all other relevant factors used to determine such benefit remained constant until normal retirement age (or current age, if later). If, in any Plan Year, the sum of a Participant's defined benefit plan fraction and defined contribution plan fraction would exceed one (1.0), such Participant's Annual Addition under the Plan will be limited to the extent necessary to comply with Section 415 of the Code. 7.04 Allocation of Net Income (or Loss) of the Trust. The net income (or loss) attributable to Trust Assets for each Plan Year will be determined as of each Anniversary Date. Each Participant's allocable share of the net income (or loss) will be allocated to his Other Investments Account in the ratio in which the credit balance of each such Account on the preceding Anniversary Date (reduced by the amount of any distribution of Capital Accumulation from such Account) bears to the sum of such balances for all Participants as of that date. The net income (or loss) includes the increase (or decrease) in the fair market value of Trust Assets (other 15 21 than Company Stock), interest income, dividends and other income (or loss) attributable to Trust Assets (other than allocated Company Stock) since the preceding Anniversary Date. For purposes of computing net income (or loss), interest paid on any Loan or installment sales contract for the acquisition of Employer Securities by the Trustee shall be disregarded. 7.05 Accounting for Allocations. The Committee shall adopt accounting procedures for the purpose of making the allocations, valuations and adjustments to Participants' Accounts provided for in this Article VII. Except as provided in Treasury Regulation Section 54.4975-11, Company Stock acquired by the Plan shall be accounted for as provided under Treasury Regulation Section 1.402(a)-1(b)(2)(ii), allocations of Company Stock shall be made separately for each class of stock and the Committee shall maintain adequate records of the cost basis of all shares of Company Stock allocated to each Participant's Company Stock Account. From time to time, the Committee may modify the accounting procedures for the purpose of achieving equitable and nondiscriminatory allocations among the Accounts of Participants in accordance with the general concepts of the Plan and the provisions of this Section. Annual valuations of Trust Assets shall be made at fair market value. All valuations of shares of Company Stock which are not readily tradeable on an established securities market shall be made by an independent appraiser meeting requirements similar to those contained in Treasury Regulations under Section 170(a)(1) of the Code. 7.06 Nonallocation. Notwithstanding any provision in this Plan to the contrary, in accordance with Section 409(n) of the Code, if shares of Company Stock are sold to the Plan by a shareholder of the Company in a transaction for which special tax treatment is elected pursuant to Section 1042 of the Code by such shareholder, no assets attributable to such Company Stock may be allocated during the period beginning on the date of the sale of such shares of Company Stock to the Trust and ending on the later of the tenth (10th) year anniversary of the date of sale or the date of the allocation attributable to the final payment on the Loan incurred with respect to the sale to the Accounts of such shareholder, any person who is related to such shareholder (within the meaning of Section 267(b) of the Code, but excluding lineal descendants of such shareholder as long as no more than five (5) percent of the aggregate amount of all shares of Company Stock sold by such shareholder in a transaction to which Section 1042 of the Code applies is allocated to lineal descendants of such shareholder) or any other person who owns (after application of Section 318(a) of the Code) more than twenty-five (25) percent in value of the outstanding securities of the Employer. Further, no allocation of contributions may be made to the Accounts of such persons unless additional allocations are made to other Participants, in compliance with the provisions of Sections 401(a)(4) and 410 of the Code, computed without regard to the allocation of any stock acquired by the Plan in a transaction to which Section 1042 applied. ARTICLE VIII EXPENSES OF THE PLAN AND TRUST All expenses of administering the Plan shall be paid by the Trust to the extent such are not paid by the Company. The Company may, but shall not be required to, pay such 16 22 expenses from time to time. Each Employer, other than the Company, shall reimburse the Company for that portion of costs and expenses paid by the Company for any Plan Year as the amount of Employer Contributions from each such Employer for such Plan Year bears to the aggregate Employer Contributions from all Employers for that Plan Year. ARTICLE IX VOTING COMPANY STOCK AND EXERCISE OF OTHER RIGHTS 9.01 Voting and Tender or Exchange Rights. If the Company or any Affiliated Company has a registration-type class of securities (as defined in Section 409(e)(4) of the Code), then, all shares of Company Stock allocated to Company Stock Accounts or the Suspense Account and entitled to vote shall be voted only in accordance with the provisions of Sections 9.01(a), (b), (d) and (e) applicable to voting. If neither the Company nor any Affiliated Company has a registration-type class of securities (as defined in Section 409(e)(4) of the Code), then, only with respect to any corporate matter which involves the voting of Company Stock allocated to Company Stock Accounts or the Suspense Account with respect to the approval or disapproval of any corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, sale of substantially all assets of a trade or business or such other similar transaction that Treasury Regulations require, all shares of such Company Stock shall be voted only in accordance with the provisions of Sections 9.01(a), (b), (d) and (e) applicable to voting. In all cases in which a "tender offer" (as defined in Section 9.01(a)) is made for Company Stock, the provisions of Sections 9.01(a), (c), (d) and (e) applicable to a tender offer (as so defined) shall apply. Where the Trustee is not required to solicit voting instructions under the second sentence of this paragraph or where the Committee is explicitly given discretion under Section 9.01(a), (b) or (c), the Trustee shall vote and take action, as applicable, only as the Committee directs in the Committee's sole discretion, after the Committee determines such action to be in the best interests of Participants and Beneficiaries. If any action of holders of Company Stock is sought to be taken by means of a written consent of such holders in lieu of a meeting of such holders, the giving of such consent is a vote in favor of such action and the provisions of this Section 9.01 applicable to voting shall apply. (a) To the extent provided under the foregoing paragraph, the Trustee shall vote the shares of Company Stock allocated to any Participant's or Beneficiary's Accounts (including fractional as well as whole shares) in accordance with timely directions of such Participant or Beneficiary, respectively; provided, however, that if a Participant or Beneficiary fails to give such timely direction the shares allocated to such Participant's or Beneficiary's Accounts shall be voted in the manner directed by the Committee. The Trustee shall, with respect to the shares of Company Stock allocated to any Participant's or Beneficiary's Accounts (including fractional as well as whole shares), act in response to any tender offer or exchange offer for shares of Company Stock commenced by any person or group of persons, including, but not limited to, a tender offer or exchange offer within the meaning of the Securities Exchange Act of 1934, as amended from time to time (any such tender or exchange offer being a "tender offer"), in accordance with timely directions of such Participant or Beneficiary; provided, however, that if a Participant or Beneficiary fails to give such timely direction the manner in 17 23 which the Trustee is to act in response to a tender offer with respect to the shares of Company Stock allocated to such Participant's or Beneficiary's Accounts shall be directed by the Committee. For purposes of determining the number of shares of Company Stock to be voted in any particular manner or to be the subject of any particular response to a tender offer, the Trustee shall use the nearest practicable date as determined by the Trustee. (b) The Trustee's functions and responsibilities with respect to shares of Company Stock, including shares of Company Stock in the Suspense Account, with respect to voting, shall be exercised as follows: (1) Each Participant: (i) is hereby designated as a named fiduciary for purposes of ERISA with respect to the voting of shares of Company Stock allocated to the applicable Accounts, and with respect to the voting of the applicable portion (as determined under Section 9.01(b)(3)) of the shares of Company Stock held in the Suspense Account, and (ii) shall have the right to direct the Trustee with respect to the voting of such shares of Company Stock on each matter brought before any meeting of the stockholders of the Company and on which such shares are entitled to vote. (2) Before each such meeting of shareholders, the Trustee shall cause to be furnished to each Participant and Beneficiary a copy of the proxy solicitation or information materials as shall have been furnished to the Trustee by the issuer of the Company Stock to be voted at such meeting or, in the case of a proxy solicitation by any person or group of persons other than the board of directors of such issuer, such person or group, together with a form requesting confidential directions for the Trustee on how the whole and fractional shares of Company Stock which are allocated to such Participant's or Beneficiary's Accounts (or with respect to which such Participant or Beneficiary otherwise has control under Section 9.01(b)(3)) shall be voted on each such matter. The Company and the Committee shall cooperate with the Trustee in an attempt to ensure that Participants and Beneficiaries receive the requisite information in a timely manner. Upon timely receipt of such directions, the Trustee shall on each such matter vote as directed the number of shares (including fractional shares of Company Stock) allocated to such Participant's or Beneficiary's Accounts. The instructions received by the Trustee from Participants and Beneficiaries shall be held by the Trustee in confidence and shall not be divulged or released to any person, including the Committee or the officers or Employees of the Company or any Affiliated Company. (3) The Trustee shall vote all shares of Company Stock in the Suspense Account in the same proportion as the allocated shares of Company Stock for which affirmative directions from Participants to vote for or against 18 24 each proposal are voted. The Committee may establish procedures, which shall be followed by the Trustee upon and after its receipt of notice thereof, by which Participants may provide separate sets of instructions with respect to shares of Company Stock allocated to their Accounts and the pro rata amount of unallocated shares of Company Stock over which they have voting control. If a vote is taken at a time when there are no allocated shares of Company Stock, the Trustee shall vote the shares of Company Stock in the Suspense Account as directed by the Committee in the Committee's discretion. (c) The Trustee's functions and responsibilities with respect to shares of Company Stock, including shares of Company Stock in the Suspense Account, with respect to all decisions made in response to a tender offer, shall be exercised as follows: (1) In the event a tender offer is commenced, the Committee, promptly after receiving notice of the commencement of any such tender offer, shall transfer certain of the Plan's record-keeping functions to an independent record-keeper (which, if the Committee consents in writing, may be the Trustee). The functions so transferred shall be those necessary to preserve the confidentiality of any directions given by Participants and Beneficiaries in connection with the tender offer. Such record-keeper shall use its best efforts to distribute or cause to be distributed on a timely basis to each Participant and Beneficiary such information as is being distributed to other shareholders of the Company in connection with any such tender offer. The Company and the Committee shall cooperate with such record-keeper in an attempt to ensure that Participants and Beneficiaries receive the requisite information in a timely manner. The independent record-keeper shall solicit confidentially from each Participant and Beneficiary the directions described below as to the action to be taken with respect to shares of Company Stock held under the Plan in response to a tender offer. The independent record-keeper, if different from the Trustee, shall instruct the Trustee as to all required action, including an identification of the amount of shares of Company Stock covered by any particular required action, in accordance with the following provisions. (2) Each Participant: (i) is hereby designated as a named fiduciary for purposes of ERISA with respect to all decisions made in response to a tender offer regarding shares of Company Stock allocated to the applicable Accounts, and with respect to all such decisions regarding the applicable portion (as determined under Section 9.01(c)(4)) of the shares of Company Stock held in the Suspense Account, and (ii) shall have the right to direct the Trustee with respect to all such decisions. 19 25 (3) Upon timely receipt of such directions, the Trustee shall on each such matter act as directed (including, without limitation, to engage in selling, exchanging, tendering or retaining) with respect to the number of shares of Company Stock (including fractional shares of Company Stock) allocated to such Participant's Accounts. The instructions received by the Trustee from Participants shall be held by the Trustee in confidence and shall not be divulged or released to any person, including the Committee or the officers or Employees of the Company or any Affiliated Company. (4) The Trustee shall act as directed (including, without limitation, to engage in selling, exchanging, tendering or retaining) with respect to the number of shares of Company Stock (including fractional shares) in the Suspense Account in the same proportion as it acts regarding shares of Company Stock allocated to the Accounts of Participants. The Committee may establish procedures, which shall be followed by the Trustee upon and after its receipt of notice thereof, by which Participants may provide separate sets of instructions with respect to shares of Company Stock allocated to their Accounts and the pro rata amount of unallocated shares of Company Stock over which they have control regarding tender offers. If a tender offer occurs at a time when there are no allocated shares of Company Stock, the Trustee shall act in response to the tender offer with respect to shares of Company Stock in the Suspense Account as directed by the Committee in the Committee's discretion. (d) Nothing contained in this Section 9.01 shall confer upon Participants, Beneficiaries, the Committee or the Trustee any additional voting rights in respect of shares of Company Stock held under the Plan other than the rights set forth in the certificate of incorporation of the Company and under state and federal law. Nothing contained in this Section 9.01 shall confer upon Participants, Beneficiaries, the Committee or the Trustee any additional rights in respect of a tender offer, merger or consolidation relating to the shares of Company Stock held under the Plan other than the rights set forth in the certificate of incorporation of the Company and under state and federal law. (e) Any individual who has an interest under the Plan in the nature of the interest of a Participant or Beneficiary but who is not technically a Participant or Beneficiary shall be treated as a Beneficiary for purposes of the foregoing provisions of this Section. ARTICLE X CAPITAL ACCUMULATION Each Participant shall at all times have a 100% fully vested interest in his Accounts. 20 26 ARTICLE XI DISTRIBUTIONS 11.01 Time of Distribution to Participants. (a) Any Participant whose employment ends by reason of his Retirement, death or Disability shall receive the vested balance in his Accounts as soon as is administratively practicable after the end of the Plan Year in which his employment ends, unless such Participant, or such Participant's Beneficiary in the event of the Participant's death, elects to defer payment until a later date. (b) Any Participant whose employment ends for any reason other than those specified in Section 11.01(a) shall receive the vested balance in his Accounts as soon as is administratively practicable after the end of the fifth Plan Year following the Plan Year in which his employment ends, unless such Participant elects to defer payment until a later date. (c) Notwithstanding any other provision of this Plan, distribution of the benefits of any Participant who reaches age seventy and one-half (70-1/2) shall commence no later than the later of (i) the April 1st next following the end of the calendar year in which he reaches age seventy and one-half (70-1/2) or (ii) the date on which such Participant's employment with the Company terminates, regardless of whether any Loan has been repaid. Notwithstanding the foregoing, in the case of a Participant who is a five-percent owner (as defined in Code Section 416(i)), distribution of such Participant's benefits shall commence no later than the April 1 next following the end of the calendar year in which he reaches age seventy and one-half (70-1/2). Effective for Plan Years beginning on or after January 1, 1997, distributions shall commence no later than a Participant's required beginning date. In the case of a Participant who is a Five Percent Owner (as that term is defined in Section 416(i) of the Code), "required beginning date" shall mean April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2. In the case of a Participant who is not a Five Percent Owner, "required beginning date" shall mean April 1 of the calendar year following the later of (A) the calendar year in which the Participant retires, or (B) the calendar year in which the Participant attains age 70-1/2; provided, however, that for Plan Years beginning before January 1, 2000, if a Participant attains age 70-1/2 before he retires, such Participant may elect to commence receiving distributions pursuant this Section 11.01(c) on April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2. 11.02 Benefit Forms for Participants. A Participant's Capital Accumulation shall, at the election of such Participant, be paid to him in either a single distribution or a number of annual installments not to exceed five (5). In the case of an installment distribution, each installment shall be equal to (i) the number of shares of Company Stock credited to such Participant's Company Stock Account and the balance credited to such Participant's Other Investments Account, each divided by (ii) the number of installments which remain to be paid (including the current installment being computed). 21 27 11.03 Benefit Form on a Participant's Death. If a Participant's employment is ended by death, or if a terminated Participant has a Capital Accumulation which has not been fully distributed at the time of his death, such Participant's remaining Capital Accumulation shall be paid to his Beneficiary in a single lump sum, within one (1) year after the end of the Plan Year in which such Participant died. 11.04 Distribution in Company Stock. A Participant's benefits shall be paid in the form of Company Stock; provided, however, that the value of any fractional shares of Company Stock shall be paid in cash. 11.05 Delay in Benefit Determination. If the Committee is unable to determine the benefits payable to a Participant or Beneficiary on or before the latest date prescribed for payment, the benefits shall be paid within sixty (60) days after the date they can first be determined, with whatever makeup payments may be appropriate in view of the delay. 11.06 Designated Beneficiaries. (a) Any person who may become entitled to receive a distribution under this Article XI may appoint any other person or persons (including a trust or trusts) as his Beneficiary or Beneficiaries for receipt of such distribution in the event of his death by filing an appointment with the Committee on forms provided by it. In the absence of such appointment, a person's Beneficiary or Beneficiaries will be deemed to be the Beneficiary or Beneficiaries designated by such person under the Polaris Industries Inc. 401(k) Retirement Savings Plan, if any, or, if none, the Beneficiary or Beneficiaries designated by such Plan. Notwithstanding the foregoing, in the case of a Participant who is legally married at the date of his death, his Beneficiary shall be deemed to be the person to whom he was so married, notwithstanding and disregarding any failure by such Participant to appoint a Beneficiary, or his appointment of a trust or any other person as his Beneficiary, unless such Participant had obtained, on forms provided by the Committee, the consent of the person to whom he was so married to his appointment of a trust or other person or to his appointment of no Beneficiary. The spouse's consent to payment to a designated Beneficiary other than the spouse must be in writing on such forms, must designate a Beneficiary which may not be changed without spousal consent (unless the consent of the spouse expressly permits designations by the Participant without any requirement of further consent by the spouse), must acknowledge the effect of such election and must be witnessed by a notary public. (b) Subject to the provisions of Section 11.06(a), a Beneficiary appointment may be revoked or changed by the appointing person's filing with the Committee, on forms provided by it, a notice of revocation or change, with a change of Beneficiary being considered a revocation and the naming of a new Beneficiary. (c) An appointment shall not be effective if the Beneficiary named therein fails to survive the appointing person. 11.07 Additional Distribution Requirements. All benefit distributions shall be subject to the following additional requirements: 22 28 (a) Duration of Benefit Payments. The distribution of benefit payments to each Participant shall be made in accordance with regulations prescribed by the Secretary of the Treasury over a period not extending beyond the life expectancy of such Participant or the joint life expectancy of such Participant and a designated Beneficiary, except that in no event shall the period of distribution exceed that otherwise permitted under the Plan. (b) Death of Participant Before Benefits Commence. In the event that a Participant dies before the commencement of benefits hereunder, the entire interest of such Participant under the Plan (if any) shall be distributed not later than the last day of the calendar year in which occurs the fifth (5th) anniversary of the death of such Participant or, where any portion of such Participant's benefit is to be paid to (or for the benefit of) such Participant's surviving spouse or other designated Beneficiary, such benefit must commence not later than the last day of the calendar year following the calendar year in which such Participant's death occurred and be paid over a period not exceeding the life (of life expectancy) of the surviving spouse or designated Beneficiary, except that where the Beneficiary is such Participant's surviving spouse, payments to the surviving spouse need not begin before the date on which such Participant would have attained age seventy and one-half (70-1/2). However, in no event shall the commencement date or period of distribution exceed that otherwise permitted under the Plan. (c) Death After Commencement of Benefits. If the distribution of benefits hereunder has commenced and a Participant dies before his entire interest has been distributed to him, the remaining part of such interest will be distributed to the surviving payee no less rapidly than under the method of distribution which was in effect on the date of such Participant's death. (d) "Incidental" Benefits and Effect of Requirements. In the event that any payment hereunder is to be made to someone other than a Participant or jointly to such Participant and his spouse or other payee, such payments must conform to the "incidental benefit" rules of Section 401(a)(9)(G) of the Code and Treasury Regulation Section 1.401(a)(9)-2. In addition, all distributions from the Plan must conform to the rules of this Section, Section 401(a)(9) of the Code and the regulations promulgated thereunder to the extent not in conflict with any other provision of the Code. (e) Lump Sum Payment. If a Participant's Capital Accumulation is more than $3,500 )$5,000 effective January 1, 1998), such Participant shall be given written notice of his right to defer the date of distribution of his benefit, and if he does not elect a current distribution by giving his consent in writing within sixty (60) days of such notice, the Capital Accumulation shall be retained in the Trust until the earlier of the date on which such Participant dies, requests distribution in writing or the date such Participant attains his normal retirement age (59-1/2). (f) Required Distributions. Notwithstanding any other provision of this Plan to the contrary, payment of a Participant's Capital Accumulation will begin not later than the 60th day after the close of the plan year in which the latest of the following events occurs: (i) the attainment by the Participant of age 59-1/2, (ii) the tenth (10th) anniversary of the date on which the Participant commenced participation in the Plan, or (iii) the termination of the Participant's service with the Employer. 23 29 11.08 Distributions Pursuant to Qualified Domestic Relations Orders. (a) Payments to an Alternate Payee Under a Qualified Domestic Relations Order. The Committee shall pay benefits to the Alternate Payee(s) (as defined below) in accordance with the terms of this Section 11.08, any government regulations adopted under Section 206 of ERISA and the applicable provisions of any Qualified Domestic Relations Order (as defined below) entered by a court of competent jurisdiction on or after January 1, 1985. In the case of a Domestic Relations Order (defined below) entered by a court of competent jurisdiction before January 1, 1985, the Committee may, in its discretion, treat any such order as a Qualified Domestic Relations Order under this Section 11.08 even if such order does not meet the requirements therefor. (b) Plan Procedures Relative to Qualified Domestic Relations Orders. (1) Notification. Following its receipt of any Domestic Relations Order, the Committee shall promptly notify in writing the affected Participant or former Participant and Alternate Payee(s) of its receipt of the order, and shall furnish such persons a copy of the order and of these Plan procedures (and any other procedures which may have been adopted by the Committee) for determining whether the order is a Qualified Domestic Relations Order. Such notice and all other notices pursuant to this Section 11.08 will be sent to the address included in the Domestic Relations Order (or to such other address as is known to the Committee or as may thereafter be specified in writing by the addressee). Any Alternate Payee shall be permitted to designate a representative for receipt of copies of notices that are to be sent to the Alternate Payee. Such notice shall set a time and date no less than fifteen (15) days after the date of such notice on which the Committee will meet to determine whether the order is a Qualified Domestic Relations Order and shall inform the Participant and Alternate Payee that they may present written or oral comments at that time with regard to such determination. (2) Determination of Committee. On the date specified in the above described notice, the Committee shall examine the Domestic Relations Order in light of any comments received and in light of applicable law and regulations, and shall make one of three determinations: (i) that the order is a Qualified Domestic Relations Order; (ii) that the order is not a Qualified Domestic Relations Order; or (iii) that the determination of whether the order is a Qualified Domestic Relations Order should be submitted to and made by a court of competent jurisdiction. If, within eighteen (18) months from the date on which the first payment of benefits would be required to be made under such order, it is determined by the Committee or a court of competent jurisdiction that the order (or modification thereof) is a Qualified Domestic Relations Order, then the Committee shall pay any separately allocated amounts (plus income or other allocated interest or 24 30 earnings thereon) to the specified Alternate Payee, and thereafter shall pay the Alternate Payee the amount specified by the Qualified Domestic Relations Order. If, within the aforesaid eighteen (18) month period, it is determined by the Committee or a court of competent jurisdiction that the order is not a Qualified Domestic Relations Order, or the question of whether the order is a Qualified Domestic Relations Order is not determined by the Committee or a court of competent jurisdiction, then the Committee shall pay any amounts (plus any income or other allocated interest or earnings thereon) separately accounted for as described below to the applicable Participant, former Participant or other person or persons who would have been entitled thereto if there had been no Domestic Relations Order. Any determination after the close of the aforesaid eighteen (18) month period shall be applied prospectively only. (3) Separate Accounting of Participant's and Alternate Payee's Benefits. During any period in which a Participant otherwise would have had a right to payment of Plan benefits and in which the issue of whether an order is a Qualified Domestic Relations Order is being determined, the Committee shall separately account for the amounts as to which the Participant or former Participant otherwise would have had a right to payment during such period and the amounts which would have been payable to the Alternate Payee during such period if the order had been determined to be payable to such Alternate Payee in accordance with a Qualified Domestic Relations Order shall not be considered to be part of such Participant's Accounts with respect to any other spouse or Beneficiary of such Participant. (c) Definitions. (1) Alternate Payee. Any spouse, former spouse, child or other dependent of a Participant or former Participant who is recognized by a Domestic Relations Order as having a right to receive all, or a portion, of the benefits payable under the Plan with respect to such Participant or former Participant. (2) Domestic Relations Order. Any judgment, decree or order (including approval of a property settlement agreement) which relates to the provision of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of a Participant, and is made pursuant to a state's domestic relations law or community property law. (3) Qualified Domestic Relations Order. A Domestic Relations Order which: (A) Creates or recognizes the existence of an Alternate Payee's right to, or assigns to an Alternate Payee the right to, receive all or a 25 31 portion of the Plan benefits payable with respect to a Participant or former Participant; and (B) In the order clearly specifies (w) the name and last known mailing address (if any) of such Participant or former Participant, and of each Alternate Payee covered by the order, (x) the amount or percentage of such Participant's or former Participant's benefits to be paid by the Plan to each Alternate Payee, or the manner in which such amount or percentage is to be determined, (y) the number of payments or period to which such order applies and (z) each plan to which such order applies; and (C) Does not require the Plan to provide any type or form of benefit, or any option, not otherwise provided by the Plan; and (D) Does not require the Plan to provide increased benefits, determined on the basis of actuarial value; and (E) Does not require the payment of benefits to an Alternate Payee under another order previously determined to be a Qualified Domestic Relations Order; and (F) In the case of any payment before such Participant has separated from Service, does not require payment to the Alternate Payee before the earlier of (x) the date such Participant or former Participant attains age fifty (50), or (y) the earliest date on which he could begin receiving benefits if he separated from Service; and (G) Requires payment in a form provided by the Plan. In no event may payment be in the form of a joint and survivor annuity with respect to an Alternate Payee and his subsequent spouse. ARTICLE XII DETERMINATION OF SERVICE 12.01 Continuous Service. The term "Continuous Service" as used in the Plan means service with the Company or any Affiliated Company, including service prior to the adoption of the Plan, whether on a salaried or hourly basis, calculated from the Employee's most recent employment commencement date (which means, in the case of a Break in Continuous Service, that Continuous Service shall be calculated from his reemployment commencement date following the last unremoved Break in Continuous Service) to his Break in Continuous Service in accordance with the following provisions: 26 32 (a) An Employee's employment commencement date shall be the first date on which he performs an Hour of Service for the Company. (b) An Employee shall incur a 1-year Break in Continuous Service upon the completion of a 12-consecutive month period beginning on the date on which he incurs a Break in Continuous Service as provided in Section 12.02, during which period the Employee did not perform an Hour of Service. (c) There shall be no deduction for any time lost which does not constitute a Break in Continuous Service. 12.02 Break in Continuous Service. (a) An employee shall incur a Break in Continuous Service upon: (1) Retirement or death; (2) quit, discharge or other termination of employment by action of the Company; or (3) failure to return to work upon expiration of an approved leave of absence. (b) Continuous Service shall not be considered broken for any Employee who (i) has entered the military, naval or merchant marine service of the United States if such Employee complies with the requirements of reemployment laws applicable to him and is reemployed; (ii) is on an approved leave of absence; or (iii) is receiving benefits under an Employer's long-term disability policy. (c) In the case of an Employee who is absent from work for maternity or paternity reasons, the twelve (12) consecutive month period beginning on the first anniversary of the first date of such absence shall not constitute a one (1) year Break in Continuous Service. For purposes of the previous sentence, an absence from work for maternity or paternity reasons means an absence (i) by reason of the pregnancy of the Employee, (ii) by reason of the birth of a child of the Employee, (iii) by reason of the placement of the child with the Employee in connection with the adoption of such child by such Employee, or (iv) for purposes of caring for such child for a period beginning immediately following such birth or placement. (d) Notwithstanding any other provision in subsection (a) of this Section 12.02, an Employee shall not be deemed to incur a Break in Continuous Service until the expiration of the twelve (12) consecutive month period following the date the Employee was first absent from work for any reason other than retirement, quit or discharge, during which he did not perform an Hour of Service for the Company or Affiliated Company. (e) An Employee who incurs a Break in Continuous Service on account of Retirement, quit or discharge and who thereafter performs an Hour of Service with the Company 27 33 within the twelve (12) consecutive month period of severance between the break and performance of an Hour of Service for the purpose of vesting under the Plan. (f) In the case of a reemployed Employee who was not a Participant in the Plan during his prior period of employment or in the case of a Participant whose prior employment terminated without a Capital Accumulation, any Continuous Service attributable to his prior period of employment will be restored only if such aggregate number of years of Continuous Service prior to such termination equals or exceeds the greater of (i) five (5) years or (ii) the Employee's prior period of severance. 12.03 Affiliated Companies. Notwithstanding any provisions in Sections 12.01 and 12.02, and solely for the purposes of vesting under the Plan, Continuous Service shall include service in the employ of any Affiliated Company which has adopted the Plan. ARTICLE XIII PLAN ADMINISTRATION 13.01 Named Fiduciaries. The Committee and the Company shall each be a "named fiduciary" within the meaning of Section 402 of ERISA, but each such party's role as a named fiduciary shall be limited solely to the exercise of its own authority and discretion, as defined under the terms of the Plan, to control and manage the operation and administration of the Plan (other than authority and discretion assigned under this Plan, or delegated pursuant thereto, to the Trustee). A named fiduciary may designate other persons who are not named fiduciaries to carry out its fiduciary responsibilities hereunder, and any such person shall become a fiduciary under the Plan with respect to such delegated responsibilities. In the event of such a designation, the named fiduciary shall not be liable for an act or omission of the designee in carrying out responsibilities delegated to him except to the extent provided in Section 405 of ERISA. Article IX describes circumstances under which Participants shall be named fiduciaries for certain purposes under the Plan. 13.02 Fiduciary Limitations. Named fiduciaries under the Plan, as well as the Trustee and any other person who may be a fiduciary by virtue of Section 3(21) of ERISA, shall exercise and discharge their respective powers and duties in the following manner: (a) By acting solely in the interest of the Participants and their Beneficiaries; (b) By acting for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Trust Assets and Plan; (c) By acting with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and 28 34 (d) By otherwise acting in accordance with the Plan and Trust Agreement to the extent consistent with Title I of ERISA. 13.03 Company Responsibilities. The Company, acting through the Board of Directors, shall have the authority to amend or terminate the Plan pursuant to the provisions of Article XIV, to determine the amount of Employer Contributions to the Plan pursuant to Article V, to appoint a Trustee and Committee, to approve the adoption of the Plan by any other Employer and to act as agent for any Affiliated Company which has adopted the Plan. Whenever the Company is permitted or required to do or perform any act under the terms of this Plan, it shall be done and performed by any officer duly authorized by the Board of Directors. To enable the Committee to perform its duties, the Company shall supply completely and timely all information which the Committee may from time to time require. 13.04 Trustee Responsibilities. The Trustee shall have, to the extent set forth in the Trust Agreement, authority and discretion to receive, hold and distribute Trust Assets, fiduciary responsibilities in connection with the exercise of such authority and discretion and a duty to issue reports and otherwise to account to the Company and the Committee. All contributions under the Plan shall be paid over to the Trustee and, together with accretions thereto, shall be invested by the Trustee in accordance with the directions permitted under the Plan and Trust Agreement. 13.05 Appointment of Committee. The Plan will be administered by a Committee composed of individuals appointed by the Board of Directors of the Company to serve at its pleasure. A member of the Committee may be removed by the Board of Directors at any time with or without cause upon written notice from the Board of Directors, and any member of the Committee may resign by delivering his written resignation to the Board of Directors. 13.06 Organization and Powers of the Committee. (a) A majority of the members of the Committee at the time in office may do any act which the Plan authorizes or requires the full Committee to do, and the action of such majority of the members expressed from time to time by a vote at a meeting, or in writing without a meeting, shall constitute the action of the Committee and shall have the same effect for all purposes as if assented to by all the members in office at the time. A member of the Committee who is also a Participant in the Plan shall not vote or act on any matter relating solely to himself. Any one member of the Committee may advise the Trustee in writing with respect to any action taken by the Committee. The Committee, as Plan administrator, shall have complete control of the administration of the Plan with all powers necessary to enable it properly to carry out its duties in that respect. A benefit administrator may be appointed by the Committee. The duties of the benefit administrator may include, but shall not be limited to, the day-to-day supervision of the Plan, handling written requests of Participants or Beneficiaries regarding the Plan and performing any duties with respect to claims for benefits specified by the Committee. 29 35 The Committee and its delegates shall have sole and complete discretion in the administration and operation of the Plan. The determination of the Committee as to any question involving the general administration of the Plan, including, but not limited to, determinations regarding eligibility for participation, entitlement to benefit distributions, calculation of benefits and the timing and form of payment of distributions, shall be conclusive, final and binding on all parties, including the Employer, the Trustee and Participants and Beneficiaries. The Committee may appoint counsel or Plan consultants and hire or retain agents and such clerical, medical and accounting services as it may require in carrying out the provisions of the Plan. (b) Duties. The Company shall administer the Plan through the Committee as Plan administrator. As such, the Committee provides for the necessary reporting and disclosure and appoints the Plan consultants and certified public accountant. In addition, the Committee considers appeals and provides for general administration of the Plan as elsewhere herein provided. Upon the request of the Board of Directors, the Committee shall cause to be presented to the Board of Directors a report for the past calendar year (or applicable period thereof) on the status of the Plan and its operation. (c) Reimbursement of Committee. The members of the Committee shall serve without compensation for services as such. The Company, upon an equitable basis, shall pay or reimburse the members of the Committee for all expenses reasonably incurred by them in or about Committee business. (d) Claims Procedure. Any claim by a Participant or Beneficiary shall be filed in writing with the Committee. Any decision by the Committee denying a claim by a Participant or a Beneficiary for benefits under the Plan shall be communicated in writing to the Participant or Beneficiary, setting forth the specific reasons for such denial. Any such Participant or Beneficiary whose claim has been denied, or his duly authorized representative, may (i) appeal to the Committee in writing within sixty (60) days after receipt of the notice of denial for a full review of the decision by the Committee; (ii) review pertinent documents; and (iii) submit issues and comments in writing. The decision by the Committee following such review shall be made no later than sixty (60) days after the date of receipt by the Committee of the request for review, and shall be conclusive as to all persons affected thereby. Such decision shall be in writing and shall include both specific reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent Plan provisions on which the decision is based. 13.07 Indemnification. The officers, directors and employees of the Company, and the members of the Committee, shall be entitled to indemnification by the Company to the extent permitted under the laws of the State of Minnesota and ERISA with regard to any fiduciary liability they or any one or more of them may incur as a named fiduciary to or in connection with the Plan to the extent permitted under the Company's by-laws or provided in any applicable insurance contract(s) which may be maintained by the Company, except to the 30 36 extent that such person shall be determined to be liable by a court of competent jurisdiction for his own willful misconduct. In addition, they each shall be entitled to rely upon all tables, certificates and reports made by a certified public accountant for the Plan and upon all written opinions given by any legal counsel, to the extent it is prudent to so rely, and shall be fully protected with respect to any action prudently taken or suffered by them in good faith based on such reliance. The foregoing rights of indemnification shall be in addition to such other rights as the above persons may enjoy as a matter of law or by reason of insurance coverage of any kind. To the extent permitted by law, except as limited by any written agreement between the Company and the Committee, the Company shall indemnify and save the Committee, as Plan administrator, the benefit administrator and members of the Committee harmless against expenses, claims and liability arising out of being the Plan administrator, the benefit administrator or a Committee member. The Company shall maintain insurance against acts or omissions of the Plan administrator, the benefit administrator and the Committee members. ARTICLE XIV AMENDMENT AND TERMINATION 14.01 Company's Right to Amend. Subject to the provisions hereinafter set forth, the Company reserves the right, at any time or from time to time, by action of the Board of Directors, to amend in whole or in part any or all of the provisions of this Plan; provided, however, that no such amendment shall be made which: (a) Will deprive any Participant of any benefit to which he has a nonforfeitable right under Article X of this Plan; or (b) Shall make it possible for any part of the Trust Assets or its income to be used for, or diverted to, purposes other than for the exclusive benefit of the Participants. No such amendment which affects the rights, duties or responsibilities of the Trustee may be made without the Trustee's written consent. No amendment to the Plan shall decrease a Participant's Account balances or eliminate an optional form of distribution. Notwithstanding the preceding sentence, a Participant's Account balances may be reduced to the extent permitted under Section 412(c)(8) of the Code. Furthermore, no amendment to the Plan shall have the effect of decreasing a Participant's Capital Accumulation determined without regard to such amendment as of the later of the date such amendment is adopted or the date it becomes effective. If the Plan's vesting schedule is amended, or the Plan is amended in any way that directly or indirectly affects the computation of any Participant's nonforfeitable percentage, or if the Plan is deemed amended by an automatic change to or from a "top-heavy" vesting schedule, each Participant with at least five (5) years of Service with the Employer may elect, within a reasonable period after the adoption of the amendment or change, to have his nonforfeitable percentage computed under the Plan without regard to such amendment or change. 31 37 14.02 Mandatory Amendments. Notwithstanding the provisions of this Article XIV, or of any other provision of this Plan, any amendment may be made, retroactively if necessary, which the Company deems necessary or appropriate to conform the Plan to, or to satisfy the conditions of, any law, government regulation or ruling, and to permit the Plan to meet the requirements for qualification under Sections 4975(e)(7) and 401(a) of the Code, and to permit the Trust to meet the requirements for tax-exempt status under Section 501 of the Code. In the event that an initial favorable determination letter from the Internal Revenue Service is denied with respect to the adoption of this Plan, then this Plan shall at the option of the Board of Directors be declared null and void. 14.03 Termination. The Company shall have the right at any time to terminate the Plan and the Trust created concurrently herewith by delivering to the Committee written notice of such termination and by further informing the Trustee by written notice of such termination. Each Employer reserves the right to terminate the participation of its Employees under the Plan. Upon any such termination, such action shall be taken as to render it impossible for any part of the corpus of the Trust or income of the Plan to be at any time used for, or diverted to, purposes other than for the exclusive benefit of Participants and their Beneficiaries. 14.04 Employee Nonforfeitable Rights. Upon termination (or partial termination) of the Plan within the meaning of Section 411(d)(3) of the Code or a complete discontinuance of Employer Contributions hereunder, each Participant (or in the case of a partial termination, each Participant affected) shall continue to have a nonforfeitable right to one hundred (100) percent of the balance in each of his Accounts as of the date of termination, partial termination or complete discontinuance; provided, however, that replacement of this Plan with a comparable plan qualified under Section 401(a) of the Code shall not be a termination for purposes of this Section 14.04. 14.05 Distribution upon Termination. In the event of termination of the Plan pursuant to Section 14.03, the assets then held in Trust under the Plan shall be distributed to the Participants in accordance with Article XI as if a Break in Service occurred as of the date the Plan terminated. ARTICLE XV GENERAL PROVISIONS 15.01 Participants' Rights. Neither the establishment of the Plan, nor any modification hereof, nor the creation of any fund or account, nor the payment of any benefits, shall be construed as giving to any Participant or other person any legal or equitable right against the Company or an Affiliated Company, or any officer or Employee thereof, or the Trustee, or the Committee, except as herein provided. The adoption and maintenance of the Plan shall not be deemed to constitute a contract of employment or otherwise between an Employer and any Employee, or to be a consideration for, or an inducement or condition of, any employment. Nothing contained herein shall be deemed to give an Employee the right to be retained in the 32 38 service of an Employer or otherwise interfere with the right of an Employer to discharge, with or without cause, any Employee at any time. 15.02 Spendthrift Clause. No benefit which shall be payable out of the Trust Assets to any Participant and/or his Beneficiary shall be subject in any manner to any voluntary or involuntary anticipation, alienation, sale, transfer, assignment, garnishment, pledge, encumbrance or charge, and any attempt to anticipate any such benefit shall be void; and no such benefit shall in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of any such Participant and/or his Beneficiary nor shall it be subject to attachment or legal process for or against such person, and the same will not be recognized by the Trustee except to such an extent as may be required by law. The limitations contained in this Section 15.02 shall apply to the creation, assignment or recognition of a right to any benefit payable with respect to a Participant pursuant to a Domestic Relations Order unless such order is determined to be a Qualified Domestic Relations Order as defined in Section 414(p) of the Code, and as defined in Section 11.08(c)(3). Effective December 2, 1997, this Section 15.02 shall not apply to any offset of a Participant's benefits against an amount that the Participant is ordered or required to pay under or pursuant to any judgment, order, decree, or settlement agreement described in Section 401(a)(13) of the Code. 15.03 Company's Liability. All Capital Accumulations will be paid only from the Trust Assets, and neither the Company nor any Employer nor the Committee nor the Trustee shall have any duty or liability to furnish the Trust with any funds, securities or other assets, except as expressly provided in the Plan. 15.04 Merger or Consolidation. In the event of a merger or consolidation of the Plan with, or transfer in whole or in part of the Trust Assets or liabilities to, another trust fund held under any other plan of deferred compensation maintained or to be established for the benefit of all or some of the Participants, Trust Assets or liabilities shall be transferred to the other trust fund only if each Participant or Beneficiary would be entitled to a benefit immediately after the merger, consolidation or transfer (assuming the other plan and trust had then terminated) which is equal to or greater than the benefit to which he would have been entitled to receive immediately before the merger, consolidation or transfer (as if the Plan had then terminated). 15.05 Governing Law. This Plan shall be construed according to the laws of the State of Minnesota and all provisions hereof shall be administered according to, and its validity shall be determined under, the laws of such State, except to the extent that such laws have been specifically preempted by ERISA or other federal legislation. 15.06 Legal Action. In any action or proceeding involving the Trust, or any property constituting part or all thereof, or the administration thereof, Employees or former Employees of the Company or an Affiliated Company or the Beneficiaries or any other person having or claiming to have an interest in the Trust Assets or under the Plan shall not be necessary parties nor entitled to any notice of process. 15.07 Binding on All Parties. Any applicable final judgment which is not appealed or appealable that may be entered in any legal action or proceeding shall be binding and 33 39 conclusive on the Committee and all persons having or claiming to have an interest in the Trust Assets or under the Plan. 15.08 Headings. The headings of the Plan are inserted for convenience of reference only and are not to be considered in the construction or the interpretation of the Plan. 15.09 Severability of Provisions. If any provision of the Plan is held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision, and the Plan shall be construed and enforced as if such provision had not been included. 15.10 Service of Process. The Committee is the designated agent of the Plan for the service of process in connection with all matters affecting the Plan. 15.11 USERRA. Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. 15.12 Earned Income Limitation. Effective for Plan Years beginning on or after January 1, 1997, any contributions to this Plan on behalf of any owner-employee (as that term is defined in Section 401(c)(3) of the Code) may be made only with respect to the earned income of the owner-employee that is derived from the trade or business with respect to which the Plan is established. ARTICLE XVI TOP-HEAVY COMPLIANCE PROVISIONS 16.01 Purpose. The purpose of this Article XVI of the Plan is to comply with the special rules applicable to "top-heavy" plans contained in Section 416 of the Code, as added by Section 240 of the Tax Equity and Fiscal Responsibility Act of 1982, and the appropriate Regulations of the Internal Revenue Service thereunder, including Treasury Regulation Section 1.416-1 and successor Regulations. The rules set forth in this Article XVI shall be operative if the Plan is, or becomes, "top-heavy" within the meaning of Section 416 of the Code and the Regulations thereunder. In the event that by statutory repeal or amendment, or regulatory change or ruling by the Internal Revenue Service, any of the limitations or restrictions of this Article XVI are no longer necessary in order for the Plan to meet the requirements of Section 416 of the Code or other applicable provisions of the Code then in effect, such limitations or restrictions shall immediately become null and void and shall no longer apply without the necessity of further amendment to the Plan. 16.02 Definitions. For purposes of this Article XVI only, the following terms shall have the meanings set forth below: (a) "Determination Date" means, as to any Plan Year, the last day of any preceding Plan Year or, in the case of the first Plan Year, the last day of such Plan Year. 34 40 (b) "Key Employee" means any Employee, or former Employee, or Beneficiary of either, who at any time during the Plan Year or the four (4) preceding Plan Years, is: (1) an officer of an Employer having an annual Section 414(s) Compensation greater than the amount determined by multiplying one hundred fifty (150) percent of the dollar limitation under Section 415(c)(1)(A) of the Code; (2) one of the 10 (ten) Employees owning the largest interests in an Employer having an annual Section 414(s) Compensation at least equal to the dollar limitation under Section 415(c)(1)(A) of the Code; (3) a five (5) percent owner of an Employer; or (4) a one (1) percent owner of an Employer having aggregate annual Section 414(s) Compensation of $50,000 or more from the Employer and all entities required to be aggregated with the Employer under Sections 414(b), (c) and (m) of the Code. For purposes of subparagraphs (2), (3) and (4) above, owners of an Employer shall include those considered as owners within the meaning of Section 318 of the Code. In identifying the top ten (10) Employee owners under Section 16.02(b)(2), only owners of greater than a one-half (1/2) percent interest will be considered, and if several Employees have equal ownership interests, those Employees with higher Section 414(s) Compensation shall be treated as having a greater ownership interest. The determination of who is a Key Employee shall be made in accordance with Section 416(i) of the Code and the Regulations thereunder, the provisions of which are incorporated herein by reference. As used herein, the term non-Key Employee shall mean any employee who is not a Key Employee and any former Key Employer (for all purposes other than Section 16.03). (c) "Valuation Date" means the most recent Valuation Date occurring within the twelve (12) month period ending on the Determination Date. 16.03 Determination of Whether Plan is "Top-Heavy." The Plan will be deemed to be "top-heavy" in any Plan Year if, as of the Determination Date, the sum of the present value of accrued benefits of Key Employees exceeds sixty (60) percent of the sum of the present value of accrued benefits of all Participants, excluding former Key Employees. As used in this Section 16.03, the present value of accrued benefits includes the amounts attributable to Employer Contributions allocated to the individual accounts of Participants and former Participants. The determination of whether the Plan is "top-heavy" and the extent to which distributions, rollovers and transfers are taken into account in such calculation shall be made in accordance with Section 416 of the Code and the regulations thereunder which are herein incorporated by reference. Furthermore, a former Participant's Account balances are to be 35 41 disregarded in determining whether the Plan is "top-heavy" unless the Participant performed any services for an Employer within the five (5) year period ending on the Determination Date. 16.04 Aggregation Group of Employer Plans. All corporations and businesses that are aggregated under Sections 414(b), (c) and (m) of the Code with the Employer must be considered with the Employer for the purposes of determining whether the Plan is "top-heavy." All plans of the Employer in which a Key Employee participates, and each other stock bonus, pension or profit sharing plan, if any, of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Section 401(a)(4) or Section 410 of the Code, will be aggregated as a required aggregation group within the meaning of Section 416(g) of the Code. Each plan in the required aggregation group will be "top-heavy" if the group is "top-heavy," and no plan in the group will be top-heavy if the group is not "top-heavy." In addition, the Employer may elect to include as part of the permissive aggregation group under Section 416(g) of the Code any plans that are not part of a required aggregation group but that satisfy the requirements of Sections 401(a)(4) and 410 of the Code when considered together with the plans constituting the required aggregation group. If the permissive aggregation group is "top-heavy," only those plans which are part of the required aggregation group will be subject to the additional requirements applicable to "top-heavy" plans as herein provided. 16.05 Special Minimum Contribution Becoming Operative in the Event the Plan Becomes "Top-Heavy." In the event that the Plan shall be determined to be "top-heavy" as to any Plan Year, the Employer Contributions allocated to the Accounts under the Plan of a non-Key Employee for each Plan Year in which the Plan is "top-heavy" shall equal the lesser of (a) three (3) percent of Section 414(s) Compensation for such Plan Year and (b) the largest percentage of Section 414(s) Compensation, subject to the Compensation Limitation, allocated to the Accounts of a Key Employee under the Plan for that Plan Year. All Participants who have not terminated employment as of the last day of the Plan Year must receive the minimum contribution. Employees who (a) failed to complete one thousand (1,000) Hours of Service during the Plan Year, (b) declined to make mandatory contributions to the Plan or (c) would have been excluded from the Plan because their Compensation is less than a stated amount, must nevertheless be considered Participants for purposes of the minimum contribution in this Section 16.05 if such Employees are required to satisfy the coverage requirements of Section 410(b) of the Code in accordance with Section 401(a)(5) of the Code. The minimum contribution is determined without regard to any Social Security contribution. 16.06 Pre-"Top-Heavy" Plan Terminated Participant. This Article XVI shall not apply to any Participant who does not complete an Hour of Service after the Plan becomes "top-heavy." 16.07 Special "Top-Heavy" Reduction in Combined Benefit and Contribution Limitation. In the event that the Plan shall be determined to be "top-heavy" in any Plan Year beginning before January 1, 2000, the multiple applicable to the dollar limitation in the 36 42 denominator of the defined benefit fraction described in Section 7.03 of the Plan and the multiple applicable to the dollar limitation in the denominator of the defined contribution fraction described in Section 7.03 of the Plan shall be one (1) rather than one and one-quarter (1.25); provided, however, that this Section 16.07 shall not apply in the event that the Plan is not a "super top-heavy" plan as defined in Section 16.10(a) and each Participant who is a non-Key Employee shall receive the minimum contribution set forth in Section 16.05, except that the multiple in clause (a) of Section 16.05 shall be four (4) percent rather than three (3) percent. 16.08 Termination of "Top-Heavy" Status. In the event that the Plan shall be "top-heavy" within the meaning of Section 416 of the Code for any Plan Year, and in a subsequent Plan Year the Plan shall cease to be "top-heavy," the special "top-heavy" minimum contribution and Compensation Limitation Rules shall cease to apply with respect to any Plan Year for which the Plan is not "top-heavy"; provided, however, that in no event shall a reduction in a Participant's nonforfeitable percentage occur by reason of a change in the Plan's status. 16.09 Multiple "Top-Heavy" Plans. In the event that a Participant in the Plan is also participating in a defined benefit plan maintained by an Employer or an affiliated employer during a Plan Year in which both the Plan and such defined benefit plan are "top-heavy," the Participant shall receive the minimum accrued benefit under the defined benefit plan rather than the minimum contribution provided for in this Plan. 16.10 Effect of the Plan Becoming "Super Top-Heavy". (a) The Plan shall be deemed to be "super top-heavy" if, as of the most recent Valuation Date, the sum of the present value of accrued benefits for Key Employees is more than ninety (90) percent of the sum of the present value of accrued benefits for all Employees, excluding former Key Employees. (b) In the event that the Plan shall be determined to be "super top-heavy" in any Plan Year, the multiple applicable to the dollar limitation in the denominator of the defined benefit fraction described in Section 7.03 of the Plan and the multiple applicable to the dollar limitation in the denominator of the defined contribution fraction described in Section 7.03 of the Plan shall be one (1) rather than one and one-quarter (1.25). ARTICLE XVII DIRECT ROLLOVER AND ELIGIBLE ROLLOVER DISTRIBUTIONS 17.01 Purpose. This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee's election under this Section, a distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover. 37 43 17.02 Definitions. (a) Eligible Rollover Distribution. An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: (1) Any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; (2) Any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and (3) The portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (4) Effective for distributions occurring on or after January 1, 2000 (or such other time beginning no earlier than January 1, 1999, as the Plan Administrator shall determine) the portion of any distribution that is a hardship distribution described in Section 401(k)(2)(B)(IV) of the Code. (b) Eligible Retirement Plan. An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (c) Distributee. A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are distributees with regard to the interest of the spouse or former spouse. (d) Direct Rollover. A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee. 38 44 ARTICLE XVIII EXECUTION To record the adoption of the Plan, the Employer has caused its proper officer to set his hand as of the day of , 1999. POLARIS INDUSTRIES INC. By: /s/ Michael W. Malone ---------------------------- Title: Vice President -- Finance and Chief Financial Officer ---------------------------- 39 EX-10.(V) 3 SEVENTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10(V) SEVENTH AMENDMENT TO CREDIT AGREEMENT This Seventh Amendment to Credit Agreement, dated as of May 10, 1999 ("Seventh Amendment"), is made by and between POLARIS INDUSTRIES INC., a Minnesota corporation (the "Borrower"); U.S. BANK NATIONAL ASSOCIATION, formerly known as FIRST BANK NATIONAL ASSOCIATION, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, formerly known as BANK OF AMERICA ILLINOIS and FIRST UNION NATIONAL BANK, formerly known as FIRST UNION NATIONAL BANK OF NORTH CAROLINA (collectively, the "Banks"); and U.S. BANK NATIONAL ASSOCIATION, as administrative agent for the Banks (the "Administrative Agent"). WHEREAS, the Borrower, the Banks and the Administrative Agent have entered into that certain Credit Agreement dated as of May 8, 1995, as amended by First Amendment to Credit Agreement dated as of November 15, 1995, Second Amendment to Credit Agreement dated as of February 13, 1996, Third Amendment to Credit Agreement dated as of September 30, 1996, Fourth Amendment to Credit Agreement dated as of March 31, 1997, Fifth Amendment to Credit Agreement dated as of August 24, 1998, and a Sixth Amendment to Credit Agreement dated as of December 7, 1998 (as so amended, the "Credit Agreement"). WHEREAS, the Borrower has requested the Banks and the Administrative Agent to modify certain provisions of the Credit Agreement to extend the revolving credit commitment ending date and to change certain other provisions thereof, and the Banks and the Administrative Agent are willing to do so on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree to be bound as follows: Section 1. Capitalized Terms. All capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. Section 2. Amendments. (a) The definitions of "Applicable Fee Percentage", "Applicable Margin" and "Revolving Commitment Amount" in Section 1.1 of the Credit Agreement are amended as follows: 2 (i) In the definition of "Applicable Fee Percentage" the table setting out the Applicable Fee Percentage for the various levels of Daily Average Cash Flow Coverage Ratio is amended to read as follows:
Daily Average Applicable Cash Flow Coverage Ratio Fee Percentage ------------------------ -------------- Greater than 2.0 to 1.0 0.25% Greater than 1.0 to 1.0, but 0.185% less than or equal to 2.0 to 1.0 Less than or equal to 1.0 to 1.0 0.15%
(ii) In the definition of "Applicable Margin" the table setting out the Applicable Margin for the various levels of Daily Average Cash Flow Coverage Ratio is amended to read as follows:
Daily Average Applicable Cash Flow Coverage Ratio Margin ------------------------ ------ Greater than 2.0 to 1.0 1.0% Greater than 1.0 to 1.0, but 0.50% less than or equal to 2.0 to 1.0 Greater than 0.55 to 1.0, but 0.40% less than or equal to 1.0 to 1.0 Less than or equal to 0.55 to 1.0 0.30%
(iii) The definition of "Revolving Commitment Amount" is amended to read as follows: "Revolving Commitment Amount": With respect to a Bank: (a) during the period commencing May 6, 1999 and ending on and including March 30, 2000, the amount set opposite such Bank's name in the table immediately below or as specified in the most recent Assignment Agreement to which such Bank is a party, but as the same may be from time to time reduced pursuant to Section 2.14:
- ----------------------------------------------------------- -------------------------------------------------------- Bank Revolving Commitment Amount Prior - ---- --------------------------------- to March 31, 2000 ----------------- - ----------------------------------------------------------- -------------------------------------------------------- U.S. Bank National Association $63,000,000 - ----------------------------------------------------------- -------------------------------------------------------- Bank of America $56,000,000 - ----------------------------------------------------------- --------------------------------------------------------
3 - ----------------------------------------------------------- -------------------------------------------------------- First Union National Bank $56,000,000 - ----------------------------------------------------------- --------------------------------------------------------
(b) during the period beginning on March 31, 2000 and ending on the Revolving Commitment Ending Date, the amount set opposite such Bank's name in the table immediately below or as specified in the most recent Assignment Agreement to which such Bank is a party, but as the same may be from time to time reduced pursuant to Section 2.14:
- ----------------------------------------------------------- -------------------------------------------------------- Bank Revolving Commitment Amount on and after - ---- ---------------------------------------- March 31, 2000 thru the Revolving --------------------------------- Commitment Ending Date ---------------------- - ----------------------------------------------------------- --------------------------------------------------------- U.S. Bank National Association $54,000,000 - ----------------------------------------------------------- --------------------------------------------------------- Bank of America $48,000,000 - ----------------------------------------------------------- --------------------------------------------------------- First Union National Bank $48,000,000 - ----------------------------------------------------------- ---------------------------------------------------------
(b) Section 2.20 of the Credit Agreement is amended by deleting therefrom the date "March 31, 2000" and inserting in its place the date "March 31, 2002". (c) Section 6.12 of the Credit Agreement is amended in its entirety to read as follows: Section 6.12 Contingent Liabilities. The Borrower will not, and will not permit any Subsidiary to, be or become liable on any Contingent Obligations except: (i) Contingent Obligations existing on the date of this Agreement and described on Exhibit 6.12-4; (ii) the Borrower's guarantee of up to a percentage of Acceptance Partnership's Indebtedness under the Acceptance Partnership Credit Agreement equal to PAI's percentage ownership of Acceptance Partnership and the Borrower's guarantee of PAI's obligation to make additional capital contributions to Acceptance Partnership, provided that the Borrower's maximum liability under such guarantee does not exceed $250,000,000 (with respect to loans) and $50,000,000 (with respect to capital contributions); (iii) PAI's liability as general partner for up to a percentage of Acceptance Partnership's Indebtedness under the Acceptance Partnership Credit Agreement equal to PAI's percentage ownership of Acceptance Partnership, provided that PAI's maximum liability with respect thereto does not exceed $250,000,000; (iv) PAI's obligation to make additional capital contributions to Acceptance Partnership, provided that the sum of such obligation, to the extent quantified at any time, and all Investments in Acceptance Partnership then existing does not exceed $50,000,000; (v) the guarantee by the Subsidiaries of the -3- 4 Borrower's obligations under interest rate protection agreements; and (vi) the guarantee by the Subsidiaries of the Borrower's obligations under import letters of credit issued by one or more of the Banks. Section 3. Conditions to Effectiveness of Seventh Amendment. The Amendments contained in this Seventh Amendment shall not become effective until, and shall become effective when, the Administrative Agent shall have received each of the following, in sufficient number to distribute to each Bank: (a) The Agent shall have received, with a counterpart for each Bank, this Amendment, duly executed by the Borrower, the Banks and the Agent, and consented to by the Guarantors; (b) The Agent shall have received, with a counterpart for each Bank, a copy of resolutions adopted by the Borrower, authorizing the execution, delivery and performance of this Amendment by the Borrower, certified by the Borrower's secretary or assistant secretary; (c) The Agent shall have received, with a counterpart for each Bank, a copy of resolutions adopted by each Guarantor, authorizing the execution, delivery and performance of that Guarantor's consent to this Amendment, certified by that Guarantor's secretary or assistant secretary; (d) The Agent shall have received, with a counterpart for each Bank, a certificate signed by the secretary or assistant secretary of the Borrower certifying (i) as to the incumbency of the person or persons authorized to execute and deliver on behalf of the Borrower this Amendment, and (ii) that the articles or certificate of incorporation and bylaws of the Borrower have not been repealed, rescinded, amended or otherwise modified since copies of the same were delivered to the Banks on or about May 8, 1995, pursuant to Section 3.1 of the Credit Agreement; (e) The Agent shall have received, with a counterpart for each Bank, a certificate signed by the secretary or assistant secretary of each Guarantor certifying (i) as to the incumbency of the person or persons authorized to execute and deliver on behalf of that Guarantor its consent to this Amendment, and (ii) that the articles or certificate of incorporation and bylaws of that Guarantor have not been repealed, rescinded, amended or otherwise modified since copies of the same were delivered to the Banks on or about (x) May 8, 1995, pursuant to Section 3.1 of the Credit Agreement, or (y) the date such Guarantor became a Guarantor, pursuant to Section 6.5 of the Credit Agreement; -4- 5 (f) The Agent shall have received, for the account of each Bank, a written opinion from Kaplan, Strangis & Kaplan, P.A. covering the matters set forth on Exhibit A attached hereto; and (g) The Agent shall have received, with a counterpart for each Bank, such other documents, instruments, approvals and, if requested by the Agent, certified duplicates of executed copies thereof, that the Agent may reasonably request. Section 4. Acknowledgment. The Borrower acknowledges and agrees that its obligations to the Banks and the Administrative Agent under the Credit Agreement, as amended hereby, and the Revolving Notes exist and are owing without offset, defense or counterclaim assertable by the Borrower against the Banks and the Administrative Agent. Section 5. Effect of Seventh Amendment; Representations and Warranties; No Waiver. The Banks, the Administrative Agent and the Borrower agree that after this Seventh Amendment becomes effective, the Credit Agreement, as hereby amended, shall remain in full force and effect. The Borrower represents and warrants that on and as of the date hereof and after giving effect to this Seventh Amendment: (i) all of the representations and warranties contained in the Credit Agreement are correct and complete in all material respects as of the date hereof, as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct as of such earlier date; (ii) there will exist no Default or Event of Default on such date except as waived herein; (iii) there has been no change in any of the certificates or articles of incorporation, bylaws or partnership agreements of the Borrower or any Guarantor since the Closing Date or (if later) the date such Guarantor became a Guarantor; (iv) the Borrower has the power and legal right and authority to enter into this Seventh Amendment; (v) neither this Seventh Amendment, nor the agreements contained herein or therein contravene or constitute a default under any agreement, instrument or indenture to which the Borrower is a party or signatory or a provision of the Borrower's articles of incorporation or, to the best of the Borrower's knowledge, any other agreement or requirement of law; and (vi) no consent, approval or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Borrower of this Seventh Amendment, or the performance of obligations of the Borrower herein or therein described. Section 6. Incorporation of Credit Agreement and Other Loan Documents by Reference; Ratification of Loan Documents. Except as expressly modified under this Seventh Amendment, all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under the Credit Agreement, the Revolving Notes and any and all other documents and agreements entered into with respect to the obligations under the Credit Agreement are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower. All references in the Credit Agreement to "this Agreement," "herein," "hereof," and similar references, and all references in -5- 6 the other Loan Documents to the "Credit Agreement," shall be deemed to refer to the Credit Agreement, as amended by this Seventh Amendment. Section 7. Merger and Integration, Superseding Effect. This Seventh Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes and has merged into it all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Seventh Amendment shall control. Section 8. Expenses. As provided in Section 9.2 of the Credit Agreement, the Borrower agrees to pay all of the expenses, including reasonable attorneys' fees and expenses, incurred by the Administrative Agent in connection with this Seventh Amendment. Section 9. Counterparts. This Seventh Amendment may be executed in any number of counterparts, and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original but all such counterparts together shall constitute but one and the same instrument. Section 10. Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF. -6- 7 IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to Credit Agreement to be executed as of the date and year first above written. POLARIS INDUSTRIES INC., a Minnesota corporation By /s/ Michael Malone ------------------------------------------ Michael Malone Vice President U.S. BANK NATIONAL ASSOCIATION, as Administrative Agent and a Bank By /s/ David Shapiro ------------------------------------------ Name David Shapiro ---------------------------------------- Title Assistant Vice President --------------------------------------- BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Documentation Agent and a Bank By /s/ Gretchen Spoo ------------------------------------------ Name Gretchen Spoo ---------------------------------------- Title Vice President --------------------------------------- FIRST UNION NATIONAL BANK, as a Documentation Agent and a Bank By /s/ C. Jeffrey Seaton ------------------------------------------ Name C. Jeffrey Seaton ---------------------------------------- Title Senior Vice President --------------------------------------- -7- EX-10.(W) 4 EIGHT AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 10(W) EIGHTH AMENDMENT TO CREDIT AGREEMENT This Eighth Amendment to Credit Agreement, dated as of December 22, 1999 ("Eighth Amendment"), is made by and between POLARIS INDUSTRIES INC., a Minnesota corporation (the "Borrower"); U.S. BANK NATIONAL ASSOCIATION, formerly known as FIRST BANK NATIONAL ASSOCIATION, BANK OF AMERICA, N.A., formerly known as BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and FIRST UNION NATIONAL BANK, formerly known as FIRST UNION NATIONAL BANK OF NORTH CAROLINA (collectively, the "Banks"); and U.S. BANK NATIONAL ASSOCIATION, as administrative agent for the Banks (the "Administrative Agent"). WHEREAS, the Borrower, the Banks and the Administrative Agent have entered into that certain Credit Agreement dated as of May 8, 1995, as amended by First Amendment to Credit Agreement dated as of November 15, 1995, Second Amendment to Credit Agreement dated as of February 13, 1996, Third Amendment to Credit Agreement dated as of September 30, 1996, Fourth Amendment to Credit Agreement dated as of March 31, 1997, Fifth Amendment to Credit Agreement dated as of August 24, 1998, a Sixth Amendment to Credit Agreement dated as of December 7, 1998 and a Seventh Amendment to Credit Agreement dated as of May 10, 1999 (as so amended, the "Credit Agreement"). WHEREAS, the Borrower has requested the Banks and the Administrative Agent to modify certain provisions of the Credit Agreement to allow the formation of a new Subsidiary in Australia and to change certain other provisions thereof, and the Banks and the Administrative Agent are willing to do so on the terms and conditions set forth herein. NOW THEREFORE, in consideration of the premises and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree to be bound as follows: Section 1. Capitalized Terms. All capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. Section 2. Amendments. (a) The definition of "Additional Guarantors" in Section 1.1 of the Credit Agreement is amended to read as follows: "Additional Guarantors": Collectively, each Subsidiary other than (i) the Canadian Subsidiary, (ii) the Australian Subsidiary, and (iii) the Initial Guarantors. 2 (b) The following new definition of "Australian Subsidiary" is added to Section 1.1 of the Credit Agreement in appropriate alphabetical order: "Australian Subsidiary": Polaris Sales Australia Pty Ltd. (c) Section 6.9 of the Credit Agreement is amended by adding the following subsection 6.9(n) at the end thereof: 6.9(n) Investments in the Australian Subsidiary (including but not limited to Investments in the form of any intercompany receivable or contributions of or investments in plant, property or equipment); provided that the aggregate cost of all such Investments outstanding at any time shall not exceed $12,000,000 in the aggregate for the Australian Subsidiary. (d) Section 6.10 of the Credit Agreement is amended by adding the following subsection 6.10(g) at the end thereof: 6.10(g)Indebtedness incurred by the Australian Subsidiary, provided that the maximum aggregate amount of Indebtedness outstanding at any time under this clause 6.10(g) shall not exceed $10,000,000 for the Australian Subsidiary. (e) Exhibit 4.19-6 is deleted from the Credit Agreement and new Exhibit 4.19-8, in the form of Exhibit 4.19-8 attached hereto, is added to the Credit Agreement. Section 3. Conditions to Effectiveness of Eighth Amendment. The Amendments contained in this Eighth Amendment shall not become effective until, and shall become effective when, the Administrative Agent shall have received each of the following, in sufficient number to distribute to each Bank: (a) The Agent shall have received, with a counterpart for each Bank, this Amendment, duly executed by the Borrower, the Banks and the Agent, and consented to by the Guarantors; (b) The Agent shall have received, with a counterpart for each Bank, a copy of resolutions adopted by the Borrower (or a Subsidiary, as appropriate), authorizing the execution, delivery and performance of this Amendment by the Borrower, and authorizing the formation of the Australian Subsidiary and the transfer of certain assets of the Borrower (or a Subsidiary) thereto, certified by the Borrower's or such Subsidiary's secretary or assistant secretary together with a copy of resolutions of any Subsidiary subscribing for shares of the Australian Subsidiary and transferring assets thereto, authorizing such actions, certified by the secretary or an assistant secretary of such Subsidiary; 2 3 (c) The Agent shall have received, with a counterpart for each Bank, a copy of resolutions adopted by each Guarantor, authorizing the execution, delivery and performance of that Guarantor's consent to this Amendment, certified by that Guarantor's secretary or assistant secretary; (d) The Agent shall have received, with a counterpart for each Bank, a certificate signed by the secretary or assistant secretary of the Borrower certifying (i) as to the incumbency of the person or persons authorized to execute and deliver on behalf of the Borrower this Amendment, and (ii) that the articles or certificate of incorporation and bylaws of the Borrower have not been repealed, rescinded, amended or otherwise modified since copies of the same were delivered to the Banks on or about May 8, 1995, pursuant to Section 3.1 of the Credit Agreement; (e) The Agent shall have received, with a counterpart for each Bank, a certificate signed by the secretary or assistant secretary of each Guarantor certifying (i) as to the incumbency of the person or persons authorized to execute and deliver on behalf of that Guarantor its consent to this Amendment, and (ii) that the articles or certificate of incorporation and bylaws of that Guarantor have not been repealed, rescinded, amended or otherwise modified since copies of the same were delivered to the Banks on or about (x) May 8, 1995, pursuant to Section 3.1 of the Credit Agreement, or (y) the date such Guarantor became a Guarantor, pursuant to Section 6.5 of the Credit Agreement; (f) The Agent shall have received, for the account of each Bank, a written opinion from Kaplan, Strangis & Kaplan, P.A. covering the matters set forth on Exhibit A attached hereto; (g) The Agent shall have received a copy of the Articles or Certificate of Incorporation of the Australian Subsidiary, with all amendments thereto, certified by the appropriate governmental official of the jurisdiction of incorporation of such Subsidiary as of a date not more than 60 days prior to the date of this Eighth Amendment. (h) The Agent shall have received a certificate of good standing for the Australian Subsidiary in the jurisdiction of incorporation of such Subsidiary as of a date not more than 60 days prior to the date of this Eighth Amendment. (i) The Agent shall have received a copy of the bylaws of the Australian Subsidiary certified as of the date of this Eighth Amendment by the respective Secretary or an Assistant Secretary of such Subsidiary. (j) The Agent shall have received, with a counterpart for each Bank, such other documents, instruments, approvals and, if requested by the Agent, certified duplicates of executed copies thereof, that the Agent may reasonably request. 3 4 Section 4. Consent. On the effective date of this Eighth Amendment the Banks consent to the formation of the Australian Subsidiary and the transfer of property thereto subject to the terms and conditions of the Credit Agreement as amended by this Eighth Amendment. The formation of the Australian Subsidiary and the transfer of property thereto within the limits set forth in the Credit Agreement as amended by this Eighth Amendment shall not be deemed a Default or an Event of Default under the Credit Agreement. Section 5. Acknowledgment. The Borrower acknowledges and agrees that its obligations to the Banks and the Administrative Agent under the Credit Agreement, as amended hereby, and the Revolving Notes exist and are owing without offset, defense or counterclaim assertable by the Borrower against the Banks and the Administrative Agent. Section 6. Effect of Eighth Amendment; Representations and Warranties; No Waiver. The Banks, the Administrative Agent and the Borrower agree that after this Eighth Amendment becomes effective, the Credit Agreement, as hereby amended, shall remain in full force and effect. The Borrower represents and warrants that on and as of the date hereof and after giving effect to this Eighth Amendment: (i) all of the representations and warranties contained in the Credit Agreement are correct and complete in all material respects as of the date hereof, as though made on and as of such date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct as of such earlier date; (ii) there will exist no unwaived Default or Event of Default on such date; (iii) there has been no change in any of the certificates or articles of incorporation, bylaws or partnership agreements of the Borrower or any Guarantor since the Closing Date or (if later) the date such Guarantor became a Guarantor; (iv) the Borrower has the power and legal right and authority to enter into this Eighth Amendment; (v) neither this Eighth Amendment, nor the agreements contained herein or therein contravene or constitute a default under any agreement, instrument or indenture to which the Borrower is a party or signatory or a provision of the Borrower's articles of incorporation or, to the best of the Borrower's knowledge, any other agreement or requirement of law; and (vi) no consent, approval or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Borrower of this Eighth Amendment, or the performance of obligations of the Borrower herein or therein described. Section 7. Incorporation of Credit Agreement and Other Loan Documents by Reference; Ratification of Loan Documents. Except as expressly modified under this Eighth Amendment, all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under the Credit Agreement, the Revolving Notes and any and all other documents and agreements entered into with respect to the obligations under the Credit Agreement are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower. All references in the Credit Agreement to "this Agreement," "herein," "hereof," and similar references, and all references in the other Loan Documents to the "Credit Agreement," shall be deemed to refer to the Credit Agreement, as amended by this Eighth Amendment. 4 5 Section 8. Merger and Integration, Superseding Effect. This Eighth Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes and has merged into it all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Eighth Amendment shall control. Section 9. Expenses. As provided in Section 9.2 of the Credit Agreement, the Borrower agrees to pay all of the expenses, including reasonable attorneys' fees and expenses, incurred by the Administrative Agent in connection with this Eighth Amendment. Section 10. Counterparts. This Eighth Amendment may be executed in any number of counterparts, and by the parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original but all such counterparts together shall constitute but one and the same instrument. Section 11. Governing Law. THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF. 5 6 IN WITNESS WHEREOF, the parties hereto have caused this Eighth Amendment to Credit Agreement to be executed as of the date and year first above written. POLARIS INDUSTRIES INC., a Minnesota corporation By /s/ Michael Malone ------------------------------------- Michael Malone Vice President U.S. BANK NATIONAL ASSOCIATION, as Administrative Agent and a Bank By /s/ David Shapiro ------------------------------------- Name David Shapiro ----------------------------------- Title Assistant Vice President ----------------------------------- BANK OF AMERICA, N.A., as a Documentation Agent and a Bank By /s/ Gretchen Spoo ------------------------------------- Name Gretchen Spoo ----------------------------------- Title Vice President ----------------------------------- FIRST UNION NATIONAL BANK, as a Documentation Agent and a Bank By /s/ C. Jeffrey Seaton ------------------------------------- Name C. Jeffrey Seaton ----------------------------------- Title Senior Vice President ----------------------------------- 6 EX-10.(X) 5 FIRST AMENDMENT TO JOINT VENTURE 1 EXHIBIT 10(X) FIRST AMENDMENT TO JOINT VENTURE AGREEMENT THIS FIRST AMENDMENT TO JOINT VENTURE AGREEMENT is dated the 30th day of June, 1999 (the "First Amendment") and is between Polaris Industries, Inc., a Minnesota corporation ("Polaris") and Transamerica Commercial Finance Corporation, a Delaware corporation ("TCFC") (collectively, Polaris and TCFC, the "Parties" and individually, a "Party") and amends, in part, the Joint Venture Agreement (the "JV Agreement") dated the 7th day of February, 1996 between Polaris and TCFC. All capitalized terms herein shall have the same meaning as in the JV Agreement unless otherwise defined herein. RECITALS WHEREAS, Polaris and TCFC caused their respective subsidiaries, Polaris Acceptance Inc., a Minnesota corporation ("PAI") and Transamerica Joint Ventures, Inc. ("TJV"), a Delaware corporation (collectively, PAI and TJV the "Partners"), to enter into a Partnership Agreement dated February 7, 1996, as it may be amended from time to time (the "Partnership Agreement") to form an Illinois general partnership (the "Partnership" or "PA" or "Polaris Acceptance") for the ownership and operation of a commercial finance business and related finance businesses within the United States and other countries supporting the business of Polaris and its affiliates from time to time and such other businesses as the Parties subsequently may agree, as further described therein. WHEREAS, PA desires to expand its business to enter into an Income Sharing Agreement with Transamerica Retail Financial Services Corporation, a Delaware corporation ("TRFS") dated the 30th day of June, 1999 (the "Sharing Agreement"); and WHEREAS, it is a condition of the Sharing Agreement that Polaris and TCFC amend the terms of the JV Agreement as set forth in this First Amendment; and NOW, THEREFORE, in consideration of the premises, recitals and mutual covenants, undertakings and obligations hereinafter set forth or referred to herein, the Parties mutually covenant and agree as set forth below. AGREEMENT 1. Definitions. (a) The definitions of the following terms, when used in the JV Agreement, shall, from and after the effective date of this First Amendment, be hereby amended as follows: (i) The term "Agreement" shall mean the Agreement as amended by this First Amendment; and (ii) The term "Definitive Agreements" shall (A) include the Sharing Agreement and (B) mean any of the Definitive Agreements as they may be amended from time to time, including without limitation as amended by the Amended Definitive Agreements. 1 of 3 2 (b) The following new terms shall be added to the JV Agreement as of the effective date of this First Amendment: (i) The term "First Amendment" shall mean the First Amendment to the JV Agreement executed by Polaris and TCFC dated the 30th day of June, 1999; (ii) The term "Sharing Agreement" shall mean the Income Sharing Agreement dated the 30th day of June, 1999 between PA and TRFS; (iii) The term "Amended Definitive Agreements", shall have the same meaning as in the Sharing Agreement, and shall also include the (i) Manufacturer's Repurchase Agreement between Polaris Industries Partners, L.P. and TCFC as amended by the Second Amendment to Manufacturer's Repurchase Agreement executed by Polaris Industries Inc., a Delaware corporation and Polaris Sales Inc., a Minnesota corporation on the one hand, and TCFC on the other hand on the 30th day of June, 1999; (ii) the Revolving Program Agreement between Polaris and Transamerica Bank, N.A., dated the 30th day of June, 1999, and (iii) the Installment Program Agreement between Polaris and TRFS, dated the 30th day of June, 1999, as any of those or the other Definitive Agreements may be amended from time to time; (iv) The term "Retail Effective Date" shall have the same meaning as in the Sharing Agreement; and (v) The term "TRFS" shall mean Transamerica Retail Financial Services Corporation, a Delaware corporation, its successors and assigns. 2. Amended Purpose. Section 1.1, Purpose, shall be amended by adding a subparagraph (iv) as follows: and (iv) an agreement to enter into the Sharing Agreement with TRFS, as such agreement may be amended from time to time. 3. Amended Location. Section 1.3, Location, shall be amended to change the principal place of business of the Partnership from Rolling Meadows, IL. to Hoffman Estates, IL. 4. Amended Notice Address. Section 7.2, Notices, shall be amended to change the notice addresses to TCFC as follows: To: TCFC c/o Transamerica Commercial Finance Corporation 5595 Trillium Boulevard Hoffman Estates, Illinois 60192 Attention: Vice President, Operations Facsimile Number: 847-747-7451 with a copy to: General Counsel Transamerica Commercial Finance Corporation 5595 Trillium Boulevard Hoffman Estates, Illinois 60192 Attention: General Counsel 2 of 3 3 Facsimile Number: 847-747-7455 5. Representations and Warranties. Each Party represents and warrants to the other Party with respect to itself and its respective Partner subsidiary that all representations and warranties in the JV Agreement made as of the Closing (as defined in the JV Agreement) are made again as of the effective date of this First Amendment. 6. Entire Agreement. The JV Agreement as amended by this First Amendment, together with the other Definitive Agreements and the Amended Definitive Agreements, as of the date hereof contain all of the understandings and agreements of whatsoever kind and nature existing between the Parties hereto and their respective affiliates with respect to the JV Agreement, the other Definitive Agreements and the Amended Definitive Agreements, regarding the subject matter hereof and the subject matter of the other Definitive Agreements and Amended Definitive Agreements and the rights, interests, understandings, agreements and obligations of the Parties and their respective affiliates pertaining to the subject matter hereof and thereof and the Partnership, and supersedes any previous agreements between the Parties and their respective affiliates. 7. Governing Law. This First Amendment shall be governed by, and construed and enforced under, the laws of the State of Illinois without regard to conflict of law principles. Except as otherwise set forth herein, all terms and conditions of the JV Agreement are hereby ratified and shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first above written, it being understood and agreed that it shall be effective as of the Retail Effective Date. POLARIS INDUSTRIES INC. By: /s/ Michael Malone -------------------------------------------- Name: Michael Malone ------------------------------------------ Title: Vice President - Chief Financial Officer ----------------------------------------- TRANSAMERICA COMMERCIAL FINANCE CORPORATION By: /s/ Steven J. Toenisklette -------------------------------------------- Name: Steven J. Toenisklette ----------------------------------------- Title: Senior Vice President ----------------------------------------- 3 of 3 EX-10.(Y) 6 SECOND ADMENDMENT TO JOINT VENTURE 1 EXHIBIT 10(Y) SECOND AMENDMENT TO JOINT VENTURE AGREEMENT THIS SECOND AMENDMENT TO JOINT VENTURE AGREEMENT is dated the 24th day of February, 2000 (the "Second Amendment") and is between Polaris Industries Inc., a Minnesota corporation ("Polaris"), and Transamerica Commercial Finance Corporation, a Delaware corporation ("TCFC") (collectively, Polaris and TCFC, the "Parties" and individually, a "Party") and amends, in part, the Joint Venture Agreement (the "JV Agreement") dated the 7th day of February, 1996 between Polaris and TCFC and as previously amended. All capitalized terms herein shall have the same meaning as in the JV Agreement unless otherwise defined herein. RECITALS WHEREAS, Polaris and TCFC caused their respective subsidiaries, Polaris Acceptance Inc., a Minnesota corporation ("PAI") and Transamerica Joint Ventures, Inc. ("TJV"), a Delaware corporation (collectively, PAI and TJV the "Partners"), to enter into a Partnership Agreement dated February 7, 1996, as it may be amended from time to time (the "Partnership Agreement") to form an Illinois general partnership (the "Partnership") or "PA" or "Polaris Acceptance") for the ownership and operation of a commercial finance business and related finance businesses within the United States and other countries supporting the business of Polaris and its affiliates from time to time and such other businesses as the Parties subsequently may agree, as further described therein. WHEREAS, PA desires to extend the initial term of the Partnership Agreement and of the JV Agreement; and WHEREAS, it is a condition of the extension of the initial term of the JV Agreement that Polaris and TCFC amend the terms of the JV Agreement as set forth in this Second Amendment, and WHEREAS, the Parties or their affiliates are also executing amendments to other of The Amended Definitive Agreements, NOW, THEREFORE, in consideration of the premises, recitals and mutual covenants, undertakings and obligations hereinafter set forth or referred to herein, the Parties mutually covenant and agree as set forth below. AGREEMENT 1. Definitions. (a) The definitions of the following terms, when used in the JV Agreement, shall, from and after the effective date of this Second Amendment, be hereby amended as follows: (i) The term "Agreement" shall mean the Joint Venture Agreement as amended by this Second Amendment; and (b) The following new terms shall be added to the JV Agreement as of the effective date of this Second Amendment: (i) The term "Second Amendment" shall mean the Second Amendment to the JV Agreement executed by Polaris and TCFC dated the 24th day of February, 2000; (ii) The term "Amended Definitive Agreements", shall have the same meaning as in the First Amendment, and shall also include this Second Amendment and the various amendments to the Definitive Agreements being executed concurrently with this Second Amendment and as any of those Definitive Agreements may be amended from time to time; 1 of 4 2 2. Amended Term. Section 1.4 is hereby deleted in its entirety and is hereby replaced with the following: 1.4 Term. The Partnership shall begin on March 1, 1996 and, unless sooner dissolved or terminated under the provisions of the Partnership Agreement, shall continue until February 29, 2004, and thereafter shall be extended automatically for additional one-year terms unless at least one year prior to the expiration of the initial or additional term (as applicable) either Partner gives notice to the other Partner of its intention not to extend the term, in which event the Partnership shall dissolve in accordance with the terms of the Partnership Agreement upon expiration of the then current term. 3. Amended Capital Contribution. The existing paragraph of Section 1.5, Initial Capital Contribution, is hereby amended by adding the prefix "(A)" prior to the phrase "Initial Capital Contribution" and new paragraphs (B) and (C) are hereby added to Section 1.5 which shall read as follows: 1.5(B) Ongoing Capital Contributions. Pursuant to the amended Section 2.2 of the Partnership Agreement entitled "Additional Capital Contributions", each of PAI and TJV is required to make certain payments from time to time to maintain capital requirements. In the event PAI does not make any such payment in full when due, Polaris shall within 5 business days make or cause one of its affiliates to make such required payment on behalf of PAI. In the event TJV does not make any such payment in full when due, TCFC shall within 5 business days make or cause one of its affiliates to make such required payments on behalf of TJV. 1.5(C) General Reserve Obligations. Pursuant to Section 2.6 of the Partnership Agreement entitled "Establishment of Reserves" each of PAI and TJV may be required to make certain payments from time to time to maintain general reserves established by the Management Committee. In the event PAI does not make any such required payment in full when due, Polaris shall within 5 business days make or cause one of its affiliates to make such required payments on behalf of PAI. In the event TJV does not make any such required payment in full when due, TCFC shall within 5 business days make or cause one of its affiliates to make such required payments on behalf of TJV. 4. Amended Agreements. Section 1.6, Agreements, is hereby amended by deleting the following words from the 9th and 10th lines of the paragraph: "the Guarantee from Polaris given on behalf of PAI dated February 7, 1996 (the "Polaris Guarantee"),". 5. Amended Technology. Section 7.18, Technology, is hereby amended to delete the phrase "or 8.14 of the Partnership Agreement" from the thirteenth line of the section. 6. Representations and Warranties. Each Party represents and warrants to the other Party with respect to itself and its respective Partner subsidiary that all representations and warranties in the JV Agreement made as of the Closing (as defined in the JV Agreement) are made again as of the effective date of this Second Amendment. 7. Entire Agreement. The JV Agreement as amended by this Second Amendment, together with the other Definitive Agreements and the Amended Definitive Agreements, as of the date hereof contain all of the understandings and agreements of whatsoever kind and nature existing between the Parties hereto and their respective affiliates with respect to the JV Agreement, the other Definitive Agreements and the Amended Definitive Agreements, regarding the subject matter hereof and the subject matter of the other Definitive Agreements and Amended Definitive Agreements and the rights, interests, understandings, agreements and obligations of the Parties and their respective affiliates pertaining to the subject matter hereof and thereof and the Partnership, and supersedes any previous agreements between the Parties and their respective affiliates. 8. Notices. Section 7.2 of the JV Agreement is hereby deleted in its entirety and is replaced with the following: Notices. All notices, documents, written deliveries and other communications hereunder shall be in 2 of 4 3 writing and shall be deemed to have been given (i) when delivered in person, (ii) one business day after deposit with a nationally recognized overnight courier service, (iii) five business days after being deposited in the United States mail, postage prepaid, first class, registered or certified mail, or (iv) the business day on which sent and received by facsimile as follows: To: Polaris c/o Polaris Industries Inc. 2100 Highway 55 Medina, Minnesota 55340 Attention: Michael Malone Facsimile Number: 612-542-0595 With a copy to: Kaplan, Strangis and Kaplan, P.A. 5500 Norwest Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: James C. Melville Facsimile Number: 612-375-1143 To: TCFC c/o Transamerica Commercial Finance Corporation 5595 Trillium Blvd. Hoffman Estates, Illinois 60192 Attention: Vice President, Operations Facsimile Number: 847-747-7451 With a copy to: General Counsel Transamerica Commercial Finance Corporation 5595 Trillium Blvd. Hoffman Estates, Illinois 60192 Facsimile Number: 847-747-7455 9. Governing Law. This Second Amendment shall be governed by, and construed and enforced under, the laws of the State of Illinois without regard to conflict of law principles. Except as otherwise set forth herein, all terms and conditions of the JV Agreement are hereby ratified and shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first above written, it being understood and agreed that it shall be effective as of the execution hereof by all Parties hereto. POLARIS INDUSTRIES INC., A MINNESOTA CORPORATION By: /s/ Michael Malone ---------------------------------------- Name: Michael Malone ---------------------------------------- Title: Vice President - Chief Financial Officer ---------------------------------------- 3 of 4 4 TRANSAMERICA COMMERCIAL FINANCE CORPORATION By: /s/ Rosario A. Perrelli ---------------------------------------- Name: Rosario A. Perrelli ---------------------------------------- Title: Senior Vice President ---------------------------------------- 4 of 4 EX-13 7 PORTIONS OF THE ANNUAL REPORT TO SECURITY HOLDERS 1 Exhibit 13 ================================================================================ 11-YEAR SELECTED FINANCIAL DATA in thousands, except per share and per unit data ================================================================================ The selected financial data presented below are qualified in their entirety by, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto and other financial and statistical information referenced elsewhere herein, including the information referenced under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Years Ended December 31, 1999 1998 1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA Sales data Total sales dollars $1,321,076 $1,175,520 $ 1,048,296 $1,191,901 $1,113,852 $826,286 $528,011 - --------------------------------------------------------------------------------------------------------------------------------- % change from prior year 12% 12% (12%) 7% 35% 56% 38% - --------------------------------------------------------------------------------------------------------------------------------- Sales mix by product (%) All-terrain vehicles 59% 57% 45% 37% 33% 30% 27% - --------------------------------------------------------------------------------------------------------------------------------- Snowmobiles 28% 32% 42% 43% 46% 52% 59% - --------------------------------------------------------------------------------------------------------------------------------- Personal watercraft 4% 4% 7% 16% 16% 14% 9% - --------------------------------------------------------------------------------------------------------------------------------- Motorcycles 4% 1% -- -- -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- International 5% 6% 6% 4% 5% 4% 5% - --------------------------------------------------------------------------------------------------------------------------------- Gross profit data Total gross profit dollars $ 328,340 $ 278,287 $ 262,538 $ 263,816 $ 247,993 $196,783 $141,387 - --------------------------------------------------------------------------------------------------------------------------------- % of sales 25% 24% 25% 22% 22% 24% 27% - --------------------------------------------------------------------------------------------------------------------------------- Operating expense data Amortization of intangibles and noncash compensation $ 10,472 $ 8,703 $ 5,887 $ 5,325 $ 5,616 $ 14,321 $ 13,466 - --------------------------------------------------------------------------------------------------------------------------------- Conversion costs -- -- -- -- -- 12,315 -- - --------------------------------------------------------------------------------------------------------------------------------- Other operating expenses 204,222 169,478 163,549 161,074 140,719 94,485 74,694 - --------------------------------------------------------------------------------------------------------------------------------- % of sales 15% 14% 16% 14% 13% 11% 14% - --------------------------------------------------------------------------------------------------------------------------------- Actual, adjusted,(1) and pro forma data(2) Net income $ 76,326 $ 70,624(1) $ 65,383 $ 62,293 $ 60,776 $ 54,703 $ 33,027 - --------------------------------------------------------------------------------------------------------------------------------- Diluted net income per share $ 3.07 $ 2.72(1) $ 2.45 $ 2.24 $ 2.19 $ 1.98 $ 1.21 - --------------------------------------------------------------------------------------------------------------------------------- CASH FLOW DATA Cash flow from operating activities $ 124,354 $ 121,385 $ 102,308 $ 89,581 $ 77,749 $111,542 $ 78,503 - --------------------------------------------------------------------------------------------------------------------------------- Purchase of property and equipment 65,063 61,532 36,798 45,336 47,154 32,656 18,946 - --------------------------------------------------------------------------------------------------------------------------------- Repurchase and retirement of common stock 52,412 37,728 39,903 13,587 -- -- -- - --------------------------------------------------------------------------------------------------------------------------------- Cash dividends to shareholders 19,732 18,582 16,958 16,390 116,639 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Cash dividends per share $ 0.80 $ 0.72 $ 0.64 $ 0.60 $ 4.27 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Cash distributions declared to partners -- -- -- -- -- 50,942 47,217 - --------------------------------------------------------------------------------------------------------------------------------- Cash distributions declared per unit -- -- -- -- -- $ 1.68 $ 1.67 - --------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA (at end of year) Cash and cash equivalents $ 6,184 $ 1,466 $ 1,233 $ 5,812 $ 3,501 $ 62,881 $ 33,798 - --------------------------------------------------------------------------------------------------------------------------------- Current assets 214,714 183,840 217,458 193,405 175,271 206,489 109,748 - --------------------------------------------------------------------------------------------------------------------------------- Total assets 442,027 378,697 384,746 351,717 314,436 331,166 180,548 - --------------------------------------------------------------------------------------------------------------------------------- Current liabilities 233,800 204,964 191,111 161,387 155,722 161,457 98,055 - --------------------------------------------------------------------------------------------------------------------------------- Borrowings under credit agreement 40,000 20,500 24,400 35,000 40,200 -- -- - --------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity/ Partners' capital 168,227 153,233 169,235 155,330 118,514 169,709 82,493 =================================================================================================================================
Years Ended December 31, 1992 1991 1990 1989 - ---------------------------------------------------------------------------- STATEMENT OF OPERATIONS DATA Sales data Total sales dollars $383,818 $297,677 $296,147 $242,618 - ---------------------------------------------------------------------------- % change from prior year 29% 1% 22% 41% - ---------------------------------------------------------------------------- Sales mix by product (%) All-terrain vehicles 25% 25% 19% 19% - ---------------------------------------------------------------------------- Snowmobiles 63% 69% 74% 74% - ---------------------------------------------------------------------------- Personal watercraft 7% -- -- -- - ---------------------------------------------------------------------------- Motorcycles -- -- -- -- - ---------------------------------------------------------------------------- International 5% 6% 7% 7% - ---------------------------------------------------------------------------- Gross profit data Total gross profit dollars $112,322 $ 94,120 $ 93,845 $ 80,384 - ---------------------------------------------------------------------------- % of sales 29% 32% 32% 33% - ---------------------------------------------------------------------------- Operating expense data Amortization of intangibles and noncash compensation $ 11,997 $ 13,108 $ 12,116 $ 15,717 - ---------------------------------------------------------------------------- Conversion costs -- -- -- -- - ---------------------------------------------------------------------------- Other operating expenses 59,634 49,294 50,917 38,366 - ---------------------------------------------------------------------------- % of sales 16% 17% 17% 16% - ---------------------------------------------------------------------------- Actual, adjusted,(1) and pro forma data(2) Net income $ 24,602 $ 20,727 $ 20,465 $ 16,657 - ---------------------------------------------------------------------------- Diluted net income per share $ 0.91 $ 0.81 $ 0.79 $ 0.65 - ---------------------------------------------------------------------------- CASH FLOW DATA Cash flow from operating activities $ 55,316 $ 46,642 $ 54,782 $ 44,447 - ---------------------------------------------------------------------------- Purchase of property and equipment 12,295 15,988 7,158 7,065 - ---------------------------------------------------------------------------- Repurchase and retirement of common stock -- -- -- -- - ---------------------------------------------------------------------------- Cash dividends to shareholders -- -- -- -- - ---------------------------------------------------------------------------- Cash dividends per share -- -- -- -- - ---------------------------------------------------------------------------- Cash distributions declared to partners 44,507 42,581 42,582 32,514 - ---------------------------------------------------------------------------- Cash distributions declared per unit $ 1.67 $ 1.67 $ 1.67 $ 1.51 - ---------------------------------------------------------------------------- BALANCE SHEET DATA (at end of year) Cash and cash equivalents $ 19,094 $ 20,098 $ 32,025 $ 27,886 - ---------------------------------------------------------------------------- Current assets 74,999 59,200 66,893 60,344 - ---------------------------------------------------------------------------- Total assets 146,681 135,509 138,704 137,628 - ---------------------------------------------------------------------------- Current liabilities 69,054 52,646 46,602 38,875 - ---------------------------------------------------------------------------- Borrowings under credit agreement -- -- -- -- - ---------------------------------------------------------------------------- Shareholders' equity/ Partners' capital 77,627 82,863 92,102 98,753 ============================================================================
(1) In 1998, Polaris entered into a settlement agreement related to a trade secret infringement claim brought by Injection Research Specialists, Inc. The one-time provision for litigation loss of $61.4 million, or $1.53 per diluted share, has been excluded from the 1998 financial data presented to assist in comparing the continuing results of operations of the Company exclusive of the settlement which had no effect on the future operations of the Company. (2) The comparability of the information reflected in the Selected Financial data is materially affected by the conversion from a master limited partnership to a corporation on December 22, 1994, which resulted in the Company recording a net deferred tax asset of $65.0 million, conversion expenses of $12.3 million and a corresponding net increase in 1994 net income. Pro forma data is presented to assist in comparing the continuing results of operations of the Company exclusive of the conversion costs and as if the Company was a taxable corporation for each period presented. 2 ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of operations ================================================================================ The following discussion pertains to the results of operations and financial position of the Company for each of the three years in the period ended December 31, 1999, and should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere herein. RESULTS OF OPERATIONS 1999 VS. 1998 Sales increased to $1.321 billion in 1999, representing a 12 percent increase from $1.176 billion in 1998. The increase in sales was primarily due to higher all-terrain vehicle (ATV) sales, resulting from the tenth consecutive year of increased ATV sales. North American sales of ATVs and related parts, garments and accessories (PG&A) of $774.3 million in 1999 were 15 percent higher than $673.9 million in 1998. The increased sales reflect the continued double-digit growth of the industry as consumers find new and expanded uses for the product. Polaris' growth was driven by the continued strength of its Sportsman line of products. Sales of ATVs and related PG&A comprised 59 percent of total company sales in 1999 compared to 57 percent in 1998. North American sales of snowmobiles and related PG&A of $376.9 million in 1999 were 1 percent higher than $374.4 million in 1998. The modest increase in sales was accomplished in spite of a decline in total industry sales in 1999 due to another winter of below average snowfall levels for much of North America. Sales of snowmobiles and related PG&A comprised 28 percent of total company sales in 1999 compared to 32 percent in 1998. North American sales of personal watercraft (PWC) and related PG&A of $54.2 million in 1999 were 7 percent higher than $50.4 million in 1998. The increase was attributable to a slight market share increase driven by our new Genesis model. The average per unit sales price increased 9 percent for PWC in 1999 as a result of the success of our higher-priced Genesis model. Sales of PWC and related PG&A comprised 4 percent of total company sales in 1999 and in 1998. North American sales of Victory motorcycles and related PG&A of $47.4 million in 1999 were significantly higher than $15.2 million in 1998. 1999 was the first full year of Victory production. Sales of Victory motorcycles and related PG&A comprised 4 percent of total company sales in 1999 compared to 1 percent in 1998. International sales of snowmobiles, ATVs, PWC, and related PG&A of $68.3 million in 1999 were 11 percent higher than $61.7 million in 1998. International sales increased across all product lines as Polaris continues to focus on international markets as an opportunity for growth. International sales comprised 5 percent of total company sales in 1999, compared to 6 percent in 1998. Gross profit increased to $328.3 million in 1999, representing an 18 percent increase over $278.3 million gross profit in 1998. This increase in gross profit dollars was a result of higher sales volume and an increase in gross profit margin percentage to 24.9 percent in 1999 from 23.7 percent in 1998. The increase in gross profit margin percentage was primarily a result of manufacturing cost reductions, in areas such as ATV model consolidation, Victory cost improvements, a full year impact of the plastic injection molding facility, and supplier partnership cost savings, as well as the margin benefit of increased sales of higher margin PG&A. These positive factors have been somewhat offset by a shift in sales mix to ATVs, which have a lower gross profit margin than snowmobiles, and the negative impact of the Japanese yen and Canadian dollar exchange rates during 1999. Polaris has continued to invest in new product development, innovation, and product diversification. Research and development expenses were $31.3 million (2.4 percent of sales) in 1999 and $28.4 million (2.4 percent of sales) in 1998. In addition, Polaris incurred tooling expenditures for new products of $18.3 million in 1999 and $24.8 million in 1998. In 1999, more than 79 percent of sales came from products introduced in the past three years. Operating expenses in 1999 increased 20 percent to $214.7 million from $178.2 million in 1998. Expressed as a percentage of sales, operating expenses increased to 16.3 percent in 1999 from 15.2 percent in 1998. These increases are primarily related to a planned increase in expenses to build the infrastructure to support the Company's growth and brand recognition initiatives, and a higher level of promotional and advertising costs related to assisting the dealers in selling their inventories. Nonoperating expense (income) in 1998 included a $61.4 million provision for litigation loss related to the settlement of the Injection Research Specialists litigation, a one-time charge that did not affect the ongoing operations of the company. The remaining decline in nonoperating expense (income) in 1999 from 1998 primarily reflects the unfavorability related to Canadian dollar exchange rate hedging in 1999 partially offset by the positive financial impact of the Company's equity in the income of Polaris Acceptance. Net income in 1999 was $76.3 million, an increase from $31.0 million in 1998, primarily as a result of the 1998 litigation settlement. Net income as a percent of sales was 5.8 percent in 1999, an increase from 2.6 percent in 1998. Net income per diluted share increased to $3.07 in 1999 from $1.19 in 1998. Net income increased 8 percent to $76.3 million from net income (adjusted to exclude the litigation settlement) of $70.6 million in 1998. Net income as a percent of sales decreased to 5.8 percent in 1999 from adjusted net income as a percent of sales of 6.0 percent in 1998. Net income per diluted share increased 13 percent to $3.07 in 1999 from adjusted net income per diluted share of $2.72 in 1998. 3 1998 VS. 1997 Sales increased to $1.176 billion in 1998, representing a 12 percent increase from $1.048 billion in 1997. The increase in sales was primarily due to higher ATV sales, partially offset by a decline in snowmobile sales. In 1998, Polaris achieved its ninth consecutive year of increased ATV sales. North American sales of ATVs and PG&A of $673.9 million in 1998 were 42 percent higher than $473.2 million in 1997. The increased sales reflect the continued strong growth of the industry as consumers find new and expanded uses for the product. Additionally, management believes that Polaris increased its market share of ATV sales as a result of its continued expansion of the popular Sportsman line of ATVs and other new model introductions. The average per unit sales price increased 6 percent for ATVs in 1998 as the sales mix continued to move to new, higher performance models. Sales of ATVs and related PG&A comprised 57 percent of total company sales in 1998 compared to 45 percent in 1997. North American sales of snowmobiles and PG&A of $374.4 million in 1998 were 16 percent lower than $443.0 million in 1997. The decline is due to lower snowmobile production levels in 1998 in response to poor snow conditions, warmer than normal temperatures in North America and higher ending dealer inventories for the 1997-1998 selling season. Sales of snowmobiles and related PG&A comprised 32 percent of total company sales in 1998 compared to 42 percent in 1997. North American sales of personal watercraft (PWC) and related PG&A of $50.4 million in 1998 were 31 percent lower than $73.4 million in 1997. The decrease is attributable to significantly lower production levels of PWC in 1998 to compensate for the increased dealer inventory remaining from the prior season reflecting the reduction of industry growth. Sales of PWC and related PG&A comprised 4 percent of total company sales in 1998 compared to 7 percent in 1997. North American sales of Victory motorcycles and related PG&A were $15.2 million in 1998. Victory shipments to our dealers began in July 1998. Sales of Victory motorcycles and related PG&A comprised 1 percent of total company sales in 1998, the initial year of production. International sales of snowmobiles, ATVs, PWC, and related PG&A of $61.7 million in 1998 were 5 percent higher than $58.7 million in 1997. The increase in international sales was primarily due to an increase in ATV shipments. International sales comprised 6 percent of total Company sales in 1998, the same as 1997. Gross profit increased to $278.3 million in 1998, representing a 6 percent increase over $262.5 million gross profit in 1997. However, the gross profit margin percentage of 23.7 percent in 1998 decreased from 25.0 percent in 1997. The decrease in gross profit margin percentage is primarily a result of (a) the mix impact of the substantial increase in sales of ATVs, which have a lower margin than snowmobiles, (b) negative impact of the Canadian dollar exchange rate when compared to the prior year, (c) initial production rollout of the Victory motorcycles, and (d) reduced pricing on 1998 model ATVs implemented in the Fall of 1997. These negative factors have been somewhat offset by the continued improvement in overall product quality, which has resulted in a decrease in warranty expenses. Polaris has continued to invest in new product development, innovation, and product diversification. Research and development expenses were $28.4 million (2.4 percent of sales) in 1998 and $26.7 million (2.5 percent of sales) in 1997. In addition, Polaris incurred tooling expenditures for new products of $24.8 million in 1998 and $19.3 million in 1997. In 1998, 73 percent of sales came from products introduced in the past three years. Operating expenses in 1998 increased 5 percent to $178.2 million from $169.4 million in 1997. Expressed as a percentage of sales, operating expenses decreased to 15.2 percent in 1998 from 16.2 percent in 1997. These decreases are primarily attributable to the leveraging effect of higher sales and reduced level of promotional and advertising costs related to assisting dealers in selling their PWC and snowmobile inventories partially offset by a planned increase in advertising expenditures. Nonoperating expense (income) in 1998 includes a $61.4 million provision for litigation loss related to the settlement of the Injection Research Specialists litigation. This is a one-time charge that does not affect the ongoing operations of the company. The remaining improvement in nonoperating expense (income) in 1998 from 1997 primarily reflects the positive financial impact of the Company's equity in the income of Polaris Acceptance. The provision for income taxes was reduced to a rate of 35.5 percent of pretax income beginning in the third quarter of 1998 from 36.0 percent in prior periods as a result of certain tax planning strategies. Net income in 1998 was $31.0 million, a decrease from $65.4 million in 1997, primarily as a result of the litigation settlement. Net income as a percent of sales was 2.6 percent in 1998, a decrease from 6.2 percent in 1997. Net income per diluted share decreased to $1.19 in 1998 from $2.45 in 1997. Net income adjusted to exclude the litigation settlement increased 8 percent to $70.6 million in 1998 from $65.4 million in 1997. Adjusted net income as a percent of sales decreased to 6.0 percent in 1998 from 6.2 percent in 1997. Adjusted net income per diluted share increased 11 percent to $2.72 in 1998 from $2.45 in 1997. LIQUIDITY AND CAPITAL RESOURCES Polaris' primary sources of funds have been cash provided by operating activities, a $175 million bank line of credit and a dealer floor plan financing program. Polaris' primary uses of funds have been for capital investments, new product development, repurchase and retirement of common stock, cash dividends to shareholders, and payment of litigation expenses. 4 ================================================================================ MANAGEMENT'S DISCUSSION AND ANALYSIS of financial condition and results of operations (continued) ================================================================================ During 1999, Polaris generated net cash from operating activities of $124.4 million, which was utilized to fund capital expenditures of $65.1 million, net investments in affiliates of $1.9 million, cash dividends of $19.7 million and the repurchase of common stock of $52.4 million. During 1998, Polaris generated net cash from operating activities of $121.4 million, which was utilized to fund capital expenditures of $61.5 million, cash dividends of $18.6 million, and the repurchase of common stock of $37.7 million. During 1997, Polaris generated net cash from operating activities of $102.3 million, which was utilized to fund capitalized expenditures of $36.8 million, net investments in affiliates of $2.6 million, cash dividends of $17.0 million and the repurchase of common stock of $39.9 million. The seasonality of production and shipments causes working capital requirements to fluctuate during the year. Polaris has an unsecured bank line of credit arrangement maturing on March 31, 2002, under which it may borrow up to $175 million until March 31, 2000 and $150 million thereafter until maturity. The arrangement provides borrowing for working capital needs and the repurchase and retirement of common stock. Borrowings under the line of credit bear interest, 6.52 percent at December 31, 1999, based on LIBOR or "prime" rates. In July 1999, Polaris entered into an interest rate swap agreement to manage exposure to fluctuations in interest rates. The effect of the swap agreement is to fix the interest rate at 5.80 percent for $20 million of borrowings under the credit line for a period of two years. At December 31, 1999, Polaris had total borrowings under the line of credit of $40.0 million compared to $20.5 million at December 31, 1998. In addition, at December 31, 1999, Polaris had letters of credit outstanding of $16.2 million related to purchase obligations for raw materials. On October 21, 1999, the Polaris Board of Directors approved a new share repurchase authorization of 2.5 million shares of the Company's outstanding common stock. Prior thereto, the Board of Directors authorized the cumulative repurchase of up to 5.0 million shares of the company's common stock. During 1999, Polaris paid $52.4 million to repurchase and retire nearly 1.5 million shares. Polaris had approximately 2.9 million shares available to repurchase under the Board of Directors authorizations as of December 31, 1999. In February 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with Transamerica Distribution Finance (TDF) to form Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris' dealers and distributors and in 1999 began providing other financial services to dealers, distributors and retail customers of Polaris including retail credit and extended service contracts. Polaris has a 50 percent equity interest in Polaris Acceptance and guarantees 50 percent of the outstanding indebtedness of Polaris Acceptance under a credit agreement between Polaris Acceptance and TDF. At December 31, 1999, Polaris' contingent liability with respect to the guarantee was approximately $170.0 million. In February 2000, the term of the partnership agreement was extended; in consideration thereof, the Polaris guarantee of the outstanding indebtedness of Polaris Acceptance was eliminated. Polaris has arrangements with certain finance companies, including Polaris Acceptance, to provide floor plan financing for its distributors and dealers. These arrangements provide liquidity by financing distributor and dealer purchases of Polaris products without the use of Polaris' working capital. Substantially all of the sales of snowmobiles, ATVs, motorcycles and PWC (but not parts, garments and accessories) are financed under these arrangements whereby Polaris receives payment within a few days of shipment of the product. The amount financed by distributors and dealers under these arrangements at December 31, 1999 and 1998, was approximately $472.0 million and $384.0 million, respectively. Polaris participates in the cost of dealer and distributor financing up to certain limits. Polaris has agreed to repurchase products repossessed by the finance companies to an annual maximum of 15 percent of the average amount outstanding during the prior calendar year. Polaris' financial exposure under these agreements is limited to the difference between the amount paid to the finance companies and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements. However, an adverse change in retail sales could cause this situation to change and thereby require Polaris to repurchase financed units. Polaris has made significant capital investments to increase production capacity, quality, and efficiency, and for new product development and diversification. Investments made during 1999 include: (a) tooling expenditures for new product development across all product lines of $18.3 million during 1999, (b) investments of $10.3 million in returnable crates, which not only reduce costs but also are environmentally friendly and (c) an investment of $12.0 million in a new corporate headquarters in Medina, MN which became operational in late January 2000; Polaris had previously been scattered throughout several office buildings in suburban Minneapolis. Polaris anticipates that capital expenditures, including tooling, for 2000 will range from $65 million to $75 million. Management believes that existing cash balances, cash flows to be generated from operating activities and available borrowing capacity under the line of credit arrangement will be sufficient to fund operations, regular dividends, share repurchases, and capital expenditure requirements for 2000. At this time, management is not aware of any factors that would have a material adverse impact on cash flow beyond 2000. Injection Research Specialists ("IRS") commenced an action in 1990 against Polaris and Fuji Heavy Industries, Ltd. ("Fuji"), one of Polaris' engine suppliers, in Colorado Federal Court alleging various claims relating to electronic fuel injection systems for snowmobiles. In October 1998, following the entry of judgment against Polaris for $34.0 million (before pre- and post-judgement interest) and affirmance thereof by the Federal Court of Appeals, IRS, Polaris and Fuji entered into a confidential settlement agreement to settle all outstanding claims between the parties. The resulting provision for litigation loss of $61.4 million was reflected as non-operating expense in the accompanying consolidated statement of operations for the year ended December 31, 1998. Polaris no longer uses any of the technology in dispute. 5 Polaris proforma results with 1998 adjusted to exclude the provision for litigation loss are as follows:
For the Years Ended December 31, 1999 1998 - ------------------------------------------------------------------------------- Adjusted income before income taxes $118,335 $109,771 Provision for income taxes 42,009 39,147 - ------------------------------------------------------------------------------- Adjusted net income $ 76,326 $ 70,624 ================================================================================ Adjusted net income per diluted share $ 3.07 $ 2.72 ================================================================================
YEAR 2000 Polaris did not experience any significant business related interruptions relative to the Year 2000 compliance of its computer systems. The Company is continuing to monitor potential problems but does not expect any major impact during the year. The cost of the Year 2000 initiatives of approximately $1.5 million, which were expensed as incurred, was not material to Polaris' financial position. INFLATION AND EXCHANGE RATES Polaris does not believe that inflation has had a material impact on the results of its operations. However, the changing relationships of the U.S. dollar to the Canadian dollar and Japanese yen have had a material impact from time-to-time. During 1999, purchases totaling 16 percent of Polaris' cost of sales were from Japanese yen denominated suppliers. The weakening of the U.S. dollar in relation to the Japanese yen since mid-1998 has resulted in higher raw material purchase prices. Polaris' cost of sales in 1999 was negatively impacted by the Japanese yen exchange rate fluctuation when compared to the prior year. The dollar has continued to weaken in relation to the yen and in view of the foreign exchange hedging contracts currently in place, Polaris anticipates that the yen-dollar exchange rate will again have a negative impact on cost of sales during 2000 when compared to 1999. Polaris operates in Canada through a wholly owned subsidiary. Sales of the Canadian subsidiary comprised 11 percent of total Company sales in 1999. Polaris utilizes foreign exchange hedging contracts to manage its exposure to the Canadian dollar. The U.S. dollar has strengthened in relation to the Canadian dollar beginning in 1998 and it has had a negative financial impact on Polaris gross margins when compared to the same periods in both 1999 and 1998. In view of the currently strengthening Canadian dollar and the foreign exchange hedging contracts currently in place, Polaris anticipates a positive impact on net income during 2000 when compared to 1999. In the past, Polaris has been a party to, and in the future may enter into, foreign exchange hedging contracts for both the Japanese yen and the Canadian dollar to minimize the impact of exchange rate fluctuations within each year. At December 31, 1999, Polaris had open Japanese yen foreign exchange hedging contracts with notional amounts totaling $25.3 million U.S. dollars and open Canadian dollar foreign exchange contracts with notional amounts totaling $83.0 million U.S. dollars which mature throughout 2000. Since October 1995, Polaris has been manufacturing its own engines for selected models of PWC, motorcycles and snowmobiles at its Osceola, Wisconsin facility. In addition, earlier in 1995, Polaris entered into an agreement with Fuji Heavy Industries Ltd. to form Robin Manufacturing U.S.A., Inc. ("Robin"). Under the terms of the agreement, Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Potential advantages to Polaris of having these additional sources of engines include reduced foreign exchange risk, lower shipping costs and less dependence in the future on a single supplier for engines. Certain matters discussed in this report are "forward-looking statements" intended to qualify for the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These "forward-looking statements" can generally be identified as such because the context of the statement will include words such as the Company or management "believes", "anticipates", "expects", "estimates" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking. Shareholders, potential investors and others are cautioned that all forward-looking statements involve risks and uncertainty that could cause results to differ materially from those anticipated by some of the statements made herein. In addition to the factors discussed above, among the other factors that could cause actual results to differ materially are the following: product offerings and pricing strategies by competitors; future conduct of litigation processes; warranty expenses; foreign currency exchange rate fluctuations; environmental and product safety regulatory activity; effects of weather; uninsured product liability claims; and overall economic conditions, including inflation and consumer confidence and spending. 6 ================================================================================ CONSOLIDATED BALANCE SHEETS in thousands, except per share data ================================================================================
December 31, 1999 1998 - ------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 6,184 $ 1,466 Trade receivables 53,293 43,035 Inventories 118,062 107,436 Prepaid expenses and other 6,175 2,903 Deferred tax assets 31,000 29,000 - ------------------------------------------------------------------------------- Total current assets 214,714 183,840 - ------------------------------------------------------------------------------- DEFERRED TAX ASSETS 16,000 21,000 - ------------------------------------------------------------------------------- PROPERTY AND EQUIPMENT Land, buildings and improvements 38,616 37,226 Equipment and tooling 236,951 192,255 - ------------------------------------------------------------------------------- 275,567 229,481 Less-accumulated depreciation (124,645) (105,227) - ------------------------------------------------------------------------------- Total property and equipment 150,922 124,254 - ------------------------------------------------------------------------------- INVESTMENTS IN AFFILIATES 38,310 26,636 INTANGIBLE ASSETS, NET 22,081 22,967 - ------------------------------------------------------------------------------- $ 442,027 $ 378,697 ===============================================================================
The accompanying notes are an integral part of these consolidated balance sheets. 7
December 31, 1999 1998 - -------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 91,805 $ 77,258 Accrued expenses: Compensation 35,291 41,664 Warranties 40,392 37,921 Other 52,899 41,110 Income taxes payable 13,413 7,011 - -------------------------------------------------------------------------------------- Total current liabilities 233,800 204,964 - -------------------------------------------------------------------------------------- BORROWINGS UNDER CREDIT AGREEMENT 40,000 20,500 - -------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTES 1, 3, 5, 7 AND 8) SHAREHOLDERS' EQUITY Preferred stock $0.01 par value, 20,000 shares authorized, no shares issued and outstanding -- -- Common stock $0.01 par value, 80,000 shares authorized, 24,226 and 25,355 shares issued and outstanding 242 253 Additional paid-in capital 8,987 48,622 Deferred compensation (7,818) (6,726) Compensation payable in common stock 5,975 6,844 Retained earnings 160,841 104,240 - -------------------------------------------------------------------------------------- Total shareholders' equity 168,227 153,233 - -------------------------------------------------------------------------------------- $ 442,027 $ 378,697 ======================================================================================
The accompanying notes are an integral part of these consolidated balance sheets. 8 ================================================================================ CONSOLIDATED STATEMENTS OF OPERATIONS in thousands, except per share data ================================================================================
For the Years Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------- Sales $ 1,321,076 $ 1,175,520 $ 1,048,296 Cost of Sales 992,736 897,233 785,758 - ------------------------------------------------------------------------------------------------------ Gross profit 328,340 278,287 262,538 - ------------------------------------------------------------------------------------------------------ Gross profit percent 24.9% 23.7% 25.0% - ------------------------------------------------------------------------------------------------------ Operating Expenses Selling and marketing 142,406 118,688 112,978 Research and development 31,311 28,387 26,722 General and administrative 40,977 31,106 29,736 - ------------------------------------------------------------------------------------------------------ Total operating expenses 214,694 178,181 169,436 - ------------------------------------------------------------------------------------------------------ Operating income 113,646 100,106 93,102 Nonoperating Expense (income) Interest expense 4,285 2,959 2,829 Equity in (income) of affiliates (9,745) (7,819) (6,718) Other expense (income), net 771 (4,805) (5,171) Provision for litigation loss (Note 2) -- 61,409 -- - ------------------------------------------------------------------------------------------------------ Income before income taxes 118,335 48,362 102,162 Provision for Income Taxes 42,009 17,347 36,779 - ------------------------------------------------------------------------------------------------------ Net income $ 76,326 $ 31,015 $ 65,383 ====================================================================================================== Basic Net Income Per Share $ 3.09 $ 1.20 $ 2.45 Diluted Net Income Per Share $ 3.07 $ 1.19 $ 2.45 ======================================================================================================
The accompanying notes are an integral part of these consolidated statements. 9 ================================================================================ CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY in thousands ================================================================================
Compensation Additional Payable in Preferred Common Paid-in Deferred Common Retained Stock Stock Capital Compensation Stock Earnings Total - ----------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 -- 270 102,946 (978) 9,710 43,382 155,330 First Rights conversion to stock -- 3 7,164 -- (7,210) -- (43) Employee stock compensation -- 2 2,733 (2,155) 4,846 -- 5,426 Dividends -- -- -- -- -- (16,958) (16,958) Repurchase and retirement of common shares -- (15) (39,888) -- -- -- (39,903) Net income -- -- -- -- -- 65,383 65,383 - ----------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1997 -- 260 72,955 (3,133) 7,346 91,807 169,235 First Rights conversion to stock -- 1 1,841 -- (1,864) -- (22) Employee stock compensation -- 3 11,543 (3,593) 1,362 -- 9,315 Dividends -- -- -- -- -- (18,582) (18,582) Repurchase and retirement of common shares -- (11) (37,717) -- -- -- (37,728) Net income -- -- -- -- -- 31,015 31,015 - ----------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 -- 253 48,622 (6,726) 6,844 104,240 153,233 First Rights conversion to stock -- -- 323 -- (286) 7 44 Employee stock compensation -- 4 12,439 (1,092) (583) -- 10,768 Dividends -- -- -- -- -- (19,732) (19,732) Repurchase and retirement of common shares -- (15) (52,397) -- -- -- (52,412) Net income -- -- -- -- -- 76,326 76,326 - ----------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 $ -- $ 242 $ 8,987 $(7,818) $ 5,975 $ 160,841 $ 168,227 =============================================================================================================================
The accompanying notes are an integral part of these consolidated statements. 10 ================================================================================ CONSOLIDATED STATEMENTS OF CASH FLOWS in thousands ================================================================================
For the Years Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $76,326 $31,015 $65,383 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 39,281 36,192 33,168 Noncash compensation 9,586 7,808 5,010 Equity in (income) of affiliates (9,745) (7,819) (6,718) Deferred income taxes 3,000 5,000 -- Changes in current operating items Trade receivables (10,258) (443) (6,435) Inventories (10,626) 32,108 (16,633) Accounts payable 14,547 16,231 10,513 Accrued expenses 7,887 6,828 11,551 Income taxes payable 6,402 (9,206) 7,660 Other (2,046) 3,671 (1,191) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 124,354 121,385 102,308 ==================================================================================================================== CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (65,063) (61,532) (36,798) Investments in and advances to affiliates (11,366) (9,112) (16,627) Distributions and repayments from affiliates 9,437 9,702 13,999 - -------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (66,992) (60,942) (39,426) ==================================================================================================================== CASH FLOWS FROM FINANCING ACTIVITIES Borrowings under credit agreement 501,275 338,200 290,100 Repayments under credit agreement (481,775) (342,100) (300,700) Repurchase and retirement of common shares (52,412) (37,728) (39,903) Cash dividends to shareholders (19,732) (18,582) (16,958) Net cash used for financing activities (52,644) (60,210) (67,461) - -------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 4,718 233 (4,579) ==================================================================================================================== CASH AND CASH EQUIVALENTS Beginning 1,466 1,233 5,812 - -------------------------------------------------------------------------------------------------------------------- Ending $6,184 $1,466 $1,233 ==================================================================================================================== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid during the year $36,620 $24,731 $25,838 ==================================================================================================================== Income taxes paid during the year $38,651 $21,475 $29,007 ====================================================================================================================
The accompanying notes are an integral part of these consolidated statements. 11 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ NOTE 1 ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Polaris Industries Inc. ("Polaris" or the "Company") is engaged in a single industry segment consisting of the design, engineering, manufacturing and marketing of innovative, high-quality, high-performance motorized products for recreation and utility use, including all-terrain vehicles, snowmobiles, motorcycles and personal watercraft. Polaris products, together with related parts, garments and accessories are sold worldwide through a network of dealers, distributors and its subsidiaries. BASIS OF PRESENTATION: All significant intercompany transactions and balances have been eliminated in consolidation. USE OF 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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Ultimate results could differ from those estimates. CASH EQUIVALENTS: Polaris considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. Such investments have consisted principally of commercial paper and money market mutual funds. FAIR VALUE OF FINANCIAL INSTRUMENTS: Except as noted, the carrying value of all financial instruments approximates their fair value. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out method) or market. The major components of inventories are as follows (in millions):
December 31, 1999 1998 Raw materials and purchased components $ 28.0 $ 32.2 Service parts, garments and accessories 50.6 41.1 Finished goods 39.4 34.1 ---------- ---------- $ 118.1 $ 107.4 ========== ==========
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost. Depreciation is provided using the straight-line method over the estimated useful life of the respective assets, ranging from 10-20 years for buildings and improvements and from 1-7 years for equipment and tooling. Fully depreciated tooling is eliminated from the accounting records annually. INTANGIBLE ASSETS: Intangible assets are stated net of accumulated amortization totaling $12.5 million at December 31, 1999, and $11.6 million at December 31, 1998, and consist principally of cost in excess of the net assets of the business acquired which is amortized on a straight-line basis over 40 years. Other intangible assets are amortized using the straight-line method over their estimated useful lives ranging from 5 to 17 years. Polaris periodically assesses the amortization period and recoverability of the carrying amount of its intangible assets to determine potential impairment based upon expected future cash flows from the related business. To date, management has determined that no such impairment exists. PRODUCT WARRANTIES: Polaris provides for estimated warranty costs at the time of sale to the dealer or distributor customer and for other costs associated with specific items at the time their existence and amounts are determinable. FOREIGN CURRENCY: Polaris' Canadian and Australian subsidiaries use the United States dollar as their functional currencies. Canadian and Australian assets and liabilities are translated at the foreign exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average foreign exchange rate in effect. Translation and exchange gains and losses are reflected in the results of operations. Polaris enters into foreign exchange contracts to manage currency exposures of its purchase commitments denominated in foreign currencies and transfers of funds from its Canadian subsidiary. Polaris does not use any financial contract for trading purposes. These contracts are accounted for as hedges, thus market value gains and losses are recognized at the time of purchase or transfer of funds, respectively. The criteria to determine if hedge accounting is appropriate are (1) the designation of a hedge to an underlying exposure, (2) whether or not overall risk is reduced and (3) if there is a correlation between the value of the foreign exchange contract and the underlying exposure. Gains and losses related to purchase commitments are recorded as adjustments to cost of sales while gains and losses related to transfers of funds are recorded as other expense (income) on the accompanying statements of operations. At December 31, 1999, Polaris had open Japanese yen foreign exchange contracts with notional amounts totaling $25.3 million United States dollars and open Canadian dollar foreign exchange contracts with notional amounts totaling $83.0 million United States dollars which mature throughout 2000. SEGMENT REPORTING: Polaris has reviewed SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" and determined that the aggregation criteria outlined in SFAS No. 131 has been achieved and therefore Polaris' four operating divisions are reportable as a single reportable segment. REVENUE RECOGNITION: Revenues are recognized at the time of shipment to the dealer or distributor. Product returns, whether in the normal course of business or resulting from repossession under its customer financing program (Note 3), have not been material. Polaris provides for estimated sales promotion expenses at the time of sale to the dealer or distributor customer. FOREIGN OPERATIONS: The following data relates to Polaris' foreign operations (in millions of United States dollars):
For the Years Ended December 31, 1999 1998 1997 Canadian Subsidiary: Sales $148.2 $142.5 $154.3 Operating income 3.1 3.0 6.4 Identifiable assets 23.6 18.9 20.3 ------ ------ ------ Other export sales $68.3 $61.7 $58.7 ====== ====== ======
12 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ================================================================================ MAJOR SUPPLIER: During 1999, 1998, and 1997, purchases of engines and related components totaling 15, 12 and 16 percent respectively of Polaris' cost of sales were from a single Japanese supplier. Polaris has agreed with the supplier to share the impact of fluctuations in the exchange rate between the United States dollar and the Japanese yen. NEW ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board issued Statement of Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133) in June 1998. Polaris is not required to adopt SFAS No. 133 until January 1, 2001. However, Polaris does not believe the adoption of SFAS No. 133 will have a material effect on its Financial Statements. NOTE 2 LITIGATION SETTLEMENT Injection Research Specialists ("IRS") commenced an action in 1990 against Polaris and Fuji Heavy Industries, Ltd. ("Fuji") one of Polaris' engine suppliers, in Colorado Federal Court alleging various claims relating to electronic fuel injection systems for snowmobiles. In October 1998, following a judgment against Polaris for $34.0 million (before pre- and post-judgement interest) and affirmance thereof by the Federal Court of Appeals, IRS, Polaris and Fuji entered into a confidential settlement agreement to settle all outstanding claims between the parties. The resulting provision for litigation loss of $61.4 million has been reflected as non-operating expense in the accompanying statement of operations for the year ended December 31, 1998. The net income impact of the litigation loss was $39.6 million or $1.53 per diluted share in 1998. Adjusted net income excluding the IRS litigation provision was $70.6 million or $2.72 per diluted share in 1998. Polaris no longer uses any of the technology in dispute. NOTE 3 FINANCING BANK FINANCING: Polaris is a party to an unsecured bank line of credit arrangement under which it may borrow up to $175 million until March 31, 2000 and up to $150 million thereafter until maturity. Interest is charged at rates based on LIBOR or "prime" and the agreement expires on March 31, 2002, at which time the outstanding balance is due. In July 1999, Polaris entered into an interest rate swap agreement to manage exposure to fluctuations in interest rates. The effect of the swap agreement is to fix the interest rate at 5.80 percent for $20 million of borrowings under the credit line for a period of two years. The following summarizes activity under Polaris' credit arrangement (in millions):
1999 1998 Total borrowings at December 31 $40.0 $20.5 Average outstanding borrowings during year $80.5 $48.4 Maximum outstanding borrowings during year $131.5 $77.0 Interest rate at December 31 6.16% 5.95%
LETTERS OF CREDIT: At December 31, 1999, Polaris had open letters of credit totaling approximately $16.2 million. The amounts outstanding are reduced as inventory purchases pertaining to the contracts are received. CUSTOMER FINANCING PROGRAM: Certain finance companies, including Polaris Acceptance, an affiliate (Note 7), provide floor plan financing to distributors and dealers on the purchase of Polaris products. The amount financed by distributors and dealers under these arrangements at December 31, 1999, was approximately $472.0 million. Polaris has agreed to repurchase products repossessed by the finance companies up to an annual maximum of 15 percent of the average amounts outstanding during the prior calendar year. Polaris' financial exposure under these arrangements is limited to the difference between the amount paid to the finance companies for repurchases and the amount received on the resale of the repossessed product. No material losses have been incurred under these agreements during the periods presented. As a part of its marketing program, Polaris contributes to the cost of dealer and distributor financing up to certain limits and subject to certain conditions. Such expenditures are included with operating expenses in the accompanying statements of operations. NOTE 4 INCOME TAX MATTERS Components of Polaris' provision for income taxes are as follows (in millions):
For the Years Ended December 31, 1999 1998 1997 Current Federal $36.1 $10.4 $31.6 State 1.6 0.7 2.3 Foreign 1.3 1.2 2.9 Deferred 3.0 5.0 -- ----- ----- ----- Total $42.0 $17.3 $36.8 ===== ===== =====
Reconciliations of the Federal statutory income tax rate to the effective tax rate are as follows:
1999 1998 1997 Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal benefit 1.5 2.5 2.5 Other permanent differences (1.0) (1.6) (1.5) ----- ----- ----- Effective income tax rate 35.5% 35.9% 36.0% ===== ===== =====
13 Polaris utilizes the liability method of accounting for income taxes whereby deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. The net deferred tax asset consists of the following (in millions):
December 31, 1999 1998 1997 Current deferred tax assets: Inventories $4.1 $4.1 $4.0 Accrued expenses 26.9 24.7 24.0 Compensation payable in common stock -- 0.2 1.0 ----- ----- ----- Total current 31.0 29.0 29.0 ----- ----- ----- Noncurrent deferred tax assets: Cost in excess of net assets of business acquired 23.0 25.2 27.6 Property and equipment (8.9) (4.9) (2.0) Compensation payable in common stock 1.9 0.7 0.4 ----- ----- ----- Total noncurrent 16.0 21.0 26.0 ----- ----- ----- Total $47.0 $50.0 $55.0 ===== ===== =====
NOTE 5 STOCK-BASED COMPENSATION Polaris maintains a stock option plan (Option Plan) under which incentive and nonqualified stock options for a maximum of 2.4 million shares of common stock may be issued to certain employees. Options granted to date generally vest three years from the award date and expire after ten years. Shares outstanding under the Option Plan have exercise prices ranging from $25.75 to $49.45 and a weighted average remaining contractual life of 7.6 years. Polaris maintains a broad based stock option plan (Broad Based Plan) under which incentive stock options for a maximum of 350,000 shares of common stock may be issued to substantially all Polaris employees. Options vest three years from the award date and expire after ten years. Polaris maintains a restricted stock plan (Restricted Plan) under which a maximum of 800,000 shares of common stock may be awarded as an incentive to certain employees with no cash payments required from the recipient. The restrictions lapse after a three to four year period if Polaris achieves certain performance measures. Polaris sponsors a qualified non-leveraged Employee Stock Ownership Plan (ESOP) under which a maximum of 1.25 million shares of common stock can be awarded. Shares vest immediately and require no cash payments from the recipient. Substantially all employees are eligible to participate in the ESOP. The following summarizes share activity in the above plans, and the weighted average exercise price for the Option Plan:
Broad Based Restricted First Rights Option Plan Plan Plan Plan ESOP Weighted Average Exercise Shares Price Shares Shares Shares Shares Outstanding as of December 31, 1996 391,830 $30.66 -- 61,795 431,255 -- Granted 142,980 $25.75 -- 64,915 -- -- Converted -- -- -- -- (318,755) -- Forfeited (38,617) $29.50 -- (2,835) (15,000) -- - --------- -------- ------ ---- ------- -------- --- Outstanding as of December 31, 1997 495,743 $29.33 -- 123,875 97,500 170,000 Granted 691,590 $40.15 -- 147,765 -- 173,206 Exercised/ Converted (33,425) $29.00 -- -- (87,750) -- Forfeited (76,183) $30.94 -- (28,605) (1,500) -- - --------- -------- ------ ---- -------- ------- --- Outstanding as of December 31, 1998 1,077,725 $36.17 -- 243,035 8,250 343,206 Granted 311,970 $32.47 337,900 145,235 -- 170,000 Exercised/ Converted (29,768) $29.54 -- -- (8,250) -- Forfeited (19,774) 31.50 (19,300) (11,795) -- -- - --------- -------- ----- -------- -------- ---- ---- Outstanding as of December 31, 1999 1,340,153 $35.06 318,600 376,475 -- 513,206 - ---- ========= ====== ======= ======= ==== ======= Exercisable/ Vested as of December 31, 1999 258,357 $30.91 -- -- -- 513,206 - ---- ======= ====== ==== ==== ==== ========
Polaris maintains a nonqualified deferred compensation plan (Director Plan) under which directors who are not Polaris officers or employees can elect to receive common stock equivalents in lieu of director's fees, which will be converted into common stock when board service ends. A maximum of 75,000 shares of common stock has been authorized under this plan and 26,305 shares have been earned as of December 31, 1999. 14 ================================================================================ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ================================================================================ Polaris accounts for all stock based compensation plans under APB Opinion No. 25, under which compensation costs of $9.6 million, $7.8 million, and $5.0 million were recorded in 1999, 1998 and 1997, respectively. Had compensation costs for these plans been recorded at fair value consistent with the methodology prescribed by SFAS No. 123 "Accounting for Stock-Based Compensation," Polaris' net income and net income per share would have been reduced to the following pro forma amounts:
1999 1998 1997 Net Income (in millions) As Reported 76.3 $31.0 $65.4 Pro Forma 73.5 29.3 64.3 Net Income Per Share As Reported $3.07 $1.19 $2.45 Pro Forma 2.95 1.13 2.41 ===== ===== =====
The fair value of each award under the Option Plan is estimated on the date of grant using the Black-Scholes option-pricing model. The following assumptions were used to estimate the fair value of options:
1999 1998 1997 Risk free interest rate 6.6% 5.6% 6.6% Expected life 7 YEARS 7 years 7 years Expected volatility 23% 14% 23% Expected dividend yield 2.2% 2.0% 2.5% ===== ===== =====
The weighted average fair values at the grant dates of shares awarded under the above plans are as follows:
1999 1998 1997 Option Plan $8.99 $5.57 $7.45 Restricted Plan $32.47 $34.89 $25.75 ESOP $36.25 $39.19 $30.56 Broad Based Plan $8.99 $ -- $ -- ===== ===== =====
NOTE 6 SHAREHOLDERS' EQUITY STOCK REPURCHASE PROGRAM: In October 1999, the Polaris Board of Directors approved a new share repurchase authorization of up to 2.5 million shares of the Company's common stock. Prior thereto, the Board of Directors had authorized the cumulative repurchase of up to 5.0 million shares of the Company's common stock. During 1999, Polaris paid $52.4 million to repurchase and retire nearly 1.5 million shares. Cumulative repurchases through December 31, 1999 are approximately 4.6 million shares for $143.6 million. Polaris had approximately 2.9 million shares available to repurchase under Board of Directors authorizations as of December 31, 1999. NET INCOME PER SHARE: Polaris calculates net income per share in accordance with Statement of Financial Accounting Standards No. 128, which requires the presentation of basic and diluted earnings per share. Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average Polaris Industries Inc. 1999 number of common shares outstanding during each year, including shares earned under the expired First Rights plan, the Director Plan and the ESOP. Diluted earnings per share is computed under the treasury stock method and is calculated to compute the dilutive effect of outstanding stock options. A reconciliation of these amounts is as follows (in thousands, except per share data):
1999 1998 1997 Net income available to common shareholders $76,326 $31,015 $65,383 ======= ======= ======= Weighted average number of common shares outstanding 24,539 25,709 26,403 First Rights -- 21 139 Director Plan 23 17 12 ESOP 170 170 170 ------- ------- ------- Common shares outstanding -- basic 24,732 25,917 26,724 ------- ------- ------- Dilutive effect of Option Plan 168 69 15 ------- ------- ------- Common and potential common shares outstanding -- diluted 24,900 25,986 26,739 ======= ======= ======= Basic earnings per share $3.09 $1.20 $2.45 ======= ======= ======= Diluted earnings per share $3.07 $1.19 $2.45 ======= ======= =======
Polaris also has shares issued under the Restricted Plan, which will not be included in the above calculations until certain performance criteria are met. STOCK PURCHASE PLAN: Polaris maintains an Employee Stock Purchase Plan (Purchase Plan). A total of 750,000 shares of common stock are reserved for this plan. The Purchase Plan permits eligible employees to purchase common stock at 85 percent of the average market price each month. NOTE 7 INVESTMENTS IN AFFILIATES In February 1996, a wholly owned subsidiary of Polaris entered into a partnership agreement with Transamerica Distribution Finance (TDF) to form Polaris Acceptance. Polaris Acceptance provides floor plan financing to Polaris' dealers and distributors and in 1999 began providing other financial services including retail credit and extended service contracts to dealers, distributors and retail customers of Polaris. Polaris' subsidiary has a 50 percent equity interest in Polaris Acceptance and guarantees 50 percent of the outstanding indebtedness of Polaris Acceptance under a credit agreement between Polaris Acceptance and TDF. At December 31, 1999, Polaris' contingent liability with respect to the guarantee was approximately $170.0 million. In February 2000, the term of the partnership agreement was extended; in consideration thereof, the Polaris guarantee of the outstanding indebtedness of Polaris Acceptance was eliminated. 15 In February 1995, Polaris entered into an agreement with Fuji Heavy Industries Ltd. to form Robin Manufacturing, U.S.A. (Robin). Under the agreement, Polaris has a 40 percent ownership interest in Robin, which builds engines in the United States for recreational and industrial products. Polaris' investments in joint ventures are accounted for under the equity method. Polaris' allocable share of the income of Polaris Acceptance and Robin has been included as a component of nonoperating expense (income) in the accompanying statements of operations. Polaris Acceptance is a partnership and the payment of income taxes is the responsibility of each of the partners. Robin is a corporation responsible for the payment of its own income taxes. Summarized combined financial information for the joint ventures is presented as follows (in millions):
December 31, 1999 1998 Revenues $81.7 $65.0 Cost of goods sold, interest and operating expenses 61.5 48.9 ------ ------ Net income before income taxes $20.2 $16.1 ====== ====== Finance receivables, net $408.8 $323.7 Other assets 21.3 17.3 ------ ------ $430.1 $341.0 ====== ====== Notes payable $338.6 $278.4 Other liabilities 14.2 12.1 Shareholders' equity and Partners' capital 77.3 50.5 ------ ------ $430.1 $341.0 ====== ======
Note 8 Commitments and Contingencies PRODUCT LIABILITY: Polaris is subject to product liability claims in the normal course of business and prior to June 1996 elected not to purchase insurance for product liability losses. Effective June 1996, Polaris purchased excess insurance coverage for catastrophic product liability claims for incidents occurring subsequent to the policy date that exceed a self-insured retention. The estimated costs resulting from any losses are charged to operating expenses when it is probable a loss has been incurred and the amount of the loss is reasonably determinable. INCOME TAX AUDIT: Revenue Canada has assessed Polaris approximately $16.0 million in taxes, penalties and interest for the period January 1, 1992 through December 31, 1994 resulting from an income tax audit for that period. Revenue Canada has asserted that Polaris overcharged its Canadian subsidiary for various goods and services during the audit period primarily through improper intercompany transfer pricing policies. Polaris disagrees with the assessment and is vigorously contesting it. LITIGATION: Polaris is a defendant in lawsuits and subject to claims arising in the normal course of business. In the opinion of management, it is not a probability that any legal proceedings pending against or involving Polaris will have a material adverse effect on Polaris' financial position or results of operations. LEASES: Polaris leases buildings and equipment under noncancelable operating leases. Total rent expense under all lease agreements was $2.9 million, $2.5 million, and $2.8 million, for 1999, 1998 and 1997, respectively. Future minimum payments, exclusive of other costs, required under noncancelable operating leases at December 31, 1999, total $1.5 million cumulatively through 2004. Note 9 Quarterly Financial Data (Unaudited) (In millions, except per share data)
Net Diluted Net Gross Income Income (Loss) Sales Profit (Loss) Per Share 1999: First Quarter $237.8 $56.4 $9.1 $.36 Second Quarter 324.3 74.9 15.1 .60 Third Quarter 388.9 101.3 27.2 1.10 Fourth Quarter 370.1 95.7 24.9 1.02 -------- ------ ----- Totals $1,321.1 $328.3 $76.3 $3.07 ======== ====== ===== ===== 1998: First Quarter $210.0 $46.8 $8.3 $.32 Second Quarter 274.7 64.2 14.5 .55 Third Quarter 359.9 86.4 (14.5) (.56) Fourth Quarter 330.9 80.9 22.7 .88 -------- ------ ----- Totals $1,175.5 $278.3 $31.0 $1.19 ======== ====== ===== =====
16 =============================================================================== REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS =============================================================================== To Polaris Industries Inc.: We have audited the accompanying consolidated balance sheets of Polaris Industries Inc. (a Minnesota corporation) and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of Polaris' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Polaris Industries Inc. and Subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Minneapolis, Minnesota, January 28, 2000 17 =============================================================================== INVESTOR INFORMATION =============================================================================== INDEPENDENT AUDITORS Arthur Andersen LLP Minneapolis, MN FORM 10-K The Form 10-K annual report to the Securities and Exchange Commission is available without charge to shareholders upon written request to: Investor Relations Polaris Industries Inc. 2100 Highway 55 Medina, MN 55340 ANNUAL SHAREHOLDERS' MEETING The meeting will be held at 9 a.m., Thursday, May 18, 2000, at the Polaris Industries Inc. corporate headquarters, 2100 Highway 55, Medina, Minn. A proxy statement will be mailed on or about March 27, 2000, to each shareholder of record on March 20, 2000. INTERNET ACCESS To view the Company's annual report and financial information, products and specifications, press releases, and dealer locations, access Polaris on the Internet at: www.polarisindustries.com www.victory_usa.com SUMMARY OF TRADING
YEAR ENDED DECEMBER 31, 1999 1998 QUARTER HIGH LOW HIGH LOW First $39.44 $27.00 $38.00 $27.81 Second 45.63 30.06 39.00 33.00 Third 44.75 34.38 38.19 30.31 Fourth 39.50 32.69 39.19 24.75
STOCK EXCHANGES Shares of common stock of Polaris Industries Inc. trade on the New York Stock Exchange and on the Pacific Stock Exchange under the symbol PII. CASH DIVIDENDS DECLARED
QUARTER 1999 1998 First $.20 $.18 Second .20 .18 Third .20 .18 Fourth .20 .18 ---- ---- Total $.80 $.72 ==== ====
Shareholders of record of the Company's common stock on March 1, 2000: 2,928. Share price on March 1, 2000: $31-11/16. EX-21 8 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
Shares % of Company Organization Outstanding Ownership ------- ------------ ----------- --------- Polaris Industries Inc. Delaware Corporation 100 100% ("Polaris Delaware") Polaris Real Estate Delaware Corporation 1,000 100%(1) Corporation of Iowa, Inc. Polaris Real Estate Delaware Corporation 1,000 100%(2) Corporation Polaris Industries Export Barbados Corporation 1,000 100% Ltd. Polaris Industries Ltd. Manitoba Corporation 101 100%(3) Polaris Acceptance Inc. Minnesota Corporation 1 100% Polaris Sales Inc. Minnesota Corporation 100 100%(4) Polaris Sales Australia Pty Ltd. Australian Corporation 1 100%(5)
- ----------------------- (1), (2), (3) and (4) Owned 100% by Polaris Delaware. (5) is Owned 100% by Polaris Sales, Inc. EX-23 9 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report incorporated by reference in this Form 10-K into the Company's previously filed Registration Statements File Nos. 33-57503, 33-60157, 333-05463, 333-21007, 333-77765 and 333-94451. /s/ ARTHUR ANDERSEN LLP Minneapolis, Minnesota, March 24, 2000 EX-24 10 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY (FORM 10-K) KNOW ALL MEN BY THESE PRESENTS, that POLARIS INDUSTRIES INC., a Minnesota corporation (the "Company"), and each of the undersigned directors of the Company, hereby constitutes and appoints Thomas C. Tiller and Michael W. Malone and each of them (with full power to each of them to act alone) its/his true and lawful attorney-in-fact and agent, for it/him and on its/his behalf and in its/his name, place and stead, in any and all capacities to sign, execute, affix its/his seal thereto and file the Annual Report on Form 10-K for the year ended December 31, 1999 under the Securities Exchange Act of 1933, as amended, with any amendment or amendments thereto, with all exhibits and any and all documents required to be filed with respect thereto with any regulatory authority. There is hereby granted to said attorneys, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in respect of the foregoing as fully as it/he or itself/himself might or could do if personally present, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be executed in any number of counterparts, each of which shall be an original, but all of which taken together shall constitute one and the same instrument and any of the undersigned directors may execute this Power of Attorney by signing any such counterpart. POLARIS INDUSTRIES INC. has caused this Power of Attorney to be executed in its name by its Chief Executive Officer on the 20th day of January, 2000. POLARIS INDUSTRIES INC. By /s/ Thomas C. Tiller -------------------------------- Thomas C. Tiller Chief Executive Officer 2 The undersigned, directors of POLARIS INDUSTRIES INC., have hereunto set their hands as of the 20th day of January, 2000. /s/ W. Hall Wendel, Jr. /s/ Stephen G. Shank - --------------------------------- ---------------------------------- W. Hall Wendel, Jr. Stephen G. Shank /s/ Beverly F. Dolan /s/ Gregory R. Palen - --------------------------------- ---------------------------------- Beverly F. Dolan Gregory R. Palen /s/ Robert S. Moe /s/ Andris A. Baltins - --------------------------------- ---------------------------------- Robert S. Moe Andris A. Baltins /s/ Bruce A. Thomson /s/ Raymond J. Biggs - --------------------------------- ---------------------------------- Bruce A. Thomson Raymond J. Biggs /s/ Thomas C. Tiller - --------------------------------- Thomas C. Tiller DIRECTORS 2 EX-27.(A) 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET OF POLARIS INDUSTRIES INC. AS OF DECEMBER 31, 1999, AND THE RELATED STATEMENTS OF OPERATIONS, SHAREHOLDERS EQUITY AND CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 6,184 0 53,293 0 118,062 214,714 275,567 124,645 442,027 233,800 40,000 0 0 242 167,985 442,027 1,321,076 1,321,076 992,736 992,736 214,694 0 4,285 118,335 42,009 76,326 0 0 0 76,326 3.09 3.07
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