AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 2002
REGISTRATION NO. 333-87648
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
--------------------------
THE HOCKEY COMPANY
*AND THE CO-ISSUER AND SUBSIDIARY GUARANTORS LISTED
IN TABLE OF ADDITIONAL REGISTRANTS
(Exact name of Registrant as specified in its charter)
DELAWARE 3949 13-36-32297
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
3500 BOULEVARD DE MAISONNEUVE WEST
SUITE 800
MONTREAL, QUEBEC
CANADA H3Z 3C1
(514) 932-1118
(Name and address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 590-9100
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
DAVID W. POLLAK, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
(212) 309-6000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective in
connection with the exchange offer described in the prospectus contained in this
Registration Statement.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
(CONTINUED ON NEXT PAGE)
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(CONTINUED FROM PREVIOUS PAGE)
*TABLE OF ADDITIONAL REGISTRANTS
PRIMARY STANDARD
NAME OF STATE OR OTHER JURISDICTION INDUSTRIAL CLASSIFICATION I.R.S. EMPLOYER
ADDITIONAL REGISTRANT(#) OF INCORPORATION OR FORMATION CODE NUMBER IDENTIFICATION NUMBER
------------------------------------ ------------------------------------ ------------------------- ---------------------
Jofa AB Sweden 3949 --
Jofa Holding AB Sweden 3949 --
Maska U.S., Inc. Vermont 3949 03-0279482
SLM Trademark Acquisition Canada New Brunswick
Corp. 3949 --
SLM Trademark Acquisition Corp. Delaware 3949 98-0229816
Sport Maska Inc.(+) New Brunswick 3949 --
Sports Holdings Corp. Delaware 3949 03-0337606
WAP Holdings Inc. Delaware 3949 03-0337605
(#) Addresses and telephone numbers of principal executive offices are the same
as those of The Hockey Company.
(+) Co-Issuer
SUBJECT TO COMPLETION. DATED AUGUST 13, 2002
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
THE HOCKEY COMPANY
AND
SPORT MASKA INC.
OFFER TO EXCHANGE $125,000,000 AGGREGATE PRINCIPAL AMOUNT OF 125,000
11 1/4% SENIOR SECURED NOTE UNITS DUE 2009 FOR 125,000
REGISTERED 11 1/4% SENIOR SECURED NOTE UNITS DUE 2009
[HOCKEY COMPANY LOGO]
[CCM LOGO] [JOFA LOGO] [KOHO LOGO]
MATERIAL TERMS OF THE EXCHANGE OFFER
We are offering to exchange the Units that we sold in a private offering for
new registered Exchange Units, guaranteed as described on page 9 of this
prospectus.
The exchange offer will expire at 5:00 p.m., New York City time, ,
2002, unless we extend the exchange offer to a date no later than , 2002,
in our sole and absolute discretion.
Tenders of outstanding Units may be withdrawn any time before the expiration
or termination of the exchange offer.
All outstanding Units that are validly tendered and not validly withdrawn
will be exchanged.
We believe that the exchange of Units will not be a taxable exchange for
U.S. federal income tax purposes or Canadian federal income tax purposes. See
"Tax Consequences."
We will not receive any cash proceeds from the exchange offer.
The terms of the Exchange Units to be issued are identical to the
outstanding Units, except that the transfer restrictions and registration rights
relating to the outstanding Units will not apply to the Exchange Units. The
Notes comprising an Exchange Unit are also identical to the Notes comprising a
Unit in that they will not be separable and will be transferable only as an
Exchange Unit.
Each broker-dealer that receives Exchange Units for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Units. The letter of transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of Exchange Units received in exchange
for Units where such Units were acquired by such broker-dealer as a result of
market-making activities or other trading activities. We have agreed that, for a
period of 180 days after the Expiration Date (as defined herein) or any shorter
period as provided in the Registration Rights Agreement (as defined herein), we
will make this prospectus available to any broker-dealer for use in connection
with such resale. See "Plan of Distribution."
WE ARE NOT MAKING AN OFFER TO EXCHANGE UNITS IN ANY JURISDICTION WHERE THE
OFFER IS NOT PERMITTED.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE UNITS OR EXCHANGE UNITS.
INVESTING IN THE UNITS ISSUED IN THE EXCHANGE OFFER INVOLVES CERTAIN RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF SOME OF THE RISKS
YOU SHOULD CONSIDER IN EVALUATING THIS EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE EXCHANGE UNITS TO BE DISTRIBUTED
IN THE EXCHANGE OFFER, NOR HAVE ANY OF THESE ORGANIZATIONS DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 2002.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD
NOT ASSUME THAT THE INFORMATION PROVIDED BY THIS PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this prospectus. Whenever
you read a statement that is not solely a statement of historical fact (such as
when we state that we "believe," "expect," "anticipate" or "plan" that an event
will occur, and other similar statements), you should understand that our
expectations may not be correct, although we believe they are reasonable, and
that our plans may change. We do not guarantee that the transactions and events
described in this prospectus will happen as described or that any positive
trends noted in the prospectus will continue. The forward-looking information
contained in this prospectus is generally located under the headings "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," but may be found in other
locations as well. These forward-looking statements generally relate to our
strategies, plans and objectives for future operations and are based upon
management's current plans and beliefs or estimates of future results or trends.
Forward-looking statements regarding management's present plans or
expectations for new product offerings, capital expenditures, sales-building,
cost-saving strategies, and growth involve risks and uncertainties relative to
return expectations and related allocation of resources, and changing economic
or competitive conditions, as well as the negotiation of agreements with third
parties, which could cause actual results to differ from present plans or
expectations, and such differences could be material. Similarly, forward-looking
statements regarding management's present expectations for operating results and
cash flow involve risks and uncertainties relative to these and other factors,
such as the ability to increase revenues and/or achieve cost reductions (and
other factors discussed under "Risk Factors" or elsewhere in this prospectus),
which also would cause actual results to differ from present plans. Such
differences could be material.
You should read this prospectus completely and with the understanding that
actual future results may be materially different from what we expect. We will
not update these forward-looking statements, even if our situation changes in
the future.
FOR NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE UNIFORM
SECURITIES ACT WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IN LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
------------------------
NOTICE TO FLORIDA RESIDENTS
THE SECURITIES ARE OFFERED PURSUANT TO A CLAIM OF EXEMPTION UNDER
SECTION 517.061 OF THE FLORIDA SECURITIES ACT AND HAVE NOT BEEN REGISTERED UNDER
SAID ACT IN THE STATE OF FLORIDA. ALL FLORIDA RESIDENTS (OTHER THAN EXEMPT
INSTITUTIONAL INVESTORS) HAVE THE RIGHT TO VOID THE PURCHASE OF
THE SECURITIES, WITHOUT PENALTY, WITHIN THREE DAYS OF MAKING SUCH PURCHASE.
------------------------
MARKET SHARE, RANKING AND OTHER DATA
The market share, ranking and other data contained in this prospectus are
based either on management's own estimates, independent industry publications,
reports by market research firms or other published independent sources and, in
each case, are believed by management to be reasonable estimates. However,
market share data is subject to change and cannot always be verified with
complete certainty due to limits on the availability and reliability of raw
data, the voluntary nature of the data gathering process and other limitations
and uncertainties inherent in any statistical survey of market shares. In
addition, consumption patterns and consumer preferences can and do change. As a
result, you should be aware that market share, ranking and other similar data
set forth herein, and estimates and beliefs based on such data, may not be
reliable.
TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUMMARY.......................................... 1
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA.............. 12
RISK FACTORS................................................ 14
USE OF PROCEEDS............................................. 24
CAPITALIZATION.............................................. 25
RATIO OF EARNINGS TO FIXED CHARGES.......................... 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS DATA........................................... 27
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA............. 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 31
BUSINESS.................................................... 41
DIRECTORS AND EXECUTIVE OFFICERS............................ 53
EXECUTIVE COMPENSATION...................................... 55
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS................. 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 58
OWNERSHIP OF CAPITAL STOCK.................................. 59
DESCRIPTION OF CERTAIN INDEBTEDNESS......................... 60
THE EXCHANGE OFFER.......................................... 62
DESCRIPTION OF THE EXCHANGE UNITS........................... 72
DESCRIPTION OF THE EXCHANGE NOTES........................... 72
TAX CONSEQUENCES............................................ 116
PLAN OF DISTRIBUTION........................................ 123
LEGAL MATTERS............................................... 123
INDEPENDENT AUDITORS........................................ 123
WHERE YOU CAN FIND MORE INFORMATION......................... 124
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER WE ENCOURAGE YOU TO
READ THE ENTIRE DOCUMENT AND OTHER DOCUMENTS TO WHICH WE REFER AND SHOULD
CONSIDER, AMONG OTHER THINGS, THE MATTERS SET FORTH UNDER "RISK FACTORS". UNLESS
THE CONTEXT REQUIRES OTHERWISE, REFERENCES TO THE "COMPANY", "THE HOCKEY
COMPANY", "WE", "US", OR "OUR" REFER COLLECTIVELY TO THE HOCKEY COMPANY, SPORT
MASKA INC., A WHOLLY-OWNED SUBSIDIARY OF THE HOCKEY COMPANY, AND THE HOCKEY
COMPANY'S OTHER SUBSIDIARIES.
OUR COMPANY
We are the world's largest marketer, designer and manufacturer of hockey
equipment and related apparel. Our primary brands, CCM, Koho and Jofa, are among
the most widely recognized brands in hockey and we estimate that we have a 30%
share of the worldwide ice and roller hockey equipment and related apparel
market. We sell our products to a diverse customer base consisting of specialty
retailers, sporting goods shops, mass merchandisers and international
distributors. We manufacture at highly automated facilities, and have
distribution facilities located, in North America, Finland and Sweden. For the
fiscal year ended December 31, 2001, we generated revenue of $198.2 million,
operating income of $9.0 million and a net loss of $10.5 million. For the three
months ended March 31, 2002, we generated revenue of $34.2 million, operating
income of $0.3 million and a net loss of $3.0 million. As at March 31, 2002, our
deficit was $25.7 million.
We offer a complete line of ice and roller hockey equipment and related
apparel. Hockey equipment represents approximately 64% of our sales, hockey
related apparel 32% of our sales and non-hockey products represent the remaining
4%.
HOCKEY EQUIPMENT. Our comprehensive line of hockey equipment, including
skates, protective equipment, hockey sticks and goaltender equipment, provides a
wide range of choices for both professional and recreational players. Our skates
and other equipment are sold at various price points and range from high
performance products used by professionals in the NHL and other professional
leagues, to intermediate performance products used by youth league players,
among others, and to entry-level products for the beginner. As of
November 2001, 98% of all NHL players used at least one piece of our equipment.
HOCKEY RELATED APPAREL. The hockey related apparel segment of our business
consists of licensed hockey jerseys, team uniforms and socks and licensed or
branded activewear. We have been an NHL licensee since 1967 and we are currently
the exclusive supplier of hockey jerseys to every NHL team and have the
exclusive worldwide right to market authentic and replica NHL jerseys. Our
jerseys are worn by every player and official in the NHL. We are also the
world's largest manufacturer of team uniforms and socks worn by players in
hockey leagues, camps, schools and associations. Our licensed or branded
activewear lines include high quality fleece wear, pants, shirts, T-shirts, golf
shirts, turtlenecks, outerwear and caps embroidered with the NHL, NCAA and other
team and league logos.
NON-HOCKEY PRODUCTS. In addition to our primary hockey related equipment,
we also market and manufacture other equipment, including alpine skiing and
equestrian helmets. In addition, in Finland and Sweden, we are the exclusive
distributor of Merrell footwear, a leading outdoor footwear brand.
INDUSTRY OVERVIEW
We compete in the wholesale ice and roller hockey equipment and related
apparel markets. We estimate the worldwide wholesale hockey equipment and
related apparel market in 2000 was approximately $660 million, and we estimate
that we have a 30% share of this market. Although the
1
worldwide hockey equipment market has remained stable overall, we anticipate
several specific factors will support future growth in the industry, including:
- the increased fan interest and increased participation in hockey;
- the recent expansion of the NHL into new markets such as Nashville in
1998, Atlanta in 1999 and Columbus and Minnesota in 2000;
- increased marketing efforts by the NHL;
- the increased construction of ice rinks; and
- favorable demographics, such as the tendency for hockey enthusiasts to be
more educated and have greater disposable income than participants and
fans of other traditional team sports.
The hockey equipment and related apparel markets are segments of the U.S.
and worldwide sporting goods industries. Several factors are expected to support
the future growth of the sporting goods industry in general, including:
- the considerable leisure time and financial resources of the baby boomer
population;
- a heightened awareness of the importance of recreation and exercise; and
- the growing overseas market for recreational products.
OUR COMPETITIVE STRENGTHS
LEADING WORLDWIDE BRANDS AND MARKET POSITION. We manage a portfolio of the
world's most established and widely recognized hockey brands, which include our
primary brands, CCM, Koho and Jofa, as well as other brands and sub-brands, such
as Tacks, Heaton, Canadien and Titan. The CCM brand has been in existence since
1899, Jofa since 1926 and Koho since 1964. We focus each brand on different
consumer segments and utilize multiple distribution channels to more fully
penetrate viable hockey markets. We estimate that, through our combined brands,
we have a 30% share of the approximate $660 million worldwide market for hockey
equipment and related apparel.
EXTENSIVE USE OF OUR PRODUCTS IN THE NHL. Our products are the most widely
used by NHL players, which we believe highlights and reinforces the
marketplace's view of the innovation and high quality of our equipment and
apparel. As of November 2001, 98% of all NHL players used at least one piece of
our equipment. To further develop and maintain our leading market position for
our equipment and our brands, we have endorsement agreements with several high
visibility players including, among others, Martin Brodeur of the New Jersey
Devils, Jaromir Jagr of the Washington Capitals, Mark Recchi of the Philadelphia
Flyers, Patrick Roy of the Colorado Avalanche, Daniel Sedin and Henrik Sedin of
the Vancouver Canucks, Mats Sundin of the Toronto Maple Leafs and Joe Thornton
of the Boston Bruins.
WORLD LEADER IN PRODUCT INNOVATION. We believe we are the industry's leader
in product innovation, and have dedicated significant resources to ensure our
future technological leadership. The majority of our products are developed and
commercialized in our three research and development centers located in St.
Jean, Quebec, Tammela, Finland and Malung, Sweden. Our research and development
teams work closely with each of our product business Units to enhance the
quality and performance of existing products and to introduce new products into
the marketplace. The majority of our products are developed through our research
efforts and continued feedback from professional and recreational players, as
well as from retail customers. Our university affiliations support our efforts
to develop equipment performance benchmarks, as well as new materials and
equipment designs.
FULL LINE OF HOCKEY EQUIPMENT AND RELATED APPAREL. We are the only company
that offers a full line of ice and roller hockey equipment, NHL licensed jerseys
and other apparel. Our products are sold
2
at various price points and range from high performance products used by
professionals in the NHL and other professional leagues worldwide, to
intermediate performance products used by youth league players, among others,
and to entry-level products for the beginner. Our comprehensive line of products
allows us to cover the full spectrum of consumers, diversify our revenue base
and optimize production capacity at our manufacturing facilities.
ADVANCED MANUFACTURING PROCESSES. We continuously evaluate our
manufacturing processes and use in-house manufacturing, where our proprietary
technologies and processes provide us with a competitive advantage. Through the
use of these proprietary technologies and extensive automation, we believe we
have developed many of the industry's most advanced hockey equipment
manufacturing processes. We believe that we operate the industry's most advanced
skate manufacturing facility in St. Jean, Quebec, the industry's most automated
hockey stick production facility in Cowansville, Quebec, and the industry's most
automated hockey apparel production facility in St. Hyacinthe, Quebec. For other
product lines, where our ability to manufacture does not give us a distinct
competitive advantage, we outsource production to high quality facilities
primarily in Asia and the Czech Republic.
EXCLUSIVE NATIONAL HOCKEY LEAGUE RELATIONSHIP. We have been an NHL licensee
since 1967 and we are currently the exclusive supplier of hockey jerseys to
every NHL team and have the exclusive worldwide right to market authentic and
replica NHL jerseys. Our jerseys are worn by every player and official in the
NHL. Beginning with the 2000/2001 NHL season, the CCM logo appears above each
player's name on every "home" NHL jersey, while the Koho logo appears above each
player's name on every "away" and "third" NHL jersey. We are also the exclusive
supplier of "on-ice" jerseys and pants for NHL officials under the Jofa brand
name. Pursuant to a separate agreement with the National Hockey League Players
Association we are entitled to market authentic and replica game and practice
jerseys identified with the names and numbers of NHL players.
EXTENSIVE MULTI-CHANNEL DISTRIBUTION RELATIONSHIPS. Our products are sold
throughout the world to more than 4,000 customers, consisting of specialty
retailers, sporting goods shops, mass merchandisers and international
distributors. Internationally, we have selling offices in Sweden, Finland and
Norway and distributors in over 40 countries in Europe, South America, Central
America, Africa, Australia and the Far East. Our products are sold to certain
large customers by our in-house sales staff, while an extensive network of
approximately 90 independent sales representatives services other accounts. We
distribute our products from distribution centers in the United States, Canada,
Finland and Sweden. In 2001, we generated approximately 45% of our revenue in
the United States, 32% in Canada and 23% internationally, primarily in Europe.
STRONG AND EXPERIENCED MANAGEMENT TEAM AND FINANCIAL SPONSOR. We have a
strong and experienced management team at the corporate and operating levels.
Our senior management has an average of 18 years experience in the hockey and
sporting goods industries. In addition, our largest stockholder is WS
Acquisition LLC, an affiliate of Wellspring Capital Management LLC, an
experienced private equity investor. Among other investments, Wellspring owns
Protectron Inc., a leading residential and commercial security alarm company in
Canada, and recently completed the sale of Paragon Trade Brands to Tyco
International.
OUR BUSINESS STRATEGY
Our objectives are to increase revenues and maintain high operating margins
by accelerating the product replacement cycle through product innovation,
maintaining our overall market leadership position and becoming the undisputed
leader in each key segment of the global market for hockey equipment and related
apparel. Key elements of our business strategy are as follows:
DRIVE GROWTH THROUGH CONTINUED PRODUCT INNOVATION. Since 1937 when we
introduced the revolutionary Tackaberry hockey skate until our 2002 launch of
the Externo skate, we have a long
3
history of being the first to bring technological advancements and equipment
innovations to the hockey industry. We intend to continue driving our growth
through continued product innovation, which we believe creates a more rapid
equipment replacement cycle and increases demand for our new value added and
higher margin products. By utilizing innovation-driven product marketing, we are
able to compete on technology and brand rather than price, resulting in higher
margins, stronger brand differentiation and additional barriers to entry.
Some of our recent product innovations include:
- JOFA PROTECTIVE EQUIPMENT. In 2001, we introduced new Jofa protective
equipment based on the Joint Discharge Principle, a proprietary and
patented design that redirects an impact from the joint to the surrounding
muscle, thereby reducing injuries. This and other innovations have
resulted in 98% of NHL players wearing at least one piece of Jofa
equipment during the 2000/2001 season. Jofa is the only protective gear
that is allowed to bear the NFL "Center-Ice" logo.
- THE F-I-T SYSTEM THERMO-FORMING PROCESS. We introduced the patented F-I-T
system in our new CCM Tacks skate line in 2001, and new CCM Extemo skate
line in 2002. The F-I-T system applies heat and pressure to key areas of
the boot and allows retailers, at the point of sale, to custom fit a skate
based on the player's size, weight and style of play.
- THE CCM EXTERNO. In the beginning of 2002, we introduced a new skate line,
the CCM Extemo. The technologically advanced CCM Externo is a premium
skate featuring a revolutionary exoskeleton support system that provides
increased stability and support in the strategic areas of the skate to
enhance skating performance as well as providing a more comfortable fit.
- COMPOSITE HOCKEY STICKS. In the second quarter of 2002, we expect to
introduce a lightweight one-piece composite hockey stick. Our new
composite stick will allow increased puck speed, enhanced comfort and
feel, and significantly reduce the weight of the stick without a reduction
in durability.
CONTINUE TO SUPPORT OUR PRODUCTS WITH OUTSTANDING MARKETING. Our marketing
strategy has two major elements: the validation of the product's features and
benefits and the effective communication of the product's features and benefits
to the target audience.
First, we provide validation of our products through use by NHL players,
which we believe provides a high level of exposure for our brands, highlights
the advanced performance features and legitimizes the new technology of our
products. Our endorsement agreements with leading NHL players require the
players to use our equipment during games, make themselves available for
personal appearances, and, in most instances, allow us to use their image in
print and television advertising. In addition, we believe our brands themselves
provide validation for our new products due to their strong reputations for high
quality and reliable performance.
Second, we use television and print advertising, promotions and public
relations, featuring our endorsed players, to promote and reinforce our primary
brands and increase consumer awareness of our products. We also provide in-store
advertising materials, brochures and print materials to assist our retailers in
the communication of the features and benefits of our products to the consumer.
We have co-marketing agreements with the NHL that provide us with advertising
space on rink boards and signage in hockey arenas. As part of our exclusive
agreement with the NHL, our logos appear above the player's name on every NHL
jersey, which results in a high level of exposure. We also place our brand names
on our gloves, sticks, helmets, skates, pants, and jerseys in locations that
will receive a high level of exposure during play on both televised games and in
still photos of games.
4
INCREASE PROFITABILITY THROUGH COST REDUCTIONS AND EFFICIENCY
IMPROVEMENTS. We will continue to evaluate and rationalize our cost structure
and evaluate ways to improve the efficiency and productivity of our operations.
Past initiatives have included:
- consolidation of administrative offices and warehouses;
- consolidation of North American customer service and credit;
- reduction in raw materials costs;
- emphasis on outsourcing of non-core activities; and
- consolidation of manufacturing facilities.
We estimate that facility consolidations and head count reductions
implemented and completed during fiscal year 2001 would have resulted in an
additional $3.2 million of cost savings for the full year. In addition, to
maintain our leading market position and continue to be a leader in product
innovation, we will continue to make our business more flexible and less capital
intensive by outsourcing the manufacturing of our products where it makes
strategic and business sense. We plan to make investments in manufacturing and
vertical integration only when we believe it will significantly strengthen our
competitive position. We believe that outsourcing manufacturing will result in
reduced costs, an improved ability to balance our manufacturing capacity and
shorten the time-to-market for our new products.
------------------------
The Hockey Company's, Sport Maska Inc.'s and the subsidiary guarantors'
principal executive offices are: The Hockey Company, 3500 Boulevard de
Maisonneuve, Suite 800, Montreal, Quebec, Canada H3Z 3C1. The Hockey Company,
SLM Trademark Acquisition Corp., Sports Holdings Corp. and WAP Holdings Inc. are
Delaware corporations, Sport Maska Inc. and SLM Trademark Acquisition Canada
Corp. are New Brunswick corporations, Maska U.S., Inc. is a Vermont corporation
and Jofa AB and Jofa Holding AB are Swedish companies. Our product website
addresses are www.ccmsports.com, www.jofa.com and www.koho.com.
SUMMARY OF THE EXCHANGE OFFER
Initial Offering of Units............ On April 3, 2002, we completed a private offering of
$125,000,000 aggregate principal amount of 11 1/4% Senior
Secured Note Units due 2009, which we refer to herein as the
Units, each Unit consisting of $500 principal amount of
11 1/4% Senior Secured Notes of The Hockey Company, referred
to as the Parent Notes, and $500 principal amount of 11 1/4%
Senior Secured Notes of Sport Maska Inc., referred to as the
Subsidiary Notes. The initial purchaser, Jefferies &
Company, Inc., placed the Units with institutional investors
in transactions exempt from the registration requirements of
the Securities Act pursuant to Section 144A of, and
Regulation S under, the Securities Act and applicable state
securities laws.
Registration Rights Agreement........ When we issued the Units, we entered into a Registration
Rights Agreement, dated April 3, 2002, in which we agreed to
file a registration statement for the Exchange Units with
the SEC by July 2, 2002, the date 90 days following the date
the Units were issued, and to use our best efforts to cause
that registration statement to be declared effective by
September 30, 2002, the date 180 days following the date the
Units were issued. In addition, in
5
certain circumstances, we have agreed to file a "shelf
registration statement" that would allow some or all of
these Units to be offered to the public. After the exchange
offer is complete, you will no longer be entitled to any
exchange or registration rights with respect to your Units,
other than "shelf" registration rights as contained in the
Registration Rights Agreement and described herein.
The Exchange Offer................... Under the terms of the exchange offer, you are entitled to
exchange the Units for registered Exchange Units as
substitute evidence of the indebtedness originally evidenced
by the Units, which we refer to herein as the Exchange
Units. In order to be exchanged, a Unit must be properly
tendered and accepted. All Units that are validly tendered
and not validly withdrawn will be exchanged. We will issue
Exchange Units promptly after the expiration of the exchange
offer. You should read the discussion under the heading
"Description of the Exchange Units" for further information
regarding the Exchange Units. As of this date, there are
$125,000,000 aggregate principal amount of the Units. The
Units may be tendered only in integral multiples of $1,000,
as applicable.
Resales of Exchange Units............ We believe that the Exchange Units to be issued in the
exchange offer may be offered for resale, resold or
otherwise transferred by you without compliance with the
registration and prospectus delivery provisions of the
Securities Act, provided that:
- you are acquiring the Exchange Units in the ordinary
course of your business;
- you are not participating, do not intend to participate,
and have no arrangement or understanding with any person
to participate, in the distribution of the Exchange Units;
and
- you are not an "affiliate" of ours, as that term is
defined in Rule 405 under the Securities Act.
If any of the foregoing are not true and you transfer any
Exchange Units without delivering a prospectus meeting the
requirements of the Securities Act or without an exemption
from the registration requirements of the Securities Act,
you may incur liability under the Securities Act. We do not
assume or indemnify you against that liability.
If you are a broker-dealer and receive Exchange Units for
your own account in exchange for Units that you acquired as
a result of market making or other trading activities, you
must acknowledge that you will deliver a prospectus meeting
the requirements of the Securities Act upon any resale of
the Exchange Units. A broker-dealer may use this prospectus,
as it may be amended or supplemented from time to time, in
connection with an offer to resell, resale or other transfer
of the Exchange Units. For a period which is the lesser of
180 days after the Expiration Date (as defined herein) and
the date on which all such broker-dealers and the Initial
Purchaser have sold all Exchange Units held by them, we will
make this prospectus available to any broker-dealer in
connection
6
with such offer, resale or other transfer. We will take
steps to ensure that the issuance of the Exchange Units will
comply with state securities or "blue sky" laws.
Consequences of Failure to Exchange
Units.............................. If you do not exchange your Units for Exchange Units,
subject to some limited exceptions, you will no longer be
able to require us to register the Units under the
Securities Act. In addition, you will not be able to offer
or sell the Units unless:
- they are registered under the Securities Act and
applicable state securities laws (and we will have no
obligation to register them, except for some limited
exceptions), or
- you offer or sell them under an exemption from the
requirements of, or in a transaction not subject to, the
Securities Act and applicable state securities laws.
We do not currently intend to register the Units under the
Securities Act. Under some circumstances, however, holders
of the Units, including holders who are not permitted to
participate in the exchange offer or who may not freely
resell Exchange Units received in the exchange offer, may
require us to file, and to cause to become effective, a
shelf registration statement covering resales of Exchange
Units by these holders. For more information regarding the
consequences of not tendering your Units, see "The Exchange
Offer--Consequences of Failure to Exchange Units" beginning
on page 63.
Expiration Date...................... The exchange offer will expire at 5:00 p.m., New York City
time, on , 2002, referred to as the Expiration
Date, unless we decide to extend the Expiration Date in our
sole and absolute discretion to a date no later than
, 2002.
Conditions To The Exchange Offer..... The only condition to completing the exchange offer is that
the exchange offer not violate any applicable law or
applicable interpretation of law of the staff of the SEC.
Procedures for Tendering Units....... The Units were issued as global securities in fully
registered form without coupons. Beneficial interests in the
Units which are held by direct or indirect participants in
The Depository Trust Company, or DTC, through
certificateless depositary interests are shown on, and
transfers of the Units can be made only through, records
maintained in book-entry form by DTC with respect to its
participants.
If you are a holder of Units held in the form of a
book-entry interest and you wish to tender your Units for
exchange pursuant to the exchange offer, you must transmit
to The Bank of New York, as exchange agent, on or before the
Expiration Date either:
- an original or facsimile of a properly completed and duly
executed letter of transmittal, which accompanies this
prospectus, and all other required documents to the
address set forth on the cover page of the letter of
transmittal; or
7
- a computer-generated message transmitted by means of the
Automated Tender Offer Program System of DTC, or ATOP, in
which you acknowledge and agree to be bound by the terms
of the letter of transmittal and which, when received by
the exchange agent, forms a part of a confirmation of
book-entry transfer. As part of the book-entry transfer,
DTC will facilitate the exchange of your Units and update
your account to reflect the issuance of the Exchange Units
to you. ATOP allows you to electronically transmit your
acceptance of the exchange offer to DTC instead of
physically completing and delivering a letter of
transmittal to the exchange agent.
In addition, you must deliver to the exchange agent on or
before the Expiration Date:
- a timely confirmation of book-entry transfer of your Units
into the exchange agent's account at DTC, in accordance
with the procedure for book-entry transfers described in
this prospectus under the heading "The Exchange
Offer--Procedures for Exchanging Units; Book-Entry
Delivery Procedures," or
- the documents necessary for compliance with the guaranteed
delivery procedures described below.
Special Procedures for Beneficial
Owners............................. If you are the beneficial owner of book-entry interests and
your name does not appear on a security position listing of
DTC as the holder of the book-entry interests or if you are
a beneficial owner of Units that are registered in the name
of a broker, dealer, commercial bank, trust company or other
nominee and you wish to tender the book-entry interest or
Units in the exchange offer, you should contact the person
in whose name your book-entry interest or Units are
registered promptly and instruct that person to tender on
your behalf. If you wish to tender on your own behalf, you
must, before completing and executing the letter of
transmittal and delivering your Units, either make
appropriate arrangements to register ownership of the Units
in your name or obtain a properly completed bond power from
the person in whose name your Units are registered.
Guaranteed Delivery Procedure........ If you wish to tender your Units and you cannot get your
required documents to the exchange agent by the Expiration
Date, you may tender your Units according to the guaranteed
delivery procedure described under the heading "The Exchange
Offer--Procedures for Exchanging Units; Guaranteed
Delivery."
Withdrawal Rights.................... You may withdraw the tender of your Units at any time before
5:00 p.m., New York City time, on the Expiration Date. To
withdraw, you must send a written or facsimile transmission
notice of withdrawal to the exchange agent at its address
set forth herein under "The Exchange Offer--Exchange Agent"
by 5:00 p.m., New York City time, on the Expiration Date. We
will return to you any Units not accepted for exchange for
any reason without expense to you as promptly as practicable
after the expiration or termination of the exchange offer.
8
Acceptance of Units and Delivery of
Exchange Units..................... If all the conditions to the exchange offer are satisfied,
we will accept any and all Units that are properly tendered
in the exchange offer and not validly withdrawn before
5:00 p.m., New York City time, on the Expiration Date. We
will deliver the Exchange Units promptly after the
Expiration Date
Exchange Agent....................... The Bank of New York is serving as exchange agent in
connection with the exchange offer.
Fees And Expenses.................... We will bear all expenses related to consummating the
exchange offer and complying with the Registration Rights
Agreement.
Use of Proceeds...................... We will not receive any cash proceeds from the issuance of
the Exchange Units.
Tax Considerations................... We believe that the exchange of Units for Exchange Units
will not be a taxable exchange for United States federal
income tax purposes or Canadian federal income tax purposes.
You are referred to the discussion of the tax consequences
of the exchange offer under "Tax Consequences." You should
consult your tax adviser about the tax consequences of the
exchange as they apply to your individual circumstances.
SUMMARY DESCRIPTION OF THE EXCHANGE UNITS AND EXCHANGE NOTES
The terms of the Exchange Units (and the underlying Exchange Parent Notes
and Exchange Subsidiary Notes) and those of the outstanding Units (and the
underlying Parent Notes and Subsidiary Notes) are identical, except that the
transfer restrictions and registration rights relating to the Units do not apply
to the Exchange Units.
Issuers.............................. The Hockey Company and its wholly-owned subsidiary, Sport
Maska Inc. The Hockey Company shall be liable for all
obligations under the Exchange Parent Notes and Sport Maska
Inc. shall be liable for all obligations under the Exchange
Subsidiary Notes.
Securities Offered................... 125,000 Exchange Units in the aggregate principal amount of
$125,000,000, each Exchange Unit consisting of $500
principal amount of 11 1/4% Senior Secured Notes due 2009
issued by The Hockey Company, referred to as the Exchange
Parent Notes, and $500 principal amount of 11 1/4% Senior
Secured Notes due 2009 issued by Sport Maska Inc., referred
to as the Exchange Subsidiary Notes. The Exchange Parent
Notes and the Exchange Subsidiary Notes, referred to
together as the Exchange Notes, comprising an Exchange Unit
will not be separable and will be transferable only as an
Exchange Unit.
Maturity Date........................ April 15, 2009
Interest Rate........................ The Issuers will pay interest on the Exchange Notes at an
annual rate of 11 1/4%.
Interest Payment Dates............... Semi-annually in cash on each April 15 and October 15,
beginning on October 15, 2002.
Guarantees........................... The Hockey Company will fully and unconditionally guarantee
the Exchange Subsidiary Notes and Sport Maska Inc. will
fully and unconditionally guarantee the Exchange Parent
Notes, in each case
9
on a senior secured basis. All of the Issuers' restricted
subsidiaries, excluding our Finnish subsidiaries, will fully
and unconditionally guarantee the Exchange Notes on a senior
secured basis, except that the security interest in the
assets of our Swedish subsidiaries (other than intellectual
property) will be limited to $15 million.
Ranking.............................. The Exchange Parent Notes will be The Hockey Company's
senior secured obligations, ranking senior in right of
payment to all of The Hockey Company's subordinated
indebtedness and ranking PARI PASSU, or on an equal basis,
in right of payment with all of The Hockey Company's senior
indebtedness, including indebtedness under the seasonal
working capital facilities. The Exchange Subsidiary Notes
will be Sport Maska Inc.'s senior secured obligations,
ranking senior in right of payment to all of Sport Maska
Inc.'s subordinated indebtedness and ranking PARI PASSU, or
on an equal basis, in right of payment with all of Sport
Maska Inc.'s senior indebtedness, including indebtedness
under the seasonal working capital facilities. The
guarantees will be senior secured obligations, ranking
senior in right of payment to subordinated indebtedness of
the guarantors and ranking PARI PASSU, or on an equal basis,
in right of payment with all senior indebtedness of the
guarantors, including indebtedness under the seasonal
working capital facilities.
Security Interest.................... The Exchange Notes and guarantees will be secured by
substantially all of the Issuers' tangible and intangible
assets and the tangible and intangible assets of the
Issuers' restricted subsidiaries, excluding our Finnish
subsidiaries, subject to the prior ranking claims on
accounts receivable, inventories and other assets by the
lenders under our seasonal working capital facilities, and
by a pledge of the stock of our first-tier Finnish
subsidiary.
Optional Redemption.................. After April 15, 2006, the Issuers may, at their joint
option, redeem all or some of the Exchange Notes, as
Exchange Units, at the following redemption prices, plus
accrued and unpaid interest to the date of redemption:
FOR THE PERIOD BELOW PERCENTAGE
-------------------- ----------
On or after April 15, 2006......................... 105.625%
On or after April 15, 2007......................... 102.813%
April 15, 2008 and thereafter...................... 100.000%
Before April 15, 2005, up to one-third of the aggregate
principal amount of the Exchange Notes originally issued in
the exchange offer, as Exchange Units, may be redeemed at
the Issuers' option with the net proceeds of certain public
equity offerings of The Hockey Company at 111.25% of the
principal amount, plus accrued and unpaid interest to the
date of redemption, provided at least two-thirds of the
aggregate principal amount of the Exchange Notes originally
issued in the exchange offer, as Exchange Units, remain
outstanding.
Change of Control.................... In the event of a Change of Control Triggering Event, the
Issuers will be required to jointly offer to purchase the
Exchange Notes, as Exchange Units, at 101% of their
principal amount, plus accrued and unpaid interest to the
date of repurchase.
10
Asset Sale Proceeds.................. The Issuers may have to use the cash proceeds from selling
assets to offer to buy back some of the Exchange Notes, as
Exchange Units, at their principal amount, plus accrued and
unpaid interest.
Certain Provisions................... The indenture governing the Exchange Notes may limit the
Issuers' ability to, among others:
- Incur additional indebtedness;
- Pay dividends, redeem stock or make other distributions;
- Issue Stock of subsidiaries;
- Make certain investments;
- Create liens;
- Enter into transactions with affiliates;
- Merge, consolidate or sell substantially all assets; and
- Transfer or sell assets.
Registration Rights.................. REGISTRATION RIGHTS AGREEMENT
In connection with the issuance of the Units, we agreed to
use our best efforts to cause the registration statement, of
which this prospectus forms a part, to be declared effective
by September 30, 2002 and to complete the exchange offer
within 30 business days after the registration statement is
declared effective. In addition, in certain circumstances,
we have agreed to file a "shelf registration statement" that
would allow some or all of these Units to be offered to the
public.
ADDITIONAL INTEREST
We will have to pay additional interest with respect to
these Units if:
- we do not file the required registration statement on a
timely basis;
- the SEC does not declare the required registration
statement effective on time; or
- we do not complete the offer to exchange the Units for the
Exchange Units within 30 business days from the date the
registration statement is required to be declared
effective.
We will pay any additional interest to holders of the Units
on the same dates that we make interest payments on the
Parent Notes and Subsidiary Notes, until we correct the
registration default.
Use of Proceeds...................... The Exchange Units issued in connection with the exchange
offer are only being issued in exchange for your Units. We
will not receive any cash proceeds from the issuance of the
Exchange Units pursuant to the exchange offer. All Units
accepted by us in the exchange offer will be canceled.
FOR MORE INFORMATION ABOUT EXCHANGE UNITS AND EXCHANGE NOTES, SEE THE
"DESCRIPTION OF THE EXCHANGE UNITS" AND "DESCRIPTION OF THE EXCHANGE NOTES"
SECTIONS BEGINNING ON PAGE 72.
YOU SHOULD REFER TO THE SECTION ENTITLED "RISK FACTORS" FOR AN EXPLANATION
OF CERTAIN RISKS OF PARTICIPATING OR NOT PARTICIPATING IN THE EXCHANGE OFFER.
11
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table contains summary historical financial information
derived from our audited consolidated financial statements for the three fiscal
years ended December 31, 1999, 2000 and 2001 and the unaudited consolidated
financial statements for the three months ended March 31, 2001 and 2002. This
summary financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
"Selected Consolidated Historical Financial Data" and our consolidated financial
statements and related notes contained elsewhere in this prospectus. The data
under the "Balance Sheet Data--Pro Forma" caption is presented as if these
transactions had occurred at March 31, 2002. The pro forma information is
presented for illustrative purposes only and does not purport to represent what
our actual financial position or results of operations would have been had the
issuance of the Units offered hereby and the application of the proceeds
therefrom, actually been completed on the date or for the periods indicated and
is not necessarily indicative of our future financial position or results of
operations
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31 MARCH 31
------------------------------ -------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net Sales................................. $190,603 $194,463 $198,187 $ 34,835 $ 34,161
Gross profit.............................. 80,825 77,242 79,073 13,061 14,797
Selling, general and administrative
expenses................................ 58,990 65,080 61,148 14,921 14,486
Operating income (loss)................... 17,263 7,662 9,040 (4,970) 311
Interest expense.......................... 12,025 13,599 13,643 2,991 2,656
Net income (loss) before extraordinary
items................................... (1,774) (8,091) (9,368) (8,671) (2,994)
Net (income) loss......................... (3,625) (10,189) (12,800) (10,347) (3,647)
CASH FLOW DATA:
Net Cash provided by (used in):
Operating activities.................... 876 5,241 (9,122) (9,948) 4,730
Investing activities.................... (4,649) (4,799) (1,137) (267) (208)
Financing activities.................... 4,696 (1,269) 14,397 7,918 (6,417)
AS AT
DECEMBER 31, 2001 AS AT MARCH 31, 2002
----------------- ---------------------
ACTUAL ACTUAL PRO FORMA
----------------- --------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 6,503 $ 4,385 $ 17,344
Working capital, net(1)................................. 75,685 68,764 68,764
Property, plant and equipment, net...................... 16,834 16,083 16,083
Total assets............................................ 199,423 185,582 200,087
Total debt(2)........................................... 114,385 108,056 125,815
Preferred stock, including accrued dividends(3)......... 17,350 18,003 18,003
Total stockholders' equity(4)........................... 42,220 37,902 34,648
12
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31 ENDED MARCH 31
---------------------------------- -------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
OTHER FINANCIAL DATA:
EBITDA(5)..................................... $27,319 $18,248(6) $19,607 $(2,510) $1,425
Restructuring charges (5)..................... -- -- 5,693 2,906 --
Capital expenditures.......................... 4,821 3,558 1,478 543 242
------------------------
(1) Working capital, net, is current assets excluding cash and cash equivalents
less current liabilities excluding short-term debt and the current portion
of long-term debt. It should be noted that companies calculate working
capital, net, differently and, therefore, working capital, net, as
presented for us may not be comparable to working capital, net, reported by
other companies.
(2) Reflects issuance of $125.0 million aggregate principal amount of notes at
98.806% of the principal amount thereof.
(3) Includes the book value of the 13% pay-in-kind redeemable preferred stock
of $11,571 plus accrued non-cash dividends payable of $5,779 at
December 31, 2001 and $11,630 and $6,373 respectively at March 31, 2002.
The unamortized discount of $929 is not included.
(4) Includes paid in capital of $66,515.
(5) EBITDA is defined as earnings (net income) before interest, income and
capital taxes, and depreciation and amortization. EBITDA includes
restructuring charges and other unusual or non-recurring items, if any.
EBITDA is not a measure of performance or financial condition under
generally accepted accounting principles, but is presented because it is a
widely accepted indicator of a company's ability to source and incur debt.
EBITDA should not be considered as an alternative to net income as an
indicator of our operating performance or as an alternative to cash flows
as a measure of liquidity. In addition, it should be noted that companies
calculate EBITDA differently and, therefore, EBITDA as presented for us may
not be comparable to EBITDA reported by other companies. EBITDA is
calculated as follows:
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31 MARCH 31
------------------------------ -------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
Operating income (loss)........ $17,263 $ 7,662 $ 9,040 $(4,970) $ 311
Depreciation and
amortization................. 8,901 9,001 8,869 2,305 916
Capital taxes.................. 405 506 588 157 142
Other expenses, net............ 750 1,079 1,110 (2) 56
------- ------- ------- ------- -------
27,319 18,248 19,607 (2,510) 1,425
======= ======= ======= ======= =======
Under the terms of the Trust Indenture for the Units, for the purposes of
calculating the Consolidated Fixed Charge Coverage Ratio, restructuring charges
and other unusual or non-recurring items would be added back to Consolidated
EBITDA. Under our North American seasonal working capital facilities,
restructuring charges and other unusual or non-recurring items would be added
back to consolidated EBITDA.
(6) EBITDA in 2000 was negatively affected by three events that management
expects to be non-recurring: (i) the liquidation of a large amount of
excess and discontinued product at below normal prices by a competitor,
resulting in decreased demand of our products during the fourth quarter and
first half of 2001, (ii) first year expenses related to being the exclusive
licensee of NHL licensed jerseys and (iii) the discontinuation of our line
of recreational in-line skates.
13
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE TENDERING YOUR UNITS IN THE
EXCHANGE OFFER. ANY REFERENCE TO "UNITS" IN THIS PROSPECTUS REFERS TO BOTH UNITS
AND EXCHANGE UNITS, UNLESS THE CONTEXT REQUIRES OTHERWISE. ANY REFERENCE TO
"NOTES" IN THIS PROSPECTUS REFERS TO BOTH NOTES AND EXCHANGE NOTES, UNLESS THE
CONTEXT REQUIRES OTHERWISE.
RISKS RELATED TO THIS EXCHANGE OFFER AND HOLDING THE EXCHANGE UNITS
HOLDERS WHO FAIL TO EXCHANGE THEIR UNITS WILL CONTINUE TO BE SUBJECT TO
RESTRICTIONS ON TRANSFER.
If you do not exchange your Units for Exchange Units in the exchange offer,
you will continue to be subject to the restrictions on transfer of your Units
described in the legend on the certificates for your Units. The restrictions on
transfer of your Units arise because we issued the Units under exemptions from,
or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the Units if they are registered under the Securities Act and
applicable state securities laws, or offered and sold under an exemption from
these requirements. We do not plan to register the Units under the Securities
Act. For further information regarding the consequences of tendering your Units
in the exchange offer, see the discussions below under the captions "The
Exchange Offer--Purposes and Effects of the Exchange Offer" and "Tax
Consequences."
YOU MUST COMPLY WITH THE EXCHANGE OFFER PROCEDURES IN ORDER TO RECEIVE FREELY
TRADABLE EXCHANGE UNITS.
Delivery of Exchange Units in exchange for Units tendered and accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of the following:
- an original or facsimile of a properly completed and duly executed letter
of transmittal, which accompanies this prospectus, and all other required
documents to the address set forth on the cover page of the letter of
transmittal; or
- a computer-generated message transmitted by means of the Automated Tender
Offer Program System of DTC, or ATOP, in which you acknowledge and agree
to be bound by the terms of the letter of transmittal and which, when
received by the exchange agent, forms a part of a confirmation of
book-entry transfer. As part of the book-entry transfer, DTC will
facilitate the exchange of your Units and update your account to reflect
the issuance of the Exchange Units to you. ATOP allows you to
electronically transmit your acceptance of the exchange offer to DTC
instead of physically completing and delivering a letter of transmittal to
the exchange agent; and
- any other documents required by the letter of transmittal.
Therefore, holders of Units who would like to tender Units in exchange for
Exchange Units should be sure to allow enough time for the Units to be delivered
on time. We are not required to notify you of defects or irregularities in
tenders of Units for exchange. Units that are not tendered or that are tendered
but we do not accept for exchange will, following consummation of the exchange
offer, continue to be subject to the existing transfer restrictions under the
Securities Act and, upon consummation of the exchange offer, certain
registration and other rights under the Registration Rights Agreement will
terminate. See "The Exchange Offer--Procedures for Tendering Units" and "The
Exchange Offer--Consequences of Failure to Exchange Units."
SOME HOLDERS WHO EXCHANGE THEIR UNITS MAY BE DEEMED TO BE UNDERWRITERS.
If you exchange your Units in the exchange offer for the purpose of
participating in a distribution of the Exchange Units, you may be deemed to have
received restricted securities and, if so, will be
14
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
HOLDERS OF THE UNITS PARTICIPATING IN THE EXCHANGE OFFER SHOULD NOT RECOGNIZE
GAIN OR LOSS IN THE EXCHANGE.
The exchange of the Units for the Exchange Units in the exchange offer
should not be a taxable transaction to holders for U.S. federal income tax
purposes or Canadian federal income tax purposes. See "Tax Consequences."
OUR SUBSTANTIAL LEVEL OF INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL
CONDITION AND PREVENT THE ISSUERS FROM FULFILLING THEIR OBLIGATIONS ON THE
NOTES.
We have substantial indebtedness after the offering of the Notes. After
giving pro forma effect to the offering, we would have had approximately
$124.2 million of indebtedness as of December 31, 2001 and $125.8 million as of
March 31, 2002. We will have the ability to borrow up to approximately
$67 million under our seasonal working capital facilities, subject to
availability and any restrictions in the indenture. Subject to restrictions in
the indenture and the seasonal working capital facilities, we may incur
additional indebtedness.
Our high level of indebtedness could have important consequences to you,
including the following:
- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired;
- we must use a substantial portion of our cash flow from operations to pay
interest on the Notes and our other indebtedness, which will reduce the
funds available to us for other purposes;
- all of the indebtedness outstanding under the seasonal working capital
facilities has a prior ranking claim on our accounts receivables,
inventories and related assets and will mature before the Notes;
- our high level of indebtedness could place us at a competitive
disadvantage compared to our competitors that have less debt;
- our seasonal working capital facilities and the term loan of our Swedish
subsidiary have variable rates of interest, which exposes us to the risk
of increased interest rates; and
- our high level of indebtedness makes us more vulnerable to economic
downturns and adverse developments in our business.
We expect to obtain the money to pay our expenses and for the Issuers to pay
the amounts due under the Notes, the seasonal working capital facilities and
other debt from our operations and from borrowings under the seasonal working
capital facilities. Our ability to meet our expenses thus depends on our future
performance, which will be affected by financial, business, economic and other
factors. We will not be able to control many of these factors, such as economic
conditions in the markets where we operate and pressure from competitors. Our
business may not generate sufficient cash flow from operations in the future,
our currently anticipated growth in revenue and cash flow may not be realized on
schedule and future borrowings may not be available to us under the seasonal
working capital facilities in an amount sufficient to enable us to repay
indebtedness, including the Notes, or to fund other liquidity needs. If we do
not have enough money, we may be required to refinance all or part of our then
existing debt (including the Notes), sell assets or borrow more money. We cannot
guarantee that we will be able to accomplish any of these alternatives on terms
acceptable to us, or at all. In addition, the terms of existing or future debt
agreements, including the seasonal working capital facilities and the indenture,
may restrict us from adopting any of these alternatives. The failure to generate
sufficient cash flow or to achieve such alternatives could significantly
adversely affect the value of the Notes and the Issuers' ability to pay the
amounts due under the Notes.
15
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO
PAYMENTS UNDER OUR SEASONAL WORKING CAPITAL FACILITIES TO THE EXTENT OF THE
ASSETS SECURING THAT INDEBTEDNESS. THE PROCEEDS FROM THE COLLATERAL SECURING THE
NOTES MAY NOT BE SUFFICIENT TO PAY ALL AMOUNTS OWED UNDER THE NOTES IF AN EVENT
OF DEFAULT OCCURS.
The Notes and guarantees will be effectively subordinated, in each case to
the extent of the assets securing that indebtedness, to indebtedness that may be
incurred under the seasonal working capital facilities, any future equipment
financing and purchase money debt and all indebtedness that may be incurred by
our Finnish subsidiaries. Our North American seasonal working capital facilities
are secured by all of our accounts receivable, inventories and related assets
and all accounts receivable, inventories and related assets of our North
American subsidiaries. The seasonal working capital facility of our Swedish
subsidiary is secured by all of its assets other than intellectual property. As
a result, upon any distribution to our creditors or the creditors of any
subsidiary guarantors in bankruptcy, liquidation, reorganization or similar
proceedings, or following acceleration of our indebtedness or an event of
default under such indebtedness, our lenders under our seasonal working capital
facilities, our equipment financing and our purchase money indebtedness will be
entitled to be repaid in full from the proceeds of the assets securing such
indebtedness, or the sale of the equipment subject to such equipment financing,
before any payment is made to you from such proceeds. Consequently, there can be
no assurance that the liquidation of the collateral securing the Notes would
produce proceeds in an amount sufficient to pay the principal of, or premium, if
any, and accrued interest and additional interest, if any, on the Notes after
also satisfying the obligations to pay any other senior secured creditors, even
if the fair market value of the collateral would otherwise be sufficient to pay
the amounts owed under the Notes. The market value of the collateral will also
impact the Issuers' ability to make payments due on the Notes, as described
above. In addition, the security interest in the assets of Jofa AB will be
limited to $15 million. There can be no assurance that the fair market value of
the collateral securing the Notes would be sufficient to pay the amounts due
under the Notes, even absent the seasonal working capital facilities and any
equipment financing. An event of default under or acceleration of our other
senior secured debt also may prohibit the Issuers and the subsidiary guarantors
from paying the Notes or the guarantees.
THE HOCKEY COMPANY IS A HOLDING COMPANY AND THEREFORE ITS ABILITY TO MAKE
PAYMENTS ON THE NOTES AND SERVICE ITS OTHER DEBT DEPENDS ON CASH FLOW FROM ITS
SUBSIDIARIES.
The Hockey Company is a holding company. Its only material assets are its
ownership interests in its subsidiaries. Consequently, The Hockey Company will
depend on distributions or other intercompany transfers from its subsidiaries to
make payments on the Notes and service its other debt. In addition,
distributions and intercompany transfers to The Hockey Company from its
subsidiaries will depend on:
- their earnings;
- covenants contained in our debt agreements (including the seasonal working
capital facilities and the notes);
- covenants contained in other agreements to which we or our subsidiaries
are or may become subject;
- business and tax considerations; and
- applicable law, including laws regarding the payment of dividends and
distributions.
We cannot assure you that the operating results of The Hockey Company's
subsidiaries at any given time will be sufficient to make distributions or other
payments to The Hockey Company or that any distribution and/or payments will be
adequate to pay principal and interest, and any other amounts, on the Notes when
due.
16
THE INDENTURE FOR THE NOTES AND OUR SEASONAL WORKING CAPITAL FACILITIES WILL
IMPOSE SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS, WHICH MAY PREVENT US
FROM PURSUING CERTAIN BUSINESS OPPORTUNITIES AND TAKING CERTAIN ACTIONS.
The indenture for the Notes and our seasonal working capital facilities will
impose significant operating and financial restrictions on us. These
restrictions will limit or prohibit, among other things, our ability to:
- incur additional indebtedness;
- repay indebtedness (including the notes) before stated maturities;
- pay dividends on or redeem or repurchase our stock;
- issue capital stock;
- make investments;
- create liens;
- sell certain assets or merge with or into other companies;
- enter into certain transactions with shareholders and affiliates;
- make needed capital expenditures;
- sell stock in our subsidiaries;
- restrict dividends, distributions or other payments from our subsidiaries;
or
- otherwise conduct necessary corporate activities.
In addition, our seasonal working capital facilities will require us to
maintain specified financial ratios. These covenants could adversely affect our
ability to finance our future operations or capital needs and pursue available
business opportunities. A breach of any of these covenants or our inability to
maintain the required financial ratios could result in a default in respect of
the related indebtedness. If a default occurs, the relevant lenders could elect
to declare the indebtedness, together with accrued interest and other fees, to
be immediately due and payable and proceed against any collateral securing that
indebtedness. Acceleration of our other indebtedness could result in a default
under the terms of the indenture governing the Notes and our assets may not be
sufficient to satisfy our obligations under our indebtedness, including the
Notes.
A COURT COULD CANCEL THE GUARANTEES UNDER FRAUDULENT CONVEYANCE LAWS OR CERTAIN
OTHER CIRCUMSTANCES.
The Hockey Company will guarantee the Exchange Subsidiary Notes and Sport
Maska Inc. will guarantee the Exchange Parent Notes. In addition, each of the
Issuers' restricted subsidiaries, excluding our Finnish subsidiaries, will
guarantee the Exchange Notes. If, however, a guarantor becomes a debtor in a
case under the Bankruptcy Code or foreign bankruptcy or insolvency legislation
or encounters other financial difficulty, under federal or state fraudulent
conveyance laws or foreign legislation in relation to fraudulent conveyance,
reviewable transactions or preferential payments, a court in the relevant
jurisdiction might avoid or cancel its guarantee. The court might do so if it
found that, when the guarantor entered into its guarantee or, in some states,
when payments became due thereunder, it received less than reasonably equivalent
value or fair consideration for the guarantee and either was or was rendered
insolvent, was left with inadequate capital to conduct its business, or believed
or should have believed that it would incur debts beyond its ability to pay. The
court might also avoid a guarantee, without regard to the above factors, if it
found that the guarantor entered into its guarantee with actual or deemed intent
to hinder, delay, or defraud its creditors.
17
In the United States, a court would likely find that a guarantor did not
receive reasonably equivalent value or fair consideration for its guarantee
unless it benefited directly or indirectly from the issuance of the Units. If a
court avoided a guarantee, you would no longer have a claim against the
guarantor. In addition, the court might direct you to repay any amounts already
received from the guarantor. If the court were to avoid any guarantee, we cannot
assure you that funds would be available to pay the notes from another guarantor
or from any other source.
The indenture will state that the liability of each subsidiary guarantor on
its guarantee is limited to the maximum amount that the subsidiary can incur
without risk that the guarantee will be subject to avoidance as a fraudulent
conveyance. This limitation may not protect the guarantees from a fraudulent
conveyance attack or, if it does, that the guarantees will be in amounts
sufficient, if necessary, to pay obligations under the Exchange Notes when due.
In addition, a court in Sweden may find that the provision of security from
our Swedish subsidiaries should be regarded as profit distribution/dividend if
the subsidiary does not receive corporate benefit in consideration of the
security provided and the value of such security may thus be limited to
unrestricted equity in the subsidiary. The assessment of the value of the
security and the unrestricted equity available shall be made as per the time of
providing the security.
THE ISSUERS MAY NOT BE ABLE TO SATISFY THEIR OBLIGATIONS TO HOLDERS OF THE UNITS
UPON A CHANGE OF CONTROL.
Upon the occurrence of a "Change of Control Triggering Event," as defined in
the indenture, the Issuers will be required to offer to purchase the Notes, as
Units, at a price equal to 101% of the principal amount thereof, together with
any accrued and unpaid interest and liquidated damages, if any, to the date of
purchase.
The seasonal working capital facilities will prohibit the Issuers from
prepaying the Notes, including prepayments pursuant to a change of control
offer. Before commencing an offer to purchase, we would be required to repay in
full all indebtedness that would prohibit the purchase of the Notes, as Units,
including indebtedness under the seasonal working capital facilities, or obtain
any requisite consent to permit the purchase. If we are unable to repay all of
the indebtedness or are unable to obtain the necessary consents, the Issuers
will be unable to offer to purchase the Notes, as Units, and such failure to
purchase will constitute an event of default under the indenture. We cannot
assure you that we will have sufficient funds available at the time of any
change of control offer to make any debt payment (including purchases of Notes,
as Units).
The events that constitute a change of control under the indenture may also
be events of default under the seasonal working capital facilities. These events
may permit the lenders under the seasonal working capital facilities to
accelerate the debt and, if the debt is not paid, to enforce security interests
in our specified assets, thereby limiting our ability to raise cash to purchase
the Notes, as Units, and reducing the practical benefit of the offer to purchase
provisions to the holders of the Units.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE UNITS, AND YOU MAY NOT BE ABLE TO
SELL THEM QUICKLY OR AT THE PRICE THAT YOU PAID.
Even if the registration statement becomes effective, which will generally
allow resales of the Exchange Units, the Exchange Units will constitute a new
issue of securities with no established trading market. We do not intend to
apply for the Exchange Units to be listed on any securities exchange or to
arrange for quotation on any automated dealer quotation systems; however, we
expect that the Exchange Units will be eligible for trading in the PORTAL market
by QIBs. The Initial Purchaser has advised us that it intends to make a market
in the Exchange Units, but it is not obligated to do so and may discontinue any
market making in the Exchange Units at any time, in its sole discretion. You may
not be able to sell your Exchange Units at a particular time or at favorable
prices. As a result, we cannot assure you as to the liquidity of any trading
market for the Exchange Units or, in the case of
18
any holders of the Units that do not exchange them, the trading market for the
Units following the exchange offer. As a result, you may be required to bear the
financial risk of your investment in the Exchange Units indefinitely. Future
trading prices of the Exchange Units may be volatile and will depend on many
factors, including:
- our operating performance and financial condition;
- the Issuers' ability to complete the exchange offer;
- the interest of securities dealers in making a market for them; and
- the market for similar securities.
RISKS RELATED TO OUR BUSINESS
OUR SALES MAY BE ADVERSELY AFFECTED IF WE CANNOT INTRODUCE NEW AND INNOVATIVE
PRODUCTS.
Our historical success has been attributable, in part, to our introduction
of hockey equipment products which are perceived to represent an improvement in
performance over products available in the market. Our future success will
depend, in part, upon our continued ability to develop and introduce innovative
products in the hockey equipment market. In addition, successful product designs
can be displaced by other product designs introduced by competitors which shift
market preferences in their favor. If we cannot introduce successful new
products, our customers may purchase products from our competitors which will
adversely affect our sales.
OUR BUSINESS MAY BE HARMED AND OUR REVENUE MAY NOT INCREASE AS ANTICIPATED IF
OUR LICENSE AGREEMENT WITH THE NATIONAL HOCKEY LEAGUE IS NOT RENEWED OR IF OUR
RELATIONSHIP WITH THE NHL CHANGES IN AN ADVERSE MANNER.
We have been an NHL licensee since 1967 and we are currently the exclusive
supplier of hockey jerseys to every NHL team and have the exclusive worldwide
right to market authentic and replica NHL jerseys. Our license agreement with
the National Hockey League expires on June 30, 2004, with our option to renew
through June 30, 2005. We cannot assure you that this license agreement will be
renewed or remain exclusive when it expires. If we lose our exclusive right to
provide authentic jerseys to NHL teams and to market replica jerseys and
licensed activewear, the revenue we generate from sales of hockey related
apparel will be adversely affected.
IF WE WERE UNABLE IN THE FUTURE TO DEVELOP PRODUCTS WHICH ARE USED BY PLAYERS IN
THE NHL, OUR BRANDS MAY BE NEGATIVELY AFFECTED.
A key element of our marketing strategy has been to gain product exposure
from use of our products by professional hockey players in both the U.S. and
internationally. We validate our products through their use by NHL players,
which we believe provides a high level of exposure for our brands, highlights
the advanced performance features and legitimizes the new technology of our
products. We cannot assure you that they will continue to be effective promoters
of our products. If we are unable in the future to develop products which are
used by most professional hockey players, we could lose brand validation and we
may have to modify our marketing plans and rely more on other forms of
advertising and promotion, which might not be as effective, or redevelop our
products, which would be costly to us.
IF WE ARE UNABLE TO RETAIN OUR MANAGEMENT TEAM, OUR BUSINESS MAY BE HARMED.
Our future success is highly dependent on the services of our management
team. In particular, we are dependent on the continued service of Matthew H.
O'Toole, our Chief Executive Officer and President. The loss of the services of
Mr. O'Toole or any of our other executive officers could have a
19
material adverse effect on our business. In addition, the market for key
personnel in the industry in which we compete is highly competitive, and we may
not be able to attract and retain key personnel with the skills and expertise
necessary to manage our business, both in the United States and internationally.
We do not maintain "key executive" life insurance.
POTENTIAL LABOR DISRUPTIONS COULD HARM OUR LEVELS OF PRODUCTION.
We have 1,587 employees. While none of our employees in the United States
are unionized, 54 of our employees in Drummondville, Quebec, 390 of our
employees in St. Jean, Quebec, 100 of our employees in Malung, Sweden, 91 of our
employees in Tammela, Finland and 47 of our employees in Harrow, Ontario are
represented by unions. The collective bargaining agreement with the union
expired in December 2001 for Drummondville and negotiations for its renewal are
in the early stages, although we cannot assure you that a new agreement will be
reached. With the agreement of the union, we continue to operate under the prior
agreement. The collective bargaining agreements with the unions expire in 2002
for St. Jean, in 2003 for Harrow and Tammela, Finland and in 2004 for Malung,
Sweden. There can be no assurance that we will not experience work stoppages or
other labor problems in the future at our unionized and non-union facilities.
WE DEPEND ON PARTICULAR MANUFACTURING FACILITIES TO PRODUCE SOME OF OUR
PRODUCTS. THE LOSS OR TEMPORARY DISRUPTION OF ONE OF THESE FACILITIES COULD HARM
OUR BUSINESS.
Some of our product lines are produced by only one particular manufacturing
plant. For example, our St. Jean, Quebec facility produces almost all of our
helmets and all high end skates. The loss or temporary disruption of one of
these facilities due to environmental concerns, lease renewal issues, labor
problems, natural disasters, physical damage or any other reason could
significantly hamper our ability to provide those products. This could constrain
growth and inhibit our ability to introduce new products in a timely manner.
Significant back orders over a prolonged period could have a damaging effect on
customer relations. As a result, the loss or long-term impairment of one of
these facilities could harm our business. Although we have business interruption
insurance coverage, it may not be enough if several of our manufacturing plants
are shut down.
OUR RELIANCE UPON INDEPENDENT CONTRACT MANUFACTURERS EXPOSES US TO VARIOUS RISKS
ASSOCIATED WITH DISRUPTION IN PRODUCT SUPPLY, ANY OF WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
Some of our hockey equipment and apparel is manufactured by independent
suppliers located primarily in Asia and the Czech Republic. Although we execute
manufacturing agreements with our foreign manufacturers, we cannot assure you
that we will not experience difficulties with our manufacturers, such as
reduction in the availability of production capacity, errors in complying with
product specifications, inability to obtain sufficient raw materials,
insufficient quality control, failure to comply with our requirements for the
proper utilization of our intellectual property, failure to meet production
deadlines, or increases in manufacturing costs. In addition, if our relationship
with any of our manufacturers were to be interrupted or terminated, alternative
manufacturing sources will have to be located. The establishment of new
manufacturing relationships involves numerous uncertainties, and we cannot
assure you that we would be able to obtain alternative manufacturing sources on
a timely basis or on satisfactory terms. Should a change in our suppliers become
necessary, we could experience increased costs, as well as substantial
disruption and resulting loss of sales. In addition, we utilize international
sourcing agents who assist us in selecting and overseeing third party
manufacturers, ensuring quality, sourcing fabrics and other materials and
monitoring quotas and other trade regulations. The loss or reduction in the
level of services from such agents could affect our ability to efficiently
source products from our independent manufacturers overseas, which could have a
material adverse effect on our business.
20
In addition, our relationships with independent foreign manufacturers are
also subject to a number of risks, including work stoppage, transportation
delays and interruptions, political instability, foreign currency fluctuations,
changing economic conditions, expropriation, nationalization, imposition of
tariffs, import and export controls and other non-tariff barriers (including
quotas) and restrictions on the transfer of funds, environmental regulation, and
other changes in governmental policies. We cannot be certain that adverse
changes in trade or political relations will not materially adversely affect our
ability to procure manufactured products in a cost-effective or timely manner.
WE RELY ON PROPRIETARY RIGHTS WHICH MAY NOT BE ADEQUATELY PROTECTED.
We currently hold a substantial number of patents, industrial designs and
trademarks. Additionally, we have a number of patent and industrial design
applications pending in multiple countries. We cannot assure you that any
pending application will be granted or that any granted application or existing
patent will be effective in preventing our competition from imitating these
designs. The exploitation of the exclusive right to use these designs has helped
establish our market share. Potential competitors must either license existing
technology or invest considerable resources and time in developing their own
proprietary rights in order to offer comparable high end technology. In
addition, we share control over the CCM trademark with an unaffiliated Canadian
bicycle company. As a result, the value of this trademark can be affected by
factors outside of our control. Any adverse effect on the value of the CCM
trademark could harm our business. In addition, the laws of certain foreign
countries do not protect intellectual property rights to the same extent or in
the same manner as the laws of the U.S. and Canada. Although we continue to
implement protective measures and intend to defend our intellectual property
rights vigorously, we cannot assure you that these efforts will be successful or
that the costs associated with protecting our rights in certain jurisdictions
will not be extensive. The loss or reduction of any of our significant
proprietary rights could hurt our ability to distinguish our superior products
from competitors, products and retain our leading market share.
WE ARE DEPENDENT UPON A RELATIVELY SMALL GROUP OF CUSTOMERS FOR A LARGE PORTION
OF OUR SALES.
During fiscal year 2001, our top ten customers accounted for approximately
20% of consolidated net sales. Although we have long-term relationships with
many of our customers, they do not have any contractual obligations to purchase
our products in the future. We cannot be certain that we will be able to retain
our existing major customers, and the loss of major customers could have a
material adverse impact on our business. In addition, the retail industry has
periodically experienced consolidation, contractions and financial difficulties
and if such events happen again in the future this may result in loss of
customers or uncollectability of accounts receivables in excess of amounts we
have reserved.
OUR OPERATIONS OUTSIDE NORTH AMERICA ARE SUBJECT TO HEIGHTENED RISKS. IF ANY OF
THESE RISKS ACTUALLY OCCUR, OUR EARNINGS COULD DECLINE.
Revenue outside of North America, which is primarily in Sweden and Finland,
accounted for approximately 23% of our total revenue for 2001. We expect revenue
generated outside North America to continue to account for a significant
percentage of our total revenue in the future. Our operations outside North
America are subject to risks inherent in international business activities,
including:
- compliance with a variety of foreign laws and regulations;
- unexpected changes in regulatory requirements and overlap or
incompatibility of different tax structures;
- trade restrictions;
- unchanges in tariff rates and import and export licensing requirements;
and
21
- general economic conditions in international markets.
Our earnings could decline if these or other factors affect our
international operations.
In addition, fluctuations in foreign exchange rates may affect our results
of operations, which in turn may adversely affect reported earnings and the
comparability of period-to-period results of operations. As we have significant
operations in Canada and Europe, approximately 55% of our revenue is denominated
in currencies other than the United States dollar. Exchange rate fluctuations
have caused and will continue to cause currency transaction gains and losses.
Since we report our results in U.S. dollars, our revenue and earnings generated
by our operations outside of the United States will be negatively affected if
the value of currencies outside of the United States decline compared to the
U.S. dollar. Also, changes in foreign exchange rates may affect the relative
prices at which we and foreign competitors sell products in the same markets.
WE ARE SUBJECT TO PRODUCT LIABILITY CLAIMS AND OUR INSURANCE COVERAGE MAY NOT
COVER SUCH CLAIMS.
Hockey is a physical, dangerous sport involving hard surfaces and equipment.
Injuries suffered by persons wearing our products and injuries inflicted by our
products could be blamed on equipment safety deficiencies. The ultimate outcome
of future claims cannot presently be determined. We are subject to product
liability claims in the ordinary course of our business and maintain product
liability insurance. We are not currently subject to any material product
liability claims not covered by insurance. We cannot assure you that this
coverage will remain available to us in the future, or that our insurers will be
financially viable when payment of a claim is required. Furthermore, future rate
increases might make insurance uneconomical for us to maintain. These potential
insurance problems or any adverse outcome in any liability suit could create
increased expenses which could harm our business.
WE ARE CONTROLLED BY OUR PRINCIPAL STOCKHOLDER, WHICH MAY GIVE RISE TO A
CONFLICT OF INTEREST.
WS Acquisition LLC, an affiliate of Wellspring Capital Management LLC,
beneficially owns approximately 51% of the outstanding shares of The Hockey
Company's common stock. As a result, Wellspring controls us and effectively has
the power to approve any action requiring the approval of the holders of our
stock, including adopting certain amendments to our certificate of incorporation
and approving mergers or sales of all of our assets. In addition, as a result of
Wellspring's ownership interest, conflicts of interest could arise with respect
to transactions involving business dealings between us and Wellspring, potential
acquisitions of businesses or properties, the issuance of additional securities,
the payment of dividends by us and other matters.
WE MAY BE SUBJECT TO POTENTIAL ENVIRONMENTAL LIABILITY.
We are subject to liability for any environmental damage that our facilities
and operations may cause, including damage to neighboring landowners or
residents, particularly as a result of the contamination of soil, groundwater or
surface water. Any substantial liability for environmental damage incurred by us
could harm our business because it may affect our manufacturing facilities.
RISKS RELATED TO OUR INDUSTRY
OUR SUCCESS DEPENDS ON THE CONTINUED POPULARITY OF HOCKEY AS A RECREATIONAL
SPORT AND THE POPULARITY OF THE NATIONAL HOCKEY LEAGUE.
We generate substantially all of our revenue from the sale of hockey
equipment and hockey related apparel. The demand for our hockey equipment and
hockey related apparel is directly related to the popularity of hockey, the
number of hockey participants and the amount of hockey being played by
22
these participants. If hockey participation decreases, sales of our hockey
equipment and hockey related apparel would be adversely affected.
The popularity of the NHL also affects the sales of our hockey equipment and
hockey related apparel. Our brands receive significant "on-ice" exposure as a
result of our license agreement with the NHL. We depend on this "on-ice"
exposure of our brands to increase brand recognition and reinforce the quality
of our products. Any significant reduction in television coverage of NHL games,
any work stoppages in the NHL or other professional leagues or any other
significant decreases in either attendance at NHL games or viewership of NHL
games will reduce the visibility of our brands and could adversely affect our
sales.
A REDUCTION IN DISCRETIONARY CONSUMER SPENDING COULD REDUCE SALES OF OUR HOCKEY
EQUIPMENT AND HOCKEY RELATED APPAREL.
We sell recreational, non-essential products. The success of our business
depends to a significant extent upon discretionary consumer spending.
Discretionary consumer spending is affected by general economic conditions
affecting disposable consumer income, such as rates of employment, business
conditions, consumer confidence, the stock market, interest rates and taxation.
Any significant decline in these general economic conditions or uncertainties
regarding future economic prospects that adversely affect discretionary consumer
spending could lead to reduced sales of our hockey equipment and hockey related
apparel.
OUR FINANCIAL RESULTS WILL BE AFFECTED BY MARKET CONDITIONS IN THE HOCKEY
EQUIPMENT AND RELATED APPAREL INDUSTRY, WHICH IS INTENSELY COMPETITIVE AND HAS
CERTAIN SEGMENTS WITH LOW BARRIERS TO ENTRY.
The hockey equipment and apparel industry is highly competitive. Competitive
factors that affect our market position within the hockey equipment and apparel
industries include the style, quality and technical aspects of our products and
the strength and authenticity of the CCM, Jofa and Koho brands. One of our
competitors, Bauer Nike Hockey Inc., has significantly greater financial
resources than we do and spends substantially more on product advertising than
we do. In addition, there are minimal barriers to entry into certain segments of
the hockey equipment and apparel industry. The general availability of offshore
manufacturing capacity allows for rapid expansion by competitors and new
entrants in the hockey equipment and apparel market. Our competitors may
overproduce and release large quantities of discontinued product at lower prices
into the market, resulting in decreased demand for our products. This occurred
in the fourth quarter of 2000. We face competition from other well-known
sporting goods companies, such as Bauer Nike Hockey Inc. and Easton
Sports, Inc., which have significant brand recognition. In addition, in the
sports apparel market, we compete with a number of companies, such as Lee
Company and Athletic Knit, some of which may have significantly greater
financial and other resources than we do. We also compete with smaller
companies, such as Mission Hockey Company and Sherwood Drolet Ltd., which
specialize in marketing to our core hockey customers. Our inability to
effectively compete in the hockey equipment and apparel market would harm our
business.
OUR BUSINESS DEPENDS ON WEATHER CONDITIONS AND IS SUBJECT TO SEASONAL
FLUCTUATIONS.
Although many ice rinks used by hockey participants are built indoors or are
in regions with colder climates, our sales are influenced by weather conditions,
particularly trends toward warmer winters.
Prolonged warm conditions, or the occurrence of such conditions during the
winter season, can adversely affect our sales. Based on historic trends, we
expect our operating results to vary seasonally, with revenues typically lowest
in the first and second quarters of the year and higher in the third and fourth
quarters. This results from the significant amount of sales we make in the
months leading up to winter and the beginning of the hockey season. We also
offer extended payment terms to some of our
23
creditworthy customers that purchase our products in the months leading up to
the beginning of the hockey season since these customers typically generate most
of their sales during the hockey season. Because we expect a majority of our
operating expenses to remain fairly constant throughout the year, operating
income will generally be lower in the first quarter of the year. Future seasonal
and quarterly fluctuations may materially and adversely affect our business.
THE SIZE OF THE MARKET FOR HOCKEY EQUIPMENT AND HOCKEY RELATED APPAREL MAY LIMIT
OUR GROWTH.
We estimate that the worldwide wholesale hockey equipment and hockey related
apparel market is approximately $660 million per year and has been relatively
flat for the last few years. Our growth and profitability may be limited by the
size and growth rate of the industry. Limitations on our growth and
profitability could adversely affect our business.
USE OF PROCEEDS
The Exchange Units issued in connection with the exchange offer are only
being issued in exchange for your Units. We will not receive any cash proceeds
from the issuance of the Exchange Units pursuant to the exchange offer. All
Units accepted by us in the exchange offer will be canceled.
The proceeds from the offering of the Units were used to pay down amounts
outstanding under the Credit Agreement, dated as of November 19, 1998, among
Maska U.S., Inc., SHC Hockey Inc., the other Credit Parties signatory thereto,
General Electric Capital Corporation and the other Lenders signatory thereto
from time to time, as amended, and the Credit Agreement, dated as of
November 19, 1998, among Sport Maska Inc., Tropsport Acquisitions Inc., the
Company, the other Credit Parties signatory thereto, General Electric Capital
Canada Inc. and the other Lenders signatory thereto from time to time, as
amended, and to repay in full the Caisse de depot et placement du Quebec, or
Caisse, Facility 1 and Facility 2 loans pursuant to the Amended and Restated
Credit Agreement, dated as of March 14, 2001, among the Issuers, Caisse, as
Agent and Lender, and Montreal Trust Company, as Paying Agent, as well as to pay
fees and expenses and for general corporate purposes.
24
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization derived from our audited consolidated financial statements at
December 31, 2001, and our unaudited consolidated financial statements for the
three months ended March 31, 2002, on an actual and unaudited pro forma basis
giving effect to the issuance of the Units and the application of the proceeds
therefrom. This table should be read in conjunction with "Use of Proceeds",
"Selected Consolidated Historical Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", our consolidated
financial statements and related notes and other financial information appearing
elsewhere in this prospectus. The pro forma information is presented for
illustrative purposes only and does not purport to represent what our actual
financial position or results of operations would have been had the issuance of
the Units and the application of the proceeds therefrom, actually been completed
on the date or for the periods indicated and is not necessarily indicative of
our future financial position or results of operations.
AT
DECEMBER 31,
2001 AT MARCH 31, 2002
------------- --------------------
ACTUAL ACTUAL PRO FORMA
------------- -------- ---------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents................... $ 6,503 $ 4,385 $ 17,344
======== ======== ========
Short-term debt(1).......................... $ 27,792 $ 21,209 $ 1,703
--------
Long-term debt(2)........................... 86,593 86,847 604
The Units(3)................................ -- -- 123,508
-------- -------- --------
Total debt.................................. 114,385 108,056 125,815
Preferred stock(4).......................... 11,571 11,630 11,630
Total stockholders' equity(5)............... 42,220 37,902 34,648
-------- -------- --------
Total capitalization........................ $168,176 $157,588 $172,093
======== ======== ========
------------------------
(1) Short-term debt includes the GECC US dollar and Canadian dollar facilities,
the Finnish facility and the Swedish facility. The outstanding balances of
the Swedish and Finnish facilities as of March 31, 2002 were $1.7 million
and $0 respectively.
(2) Long-term debt includes the Caisse Facility 1 and Facility 2 loans and the
Swedish term loan, including the current portion thereof.
(3) Reflects issuance of $125.0 million aggregate principal amount of notes at
98.806% of the principal amount thereof.
(4) The 13.0% Pay-in-Kind preferred stock is subject to mandatory redemption six
months after the maturity of the notes and does not include accrued
pay-in-kind dividends of $5.8 million as of December 31, 2001 and
$6.4 million as of March 31, 2002.
(5) Concurrent with the issuance of the Units and the repayment of the Caisse
loan, Caisse exercised its warrants to purchase 539,974 shares of common
stock at $.01 per share.
25
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our historical consolidated ratio of earnings
to fixed charges for the periods indicated.
FISCAL YEAR ENDED THREE MONTHS ENDED MARCH 31
------------------------------------------------------------------- ---------------------------
2001 2002
1997 1998 1999 2000 2001 PRO FORMA(1) 2001 2002 PRO FORMA(1)
-------- -------- -------- -------- -------- ------------ -------- -------- ------------
(DOLLARS IN THOUSANDS)
Deficiency of
earnings to fixed
charges............ $2,162 N/A N/A $6,798 $6,756(2) $3,798 $8,537 $3,144(2) $3,349
Ratio of earnings to
fixed charges...... N/A 2.01x 1.25x N/A N/A N/A N/A N/A N/A
--------------------------
(1) Pro forma deficiency of earnings to fixed charges for 2001 has been
calculated to give effect to the issuance of the Units and the application
of the net proceeds to extinguish the Caisse loans and the North American
credit facilities, as if all such transactions had occurred on January 1,
2001. The deficiency of earnings to fixed charges has decreased by $2,958 as
a result of the following pro forma adjustments:
a) Interest expense has increased by $1,758 to reflect the interest expense
on the Units.
b) Other expenses, net has decreased by $3,953 to reflect the net decrease
in amortization of deferred financing costs and discontinuance of hedge
accounting associated with the debt extinguished.
c) Capitalized interest has decreased by $763 to reflect the repayment of
the Caisse loans as at January 1, 2001.
Pro forma deficiency of earnings to fixed charges for three months ended
March 31, 2002 has been calculated to give effect to the issuance of the
Units and the application of the net proceeds to extinguish the Caisse loans
and the North American credit facilities, as if all such transactions had
occurred on January 1, 2002. The deficiency of earnings to fixed charges has
increased by $205 as a result of the following pro forma adjustments:
a) Interest expense has increased by $1,194 to reflect the interest expense
on the Units.
b) Other expenses, net has decreased by $733 to reflect the net decrease in
amortization of deferred financing costs and discontinuance of hedge
accounting associated with the debt extinguished.
c) Capitalized interest has decreased by $256 to reflect the repayment of
the Caisse loans as at January 1, 2002.
(2) Includes capitalized interest of $763 and $256 for the year ended
December 31, 2001 and three months ended March 31, 2002, respectively.
For the purpose of calculating the ratio of earnings to fixed charges,
earnings are defined as pre-tax income from continuing operations and fixed
charges. Fixed charges are the sum of interest expense and amortized premiums,
discounts and capitalized expenses related to indebtedness.
26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
The following unaudited pro forma condensed consolidated financial
statements data have been derived by the application of pro forma adjustments to
our historical consolidated financial statements included elsewhere in this
registration statement and reflect the unaudited pro forma consolidated
financial statements of The Hockey Company. The unaudited pro forma data give
effect to 1) the issuance of the Units and 2) the application of the net
proceeds to extinguish the Caisse loans and the North American credit
facilities, as if all such transactions had occurred on March 31, 2002 for the
unaudited condensed consolidated balance sheet data, January 1, 2001 for the
unaudited condensed consolidated statement of operations for the year ended
December 31, 2001 and January 1, 2002 for the unaudited condensed consolidated
statement of operations for the quarter ended March 31, 2002, and reflect the
following pro forma adjustments.
1) Cash and cash equivalents have been increased by $12,959, which
represents the net proceeds from the issuance of the Note units less
amounts used to extinguish the Caisse loans and the North American credit
facilities and to pay related fees and expenses.
2) Intangible and other assets, net, have been increased by $1,546 to
reflect the net increase in deferred financing costs resulting from the
issuance of the Units.
3) Short-term debt and long-term debt have been decreased by $19,506 and
$86,243, respectively, to reflect their extinguishment on application of
the proceeds of the Units, and long-term debt has been increased by
$123,508 to reflect the issuance of the Units.
4) Deficit has been increased by $3,245 resulting from the write-off of
deferred financing costs associated with the debt extinguished on
application of the Units proceeds.
5) Other expense, net and interest expense have been increased (decreased)
by ($3,953) and $1,758 respectively to reflect the net increase
(decrease) in amortization of deferred financing costs and discontinuance
of hedge accounting associated with the debt extinguished, and interest
expense on the Units.
6) Loss per share, basic and diluted, have been decreased to reflect
increased other expenses, net and interest expense, and also reflects a
decrease in the accretion related to the 13% pay-in-kind redeemable
preferred stock.
7) Other expense, net and interest expense have been increased (decreased)
by (733) and 1,194 respectively to reflect the net increase (decrease) in
amortization of defined financing costs and discontinuance of hedge
accounting associated with the debt extinguished, and interest expense on
the Units.
The unaudited pro forma condensed consolidated financial statement data
should not be considered indicative of actual results that would have been
achieved had the Notes offered been consummated on the date or for the period
indicated and do not purport to indicate balance sheet data or results of
operations as of any future date or any future period.
The unaudited pro forma condensed consolidated financial statement data
should be read in conjunction with the information contained in "Selected
Historical Financial and Operating Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated financial
statements and related notes appearing elsewhere in this prospectus.
27
BALANCE SHEET DATA
MARCH 31, 2002
----------------------------------
AS REPORTED PRO FORMA NOTES
----------- --------- --------
ASSETS
Current assets.............................................. 94,275 107,234 (1)
Other assets................................................ 91,307 92,853 (2)
-------- --------
Total assets.............................................. 185,582 200,087
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities......................................... 42,576 23,070 (3)
Long-term debt and other liabilities........................ 93,474 130,739 (3)
-------- --------
Total liabilities......................................... 136,050 153,809
13% pay-in-kind redeemable preferred stock.................. 11,630 11,630
Stockholders' equity........................................ 37,902 34,648 (4)
-------- --------
Total liabilities and stockholders' equity................ 185,582 200,087
INCOME STATEMENT DATA
YEAR ENDED
DECEMBER 31, 2001
----------------------------------
AS REPORTED PRO FORMA NOTES
----------- --------- --------
Net Sales................................................... $198,187 $198,187
Gross profit................................................ 79,073 79,073
Operating income............................................ 9,040 9,040
Other expense (income), net................................. 1,390 (2,563) (5)
Interest expense............................................ 13,643 15,401 (5)
Net loss before extraordinary item.......................... (9,368) (7,173)
======== ========
Basic and diluted loss per share before extraordinary
item...................................................... (1.65) (1.33) (6)
THREE MONTHS
ENDED MARCH 31, 2002
----------------------------------
AS REPORTED PRO FORMA NOTES
----------- --------- --------
Net sales................................................... 34,161 34,161
Gross profit................................................ 14,797 14,797
Operating income............................................ 311 311
Other expense (income), net................................. 543 (190) (7)
Interest expense............................................ 2,656 3,850 (7)
Net loss before extraordinary item.......................... (2,994) (3,456)
====== =======
Basic and diluted loss per share before extraordinary
item...................................................... (0.51) (0.57) (6)
28
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table contains selected consolidated historical financial data
derived from our audited consolidated financial statements for the five fiscal
years ended December 31, 1997, 1998, 1999, 2000 and 2001 and our unaudited
consolidated financial statements for the three months ended March 31, 2001 and
2002. This selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
contained elsewhere in this prospectus.
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31
---------------------------------------------------- -------------------
1997(1) 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
INCOME STATEMENT DATA:
Net sales.................................... $123,754 $110,817 $190,603 $194,463 $198,187 $ 34,835 $ 34,161
Cost of goods sold before restructuring
charges.................................... 73,775 65,026 109,778 117,221 117,916 20,873 19,364
Restructuring and unusual charges............ -- -- -- -- 1,198 901 --
-------- -------- -------- -------- -------- -------- --------
Gross Profit................................. 49,979 45,791 80,825 77,242 79,073 13,061 14,797
Selling, general and administrative expenses
before restructuring charges............... 38,237 35,272 58,990 65,080 61,148 14,921 14,486
Restructuring and unusual charges............ 6,315 1,900 -- -- 4,495 2,005 --
Amortization of excess reorganization value
and goodwill............................... 1,712 2,606 4,572 4,500 4,390 1,105 --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)...................... 3,715 6,013 17,263 7,662 9,040 (4,970) 311
Other (income) expense, net.................. 1,955 (4,588) 1,736 861 1,390 576 543
Interest expense............................. 3,922 4,108 12,025 13,599 13,643 2,991 2,656
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary items........................ (2,162) 6,493 3,502 (6,798) (5,993) (8,537) (2,888)
Income taxes................................. 4,665 4,603 5,276 1,293 3,375 134 106
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before extraordinary
items...................................... (6,827) 1,890 (1,774) (8,091) (9,368) (8,671) (2,994)
Extraordinary items--Gain (loss) on early
extinguishment of debt, net of income
taxes...................................... 58,726 -- -- -- (1,091) (1,091) --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................ 51,899 1,890 (1,774) (8,091) (10,459) (9,762) (2,994)
Preferred stock dividends.................... -- 190 1,625 1,861 2,103 526 594
Accretion of 13% Pay-in-Kind preferred
stock...................................... 35 226 237 238 59 59
-------- -------- -------- -------- -------- -------- --------
Net income (loss) attributable to common
stockholders............................... $ 51,899 $ 1,665 $ (3,625) $(10,189) $(12,800) $(10,347) $ (3,647)
======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per share before
extraordinary items........................ N/A $ .25 $ (0.54) $ (1.53) $ (1.65) $ (1.37) $ (0.51)
Diluted earnings (loss) per share before
extraordinary items........................ N/A $ .25 $ (0.54) $ (1.53) $ (1.65) $ (1.37) $ (0.51)
Basic earnings (loss) per share.............. N/A $ .25 $ (0.54) $ (1.53) $ (1.81) $ (1.53) $ (0.51)
Diluted earnings (loss) per share............ N/A $ .25 $ (0.54) $ (1.53) $ (1.81) $ (1.53) $ (0.51)
BALANCE SHEET DATA
Cash and cash equivalents.................... $ 8,051 $ 2,593 $ 3,519 $ 2,423 $ 6,503 $ 518 $ 4,385
Working capital, net(2)...................... 38,100 57,128 70,952 65,443 75,685 62,167 68,764
Property, plant and equipment, net of
accumulated depreciation................... 9,508 22,063 22,860 21,142 16,834 19,562 16,083
Total assets................................. 118,780 207,178 209,611 195,579 199,423 186,765 185,582
Total debt................................... 33,030 97,140 108,226 103,798 114,385 109,199 108,056
Accrued dividends payable.................... -- 190 1,815 3,676 5,779 4,202 6,373
Deferred income taxes and other long-term
liabilities................................ 1,480 182 66 495 1,128 469 495
13% Pay-in-Kind redeemable preferred
stock(3)................................... -- 10,870 11,096 11,333 11,571 11,392 11,630
Cash dividends declared per common share..... -- -- -- -- -- -- --
Total stockholders' equity................... 68,882 69,238 63,637 52,260 42,220 44,540 37,902
29
THREE MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED MARCH 31
---------------------------------------------------- -------------------
1997(1) 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
OTHER FINANCIAL DATA:
NET CASH PROVIDED BY (USED IN):
Operating activities......................... $ 18,258 $ 19,118 $ 876 $ 5,241 $ (9,122) $ (9,948) $ 4,730
Investing activities......................... 422 (66,267) (4,649) (4,799) (1,137) (267) (208)
Financing activities......................... (46,010) 41,775 4,696 (1,269) 14,397 7,918 (6,417)
Capital expenditures......................... 2,017 3,480 4,821 3,558 1,478 543 242
Deficiency of earnings to fixed charges...... 2,162 N/A N/A 6,798 6,756 8,537 3,144
Ratio of earnings to fixed charges........... N/A 2.01 1.25 N/A N/A N/A N/A
EBITDA(4).................................... $ 8,001 $ 13,993 $ 27,319 $ 18,248(5) $ 19,607 $ (2,510) $ 1,425
EBITDA margin(4)............................. 6.5% 12.6% 14.3% 9.4% 9.9% N/A 4.2%
Restructuring charges........................ 6,315 1,900 -- -- 5,693 2,906 --
------------------------------
(1) Earnings per share data is not presented for 1997 because it is not
meaningful, and 1997 pre and post reorganization results have been combined.
(2) Working capital, net, is current assets excluding cash and cash equivalents
less current liabilities excluding short-term debt and the current portion
of long-term debt. It should be noted that companies calculate working
capital, net, differently and, therefore, working capital, net, as presented
for us may not be comparable to working capital, net, reported by other
companies.
(3) The 13% Pay-in-Kind preferred stock is subject to mandatory redemption six
months after the maturity of the notes.
(4) EBITDA is defined as earnings (net income) before interest, income and
capital taxes and depreciation and amortization. EBITDA includes
restructuring charges and other unusual or non-recurring items, if any.
EBITDA is not a measure of performance or financial condition under
generally accepted accounting principles, but is presented because it is a
widely accepted indicator of a company's ability to source and incur debt.
EBITDA should not be considered as an alternative to net income as an
indicator of our operating performance or as an alternative to cash flows as
a measure of liquidity. In addition, it should be noted that companies
calculate EBITDA differently and, therefore, EBITDA as presented for us may
not be comparable to EBITDA reported by other companies. EBITDA margin is
EBITDA divided by net sales. EBITDA is calculated as follows:
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
Operating income (loss).............................. 3,715 6,013 17,263 7,662 9,040 (4,970) 311
Depreciation and amortization........................ 4,090 5,191 8,901 9,001 8,869 2,305 916
Capital taxes........................................ 384 368 405 506 588 157 142
Other expenses, net.................................. (188) 2,421 750 1,079 1,110 (2) 56
----- ------ ------ ------ ------ ------- -----
EBITDA............................................... 8,001 13,993 27,319 18,248 19,607 (2,510) 1,425
===== ====== ====== ====== ====== ======= =====
Under the terms of the Trust Indenture for the Units, for the purpose of
calculating Consolidated Fixed Charge Coverage Ratio, restructuring charges
and other unusual or non-recurring items would be added back to Consolidated
EBITDA. Under our North American seasonal working capital facilities,
restructuring charges and other unusual or non-recurring items would be
added back to Consolidated EBITDA.
(5) EBITDA in 2000 was negatively affected by three events that management
expects to be non-recurring: (i) the liquidation of a large amount of excess
and discontinued product at below normal prices by a competitor, resulting
in decreased demand of our products during the fourth quarter and first half
of 2001, (ii) first year expenses related to being the exclusive licensee of
NHL licensed jerseys and (iii) the discontinuation of our line of
recreational in-line skates.
30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPANY BACKGROUND AND INTRODUCTION
We can trace our origins to September 1899, when the Canada Cycle and Motor
Company (CCM) was formed as a manufacturer of bicycles and motorcars. In 1905,
CCM began marketing ice hockey skates for a sport barely 30 years old at that
time and, in 1937, acquired the Tackaberry (later Tacks) trade name. In 1983,
CCM was amalgamated with Sport Maska Inc., a manufacturer of hockey jerseys for
the NHL since 1967. Before 1994, the Company consisted of the hockey products
business and the toy and fitness products business marketed under the Buddy L
name. While the Company was economically sound, the subsidiaries that operated
the toy and fitness products business were not financially stable and filed for
Chapter 11 bankruptcy protection in March 1995. Although the Company continued
to operate and service its trade debt on a timely basis, it defaulted on its
credit agreement as a result of the losses at the toy and fitness products
business. This ultimately resulted in the Company filing for relief under
Chapter 11 of the U.S. Bankruptcy Code in October 1995. WS Acquisition LLC, an
affiliate of Wellspring Capital Management LLC, acquired a controlling interest
in us in April 1997 as part of our emergence from bankruptcy. In November 1998,
we acquired Sports Holdings Corp., Europe's largest manufacturer of ice, roller
and street hockey equipment and their Jofa, Koho, Canadien, Heaton and Titan
brands. As a result, we are now the world's largest marketer, designer and
manufacturer of hockey equipment and related apparel.
The following discussion provides an assessment of our results of continuing
operations, financial condition and liquidity and capital resources, and should
be read in conjunction with our Consolidated Financial Statements and Notes
thereto included elsewhere herein. (All references to "Note(s)" refer to the
Notes to the Consolidated Financial Statements.) The information presented below
should be read in conjunction with the consolidated financial statements
included elsewhere in this prospectus.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002
2002 COMPARED TO 2001
Net sales decreased 1.9% to $34.2 million in the three months ended
March 31, 2002, compared to $34.8 million in the three months ended March 31,
2001. The decrease was attributable to lower sales of apparel due to a lower
back order position at the beginning of the year offset in part by stronger
sales of ice skates and sticks.
Gross profit for the three months ended March 31, 2002 was $14.8 million,
compared to $13.1 million in the three months ended March 31, 2001, an increase
of 13.0%, attributable to a strong product mix in the period, as well as
improved product costs resulting from the restructuring in the prior year.
Measured as a percentage of net sales, gross profit margins increased to 43.3%
from 37.5% in the same period in 2001. The gross profit before restructuring was
40.0%.
In the three months ended March 31, 2002, selling, general and
administrative expenses decreased as a percentage of sales to 42.4% from 42.8%
in the three months ended March 31, 2001. In absolute dollar terms, there was a
2.9% decrease to $14.5 million in the first quarter of 2002 from $14.9 million
in the same period of 2001. The decrease in the selling, general and
administrative expenses is a result of the realization of savings from 2001
restructuring activities, offset by increased NHL commitments of $0.5 million.
Other expense of $0.5 million consists primarily of amortization of deferred
financing costs.
EBITDA was $1.4 million for the three months ended March 31, 2002, compared
to an EBITDA loss of $2.5 million for the three months ended March 31, 2001.
31
Interest expense of $2.7 million for the three months ended March 31, 2002,
decreased $0.3 million versus the same three months of 2001.
Our net loss for the three months ended March 31, 2002 was $3.0 million,
compared to a net loss of $9.8 million for the three months ended March 31,
2001.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
Our results of operations as a percentage of net sales for the periods
indicated were as follows:
1999 2000 2001
-------- -------- --------
%
Net sales................................................... 100.0 100.0 100.0
Cost of goods sold before restructuring..................... 57.6 60.3 59.5
Restructuring and unusual charges........................... -- -- 0.6
----- ----- -----
Gross profit................................................ 42.4 39.7 39.9
Selling, general and administrative expenses before
restructuring charges..................................... 30.9 33.5 30.9
Restructuring and unusual charges........................... -- -- 2.3
Amortization of excess reorganization value and goodwill.... 2.4 2.3 2.2
----- ----- -----
Operating income............................................ 9.1 3.9 4.5
Other expense, net.......................................... 0.9 0.4 0.7
Interest expense............................................ 6.3 7.0 6.9
----- ----- -----
Income (loss) before income taxes and extraordinary item.... 1.9 (3.5) (3.1)
Income taxes................................................ 2.8 0.7 1.7
----- ----- -----
Net loss before extraordinary item.......................... (0.9) (4.2) (4.8)
Extraordinary item--Loss on early extinguishment of debt.... -- -- 0.6
----- ----- -----
Net loss.................................................... (0.9) (4.2) (5.4)
===== ===== =====
EBITDA...................................................... 14.3 9.4 9.9
===== ===== =====
2001 COMPARED TO 2000
Net sales grew by 1.9% in 2001 to $198.2 million, from $194.5 million in
2000. The increase is due to higher apparel sales offset by reduced hockey
equipment sales, primarily inline skates and sticks. Revenues from our non-US
operations were adversely affected by currency translation adjustments due to
the depreciation of their currencies against the U.S. dollar. Equipment sales
were most affected by the foreign exchange impact as they represent over 75% of
our revenues from Canada, Sweden and Finland. Equipment sales were also
negatively affected in the first half of the year by the continued market
saturation resulting from an unusually high level of close-out goods liquidated
by a competitor in the fourth quarter of fiscal 2000.
Apparel sales were again strong with an increase of 18.1% ($9.7 million)
over 2000, due to our exclusivity in the licensed jersey market and the strong
market acceptance of our new licensed or branded activewear line.
Despite the negative effect of the depreciation of the Swedish Krona (SEK)
and Finnish Markka (FIM), we experienced continued growth of our non-hockey
product line due to improved sales of Merrell footwear that is distributed by us
in Sweden and especially Finland. Measured in the domestic currencies of those
countries, sales of Merrell footwear is up over 20% over last year.
Gross profit was $79.1 million in 2001 compared to $77.2 million in 2000, an
increase of 2.4%. Measured as a percentage of net sales, gross margin increased
to 39.9% in 2001 from 39.7% in 2000. The increase is attributable to a different
mix of products sold in the periods as well as the
32
implementation of initiatives to reduce manufacturing expenses, offset by
$1.2 million of restructuring charges (see Restructuring Reserves) as well as
the effect of currency fluctuations. The gross profit before these restructuring
charges was 40.5% in 2001.
Selling, general & administrative expenses before restructuring charges
decreased as a percentage of sales to 30.9% of 2001 sales, from 33.5% of total
2000 sales. In dollar terms, there was a decrease to $61.1 million in 2001 from
$65.1 in 2000. This decrease is attributed to the significant rationalization of
operations and consolidation of facilities in 2001 (see Restructuring Reserves),
offset in part by $2.3 million of additional royalties paid to National Hockey
League Enterprises, LP and additional NHL team marketing expenses related to
having the right to produce and market authentic team jerseys for all 30 NHL
teams.
Operating income for the year ended December 31, 2001 was $9.0 million
compared to $7.7 million in the year ended December 31, 2000.
Other expense consists primarily of amortization of deferred financing
costs, offset in part by currency exchange gains.
EBITDA increased by 7.7% to $19.6 million for 2001 compared to
$18.2 million for 2000.
Interest expense was $13.6 million for 2001 and 2000.
Net loss before income taxes and extraordinary items was $6.0 million in
2001 versus net loss before income taxes of $6.8 million for 2000.
As a result of the substantive modification to the terms of our long term
debt in early 2001, we wrote-off $1.1 million of deferred financing costs which
is recorded as an extraordinary item.
Our net loss for the year ended December 31, 2001 was $10.5 million compared
to an $8.1 million loss for the year ended December 31, 2000.
2000 COMPARED TO 1999
Net sales grew by 2.0% in 2000 to $194.5 million, from $190.6 million in
1999. The increase is due to higher apparel sales offset by reduced hockey
equipment sales, primarily inline skates, protective equipment and sticks.
Equipment sales, especially protective equipment, were significantly lower in
the fourth quarter as the market was saturated with an unusually high level of
closeout goods liquidated by a key competitor. Revenues from our Nordic
operations were adversely affected by currency translation adjustments due to
the depreciation of their currencies (the Swedish Krona and Finnish Markka)
against the U.S. dollar. Equipment sales were most affected by the foreign
exchange impact as they represent over 70% of our revenues from Sweden and
Finland.
Apparel sales were especially strong with an increase of 24.8%
($10.6 million) over 1999, due to the strong market acceptance of our new
licensed or branded activewear line and the exit of our only remaining
competitor from the licensed jersey market. Notwithstanding our current
exclusivity in the jersey market, sales have been hampered to some degree by the
liquidation of our previous competitors' remaining inventory into the
marketplace.
Despite the negative effect of the depreciation of the Swedish Krona and
Finnish Markka, we experienced strong growth of our non-hockey product line due
to improved sales of Merrell footwear that is distributed by us in Sweden and
Finland. Measured in the domestic currencies of those countries, sales of
Merrell footwear is up almost 55% over last year.
Gross profit was $77.2 million in 2000 compared to $80.8 million in 1999, a
decrease of 4.5%. Measured as a percentage of net sales, gross margin decreased
to 39.7% in 2000 from 42.4% in 1999. The decrease is attributable to a higher
proportion of sales to key customers with corresponding increases in discounts
offered and a different mix of products sold in the periods.
33
Gross profit from our Nordic operations was also adversely affected by
currency translation. Finally, efforts to reduce overall inventory levels at
year-end had an adverse effect on our gross profit.
Selling, general & administrative expenses increased as a percentage of
sales to 33.5% of 2000 sales, from 30.9% of total 1999 sales. In dollar terms,
there was an increase to $65.1 million in 2000 from $59.0 in 1999. This increase
is primarily due to a $4.1 million increase in the additional royalties paid to
National Hockey League Enterprises, LP pursuant to a new license agreement
beginning in July 2000 and additional NHL team marketing expenses related to
having the right to produce and market authentic team jerseys for all 30 NHL
teams compared to just 15 teams in the same period of 1999, as well as our
continued investment in our promotion of our principal brands. These additional
marketing expenses have been incurred with a lower than anticipated sales
increase due to the inventory liquidation of our previous competitors mentioned
above, and to the continued presence in 2000 of hockey jerseys liquidated by
both Pro Player and Starter.
Operating income for the year ended December 31, 2000 was $7.7 million
compared to $17.3 million in the year ended December 1999.
Interest expense was $13.6 million for 2000 and $12.0 million for 1999.
Net loss before taxes was $6.8 million in 2000 versus net income before
taxes of $3.5 million for 1999.
Our net loss for the year ended December 31, 2000 was $8.1 million compared
to a $1.8 million loss for the year ended December 31, 1999.
INCOME TAXES
Our income tax provision is comprised of both United States and foreign tax
components. Due to changes in the relative contribution of income or loss by
country, differences in the effective tax rates between countries (principally
the U.S. and Canada) and permanent differences in effective tax rates between
income for financial statement purposes and tax purposes, the consolidated
effective tax rates may vary significantly from period to period. We and our
U.S. subsidiaries consolidate their income for U.S. federal income tax purposes.
However, gains and losses of certain subsidiaries may not be available to other
subsidiaries for tax purposes.
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Fresh-start reporting requires us to report a provision in lieu of income
taxes when there is a book taxable income and utilization of a
pre-reorganization net operating loss carry-forward. This requirement applies
despite the fact that our pre-reorganization net operating loss carry-forward
and other deferred tax assets would substantially reduce the related federal
income tax payable. The current and future year tax benefit related to the
carry-forward is recorded as a reduction of reorganization value in excess of
amounts allocable to identifiable assets until exhausted and then as a direct
increase to paid in capital. The amount of income tax provision that has been
used to reduce the reorganizational value in excess of amounts allocable to
identifiable assets is reflected as a provision in lieu of income taxes in our
Consolidated Statements of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Our anticipated financing requirements for long-term growth, future capital
expenditures and debt service are expected to be met through cash generated from
our operations and borrowings under our
34
credit facilities. Effective November 19, 1998, one of our U.S. subsidiaries,
Maska U.S., Inc., as the borrower, and the credit parties named therein entered
into a credit agreement with the lenders referred to therein and with General
Electric Capital Corporation, as Agent and Lender. Simultaneously, Sport
Maska Inc., as the borrower, and the credit parties named therein entered into a
credit agreement with the lenders referred to therein and General Electric
Capital Canada Inc., as Agent and Lender (together with General Electric Capital
Corporation, "GECC"). The two credit agreements were amended in connection with
the offering of the Units. The credit agreements are collateralized by all
accounts receivable, inventories and related assets of the borrowers and our
other North American subsidiaries, and are further collateralized by a second
lien on all of our and our North American subsidiaries' other tangible and
intangible assets. The maximum amount of loans and letters of credit that may be
outstanding under the two credit agreements is $60.0 million. However, our
borrowings under the credit agreements are restricted by the indenture related
to the Units that we issued on April 3, 2002 as described below to
$35.0 million and must be repaid in full at least once a year under the terms of
the indenture. Total borrowings outstanding under the credit agreements were
$27.8 million at December 30, 2001, excluding $5.7 million of letters of credit
outstanding and $18.6 million at March 31, 2002, excluding $5.5 million of
letters of credit outstanding. The maturity date of the GECC credit agreements
is October 17, 2002. Management believes the GECC credit agreements can be
renewed or refinanced upon maturity. If these agreements cannot be renewed or
refinanced with GECC, we will have to seek alternate sources of financing to
replace these credit agreements.
Borrowings under the U.S. credit agreement bear interest at rates between
U.S. prime plus 0.50% to 1.25% or LIBOR plus 1.75% to 2.75% depending on The
Hockey Company's Operating Cash Flow Ratio, as defined in the agreement.
Borrowings under the Canadian credit agreement bear interest at rates between
the Canadian prime rate plus 0.75% to 1.50%, the U.S. prime rate plus 0.50% to
1.25% and the Canadian Bankers' Acceptance rate or LIBOR plus 1.75% to 2.75%
depending on The Hockey Company's Operating Cash Flow Ratio, as defined in the
agreement. In addition, we are charged a GECC monthly commitment fee at an
annual rate of 3/8 of 1% on the unused portion of the revolving credit
facilities under the credit agreements and certain other fees. The credit
agreements contain customary negative and affirmative covenants including those
relating to capital expenditures, minimum interest coverage and fixed charge
coverage. The credit agreements restrict, among other things, the ability to pay
cash dividends on the preferred shares.
On November 19, 1998, in connection with the acquisition of Sports Holdings
Corp., we entered into a credit agreement with Caisse de depot et placement du
Quebec ("Caisse") to borrow Canadian $135.8 million. The loan, initially for a
period of two years was extended and matured on March 14, 2001, on which date we
entered into an Amended and Restated Credit Agreement. This renewed Caisse loan
was made up of 2 facilities (Facility 1--Canadian $90 million and
Facility 2--Canadian $45.8 million). Each facility bore interest equal to
Canadian prime rate plus 5% and Facility 2 bore additional interest of 3.5%
which was to be capitalized and repaid on maturity of Facility 2. The Amended
and Restated Credit Agreement was terminated in connection with the Offering (as
defined below).
On March 8, 2002, we acquired an option from Caisse to extend the maturity
of Facility 2 plus capitalized interest to February 28, 2003 in exchange for a
nominal fee. This unconditional and irrevocable option maintained all the terms
of the Amended and Restated Credit Agreement and expired on April 30, 2002. As a
result, Facility 2 plus capitalized interest has been classified as a non-
current liability in the consolidated Balance Sheet at March 31, 2002. The
Caisse loan was collateralized by all of our tangible and intangible assets,
subject to the prior ranking claims on accounts receivable, inventories and
related assets by GECC under the GECC U.S. and Canadian credit agreements. The
loan was guaranteed by us and certain of our subsidiaries. The Caisse loan was
repaid in full from the proceeds of the Offering.
35
On April 3, 2002, referred to as the Closing Date, we completed a private
offering of $125 million aggregate principal amount of 11 1/4% Senior Secured
Note Units due 2009, referred to as the Units, at a discount of 1.194%, each
such Unit consisting of $500 principal amount of 11 1/4% Senior Secured Notes
due 2009 of The Hockey Company and $500 principal amount of 11 1/4% Senior
Secured Notes due 2009 of Sport Maska Inc., our wholly-owned subsidiary,
referred to as the Offering. The Notes are fully and unconditionally guaranteed
by all of our restricted subsidiaries, excluding the Finnish subsidiaries. The
stock of the first-tier Finnish subsidiary has been pledged. Among the other
covenants in the indenture, our ability to borrow under the revolving credit
facilities is restricted to a maximum of $35 million and the payment of
dividends or repurchases of stock is limited.
The proceeds of $123.5 million from the sale of the Units were used by us to
repay all outstanding secured loans under the Amended and Restated Credit
Agreement with Caisse, dated March 14, 2001, to pay down secured indebtedness
under the U.S. and Canadian credit agreements with GECC, to pay fees and
expenses for the Offering and for general corporate purposes. The Amended and
Restated Credit Agreement with Caisse and any documents related thereto have
been terminated and are of no further force and effect. The terms of the GECC
credit agreements were amended by each of the Fourth Amendment to Canadian
Credit Agreement, dated the Closing Date, among the respective parties thereto,
and the Third Amendment to U.S. Credit Agreement, dated the Closing Date, among
the respective parties thereto.
Effective March 18, 1999, Jofa AB, our Swedish subsidiary, entered into a
credit agreement with Nordea Bank in Sweden which matures on December 31, 2002.
The maximum amount of loans and letters of credit that may be outstanding under
the agreement is SEK 90 million ($8.7 million) (SEK 80 million in 2001
($7.7 million)). The facility is collateralized by the assets of Jofa AB,
excluding intellectual property, bears interest at a rate of STIBOR (4.2% as at
March 31, 2002) plus 0.90% (increased from 0.65% in connection with the
guarantee by Jofa AB of the Offering) and is renewable annually. Total
borrowings as at December 31, 2001 were nil and as at March 31, 2002 were SEK
17.7 million ($1.7 million). In addition, in May 2000, Jofa AB entered into a
separate credit agreement with Nordea Bank to borrow SEK 10 million, or
approximately $1.0 million. The loan has a term of four years with annual
principal repayments of SEK 2.5 million, or approximately $0.2 million. The loan
is secured by a chattel mortgage on the assets of Jofa AB and bears an interest
rate of STIBOR plus 1.25%. Management believes this credit agreement can be
renewed or refinanced upon maturity. If this agreement cannot be renewed or
refinanced with Nordea Bank in Sweden, we will have to seek alternate sources of
financing to replace this credit agreement.
Effective July 10, 2001, KHF Finland Oy, our Finnish subsidiary, entered
into a credit agreement with Nordea Bank in Finland, replacing the former credit
facility for FIM 30 million ($4.6 million) which was terminated in 2001. The
maximum amount of loans and letters of credit that may be outstanding under the
agreement is EUR 2.4 million ($2.1 million). The facility is valid until further
notice and is collateralized by the assets of KHF Finland Oy and bears interest
at a rate of EURIBOR plus 0.9%. Total borrowings as at December 31, 2001 and
March 31, 2002 were nil.
During the year ended December 31, 2001, our operations used $9.1 million of
cash compared to providing $5.2 million in 2000 primarily as result of a net
increase in accounts receivable of $11.7 million and inventory of $3.3 million
and accounts payable and accrued liabilities of $4.1 million. Accounts
receivable increased due to a general weakening of the economy coupled with poor
winter and spring weather which resulted in a reduced cash flow for many
sporting goods retailers, and a delay in collections from them. Accounts payable
have increased due to restructuring charges from 2001 initiatives as well as
improved payment terms from suppliers in the normal course. We had a net loss of
$9.4 million in 2001, compared to $8.1 million in 2000.
During the quarter ended March 31, 2002, our operations provided
$4.7 million of cash compared to using $9.9 million in the first quarter of
2001, primarily as a result of improved collections of
36
accounts receivable over the first quarter of 2001 of $3.7 million, a net
increase in accounts payable and accrued liabilities of $3.1 million and a net
decrease in inventory of $2.9 million. We had a net loss of $3.0 million in the
quarter ended March 31, 2002, compared to a net loss of $9.8 million in the
quarter ended March 31, 2001.
Cash used in investing activities during the year ended December 31, 2001
was $1.1 million compared to $4.8 million in 2000, primarily as a result of a
decrease in net purchases of property, plant and equipment and deferred expenses
of $2.4 million and $1.3 million, respectively. The decrease in the purchases of
property, plant and equipment is due to facilities consolidation through
restructuring and greater emphasis on the outsourcing of production.
Cash used in investing activities during the quarter ended March 31, 2002
was $0.2 million compared to $0.3 million in the first quarter in 2001.
Cash provided by financing activities during 2001 was $14.4 million compared
to $1.3 million used in 2000, primarily as a result of an increase in short-term
borrowings of $17.5 million due to increases in accounts receivable and
inventory, offset by an increase in deferred financing costs of $1.2 million and
net proceeds from long-term debt of $0.6 million.
Cash used by financing activities during the quarter ended March 31, 2002
was $6.4 million compared to having provided $7.9 million in the first quarter
of 2001, primarily as a result of a net decrease in short-term borrowings of
$6.6 million in 2002 compared with an increase in short-term borrowings of
$10.5 million offset by a net increase in deferred financing cost of $2.5
million in 2001.
We follow the customary practice in the sporting goods industry of offering
extended payment terms to creditworthy customers on qualified orders. Our
working capital requirements generally peak in the second and third quarters as
we build inventory and make shipments under these extended payment terms.
Certain of our subsidiaries lease office and warehouse facilities and
equipment under operating lease agreements. Certain of our subsidiaries have
also entered into agreements that call for royalty payments generally based on
net sales of certain products and product lines. Certain agreements require
guaranteed minimum payments over the royalty term. We also pay certain
professional players and teams an endorsement fee in exchange for the promotion
of our brands. Furthermore, we have repayment obligations on our long-term debt.
The following is a schedule of future minimum payments and annual obligations
under these commitments, as well as the repayment of the Units in 2009:
2002........................................................ $ 16,161
2003........................................................ 14,787
2004........................................................ 14,188
2005........................................................ 6,422
2006 to 2008................................................ 1,332
2009........................................................ 125,000
--------
$177,890
========
RESTRUCTURING RESERVES
In 2001, we embarked on a plan to rationalize our operations and consolidate
our facilities. This rationalization involved the elimination of certain
redundancies, both in terms of personnel and operations as well as the
consolidation of facilities including the closure of its Mount Forest, Ontario
plant, and our Paris, France sales office, and the consolidation of North
American distribution into Canada. Accordingly, we have set up reserves of
approximately $5.7 million for the expected cost of the restructuring. Of this
amount, approximately $4.3 million is to cover the cost of severance packages to
37
affected employees, with the remainder representing other closure costs. Of
these amounts, approximately $1.9 million remained unpaid as at December 31,
2001 and $1.6 million as at March 31, 2002.
INTANGIBLE ASSETS
We have a significant amount of intangible assets on our balance sheet. As
at December 31, 2001 we had $76.1 million (2000-$82.6 million) representing
38.1% (2000-42.2%) of total assets. This goodwill is comprised of several
components. Upon the acquisition of Sports Holdings Corp., we recognized
$53.1 million of goodwill. This amount, being the difference between the
purchase price and the amount of tangible net assets acquired, represents the
value to us of the brands acquired. Jofa, Koho, Canadien, Titan and Heaton are
world class hockey brands and management believes that there is significant
long-term earning potential to be realized from the brands. Accordingly, the
amortization of this goodwill was over 25 years.
In connection with a re-organization and fresh-start accounting, we
recognized $49.0 million of excess reorganization value, which is another
component of goodwill. This amount arose primarily as debt forgiveness in the
reorganization. It is included in goodwill because it represents among other
things the value of its CCM brand. Again management believes that significant
long-term earning potential exists and was amortizing the excess reorganization
value over 20 years.
Also included in intangible assets are the financing costs related to the
Caisse loans and the fair value of warrants issued to Caisse in 2001 to purchase
539,974 shares of our common stock at $0.01 per share, which is being amortized
over the life of the loans. Concurrent with the Offering, as described above,
Caisse exercised its warrants and purchased 539,974 shares of our common stock
at $0.01 per share.
SIGNIFICANT ACCOUNTING POLICIES
In the application of accounting policies, management relies on the use of
assumptions and estimates and prudent judgment. Should actual events differ
substantially from these estimates or judgments then results may also materially
differ from those reported. Apart from the policies identified above other
significant policies include:
VALUATION OF ACCOUNTS RECEIVABLE. Approximately 43% of accounts receivable
are denominated in currencies other than the US Dollar. The value of these
accounts is subject to gains and losses from exchange rate fluctuations. Also in
valuing these accounts management uses estimates as to potential default rates.
Should the default estimates change gains or losses would occur. Management
believes that it has adequate reserves in place.
VALUATION OF INTANGIBLE ASSETS. Intangible assets include the excess
purchase price over fair values assigned ("goodwill") and reorganizational value
in excess of amounts allocable to identifiable assets ("excess reorganizational
value"). Through December 31, 2001, goodwill was amortized on a straight-line
basis over twenty-five years and excess reorganizational value was amortized on
a straight-line basis over twenty years and is being reduced by the realization
of deferred tax assets.
We periodically review intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. When such circumstances occur, we estimate future cash flows
expected to result from the use and eventual disposition of the intangibles. If
the expected future cash flows are less than the carrying amount, we recognize
an impairment loss. Management believes that there is no impairment in the value
of intangible assets.
38
VALUATION OF INVENTORY. The value of inventory is based partly on
management estimates regarding potential write-downs of excess or slow-moving
inventory and the estimated realizable value thereafter. Management believes
that the reserves in place for excess or slow moving inventory are adequate.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. Under the new rules, goodwill and
intangible assets with indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their estimated useful
lives.
We will apply the new rules on accounting for goodwill beginning the first
quarter of 2002. We will test goodwill annually for impairment using a two-step
process prescribed in Statement 142. The first step is a screen for potential
impairment, while the second step measures the amount of the impairment, if any.
We expect to complete the required testing of indefinite lived assets as of
January 1, 2002 in the first half of 2002.
In August 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS. Under the new rules, assets held for sale would be recorded at the lower
of the assets' carrying amounts and fair values and would cease to be
depreciated. We believe the impact of this statement will not significantly
affect our financial position or results of operations.
EURO CONVERSION
Management currently believes that the introduction of the Euro will not
have a material impact related to pricing or foreign currency exposures. Finland
is one of the countries adopting the Euro but Sweden has not adopted the new
currency. The subsidiaries' transactions and debt are denominated in their local
currencies. We do not foresee any adverse impact resulting from the Euro
conversion, including competitive, operational or strategic implications.
SEASONALITY AND SELECTED QUARTERLY DATA
Sales of hockey equipment products are generally highly seasonal and in many
instances are dependent on weather conditions. This seasonality causes our
financial results to vary from quarter to quarter, with sales and earnings
usually weakest in the first and second quarters. In addition, the nature of our
business requires that in anticipation of the peak selling season for our
products, we make relatively large investments in inventory. Relatively large
investments in receivables consequently exist during and after such season.
(UNAUDITED)
2000 2001 2002
----------------------------------------- ----------------------------------------- --------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Income Statement Data:
Net sales...................... $34,406 $44,614 $68,024 $47,419 $34,835 $42,252 $65,899 $55,201 $34,161
Gross profit................... 13,747 18,968 27,566 16,961 13,061 17,673 27,134 21,205 14,797
Income (loss) before
extraordinary item........... (5,195) (1,324) 3,720 (5,292) (8,671) (1,696) 3,895 (2,896) (2,994)
Net income (loss).............. (5,195) (1,324) 3,720 (5,292) (9,762) (1,696) 3,895 (2,896) (2,994)
Basic and diluted earnings
(loss) per share............. (0.86) (0.28) 0.48 (0.80) (1.44)* (0.32) 0.46 (0.41) (0.51)
Other Financial Data:
EBITDA(1)...................... (457) 5,317 11,735 1,653 (2,510) 5,390 11,894 4,833 1,425
------------------------------
* Loss per share before extraordinary item was $1.29 (basic and diluted)
(1) As defined in footnote 1 on page 13.
39
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We, in the normal course of doing business, are exposed to market risk from
changes in foreign currency exchange rates and interest rates. Our principal
currency exposures relate to the Canadian dollar and to certain European
currencies. Management's objective, regarding foreign currency risk, is to
protect cash flows resulting from sales, purchases and other costs from the
adverse impact of exchange rate movements.
The European and Canadian subsidiaries each have operating credit facilities
denominated in their respective local currencies; these debt facilities are
hedged by the operating revenues generated in the local currencies of the
subsidiaries. Our long-term debt is denominated in Canadian dollars (Canadian
$135.8 million). Our equity investment in our Canadian subsidiary was
effectively hedged by the Canadian dollar denominated debt up to our investment
in our Canadian subsidiary. As a result of the Offering, as described above, our
equity investment in our Canadian subsidiary is no longer hedged and we are
exposed to the fluctuations in Canadian dollars. As we hold either long term or
operating debt facilities denominated in the currencies of our European
subsidiaries, our equity investments in those entities are hedged against
foreign currency fluctuations. We do not engage in speculative derivative
activities.
We are exposed to changes in interest rates primarily as a result of our
long-term debt and operating credit facilities used to maintain liquidity and
fund capital expenditures. Management's objective, regarding interest rate risk,
is to limit the impact of interest rate changes on earnings and cash flows and
to reduce overall borrowing costs. To achieve these objectives, we maintain the
ability to borrow funds in different markets, thereby mitigating the effect of
large changes in any one market. Our debts have variable interest rates and thus
a 1% variation in the interest rate will cause approximately $1.1 million
increase or decrease in interest expense.
We are also exposed to foreign exchange fluctuations due to our significant
sales arid costs in Canada, Sweden and Finland. If the average exchange rate of
the Canadian Dollar, Swedish Krona and Finnish Markka were to vary by 1% versus
the U.S. Dollar, the effect on sales for 2001 would have been $0.7 million for
sales in the Canadian Dollar, $0.2 million for sales in the Swedish Krona and
$0.2 million for sales in the Finnish Markka. We also have operating expenses in
each of these currencies which would mitigate the impact of such foreign
exchange variation on cash flows from operations.
40
BUSINESS
OUR COMPANY
We are the world's largest marketer, designer and manufacturer of hockey
equipment and related apparel. Our primary brands, CCM, Koho and Jofa, are among
the most widely recognized brands in hockey and we estimate that we have a 30%
share of the worldwide ice and roller hockey equipment and related apparel
market. We sell our products to a diverse customer base consisting of specialty
retailers, sporting goods shops, mass merchandisers and international
distributors. We manufacture at highly automated facilities, and have
distribution facilities, in North America, Finland and Sweden. For the fiscal
year ended December 31, 2001, we generated revenue of $198.2 million, operating
income of $9.0 million and a net loss of $10.5 million. For the three months
ended March 31, 2002, we generated revenue of $34.2 million, operating income of
$0.3 million and a net loss of $3.0 million. As at March 31, 2002, our deficit
was $25.7 million.
We offer a complete line of ice and roller hockey equipment and related
apparel. Hockey equipment represents approximately 64% of our sales, hockey
related apparel 32% of our sales and non-hockey products represents the
remaining 4%.
HOCKEY EQUIPMENT. Our comprehensive line of hockey equipment, including
skates, protective equipment, hockey sticks and goaltender equipment, provides a
wide range of choices for both recreational and professional players. Our skates
and other equipment are sold at various price points and range from high
performance products used by professionals in the NHL and other professional
leagues, to intermediate performance products used by youth league players,
among others, and to entry-level products for the beginner. As of
November 2001, 98% of all NHL players used at least one piece of our equipment.
HOCKEY RELATED APPAREL. The hockey related apparel segment of our business
consists of licensed hockey jerseys, team uniforms and socks and licensed or
branded activewear. We have been an NHL licensee since 1967 and we are currently
the exclusive supplier of hockey jerseys to every NHL team and have the
exclusive worldwide right to market authentic and replica NHL jerseys. Our
jerseys are worn by every player and official in the NHL. We are also the
world's largest manufacturer of team uniforms and socks worn by players in
hockey leagues, camps, schools and associations. Our licensed or branded
activewear lines include high quality fleece wear, pants, shirts, T-shirts, golf
shirts, turtlenecks, outerwear and caps embroidered with the NHL, NCAA and other
team and league logos.
NON-HOCKEY PRODUCTS. In addition to our primary hockey related equipment,
we also market and manufacture other equipment, including alpine skiing and
equestrian helmets. In addition, in Finland and Sweden, we are the exclusive
distributor of Merrell footwear, a leading outdoor footwear brand.
INDUSTRY OVERVIEW
We compete in the wholesale ice and roller hockey equipment and related
apparel markets. We estimate the worldwide wholesale hockey equipment and
related apparel market in 2000 was approximately $660 million, and we estimate
that we have a 30% share of this market. Although the worldwide hockey equipment
market has remained stable overall, we anticipate several specific factors will
support the future growth of the industry, including:
- increased fan interest and increased participation in hockey;
- the recent expansion of the NHL into new markets such as Nashville in
1998, Atlanta in 1999 and Columbus and Minnesota in 2000;
- increased marketing by the NHL;
- increased construction of ice rinks; and
41
- favorable demographics, such as the tendency for hockey enthusiasts to be
more educated and have greater disposable income than participants and
fans of other traditional team sports.
The hockey equipment and hockey related apparel markets are segments of the
U.S. and worldwide sporting goods industries. Several factors are expected to
support the further growth of the sporting goods industry in general, including:
- the considerable leisure time and financial resources of the baby boomer
population;
- heightened awareness of the importance of recreational exercise; and
- the growing overseas market for recreational products.
OUR COMPETITIVE STRENGTHS
LEADING WORLDWIDE BRANDS AND MARKET POSITION. We manage a portfolio of the
world's most established and widely recognized brands, which include our primary
brands, CCM, Koho and Jofa, as well as other brands and sub-brands, such as
Tacks, Heaton, Canadien and Titan. The CCM brand has been in existence since
1899, Jofa since 1926 and Koho since 1964. We focus each brand on different
consumer segments and utilize multiple distribution channels to more fully
penetrate viable hockey markets. We estimate that, through our combined brands,
we have a 30% share of the approximate $660 million worldwide market for hockey
equipment and related apparel.
EXTENSIVE USE OF OUR PRODUCTS IN THE NHL. Our products are the most widely
used by NHL players, which we believe highlights and reinforces the
marketplace's view of the innovation and high quality of our equipment and
apparel. As of November 2001, 98% of all NHL players used at least one piece of
our equipment. We hold the #1 position in NHL used for all protective equipment,
including helmets, pants, elbow pads, shoulder protection and gloves, goalie
pads, blockers and arm and body protection, as well as the #1 position for wood
sticks. We also hold the #2 position for our other equipment, including skates,
goalie catchers and composite shafts and blades. Our NHL usage share in
composite hockey stick shafts also increased greatly in 2001 over 2000 due to
the introduction of our composite line of hockey stick products. To further
develop and maintain our leading market position for our equipment and our
brands, we have endorsement agreements with several high visibility players
including, among others, Martin Brodeur (CCM Heaton) of the New Jersey Devils,
Mark Recchi (CCM) of the Philadelphia flyers, Patrick Roy (Koho) of the Colorado
Avalanche, Daniel Sedin (Jofa) and Henrik Sedin (Jofa) of the Vancouver Canucks,
Mats Sundin (CCM) of the Toronto Maple Leafs and Joe Thornton (CCM) of the
Boston Bruins.
WORLD LEADER IN PRODUCT INNOVATION. We believe we are the industry's leader
in product innovation, and have dedicated significant resources to ensure our
future technological leadership. The majority of our products are developed and
commercialized in our three research and development centers located in St.
Jean, Quebec, Tammela, Finland and Malung, Sweden. Our research and development
teams work closely with each of our product business Units to enhance the
quality and performance of existing products and to introduce new products into
the marketplace. The majority of our products are developed internally through
our research efforts and continued feedback from professional and recreational
players, as well as from retail customers. In addition, we have developed an
alliance with a major Canadian university. Our university affiliation will
support our efforts to develop equipment performance benchmarks, as well as new
materials and equipment designs.
FULL LINE OF HOCKEY EQUIPMENT AND RELATED APPAREL. We are the only company
that offers a full line of ice and roller hockey equipment, NHL licensed jerseys
and other apparel. Our products are sold at various price points and range from
high performance products used by professionals in the NHL and other
professional leagues worldwide, to intermediate performance products used by
youth league players, among others, and to entry-level products for the
beginner. Our comprehensive line of
42
products allows us to cover the full spectrum of consumers, diversify our
revenue base and optimize production capacity at our manufacturing facilities.
ADVANCED MANUFACTURING PROCESSES. We continuously evaluate our
manufacturing processes and use in-house manufacturing, where our proprietary
technologies and processes provide us with a competitive advantage. Through the
use of these proprietary technologies and extensive automation, we believe we
have developed many of the industry's most advanced hockey equipment
manufacturing processes. We believe that we operate the industry's most advanced
skate manufacturing facility in St. Jean, Quebec, the industry's most automated
hockey stick production facility in Cowansville, Quebec, and the industry's most
automated hockey apparel production facilities in St. Hyacinthe, Quebec. For
other product lines, where our ability to manufacture does not give us a
distinct competitive advantage, we outsource production to high quality
facilities primarily in Asia and the Czech Republic.
EXCLUSIVE NATIONAL HOCKEY LEAGUE RELATIONSHIP. We have been an NHL licensee
since 1967 and we are currently the exclusive supplier of hockey jerseys to
every NHL team and have the exclusive worldwide right to market authentic and
replica NHL jerseys. Our jerseys are now worn by every player and official in
the NHL. Beginning with the 2000/2001 NHL season, the CCM logo appears above
each player's name on every "home" NHL jersey, while Koho logo appears above
each player's name on every "away" and "third" NHL jersey. We are also the
exclusive supplier of "on-ice" jerseys and pants for NHL officials under the
Jofa brand name. Pursuant to a separate agreement with the National Hockey
League Players Association, we are entitled to market authentic and replica game
and practice jerseys identified with the names and numbers of NHL players.
EXTENSIVE MULTI-CHANNEL DISTRIBUTION RELATIONSHIPS. Our products are sold
throughout the world to more than 4,000 customers, consisting of specialty
retailers, sporting goods shops, mass merchandisers and international
distributors. Internationally, we have selling offices in Sweden, Finland and
Norway and distributors in over 40 countries in Europe, South America, Central
America, Africa, Australia and the Far East. Our products are sold to certain
large customers by our in-house sales staff, while an extensive network of
approximately 90 independent sales representatives services other accounts. We
distribute our products from distribution centers in the United States, Canada,
Finland and Sweden. We believe that our extensive distribution and sales
networks allow us to serve our customers worldwide and provide us with a
competitive advantage. Proximity to our customers allows us to distribute
products efficiently and provides us with the opportunity to receive timely and
frequent customer feedback. In 2001, we generated approximately 45% of our
revenue in the United States, 32% in Canada and 23% internationally, primarily
in Europe.
STRONG AND EXPERIENCED MANAGEMENT TEAM AND FINANCIAL SPONSOR. We have a
strong and experienced management team at the corporate and operating levels.
Our senior management has an average of 18 years experience in the hockey and
sporting goods industries In addition, our largest stockholder is WS Acquisition
LLC, an affiliate of Wellspring Capital Management LLC, an experienced private
equity investor. Among other investments, Wellspring owns Protectron Inc., a
leading residential and commercial security alarm company in Canada, and
recently completed the sale of Paragon Trade Brands to Tyco International.
OUR BUSINESS STRATEGY
Our objectives are to increase revenues and maintain high operating margins
by accelerating the product replacement cycle through product innovation,
maintaining our overall market leadership position and becoming the undisputed
leader in each key segment of the global market for hockey equipment and related
apparel. Key elements of our business strategy are as follows:
DRIVE GROWTH THROUGH CONTINUED PRODUCT INNOVATION. Since 1937 when we
introduced the revolutionary Tackaberry hockey skate until our 2002 launch of
the Externo skate, we have a long
43
history of being the first to bring technological advancements and equipment
innovations to the hockey industry. We intend to continue driving our growth
through continued product innovation, which we believe creates a more rapid
equipment replacement cycle and increases demand for our new value added and
higher margin products. By utilizing innovation-driven product marketing, we are
able to compete on technology and brand rather than price, resulting in higher
margins, stronger brand differentiation and additional barriers to entry.
Some of our recent product innovations include:
- JOFA PROTECTIVE EQUIPMENT. In 2001, we introduced new Jofa protective
equipment based on the Joint Discharge Principle, a proprietary and
patented design that redirects an impact from the joint to the surrounding
muscle, thereby reducing injuries. This and other innovations have
resulted in 98% of NHL players wearing at least one piece of Jofa
equipment during the 2000/2001 season. Jofa is the only protective gear
that is allowed to bear the NHL "Center-Ice" logo.
- THE F-I-T SYSTEM THERMO-FORMING PROCESS. We introduced the patented F-I-T
system in our new CCM Tacks skate line in 2001, and new CCM Externo skate
line in 2002. The F-I-T system applies heat and pressure to key areas of
the boot and allows retailers, at the point of sale, to custom fit a skate
based on the player's size, weight and style of play.
- THE CCM EXTERNO. In the beginning of 2002, we introduced a new skate line,
the CCM Externo. The technologically advanced CCM Externo is a premium
skate featuring a revolutionary exoskeleton support system that provides
increased stability and support in the strategic areas of the skate to
enhance skating performance as well as providing a more comfortable fit.
- COMPOSITE HOCKEY STICKS. In the second quarter of 2002, we expect to
introduce a lightweight one-piece composite hockey stick. Our new
composite stick will allow increased puck speed, enhanced comfort and
feel, and significantly reduce the weight of the stick without a reduction
in durability.
CONTINUE TO SUPPORT OUR PRODUCTS WITH OUTSTANDING MARKETING. Our marketing
strategy has two major elements: the validation of the product's features and
benefits and the effective communication of the product's features and benefits
to the target audience.
First, we provide validation of our products through use by NHL players,
which we believe provides a high level of exposure for our brands, highlights
the advanced performance features and legitimizes the new technology of our
products. Our endorsement agreements with leading NHL players require the
players to use our equipment during games, make themselves available for
personal appearances, and, in most instances, allow us to use their image in
print and television advertising. In addition, we believe our brands themselves
provide validation for our new products due to their strong reputations for high
quality and reliable performance.
Second, we use television and print advertising, promotions, and public
relations, featuring our endorsed players, to promote and reinforce our primary
brands and increase consumer awareness of our products. We also provide in-store
advertising materials, brochures and print materials to assist our retailers in
the communication of the features and benefits of our products to the consumer.
We have co-marketing agreements with the NHL that provide us with advertising
space on rink boards and signage in hockey arenas. As part of our exclusive
agreement with the NHL, our logos appear above the player's name on every NHL
jersey, which results in a high level of exposure. We also place our brand names
on our gloves, sticks, helmets, skates, pants, and jerseys in locations that
will receive a high level of exposure during play on both televised games and in
still photos of games.
44
INCREASE PROFITABILITY THROUGH COST REDUCTIONS AND EFFICIENCY
IMPROVEMENTS. We will continue to evaluate and rationalize our cost structure
and evaluate ways to improve the efficiency and productivity of our operations.
Past initiatives have included:
- consolidation of administrative offices and warehouses;
- consolidation of North American customer service and credit;
- reduction in raw materials costs;
- emphasis on outsourcing of non-core activities; and
- consolidation of manufacturing facilities.
We estimate that facility consolidations and head count reductions
implemented and completed during fiscal year 2001 would have resulted in an
additional $3.2 million of cost savings for the full year. No additional
facility consolidations or head count reductions are currently planned during
fiscal year 2002. In addition, to maintain our leading market position and
continue to be a leader in product innovation, we will continue to make our
business more flexible and less capital intensive by outsourcing the
manufacturing of our products where it makes strategic and business sense. We
plan to make investments in manufacturing and vertical integration only when we
believe it will significantly strengthen our competitive position. We believe
that outsourcing manufacturing will result in reduced costs, an improved ability
to balance our manufacturing capacity and shorten the time-to-market for our new
products.
OUR PRODUCTS
We manufacture and market a fully integrated line of hockey equipment and
apparel. Our hockey equipment product lines include:
- ice hockey, roller hockey and figure skates;
- protective equipment;
- hockey sticks; and
- goaltender equipment.
Our hockey related apparel products include:
- NHL licensed hockey jerseys;
- team uniforms and socks; and
- licensed or branded activewear.
HOCKEY EQUIPMENT PRODUCT LINES
ICE HOCKEY, ROLLER HOCKEY AND FIGURE SKATES. We manufacture and market a
wide range of ice hockey skates under the CCM, Tacks, Externo, Powerline, Jofa
and Koho labels. The tradition of the flagship CCM brand of skates, first
introduced to the market in 1905, is interwoven throughout the history of ice
hockey and the NHL. We manufacture all of our high end ice hockey skates and
outsource our entry level ice hockey, roller hockey and figure skates. We focus
on marketing premium roller hockey skates targeted at high price points. In
addition, we market six different models of figure skates under the CCM and Jofa
labels.
PROTECTIVE EQUIPMENT
BODY PROTECTIVE EQUIPMENT AND GLOVES. We market a variety of body
protective equipment, including shoulder pads, shin guards, elbow pads and
gloves under the CCM, Koho and Jofa brands.
45
CCM gloves and body protective equipment are marketed under three sub-brands,
Tacks, Supra and Powerline.
HELMETS. We market our helmets under the CCM and Jofa labels, which have
been two of the leading brands of helmets for over 30 years. More players in the
NHL wear our helmets than any other competitor's products. Our helmets provide a
high level of protection and prominently display the CCM and Jofa brand names.
PANTS AND ACCESSORIES. We market hockey pants under the CCM, Koho and Jofa
labels. CCM branded pants also carry the Supra and Powerline sub-brand names. In
addition, we market several accessories, such as carry bags, athletic supporters
and equipment for officials.
HOCKEY STICKS. We believe we are the premier manufacturer of hockey sticks
and set the industry standards for quality, innovation and stick performance. We
market a wide range of hockey sticks incorporating various materials, designs,
and performance characteristics. Our sticks are sold under the CCM and Koho
brands. CCM and Jofa sticks are also sub-branded for greater market
segmentation. CCM sub-brands include Tacks, Canadien, Supra and Powerline for
our player, non-goaltender, sticks and Tacks and Heaton for goaltender sticks.
Similarly, the Titan sub-brand is associated with the Jofa primary brand. We are
also a leading provider of replacement blades, enabling players to re-use the
shaft of their two-piece hockey sticks.
GOALTENDER EQUIPMENT. We produce a fully integrated line of goaltender
equipment. We market our goaltender facemasks, catch mitts and blockers,
goaltender arm and body protectors and leg pads under the Heaton sub-label of
CCM and the Koho brand. We market our goaltender pants under the Supra and
Heaton sub-labels of CCM and the Koho brand.
NON-HOCKEY EQUIPMENT. We also manufacture and market other equipment,
including alpine skiing and equestrian helmets. These products are manufactured
and assembled at our Malung, Sweden facility. In addition, in Finland and
Sweden, we are the exclusive distributor of Merrell footwear, a leading outdoor
footwear brand.
HOCKEY RELATED APPAREL PRODUCTS
LICENSED HOCKEY JERSEYS. We have supplied NHL teams with authentic jerseys
for 35 years. Pursuant to our most recent license agreement with the NHL, we
hold the exclusive right to provide authentic jerseys used "on-ice" by every
team in the NHL and market authentic and replica jerseys of all 30 teams. Our
exclusive agreement with the NHL expires on June 30, 2004, with our option to
renew through June 30, 2005. In addition, under our license agreement with the
NHL Players Association, we have the right to market these jerseys with the
names and numbers of NHL players. In addition to supplying jerseys to the NHL,
we also maintain agreements to provide jerseys to professional teams in other
leagues as well as some major NCAA teams.
Although we generate revenue from the sale of authentic jerseys to the
consumer market, replica jersey sales into the consumer market account for an
estimated 95% of our licensed jersey revenue. Replica jerseys are similar to
authentic jerseys and may also display team names and crests but incorporate
different fabrics and features than authentic jerseys. Our authentic jerseys
incorporate Pro-Weight Air-Knit and Ultrafil fabric, high quality crests, a
fighting strap and reinforced stitching on all seams and hems. Youth and adult
replica jerseys feature Mid-Weight Air-Knit fabric and child/ toddler jerseys
feature traditional Suprafil fabric.
TEAM UNIFORMS AND SOCKS. We sell non-team identified team uniforms and
socks that are primarily used by organized leagues, amateur hockey associations
and schools. The majority of these jerseys is of replica quality and is sold
through retail channels. We also produce hockey socks for both professional and
recreational markets.
46
LICENSED OR BRANDED ACTIVEWEAR. We offer a high quality line of fleecewear,
pants, shirts, T-shirts, golf shirts, turtlenecks, outerwear and caps
embroidered with the NHL, NCAA and other team and league logos. We market these
products pursuant to several license agreements with a variety of organizations,
including the NHL, major colleges and universities, the NCAA and the American
Hockey League. We outsource the production of all of our activewear products. In
addition to sports apparel and accessories displaying professional and
collegiate team logos and designs, we also sell our line of caps, T-shirts, and
fleecewear to corporations and other organizations. Our products include custom
embroidered and screen printed T-shirts and polo shirts bearing corporate and
organizational logos.
SUMMARY OF BRAND MANAGEMENT
In 1999, we conducted in-depth marketing studies to gain insight into
customers' preferences of our brands and provide a basis for our multiple brand
strategy. Our market research demonstrated that our three main brands, CCM, Jofa
and Koho, maintain distinct brand identities in the marketplace and appeal to
different consumer segments. We believe the perception of our brands in the
marketplace is as follows:
CCM. CCM is one of the industry's icon brands and embodies the tradition
and history of hockey. The CCM name represents a century of tradition combined
with state-of-the-art technology.
JOFA. The Jofa brand is perceived as representing precision engineered
Swedish equipment and appeals to the "smart" or "informed" hockey player.
KOHO. Koho is perceived as a "fast," "fun," "irreverent" brand, largely
geared to the youth market. The Koho brand is likely to appeal to the consumer
that identifies with extreme sports, and is considered a "cool" and stylish
brand.
Working with advertising agencies, we created individual slogans and
marketing campaigns for each of the CCM, Jofa and Koho brands that embody these
brands' unique identities and key attributes. We have introduced the slogan
"when you're born to play," to reinforce CCM's attributes of tradition and
authenticity. Consistent with Jofa's attribute of precise Swedish engineering,
we have created the slogan "smart hockey." Koho's slogan, "a whole new game,"
reinforces the brand's irreverent quality. Our advertising campaigns are
designed to clearly communicate the distinct image of each of our brands.
We have global brand managers responsible for our three primary brands.
Brand managers' key responsibilities include orchestrating our product
development and advertising and promotional activities to effectively
communicate the CCM, Jofa and Koho individual brand identities to consumers.
We have four separate equipment business unit managers each responsible for
developing and managing one of our equipment product lines, which consist of
skates, sticks, protective equipment and goaltender equipment. We believe that
by segmenting our product development and management activities by equipment
category, we can continue to introduce the most innovative and technologically
advanced products to the marketplace.
SALES AND MARKETING
NORTH AMERICAN SALES. In Canada, our equipment sales organization is
comprised of a group of independent representatives that sell CCM branded
equipment and another group of independent representatives dedicated to selling
Koho and Jofa equipment. In the U.S., independent representatives carry all
brands. Sales representatives are charged primarily with selling equipment,
products and jerseys to our smaller hockey specialty accounts. Regional
managers, in both Canada and the U.S., are charged with overseeing the sales
representative organization and also maintaining our larger accounts across all
brands.
47
We have a separate sales force for apparel, comprised of a vice president of
sales, a key account manager and independent representative organizations. Our
apparel sales team possesses extensive industry experience. Our sales
representatives are responsible for selling apparel, including licensed jerseys,
and licensed or branded activewear, to large sporting goods and department
stores in the U.S.
INTERNATIONAL SALES. In Sweden, Finland and Norway, we sell our equipment
and apparel directly to retailers and teams, through our in-house sales team in
Scandinavia. Outside of those countries, we sell our products through
distributors located in over 40 countries in Europe, South America, Central
America, Africa, Australia and the Far East. These distributors, in turn, sell
our products to teams and retailers. Our European sales activities, as well as
sales activities in South America, Central America, and Pacific Rim countries,
are controlled through our European General Manager based in Sweden.
NHL AGREEMENTS
NHL MARKETING LICENSES. Our license agreement with NHL Enterprises, LP, the
marketing affiliate of the NHL, extends through June 30, 2004 with our option to
renew through June 30, 2005, and gives us the exclusive right to supply
authentic game jerseys used "on-ice" by the 30 NHL teams, including playoff and
all-star jerseys. Authentic game jerseys are supplied under the CCM and Koho
brand names, while authentic practice jerseys are supplied under the Jofa brand
name. We are also the exclusive supplier of "on-ice" jerseys and pants for NHL
officials under the Jofa brand name. Our brand names are placed, pursuant to the
agreement, on the outside rear neck of the jersey, to provide brand name
exposure. We also have the right to use the names, logos, and other indicia of
the NHL and the NHL member teams on an exclusive basis in connection with the
manufacture, supply and sale of replica game and practice jerseys of the 30 NHL
teams. Pursuant to a separate agreement with the National Hockey League Players
Association, we are entitled to market authentic and replica game and practice
jerseys identified with the names and numbers of NHL players. Since the
beginning of the 2000/2001 NHL season, the CCM logo appears above each player's
name on every "home" NHL jersey, the Koho logo appears above each player's name
on every "away" and "third" NHL jersey and the Jofa label is on uniforms for all
NHL officials. The agreement also grants us the exclusive right to market
T-shirts, golf shirts, workout wear, outerwear and activewear bearing NHL logos,
names and designs under the NHL's Center-Ice trademark, which are worn by the
trainers of all NHL teams during games. We also have the non-exclusive right to
use the NHL team logos on headwear. We market all of the foregoing products to
North American retailers for resale as well as to European and Asian
distributors.
Pursuant to the license agreement we are required to pay a license fee and
royalties to the NHL based on our net sales, with minimum royalty amounts
guaranteed to be paid by us each license year. In addition to these costs, we
have agreed to purchase a fixed dollar amount of marketing from the NHL and from
each of the NHL teams.
We license the use of NHL trademarks for our Jofa hockey protective
equipment. The premium products in the protective equipment line (shoulder, shin
and elbow pads) are co-branded with the Center-Ice trademark, also referred to
as "the official equipment worn by the NHL." The NHL reserves this mark for
products with overwhelming usage by NHL players. Other Jofa products are
co-branded with the NHL shield.
NHL ON-ICE EQUIPMENT LICENSE. Our brands are permitted to appear on
equipment used by NHL players "on-ice" pursuant to a separate On-Ice Equipment
License with the NHL. The extensive use of our products by NHL players
significantly promotes the high visibility of our brands among consumers. All of
our products prominently display their respective brand and sub-brand logos,
resulting in significant and cost-effective exposure in arenas, on television
and in newspapers, magazines and other printed media. Our market research
indicates that NHL use of a particular brand of equipment is among the key
factors in a consumer's purchase decision. Our products enjoy widespread usage
among
48
NHL players without paid endorsement. We do, however, have endorsement
agreements with several high visibility players including, among others, Martin
Brodeur (CCM Heaton) of the New Jersey Devils, Mark Recchi (CCM) of the
Philadelphia Flyers, Patrick Roy (Koho) of the Colorado Avalanche, Daniel Sedin
(Jofa) and Henrik Sedin (Jofa) of the Vancouver Canucks, Mats Sundin (CCM) of
the Toronto Maple Leafs and Joe Thornton (CCM) of the Boston Bruins.
MEDIA PROMOTION. In addition to our "on-ice" exposure, we have purchased
time slots during both locally and nationally televised hockey games in Canada
and the U.S. Our media plan includes radio spots. As a result of the increased
coverage of the NHL by ABC and ESPN, we have increased our television and radio
promotion. Reinforcing the television campaign are full-page color
advertisements placed in game programs, trade and consumer hockey publications
distributed throughout North America, such as The Hockey News, New England
Hockey Journal and Hockey Business News
CUSTOMERS AND DISTRIBUTION CHANNELS
We maintain a diversified and broad universe of over 4,000 customers
worldwide and are not dependent on any single customer. Sales in the U.S.
accounted for approximately 45% of our total 2001 revenue, sales in Canada
accounted for approximately 32% of our total 2001 revenue and sales in Europe
and the rest of the world accounted for approximately 23% of our total 2001
revenue. Our customer base consists of independently owned hockey specialty
retail stores, large sporting goods retailers, department stores and other
retailers. In fiscal 2001, no customer accounted for more than 10% of our sales.
We sell our hockey related apparel, including jerseys and licensed or
branded activewear, through the same channels as our equipment products, in
addition to generating revenue from sales to "in-stadium" concession stores.
Jerseys are sold mainly through specialty retail and "in-stadium" concession
stores. Our new license agreement with the NHL provides us with better access to
"in-stadium" concession stores to market our licensed jerseys and licenses or
branded activewear. We believe "in-stadium" concession stores who purchase
authentic licensed jerseys from us will increase their orders for our licensed
or branded activewear products due to purchasing efficiencies. We have
established a separate U.S. sales force who will market our new line of hockey
related licensed or branded activewear through new channels. We expect this
sales force to generate sales from large retailers, department stores and other
retailers.
RESEARCH AND DEVELOPMENT
We believe we are the industry's leader in product innovation and have
dedicated significant resources to ensure our future technological leadership.
The majority of our products are developed and commercialized in our three
research and development centers located in St. Jean, Quebec, Tammela, Finland
and Malung, Sweden. These facilities employ designers, engineers and model
makers and feature comprehensive testing equipment, woodworking, spray painting,
molding and sculpting capabilities and have creative services departments which
are responsible for packaging, catalogue design and development.
Our research and development teams work closely with each of our product
business Units to enhance the quality and performance of existing products and
to introduce new products into the marketplace. The majority of our products are
developed internally through our research efforts and continued feedback from
professional and recreational players, as well as from retail customers. In
addition, we have developed an alliance with a major Canadian university. Our
university affiliation will support our efforts to develop equipment performance
benchmarks, as well as new materials and equipment designs.
49
MANUFACTURING
EQUIPMENT MANUFACTURING PROCESSES. We believe we have developed the
industry's most advanced hockey equipment manufacturing processes, with
proprietary technologies and extensive automation. We believe that we operate
the industry's most automated hockey stick production facility at our
Cowansville, Quebec facility. We outsource the production of the majority of our
ice and roller skates and protective equipment line to high quality facilities
primarily in Asia and the Czech Republic, except for our high-end ice skates,
custom products and helmets which are produced in-house.
HOCKEY RELATED APPAREL MANUFACTURING PROCESSES. We are a vertically
integrated manufacturer of hockey jerseys and socks and make extensive use of
automation. In order to maintain our high quality standards, we knit our own
jersey fabric and hockey socks and cut and assemble the components for our
jerseys. In addition, we have developed sophisticated sewing equipment that
facilitates the labor-intensive finishing process of jersey production. We have
recently implemented several initiatives that have dramatically increased
throughput and the overall efficiency of our jersey manufacturing lines. We have
outsourced a small portion of our jersey production to meet demand. For our
activewear line, we source blank jackets, fleecewear and other apparel from
third parties and, in turn, have them embellished by other third parties with
team crests and logos and our brand names.
SUPPLIERS
We have a diverse network of suppliers. No single supplier accounted for
more than 10% of our consolidated purchases during the year ended December 31,
2001.
COMPETITION
Our principal competitor in the hockey equipment market is Bauer Nike
Hockey Inc., a subsidiary of Nike, Inc. In addition to Bauer Nike, we compete
with several smaller companies that typically do not offer full product lines,
including Easton Sports, Inc., Mission Hockey Company, Sherwood Drolet Ltd. and
ITECH Sport Products Inc. Although we and Bauer Nike together account for a
significant portion of the worldwide hockey equipment market, the remaining
market is highly fragmented. We compete on the basis of brand image, technology,
quality and performance of our products, method of distribution, price, style
and intellectual property protection.
Within the hockey apparel segment, our competitors for licensed jerseys have
included Bauer Nike, Starter Corporation and Pro Player, Inc. These companies
have exited the market for licensed NHL jerseys over the last few years. In the
team uniform market, our competitors include Bauer Nike, Athletic Knit, SP and
Kobe. Although the licensed or branded activewear market is highly fragmented,
we compete with companies such as Lee Company, Logo Athletic, Antigua
Sportswear, Spotlight Apparel and Pro Player.
PATENTS AND TRADEMARKS
PATENTS. We currently hold patents and industrial designs in multiple
countries. The patents encompass various product innovations and designs. Many
of our patents represent what have become industry standards in performance and
quality. Examples include the F-I-T System Thermo-forming process that is
featured in our hockey skate line and Hyper X Locking Mechanism and Joint
Discharge Principle that are featured in our protective equipment product line.
TRADEMARKS. We own a substantial number of trademarks including Jofa, Koho,
Tacks, Heaton, Titan, Canadien and Externo. All of our trademarks are owned by
us except for the CCM trademark which is owned by CCM Holdings (1983) Inc.,
which in turn is 50% owned by us through our subsidiaries. The remaining 50% of
CCM Holdings is owned by an unaffiliated Canadian bicycle company. We have the
exclusive and perpetual right to use the CCM trademark royalty free in
connection with skates, hockey equipment and hockey related apparel.
50
OPERATIONS AND FACILITIES
Our primary executive offices of our operations are located in Montreal,
Canada and we conduct our operations through 21 facilities: 3 in the U.S., 10 in
Canada, and 8 in Europe. We believe that our existing manufacturing and
distribution facilities have sufficient capacity to support our business without
the need for significant additional or upgraded equipment or capital
expenditures. The following table summarizes each of our principal facilities
for its operations.
APPROXIMATE
FACILITY LOCATION USE SQUARE FEET LEASE/OWN LEASE EXPIR.
----------------- -------------------------- ----------- ------------ ------------
UNITED STATES
Bradford, Vermont......... U.S. apparel distribution 85,000 Own --
Branford, Connecticut..... U.S. apparel offices 3,726 Lease Apr. 2002
Stowe, Vermont............ U.S. sales office 1,600 Lease Mar. 2003
CANADA
Cap de la Madeleine,
Quebec.................. Hockey apparel sewing 12,000 Lease Jan. 2005
Cowansville, Quebec....... Hockey stick manufacturing 45,500 Own --
Drummondville, Quebec..... Hockey stick manufacturing 63,000 Own --
Granby, Quebec............ North American apparel 53,200 Lease Dec. 2003
distribution center
Harrow, Ontario........... Goaltender equipment 15,000 Lease Dec. 2004
manufacturing
Montreal, Quebec.......... Executive and 50,000 Lease Feb. 2008
administrative offices
Richmond, Quebec.......... Hockey apparel sewing 11,500 Lease June 2003
St. Hyacinthe, Quebec..... Hockey apparel cutting and 78,000 Lease Jan. 2005
sewing
St. Hyacinthe, Quebec..... North American equipment 180,000 Lease Jan. 2005
distribution center
St. Jean, Quebec.......... Hockey equipment and skate 138,000 Lease Nov. 2004
manufacturing
EUROPE
Fredrikstad, Norway....... Sales office 14,500(1) Lease Oct. 2003
Goteburg, Sweden.......... Sales office 1,227 Lease June 2002
Helsinborg, Sweden........ Sales office 400 Lease Aug. 2002
Helsinki, Finland......... Sales office 1,500 Lease Quarterly
Johannesh, Sweden......... Sales office 1,600 Lease Sept. 2004
Jyvaskyla, Finland........ Sales representative 380 Lease Two months
office
Malung, Sweden............ Protective equipment 123,000 Lease Sept. 2004
factory, warehouse and
offices
Tammela, Finland.......... Hockey stick factory, 50,000 Lease (land) Dec. 2087
warehouse and offices
------------------------
(1) A majority of the Fredrikstad facility is sublet to a third party.
EMPLOYEES
As of December 31, 2001, we employed 1,587 persons, of which 1,367 are
employed in Canada directly by Sport Maska Inc., 30 are employed in the United
States and the balance are employed in Europe. None of our employees in the
United States are unionized, while 390 of our employees at our
51
St. Jean, Quebec facility, 100 of our employees at our Malung, Sweden facility,
91 of our employees at our Tammela, Finland facility, 54 of our employees at our
Drummondville, Quebec facility and 47 of our employees at our Harrow, Ontario
facility are unionized. The collective bargaining agreement with the union
expired in December 2001 for Drummondville and negotiations for its renewal are
in the early stages. With the agreement of the union, we continue to operate
under the prior agreement. The collective bargaining agreements with the unions
expire in 2002 for St. Jean, in 2003 for Harrow and Tammela, Finland and in 2004
for Malung, Sweden.
LEGAL PROCEEDINGS
Other than certain legal proceedings arising from the ordinary course of
business, which we believe will not have a material adverse effect, either
individually or collectively, on our financial position, results of operations
or cash flows, there is no other litigation pending or threatened against us.
CORPORATE STRUCTURE
The chart below is a simplified version of our actual corporate structure.
Corporate Structure Chart
------------------------
(1) The Issuers, each of which will fully and unconditionally guarantee the
notes of the other on a senior secured basis.
(2) Guarantor on a senior secured basis and 100% of stock pledged.
(3) 100% of stock pledged.
(4) Guarantee limited to $15 million.
(5) Holder of intellectual property rights.
52
DIRECTORS AND EXECUTIVE OFFICERS
The following are the directors and officers for The Hockey Company and
Sport Maska Inc.
NAME AGE POSITION
---- -------- ------------------------------------------
Greg S. Feldman*.......................... 45 Chairman of the Board
Matthew H. O'Toole*....................... 39 Chief Executive Officer, President and
Director
Robert A. Desrosiers*..................... 52 Chief Financial Officer and Vice
President, Finance and Administration
Johnny Martinsson......................... 58 Senior Vice President, European Division
John Pagotto*............................. 47 Vice President, Equipment Division
Len Rhodes*............................... 38 Vice President, Global Marketing
Raymond Riccio*........................... 34 Vice President, Apparel Division
David Terreri*............................ 48 Vice President, Distribution and Customer
Service
Phil Bakes................................ 56 Director
Michel Baril.............................. 47 Director
Paul M. Chute............................. 47 Director
Jason B. Fortin........................... 31 Director
James C. Pendergast*...................... 45 Diretor
Roger Samson.............................. 60 Director
------------------------
* Also holds the same position at Sport Maska Inc., except Robert A.
Desrosiers does not serve as Chief Financial Officer of Sport Maska Inc.
GREG S. FELDMAN became a Director in July 1998 and Chairman of the Board in
November 2001. Mr. Feldman is co-founder and has been the Managing Partner of
Wellspring Capital Management LLC since its inception in January 1995.
Wellspring is a New York based private equity firm. Mr. Feldman is a director of
six private companies controlled by Wellspring.
MATTHEW H. O'TOOLE was appointed President in January 2001, became a
Director in May 2001, and was named Chief Executive Officer, effective as of
September 2001. Mr. O'Toole is a 18-year veteran of the sporting goods industry,
joining us in May 1999 as Senior Vice President, Sales and Marketing. Before
that he served one year as Vice President of Sales and Marketing for Teardrop
Golf Company. From 1994 to 1998, he served as Vice President of Sales for Tommy
Armour Golf Company (a subsidiary of US Industries). Before that he spent ten
years in marketing and sales management at Wilson Sporting Goods Company. In
December 2000, twenty-one (21) months after Mr. O'Toole's departure from
Teardrop Golf Company, Teardrop Golf Company filed a voluntary petition for
bankruptcy protection.
ROBERT A. DESROSIERS became Vice President, Finance and Administration, in
May 2001, upon joining us, and Chief Financial Officer in January 2002.
Mr. Desrosiers is a Chartered Accountant and experienced finance executive with
over thirty years experience in both the public and private sectors. For the
15 years before joining us, Mr. Desrosiers was Vice President, Finance and
Administration, at Bauer Nike Hockey Inc.
JOHNNY MARTINSSON became Senior Vice President, European Division, in 1998,
upon joining us in connection with the acquisition of Sports Holdings Corp. In
1997, Mr. Martinsson was appointed Senior Vice President--Europe for Sports
Holdings Corp. From 1988 until 1997 he was President of
53
Jofa, a division of Karhu Canada Hockey. Mr. Martinsson originally joined Jofa
in 1970 as a product manager.
JOHN PAGOTTO became Vice President, Equipment Division, in July 2001, upon
joining us. Previously, Mr. Pagotto served one year as Vice President, Brand
Management, at Bauer Nike Hockey Inc. Mr. Pagotto has a 22-year career in the
hockey industry and, before joining Bauer Nike Hockey Inc,. was Vice President
and General Manager of the Karhu Hockey Division, Sports Holdings Corp.
LEN RHODES became Vice President, Global Marketing, in January 2001, having
joined us in September 1999 as Director of Marketing. Before that he spent
11 years at Molson Breweries in various sales and marketing positions eventually
becoming a brand manager.
RAYMOND RICCIO became Vice President, Apparel Division, in February 2002,
having joined us in August 1999. Mr. Riccio previously served with Starter
Corporation for 8 years, where his experience included National Account Manager,
Regional Sales Manager and National Sales Manager of Key Accounts.
DAVID TERRERI became Vice President, Distribution and Customer Service, in
January 1997. Mr. Terreri was employed by Canstar Sports Inc. (c/k/a Bauer Nike
Hockey Inc.) from June 1978 to January 1997 eventually rising to Vice President,
Distribution & Logistics.
PHIL BAKES became a Director in October 1999. Mr. Bakes is the Chairman and
Chief Executive Officer of FAR&WIDE Travel Corp., a leading value-added travel
tour operator, which he founded in 1997. Previously, Mr. Bakes was president of
Sojourn Enterprises, Inc., a Miami advisory and merchant banking firm he founded
in 1990.
MICHEL BARIL became a Director in September 2001. Mr. Baril has been
President and Chief Operating Officer of Bombardier Recreational Products since
February 2001. From May 2000 until February 2001, he was Executive
Vice-President of Bombardier Transportation, responsible for all aspects of
Bombardier Transportation operations worldwide. Between September 1998 and
May 2000, he was Executive Vice-President, Operations, of Bombardier Aerospace,
overseeing all manufacturing and procurement activities for the Canadair, de
Havilland, Learjet and Shorts entities. From June 1996 until September 1998, he
was President of the Mass Transit Division, overseeing all of the Transportation
Group's activities in Canada and the United States.
PAUL M. CHUTE became a Director in April 1997. Since January 1995,
Mr. Chute has served as a Managing Director of Phoenix Investment
Partners, Ltd., an investment advisor to its affiliate, Phoenix Life Insurance
Company. He was a Managing Director of Phoenix Life Insurance Company from
January 1992 to December 1994.
JASON B. FORTIN became a Director in January 1999. Mr. Fortin is a principal
of Wellspring and has been employed by them since March 1995. From 1992 until
1995, Mr. Fortin was in the corporate finance department of Donaldson, Lufkin &
Jenrette Securities Corporation.
JAMES C. PENDERGAST became a Director in April 1997. Since July 1993,
Mr. Pendergast has been a Managing Director of Alliance Corporate Finance
Group Inc., an investment advisor to its affiliate, The Equitable Life Assurance
Society of the United States. From July 1986 until July 1993, he was employed by
Equitable Capital Management Corp., a subsidiary of Equitable.
ROGER SAMSON became a Director in May 2001, as a designee of Caisse.
Mr. Samson has been an independent consultant since 1999 and serves on a number
of Boards of Directors. From 1997 to 1999 he was President of Sico Coatings, an
affiliate of Sico Inc., a paint manufacturer.
54
BOARD OF DIRECTORS
The Board of Directors of The Hockey Company has responsibility for
establishing broad corporate policies and for overseeing our performance,
although it is not involved in day-to-day operations. Members of the Board are
kept informed of our business by various reports and documents sent on a regular
basis as well as by operating and financial reports presented at Board and
various Committee meetings. The Board of Directors held 5 meetings during 2001.
The Board has authorized an audit committee and a compensation committee.
All of the members of the audit committee and the compensation committee are
independent directors who are not employees of The Hockey Company or any of its
subsidiaries.
Directors do not receive any compensation for services rendered in their
capacity as such; however, they do receive reimbursement of reasonable
out-of-pocket expenses in respect of attendance at meetings.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth certain information for
the year ended December 31, 2001 concerning the cash and non-cash compensation
earned by or awarded to the Chairman of the Board and the four other most highly
compensated executive officers of The Hockey Company as of December 31, 2001 and
as of the date hereof:
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- ------------------------
OTHER ANNUAL STOCK ALL OTHER
NAME AND POSITION SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
----------------- -------- -------- --------------- --------- ------------
Gerald B. Wasserman(2) ............. $351,885 $ -- $ -- -- $ --
Chairman of the Board
Greg S. Feldman(2) ................. -- -- -- -- --
Chairman of the Board
Matthew H. O'Toole(3) .............. 192,308 127,151 -- 150,000 --
President and Chief Executive
Officer
Robert A. Desrosiers(4) ............ 88,119 47,470 -- 35,000 --
Chief Financial Officer and Vice
President, Finance and
Administration
John Pagotto(4) .................... 66,568 39,558 -- 35,000 --
Vice President, Equipment Division
David Terreri ...................... 203,855 68,495 -- -- --
Vice President, Distribution and
Customer Service
------------------------
(1) Includes all other annual compensation not properly categorized as salary or
bonus. Certain perquisites that do not exceed 10% of the named individuals'
salary are excluded.
(2) Mr. Wasserman resigned effective September 1, 2001 and was replaced by
Mr. Greg S. Feldman as Chairman of the Board. Mr. Feldman is not remunerated
for this position.
(3) Mr. O'Toole earned an annualized salary of Canadian $300,000 in 2001 and
will earn an annualized salary of Canadian $380,000 in 2002.
(4) Mr. Desrosiers and Mr. Pagotto earned annualized salaries of Canadian
$225,000.
55
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables set forth certain information concerning the granting
of options to purchase shares of our common stock to each of the executive
officers of The Hockey Company named in the Summary Compensation Table above, as
well as certain information concerning the exercise and value of such stock
options for each of the individuals. Options generally become exercisable over
periods of five years and, subject to certain exceptions, expire no later than
ten years from the date of grant.
STOCK OPTIONS GRANTED IN 2001
On September 26, 2001, The Hockey Company authorized the grant of employee
stock options to purchase 440,000 shares of common stock at an exercise price of
$8.50 per share, of which 220,000 are allocated to named executive officers. In
addition, we have approved the reduction of the exercise price per share of
stock options held by certain employees relating to 160,000 shares at prices
ranging from $10.00 to $14.00 to $8.50, of which 75,000 shares are subject to
options held by named executives.
OPTIONS EXERCISED IN 2001 AND VALUE OF OPTIONS AT DECEMBER 31, 2001
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS THE-MONEY
SHARES HELD AT YEAR-END OPTIONS AT YEAR-END
ACQUIRED VALUE ----------------------------- -----------------------------
NAME ON EXERCISE RECEIVED EXERCISABLE NOT EXERCISABLE EXERCISABLE NOT EXERSISABLE
---- ----------- -------- ----------- --------------- ----------- ---------------
Gerald B. Wasserman.............. -- -- 722,222 -- N/A N/A
Matthew H. O'Toole............... -- -- 40,000 135,000 N/A N/A
Robert A. Desrosiers............. -- -- 7,000 28,000 N/A N/A
John Pagotto..................... -- -- 7,000 28,000 N/A N/A
David Terreri.................... -- -- 40,000 10,000 N/A N/A
The value of unexercised in-the-money options at year-end has not been
determined due to the extremely limited amount of trading activity in The Hockey
Company's common stock.
EMPLOYMENT CONTRACTS
Effective September 1, 1996, we entered into a five year employment
agreement with Gerald B. Wasserman employing him as President and Chief
Executive Officer. In addition to a salary, Mr. Wasserman was granted options to
purchase an aggregate of 722,222 shares of our common stock and, of such
options, options to purchase 650,000 shares were granted in 1996. An option,
with respect to 361,111 of such shares, was granted at exercise prices ranging
from $12.00 per share through $16.00 per share. Subject to the provisions of the
employment agreement related to early terminations, the options have a term of
ten years from the date of grant and vest in five equal annual installments
beginning on September 1, 1997. As of November 23, 2001, our Board of Directors
accepted the resignation of Mr. Wasserman as Chairman of the Board. Under the
Separation Agreement and Release Agreement entered into with Mr. Wasserman,
Mr. Wasserman will continue to receive salary through March 31, 2002, as well as
certain fringe benefits. In addition, Mr. Wasserman will be entitled to all
722,222 options which have vested as of such date.
Effective January 1, 2001, and further amended on September 26, 2001 to
reflect his position as Chief Executive Officer, we entered into an employment
agreement with Matthew H. O'Toole, as President and Chief Executive Officer.
Mr. O'Toole receives annual compensation of Canadian $380,000, subject to review
annually, and is eligible to receive a bonus calculated in accordance with a
formula based on our EBITDA up to 75% of then-current salary or, if 110% above
budgeted EBITDA is achieved, a larger percentage at the discretion of our board
of directors. Mr. O'Toole has also been
56
granted stock options to purchase 175,000 shares of our common stock at an
exercise price of $8.50 per share, of which options to purchase 25,000 shares
were repriced from $14.00 per share. These options have a term of ten years and
vest ratably over five years with all options fully vested upon a change of
control and ratably upon a termination of Mr. O'Toole's employment without
"cause". Additionally upon a change of control, Mr. O'Toole is entitled to a
"success fee" of two times then-current base salary less the current cash value
(per share less the exercise price per share multiplied by the number of shares
vested) of all vested stock options. Upon notice of termination of employment by
us, Mr. O'Toole will be entitled to receive as severance one year's salary.
Effective May 22, 2001, we entered into an employment contract with Robert
A. Desrosiers, as Vice President, Finance and Administration. He was named Chief
Financial Officer as of January 2002, with no change in employment terms.
Mr. Desrosiers receives annual compensation of Canadian $232,000, subject to
annual review. Mr. Desrosiers is also eligible to participate in our bonus plan
up to a maximum of 40% of then current salary. Mr. Desrosiers has been granted
stock options to purchase 35,000 shares of our common stock at an exercise price
of $8.50 per share. These options have a term of ten years, vest ratably over
five years commencing on December 31, 2001 and vest upon change in control and
ratably upon a termination of Mr. Desrosiers' employment without "cause". Upon
notice of termination of employment by us, Mr. Desrosiers will be entitled to
receive as severance twelve months' salary and benefits.
Effective January 1, 1999, as amended September 12, 2001, we entered into an
employment contract with Johnny Martinsson, as Senior Vice President, European
Division. He currently earns a base salary of SEK 1,000,000 per year, subject to
annual review. Mr. Martinsson is also eligible to participate in our bonus plan
up to a maximum of 40% of then-current salary. Mr. Martinsson has been granted
stock options to purchase 35,000 shares of our common stock at an exercise price
of $8.50 per share, of which options to purchase 25,000 shares were repriced
from $14.00 per share. These options have a term of ten years, vest ratably over
five years commencing on December 31, 1999 and vest upon change in control and
ratably upon a termination of Mr. Martinsson's employment without "cause". Upon
notice of termination of employment by us, Mr. Martinsson will be entitled to
receive as severance twelve months' salary and benefits.
Effective July 16, 2001, we entered into an employment agreement with John
Pagotto, as Vice President, Equipment Division. Mr. Pagotto receives annual
compensation of Canadian $232,000, subject to annual review. Mr. Pagotto is also
eligible to participate in our bonus plan up to a maximum of 40% of then current
salary. Mr. Pagotto has been granted stock options to purchase 35,000 shares of
our common stock at an exercise price of $8.50 per share. These options have a
term of ten years, vest ratably over five years commencing on December 31, 2001
and vest upon change in control and ratably upon a termination of Mr. Pagotto's
employment without "cause". Upon notice of termination of employment by us,
Mr. Pagotto will be entitled to receive as severance twelve months' salary and
benefits.
Effective June 18, 2001, we entered into an employment agreement with Len
Rhodes, as Vice President, Global Marketing. Mr. Rhodes receives annual
compensation of Canadian $154,500, subject to annual review. Mr. Rhodes is also
eligible to participate in our bonus plan up to a maximum of 40% of then current
salary. Mr. Rhodes has been granted stock options to purchase 25,000 shares of
our common stock at an exercise price of $8.50 per share. These options have a
term of ten years, vest ratably over five years commencing on December 31, 2001
and vest upon change in control and ratably upon a termination of Mr. Rhodes'
employment without "cause". Upon notice of termination of employment by us,
Mr. Rhodes will be entitled to receive as severance twelve months' salary and
benefits.
Effective August 16, 1999, as amended February 28, 2001 to extend the term
to February 28, 2003, we entered into an employment agreement with Raymond
Riccio, as Vice President, Apparel Division.
57
The agreement may be renewed by us with 6 months' prior notice. Mr. Riccio
receives annual compensation of $160,000, subject to annual review. Mr. Riccio
is also eligible to participate in our bonus plan up to a maximum of 40% of then
current salary. Mr. Riccio has been granted stock options to purchase 25,000
shares of our common stock at an exercise price of $8.50 per share. These
options have a term of ten years, vest ratably over five years and vest upon
change in control and ratably upon a termination of Mr. Riccio's employment
without "cause". Upon notice of termination of employment by us, Mr. Riccio will
be entitled to receive as severance the greater of six months' salary or the
number of months remaining during the term of the agreement which terminates
February 28, 2003.
Effective January 9, 1997, David Terreri was appointed Vice President,
Distribution and Customer Service. He currently earns a base salary of $203,855
per year, subject to annual review. Mr. Terreri is also eligible to participate
in our bonus plan up to a maximum of 40% of then-current salary. Mr. Terreri has
been granted stock options to purchase 50,000 shares of our common stock at an
exercise price of $8.50 per share, which were repriced from $10.00 per share.
These options have a term of ten years, vest ratably over five years and vest
immediately upon a change of control and ratably upon a termination of
Mr. Terreri's employment without "cause". Upon notice of termination of
employment by us Mr. Terreri will be entitled to receive as severance six
months' salary per year of service in the first year of service and twelve
months' salary per year of service with us thereafter up to a maximum of fifteen
months.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 2001, we were charged a management fee of $100,000 by Wellspring Capital
Management LLC, an affiliate of the controlling stockholder. In 2000, we were
charged a management fee of $180,000 by Wellspring Capital Management LLC for
services performed in connection with the extensions of the Caisse loan.
58
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information regarding beneficial
ownership of The Hockey Company's common stock as of April 15, 2002, with
respect to (a) each person known to be the beneficial owner of more than 5% of
the outstanding shares of common stock, (b) our directors, (c) our executive
officers and (d) all of our executive officers and directors as a group. (Except
as indicated in the footnotes to the table, all such shares of common stock are
owned with sole voting power and investment power.)
NO. OF SHARES
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) % OF CLASS
------------------------ --------------------- ----------
PRINCIPAL STOCKHOLDERS
WS Acquisition LLC(2)....................................... 3,412,949 51.4%
The Equitable Life Assurance Society of the United
States(3)................................................. 1,253,684 19.2%
Gerald B. Wasserman(4)...................................... 722,222 10.0%
Phoenix Life Insurance Company(5)........................... 517,322 7.7%
Caisse de depot et placement du Quebec(6)................... 539,974 8.3%
The Northwestern Mutual Life Insurance Company(7)........... 394,015 6.0%
DIRECTORS
Phil Bakes(8)............................................... --
Michel Baril(9)............................................. --
Paul Chute(5)............................................... --
Greg S. Feldman(2).......................................... --
Jason B. Fortin(2).......................................... --
James C. Pendergast(3)...................................... --
Roger Samson(10)............................................ --
EXECUTIVE OFFICERS
Matthew O'Toole(11)(12)..................................... 40,000 *
Robert A. Desrosiers(12).................................... 7,000 *
John Pagotto(12)............................................ 7,000 *
Len Rhodes(12).............................................. 5,000 *
Raymond Riccio(12).......................................... 5,000 *
David Terreri(12)........................................... 50,000 *
Johnny Martinsson(13)....................................... 21,000 *
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP
(14 PERSONS).............................................. 135,000 2.0%
------------------------
* Less than 1%.
1. Beneficial ownership excludes 538,517 shares of our common stock that have
not yet been allocated pursuant to the reorganization plan in connection
with our bankruptcy. These shares will either be issued to the holders of
certain unsecured claims or issued to holders of our outstanding shares of
common stock.
2. The address of these owners is 620 Fifth Avenue, New York, New York 10020.
WS Acquisition LLC's beneficial ownership includes 7,947 shares indirectly
owned through its affiliate, Wellspring Capital Management LLC, and 115,135
shares covered by warrants exercisable within 60 days of February 1, 2002.
Greg S. Feldman is the Managing Member of WS Acquisition LLC. Mr. Feldman
disclaims beneficial ownership of the 3,412,949 shares held by WS
Acquisition LLC. Jason Fortin disclaims beneficial ownership of those
shares. Mr. Fortin is a principal of Wellspring Capital Management LLC, an
affiliate of WS Acquisition LLC.
3. The address of these owners is 1290 Avenue of the Americas, New York, New
York 10104. James C. Pendergast disclaims beneficial ownership of the
1,253,684 shares owned by The Equitable Life Assurance Society of the United
States. Mr. Pendergast is a Managing Director of Alliance Corporate Finance
Group Inc., an affiliate of the Equitable Life Assurance Society of the
United States.
59
4. The address of this owner is 3610 Serra Road, Malibu, California 90265.
Gerald Wasserman's beneficial ownership consists of 722,222 shares covered
by options exercisable within 60 days of February 1, 2002.
5. The address of these owners is 1 American Row, Hartford, Connecticut 06115.
Phoenix Life Insurance Company's beneficial ownership includes 159,127
shares covered by warrants exercisable within 60 days of February 1, 2002.
Paul M. Chute disclaims beneficial ownership of the 517,322 shares
beneficially owned by Phoenix Life Insurance Company. Mr. Chute is a
Managing Director of Phoenix Investment Partners, Ltd., an affiliate of
Phoenix Life Insurance Company.
6. The address of this owner is 2001 McGill College, 6th Floor, Montreal,
Quebec, Canada H3A 1G1.
7. The address of this owner is 720 East Wisconsin Avenue, Milwaukee, Wisconsin
53202.
8. The address of this owner is 80 S.W. 8th Street, Miami, FL 33130-3047.
9. The address of this owner is c/o Bombardier, Produits Recreatifs, 1061, rue
Parent, Saint-Bruno, Quebec, Canada J3V 6P1.
10. The address of this owner is 14 Place le Marronnier, St. Lambert, Quebec,
Canada J45 1Z7.
11. Mr. O'Toole is also a director of The Hockey Company.
12. The address of these owners is c/o The Hockey Company, 3500 Boulevard de
Maisonneuve, Suite 800, Montreal, Quebec, Canada H3Z 3C1. Each of these
owner's beneficial ownership consists entirely of shares covered by options
exercisable within 60 days of February 1, 2002.
13. The address of this owner is c/o Jofa AB, S-782 22 Malung, Sweden. This
owner's beneficial ownership consists entirely of shares covered by options
exercisable within 60 days of February 1, 2002.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SEASONAL WORKING CAPITAL FACILITIES
Effective November 19, 1998, our U.S. subsidiary, Maska U.S., Inc. and the
credit parties named therein, entered into a credit agreement with the lenders
referred to therein and General Electric Capital Corporation, as agent and
lender. Simultaneously, Sport Maska Inc. and the credit parties named therein
entered into a credit agreement with the lenders referred to therein and General
Electric Capital Canada Inc., as agent and lender. The GECC credit agreements
are collateralized by all accounts receivable, inventories and related assets of
the borrowers, guarantees from us and our other North American subsidiaries
which are collateralized by our and their accounts receivable, inventories and
related assets, and are further collateralized by a second lien on all of our
and our North American subsidiaries' other tangible and intangible assets.
Second Amendments to the GECC U.S. and Canadian credit agreements were entered
into on March 14, 2001. On terms and subject to the conditions of each of the
second amendments, the credit agreements were amended to reflect the amended
Caisse loans. The maximum amount of loans and letters of credit that may be
outstanding under the two credit agreements is $60.0 million. Total borrowings
outstanding under the credit agreements were $27.8 million at December 30, 2001,
excluding $5.7 million of letters of credit outstanding. The maturity date of
the GECC credit agreements is October 17, 2002. Management believes the GECC
credit agreements can be renewed or refinanced upon maturity.
Borrowings under the GECC U.S. credit agreement bear interest at rates
between U.S. prime rate plus 0.50% to 1.25% and LIBOR plus 1.75% to 2.75%
depending on The Hockey Company's operating cash flow ratio. Borrowings under
the GECC Canadian credit agreement bear interest at rates between the Canadian
prime rate plus 0.75% to 1.50%, the U.S. prime rate plus 0.50% to 1.25% and the
Canadian Bankers' Acceptance rate or LIBOR plus 1.75% to 2.75% depending on The
Hockey Company's operating cash flow ratio. In addition, we are charged a
monthly commitment fee at an
60
annual rate of 3/8 of 1% on the unused portion of the revolving credit
facilities under the GECC credit agreements and certain other fees.
The GECC credit agreements contain customary negative and affirmative
covenants including those relating to capital expenditures, minimum interest
coverage and fixed charge coverage. The GECC credit agreements restrict, among
other things, the ability to pay cash dividends on the preferred shares.
Effective March 18, 1999, and as amended in 2002, Jofa AB, our Swedish
subsidiary, entered into a credit agreement with Nordea Bank in Sweden, which
matures on December 31, 2002. The maximum amount of loans and letters of credit
that may be outstanding under the agreement was increased by the 2002 amendment
from SEK 50 million to SEK 90 million ($4.9 million to $8.7 million). The
facility is collateralized by the assets of Jofa AB, excluding intellectual
property, bears interest at a rate of STIBOR plus 0.90% (increased from 0.65% in
connection with the guarantee by Jofa AB of the offering of the Units) and is
renewable annually. Total borrowings outstanding under the credit agreement were
$0 on December 31, 2001 and SEK 17.7 million ($1.7 million) on March 31, 2002.
In addition, in May 2000, Jofa AB entered into a separate credit agreement with
Nordea Bank to borrow SEK 10 million, or approximately $1.0 million. The loan
has a term of four years with annual principal repayments of SEK 2.5 million, or
approximately $0.2 million. The loan is secured by a chattel mortgage on the
assets of Jofa AB and bears an interest rate of STIBOR plus 1.25%.
Effective July 10, 2001, KHF Finland Oy, our Finnish subsidiary, entered
into a credit agreement with Nordea Bank in Finland, replacing the former credit
facility for FIM 30 million ($4.6 million) which was terminated in 2001. The
maximum amount of loans and letters of credit that may be outstanding under the
agreement is EUR 2.4 million ($2.1 million as of December 31, 2001). The
facility is valid until further notice and is collateralized by the assets of
KHF Finland Oy. Interest on the drawn-down facility is EURIBOR plus 0.9%. Total
borrowings outstanding under the credit agreement was $0 on December 31, 2001.
13.0% PAY-IN-KIND PREFERRED STOCK
On November 19, 1998, we issued 100,000 shares of 13% Pay-in-Kind redeemable
preferred stock, $0.01 par value per share, cumulative preferred stock together
with warrants to purchase 159,127 common shares at a purchase price of $0.01 per
share, for cash consideration of $12.5 million (par value).
The fair value of the warrants was determined to be $1.7 million and has
been recorded in stockholders' equity as common stock purchase warrants. The
balance of the proceeds, $10.8 million, has been recorded as 13% pay-in-kind
preferred stock. The difference between the redemption value of the preferred
stock and the recorded amount has been accreted over the seven-year period
ending November 19, 2005, by a charge to retained earnings. Upon consummation of
the offering of the Units, the difference will be accreted over the revised term
by a charge to retained earnings.
Dividends, which are payable semi-annually from November 19, 1998, may be
paid in cash or in shares of the 13% pay-in-kind preferred stock, at our option.
The preferred stock is non-voting. The holders of the 13% pay-in-kind preferred
stock have extended the mandatory redemption date from November 19, 2005 to
October 15, 2009. If we fail to redeem the preferred stock on or before such
mandatory redemption date and for a sixty day period or more after being
notified of its failure to redeem the preferred stock, then the preferred
stockholders, as a class of stockholders, have the option to elect one director
to our Board of Directors with the provision that the preferred stockholders are
to elect 28% of our directors. The preferred stock is redeemable at our option.
However, under the terms of our debt covenants the preferred stock may not be
redeemed while our debt is outstanding.
The preferred stock must be redeemed by us upon a change of control or by
the mandatory redemption date.
61
THE EXCHANGE OFFER
This section of the prospectus describes the proposed exchange offer. While
we believe that the description covers the material terms of the exchange offer,
this summary may not contain all of the information that is important to you.
You should read this entire document and the other documents we refer to
carefully for a more complete understanding of the exchange offer.
PURPOSES AND EFFECTS OF THE EXCHANGE OFFER
In connection with the issuance of the Units pursuant to a purchase
agreement, dated as of March 26, 2002, by and among us and the Initial
Purchaser, referred to herein as the Purchase Agreement, the Initial Purchaser
became entitled to the benefits of the Registration Rights Agreement, dated as
of April 3, 2002, by and among us and the Initial Purchaser, referred to herein
as the Registration Rights Agreement.
The Registration Rights Agreement requires us to file the registration
statement of which this prospectus is a part for a registered exchange offer
relating to an issuance of Exchange Units identical to the Units as substitute
evidence of the indebtedness originally evidenced by the Units, except that the
transfer restrictions and registration rights relating to the Units will not
apply to the Exchange Units. Under the Registration Rights Agreement, we are
required to:
- file the registration statement not later than July 2, 2002, the date
90 days following the date of original issuance of the Units, referred to
herein as the Issue Date;
- use our best efforts to cause the registration statement to be declared
effective by the SEC not later than September 30, 2002, the date 180 days
after the Issue Date; and
- use our best efforts to consummate the exchange offer not later than 30
business days after the registration statement is declared effective.
The exchange offer being made hereby, if commenced and consummated within
the time periods described in this paragraph, will satisfy those requirements
under the Registration Rights Agreement and certain increases in the interest
rate on the Units provided for in the Registration Rights Agreement will not
occur.
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third parties, if you are not an "affiliate" within the
meaning of Rule 405 under the Securities Act or a broker-dealer referred to in
the next paragraph, we believe that Exchange Units issued to you in the exchange
offer may be offered for resale, resold or otherwise transferred by you, without
compliance with the registration and prospectus delivery provisions of the
Securities Act. This interpretation, however, is based on your representation to
us that:
- the Exchange Units to be issued to you in the exchange offer are acquired
in the ordinary course of your business; and
- you are not participating and do not intend to participate, and do not
have any arrangement or understanding with any person to participate, in a
distribution of the Exchange Units to be issued to you in the exchange
offer.
If any of the foregoing are not true and you transfer any Exchange Units
without delivering a prospectus meeting the requirements of the Securities Act
or without an exemption from the registration requirements of the Securities
Act, you may incur liability under the Securities Act. We do not assume or
indemnify you against that liability.
If you are a broker-dealer and receive Exchange Units for your own account
in exchange for Units that you acquired as a result of market making or other
trading activities, you must acknowledge that you will deliver a prospectus
meeting the requirements of the Securities Act upon any resale of the Exchange
Units. A broker-dealer may use this prospectus, as it may be amended or
supplemented from time to time, in connection with an offer to resell, resale or
other transfer of the Exchange Units. For a
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period which is the lesser of 180 days after the Expiration Date and the date on
which all such broker-dealers and the Initial Purchaser have sold all Exchange
Units held by them we will make this prospectus available to any broker-dealer
in connection with such offer, resale or other transfer. We will take steps to
ensure that the issuance of the Exchange Units will comply with state securities
or "blue sky" laws.
If either you will not receive freely tradeable Exchange Units in the
exchange offer or are not eligible to participate in the exchange offer or,
because of applicable interpretations of the staff of the SEC, we are not
permitted to effect an exchange offer, or if the exchange offer is not
consummated within the required time frame or you request for any reason within
45 days of consummation of the exchange offer, then you can elect, by providing
notice and certain additional information to us, to have your Units registered
in a "shelf registration statement" pursuant to Rule 415 under the Securities
Act. If we are required to file a shelf registration statement, we will be
required to keep the shelf registration statement effective for a period of two
years following the Issue Date or such shorter period that will terminate when
all Units covered by the shelf registration statement have been sold pursuant to
the shelf registration statement. Other than as set forth in this paragraph, you
will not have the right to require us to register your Units under the
Securities Act after the exchange offer is consummated.
CONSEQUENCES OF FAILURE TO EXCHANGE UNITS
After we complete the exchange offer, if you have not tendered your Units,
you will not have any further registration rights, except as set forth above.
Your Units will continue to be subject to certain restrictions on transfer and
you will not be able to offer or sell your Units unless they are registered
under the Securities Act and applicable state securities laws (and we will have
no obligation to register them, except as set forth above) or your offer to sell
them under an exemption from the requirements of, or in a transaction not
subject to, the Securities Act and applicable state securities laws. Therefore,
the liquidity of the market for your Units could be adversely affected upon
completion of the exchange offer if you do not participate in the exchange
offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, all Units validly tendered and not withdrawn
before 5:00 p.m., New York City time, on the Expiration Date will be accepted
for exchange. Exchange Units of the same class will be issued in exchange for an
equal principal amount of outstanding Units accepted in the exchange offer.
Units may be tendered only in integral multiples of $1,000. This prospectus,
together with the letter of transmittal, is being sent to all record holders of
Units as of , 2002. The exchange offer is not conditioned upon any
minimum principal amount of Units being tendered in exchange. However, our
obligation to accept Units for exchange is subject to certain conditions as set
forth herein under "--Conditions to, and Amendment of, the Exchange Offer."
Units will be deemed accepted when, as and if the Trustee has given oral or
written notice to the exchange agent. The exchange agent will act as agent for
the tendering holders of Units for the purposes of receiving the Exchange Units
and delivering them to the holders.
If, upon consummation of the exchange offer, the Initial Purchaser holds any
Units acquired by it, which have the status of an unsold allotment in the
initial distribution, we, upon the written request of the Initial Purchaser
shall, simultaneously with the delivery of the Exchange Units in the exchange
offer, issue and deliver to that Initial Purchaser, in exchange, referred to as
the private exchange, for such Units held by that Initial Purchaser, a like
principal amount of our debt securities that are identical to the Exchange Units
except for the existence of restrictions on transfer thereof under the
Securities Act and securities laws of the several states of the United States,
referred to as the private
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Exchange Units (and that are issued pursuant to the same indenture as the
Exchange Units). The private Exchange Units will bear the same CUSIP number as
the Exchange Units.
As soon as practicable after the close of the exchange offer, we will:
- accept for exchange all registrable Units validly tendered pursuant to the
exchange offer or private exchange, as the case may be, and not validly
withdrawn;
- deliver to the Trustee for cancellation all registrable Units so accepted
for exchange; and
- cause the Trustee to authenticate and deliver promptly to each holder of
registrable Units the Exchange Units or private Exchange Units, as the
case may be, equal in principal amount to the securities of such holder so
accepted for exchange.
We will, if a shelf registration statement is filed, provide to each holder
of the Units covered by the shelf registration statement copies of the
prospectus that is a part of the shelf registration statement, notify each
holder when the shelf registration statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Units. A holder that sells Units pursuant to the shelf registration statement
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
its sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to that holder (including certain indemnification
rights and obligations).
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The Expiration Date shall mean , 2002 (20 business days
following the commencement of the exchange offer), unless the exchange offer is
extended in our sole and exclusive discretion, in which case the term Expiration
Date shall mean the latest date to which the exchange offer is extended but, in
no event, to a date later than 27 business days following the commencement of
the exchange offer.
In order to extend the Expiration Date, we will notify the exchange agent of
any extension by written notice and may notify the holders of the Units by
mailing an announcement or by means of a press release or other public
announcement before 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
We reserve the right to delay acceptance of any Units, to extend the
exchange offer or to terminate the exchange offer and not permit acceptance of
Units not previously accepted if any of the conditions set forth herein under
"--Conditions to, and Amendment of, the Exchange Offer" shall have occurred and
shall not have been waived by us (if permitted to be waived), by giving oral or
written notice of such delay, extension or termination to the exchange agent. We
also reserve the right to amend the terms of the exchange offer in any manner
deemed by us to be advantageous to the holders of the Units. If any material
change is made to terms of the exchange offer, the exchange offer shall remain
open for a minimum of an additional five business days, if the exchange offer
would otherwise expire during such period. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice of the delay to the exchange agent. If the exchange
offer is amended in a manner determined by us to constitute a material change,
we will promptly disclose the amendment in a manner reasonably calculated to
inform the holders of the Units of the amendment, including providing public
announcement or giving oral or written notice to the holders of the Units. A
material change in the terms of the exchange offer could include, among other
things, a change in the timing of the exchange offer, a change in the exchange
agent, and other similar changes in the terms of the exchange offer.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we will have no obligation to publish, advertise, or otherwise
communicate any such public announcement.
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INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest payable in cash at 11 1/4% per
annum, from:
- the last interest payment date on which interest was paid on the Notes
surrendered in exchange therefor; or
- if no interest has been paid on the Notes surrendered in exchange
therefor, the Issue Date.
We will pay additional interest as follows:
- if the exchange offer registration statement or shelf registration
statement is not filed within 90 days following the Issue Date, additional
interest shall accrue over and above the stated interest rate at a rate of
0.25% per annum for the first 90 days commencing on the 91st day after the
Issue Date, such additional interest rate increasing by an additional
0.25% per annum at the beginning of each subsequent 90-day period;
- if an exchange offer registration statement or shelf registration
statement is not declared effective before the date that is 180 days after
the Issue Date, then, commencing on the 181st day after the Issue Date,
additional interest shall accrue over and above the stated interest at a
rate of 0.25% per annum for the first 90 days commencing on the 181st day
after the Issue Date, such additional interest rate increasing by an
additional 0.25% per annum at the beginning of each subsequent 90-day
period; or
- if either we have not exchanged the Exchange Units for all Units validly
tendered in accordance with the terms of the exchange offer on or before
30 business days after the date on which the registration statement is
required to be declared effective, or the exchange offer registration
statement ceases to be effective at any time before the time that the
exchange offer is consummated, or, if applicable, the shelf registration
statement has been declared effective and such shelf registration
statement ceases to be effective at any time before the second anniversary
of the effective date and is not declared effective again within five
business days, or pending the announcement of a material corporate
transaction, we issue a notice that shelf registration statement or the
exchange offer registration statement is unusable, and the aggregate
number of days in any 365-day period for which all such notices issued, or
required to be issued, have been, or were required to be in effect,
exceeds 120 days in the aggregate or 30 days consecutively, in the case of
the shelf registration statement, or 15 days in the aggregate in the case
of the exchange offer registration statement, then additional interest
shall accrue (over and above any interest otherwise payable) at a rate of
0.25% per annum commencing on the 31st business day after the date on
which the registration statement is required to be declared effective in
the case of first reason above, or the date the exchange offer
registration statement ceases to be effective without being declared
effective again within five business days, in the case of the second
reason above, or the day the shelf registration statement ceased to be
effective, in the case of the third reason above, or usable in the case of
the fourth reason above, such additional interest rate increasing by an
additional 0.25% per annum at the beginning of each subsequent 90-day
period (each of the foregoing, a "Registration Default");
PROVIDED, in each case that the maximum increase in the interest rate
on the Notes may not exceed 1% per annum in the aggregate; and PROVIDED,
FURTHER, that as soon as all Registration Defaults have been cured
additional interest on the Notes shall cease to accrue.
In addition, additional interest shall accrue on the Notes at a rate of
0.50% per annum if we fail to grant to the collateral agent a perfected security
interest in and to the collateral located in Sweden within 30 business days
after the Issue Date. This additional interest will increase by an additional
0.25% per annum if such action has not been completed within 60 business days
after the Issue Date and by an additional 0.25% per annum (for a total increase
of 1.00% per annum) if such action has not been completed within 90 business
days after the Issue Date. All such additional interest shall cease to accrue
upon completion of all necessary action.
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Any amounts of additional interest due pursuant to the paragraphs above will
be payable in cash on scheduled interest payment dates for the Notes, commencing
with the first such date occurring after any such additional interest commences
to accrue. The amount of additional interest will be determined by multiplying
the applicable additional interest rate by the principal amount of the Notes,
multiplied by a fraction, the numerator of which is the number of days such
additional interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months) and the denominator
of which is 360.
PROCEDURES FOR EXCHANGING UNITS
In order to receive the Exchange Units you must tender your Units under the
exchange offer on or before the Expiration Date.
The method of delivery of Units and letters of transmittal, any required
signature guarantees and all other required documents, including delivery
through DTC and any acceptance of an agent's message transmitted through ATOP,
is at your election and risk. Except as otherwise provided in the letter of
transmittal, delivery will be deemed made only when actually received by the
exchange agent. If delivery is by mail, we suggest that you use properly
insured, registered mail with return receipt requested, and that the mailing be
made sufficiently in advance of the expiration of the exchange offer.
It is contemplated that our Exchange Units will be delivered in book-entry
form through DTC. Accordingly, if you anticipate tendering other than through
DTC, you are urged to promptly contact a bank, broker or other intermediary that
has the capability to hold securities custodially through DTC, to arrange for
the receipt of any Exchange Units to be delivered in exchange for any Units, and
to obtain the information necessary in the letter of transmittal.
TENDERS OF UNITS. Your tender of Units, and subsequent acceptance by us, by
one of the procedures set out below will constitute a binding agreement between
us and you in accordance with the terms and subject to the conditions set forth
in this prospectus, in the letter of transmittal and, if applicable, in the
notice of guaranteed delivery.
TENDER OF UNITS HELD THROUGH A CUSTODIAN. If your Units are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender Units and deliver a letter of transmittal, you should
contact that broker, dealer, commercial bank, trust company or other nominee
promptly and instruct him or her or it to tender Units and deliver a letter of
transmittal on your behalf. A letter of instructions is enclosed in the
materials provided along with this prospectus which may be used by you in this
process to instruct the registered holder to tender Units. If you wish to tender
those Units yourself, you must, before completing and executing the letter of
transmittal and delivering those Units, either make appropriate arrangements to
register ownership of the Units in your name or obtain a properly completed bond
power from the person in whose name your Units are registered. The transfer of
record ownership may take considerable time.
TENDER OF UNITS HELD THROUGH DTC. We have confirmed with DTC that the Units
may be tendered using ATOP. DTC participants may electronically transmit their
acceptance of the exchange offer by causing DTC to transfer their Units to the
exchange agent using the ATOP procedures. In connection with the transfer, DTC
will send an "agent's message" to the exchange agent. The agent's message states
that DTC has received instructions from the participant to tender Units and that
the participant agrees to be bound by the terms of the letter of transmittal. By
using the ATOP procedures to tender Units, you will not be required to deliver a
letter of transmittal to the exchange agent. However, you will be bound by its
terms just as if you had signed it.
BOOK-ENTRY DELIVERY PROCEDURES. The exchange agent will establish accounts
with respect to the Units at DTC for purposes of the exchange offer within two
business days after the date of this prospectus.
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Although delivery of Units may be effected through book-entry transfer into
the exchange agent's account at DTC, the letter of transmittal, or a manually
signed facsimile thereof, with any required signature guarantees, or an agent's
message, in connection with a book-entry transfer, and any other required
documents, must, in any case, be transmitted, to and received by the exchange
agent at one or more of its addresses set out in this prospectus on or before
the Expiration Date in connection with the tender of those Units. Delivery of
documents to DTC does not constitute delivery to the exchange agent.
The confirmation of a book-entry transfer into the exchange agent's account
at DTC as described above is referred to in this prospectus as a "book-entry
confirmation." The term "agent's message" means a message transmitted by DTC to,
and received by, the exchange agent and forming a part of the book-entry
confirmation, which states that DTC has received an express acknowledgment from
a DTC participant that such participant has received the letter of transmittal
and agrees to be bound by the terms of the letter of transmittal.
SIGNATURE GUARANTEES. Signatures on all letters of transmittal must be
guaranteed by a recognized participant in the Securities Transfer Agents
Medallion Program, unless your Units tendered are tendered:
- by a registered holder of Units, or by a participant in DTC whose name
appears on a security position listing it as the owner of those Units, who
has not completed any of the boxes entitled "Special Payment Instructions"
or "Special Delivery Instructions" on the letter of transmittal; or
- for the account of a member firm of a registered national securities
exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States, which entities we refer to as eligible
institutions.
If your Units are registered in the name of a person other than the
signatory to the letter of transmittal or if Units not accepted for exchange or
not tendered are to be returned to a person other than the registered holder,
then the signature on the letter of transmittal accompanying the tendered Units
must be guaranteed. See Instructions 1 and 5 of the letter of transmittal.
GUARANTEED DELIVERY. If you want to tender Units under the exchange offer
before the Expiration Date and,
- your certificates representing those Units are not immediately available;
- time will not permit your letter of transmittal, the certificates
representing your Units and all other required documents to reach the
exchange agent on or prior to the expiration of the exchange offer; or
- the procedures for book-entry transfer, including delivery of an agent's
message, cannot be completed on or before the expiration of the exchange
offer;
you may nevertheless tender your Units with the effect that tender will be
deemed to have been received on or before the Expiration Date if all the
following conditions are satisfied:
- the tender is made by or through an eligible institution;
- a properly completed and duly executed notice of guaranteed delivery or
an agent's message with respect to guaranteed delivery that is accepted
by us is received by the exchange agent on or before the expiration of
the exchange offer as provided below; and
- the certificates for the tendered Units, in proper form for transfer,
or a book-entry confirmation of the transfer of those Units into the
exchange agent's account at DTC as described above, together with a
letter of transmittal, or manually signed facsimile thereof, that is
properly completed and duly executed, with any signature guarantees and
any other documents required by the letter of transmittal, or a
properly transmitted agent's message,
67
are received by the exchange agent within two business days after the
date of execution of the notice of guaranteed delivery.
The notice of guaranteed delivery may be sent by hand delivery, facsimile
transmission or mail to the exchange agent and must include a guarantee by an
eligible institution in the form set out in the notice of guaranteed delivery.
Under no circumstances will interest be paid by us by reason of any delay in
exchanging Units for the Exchange Units to any person using the guaranteed
delivery procedures that results from this guaranteed delivery. The Exchange
Units exchanged for Units tendered under the guaranteed delivery procedures will
be the same as for Units delivered to the exchange agent on or before the
expiration of the exchange offer, even if the Units to be delivered subject to
the guaranteed delivery procedures are not so delivered to the exchange agent,
and therefore exchange by the exchange agent on account of those Units is not
made, until after the exchange date.
BACKUP UNITED STATES FEDERAL INCOME TAX WITHHOLDING. To prevent backup
federal income tax withholding you must provide the exchange agent with your
current taxpayer identification number and certify that you are not subject to
backup federal income tax withholding by completing the Substitute Form W-9
included in the letter of transmittal.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility, including time of receipt, and acceptance of any tendered Units
subject to any of the procedures described above will be determined by us, in
our sole discretion, which determination shall be final and binding.
We reserve the absolute right to reject any or all tenders of any Units that
we determine not to be in proper form or if the acceptance for tender of those
Units may, in the opinion of our counsel, be unlawful. We also reserve the right
to waive any of the conditions of the exchange offer or any defect or
irregularity in any tender of your Units, whether or not similar defects or
irregularities are waived in the case of other holders of Units.
Our interpretation of the terms and conditions of the exchange offer,
including the letter of transmittal and the instructions thereto, will be final
and binding. Although we intend to notify holders of defects or irregularities
with respect to tenders, neither we, the exchange agent nor any other person
will be under any duty to give notification of any defects or irregularities in
tenders or will incur any liability for failure to give any such notification.
If we waive our right to reject a defective tender of Units, you will be
entitled to the exchange of your Units for Exchange Units.
WITHDRAWAL OF TENDERED UNITS
You may withdraw tenders of Units at any time on or before 5:00 p.m., New
York City time, on the Expiration Date, but the there shall be no exchange for
Exchange Units in respect of Units so withdrawn.
Tenders of Units may be validly withdrawn if the exchange offer is
terminated without any Units being exchanged thereunder. In this case, the Units
tendered under the exchange offer will be promptly returned to you.
If we make a material change in the terms of the exchange offer or waive a
material condition of the exchange offer, we will disseminate additional
exchange offer materials and extend the exchange offer to the extent required by
law. In addition, we may, if we deem appropriate in our sole and exclusive
discretion, extend the exchange offer for any other reason. If the principal
amount of Units subject to the exchange offer is decreased, the exchange offer
will remain open at least 10 business days from the date we first give notice to
you, by public announcement or otherwise, of that decrease.
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For a withdrawal of tendered Units to be effective, a written or facsimile
transmission notice of withdrawal must be received by the exchange agent on or
before the Expiration Date of the exchange offer at its address set out herein.
Any such notice of withdrawal must:
- specify the name of the person who tendered the Units to be withdrawn;
- contain the description of the Units to be withdrawn and identify the
certificate number or numbers shown on the particular certificates
evidencing those Units, unless those Units were tendered by book-entry
transfer, in which case the name and number of the account of DTC to be
credited should be included, and the aggregate principal amount
represented by those Units;
- be signed in the same manner as the original signature on the letter of
transmittal by which those Units were tendered, including any required
signature guarantees, or be accompanied by evidence of transfer sufficient
to the exchange agent that the person withdrawing the tender has succeeded
to the beneficial ownership of the Units; and
- specify the name in which the Units are to be registered, if different
from that of the person depositing the Units to be withdrawn.
If the Units to be withdrawn have been delivered or otherwise identified to
the exchange agent, a signed notice of withdrawal is effective immediately upon
written or facsimile notice of that withdrawal even if physical release is not
yet effected.
Any permitted withdrawal of Units may not be rescinded, and any Units
properly withdrawn will thereafter be deemed not validly tendered for purposes
of the exchange offer. Withdrawn Units may, however, be re-tendered by again
following one of the appropriate procedures described in this prospectus at any
time on or before the expiration of the exchange offer.
If we extend the exchange offer or if for any reason, whether before or
after any Units have been accepted for tender, the acceptance for tender of
Units is delayed or if we are unable to accept the tender of Units under the
exchange offer, then, without prejudice to our rights under the exchange offer,
tendered Units may be retained by the exchange agent on our behalf and may not
be withdrawn, subject to Rule 14e-1(c) under the Exchange Act, which requires
that an offeror pay the consideration offered or return the securities deposited
by or on behalf of the investor promptly after the termination or withdrawal of
a tender offer, except as otherwise provided in this section.
All questions as to the validity, form and eligibility, including time of
receipt, of notices of withdrawal will be determined by us, in our sole and
absolute discretion, which determination shall be final and binding. Although we
intend to notify holders of defects or irregularities with respect to notices of
withdrawal, neither we, the exchange agent nor any other person will be under
any duty to give notification of any defects or irregularities in any notice of
withdrawal, or incur any liability for failure to give any such notification.
CONDITIONS TO, AND AMENDMENT OF, THE EXCHANGE OFFER
The only condition to completing the exchange offer is that the exchange
offer not violate any applicable law or applicable interpretation of the staff
of the SEC.
Subject to satisfaction or waiver of the sole condition, which satisfaction
shall be determined in our sole and absolute discretion, we will accept for
exchange any and all Units that are validly tendered and not withdrawn before
5:00 p.m., New York City time, on the Expiration Date. However, we reserve the
right to:
- delay the acceptance of your Units for exchange;
- terminate the exchange offer;
- extend the Expiration Date and retain all Units that have been tendered,
subject to the right of owners of the Units to withdraw their tendered
Units;
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- refuse to accept the Units and return all Units that have been tendered to
us; or
- waive any condition or otherwise amend the terms of the exchange offer in
any respect.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
You are referred to the discussion about the tax consequences of the
exchange offer under "Tax Consequences." Tax matters are very complicated and
the tax consequences of the exchange offer to you will depend on the facts of
your own situation. You should consult your own tax advisor for a full
understanding of the tax consequences to you of the exchange offer.
EXCHANGE AGENT
We have appointed The Bank of New York as the exchange agent for the
exchange offer of the Units. We have agreed to pay The Bank of New York
reasonable and customary fees for its services and will reimburse The Bank of
New York for its reasonable out-of-pocket expenses. All executed letters of
transmittal and any other required documents should be sent or delivered to the
exchange agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent, addressed as follows:
By Registered and Certified Mail:
The Bank of New York
Reorganization Unit
15 Broad Street--16th Floor
New York, New York 10007
Attention: William T. Buckley
By Regular Mail or Overnight Courier:
The Bank of New York
Reorganization Unit
15 Broad Street--16th Floor
New York, New York 10007
Attention: William T. Buckley
In Person by Hand Only:
The Bank of New York
Reorganization Unit
15 Broad Street--16th Floor
New York, New York 10007
Attention: William T. Buckley
By Facsimile (for Eligible Institutions only):
212-235-2261
For Information or Confirmation by Telephone:
212-235-2352
Delivery of a letter of transmittal to an address other than that for the
exchange agent as set forth above or transmission of instructions via facsimile
other than as set forth above does not constitute a valid delivery of a letter
of transmittal.
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FEES AND EXPENSES
We will bear the expenses of soliciting tenders for the exchange offer. We are
making the principal solicitation by mail. However, we may make additional
solicitations by telephone, facsimile, e-mail or in person by officers and
regular employees of ours and those of our affiliates.
In addition, we may make payments to brokers, dealers or others soliciting
acceptance of the exchange offer. We will also pay the exchange agent reasonable
and customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the exchange
offer and are estimated in the aggregate to be approximately $150,000. Such
expenses include fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs, among others.
TRANSFER TAXES
Owners who tender their Units for exchange will not be obligated to pay any
transfer taxes. If, however,
- Exchange Units are to be delivered to, or issued in the name of, any
person other than the registered owner of the Units; or
- Units are registered in the name of any person other than the person
signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
Exchange Units for Units in connection with the exchange offer;
then the amount of any transfer taxes, whether imposed on the registered owner
or any other persons, will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption from them is not submitted with
the letter of transmittal, the amount of such transfer taxes will be billed
directly to the tendering holder.
NO APPRAISAL RIGHTS
You will not have any right to dissent and receive an appraisal of your
Units in connection with the exchange offer.
LISTING
We do not intend to list the Exchange Units. The Initial Purchaser intends
to, but is not obligated to, make a market in the Exchange Units.
ACCOUNTING TREATMENT OF THE EXCHANGE OFFER
The Exchange Units will be recorded at the same carrying amount of the
Units. Accordingly, we will not recognize any gain or loss for accounting
purposes as a result of the exchange offer. The expenses of the exchange offer
will be deferred and charged to expense over the term of the Exchange Notes.
"BLUE SKY" COMPLIANCE
We are making this exchange offer to all holders of Units. We are not aware
of any jurisdiction in which the making of the exchange offer is not in
compliance with applicable law. If we become aware of any jurisdiction in which
the making of the exchange offer would not be in compliance with applicable law,
we will make a good faith effort to comply with any such law. If, after such
good faith effort, we cannot comply with any such law, the exchange offer will
not be made to, nor will tenders of Units be accepted from or on behalf of, the
holders of Units residing in such jurisdiction.
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DESCRIPTION OF THE EXCHANGE UNITS
We will issue the Exchange Units under the Indenture, dated April 3, 2002
(the "Indenture"), among the Issuers, the Guarantors and the trustee named
therein (the "Trustee"). This is the same Indenture under which the Units were
issued. Each Exchange Unit will consist of $500 principal amount of Exchange
Parent Notes and $500 principal amount of Exchange Subsidiary Notes. The
Exchange Parent Notes and the Exchange Subsidiary Notes comprising each Exchange
Unit are not separable and are transferable only as an Exchange Unit.
PRINCIPAL DIFFERENCES BETWEEN THE UNITS AND THE EXCHANGE UNITS
The terms of the Exchange Units and the related indenture are identical to
the terms of the Units and the related indenture, except that the transfer
restrictions and registration rights relating to the Units do not apply to the
Exchange Units.
DESCRIPTION OF THE EXCHANGE NOTES
The Exchange Notes will be issued under the Indenture. The following is a
summary of the material provisions of the Indenture. It does not include all of
the provisions of the Indenture. We urge you to read the Indenture because it
defines your rights. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "TIA"). A copy of the Indenture may be
obtained from the Company or the Initial Purchaser. You can find definitions of
certain capitalized terms used in this description under "--Certain
Definitions." For purposes of this section, references to the "Company" include
only The Hockey Company and not its Subsidiaries and references to the "Issuers"
include only The Hockey Company Inc. and Sport Maska Inc. Any reference to
"Units" in this section refers to both Units and Exchange Units, unless the
context requires otherwise. Any reference to "Notes" in this section refers to
both Notes and Exchange Notes and any reference to "Parent Notes" or "Subsidiary
Notes" in this section, as the case may be, refers to both Parent Notes and
Exchange Parent Notes or Subsidiary Notes and Exchange Subsidiary Notes, as the
case may be, unless the context requires otherwise.
PRINCIPLE DIFFERENCES BETWEEN THE NOTES AND THE EXCHANGE NOTES
The terms of the Exchange Notes and the related indenture are identical to
the terms of the Notes and the related indenture except that the transfer
restrictions and registration rights relating to the Notes do not apply to the
Exchange Notes.
The Exchange Parent Notes will be senior obligations of the Company and the
Exchange Subsidiary Notes will be senior obligations of Sport Maska Inc. The
Exchange Notes will rank senior in right of payment to all subordinated
indebtedness of the Issuers and equally in right of payment with all other
senior obligations of the Issuers, including borrowings under the Credit
Agreement.
The Issuers will issue the Units in fully registered form in denominations
of $1,000 and integral multiples thereof. The Trustee will initially act as
paying agent and registrar for the Units. The Units may be presented for
registration or transfer and exchange at the offices of the registrar. The
Issuers may change any paying agent and registrar without notice to holders of
the Units (the "Holders"). The Issuers will pay principal (and premium, if any)
on the Exchange Notes at the Trustee's corporate office in New York, New York.
At the Issuers' option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of Holders. Any Units that
remain outstanding after the completion of the exchange offer, together with the
Exchange Units issued in connection with the exchange offer, will constitute a
single class of securities under the Indenture.
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PRINCIPAL, MATURITY AND INTEREST
We may issue up to $125,000,000 aggregate principal amount of Exchange Units
thereunder and the Indenture provides for the issuance of additional Units under
the Indenture in the future, PROVIDED that any issuance of additional Units
would be subject to the covenant described under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness." The Exchange
Notes will mature on April 15, 2009. Interest on the Exchange Notes will accrue
at the rate of 11 1/4% per annum and will be payable semiannually in cash on
each April 15 and October 15, commencing on October 15, 2002, to the persons who
are registered Holders at the close of business on the April 1 and October 1
immediately preceding the applicable interest payment date. Interest on the
Exchange Notes will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from and including the date of issuance.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Exchange Notes will not be entitled to the benefit of any mandatory
sinking fund.
ADDITIONAL AMOUNTS
All payments made by an Issuer, any Guarantor or a Surviving Entity as well
as all payments made by a trustee pursuant to the provisions hereof under the
heading "Legal Defeasance and Covenant Defeasance" or "Satisfaction and
Discharge" (each a "Payor") under or with respect to the Exchange Notes will be
made free and clear of and without withholding or deduction for or on account of
any present or future tax, duty, levy, impost, assessment or other governmental
charge imposed or levied by or on behalf of Canada or any subdivision thereof or
by any authority or agency therein or thereof having power to tax ("Taxes")
unless such Payor is required to withhold or deduct Taxes by law or by the
interpretation or administration thereof. If a Payor is so required to withhold
or deduct any amount of interest for or on account of Taxes from any payment
made under or with respect to the Exchange Notes such Payor will pay such
additional amounts of interest ("Additional Amounts") as may be necessary such
that the net amount received in respect of such payment by each Holder
(including Additional Amounts) after such withholding or deduction will not be
less than the amount the Holder would have received if such Taxes had not been
required to be so withheld or deducted; PROVIDED that no Additional Amounts will
be payable with respect to a payment made to a Holder (an "Excluded Holder")
(i) with which the Payor or Sport Maska Inc. does not deal at arm's length
(within the meaning of the Income Tax Act (Canada)) at the time of making such
payment or (ii) which is subject to such Taxes by reason of any connection
between such Holder and Canada or any province or territory thereof (other than
the mere holding of Exchange Units or the receipt of payments thereunder)
including, without limitation, a Holder who is a resident of Canada within the
meaning of the Income Tax Act (Canada) or a non-resident insurer which carries
on an insurance business in Canada and in a country other than Canada. Each
Payor will also (i) make such withholding or deduction and (ii) remit the full
amount deducted or withheld to the relevant authority in accordance with
applicable law. The Payor will furnish to the Holders of the Exchange Units,
within 30 days after the date the payment of any Taxes is due pursuant to
applicable law, certified copies of tax receipts evidencing such payment by such
Payor. The Issuers will indemnify and hold harmless each Holder (other than all
Excluded Holders) for the amount of (i) any Taxes not withheld or deducted by a
Payor and levied or imposed and paid by such Holder as a result of payments made
under or with respect to the Exchange Notes, (ii) any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto, and
(iii) any Taxes imposed with respect to any reimbursement under clauses (i) or
(ii) above.
At least 30 days before each date on which any payment under or with respect
to the Exchange Notes is due and payable, if a Payor is aware that it will be
obligated to pay Additional Amounts with respect to such payment, such Payor
will deliver to the Trustee an Officers' Certificate stating the fact that such
Additional Amounts will be payable, the amounts so payable and will set forth
such other
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information necessary to enable the Trustee to pay such Additional Amounts to
Holders on the payment date. Whenever in the Indenture there is mentioned, in
any context, the payment of principal (and premium, if any), interest or any
other amount payable under or with respect to any Exchange Note, such mention
shall be deemed to include mention of the payment of Additional Amounts provided
for in this section to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof.
REDEMPTION
OPTIONAL REDEMPTION. Except as described below, the Exchange Notes are not
redeemable before April 15, 2006. Thereafter, the Issuers may redeem their
respective Exchange Notes, as Exchange Units, at their joint option, in whole or
in part, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on April 15 of the year set
forth below:
YEAR PERCENTAGE
---- ----------
2006.............................................. 105.625%
2007.............................................. 102.813%
2008 and thereafter............................... 100.000%
In addition, the Issuers must pay accrued and unpaid interest on the
Exchange Notes redeemed.
OPTIONAL REDEMPTION UPON PUBLIC EQUITY OFFERINGS. At any time, or from time
to time, on or before April 15, 2005, the Issuers may, at their joint option,
use an amount equal to the net cash proceeds of one or more Public Equity
Offerings (as defined below) to redeem up to 33 1/3% of the principal amount of
their respective Exchange Notes, as Units, issued under the Indenture at a
redemption price of 111.25% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of redemption; PROVIDED that:
(1) at least 66 2/3% of the principal amount of notes issued under the
Indenture remains outstanding immediately after any such redemption; and
(2) the Issuers make such redemption not more than 120 days after the
consummation of any such Public Equity Offering.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock of the Company pursuant to a registration statement filed with the
Commission in accordance with the Securities Act resulting in gross proceeds of
at least $10.0 million to the Company.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The Exchange Notes will be subject to redemption, as Exchange Units, at the
joint option of the Issuers, as a whole but not in part, at any time upon not
fewer than 30 nor more than 60 days' notice mailed to each Holder at the
addresses appearing in the register at a redemption price equal to 100% of the
principal amount of the Exchange Notes plus accrued interest to but excluding
the Redemption Date if an Issuer has become or would become obligated to pay on
the next date on which any amount would be payable under or with respect to the
Exchange Notes, any Additional Amounts as a result of any change or amendment to
the laws (or regulations promulgated thereunder) of Canada (or any subdivision
thereof or by any authority or agency therein or thereof having power to tax),
or any change in or amendment to any official position or administration or
assessing practices regarding the application or interpretation of such laws or
regulations, which change or amendment is announced or becomes effective on or
after the Issue Date.
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SELECTION AND NOTICE OF REDEMPTION
If the Issuers choose to redeem less than all of the Exchange Notes,
selection of the Exchange Units for redemption will be made by the trustee
either:
(1) in compliance with the requirements of the principal national securities
exchange, if any, on which the Units are listed; or,
(2) on a PRO RATA basis, by lot or by such method as the trustee shall deem
fair and appropriate.
No Exchange Units of a principal amount of $1,000 or less shall be redeemed
in part. If a partial redemption is made with the proceeds of a Public Equity
Offering, the Trustee will select the Units only on a pro raw basis or on as
nearly a PRO RATA basis as is practicable (subject to DTC procedures). Notice of
redemption will be mailed by first-class mail at least 30 but not more than
60 days before the redemption date to each Holder of Exchange Units to be
redeemed at its registered address. On and after the redemption date, interest
will cease to accrue on Exchange Notes or portions thereof called for redemption
as long as the Issuers have deposited with the paying agent funds in
satisfaction of the applicable redemption price.
JOINT DECISION
To the extent that the Exchange Notes or Indenture provide for any
discretion or action on behalf of either or both Issuers or any direct or
indirect Subsidiary of either Issuer, and such action or discretion could result
in the repayment, redemption or offer to purchase of any portion of the Exchange
Notes, as Units, not otherwise then due by reason of a default or maturity of
the Exchange Notes, then such action or discretion shall not be taken or
exercised without the express agreement of both Issuers.
SECURITY
Pursuant to the terms of the Collateral Agreements (as defined), all of the
obligations under the Exchange Notes and the Indenture will be secured by a
first priority lien and security interest in substantially all assets of the
Company and its Restricted Subsidiaries, excluding KHF Sports Oy and KHF Finland
Oy, (except for a prior ranking lien by the lenders under the Credit Facilities
on accounts receivable, inventories and related assets and provided that as of
the Issue Date the security interest in the assets of Jofa AB will be limited to
$15 million and will be subject to the prior ranking lien by the lenders under
Jofa AB's European Credit Facility on certain assets of Jofa AB) and by a pledge
of the capital stock of all present and future Restricted Subsidiaries (other
than KHF Finland Oy).
Upon an Event of Default, the proceeds from the sale of collateral securing
the Exchange Notes will likely be insufficient to satisfy the Issuers'
obligations under the Exchange Notes. No appraisals of any of the collateral
have been prepared in connection with the exchange offer. Moreover, the amount
to be received upon such a sale would be dependent upon numerous factors,
including the condition, age and useful life of the collateral at the time of
such sale, as well as the timing and manner of such sale. By its nature, all or
some of the collateral will be illiquid and may have no readily ascertainable
market value. Accordingly, there can be no assurance that the collateral, if
saleable, can be sold in a short period of time.
To the extent third parties hold Permitted Liens (as defined herein), such
third parties may have rights and remedies with respect to the property subject
to such Liens that, if exercised, could adversely affect the value of the
collateral. Given the intangible nature of certain of the collateral, any such
sale of such collateral separately from the Company as a whole may not be
feasible. Additionally, the inclusion of the Company's fixtures in the
collateral securing the Exchange Notes will be limited by the extent to which
such fixtures (a) are deemed not to be personal property, and (b) any applicable
state laws would, for purposes of perfecting security interests with respect
thereto, require that the Collateral
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Agent effectuates certain filings in applicable real estate land records. The
ability of the Company to grant a first priority security interest in certain
collateral may be limited by legal or other logistical considerations. The
ability of the holders of Exchange Notes to realize upon the collateral may be
subject to certain bankruptcy law limitations in the event of a bankruptcy. See
"--Certain Bankruptcy Limitations."
Subject to the restrictions on incurring Indebtedness and Liens set forth
herein, the Company and its Subsidiaries will have the right to grant (and
suffer to exist) Liens on Purchase Money Indebtedness against fixed assets of
the Company or such Subsidiaries and to acquire any such assets subject to such
Liens. The Collateral Agent's Liens are intended to be, and shall be, at all
times automatically subordinate in priority to all such Liens.
The collateral release provisions of the Indenture permit the release of
collateral without substitution of collateral of equal value under certain
circumstances, including assets sales made in compliance with the Indenture.
Neither the Company nor any of its Subsidiaries will encumber any asset or
property of the Company or such Subsidiaries or suffer to exist any Lien
thereon, other than as expressly permitted herein.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture, the Credit Agreement,
the Collateral Agreements and the Intercreditor Agreement, the Company will be
entitled to receive all cash dividends, interest and other payments made upon or
with respect to the capital stock of any Subsidiary and to exercise any voting,
consensual rights and other rights pertaining to such collateral pledged by it.
Upon the occurrence and during the continuance of an Event of Default, subject
to the terms of the Intercreditor Agreement, (a) all rights of the Company to
exercise such voting, consensual rights, or other rights shall cease upon notice
from the Trustee, and all such rights shall become vested in the Collateral
Agent, which, to the extent permitted by law, shall have the sole right to
exercise such voting, consensual rights or other rights, (b) all rights of the
Company to receive all cash dividends, interest and other payments made upon or
with respect to the collateral shall cease, and such cash dividends, interest
and other payments shall be paid to the Collateral Agent, and (c) the Collateral
Agent may sell the collateral or any part thereof in accordance with and subject
to the terms of the Collateral Agreements. All funds distributed under the
Collateral Agreements and received by the Collateral Agent for the ratable
benefit of the holders of the notes shall be distributed by the Collateral Agent
in accordance with the provisions of the Indenture.
Upon the full and final payment and performance of all obligations of the
Company under the Indenture and the Exchange Notes, the Collateral Agreements
shall terminate, subject to the Intercreditor Agreement, and the pledged
collateral shall be released.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent to repossess and dispose of the collateral
upon the occurrence of an Event of Default is likely to be significantly
impaired by applicable bankruptcy and insolvency legislation if a bankruptcy
proceeding were to be commenced by or against the Company or any of its
Subsidiaries before the Collateral Agent having repossessed and disposed of the
collateral or otherwise completed the realization of the collateral security
pertaining to the Exchange Notes. Under the Bankruptcy Code or foreign
bankruptcy or involvency legislation other than in Canada, a secured creditor
such as the Collateral Agent is prohibited from repossessing its security from a
debtor in a bankruptcy case, or from disposing of security repossessed from such
debtor, without bankruptcy court approval. Under Canadian bankruptcy and
insolvency legislation, a secured creditor such as the Collateral Agent could be
prohibited from repossessing its security from a debtor subject to a bankruptcy
or insolvency filing, or from disposing of security repossessed from such
debtor, without
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court approval. Moreover, the Bankruptcy Code and Canadian bankruptcy and
insolvency legislation permits the debtor to continue to retain and to use
collateral even though the debtor is in default under the applicable debt
instruments, PROVIDED that, under the Bankruptcy Code, the secured creditor is
given "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances, but it is intended in general to protect the
value of the secured creditor's interest in the collateral and may include cash
payments or the granting of additional security, if and at such times as the
court in its discretion determines, for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case. In view
of the lack of a precise definition of the term "adequate protection" and the
broad discretionary powers of a bankruptcy court, it is impossible to predict
how long payments under the Exchange Notes could be delayed following
commencement of a bankruptcy case, whether or when the Collateral Agent could
repossess or dispose of the collateral or whether or to what extent holders of
the Exchange Notes would be compensated for any delay in payment or loss of
value of the collateral through the requirement of "adequate protection."
INTERCREDITOR AGREEMENT
On April 3, 2002, the Issuers, the guarantors, the Trustee and the
Collateral Agent, on behalf of the holders of the notes, General Electric
Capital Corporation and General Electric Capital Canada, Inc. entered into the
Intercreditor Agreement. The Intercreditor Agreement provides, among other
things, that the lenders under the seasonal working capital facilities have a
first ranking lien on the accounts receivable, inventories and related assets of
the Issuers and their North American Subsidiaries and a second ranking lien on
substantially all of their other assets and the Collateral Agent on behalf of
the holders of the notes will have a first ranking lien on substantially all of
their assets, other than accounts receivables, inventories and related assets
for which it will have a second ranking lien. The Intercreditor Agreement
provides the procedure for enforcing such liens including (1) the distribution
of sale, insurance or other proceeds resulting from the collateral securing the
seasonal working capital facilities and the Exchange Notes and (2) during
specified time periods, permitting the lenders under the seasonal working
capital facilities to enter into and use the collateral securing the Exchange
Notes in order to realize on their collateral.
GUARANTEES
The full and prompt payment of the Issuers' payment obligations under the
Exchange Notes and the Indenture will be guaranteed, jointly and severally, by
all present and future Restricted Subsidiaries, excluding KHF Sports Oy and KHF
Finland Oy (collectively, the "Guarantors"). In addition, The Hockey Company
will guarantee the full and prompt payment of Sport Maska Inc.'s payment
obligations under the Subsidiary Notes and the Indenture. Each Guarantor will
fully and unconditionally guarantee on a senior secured basis (the "Guarantee"),
jointly and severally, to each Holder and the Trustee, the full and prompt
performance of the Issuers' obligations under the Indenture and the notes,
including the payment of principal of and interest on the Exchange Notes. The
Guarantee of each Guarantor will rank senior in right of payment to all
subordinated indebtedness of such Guarantor and equally in right of payment with
all other senior obligations of such Guarantor including borrowings under the
Credit Agreement. The obligations of each Guarantor are limited to the maximum
amount which, after giving effect to all other contingent and fixed liabilities
of such Guarantor and after giving effect to any collections from or payments
made by or on behalf of any other Guarantor in respect of the obligations of
such other Guarantor under its Guarantee or pursuant to its contribution
obligations under the Indenture, will result in the obligations of such
Guarantor under the Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under federal or state law. The net worth of any Guarantor
for such purpose shall include any claim of such Guarantor against the Company
for reimbursement and any claim against any other Guarantor for contribution.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another
77
Guarantor without limitation. See "--Certain Covenants--Mergers, Consolidation
and Sale of Assets" and "--Limitation on Asset Sales."
CHANGE OF CONTROL
In the event of a Change of Control, which event shall constitute a
triggering event (a "Change of Control Triggering Event") and thus an event of
failure under the terms of the Indenture within the meaning of subparagraph
212(1)(b)(vii) of the Income Tax Act (Canada), the Issuers shall make a joint
offer to purchase all of their respective Notes, as Units, from each Holder
pursuant to the offer described below (the "Change of Control Offer"), at a
purchase price equal to 101% of the principal amount thereof plus accrued
interest to the date of purchase.
Within 30 days following the date upon which the Change of Control
Triggering Event occurred, the Issuers must send, by first class mail, a joint
offer to each Holder, with a copy to the Trustee, which offer shall govern the
terms of the Change of Control Offer. Such offer shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
60 days from the date such offer is mailed, other than as may be required by law
(the "Change of Control Payment Date"). Holders electing to have a Unit
purchased pursuant to a Change of Control Offer will be required to surrender
the Unit, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Unit completed, to the paying agent at the address specified in
the offer before the close of business on the third business day before the
Change of Control Payment Date.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control Triggering Event if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to a Change of Control Offer
made by the Issuers and purchases all Units validly tendered and not withdrawn
under such Change of Control Offer.
If a Change of Control Offer is made, there can be no assurance that the
Issuers will have available funds sufficient to pay the Change of Control
purchase price for all the notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Issuers are required to
purchase outstanding notes pursuant to a Change of Control Offer, the Issuers
expect that they would seek third party financing to the extent they do not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Issuers would be able to obtain such financing and the terms
of the Credit Agreement and the European Credit Agreement may restrict the
ability of the Issuers to obtain such financing.
Neither the Boards of Directors of the Issuers nor the Trustee may waive the
Issuers' covenant to offer to purchase the notes upon a Change of Control
Triggering Event. Restrictions in the Indenture described herein on the ability
of the Company and its Restricted Subsidiaries to incur additional Indebtedness,
to grant liens on its property, to make Restricted Payments and to make Asset
Sales may also make more difficult or discourage a takeover of the Company,
whether favored or opposed by the management of the Company. Consummation of any
such transaction in certain circumstances may result in a triggering event and
thus require the Issuers to make an offer to repurchase the notes or consider
jointly redeeming the notes, and there can be no assurance that the Issuers or
the acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on transactions
with Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Company or any of its Subsidiaries by the management
of the Company. While such restrictions cover a wide variety of arrangements
which have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders protection in all circumstances from the
adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
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The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED, HOWEVER, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Issuers or any of their Restricted
Subsidiaries that is or, upon such incurrence, becomes a Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and any
Restricted Subsidiary of the Company that is not or will not, upon such
incurrence, become a Guarantor may incur Acquired Indebtedness, in each case if
on the date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the Company
is greater than 2.00 to 1.0.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur the following Indebtedness ("Permitted Indebtedness"):
(1) Indebtedness under the Notes issued in the offering in an aggregate
principal amount not to exceed $125.0 million and the related Guarantees;
(2) Indebtedness incurred pursuant to the Credit Facilities in an aggregate
principal amount at any time outstanding not to exceed $35.0 million; PROVIDED
that the Company will cause all Indebtedness incurred pursuant to this clause to
be repaid in its entirety at least once each fiscal year;
(3) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date (excluding Indebtedness incurred pursuant to
clause (2) above);
(4) Interest Swap Obligations of the Company or any Restricted Subsidiary of
the Company covering Indebtedness of the Company or any of its Restricted
Subsidiaries; PROVIDED, HOWEVER, that such Interest Swap Obligations are entered
into for the purpose of fixing or hedging interest rates with respect to any
fixed or variable rate Indebtedness that is permitted by the Indenture to be
outstanding to the extent that the notional amount of any such Interest Swap
Obligation does not exceed the principal amount of Indebtedness to which such
Interest Swap Obligation relates;
(5) Indebtedness under Currency Agreements entered into in the ordinary
course of business as a BONA FIDE hedge and not for speculative purposes in
order to protect the Company against fluctuations in currency exchange rates;
(6) Indebtedness of a Wholly Owned Subsidiary of an Issuer that is a
Guarantor to an Issuer or to a Wholly Owned Subsidiary of an Issuer that is a
Guarantor for so long as such Indebtedness is held by an Issuer or a Wholly
Owned Subsidiary of the Company that is a Guarantor, in each case subject to no
Lien held by a Person other than an Issuer or a Wholly Owned Subsidiary of an
Issuer that is a Guarantor or the lenders under the Credit Agreement and
Permitted Liens; PROVIDED that if as of any date any Person other than an
Issuer, a Wholly Owned Subsidiary of an Issuer that is a Guarantor or the
lenders under the Credit Agreement owns or holds any such Indebtedness or holds
a Lien in
79
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(7) Indebtedness of an Issuer to a Restricted Subsidiary of an Issuer for so
long as such Indebtedness is held by a Restricted Subsidiary of an Issuer, in
each case, subject to no Lien other than Liens under the Credit Agreement and
Permitted Liens; PROVIDED that (a) any such Indebtedness is unsecured and
subordinated, pursuant to a written agreement, to the Issuers' obligations under
the Indenture and the Notes and (b) if as of any date any Person other than a
Restricted Subsidiary of an Issuer owns or holds any such Indebtedness or any
Person other than the lenders under the Credit Agreement holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by an Issuer;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except in the
case of daylight overdrafts) drawn against insufficient funds in the ordinary
course of business; PROVIDED, HOWEVER, that such Indebtedness is extinguished
within five business days of incurrence;
(9) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements, including in connection with license
agreements, in the ordinary course of business; provided, however, that the face
amount of such letters of credit may not exceed $10.0 million at any one time
outstanding;
(10) Indebtedness represented by Capitalized Lease Obligations and Purchase
Money Indebtedness of the Company and its Restricted Subsidiaries incurred in
the ordinary course of business (including Refinancings thereof that do not
result in an increase of the aggregate principal amount of Indebtedness of such
Person as of the date of such proposed Refinancing (plus the amount of any
premium required to be paid under the terms of the agreement or instrument
governing such Indebtedness plus the amount of reasonable expenses incurred by
the Company in connection with such Refinancings)) not to exceed $7.0 million at
any one time outstanding;
(11) Refinancing Indebtedness of Indebtedness incurred pursuant to the first
paragraph or clauses (1), (3), or (11) of the second paragraph hereof; and
(12) additional Indebtedness of the Company and its Restricted Subsidiaries
in an aggregate principal amount not to exceed $15.0 million less the principal
amount of Indebtedness incurred pursuant to clause (10) above at any one time
outstanding (which amount may, but need not, be incurred in whole or in part
under the Credit Facilities).
For purposes of determining compliance with this covenant, if an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (12) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify (or later reclassify) such item of Indebtedness in
any manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Capital Stock in the form of additional
shares of the same class of Disqualified Capital Stock will not be deemed to be
an incurrence of Indebtedness or an issuance of Disqualified Capital Stock for
purposes of the "Limitations on Incurrence of Additional Indebtedness" covenant
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LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of the Company) on
or in respect of shares of Capital Stock of the Company to holders of such
Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, before any scheduled final
maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of the Company or any Guarantor that is subordinate or junior in
right of payment to the Notes or a Guarantee; or
(4) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (1), (2), (3) and (4) being referred to
as a "Restricted Payment"); if at the time of such Restricted Payment or
immediately after giving effect thereto,
(i) a Default or an Event of Default shall have occurred and be
continuing; or
(ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
first paragraph of the "Limitation on Incurrence of Additional Indebtedness"
covenant; or
(iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made after the Issue Date (the amount expended
for such purposes, if other than in cash, being the fair market value of
such property as determined in good faith by the Board of Directors of the
Company) shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company earned after the Issue Date and ending on the last day of the
Company's last fiscal quarter ending before the date the Restricted
Payment occurs for which financial statements are available (the
"Reference Date") (treating such period as a single accounting period);
plus
(x) 100% of the aggregate net cash proceeds received by the Company
from any Person (other than a Subsidiary of the Company) from the
issuance and sale after the Issue Date and on or before the Reference
Date of Qualified Capital Stock of the Company or warrants, options or
other rights to acquire Qualified Capital Stock of the Company or from
the issuance of debt securities of the Company that have been converted
into or exchanged for Qualified Capital Stock after the Issue Date and on
or before the Reference Date; plus
(y) without duplication of any amounts included in
clause (iii)(x) above, 100% of the aggregate net cash proceeds of any
equity contribution received by the Company from a holder of the
Company's Capital Stock after the Issue Date and on or before the
Reference Date; plus
(z) to the extent not included in Consolidated Net Income, an amount
equal to the net reduction (received by the Company or any Restricted
Subsidiary in cash or Cash Equivalents) in Investments (other than
Permitted Investments) since the Issue Date (including reductions
resulting from return of equity capital, repayments of the principal of
loans or advances, the redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary or other dispositions of Investments), not to
exceed, in the case of any Investment, the amount of Investments (other
than Permitted Investments) made by the Company and its Restricted
Subsidiaries in such Person since the Issue Date (excluding, in the case
of clauses (iii)(x) and (y), any net cash proceeds from issuances and
sales of Qualified Capital Stock of the Company financed
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directly or indirectly using funds borrowed from the Company or any
Subsidiary of the Company, until and to the extent such borrowing is
repaid).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of declaration
of such dividend if the dividend would have been permitted on the date of
declaration;
(2) if no Default or Event of Default shall have occurred and be continuing,
the acquisition of any shares of Capital Stock of the Company, either
(i) solely in exchange for shares of Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company;
(3) if no Default or Event of Default shall have occurred and be continuing,
the acquisition of any Indebtedness of the Company or the Guarantors that is
subordinate or junior in right of payment to the Notes and Guarantees either
(i) solely in exchange for shares of Qualified Capital Stock of the Company, or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of (a) shares of Qualified
Capital Stock of the Company or (b) Refinancing Indebtedness;
(4) if no Default or Event of Default shall have occurred and be continuing,
an Investment through the application of the net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of shares
of Qualified Capital Stock of the Company;
(5) if no Default or Event of Default shall have occurred and be continuing,
repurchases by the Company of Common Stock of the Company from an employee of
the Company or any of its Subsidiaries upon the death, disability or termination
of employment of such employee, in an aggregate amount not to exceed $500,000 in
any fiscal year; and
(6) if no Default or Event of Default shall have occurred and be continuing,
the payment of management fees in an amount not to exceed $200,000 in any fiscal
year.
In determining the aggregate amount of Restricted Payments made after the Issue
Date in accordance with clause (iii) of the immediately preceding paragraph,
amounts expended pursuant to clauses (1), (2)(ii), 3(ii)(a), (4) and (5) shall
be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) the Company or the applicable Restricted Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed of (as determined in good
faith by the Company's Board of Directors);
(2) at least 80% of the consideration received by the Company or the
Restricted Subsidiary, as the case may be, from such Asset Sale shall be in the
form of cash or Cash Equivalents (provided that the amount of any liabilities
(as shown on the most recent applicable balance sheet) of the Company or any
such Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes) that are assumed by the transferee of any such assets
shall be deemed to be cash for purposes of this provision so long as there is no
further recourse to the Company and its Restricted Subsidiaries with respect to
such liabilities) and is received at the time of such disposition; and
82
(3) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 180 days of receipt thereof to make an investment in
properties and assets that replace the properties and assets that were the
subject of such Asset Sale or in properties and assets that will be used in the
business of the Company and its Restricted Subsidiaries as existing on the Issue
Date or in businesses reasonably related thereto ("Replacement Assets") or to
repay in full or in part any Indebtedness (other than the Notes) incurred within
180 days before such Asset Sale and used to acquire Replacement Assets in
contemplation of such Asset Sale.
Subject to the following paragraph, if on the 181st day after an Asset Sale
there remains Net Cash Proceeds which have not been applied as permitted in
clause (3) of the preceding paragraph or if on an earlier date the Issuers
jointly determine not to apply the Net Cash Proceeds relating to such Asset Sale
as set forth in clause (3) of the preceding paragraph, then each such event
shall constitute a "Net Proceeds Offer Trigger Date" (and an event of failure
under the terms of the Indenture within the meaning of subparagraph
212(1)(b)(vii) of the Income Tax Act (Canada)), and in the event of a Net
Proceeds Trigger Date then the aggregate amount of such Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clause (3) of the preceding paragraph (each a "Net Proceeds Offer
Amount") shall be applied by the Issuers to make a joint offer to purchase (the
"Net Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less
than 30 nor more than 60 days following the applicable Net Proceeds Offer
Trigger Date, from all Holders on a PRO RATA basis, that amount of their
respective Notes (as Units) equal to the Net Proceeds Offer Amount at a price
equal to 100% of the principal amount of the Notes to be purchased, plus accrued
and unpaid interest thereon, if any, to the date of purchase; PROVIDED, HOWEVER,
that if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant.
The Issuers may defer the Net Proceeds Offer until there is an aggregate
unutilized Net Proceeds Offer Amount equal to or in excess of $10.0 million
resulting from one or more Asset Sales in which case the accumulation of such
amount shall constitute a Net Proceeds Offer Trigger Date (at which time, the
entire unutilized Net Proceeds Offer Amount, and not just the amount in excess
of $10.0 million, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," which transaction does not constitute a Change of Control,
the Surviving Entity shall be deemed to have sold the properties and assets of
the Company and its Restricted Subsidiaries not so transferred for purposes of
this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold for purposes of this covenant shall be deemed to
be Net Cash Proceeds for purposes of this covenant.
Notwithstanding the immediately preceding paragraphs of this covenant, the
Company and its Restricted Subsidiaries will be permitted to consummate an Asset
Sale without complying with such paragraphs to the extent that:
(1) at least 80% of the consideration for such Asset Sale constitutes
Replacement Assets; and
(2) such Asset Sale is for fair market value; provided that any cash or Cash
Equivalents received by the Company or any of its Restricted Subsidiaries in
connection with any Asset Sale permitted to be consummated under this paragraph
shall constitute Net Cash Proceeds subject to the provisions of the immediately
preceding paragraphs of this covenant.
83
Each notice of a Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders within 25 days following the Net Proceeds Offer
Trigger Date, with a copy to the Trustee, and shall comply with the procedures
set forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Units in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Units in an amount exceeding the Net Proceeds Offer Amount, Units of tendering
Holders will be purchased on a PRO RATA basis (based on amounts tendered). To
the extent Holders tender Units in an amount less than the Net Proceeds Offer
Amount, such excess funds may be used for any corporate purpose permitted by the
Indenture. A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Issuers will comply with the requirements of Rule 14e-l under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Issuers shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(2) make loans or advances or to pay any Indebtedness or other obligation
owed to the Company or any other Restricted Subsidiary of the Company; or
(3) transfer any of its property or assets to the Company or any other
Restricted Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of:
(a) applicable law;
(b) the Indenture;
(c) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary of the
Company;
(d) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or assets
of the Person so acquired;
(e) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date, including the
Credit Facilities; or
(f) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (b), (d) or (e) above; PROVIDED, HOWEVER, that the
provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no less favorable to the Company in any material
respect as determined by the Board of Directors of the Company in their
reasonable and good faith judgment than the provisions relating to such
encumbrance or restriction contained in agreements referred to in such
clause (b), (d) or (e).
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES. The
Issuers will not permit or cause any of its Subsidiaries to issue or sell any
Capital Stock (other than director's qualifying shares and other than to the
Issuers or to a Wholly-Owned Subsidiary of the Issuers) or permit any Person
84
(other than the Issuers or a Wholly-Owned Subsidiary of the Issuers) to own or
hold any Capital Stock of any Subsidiary of the Issuers or any Lien or security
interest therein other than the lenders under the Credit Agreement; PROVIDED,
HOWEVER, that this provision shall not prohibit the sale of all of the Capital
Stock of a Restricted Subsidiary in compliance with the provisions of the
"Limitations on Asset Sales" covenant.
LIMITATION ON LIENS. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of its Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom
unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(2) in all other cases, the Notes are equally and ratably secured,
except for:
(a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(b) Liens securing the Notes and the Guarantees;
(c) Liens securing borrowings under the Credit Facilities (whether
incurred pursuant to clause (2) of the definition of "Permitted
Indebtedness" or any other clause thereof or pursuant to the "Limitation
on Incurrence of Additional Indebtedness" covenant) and all additional
Obligations thereunder (which Liens may extend only to or cover the types
of collateral securing the Credit Facilities on the Issue Date);
(d) Liens of the Company or a Wholly Owned Subsidiary of the Company
on assets of any Restricted Subsidiary of the Company;
(e) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted
under this covenant and which Indebtedness has been incurred in
accordance with the "Limitation on Incurrence of Additional Indebtedness"
provisions of the Indenture; PROVIDED, HOWEVER, that such Liens: (i) are
no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced; and (ii) do not extend to or cover any
property or assets of the Company or any of its Restricted Subsidiaries
not securing the Indebtedness so Refinanced;
(f) Permitted Liens; and
(g) Liens incurred with respect to obligations that do not exceed
$2.0 million at any one time outstanding.
The Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon the intellectual property
of the European Subsidiaries other than the Collateral Agent on behalf of the
holders of the Notes.
MERGER, CONSOLIDATION AND SALE OF ASSETS. Neither Issuer will, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of
such Issuer's assets
85
(determined, in the case of the Company, on a consolidated basis for the Company
and the Company's Restricted Subsidiaries) whether as art entirety or
substantially as an entirety to any Person unless:
(1) either:
(a) such Issuer shall be the surviving or continuing corporation; or
(b) the Person (if other than such Issuer) formed by such
consolidation or into which such Issuer is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of such Issuer and of its
Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity"):
(x) shall be a corporation organized and validly existing under
the laws of the United States or any State thereof or the District of
Columbia (or, in the case of a merger, amalgamation, continuation,
consolidation or sale involving Sport Maska, Inc., Canada or any
political subdivision thereof); and
(y) shall expressly assume, by supplemental indenture (in form
and substance satisfactory to the Trustee), executed and delivered to
the Trustee, the due and punctual payment (as primary obligor or as
guarantor, as the case may be) of the principal of, and premium, if
any, and interest on all of the Notes and the performance of every
covenant of the Notes, the Indenture and the Registration Rights
Agreement on the part of such Issuer to be performed or observed;
(2) immediately after giving effect to such transaction and the
assumption contemplated by clause (1)(b)(y) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction), (a) such
Issuer or such Surviving Entity, as the case may be, shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth
of such Issuer immediately before such transaction and (b) the Company shall
be able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the first paragraph of the
"Limitation on Incurrence of Additional Indebtedness" covenant;
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(y) above
(including, without limitation, giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred or be continuing; and
(4) such Issuer or the Surviving Entity shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or other disposition comply with the applicable provisions of the
Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of an Issuer, the Capital Stock of which constitutes all or
substantially all of the properties and assets of that Issuer, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
that Issuer.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of an Issuer in
accordance with the foregoing, in which such Issuer is not the continuing
corporation, the successor Person formed by such consolidation or into which
such Issuer is merged or to which such conveyance, lease or transfer is made
shall succeed to, and be substituted for, and may exercise every right and power
of, that Issuer under the Indenture and the
86
Notes with the same effect as if such surviving entity had been named as such
and that Issuer shall be released from its obligations under the Indenture and
the Notes.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
other Guarantor that is a Wholly-Owned Subsidiary unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia (or, in the case of a Guarantor organized outside of
the United States, Canada or any member state of the European Union or any
political subdivision thereof);
(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, the Issuers could satisfy
the provisions of clause (2) of the first paragraph of this covenant.
Any merger or consolidation of a Guarantor with and into either of the
Issuers (with such Issuer being the surviving entity) or another Guarantor that
is a Wholly Owned Subsidiary of the Company need only comply with clause (4) of
the first paragraph of this covenant.
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $2.0 million
shall be approved by a majority of the disinterested members of the Board of
Directors of the Company or such Restricted Subsidiary, as the case may be, such
approval to be evidenced by a Board Resolution stating that such Board of
Directors has determined that such transaction complies with the foregoing
provisions. If the Company or any Restricted Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $5.0 million, the Company or such Restricted Subsidiary, as the case may
be, shall, before the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to the Company or
the relevant Restricted Subsidiary, as the case may be, from a financial point
of view, from an Independent Financial Advisor and file the same with the
Trustee.
The restrictions set forth in the first paragraph of this covenant shall not
apply to:
(1) reasonable fees and compensation paid to, advances made in the
ordinary course of business to, and indemnity provided on behalf of,
officers, directors, employees or consultants of
87
the Company or any Restricted Subsidiary of the Company as determined in
good faith by the Company's Board of Directors or senior management;
(2) transactions exclusively between or among the Company and any of its
Wholly Owned Restricted Subsidiaries or exclusively between or among such
Wholly Owned Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the Indenture;
(3) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any such
amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect on
the Issue Date; and
(4) Restricted Payments and Permitted Investments permitted by the
Indenture.
ADDITIONAL GUARANTEES. If the Company or any of its Restricted Subsidiaries
transfers or causes to be transferred, in one transaction or a series of related
transactions, any property to any Restricted Subsidiary that is not a Guarantor,
or if the Company or any of its Restricted Subsidiaries shall organize, acquire
or otherwise invest in another Restricted Subsidiary, then such transferee or
acquired or other Restricted Subsidiary shall:
(1) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee on a senior secured basis all of
the Issuers' obligations under the Notes and the Indenture on the terms set
forth in the Indenture;
(2) (a) execute and deliver to the Collateral Agent and the Trustee such
amendments to the Collateral Agreements as the Collateral Agent deems
necessary or advisable in order to grant to Collateral Agent, for the
benefit of the Holders, a perfected first priority security interest in the
Capital Stock of such new Subsidiary and a perfected security interest in
the debt securities of such new Subsidiary, subject to the liens under the
Credit Agreement and Permitted Liens, which are owned by the Company or any
Subsidiary and required to be pledged pursuant to the Security Agreement,
(b) deliver to Collateral Agent the certificates representing such Capital
Stock and debt securities, together with (i) in the case of such Capital
Stock, undated stock powers endorsed in blank, and (ii) in the case of such
debt securities, endorsed in blank, in each case executed and delivered by a
Officer of the Company or such Subsidiary, as the case may be;
(3) cause such new Subsidiary to take such actions necessary or
advisable to grant to the Collateral Agent for the benefit of the Holders
and the Trustee a perfected first priority security interest in the
collateral described in the Security Agreements with respect to such new
Subsidiary, including the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Security
Agreements or by law or as may be reasonably requested by the Collateral
Agent;
(4) take such further action and execute and deliver such other
documents specified in the Indenture or otherwise reasonably requested by
the Trustee or the Collateral Agent to effectuate the foregoing; and
(5) deliver to the Trustee an opinion of counsel that such supplemental
indenture and any other documents required to be delivered have been duly
authorized, executed and delivered by such Restricted Subsidiary and
constitutes a legal, valid, binding and enforceable obligation of such
Restricted Subsidiary. Thereafter, such Restricted Subsidiary shall be a
Guarantor for all purposes of the Indenture.
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Notwithstanding the foregoing, neither KHF Sports Oy nor KHF Finland Oy
shall be required to comply with the foregoing for so long as a guarantee by it
shall be a violation of the Finnish Companies Act.
IMPAIRMENT OF SECURITY INTEREST. Neither the Company nor any of its
Restricted Subsidiaries will take or omit to take any action which would
adversely affect or impair the Liens in favor of the Collateral Agent, on behalf
of itself, the Trustee and the holders of the Notes, with respect to the
Collateral. Neither the Company nor any of its Restricted Subsidiaries shall
grant to any Person, or permit any Person to retain (other than the Collateral
Agent), any interest whatsoever in the Collateral other than Permitted Liens or
the Liens permitted under the provisions of the "Limitation on Liens" covenant.
Neither the Company nor any of its Restricted Subsidiaries will enter into any
agreement that requires the proceeds received from any sale of Collateral to be
applied to repay, redeem, defease or otherwise acquire or retire any
Indebtedness of any Person, other than as permitted by the Indenture, the Notes,
the Intercreditor Agreement and the Collateral Agreements. The Company shall,
and shall cause each Guarantor to, at their sole cost and expense, execute and
deliver all such agreements and instruments as the Collateral Agent or the
Trustee shall reasonably request to more fully or accurately describe the
property intended to be Collateral or the obligations intended to be secured by
the Collateral Agreements. The Company shall, and shall cause each Restricted
Subsidiary to, at their sole cost and expense, file any such notice filings or
other agreements or instruments as may be reasonably necessary or desirable
under applicable law to perfect the Liens created by the Collateral Agreements
at such times and at such places as the Collateral Agent or the Trustee may
reasonably request.
The Company shall take all necessary action to grant to the Collateral Agent
a perfected security interest in and to the Collateral located in Sweden as soon
as practicable. If the Company fails to comply with the foregoing provision,
then additional interest shall accrue on the Notes at a rate of 0.50% per annum
if such action has not been completed within 30 business days after the Issue
Date, increasing by an additional 0.25% per annum if such action has not been
completed within 60 business days after the Issue Date and by an additional
0.25% per annum (for a total increase of 1.00% per annum) if such action has not
been completed within 90 business days after the Issue Date. All such additional
interest shall cease to accrue upon completion of all necessary action.
REAL ESTATE MORTGAGES AND FILINGS. With respect to any real property
(individually and collectively, the "Premises") with a purchase price of greater
than $1,000,000 intended to be owned by the Issuers or any Restricted Subsidiary
after the Issue Date to the extent permitted by applicable law:
(1) with respect to properties located outside the Province of Quebec,
the Company shall deliver to the Collateral Agent, as mortgagee,
fully-executed counterparts of Mortgages, each dated as of the date of
acquisition of such property, duly executed by the Issuers or the applicable
Subsidiary, together with (i) evidence of the completion (or satisfactory
arrangements for the completion), of all recordings and filings of such
Mortgage as may be necessary or, in the reasonable opinion of the Collateral
Agent desirable, to create a valid, perfected Lien, subject to Permitted
Liens and the Liens permitted under the provisions of the "Limitation on
Liens" covenant, against the properties purported to be covered thereby;
(2) with respect to properties located outside the Province of Quebec,
the Collateral Agent shall have received mortgagee's title insurance
policies in favor of the Collateral Agent, as mortgagee for the ratable
benefit of the Collateral Agent, the Trustee and the Holders in amounts and
in form and substance and issued by insurers, with respect to the property
purported to be covered by such Mortgage, insuring that title to such
property is marketable and that the interests created by the Mortgage
constitute valid first Liens thereon free and clear of all defects and
encumbrances other than Permitted Liens and the Liens permitted under the
provisions of the "Limitation on Liens" covenant, and such policies shall
also include, to the extent available, a
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revolving credit endorsement and such other endorsements as the Collateral
Agent shall reasonably request and shall be accompanied by evidence of the
payment in full of all premiums thereon;
(3) the Issuers shall deliver to the Collateral Agent, with respect to
each of the covered Premises, filings, surveys, local counsel opinions and
fixture filings, along with such other documents, instruments, certificates
and agreements as the Collateral Agent and its counsel shall reasonably
request; and
(4) with respect to properties located in the Province of Quebec, the
Issuers shall deliver to the Quebec Collateral Agent evidence of
registration against such Premises of the notice or summary required under
applicable law to register the applicable Deed of Hypothec subject to
Permitted Liens and the Liens permitted under the provisions of the
"Limitation on Liens" covenant, against such Premises.
LEASEHOLD MORTGAGES AND FILINGS. With respect to properties located outside
the Province of Quebec, the Issuers and each of their Restricted Subsidiaries
shall deliver Mortgages with respect to the Issuers' leasehold interests in the
premises (the "Leased Premises") occupied by the Issuers pursuant to leases
entered into after the Issue Date (collectively, the "Leases", and individually,
a "Lease").
Before the effective date of any Lease, the Issuers and such Subsidiaries
shall provide to the Trustee with respect to properties located outside the
Province of Quebec all of the items described in clauses (ii) and (iii) of "REAL
ESTATE MORTGAGES AND FILINGS" above and in addition shall use its reasonable
commercial efforts to obtain an agreement executed by the lessor of the Lease,
whereby the lessor consents to the Mortgage or the Deed of Hypothec, as
applicable, and waives or subordinates its landlord Lien (whether granted by the
instrument creating the leasehold estate or by applicable law), if any, and
which shall be entered into by the Collateral Agent.
CONDUCT OF BUSINESS. The Company and its Restricted Subsidiaries will not
engage in any businesses other than any business in the sporting goods industry
or any business reasonably related thereto. KHF Sports Oy and Jofa Holding AB
shall not incur any Indebtedness or engage in any business other than the
business of owning their respective intellectual property and the Capital Stock
and Indebtedness of Restricted Subsidiaries. The Company will vote its shares as
to not permit CCM Holdings to incur any indebtedness or engage in any business
other than the business of owning its intellectual property.
REPORTS TO HOLDERS. The Indenture will provide that, whether or not
required by the rules and regulations of the Commission, so long as any Units
are outstanding, the Company will furnish the Holders of Units:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations
of the Company and its consolidated Subsidiaries (showing in reasonable
detail, either on the face of the financial statements or in the footnotes
thereto and in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the financial condition and results of operations
of the Company and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of the
Company, if any) and, with respect to the annual information only, a report
thereon by the Company's certified independent accounts; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such reports, in
each case within the time periods specified in the Commission's rules and
regulations.
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In addition, following the consummation of this exchange offer, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability within the time periods specified in the Commission's rules and
regulations (unless the Commission will not accept such a filing). In addition,
the Company has agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Issuers shall have the right to remain in possession and retain exclusive
control of the collateral securing the Notes (other than as set forth in the
Collateral Agreements), to freely operate the collateral and to collect, invest
and dispose of any income therefrom.
RELEASE OF COLLATERAL. Upon compliance by the Issuers with the conditions
set forth below in respect of any release of items of collateral, and upon
delivery by the Issuers to the Collateral Agent of an opinion of counsel to the
effect that such conditions have been met, the Collateral Agent will release the
Released Interests (as defined below) from the Lien of the Collateral Agreements
and reconvey the Released Interests to the Issuers.
ASSET SALE RELEASE. The Issuers have the right to obtain a release of items
of collateral (the "Released Interests") subject to an Asset Sale permitted
hereunder upon compliance with the condition that the Issuers deliver to the
Collateral Agent the following:
(1) A notice from the Issuers requesting the release of Released
Interests: (i) describing the proposed Released Interests; (ii) specifying
the value of such Released Interests on a date within 60 days of such notice
(the "Valuation Date"); (iii) stating that the purchase price received is at
least equal to the fair market value of the Released Interests;
(iv) stating that the release of such Released Interests will not be
expected to interfere with the Trustee's or Collateral Agent's ability to
realize the value of the remaining collateral and will not impair the
maintenance and operation of the remaining collateral; and (v) certifying
that such Asset Sale complies with the terms and conditions of the Indenture
and the applicable Collateral Agreements with respect thereto; and
(2) An Officers' Certificate of the Issuers stating that: (i) such Asset
Sale covers only the Released Interests and complies with the terms and
conditions of the Indenture with respect to Asset Sales; (ii) all Net Cash
Proceeds from the sale of any of the Released Interests will be applied
pursuant to the provisions of the Indenture in respect of Asset Sales;
(iii) there is no Default or Event of Default in effect or continuing on the
date thereof, the Valuation Date or the date of such Asset Sale; (iv) the
release of the collateral will not result in a Default or Event of Default
under the Indenture; and (v) all conditions precedent in the Indenture
relating to the release in question have been or will be complied with.
RELEASE OF INVENTORY AND ACCOUNTS RECEIVABLE COLLATERAL. Notwithstanding
any provision to the contrary in the Indenture, collateral comprised of accounts
receivable, inventory or (before an Event of Default) the proceeds of the
foregoing shall be subject to release upon sales of such inventory and
collection of the proceeds of such receivables in the ordinary course of
business. If requested in writing by the Issuers or any other pledgor, the
Trustee shall instruct the Collateral Agent to execute and deliver such
documents, instruments or statements and to take such other action as the
Issuers or any other pledgor may request to evidence or confirm that the
collateral falling under this "Release of Inventory and Accounts Receivable
Collateral" provision has been released from the Lien of each of the Security
Documents. The Collateral Agent shall execute and deliver such documents,
instruments
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and statements and shall take all such actions promptly upon receipt of such
instructions from the Trustee.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
(2) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a payment to purchase notes tendered pursuant
to a Change of Control Offer or a Net Proceeds Offer);
(3) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period of
30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Units
(except in the case of a default with respect to the "Merger, Consolidation
and Sale of Assets" covenant, which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);
(4) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount of
any Indebtedness of the Company or any Restricted Subsidiary of the Company,
or the acceleration of the final stated maturity of any such Indebtedness
(which acceleration is not rescinded, annulled or otherwise cured within
20 days of receipt by the Company or such Restricted Subsidiary of notice of
any such acceleration) if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated (in each case with respect to which the 20-day
period described above has elapsed), aggregates $2.0 million or more at any
time;
(5) one or more judgments in an aggregate amount in excess of
$2.0 million (other than judgments as to which an insurance company rated A-
or better by AM Best and having minimum assets of $250 million has accepted
full liability, subject only to customary deductibles) shall have been
rendered against the Company or any of its Restricted Subsidiaries and such
judgments remain undischarged, unpaid or unstayed for a period of 60 days
after such judgment or judgments become final and non-appealable;
(6) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries;
(7) any Collateral Agreement at any time for any reason shall cease to
be in full force and effect, or ceases to give the Collateral Agent the
Liens, rights, powers and privileges purported to be created thereby,
superior to and prior to the rights of all third Persons other than the
holders of Permitted Liens and subject to no other Liens except as expressly
permitted by the Indenture, or any judgment creditor having a Lien against
any Collateral commences legal action to foreclose such Lien or otherwise
exercise its remedies against any Collateral and the value of the claim of
such creditor is greater than $1.5 million; or
(8) any Guarantee of a Significant Subsidiary ceases to be in full force
and effect or any Guarantee of a Significant Subsidiary is declared to be
null and void and unenforceable or any Guarantee of a Significant Subsidiary
is found to be invalid or any Guarantor that is a Significant Subsidiary
denies its liability under its Guarantee (other than by reason of release of
a Guarantor in accordance with the terms of the Indenture).
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If an Event of Default (other than an Event of Default specified in
clause (6) above with respect to an Issuer) shall occur and be continuing and
has not been waived, the Trustee or the Holders of at least 25% in principal
amount of outstanding Units may declare the principal of and accrued interest on
all the Notes to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same shall become immediately
due and payable.
If an Event of Default specified in clause (6) above with respect to an
Issuer occurs and is continuing, then all unpaid principal of, and premium, if
any, and accrued and unpaid interest on all of the outstanding Notes shall IPSO
FACTO become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the notes as described in the immediately preceding
paragraphs, the Holders of a majority in principal amount of the Units may
rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid;
(4) if the Issuers have paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of Default,
the Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the Units may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Units have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
No past, present or future director, officer, employee, stockholder or
incorporator, as such, of the Issuers or of the Trustee shall have any liability
for any obligations of the Issuers under the Notes, the Guarantees or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder by accepting a Unit waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Units.
Under the Indenture, the Issuers are required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their joint option and at any time, elect to have their
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Exchange Notes ("Legal Defeasance"). Such Legal Defeasance means
that the Issuers shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding notes, except for:
(1) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest and additional interest, if any,
on the Exchange Notes when such payments are due;
(2) the Issuers' obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Issuers may, at their joint option and at any time, elect
to have their obligations released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuers must irrevocably deposit jointly with the Trustee, in
trust, for the benefit of the Holders cash in U.S. dollars, non-callable
U.S. government obligations, or a combination thereof, in such amounts and
at such times as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the notes on the stated date for payment
thereof or on the applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, the Issuers shall have jointly
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that:
(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling; or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law;
(c) in either case to the effect that, and based thereon such opinion
of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuers shall have jointly
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
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(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound;
(6) the Issuers shall have jointly delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Issuers with the
intent of preferring the Holders over any other creditors of the Issuers or
with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Issuers or others;
(7) the Issuers shall have jointly delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(8) the Issuers shall have jointly delivered to the Trustee an opinion
of counsel to the effect that, assuming no intervening bankruptcy of the
Issuers between the date of deposit and the 91st day following the date of
deposit and that no Holder is an insider of the Issuers, after the 91st day
following the date of deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by
clause (2) above with respect to a Legal Defeasance need not be delivered if all
Exchange Notes not theretofore delivered to the Trustee for cancellation
(1) have become due and payable or (2) will become due and payable on the
maturity date within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Exchange Notes, as expressly provided for in the Indenture) as to all
outstanding Exchange Notes when:
(1) either:
(a) all the Exchange Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Exchange Notes which have been replaced
or paid and Exchange Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation; or
(b) all Exchange Notes not theretofore delivered to the Trustee for
cancellation (i) have become due and payable, (ii) will become due and
payable at their stated maturity within one year or (iii) are to be
called for redemption within one year under arrangement satisfactory to
the Trustee, and the Issuers have jointly irrevocably deposited or caused
to be deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Exchange Notes not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if
any, interest and additional interest, if any, on the Exchange Notes to
the date of deposit together with irrevocable joint instructions from the
Issuers directing the Trustee to apply such funds to the payment thereof
at maturity or redemption, as the case may be;
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(2) the Issuers have paid all other sums payable under the Indenture by
the Issuers; and
(3) the Issuers have jointly delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Issuers, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including curing ambiguities, defects or inconsistencies, so long as such change
does not, in the opinion of the Trustee, adversely affect the rights of any of
the Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Units
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may:
(1) reduce the amount of Exchange Units whose Holders must consent to an
amendment, supplement or waiver of any provision of the Indenture or the
Exchange Notes;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Exchange
Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Exchange Notes, or change the date on which any
Exchange Notes may be subject to redemption or reduce the redemption price
therefor;
(4) make any notes payable in money other than that stated in the
Exchange Notes;
(5) make any change in provisions of the Indenture protecting the right
of each Holder to receive payment of principal of and interest on such
Exchange Notes on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
Exchange Notes to waive Defaults or Events of Default;
(6) after the Issuers' obligation to offer to purchase Exchange Notes
arises thereunder, amend, change or modify in any material respect the
obligation of the Issuers to make and consummate a Change of Control Offer
in the event of a Change of Control Triggering Event or make and consummate
a Net Proceeds Offer following a Net Proceeds Offer Trigger Date or, after
such Change of Control Triggering Event or Net Proceeds Offer Trigger Date
has occurred, modify any of the provisions or definitions with respect
thereto;
(7) modify or change any provision of the Indenture or the related
definitions affecting the ranking of the Exchange Notes or any Guarantee in
a manner which adversely affects the Holders;
(8) release any Guarantor that is a Significant Subsidiary from any of
its obligations under its Guarantee or the Indenture otherwise than in
accordance with the terms of the Indenture; or
(9) release all or substantially all of the Collateral.
GOVERNING LAW
The Indenture provides the Exchange Units, the Exchange Notes and the
Guarantees are governed by, and construed in accordance with, the laws of the
State of New York but without giving effect to applicable principles of
conflicts of law to the extent that the application of the law of another
jurisdiction would be required thereby.
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ENFORCEABILITY OF JUDGMENTS
Since a substantial portion of the assets of the Company and certain of its
subsidiaries are outside the United States, any judgement obtained in the United
States against the Company, including judgments with respect to the payment of
principal, premium, if any, or interest on the Exchange Notes may not be
collectible within the United States
The Company has been informed by its New Brunswick counsel, Stewart McKelvey
Stirling Scales, that (subject to (i) any order of the Restrictive Trade
Practices Commission under the Competition Act restricting the enforcement of a
judgment that would restrict or injure trade or commerce in Canada and (ii) any
order of the Attorney-General of Canada under the Foreign Extra-Territorial
Measures Act restricting the enforcement of a judgment arising in an anti-trust
proceeding or that would affect international trade or commerce or otherwise
infringe Canadian sovereignty), the Foreign Judgments Act (New Brunswick) (the
"Foreign Judgments Act") would permit an action to be brought against Sport
Maska Inc. in a court of competent jurisdiction in the Province of New Brunswick
(a "New Brunswick Court") to enforce a judgment IN PERSONAM of any federal or
state court located in the Borough of Manhattan in the City of New York (a "New
York Court") if the New York Court had jurisdiction in the action in which the
judgment was obtained (and the agreement by Sport Maska Inc. to submit to the
jurisdiction of the New York Court would be sufficient for such purposes). Under
the Foreign Judgments Act it would be a defense to the enforcement of the
judgment of the New York Court that (i) Sport Maska Inc. was not duly served
with the process of the New York Court and did not appear, notwithstanding that
it agreed to submit to the jurisdiction of such New York Court, (ii) the
judgment of the New York Court was obtained by fraud or was not a final judgment
or was not for a sum certain in money or was for payment of a penalty or a sum
of money due under the revenue laws of a foreign country (including those of the
State of New York), (iii) the judgment had been satisfied or for any other
reason was not a subsisting judgment, (iv) the judgment was in respect of a
cause of action that, for reasons of public policy, would not have been
entertained by the New Brunswick Court or (v) the proceedings in which the
judgment of the New York Court were obtained were contrary to natural justice.
The existence of the judgment of the New York Court would not of itself prevent
Sport Maska Inc. from raising in the New Brunswick Court any right or defense
based on either law or fact which had accrued after the entering of the judgment
of the New York Court. In addition, the amount of the judgment of the New York
Court will be converted by the New Brunswick Court into Canadian currency at the
rate of exchange prevailing on the date of the hearing by the New Brunswick
Court of the action to enforce the judgment of the New York Court. Proceedings
to enforce the judgment of the New York Court must be commenced in New Brunswick
within the prescribed limitation period of six years.
The Issuers have been advised by Stewart McKelvey Stirling Scales that there
is doubt as to the enforceability in Canada against Sport Maska Inc. or against
any of its directors, controlling persons, officers or experts who are not
residents of the United States, in original actions or in actions for
enforcement of judgments of United States courts, of liabilities predicated
solely upon United States federal securities laws.
In the opinion of such counsel, except as set forth above or under "Risk
Factors", "Security" and "Certain Bankruptcy Limitations", there are no reasons
under present laws of the Province of New Brunswick for avoiding recognition of
such judgments of New York Courts under the Indenture, the notes and Sport
Maska Inc.'s Guarantee based upon public policy with respect to New Brunswick.
To the extent that assets constituting collateral are located in other
Canadian provinces or other foreign jurisdictions, different laws regarding the
enforceability of judgments will apply.
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CONSENT TO JURISDICTION AND SERVICE
The Indenture provides that each of the Company, Sport Maska Inc. and the
Guarantors will irrevocably appoint CT Corporation System, 1633 Broadway, New
York, New York 10019 as its agent for service of process in any suit, action or
proceeding with respect to the Indenture, the Exchange Notes, the Parent
Guarantee, the Guarantees, or the Exchange Units and for actions brought under
the federal or state securities laws brought in any federal or state court
located in the Borough of Manhattan in The City of New York, and each of the
Company, Sport Maska Inc. and the Guarantors shall submit to the non-exclusive
jurisdiction of such courts.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with or into the Company or
any of its Subsidiaries or assumed in connection with the acquisition of assets
from such Person and in each case not incurred by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, and which Indebtedness is without
recourse to the Company or any of its Subsidiaries or to any of their respective
properties or assets other than the Person or the assets to which such
Indebtedness related prior to the time such Person becomes a Restricted
Subsidiary of the Company or the time of such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"ASSET ACQUISITION" means (1) an Investment by the Company or any Restricted
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or any Restricted Subsidiary
of the Company, or shall be merged with or into the Company or any Restricted
Subsidiary of the Company, or (2) the acquisition by the Company or any
Restricted Subsidiary of the Company of the assets of any Person (other than a
Restricted Subsidiary of the Company) which constitute all or substantially all
of the assets of such Person or comprises any
98
division or line of business of such Person or any other properties or assets of
such Person other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Subsidiary of the Company
that is a Guarantor (PROVIDED that in the event the Company or its Restricted
Subsidiaries make any such transfer to Jofa Holding AB or any Subsidiary of Jofa
Holding AB, such transferee shall grant to the Collateral Agent a security
interest in such assets) of: (1) any Capital Stock of any Restricted Subsidiary
of the Company; or (2) any other property or assets of the Company or any
Restricted Subsidiary of the Company other than in the ordinary course of
business; PROVIDED, HOWEVER, that asset sales or other dispositions shall not
include: (a) a transaction or series of related transactions for which the
Company or its Restricted Subsidiaries receive aggregate consideration of less
than $750,000; and (b) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under "--Merger, Consolidation and Sale of Assets"; and (c) any Restricted
Payment permitted by the "Limitation on Restricted Payments" covenant or that
constitutes a Permitted Investment.
"BOARD OF DIRECTORS" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have been
duly adopted by the Board of Directors of such Person and to be in full force
and effect on the date of such certification, and delivered to the Trustee.
"CAPITAL STOCK" means:
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CASH EQUIVALENTS" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
99
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250.0 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events:
(1) any Person or "Group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) (other than the Permitted Holders) is or becomes
the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) directly or indirectly, of 50% or more of the total
outstanding Voting Stock of the Company; or
(2) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of such Board of Directors then in office; or
(3) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
the Company and its Subsidiaries on a consolidated basis to any Person or
Group, together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of the Indenture) that are not controlled,
directly or indirectly, by the Permitted Holders; or
(4) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company (whether
or not otherwise in compliance with the provisions of the Indenture).
"COLLATERAL" means Collateral as such term is defined in the Security
Agreements, all property mortgaged under the Mortgages and any other property,
whether now owned or hereafter acquired, upon which a Lien securing the
Obligations is granted or purported to be granted under any Collateral
Agreements.
"COLLATERAL AGENT" means the Collateral Agent or Collateral Agents and the
Quebec Collateral Agent specified in the Collateral Documents.
"COLLATERAL AGREEMENTS" means, collectively, this Indenture, the collateral
agency agreements in connection therewith, the Security Agreements and each
Mortgage, in each case, as the same may be in force from time to time.
"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
100
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income and capital taxes of such Person and its Restricted
Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or
dispositions of assets outside the ordinary course of business);'
(b) Consolidated Interest Expense, amortization expense and
depreciation expense;
(c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in
accordance with GAAP;
(d) management fees permitted to be paid pursuant to the Indenture;
and
(e) any non-recurring restructuring and extraordinary charges
(including executive termination costs).
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction or event giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio for which financial statements are available (the
"Transaction Date") to Consolidated Fixed Charges of such Person for the Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any incurrence
or repayment of other Indebtedness (and the application of the proceeds
thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be
(and the application of the proceeds thereof), occurred on the first day of
the Four Quarter Period; and
(2) any asset sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of any such Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period
and on or prior to the Transaction Date), as if such asset sale or other
disposition or Asset Acquisition (including the incurrence, assumption or
liability for any such Indebtedness or Acquired Indebtedness and also
including any Consolidated EBITDA associated with such Asset Acquisition)
occurred on the first day of the Four Quarter Period, and including any pro
forma expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Exchange Act; PROVIDED that the Consolidated EBITDA
of any Person acquired shall be included only to the extent includible
pursuant to the definition of "Consolidated Net Income." If such Person or
any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to
the incurrence of such guaranteed Indebtedness
101
as if such Person or any Restricted Subsidiary of such Person had directly
incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date (including Indebtedness actually incurred
on the Transaction Date) and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the average rate of interest on such Indebtedness during the Four Quarter
Period ending on or prior to the Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue
at the rate per annum resulting after giving effect to the operation of such
agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense (including amortization or write-off
of deferred financing costs of such Person and its consolidated Restricted
Subsidiaries during such period and any premium or penalty paid in
connection with redeeming or retiring Indebtedness of such Person and its
consolidated Restricted Subsidiaries prior to the stated maturity thereof
pursuant to the agreements governing such Indebtedness); plus
(2) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the aggregate of the interest expense of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP, and including, without duplication, (a) all amortization
of original issue discount; (b) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period; (c) net cash costs under all
Interest Swap Obligations (including amortization of fees); (d) all capitalized
interest; and (e) the interest portion of any deferred payment obligations for
such period.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; PROVIDED that there shall be excluded therefrom:
(1) after-tax gains and losses from Asset Sales or abandonments or
reserves relating thereto;
(2) after-tax items classified as extraordinary or nonrecurring gains;
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of
the referent Person or is merged or consolidated with the referent Person or
any Restricted Subsidiary of the referent Person;
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is restricted by
a contract (other than, solely for purposes of calculating the Consolidated
Fixed Charge Coverage Ratio, restrictions under the Credit Agreement as in
effect on the Issue Date), operation of law or otherwise;
102
(5) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or distributions
paid to the referent Person or to a Wholly Owned Restricted Subsidiary of
the referent Person by such Person;
(6) any restoration to income of any material contingency reserve,
except to the extent that provision for such reserve was made out of
Consolidated Net Income accrued at any time following the Issue Date;
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued);
(8) all gains and losses realized on or because of the purchase or other
acquisition by such Person or any of its Restricted Subsidiaries of any
securities of such Person or any of its Restricted Subsidiaries; and
(9) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or transfer
of assets.
To the extent net income of any Person (the "Excluded Person") is excluded
from Consolidated Net Income any other Person (the "Referent Person"), then
Interest Expense of the Excluded Person shall be excluded from Consolidated
Fixed Charges of the Referent Person up to the amount of net income so excluded.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"CREDIT AGREEMENT" means (i) the Credit Agreement dated as of November 19,
1998, between Maska U.S., Inc., the Company, certain other subsidiaries of the
Company, the lenders party thereto in their capacities as lenders thereunder and
General Electric Capital Corporation, as agent, together with the related
documents thereto (including, without limitation, any guarantee agreements,
security documents and cash management agreements) and (ii) the Credit Agreement
dated as of November 19, 1998, between Sport Maska Inc., the Company, certain
other subsidiaries of the Company, the lenders party thereto in their capacities
as lenders thereunder and General Electric Capital Canada Inc., as agent,
together with the related documents thereto (including, without limitation, any
guarantee agreements, security documents and cash management agreements), in
each case as such agreements and documents may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the "Limitation on Incurrence of Additional Indebtedness" covenant
above) or adding Restricted Subsidiaries of the Company as additional borrowers
or guarantors thereunder) all or any portion of the Indebtedness under such
agreement or any successor or replacement agreement and whether by the same or
any other agent, lender or group of lenders.
"CREDIT FACILITIES" means the Credit Agreement and the European Credit
Agreement.
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"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"DEEDS OF HYPOTHEC" means the Deeds of Hypothec entered into between each of
the Guarantors having assets in the Province of Quebec and the Quebec Collateral
Agent.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute a Change of
Control), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof (except, in each case, upon the occurrence of a Change of Control) on or
prior to the final maturity date of the Notes for cash.
"EUROPEAN CREDIT AGREEMENT" means (i) the Credit Agreement dated as of
July 10, 2001, between KHF Finland Oy and Nordea Bank in Finland, together with
the related documents thereto (including, without limitation, any guarantee
agreements and security documents) and (ii) the Credit Agreement dated as of
March 18, 1999, between Jofa AB and Nordea Bank in Sweden and the Credit
Agreement dated as of May 22, 2000, between Jofa AB and Nordea Bank in Sweden,
together with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (PROVIDED that such
increase in borrowings is permitted by the "Limitation on Incurrence of
Additional Indebtedness" covenant above) or adding Restricted Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any portion
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"EUROPEAN SUBSIDIARIES" means KHF Sports Oy, KHF Finland Oy, Jofa Holding AB
and Jofa AB.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"GAAP" means accounting principles generally accepted in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are in effect as of the
Issue Date.
"GUARANTOR" means each of the Company's Restricted Subsidiaries that in the
future executes a supplemental indenture in which such Restricted Subsidiary
agrees to be bound by the terms of the Indenture as a Guarantor; PROVIDED that
any Person constituting a Guarantor as described above shall cease to constitute
a Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"HOLDER" means the Person in whose name a Unit is registered on the
registrar's books.
104
"INDEBTEDNESS" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and any deferred purchase price represented by earn
outs consistent with the Company's past practice);
(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value shall be determined reasonably and in good
faith by the Board of Directors of the issuer of such Disqualified Capital
Stock.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized firm:
(1) which does not, and whose directors, officers and employees or Affiliates do
not, have a direct or indirect financial interest in the Company; and
(2) which, in the judgment of the Board of Directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of interest on the same notional amount and
shall include, without limitation, interest rate swaps, caps, floors, collars
and similar agreements.
"INVESTMENT" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures
105
or other securities or evidences of Indebtedness issued by, any Person.
"Investment" shall exclude extensions of trade credit by the Company and its
Restricted Subsidiaries on commercially reasonable terms in accordance with
normal trade practices of the Company or such Restricted Subsidiary, as the case
may be. For the purposes of the "Limitation on Restricted Payments" covenant,
(i) "Investment" shall include and be valued at the fair market value of the net
assets of any Restricted Subsidiary at the time that such Restricted Subsidiary
is designated an Unrestricted Subsidiary and shall exclude the fair market value
of the net assets of any Unrestricted Subsidiary at the time that such
Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the
amount of any Investment shall be the original cost of such Investment plus the
cost of all additional Investments by the Company or any of its Restricted
Subsidiaries, without any adjustments for increases or decreases in value, or
write-ups, write-downs or write-offs with respect to such Investment, reduced by
the payment of dividends or distributions in connection with such Investment or
any other amounts received in respect of such Investment; PROVIDED that no such
payment of dividends or distributions or receipt of any such other amounts shall
reduce the amount of any Investment if such payment of dividends or
distributions or receipt of any such amounts would be included in Consolidated
Net Income. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Restricted
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, 100% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means any lien, mortgage, deed of hypothec, priority, deed of trust,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof and any agreement to give any security interest).
"MORTGAGES" means the mortgages, deeds of hypothec, deeds of trust, deeds to
secure debt or other similar documents securing liens on the Premises and/or the
Leased Premises, as well as the other collateral secured by and described in the
mortgages, deeds of hypothec, deeds of trust, deeds to secure debt or other
similar documents.
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Issuers or any of its Restricted Subsidiaries from such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) repayment of Indebtedness that is secured by the property or assets
that are the subject of such Asset Sale and is required to be repaid in
connection with such Asset Sale; and
(4) appropriate amounts to be provided by the Issuers or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by the
Issuers or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pension and other post-employment
benefit liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with such Asset
Sale.
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"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other amounts
payable under the documentation governing any Indebtedness.
"PERMITTED HOLDERS" means WS Acquisition LLC or any entity controlled
thereby.
"PERMITTED INVESTMENTS" means:
(1) Investments by the Issuers or any Restricted Subsidiary of the
Company in any Person that is or will become immediately after such
Investment a Wholly Owned Subsidiary of the Company that is a Guarantor or
that will merge or consolidate into the Company or a Wholly Owned Subsidiary
of the Company that is a Guarantor; PROVIDED that in the event the Company
or its Restricted Subsidiaries make an Investment in Jofa Holding AB or any
Subsidiary of Jofa Holding AB, such Person shall grant to the Collateral
Agent a security interest by way of a floating charge in an amount equal to
the fair market value of the Investment made in such Person;
(2) Investments in the Issuers by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment is
unsecured and subordinated, pursuant to a written agreement, to the Issuers'
obligations under the notes and the Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of the Issuers and
Restricted Subsidiaries of the Company in the ordinary course of business
for BONA FIDE business purposes not in excess of the amount outstanding on
the Issue Date plus $750,000 at any one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of the Issuers' or the Company's Restricted
Subsidiaries' businesses and otherwise in compliance with the Indenture;
(6) Investments in the notes;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(8) Investments made by the Issuers or any Restricted Subsidiary of the
Company as a result of an Asset Sale made in compliance with the "Limitation
on Asset Sales" covenant; and
(9) additional Investments not to exceed $2.0 million at any one time
outstanding.
"PERMITTED LIENS" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Issuers or any Restricted Subsidiary of the
Company shall have set aside on its books such reserves as may be required
pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
107
(4) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(5) casements, rights-of-way, zoning restrictions, title irregularities
and other similar charges or encumbrances in respect of real property not
interfering in any material respect with the ordinary conduct of the
business of the Company or any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;
(7) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to clause (10) of the definition of
"Permitted Indebtedness"; PROVIDED, HOWEVER, that in the case of Purchase
Money Indebtedness (a) the Indebtedness shall not exceed the cost of such
property or assets and shall not be secured by any property or assets of the
Issuers or any Restricted Subsidiary of the Company other than the property
and assets so acquired or constructed and (b) the Lien securing such
Indebtedness shall be created within 180 days of such acquisition or
construction or, in the case of a refinancing of any Purchase Money
Indebtedness, within 180 days of such refinancing;
(8) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Issuers
or any Restricted Subsidiary of the Company, including rights of offset and
set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens securing Indebtedness under Currency Agreements;
(13) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant; provided
that:
(a) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Issuers or a
Restricted Subsidiary of the Company and were not granted in connection
with, or in anticipation of, the incurrence of such Acquired Indebtedness
by the Company or a Restricted Subsidiary of the Company; and
(b) such Liens do not extend to or cover any property or assets of
the Issuers or of any Restricted Subsidiary of the Company other than the
property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary of the Company and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary of the Company;
(14) Liens upon appropriate amounts to be provided by the Issuers or any
Restricted Subsidiary of the Company, as the case may be, as a reserve, in
accordance with GAAP, against any liabilities associated with such Asset
Sale and retained by the Issuers or any Restricted
108
Subsidiary of the Company, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale; and
(15) Liens arising by operation of law that secure amounts owing for
Canada Pension Plan, Quebec Pension Plan, employment insurance, workers'
compensation, employee income tax withholdings and other claims of a similar
nature.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"QUEBEC COLLATERAL AGENT" means the holder of the power of attorney (FONDE
DE POUVOIR) of the Holders in accordance with the Civil Code of Quebec.
"REFINANCE" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the first paragraph or clauses (1), (3) or (11) of the second paragraph of the
"Limitation on Incurrence of Additional Indebtedness" covenant, in each that
does not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing); or
(2) create Indebtedness with: (a) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being Refinanced; or (b) a final maturity earlier than the final maturity of
the Indebtedness being Refinanced; provided that (x) if such Indebtedness
being Refinanced is Indebtedness of the Issuers, then such Refinancing
Indebtedness shall be Indebtedness solely of the Company and (y) if such
Indebtedness being Refinanced is subordinate or junior to the notes, then
such Refinancing Indebtedness shall be subordinate to the notes at least to
the same extent and in the same manner as the Indebtedness being Refinanced.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SECURITY AGREEMENTS" means the Pledge and Security Agreement, Canadian
Security Agreements and Swedish Security Agreements, as amended or supplemented
from time to time in accordance with its terms, and such other security
agreements which may be entered into from time to time.
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"SIGNIFICANT SUBSIDIARY", with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act.
"SUBSIDIARY", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by such Person.
"UNRESTRICTED SUBSIDIARY" of any Person means:
(1) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; PROVIDED that:
(1) the Company certifies to the Trustee that such designation complies
with the "Limitation on Restricted Payments" covenant; and
(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of the assets of the Company or any of its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if:
(1) immediately after giving effect to such designation, the Company is
able to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in compliance with the first paragraph of the
"Limitation on Incurrence of Additional Indebtedness" covenant; and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"VOTING STOCK" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
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"WHOLLY OWNED SUBSIDIARY" of any Person means any Restricted Subsidiary of
such Person of which all the outstanding voting securities (other than in the
case of a foreign Subsidiary, directors' qualifying shares or an immaterial
amount of shares required to be owned by other Persons pursuant to applicable
law) are owned by such Person or any Wholly Owned Subsidiary of such Person.
REGISTRATION RIGHTS AGREEMENT
We have filed the registration statement of which this prospectus forms a
part and are conducting the exchange offer in accordance with our obligations
under the Registration Rights Agreement, dated April 3, 2002, among the Issuers
and the Initial Purchaser.
BOOK-ENTRY, DELIVERY AND FORM
The Units were offered and sold to qualified institutional buyers in
reliance on Rule 144A ("Rule 144A Securities"). Units were also able to be
offered and sold in offshore transactions in reliance on Regulation S
("Regulation S Securities"). The Parent Notes and the Subsidiary Notes
comprising each Unit will not be separable and will be transferable only as a
Unit. The Units will be issued in the form of a fully registered global security
(the "Global Security").
Units that are originally issued to or transferred to "Institutional
Accredited Investors" who are not Qualified Institutional Buyers ("QIBs") or to
any other persons who are not QIBs (the "Non-Global Purchasers") will be issued
in registered form (the "Certificated Securities"). Upon the transfer to a QIB
of Certificated Securities initially issued to a Non-Global Purchaser, such
Certificated Securities will, unless the applicable Global Security has
previously been exchanged for Certificated Securities, be exchanged for an
interest in the Global Security representing the principal amount of Units being
transferred. For a description of the restrictions on the transfer of
Certificated Securities, see "Notice to Investors."
Rule 144A Securities initially will be represented by one 144A global
security (the "144A Global Security"). Regulation S Securities initially will be
represented by one Regulation S global note (the "Regulation S Global
Security"). The Rule 144A Global Security and the Regulation S Global Security
are collectively referred to herein as the "Global Securities." The Global
Securities will be deposited upon issuance with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below. Through and including the 40th
day after the later of the commencement of this offering and the original issue
date of the Units (such period, the "Applicable Restricted Period"), beneficial
interests in the Regulation S Global Securities may be held only through the
Euroclear System ("Euroclear") and Clearstream, S.A. ("Clearstream") (as
indirect participants in DTC), unless transferred to a person that takes
delivery through a Rule 144A Global Security in accordance with the
certification requirements described below. Beneficial interests in the
Rule 144A Global Securities may not be exchanged for beneficial interests in the
Regulation S Global Securities at any time except in the limited circumstances
described below. See "Exchanges between Regulation S Securities and Rule 144A
Securities."
Except as set forth below, the Global Securities may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global Securities may not be
exchanged for Units in certificated form except in the limited circumstances
described below. See "Exchange of Book-Entry Securities for Certificated
Securities." Except in the limited circumstances described below, owners of
beneficial interests in the Global Securities will not be entitled to receive
physical delivery of Certificated Securities.
Rule 144A Securities (including beneficial interests in the Rule 144A Global
Securities) will be subject to certain restrictions on transfer and will bear a
restrictive legend as described under "Notice to Investors." Regulation S
Securities (including beneficial interests in the Regulation S Global
111
Securities) will also bear the legend as described under "Notice to Investors."
In addition, transfers of beneficial interests in the Global Securities will be
subject to the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of Euroclear and Clearstream),
which may change from time to time. Initially, the Trustee will act as Paying
Agent and Registrar with respect to the Units. The Exchange Units may be
presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Clearstream are provided solely as a matter of convenience. These operations
and procedures are solely within the control of the respective settlement
systems and are subject to changes by them from time to time. The Company takes
no responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each actual purchaser of each security held by or on behalf of DTC are
recorded on the records of the Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established by
it, (i) upon deposit of the Global Securities, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the principal
amount of the Global Securities and (ii) ownership of such interests in the
Global Securities will be shown on, and the transfer of ownership thereof will
be effected only through, records maintained by DTC (with respect to the
Participants) or by the Participants and the Indirect Participants (with respect
to other owners of beneficial interest in the Global Securities).
Investors in the Rule 144A Global Securities may hold their interests
therein directly through DTC, if they are Participants in such system, or
indirectly through organizations (including Euroclear and Clearstream) which are
Participants in such system. Investors in the Regulation S Global Securities
must initially hold their interests therein through Euroclear or Clearstream, if
they are participants in such systems, or indirectly through organizations that
are participants in such systems. After the expiration of the Applicable
Restricted Period (but not earlier), investors may also hold interests in the
Regulation S Global Securities through Participants that are in the DTC system
other than Euroclear and Clearstream. Euroclear and Clearstream will hold
interests in the Regulation S Global Securities on behalf of their participants
through customers' securities accounts in their respective names on the books of
their respective depositories, which are Morgan Guaranty Trust Company of New
York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator
of Clearstream. The depositaries, in turn, will hold such interests in the
Regulation S Global Securities in customers' securities accounts in the
depositaries' names on the books of DTC. All interests in a Global Security,
including those held through Euroclear or Clearstream, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Clearstream may also be subject to the procedures and requirements of such
systems. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer
112
beneficial interests in a Global Security to such persons will be limited to
that extent. Because DTC can act only on behalf of Participants, which in turn
act on behalf of Indirect Participants and certain banks, the ability of a
person having beneficial interests in a Global Security to pledge such interests
to persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests. For certain other restrictions
on the transferability of the Units, see "Exchange of Book-Entry Securities for
Certificated Securities," "Exchange of Certificated Securities for Book-Entry
Securities" and "Exchanges Between Regulation S Securities and Rule 144A
Securities."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL SECURITIES WILL
NOT HAVE UNITS REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
UNITS IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, premium, if any, and interest on
any Units, and registered in the name of DTC or its nominee will be payable by
the Trustee to DTC in its capacity as the registered Holder under the Indenture.
Under the terms of the Indenture, the Company and the Trustee will treat the
persons in whose names the Units, including the Global Securities, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Securities, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Securities or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice, upon receipt of any payment in
respect of securities such as the Units (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on the
records of DTC unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Participants and the Indirect Participants to
the beneficial owners of Units will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
the Company. Neither the Company nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Units, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Clearstream participants,
interest in the Global Securities are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "Same Day
Settlement and Payment." Subject to the transfer restrictions set forth under
"Notice to Investors," transfers between Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same day funds, and
transfers between participants in Euroclear and Clearstream will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Subject to compliance with the transfer restrictions applicable to the Units
described herein, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
113
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Security in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Units only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Securities and only
in respect of such portion of the aggregate principal amount of the Units as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Units, DTC reserves the right
to exchange the Global Securities for legended Units in certificated form, and
to distribute such Units to its Participants. Although DTC, Euroclear and
Clearstream have agreed to the foregoing procedures to facilitate transfers of
interests in the Regulation S Global Securities and in the Rule 144A Global
Securities among Participants in DTC, Euroclear and Clearstream, they are under
no obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee,
nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Clearstream or their respective Participants or
Indirect Participants of their respective obligations under the rules and
procedures governing their operations.
EXCHANGE OF BOOK-ENTRY SECURITIES FOR CERTIFICATED SECURITIES
A Global Security is exchangeable for definitive Units in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Security and the Company
thereupon fails to appoint a successor depositary or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) the Company, at its
option, notifies the Trustee in writing that it elects to cause the issuance of
the Certificated Securities or (iii) there shall have occurred and be continuing
a Default or Event of Default with respect to the Units. In addition, beneficial
interests in a Global Security may be exchanged for Certificated Securities upon
request but only upon prior written notice given to the Trustee by or on behalf
of DTC in accordance with the Indenture. In all cases, Certificated Securities
delivered in exchange for any Global Security or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless the Company determines otherwise in compliance
with applicable law.
EXCHANGE OF CERTIFICATED SECURITIES FOR BOOK-ENTRY SECURITIES
Units issued in certificated form may not be exchanged for beneficial
interests in any Global Security unless the transferor first delivers to the
Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer restrictions
applicable to such Units, as described under "Notice to Investors." In the case
of any such exchange for an interest in the Regulation S Global Security, such
transfer must occur pursuant to Regulation S or Rule 144 (if available).
EXCHANGES BETWEEN REGULATION S SECURITIES AND RULE 144A SECURITIES
Prior to the expiration of the Applicable Restricted Period, beneficial
interests in the Regulation S Global Securities may be exchanged for beneficial
interests in the Rule 144A Global Securities only if such exchange occurs in
connection with a transfer of the Units pursuant to Rule 144A and the transferor
first delivers to the Trustee a written certificate (in the form provided in the
Indenture) to the effect that the Units are being transferred to a person who
the transferor reasonably believes to be a qualified institutional buyer within
the meaning of Rule 144A, purchasing for its own account or the
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account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A and in accordance with all applicable securities laws
of the states of the United States and other jurisdictions. Beneficial interests
in a Rule 144A Global Security may be transferred to a person who takes delivery
in the form of an interest in the Regulation S Global Security, whether before
or after the expiration of the Applicable Restricted Period, only if the
transferor first delivers to the Trustee a written certificate (in the form
provided in the Indenture) to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and
that, if such transfer occurs prior to the expiration of the Applicable
Restricted Period, the interest transferred will be held immediately thereafter
through Euroclear or Clearstream.
Transfers involving an exchange of a beneficial interest in the
Regulation S Global Security for a beneficial interest in a Rule 144A Global
Security or vice versa will be effected in DTC by means of an instruction
originated by the Trustee through the DTC Deposit/Withdraw at Custodian system.
Accordingly, in connection with any such transfer, appropriate adjustments will
be made to reflect a decrease in the principal amount of the Regulation S Global
Security and a corresponding increase in the principal amount of the Rule 144A
Global Security or vice versa, as applicable. Any beneficial interest in one of
the Global Securities that is transferred to a person who takes delivery in the
form of an interest in the other Global Securities will, upon transfer, cease to
be an interest in such Global Security and will become an interest in the other
Global Security and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interests in such
other Global Security for so long as it remains such an interest. The policies
and practices of DTC may prohibit transfers of beneficial interests in the
Regulation S Global Security prior to the expiration of the Applicable
Restricted Period.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Units represented
by the applicable Global Securities (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Security Holder. With respect to Units in
certificated form, the Company will make all payments of principal, premium, if
any, and interest, if any, by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
Units represented by the Global Securities are expected to be eligible to trade
in the PORTAL market and to trade in the Depositary's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Units will,
therefore, be required by the Depositary to be settled in immediately available
funds. The Company expects that secondary trading in any Certificated Units will
also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Security from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
the Company that cash received in Euroclear or Clearstream as a result of sales
of interests in a Global Security by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
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TAX CONSEQUENCES
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section describes the material United States federal income tax
consequences of the exchange offer and owning Notes. Any reference to "Notes" in
this prospectus refers to both Notes and Exchange Notes, unless the context
requires otherwise. Although the following summary does not purport to describe
all of the tax considerations that may be relevant to a holder of Notes, such
summary describes the material United States federal income tax consequences to
a United States holder or, as the case may be, a United States alien holder. It
applies to you only if you hold your Notes as capital assets for tax purposes
and you acquired your Notes upon original issuance. This section does not apply
to you if you are a member of a class of holders subject to special rules, such
as:
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
- a bank;
- a life insurance company;
- a tax-exempt organization;
- a person that owns securities that are a hedge or that are hedged against
interest rate or currency risks;
- a person that owns securities as part of a straddle or conversion
transaction for tax purposes; or
- a person whose functional currency for tax purposes is not the U.S.
dollar.
This section is based on the U.S. Internal Revenue Code of 1986, as amended,
its legislative history, existing and proposed regulations under the Internal
Revenue Code, published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive basis.
Please consult your own tax advisor concerning the consequences of owning
these securities in your particular circumstances under the Internal Revenue
Code and the laws of any other taxing jurisdiction.
UNITED STATES HOLDERS
This subsection describes the material United States federal income tax
consequences to a United States holder of the exchange offer and of owning,
selling and disposing of Notes. You are a United States holder if you are a
beneficial owner of Notes and you are:
- a citizen or resident of the United States;
- a domestic corporation;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust if a United States court can exercise primary supervision over the
trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
If you are not a United States holder, this section does not apply to you
and you should refer to "--United States Alien Holders" below.
PAYMENTS OF INTEREST. You will be taxed on any interest on your note as
ordinary income at the time you receive the interest or when it accrues,
depending on your method of accounting for tax
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purposes. Interest received or accrued by a United States holder will be United
States source income to the extent paid or accrued with respect to the Parent
Notes and foreign source income to the extent paid or accrued with respect to
the Subsidiary Notes. A United States holder may be able, subject to generally
applicable limitations, to claim a foreign tax credit or deduction for Canadian
withholding taxes, if any, imposed on payments of foreign source interest.
United States holders should consult with their own tax advisors with regard to
the availability of a foreign tax credit and the application of the foreign tax
credit to their particular situation.
EXCHANGE FOR EXCHANGE NOTES. The exchange of your Notes for Exchange Notes
in the exchange offer will not constitute an exchange for federal income tax
purposes. Accordingly, the exchange offer will have no federal income tax
consequences to you if you exchange your Notes for Exchange Notes. For example,
there will be no change in your tax basis and your holding period will carry
over to the Exchange Notes. In addition, the federal income tax consequences of
holding and disposing of your Exchange Notes will also be the same as those
applicable to your Notes.
PURCHASE, SALE AND RETIREMENT OF THE NOTES. Your tax basis in your Notes
will generally be the United States dollar cost, as defined below, of your note.
You will generally recognize gain or loss on the sale or retirement of your
Notes equal to the difference between the amount you realize on the sale or
retirement and your tax basis in your Notes.
You will recognize capital gain or loss when you sell or retire your Notes,
except to the extent attributable to accrued but unpaid interest;
Capital gain of a noncorporate United States holder is generally taxed at a
maximum rate of 20% where the property is held more than one year and 18% where
the property is held more than five years.
UNITED STATES ALIEN HOLDERS
This subsection describes the tax consequences to a United States alien
holder. You are a United States alien holder if you are the beneficial owner of
Notes and are, for United States federal income tax purposes:
- a nonresident alien individual;
- a non-United States corporation;
- a non-United States partnership; or
- an estate or trust that in either case is not subject to United States
federal income tax on a net income basis on income or gain from Notes.
If you are a United States holder, this section does not apply to you.
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below, if you are a United States alien
holder of Notes, in respect of payments of interest that are treated as United
States source income:
- we and other United States payors generally are not be required to deduct
United States withholding tax from payments of interest, to you if:
(1) you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock entitled to vote;
(2) you are not a controlled foreign corporation that is related to us
through stock ownership;
117
(3) you are not a bank receiving interest on an extension of credit made
pursuant to a loan agreement entered into in the ordinary course of your
trade or business; and
(4) you satisfy one of the following documentation requirements:
(a) you have furnished to the United States payor an Internal Revenue
Service Form W-8BEN or an acceptable substitute form upon which you
certify, under penalties of perjury, that you are not a United States
person;
(b) in the case of payments made outside the United States to you at
an offshore account (generally, an account maintained by you at a bank or
other financial institution at any location outside the United States),
you have furnished to the United States payor documentation that
establishes your identity and your status as a person who is not a United
States person;
(c) the United States payor has received a withholding certificate
(furnished on an appropriate Internal Revenue Service Form W-8 or an
acceptable substitute form) from a person claiming to be:
(i) a withholding foreign partnership (generally a foreign
partnership that has entered into an agreement with the Internal
Revenue Service to assume primary withholding responsibility
with respect to distributions and guaranteed payments it makes
to its partners);
(ii) a qualified intermediary (generally a non-United States
financial institution or clearing organization or a non-United
States branch or office of a United States financial
institution or clearing organization that is a party to a
withholding agreement with the Internal Revenue Service); or
(iii) a United States branch of a non-United States bank or of a
non-United States insurance company; and the withholding
foreign partnership, qualified intermediary or United States
branch has received documentation upon which it may rely to
treat the payment as made to a person who is not a United
States person in accordance with United States Treasury
regulations (or, in the case of a qualified intermediary, in
accordance with its agreement with the Internal Revenue
Service);
(d) the United States payor receives a statement from a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business:
(i) certifying to the United States payor under penalties of perjury
that an Internal Revenue Service Form W-8BEN or an acceptable
substitute form has been received from you by it or by a similar
financial institution between it and you; and
(ii) to which is attached a copy of the Internal Revenue Service
Form W-8BEN or acceptable substitute form; or
(e) the United States payor otherwise possesses documentation upon
which it may rely to treat the payment as made to a person who is not a
United States person in accordance with United States Treasury
regulations.
With respect to payments of interest that are not treated as United States
source income, no United States federal income tax or withholding tax should
apply unless such payments of interest or amounts realized are effectively
connected with the conduct of a United States trade or business of the United
States alien holder.
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A United States alien holder generally is not subject to United States
federal income tax on gain realized on the sale, exchange or other disposition
of Notes unless:
- such United States alien holder is an individual who is present in the
United States for 183 days or more during the taxable year and certain
other requirements are met, or
- the gain is effectively connected with a United States trade or business
of the United States alien holder.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS. In general, if you are a noncorporate United States
holder, we and other payors are required to report to the United States Internal
Revenue Service all payments of principal and interest on your Notes. In
addition, we and other payors are required to report to the United States
Internal Revenue Service any payment of proceeds of the sale of your Notes
before maturity within the United States. In general, any payments with respect
to Notes, made within the United States to you are subject to backup withholding
tax if you are a non-corporate United States person and you:
- fail to provide an accurate taxpayer identification number;
- are notified by the United States Internal Revenue Service that you have
failed to report all interest or dividends required to be shown on your
federal income tax returns; or
- in certain circumstances, fail to comply with applicable certification
requirements.
UNITED STATES ALIEN HOLDERS. If you are a United States alien holder, you
generally are exempt from backup withholding and information reporting
requirements, but may be required to comply with certification and
identification procedures regarding your status as a United States alien holder.
United States holders and United States alien holders generally may obtain a
refund of any amounts withheld under the backup withholding rules that exceed
your income tax liability by filing a refund claim with the Internal Revenue
Service.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
This section provides fair summaries of the principal Canadian federal
income tax consequences under the Income Tax Act (Canada) (which we refer to in
this section as the "Act") and the regulations thereunder (which we refer to in
this section as the "Regulations") in effect at the date hereof generally
applicable to you of the exchange offer and owning Notes if you are a holder of
the Notes who:
- acquired Notes upon original issuance;
- holds the Notes as capital property (in general the Notes are considered
to be capital property to you unless you hold the Notes as inventory in
the course of carrying on a business, or you acquired the Notes in a
transaction or transactions considered to be an adventure or concern in
the nature of trade);
- deals at arm's length with us for purposes of the Act at all times (under
the Act, related persons are deemed not to deal at arm's length with each
other, and it is a question of fact whether persons not related to each
other deal at arm's length) and is not affiliated (as defined in the Act)
with us; and
- does not ever use or hold and is not deemed ever to use or hold the units
in connection with a business that you carry on, or are deemed to carry
on, in Canada at any time.
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Any reference to "Notes" in this prospectus refers to both Notes and
Exchange Notes, any reference to "Parent Notes" in this prospectus refers to
both Parent Notes and Exchange Parent Notes and any reference to "Subsidiary
Notes" in this prospectus refers to Subsidiary Notes and Exchange Subsidiary
Notes, unless the context requires otherwise.
Notes held by certain "financial institutions" (as defined in the Act) will
generally be subject to special "mark-to-market rules" contained in the Act.
These summaries do not take into account these mark-to-market rules and holders
to whom these rules may be relevant should consult their own tax advisors.
These summaries are based on the current provisions of the Act and the
Regulations, all specific proposals to amend the Act and Regulations publicly
announced by or on behalf of the Minister of Finance (Canada) before the date
hereof (which we refer to in this section as the "Proposals") and our Canadian
counsel's understanding of the current published administrative practices and
policies of the Canada Customs and Revenue Agency. These summaries assume that
the Act and the Regulations will be amended in accordance with the Proposals as
so announced although we cannot assure you that this will occur.
These summaries do not otherwise take into account or anticipate any changes
in law or practice, whether by judicial, governmental or legislative decision or
action, nor do they take into account tax legislation of any province, territory
or foreign jurisdiction. The provisions of provincial income tax legislation
vary from province to province in Canada and in some cases from federal income
tax legislation.
These summaries are of a general nature only and are not intended to be, nor
should they be construed to be, legal or tax advice to any particular holder,
and no representations with respect to the income tax consequences to any
particular holder are made. Accordingly, you should consult your own tax advisor
for advice with respect to the tax consequences to you of having acquired or
holding and disposing of Notes, including the application and effect of the
income and other tax laws of any country, province, state or local tax
authority.
For purposes of the Act, all amounts relating to the acquisition, holding or
disposition of Notes, including interest, adjusted cost base and proceeds of
disposition, must be converted into Canadian dollars based on the prevailing
United States dollar exchange rate at the time such amounts arise. Each unit
consists of a Parent Note and a Subsidiary Note. For Canadian income tax
purposes, a holder of a unit is considered to hold the Parent Note and the
Subsidiary Note comprising the unit and is required to allocate the purchase
price paid for the unit on a reasonable basis between the Parent Note and the
Subsidiary Note.
The exchange of your Notes for Exchange Notes in the exchange offer should
not constitute a disposition for Canadian federal income tax purposes.
Accordingly, the exchange offer should have no federal income tax consequences
to you if you exchange your Notes for the Exchange Notes. There should be no
change in your adjusted cost base and as such the adjusted cost base to you
following the exchange of the Exchange Parent Notes forming part of the Exchange
Units will be the same to you as the Parent Notes and the Exchange Subsidiary
Notes forming part of the Exchange Units will be the same to you as the
Subsidiary Notes, which formed part of the Units exchanged. In addition, the
Canadian federal income tax consequences of holding and disposing of your
Exchange Notes should also be the same as those applicable to your Notes.
RESIDENTS OF CANADA
The following summary is generally applicable to you if you, at all relevant
times, for purposes of the Act and any applicable tax treaty or convention, are
or are deemed to be resident in Canada. Certain holders whose Subsidiary Notes
might not otherwise qualify as capital property may be entitled
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to obtain such qualification in certain circumstances by making the irrevocable
election permitted by subsection 39(4) of the Act.
If you are a corporation, partnership, unit trust or trust of which a
corporation or partnership is a beneficiary, you are required to include in your
income for a taxation year any interest that accrues to you to the end of that
taxation year or becomes receivable or is received by you before the end of that
year, except to the extent that such amount was included in your income for a
preceding taxation year.
If you are any other holder of Notes, including an individual, you are
required to include in income for a taxation year any interest received or
receivable by you in that year (depending upon the method regularly followed by
you in computing income), except to the extent that such amount was included in
your income for a preceding taxation year.
Where you are required to include in income interest on the Notes that
accrued in respect of the period before your date of acquisition, you will be
entitled to a deduction in computing income of an equivalent amount. Your
adjusted cost base of the Notes will be reduced by the amount which is so
deductible.
Any premium paid by us because of the exercise of the right to redeem the
Notes before the maturity thereof will be deemed to be interest received at that
time by a holder to the extent that such premium can reasonably be considered to
relate to, and does not exceed the value at the time of the redemption of, the
interest that would have been paid or payable by the us on those Notes for a
taxation year ending after the redemption.
On a disposition of Notes, including a redemption or a purchase for
cancellation, you will generally be required to include in income any premium
deemed to be interest and the amount of interest accrued on the Notes from the
date of the last interest payment to the date of disposition to the extent that
such amount has not otherwise been included in your income for the taxation year
or a previous taxation year. In general, a disposition or deemed disposition of
Notes will give rise to a capital gain (or capital loss) to the extent that the
proceeds of disposition, net of any accrued interest or any amount deemed to be
interest and any reasonable costs of disposition, exceed (or are less than) the
adjusted cost base of the Notes to you immediately before the disposition.
One half of the amount of any capital gain (a "taxable capital gain")
realized by you in a taxation year generally must be included in income in that
year, and one half of the amount of any capital loss (an "allowable capital
loss") realized in a taxation year must be deducted from taxable capital gains
realized by you in that year. Allowable capital losses in excess of taxable
capital gains in that year ordinarily may be carried back and deducted in any of
the three preceding taxation years or carried forward and deducted in any
following taxation year against taxable capital gains realized in such years to
the extent and under the circumstances described in the Act. Capital gains
realized by an individual may be subject to alternative minimum tax.
If you are a "Canadian-controlled private corporation" (as defined in the
Act), you may be liable for the additional refundable tax of 6 2/3% on certain
investment income, including interest and taxable capital gains.
If you hold Parent Notes and you are a "specified Canadian entity" for a
taxation year or a fiscal period and your total cost amount of "specified
foreign property", including such Parent Notes, at any time in the year or
fiscal period exceeds $100,000, you are required to file an information return
for the year or period disclosing certain prescribed information in respect of
such Parent Notes. With some exceptions, generally, a taxpayer resident in
Canada in the year is a specified Canadian entity. If you are a holder of Parent
Notes, you should consult your own advisors with respect to the application of
these foreign property reporting rules to you.
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Under the Act and the Regulations, the Notes are not a qualified investment
for you if you are a trust governed by a registered retirement savings plan, a
registered retirement income fund, a deferred profit sharing plan, or a
registered education savings plan (each a "Plan"), are a prohibited investment
for a registered pension plan in respect of which we are or, generally, any
person with whom we do not deal at arm's length is, a participating employer,
and are not a prescribed investment for certain registered investments. There
are numerous adverse consequences under the Act to you if you acquired and hold
a Parent Note or Subsidiary Note. Accordingly, if you are a Plan, a registered
pension plan or a registered investment you are urged to consult your own tax
advisors with respect to the potential consequences to you of having acquired or
holding and disposing of the Notes.
A Parent Note is foreign property for purposes of Part XI of the Act to you
if you are a holder that is a Plan (other than registered education savings
plans which are not subject to the foreign property rules), a registered
investment or a registered pension plan that is subject to the foreign property
rules of Part XI of the Act. There may be adverse tax consequences under the Act
to you if you are such a holder who has acquired and holds a Parent Note.
Accordingly, if you are such a Plan, registered pension plan or registered
investment you are urged to consult your own tax advisors with respect to the
potential application to you of the foreign property rules in Part XI of the Act
in respect of the Parent Notes.
NON-RESIDENTS OF CANADA
The following summary is generally applicable to you if you, at all relevant
times, for purposes of the Act and any applicable tax treaty or convention, are,
or are deemed to be, a non-resident of Canada, do not use or hold and are not
deemed to use or hold the Notes in carrying on a business in Canada, and, if you
are a non-resident holder that is an insurer whose Notes are not designated
insurance property.
Interest, premium, if any, and principal paid to you if you are a
non-resident holder by The Hockey Company on the Parent Notes and Sport
Maska Inc. on the Subsidiary Notes, is exempt from Canadian non-resident
withholding tax. However, if Sport Maska Inc. pays amounts to you in accordance
with the Guarantee granted by Sport Maska Inc. in satisfaction of any amounts
that may reasonably be regarded as being or being attributable to interest
payable under the Parent Notes, such amounts may be subject to non-resident
withholding tax at a rate determined pursuant to the Act and any applicable
income tax treaty or convention to which Canada is a party. We have agreed to
gross up any such payment made by it pursuant to its Guarantee. See "Description
of the Notes--Additional Amounts". Similarly, depending upon the precise
arrangements and circumstances, there may be withholding taxes following:
(a) any of the events or arrangements summarized in this prospectus under the
sub-headings "Legal Defeasance and Covenant Defeasance", "Satisfaction and
Discharge" or "Certain Covenants--Merger, Consolidation or Sale of Assets" set
forth under the heading "Description of Notes"; or (b) assumption of obligations
under the Notes by any other party, and there are provisions for the gross up
for withholding taxes in these instances as well in accordance with and subject
to the terms of the provisions set out under "Description of the
Notes--Additional Amounts". Accordingly, you are urged to consult your own tax
advisors with respect to the potential consequences to you in respect of any
payments that you may receive following the aforesaid events or arrangements.
No other taxes on income (including taxable capital gains) are payable by
you in respect of the holding or disposition (including sale or redemption) of
the Notes or the receipt of interest, principal or premium thereon.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Units for its own account in
exchange for Units pursuant to the exchange offer, where such Units were
acquired by such broker-dealer as a result of market making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Units. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of Exchange Units received in exchange for Units where
such Units were acquired as a result of market-making activities or other
trading activities. We have agreed that, for a period which is the lesser of
180 days from the expiration of the exchange offer and the date on which all
such broker-dealers and the Initial Purchaser have sold all Exchange Units held
by them, we will make this prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of Exchange Units by
broker-dealers. Exchange Units received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Units or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such Exchange Units. Any broker-dealer
that resells Exchange Units that were received by it for its own account
pursuant to the exchange offer and that participates in a distribution of such
Exchange Units may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Units and any
commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of up to 180 days or any shorter period as provided in the
Registration Rights Agreement, we will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to any
broker-dealer that requests such documents in the letter of transmittal. We have
agreed to pay all expenses incident to the exchange offer, including the
expenses of one special counsel for all of the holders of the Units, other than
commissions or concessions of any broker-dealers. We will indemnify the holders
of the Units, including any broker-dealers, against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the Exchange Units and Exchange Notes and
certain legal matters in connection with this exchange offer will be passed upon
for us by Morgan, Lewis & Bockius LLP, New York, New York. Certain legal matters
in connection with this exchange offer regarding Canadian law will be passed
upon for us by Davies Ward Phillips & Vineberg LLP.
INDEPENDENT AUDITORS
Our consolidated balance sheets as of December 31, 2000 and December 31,
2001 and the related consolidated statements of operations, stockholders'
equity, comprehensive loss and cash flows for each year in the three-year period
ended December 31, 2001 included in this prospectus have been audited by Ernst
and Young LLP, our independent auditors.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.
You may read and copy any document we file with the SEC at the SEC's public
reference rooms at the following locations:
Please call the SEC at 1-800-SEC-0330 for further information on the
operations of the public reference rooms. Our SEC filings also are available to
the public at the SEC's web site at http://www.sec.gov.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 2000, and
December 31, 2001......................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, December 31, 2000, and December 31,
2001...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, December 31, 2000 and
December 31, 2001......................................... F-5
Consolidated Statements of Comprehensive Loss for the years
ended December 31, 1999, December 31, 2000 and
December 31, 2001......................................... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, December 31, 2000 and December 31,
2001...................................................... F-7
Notes to Consolidated Financial Statements.................. F-8
Unaudited and Audited Consolidated Balance Sheets as of
March 31, 2002 and December 31, 2001...................... F-31
Unaudited Consolidated Statements of Operations for the
Three Months ended March 31, 2002 and for the Three Months
ended March 31, 2001...................................... F-32
Unaudited Consolidated Statements of Comprehensive Loss for
the Three Months ended March 31, 2002 and for the Three
Months ended March 31, 2001............................... F-33
Unaudited Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2002 and for the Three Months
ended March 31, 2001...................................... F-34
Notes to Unaudited Consolidated Financial Statements........ F-35
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
THE HOCKEY COMPANY
We have audited the accompanying consolidated balance sheets of THE HOCKEY
COMPANY as of December 31, 2000 and 2001, and the related consolidated
statements of operations, stockholders' equity, comprehensive loss and cash
flows for each year in the three year period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of The Hockey
Company at December 31, 2000 and 2001, and the consolidated results of its
operations and its cash flows for each year of the three year period ended
December 31, 2001, in conformity with United States generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Chartered Accountants
Montreal, Canada,
March 8, 2002,
[except for notes 19 and 20, as to which
the date is May 3, 2002]
F-2
THE HOCKEY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
2000 2001
------------- -------------
ASSETS (NOTE 7)
Current Assets
Cash and cash equivalents................................. $ 2,423 $ 6,503
Accounts receivable, net (See Notes 3).................... 39,376 50,551
Inventories (See Note 4).................................. 42,110 42,865
Prepaid expenses.......................................... 3,931 4,891
Income taxes and other receivables........................ 4,043 1,718
-------- --------
Total current assets...................................... 91,883 106,528
Property, plant and equipment, net of accumulated
depreciation (See Note 5)................................. 21,142 16,834
Intangible and other assets, net of accumulated amortization
(See Note 6).............................................. 82,554 76,061
-------- --------
Total assets.............................................. $195,579 $199,423
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term debt (See Note 7).............................. $ 12,282 $ 27,792
Accounts payable.......................................... 7,607 7,301
Accrued liabilities....................................... 12,600 11,683
Accrued restructuring expenses (See Note 9)............... 488 1,886
Current portion of long-term debt (See Note 7)............ 264 243
Income taxes payable...................................... 3,322 3,470
-------- --------
Total current liabilities................................. 36,563 52,375
Long-term debt (See Note 7)................................. 91,252 86,350
Accrued dividends payable (see Note 8)...................... 3,676 5,779
Deferred income taxes and other long-term liabilities (See
Note 13).................................................. 495 1,128
-------- --------
Total liabilities......................................... 131,986 145,632
-------- --------
Commitments and Contingencies (See Notes 7, 11, 12 and 16)
13% Pay-in-Kind redeemable preferred stock (See Note 8)..... 11,333 11,571
Stockholders' equity:
Common stock, par value $0.01 per share, 20,000,000 shares
authorized, 6,500,549 shares issued and outstanding....... 65 65
Re-organization warrants, 300,000 issued and 299,451
outstanding (See Note 8).................................. -- --
Common stock purchase warrants, 699,101 issued and
outstanding (See Note 8).................................. 1,665 5,115
Additional paid-in capital.................................. 66,515 66,515
Deficit..................................................... (9,290) (22,090)
Accumulated other comprehensive loss........................ (6,695) (7,385)
-------- --------
Total stockholders' equity................................ 52,260 42,220
-------- --------
Total liabilities and stockholders' equity................ $195,579 $199,423
======== ========
The accompanying notes form an integral part of the financial statements.
F-3
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE DATA)
1999 2000 2001
-------- -------- --------
Net Sales................................................... $190,603 $194,463 $198,187
Cost of goods sold before restructuring charges............. 109,778 117,221 117,916
Restructuring and unusual charges (See Note 9).............. -- -- 1,198
-------- -------- --------
Gross profit................................................ 80,825 77,242 79,073
Selling, general and administrative expenses................ 58,990 65,080 61,148
Restructuring and unusual charges (See Note 9).............. -- -- 4,495
Amortization of excess reorganization value and goodwill.... 4,572 4,500 4,390
-------- -------- --------
Operating income............................................ 17,263 7,662 9,040
Other expense, net.......................................... 1,736 861 1,390
Interest expense............................................ 12,025 13,599 13,643
-------- -------- --------
Income (loss) before income taxes and extraordinary item.... 3,502 (6,798) (5,993)
Income taxes (See Note 13).................................. 5,276 1,293 3,375
-------- -------- --------
Net loss before extraordinary item.......................... (1,774) (8,091) (9,368)
Extraordinary item--Loss on early extinguishment of debt,
net of income taxes....................................... -- -- 1,091
-------- -------- --------
Net loss.................................................... (1,774) (8,091) (10,459)
Preferred stock dividends................................... 1,625 1,861 2,103
Accretion of 13% Pay-in-Kind preferred stock................ 226 237 238
-------- -------- --------
Net loss attributable to common stockholders................ $ (3,625) $(10,189) $(12,800)
======== ======== ========
Basic loss per share before extraordinary item (See Note
14)....................................................... $ (0.54) $ (1.53) $ (1.65)
Diluted loss per share before extraordinary item (See Note
14)....................................................... $ (0.54) $ (1.53) $ (1.65)
Basic loss per share (See Note 14).......................... $ (0.54) $ (1.53) $ (1.81)
Diluted loss per share (See Note 14)........................ $ (0.54) $ (1.53) $ (1.81)
The accompanying notes form an integral part of the financial statements.
F-4
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON ACCUMULATED
COMMON STOCK STOCK ADDITIONAL RETAINED OTHER
----------------------- PURCHASE PAID-IN EARNINGS COMPREHENSIVE
# OF STOCK AMOUNT WARRANTS CAPITAL (DEFICIT) LOSS TOTAL
------------ -------- --------- ---------- --------- -------------- --------
Balance at December 31, 1998.... 6,501 $65 $1,665 $66,515 $ 4,524 $(3,531) $ 69,238
Net Loss........................ (1,774) (1,774)
Dividend on preferred stock (see
Note 8)....................... (1,625) (1,625)
Accretion of 13% Pay-in-Kind
preferred stock............... (226) (226)
Foreign currency translation
adjustment.................... (1,976) (1,976)
----- --- ------ ------- -------- ------- --------
Balance at December 31, 1999.... 6,501 65 1,665 66,515 889 (5,507) 63,637
Net loss........................ (8,091) (8,091)
Dividend on preferred stock (See
Note 8)....................... (1,861) (1,861)
Accretion of 13% Pay-in-Kind
preferred stock............... (237) (237)
Foreign currency translation
adjustment.................... (1,188) (1,188)
----- --- ------ ------- -------- ------- --------
Balance at December 31, 2000.... 6,501 65 1,665 65,515 (9,290) (6,695) 52,260
Net loss........................ (10,459) (10,459)
Dividend on preferred stock (See
Note 8)....................... (2,103) (2,103)
Accretion of 13% Pay-in-Kind
preferred stock............... (238) (238)
Issuance of Warrants (See Note
8)............................ 3,450 3,450
Foreign currency translation
adjustment.................... (690) (690)
----- --- ------ ------- -------- ------- --------
Balance at December 31, 2001.... 6,501 $65 $5,115 $66,515 $(22,090) $(7,385) $ 42,220
===== === ====== ======= ======== ======= ========
The accompanying notes form an integral part of the financial statements.
F-5
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
1999 2000 2001
-------- -------- --------
Net loss.................................................... $(1,774) $(8,091) $(10,459)
Foreign currency translation adjustments.................... (1,976) (1,188) (690)
------- ------- --------
Comprehensive loss for the year............................. $(3,750) $(9,279) $(11,149)
======= ======= ========
The accompanying notes form an integral part of the financial statements.
F-6
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(IN THOUSANDS)
1999 2000 2001
-------- -------- --------
OPERATING ACTIVITIES:
Net loss before extraordinary items......................... $ (1,774) $(8,091) $ (9,368)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Restructuring charges..................................... -- -- 5,693
Depreciation and amortization............................. 10,664 11,070 11,522
Change in provisions for inventory, doubtful account and
other................................................... 6,352 7,815 8,427
Deferred income taxes..................................... (245) 274 20
Provision in lieu of taxes................................ 3,519 -- 1,360
(Gain) loss on disposal of property, plant & equipment.... 24 (17) (23)
(Gain) loss on foreign exchange........................... 1,475 (297) (1,598)
Change in operating assets and liabilities:
Accounts receivable....................................... (10,899) (3,036) (18,921)
Inventories............................................... (7,087) 2,843 (4,533)
Prepaid expenses.......................................... 916 (466) 2,036
Income taxes receivable................................... 249 (973) --
Other receivables......................................... 1,191 4 --
Accounts payable and accrued liabilities.................. (2,893) (4,617) (4,070)
Interest payable.......................................... (699) 404 --
Income taxes payable...................................... 174 328 333
Other..................................................... (91) -- --
-------- ------- --------
Net cash provided by (used in) operating activities..... 876 5,241 (9,122)
-------- ------- --------
INVESTING ACTIVITIES:
Deferred expenses......................................... -- (1,271) --
Purchases of property, plant & equipment.................. (4,821) (3,558) (1,478)
Proceeds from disposal of property, plant & equipment..... 172 30 341
-------- ------- --------
Net cash provided by (used in) financing activities..... (4,649) (4,799) (1,137)
-------- ------- --------
FINANCING ACTIVITIES:
Net change in short-term borrowings....................... 5,428 (1,404) 16,060
Principal payments on debt................................ (300) (138) (245)
Proceeds from long-term debt.............................. -- 1,139 677
Issuance of warrants...................................... -- -- 3,450
Deferred financing costs.................................. -- (866) (5,545)
Liabilities subject to compromise......................... (432) -- --
-------- ------- --------
Net cash used in investing activities..................... 4,696 (1,269) 14,397
Effect of foreign exchange rate on cash................... 3 (269) (58)
-------- ------- --------
Net change in cash and cash equivalents................... 926 (1,096) 4,080
Cash and cash equivalents at beginning of year............ 2,593 3,519 2,423
-------- ------- --------
Cash and cash equivalents at end of year.................. $ 3,519 $ 2,423 $ 6,503
-------- ------- --------
SUPPLEMENTAL INFORMATION:
Income taxes paid........................................... $ 2,714 $ 2,050 $ 2,640
Interest paid............................................... $ 12,153 $11,168 $ 12,167
F-7
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS
Description of Business, Change of Corporate Name and Principles Of
Consolidation:
The Hockey Company was incorporated in September 1991 and reorganized in
April 1997.
On January 31, 1999, the Board of Directors of The Hockey Company ("THC")
unanimously adopted an amendment to the Company's Certificate of Incorporation
to change the name of the Company from SLM International Inc. to The Hockey
Company. The amendment was filed with the Secretary of the State of the State of
Delaware on February 9, 1999.
The consolidated financial statements include the accounts of THC and its
wholly-owned subsidiaries (collectively, the "Company"). The Company designs,
develops, manufactures and markets a broad range of sporting goods. The Company
manufactures hockey and hockey related products, including hockey uniforms,
hockey sticks, protective equipment, hockey, figure and inline skates as well as
street hockey products, marketed under the CCM, KOHO, JOFA, TITAN, CANADIEN and
HEATON brand names. The Company sells its products worldwide to a diverse
customer base consisting of mass merchandisers, retailers, wholesalers, sporting
goods shops and international distributors. The Company manufactures and
distributes most of its products at facilities in North America, Finland and
Sweden and sources products internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION:
The preparation of financial statements in conformity with United States
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. Actual results could differ from those estimates. Certain of
the preceding years figures have been reclassified to conform to the
presentation adopted in the current year.
B. CASH EQUIVALENTS:
Cash equivalents consist of highly liquid short-term investments with
original maturities of three months or less. The Company invests excess funds in
bank term deposits, Canadian Government promissory notes and in U.S. Treasury
bills. At December 31, 2000 and 2001, the Company had no investments in bank
term deposits.
C. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of temporary cash investments and accounts
receivable. The Company restricts its cash investments to temporary investments
in institutions with high credit standing and to short-term securities backed by
the full faith and credit of the United States and Canadian and Quebec
Governments. The Company sells its products principally to retailers and
distributors and, in accordance with industry practice, grants extended payment
terms to qualified customers. Concentration of accounts receivable credit risk
is mitigated due to the performance of credit reviews that are considered in
determining credit policies and allowances for doubtful accounts. The Company
provides allowances for expected sales returns, net of related inventory cost
recoveries, discounts, rebates and
F-8
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
cooperative advertising. The Company does not collateralize its receivables,
except with respect to its debt agreements as described in Note 7 in the Notes
to Consolidated Financial Statements. As at December 31, 2000 and 2001, no
single account receivable represented more than 10% of the Company's
consolidated accounts receivable and no single customer accounted for more than
10% of the Company's consolidated net sales for each of the years in the three
year period ended December 31, 2001.
D. REVENUE RECOGNITION:
Revenue is recognized when products are shipped to customers. The Company
follows the guidance of Accounting Principles Board ("APB") Opinion no. 29,
"Accounting for non-monetary transactions." This APB provides guidance on
accounting for transactions that involve primarily an exchange of non-monetary
assets, liabilities or services. Revenues include transactions which represent
an exchange by the Company of hockey equipment and related apparel for
advertising. Revenues and expenses from these transactions are recorded at the
lower of estimated fair value of the services or the goods delivered. Revenue
and expenses recognized from the transactions were $690 in 2000 and $1,551 in
2001.
E. INVENTORIES:
Inventories are stated at the lower of cost or net realizable value for
finished products and work in process, and replacement cost for raw materials
and supplies. Cost is determined using the first-in, first-out method. The
Company provides allowances for excess, obsolete and slow moving inventories.
F. RESEARCH & DEVELOPMENT EXPENSES:
Costs for new product research and development as well as changes to
existing products are expensed as incurred and totaled $2,289, $2,259 and $1,545
for the years ended December 31, 1999, 2000, and 2001, respectively.
G. PREPAID EXPENSES:
The Company expenses advertising and promotion costs incurred when the
advertising takes place. Royalty payments are deferred to the extent that the
related sales have not yet been recorded. Such costs are included in prepaid
expenses.
H. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives using
principally the straight-line method of depreciation.
F-9
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimated service lives of the respective assets are as follows:
YEARS
--------
Buildings and improvements.................................. 5-40
Machinery and equipment..................................... 3-10
Tools, dies and molds....................................... 3-5
Office furniture and equipment.............................. 3-10
Accelerated methods of depreciation are used for tax reporting purposes
where required. Significant additions or major improvements are capitalized,
while normal maintenance and repair costs are expensed. When assets are sold,
retired or otherwise disposed of, the applicable costs and accumulated
depreciation are removed from the accounts, and the resulting gain or loss is
recognized.
The Company periodically reviews property, plant and equipment for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. When such circumstances occur, the
Company estimates future cash flows expected to result from the use and eventual
disposition of the assets. If the expected future cash flows are less than the
carrying amount, the Company recognizes an impairment loss.
I. INCOME TAXES:
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory tax rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense consists of both the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
The Company does not provide for withholding income taxes on the
undistributed earnings of its non-U.S. subsidiaries, since such earnings are not
expected to be remitted to the Company in the foreseeable future. The Company
has provided, in its U.S. tax provision, taxes on all of the unremitted earnings
of its non-U.S. subsidiaries to December 31, 2001.
Fresh-start reporting requires the Company to report a provision in lieu of
income taxes when there is a book taxable income and utilization of a
pre-reorganization net operating loss carry-forward. This requirement applies
despite the fact that the Company's pre-reorganization net operating loss
carry-forward and other deferred tax assets would eliminate the related federal
income tax payable. The current and future year tax benefit related to the carry
forward is recorded as a reduction of reorganizational value in excess of
amounts allocable to identifiable assets until exhausted and then as a direct
increase to paid-in capital.
J. FOREIGN CURRENCY TRANSLATION:
The balance sheets of our non-U.S. subsidiaries are translated into U.S.
dollars at the exchange rates in effect at the end of each year. Revenues,
expenses and cash flows are translated at weighted average rates of exchange.
Gains or losses resulting from foreign currency transactions are included in
F-10
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
earnings, while those resulting from translation of financial statement balances
are shown as a separate component of stockholders' equity. The functional
currencies of our non-U.S. subsidiaries, which are primarily located in Canada,
Finland and Sweden, are the respective local currencies in each foreign country.
The Company's investment in the Canadian subsidiary is effectively hedged by
the Canadian dollar denominated debt up to the investment in the Canadian
subsidiary. For the year ended December 31, 2001, approximately $2,000 was
credited to accumulated other comprehensive loss as a result of the hedge
(2000--$l,400).
K. INTANGIBLE ASSETS:
Intangible assets are recorded at cost and are amortized on a straight-line
basis over 25 years. These amounts include the excess purchase price over fair
values assigned ("goodwill"), reorganizational value in excess of amounts
allocable to identifiable assets ("excess reorganizational value") (see Note 6)
and deferred financing costs (amortized over the life of the financing).
Effective January 1, 2002 goodwill will no longer be amortized but will be
tested annually for impairment.
Excess reorganizational value is amortized on a straight-line basis over
twenty years and is being reduced by the realization of deferred tax assets.
L. EARNINGS PER SHARE:
Basic earnings per share is calculated using the weighted average number of
shares of common stock outstanding during the year. Diluted earnings per share
is computed based on the average number of shares of common stock assumed to be
outstanding during each year. Common stock equivalents are included when
dilutive (see Notes 8, 14 and 15).
M. PENSION LIABILITY
The Company provides a defined-benefit pension plan covering its senior
executives. Pension benefits are based on age, years of service and compensation
rates. Pension expense was $267 in 2001, and the unfunded liability amounted to
$687 at December 31, 2001, which is included in deferred income taxes and other
long-term liabilities.
3. ACCOUNTS RECEIVABLE
Net accounts receivable include:
2000 2001
-------- --------
Allowance for doubtful accounts............................. $2,022 $2,837
Allowance for returns, discounts, rebates and cooperative
advertising............................................... 5,607 6,947
------ ------
$7,629 $9,784
====== ======
Bad debt expense for the years ended December 31, 1999, 2000, and 2001 was
$480, $670, and $1,381, respectively.
F-11
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
4. INVENTORIES
Inventories consist of:
2000 2001
-------- --------
Finished product............................................ $29,745 $31,892
Work in process............................................. 2,727 2,665
Raw materials and supplies.................................. 9,638 8,308
------- -------
$42,110 $42,865
======= =======
Allowances for excess, obsolete and slow moving inventories were $3,890 and
$2,568 at December 31, 2000 and 2001, respectively.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
2000 2001
-------- --------
Land and improvements....................................... $ 241 $ 230
Buildings and improvements.................................. 6,901 7,149
Machinery and equipment..................................... 17,487 16,044
Tools, dies and molds....................................... 3,178 3,275
Office furniture and equipment.............................. 5,645 5,692
------- -------
33,452 32,390
Less: accumulated depreciation and amortization............. 12,310 15,556
------- -------
$21,142 $16,834
======= =======
Depreciation and amortization expense for the years ended December 31, 1999,
2000, and 2001, was $4,330, $4,502, and $4,311, respectively.
Included above are land and building in the amount of $622 held for resale,
as a result of the Company's restructuring in 2001 related to the apparel
segment which approximates fair value.
6. INTANGIBLE AND OTHER ASSETS
Net intangible and other assets consist of:
2000 2001
-------- --------
Goodwill.................................................... $46,643 $42,883
Excess reorganizational value............................... 30,052 26,367
Deferred financing costs.................................... 2,084 3,817
Other....................................................... 3,775 2,994
------- -------
$82,554 $76,061
======= =======
F-12
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
6. INTANGIBLE AND OTHER ASSETS (CONTINUED)
Amortization expense for intangible and other assets was $6,334, $6,569 and
$7,211 at December 31, 1999, 2000 and 2001, respectively.
Excess reorganizational value was reduced by $1,360 for the year ended
December 31, 2001 (2000--nil) by the realization of deferred tax assets.
7. REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
A. REVOLVING CREDIT FACILITIES:
Revolving credit facilities consist of the following:
2000 2001
-------- --------
Revolving credit facilities with General Electric Capital
Inc....................................................... $12,282 $27,792
======= =======
Effective November 19, 1998, two of our U.S. subsidiaries, Maska U.S., Inc.
and SHC Hockey Inc. entered into a credit agreement (the "U.S. Credit
Agreement") with the lenders referred to therein and with General Electric
Capital Corporation, as Agent and Lender. Simultaneously, two of the Company's
Canadian subsidiaries, Sport Maska Inc. and Tropsport Acquisitions Inc., entered
into a credit agreement (the "Canadian Credit Agreement") with the lenders
referred to therein and with General Electric Capital Canada Inc., as Agent and
Lender. The Credit Agreements are collateralized by all accounts receivable,
inventories and related assets of the borrowers and the Company's other North
American subsidiaries and are further collateralized by a second lien on all of
the Company's and the Company's North American subsidiaries' other tangible and
intangible assets.
On March 14, 2001, the Second Amendment to the U.S. Credit Agreement was
entered into by Maska U.S., Inc., as borrower, the Credit Parties, the U.S.
Lenders and General Electric Capital Corporation, as Agent and Lender.
Simultaneously, the Second Amendment to the Canadian Credit Agreement was
entered into by Sport Maska Inc., as borrower, the Credit Parties, the Canadian
Lenders and General Electric Capital Canada Inc., as Agent and Lender. On terms
and subject to the conditions of each of the Second Amendments, the Credit
Agreements were amended to reflect the Amended and Restated Credit Agreement (as
hereinafter defined). The maximum amount of loans and letters of credit that may
be outstanding under the two credit agreements is $60,000. Each of the Credit
Agreements is subject to a minimum excess requirement of $1,750 in certain
months. Total borrowings outstanding under the Credit Agreement at December 31,
2000 and December 31, 2001 were $12,282 and $27,792, respectively (excluding
outstanding letters of credit of $5,732 (2000--927)). The Credit Agreements will
mature on October 17, 2002. Management believes the Credit Agreements can be
renewed or refinanced upon maturity.
Borrowings under the U.S. Credit Agreement bear interest at rates of either
U.S. prime rate plus 0.50%-1.25% or LIBOR plus 1.75%-2.75% depending on the
Company's Operating Cash Flow Ratio, as defined in the agreement. Borrowings
under the Canadian Credit Agreement bear interest at rates of either the
Canadian prime rate plus 0.75%-1.50%, or LIBOR plus 1.75%-2.75% depending on the
Company's Operating Cash Flow Ratio, as defined in the agreement. In addition,
the borrowers are charged a monthly commitment fee at an annual rate of up to
3/8 of 1% on the unused portion of the revolving credit facilities under the
Credit Agreements and certain other fees.
F-13
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
7. REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT (CONTINUED)
The Credit Agreements contain customary negative and affirmative covenants
including those relating to capital expenditures, minimum interest coverage and
fixed charges coverage ratio. The agreement restricts, among others, the ability
to pay cash dividends on the preferred shares.
Effective March 18, 1999, Jofa AB (Jofa), a Swedish subsidiary of the
Company, entered into a credit agreement with Nordea Bank in Sweden. The maximum
amount of loans and letters of credit that may be outstanding under the
agreement is SEK 50,000 ($4,900). The facility is collateralized by the assets
of Jofa, excluding intellectual property, bears interest at a rate of STIBOR
(3.9% at December 31, 2001) plus 0.65% and is renewable annually. Total
borrowings as at December 31, 2001 and 2000 were nil. Effective 2002, this
credit agreement, which matures on December 31, 2002, was amended to a maximum
amount of loans and letters of credit of SEK 90,000 ($8,800). Management
believes this credit agreement can be renewed or refinanced upon maturity. If
this agreement cannot be renewed or refinanced with Nordea Bank in Sweden, we
will have to seek alternate sources of financing to replace this credit
agreement.
Effective July 10, 2001, KHF Finland Oy (KHF), a Finnish subsidiary of the
Company, entered into a credit agreement with Nordea Bank in Finland, replacing
the former credit facility for FIM 30,000 ($4,600) which was terminated during
2001. The maximum amount of loans and letters of credit that may be outstanding
under the agreement is EUR 2,400 ($2,100). The facility is collateralized by the
assets of KHF and bears interest at a rate of EURIBOR (3.3% at December 31,
2001) plus 0.9% and is renewable annually. Total borrowings as at December 31,
2000 and 2001 were nil.
The weighted average interest rate on short-term debt outstanding at
December 31, 1999, 2000 and 2001 was 8.32%, 8.49% and 6.96%, respectively.
B. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
2000 2001
-------- --------
Secured loans from Caisse de depot et placement du Quebec
(Canadian $135,800)....................................... $90,521 $85,923
Other long-term debt........................................ 995 670
------- -------
91,516 86,593
Less: amounts contractually due within one year............. 264 243
------- -------
Total long-term debt, excluding current portion............. $91,252 $86,350
======= =======
SECURED LOANS
On November 19,1998, in connection with its acquisition of Sports Holdings
Corp., the Company and Sport Maska Inc. entered into a Secured Loan Agreement
with the Caisse de depot et placement du Quebec ("Caisse") to borrow a total of
Canadian $135,800. The loan was initially for a period of two years that was
extended until March 14, 2001, on which date, an Amended and Restated Credit
Agreement was entered into by the Company and Sport Maska Inc., as borrowers,
Caisse, as Agent and Lender, and Montreal Trust Company, as Paying Agent (the
"Amended and Restated Credit
F-14
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
7. REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT (CONTINUED)
Agreement"). On the terms and subject to the conditions of the Amended and
Restated Credit Agreement, Facility 1 of the Caisse Loan, which is a facility in
the maximum amount of Canadian $90,000, was extended to June 30, 2004, and
Facility 2 of the Caisse Loan, which is a facility in the maximum amount of
Canadian $45,800, was extended to October 31, 2002. A repayment of Facility 1 in
the minimum amount of Canadian $5,000 is due on January 31, 2004. Facility 1 and
Facility 2 have been fully utilized and no new advances are expected to be made
under the Amended and Restated Credit Agreement. Each facility bears interest
equal to the Canadian prime rate plus 5%, and Facility 2 bears additional
interest of 3.5% which is to be capitalized and repaid on Facility 2 maturity.
At December 31, 2001, Facility 2 included $654 (2000--nil) of capitalized
interest. The loan is collateralized by all of the tangible and intangible
assets of the Company subject to the prior ranking claims on accounts receivable
and inventories by the lenders under the Company's revolving credit facilities.
The loan is guaranteed by the Company and certain of its subsidiaries.
The loan contains customary negative and affirmative covenants including
those relating to capital expenditures, total indebtedness to EBITDA and minimum
interest coverage, and a minimum EBITDA requirement which was met in 2001. The
agreement restricts, among others, the ability to pay cash dividends on the
preferred shares.
On March 8, 2002, the Company acquired an option from the lender to extend
the maturity of Facility 2 plus capitalized interest to February 28, 2003 in
exchange for a nominal fee. The unconditional and irrevocable option maintains
all the terms of the Amended and Restated Credit Agreement and expires on
April 30, 2002. As a result, Facility 2 plus capitalized interest has been
classified as a non-current liability in the consolidated Balance Sheet at
December 31, 2001. Management is proceeding with a debt offering which is
intended to repay Facility 1 and Facility 2 plus capitalized interest entirely.
If the debt offering does not close, upon maturity of Facility 2 on
February 28, 2003, the Company will have to seek alternative financing sources
with a third party or will be dependent on the lender to extend the maturity of
Facility 2 or to convert the debt into common stock of the Company.
In May 2000, Jofa AB, a subsidiary of the Company, entered into a loan
agreement with Nordea Bank Sweden to borrow SEK 10,000 ($973). The loan is for
4 years with annual principal repayments of SEK 2,500 ($243). The loan is
secured by a chattel mortgage on the assets of the subsidiary and bears an
interest rate of STIBOR plus 1.25%.
Based on the borrowing rates currently available to the Company for bank
loans and other financing with similar terms, the Company estimated that the
fair value of its short-term debt and long-term debt at December 31, 2000 and
2001 was equivalent to the carrying values in the financial statements. These
values represent a general approximation of possible value and may never be
realized.
8. COMMON STOCK, WARRANTS AND PREFERRED STOCK
The Company has authorized 20,000,0000 shares of common stock of which of
6,500,549 are issued and outstanding.
F-15
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
8. COMMON STOCK, WARRANTS AND PREFERRED STOCK (CONTINUED)
Pursuant to the Warrant Agreement, dated as of March 14, 2001, between the
Company and Caisse, the Company issued a warrant to Caisse to purchase 539,974
shares of common stock, par value $.01 per share, of the Company, representing
approximately 7.5% of the outstanding common stock, on a fully diluted basis, at
an exercise price of $.01 per share. The number of shares issuable upon exercise
of the warrants is subject to certain adjustments as provided in the Warrant
Agreement. The fair value of the warrants was determined to be $3,450 and has
been recorded in Stockholders' equity as stock purchase warrants. In addition,
the Company also issued warrants to Caisse to acquire 409,653 shares of common
stock, par value $0.01 per share, which are only exercisable by Caisse if
Facility 2 is not repaid in cash by October 31, 2002.
On April 11, 1997, in connection with a re-organization, THC's old common
stock was extinguished and the holders received a total of 300,000 five-year
warrants to purchase an aggregate of 300,000 shares of common stock at an
exercise price of $16.92 per share (subject to adjustments for stock splits,
stock dividends, recapitalizations and similar transactions). Each holder of 67
shares of old common stock can receive one warrant to purchase, for cash, one
share of common stock, with no fractional warrants issued.
On November 19, 1998, the Company issued 100,000 shares of 13% Pay-In-Kind
redeemable preferred stock, $0.01 par value per share, cumulative preferred
stock together with warrants to purchase 159,127 common shares of the Company at
a purchase price of $0.01 per share, for cash consideration of $12,500 (par
value). The fair value of the warrants was determined to be $1,665 and has been
recorded in Stockholder's equity as common stock purchase warrants. The balance
of the proceeds, $10,835, has been recorded as 13% Pay-In-Kind preferred stock.
The difference between the redemption value of the preferred stock and the
recorded amount is being accreted on a straight-line basis over the seven-year
period ending November 19, 2005, by a charge to retained earnings.
Dividends, which are payable semi-annually from November 19, 1998, may be
paid in cash or in shares of the 13% Pay-In-Kind preferred stock, at the
Company's option. The preferred stock is non-voting. If the Company fails to
redeem the preferred stock on or before the mandatory redemption date and for a
sixty day period or more after being notified of its failure to redeem the
preferred stock, then the preferred stockholders, as a class of stockholders,
have the option to elect one director to our Board of Directors with the
provision that the preferred stockholders are to elect 28% of the Company's
directors. In connection with the debt offering as described in Notes 7 and 19,
the Company has obtained an agreement from the holder to extend the redemption
of the preferred stock to six months beyond the maturity of the notes,
conditional upon closing of the debt offering. At December 31, 2001 unpaid
dividends of $5,779 (2000--$3,676) have been accrued on the preferred stock and
are included as long-term liabilities, given the restrictions of our Credit
Agreements and accordingly prior year's amounts have been reclassified.
The preferred stock is redeemable. However, under the terms of the Company's
debt covenants the preferred stock may not be redeemed while its debt is
outstanding.
The preferred stock must be redeemed by the Company upon a change of control
or by the mandatory redemption date.
F-16
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
9. RESTRUCTURING AND UNUSUAL CHARGES
In 2001, the Company embarked on a plan to rationalize its operations and
consolidate its facilities. This rationalization involved the elimination of
certain redundancies, both in terms of personnel and operations as well as the
consolidation of facilities including the closure of the Mount Forest, Ontario
plant, and the Paris, France sales office, and the consolidation of North
American distribution into Canada. Approximately 380 employees were affected, of
which 240 were from the apparel segment. Accordingly, the Company has set up
reserves of approximately $5,700 for the expected cost of the restructuring. Of
this amount, approximately $4,300 is to cover the cost of severance packages to
affected employees, with the remainder representing other closure costs. Of
these amounts, approximately $1,900 remained unpaid at year-end.
10. RELATED PARTY TRANSACTIONS
In 2001, the Company was charged a management fee of $100 by Wellspring
Capital Management LLC, the controlling shareholder, and, in 2000, a fee of $180
for services performed in connection with the extension of the Caisse loan.
11. LEASES
Certain of our subsidiaries lease office and warehouse facilities and
equipment under operating lease agreements. Some lease agreements provide for
annual rent increases based upon certain factors including the Consumer Price
Index.
The following is a schedule of future minimum lease payments under
non-cancelable operating leases with initial terms in excess of one year at
December 31, 2001:
2002........................................................ $2,994
2003........................................................ 2,559
2004........................................................ 2,188
2005........................................................ 514
2006 and beyond............................................. 1,294
------
$9,549
======
Rental expense for the years ended December 31, 1999, 2000 and 2001 was
approximately $3,293, $3,376 and $3,068, respectively.
12. ROYALTIES AND ENDORSEMENTS
Certain of the Company's subsidiaries have entered into agreements that call
for royalty payments generally based on net sales of certain products and
product lines. Certain agreements require guaranteed minimum payments over the
royalty term. The Company also pays certain professional
F-17
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
12. ROYALTIES AND ENDORSEMENTS (CONTINUED)
players and teams an endorsement fee in exchange for the promotion of the
Company's brands. The following is a schedule of the future minimum payment and
annual obligations under these contracts.
2002........................................................ $12,924
2003........................................................ 11,985
2004........................................................ 11,816
2005........................................................ 5,908
2006 and beyond............................................. 38
-------
$42,671
=======
Royalty and endorsement expenses for the years ended December 31, 1999, 2000
and 2001 were $7,436, $10,461 and $11,914, respectively. In the 2001-2002
license year, if the earned royalties are less than 50% of the minimum royalties
in force for that year ($6,900) then a penalty of $1,000 must be paid to
National Hockey League Enterprises.
13. INCOME TAXES
The components of income taxes are:
1999 2000 2001
-------- -------- --------
Current:......................................... U.S. $ 468 $ 229 $ 80
Non-U.S. 1,534 790 1,915
------ ------ ------
2,002 1,019 1,995
Deferred:........................................ U.S. (352) -- --
Non-U.S. 107 274 20
------ ------ ------
(245) 274 20
Provision in Lieu of Taxes:...................... U.S. 3,201 -- 1,360
Non-U.S. 318 -- --
------ ------ ------
3,519 -- 1,360
------ ------ ------
$5,276 $1,293 $3,375
====== ====== ======
The Company's effective income tax rate from continuing operations differed
from the federal statutory rate as follows:
1999 2000 2001
-------- -------- --------
Income taxes based on U.S. federal tax rate................. 34% 34% 34%
Non-U.S. and state tax rates................................ (4)% 1% 4%
Valuation allowance......................................... (52)% (7)% (21)%
Goodwill amortization....................................... 48% (27)% (29)%
Deemed dividend under subpart F, net of foreign tax
credit.................................................... 112% (16)% (36)%
Other, net.................................................. 12% (4)% (8)%
----- ----- -----
Effective income tax rate................................... 150% (19)% (56)%
===== ===== =====
F-18
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2000 and
2001 are as follows:
2000 2001
-------------------- --------------------
U.S. NON-U.S. U.S. NON-U.S.
-------- --------- -------- ---------
Accounts receivable, principally due to an allowance for
doubtful accounts...................................... $ 1,461 $ -- $ 3,013 $ --
Inventories, principally due to additional costs
inventoried for tax purposes........................... 390 -- 661 --
Accrued interest and royalties........................... 2,355 -- 2,355 --
Other, net............................................... 109 -- 100 --
------- --------- ------- ---------
4,315 -- 6,129 --
Valuation Allowance...................................... (4,315) -- (6,129) --
------- --------- ------- ---------
Total current deferred tax assets (liabilities).......... $ -- $ -- $ -- $ --
======= ========= ======= =========
2000 2001
------------------- -------------------
U.S. NON-U.S. U.S. NON-U.S.
-------- -------- -------- --------
Net operating loss and investment tax credit
carry-forwards....................................... $ 20,556 $ 438 $ 19,689 $ 756
Plant, equipment and depreciation...................... (81) (2,422) (65) (2,375)
Restructuring accruals................................. -- 677 -- 275
Other, net............................................. -- 1,250 -- 1,659
-------- ------- -------- -------
20,475 (57) 19,624 315
Valuation allowance.................................... (20,475) (438) (19,624) (756)
-------- ------- -------- -------
Total non-current deferred tax assets (liabilities).... $ -- $ (495) $ -- $ (441)
======== ======= ======== =======
Realization of deferred tax assets is dependent on future earnings, the
timing and amounts of which are uncertain. Accordingly, the net deferred tax
assets have been fully offset by a valuation allowance. The valuation allowance
increased by $1,281 (2000--increased by $464) during the year.
Fresh-start reporting requires the Company to report a provision in lieu of
income taxes when there is a book taxable income and utilization of a
pre-reorganization net operating loss carry-forward. This requirement applies
despite the fact that the Company's pre-reorganization net operating loss
carry-forward and other deferred tax assets would eliminate the related federal
income tax payable. The current and future year tax benefit related to the
carry-forward is recorded as a reduction of reorganizational value in excess of
amounts allocable to identifiable assets until exhausted and then as a direct
increase to paid in capital. The amount of income tax provision which has been
used to reduce the reorganizational value in excess of amounts allocable to
identifiable assets has been reflected as a provision in lieu of income taxes in
the Company's Consolidated Statements of Operations.
F-19
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
13. INCOME TAXES (CONTINUED)
At December 31, 2001, the Company has net operating loss carry-forwards
related to U.S. operations for income tax purposes of approximately $49,000
($54,100 in 2000). The carry-forward balances begin to expire in 2010 and have
been fully reserved by a valuation allowance. Of this valuation allowance,
$18,227 would reduce intangible and other assets if reversed. The Company's
ability to use remaining loss carry-forwards is limited in use on an annual
basis as a result of a change in control of the Company on April 11, 1997 in
connection with the Reorganization Plan and its acquisition of SHC in 1998.
The Company has post-reorganization foreign tax credit carryover in the
amount of $8,400, which will begin to expire December 31, 2005.
There are no undistributed earnings from continuing operations of
subsidiaries outside the U.S., for which no provision for U.S. taxes has been
made.
14. EARNINGS PER SHARE
1999 2000 2001
----------------------- ----------------------- -----------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ---------- ---------- ----------
Net loss before extraordinary
item attributable to common
stockholders................ $ (3,625) $ (3,625) $ (10,189) $ (10,189) $ (11,709) $ (11,709)
Net loss attributable to
common stockholders......... $ (3,625) $ (3,625) $ (10,189) $ (10,189) $ (12,800) $ (12,800)
Weighted average common and
common equivalent shares
outstanding:
Common stock.................. 6,500,549 6,500,549 6,500,549 6,500,549 6,500,549 6,500,549
Common equivalent shares(a)... 158,977 193,741 158,930 158,930 585,530 585,530
Total weighted average common
and common equivalent shares
outstanding................. 6,659,526 6,694,290 6,659,479 6,659,479 7,086,079 7,086,079
Net loss before extraordinary
item per common share(b).... $ (0.54) $ (0.54) (1.53) $ (1.53) $ (1.65) $ (1.65)
Net loss per common
share(b).................... $ (0.54) $ (0.54) (1.53) $ (1.53) $ (1.815) $ (1.81)
------------------------
(a) Common equivalent shares include warrants and stock options issuable for
little or no cash consideration.
(b) Other warrants and stock options are considered in diluted earnings per
share when dilutive. The Company used the average book value of its common
stock in calculating the common equivalent shares as required by statement
of Financial Accounting Standards No. 128 due to the fact that the Company's
stock had extremely limited trading volume during the period.
F-20
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
14. EARNINGS PER SHARE (CONTINUED)
(c) Options to purchase 1,322,222 shares of common stock and warrants to
purchase 299,451 shares of common stock were outstanding during 2001
(982,222 and 299,451 in 2000 respectively) but were not included in the
computation of diluted earnings per share because the options exercise price
was greater than the average book value of the common stock.
15. STOCK OPTION PLAN
During 2001, 440,000 additional stock options were granted at an exercise
price of $8.50 per share. In addition, the Company has approved the reduction of
the exercise price per share of stock options held by certain employees relating
to 160,000 shares at prices of $10.00 to $14.00 to $8.50, of which 150,000
shares are subject to options held by executive officers. Prior to 2001, the
Company granted stock options to purchase 982,222 shares of Common Stock in the
Company at a weighted average exercise price of $11.64 to certain key employees.
The exercise prices of the stock options are not less than the estimated fair
market value of the shares at the time the options were granted. Generally,
these stock options become exercisable over a five-year vesting period and
expire 10 years from the date of the grant. Options granted for the Common Stock
are as follows:
SHARES EXERCISE PRICE
--------- --------------
December 31, 2000........................................... 982,222 $10.00-16.00
Options granted............................................. 440,000 $8.50
Options canceled............................................ 100,000 $10.00-14.00
Options Exercised........................................... --
---------
December 31, 2001........................................... 1,322,222
=========
The following table summarizes information about stock options outstanding
at December 31, 2001.
OUTSTANDING EXERCISABLE
------------------------------- -------------------
AVERAGE AVERAGE
AVERAGE EXERCISE EXERCISE
SHARES LIFE(A) PRICE SHARES PRICE
--------- -------- -------- -------- --------
Exercise Price Range
$8.50-$9.99........................................... 600,000 10 $ 8.50 175,000 $ 8.50
$10.00-11.99.......................................... 361,112 5 $10.00 361,112 $10.00
$12.00-14.00.......................................... 216,666 5 $13.00 216,666 $13.00
Over $15.00........................................... 144,444 5 $15.50 144,444 $15.50
--------- --- ------ ------- ------
Total................................................. 1,322,222 7.3 $10.41 897,222 $11.32
========= === ====== ======= ======
------------------------
(a) Average contractual life remaining in years.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for stock options. Accordingly, no compensation cost has been
recognized. Had compensation cost for the stock options been determined based on
the fair value at the grant dates for awards, consistent with the alternative
method set forth under Statement of Financial Accounting Standards No. 123
("SFAS 123"),
F-21
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
15. STOCK OPTION PLAN (CONTINUED)
Accounting for Stock-Based Compensation, there would have been no change in the
Company's net loss and net loss per share. The impact of SFAS 123 may not be
representative of the effect on income in the future years because options vest
over several years and additional option grants may be made each year.
16. CONTINGENCIES
Other than certain legal proceedings arising from the ordinary course of
business, which we believe will not have a material adverse effect, either
individually or collectively, on the financial position, results of operations
or cash flows, there is no other litigation pending or threatened against us.
17. SEGMENT INFORMATION
REPORTABLE SEGMENTS
The Company has two reportable segments: Equipment and Apparel. The
Equipment segment derives its revenue from the sale of skates, including ice
hockey, roller hockey and figure skates, as well as protective hockey equipment
and sticks for both players and goaltenders. The Apparel segment derives its
revenue from the sale of hockey apparel, such as authentic and replica hockey
jerseys, as well as a high quality line of licensed and branded apparel,
baseball style caps and jackets.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on gross profit. Segment assets include only inventory.
INFORMATION ABOUT SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
For the year ended and as at December 31, 1999:
EQUIPMENT APPAREL SEGMENT TOTALS
--------- -------- --------------
Net Sales................................................... $147,852 $42,751 $190,603
Gross profit................................................ 61,679 19,146 80,825
Inventory................................................... 35,752 13,203 48,955
For the year ended and as at December 31, 2000:
EQUIPMENT APPAREL SEGMENT TOTALS
--------- -------- --------------
Net Sales................................................... $141,102 $53,361 $194,463
Gross profit................................................ 55,645 21,597 77,242
Inventory................................................... 28,653 13,457 42,110
F-22
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
17. SEGMENT INFORMATION (CONTINUED)
For the year ended and as at December 31, 2001:
EQUIPMENT APPAREL SEGMENT TOTALS
--------- -------- --------------
Net Sales................................................... $135,160 $63,027 $198,187
Gross profit................................................ 52,997 26,076 79,073
Inventory................................................... 25,750 17,115 42,865
RECONCILIATION OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS FOR THE YEARS ENDED
DECEMBER 31:
SEGMENT PROFIT OR LOSS 1999 2000 2001
---------------------- -------- -------- --------
Gross Profit................................................ $80,825 $77,242 $79,073
Unallocated amounts:
Selling, general and administrative expenses................ 58,990 65,080 61,148
Restructuring and unusual charges........................... -- -- 4,495
Amortization of excess re-organizational value and
goodwill.................................................. 4,572 4,500 4,390
Other expense, net.......................................... 1,736 861 1,390
Interest expense............................................ 12,025 13,599 13,643
------- ------- -------
Income (loss) before income taxes and extraordinary item.... $ 3,502 $(6,798) $(5,993)
======= ======= =======
SEGMENT ASSETS 1999 2000 2001
-------------- -------- -------- --------
Total assets for reportable segments........................ $ 48,955 $ 42,110 $ 42,865
Unallocated amounts:
Cash........................................................ 3,519 2,423 6,503
Account receivable.......................................... 42,998 39,376 50,551
Prepaid expenses............................................ 2,622 3,931 4,891
Income taxes and other receivables.......................... 2,963 4,043 1,718
Property, plant and equipment, net.......................... 22,860 21,142 16,834
Intangible and other assets, net............................ 85,694 82,554 76,061
-------- -------- --------
Total assets................................................ $209,611 $195,579 $199,423
======== ======== ========
GEOGRAPHIC INFORMATION
NET SALES 1999 2000 2001
--------- -------- -------- --------
United States............................................... $ 79,230 $ 85,952 $ 89,069
Canada...................................................... 65,299 65,411 62,903
Sweden...................................................... 20,791 20,273 20,593
Finland and other........................................... 25,283 25,827 25,622
-------- -------- --------
Total net sales............................................. $190,603 $194,463 $198,187
======== ======== ========
F-23
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
18. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. Under the new rules, goodwill and
intangible assets with indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their estimated useful
lives.
The Company will apply the new rules on accounting for goodwill beginning
the first quarter of 2002. The Company will test goodwill annually for
impairment using a two-step process prescribed in Statement 142. The first step
is a screen for potential impairment, while the second step measures the amount
of the impairment, if any. The Company expects to complete the required testing
of indefinite lived assets as of January 1, 2002 in the first half of 2002.
In August 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS. Under the new rules, assets held for sale would be recorded at the lower
of the assets' carrying amounts and fair values and would cease to be
depreciated. The Company believes the impact of this statement will not
significantly affect its financial position or results of operations.
19. SUBSEQUENT EVENTS
On April 3, 2002, the Company issued $125,000 11 1/4% Senior Secured Note
Units due April 15, 2009, [the "Notes"] a discount of 1.194%, each such Unit
consisting of $0.5 principal amount of 11 1/4% Senior Secured Notes due
April 15, 2009 of THC and $0.5 principal amount of 11 1/4% Senior Secured Notes
due April 15, 2009 of Sport Maska Inc., a wholly-owned subsidiary of THC through
a private placement.
THC has fully and unconditionally guaranteed the Sport Maska Inc. Notes on a
senior secured basis. Sport Maska Inc. has fully and unconditionally guaranteed
the Company Notes. Also, certain subsidiaries of the Company and Sport
Maska Inc., excluding the Finnish subsidiaries, have fully and unconditionally
guaranteed the Notes on a senior secured basis. The Notes and guarantees are
secured by substantially all the tangible and intangible assets of the Company,
excluding the Finnish subsidiaries, subject to the prior ranking claims by
lenders under the revolving credit facilities [see Note 7a] and by a pledge of
stock of the Finnish subsidiaries. The security interest in the Company's
Swedish subsidiaries [other than intellectual property] is limited to $15,000.
[See Note 20]
The Notes may be redeemed at any time after April 15, 2006 at the following
redemption prices [expressed as percentages of the principal amount thereof]
plus accrued and unpaid interest to the date of redemption, if redeemed during
the twelve-month period commencing on April 15 of the year set forth below:
YEAR PERCENTAGE
---- ----------
2006........................................................ 105.625%
2007........................................................ 102.813%
2008 and thereafter......................................... 100.000%
F-24
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
19. SUBSEQUENT EVENTS (CONTINUED)
In addition, up to one third of the Notes may be redeemed with the net
proceeds of an equity offering at any time until April, 15, 2005 at a redemption
price of 111.25% of the principal amount plus accrued and unpaid interest to the
date of redemption. If the Company undergoes a change of control, the Company
will be required to offer to purchase the units from the holders at 101% of
principal amount plus accrued and unpaid interest to the date of repurchase.
The proceeds of $123,508 were used (i) to repay all outstanding secured
loans under the Amended and Restated Credit Agreement, dated March 14, [See
Note 7b] (ii) to repay a portion of the secured indebtedness under the U.S. and
Canadian Credit Agreement [See Note 7a], (iii) to pay fees and expenses of the
Offering and (iv) for general corporate purposes. The Amended and Restated
Credit Agreement with Caisse and any documents related thereto have been
terminated and are of no further force and effect. Among other financial
covenants, the Notes restrict the Company's ability to borrow under its
revolving credit facilities to a maximum of $35,000 and limit payment of
dividends or repurchase of stock.
Also, concurrent with the repayment of the Caisse loan, the Caisse exercised
its warrants to purchase 539,974 shares of common stock at $.01 per share. [See
Note 8]
20. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
THC's and Sport Maska Inc.'s payment obligations under the Notes [Note 19]
are guaranteed by certain subsidiaries of the THC's and Sport Maska Inc.'s
wholly owned subsidiaries [the "Other Guarantors"] excluding the Finnish
subsidiaries which is a pledge of the stock. Such guarantees are full,
unconditional and joint and several. Under the Company's revolving credit
facilities, both Sport Maska Inc. and Maska U.S., Inc. are restricted from
paying dividends or providing loans or advances to the Company. The following
supplemental financial information sets forth, on an unconsolidated basis,
balance sheets, statements of operations and statements of cash flows
information for THC, Sport Maska Inc., Other Guarantors and for the Company's
other subsidiaries [the "Non-Guarantor Subsidiaries"] which have been included
in the eliminations column. The supplemental financial information reflects the
investments of the THC, Sport Maska Inc. and the Other Guarantors in the Other
Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of
accounting. The supplemental financial information also reflects pushdown of the
Company's loan with the Caisse in connection with the acquisition of Sports
Holdings Corp. on November 19, 1998.
F-25
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
20. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 2001 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ------------- --------
ASSETS
Current Assets
Cash and cash equivalents.............. $ -- $ 6 $ 2,002 $ 4,495 $ 6,503
Accounts receivable, net............... -- 17,615 32,268 668 50,551
Inventories............................ -- 27,539 15,726 (400) 42,865
Prepaid expenses....................... 790 2,438 1,581 82 4,891
Income taxes and other receivable...... 420 1,187 111 -- 1,718
Intercompany accounts.................. 66,325 35,262 33,492 (135,079) --
-------- -------- -------- --------- --------
Total current assets................... 67,535 84,047 85,180 (130,234) 106,528
Property, plant and equipment, net of
accumulated depreciation............... -- 12,579 2,199 2,056 16,834
Intangible and other assets, net of
accumulated amortization............... 1,119 25,781 48,606 555 76,061
Investments in subsidiaries.............. 36,769 -- 43,470 (80,239) --
Intercompany accounts.................... 11,092 -- 24,058 (35,150) --
-------- -------- -------- --------- --------
Total assets........................... $116,515 $122,407 $203,513 $(243,012) $199,423
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term debt........................ $ -- $ 12,769 $ 15,023 $ -- $ 27,792
Accounts payable and accrued
liabilities and restructuring
expenses............................. 933 10,961 8,744 232 20,870
Current portion of long term debt...... -- -- 243 -- 243
Income taxes payable................... -- 2,046 1,265 159 3,470
Intercompany accounts.................. 1,534 27,309 84,437 (113,280) --
-------- -------- -------- --------- --------
Total current liabilities.............. 2,467 53,085 109,712 (112,889) 52,375
Long-term debt........................... 22,586 39,279 24,485 -- 86,350
Deferred income taxes and other long-term
liabilities............................ 5,779 2,135 1,122 (2,129) 6,907
Intercompany accounts.................... 24,058 -- 43,930 (67,988) --
-------- -------- -------- --------- --------
Total liabilities...................... 54,890 94,499 179,249 (183,006) 145,632
13% pay-in-kind redeemable preferred
stock.................................. 11,571 -- -- -- 11,571
Stockholders' equity
Common stock, par value $0.01 per
share,................................. 65 29,281 4,770 (34,051) 65
Common stock purchase warrants........... 5,115 -- -- -- 5,115
Additional paid-in capital............... 66,515 -- 19,344 (19,344) 66,515
Retained earnings (deficit).............. (22,089) (668) 799 (132) (22,090)
Accumulated other comprehensive loss..... 448 (705) (649) (6,479) (7,385)
-------- -------- -------- --------- --------
Total stockholders' equity............. 50,054 27,908 24,264 (60,006) 42,220
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................... $116,515 $122,407 $203,513 $(243,012) $199,423
======== ======== ======== ========= ========
F-26
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
20. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 2000 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ------------- --------
ASSETS
Current Assets
Cash and cash equivalents.............. $ -- $ 925 $ 516 $ 982 $ 2,423
Accounts receivable, net............... -- 15,857 22,966 553 39,376
Inventories............................ -- 29,136 13,357 (383) 42,110
Prepaid and other expenses............. 760 1,810 1,262 99 3,931
Income taxes receivable................ 421 3,101 357 164 4,043
Intercompany accounts.................. 65,380 26,476 26,813 (118,669) --
-------- -------- -------- --------- --------
Total current assets................... 66,561 77,305 65,271 (117,254) 91,883
Property, plant and equipment, net of
accumulated depreciation............... -- 15,812 2,705 2,625 21,142
Intangible and other assets, net
accumulated amortization............... 662 28,137 53,316 439 82,554
Investment in subsidiaries............... 44,275 -- 41,442 (85,717) --
Intercompany accounts.................... 11,092 -- 25,345 (36,437) --
-------- -------- -------- --------- --------
Total assets........................... $122,590 $121,254 $188,079 $(236,344) $195,579
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term debt........................ $ -- $ 6,362 $ 5,920 $ -- $ 12,282
Accounts payable and accrued
liabilities and restructuring
expenses............................. 1,027 10,631 8,066 971 20,695
Current portion of long term debt...... -- -- 264 -- 264
Income taxes payable................... -- 1,989 1,303 30 3,322
Intercompany accounts.................. -- 24,161 72,964 (97,125) --
-------- -------- -------- --------- --------
Total current liabilities.............. 1,027 43,143 88,517 (96,124) 36,563
Long-term debt........................... 23,795 41,381 26,076 -- 91,252
Deferred income taxes and other long-term
liabilities............................ 3,676 2,071 599 (2,175) 4,171
Intercompany accounts.................... 25,345 -- 43,930 (69,275) --
-------- -------- -------- --------- --------
Total liabilities...................... 53,843 86,595 159,122 (167,574) 131,986
13% pay-in-kind redeemable preferred
stock 11,333 -- -- -- 11,333
Stockholders' equity
Common stock, par value $0.01 per
share,................................. 65 31,085 4,869 (35,954) 65
Common stock purchase warrants........... 1,665 -- -- -- 1,665
Additional paid-in capital............... 66,515 -- 19,344 (19,344) 66,515
Retained earnings (deficit).............. (9,290) 4,095 5,088 (9,183) (9,290)
Accumulated other comprehensive loss..... (1,541) (521) (344) (4,289) (6,695)
-------- -------- -------- --------- --------
Total stockholders' equity............. 57,414 34,659 28,957 (68,770) 52,260
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................... $122,590 $121,254 $188,079 $(236,344) $195,579
======== ======== ======== ========= ========
F-27
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
20. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
YEAR ENDED THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 2001 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ------------- --------
Net sales................................... $ -- $122,769 $120,047 $ (44,629) $198,187
Cost of goods sold before restructuring
charges................................... -- 89,024 79,498 (50,606) 117,916
Restructuring and unusual charges........... -- 1,198 -- -- 1,198
-------- -------- -------- --------- --------
Gross profit.............................. -- 32,547 40,549 5,977 79,073
Selling, general and administrative
expenses.................................. 59 25,434 33,024 2,631 61,148
Restructuring and unusual charges........... -- 2,424 2,071 -- 4,495
Amortization of excess reorganization value
and goodwill.............................. -- 1,253 3,345 (208) 4,390
-------- -------- -------- --------- --------
Operating income (loss)................... (59) 3,436 2,109 3,554 9,040
Other expense, net([1])..................... 7,280 963 (1,883) (4,970) 1,390
Interest expense............................ 2,832 6,562 4,434 (185) 13,643
-------- -------- -------- --------- --------
Income (loss) before income taxes and
extraordinary item........................ (10,171) (4,089) (442) 8,709 (5,993)
-------- -------- -------- --------- --------
Income taxes................................ -- 176 2,256 943 3,375
-------- -------- -------- --------- --------
Net income (loss) before extraordinary
item...................................... (10,171) (4,265) (2,698) 7,766 (9,368)
Extraordinary item
Loss on early extinguishing of debt, net.... 288 499 304 -- 1,091
-------- -------- -------- --------- --------
Net income (loss)........................... $(10,459) $ (4,764) $ (3,002) $ 7,766 $(10,459)
======== ======== ======== ========= ========
--------------------------
[1] Other expense, net for The Hockey Company and Other Guarantors includes
equity in net income (loss) of subsidiaries of ($7,506) and $2,028
respectively.
NON-GUARANTOR
YEAR ENDED THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 2000 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ---------------- --------
Net sales............................... $ -- $119,983 $104,925 $ (30,445) $194,463
Cost of goods sold...................... 88,323 65,394 (36,496) 117,221
-------- -------- -------- --------- --------
Gross profit.......................... -- 31,660 39,531 6,051 77,242
Selling, general and administrative
expenses.............................. 15 29,389 32,750 2,926 65,080
Amortization of excess reorganization
value and goodwill.................... -- 1,306 3,391 (197) 4,500
-------- -------- -------- --------- --------
Operating income (loss)............... (15) 965 3,390 3,322 7,662
Other expense, net([1])................. 5,249 (179) (1,522) (2,687) 861
Interest expense........................ 2,827 6,555 4,181 36 13,599
-------- -------- -------- --------- --------
Income (loss) before income taxes....... (8,091) (5,411) 731 5,973 (6,798)
Income taxes............................ -- (643) 853 1,083 1,293
-------- -------- -------- --------- --------
Net income (loss)....................... $ (8,091) $ (4,768) $ (122) $ 4,890 $ (8,091)
======== ======== ======== ========= ========
--------------------------
[1] Other expense, net for The Hockey Company and Other Guarantors includes
equity in net income (loss) of subsidiaries of ($5,264) and $1,767
respectively.
F-28
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
20. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
YEAR ENDED THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 1999 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ---------------- --------
Net sales............................... $ -- $123,621 $103,134 $ (36,152) $190,603
Cost of goods sold...................... -- 85,779 64,785 (40,786) 109,778
-------- -------- -------- --------- --------
Gross profit.......................... -- 37,842 38,349 4,634 80,825
Selling, general and administrative
expenses.............................. 409 26,910 28,605 3,066 58,990
Amortization of excess reorganization
value and goodwill.................... -- 1,304 3,432 (164) 4,572
-------- -------- -------- --------- --------
Operating income (loss)............... (409) 9,628 6,312 1,732 17,263
Other expense, net([1])................. (1,948) 1,132 (1,197) 3,749 1,736
Interest expense........................ 2,544 5,443 3,862 176 12,025
-------- -------- -------- --------- --------
Income (loss) before income taxes....... (1,005) 3,053 3,647 (2,193) 3,502
Income taxes............................ 769 1,338 3,168 1 5,276
-------- -------- -------- --------- --------
Net income (loss)....................... $ (1,774) $ 1,715 $ (479) $ (2,194) $ (1,774)
======== ======== ======== ========= ========
--------------------------
[1] Other expense net for The Hockey Company and Other Guarantors include equity
in net income (loss) of subsidiaries of, ($2,731) and $933 respectively.
NON-GUARANTOR
YEAR ENDED THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 2001 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ---------------- --------
Net cash provided by (used in) operating
activities............................ $ 498 $ (5,531) $ (6,412) $ 2,323 $ (9,122)
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment............................. -- (1,288) (97) (93) (1,478)
Proceeds from disposal of property,
plant and equipment................... -- 715 765 (1,139) 341
-------- -------- -------- --------- --------
Net cash provided by (used in) investing
activities............................ -- (573) 668 (1,232) (1,137)
-------- -------- -------- --------- --------
FINANCING ACTIVITIES:
Net change in short-term debt
borrowings............................ -- 6,957 9,103 -- 16,060
Principal payments on debt.............. -- -- (245) -- (245)
Proceeds from long-term debt............ 370 307 -- -- 677
Issuance of warrants.................... 3,450 -- -- -- 3,450
Deferred financing cost................. (4,318) (2,060) (1,541) 2,374 (5,545)
-------- -------- -------- --------- --------
Net cash provided by (used in) financing
activities............................ (498) 5,204 7,317 2,374 14,397
Effects of foreign exchange rate on
cash.................................. -- (19) (87) 48 (58)
-------- -------- -------- --------- --------
Net change in cash and cash
equivalents........................... -- (919) 1,486 3,513 4,080
Cash and cash equivalents at beginning
of year............................... -- 925 516 982 2,423
-------- -------- -------- --------- --------
Cash and cash equivalents at end of
year.................................. $ -- $ 6 $ 2,002 $ 4,495 $ 6,503
-------- -------- -------- --------- --------
F-29
THE HOCKEY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
20. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
YEAR ENDED THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 2000 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ---------------- --------
Net cash provided by (used in) operating
activities............................ $ 2,148 $ 2,097 $ 7,727 $ (6,731) $ 5,241
-------- -------- -------- --------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment............................. -- (3,100) (303) (155) (3,558)
Proceeds from disposal of property,
plant and equipment, and deferred
expenses.............................. -- 30 (1,271) -- (1,241)
-------- -------- -------- --------- --------
Net cash used in investing activities... -- (3,070) (1,574) (155) (4,799)
-------- -------- -------- --------- --------
FINANCING ACTIVITIES:
Net change in short-term borrowings..... -- 2,568 (8,004) 4,032 (1,404)
Principal payments on debt.............. -- -- (138) -- (138)
Proceeds from long-term debt............ -- -- 1,092 47 1,139
Deferred financing cost................. (2,148) (427) (228) 1,937 (866)
-------- -------- -------- --------- --------
Net cash provided by (used in) financing
activities............................ (2,148) 2,141 (7,278) 6,016 (1,269)
Effects of foreign exchange rate on
cash.................................. -- 12 (80) (201) (269)
-------- -------- -------- --------- --------
Net change in cash and cash
equivalents........................... -- 1,180 (1,205) (1,071) (1,096)
Cash and cash equivalents at beginning
of year............................... -- (255) 1,721 2,053 3,519
-------- -------- -------- --------- --------
Cash and cash equivalents at end of
year.................................. $ -- $ 925 $ 516 $ 982 $ 2,423
-------- -------- -------- --------- --------
NON-GUARANTOR
YEAR ENDED THE HOCKEY OTHER SUBSIDIARIES/
DECEMBER 31, 1999 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
----------------- ---------- ---------------- ---------- ---------------- --------
Net cash provided by (used in) operating
activities............................ $ 432 $ 4,450 $ (5,020) $ 1,014 $ 876
-------- -------- -------- --------- --------
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment............................. -- (4,288) (283) (250) (4,821)
Proceeds from disposal of property,
plant and equipment................... -- 172 -- -- 172
-------- -------- -------- --------- --------
Net cash used in investing activities... -- (4,116) (283) (250) (4,649)
-------- -------- -------- --------- --------
FINANCING ACTIVITIES:
Net change in short-term borrowings..... -- (1,377) 6,372 433 5,428
Proceeds from long-term debt............ -- -- (830) 530 (300)
Liabilities subject to compromise....... (432) -- -- -- (432)
-------- -------- -------- --------- --------
Net cash provided by (used in) financing
activities............................ (432) (1,377) 5,542 963 4,696
Effects of foreign exchange rate on
cash.................................. -- 81 (24) (54) 3
-------- -------- -------- --------- --------
Net change in cash and cash
equivalents........................... -- (962) 215 1,673 926
Cash and cash equivalents at beginning
of year............................... -- 707 1,506 380 2,593
-------- -------- -------- --------- --------
Cash and cash equivalents at end of
year.................................. $ -- $ (255) $ 1,721 $ 2,053 $ 3,519
-------- -------- -------- --------- --------
F-30
THE HOCKEY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DEC. 31, 2001 MAR. 31, 2002
-------------- --------------
AUDITED UNAUDITED
ASSETS
Current assets
Cash and cash equivalents................................. $ 6,503 $ 4,385
Accounts receivable, net.................................. 50,551 37,578
Inventories (Note 2)...................................... 42,865 45,645
Prepaid expenses and other receivables.................... 4,891 4,940
Income taxes receivable................................... 1,718 1,727
-------- --------
Total current assets...................................... 106,528 94,275
Property, plant and equipment, net of accumulated
depreciation ($15,556 and $16,175, respectively).......... 16,834 16,083
Goodwill and excess re-organization intangible, net of
accumulated amortization (Note 3)......................... 69,250 69,117
Other assets................................................ 6,811 6,107
-------- --------
Total assets.............................................. $199,423 $185,582
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings (Note 4)............................ $ 27,792 $ 21,209
Accounts payable and accrued liabilities.................. 20,870 18,076
Income taxes payable...................................... 3,470 3,050
Current portion of long term debt (Note 4)................ 243 241
-------- --------
Total current liabilities................................. 52,375 42,576
Long-term debt (Note 4)..................................... 86,350 86,606
Accrued dividends payable (Note 5).......................... 5,779 6,373
Deferred income taxes and other long-term liabilities....... 1,128 495
-------- --------
Total liabilities......................................... 145,632 136,050
-------- --------
Contingencies (Note 7)
13% Pay-In-Kind preferred stock (Note 5).................... 11,571 11,630
-------- --------
Stockholders' equity
Common stock, par value $0.01 per share, 20,000,000 shares
authorized, 6,500,549 shares issued and outstanding....... 65 65
Re-organization warrants, 300,000 issued and 299,451
outstanding (Note 5)...................................... -- --
Common stock purchase warrants, 699,101 issued and
outstanding (Note 5)...................................... 5,115 5,115
Additional paid-in capital.................................. 66,515 66,515
Deficit..................................................... (22,090) (25,737)
Accumulated other comprehensive loss........................ (7,385) (8,056)
-------- --------
Total stockholders' equity................................ 42,220 37,902
-------- --------
Total liabilities and stockholders' equity................ $199,423 $185,582
======== ========
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-31
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
2001 2002
-------- --------
Net sales................................................... $ 34,835 $34,161
Cost of goods sold before restructuring charges............. 20,873 19,364
Restructuring and unusual charges (Note 9).................. 901 --
-------- -------
Gross profit.............................................. 13,061 14,797
Selling, general and administrative expenses................ 14,921 14,486
Restructuring and unusual charges (Note 9).................. 2,005 --
Amortization of excess reorganization value and goodwill.... 1,105 --
-------- -------
Operating income (loss)................................... (4,970) 311
Other expense, net.......................................... 576 543
Interest expense............................................ 2,991 2,656
-------- -------
Loss before income taxes and extraordinary item............. (8,537) (2,888)
Income taxes................................................ 134 106
-------- -------
Loss before extraordinary item.............................. (8,671) (2,994)
Extraordinary item
Loss on early extinguishing of debt, net of income
taxes................................................... 1,091 --
-------- -------
Net loss.................................................... (9,762) (2,994)
Preferred stock dividends................................... 526 594
Accretion of 13% Pay-In-Kind preferred stock................ 59 59
-------- -------
Net loss attributable to common shareholders................ $(10,347) $(3,647)
======== =======
Basic and diluted loss per share before extraordinary item
(See Note 6).............................................. $ (1.37) $ (0.51)
Basic and diluted loss per share (See Note 6)............... $ (1.53) $ (0.51)
Adjusted loss before extraordinary item and amortization of
excess reorganization value and goodwill.................. (7,566) (2,994)
Adjusted loss before amortization of excess reorganization
value and goodwill........................................ (8,657) (2,994)
Adjusted loss per share before extraordinary item and
amortization of excess reorganization value and
goodwill.................................................. (1.12) (0.51)
Adjusted loss per share before amortization of excess
reorganization value and goodwill......................... (1.28) (0.51)
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-32
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
THREE MONTHS ENDED
MARCH 31
(UNAUDITED)
(IN THOUSANDS)
2001 2002
-------- --------
Net loss.................................................... $ (9,762) $(2,994)
Foreign currency translation adjustments.................... (823) (671)
-------- -------
Net comprehensive loss...................................... $(10,585) $(3,665)
======== =======
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-33
THE HOCKEY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31
(UNAUDITED)
(IN THOUSANDS)
2001 2002
-------- --------
OPERATING ACTIVITIES:
Net loss before extraordinary item.......................... $(8,671) $(2,994)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Restructuring charges..................................... 2,906 --
Depreciation and amortization............................. 3,290 1,479
Deferred income taxes..................................... 121 (407)
Gain on disposal of fixed assets.......................... (6) --
Gain on foreign exchange.................................. (488) (19)
Change in operating assets and liabilities:
Accounts receivable....................................... 9,259 12,922
Inventories............................................... (5,864) (2,920)
Prepaid expenses and other receivables.................... (502) 192
Accounts payable and accrued liabilities.................. (9,058) (3,107)
Income taxes payable...................................... (935) (416)
------- -------
Net cash provided by (used in) operating activities..... (9,948) 4,730
------- -------
INVESTING ACTIVITIES:
Deferred expense.......................................... 268 34
Purchases of fixed assets................................. (543) (242)
Proceeds from sales of fixed assets....................... 8 --
------- -------
Net cash used in investing activities................... (267) (208)
------- -------
FINANCING ACTIVITIES:
Net change in short-term borrowings....................... 10,468 (6,585)
Deferred financing costs.................................. (5,937) (137)
Proceeds from long-term debt.............................. -- 365
Principal payments on debt................................ (63) (60)
Issuance of warrants...................................... 3,450 --
------- -------
Net cash provided by (used in) financing activities..... 7,918 (6,417)
------- -------
Effects of foreign exchange rate changes on cash............ 392 (223)
------- -------
Decrease in cash............................................ (1,905) (2,118)
Cash and cash equivalents at beginning of period............ 2,423 6,503
------- -------
Cash and cash equivalents at end of period.................. $ 518 $ 4,385
======= =======
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
F-34
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS, CHANGE OF CORPORATE NAME AND PRINCIPLES OF
CONSOLIDATION
The Hockey Company ("THC" or the "Company") was incorporated in
September 1991 and reorganized in April 1997.
The consolidated financial statements include the accounts of The Hockey
Company and its wholly-owned subsidiaries (collectively, the "Company"). The
Company designs, develops, manufactures and markets a broad range of sporting
goods. The Company manufactures hockey and hockey related products, including
hockey uniforms, hockey sticks, protective equipment and hockey, figure and
inline skates, as well as street hockey products, marketed under the
CCM-Registered Trademark-, KOHO-Registered Trademark-,
JOFA-Registered Trademark- ,TITAN-Registered Trademark-, CANADIEN-TM- and
HEATON-Registered Trademark- brand names. The Company sells its products
worldwide to a diverse customer base consisting of mass merchandisers,
retailers, wholesalers, sporting goods shops and international distributors. The
Company manufactures and distributes most of its products at facilities in North
America, Finland and Sweden and sources products internationally.
B. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
appearing in this quarterly report have been prepared on a basis consistent with
the annual financial statements of THC and its subsidiaries, except for the
application of accounting pronouncements as discussed below.
In the opinion of management, all normal recurring adjustments necessary for
a fair presentation of the Company's Unaudited Consolidated Balance Sheets,
Statements of Operations, Statements of Comprehensive Loss and Statements of
Cash Flows for the 2002 and 2001 periods have been included. These unaudited
interim consolidated financial statements do not include all of the information
and footnotes required by United States generally accepted accounting principles
to be included in a full set of financial statements. Results for the interim
periods are not necessarily a basis from which to project results for the full
year due to the seasonality of the Company's business. These unaudited
consolidated financial statements should be read in conjunction with the
Company's annual report on Form 10-K, filed with the Securities and Exchange
Commission for the year ended December 31, 2001. Certain prior period amounts
have been reclassified to conform to the current period presentation.
C. ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, BUSINESS COMBINATIONS, and No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS. Under the new rules, goodwill and
intangible assets with indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will continue to be amortized over their estimated useful
lives.
The Company has applied the new rules on accounting for goodwill as of
January 1, 2002. The Company will test goodwill annually for impairment using a
two-step process prescribed in Statement 142. The first step is a screen for
potential impairment, while the second step measures the amount of the
impairment, if any. The Company expects to complete the required testing of
indefinite lived assets for initial impairment as of January 1, 2002 in the
first half of 2002.The amounts of goodwill and excess re-organizational value
have not yet been allocated to reporting units and will be allocated in the
second quarter.
F-35
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
In August 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 144, IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS. Under the new rules, assets held for sale would be recorded at the lower
of the assets' carrying amounts and fair values and would cease to be
depreciated. The Company adopted the Statement as of January 1, 2002 and no
significant transition adjustment resulted from its adoption.
On April 30, 2002, the Financial Accounting Standards Board Issued SFAS
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections. SFAS No. 145 rescinds Statement 4,
which required all gains and losses from extinguishment of debt to be classified
as an extraordinary item, net of related income tax effect, if material in the
aggregate. Due to the rescission of SFAS No. 4, the criteria in Opinion 30 will
now be used to classify those gains and losses.
The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002. Any gain or loss on
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria for classification as an
extraordinary item will be reclassified. The provisions of SFAS No. 145 related
to SFAS No. 13 are effective for transactions occurring after May 15, 2002. All
other provisions of this Statement shall be effective for financial statements
issued on or after May 15, 2002. The Company is currently assessing the impact
adoption of this statement will have on its financial statements.
2. INVENTORIES
Net inventories consist of:
DECEMBER 31, 2001 MARCH 31, 2002
------------------ ---------------
Finished products.............................. $31,892 $34,609
Work in process................................ 2,665 2,712
Raw materials and supplies..................... 8,308 8,324
------- -------
$42,865 $45,645
======= =======
3. GOODWILL AND EXCESS RE-ORGANIZATION INTANGIBLE
Goodwill and excess re-organization intangible consist of:
DECEMBER 31, 2001 MARCH 31, 2002
------------------ ---------------
Goodwill....................................... $42,883 $42,750
Excess re-organization intangible.............. 26,367 26,367
------- -------
$69,250 $69,117
======= =======
F-36
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
4. REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT
A) REVOLVING CREDIT FACILITIES
Effective November 19, 1998, two of the Company's U.S. subsidiaries, Maska
U.S., Inc. and SHC Hockey Inc., entered into a credit agreement (the "U.S.
Credit Agreement") with the lenders referred to therein and with General
Electric Capital Corporation, as Agent and Lender. Simultaneously, two of the
Company's Canadian subsidiaries, Sport Maska Inc. and Tropsport Acquisitions
Inc., entered into a credit agreement (the "Canadian Credit Agreement") with the
lenders referred to therein and with General Electric Capital Canada Inc., as
Agent and Lender. The Credit Agreements are collateralized by all accounts
receivable, inventories and related assets of the borrowers and the Company's
other North American subsidiaries and are further collateralized by a second
lien on all of the Company's and the Company's North American subsidiaries'
other tangible and intangible assets.
On March 14, 2001, the Second Amendment to the U.S. Credit Agreement was
entered into by Maska U.S., Inc., as borrower, the Credit Parties, the U.S.
Lenders and General Electric Capital Corporation, as Agent and Lender.
Simultaneously, the Second Amendment to the Canadian Credit Agreement was
entered into by Sport Maska Inc., as borrower, the Credit Parties, the Canadian
Lenders and General Electric Capital Canada Inc., as Agent and Lender. On terms
and subject to the conditions of each of the Second Amendments, the Credit
Agreements were amended to reflect the Amended and Restated Credit Agreement (as
hereinafter defined). The maximum amount of loans and letters of credit that may
be outstanding under the two credit agreements is $60,000. However, under the
terms of the Offering (See Note 10), indebtedness cannot exceed $35,000 and must
be repaid in its entirety at least once a year. Each of the Credit Agreements is
subject to a minimum excess requirement of $1,750 in certain months. Total
borrowings outstanding under the Credit Agreements at December 31, 2001 and
March 31, 2002 were $27,792 and $18,636, respectively (excluding outstanding
letters of credit of $5,732 at December 31, 2001 and $5,543 at March 31, 2002).
The Credit Agreements will mature on October 17, 2002. Management believes the
Credit Agreements can be renewed or refinanced upon maturity.
Borrowings under the U.S. Credit Agreement bear interest at rates of either
U.S. prime rate plus 0.50%-1.25% or LIBOR plus 1.75%-2.75% depending on the
Company's Operating Cash Flow Ratio, as defined in the agreement. Borrowings
under the Canadian credit agreement bear interest at rates between the Canadian
prime rate plus 0.75% to 1.50%, or LIBOR plus 1.75% to 2.75% depending on the
Company's Operating Cash Flow Ratio, as defined in the agreement. In addition,
the borrowers are charged a monthly commitment fee at an annual rate of up to
3/8 of 1% on the unused portion of the revolving credit facilities under the
Credit Agreements and certain other fees.
The Credit Agreements contain customary negative and affirmative covenants
including those relating to capital expenditures, minimum interest coverage and
fixed charges coverage ratio. The agreement restricts, among others, the ability
to pay cash dividends on the preferred shares.
Effective March 18, 1999, Jofa AB (Jofa), a Swedish subsidiary of the
Company, entered into a credit agreement with Nordea Bank in Sweden. The maximum
amount of loans and letters of credit that may be outstanding under the
agreement is SEK 90,000 ($8,700)(SEK 80,000 in 2001($7,700)). The facility is
collateralized by the assets of Jofa, excluding intellectual property, bears
interest at a rate of STIBOR (4.2% at March 31, 2002) plus 0.90%, matures on
December 31, 2002 and is renewable annually. Total borrowings as at
December 31, 2001 and March 31, 2002 were nil and SEK 17,700
F-37
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
4. REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT (CONTINUED)
($1,700), respectively. Management believes this credit agreement can be renewed
or refinanced upon maturity. If this agreement cannot be renewed or refinanced
with Nordea Bank in Sweden, we will have to seek alternate sources of financing
to replace this credit agreement.
Effective July 10, 2001, KHF Finland Oy (KHF), a Finnish subsidiary of the
Company, entered into a credit agreement with Nordea Bank in Finland, replacing
the former credit facility for FIM 30,000 ($4,600) which was terminated during
2001. The maximum amount of loans and letters of credit that may be outstanding
under the agreement is EUR 2,400 ($2,100). The facility is collateralized by the
assets of KHF and bears interest at a rate of EURIBOR (3.4% at March 31, 2002)
plus 0.9% and is renewable annually. Total borrowings as at December 31, 2001
and March 31, 2002 were nil.
B) LONG-TERM DEBT
SECURED LOANS
On November 19,1998, in connection with its acquisition of Sports Holdings
Corp., the Company and Sport Maska Inc. entered into a Secured Loan Agreement
with the Caisse de depot et placement du Quebec ("Caisse") to borrow a total of
Canadian $135,800. The loan was initially for a period of two years that was
extended until March 14, 2001, on which date, an Amended and Restated Credit
Agreement was entered into by the Company and Sport Maska Inc., as borrowers,
Caisse, as Agent and Lender, and Montreal Trust Company, as Paying Agent (the
"Amended and Restated Credit Agreement"). On the terms and subject to the
conditions of the Amended and Restated Credit Agreement, Facility 1 of the
Caisse Loan, which was a facility in the maximum amount of Canadian $90,000, was
extended to June 30, 2004, and Facility 2 of the Caisse Loan, which is a
facility in the maximum amount of Canadian $45,800, was extended to October 31,
2002. Each facility bore interest equal to the Canadian prime rate plus 5%, and
Facility 2 bore additional interest of 3.5% which is to be capitalized and
repaid on Facility 2 maturity. At March 31, 2002, Facility 2 included $1,019
(December 31, 2001-$654) of capitalized interest. The loan was collateralized by
all of the tangible and intangible assets of the Company subject to the prior
ranking claims on accounts receivable and inventories by the lenders under the
Company's revolving credit facilities. The loan was guaranteed by the Company
and certain of its subsidiaries.
The loan contained customary negative and affirmative covenants including
those relating to capital expenditures, total indebtedness to EBITDA and minimum
interest coverage, and a minimum EBITDA requirement which was met in 2001. The
agreement restricted, among others, the ability to pay cash dividends on the
preferred shares.
On March 8, 2002, the Company acquired an option from the lender to extend
the maturity of Facility 2 plus capitalized interest to February 28, 2003 in
exchange for a nominal fee. The unconditional and irrevocable option maintained
all the terms of the Amended and Restated Credit Agreement and expired on
April 30, 2002. On April 3, 2002, the Company issued $125,000 of 11 1/4% Senior
Secured Note Units due April 15, 2009 (the "Offering"), the proceeds of which
were used to repay in full Facility 1 and Facility 2 plus capitalized interest
(See Note 10). As a result, Facility 2 plus capitalized interest has been
classified as a non-current liability in the Consolidated Balance Sheet at
March 31, 2002. In connection with the Offering (See Note 10), the Amended and
Restated Credit Agreement was terminated.
F-38
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
4. REVOLVING CREDIT FACILITIES AND LONG-TERM DEBT (CONTINUED)
In May 2000, Jofa AB, a subsidiary of the Company, entered into a loan
agreement with Nordea Bank in Sweden to borrow SEK 10,000 ($973). The loan is
for four years with annual principal repayments of SEK 2,500 ($243). The loan is
secured by a chattel mortgage on the assets of the subsidiary and bears an
interest rate of STIBOR plus 1.25%.
5. COMMON STOCK, WARRANTS AND PREFERRED STOCK
The Company has authorized 20,000,0000 shares of common stock, par value
$0.01 per share, of which 6,500,549 shares are issued and outstanding (7,040,523
issued and outstanding as at May 1, 2002) (See Note 10).
Pursuant to the Warrant Agreement, dated as of March 14, 2001, between the
Company and Caisse, the Company issued a warrant to Caisse to purchase 539,974
shares of common stock, par value $.01 per share, of the Company, representing
approximately 7.5% of the outstanding common stock, on a fully diluted basis, at
an exercise price of $.01 per share. The number of shares issuable upon exercise
of the warrants was subject to certain adjustments as provided in the Warrant
Agreement. The fair value of the warrants was determined to be $3,450 and has
been recorded in stockholders' equity as stock purchase warrants. Concurrent
with the repayment of the Caisse loan (Note 10), the Caisse exercised the
warrants and purchased the Company's common stock.
On April 11, 1997, in connection with a re-organization, THC's old common
stock was extinguished and the holders received a total of 300,000 five-year
warrants to purchase an aggregate of 300,000 shares of common stock at an
exercise price of $16.92 per share (subject to adjustments for stock splits,
stock dividends, recapitalizations and similar transactions). Each holder of 67
shares of old common stock can receive one warrant to purchase, for cash, one
share of common stock, with no fractional warrants issued.
On November 19, 1998, the Company issued 100,000 shares of 13% Pay-In-Kind
redeemable preferred stock, $0.01 par value per share, together with warrants to
purchase 159,127 common shares of the Company at a purchase price of $0.01 per
share, for cash consideration of $12,500 (par value). The fair value of the
warrants was determined to be $1,665 and has been recorded in stockholder's
equity as common stock purchase warrants. The balance of the proceeds, $10,835,
has been recorded as 13% Pay-In-Kind preferred stock. The difference between the
redemption value of the preferred stock and the recorded amount is being
accreted on a straight-line basis over the seven-year period ending
November 19, 2005, by a charge to retained earnings.
Dividends, which are payable semi-annually from November 19, 1998, may be
paid in cash or in shares of the 13% Pay-In-Kind preferred stock, at the
Company's option. The preferred stock is non-voting. If the Company fails to
redeem the preferred stock on or before the mandatory redemption date and for a
sixty day period or more after being notified of its failure to redeem the
preferred stock, then the preferred stockholders, as a class of stockholders,
have the option to elect one director to our Board of Directors with the
provision that the preferred stockholders are to elect 28% of the Company's
directors. In connection with the Offering as described in Note 10, the holder
agreed to extend the redemption of the preferred stock to October 15, 2009, a
date six months beyond the maturity of the notes issued in the Offering. At
March 31, 2002 unpaid dividends of $6,373 (December 31, 2001--$5,779) have been
accrued on the preferred stock and are included as long-term
F-39
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
5. COMMON STOCK, WARRANTS AND PREFERRED STOCK (CONTINUED)
liabilities, given the restrictions of our Credit Agreements. The preferred
stock is redeemable. However, under the terms of the Company's debt covenants,
the preferred stock may not be redeemed while its debt is outstanding.
The preferred stock must be redeemed by the Company upon a change of control
or by the mandatory redemption date.
6. EARNINGS PER SHARE
Loss per share for the three month periods are as follows:
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2002
-------------------------- --------------------------
BASIC DILUTED BASIC DILUTED
---------- ---------- ---------- ----------
Net loss before extraordinary item
attributable to common stockholders..... $ (9,256) $ (9,256) $ (3,647) $ (3,647)
Net loss attributable to common
stockholders............................ (10,347) (10,347) (3,647) (3,647)
Weighted average common and common
equivalent shares outstanding:
Common stock............................ 6,500,549 6,500,549 6,500,549 6,500,549
Common equivalent shares(a)............. 248,771 248,771 697,902 697,902
Total weighted average common and common
equivalent shares outstanding........... 6,749,320 6,749,320 7,198,451 7,198,451
Net loss before extraordinary item per
common share(b)......................... $ (1.37) $ (1.37) $ (0.51) $ (0.51)
Net loss per common share(b).............. $ (1.53) $ (1.53) $ (0.51) $ (0.51)
------------------------
(a) Common equivalent shares include warrants and stock options issuable for
little or no cash consideration.
(b) Other warrants and stock options are considered in diluted earnings per
share when dilutive. The Company used the average book value of its common
stock in calculating the common equivalent shares as required by statement
of Financial Accounting Standards No. 128 due to the fact that the Company's
stock had extremely limited trading volume during the period.
(c) Options to purchase 1,322,222 shares of common stock and warrants to
purchase 299,451 shares of common stock were outstanding but were not
included in the computation of diluted earnings per share because the
options' and warrants'exercise price was greater than the average book value
of the common stock.
7. CONTINGENCIES
Other than certain legal proceedings arising from the ordinary course of
business, which the Company believes will not have a material adverse effect,
either individually or collectively, on its financial position, results of
operations or cash flows, there is no other litigation pending or threatened
against the Company.
F-40
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
8. SEGMENT INFORMATION
REPORTABLE SEGMENTS
The Company has two reportable segments: Equipment and Apparel. The
Equipment segment derives its revenue from the sale of skates, including
ice-hockey, roller-hockey and figure skates, as well as protective hockey
equipment and sticks for both players and goaltenders. The Apparel segment
derives its revenue from the sale of hockey apparel, such as authentic and
replica hockey jerseys, as well as a high quality line of baseball style caps,
jackets and other casual apparel using its own designs and graphics.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
The accounting policies of the segment are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on gross profit. Segment assets only include inventory.
INFORMATION ABOUT SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
EQUIPMENT APPAREL SEGMENT TOTAL
------------------------------- ------------------------------- -------------------------------
FOR THE THREE FOR THE THREE FOR THE THREE FOR THE THREE FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
MAR. 31, 2001 MAR. 31, 2002 MAR. 31, 2001 MAR. 31, 2002 MAR. 31, 2001 MAR. 31, 2002
-------------- -------------- -------------- -------------- -------------- --------------
Net sales............... $21,319 $22,800 $13,516 $11,361 $34,835 $34,161
Gross profit before
restructuring......... 7,895 9,568 6,067 5,229 13,962 14,797
Inventory............... 32,185 26,470 13,624 19,175 45,809 45,645
RECONCILIATION OF SEGMENT PROFIT OR LOSS
FOR THE THREE FOR THE THREE
MONTHS ENDED MONTHS ENDED
MAR. 31, 2001 MAR. 31, 2002
-------------- --------------
Segment gross profit before restructuring................... $13,962 $14,797
Restructuring and unusual charges........................... 901 --
------- -------
Gross profit................................................ 13,061 14,797
Unallocated amounts:
Selling, general and administrative expenses.............. 14,921 14,486
Restructuring and unusual charges........................... 2,005 --
Amortization of excess re-organization value and
goodwill................................................ 1,105 --
Other expense, net........................................ 576 543
Interest expense.......................................... 2,991 2,656
------- -------
Loss before income taxes and extraordinary item............. $(8,537) $(2,888)
======= =======
F-41
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
9. RESTRUCTURING AND UNUSUAL CHARGES
In 2001, the Company embarked on a plan to rationalize its operations and
consolidate its facilities. This rationalization involved the elimination of
certain redundancies, both in terms of personnel and operations, as well as the
consolidation of facilities including the closure of the Mount Forest, Ontario
plant, the Paris, France sales office, and the consolidation of North American
distribution into Canada. Approximately 380 employees were affected, of which
240 were from the apparel segment. Accordingly, the Company set up reserves of
approximately $5,700 in 2001 for the expected cost of the restructuring. Of this
amount, approximately $4,300 was to cover the cost of severance packages to
affected employees, with the remainder representing other closure costs. Of
these amounts, approximately $1,600 remained unpaid at March 31, 2002
(December 31, 2001--$1,900).
10. SUBSEQUENT EVENTS
On April 3, 2002, THC issued $125,000 11 1/4% Senior Secured Note Units due
April 15, 2009 (the "Notes") at a price of 98.806%, each such Unit consisting of
$0.5 principal amount of 11 1/4% Senior Secured Notes due April 15, 2009 of THC
and $0.5 principal amount of 11 1/4% Senior Secured Notes due April 15, 2009 of
Sport Maska Inc., a wholly-owned subsidiary of THC, through a private placement.
THC has fully and unconditionally guaranteed the Sport Maska Inc. Notes on a
senior secured basis. Sport Maska Inc. has fully and unconditionally guaranteed
the THC Notes. Also, certain subsidiaries of THC and Sport Maska Inc., excluding
the Finnish subsidiaries, have fully and unconditionally guaranteed the Notes on
a senior secured basis. The Notes and guarantees are secured by substantially
all the tangible and intangible assets of the Company, excluding the Finnish
subsidiaries, subject to the prior ranking claims by lenders under the revolving
credit facilities (see Note 4a), and by a pledge of stock of the first-tier
Finnish subsidiary. The security interest in the Company's Swedish subsidiaries
(other than intellectual property) is limited to $15,000
The Notes may be redeemed at any time after April 15, 2006 at the following
redemption prices (expressed as percentages of the principal amount thereof)
plus accrued and unpaid interest to the date of redemption, if redeemed during
the twelve-month period commencing on April 15 of the year set forth below:
YEAR PERCENTAGE
---- ----------
2006........................................................ 105.625%
2007........................................................ 102.813%
2008 and thereafter......................................... 100.000%
In addition, up to one-third of the Notes may be redeemed with the net
proceeds of an equity offering at any time until April, 15, 2005 at a redemption
price of 111.25% of the principal amount plus accrued and unpaid interest to the
date of redemption. If the Company undergoes a change of control, the Company
will be required to offer to purchase the units from the holders at 101% of
principal amount plus accrued and unpaid interest to the date of repurchase.
The proceeds of $123,508 were used (i) to repay all outstanding secured
loans under the Amended and Restated Credit Agreement, dated March 14, 2001 (See
Note 4b), (ii) to repay a portion of the secured indebtedness under the U.S. and
Canadian Credit Agreements (See Note 4a), (iii) to pay fees
F-42
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
10. SUBSEQUENT EVENTS (CONTINUED)
and expenses of the Offering and (iv) for general corporate purposes. The
Amended and Restated Credit Agreement with Caisse and any documents related
thereto have been terminated and are of no further force and effect. Among other
financial covenants, the indenture governing the Notes restricts the Company's
ability to borrow under its revolving credit facilities to a maximum of $35,000
and limits payments of dividends or repurchases of stock.
Also concurrent with the repayment of the Caisse loan, the Caisse exercised
its warrants to purchase 539,974 shares of common stock at $.01 per share (See
Note 5).
11. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION
THC's and Sport Maska Inc.'s payment obligations under the notes (note 10)
are guaranteed by certain subsidiaries of the THC's and Sport Maska Inc.'s
wholly owned subsidiaries (the "Other Guarantors") excluding the Finnish
subsidiaries which is a pledge of the stock. Such guarantees are full,
unconditional and joint and several. Under the Company's revolving credit
facilities, both Sport Maska Inc. and Maska U.S. Inc. are restricted from paying
dividends or providing loans or advances to the Company. The following
supplemental financial information sets forth, on an unconsolidated basis,
balance sheets, statements of operations and statements of cash flows
information for THC, Sport Maska Inc., Other Guarantors and for the Company's
other subsidiaries [the Non-Guarantor Subsidiaries] which have been included in
the eliminations column. The supplemental financial information reflects the
investments of the THC, Sport Maska Inc. and the Other Guarantors in the Other
Guarantor Subsidiaries and Non-Guarantor Subsidiaries using the equity method of
accounting. The supplemental financial information also reflects pushdown of the
Company's loan with the Caisse in connection with the acquisition of Sports
Holdings Corp. on November 19, 1998.
F-43
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
THE HOCKEY OTHER SUBSIDIARIES/
MARCH 31, 2002 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
-------------- ---------- ----------------- ---------- ------------- --------
ASSETS
Current Assets
Cash and cash equivalents........... $ -- $ -- $ 219 $ 4,166 $ 4,385
Accounts receivable, net............ -- 14,029 21,972 1,577 37,578
Inventories......................... -- 32,948 12,483 214 45,645
Prepaid expenses and other
receivables....................... 793 2,280 1,711 156 4,940
Income taxes receivable............. 420 1,196 111 -- 1,727
Intercompany accounts............... 65,978 27,444 35,513 (128,935) --
-------- -------- -------- --------- --------
Total current assets................ 67,191 77,897 72,009 (122,822) 94,275
Property, plant and equipment, net of
accumulated depreciation............ -- 12,085 2,128 1,870 16,083
Intangible and other assets, net of
accumulated amortization............ 970 25,553 48,196 505 75,224
Investments in subsidiaries........... 34,582 -- 43,717 (78,299) --
Intercompany accounts................. 11,092 -- 24,154 (35,246) --
-------- -------- -------- --------- --------
Total assets........................ $113,835 $115,535 $190,204 $(233,992) $185,582
======== ======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings............... $ -- $ 9,735 $ 11,474 $ -- $ 21,209
Accounts payable and accrued
liabilities....................... 1,053 9,298 7,514 211 18,076
Income taxes payable................ -- 2,040 952 58 3,050
Current portion of long term debt... -- -- 241 -- 241
Intercompany accounts............... 1,527 27,253 77,087 (105,867) --
-------- -------- -------- --------- --------
Total current liabilities........... 2,580 48,326 97,268 (105,598) 42,576
Long-term debt........................ 22,676 39,413 24,517 -- 86,606
Deferred income taxes and other long-
term liabilities.................... 6,373 1,928 626 (2,059) 6,868
Intercompany accounts................. 24,154 -- 43,930 (68,084) --
-------- -------- -------- --------- --------
Total liabilities................... 55,783 89,667 166,341 (175,741) 136,050
13% Pay-in-Kind preferred stock....... 11,630 -- -- -- 11,630
-------- -------- -------- --------- --------
Stockholders' equity
Common stock, par value $0.01 per
share............................... 65 29,265 4,760 (34,025) 65
Common stock purchase warrants........ 5,115 -- -- -- 5,115
Additional paid-in capital............ 66,515 -- 19,344 (19,344) 66,515
Retained earnings (deficit)........... (25,737) (2,690) 461 2,229 (25,737)
Accumulated other comprehensive
loss................................ 464 (707) (702) (7,111) (8,056)
-------- -------- -------- --------- --------
Total stockholders' equity.......... 46,422 25,868 23,863 (58,251) 37,902
-------- -------- -------- --------- --------
Total liabilities and stockholders'
equity............................ $113,835 $115,535 $190,204 $(233,992) $185,582
======== ======== ======== ========= ========
F-44
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
THREE MONTHS ENDED THE HOCKEY OTHER SUBSIDIARIES/
MARCH 31, 2002 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
------------------ ---------- ----------------- ---------- ------------- --------
Net sales.............................. $ -- $16,258 $23,130 $(5,227) $34,161
Cost of goods sold..................... -- 11,197 14,662 (6,495) 19,364
------- ------- ------- ------- -------
Gross profit......................... -- 5,061 8,468 1,268 14,797
Selling, general and administrative
expenses............................. 18 5,766 8,058 644 14,486
Amortization of excess reorganization
value and goodwill................... -- -- 65 (65) --
------- ------- ------- ------- -------
Operating income (loss).............. (18) (705) 345 689 311
Other expense, net(1).................. 2,329 144 (90) (1,840) 543
Interest expense....................... 647 1,127 880 2 2,656
------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary item................... (2,994) (1,976) (445) 2,527 (2,888)
Income taxes........................... -- 47 (109) 168 106
------- ------- ------- ------- -------
Net income (loss)...................... $(2,994) $(2,023) $ (336) $ 2,359 $(2,994)
======= ======= ======= ======= =======
--------------------------
(1) Other expense, net for the Hockey Company and Other Guarantors includes
equity in net income (loss) of subsidiaries of $2,187 and ($247)
respectively.
F-45
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
THREE MONTHS ENDED THE HOCKEY OTHER SUBSIDIARIES/
MARCH 31, 2001 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
------------------ ---------- ----------------- ---------- ------------- --------
Net sales.............................. $ -- $23,476 $21,511 $(10,152) $34,835
Cost of goods sold before restructuring
charges.............................. -- 18,570 13,738 (11,435) 20,873
Restructuring and unusual charges...... -- 901 -- -- 901
------- ------- ------- -------- -------
Gross profit......................... -- 4,005 7,773 1,283 13,061
Selling, general and administrative
expenses............................. 10 6,126 8,078 707 14,921
Restructuring and unusual charges...... -- 1,394 611 -- 2,005
Amortization of excess reorganization
value and goodwill................... -- 317 839 (51) 1,105
------- ------- ------- -------- -------
Operating income (loss).............. (10) (3,832) (1,755) 627 (4,970)
Other expense, net(1).................. 8,856 375 135 (8,790) 576
Interest expense....................... 609 1,683 695 4 2,991
------- ------- ------- -------- -------
Income (loss) before income taxes and
extraordinary item................... (9,475) (5,890) (2,585) 9,413 (8,537)
Income taxes........................... -- 44 (68) 158 134
------- ------- ------- -------- -------
Net income (loss) before extraordinary
item................................. (9,475) (5,934) (2,517) 9,255 (8,671)
Extraordinary item
Loss on early extinguishing of debt,
net of income taxes................ 288 499 304 -- 1,091
------- ------- ------- -------- -------
Net income (loss)...................... $(9,763) $(6,433) $(2,821) $ 9,255 $(9,762)
======= ======= ======= ======== =======
--------------------------
(1) Other expense, net for the Hockey Company and Other Guarantors includes
equity in net income (loss) of subsidiaries of $9,006 and ($88)
respectively.
F-46
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
THREE MONTHS ENDED THE HOCKEY OTHER SUBSIDIARIES/
MARCH 31, 2002 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
------------------ ---------- ----------------- ---------- ------------- --------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities................. $(184) $ 3,080 $ 1,735 $ 99 $ 4,730
----- ------- ------- ------ -------
INVESTING ACTIVITIES:
Purchases of fixed assets.............. -- (173) (51) (18) (242)
Proceeds from disposal of fixed assets
and other............................ -- 94 184 (244) 34
----- ------- ------- ------ -------
Net cash provided by (used for)
investing activities................. -- (79) 133 (262) (208)
----- ------- ------- ------ -------
FINANCING ACTIVITIES:
Net change in short-term borrowings.... -- (2,717) (3,560) (308) (6,585)
Principal payments on debt............. -- -- (60) -- (60)
Proceeds from long term debt........... 210 155 -- -- 365
Deferred financing costs............... (26) (137) -- 26 (137)
----- ------- ------- ------ -------
Net cash provided by financing
activities........................... 184 (2,699) (3,620) (282) (6,417)
----- ------- ------- ------ -------
Effects of foreign exchange rate
changes on cash item................. -- -- (30) (193) (223)
----- ------- ------- ------ -------
Net change in cash and cash
equivalents.......................... -- 302 (1,782) (638) (2,118)
Cash & cash equivalents at beginning of
period............................... -- (302) 2,002 4,803 6,503
----- ------- ------- ------ -------
Cash & cash equivalents at end of
period............................... $ -- $ -- $ 220 $4,165 $ 4,385
----- ------- ------- ------ -------
F-47
THE HOCKEY COMPANY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
11. SUPPLEMENTAL CONDENSED CONSOLIDATED FINANCIAL INFORMATION (CONTINUED)
NON-GUARANTOR
THREE MONTHS ENDED THE HOCKEY OTHER SUBSIDIARIES/
MARCH 31, 2001 COMPANY SPORT MASKA INC. GUARANTORS ELIMINATIONS TOTAL
------------------ ---------- ----------------- ---------- ------------- --------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities................. $ 640 $(4,148) $(3,009) $(3,431) $(9,948)
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Purchases of fixed assets.............. -- (519) (13) (11) (543)
Proceeds from disposal of fixed assets
and other............................ -- 106 170 -- 276
------- ------- ------- ------- -------
Net cash (used for) investing
activities........................... -- (413) 157 (11) (267)
------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Net change in short-term borrowings.... -- 6,257 4,211 -- 10,468
Principal payments on debt............. -- -- (63) -- (63)
Issuance of warrants................... 3,450 -- -- -- 3,450
Deferred financing costs............... (4,039) (2,652) (1,651) 2,405 (5,937)
------- ------- ------- ------- -------
Net cash provided by (used for)
financing activities................. (589) 3,605 2,497 2,405 7,918
------- ------- ------- ------- -------
Effects of foreign exchange rate
changes cash item.................... -- 31 (50) 411 392
------- ------- ------- ------- -------
Net change in cash and cash
equivalents.......................... 51 (925) (405) (626) (1,905)
Cash & cash equivalent at beginning of
period............................... -- 925 516 982 2,423
------- ------- ------- ------- -------
Cash & cash equivalent at end of
period............................... $ 51 $ -- $ 111 $ 356 $ 518
------- ------- ------- ------- -------
F-48
SCHEDULE II
THE HOCKEY COMPANY
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT
DECEMBER 31, COSTS AND TRANSLATION DECEMBER 31,
DESCRIPTION 1998 EXPENSES ADJUSTMENTS DEDUCTIONS 1999
----------- ------------- ---------- ----------- ---------- -------------
Allowance for doubtful accounts....... $2,444 421 100 (728)(A) $2,237
Allowance for returns, discounts,
rebates and cooperative
advertising......................... $5,384 4,758 188 (4,789)(B) $5,541
Allowance for excess, obsolete and
slow moving inventories............. $3,150 1,173 88 (2,042) $2,369
BALANCE AT CHARGED TO BALANCE AT
DECEMBER 31, COSTS AND TRANSLATION DECEMBER 31,
DESCRIPTION 1999 EXPENSES ADJUSTMENTS DEDUCTIONS 2000
----------- ------------- ---------- ----------- ---------- -------------
Allowance for doubtful accounts....... $2,237 556 (28) (743)(A) $2,022
Allowance for returns, discounts,
rebates and cooperative
advertising......................... $5,541 4,957 (131) (4,760)(B) $5,607
Allowance for excess, obsolete and
slow moving inventories............. $2,369 2,302 (55) (726) $3,890
BALANCE AT CHARGED TO BALANCE AT
DECEMBER 31, COSTS AND TRANSLATION DECEMBER 31,
DESCRIPTION 2000 EXPENSES ADJUSTMENTS DEDUCTIONS 2001
----------- ------------- ---------- ----------- ---------- -------------
Allowance for doubtful accounts....... $2,022 1,381 (55) (511)(A) $2,837
Allowance for returns, discounts,
rebates and cooperative
advertising......................... $5,607 5,804 (211) (4,253)(B) $6,947
Allowance for excess, obsolete and
slow moving inventories............. $3,890 1,242 (111) (2,453) $2,568
------------------------
(A) Accounts written off as non-collectible, net of recoveries.
(B) Deductions taken by customers.
S-1
In order to tender, a holder must send or deliver a properly completed and
signed Letter of Transmittal, certificates for Units, if any, and any other
required documents to the Exchange Agent at its address set forth below or
tender pursuant to DTC's Automated Tender Offer Program.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
The Bank of New York
By Registered & Certified Mail:
The Bank of New York
Reorganization Unit
15 Broad Street--16th Floor
New York, New York 10007
Attention: William T. Buckley
By Regular Mail or Overnight Courier:
The Bank of New York
Reorganization Unit
15 Broad Street--16th Floor
New York, New York 10007
Attention: William T. Buckley
In Person by Hand Only:
The Bank of New York
Reorganization Unit
15 Broad Street--16th Floor
New York, New York 10007
Attention: William T. Buckley
BY FACSIMILE (FOR ELIGIBLE INSTITUTIONS ONLY):
212-235-2261
FOR INFORMATION OR CONFIRMATION BY TELEPHONE:
212-235-2352
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Hockey Company, SLM Trademark Acquisition Corp., Sports Holdings Corp.
and WAP Holdings Inc. are Delaware corporations, Sport Maska Inc. and SLM
Trademark Acquisition Canada Corp. are New Brunswick corporations, Maska
U.S., Inc. is a Vermont corporation and Jofa AB and Jofa Holding AB are Swedish
companies.
Section 145 of the Delaware General Corporation Law authorizes a corporation
to indemnify any director or officer who was or is a party or is threatened to
be made a party to any proceeding (other than an action by or in the right of
the corporation to obtain a judgment in its favor) because the person is or was
a director or officer of the corporation, against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with the proceeding. This indemnification is allowed only if the person acted in
good faith and in a manner the person reasonably believed to be in the best
interests of the corporation. In the case of a criminal proceeding, the person
must have had no reasonable cause to believe his or her conduct was unlawful. A
corporation may advance expenses incurred in defending any proceeding prior to
the final disposition of the proceeding if the corporation receives an
undertaking by or on behalf of the director or officer to repay that amount if
it is ultimately determined that the person is not entitled to be indemnified. A
corporation may also indemnify a director or officer against expenses actually
and reasonably incurred by that person in connection with the defense or
settlement of the action by or in the right of the corporation to obtain a
judgment in its favor. This indemnification is allowed only if the person acted
in good faith and in a manner the person believed to be in the best interests of
the corporation and its shareholders.
The decision of whether indemnification will be provided in a particular
case will be made by (i) a majority vote of a quorum consisting of directors who
are not parties to the proceeding, (ii) if a quorum is not obtainable, by
independent legal counsel in a written opinion, (iii) approval of a majority of
the shareholders, excluding the shares of the person to be indemnified; or
(iv) the court in which the proceeding is or was pending.
Indemnification is not allowed if it would be inconsistent with (i) a
resolution of the shareholders, (ii) the company's articles of incorporation or
by-laws, (iii) an agreement in effect at the time of the cause of action, or
(iv) any condition expressly imposed by a court in approving a settlement.
In addition, a Delaware corporation may obtain and maintain insurance on
behalf of any director or officer of the corporation for any liability asserted
against him or her, whether or not the corporation has the power to indemnify
him or her against liability under the Corporations Code.
Article IV of the by-laws of each of The Hockey Company and SLM Trademark
Acquisition Corp. and Article 8 of the by-laws of each of Sports Holdings Corp.
and WAP Holdings Inc. (together with The Hockey Company and SLM Trademark
Acquisition Corp., the "Delaware Companies") provides for the indemnification
under certain conditions of directors, officers, employees and agents acting in
their official capacities.
The Delaware Companies have not entered into separate indemnification
agreements with any of their officers or directors.
The Delaware Companies have directors' and officers' liability insurance
insuring each company's officers and directors against certain liabilities and
expenses incurred by such persons in such capacities.
Section 81 of the New Brunswick Business Corporation Act authorizes a
corporation, except in respect of an action by or on behalf of the corporation
or Another Body Corporate (as hereinafter defined) to procure a judgement in its
favour, to indemnify each director and officer of the corporation and each
former director and officer of the corporation and each person who acts or acted
at the
II-1
corporation's request as a director or officer of Another Body Corporate, and
his heirs and legal representatives, against all costs, charges and expenses,
including any amount paid to settle an action or satisfy a judgment, reasonably
incurred by him in respect of any civil, criminal or administrative action or
proceeding to which he is made a party by reason of being or having been a
director or officer of the corporation or Another Body Corporate, as the case
may be, if he acted honestly and in good faith with a view to the best interests
of the corporation and, in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful. "Another Body Corporate" means a body
corporate of which the corporation is or was a shareholder or creditor.
Section 22 of the by-laws of each of Sport Maska Inc. and SLM Trademark
Acquisition Canada Corp. (together, the "Canadian Companies") provides for the
indemnification under certain conditions of directors and officers.
The Canadian Companies have not entered into separate indemnification
agreements with any of their officers or directors.
The Canadian Companies have directors' and officers' liability insurance
insuring each company's officers and directors against certain liabilities and
expenses incurred by such persons in such capacities.
Section 8.51 of the Vermont Business Corporation Act authorizes a
corporation to indemnify a director made a party to a proceeding because the
person is or was a director of the corporation. This indemnification is allowed
only if the person acted in good faith and in a manner the director reasonably
believed to be in the best interests of the corporation in cases of conduct in
the director's official capacity and in all other cases at least not opposed to
the corporation's best interests and in any proceeding brought by a government
entity, the director had reasonable cause to believe his or her conduct was not
unlawful and the conduct was not found to be reckless or intentionally unlawful.
A corporation may advance expenses incurred in defending any proceeding prior to
the final disposition of the proceeding if the corporation receives a written
affirmation of the director that the director met the standard of conduct
described in Section 8.51 together with an undertaking by or on behalf of the
director to repay that amount if it is ultimately determined that the director
is not entitled to be indemnified. A corporation may also indemnify a director
against reasonable expenses incurred by that person in connection with the
defense or settlement of the action by or in the right of the corporation to
obtain a judgment in its favor.
The decision of whether indemnification will be provided prior to resolution
of the proceeding in a particular case will be made by (i) a majority vote of a
quorum consisting of directors who are not parties to the proceeding, (ii) if a
quorum is not obtainable, by vote of a committee of the board of directors,
(iii) by independent legal counsel in a written opinion, or (iv) approval of the
shareholders.
Indemnification is not permitted in connection with (i) a proceeding by or
in the right of the corporation in which the director was adjudged liable to the
corporation, or (ii) in connection with any proceeding in which the director was
adjudged liable on the basis that personal benefit was improperly received by
the director. Section 8.56 of the Vermont Business Corporation Act provides for
indemnification of officers of the corporation in the same manner described
above with respect to directors.
Section 9 of the by-laws of Maska U.S., Inc. provides for the
indemnification, under certain conditions, of directors and officers.
Maska U.S., Inc. has not entered into separate indemnification agreements
with any of its officers or directors.
Maska U.S., Inc. has directors' and officers' liability insurance insuring
its officers and directors against certain liabilities and expenses incurred by
such persons in such capacities.
II-2
Jofa AB and Jofa Holding AB are limited liability companies without general
liabilities for controlling persons, directors and officers, except when such
controlling persons, directors or officers are acting contradictory to statute
law or negligent. There are no specific rights to indemnification of controlling
persons, directors or officers under Swedish statutory law, by-laws, contracts
or other arrangements.
Jofa AB and Jofa Holding AB have not entered into separate indemnification
agreements with any of their officers or directors.
Jofa AB and Jofa Holding AB have directors' and officers' liability
insurance insuring each company's officers and directors against certain
liabilities and expenses incurred by such persons in such capacities.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 First Amended Joint Chapter 11 Plan (as modified), dated
November 12, 1996, filed with the United States Bankruptcy
Court for the District of Delaware. Filed as Exhibit 1 to
the Company's Current Report on Form 8-K dated December 6,
1996, and incorporated herein by reference.
2.2 First Modification, dated January 15, 1997, to First Amended
Joint Chapter 11 Plan. Filed as Exhibit 2.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
2.3 Second Modification, dated January 23, 1997, to First
Amended Joint Chapter 11 Plan (as modified), dated November
12, 1996. Filed as Exhibit 2.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference.
2.4 Third Modification, dated March 14, 1997, to First Amended
Joint Chapter 11 Plan (as modified), dated November 12,
1996. Filed as Exhibit 2.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of the
Company dated March 31, 1997. Filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company. Filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
3.3 Certificate of Amendment to Certificate of Incorporation and
Certificate of Designation, dated November 19, 1998. Filed
as Exhibit 3.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, and incorporated
herein by reference.
3.4 Certificate of Amendment to Certificate of Incorporation,
dated February 1, 2000. Filed as Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2000, and incorporated herein by reference.
3.5 Certificate of Amendment to Certificate of Incorporation,
dated March 14, 2001. Filed as Exhibit 3.5 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, and incorporated herein by reference.
II-3
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
3.6 Certificate of Amendment of the Company, dated April 3,
2002. Filed as Exhibit 3.1 to the Company's Current Report
on Form 8-K dated April 11, 2002, and incorporated herein by
reference.
4.1 Purchase Agreement, dated March 26, 2002, among the Company,
Sport Maska Inc. and Jefferies & Company, Inc. Filed as
Exhibit 4.10 to the Company's Current Report on Form 8-K
dated April 11, 2002, and incorporated herein by reference.
4.2 Indenture, dated April 3, 2002, among the Company, Sport
Maska Inc., The Bank of New York, as Trustee, and the
Subsidiary Guarantors named therein, relating to Units
consisting of 11 1/4% Senior Secured Notes due 2009 of The
Hockey Company and 11 1/4% Senior Secured Notes due 2009 of
Sport Maska Inc. Filed as Exhibit 4.2 to the Company's
Current Report on Form 8-K dated April 11, 2002, and
incorporated herein by reference.
4.3 Registration Rights Agreement, dated April 3, 2002, among
the Company, Sport Maska Inc. and Jefferies & Company, Inc.,
as Initial Purchaser. Filed as Exhibit 4.3 to the Company's
Current Report on Form 8-K dated April 11, 2002,
incorporated herein by reference.
5 Opinion of Morgan, Lewis & Bockius LLP**
10.1 Cash Option Agreement, dated January 6, 1997 between the
Company and Wellspring Associates LLC. Filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.2 Amendment to Cash Option Agreement, dated April 8, 1997,
between the Company and Wellspring Associates LLC. Filed as
Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
10.3 Stockholders Agreement, dated as of April 11, 1997, between
the Company and the persons set forth on Schedule A thereto.
Filed as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated
herein by reference.
10.4 Warrant Agreement, dated as of April 11, 1997, between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent. Filed as Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference.
10.5 Retail License Agreement, dated March 8, 1995, between Maska
U.S., Inc. and NHL Enterprises Inc. Filed as Exhibit 10.30
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by
reference.
10.6 Retail License Agreement, dated March 8, 1995, between Sport
Maska Inc. and NHL Enterprises Canada Inc. Filed as Exhibit
10.31 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by
reference.
10.7 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Maska U.S., Inc. Filed as Exhibit 10.31 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
10.8 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Sport Maska Inc. Filed as Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
II-4
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.9 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.38
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.10 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.40
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.11 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.41
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.12 Deed of Lease, dated April 11, 1997 between 2938201 Canada
Inc. and Sport Maska Inc. Filed as Exhibit 10.42 to the
Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996, and incorporated herein by reference.
10.13 Settlement Agreement, dated November 21, 1995, among the
Company, certain subsidiaries, the Buddy L Creditors
Committee and certain Lenders. Filed as Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
10.14 Form of U.S. Debenture Delivery Agreement, dated as of April
1, 1997. Filed as Exhibit 10.44 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996,
and incorporated herein by reference.
10.15 License and sponsorship agreement, dated September 25, 1998,
among NHL Enterprises, L.P., NHL Enterprises Canada, L.P.,
NHL Enterprises B.V., Sport Maska Inc. and Maska U.S. Inc.
Filed as Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, and
incorporated herein by reference.
10.16 Amendment to license agreement dated October 27, 1998, among
NHL Enterprises, L.P., NHL Enterprises Canada, L.P., NHL
Enterprises B.V., Sport Maska, Inc. and Maska U.S., Inc.
Filed as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, and
incorporated herein by reference.
10.17 Credit Agreement, dated as of November 19, 1998, among Maska
U.S., Inc., SHC Hockey Inc., the other Credit Parties
signatory thereto, General Electric Capital Corporation and
the other Lenders signatory thereto from time to time. Filed
as Exhibit 10.1 to the Company's Current Report on Form 8-K
dated November 19, 1998 (and filed on March 9, 1999) and
incorporated herein by reference.
10.18 Credit Agreement, dated as of November 19, 1998, among Sport
Maska Inc., Tropsport Acquisitions Inc., the Company, the
other Credit Parties signatory thereto, General Electric
Capital Canada Inc. and the other Lenders signatory thereto
from time to time. Filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated November 19, 1998 (and
filed on March 9, 1999) and incorporated herein by
reference.
10.19 Agreement, dated as of March 14, 2001, among Caisse de depot
et placement du Quebec, WS Acquisition LLC and the Company,
filed as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated March 26, 2001, and incorporated herein by
reference.
10.20 Registration Rights Agreement, dated as of March 14, 2001,
between the Company and Caisse de depot et placement du
Quebec, filed as Exhibit 10.5 to the Company's Current
Report on Form 8-K dated March 26, 2001, incorporated herein
by reference.
II-5
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.21 Second Amendment to Credit Agreement, dated as of March 14,
2001, among Maska U.S., Inc., as the borrower, the Credit
Parties, the Lenders and General Electric Capital
Corporation, as Agent and Lender, filed as Exhibit 10.6 to
the Company's Current Report on Form 8-K dated March 26,
2001, and incorporated herein by reference.
10.22 Second Amendment to Credit Agreement, dated as of March 14,
2001, among Sport Maska Inc., as borrower, the Credit
Parties, the Lenders and General Electric Capital Canada
Inc., as Agent and Lender, filed as Exhibit 10.7 to the
Company's Current Report on Form 8-K dated March 26, 2001,
and incorporated herein by reference.
10.23 Pledge and Security Agreement, dated April 3, 2002, among
The Hockey Company, Sports Holdings Corp., Maska U.S., Inc.,
SLM Trademark Acquisition Corp., WAP Holdings Inc. and The
Bank of New York, as Collateral Agent. Filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, and incorporated herein by
reference.
10.24 General Security Agreement, dated April 3, 2002, by Sport
Maska Inc. in favor of BNY Trust Company of Canada, as
Collateral Agent. Filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated April 11, 2002, and
incorporated herein by reference.
10.25 General Security Agreement, dated April 3, 2002, by SLM
Trademark Acquisition Canada Corp. in favor of BNY Trust
Company of Canada, as Collateral Agent. Filed as Exhibit
10.3 to the Company's Current Report on Form 8-K dated April
11, 2002, and incorporated herein by reference.
10.26 Securities Pledge Agreement, dated April 3, 2002, by Sport
Maska Inc. in favor of BNY Trust Company of Canada, as
Collateral Agent. Filed as Exhibit 10.4 to the Company's
Current Report on Form 8-K dated April 11, 2002, and
incorporated herein by reference.
10.27 Securities Pledge Agreement, dated April 3, 2002, by SLM
Trademark Acquisition Canada Corp. in favor of BNY Trust
Company of Canada, as Collateral Agent. Filed as Exhibit
10.5 to the Company's Current Report on Form 8-K dated April
11, 2002, and incorporated herein by reference.
10.28 Deed of Hypothec, dated April 3, 2002, between BNY Trust
Company of Canada, as Collateral Agent, and Sport Maska Inc.
Filed as Exhibit 10.6 to the Company's Current Report on
Form 8-K dated April 11, 2002, and incorporated herein by
reference.
10.29 Deed of Hypothec, dated April 3, 2002, between BNY Trust
Company of Canada, as Collateral Agent, and SLM Trademark
Acquisition Canada Corp. Filed as Exhibit 10.7 to the
Company's Current Report on Form 8-K dated April 11, 2002,
and incorporated herein by reference.
10.30 Intercreditor Agreement, dated April 3, 2002, among General
Electric Capital Corporation, General Electric Capital
Canada Inc., The Bank of New York, as U.S. Collateral Agent,
BNY Trust Company of Canada, as Canadian Collateral Agent,
The Bank of New York, as Trustee, The Hockey Company, Sport
Maska Inc., Sports Holdings Corp., Maska U.S., Inc., SLM
Trademark Acquisition Canada Corp., SLM Trademark
Acquisition Corp. and WAP Holdings Inc. Filed as Exhibit
10.8 to the Company's Current Report on Form 8-K dated April
11, 2002, and incorporated herein by reference.
II-6
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.31 Third Amendment to Credit Agreement, dated April 3, 2002,
among Maska U.S., Inc., as borrower, the Credit Parties, the
Lenders and General Electric Capital Corporation, as Agent
and Lender. Filed as Exhibit 10.9 to the Company's Current
Report on Form 8-K dated April 11, 2002, and incorporated
herein by reference.
10.32 Fourth Amendment to Credit Agreement, dated April 3, 2002,
among Sport Maska Inc., as borrower, the Credit Parties, the
Lenders and General Electric Capital Canada Inc., as Agent
and Lender. Filed as Exhibit 10.10 to the Company's Current
Report on Form 8-K dated April 11, 2002, and incorporated
herein by reference.
12 Computation of Ratio of Earnings to Fixed Charges*
21 List of the Company's subsidiaries, filed as Exhibit 21 to
the Company's Annual Report on Form 10-K, for the year ended
December 31, 2001, incorporated herein by reference.
23.1 Consent of Ernst & Young LLP**
23.2 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit
5)**
23.3 Consent of Davies Ward Phillips & Vineberg LLP*
23.4 Consent of Stewart McKelvey Stirling Scales*
24 Power of Attorney (included as part of the signature pages
to this registration statement)*
25 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of The Bank of New York, as Trustee
under the Indenture related to the 11 1/4% Senior Secured
Note Units due 2009*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Clients*
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees*
------------------------
* Previously filed.
** Filed herewith.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed
II-7
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(ii) To include any material with respect to the plan of distribution
and not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bonafide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrants pursuant to the foregoing provisions, or
otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrants of expenses incurred or paid by a
director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrants will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by them is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrants have
duly caused this Registration Statement to be signed on their behalf by the
undersigned, thereunto duly authorized, on the 13th day of August, 2002.
THE HOCKEY COMPANY
By: /s/ ROBERT A. DESROSIERS
---------------------------------------
Name: Robert A. Desrosiers
Title: Chief Financial Officer and Vice
President, Finance and
Administration
SPORT MASKA INC.
By: /s/ ROBERT A. DESROSIERS
---------------------------------------
Name: Robert A. Desrosiers
Title: Vice President, Finance and
Administration
MASKA U.S., INC.
By: /s/ ROBERT A. DESROSIERS
---------------------------------------
Name: Robert A. Desrosiers
Title: Vice President, Finance and
Administration
SLM TRADEMARK ACQUISITION CANADA CORP.
By: /s/ ROBERT A. DESROSIERS
---------------------------------------
Name: Robert A. Desrosiers
Title: Vice President, Finance and
Administration
II-9
SLM TRADEMARK ACQUISITION CORP.
By: /s/ ROBERT A. DESROSIERS
---------------------------------------
Name: Robert A. Desrosiers
Title: Vice President, Finance and
Administration
SPORTS HOLDINGS CORP.
By: /s/ ROBERT A. DESROSIERS
---------------------------------------
Name: Robert A. Desrosiers
Title: Vice President, Finance and
Administration
WAP HOLDINGS INC.
By: /s/ ROBERT A. DESROSIERS
---------------------------------------
Name: Robert A. Desrosiers
Title: Vice President, Finance and
Administration
JOFA AB
By: /s/ MATTHEW H. O'TOOLE
---------------------------------------
Name: Matthew H. O'Toole
Title: Authorized Signatory
JOFA HOLDING AB
By: /s/ MATTHEW H. O'TOOLE
---------------------------------------
Name: Matthew H. O'Toole
Title: Authorized Signatory
II-10
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signatures to this
Registration Statement appears below hereby appoints each of Greg S. Feldman,
Matthew H. O'Toole and Robert A. Desrosiers, as his/her attorney-in-fact, to
sign on his/her behalf individually and in the capacity stated below and to file
all supplements, amendments and post-effective amendments to this Registration
Statement and any and all instruments or documents filed as a part of or in
connection with this Registration Statement or any amendment or supplement
thereto, and any such attorney-in-fact may make such changes and additions to
this Registration Statement as such attorney-in-fact may deemed necessary or
appropriate.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of The Hockey Company
** and Sport Maska Inc. and August 13,
------------------------------------------- Director of the Subsidiary 2002
Greg S. Feldman Guarantors*
Chief Executive Officer and
President of The Hockey
Company, Sport Maska Inc. and
** the Subsidiary Guarantors* and August 13,
------------------------------------------- Director of The Hockey 2002
Matthew H. O'Toole Company, Sport Maska Inc., the
Subsidiary Guarantors* and the
Swedish Guarantors(+)
Chief Financial Officer of The
Hockey Company and Vice
/s/ ROBERT A. DESROSIERS President, Finance and August 13,
------------------------------------------- Administration of The Hockey 2002
Robert A. Desrosiers Company, Sport Maska Inc. and
the Subsidiary Guarantors*
**
------------------------------------------- Director of The Hockey Company August 13,
Phil Bakes 2002
**
------------------------------------------- Director of The Hockey Company August 13,
Michel Baril 2002
**
------------------------------------------- Director of The Hockey Company August 13,
Paul Chute 2002
II-11
SIGNATURE TITLE DATE
--------- ----- ----
**
------------------------------------------- Director of The Hockey Company August 13,
Jason B. Fortin 2002
** Director of The Hockey Company,
------------------------------------------- Sport Maska Inc. and the August 13,
James C. Pendergast Subsidiary Guarantors* 2002
**
------------------------------------------- Director of The Hockey Company August 13,
Roger Samson 2002
** Chief Financial Officer and
------------------------------------------- Director of the Swedish August 13,
Lars Christensson Guarantors(+) 2002
**
------------------------------------------- Managing Director and Director August 13,
Johnny Martinsson of the Swedish Guarantors(+) 2002
**
------------------------------------------- Director of Jofa AB August 13,
Leif Skottheim 2002
**
------------------------------------------- Director of Jofa AB August 13,
Jan Persson 2002
------------------------
* The Subsidiary Guarantors are Maska U.S., Inc., SLM Trademark Acquisition
Canada Corp., SLM Trademark Acquisition Corp., Sports Holdings Corp. and WAP
Holdings Inc.
+ The Swedish Guarantors are Jofa AB and Jofa Holding AB.
** Executed by Robert A. Desrosiers as attorney-in-fact on behalf of such
person in accordance with Power of Attorney previously granted.
II-12
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 First Amended Joint Chapter 11 Plan (as modified), dated
November 12, 1996, filed with the United States Bankruptcy
Court for the District of Delaware. Filed as Exhibit 1 to
the Company's Current Report on Form 8-K dated December 6,
1996, and incorporated herein by reference.
2.2 First Modification, dated January 15, 1997, to First Amended
Joint Chapter 11 Plan. Filed as Exhibit 2.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.
2.3 Second Modification, dated January 23, 1997, to First
Amended Joint Chapter 11 Plan (as modified), dated November
12, 1996. Filed as Exhibit 2.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference.
2.4 Third Modification, dated March 14, 1997, to First Amended
Joint Chapter 11 Plan (as modified), dated November 12,
1996. Filed as Exhibit 2.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, and
incorporated herein by reference.
3.1 Amended and Restated Certificate of Incorporation of the
Company dated March 31, 1997. Filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.
3.2 Amended and Restated By-Laws of the Company. Filed as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
3.3 Certificate of Amendment to Certificate of Incorporation and
Certificate of Designation, dated November 19, 1998. Filed
as Exhibit 3.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, and incorporated
herein by reference.
3.4 Certificate of Amendment to Certificate of Incorporation,
dated February 1, 2000. Filed as Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 2000, and incorporated herein by reference.
3.5 Certificate of Amendment to Certificate of Incorporation,
dated March 14, 2001. Filed as Exhibit 3.5 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, and incorporated herein by reference.
3.6 Certificate of Amendment of the Company, dated April 3,
2002. Filed as Exhibit 3.1 to the Company's Current Report
on Form 8-K dated April 11, 2002, and incorporated herein by
reference.
4.1 Purchase Agreement, dated March 26, 2002, among the Company,
Sport Maska Inc. and Jefferies & Company, Inc. Filed as
Exhibit 4.10 to the Company's Current Report on Form 8-K
dated April 11, 2002, and incorporated herein by reference.
4.2 Indenture, dated April 3, 2002, among the Company, Sport
Maska Inc., The Bank of New York, as Trustee, and the
Subsidiary Guarantors named therein, relating to Units
consisting of 11 1/4% Senior Secured Notes due 2009 of The
Hockey Company and 11 1/4% Senior Secured Notes due 2009 of
Sport Maska Inc. Filed as Exhibit 4.2 to the Company's
Current Report on Form 8-K dated April 11, 2002, and
incorporated herein by reference.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
4.3 Registration Rights Agreement, dated April 3, 2002, among
the Company, Sport Maska Inc. and Jefferies & Company, Inc.,
as Initial Purchaser. Filed as Exhibit 4.3 to the Company's
Current Report on Form 8-K dated April 11, 2002,
incorporated herein by reference.
5 Opinion of Morgan, Lewis & Bockius LLP**
10.1 Cash Option Agreement, dated January 6, 1997 between the
Company and Wellspring Associates LLC. Filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.2 Amendment to Cash Option Agreement, dated April 8, 1997,
between the Company and Wellspring Associates LLC. Filed as
Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, and incorporated herein by
reference.
10.3 Stockholders Agreement, dated as of April 11, 1997, between
the Company and the persons set forth on Schedule A thereto.
Filed as Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1996, and incorporated
herein by reference.
10.4 Warrant Agreement, dated as of April 11, 1997, between the
Company and American Stock Transfer & Trust Company, as
Warrant Agent. Filed as Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996,
and incorporated herein by reference.
10.5 Retail License Agreement, dated March 8, 1995, between Maska
U.S., Inc. and NHL Enterprises Inc. Filed as Exhibit 10.30
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994, and incorporated herein by
reference.
10.6 Retail License Agreement, dated March 8, 1995, between Sport
Maska Inc. and NHL Enterprises Canada Inc. Filed as Exhibit
10.31 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, and incorporated herein by
reference.
10.7 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Maska U.S., Inc. Filed as Exhibit 10.31 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
10.8 Retail License Agreement, dated October 6, 1995, between NHL
Enterprises and Sport Maska Inc. Filed as Exhibit 10.32 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
10.9 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.38
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.10 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.40
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.11 Deed of Lease, dated April 11, 1997, between ZMD Sports
Investments Inc. and Sport Maska Inc. Filed as Exhibit 10.41
to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1996, and incorporated herein by
reference.
10.12 Deed of Lease, dated April 11, 1997 between 2938201 Canada
Inc. and Sport Maska Inc. Filed as Exhibit 10.42 to the
Company's Annual Report on Form 10-K/A for the year ended
December 31, 1996, and incorporated herein by reference.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.13 Settlement Agreement, dated November 21, 1995, among the
Company, certain subsidiaries, the Buddy L Creditors
Committee and certain Lenders. Filed as Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995, and incorporated herein by reference.
10.14 Form of U.S. Debenture Delivery Agreement, dated as of April
1, 1997. Filed as Exhibit 10.44 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1996,
and incorporated herein by reference.
10.15 License and sponsorship agreement, dated September 25, 1998,
among NHL Enterprises, L.P., NHL Enterprises Canada, L.P.,
NHL Enterprises B.V., Sport Maska Inc. and Maska U.S. Inc.
Filed as Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, and
incorporated herein by reference.
10.16 Amendment to license agreement dated October 27, 1998, among
NHL Enterprises, L.P., NHL Enterprises Canada, L.P., NHL
Enterprises B.V., Sport Maska, Inc. and Maska U.S., Inc.
Filed as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, and
incorporated herein by reference.
10.17 Credit Agreement, dated as of November 19, 1998, among Maska
U.S., Inc., SHC Hockey Inc., the other Credit Parties
signatory thereto, General Electric Capital Corporation and
the other Lenders signatory thereto from time to time. Filed
as Exhibit 10.1 to the Company's Current Report on Form 8-K
dated November 19, 1998 (and filed on March 9, 1999) and
incorporated herein by reference.
10.18 Credit Agreement, dated as of November 19, 1998, among Sport
Maska Inc., Tropsport Acquisitions Inc., the Company, the
other Credit Parties signatory thereto, General Electric
Capital Canada Inc. and the other Lenders signatory thereto
from time to time. Filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated November 19, 1998 (and
filed on March 9, 1999) and incorporated herein by
reference.
10.19 Agreement, dated as of March 14, 2001, among Caisse de depot
et placement du Quebec, WS Acquisition LLC and the Company,
filed as Exhibit 10.4 to the Company's Current Report on
Form 8-K dated March 26, 2001, and incorporated herein by
reference.
10.20 Registration Rights Agreement, dated as of March 14, 2001,
between the Company and Caisse de depot et placement du
Quebec, filed as Exhibit 10.5 to the Company's Current
Report on Form 8-K dated March 26, 2001, incorporated herein
by reference.
10.21 Second Amendment to Credit Agreement, dated as of March 14,
2001, among Maska U.S., Inc., as the borrower, the Credit
Parties, the Lenders and General Electric Capital
Corporation, as Agent and Lender, filed as Exhibit 10.6 to
the Company's Current Report on Form 8-K dated March 26,
2001, and incorporated herein by reference.
10.22 Second Amendment to Credit Agreement, dated as of March 14,
2001, among Sport Maska Inc., as borrower, the Credit
Parties, the Lenders and General Electric Capital Canada
Inc., as Agent and Lender, filed as Exhibit 10.7 to the
Company's Current Report on Form 8-K dated March 26, 2001,
and incorporated herein by reference.
10.23 Pledge and Security Agreement, dated April 3, 2002, among
The Hockey Company, Sports Holdings Corp., Maska U.S., Inc.,
SLM Trademark Acquisition Corp., WAP Holdings Inc. and The
Bank of New York, as Collateral Agent. Filed as Exhibit 10.1
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001, and incorporated herein by
reference.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
10.24 General Security Agreement, dated April 3, 2002, by Sport
Maska Inc. in favor of BNY Trust Company of Canada, as
Collateral Agent. Filed as Exhibit 10.2 to the Company's
Current Report on Form 8-K dated April 11, 2002, and
incorporated herein by reference.
10.25 General Security Agreement, dated April 3, 2002, by SLM
Trademark Acquisition Canada Corp. in favor of BNY Trust
Company of Canada, as Collateral Agent. Filed as Exhibit
10.3 to the Company's Current Report on Form 8-K dated April
11, 2002, and incorporated herein by reference.
10.26 Securities Pledge Agreement, dated April 3, 2002, by Sport
Maska Inc. in favor of BNY Trust Company of Canada, as
Collateral Agent. Filed as Exhibit 10.4 to the Company's
Current Report on Form 8-K dated April 11, 2002, and
incorporated herein by reference.
10.27 Securities Pledge Agreement, dated April 3, 2002, by SLM
Trademark Acquisition Canada Corp. in favor of BNY Trust
Company of Canada, as Collateral Agent. Filed as Exhibit
10.5 to the Company's Current Report on Form 8-K dated April
11, 2002, and incorporated herein by reference.
10.28 Deed of Hypothec, dated April 3, 2002, between BNY Trust
Company of Canada, as Collateral Agent, and Sport Maska Inc.
Filed as Exhibit 10.6 to the Company's Current Report on
Form 8-K dated April 11, 2002, and incorporated herein by
reference.
10.29 Deed of Hypothec, dated April 3, 2002, between BNY Trust
Company of Canada, as Collateral Agent, and SLM Trademark
Acquisition Canada Corp. Filed as Exhibit 10.7 to the
Company's Current Report on Form 8-K dated April 11, 2002,
and incorporated herein by reference.
10.30 Intercreditor Agreement, dated April 3, 2002, among General
Electric Capital Corporation, General Electric Capital
Canada Inc., The Bank of New York, as U.S. Collateral Agent,
BNY Trust Company of Canada, as Canadian Collateral Agent,
The Bank of New York, as Trustee, The Hockey Company, Sport
Maska Inc., Sports Holdings Corp., Maska U.S., Inc., SLM
Trademark Acquisition Canada Corp., SLM Trademark
Acquisition Corp. and WAP Holdings Inc. Filed as Exhibit
10.8 to the Company's Current Report on Form 8-K dated April
11, 2002, and incorporated herein by reference.
10.31 Third Amendment to Credit Agreement, dated April 3, 2002,
among Maska U.S., Inc., as borrower, the Credit Parties, the
Lenders and General Electric Capital Corporation, as Agent
and Lender. Filed as Exhibit 10.9 to the Company's Current
Report on Form 8-K dated April 11, 2002, and incorporated
herein by reference.
10.32 Fourth Amendment to Credit Agreement, dated April 3, 2002,
among Sport Maska Inc., as borrower, the Credit Parties, the
Lenders and General Electric Capital Canada Inc., as Agent
and Lender. Filed as Exhibit 10.10 to the Company's Current
Report on Form 8-K dated April 11, 2002, and incorporated
herein by reference.
12 Computation of Ratio of Earnings to Fixed Charges*
21 List of the Company's subsidiaries, filed as Exhibit 21 to
the Company's Annual Report on Form 10-K, for the year ended
December 31, 2001, incorporated herein by reference.
23.1 Consent of Ernst & Young LLP**
23.2 Consent of Morgan, Lewis & Bockius LLP (included in Exhibit
5)**
23.3 Consent of Davies Ward Phillips & Vineberg LLP*
23.4 Consent of Stewart McKelvey Stirling Scales*
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
24 Power of Attorney (included as part of the signature pages
to this registration statement)*
25 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939, as amended, of The Bank of New York, as Trustee
under the Indenture related to the 11 1/4% Senior Secured
Note Units due 2009*
99.1 Form of Letter of Transmittal*
99.2 Form of Notice of Guaranteed Delivery*
99.3 Form of Letter to Clients*
99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees*
------------------------
* Previously filed.
** Filed herewith.