Fountain to drive change at Baja

WASHINGTON, N.C. – As Fountain Powerboat Industries, Inc. (AMEX: FPB) announced yesterday that its subsidiary, Baja By Fountain, Inc., completed its acquisition of certain Baja Marine Corp. assets from Brunswick Corp. in late May, the company admitted it will have to make “substantial operational changes” to operate the Baja business profitably.

“The company is aware … that the Baja boat line was unprofitable when it was operated by Baja Marine Corp.,” Fountain Powerboat Industries stated.

Fountain expects to begin manufacturing the Baja by Fountain boat product line for the 2009 model year, said Fountain Powerboat founder and CEO Reggie M. Fountain, Jr. in a press release.

“We are pleased to complete this transaction, and are very happy with the progress being made in bringing Baja and its popular portfolio into the fold,” he said. “This action unites two of the leading brands within the powerboat segment, adding several popular models to our product portfolio, including the Outlaw, Performance and Islander model line-ups. Likewise, we are excited to deepen our long-standing relationship with Mercury Marine, which will continue to provide marine engines and certain other power components for Baja boats manufactured by Fountain through a long-term agreement.”

Terms of the agreement detailed

On May 28, Fountain Powerboat Industries, Inc. and Baja by Fountain, Inc. entered into agreements with Brunswick Corp. and its wholly owned subsidiary, Baja Marine Corp., and agreements with Regions Bank, the company’s existing lender to facilitate the acquisition of assets, the company explained in a Form 8-K filed with Securities and Exchange Commission. Fountain Powerboat Industries, Inc., Fountain Powerboats, Inc., Brunswick and Reggie Fountain, personally, are parties to a Master Agreement and an Engine Supply Agreement.

That same day, those parties amended the Master Agreement, terminating Brunswick’s ability to require Reggie Fountain to sell his stock in the company to Brunswick and other restrictions on Reggie Fountain’s stock in the company. Reggie Fountain currently owns approximately 51.6 percent of the outstanding shares, and holds options to acquire an additional 450,000 shares. In addition, the Third Amendment extended the expiration of the term of the existing Engine Supply Agreement to June 30, 2020. Baja By Fountain, Inc. also executed an Engine Supply Agreement having terms substantially the same as the Engine Supply Agreement between the company, Fountain Powerboat Industries and Brunswick. This new Engine Supply Agreement also terminates on June 30, 2020.

Under the Engine Supply Agreements, Brunswick agreed to supply to the company, and the company agreed to purchase from Brunswick, all of the company’s requirements for marine engines and certain other power components for Fountain and Baja boats, subject to availability and other terms and conditions, according to the SEC document.

Baja produces high performance sport boats in lengths from 19 feet to 40 feet. Fountain Powerboat Industries manufactures high performance sport boats, fish boats and express cruisers. The Baja brand sells to a market that has limited overlap with boats manufactured by Fountain Powerboats, Inc., according to the company. Management expects the Baja product line will complement the Fountain product line and allow the company to add revenue for the Baja products.

The assets acquired consist primarily of equipment, tooling, drawings, blueprints, design software and production process documentation used to build the following Baja boat models for the model year 2009 and later: Outlaw (20, 23, 26, 30, 35, 40); Performance (Hammer X, 245, 278, 335, 415); Islander (192, 202, 247, and 277). Brunswick retained assets related to the other Baja boat models, according to the SEC document. The company also acquired trademarks and other assets used to sell the acquired models.

Brunswick retains all warranty obligations for boats manufactured by Brunswick, although Fountain will manufacture and sell parts to enable Brunswick to fulfill the retained warranty obligations.

The company paid $4 million for the assets, which it borrowed. The company’s loan agreement with Regions Bank covers a $14,500,000 term loan and a $2,000,000 revolving line of credit.

• For more of the latest news, click here.