UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
|
[ X
]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
fiscal year ended October 2, 2009
OR
|
[____]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ______
to ______
Commission
file number 0-16255
JOHNSON
OUTDOORS INC.
(Exact
name of registrant as specified in its charter)
|
Wisconsin
|
39-1536083
|
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer Identification No.)
|
555
Main Street, Racine, Wisconsin 53403
(Address
of principal executive offices, including zip code)
(262)
631-6600
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Exchange on Which Registered |
| Class A Common Stock, $.05 par value per share | NASDAQ Global MarketSM |
Securities
registered pursuant to section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes [ ]
No [ X ]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.Yes [ ]
No [ X ]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ]
No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes [ ]
No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definition of "large accelerated filer,” “accelerated filer" and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):
| Large Accelerated Filer | [ ] | |
|
Accelerated
Filer
|
[ ] | |
| Non-Accelerated Filer | [ ] | |
| (do not check if a smaller reporting company) | ||
| Smaller Reporting Company | [ X ] |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ]
No [ X ]
As of
December 8, 2009, 8,288,310 shares of Class A and 1,216,464 shares of Class B
common stock of the registrant were outstanding. The aggregate market value of
voting and non-voting Class A common stock of the registrant held by
nonaffiliates of the registrant was approximately $21,887,732 on April 3, 2009
(the last business day of the registrant’s most recently completed second
quarter) based on approximately 4,342,804 shares of Class A common stock held by
nonaffiliates. For purposes of this calculation only, shares of all voting stock
are deemed to have a market value of $5.04 per share, the closing price of the
Class A common stock as reported on the NASDAQ Global MarketSM on
April 3, 2009 Shares of common stock held by any executive officer or director
of the registrant (including all shares beneficially owned by the Johnson
Family) have been excluded from this computation because such persons may be
deemed to be affiliates. This determination of affiliate status is not a
conclusive determination for other purposes.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Proxy Statement for the 2010 Annual Meeting of the Shareholders of the
Registrant are incorporated by reference into Part III of this
report.
As used
in this report, the terms "we," "us," "our," "Johnson Outdoors" and the
"Company" mean Johnson Outdoors Inc. and its subsidiaries, unless the context
indicates another meaning.
ii
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TABLE
OF CONTENTS
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Page
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Business
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1
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Risk
Factors
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5
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Unresolved
Staff Comments
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9
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Properties
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10
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Legal
Proceedings
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10
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Submission
of Matters to a Vote of Security Holders
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10
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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10
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|
Selected
Consolidated Financial Data
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13
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|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Quantitative
and Qualitative Disclosures about Market Risk
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28
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Financial
Statements and Supplementary Data
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28
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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28
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Controls
and Procedures
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29
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Other
Information
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29
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Directors,
and Executive Officers and Corporate Governance
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30
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|
Executive
Compensation
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30
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|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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30
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Certain
Relationships and Related Transactions, and Director
Independence
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31
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|
Principal
Accountant Fees and Services
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31
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Exhibits
and Financial Statement Schedules
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31
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Signatures
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32
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Exhibit
Index
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34
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Consolidated
Financial Statements
|
F-1
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Forward
Looking Statements
Certain
matters discussed in this Form 10-K are “forward-looking statements,” and the
Company intends these forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this statement for
purposes of those safe harbor provisions. These forward-looking statements can
generally be identified as such because they include phrases such as the Company
“expects,” “believes,” “anticipates” or other words of similar meaning.
Similarly, statements that describe the Company’s future plans, objectives or
goals are also forward-looking statements. Such forward-looking statements are
subject to certain risks and uncertainties which could cause actual results or
outcomes to differ materially from those currently anticipated. Factors that
could affect actual results or outcomes include the matters described under the
caption "Risk Factors" in Item 1A of this report and the
following: changes in consumer spending patterns; the Company’s
success in implementing its strategic plan, including its focus on innovation
and on cost-cutting and revenue enhancement initiatives; actions of and disputes
with companies that compete with the Company; the Company’s success in managing
inventory; the risk that the Company’s lenders may be unwilling to provide a
waiver or amendment if the Company is in violation of its financial covenants
and the cost to the Company of obtaining any waiver or amendment the lenders
would be willing to provide; the risk of future writedowns of goodwill or other
intangible assets; movements in foreign currencies or interest rates;
fluctuations in the prices of raw materials or the availability of raw
materials; the Company’s success in restructuring certain of its operations; the
success of suppliers and customers; the ability of the Company to deploy its
capital successfully; unanticipated outcomes related to outsourcing certain
manufacturing processes; unanticipated outcomes related to outstanding
litigation matters; and adverse weather conditions. Shareholders, potential
investors and other readers are urged to consider these factors in evaluating
the forward-looking statements and are cautioned not to place undue reliance on
such forward-looking statements. The forward-looking statements included herein
are only made as of the date of this filing. The Company assumes no obligation,
and disclaims any obligation, to update such forward-looking statements to
reflect subsequent events or circumstances.
Trademarks
We have
registered the following trademarks, which are used in this report: Minn Kota®,
Cannon®, Humminbird®, Fishin' Buddy®, Silva®, Eureka!®, Tech4O™, Geonav®, Old
Town®, Ocean Kayak™, Necky®,
Lendal™,
Extrasport®, Carlisle®, Scubapro®, UWATEC® and Seemann™.
PART
I
ITEM
1. BUSINESS
Johnson
Outdoors Inc. (the Company) is a leading global manufacturer and marketer of
branded seasonal, outdoor recreation products used primarily for fishing,
diving, paddling and camping. The Company’s portfolio of well-known consumer
brands has attained leading market positions due to continuous innovation,
marketing excellence, product performance and quality. Company values
and culture support entrepreneurialism in all areas, promoting and leveraging
best practices and synergies within and across its subsidiaries to advance the
Company’s strategic vision set by executive management and approved by the Board
of Directors. The Company is controlled by Helen P. Johnson-Leipold
(Chairman and Chief Executive Officer), members of her family and related
entities.
The
Company was incorporated in Wisconsin in 1987 as successor to various
businesses. Significant subsidiaries of Johnson Outdoors Inc. include
Johnson Outdoors Marine Electronics LLC, Johnson Outdoors Watercraft Inc.,
Johnson Outdoors Gear LLC, Techsonic Industries Inc, and Johnson
Outdoors Canada Inc.
Marine
Electronics
The
Company’s marine electronic segment brands are: Minn Kota battery-powered
fishing motors for quiet trolling or primary propulsion; Humminbird sonar and GPS
equipment for fishfinding and navigation; Cannon downriggers for
controlled-depth fishing; Geonav chartplotters for
navigation; and Navicontrol marine autopilot
systems for large boats. The Company acquired the Navicontrol brand via
acquisition of 100% of Navicontrol S.r.l. on February 6, 2009.
Marine
Electronics brands and related accessories are sold throughout North America,
South America, Europe and the Pacific Basin through large outdoor specialty
retailers, such as Bass Pro Shops and Cabelas, large retail store chains, marine
products distributors, international distributors and original equipment
manufacturers, such as Ranger Boats, Skeeter Boats and Stratos
Champion.
Marine
Electronics has achieved market share gains by focusing on product innovation,
quality products and effective marketing. Such consumer marketing and
promotion activities include: product placements on fishing-related television
shows; print advertising and editorial coverage in outdoor, general interest and
sport magazines; professional angler and tournament sponsorships; packaging and
point-of-purchase materials and offers to increase consumer appeal and sales;
branded websites; and on-line promotions.
Outdoor
Equipment
The
Company’s Outdoor Equipment segment brands are: Eureka! tents, sleeping bags
and other recreational camping products; Silva field compasses and
digital instruments; and Tech40 performance measurement
instruments.
Eureka! consumer tents,
sleeping bags and other recreational camping products are mid- to high-price
range products sold in the U.S. and Canada through independent sales
representatives, primarily to sporting goods stores, catalog and mail order
houses, camping and backpacking specialty stores, and through internet
retailers. Marketing of the Company’s tents, sleeping bags and other
recreational camping products is focused on building the Eureka! brand name and
establishing the Company as a leader in tent design and innovation. Although the
Company’s camping tents and sleeping bags are produced primarily by third-party
manufacturing sources, product research, design and innovation are conducted at
the Company's Binghamton, New York location. Eureka! camping products are
sold under license in Japan, Australia and Europe.
1
Eureka! commercial tents
include party tents, sold primarily to general rental stores, and other
commercial tents sold directly to tent erectors. The Company’s tent products
range from 10’x10’ canopies to 120’ wide pole tents and other large scale frame
structures and are manufactured by the Company at the Company’s Binghamton, New
York location.
Eureka! also designs and
manufactures large, heavy-duty tents and lightweight backpacking tents for the
military at its Binghamton, New York location. Tents produced for military use
in the last twelve months include modular general purpose tents, and various
lightweight one and two person tents. The Company manufactures military tent
accessories like fabric floors and tent liners and is also a subcontract
manufacturer for other providers of military tents.
Silva field compasses are
manufactured by the Company and marketed exclusively in North America where the
Company owns Silva
trademark rights. Tech40 digital instruments and
other branded products are manufactured by third parties and are primarily sold
in the North American market.
Watercraft
The
Company’s Watercraft brands are: Old Town canoes and kayaks;
Ocean Kayak; Necky kayaks; Carlisle and Lendal paddles; and Extrasport personal flotation
devices.
In its
Old Town, Maine facility, the Company produces high quality Old Town kayaks, canoes and
accessories for family recreation, touring and tripping. The Company uses a
rotational-molding process for manufacturing polyethylene kayaks and canoes to
compete in the high volume, low and mid-priced range of the market. These kayaks
and canoes feature stiffer and more durable hulls than higher priced boats. The
Company also markets canoes built from fiberglass, Royalex (ABS) and
wood.
On June
30, 2009, the Company announced plans to consolidate operations for its U.S.
paddle sports brands in Old Town, Maine, which resulted in the closure of the
Company’s plant in Ferndale, Washington. Sit-on-top Ocean Kayaks and
high-performance Necky
sea touring kayaks which had formerly been produced in Ferndale are now
manufactured at the Old Town, Maine facility.
The
Company also manufactures Watercraft products in New Zealand and contracts for
manufacturing of Watercraft products with third parties in Michigan, and
Tunisia.
Watercraft
accessory brands, including Extrasport personal flotation
devices and wearable paddle gear, as well as Carlisle branded paddles, are
produced primarily by third-party sources.
The
Company’s kayaks, canoes and accessories are sold primarily to specialty stores,
marine dealers, sporting goods stores and catalog and mail order houses in the
U.S., Europe and the Pacific Basin.
Diving
The
Company manufactures and markets underwater diving products for technical and
recreational divers, which it sells and distributes under the SCUBAPRO, UWATEC and Seemann brand
names.
The
Company markets a complete line of underwater diving and snorkeling equipment,
including regulators, buoyancy compensators, dive computers and gauges,
wetsuits, masks, fins, snorkels and accessories. SCUBAPRO and UWATEC diving equipment are
marketed to the premium segment of the market for both diving enthusiasts and
more technical, advanced divers. Seemann products are marketed
to the recreational diver interested in owning quality equipment at an
affordable price. Products are sold via selected distribution to independent
specialty dive stores worldwide. These specialty dive stores generally provide a
wide range of services to divers, including sales, service and repair, diving
education and travel.
2
The
Company focuses on maintaining SCUBAPRO and UWATEC as the market leaders
in innovation. The Company maintains research and development functions in the
U.S. and Europe and holds a number of patents on proprietary products. The
Company’s consumer communication focuses on building the brand and highlighting
exclusive product features and consumer benefits of the SCUBAPRO and UWATEC product lines. The
Company’s communication and distribution reinforce the SCUBAPRO and UWATEC brands’ position as the
industry’s quality and innovation leader. The Company markets its equipment in
diving magazines, via websites and through dive specialty stores. Seemann’s full-line of dive
equipment and accessories are marketed and sold primarily in Europe. Seemann products compete in
the mid-market on the basis of quality at an affordable price.
The
Company manufactures regulators, dive computers, gauges, and instruments at its
Italian and Indonesian facilities. The Company sources buoyancy
compensators, rubber goods, plastic products, proprietary materials, and other
components from third-parties.
Financial
Information for Business Segments
As noted
above, the Company has four reportable business segments. See Note 14 to the
consolidated financial statements included elsewhere in this report for
financial information concerning each business segment.
International
Operations
See Note
14 to the consolidated financial statements included elsewhere in this report
for financial information regarding the Company’s domestic and international
operations. See Note 1, subheading “Foreign Operations and Related Derivative
Financial Instruments,” to the consolidated financial statements included
elsewhere in this report for information regarding risks related to the
Company’s foreign operations.
Research
and Development
The
Company commits significant resources to new product research and
development. Marine Electronics conducts all of its product research
and design activities at its locations in Mankato, Alpharetta and Eufaula (see
Item 2 – “Properties” included elsewhere in this report for additional
information on the Company’s properties). Engineering and software
development for Humminbird products are done in Atlanta and a research and
development facility in Shanghai, China. Diving maintains research
and development facilities in Hallwil, Switzerland; Casarza Ligure, Italy; and
El Cajon, California in the United States.
The
Company expenses research and development costs as incurred, except for software
development for new electronics products which are capitalized once
technological feasibility is established and then amortized over the expected
life of the software. The amounts expensed by the Company in connection with
research and development activities for each of the last three fiscal years are
set forth in the Company’s Consolidated Statements of Operations included
elsewhere in this report.
Competition
The
Company believes its products compete favorably on the basis of product
innovation, product performance and marketing support and, to a lesser extent,
price.
Marine Electronics: The
Company’s main competitors in the electric trolling motors business are Motor
Guide, owned by Brunswick Corporation, and private label branded motors sourced
primarily from manufacturers in Asia. Motor Guide manufactures and
sells a full range of trolling motors and accessories. Competition in this
business is focused on product quality and durability as well as product
benefits and features for fishing. The main competitors in the fishfinder market
are Lowrance, Garmin, Navman, and Raymarine. Competition in this business is
primarily focused on the quality of sonar imaging and display as well as the
integration of mapping and GPS technology. The main competitors in the
downrigger market are Big Jon, Walker and Scotty. Competition in this business
primarily focuses on ease of operation, speed and durability. The Company’s main
competitors in the marine navigation business are Raymarine, Garmin, Simrad, and
Furuno. Competition in this business is primarily focused on
innovative and sleek designs, ease of use, resolution of display imaging,
leading edge processing power and integration with related marine electronics
devices.
3
Outdoor Equipment: The
Company’s brands and products compete in the sporting goods and specialty
segments of the outdoor equipment market. Competitive brands with a strong
position in the sporting goods channel include Coleman and private label brands.
The Company also competes with specialty companies such as The North Face and
Kelty on the basis of materials and innovative designs for consumers who want
performance products priced at a value. Commercial tent market competitors
include Anchor Industries and Aztec for tension and frame tents along with
canopies based on structure and styling. The Company sells military tents to
prime vendors who hold supply contracts from the U.S.
Government. Competitors in the military tent business include Base-X,
DHS Systems, Alaska Structures, Camel, Outdoor Venture,
and Diamond Brand.
Watercraft: The Company
primarily competes in the paddle boat segment of kayaks and canoes. The
Company’s main competitors in this segment are Confluence Watersports, Pelican,
Wenonah Canoe and Legacy Paddlesports, each of which primarily competes on the
basis of their design, performance and quality.
Diving: The main
competitors in Diving include Aqualung/U.S. Divers, Oceanic, Mares, Cressi-sub,
and Suunto, each of which primarily competes on the basis of product innovation,
performance, quality and safety.
Employees
At
October 2, 2009, the Company had approximately 1,280 regular, full-time
employees. The Company considers its employee relations to be excellent.
Temporary employees are utilized primarily to manage peaks in the seasonal
manufacturing of products.
Backlog
Unfilled
orders for future delivery of products totaled approximately $46.3 million at
October 2, 2009 and $38.2 million at October 3, 2008. For the majority of its
products, the Company’s businesses do not receive significant orders in advance
of expected shipment dates, with the exception of the military tent business
which has orders outstanding based on contractual agreements.
Patents,
Trademarks and Proprietary Rights
The
Company owns no single patent that is material to its business as a whole.
However, the Company holds various patents, principally for diving products,
electric motors and fishfinders and regularly files applications for patents.
The Company has numerous trademarks and trade names which it considers important
to its business, many of which are noted in this report. Historically, the
Company has vigorously defended its intellectual property rights and the Company
expects to continue to do so.
Supply
Chain and Sourcing of Materials
The
Company manufactures some products that use materials requiring long order lead
times or that are only available in a cost effective manner from a single
vendor. The Company mitigates product availability and supply chain
risks through safety stocks and forecast-based supply contracts, and to a lesser
extent with just in time inventory deliveries or supplier-owned inventory
located close to the Company’s manufacturing locations. The Company
strives to balance the imperative of holding adequate inventories with the need
to maintain flexibility by building inventories to forecast for high-volume
products, utilizing build to order strategies wherever possible, and by having
products delivered to customers directly from suppliers.
4
The
Company has key vendors for materials used in its military tent business.
Interruption or loss in the availability of these materials could have a
material adverse impact on the sales and operating results of the Company’s
Outdoor Equipment business.
Most of
the Company’s products are made using materials that are generally in adequate
supply and are available from a variety of third-party
suppliers.
Seasonality
The
Company’s products are outdoor recreation related which results in seasonal
variations in sales and profitability. This seasonal variability is due to
customers’ increasing their inventories in the quarters ending March and June,
the primary selling season for the Company’s outdoor recreation products, with
lower inventory volumes during the quarters ending September and December. The
following table shows, for the past three fiscal years, the total net sales and
operating profit or loss of the Company for each quarter, as a percentage of the
total year.
|
Year
Ended
|
||||||||||||||||||||||||
|
2009
|
2008
|
2007
|
||||||||||||||||||||||
|
Quarter
Ended
|
Net
Sales
|
Operating
Profit
|
Net
Sales
|
Operating
Profit
|
Net
Sales
|
Operating
Profit
|
||||||||||||||||||
|
December
|
20 | % | -1918 | % | 18 | % | -12 | % | 17 | % | -11 | % | ||||||||||||
|
March
|
30 | % | 2127 | % | 29 | % | 10 | % | 28 | % | 23 | % | ||||||||||||
|
June
|
32 | % | 3888 | % | 34 | % | 38 | % | 35 | % | 74 | % | ||||||||||||
|
September
|
18 | % | -3997 | % | 19 | % | -136 | % | 20 | % | 14 | % | ||||||||||||
| 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | 100 | % | |||||||||||||
Available
Information
The
Company maintains a website at www.johnsonoutdoors.com. On its website, the
Company makes available, free of charge, its Annual Report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports, as soon as reasonably practical after the reports have been
electronically filed or furnished to the Securities and Exchange Commission. In
addition, the Company makes available on its website, free of charge, its (a)
Code of Business Conduct; (b) Code of Ethics for its Chief Executive Officer and
Senior Financial and Accounting Officers; (c) the charters for the
following committees of the Board of Directors: Audit; Compensation; Executive;
and Nominating and Corporate Governance and (d) Policy and Procedures with
respect to Related Party Transactions. The Company is not including the
information contained on or available through its website as a part of, or
incorporating such information by reference into, this Annual Report on Form
10-K. This report includes all material information about the Company that is
included on the Company’s website and is otherwise required to be included in
this report.
ITEM
1A. RISK FACTORS
The risks
described below are not the only risks we face. Additional risks that we do not
yet know of or that we currently think are immaterial may also impair our future
business operations. If any of the events or circumstances described in the
following risks actually occur, our business, financial condition or results of
operations could be materially adversely affected. In such cases, the trading
price of our common stock could decline.
Our
net sales and profitability depend on our ability to continue to conceive,
design and market products that appeal to our consumers.
The
introduction of new products is critical in our industry and to our growth
strategy. Our business depends on our ability to continue to conceive, design,
manufacture and market new products and upon continued market acceptance of our
product offering. Rapidly changing consumer preferences and trends make it
difficult to predict how long consumer demand for our existing products will
continue or what new products will be successful. Our current products may not
continue to be popular or new products that we may introduce may not achieve
adequate consumer acceptance for us to recover development, manufacturing,
marketing and other costs. A decline in consumer demand for our products, our
failure to develop new products on a timely basis in anticipation of changing
consumer preferences or the failure of our new products to achieve and sustain
consumer acceptance could reduce our net sales and profitability.
5
Competition
in our markets could reduce our net sales and profitability.
We
operate in highly competitive markets. We compete with several large domestic
and foreign companies such as Brunswick, Lowrance, Confluence and Aqualung/U.S.
Divers, with private label products sold by many of our retail customers and
with other producers of outdoor recreation products. Some of our competitors
have longer operating histories, stronger brand recognition and greater
financial, technical, marketing and other resources than us. In addition, we may
face competition from new participants in our markets because the outdoor
recreation product industries have limited barriers to entry. We experience
price competition for our products, and competition for shelf space at
retailers, all of which may increase in the future. If we cannot compete
successfully in the future, our net sales and profitability will likely
decline.
General
economic conditions affect the Company’s results.
Our
revenues are affected by economic conditions and consumer confidence worldwide,
but especially in the United States and Europe. In times of economic
uncertainty, consumers tend to defer expenditures for discretionary items, which
affects demand for our products. Moreover, our businesses are
cyclical in nature, and their success is dependent upon favorable economic
conditions, the overall level of consumer confidence and discretionary income
levels. Any substantial deterioration in general economic conditions
that diminish consumer confidence or discretionary income can reduce our sales
and adversely affect our financial results including the potential for future
impairments of goodwill and other intangible assets. The impact of weak
consumer credit markets; corporate restructurings; layoffs; declines in the
value of investments and residential real estate; higher fuel prices and
increases in federal and state taxation all can negatively affect our
operating results.
Trademark
infringement or other intellectual property claims relating to our products
could increase our costs.
Our
industry is susceptible to litigation regarding trademark and patent
infringement and other intellectual property rights. We could be either a
plaintiff or defendant in trademark and patent infringement claims and claims of
breach of license from time to time. The prosecution or defense of intellectual
property litigation is both costly and disruptive of the time and resources of
our management even if the claim or defense against us is without merit. We
could also be required to pay substantial damages or settlement costs to resolve
intellectual property litigation.
Furthermore,
we may rely on trade secret law to protect technologies and proprietary
information that we cannot or have chosen not to patent. Trade secrets, however,
are difficult to protect. Although we attempt to maintain protection through
confidentiality agreements with necessary personnel, contractors and
consultants, we cannot guarantee that such contracts will not be breached.
Further, confidentiality agreements may conflict with other agreements which
personnel, contractors and consultants signed with prior employers or clients.
In the event of a breach of a confidentiality agreement or divulgence of
proprietary information, we may not have adequate legal remedies to maintain our
trade secret protection. Litigation to
determine the scope of intellectual property rights, even if ultimately
successful, could be costly and could divert management’s attention away from
business.
6
Impairment
charges could reduce our profitability.
We test
our goodwill and other intangible assets with indefinite useful lives for
impairment on an annual basis during the fourth quarter of our fiscal year or on
an interim basis if an event occurs that might reduce the fair value of the
reporting unit below its carrying value. Various uncertainties, including
changes in consumer preferences, deterioration in the political environment,
continued adverse conditions in the capital markets or changes in general
economic conditions could impact the expected cash flows to be generated by an
intangible asset or group of intangible assets, and may result in an impairment
of those assets. Although any such impairment charge would be a
non-cash expense, any impairment of our intangible assets could materially
increase our expenses and reduce our profitability.
Sales
of our products are seasonal, which causes our operating results to vary from
quarter to quarter.
Sales of
our products are seasonal. Historically, our net sales and profitability have
peaked in the second and third fiscal quarters due to the buying patterns of our
customers. Seasonal variations in operating results may cause our results to
fluctuate significantly in the first and fourth quarters and may depress our
stock price during the first and fourth quarters.
The
trading price of shares of our common stock fluctuates and investors in our
common stock may experience substantial losses.
The
trading price of our common stock has been volatile and may continue to be
volatile in the future. The trading price of our common stock could decline or
fluctuate in response to a variety of factors, including:
| ● | the timing of our announcements or those of our competitors concerning significant product developments, acquisitions or financial performance; | |
| ● | fluctuation in our quarterly operating results; | |
| ● | substantial sales of our common stock; | |
| ● | general stock market conditions; or | |
| ● | other economic or external factors. |
You may
be unable to sell your stock at or above your purchase price.
A
limited number of our shareholders can exert significant influence over the
Company.
As of
December 1, 2009, Helen P. Johnson-Leipold, members of her family and related
entities (hereinafter the Johnson Family), held approximately 78% of the voting
power of both classes of our common stock taken as a whole. This voting power
would permit these shareholders, if they chose to act together, to exert
significant influence over the outcome of shareholder votes, including votes
concerning the election of directors, by-law amendments, possible mergers,
corporate control contests and other significant corporate
transactions. Moreover, certain members of the Johnson Family have
entered into a voting trust agreement covering approximately 85% of outstanding
class B shares. This voting trust agreement would permit these
shareholders, if they continue to choose to act together, to exert significant
influence over the outcome of shareholder votes, including votes concerning the
election of directors, by-law amendments, possible mergers, corporate control
contests and other significant corporate transactions.
We
may experience difficulties in integrating strategic acquisitions.
As part
of our growth strategy, we intend to pursue acquisitions that are consistent
with our mission and that will enable us to leverage our competitive strengths.
Over the past three fiscal years we have acquired:
| ● | Seemann Sub GmbH & Co. KG on April 2, 2007, including, without limitation, certain intellectual property used in its business; | |
| ● | Geonav S.r.l. on November 16, 2007, including, without limitation, certain intellectual property used in its business; and |
7
| ● | Navicontrol S.r.l. on February 6, 2009, including, without limitation, certain intellectual property used in its business. |
Risks
associated with integrating strategic acquisitions include:
| ● | the acquired business may experience losses which could adversely affect our profitability; | |
| ● | unanticipated costs relating to the integration of acquired businesses may increase our expenses; | |
| ● | possible failure to obtain any necessary consents to the transfer of licenses or other agreements of the acquired company; | |
| ● | possible failure to maintain customer, licensor and other relationships after the closing of the transaction of the acquired company; | |
| ● | difficulties in achieving planned cost-savings and synergies may increase our expenses; | |
| ● | diversion of our management’s attention could impair their ability to effectively manage our other business operations; and | |
| ● | unanticipated management or operational problems or liabilities may adversely affect our profitability and financial condition. |
We
are dependent upon certain key members of management.
Our
success will depend to a significant degree on the abilities and efforts of our
senior management. Moreover, our success depends on our ability to attract,
retain and motivate qualified management, marketing, technical and sales
personnel. These people are in high demand and often have competing employment
opportunities. The labor market for skilled employees is highly competitive and
we may lose key employees or be forced to increase their compensation to retain
these people. Employee turnover could significantly increase our training and
other related employee costs. The loss of key personnel, or the failure to
attract qualified personnel, could have a material adverse effect on our
business, financial condition or results of operations.
Sources
of and fluctuations in market prices of raw materials can affect our operating
results.
The
primary raw materials we use are metals, resins and packaging materials. These
materials are generally available from a number of suppliers, but we have chosen
to concentrate our sourcing with a limited number of vendors for each commodity
or purchased component. We believe our sources of raw materials are reliable and
adequate for our needs. However, the development of future sourcing issues
related to the availability of these materials as well as significant
fluctuations in the market prices of these materials may have an adverse affect
on our financial results.
Currency
exchange rate fluctuations could increase our expenses.
We have
significant foreign operations, for which the functional currencies are
denominated primarily in euros, Swiss francs, Japanese yen and Canadian dollars.
As the values of the currencies of the foreign countries in which we have
operations increase or decrease relative to the U.S. dollar, the sales,
expenses, profits, losses, assets and liabilities of our foreign operations, as
reported in our consolidated financial statements, increase or decrease,
accordingly. Approximately 27% of our revenues for the year ended October 2,
2009 were denominated in currencies other than the U.S. dollar. Approximately
16% were denominated in euros, with the remaining 11% denominated in various
other foreign currencies. We may mitigate a portion of the
fluctuations in certain foreign currencies through the purchase of foreign
currency swaps, forward contracts and options to hedge known commitments,
primarily for purchases of inventory and other assets denominated in foreign
currencies or to reduce the risk of changes in foreign currency exchange rates
on foreign currency borrowings.
We
are subject to environmental and safety regulations.
We are
subject to federal, state, local and foreign laws and other legal requirements
related to the generation, storage, transport, treatment and disposal of
materials as a result of our manufacturing and assembly operations. These laws
include the Resource Conservation and Recovery Act (as amended), the Clean Air
Act (as amended) and the Comprehensive Environmental Response, Compensation and
Liability Act (as amended). We believe that our existing environmental
management system is adequate and we have no current plans for substantial
capital expenditures in the environmental area. We do not currently anticipate
any material adverse impact on our results of operations, financial condition or
competitive position as a result of compliance with federal, state, local and
foreign environmental laws or other legal requirements. However, risk of
environmental liability and changes associated with maintaining compliance with
environmental laws is inherent in the nature of our business and there is no
assurance that material liabilities or changes would not arise.
8
We
rely on our credit facility to provide us with sufficient working capital to
operate our business.
Historically, we have relied upon our
existing credit facilities to provide us with adequate working capital to
operate our business. The availability of borrowing amounts under our
credit facilities are dependent upon our compliance with the debt covenants set
forth in the facilities. Violation of those covenants, whether as a
result of incurring operating losses or otherwise, could result in our lenders
restricting or terminating our borrowing ability under our credit
facilities. The availability of borrowing amounts under our revolving
credit facility is dependent upon the amount and quality of the accounts
receivable and inventory collateralizing the revolving credit
facility. The bankruptcy of a major customer could have a significant
negative impact on the availability of borrowing amounts under our revolving
credit facility. If our lenders reduce or terminate our access to
amounts under our credit facilities, we may not have sufficient capital to fund
our working capital needs and/or we may need to secure additional capital or
financing to fund our working capital requirements or to repay outstanding debt
under our credit facilities. We can make no assurance that we will be
successful in ensuring our availability to amounts under our credit facilities
or in connection with raising additional capital and that any amount, if raised,
will be sufficient to meet our cash requirements. If we are not able
to maintain our borrowing availability under our credit facilities and/or raise
additional capital when needed, we may be forced to sharply curtail our efforts
to manufacture and promote the sale of our products or to curtail our
operations. Ultimately, we may be forced to cease
operations.
Our
debt covenants may limit our ability to complete acquisitions, incur debt, make
investments, sell assets, merge or complete other significant
transactions.
Our
credit facilities and certain other of our debt instruments include limitations
on a number of our activities, including our ability to:
| ● | incur additional debt; | |
| ● | create liens on our assets or make guarantees; | |
| ● | make certain investments or loans; | |
| ● | pay dividends; or | |
| ● | dispose of or sell assets or enter into a merger or similar transaction. |
These
debt covenants could restrict our ability to pursue opportunities to expand our
business operations, including engaging in strategic acquisitions.
Our
shares of common stock are thinly traded and our stock price
may be more volatile.
Because
our common stock is thinly traded, its market price may fluctuate significantly
more than the stock market in general or the stock prices of similar companies,
which are exchanged, listed or quoted on NASDAQ. We believe there are 4,466,961
shares of our Class A common stock held by nonaffiliates as of December 8, 2009.
Thus, our common stock will be less liquid than the stock of companies with
broader public ownership, and as a result, the trading prices for our shares of
common stock may be more volatile. Among other things, trading of a relatively
small volume of our common stock may have a greater impact on the trading price
for our stock than would be the case if our public float were
larger.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
9
ITEM
2. PROPERTIES
The
Company maintains both leased and owned manufacturing, warehousing, distribution
and office facilities throughout the world. The Company believes that its
facilities are well maintained and have capacity adequate to meet its current
needs.
See Note
5 to the consolidated financial statements included elsewhere in this report for
a discussion of the Company’s lease obligations.
As of
October 2, 2009, the Company’s principal manufacturing (identified with an
asterisk) and other locations are:
Alpharetta,
Georgia (Marine Electronics)
Antibes,
France (Diving)
Barcelona,
Spain (Diving)
Basingstoke,
Hampshire, England (Diving)
Batam,
Indonesia* (Diving and Outdoor Equipment)
Binghamton,
New York* (Outdoor Equipment)
Brignais,
France (Watercraft)
Brussels,
Belgium (Diving)
Burlington,
Ontario, Canada (Marine Electronics, Outdoor Equipment, Watercraft)
Chai Wan,
Hong Kong (Diving)
Chatswood,
Australia (Diving)
El Cajon,
California (Diving)
Eufaula,
Alabama* (Marine Electronics)
Ferndale,
Washington (Watercraft)
Casarza
Ligure, Italy* (Diving)
Great
Yarmouth, Norfolk, United Kingdom (Watercraft)
Hallwil,
Switzerland (Diving)
Henggart,
Switzerland (Diving)
Mankato,
Minnesota* (Marine Electronics)
Napier,
New Zealand* (Watercraft)
Old Town,
Maine* (Watercraft)
Shanghai,
China (Marine Electronics)
Silverdale,
New Zealand* (Watercraft)
Viareggio,
Italy (Marine Electronics)
Wendelstein,
Germany (Diving)
Yokahama,
Japan (Diving)
The
Company’s corporate headquarters is located in a leased facility in Racine,
Wisconsin.
ITEM
3. LEGAL PROCEEDINGS
See Note
16 to the consolidated financial statements included elsewhere in this report
for a discussion of legal proceedings.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended October 2, 2009.
PART
II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Certain
information with respect to this item is included in Notes 11 and 12 to the
Company's consolidated financial statements included elsewhere in this report.
The Company’s Class A common stock is traded on the NASDAQ Global MarketSM
under the symbol: JOUT. There is no public market for the Company’s Class B
common stock. However, the Class B common stock is convertible at all times at
the option of the holder into shares of Class A common stock on a share for
share basis. As of December 8, 2009, the Company had 719 holders of record of
its Class A common stock and 35 holders of record of its Class B common stock.
We believe the number of beneficial owners of our Class A common stock on
that date was substantially greater.
10
A summary
of the high and low closing prices for the Company’s Class A common stock during
each quarter of the years ended October 2, 2009 and October 3, 2008 is as
follows:
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
Stock
prices:
|
||||||||||||||||||||||||||||||||
|
High
|
$ | 11.93 | $ | 23.50 | $ | 7.59 | $ | 22.50 | $ | 7.80 | $ | 17.77 | $ | 9.89 | $ | 16.06 | ||||||||||||||||
|
Low
|
5.10 | 21.44 | 4.68 | 16.00 | 5.00 | 15.40 | 5.30 | 12.40 | ||||||||||||||||||||||||
On
December 4, 2008, the Company’s Board of Directors voted to suspend quarterly
dividends to shareholders.
In fiscal
2008, the Company declared the following dividends:
| ● | A cash dividend declared on December 7, 2007, with a record date of January 10, 2008, payable on January 25, 2008 of $0.055 per share to Class A common stockholders and $0.05 per share to Class B common stockholders. | |
| ● | A cash dividend declared on February 28, 2008, with a record date of April 10, 2008, payable on April 24, 2008 of $0.055 per share to Class A common stockholders and $0.05 per share to Class B common stockholders. | |
| ● | A cash dividend declared on May 28, 2008, with a record date of July 10, 2008, payable on July 24, 2008 of $0.055 per share to Class A common stockholders and $0.05 per share to Class B common stockholders. | |
| ● | A cash dividend declared on October 1, 2008, with a record date of October 16, 2008, payable on October 30, 2008 of $0.055 per share to Class A common stockholders and $0.05 per share to Class B common stockholders. |
The
following limitations apply to the ability of the Company to pay
dividends:
| ● | Pursuant to the Company’s revolving credit and security agreement, dated September 29, 2009, by and among the Company, the subsidiary borrowers, PNC Bank, National Association and the other lenders named therein, the Company is limited in the amount of restricted payments (primarily dividends and repurchases of common stock) made during each fiscal year. The Company may declare, and pay, dividends in accordance with historical practices, but in no event may the aggregate amount of all dividends for any fiscal year exceed 25% of the Company’s net income for that fiscal year. | |
| ● | The Company’s Articles of Incorporation provide that no dividend, other than a dividend payable in shares of the Company’s common stock, may be declared or paid upon the Class B common stock unless such dividend is declared or paid upon both classes of common stock. Whenever a dividend (other than a dividend payable in shares of Company common stock) is declared or paid upon any shares of Class B common stock, at the same time there must be declared and paid a dividend on shares of Class A common stock equal in value to 110% of the amount per share of the dividend declared and paid on shares of Class B common stock. Whenever a dividend is payable in shares of Company common stock, such dividend must be declared or paid at the same rate on the Class A common stock and the Class B common stock. |
11
Total
Shareholder Return
The graph
below compares on a cumulative basis the yearly percentage change since October
1, 2004 in the total return (assuming reinvestment of dividends) to shareholders
on the Class A common stock with (a) the total return (assuming reinvestment of
dividends) on The NASDAQ Stock Market-U.S. Index; (b) the total return (assuming
reinvestment of dividends) on the Russell 2000 Index; and (c) the total return
(assuming reinvestment of dividends) on a self-constructed peer group index. The
peer group consists of Arctic Cat Inc., Brunswick Corporation, Callaway Golf
Company, Escalade Inc., Marine Products Corporation and Nautilus, Inc. The graph
assumes $100 was invested on October 1, 2004 in the Company’s Class A common
stock, The NASDAQ Stock Market-U.S. Index, the Russell 2000 Index and the peer
group indices.
 |
||
|
*
$100 invested on 10/1/04 in stock or the applicable index or peer
group, including reinvestment of dividends.
Indexes
calculated on month-end basis.
|
|
10/1/2004
|
9/30/2005
|
9/29/2006
|
9/28/2007
|
10/3/2008
|
10/2/2009
|
|||||||||||||||||||
|
Johnson
Outdoors Inc.
|
$ | 100.0 | $ | 86.3 | $ | 89.6 | $ | 112.5 | $ | 65.2 | $ | 48.1 | ||||||||||||
|
NASDAQ
Composite
|
100.0 | 113.8 | 121.5 | 143.4 | 109.2 | 112.6 | ||||||||||||||||||
|
Russell
2000 Index
|
100.0 | 118.0 | 129.7 | 145.7 | 124.6 | 112.7 | ||||||||||||||||||
|
Peer
Group
|
100.0 | 92.3 | 76.2 | 65.3 | 39.6 | 30.2 | ||||||||||||||||||
The
information in this section titled “Total Shareholder Return” shall not be
deemed to be “soliciting material” or “filed” with the Securities and Exchange
Commission or subject to Regulation 14A or 14C promulgated by the Securities and
Exchange Commission or subject to the liabilities of section 18 of the
Securities Exchange Act of 1934, as amended, and this information shall not be
deemed to be incorporated by reference into any filing under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as
amended.
12
ITEM
6. SELECTED CONSOLIDATED FINANCIAL
DATA
The
following table presents selected consolidated financial data, which should be
read along with the Company’s consolidated financial statements and the notes to
those statements and with “Item 7 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included or referred to elsewhere
in this report. The consolidated statements of operations for the years ended
October 2, 2009, October 3, 2008 and September 28, 2007, and the consolidated
balance sheet data as of October 2, 2009 and October 3, 2008 are derived from
the Company’s audited consolidated financial statements included elsewhere
herein. The consolidated statements of operations for the years ended September
29, 2006 and September 30, 2005, and the consolidated balance sheet data as of
September 28, 2007, September 29, 2006 and September 30, 2005, are derived from
the Company’s audited consolidated financial statements which are not included
herein.
13
| October 2 | October 3 | September 28 | September 29 | September 30 | ||||||||||||||||
|
(thousands,
except per share data)
|
2009
|
2008
|
(5) |
2007
|
(6) |
2006
|
(7) |
2005
|
||||||||||||
|
OPERATING
RESULTS
|
||||||||||||||||||||
|
Net
sales
|
$ | 356,523 | $ | 420,789 | $ | 430,604 | $ | 393,950 | $ | 377,146 | ||||||||||
|
Gross
profit
|
132,782 | 159,551 | 175,496 | 165,277 | 155,678 | |||||||||||||||
|
Operating
expenses (1)
|
132,510 | 197,604 | 155,470 | 141,918 | 137,216 | |||||||||||||||
|
Operating
profit (loss)
|
272 | (38,053 | ) | 20,026 | 23,359 | 18,462 | ||||||||||||||
|
Interest
expense
|
9,949 | 5,695 | 5,162 | 4,989 | 4,792 | |||||||||||||||
|
Other
expense (income)
|
442 | 549 | (931 | ) | (128 | ) | (1,250 | ) | ||||||||||||
|
(Loss)
Income before income taxes
|
(10,119 | ) | (44,297 | ) | 15,795 | 18,498 | 14,920 | |||||||||||||
|
Income
tax (benefit) expense (2)
|
(407 | ) | 24,178 | 5,246 | 8,061 | 6,044 | ||||||||||||||
|
(Loss)
Income from continuing operations
|
(9,712 | ) | (68,475 | ) | 10,549 | 10,437 | 8,876 | |||||||||||||
|
Income
(Loss) from discontinued operations
|
41 | (2,559 | ) | (1,315 | ) | (1,722 | ) | (1,775 | ) | |||||||||||
|
Net
(loss) income
|
$ | (9,671 | ) | $ | (71,034 | ) | $ | 9,234 | $ | 8,715 | $ | 7,101 | ||||||||
|
BALANCE
SHEET DATA
|
||||||||||||||||||||
|
Current
assets
(3)
|
$ | 142,355 | $ | 189,714 | $ | 205,221 | $ | 185,290 | $ | 186,591 | ||||||||||
|
Total
assets
|
210,282 | 255,069 | 319,679 | 284,227 | 283,326 | |||||||||||||||
|
Current
liabilities (4)
|
45,367 | 55,386 | 66,260 | 57,651 | 55,457 | |||||||||||||||
|
Long-term
debt, less current maturities
|
16,089 | 60,000 | 10,006 | 20,807 | 37,800 | |||||||||||||||
|
Total
debt
|
31,563 | 60,003 | 42,806 | 37,807 | 50,800 | |||||||||||||||
|
Shareholders’
equity
|
115,825 | 122,284 | 200,165 | 180,881 | 166,434 | |||||||||||||||
|
COMMON
SHARE SUMMARY
|
||||||||||||||||||||
|
Earnings
(Loss) per share, continuing operations – Dilutive:
|
||||||||||||||||||||
|
Class
A
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.14 | $ | 1.14 | $ | 1.01 | ||||||||
|
Class
B
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.14 | $ | 1.14 | $ | 1.01 | ||||||||
|
Net
earnings (loss) per share – Dilutive:
|
||||||||||||||||||||
|
Class
A
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 1.00 | $ | 0.95 | $ | 0.81 | ||||||||
|
Class
B
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 1.00 | $ | 0.95 | $ | 0.81 | ||||||||
|
Cash
dividends per share:
|
||||||||||||||||||||
|
Class
A
|
$ | 0.00 | $ | 0.22 | $ | 0.11 | $ | 0.00 | $ | 0.00 | ||||||||||
|
Class
B
|
$ | 0.00 | $ | 0.20 | $ | 0.10 | $ | 0.00 | $ | 0.00 | ||||||||||
| (1) | The year ended October 3, 2008 includes goodwill and other impairment charges of $41.0 million. |
| (2) | The year ended October 3, 2008 includes a deferred tax asset valuation allowance of $29.5 million. |
| (3) | Includes cash and cash equivalents of $27,895, $41,791, $39,232, $51,689, and $72,111 as of the years ended 2009, 2008, 2007, 2006, and 2005, respectively. |
| (4) | Excludes short-term debt and current maturities of long-term debt. |
| (5) | The results in 2008 contain approximately ten months of operating results of the acquired Geonav business and a full year of operating results of the acquired Seemann business. |
| (6) | The results in 2007 contain a full year of operating results of the acquired Lendal Products Ltd. business and six months of operating results of the acquired Seeman business. |
| (7) | The results in 2006 contain a full year of operating results of the acquired Cannon/Bottom Line business, which was acquired on October 3, 2005. |
14
ITEM
7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Executive
Overview
The
Company designs, manufactures and markets top quality recreational products for
the outdoor enthusiast. Through a combination of innovative products, strong
marketing, a talented and passionate workforce and efficient distribution, the
Company sets itself apart from the competition. Its subsidiaries operate as a
network that promotes entrepreneurialism and leverages best practices and
synergies, following the strategic vision set by executive management and
approved by the Company’s Board of Directors.
Recent
Developments
Debt
Agreements
On
September 29, 2009, the Company and certain of its subsidiaries entered into new
credit facilities. The credit facilities consisted of five separate
Term Loan Agreements, each dated as of September 29, 2009 (the "Term Loan
Agreements" or "Term Loans"), between certain of the Company’s subsidiaries and
Ridgestone Bank ("Ridgestone"), and a Revolving Credit and Security Agreement
dated as of September 29, 2009 among the Company, certain of the its
subsidiaries, PNC Bank, National Association, as lender, as administrative agent
and collateral agent, and the other lenders named therein (the "Revolving Credit
Agreement" or "Revolver" and collectively, with the Term Loans, the "Debt
Agreements").
The Debt
Agreements replace the Company's Amended and Restated Credit Agreement (Term)
and the Amended and Restated Credit Agreement (Revolving) which were effective
as of January 2, 2009 with JPMorgan Chase Bank N.A., as lender and
administrative agent, and the other lenders named therein.
The new
Term Loan Agreements provide for aggregate term loan borrowings of $15.9
million with maturity dates ranging from 15 to 25 years from the date of
the Term Loan Agreement. Each Term Loan requires monthly payments of
principal and interest. Interest on $9.3 million of the aggregate
outstanding amount of the Term Loans is based on the prime rate plus 2.0
percent, and the remainder on the prime rate plus 2.75 percent. The
Term Loans are guaranteed in part under the United States Department of
Agriculture Rural Development program and are secured by certain real and
tangible properties of certain of the Company’s subsidiaries.
The new
Revolving Credit Agreement, maturing in September 2012, provides for funding of
up to $69.0 million. Borrowing availability under the Revolver is
based on certain eligible working capital assets, primarily account receivables
and inventory. The Revolver is secured by working capital assets and other
intangible assets of the Company and its subsidiaries. The interest
rate on the Revolver is based primarily on LIBOR plus 3.25 percent with a
minimum LIBOR floor of 2.0 percent.
The
Company incurred approximately $1.5 million of financing fees in conjunction
with the execution of the Debt Agreements.
Ferndale Facility
Closure
On June
30, 2009, the Company announced plans to consolidate operations for its U.S.
paddle sports brands in Old Town, Maine, resulting in the closure of the
Company’s plant in Ferndale, Washington. The closure of the plant
resulted in the reduction of approximately 90 positions located
there. The Ferndale facility was closed and all production ceased as
of September 4, 2009.
Swap
Termination
The
amendment of the Company’s former debt agreements entered into on January 2,
2009 and the related imposition of a LIBOR floor in the amended debt terms
caused the Company’s $60.0 million LIBOR-based interest rate swap to become a
less than highly-effective hedge against the impact on interest payments of
changes in the three-month LIBOR benchmark rate. The Company entered
into offsetting interest rate swap contracts to neutralize its exposure to
potential further losses from the less than highly-effective
hedge. During the second and third quarters of fiscal 2009, the
Company terminated all of its interest rate swap contracts and paid $6.2 million
in final cash settlements of those instruments.
15
Pension
Curtailment
In 2009,
the Company elected to freeze its U.S. defined benefit pension plans as of
September 30, 2009. The effect of this action is a cessation of
benefit accruals related to service performed after September 30, 2009, which,
in turn, reduces the Company’s projected benefit obligation under the
plans.
Results
of Operations
Summary
consolidated financial results from continuing operations for the fiscal years
presented were as follows:
|
(millions,
except per share data)
|
2009
|
2008
|
(1) |
2007
|
(2) | |||||||
|
Net
sales
|
$ | 356.5 | $ | 420.8 | $ | 430.6 | ||||||
|
Gross
profit
|
132.8 | 159.6 | 175.5 | |||||||||
|
Impairment
charges
|
0.7 | 41.0 | - | |||||||||
|
Other
operating expenses
|
131.8 | 156.7 | 155.5 | |||||||||
|
Operating
profit (loss)
|
0.3 | (38.1 | ) | 20.0 | ||||||||
|
Interest
expense
|
9.9 | 5.7 | 5.2 | |||||||||
|
(Loss)
income from continuing operations
|
(9.7 | ) | (68.5 | ) | 10.5 | |||||||
|
Net
(loss) income
|
(9.7 | ) | (71.0 | ) | 9.2 | |||||||
| (1) | The results of 2008 contain a deferred tax asset valuation allowance of $29.5 million and a full year of operating results of the acquired Seemann business and approximately ten months of operating results of the acquired Geonav business. |
| (2) | The results in 2007 contain a full year of operating results of the acquired Lendal Products Ltd. business and six months of operating results of the acquired Seemann business. |
The
Company’s sales and operating profit (loss) by business segment are summarized
as follows:
|
(millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Net
sales:
|
||||||||||||
|
Marine
Electronics
|
$ | 165.3 | $ | 186.7 | $ | 198.0 | ||||||
|
Outdoor
Equipment
|
41.4 | 48.3 | 55.9 | |||||||||
|
Watercraft
|
69.4 | 88.1 | 88.8 | |||||||||
|
Diving
|
80.8 | 98.2 | 88.7 | |||||||||
|
Other/corporate/eliminations
|
(0.4 | ) | (0.5 | ) | (0.8 | ) | ||||||
| $ | 356.5 | $ | 420.8 | $ | 430.6 | |||||||
|
Operating
profit (loss):
|
||||||||||||
|
Marine
Electronics
|
$ | 9.3 | $ | 0.4 | $ | 22.9 | ||||||
|
Outdoor
Equipment
|
3.4 | 2.0 | 8.5 | |||||||||
|
Watercraft
|
(6.2 | ) | (8.3 | ) | (4.2 | ) | ||||||
|
Diving
|
1.6 | (21.5 | ) | 6.9 | ||||||||
|
Other/corporate/eliminations
|
(7.8 | ) | (10.7 | ) | (14.1 | ) | ||||||
| $ | 0.3 | $ | (38.1 | ) | $ | 20.0 | ||||||
See Note
14 in the notes to the consolidated financial statements included elsewhere in
this report for the definition of segment net sales and operating
profit.
16
Fiscal
2009 vs Fiscal 2008
Net
Sales
All of
the Company's business segments were adversely impacted in 2009 by the state of
the global economy. During the current fiscal year, sales were
negatively affected by a weak retail environment which the Company believes is
due to a number of factors including, but not limited to, continued weakness in
the global economy, high unemployment, volatile capital markets, depressed
housing prices and tight consumer lending practices, all of which drove consumer
confidence down to, or near, historical lows and resulted in considerable
negative pressure on spending by individual consumers. The Company is
continuing to adjust its infrastructure to match its sales volumes as it works
through these difficult times. Net sales totaled $356.5 million in
2009 compared to $420.8 million in 2008, a decrease of 15.3% or $64.3
million. Sales declined in all of the Company’s business
units. Foreign currency translations unfavorably impacted 2009 net
sales by $12.5 million in comparison to 2008.
Net sales
for the Marine Electronics business decreased $21.4 million, or 11.5% during
2009. The decline was primarily the result of general economic
conditions and weakness in the boat market which reduced demand for all of
Marine Electronics’ product lines.
Outdoor
Equipment net sales declined $6.9 million in 2009, or 14.3%, primarily due to
the expected $3.1 million decline in military tent sales. Commercial
tent sales were also down from the prior year by $3.2 million due to softness in
the U.S. economy driving cautious spending by tent rental
companies.
Net sales
for the Watercraft business decreased $18.7 million, or 21.2%, primarily as a
result of economic uncertainty in the retail marketplace and scaled-back
distribution in non-core channels.
The
Diving business saw a decline in sales of $17.4 million, or 17.7%, due largely
to weak economic conditions worldwide and $5.2 million of unfavorable currency
translations.
Gross
Profit
Gross
profit of $132.8 million was 37.2% of net sales on a consolidated basis for the
year ended October 2, 2009 compared to $159.6 million or 37.9% of net sales in
the prior year. The gross profit decline of $26.8 million was
primarily attributable to the 15.3% decline in sales volume during 2009 as
compared to 2008. As a result of reduced
sales, and in order to reduce inventories, manufacturing plants were operated at
reduced capacity at certain points during the year. This resulted in higher
unabsorbed costs in our manufacturing plants which were expensed during the
period.
Gross
profit in the Marine Electronics business declined $4.5 million from the prior
year due to a decline in volume, but improved as a percent of net sales from
33.8% in 2008 to 35.5% in the current year.
Gross
profit in the Outdoor Equipment business declined $1.2 million from 2008, but
improved as a percent of net sales from 31.3% in the prior year to 33.6% in
2009.
Gross
profit in the Watercraft segment was 30.5% of net sales in 2009 and was $9.1
million less than 2008 levels, which were equal to 34.4% of net
sales. The reduction in gross profit was due primarily to lower
volume and related operating inefficiencies and closeout
pricing. In addition, the Company recorded an additional
inventory reserve of $1.7 million as a result of the Company’s efforts to
simplify its product offerings.
Gross
profit for the Diving segment decreased by $11.7 million from 51.6% of net sales
in 2008 to 48.2% of net sales in 2009 primarily as a result of pricing programs
designed to lower inventory levels and gain market share combined with operating
inefficiencies due to lower volumes.
Operating
Expenses
Operating
expenses decreased from the prior year by $65.1 million. During
fiscal 2008, the Company recorded impairment charges of $41.0 million related to
goodwill and other indefinite lived intangible assets. Excluding the
impairment charge, the improvement in operating expenses over 2008 was $24.1
million. The improvement was mainly attributable to lower sales
volume, reduced salary and related expenses due to reduced headcount and other
cost cutting efforts taken by the Company.
17
Operating
expenses for the Marine Electronics segment decreased by $13.4 million from 2008
levels. Excluding goodwill impairment charges of $7.2 million
recognized in the prior year, operating expenses decreased $6.2 million. This
decrease was due mainly to the decline in direct expenses as result of lower
sales volumes and reductions in discretionary spending.
Outdoor
Equipment operating expenses decreased by $2.6 million from 2008 due to a
goodwill impairment charge of $0.6 million in the prior year and reductions in
discretionary spending in 2009.
The
Watercraft business saw a decline in operating expenses of $11.3 million from
the prior year due in part to a goodwill impairment charge of $6.2 million in
2008. Other operating expenses in the Watercraft business decreased
by $5.1 million despite the recognition of $2.6 million of restructuring costs
in 2009 related to the closure of the Ferndale manufacturing location and $1.3
million of accelerated depreciation related to consolidating production
facilities into Old Town. Cost savings were driven by reductions in
direct expenses related to volume and fuel costs as well as reductions in
discretionary spending.
Operating
expenses for the Diving business decreased by $34.9 million due primarily to a
goodwill impairment charge of $27.0 million recognized in
2008. Decreases in other operating expenses were driven by reductions
in restructuring expense related to the relocation of dive computer
manufacturing in fiscal 2008, $2.2 million of favorable currency impacts,
declines in direct expenses related to reduced sales volumes and discretionary
spending cuts.
Operating
Results
The
Company recognized an operating profit of $0.3 million in 2009 compared to an
operating loss of $38.1 million in fiscal 2008. Primary factors driving the
increase in operating profit margins were the goodwill impairment loss
recognized in the prior year offset by significantly lower production volumes in
2009. Marine Electronics operating profit increased by $8.9 million
from the prior year. Outdoor Equipment operating profit increased $1.4 million
over the prior year. Watercraft operating loss improved by $2.1
million from the prior year and Diving operating profit increased $23.1 million
from a prior year loss.
Other
Income and Expenses
Interest
income decreased from the prior year by $0.6 million. Interest expense increased
from the prior year by $4.3 million, due largely to interest rate increases
during 2009 and charges associated with terminating the Company’s former debt
agreements incurred during 2009. The Company realized currency losses of $0.8
million in fiscal 2009 compared to $1.9 million in fiscal 2008. The
improvement was primarily due to strengthening of the U.S. dollar against the
Swiss franc and the euro.
Pretax
Income (Loss) and Income Taxes
The
Company recognized a pretax loss of $10.1 million in fiscal 2009, compared to a
pretax loss of $44.3 million in fiscal 2008. The Company recorded an income tax
benefit of $0.4, an effective rate of 4.0%, compared to $24.2 million of income
tax expense in fiscal 2008, an effective rate of (54.6%). The 2008 expense
included a valuation allowance of $29.5 million in respect of deferred tax
assets in the U.S. and certain foreign tax jurisdictions.
Loss
from Continuing Operations
The loss
from continuing operations was $9.7 million for the year compared to a loss of
$68.5 million in the prior year as a result of the factors discussed
above.
18
Loss
from Discontinued Operations
On
December 17, 2007, the Company’s management committed to a plan to divest the
Company’s Escape business. The results of operations of the Escape
business have been reported as discontinued operations in the consolidated
statements of operations and in the consolidated balance sheets. The Company
recorded after tax losses related to the discontinued Escape business of $0 and
$2.6 million for 2009 and 2008, respectively.
Net
Loss
The
Company recognized a net loss of $9.7 million in fiscal 2009, or $1.06 per
diluted share, compared to a net loss of $71.0 million in fiscal 2008, or $7.81
per diluted share.
Fiscal
2008 vs Fiscal 2007
Net
Sales
Net sales
totaled $420.8 million in 2008 compared to $430.6 million in 2007, a decrease of
2.3% or $9.8 million. Sales declined in all but the Company’s Diving
business unit. Foreign currency translations favorably impacted 2008
net sales by $9.6 million in comparison to 2007.
Net sales
for the Marine Electronics business decreased $11.3 million, or 5.7%, despite
incremental sales from the Geonav business, acquired in November, 2007, which
added $12.4 million in sales for 2008. The decline was primarily the
result of general economic conditions and weakness in the domestic boat market
which reduced demand for trolling motors and downriggers, and unfavorable volume
comparisons due to high levels of new product purchases by customers in the
prior year. This weakness was partially offset by higher sales of
Humminbird fishfinder/GPS combo units.
Outdoor
Equipment net sales declined $7.6 million, or 13.6%, primarily due to the
expected $6.6 million decline in military tent sales. Commercial tent
sales were also down from the prior year by $1.2 million due to softness in the
U.S. economy driving cautious spending by tent rental companies.
Net sales
for the Watercraft business decreased $0.7 million, or 0.8%, as a result of a
decline in sales to big-box retailers in light of unfavorable weather conditions
and economic uncertainty in the retail marketplace. This decline was partially
offset by an increase in sales to outdoor specialty stores driven mainly by the
timing of orders in the prior year.
The
Diving business saw increased sales of $9.5 million, or 10.7%, due mainly to $4
million of incremental sales related to the Seemann business acquired in April,
2007, and $6.7 million of favorable currency translations.
Gross
Profit
Gross
profit of $159.6 million was 37.9% of net sales on a consolidated basis for the
year ended October 3, 2008 compared to $175.5 million or 40.8% of net sales in
2007.
Gross
profit in the Marine Electronics business declined $11.2 million, from 37.5% of
net sales in 2007 to 33.8% of net sales in 2008. The incremental
Geonav gross profit of $2.8 million was more than offset by the effects of
unfavorable overhead expense absorption due to lower production volumes for
electric motors and downriggers and an unfavorable product mix. In
addition, as a result of the weak consumer demand, reserves for excess and
obsolete inventory increased by $1.8 million over 2007.
Gross
profit in the Outdoor Equipment business declined $3.9 million from 34.0% of net
sales in 2007 to 31.3% of net sales in 2008 due largely to unfavorable product
mix and lower production volumes of government and commercial
tents.
Gross
profit in the Watercraft segment of 34.4% of net sales in 2008 was $3.9 million
less than 2007 levels at 38.5% of net sales due primarily to lower volume and
related operating inefficiencies, closeout pricing, and $1.2 million of
increased material costs. In addition, the Company recorded an
additional reserve of $1.0 million for excess and obsolete inventory in 2008
compared to 2007 as a result of lower sales and the Company’s efforts to reduce
the number of unique inventory items.
19
Gross
profit for the Diving segment increased by $3.1 million but decreased as a
percent of net sales from 53.6% in 2007 to 51.6% in 2008 due largely to currency
impacts on purchased product and close out sales on end-of-life
products.
Operating
Expenses
During
fiscal 2008, the Company recorded an impairment charge of $41.0 million related
to goodwill and other indefinite lived intangible assets. Excluding
the impairment charge, operating expenses in 2008 would have been $156.6 million
as compared to $155.5 million in 2007.
In 2008,
the Marine Electronics segment recognized $7.4 million of operating expenses
generated by the newly acquired Geonav business as well as goodwill impairment
charges of $7.2 million. All other operating expenses decreased $3.2
million from 2007. This decrease was due mainly to the decrease in bonus, profit
sharing and other incentive compensation of $2.7 million, partially offset by
increased warranty expense.
Outdoor
Equipment operating expenses increased by $2.7 million from 2007 due primarily
to a goodwill impairment charge of $0.6 million in 2008 and the favorable impact
in 2007 of $2.9 million of insurance recoveries related to the flood at the
Company’s facility in Binghamton, New York in 2006.
The
Company recorded a goodwill impairment charge of $6.2 million in 2008 related to
the Watercraft business. Other operating expenses in the Watercraft
business decreased by $6.0 million due primarily to the impact of a $4.4 million
legal settlement recorded in 2007 and the reduction of bonus, profit sharing and
other incentive compensation expense in 2008.
An
impairment charge of $27.0 million was included in the Diving business operating
expenses for 2008. Other Diving operating expenses increased $4.6
million from 2007 due to $2.5 million of restructuring costs incurred related to
the relocation of dive computer manufacturing and $3.4 million due to currency
impacts, offset by decreased bonus, profit sharing and other incentive
compensation expenses.
Operating
Results
The
Company recognized an operating loss of $38.1 million in 2008 compared to an
operating profit of $20 million in fiscal 2007. Primary factors driving the
decrease in operating profit margins were the goodwill impairment loss, the
underabsorption of overhead expenses due to significantly lower production
volumes as well as higher raw material costs, close out pricing and additional
inventory reserves on slow moving inventory. Operating expenses totaled $197.6
million, or 47.0% of net sales in fiscal 2008 compared to $155.5 million or
36.1% of net sales in fiscal 2007. Marine Electronics operating profit decreased
by $22.5 million, or 98.2%, in fiscal 2008 from the prior
year. Outdoor Equipment operating profit decreased $6.5 million, or
76.5%. Watercraft operating loss worsened by $4.1 million from the prior year.
Diving operating profit turned into a loss of $21.5 million, a decrease from
prior year income of $28.4 million.
Other
Income and Expenses
Interest
income remained consistent with 2007 at $0.8 million in fiscal 2008. Interest
expense increased $0.5 million from 2007 to $5.7 million in 2008, due largely to
higher long term borrowings incurred to fund higher working capital needs. The
Company realized currency losses of $1.9 million in fiscal 2008 as compared to
$0.6 million in fiscal 2007. The increase was primarily due to
significant weakening of the U.S. dollar against the Swiss franc and the
euro.
Pretax
Income and Income Taxes
The
Company recognized a pretax loss of $44.3 million in fiscal 2008, compared to
pretax income of $15.8 million in fiscal 2007. The Company recorded income tax
expense of $24.2 million in fiscal 2008, an effective rate of (54.6%), compared
to $5.2 million in fiscal 2007, an effective rate of 33.2%. The 2008 expense
includes a valuation allowance of $29.5 million in respect of deferred tax
assets in the U.S. and certain foreign tax jurisdictions. The effective tax rate
for 2007 benefited from a German tax law change, an increased tax rate used to
record federal deferred tax assets and research and development tax credits.
20
Loss
from Continuing Operations
The loss
from continuing operations was $68.5 million for 2008 compared to income of
$10.5 million in the prior year as a result of the fluctuations discussed
above.
Loss
from Discontinued Operations
On
December 17, 2007, the Company’s management committed to a plan to divest the
Company’s Escape business. The results of operations of the Escape
business have been reported as discontinued operations in the consolidated
statements of operations and in the consolidated balance sheets. The Company
recorded after tax losses related to the discontinued Escape business of $2.6
million and $1.3 million for 2008 and 2007, respectively.
Net
Loss
The
Company recognized a net loss of $71.0 million in fiscal 2008, or $7.81 per
diluted share, compared to net income of $9.2 million in fiscal 2007, or $1.00
per diluted share.
Financial
Condition, Liquidity and Capital Resources
The
Company’s cash flow from operating, investing and financing activities, as
reflected in the consolidated statements of cash flows, is summarized in the
following table:
|
(millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Cash
provided by (used for):
|
||||||||||||
|
Operating
activities
|
$ | 30.6 | $ | 5.3 | $ | 0.6 | ||||||
|
Investing
activities
|
(15.9 | ) | (18.2 | ) | (22.0 | ) | ||||||
|
Financing
activities
|
(32.7 | ) | 15.1 | 5.3 | ||||||||
|
Effect
of exchange rate changes on cash and cash equivalents
|
4.1 | 0.4 | 3.6 | |||||||||
|
Increase
(decrease) in cash and cash equivalents
|
$ | (13.9 | ) | $ | 2.6 | $ | (12.5 | ) | ||||
Operating
Activities
The
following table sets forth the Company’s working capital position at the end of
each of the past three years:
|
(millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Current
assets (1)
|
$ | 142.4 | $ | 189.7 | $ | 205.2 | ||||||
|
Current
liabilities (2)
|
45.4 | 55.4 | 66.3 | |||||||||
|
Working
capital (2)
|
$ | 97.0 | $ | 134.3 | $ | 138.9 | ||||||
|
Current
ratio (2)
|
3.1:1
|
3.4:1
|
3.1:1
|
|||||||||
| (1) | 2009, 2008 and 2007 information includes cash and cash equivalents of $27.9, $41.8, and $39.2, respectively. |
| (2) | Excludes short-term debt and current maturities of long-term debt. |
Cash
flows provided by operations totaled $30.6 million, $5.3 million, and $0.6
million in fiscal 2009, 2008 and 2007, respectively. The most significant driver
in the increase in cash flows from operations in fiscal 2009 was a $23.3 million
decrease in inventory levels. In addition, a decline in accounts
receivable due to lower sales in fiscal 2009 also contributed to the increase in
cash from operations.
21
The major
driver in the increase in cash flows from operations in fiscal 2008 from fiscal
2007 was a decline in accounts receivable due to collections of prior year
receivables and lower sales in fiscal 2008 partially offset by fiscal 2007
incentive compensation paid out in fiscal 2008 and income tax payments in
2008.
Depreciation
and amortization charges were $12.9 million in fiscal 2009, $10.1 million in
fiscal 2008 and $9.4 million in fiscal 2007.
Investing
Activities
Cash
flows used for investing activities were $15.9 million, $18.2 million and $22.0
million in fiscal 2009, 2008 and 2007, respectively. The acquisition of
Navicontrol used $1.0 million of cash in fiscal 2009. The acquisition
of Geonav used $5.6 million of cash in fiscal 2008. The acquisition
of Lendal used $1.5 million of cash in fiscal 2007. The acquisition
of Seemann used $0.7 million and $7.9 million of cash in fiscal 2008 and 2007,
respectively. Expenditures for property, plant and equipment were $8.3 million,
$12.4 million and $13.4 million in fiscal 2009, 2008 and 2007, respectively. In
general, the Company’s ongoing capital expenditures are primarily related to
tooling for new products and facilities and information systems
improvements.
Financing
Activities
The
following table sets forth the Company’s debt and capital structure at the end
of the past three fiscal years:
|
(millions)
|
2009
|
2008
|
2007
|
|||||||||
|
Current
debt
|
$ | 15.5 | $ | - | $ | 32.8 | ||||||
|
Long-term
debt
|
16.1 | 60.0 | 10.0 | |||||||||
|
Total
debt
|
31.6 | 60.0 | 42.8 | |||||||||
|
Shareholders’
equity
|
115.8 | 122.3 | 200.2 | |||||||||
|
Total
capitalization
|
$ | 147.4 | $ | 182.3 | $ | 243.0 | ||||||
|
Total
debt to total capitalization
|
21.4 | % | 32.9 | % | 17.6 | % | ||||||
Cash
flows used for financing activities totaled $32.7 million in fiscal
2009. Financing activities provided $15.1 million and $5.3 million in
fiscal 2008 and 2007, respectively. Payments on long-term debt were $60.0, $20.8
million and $17.0 in fiscal 2009, 2008 and 2007, respectively.
On
February 12, 2008 the Company entered into a Term Loan Agreement with JPMorgan
Chase Bank N.A., as lender and agent and the other lenders named therein. The
Term Loan Agreement consisted of a $60.0 million term loan maturing on February
12, 2013. The term loan bore interest at LIBOR plus an applicable margin of
between 1.25% and 2.00%. At October 3, 2008, the margin in effect was 2.0%. On
October 13, 2008, the Company entered into an Omnibus Amendment of its Term Loan
Agreement and revolving credit facility effective as of October 3, 2008 with the
lending group, including JPMorgan Chase Bank. On the same date, the
Company also entered into a Security Agreement with the lending
group. The Omnibus Amendment temporarily modified certain provisions
of the Company’s Term Loan and revolving credit facility. The
Security Agreement was granted in favor of the lending group and covered certain
inventory and accounts receivable. The Omnibus Amendment reset the
applicable margin on the LIBOR based debt at 3.25% and modified certain
financial and non-financial covenants. The Omnibus Amendment did not
reset the net worth covenant and the Company was in non-compliance with this
covenant as of October 3, 2008. On December 31, 2008, the Company
entered into an amended term loan and revolving credit facility agreement with
the lending group which were both effective as of January 2,
2009. Changes to the term loan included shortening the maturity date
to October 7, 2010, and adjusting financial covenants and adjusting interest
rates. The revised term loan bore interest at a LIBOR rate plus 5.00% with a
LIBOR floor of 3.50%. The revolving credit facility was reduced from
$75.0 million to $30.0 million. The maturity of the revolving credit
facility remained unchanged at October 7, 2010 and bore interest at LIBOR plus
4.50%.
22
On
September 29, 2009, the Company and certain of its subsidiaries entered into new
credit facilities. The credit facilities consisted of five separate
Term Loan Agreements, each dated as of September 29, 2009 (the "Term Loan
Agreements" or "Term Loans"), between the Company or one of its subsidiaries and
Ridgestone Bank ("Ridgestone"), and a Revolving Credit and Security Agreement
dated as of September 29, 2009 among the Company, certain of its
subsidiaries, PNC Bank, National Association, as lender, as administrative agent
and collateral agent, and the other lenders named therein (the "Revolving Credit
Agreement" or "Revolver" and collectively, with the Term Loans, the "Debt
Agreements").
The Debt
Agreements replaced the Company's amended term loan and revolving credit
facility agreement which were effective as of January 2, 2009 with JPMorgan
Chase Bank N.A., as lender and administrative agent, and the other lenders named
therein.
The new
Term Loan Agreements provide for aggregate term loan borrowings of $15.9
million with maturity dates ranging from 15 to 25 years from the date of
the Term Loan Agreement. Each Term Loan requires monthly payments of
principal and interest. Interest on $9.3 million of the aggregate
outstanding amount of the Term Loans is based on the prime rate plus 2.0
percent, and the remainder on the prime rate plus 2.75 percent. The
Term Loans are guaranteed in part under the United States Department of
Agriculture Rural Development program and are secured by certain real and
tangible properties of the Company's subsidiaries.
The new
Revolving Credit Agreement, maturing in September 2012, provides for funding of
up to $69.0 million. Borrowing availability under the Revolver is
based on certain eligible working capital assets, primarily account receivables
and inventory. The Revolver is secured by working capital assets and other
intangible assets of the Company and its subsidiaries. The interest
rate on the Revolver is based primarily on LIBOR plus 3.25 percent with a
minimum LIBOR floor of 2.0 percent.
The
Company incurred approximately $1.5 million of financing fees in conjunction
with the execution of the Debt Agreements. The Company also incurred
approximately $1.3 million of financing fees related to amending the Company’s
previous debt agreements. See "Note 4 Indebtedness" for additional
information.
See “Note
19 Subsequent Events” regarding the Company’s Canadian asset backed credit
facility.
On
October 29, 2007 the Company entered into a forward starting interest rate swap
(the “Swap”) with a notional amount of $60.0 million receiving a floating three
month LIBOR interest rate while paying at a fixed rate of 4.685% over a five
year period beginning on December 14, 2007. Interest on the Swap was settled
quarterly, starting on March 14, 2008. The purpose of entering into
the Swap transaction was to lock the interest rate the Company’s $60.0 million
of three-month floating rate LIBOR debt at 4.685%, before applying the
applicable margin. As a result of the amendment and restatement of
the Company’s then-existing debt agreements on January 2, 2009 and the related
imposition of a LIBOR floor in the terms of those restated debt agreements, the
Swap was no longer an effective economic hedge against the impact on interest
payments of changes in the three-month LIBOR benchmark rate. On
January 8, 2009 the Company paid $1.2 million under an agreement to shorten the
term of the Swap and on the same date entered into two additional interest rate
swap contracts in order to neutralize its exposure to potential further losses
under the Swap. In the third quarter of fiscal 2009, the Company
terminated all of its interest rate swap contracts and paid $4.9 million in
final cash settlements of those instruments. Please see “Note 5
Derivative Instruments and Hedging Activities” for additional
information.
23
Contractual
Obligations and Off Balance Sheet Arrangements
The
Company has contractual obligations and commitments to make future payments
under its existing credit facility, including interest, operating leases and
open purchase orders. The following schedule details these significant
contractual obligations at October 2, 2009.
|
Payment
Due by Period
|
||||||||||||||||||||
|
(millions)
|
Total
|
Less
than
1
year
|
2 -
3
years
|
4 -
5
years
|
After
5
years
|
|||||||||||||||
|
Long-term
debt
|
$ | 15.9 | $ | 0.4 | $ | 1.0 | $ | 1.0 | $ | 13.5 | ||||||||||
|
Short-term
debt
|
14.9 | 14.9 | - | - | - | |||||||||||||||
|
Operating
lease obligations
|
24.7 | 6.5 | 7.7 | 5.0 | 5.5 | |||||||||||||||
|
Capital
lease obligations
|
0.8 | 0.2 | 0.3 | 0.3 | - | |||||||||||||||
|
Open
purchase orders
|
55.4 | 55.4 | - | - | - | |||||||||||||||
|
Contractually
obligated interest payments
|
11.4 | 1.0 | 1.7 | 1.6 | 7.1 | |||||||||||||||
|
Total
contractual obligations
|
$ | 123.1 | $ | 78.4 | $ | 10.7 | $ | 7.9 | $ | 26.1 | ||||||||||
Interest
obligations on short-term debt are included in the category "contractually
obligated interest payments" noted above only to the extent accrued as of
October 2, 2009. Future interest costs on the revolving credit facility cannot
be estimated due to the variability of the amount of borrowings and the interest
rates on that facility. Estimated future interest payments on the $15.9 million
floating rate bank term debt and the $12.0 million revolving credit facility
were calculated under the terms of the debt agreements in place at October 2,
2009 using the market rates applicable in the current period and assuming that
this rate would not change over the life of the term loan.
The
Company also utilizes letters of credit primarily as security for the payment of
future claims under its workers compensation insurance. Letters of credit
outstanding at October 2, 2009 were less than $0.1 million compared to $2.2
million at October 3, 2008, as the Company collateralized $2.2 million of its
potential future workers compensation claims with cash in order to facilitate
the closing of the its debt agreements at year end.
The
Company anticipates making contributions to its defined benefit pension plans of
$1.3 million through October 1, 2010.
The
Company has no other off-balance sheet arrangements.
Market
Risk Management
The
Company is exposed to market risk stemming from changes in foreign currency
exchange rates, interest rates and, to a lesser extent, commodity prices.
Changes in these factors could cause fluctuations in earnings and cash flows.
The Company may reduce exposure to certain of these market risks by entering
into hedging transactions authorized under Company policies that place controls
on these activities. Hedging transactions involve the use of a variety of
derivative financial instruments. Derivatives are used only where there is an
underlying exposure, not for trading or speculative purposes.
Foreign
Operations
The
Company has significant foreign operations for which the functional currencies
are denominated primarily in euros, Swiss francs, Japanese yen and Canadian
dollars. As the values of the currencies of the foreign countries in which the
Company has operations increase or decrease relative to the U.S. dollar, the
sales, expenses, profits, losses, assets and liabilities of the Company’s
foreign operations, as reported in the Company’s consolidated financial
statements, increase or decrease, accordingly. Approximately 27% of the
Company’s revenues for the year ended October 2, 2009 were denominated in
currencies other than the U.S. dollar. Approximately 16% were
denominated in euros, with the remaining 11% denominated in various other
foreign currencies.
24
The
Company may mitigate a portion of the fluctuations in certain foreign currencies
through the purchase of foreign currency swaps, forward contracts and options to
hedge known commitments, primarily for purchases of inventory and other assets
denominated in foreign currencies or to reduce the risk of changes in foreign
currency exchange rates on foreign currency borrowings. In 2009, the
Company used foreign currency forward contracts to reduce the risk of changes in
foreign currency exchange rates on foreign currency borrowings. There
were no foreign currency derivative contracts utilized in 2008.
Interest
Rates
The
Company may use interest rate swaps, caps or collars in order to maintain a mix
of floating rate and fixed rate debt such that permanent working capital needs
are largely funded with fixed rate debt and seasonal working capital needs are
funded with floating rate debt. The Company’s primary exposure is to U.S.
interest rates. See “Note 5 Derivative Instruments and Hedging Activities” for
additional information.
Commodities
Certain
components used in the Company’s products are exposed to commodity price
changes. The Company manages this risk through instruments such as purchase
orders and non-cancelable supply contracts. Primary commodity price exposures
include costs associated with metals, resins and packaging
materials.
Sensitivity
to Changes in Value
The
estimated maximum potential loss from a 100 basis point movement in interest
rates on the Company's term loan and short term borrowings outstanding at
October 2, 2009 is $0 in fair value and $0.3 million in annual income before
income taxes. These estimates are intended to measure the maximum
potential fair value or earnings the Company could lose in one year from adverse
changes in market interest rates. The calculations are not intended
to represent actual losses in fair value or earnings that the Company expects to
incur. The estimates do not consider favorable changes in market
rates or the effect of interest rate floors.
The
Company had $15.9 million outstanding in Prime based term loans, with maturities
ranging from 15 to 25 years, with interest and principal payable
monthly. The term loans bear interest at the Prime rate, which is
reset each quarter at the prevailing rate. The fair market value of
these term loans was $15.9 million as of October 2, 2009.
Other
Factors
The
Company anticipates that changing costs of basic raw materials may impact future
operating costs and, accordingly, the prices of its products. The Company is
involved in continuing programs to mitigate the impact of cost increases through
changes in product design and identification of sourcing and manufacturing
efficiencies. Price increases and, in certain situations, price decreases are
implemented for individual products, when appropriate.
Critical
Accounting Policies and Estimates
The
Company’s management discussion and analysis of its financial condition and
results of operations are based upon the Company’s consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the U.S. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of its assets, liabilities, sales and expenses, and related
footnote disclosures. On an on-going basis, the Company evaluates its
estimates for product returns, bad debts, inventories, intangible assets, income
taxes, warranty obligations, pensions and other post-retirement benefits, and
litigation. The Company bases its estimates on historical experience
and on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under
different assumptions or conditions.
25
The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements. Management has discussed these policies with
the Audit Committee of the Company’s Board of Directors.
Allowance
for Doubtful Accounts
The
Company recognizes revenue when title and risk of ownership have passed to the
buyer. Allowances for doubtful accounts are estimated by the
individual operating companies based on estimates of losses related to customer
accounts receivable balances. Estimates are developed by using
standard quantitative measures based on historical losses, adjusting for current
economic conditions and, in some cases, evaluating specific customer accounts
for risk of loss. The establishment of reserves requires the use of judgment and
assumptions regarding the potential for losses on receivable balances. Though
the Company considers these balances adequate and proper, changes in economic
conditions in specific markets in which the Company operates and any specific
customer collection issues the Company identifies could have a favorable or
unfavorable effect on required reserve balances.
Inventories
The
Company values inventory at the lower of cost (determined using the first-in
first-out method) or market. Management’s judgment is required to determine the
reserve for obsolete or excess inventory. Inventory on hand may exceed future
demand either because the product is outdated or because the amount on hand is
more than will be used to meet future needs. Inventory reserves are estimated by
the individual operating companies using standard quantitative measures based on
criteria established by the Company. The Company also considers current forecast
plans, as well as market and industry conditions in establishing reserve levels.
Though the Company considers these balances to be adequate, changes in economic
conditions, customer inventory levels or competitive conditions could have a
favorable or unfavorable effect on required reserve balances.
Deferred
Taxes
The
Company records a valuation allowance to reduce its deferred tax assets to the
amount that is more likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event the
Company were to determine that it would not be able to realize all or part of
its net deferred tax assets in the future, an adjustment to the deferred tax
assets would be charged to income in the period such determination was made.
Likewise, should the Company determine that it would be able to realize its
deferred tax assets in the future in excess of its net recorded amount, an
adjustment to the deferred tax assets would increase income in the period such
determination was made.
Goodwill
and Other Intangible Assets Impairment
Goodwill
and indefinite-lived intangible assets are tested for impairment annually or
more frequently if events or changes in circumstances indicate that the assets
might be impaired. Annual impairment tests are performed by the
Company in the fourth quarter of each fiscal year. During 2009, the
Company elected to change the measurement date of its annual assessment of
goodwill impairment to one month earlier- from the end of the fiscal year to the
last day of fiscal August.
The
Company completed its annual goodwill impairment test under ASC 350, Intangibles
– Goodwill and Other, in the fourth quarter of 2009. In assessing the
recoverability of the Company's goodwill and other intangible assets, the
Company estimates the fair value of the businesses to which the goodwill
relates. Fair value is estimated using a discounted cash
flow analysis. If the fair value of a reporting unit exceeds its net
book value, no impairment exists. When fair value is less than the carrying
value of the net assets and related goodwill, an impairment test is performed to
measure and recognize the amount of the impairment loss, if any. The
Company has three reporting units that have recorded goodwill and other
indefinite lived intangibles that were tested for impairment. The Canadian
Watercraft reporting unit had a fair value that was 78% below its net book value
and was determined to be fully impaired resulting in an impairment charge of
$0.3 million. The Global Diving reporting unit and the Marine
Electronics reporting unit had fair values that were above their respective net
book values and carried goodwill of approximately $4.0 million and $10.7 million
respectively. The estimate of fair value for the reporting units are
calculated using a discounted cash flow analysis, which requires a number of key
estimates and assumptions. We estimated the future cash flows of the
reporting units based on historical and forecasted revenues and operating
costs. We applied a discount rate to the estimated future cash flows
for purposes of the valuation. This discount rate is based on the
estimated weighted average cost of capital, which includes certain assumptions
such as market capital structure, market betas, risk-fee rate of return and
estimated costs of borrowing. Changes in these key estimates and
assumptions, or in other assumptions used in this process, could materially
affect our impairment analysis in a given year. At the Company’s
annual impairment testing date, the measurement of the Global Diving reporting
unit indicated that Global Diving is at risk for failing its impairment test in
future periods in the event significant assumptions such as an increase to the
discount rate or reduction in estimated earnings were to occur in the future
period.
26
The
Company recognized a $0.3 million and $41.0 million impairment charge in fiscal
2009 and 2008, respectively. The Company’s remaining goodwill and
indefinite lived intangibles could be further impaired in future
periods. A number of factors, many of which the Company has no
ability to control, could affect its financial condition, operating results and
business prospects and could cause actual results to differ from the estimates
and assumptions that the Company used in its calculation. These
factors include: prolonged global economic crisis, a significant
decrease in demand for the Company’s products, a significant adverse change in
legal factors or in the business climate, an adverse action or assessment by a
regulator and successful efforts by the Company’s competitors to gain market
share.
The
Company’s cash flow assumptions are based on historical and forecasted revenue,
operating costs and other relevant factors. If management’s estimates
of future operating results change or if there are changes to other assumptions,
the estimated fair value of the Company’s reporting units may change
significantly. Such changes could result in impairment charges in
future periods, which could have a significant impact on the Company’s operating
results and financial condition.
Warranties
The
Company accrues a warranty reserve for estimated costs to provide warranty
services. Warranty reserves are estimated by the individual operating companies
using standard quantitative measures based on criteria established by the
Company. Estimates of costs to service its warranty obligations are based on
historical experience, expectation of future conditions and known product
issues. To the extent the Company experiences increased warranty claim activity
or increased costs associated with servicing those claims, revisions to the
estimated warranty reserve would be required. The Company engages in product
quality programs and processes, including monitoring and evaluating the quality
of its suppliers, to help minimize warranty obligations.
New
Accounting Pronouncements
Effective
October 4, 2008, the Company adopted the provisions of a new accounting pronouncement regarding fair value measurements
(formerly Statement of Financial Accounting Standards (“SFAS”) No. 157 Fair Value Measurements). This accounting
pronouncement, codified under Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) Topic 820, defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. It also clarifies the definition of exchange price as
the price between market participants in an orderly transaction to sell an asset
or transfer a liability in the market in which the reporting entity would
transact for the asset or liability, which market is the principal or most
advantageous market for the asset or liability. In February 2008, the
FASB granted a one year deferral of the effective date of this pronouncement for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. Therefore, the Company has adopted
the provisions of this accounting pronouncement with
respect to its financial assets and financial liabilities only effective as of
October 4, 2008. The adoption of this pronouncement did not have a material
impact on the Company’s consolidated results of operations and financial
condition. See Note 6 – Fair Value Measurements for additional
disclosures. The Company does not expect application of this
pronouncement with respect to its non-financial assets and non-financial
liabilities to have a material impact on its consolidated financial
statements.
In
December 2007, the FASB issued a new accounting pronouncement regarding business
combinations (formerly SFAS No. 141(R) Business Combinations). The
purpose of this accounting pronouncement, codified under FASB ASC Topic 805, is
to improve the information provided in financial reports about a business
combination and its effects. The pronouncement requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date. The pronouncement also requires the acquirer to recognize and measure the
goodwill acquired in a business combination or a gain from a bargain purchase.
The pronouncement will be applied on a prospective basis for business
combinations where the acquisition date is on or after the beginning of the
Company’s 2010 fiscal year.
In
December 2007, the FASB issued a new accounting pronouncement concerning
noncontrolling interests in consolidated financial statements (formerly SFAS No.
160, Noncontrolling Interests
in Consolidated Financial Statements-an amendment of ARB No. 51). The
objective of the pronouncement, codified under FASB ASC Topic 810, is to improve
the financial information provided in consolidated financial statements. The
pronouncement amends previous guidance to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. The pronouncement also changes the way the
consolidated income statement is presented, establishes a single method of
accounting for changes in a parent’s ownership interest in a subsidiary that do
not result in deconsolidation, requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated, and expands disclosures in
the consolidated financial statements in order to clearly identify and
distinguish between the interests of the parent’s owners and the interest of the
noncontrolling owners of a subsidiary. The pronouncement is effective for the
Company’s 2010 fiscal year. The Company does not anticipate that the
pronouncement will have a material impact on the Company’s consolidated
financial statements.
27
In
February 2007, the FASB issued a new accounting pronouncement about the fair
value option (formerly SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115). This pronouncement, codified under FASB ASC Topic 820, permits an
entity to elect to measure many financial instruments and certain other items at
fair value. The fair value option permits an entity to choose to measure
eligible items at fair value at specified election dates. Entities electing the
fair value option would be required to report unrealized gains and losses on
items for which the fair value option has been elected in earnings after
adoption. Entities electing the fair value option would be required to
distinguish, on the face of the balance sheet, the fair value of assets and
liabilities for which the fair value option has been elected and similar assets
and liabilities measured using another measurement attribute. This
pronouncement became effective for the Company on October 4,
2008. The Company elected not to measure any eligible items using the
fair value option and, therefore, the pronouncement did not have an impact on
the Company’s consolidated balance sheets, consolidated statements of
operations, or consolidated statements of cash flows.
Effective
October 4, 2008, the Company adopted the provisions of a new accounting
pronouncement regarding disclosures about derivative instruments and hedging
activities (formerly SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133).
The adoption of this statement, codified under FASB ASC Topic 815, did not have
a material impact on the Company’s consolidated results of operations and
financial condition. See “Note 5 – Derivative Instruments and Hedging
Activities” for additional disclosures.
Effective
July 3, 2009, the Company adopted the provisions of a new accounting
pronouncement about subsequent events (formerly SFAS No. 165, Subsequent
Events). This pronouncement, found under FASB ASC Topic 855,
requires additional disclosures regarding a company’s subsequent events
occurring after the balance sheet date. The adoption of this
statement did not have a material impact on the Company’s consolidated results
of operations and financial condition. See “Note 19 – Subsequent
Events” for additional disclosures.
Effective
July 3, 2009, the Company adopted the provisions of a new accounting
pronouncement regarding interim disclosures about the fair value of financial
instruments (formerly SFAS No. 107-1 Interim Disclosures about Fair Value
of Financial Instruments). The adoption of this pronouncement,
codified under FASB ASC topic 820, did not have a material impact on the
Company’s consolidated results of operations and financial
condition.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Information
with respect to this item is included in Management’s Discussion and Analysis of
Financial Condition and Results of Operations under the heading “Market Risk
Management.”
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
Information
with respect to this item is included in the Company’s consolidated financial
statements attached to this report on pages F-1 to F-40.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
28
ITEM
9A(T). CONTROLS AND PROCEDURES
| (a) | Evaluation of Disclosure Controls and Procedures |
| The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, and that the information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation as of October 2, 2009, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of October 2, 2009 at reaching a level of reasonable assurance. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company has designed its disclosure controls and procedures to reach a level of reasonable assurance of achieving the desired control objectives. | |
| (b) | Changes in Internal Control over Financial Reporting |
| There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. | |
| (c) | Management’s Annual Report on Internal Control over Financial Reporting |
| The annual report of management required under this Item 9A(T) is contained in the section titled “Item 8. Financial Statements and Supplementary Data” under the heading “Management’s Report on Internal Control over Financial Reporting.” | |
| (d) | Attestation Report of Independent Registered Public Accounting Firm |
| This Annual Report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report on Form 10-K. |
ITEM
9B. OTHER INFORMATION
None.
29
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Election of Directors,” “Executive Officers,” “Section 16(a)
Beneficial Ownership Reporting Compliance” and “Audit Committee Matters – Audit
Committee Financial Expert” in the Company's Proxy Statement for the 2010 Annual
Meeting of Shareholders, which will be filed with the Commission on or before
January 30, 2010. Information regarding the Company’s Code of Business Ethics is
incorporated herein by reference to the discussion under “Corporate Governance
Matters – Employee Code of Conduct and Code of Ethics and Procedures for
Reporting of Accounting Concerns” in the Company's Proxy Statement for the 2010
Annual Meeting of Shareholders.
The Audit
Committee of the Company's Board of Directors is an “audit committee” for
purposes of Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
members of the Audit Committee are Terry E. London (Chairman), Thomas F. Pyle,
Jr. and John M. Fahey, Jr.
ITEM
11. EXECUTIVE COMPENSATION
Information
with respect to this item is incorporated herein by reference to the discussion
under the headings “Compensation of Directors” and “Executive Compensation” in
the Company’s Proxy Statement for the 2010 Annual Meeting of Shareholders, which
will be filed with the Commission on or before January 30, 2010.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Stock Ownership of Management and Others” in the Company's
Proxy Statement for the 2010 Annual Meeting of Shareholders, which will be filed
with the Commission on or before January 30, 2010.
Equity
Compensation Plan Information
The
following table summarizes share information, as of October 2, 2009, for the
Company’s equity compensation plans, including the Johnson Outdoors Inc. 2003
Non-Employee Director Stock Ownership Plan and the Johnson Outdoors Inc. 2000
Long-Term Stock Incentive Plan. All of these plans have been approved
by the Company’s shareholders.
|
Plan
Category
|
Number
of
Common
Shares
to
Be Issued Upon
Exercise
of
Outstanding
Options,
Warrants
and
Rights
|
Weighted-average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights
|
Number
of
Common
Shares
Available
for Future
Issuance
Under
Equity
Compensation
Plans
|
|
Equity
compensation plans approved by shareholders
|
180,288
|
$8.23
|
436,745(1)
|
|
(1)
|
All
of the available shares under the 2003 Non-Employee Director Stock
Ownership Plan (78,937) and under the 2000 Long-Term Stock Incentive Plan
(353,554) may be issued upon the exercise of stock options or granted as
non-vested stock, and, in the case of the 2000 Long-Term Stock Incentive
Plan, as share units.
|
30
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Certain Relationships and Related Transactions” in the
Company's Proxy Statement for the 2010 Annual Meeting of Shareholders, which
will be filed with the Commission on or before January 30, 2010. Information
regarding director independence is incorporated by reference to the discussions
under “Corporate Governance Matters-Director Independence” in the Company’s
Proxy Statement for the 2010 Annual Meeting of Shareholders, which will be filed
with the Commission on or before January 30, 2010.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES
Information
with respect to this item is incorporated herein by reference to the discussion
under the heading “Audit Committee Matters – Fees of Independent Registered
Public Accounting Firm” in the Company's Proxy Statement for the 2010 Annual
Meeting of Shareholders, which will be filed with the Commission on or before
January 30, 2010.
PART
IV
ITEM
15. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
The
following documents are filed as a part of this report:
Financial
Statements
Included
in Item 8 of Part II of this report are the following:
|
●
|
Management’s
Report on Internal Control over Financial
Reporting
|
|
●
|
Report
of Independent Registered Public Accounting
Firm
|
|
●
|
Consolidated
Balance Sheets – October 2, 2009 and October 3,
2008
|
|
●
|
Consolidated
Statements of Operations – Years ended October 2, 2009, October 3, 2008
and September 28, 2007
|
|
●
|
Consolidated
Statements of Shareholders’ Equity – Years ended October 2, 2009, October
3, 2008 and September 28, 2007
|
|
●
|
Consolidated
Statements of Cash Flows – Years ended October 2, 2009, October 3, 2008
and September 28, 2007
|
|
●
|
Notes
to Consolidated Financial
Statements
|
Financial
Statement Schedules
All
schedules are omitted because they are not applicable, are not required or the
required information has been included in the consolidated financial statements
or notes thereto.
Exhibits
See
Exhibit Index.
31
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Racine and State of
Wisconsin, on the
11th day
of December 2009.
JOHNSON
OUTDOORS INC.
(Registrant)
By /s/ Helen P.
Johnson-Leipold
Helen P. Johnson-Leipold
Chairman and Chief Executive
Officer
32
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities indicated on the 11th day
of December 2009.
|
/s/
Helen P. Johnson-Leipold
|
Chairman
and Chief Executive Officer
|
|
|
(Helen
P. Johnson-Leipold)
|
and
Director
|
|
|
(Principal
Executive Officer)
|
||
|
/s/
Thomas F. Pyle, Jr.
|
Vice
Chairman of the Board
|
|
|
(Thomas
F. Pyle, Jr.)
|
and
Director
|
|
|
/s/
Terry E. London
|
Director
|
|
|
(Terry
E. London)
|
||
|
/s/
John M. Fahey, Jr.
|
Director
|
|
|
(John
M. Fahey, Jr.)
|
||
|
/s/
W. Lee McCollum
|
Director
|
|
|
(W.
Lee McCollum)
|
||
|
/s/
Edward F. Lang, III
|
Director
|
|
|
(Edward
F. Lang, III)
|
||
|
/s/
David W. Johnson
|
Vice
President and Chief Financial Officer
|
|
|
(David
W. Johnson)
|
(Principal
Financial and Accounting Officer)
|
33
EXHIBIT
INDEX
|
Exhibit
|
Title
|
|
2
|
Agreement
and Plan of Merger, dated October 28, 2004, by and between JO Acquisition
Corp. and Johnson Outdoors Inc (Filed as Exhibit 2 to the Company’s Form
8-K dated October 28, 2004 and incorporated herein by
reference.)
|
|
3.1
|
Articles
of Incorporation of the Company as amended through February 17, 2000.
(Filed as Exhibit 3.1(a) to the Company’s Form 10-Q for the quarter ended
March 31, 2000 and incorporated herein by reference.)
|
|
3.2
|
Bylaws
of the Company as amended and restated through September 23, 2008. (Filed
as Exhibit 3.2 to the Company’s Form 10-K for the year ended October 3,
2008 and incorporated herein by reference.)
|
|
4.1
|
Note
Agreement dated October 1, 1995. (Filed as Exhibit 4.1 to the Company’s
Form 10-Q for the quarter ended December 29, 1995 and incorporated herein
by reference.)
|
|
4.2
|
First
Amendment dated October 11, 1996 to Note Agreement dated October 1, 1995.
(Filed as Exhibit 4.3 to the Company’s Form 10-Q for the quarter ended
December 27, 1996 and incorporated herein by
reference.)
|
|
4.3
|
Second
Amendment dated September 30, 1997 to Note Agreement dated October 1,
1995. (Filed as Exhibit 4.8 to the Company’s Form 10-K for the year ended
October 1, 1997 and incorporated herein by reference.)
|
|
4.4
|
Third
Amendment dated October 1, 1997 to Note Agreement dated October 1, 1995.
(Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended
October 1, 1997 and incorporated herein by reference.)
|
|
4.5
|
Fourth
Amendment dated January 10, 2000 to Note Agreement dated October 1, 1995.
(Filed as Exhibit 4.9 to the Company’s Form 10-Q for the quarter ended
March 31, 2000 and incorporated herein by reference.)
|
|
4.6
|
Fifth
Amendment dated December 13, 2001 to Note Agreement dated October 1, 1995.
(Filed as Exhibit 4.6 to the Company’s Form 10-K for the year ended
October 3, 2003 and incorporated herein by reference.)
|
|
4.7
|
Consent
and Amendment dated September 6, 2002 to Note Agreement dated October
1, 1995. (Filed as Exhibit 4.7 to the Company’s Form 10-K for the year
ended October 3, 2003 and incorporated herein by
reference.)
|
|
4.8
|
Note
Agreement dated as of September 15, 1997. (Filed as Exhibit 4.15 to the
Company’s Form 10-K for the year ended October 1, 1997 and incorporated
herein by reference.)
|
|
4.9
|
First
Amendment dated January 10, 2000 to Note Agreement dated September 15,
1997. (Filed as Exhibit 4.10 to the Company’s Form 10-Q for the quarter
ended March 31, 2000 and incorporated herein by
reference.)
|
|
4.10
|
Second
Amendment dated December 13, 2001 to Note Agreement dated September 15,
1997. (Filed as Exhibit 4.9 to the Company’s Form 10-K for the year ended
October 3, 2003 and incorporated herein by reference.)
|
|
4.11
|
Consent
and Amendment dated as of September 6, 2002 to Note Agreement dated
September 15, 1997. (Filed as Exhibit 4.11 to the Company’s Form 10-K for
the year ended October 3, 2003 and incorporated herein by
reference.)
|
|
4.12
|
Note
Agreement dated as of December 13, 2001. (Filed as Exhibit 4.12 to the
Company’s Form 10-K for the year ended October 3, 2003 and incorporated
herein by reference.)
|
|
4.13
|
Consent
and Amendment dated of September 6, 2002 to Note Agreement dated as
of December 13, 2001. (Filed as Exhibit 4.15 to the Company’s Form 10-K
for the year ended October 3, 2003 and incorporated herein by
reference.)
|
|
9.1
|
Johnson
Outdoors Inc. Class B common stock Amended and Restated Voting Trust
Agreement, dated December 10, 2007 (Filed as Exhibit 99.54 to Amendment
No. 11 to the Schedule 13D filed by Helen P. Johnson-Leipold on December
10, 2007 and incorporated herein by
reference.)
|
34
|
9.2
|
Johnson
Outdoors Inc. Class B common stock Amended and Restated Voting Trust
Agreement, dated December 10, 2007. (Filed as Exhibit 99.54 to Amendment
No. 12 to the Schedule 13D filed by Helen P. Johnson-Leipold on December
12, 2007 and incorporated herein by reference.)
|
|
10.1
|
Stock
Purchase Agreement, dated as of January 12, 2000, by and between Johnson
Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.1 to the Company’s Form
8-K dated March 31, 2000 and incorporated herein by
reference.)
|
|
10.2
|
Amendment
to Stock Purchase Agreement, dated as of February 28, 2000, by and between
Johnson Outdoors Inc. and Berkley Inc. (Filed as Exhibit 2.2 to the
Company’s Form 8-K dated March 31, 2000 and incorporated herein by
reference.)
|
|
10.3+
|
Johnson
Outdoors Inc. Amended and Restated 1986 Stock Option Plan. (Filed as
Exhibit 10 to the Company’s Form 10-Q for the quarter ended July 2, 1993
and incorporated herein by reference.)
|
|
10.4
|
Registration
Rights Agreement regarding Johnson Outdoors Inc. common stock issued to
the Johnson family prior to the acquisition of Johnson Diversified, Inc.
(Filed as Exhibit 10.6 to the Company’s Form S-1 Registration Statement
No. 33-16998 and incorporated herein by reference.)
|
|
10.5
|
Registration
Rights Agreement regarding Johnson Outdoors Inc. Class A common stock held
by Mr. Samuel C. Johnson. (Filed as Exhibit 28 to the Company’s Form 10-Q
for the quarter ended March 29, 1991 and incorporated herein by
reference.)
|
|
10.6+
|
Form
of Restricted Stock Agreement. (Filed as Exhibit 10.8 to the Company’s
Form S-1 Registration Statement No. 33-23299 and incorporated herein by
reference.)
|
|
10.7+
|
Form
of Supplemental Retirement Agreement of Johnson Diversified, Inc. (Filed
as Exhibit 10.9 to the Company’s Form S-1 Registration Statement No.
33-16998 and incorporated herein by reference.)
|
|
10.8+
|
Johnson
Outdoors Retirement and Savings Plan. (Filed as Exhibit 10.9 to the
Company’s Form 10-K for the year ended September 29, 1989 and incorporated
herein by reference.)
|
|
10.9+
|
Form
of Agreement of Indemnity and Exoneration with Directors and Officers.
(Filed as Exhibit 10.11 to the Company’s Form S-1 Registration Statement
No. 33-16998 and incorporated herein by reference.)
|
|
10.10
|
Consulting
and administrative agreements with S. C. Johnson & Son, Inc. (Filed as
Exhibit 10.12 to the Company’s Form S-1 Registration Statement No.
33-16998 and incorporated herein by reference.)
|
|
10.11+
|
Johnson
Outdoors Inc. 1994 Long-Term Stock Incentive Plan. (Filed as Exhibit 4 to
the Company’s Form S-8 Registration Statement No. 333-88091 and
incorporated herein by reference.)
|
|
10.12+
|
Johnson
Outdoors Inc. 1994 Non-Employee Director Stock Ownership Plan. (Filed as
Exhibit 4 to the Company’s Form S-8 Registration Statement No. 333-88089
and incorporated herein by reference.)
|
|
10.13+
|
Johnson
Outdoors Economic Value Added Bonus Plan (Filed as Exhibit 10.15 to the
Company’s Form 10-K for the year ended October 1, 1997 and incorporated
herein by reference.)
|
|
10.14+
|
Johnson
Outdoors Inc. 2000 Long-Term Stock Incentive Plan. (Filed as Exhibit 99.1
to the Company’s Current Report on Form 8-K dated July 29, 2005 and
incorporated herein by reference.)
|
|
10.15+
|
Share
Purchase and Transfer Agreement, dated as of August 28, 2002, by and
between, among others, Johnson Outdoors Inc. and an affiliate of Bain
Capital Fund VII-E (UK), Limited Partnership. (Filed as Exhibit 2.1 to the
Company’s Form 8-K dated September 9, 2002 and incorporated herein by
reference.)
|
|
10.16+
|
Johnson
Outdoors Inc. Worldwide Key Executive Phantom Share Long-Term Incentive
Plan (Filed as Exhibit 10.1 to the Company’s Form 10-Q dated March 28,
2003 and incorporated herein by
reference.)
|
35
|
10.17+
|
Johnson
Outdoors Inc. Worldwide Key Executives’ Discretionary Bonus Plan. (Filed
as Exhibit 99.3 to the Company’s Current Report on Form 8-K dated July 29,
2005 and incorporated herein by reference.)
|
|
10.18
|
Stock
Purchase Agreement by and between Johnson Outdoors Inc. and TFX Equities
Incorporated. (Filed as Exhibit 2.1 to the Company’s Form 10-Q dated April
2, 2004 and incorporated herein by reference.)
|
|
10.19
|
Intellectual
Property Purchase Agreement by and among Johnson Outdoors Inc., Technology
Holding Company II and Teleflex Incorporated. (Filed as Exhibit 2.2 to the
Company’s Form 10-Q dated April 2, 2004 and incorporated herein by
reference.)
|
|
10.20+
|
Johnson
Outdoors Inc. 1987 Employees’ Stock Purchase Plan as amended. (Filed as
Exhibit 99.2 to the Company’s Current Report on Form 8-K dated July 29,
2005 and incorporated herein by reference.)
|
|
10.21+
|
Johnson
Outdoors Inc. 2003 Non-Employee Director Stock Ownership Plan. (Filed as
Exhibit 10.2 to the Company’s Form 10-Q dated April 2, 2004 and
incorporated herein by reference.)
|
|
10.22+
|
Form
of Restricted Stock Agreement under Johnson Outdoors Inc. 2003
Non-Employee Director Stock Ownership Plan. (Filed as Exhibit 4.2 to the
Company’s Form S-8 Registration Statement No. 333-115298 and incorporated
herein by reference.)
|
|
10.23+
|
Form
of Stock Option Agreement under Johnson Outdoors Inc. 2003 Non-Employee
Director Stock Ownership Plan. (Filed as Exhibit 10.2 to the Company’s
Form S-8 Registration Statement No. 333-115298 and incorporated herein by
reference.)
|
|
10.24
|
Revolving
Credit and Security Agreement dated as of September 29, 2009 among Johnson
Outdoors Inc., certain subsidiaries of Johnson Outdoors Inc., PNC Bank,
National Association, as lender, as administrative agent and collateral
agent, and the other lenders named therein (filed as Exhibit 99.2 to the
current report on Form 8-K dated and filed with the Securities and
Exchange Commission on September 30, 2009).
|
|
10.25
|
Term
Loan Agreement (loan number 15613) dated as of September 29, 2009 among
Techsonic Industries Inc., Johnson Outdoors Marine Electronics LLC and
Ridgestone Bank (filed as Exhibit 99.3 to the current report on Form 8-K
dated and filed with the Securities and Exchange Commission on September
30, 2009).
|
|
10.26
|
Term
Loan Agreement (loan number 15612) dated as of September 29, 2009 between
Johnson Outdoors Gear LLC and Ridgestone Bank (filed as Exhibit 99.4 to
the current report on Form 8-K dated and filed with the Securities and
Exchange Commission on September 30, 2009).
|
|
10.27
|
Term
Loan Agreement (loan number 15628) dated as of September 29, 2009 between
Johnson Outdoors Watercraft Inc. and Ridgestone Bank (filed as Exhibit
99.5 to the current report on Form 8-K dated and filed with the Securities
and Exchange Commission on September 30, 2009).
|
|
10.28
|
Term
Loan Agreement (loan number 15614) dated as of September 29, 2009 between
Johnson Outdoors Watercraft Inc. and Ridgestone Bank (filed as Exhibit
99.6 to the current report on Form 8-K dated and filed with the Securities
and Exchange Commission on September 30, 2009).
|
|
10.29
|
Term
Loan Agreement (loan number 15627) dated as of September 29, 2009 between
Johnson Outdoors Watercraft Inc. and Ridgestone Bank (filed as Exhibit
99.7 to the current report on Form 8-K dated and filed with the Securities
and Exchange Commission on September 30, 2009).
|
|
10.30
|
Revolving
Credit and Security Agreement dated as of November 4, 2009 among Johnson
Outdoors Canada Inc., National City Bank, Canada branch, as administrative
agent and collateral agent and the other lenders named
therein.
|
| 18 | Letter regarding Change in Accounting Principle. |
|
21
|
Subsidiaries
of the Company as of October 2, 2009.
|
|
23
|
Consent
of Independent Registered Public Accounting Firm.
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a).
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a).
|
36
|
32.1(1)
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section
1350.
|
|
32.2(1)
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section
1350.
|
+ A
management contract or compensatory plan or arrangement.
(1) This
certification is not “filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended.
37
|
CONSOLIDATED
FINANCIAL STATEMENTS
|
||
|
Table
of Contents
|
Page
|
|
|
Management’s
Report on Internal Control over Financial Reporting
|
F-1
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Balance Sheets
|
F-3
|
|
|
Consolidated
Statements of Operations
|
F-4
|
|
|
Consolidated
Statements of Shareholders’ Equity
|
F-5
|
|
|
Consolidated
Statements of Cash Flows
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
|
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The
management of Johnson Outdoors Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. The Company’s
internal control over financial reporting is designed to provide reasonable
assurance to the Company’s management and board of directors regarding the
preparation and fair presentation of published financial statements. The
Company’s internal control over financial reporting includes those policies and
procedures that:
|
(a)
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
(b)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and
|
|
(c)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of October 2, 2009. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control-Integrated Framework. Based on our assessment, management
believes that, as of October 2, 2009, the Company’s internal control over
financial reporting was effective based on those criteria.
This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in its annual report.
| /s/ Helen P. Johnson-Leipold | /s/ David W. Johnson |
|
Helen
P. Johnson-Leipold
|
David
W. Johnson
|
|
Chairman
and Chief Executive Officer
|
Vice
President and Chief Financial
Officer
|
F-1
Report of
Independent Registered Public Accounting Firm
Shareholders
and Board of Directors of Johnson Outdoors, Inc.
We have
audited the accompanying consolidated balance sheets of Johnson Outdoors, Inc.
as of October 2, 2009 and October 3, 2008, and the related consolidated
statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended October 2, 2009. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
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 Johnson Outdoors,
Inc. at October 2, 2009 and October 3, 2008, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended October 2, 2009 in conformity with U.S. generally accepted
accounting principles.
As
discussed in Note 1 of the financial statements, in the year ended October 2,
2009, the Company changed the timing of its annual goodwill
assessment. In the year ended October 3, 2008, the Company changed
its method of accounting for uncertain tax positions to conform with the
guidance originally issued in FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (codified in FASB Topic 740 – Income
Taxes). In the year ended September 29, 2007, the Company changed its
method of accounting for pensions and other post retirement benefits to conform
with the guidance originally issued in FASB statement No. 158 Employers'
Accounting for Defined Pension and Other Postretirement Plans (codified in FASB
Topic 715 Compensation - Retirement Benefits).
/s/ Ernst
& Young LLP
Milwaukee,
Wisconsin
December
11, 2009
F-2
CONSOLIDATED
BALANCE SHEETS
|
October
2
|
October
3
|
|||||||
|
(thousands,
except share data)
|
2009
|
2008
|
||||||
|
ASSETS
|
||||||||
|
Current
assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 27,895 | $ | 41,791 | ||||
|
Accounts receivable, less allowance for doubtful
|
||||||||
|
accounts of $2,695 and $2,577, respectively
|
43,459 | 52,710 | ||||||
|
Inventories, net
|
61,085 | 85,999 | ||||||
|
Deferred income taxes
|
2,168 | 2,963 | ||||||
|
Other current assets
|
7,748 | 6,251 | ||||||
|
Total
current assets
|
142,355 | 189,714 | ||||||
|
Property,
plant and equipment, net
|
33,490 | 39,077 | ||||||
|
Deferred
income taxes
|
3,391 | 594 | ||||||
|
Goodwill
|
14,659 | 14,085 | ||||||
|
Other
intangible assets, net
|
6,247 | 6,442 | ||||||
|
Other
assets
|
10,140 | 5,157 | ||||||
|
Total
assets
|
$ | 210,282 | $ | 255,069 | ||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Short-term notes payable
|
$ | 14,890 | $ | - | ||||
|
Current maturities of long-term debt
|
584 | 3 | ||||||
|
Accounts payable
|
18,469 | 24,674 | ||||||
|
Accrued liabilities:
|
||||||||
|
Salaries, wages and benefits
|
7,834 | 8,671 | ||||||
|
Accrued discounts and returns
|
5,253 | 5,776 | ||||||
|
Accrued interest payable
|
47 | 234 | ||||||
|
Income taxes payable
|
750 | 1,318 | ||||||
|
Other
|
13,014 | 14,713 | ||||||
|
Total
current liabilities
|
60,841 | 55,389 | ||||||
|
Long-term
debt, less current maturities
|
16,089 | 60,000 | ||||||
|
Deferred
income taxes
|
593 | 1,111 | ||||||
|
Retirement
benefits
|
9,188 | 6,774 | ||||||
|
Other
liabilities
|
7,746 | 9,511 | ||||||
|
Total
liabilities
|
94,457 | 132,785 | ||||||
|
Shareholders'
equity:
|
||||||||
|
Preferred stock: none issued
|
- | - | ||||||
|
Common stock:
|
||||||||
|
Class A shares issued and outstanding:
|
404 | 400 | ||||||
|
October 2, 2009: 8,066,965
|
||||||||
|
October 3, 2008: 8,006,569
|
||||||||
|
Class B shares issued and outstanding:
|
61 | 61 | ||||||
|
October 2, 2009: 1,216,464
|
||||||||
|
October 3, 2008: 1,216,464
|
||||||||
|
Capital in excess of par value
|
58,343 | 57,873 | ||||||
|
Retained earnings
|
43,500 | 53,171 | ||||||
|
Accumulated other comprehensive income
|
13,560 | 10,779 | ||||||
|
Treasury stock at cost, 8,071 shares of Class A
|
||||||||
|
common stock
|
(43 | ) | - | |||||
|
Total
shareholders' equity
|
115,825 | 122,284 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 210,282 | $ | 255,069 | ||||
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-3
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
Year
Ended
|
||||||||||||
|
(thousands,
except per share data)
|
October
2
2009
|
October
3
2008
|
September
28
2007
|
|||||||||
|
Net
sales
|
$ | 356,523 | $ | 420,789 | $ | 430,604 | ||||||
|
Cost
of sales
|
223,741 | 261,238 | 255,108 | |||||||||
|
Gross
profit
|
132,782 | 159,551 | 175,496 | |||||||||
|
Operating
expenses:
|
||||||||||||
|
Marketing
and selling
|
83,001 | 101,127 | 100,818 | |||||||||
|
Administrative
management, finance and information
systems
|
37,608 | 42,796 | 38,646 | |||||||||
|
Research
and development
|
11,100 | 12,495 | 12,254 | |||||||||
|
Impairment
losses
|
697 | 41,007 | - | |||||||||
|
Litigation
settlement
|
- | - | 4,400 | |||||||||
|
Gains
related to New York flood
|
- | - | (2,874 | ) | ||||||||
|
Profit
sharing
|
104 | 179 | 2,226 | |||||||||
|
Total
operating expenses
|
132,510 | 197,604 | 155,470 | |||||||||
|
Operating
profit (loss)
|
272 | (38,053 | ) | 20,026 | ||||||||
|
Interest
income
|
(193 | ) | (766 | ) | (738 | ) | ||||||
|
Interest
expense
|
9,949 | 5,695 | 5,162 | |||||||||
|
Other
expense (income), net
|
635 | 1,315 | (193 | ) | ||||||||
|
(Loss)
Income before income taxes
|
(10,119 | ) | (44,297 | ) | 15,795 | |||||||
|
Income
tax (benefit) expense
|
(407 | ) | 24,178 | 5,246 | ||||||||
|
(Loss)
Income from continuing operations
|
(9,712 | ) | (68,475 | ) | 10,549 | |||||||
|
Income
(Loss) from discontinued operations, net of income
|
||||||||||||
|
tax
benefit of $0, $0 and $772 respectively
|
41 | (2,559 | ) | (1,315 | ) | |||||||
|
Net
(loss) income
|
$ | (9,671 | ) | $ | (71,034 | ) | $ | 9,234 | ||||
|
Weighted
average common shares – Basic:
|
||||||||||||
|
Class
A
|
7,948 | 7,876 | 7,848 | |||||||||
|
Class
B
|
1,217 | 1,217 | 1,218 | |||||||||
|
Dilutive
stock options and non-vested stock
|
- | - | 188 | |||||||||
|
Weighted
average common shares – Dilutive
|
9,165 | 9,093 | 9,254 | |||||||||
|
(Loss)
Income from continuing operations per common share –
Basic:
|
||||||||||||
|
Class
A
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.18 | ||||
|
Class
B
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.06 | ||||
|
Loss
from discontinued operations per common share – Basic:
|
||||||||||||
|
Class
A
|
$ | - | $ | (0.28 | ) | $ | (0.15 | ) | ||||
|
Class
B
|
$ | - | $ | (0.28 | ) | $ | (0.13 | ) | ||||
|
Net
(loss) income per common share – Basic:
|
||||||||||||
|
Class
A
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 1.03 | ||||
|
Class
B
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 0.93 | ||||
|
(Loss)
income from continuing operations per common
Class
A and B share – Dilutive
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.14 | ||||
|
Loss
from discontinued operations per common
Class
A and B share – Dilutive
|
$ | - | $ | (0.28 | ) | $ | (0.14 | ) | ||||
|
Net
(loss) income per common Class A and B share – Dilutive
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 1.00 | ||||
|
Dividends
declared per share:
|
||||||||||||
|
Class
A
|
$ | - | $ | 0.22 | $ | 0.11 | ||||||
|
Class
B
|
$ | - | $ | 0.20 | $ | 0.10 | ||||||
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-4
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
|
(thousands)
|
Common
Stock
|
Capital
in
Excess
of
Par
Value
|
Retained
Earnings
|
Treasury
Stock
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Comprehensive
Income (Loss)
|
||||||||||||||||||
|
BALANCE
AT SEPTEMBER 29, 2006
|
$ | 454 | $ | 55,459 | $ | 118,015 | $ | - | $ | 6,953 | $ | 13,666 | ||||||||||||
|
Net
income
|
- | - | 9,234 | - | - | 9,234 | ||||||||||||||||||
|
Dividends
declared
|
- | - | (996 | ) | - | - | - | |||||||||||||||||
|
Exercise of stock
options (1)
|
1 | 591 | - | - | - | - | ||||||||||||||||||
|
Issuance
of stock under employee stock purchase plan
|
1 | 160 | - | - | - | - | ||||||||||||||||||
|
Stock-based
compensation and award of restricted shares
|
2 | 625 | - | - | - | - | ||||||||||||||||||
|
Translation
adjustment
|
- | - | - | - | 10,379 | 10,379 | ||||||||||||||||||
|
Additional minimum
pension liability
(2)
|
- | - | - | - | 45 | 45 | ||||||||||||||||||
|
Comprehensive
income
|
- | - | - | - | - | 19,658 | ||||||||||||||||||
|
Adoption of change in
pension accounting (3)
|
- | - | - | - | (758 | ) | ||||||||||||||||||
|
BALANCE
AT SEPTEMBER 28, 2007
|
458 | 56,835 | 126,253 | - | 16,619 | - | ||||||||||||||||||
|
Net
loss
|
- | - | (71,034 | ) | - | - | (71,034 | ) | ||||||||||||||||
|
Dividends
declared
|
- | - | (2,003 | ) | - | - | - | |||||||||||||||||
|
Exercise of stock
options (1)
|
1 | 154 | (45 | ) | 80 | - | - | |||||||||||||||||
|
Issuance
of stock under employee stock purchase plan
|
1 | 135 | - | - | - | - | ||||||||||||||||||
|
Stock-based
compensation and award of restricted shares
|
1 | 749 | - | - | - | - | ||||||||||||||||||
|
Translation
adjustment
|
- | - | - | - | (1,295 | ) | (1,295 | ) | ||||||||||||||||
|
Change in pension
plans (2)
|
- | - | - | - | (1,786 | ) | (1,786 | ) | ||||||||||||||||
|
Purchase
of treasury stock at cost
|
- | - | - | (80 | ) | - | - | |||||||||||||||||
|
Changes
in fair value of cash flow hedges
|
- | - | - | - | (2,759 | ) | (2,759 | ) | ||||||||||||||||
|
Comprehensive
loss
|
- | - | - | - | - | (76,874 | ) | |||||||||||||||||
|
BALANCE
AT OCTOBER 3, 2008
|
461 | 57,873 | 53,171 | - | 10,779 | |||||||||||||||||||
|
Net
loss
|
- | - | (9,671 | ) | - | - | (9,671 | ) | ||||||||||||||||
|
Exercise of stock
options (1)
|
- | 43 | - | - | - | |||||||||||||||||||
|
Stock-based
compensation and award of restricted shares
|
4 | 427 | - | - | - | |||||||||||||||||||
|
Translation
adjustment
|
- | - | - | - | 5,960 | 5,960 | ||||||||||||||||||
|
Change in pension
plans (2)
|
- | - | - | - | (1,976 | ) | (1,976 | ) | ||||||||||||||||
|
Purchase
of treasury stock at cost
|
- | - | - | (43 | ) | - | ||||||||||||||||||
|
Changes
in fair value of cash flow hedges
|
- | - | - | - | (3,178 | ) | (3,178 | ) | ||||||||||||||||
|
Amoritzation
of unrealized loss on interest rate swaps
|
- | - | - | - | 1,975 | 1,975 | ||||||||||||||||||
|
Comprehensive
loss
|
- | - | - | - | - | $ | (6,890 | ) | ||||||||||||||||
|
BALANCE
AT OCTOBER 2, 2009
|
$ | 465 | $ | 58,343 | $ | 43,500 | $ | (43 | ) | $ | 13,560 | |||||||||||||
(1) Includes
tax benefit related to exercise of stock options of $0, $29, and $111 for 2009,
2008, and 2007, respectively.
(2) Net
of tax provision of $(751), $(705), and $33 for 2009, 2008, and 2007,
respectively.
(3) Net
of tax provision of $560 for 2007.
The
accompanying notes are an integral part of the Consolidated Financial
Statements.
F-5
CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
Year
Ended
|
||||||||||||
|
(thousands)
|
October
2
2009
|
October
3
2008
|
September
28
2007
|
|||||||||
|
CASH
PROVIDED BY OPERATING ACTIVITIES
|
||||||||||||
|
Net
(loss) income
|
$ | (9,671 | ) | $ | (71,034 | ) | $ | 9,234 | ||||
|
Adjustments
to reconcile net (loss) income to net cash provided
|
||||||||||||
|
by operating activities:
|
||||||||||||
|
Depreciation
|
10,717 | 9,423 | 9,079 | |||||||||
|
Amortization of intangible assets and deferred financing
costs
|
1,168 | 633 | 323 | |||||||||
| Write off of deferred financing fees | 1,006 | - | - | |||||||||
|
Impairment losses
|
697 | 41,007 | - | |||||||||
| Amortization of unrealized loss on interest rate swap | 1,975 | - | - | |||||||||
|
Loss on sale of property, plant and equipment
|
337 | 565 | 12 | |||||||||
|
Provision for doubtful accounts receivable
|
1,491 | 735 | 990 | |||||||||
|
Provision for inventory reserves
|
3,093 | 5,552 | 1,687 | |||||||||
|
Stock-based compensation
|
428 | 711 | 651 | |||||||||
|
Deferred income taxes
|
(2,156 | ) | 20,647 | (88 | ) | |||||||
|
Change in operating assets and liabilities, net of effect
of
|
||||||||||||
|
businesses
acquired or sold:
|
||||||||||||
|
Accounts
receivable
|
8,795 | 7,079 | (3,063 | ) | ||||||||
|
Inventories
|
23,312 | (577 | ) | (22,550 | ) | |||||||
|
Accounts payable and accrued liabilities
|
(10,446 | ) | (15,809 | ) | 5,366 | |||||||
|
Other current assets
|
(1,329 | ) | 2,153 | (831 | ) | |||||||
|
Other non-current assets
|
(415 | ) | 1,800 | (1,855 | ) | |||||||
|
Other long-term liabilities
|
907 | 1,898 | 2,371 | |||||||||
|
Other, net
|
706 | 503 | (668 | ) | ||||||||
| 30,615 | 5,286 | 658 | ||||||||||
|
CASH
USED FOR INVESTING ACTIVITIES
|
||||||||||||
|
Payments
for purchase of business
|
(1,005 | ) | (6,329 | ) | (9,409 | ) | ||||||
|
Additions
to property, plant and equipment
|
(8,321 | ) | (12,424 | ) | (13,418 | ) | ||||||
|
Proceeds
from sale of property, plant and equipment
|
64 | 534 | 814 | |||||||||
|
Payments
on interest rate swaps
|
(6,662 | ) | - | - | ||||||||
| (15,924 | ) | (18,219 | ) | (22,013 | ) | |||||||
|
CASH
(USED FOR) PROVDED BY FINANCING ACTIVITIES
|
||||||||||||
|
Net
borrowings (repayments) on short-term debt
|
14,678 | (22,000 | ) | 22,000 | ||||||||
|
Borrowings
on long-term debt
|
15,892 | 60,000 | - | |||||||||
|
Principal
payments on senior notes and other long-term debt
|
(60,022 | ) | (20,803 | ) | (17,001 | ) | ||||||
|
Deferred
financing costs paid to lenders
|
(2,808 | ) | (386 | ) | - | |||||||
|
Excess
tax benefits from stock-based compensation
|
- | 30 | 111 | |||||||||
|
Dividends
paid
|
(501 | ) | (2,000 | ) | (498 | ) | ||||||
|
Common
stock transactions
|
43 | 301 | 642 | |||||||||
| (32,718 | ) | 15,142 | 5,254 | |||||||||
|
Effect
of foreign currency fluctuations on cash
|
4,131 | 350 | 3,644 | |||||||||
|
(Decrease)
Increase in cash and cash equivalents
|
(13,896 | ) | 2,559 | (12,457 | ) | |||||||
|
CASH
AND CASH EQUIVALENTS
|
||||||||||||
|
Beginning
of year
|
41,791 | 39,232 | 51,689 | |||||||||
|
End
of year
|
$ | 27,895 | $ | 41,791 | $ | 39,232 | ||||||
The accompanying notes are an integral part of the Consolidated Financial
Statements.
F-6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER
2, 2009
(in
thousands except share and per share amounts)
1 SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Business
Johnson
Outdoors Inc. (“the Company”) is an integrated, global outdoor recreation
products company engaged in the design, manufacture and marketing of brand name
outdoor equipment, diving, watercraft and marine electronics
products.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Johnson Outdoors Inc.
and all majority owned subsidiaries and are stated in conformity with U.S.
generally accepted accounting principles. Intercompany accounts and transactions
have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements requires management to make estimates and
assumptions that impact the reported amounts of assets, liabilities and
operating results and the disclosure of commitments and contingent liabilities.
Actual results could differ significantly from those estimates.
Fiscal
Year
The
Company’s fiscal year ends on the Friday nearest September 30. The fiscal year
ended October 2, 2009 (hereinafter 2009), comprised 52 weeks. The
fiscal year ended October 2, 2008 (hereinafter 2008), comprised 53 weeks. The
fiscal year ended September 28, 2007 (hereinafter 2007) comprised 52
weeks.
Cash
and Cash Equivalents
The
Company considers all short-term investments in interest-bearing bank accounts,
securities and other instruments with an original maturity of three months or
less, to be equivalent to cash. Cash equivalents are stated at cost
which approximates market value.
The
Company maintains cash in bank accounts in excess of insured limits. The Company
has not experienced any losses and does not believe that significant credit risk
exists as a result of this practice.
Accounts
Receivable
Accounts
receivable are recorded at face value less an allowance for doubtful accounts.
The allowance for doubtful accounts is based on a combination of factors. In
circumstances where specific collection concerns exist, a reserve is established
to reduce the amount recorded to an amount the Company believes will be
collected. For all other customers, the Company recognizes allowances for
doubtful accounts based on historical experience of bad debts as a percent of
accounts receivable for each business unit. Uncollectible accounts are written
off against the allowance for doubtful accounts after collection efforts have
been exhausted. The Company typically does not require collateral on its
accounts receivable.
F-7
Inventories
Inventories
are stated at the lower of cost (determined using the first-in, first-out
method) or market. Market is determined on the basis of estimated
realizable values.
Inventories
at the end of the respective fiscal years consist of the
following:
|
2009
|
2008
|
|||||||
|
Raw
materials
|
$ | 20,745 | $ | 30,581 | ||||
|
Work
in process
|
2,403 | 2,834 | ||||||
|
Finished
goods
|
44,189 | 58,930 | ||||||
| 67,337 | 92,345 | |||||||
|
Less
reserves
|
6,252 | 6,346 | ||||||
| $ | 61,085 | $ | 85,999 | |||||
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation.
Depreciation of plant and equipment is determined by straight-line methods over
the following estimated useful lives:
|
Property
improvements
|
5-20
years
|
|
Buildings
and improvements
|
20-40
years
|
|
Furniture,
fixtures and equipment
|
3-10
years
|
Upon
retirement or disposition, cost and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is recognized in the
results of operations.
Property,
plant and equipment at the end of the respective years consist of the
following:
|
2009
|
2008
|
|||||||
|
Property
and improvements
|
$ | 699 | $ | 1,240 | ||||
|
Buildings
and improvements
|
21,463 | 25,481 | ||||||
|
Furniture,
fixtures and equipment
|
93,571 | 106,252 | ||||||
| 115,733 | 132,973 | |||||||
|
Less
accumulated depreciation
|
82,243 | 93,896 | ||||||
| $ | 33,490 | $ | 39,077 | |||||
Capital
Leases
The
Company leases certain equipment used in its operations some of which require
capitalization. For such leases, the related asset is recorded in property,
plant and equipment and an offsetting amount is recorded as a capital lease
obligation. Amortization of assets recorded under capital lease is based on the
lesser of the assets’ useful life or the life of the lease and is included in
depreciation expense. See further disclosure at Note 7 “Leases and
other Commitments.”
Goodwill
The
Company applies a fair value-based impairment test to the net book value of
goodwill on an annual basis and, if certain events or circumstances indicate
that an impairment loss may have been incurred, on an interim
basis. The analysis of potential impairment of goodwill requires a
two-step process. The first step is the estimation of fair value of
the applicable reporting units. Reporting units are defined as
operating segments or one level below an operating segment when that component
constitutes a business for which discrete financial information is available and
segment management regularly reviews the operating results of that
component. The Company has identified its Outdoor Equipment segment
and Diving segment as reporting units as well as the component businesses of its
Marine Electronic segment and Watercraft segment. Estimated fair
value is based on management judgments and assumptions and those fair values are
compared with the aggregate carrying values of the reporting
units. If the fair value of the reporting unit is greater than its
carrying amount, there is no impairment. If the reporting unit
carrying amount is greater than the fair value, then the second step must be
completed to measure the amount of impairment, if any. The second
step calculates the implied fair value of the goodwill which is compared to its
carrying value. If the implied fair value is less than the carrying
value, an impairment loss is recognized equal to the difference.
F-8
During
fiscal 2009, the Company changed its annual goodwill measurement date from its
fiscal year end to the last day of fiscal August and performed the fiscal 2009
assessment as of that date. The assessment included comparing the
carrying amount of net assets, including goodwill, of each reporting unit to its
respective implied fair value as of the measurement date, September 4,
2009. Fair value was determined using a discounted cash flow and
market participant analysis for each reporting unit. When the fair
value of the reporting unit is greater than its carrying amount, there is no
impairment. If the reporting unit carrying amount of goodwill exceeds
the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess.
The
results of the impairment test performed indicated impairment of the remaining
goodwill related to a reporting unit of the Watercraft segment. The
Company performed the second step which resulted in the full impairment of the
goodwill and a non-cash charge of $312 was recognized in the fourth quarter of
fiscal 2009. No indications of impairment have been identified
between the date of the annual impairment test and October 2,
2009. Due to the current economic uncertainty and other factors, the
Company cannot assure that remaining goodwill will not be further impaired in
future periods.
During
the fourth quarter of fiscal 2008, the Company performed its annual goodwill
impairment test. The fair value of the reporting units was estimated
based on a discounted projection of future cash flows. The rate used
in determining discounted cash flows is a rate corresponding to the Company’s
cost of capital, adjusted for risk where appropriate. In determining
the estimated future cash flows, current and future levels of income are
considered as well as business trends and market conditions. Due to
reduced growth expectations resulting from weakening economic conditions and
increases in the Company’s weighted average cost of capital, the analysis
indicated the potential for impairment.
With the
assistance of a third-party valuation firm, the Company performed the second
step and determined that an impairment of goodwill
existed. Accordingly, a non-cash charge of $39,603 was recognized in
the fourth quarter of fiscal 2008 for goodwill impairment.
The
changes in the carrying amount of segment goodwill for fiscal 2009 and 2008 are
as follows:
| Marine
Electronics
|
Outdoor
Equipment
|
Watercraft
|
Diving
|
Consolidated
|
||||||||||||||||
|
Balance
at September 28, 2007
|
$ | 14,596 | $ | 563 | $ | 6,587 | $ | 29,708 | $ | 51,454 | ||||||||||
|
Currency
translations
|
(92 | ) | - | (345 | ) | 933 | 496 | |||||||||||||
|
Acquisitions
|
1,738 | - | - | - | 1,738 | |||||||||||||||
|
Impairment
charges
|
(6,229 | ) | (563 | ) | (5,904 | ) | (26,907 | ) | (39,603 | ) | ||||||||||
|
Balance
at October 3, 2008
|
10,013 | - | 338 | 3,734 | 14,085 | |||||||||||||||
|
Currency
translations
|
85 | - | (26 | ) | 220 | 279 | ||||||||||||||
|
Acquisitions
|
607 | - | - | - | 607 | |||||||||||||||
|
Impairment
charges
|
- | - | (312 | ) | - | (312 | ) | |||||||||||||
|
Balance
at October 2, 2009
|
$ | 10,705 | $ | - | $ | - | $ | 3,954 | $ | 14,659 | ||||||||||
Other
Intangible Assets
Intangible
assets are stated at cost less accumulated amortization. Amortization is
computed using the straight-line method over periods ranging from 3 to 25 years
for patents and other intangible assets with definite lives. During
2008, the final allocation of the purchase price related to the Geonav
acquisition was completed resulting in definite lived intangible assets of
$1,833. The weighted average amortization period for these assets is
17 years. During 2009, the final allocation of the purchase price
related to the Navicontrol acquisition was completed resulting in definite lived
intangible assets of $368. The weighted average amortization period
for these assets is 13 years.
During
the fourth quarter of fiscal 2009, the Company completed its annual fair
value-based impairment test on indefinite lived intangibles. There
was no impairment of other intangibles recorded for the year ended October 2,
2009 or for the year ended September 28, 2007. During the fourth
quarter of fiscal 2008, the Company carried out its annual fair value based
impairment test on indefinite lived intangibles and recorded an impairment
charge of $1,400.
F-9
Intangible
assets at the end of the respective years consist of the following:
|
2009
|
2008
|
|||||||
|
Patents
|
$ | 3,265 | $ | 3,457 | ||||
|
Trademarks
|
5,555 | 5,218 | ||||||
|
Other
|
1,683 | 1,620 | ||||||
| 10,503 | 10,295 | |||||||
|
Less
accumulated amortization
|
4,256 | 3,853 | ||||||
|
Net
patents, trademarks and other
|
$ | 6,247 | $ | 6,442 | ||||
Trademarks
at October 2, 2009 consisted of $4,270 of trademarks ($4,158 at October 3, 2008)
which have indefinite lives and are not amortized. Amortization of patents and
other intangible assets with definite lives was $417, $453, and $150 for 2009,
2008, and 2007, respectively. Amortization of these intangible assets is
expected to be approximately $470 per year until they are fully amortized (the
unamortized value of these assets was $1,977 and $2,284 as of October 2, 2009
and October 3, 2008, respectively).
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not
be fully recoverable. The Company performs undiscounted cash flow
analysis to determine if potential impairment exists. If impairment
is determined to exist, any related impairment loss is calculated based on the
difference between the fair value and the carrying value. For fiscal
2009 and 2008, the Company prepared an undiscounted cash flow analysis for those
assets where an indicator of impairment existed. For fiscal 2009,
upon completion of the undiscounted cash flow analysis, there was an indicator
of impairment for a warehouse facility in Casarza-Ligure, Italy and the Company
recorded $385 as an impairment of its long-lived assets. There was no
impairment recorded in fiscal 2008 or 2007.
Warranties
The
Company provides for warranties of certain products as they are sold. Accruals
for warranties are included in the “Accrued discounts and returns” line in the
Consolidated Balance Sheets. The following table summarizes the
warranty activity for the three years in the period ended October 2,
2009.
|
Balance
at September 29, 2006
|
$ | 3,844 | ||
|
Expense
accruals for warranties issued during the year
|
4,006 | |||
|
Less
current year warranty claims paid
|
3,560 | |||
|
Balance
at September 28, 2007
|
4,290 | |||
|
Expense
accruals for warranties issued during the year
|
3,742 | |||
|
Less
current year warranty claims paid
|
3,671 | |||
|
Balance
at October 3, 2008
|
4,361 | |||
|
Expense
accruals for warranties issued during the year
|
3,264 | |||
|
Less
current year warranty claims paid
|
3,429 | |||
|
Balance
at October 2, 2009
|
$ | 4,196 |
F-10
Accumulated
Other Comprehensive Income (Loss)
The
components of “Accumulated other comprehensive income (loss)” on the
accompanying balance sheets as of fiscal year end 2009 and 2008 are as
follows:
|
2009
|
2008
|
|||||||
|
Foreign
currency translation adjustment
|
$ | 22,340 | $ | 16,380 | ||||
|
Unamortized
loss on pension plans, net of
|
||||||||
|
tax
of $0 and $33, respectively
|
(4,818 | ) | (2,842 | ) | ||||
|
Unrealized
loss on interest rate swaps
|
(3,962 | ) | (2,759 | ) | ||||
|
Accumulated
other comprehensive income
|
$ | 13,560 | $ | 10,779 | ||||
Earnings
per Share
Net
income or loss per share of Class A Common Stock and Class B Common Stock is
computed using the two-class method.
Holders
of Class A Common Stock are entitled to cash dividends equal to 110% of all
dividends declared and paid on each share of Class B Common Stock. As such, the
undistributed earnings for each period are allocated to each class of common
stock based on the proportionate share of the amount of cash dividends that each
such class is entitled to receive.
Basic
EPS
Basic net
income or loss per share is computed by dividing net income or loss by the
weighted-average number of common shares outstanding less any non-vested
stock. In periods with cumulative year to date net income and
undistributed income, the undistributed income for each period is allocated to
each class of common stock based on the proportionate share of the amount of
cash dividends that each such class is entitled to receive. In
periods where there is a cumulative year to date net loss or no undistributed
income because distributions through dividends exceeds net income, Class B
shares are treated as anti-dilutive and losses are allocated equally on a per
share basis among Class A and Class B shareholders.
For 2007,
basic income per share for Class A and Class B shares has been presented using
the two class method. For 2008 and 2009, basic loss per share for
Class A and Class B shares is the same due to the net loss incurred
during such periods.
Diluted
EPS
Diluted
net income per share is computed by dividing net income by the weighted-average
number of common shares outstanding, adjusted for the effect of dilutive stock
options and non-vested stock using the treasury method. The computation of
diluted net income per share of Common Stock assumes that Class B Common
Stock is converted into Class A Common Stock. Therefore, diluted net
income per share is the same for both Class A and Class B shares. In
periods where the Company reports a net loss, the effect of anti-dilutive stock
options and non-vested stock is excluded and diluted loss per share is equal to
basic loss per share.
For 2007,
diluted net income per share reflects the effect of dilutive stock options and
non-vested stock using the treasury method and assumes the conversion of
Class B Common Stock into Class A Common Stock. For 2008 and
2009, the effect of stock options and non-vested stock is excluded from the
diluted loss per share calculation as they would be anti-dilutive.
F-11
The
following table sets forth the computation of basic and diluted earnings per
common share:
|
2009
|
2008
|
2007
|
||||||||||
|
(Loss)
Income from continuing operations
|
$ | (9,712 | ) | $ | (68,475 | ) | $ | 10,549 | ||||
|
Income
(Loss) from discontinued operations
|
41 | (2,559 | ) | (1,315 | ) | |||||||
|
Net
(loss) income
|
$ | (9,671 | ) | $ | (71,034 | ) | $ | 9,234 | ||||
|
(Loss)
Income from continuing operations per common share –
Basic:
|
||||||||||||
|
Class
A
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.18 | ||||
|
Class
B
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.06 | ||||
|
Loss
from discontinued operations per common share – Basic:
|
||||||||||||
|
Class
A
|
$ | - | $ | (0.28 | ) | $ | (0.15 | ) | ||||
|
Class
B
|
$ | - | $ | (0.28 | ) | $ | (0.13 | ) | ||||
|
Net
(loss) income per common share – Basic:
|
||||||||||||
|
Class
A
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 1.03 | ||||
|
Class
B
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 0.93 | ||||
|
(Loss)
Income from continuing operations per common Class A and B share –
Dilutive
|
$ | (1.06 | ) | $ | (7.53 | ) | $ | 1.14 | ||||
|
Loss
from discontinued operations per common Class A and B share –
Dilutive
|
$ | - | $ | (0.28 | ) | $ | (0.14 | ) | ||||
|
Net
(loss) income per common Class A and B share – Dilutive
|
$ | (1.06 | ) | $ | (7.81 | ) | $ | 1.00 | ||||
Stock
options that could potentially dilute earnings per share in the future which
were not included in the fully diluted computation for 2009 and 2008 because
they would have been anti-dilutive totaled 180,288 and 271,043, respectively.
There were no anti-dilutive stock options for 2007. Non-vested stock
that could potentially dilute earnings per share in the future which were not
included in the fully diluted computation for 2009, 2008 and 2007 because they
would have been anti-dilutive totaled 105,827, 109,277, and 41,717,
respectively.
Stock-Based
Compensation
Stock-based
compensation cost is recorded for all options and granted non-vested stock based
on the grant-date fair value. Stock-based compensation expense is
recognized on a straight-line basis over the vesting period of each award
recipient. No stock options were granted in 2009, 2008 or 2007. See
Note 12 of the Notes to Consolidated Financial Statements for information
regarding the Company’s stock-based incentive plans, including stock options,
non-vested stock, phantom stock and employee stock purchase plans.
Cash
flows from income tax benefits resulting from tax deductions in excess of the
compensation expense recognized for stock-based awards have been classified as
financing cash flows.
Income
Taxes
The
Company provides for income taxes currently payable and deferred income taxes
resulting from temporary differences between financial statement and taxable
income.
In
assessing the realizeability of deferred tax assets, the Company considers
whether it is more likely than not that some portion, or all of the deferred tax
assets, will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the years in which
those temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment.
F-12
The
Company’s U.S. entities file a consolidated federal income tax
return.
The
Company adopted the provisions of the guidance originally issued in FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109 (codified in FASB
Topic 740 – Income Taxes) on September 29, 2007. See “Note 8 Income
Taxes” for additional discussion.
Employee
Benefits
The
Company and certain of its subsidiaries have various retirement and profit
sharing plans. The Company does not have any significant foreign retirement
plans. Pension obligations, which are generally based on compensation and years
of service, are funded by payments to pension fund trustees. The Company’s
policy is to annually fund the minimum amount required under the Employee
Retirement Income Security Act of 1974 for plans subject thereto. Other
retirement costs are funded at least annually. Effective September 30, 2009, the
Company elected to freeze its U.S. defined benefit pension plans. The effect of
this action is a cessation of benefit accruals related to service performed
after September 30, 2009. See “Note 9 Employee Benefits” for
additional discussion.
Foreign
Operations and Related Derivative Financial Instruments
The
functional currencies of the Company’s foreign operations are the local
currencies. Accordingly, assets and liabilities of foreign operations are
translated into U.S. dollars at the rate of exchange existing at the end of the
year. Results of operations are translated at monthly average exchange rates.
Adjustments resulting from the translation of foreign currency financial
statements are classified as accumulated other comprehensive income (loss), a
separate component of shareholders’ equity.
Currency
gains and losses are realized when assets and liabilities of foreign operations,
denominated in other than their local currency, are converted into the local
currency of the entity. Additionally, currency gains and losses are realized
through the settlement of transactions denominated in other than the local
currency. The Company realized currency losses from transactions of $796,
$1,945, and $584 for 2009, 2008, and 2007, respectively.
The
Company operates internationally, which gives rise to exposure to market risk
from movements in foreign currency exchange rates. The Company does
not enter into foreign exchange contracts for trading or speculative purposes.
Gains and losses on unhedged exposures are recorded in operating
results.
Approximately
27% of the Company’s revenues for the year ended October 2, 2009 were
denominated in currencies other than the U.S. dollar. Approximately 16% were
denominated in euros, with the remaining 11% denominated in various other
foreign currencies. The Company may mitigate a portion of the
fluctuations in certain foreign currencies through the purchase of foreign
currency swaps, forward contracts and options to hedge known commitments,
primarily for purchases of inventory and other assets denominated in foreign
currencies or borrowings in foreign currencies. In 2009, the Company
used foreign currency forward contracts to reduce the risk of changes in foreign
currency exchange rates on foreign currency borrowings. No such
transactions were entered into during fiscal years 2008 or 2007.
Revenue
Recognition
Revenue
from sales is recognized when all substantial risk of ownership transfers to the
customer, which is generally upon shipment of products. Estimated costs of
returns and allowances and discounts are accrued as a reduction to sales when
revenue is recognized.
Advertising
The
Company expenses substantially all costs related to the production of
advertising the first time the advertising takes place. Cooperative promotional
arrangements are accrued as related revenue is earned.
F-13
Advertising
expense in 2009, 2008, and 2007 totaled $19,481, $24,355 and $22,743,
respectively. These charges are included in the “Marketing and selling” line in
the Company’s Consolidated Statements of Operations. Capitalized
costs at October 2, 2009 and October 3, 2008 totaled $750 and $1,390,
respectively, and primarily included catalogs and costs of advertising which
have not yet run for the first time.
Shipping
and Handling Costs
Shipping
and handling fees billed to customers are included in net sales. Shipping and
handling costs are included in marketing and selling expense and totaled $9,727,
$14,156, and $15,001 for 2009, 2008, and 2007, respectively.
Research
and Development
The
Company expenses research and development costs as incurred except for costs of
software development for new electronic products which are capitalized once
technological feasibility is established. The amount capitalized related to
software development was $4,464, less accumulated amortization of $2,353 at
October 2, 2009 and $2,854, less accumulated amortization of $1,752 at October
3, 2008. These costs are amortized over the expected life of the
software. The amounts expensed by the Company in connection with research and
development activities for each of the last three fiscal years are set forth in
the Company's Consolidated Statements of Operations.
Fair
Values
The
carrying amounts of cash, cash equivalents, accounts receivable, and accounts
payable approximated fair value at October 2, 2009 and October 3, 2008 due to
the short maturities of these instruments. During 2009, the Company held
interest rate swap contracts and foreign currency forward contracts that were
carried at fair value. When indicators of impairment are present, the
Company may be required to value certain long-lived assets such as property,
plant, and equipment, and other intangibles at fair value.
Valuation
Techniques
Over the
Counter Derivative Contracts
The value
of over the counter derivative contracts, such as interest rate swaps and
foreign currency forward contracts, are derived using pricing models, which take
into account the contract terms, as well as other inputs, including, where
applicable, the notional values of the contracts, payment terms, maturity dates,
credit risk, interest rate yield curves, and contractual and market currency
exchange rates. The pricing model used for valuing interest rate
swaps does not entail material subjectivity because the methodologies employed
do not necessitate significant judgment, and the pricing inputs are observed
from actively quoted markets, as is the case with the generic interest rate swap
the Company held during the year.
Rabbi
Trust Assets
Rabbi
trust assets are classified as trading securities and are comprised of
marketable debt and equity securities that are marked to fair value based on
unadjusted quoted prices in active markets.
Goodwill
and Other Intangible Assets
In
assessing the recoverability of the Company's goodwill and other intangible
assets, the Company estimates the future discounted cash flows of the businesses
to which the goodwill relates. When estimated future discounted cash
flows are less than the carrying value of the net assets and related goodwill,
an impairment test is performed to measure and recognize the amount of the
impairment loss, if any. In determining estimated future cash flows,
the Company makes assumptions regarding anticipated financial position, future
earnings and other factors to determine the fair value of the respective
assets.
See “Note
4 Indebtedness” for disclosures regarding the fair value of long-term debt and
“Note 6 Fair Value Measurements” for disclosures regarding fair value
measurement.
F-14
Reclassifications
Certain
prior year amounts have been reclassified to conform to the 2009
presentation. These reclassifications were associated with the
classification of our Escape business as discontinued. See “Note 17
Discontinued Operations” for additional information.
New
Accounting Pronouncements
Effective
October 4, 2008, the Company adopted the provisions of a new accounting
pronouncement regarding fair value measurements originally issued under
Statement of Financial Accounting Standards (“SFAS”) No. 157 Fair Value
Measurements. This accounting pronouncement, found under
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 820, defines fair value, establishes a framework for measuring
fair value, and expands disclosures about fair value measurements. It also
clarifies the definition of exchange price as the price between market
participants in an orderly transaction to sell an asset or transfer a liability
in the market in which the reporting entity would transact for the asset or
liability, which market is the principal or most advantageous market for the
asset or liability. In February 2008, the FASB granted a one year
deferral of the effective date of this pronouncement for non-financial assets
and non-financial liabilities, except those that are recognized or disclosed in
the financial statements at fair value at least annually. Therefore, the Company
has adopted the provisions of this accounting pronouncement with respect to its
financial assets and financial liabilities only, effective as of October 4,
2008. The adoption of this pronouncement did not have a material impact on the
Company’s consolidated results of operations and financial condition. See Note 6
– Fair Value Measurements for additional disclosures. The Company
does not expect application of this pronouncement with respect to its
non-financial assets and non-financial liabilities to have a material impact on
its consolidated financial statements.
In
December 2007, the FASB issued a new accounting pronouncement regarding business
combinations originally issued under SFAS No. 141(R) Business Combinations. The
purpose of this accounting pronouncement, found under FASB ASC Topic 805, is to
improve the information provided in financial reports about a business
combination and its effects. The pronouncement requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date. The pronouncement requires that acquisition costs generally be expensed as
incurred, restructuring costs generally be expensed in periods subsequent to the
acquisition date and changes in accounting for deferred tax asset valuation
allowances and acquired income tax uncertainties after the measurement period
impact tax expenses. The pronouncement also requires the acquirer to recognize
and measure the goodwill acquired in a business combination or a gain from a
bargain purchase. The pronouncement is effective for fiscal 2010 on a
prospective basis for all business combinations and will impact accounting for
all future transactions.
In
February 2007, the FASB issued a new accounting pronouncement about the fair
value option originally issued under SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities – Including an Amendment of FASB Statement No.
115. This pronouncement, found under FASB ASC Topic 820, permits an
entity to elect to measure many financial instruments and certain other items at
fair value. The fair value option permits an entity to choose to measure
eligible items at fair value at specified election dates. Entities electing the
fair value option would be required to report unrealized gains and losses on
items for which the fair value option has been elected in earnings after
adoption. Entities electing the fair value option would be required to
distinguish, on the face of the balance sheet, the fair value of assets and
liabilities for which the fair value option has been elected and similar assets
and liabilities measured using another measurement attribute. This
pronouncement became effective for the Company on October 4,
2008. The Company elected not to measure any eligible items using the
fair value option and, therefore, the pronouncement did not have an impact on
the Company’s consolidated balance sheets, consolidated statements of
operations, or consolidated statements of cash flows.
Effective
October 4, 2008, the Company adopted the provisions of a new accounting
pronouncement regarding disclosures about derivative instruments and hedging
activities originally issued under SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of SFAS No. 133.
The adoption of this statement, found under FASB ASC Topic 815, did not have a
material impact on the Company’s consolidated results of operations and
financial condition. See “Note 5 – Derivative Instruments and Hedging
Activities” for additional disclosures.
F-15
Effective
July 3, 2009, the Company adopted the provisions of a new accounting
pronouncement about subsequent events originally issued under SFAS No. 165,
Subsequent
Events. This pronouncement, found under FASB ASC Topic 855,
requires additional disclosures regarding a company’s subsequent events
occurring after the balance sheet date. The adoption of this
statement did not have a material impact on the Company’s consolidated results
of operations and financial condition. See “Note 19 – Subsequent
Events” for additional disclosures.
Effective
July 3, 2009, the Company adopted the provisions of a new accounting
pronouncement regarding interim disclosures about the fair value of financial
instruments originally issued under SFAS No. 107-1 Interim Disclosures about Fair Value
of Financial Instruments. The adoption of this pronouncement,
found under FASB ASC Topic 820, did not have a material impact on the Company’s
consolidated results of operations and financial condition.
2 Restructuring
Watercraft
– U.S. Watercraft
On June 30, 2009, the Company announced
plans to consolidate operations for its U.S. paddle sports brands in Old Town,
Maine, which resulted in the closure of the Company’s plant in Ferndale,
Washington. This action resulted in the elimination of approximately
90 positions in Ferndale. For the year ended October 2, 2009 the
Company recorded $1,306 of restructuring cost related to severance, $404 related
to contract termination costs and $901 related to other exit
costs. The Company expects the total cost of this restructuring to be
$2,879, consisting of employee termination and related costs of $1,377, contract
termination costs of $404, and other costs of $1,098. These charges are included
in the “Administrative management, finance and information systems” line in the
Company’s consolidated statements of operations and in the Watercraft
segment.
The
following represents a reconciliation of the changes in restructuring reserves
related to this initiative through October 2, 2009.
|
Employee
Termination
Costs
|
Contract
Exit
Costs
|
Other
Exit
Costs
|
Total
|
|||||||||||||
|
Accrued
liabilities as of October 3, 2008
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Activity
during the period ended October 2, 2009:
|
||||||||||||||||
|
Charges
to earnings
|
1,306 | 404 | 901 | 2,611 | ||||||||||||
|
Settlement
payments
|
(547 | ) | - | (768 | ) | (1,315 | ) | |||||||||
|
Accrued
liabilities as of October 2, 2009
|
$ | 759 | $ | 404 | $ | 133 | $ | 1,296 | ||||||||
In
connection with the restructuring, the Company abandoned one of its facilities
and recorded accelerated depreciation of approximately $1,300 for the year ended
October 2, 2009.
Diving-
Hallwil
In March
2008, the Company announced plans to consolidate UWATEC dive computer
manufacturing and distribution at its existing facility in Batam, Indonesia
which had been a sub-assembly site for UWATEC’s main production in Hallwil,
Switzerland. Batam operations were expanded and upgraded to accommodate needed
additional capacity. Consolidation was focused on improving operating
efficiencies and reducing inventory lead times and operating costs. The Company
anticipates no further costs and therefore expects the total cost of this
restructuring to be $2,865 consisting of employee termination benefits and
related costs of $953 and other costs of $1,912. The other costs
consisted principally of project management, legal, moving and contract
termination costs. These charges were included in the “Administrative
management, finance and information systems” line in the Company’s Consolidated
Statements of Operations and in the Diving segment. This action impacted 35
employees, resulting in the elimination of 33 positions and the reassignment of
2 employees to other roles within the Company.
F-16
The
following represents a reconciliation of the changes in restructuring reserves
related to this initiative through October 2, 2009.
|
Employee
Termination
Costs
|
Contract
Exit
Costs
|
Other
Exit
Costs
|
Total
|
|||||||||||||
|
Accrued
liabilities as of September 28, 2007
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Activity
during the period ended October 3, 2008:
|
||||||||||||||||
|
Charges
to earnings
|
825 | - | 1,626 | 2,451 | ||||||||||||
|
Settlement
payments
|
- | - | (1,626 | ) | (1,626 | ) | ||||||||||
|
Accrued
liabilities as of October 3, 2008
|
825 | - | - | 825 | ||||||||||||
|
Activity
during the period ended October 2, 2009:
|
||||||||||||||||
|
Charges
to earnings
|
128 | - | 286 | 414 | ||||||||||||
|
Settlement
payments
|
(953 | ) | - | (286 | ) | (1,239 | ) | |||||||||
|
Accrued
liabilities as of October 2, 2009
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Outdoor
Equipment - Binghamton
In June
2008, the Company announced plans to restructure and downsize its Binghamton,
New York operations due to continued significant declines in sales of military
tents. The total costs incurred for this restructuring during the years ended
October 2, 2009 and October 3, 2008 were $6 and $320, respectively, consisting
entirely of employee termination costs. The Company anticipates no further costs
and therefore expects the total cost of this restructuring to be
$326. These charges are included in the “Administrative management,
finance and information systems” line in the Company's Consolidated Statements
of Operations and in the Outdoor Equipment segment. This action resulted in the
elimination of 27 positions.
The
following represents a reconciliation of the changes in restructuring reserves
related to this initiative through October 2, 2009:
|
Employee
Termination
Costs
|
Contract
Exit
Costs
|
Other
Exit
Costs
|
Total
|
|||||||||||||
|
Accrued
liabilities as of September 28, 2007
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Activity
during the period ended October 3, 2008:
|
||||||||||||||||
|
Charges to earnings
|
320 | - | - | 320 | ||||||||||||
|
Settlement payments
|
(228 | ) | - | - | (228 | ) | ||||||||||
|
Accrued
liabilities as of October 3, 2008
|
92 | - | - | 92 | ||||||||||||
|
Activity
during the period ended October 2, 2009:
|
||||||||||||||||
|
Charges to earnings
|
6 | - | - | 6 | ||||||||||||
|
Settlement payments
|
(98 | ) | - | - | (98 | ) | ||||||||||
|
Accrued
liabilities as of October 2, 2009
|
$ | - | $ | - | $ | - | $ | - | ||||||||
Diving – Bad Säkingen
In May
2007, the Company announced plans to relocate the operations of the Scubapro
facility in Bad Säkingen, Germany into the Seemann operations in Wendelstein,
Germany. As a result of the relocation of the positions at the Bad Säkingen
facility in fiscal 2007, the Company recognized an expense of $578, consisting
of employee termination benefits and related costs of $428 and non-employee exit
costs of $150, principally consisting of moving and contract termination
costs. These charges were included in the “Administrative management,
finance and information systems” line in the Company’s Consolidated Statements
of Operations and in the Diving segment. This relocation resulted in the
movement or elimination of 21 positions. The Company incurred charges of $74 in
2008 to exit its lease of the Bad Säkingen facility. No further restructuring
charges or payments have been incurred or are anticipated in the future. Total
restructuring costs for the Bad Säkingen closure were $652, consisting of
approximately $130 of contract exit costs, $428 of employee termination costs,
and $94 of other exit costs.
F-17
The
following represents a reconciliation of the changes in restructuring reserves
related to this project through October 2, 2009:
|
Employee
Termination
Costs
|
Contract
Exit
Costs
|
Other
Exit
Costs
|
Total
|
|||||||||||||
|
Accrued
liabilities as of September 29, 2006
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Activity
during the year ended September 28, 2007:
|
||||||||||||||||
|
Charges
to earnings
|
428 | 130 | 20 | 578 | ||||||||||||
|
Settlement
payments
|
(281 | ) | (14 | ) | (20 | ) | (315 | ) | ||||||||
|
Accrued
liabilities as of September 28, 2007
|
$ | 147 | $ | 116 | $ | - | $ | 263 | ||||||||
|
Activity
during the year ended October 3, 2008:
|
||||||||||||||||
|
Charges
to earnings
|
- | - | 74 | 74 | ||||||||||||
|
Settlement
payments
|
(147 | ) | (116 | ) | (74 | ) | (337 | ) | ||||||||
|
Accrued
liabilities as of October 3, 2008
|
$ | - | $ | - | $ | - | $ | - | ||||||||
3 ACQUISITIONS
Navicontrol
S.r.l.
On
February 6, 2009, the Company acquired 100% of the common stock of Navicontrol
S.r.l. (“Navicontrol”), a marine autopilot manufacturing company, for
approximately $1,005 including transaction fees of $121. The
acquisition was funded with existing cash. Navicontrol is a highly-regarded
European brand of marine autopilot systems for large boats and is based in
Viareggio, Italy. The Company believes that the purchase of Navicontrol will
allow the Company to accelerate its product line expansion in Europe.
Navicontrol is included in the Company’s Marine Electronics
segment.
The
following table summarizes the final allocation of the purchase price of the
Navicontrol acquisition.
| $ | 153 | |||
|
Inventories
|
103 | |||
|
Property,
plant and equipment
|
12 | |||
|
Technology
|
328 | |||
|
Deferred
tax asset
|
14 | |||
|
Trademark
|
40 | |||
|
Goodwill
|
607 | |||
|
Total
assets acquired
|
1,257 | |||
|
Total
liabilities assumed
|
252 | |||
| Net Purchase Price | $ | 1,005 |
The
goodwill acquired is not deductible for tax purposes.
The
acquisition was accounted for using the purchase method and, accordingly, the
Company’s consolidated financial statements include the results of operations
since the date of acquisition.
The
Company has not presented pro forma financial information with respect to the
Navicontrol acquisition due to the immateriality of the
transaction.
F-18
Geonav
S.r.l.
On
November 16, 2007, the Company acquired 100% of outstanding common stock of
Geonav S.r.l. (Geonav), a marine electronics company for approximately $5,646
(cash of $5,242 and transaction costs of $404). The acquisition was funded with
existing cash and borrowings under our credit facilities. Geonav is a
major European brand of chart plotters based in Viareggio, Italy. The Company
believes that the purchase of Geonav will allow the Company to expand its
product line and add to its marine electronics distribution channels in Europe.
Also sold under the Geonav brand are marine autopilots, VHF radios and
fishfinders. Geonav is included in the Company’s Marine Electronics
segment.
The
following table summarizes the final allocation of the purchase price, fair
values of the assets acquired and liabilities assumed, and the resulting
goodwill acquired at the date of the Geonav acquisition.
|
Accounts
receivable
|
$ | 3,991 | ||
|
Inventories
|
3,291 | |||
|
Other
current assets
|
111 | |||
|
Property,
plant and equipment
|
429 | |||
|
Trademark
|
855 | |||
|
Customer
list
|
978 | |||
|
Goodwill
|
1,738 | |||
|
Total
assets acquired
|
11,393 | |||
|
Total
liabilities assumed
|
5,747 | |||
|
Net
purchase price
|
$ | 5,646 |
The
goodwill acquired is not deductible for tax purposes.
The
acquisition was accounted for using the purchase method and, accordingly, the
Company’s consolidated financial statements include the results of operations
since the date of acquisition.
The
Company has not presented pro forma financial information with respect to the
Geonav acquisition due to the immateriality of the transaction.
Seemann
Sub GmbH & Co.
On April
2, 2007, the Company purchased the assets and assumed related liabilities of
Seemann Sub GmbH & Co. KG (Seemann) from Seemann’s founders for an initial
payment of $7,757, plus $178 in transaction costs and $683 in additional
purchase price consideration. All of the additional purchase price
consideration was paid in fiscal 2008. The transaction was funded
using cash and was made to add to the breadth of the Diving product lines.
Seemann, located in Wendelstein, Germany, is one of that country’s largest dive
equipment providers. The purchase of the Seemann Sub brand was made to expand
the Company’s product line with dive gear for the price-driven consumer. The
Seemann product line is sold through the same channels as the Company’s other
diving products and is included in the Company’s Diving segment.
The
following table summarizes the final allocation of the purchase price, fair
values of the assets acquired and liabilities assumed, and the resulting
goodwill acquired at the date of the Seemann acquisition.
|
Total
current assets
|
$ | 1,831 | ||
|
Property,
plant and equipment
|
122 | |||
|
Trademark
|
936 | |||
|
Customer
list
|
267 | |||
|
Goodwill
|
5,915 | |||
|
Total
assets acquired
|
9,071 | |||
|
Total
liabilities assumed
|
453 | |||
|
Net
purchase price
|
$ | 8,618 |
F-19
The
goodwill acquired is deductible for tax purposes.
The
acquisition was accounted for using the purchase method and, accordingly, the
Company's consolidated financial statements include the results of operations
since the date of acquisition.
The
Company has not presented pro forma financial information with respect to the
Seemann acquisition due to the immateriality of the transaction.
Lendal
Products Ltd.
On
October 3, 2006, the Company acquired all of the outstanding common stock of
Lendal Products Ltd. (Lendal) from Lendal's founders for $1,404, plus $106 in
transaction costs. The transaction was funded using cash and was made to add to
the breadth of the Watercraft product lines. Lendal manufactures and
markets premium performance sea touring, whitewater and surf paddles and blades.
The Lendal products are sold through the same channels as the Company’s other
Watercraft products and are included in the Company’s Watercraft
segment.
The
following table summarizes the final allocation of the purchase price, fair
values of the assets acquired and liabilities assumed, and the resulting
goodwill acquired at the date of the Lendal acquisition.
|
Total
current assets
|
$ | 623 | ||
|
Property,
plant and equipment
|
122 | |||
|
Trademark
|
175 | |||
|
Patents
|
75 | |||
|
Customer
list
|
49 | |||
|
Goodwill
|
710 | |||
|
Total
assets acquired
|
1,754 | |||
|
Total
liabilities assumed
|
244 | |||
|
Net
purchase price
|
$ | 1,510 |
The
goodwill acquired is not deductible for tax purposes.
The
acquisition was accounted for using the purchase method and, accordingly, the
Company's Consolidated Financial Statements include the results of operations
since the date of acquisition.
The
Company is not required to present pro forma financial information with respect
to the Lendal acquisition due to the immateriality of the
transaction.
4 INDEBTEDNESS
On
February 12, 2008 the Company entered into a Term Loan Agreement with JPMorgan
Chase Bank N.A., as lender and agent and the other lenders named therein. The
Term Loan Agreement consisted of a $60,000 term loan maturing on February 12,
2013. The term loan bore interest at LIBOR plus an applicable margin of between
1.25% and 2.00%. At October 3, 2008, the margin in effect was 2.0%. On October
13, 2008, the Company entered into an Omnibus Amendment of its Term Loan
Agreement and revolving credit facility effective as of October 3, 2008 with the
lending group. On the same date, the Company also entered into a
Security Agreement with the lending group. The Omnibus Amendment
temporarily modified certain provisions of the Company’s Term Loan and revolving
credit facility. The Security Agreement was granted in favor of the
lending group and covered certain inventory and accounts
receivable. The Omnibus Amendment reset the applicable margin on the
LIBOR based debt at 3.25% and modified certain financial and non-financial
covenants. The Omnibus Amendment did not reset the net worth covenant
and the Company was in non-compliance with this covenant as of October 3,
2008. On December 31, 2008, the Company entered into an amended term
loan and revolving credit facility agreement with the lending group effective
January 2, 2009. Changes to the term loan included shortening the
maturity date to October 7, 2010, adjusting financial covenants and adjusting
interest rates. The revised term loan bore interest at a LIBOR rate plus 5.00%
with a LIBOR floor of 3.50% with a weighted average interest rate of
approximately 7.67%. The revolving credit facility was reduced from
$75,000 to $30,000. The maturity of the revolving credit facility
remained unchanged at October 7, 2010 and bore interest at LIBOR plus
4.50%.
F-20
New Debt
Agreements
On
September 29, 2009 the Company and certain of its subsidiaries entered into new
Term Loan Agreements (the "Term Loan Agreements" or "Term Loans") between the
Company or one of its subsidiaries and Ridgestone Bank ("Ridgestone"), replacing
the Company’s Amended and Restated Credit Agreement (Term) of $60,000 that was
due to mature on October 7, 2010. The new Term Loan Agreements
provide for aggregate term loan borrowings of $15,892 with maturity dates
ranging from 15 to 25 years from the date of the Term Loan
Agreement. Each Term Loan requires monthly payments of principal and
interest. Interest on $9,280 of the aggregate outstanding amount of the
Term Loans is based on prime rate plus 2.0%, and the remainder on the prime
rate plus 2.75%. The prime rate was 3.25% at October 2, 2009. The
Term Loans are guaranteed in part under the United States Department of
Agriculture Rural Development program and are secured with a first priority
lien on land, buildings, machinery and equipment of the Company's domestic
subsidiaries and a second lien on working capital and certain patents and
trademarks of the Company and it’s subsidiaries. Any proceeds from
the sale of secured property is first applied against the related Term Loan and
then against the Revolver. Certain of the Term Loans covering $9,280
of the aggregate borrowings are subject to a pre-payment penalty. In the
first year of such Term Loan Agreements, the penalty is 10% of the pre-payment
amount, decreasing by 1% annually.
On
September 29, 2009 the Company also entered into a new Revolving Credit and
Security Agreement (the "Revolving Credit Agreement" or "Revolver" and
collectively, with the Term Loans, the "Debt Agreements") among the Company,
certain of the Company's subsidiaries, PNC Bank, National Association, as
lender, as administrative agent and collateral agent, and the other lenders
named therein, replacing the Company’s Amended and Restated Revolving Credit
Agreement of $30,000 (formerly $75,000) that was due to mature on October 7,
2010. The new Revolving Credit Agreement, maturing in September 2012, provides
for funding of up to $69,000. Borrowing availability under the
Revolver is based on certain eligible working capital assets, primarily account
receivables and inventory of the Company and its subsidiaries. The Revolver
contains a seasonal line reduction that reduces the maximum amount of borrowings
to $46,000 from mid-July to mid-November, consistent with the Company's reduced
working capital needs throughout that period, and requires an annual seasonal
pay down to $25,000 for 60 consecutive days. The Company’s remaining
borrowing availability under the Revolver was approximately $9,198 at October 2,
2009. The Revolver is secured with a first priority lien on working
capital assets and certain patents and trademarks of the Company and its
subsidiaries and a second lien on land, buildings, machinery and equipment of
the Company's domestic subsidiaries. As cash collections related to
secured assets are applied against the balance outstanding under the Revolver,
the liability is classified as current. The interest rate on the
Revolver is based primarily on LIBOR plus 3.25 percent with a minimum LIBOR
floor of 2.0 percent.
Under the
terms of the Debt Agreements, the Company is required to comply with certain
financial and non-financial covenants. Among other restrictions, the
Company is restricted in its ability to pay dividends, incur additional debt and
make acquisitions or divestitures above certain amounts. The key
financial covenants include a minimum fixed charge coverage ratio, limits on
minimum net worth and EBITDA, a limit on capital expenditures, and a seasonal
pay-down requirement.
The
Company incurred $1,478 of financing fees in conjunction with the execution
of the Debt Agreements which were capitalized and will be amortized over the
life of the related debt. The Company also capitalized $1,330 of
financing fees related to amending the Company’s previous debt
agreements. As a result of entering into the new Debt Agreements, the
Company wrote off $1,006 of capitalized financing fees related to the previous
debt, which is included in interest expense.
At
October 2, 2009, the Company had borrowings outstanding under the revolver of
$11,994.
Interest
Rate Swaps
Historically
the Company has used interest rate swaps in order to maintain a mix of floating
rate and fixed rate debt such that permanent working capital needs are largely
funded with fixed rate debt and seasonal working capital needs are funded with
floating rate debt. To manage this risk in a cost efficient manner, the Company
may enter into interest rate swaps in which the Company agrees to exchange, at
specified intervals, the difference between fixed and variable interest amounts
calculated by reference to an agreed upon notional principal
amount. Presently, all of the Company’s debt is of a floating rate
nature and the Company is unhedged with respect to interest rate risk on its
floating rate debt. See “Note 5 Derivative Instruments and Hedging
Activities” for more information.
F-21
Long-term
debt at the end of the respective years consisted of the
following:
|
2009
|
2008
|
|||||||
| $ | 15,892 | $ | - | |||||
|
2008
term loan
|
- | 60,000 | ||||||
|
Other
|
781 | 3 | ||||||
| 16,673 | 60,003 | |||||||
|
Less
current maturities
|
584 | 3 | ||||||
| $ | 16,089 | $ | 60,000 | |||||
The
Company has in place $7,493 in unsecured revolving credit facilities at its
foreign subsidiaries. Outstanding borrowings on these facilities were $2,896 as
of October 2, 2009. There were no borrowings outstanding on any of
these facilities during the year ended October 3, 2008.
The
Company utilizes letters of credit primarily as security for the payment of
future claims under its workers compensation insurance which totaled $60 at
October 2, 2009 compared to $2,245 at October 3, 2008, as the Company posted
collateral of $2,173 for its potential future workers compensation claims in
order to facilitate the closing of the its debt agreements at year end.
These assets are recorded in other current assets on the balance
sheet.
The
Company has unsecured lines of credit with availability totaling $4,597 as of
October 2, 2009.
Aggregate
scheduled maturities of long-term debt as of October 2, 2009 are as
follows:
|
2010
|
$ | 584 | ||
|
2011
|
609 | |||
|
2012
|
641 | |||
|
2013
|
710 | |||
|
2014
|
630 | |||
|
Thereafter
|
13,499 | |||
Interest
paid was $8,408, $5,932 and $5,498 for 2009, 2008 and 2007,
respectively.
Based on
the borrowing rates currently available to the Company for debt with similar
terms and maturities, the fair value of the Company’s long-term debt as of
October 2, 2009 and October 3, 2008 was approximately $16,673 and $60,003,
respectively.
Certain
of the Company’s loan agreements require that the Company’s Chief Executive
Officer, Helen P. Johnson-Leipold, members of her family and related entities
(hereinafter the Johnson Family) continue to own stock having votes sufficient
to elect a majority of the directors. At December 8, 2009, the Johnson Family
held 3,716,518 shares or approximately 44% of the Class A common stock,
1,211,196 shares or approximately 100% of the Class B common stock and
approximately 78% of the voting power of both classes of common stock taken as a
whole.
F-22
5 Derivative
Instruments and Hedging Activities
During
the years ended October 2, 2009 and October 3, 2008, the Company utilized
derivative instruments in the form of interest rate swap contracts and foreign
currency forward contracts. The following disclosures describe the
Company’s objectives in using derivative instruments, the business purpose or
context for using derivative instruments, and how the Company believes the use
of derivative instruments helps achieve the stated objectives. In
addition, the following disclosures describe the effects of the Company’s use of
derivative instruments and hedging activities on its financial
statements.
Interest Rate
Risk
The
Company operates in a seasonal business and experiences significant fluctuations
in operating cash flow as working capital needs increase in advance of the
selling and cash generation season, and decline as accounts receivable are
collected and cash is accumulated or debt is repaid. The Company’s
objective in holding interest rate swap contracts is to maintain a mix of
floating rate and fixed rate debt such that permanent non-equity capital needs
are largely funded with long term fixed rate debt and seasonal working capital
needs are funded with short term floating rate debt.
When the
appropriate mix of fixed rate or floating rate debt cannot be directly obtained
in a cost effective manner, the Company may enter into interest rate swap
contracts in order to change floating rate interest into fixed rate interest or
vice versa for a specific amount of debt in order to achieve the desired
proportions of floating rate and fixed rate debt. An interest rate
swap is a contract in which the Company agrees to exchange, at specified
intervals, the difference between fixed and variable interest amounts calculated
by reference to an agreed upon notional principal amount. The
notional amount is the equivalent amount of debt that the Company wishes to
change from a fixed interest rate to a floating interest rate or vice versa and
is the basis for calculating the related interest payments required under the
interest rate swap contract.
On
October 29, 2007 the Company entered into a forward starting interest rate swap
(the “Swap”) with a notional amount of $60,000 receiving a floating three month
LIBOR interest rate while paying at a fixed rate of 4.685% over a five year
period beginning on December 14, 2007. Interest on the Swap was settled
quarterly, starting on March 14, 2008. The purpose of entering into
the Swap transaction was to lock the interest rate the Company’s $60,000 of
three-month floating rate LIBOR debt at 4.685%, before applying the applicable
margin and was effective as a hedge. As a result of the amendment and
restatement of the Company’s then-existing debt agreements on January 2, 2009
and the related imposition of a LIBOR floor in the terms of those restated debt
agreements, the Swap was no longer an effective economic hedge against the
impact on interest payments of changes in the three-month LIBOR benchmark
rate. On January 8, 2009 the Company paid $1,239 under an agreement
to shorten the term of the Swap and on the same date entered into two additional
interest rate swap contracts in order to neutralize it’s exposure to potential
further losses under the Swap. In the third quarter of fiscal 2009,
the Company terminated all of it’s interest rate swap contracts and paid $4,912
in final cash settlements of those instruments.
Presently,
the Company is unhedged with respect to interest rate risk on its floating rate
debt. In addition to the modification and termination payments of
$6,151 previously noted, the Company also made periodic payments under its
interest rate swap contracts of $511.
Foreign Exchange
Risk
The
Company has significant foreign operations, for which the functional currencies
are denominated primarily in euros, Swiss francs, Japanese yen and Canadian
dollars. As the values of the currencies of the foreign countries in which the
Company has operations increase or decrease relative to the U.S. dollar, the
sales, expenses, profits, losses, assets and liabilities of the Company’s
foreign operations, as reported in the Company’s consolidated financial
statements, increase or decrease, accordingly. Approximately 27% of the
Company’s revenues for the fiscal year ended October 2, 2009 were denominated in
currencies other than the U.S. dollar. Approximately 16% were denominated in
euros, with the remaining 11% denominated in various other foreign
currencies. Changes in foreign currency exchange rates can cause
unexpected financial losses or cash flow needs.
F-23
The
Company’s objective in holding foreign currency forward contracts is to mitigate
the risk associated with changes in foreign currency exchange rates on financial
instruments and known commitments for purchases of inventory and other assets
denominated in foreign currencies. The Company mitigates a portion of
the fluctuations in certain foreign currencies through the purchase of foreign
currency forward contracts. Foreign currency forward contracts enable
the Company to lock in the foreign currency exchange rate to be paid or received
for a fixed amount of currency at a specified date in the future.
As of
October 2, 2009, the Company held a foreign currency forward contract with a
notional value of 11,000 Swiss francs recorded on the balance sheet at a fair
value liability of $122. The related mark to market loss was recorded
in “Other income and expense” in the statement of operations.
The
Company had no derivative instruments designated as hedging instruments as of
October 2, 2009. The Company’s interest rate swap contracts became
ineffective as hedging instruments on January 2, 2009 and were terminated and
settled as noted above.
Prior to
becoming ineffective, the effective portion of the Swap was recorded in
accumulated other comprehensive income (“AOCI”), a component of shareholders’
equity. As a result of this cash flow hedge becoming ineffective on January 2,
2009, $5,937 of unrealized loss in AOCI was frozen and all subsequent changes in
the fair value of the Swap were recorded directly to interest expense in the
statement of operations. The effective portion frozen in AOCI is amortized
over the period of the originally hedged transaction, interest payments through
2012. The remaining amount held in AOCI shall be immediately recognized as
interest expense if it ever becomes probable that the Company will not have
interest bearing debt through December 14, 2012, the period over which the
originally forecasted hedged transactions were expected to occur. The
Company expects that approximately $1,621 of the $3,962 remaining in AOCI at
October 2, 2009 will be amortized into interest expense over the next 12
months.
The
following discloses the location of loss reclassified from AOCI into
net loss related to derivative instruments during the year ended October 2,
2009:
|
Year
ended
|
||
|
October
2, 2009
|
||
|
Loss
reclassified from AOCI into:
|
Amount
Reclassified
|
|
|
Interest
expense
|
$1,975
|
The
following discloses the location and amount of loss recognized in the statement
of operations for derivative instruments not designated as hedging
instruments. These losses are the result of recognizing changes in
the fair values of derivatives.
|
Year
ended
|
|||
|
October
2, 2009
|
|||
|
Derivatives
not designated as hedging
instruments
|
Location
of loss recognized in
statement
of operations
|
Amount
of loss
recognized
|
|
|
Interest
rate swap contracts
|
Interest
expense
|
$(725)
|
|
|
Foreign
exchange forward contracts
|
Other
income (expense)
|
$(149)
|
6 Fair
Value Measurements
Fair
value is defined as the exchange price that would be received for an asset or
paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. Valuation techniques used to
measure fair value must maximize the use of observable inputs and minimize the
use of unobservable inputs. A fair value hierarchy has been established based on
three levels of inputs, of which the first two are considered observable and the
last unobservable.
F-24
| ● | Level 1 - Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets. | |
| ● | Level 2 - Inputs, other than quoted prices included within Level 1, which are observable for the asset or liability, either directly or indirectly. These are typically obtained from readily-available pricing sources for comparable instruments. | |
| ● | Level 3 - Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own assumptions of the data that market participants would use in pricing the asset or liability, based on the best information available in the circumstances. |
The
following table summarizes the Company’s financial assets and liabilities
recorded on its balance sheet at fair value on a recurring basis as of October
2, 2009:
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Rabbi
trust assets
|
$ | 4,478 | $ | - | $ | - | $ | 4,478 | ||||||||
|
Liabilities:
|
||||||||||||||||
|
Foreign
currency forward contracts
|
$ | - | $ | 122 | $ | - | $ | 122 | ||||||||
Rabbi
trust assets are classified as trading securities and are comprised of
marketable debt and equity securities that are marked to fair value based on
unadjusted quoted prices in active markets. The mark to market adjustments
are recorded in other income (expense) in the consolidated statement of
operations.
The fair
value of the foreign exchange forward contract reported above was measured using
the market value approach.
The
following table summarizes the amount of total gains or losses in the period
attributable to the changes in fair value of the instruments noted
above:
|
Year
ended
|
|||||
|
October
2, 2009
|
|||||
|
Location
of income (loss)
recognized
in statement of
operations
|
Amount
of income
(loss)
recognized
|
||||
|
Rabbi
trust assets
|
Other
income (expense)
|
$ | (141 | ) | |
|
Interest
rate swap contracts
|
Interest
expense
|
$ | (725 | ) | |
|
Foreign
exchange forward contracts
|
Other
income (expense)
|
$ | (149 | ) | |
Certain
assets and liabilities are measured at fair value on a non-recurring basis in
periods subsequent to their initial recognition. The following table
summarizes the Company’s assets and liabilities measured at fair value on a
non-recurring basis as required by the ASC Topic 820 as of October 2,
2009:
|
Level
1
|
Level
2
|
Level
3
|
Total
|
|||||||||||||
|
Assets:
|
||||||||||||||||
|
Impaired
goodwill
|
$ | - | $ | - | $ | - | $ | - | ||||||||
|
Impaired
long-lived assets
|
$ | - | $ | 781 | $ | - | $ | 781 | ||||||||
During
the fiscal fourth quarter, the Company impaired a warehouse facility in Casarza
– Ligure, Italy to a fair value of $781. The building was formerly used
for materials storage but is no longer being used in that capacity or for any
other business use. It is actively being marketed for sale, was written
down to the value of a recent market appraisal and is recorded in other long
term assets on the balance sheet. Depreciation has also been ceased based
on the building no longer being used. A $385 pre-tax impairment charge was
included in the “Administrative management, finance and information systems”
line in the Company’s Consolidated Statements of Operations and in the Diving
segment.
F-25
In
accordance with the Intangibles – Goodwill and Other ASC Topic 350, goodwill
with a carrying value of $312 was written down to zero for one of the Company’s
Canadian subsidiaries in the Watercraft segment. The key assumptions
used in the valuation were estimates of the future cash flows of the entity,
including assumptions regarding growth rates and the entity’s weighted average
cost of capital. Please see “Note 1 Summary of Significant Accounting
Policies” for a further discussion.
7 Leases
and Other Commitments
The
Company leases certain facilities and machinery and equipment under long-term,
non-cancelable operating leases. Future minimum rental commitments under
non-cancelable operating leases with an initial lease term in excess of one year
at October 2, 2009 were as follows:
| Year |
Related
Parties
included
in total
|
Total | ||||||
|
2010
|
$ | 625 | $ | 6,470 | ||||
|
2011
|
48 | 4,207 | ||||||
|
2012
|
- | 3,527 | ||||||
|
2013
|
- | 2,580 | ||||||
|
2014
|
- | 2,441 | ||||||
|
Thereafter
|
- | 5,540 |
Rental
expense under all leases was approximately $9,209, $9,126 and $8,257 for 2009,
2008 and 2007, respectively.
The
Company makes commitments related to capital expenditures, contracts for
services, sponsorship of broadcast media and supply of finished products and
components, all of which are in the ordinary course of business.
During
the fiscal year ended October 2, 2009, the Company purchased approximately $800
of telecommunications equipment under a capital lease
arrangement. The gross amount of assets recorded under capital leases
was approximately $800 as of October 2, 2009. The related obligation
under capital leases was approximately $780 as of October 2,
2009. Amortization of assets recorded under capital leases is
included with depreciation expense.
8 INCOME
TAXES
Income
tax expense for the respective years consisted of the following:
|
2009
|
2008
|
2007
|
||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | — | $ | — | $ | — | ||||||
|
State
|
247 | 251 | 109 | |||||||||
|
Foreign
|
1,457 | 2,678 | 3,410 | |||||||||
|
Deferred
|
(2,111 | ) | 21,249 | 1,727 | ||||||||
| $ | (407 | ) | $ | 24,178 | $ | 5,246 | ||||||
F-26
The tax
effects of temporary differences that give rise to deferred tax assets and
deferred tax liabilities at the end of the respective years are presented
below:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Inventories
|
$ | 4,899 | $ | 5,230 | ||||
|
Compensation
|
7,953 | 7,217 | ||||||
|
Tax
credit carryforwards
|
5,475 | 2,528 | ||||||
|
Goodwill
and other intangibles
|
3,587 | 4,278 | ||||||
|
Net
operating loss carryforwards
|
16,312 | 7,820 | ||||||
|
Depreciation
and amortization
|
2,915 | 7,505 | ||||||
|
Accrued
liabilities
|
5,301 | 4,046 | ||||||
|
Total
gross deferred tax assets
|
46,442 | 38,624 | ||||||
|
Less
valuation allowance
|
40,883 | 35,067 | ||||||
|
Deferred
tax assets
|
5,559 | 3,557 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Foreign
statutory reserves
|
593 | 1,111 | ||||||
|
Net
deferred tax assets
|
$ | 4,966 | $ | 2,446 | ||||
The net
deferred tax assets of $4,966 in 2009 are recorded as $2,168 in current assets,
$3,391 in non-current assets and $593 in non-current liabilities. The net
deferred tax assets of $2,446 in 2008 are recorded as $2,963 in current assets,
$594 in non-current assets and $1,111 in non-current liabilities.
Income
before income taxes for the respective years consists of the
following:
|
2009
|
2008
|
2007
|
||||||||||
|
United
States
|
$ | (8,568 | ) | $ | (20,813 | ) | $ | 5,719 | ||||
|
Foreign
|
(1,551 | ) | (23,484 | ) | 10,076 | |||||||
| $ | (10,119 | ) | $ | (44,297 | ) | $ | 15,795 | |||||
The
significant differences between the statutory federal tax rate and the effective
income tax rates for the Company for the respective years shown below are as
follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Statutory
U.S. federal income tax rate
|
35.0 | % | 34.0 | % | 34.0 | % | ||||||
|
Foreign
rate differential
|
(6.6 | ) |
(4.1
|
) | 3.9 | |||||||
|
Tax
law change
|
0.0 | 0.0 | (4.0 | ) | ||||||||
|
Impairment
of intangibles
|
0.0 | (15.4 | ) | 0.0 | ||||||||
|
Tax
credits (net of valuation allowance)
|
12.4 | 0.0 | 0.0 | |||||||||
|
Increase
in valuation reserve for deferred assets
|
(33.1 | ) | (66.8 | ) | 0.0 | |||||||
|
Reduction
(increase) in rate utilized to record deferred taxes
|
0.0 | 0.0 | (2.9 | ) | ||||||||
|
Other
|
(3.7 | ) | (2.3 | ) | 2.2 | |||||||
| 4.0 | % | (54.6 | )% | 33.2 | % | |||||||
In 2009
the Company used the 35% maximum statutory U.S Federal income tax
rate. The Company recorded a $3,350 valuation allowance against the
net deferred tax assets in the U.S., Japan, United Kingdom, Spain, and New
Zealand as a result of these jurisdictions being in a three year cumulative loss
resulting from the continued downturn and current market situation in these
jurisdictions. Key changes that occurred in the valuation allowance
during fiscal 2009 included the reversal of the valuation allowance for the
Company’s German operations which resulted in an $1,800 benefit and in
establishing a valuation allowance for the Company’s Japan operations which
resulted in $1,200 of additional tax expense. The Company became
eligible for and utilized a portion of a State income tax credit and recorded a
net benefit of $1,260 with a corresponding net deferred tax
asset. The foreign rate differential of (6.6)%, (4.1)% and 3.9% for
2009, 2008 and 2007, respectively, is comprised of several foreign tax related
items including the statutory rate differential in each year, settlement of tax
audits and additional contingency reserves in 2009, 2008 and 2007,
respectively. During 2007, the Company increased the U.S. federal tax
rate used in valuing deferred tax assets from 34% to 35%, positively impacting
the 2007 effective tax rate by 2.9%. Deferred tax assets have been
recorded at the maximum federal income tax rate in effect in the future year(s),
when they are anticipated to be utilized. A German tax law change (Revised
Reorganization Tax Code) during 2007 resulted in a tax receivable recorded by
the Company that reduced the effective tax rate by 4.0%.
F-27
At
October 2, 2009, the Company has federal operating loss carryforwards of $31,359
which begin to expire in 2021, as well as various state net operating loss
carryforwards. In addition, certain of the Company’s foreign subsidiaries have
operating loss carryforwards totaling $11,102. These operating loss
carryforwards are available to offset future taxable income over the next 3 to
approximately 20 years. The Company has removed a valuation allowance
in Germany and has established or increased a valuation allowance for the
portion of deferred tax assets in the U.S., Japan, United Kingdom, Spain, and
New Zealand tax jurisdictions that are anticipated to expire
unused.
The
Company must perform an assessment of whether a valuation allowance should be
established against deferred tax assets based on the consideration of all
available evidence and considering whether it is more likely than not that the
deferred tax assets will not be realized. Given the current market conditions of
the outdoor recreation equipment market as well as other factors arising during
fiscal 2009 which may impact future operating results, the Company considered
both positive and negative evidence in evaluating the need for a valuation
allowance relating to the deferred tax assets of the U.S., Japan, United
Kingdom, Spain, and New Zealand tax jurisdictions. Based on projections for
these tax jurisdictions the Company determined that it was more likely than not
that certain deferred tax assets will not be realized and a valuation allowance
balance of $38,327, $1,568, $624, $288, and $76 was reported against the net
deferred tax assets for the U.S., Japan, United Kingdom, Spain, and New Zealand
tax jurisdictions respectively, at October 2, 2009. The Company’s
valuation allowances at October 3, 2008 was comprised of $29,175, $1,837, $153,
$374, and $91 and was recorded against the net deferred tax assets for the U.S.,
Germany, Spain, United Kingdom, and New Zealand tax jurisdictions
respectively.
Taxes
paid were $2,640, $3,739, and $2,823 for 2009, 2008, and 2007,
respectively.
The
Company adopted the provisions of the accounting pronouncement regarding
accounting for uncertainty in income taxes originally issued under FASB
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109 on September 29,
2007. This pronouncement, codified under FASB ASC Topic 740,
clarifies the accounting for uncertain tax positions. A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
|
Balance
at September 29, 2007
|
$ | 1,074 | ||
|
Gross
decreases - tax positions in prior period
|
(109 | ) | ||
|
Gross
increases - tax positions in current period
|
175 | |||
|
Balance
at October 3, 2008
|
1,140 | |||
|
Lapse
of statute of limitations
|
(36 | ) | ||
|
Gross
increases - tax positions in current period
|
186 | |||
|
Balance
at October 2, 2009
|
$ | 1,290 |
The
Company’s total gross liability for unrecognized tax benefits was $1,290,
including $170 of accrued interest. The Company’s U.S. Federal income tax
jurisdiction examination for fiscal 2006 was completed in the current fiscal
year and the Company is not currently undergoing examinations in any major
foreign tax jurisdiction. There have been no material changes in unrecognized
tax benefits as a result of tax positions in the current year ended October 2,
2009. The Company estimates that the unrecognized tax benefits will
not change significantly within the next year.
F-28
In
accordance with its accounting policy, the Company recognizes accrued interest
and penalties related to unrecognized tax benefits as a component of income tax
expense. Interest of $70 and $3 was recorded as a component of income tax
expense in the consolidated statement of operations during fiscal 2009 and 2008,
respectively. At October 2, 2009, $170 of accrued interest and penalties are
included in the consolidated balance sheet.
The
Company files income tax returns, including returns for its subsidiaries, with
federal, state, local and foreign taxing jurisdictions. The following tax years
remain subject to examination by the respective major tax
jurisdictions:
|
Jurisdiction
|
Fiscal
Years
|
|
United
States
|
2007-2009
|
|
Canada
|
2004-2009
|
|
France
|
2006-2009
|
|
Germany
|
2005-2009
|
|
Italy
|
2004-2009
|
|
Japan
|
2007-2009
|
|
Switzerland
|
1998-2009
|
Federal
and state income taxes are provided on foreign subsidiary income distributed to,
or taxable in, the U.S. during the year. At October 2, 2009, net undistributed
earnings of foreign subsidiaries totaled approximately $112,156. The Company
considers these unremitted earnings to be permanently invested abroad and no
provision for federal or state income taxes has been made on these amounts. In
the future, if foreign earnings are returned to the U.S., provision for U.S.
income taxes will be made.
F-29
9 EMPLOYEE
BENEFITS
The
Company has non-contributory defined benefit pension plans covering certain U.S.
employees. Retirement benefits are generally provided based on employees’ years
of service and average earnings. Normal retirement age is 65, with provisions
for earlier retirement. On May 28, 2009, the Company elected to
freeze its U.S. defined benefit pension plans as of September 30, 2009. The
effect of this action is a cessation of benefit accruals related to service
performed after September 30, 2009, as a result, reducing the projected benefit
obligation. The gain resulting from this reduction in the pension
liability did not exceed the amount of unrecognized actuarial losses held in
accumulated other comprehensive income prior to the curtailment
event. As such, this curtailment gain was recorded in accumulated
other comprehensive income in shareholders' equity and reduced the amount of net
actuarial loss reported and did not impact the consolidated statement of
operations for the year ended October 2, 2009.
The
financial position of the Company’s non-contributory defined benefit plans as of
fiscal year end 2009 and 2008 is as follows:
|
2009
|
2008
|
|||||||
|
Projected
benefit obligation:
|
||||||||
|
Projected
benefit obligation, beginning of year
|
$ | 16,348 | $ | 16,676 | ||||
|
Service cost
|
636 | 682 | ||||||
|
Interest cost
|
1,074 | 1,074 | ||||||
|
Curtailment gain
|
(2,630 | ) | - | |||||
|
Actuarial loss (gain)
|
3,780 | (1,336 | ) | |||||
|
Benefits paid
|
(815 | ) | (748 | ) | ||||
|
Projected
benefit obligation, end of year
|
$ | 18,393 | $ | 16,348 | ||||
|
Fair
value of plan assets:
|
||||||||
|
Fair
value of plan assets, beginning of year
|
$ | 10,816 | $ | 12,629 | ||||
|
Actual gain (loss) on plan assets
|
81 | (1,505 | ) | |||||
|
Company
contributions
|
264 | 440 | ||||||
|
Benefits paid
|
(815 | ) | (748 | ) | ||||
|
Fair
value of plan assets, end of year
|
$ | 10,346 | $ | 10,816 | ||||
|
Funded
status of the plan
|
$ | (8,047 | ) | $ | (5,532 | ) | ||
|
Amounts
recognized in the consolidated balance sheets consist of:
|
||||||||
|
Current pension liabilities
|
$ | 193 | $ | 194 | ||||
|
Noncurrent pension liabilities
|
7,854 | 5,338 | ||||||
|
Accumulated other comprehensive loss
|
(4,818 | ) | (2,842 | ) | ||||
|
Components
of accumulated other comprehensive loss:
|
||||||||
|
Net actuarial loss
|
(4,818 | ) | (2,842 | ) | ||||
|
Accumulated
other comprehensive loss
|
$ | (4,818 | ) | $ | (2,842 | ) | ||
F-30
Net
periodic benefit cost, for our non-contributory defined benefit pension plans,
for the respective years includes the following components:
|
2009
|
2008
|
2007
|
||||||||||
|
Service
cost
|
$ | 636 | $ | 682 | $ | 630 | ||||||
|
Interest
cost
|
1,074 | 1,074 | 1,005 | |||||||||
|
Expected
return on plan assets
|
(981 | ) | (975 | ) | (923 | ) | ||||||
|
Amortization
of unrecognized:
|
||||||||||||
|
Net
loss
|
74 | 59 | 92 | |||||||||
|
Prior
service cost
|
- | 4 | 9 | |||||||||
|
Transition
asset
|
- | (1 | ) | (2 | ) | |||||||
|
Net
periodic pension cost
|
803 | 843 | 811 | |||||||||
|
Other
changes in benefit obligations recognized
|
||||||||||||
|
in
other comprehensive income (loss), (OCI):
|
||||||||||||
|
Net
(gain) loss
|
1,976 | 1,085 | (922 | ) | ||||||||
|
Prior
service cost
|
- | (4 | ) | (9 | ) | |||||||
|
Transition
asset
|
- | 1 | 2 | |||||||||
|
Total
recognized in OCI
|
1,976 | 1,082 | (929 | ) | ||||||||
|
Total
recognized in net periodic pension cost and OCI
|
$ | 2,779 | $ | 1,925 | $ | (118 | ) | |||||
The
Company expects to recognize $81 of unrecognized loss amortization as a
component of net periodic benefit cost in 2010. This amount is
included in accumulated other comprehensive income as of October 2,
2009.
The
accumulated benefit obligation for all plans was $18,393 and $13,933 at October
2, 2009 and October 3, 2008, respectively.
At
October 2, 2009, the aggregate accumulated benefit obligation and aggregate fair
value of plan assets for plans with benefit obligations in excess of plan assets
was $18,393 and $10,346, respectively, and there were no plans with plan assets
in excess of benefit obligations. At October 3, 2008, the aggregate accumulated
benefit obligation and aggregate fair value of plan assets for plans with
benefit obligations in excess of plan assets was $13,933 and $10,816,
respectively, and there were no plans with plan assets in excess of benefit
obligations.
The
Company anticipates making contributions to the defined benefit pension plans of
$1,265 through October 1, 2010.
Estimated
benefit payments from the defined benefit plans to participants for the five
years ending September 2014 and five years thereafter are as
follows:
|
Year
|
||||
|
2010
|
$ | 772 | ||
|
2011
|
768 | |||
|
2012
|
800 | |||
|
2013
|
837 | |||
|
2014
|
875 | |||
|
Five
years thereafter
|
5,282 | |||
F-31
Actuarial
assumptions used to determine the projected benefit obligation as of the
following fiscal years ended are as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Discount
rate
|
5.50 | % | 7.00 | % | 6.50 | % | ||||||
|
Long-term
rate of return
|
8.00 | 8.00 | 8.00 | |||||||||
|
Average
salary increase rate
|
N/A | 3.70 | 4.00 | |||||||||
The
impact of the change in discount rates resulted in an actuarial loss of
approximately $3,500 in 2009 and a gain of approximately $1,225 in 2008. The
remainder of the change in actuarial gains for each year results from
adjustments to mortality tables, other modifications to actuarial assumptions
and investment returns in excess of, or less than estimates.
To
determine the discount rate assumption used in the Company’s pension valuation,
the Company identified a benefit payout stream based on the demographics of the
pension plans and constructed a hypothetical bond portfolio using high-quality
corporate bonds with cash flows that matched that benefit payout stream. A
yield curve was calculated based on this hypothetical portfolio which was used
for the discount rate determination.
To
determine the long-term rate of return assumption for plan assets, the Company
studies historical markets and preserves the long-term historical relationships
between equities and fixed-income securities consistent with the widely accepted
capital market principle that assets with higher volatility generate a greater
return over the long run. The Company evaluates current market factors such as
inflation and interest rates before it determines long-term capital market
assumptions and reviews peer data and historical returns to check for
reasonableness and appropriateness. The Company uses measurement dates of
October 1 to determine pension expenses for each year and the last day of the
fiscal year to determine the fair value of the pension assets.
The
Company’s pension plans’ weighted average asset allocations at October 2, 2009
and October 3, 2008, by asset category were as follows:
|
2009
|
2008
|
|||||||
|
Equity
securities
|
74 | % | 73 | % | ||||
|
Fixed
income securities
|
26 | 26 | ||||||
|
Other
securities
|
- | 1 | ||||||
|
Total
|
100 | % | 100 | % | ||||
The
Company’s primary investment objective for the plans’ assets is to maximize the
probability of meeting the plans’ actuarial target rate of return of 8%, with a
secondary goal of returning 4% above the rate of inflation. These return
objectives are targeted while simultaneously striving to minimize risk to the
plans’ assets. The investment horizon over which the investment objectives are
expected to be met is a full market cycle or five years, whichever is
greater.
The
Company’s investment strategy for the plans is to invest in a diversified
portfolio that will generate average long-term returns commensurate with the
aforementioned objectives while minimizing risk.
A
majority of the Company’s full-time employees are covered by defined
contribution programs. Expense attributable under the defined contribution
programs was approximately $857, $1,025 and $2,800 for 2009, 2008 and 2007,
respectively.
10 PREFERRED
STOCK
The
Company is authorized to issue 1,000,000 shares of preferred stock in various
classes and series, of which there are none currently issued or
outstanding.
F-32
11 COMMON
STOCK
The
number of authorized and outstanding shares of each class of the Company's
common stock at the end of the respective years was as follows:
|
2009
|
2008
|
|||||||
|
Class
A, $.05 par value:
|
||||||||
|
Authorized
|
20,000,000 | 20,000,000 | ||||||
|
Outstanding
|
8,066,965 | 8,006,569 | ||||||
|
Class
B, $.05 par value:
|
||||||||
|
Authorized
|
3,000,000 | 3,000,000 | ||||||
|
Outstanding
|
1,216,464 | 1,216,464 | ||||||
Holders
of Class A common stock are entitled to elect 25% of the members of the Board of
Directors and holders of Class B common stock are entitled to elect the
remaining directors. With respect to matters other than the election of
directors or any matters for which class voting is required by law, holders of
Class A common stock are entitled to one vote per share while holders of Class B
common stock are entitled to ten votes per share. If any dividends (other than
dividends paid in shares of the Company’s stock) are paid by the Company on its
common stock, a dividend would be paid on each share of Class A common stock
equal to 110% of the amount paid on each share of Class B common stock. Each
share of Class B common stock is convertible at any time into one share of Class
A common stock. During 2009, 2008 and 2007, respectively, 0, 945, and 568 shares
of Class B common stock were converted into Class A common stock.
12 Stock
Ownership Plans
The
Company’s current stock ownership plans provide for issuance of options to
acquire shares of Class A common stock by key executives and non-employee
directors. Current plans also allow for issuance of non-vested stock or stock
appreciation rights in lieu of options. Shares available for grant to key
executives and non-employee directors are 436,745 at October 2,
2009.
Stock
Options
All stock
options have been granted at a price not less than fair market value at the date
of grant and become exercisable over periods of one to three years from the date
of grant. Stock options generally have a term of 10 years.
All of
the Company’s stock options outstanding are fully vested, with no further
compensation expense to be recorded. There were no grants of stock options in
2009, 2008 or 2007.
F-33
A summary
of stock option activity related to the Company’s plans is as
follows:
|
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractural
Term
(in years)
|
Aggregate
Intrinsic
Value
|
||||||||||
| Outstanding at September 29, 2006 | 332,533 | $ | 9.03 | ||||||||||
|
Exercised
|
(44,190 | ) | 10.94 | $ | 326 | ||||||||
|
Cancelled
|
(1,950 | ) | 19.88 | ||||||||||
|
Outstanding
at September 28, 2007
|
286,393 | $ | 8.66 | ||||||||||
|
Exercised
|
(15,350 | ) | 13.94 | $ | 86 | ||||||||
|
Cancelled
|
- | - | |||||||||||
|
Outstanding
at October 3, 2008
|
271,043 | $ | 8.36 | ||||||||||
|
Excercised
|
(500 | ) | 7.42 | ||||||||||
|
Cancelled
|
(90,255 | ) | 8.62 | ||||||||||
|
Outstanding
and exercisable at October 2, 2009
|
180,288 | $ | 8.23 |
1.7
|
$ | 315 | |||||||
The range
of options outstanding at October 2, 2009 is as follows:
|
Price
Range
per
Share
|
Number
of
Options
Outstanding
and
Exercisable
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual Life
(in years)
|
|||
|
$5.31
– $7.00
|
44,584
|
$5.46
|
1.1
|
|||
|
$7.01
– $8.00
|
99,948
|
7.50
|
1.2
|
|||
|
$8.01
– $15.00
|
17,690
|
9.71
|
2.9
|
|||
|
$15.01
– $20.00
|
18,066
|
17.66
|
4.9
|
|||
|
180,288
|
$8.23
|
1.7
|
Non-Vested
Stock
All
non-vested stock has been granted at fair market value on the date of grant and
vests either immediately or in three to five years. The Company
granted 76,789, 35,972 and 43,328 shares of non-vested stock with a total value
of $450, $782 and $798 during 2009, 2008 and 2007,
respectively. These shares were granted under the Company’s various
incentive compensation plans covering employees and non-employee
directors. Non-vested stock forfeitures totaled 8,822, 0 and 7,496
shares during 2009, 2008 and 2007, respectively. These forfeited non-vested
shares had an original fair market value at date of grant of $125, $0 and $130
respectively. Stock compensation expense, net of forfeitures, related
to the non-vested stock was $428, $711 and $596 respectively during 2009, 2008
and 2007, respectively. Non-vested stock issued and outstanding as of October 2,
2009 and October 3, 2008 totaled 105,827 and 109,277 shares, respectively,
having a gross unamortized value of $889 and $992, respectively, which will be
amortized to expense through November 2013 or adjusted for changes in future
estimated or actual forfeitures. Non-vested stock grantees may elect
to reimburse the Company for withholding taxes due as a result of the vesting of
non-vested shares by tendering a portion of the vested shares back to the
Company. Shares tendered back to the Company totaled 8,071 and 4,881
for the years ended October 2, 2009 and October 3, 2008,
respectively.
F-34
A
summary of non-vested stock activity for 2009 and 2008 related to the Company’s
plans is as follows:
| Non-vested stock at September 28, 2007 | 105,102 | $ | 17.39 | |||||
|
Non-vested
stock grants
|
35,972 | 21.75 | ||||||
|
Stock
vested
|
(31,797 | ) | (17.77 | ) | ||||
|
Non-vested
stock at October 3, 2008
|
109,277 | 18.72 | ||||||
|
Non-vested
stock grants
|
76,789 | 5.86 | ||||||
|
Non-vested
stock cancelled
|
(8,822 | ) | 14.14 | |||||
|
Restricted
stock vested
|
(71,417 | ) | 12.32 | |||||
|
Non-vested
stock at October 2, 2009
|
105,827 | $ | 14.08 |
Phantom
Stock Plan
The
Company adopted a phantom stock plan during fiscal 2003. Under this plan,
certain employees were entitled to earn cash bonus awards based upon the
performance of the Company’s Class A common stock. The Company recognized
expense under the phantom stock plan of $0, $0 and $24 during 2009, 2008 and
2007, respectively. No payments were made to participants in this plan in 2009
or 2008. The Company made payments of $319 to participants in the
plan during 2007. There were no grants of phantom shares by the Company in
fiscal 2009, 2008 or 2007 and the Company does not anticipate grants of phantom
shares in the future. No further payments are expected to be made under this
Plan.
Employee
Stock Purchase Plan
The
Company’s employees’ stock purchase plan provides for the issuance of shares of
Class A common stock at a purchase price of not less than 85% of the fair market
value of such shares on the date of grant or at the end of the offering period,
whichever is lower. Shares available for purchase by employees under this plan
were 55,764 at October 2, 2009. The Company did not issue any shares under the
plan in fiscal 2009. The Company issued 9,566 shares under the plan
on March 31, 2008. The Company recognized expense under the employees’ stock
purchase plan of $0, $29 and $31, respectively, during 2009, 2008 and
2007.
13 RELATED
PARTY TRANSACTIONS
The
Company conducts transactions with certain related parties including
organizations controlled by the Johnson family and other related parties. These
include consulting services, aviation services, office rental, royalties and
certain administrative activities. Total costs of these transactions were
$1,817, $1,889 and $1,833 for 2009, 2008 and 2007, respectively. Amounts due
to/from related parties were immaterial at October 2, 2009 and October 3,
2008.
14 SEGMENTS
OF BUSINESS
The
Company conducts its worldwide operations through separate business segments,
each of which represent major product lines. Operations are conducted in the
U.S. and various foreign countries, primarily in Europe, Canada and the Pacific
Basin.
Net sales
and operating profit include both sales to customers, as reported in the
Company’s consolidated statements of operations, and interunit transfers, which
are priced to recover costs plus an appropriate profit margin. Total assets
represent assets that are used in the Company’s operations in each business
segment at the end of the years presented.
F-35
A summary
of the Company’s operations by business segment is presented below:
|
2009
|
2008
|
2007
|
|||||||||||
|
Net
sales:
|
|||||||||||||
|
Marine Electronics:
|
Unaffiliated
customers
|
$ | 165,194 | $ | 186,534 | $ | 197,728 | ||||||
|
Interunit
transfers
|
149 | 189 | 321 | ||||||||||
|
Outdoor Equipment:
|
Unaffiliated
customers
|
41,338 | 48,247 | 55,786 | |||||||||
|
Interunit
transfers
|
49 | 68 | 76 | ||||||||||
|
Watercraft:
|
Unaffiliated
customers
|
69,271 | 87,862 | 88,632 | |||||||||
|
Interunit
transfers
|
151 | 225 | 216 | ||||||||||
|
Diving:
|
Unaffiliated
customers
|
80,250 | 97,485 | 87,881 | |||||||||
|
Interunit
transfers
|
585 | 761 | 797 | ||||||||||
|
Other/Corporate
|
470 | 660 | 577 | ||||||||||
|
Eliminations
|
(934 | ) | (1,242 | ) | (1,410 | ) | |||||||
| $ | 356,523 | $ | 420,789 | $ | 430,604 | ||||||||
|
Operating
profit (loss):
|
|||||||||||||
|
Marine Electronics
|
$ | 9,265 | $ | 414 | $ | 22,933 | |||||||
|
Outdoor Equipment
|
3,360 | 1,982 | 8,463 | ||||||||||
|
Watercraft
|
(6,149 | ) | (8,282 | ) | (4,219 | ) | |||||||
|
Diving
|
1,620 | (21,520 | ) | 6,933 | |||||||||
|
Other/Corporate
|
(7,824 | ) | (10,647 | ) | (14,084 | ) | |||||||
| $ | 272 | $ | (38,053 | ) | $ | 20,026 | |||||||
|
Depreciation
and amortization expense:
|
|||||||||||||
|
Marine Electronics
|
$ | 5,164 | $ | 4,389 | $ | 3,647 | |||||||
|
Outdoor Equipment
|
558 | 560 | 442 | ||||||||||
|
Watercraft
|
2,855 | 2,042 | 2,182 | ||||||||||
|
Diving
|
1,871 | 1,664 | 1,663 | ||||||||||
|
Other/Corporate
|
2,443 | 1,401 | 1,468 | ||||||||||
| $ | 12,891 | $ | 10,056 | $ | 9,402 | ||||||||
|
Additions
to property, plant and equipment:
|
|||||||||||||
|
Marine Electronics
|
$ | 4,800 | $ | 6,969 | $ | 6,149 | |||||||
|
Outdoor Equipment
|
2,116 | 310 | 2,615 | ||||||||||
|
Watercraft
|
195 | 2,597 | 1,832 | ||||||||||
|
Diving
|
819 | 1,519 | 1,199 | ||||||||||
|
Other/Corporate
|
391 | 1,029 | 1,623 | ||||||||||
| $ | 8,321 | $ | 12,424 | $ | 13,418 | ||||||||
Total
assets:
|
Marine Electronics
|
$ | 80,164 | $ | 89,487 | ||||
|
Outdoor Equipment
|
14,969 | 25,400 | ||||||
|
Watercraft
|
30,769 | 45,586 | ||||||
|
Diving
|
65,933 | 79,138 | ||||||
|
Other/Corporate
|
18,447 | 15,458 | ||||||
| $ | 210,282 | $ | 255,069 | |||||
|
Goodwill,
net:
|
||||||||
|
Marine Electronics
|
$ | 10,705 | $ | 10,013 | ||||
|
Outdoor Equipment
|
- | - | ||||||
|
Watercraft
|
- | 338 | ||||||
|
Diving
|
3,954 | 3,734 | ||||||
| $ | 14,659 | $ | 14,085 |
F-36
A summary
of the Company’s operations by geographic area is presented below:
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales:
|
||||||||||||
|
United
States:
|
||||||||||||
|
Unaffiliated
customers
|
$ | 254,060 | $ | 293,354 | $ | 332,830 | ||||||
|
Interarea
transfers
|
14,239 | 19,089 | 12,840 | |||||||||
|
Europe:
|
||||||||||||
|
Unaffiliated
customers
|
66,222 | 82,315 | 59,976 | |||||||||
|
Interarea
transfers
|
8,889 | 15,123 | 13,187 | |||||||||
|
Other:
|
||||||||||||
|
Unaffiliated
customers
|
36,241 | 45,119 | 37,798 | |||||||||
|
Interarea
transfers
|
1,184 | 1,259 | 2,037 | |||||||||
|
Eliminations
|
(24,312 | ) | (35,470 | ) | (28,064 | ) | ||||||
| $ | 356,523 | $ | 420,789 | $ | 430,604 | |||||||
Total
assets:
|
United
States
|
$ | 117,363 | $ | 139,024 | ||||
|
Europe
|
68,619 | 83,642 | ||||||
|
Other
|
24,300 | 32,403 | ||||||
| $ | 210,282 | $ | 255,069 | |||||
|
Long-term
assets: (1)
|
||||||||
|
United
States
|
$ | 50,576 | $ | 50,113 | ||||
|
Europe
|
13,197 | 12,303 | ||||||
|
Other
|
763 | 2,345 | ||||||
| $ | 64,536 | $ | 64,761 | |||||
|
(1)
Long-term assets consist of net property, plant and equipment, net
intangible assets, goodwill and other assets excluding deferred income
taxes.
|
||||||||
The
Company had no single customer that accounted for more than 10% of its net sales
in fiscal 2009, 2008 or 2007.
F-37
15 VALUATION
AND QUALIFYING ACCOUNTS
The
following summarizes changes to valuation and qualifying accounts for 2009, 2008
and 2007:
|
Balance
at
Beginning
of
Year
|
Additions
Charged
to
Costs
and
Expenses
|
Reserves
of
Businesses
Acquired
|
Less
Deductions
|
Balance
at
End
of
Year
|
||||||||||||||||
|
Year
ended October 2, 2009:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 2,577 | $ | 1,507 | $ | - | $ | 1,389 | $ | 2,695 | ||||||||||
|
Reserves
for inventory valuation
|
6,346 | 3,031 | - | 3,125 | 6,252 | |||||||||||||||
|
Valuation
of deferred tax assets
|
35,067 | 7,907 | - | 2,091 | 40,883 | |||||||||||||||
|
Reserves
for sales returns
|
1,557 | 1,974 | - | 2,266 | 1,265 | |||||||||||||||
|
Year
ended October 3, 2008:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 2,267 | $ | 735 | $ | 95 | $ | 520 | $ | 2,577 | ||||||||||
|
Reserves
for inventory valuation
|
4,024 | 4,010 | - | 1,688 | 6,346 | |||||||||||||||
|
Valuation
of deferred tax assets
|
3,437 | 31,630 | - | - | 35,067 | |||||||||||||||
|
Reserves
for sales returns
|
1,314 | 2,979 | 119 | 2,855 | 1,557 | |||||||||||||||
|
Year
ended September 28, 2007:
|
||||||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 2,250 | $ | 977 | $ | 39 | $ | 999 | $ | 2,267 | ||||||||||
|
Reserves
for inventory valuation
|
3,405 | 1,086 | - | 467 | 4,024 | |||||||||||||||
|
Valuation
of deferred tax assets
|
3,260 | 663 | - | 486 | 3,437 | |||||||||||||||
|
Reserves
for sales returns
|
1,023 | 2,648 | - | 2,357 | 1,314 | |||||||||||||||
16 LITIGATION
The
Company is subject to various legal actions and proceedings in the normal course
of business, including those related to product liability, intellectual property
and environmental matters. The Company is insured against loss for certain of
these matters. Although litigation is subject to many uncertainties and the
ultimate exposure with respect to these matters cannot be ascertained,
management does not believe the final outcome of any pending litigation will
have a material adverse effect on the financial condition, results of
operations, liquidity or cash flows of the Company.
On July
10, 2007, after considering the costs, risks and business distractions
associated with continued litigation, the Company reached a settlement agreement
with Confluence Holdings Corp. that ended a long-standing intellectual property
dispute between the two companies. The Company has made a claim with its
insurance carriers to recover the $4,400 settlement, plus litigation costs
(approximately $943). This matter is presently the subject of litigation in the
U.S. District Court for the Eastern District of Wisconsin. The Company is unable
to estimate the outcome of the claim with its insurance carriers, including the
amount of the insurance recovery at this time and, accordingly, has not
recorded a receivable for this matter.
17 DISCONTINUED
OPERATIONS
On
December 17, 2007, the Company’s management committed to a plan to divest the
Company’s Escape business. In accordance with the provisions of FASB ASC Topic
205 Presentation of Financial Statements, the results of operations of the
Escape business have been reported as discontinued operations in the
consolidated statements of operations for the fiscal years ended October 2,
2009, October 3, 2008, and September 28, 2007 and in the consolidated balance
sheets as of October 2, 2009 and October 3, 2008. Accordingly,
certain amounts in the 2007 consolidated statement of operations have been
reclassified from the prior year presentation. As of January 2, 2009,
the Company had completed the disposal of the Escape business.
The
Company recorded after tax income (loss) related to the discontinued Escape
business of $41, ($2,559), and ($1,315) for 2009, 2008, and 2007, respectively.
Revenues of the Escape business were $0, $206, and $1,457 for 2009, 2008, and
2007, respectively. The assets and liabilities were reported as
“Other current assets” and “Other current liabilities” in the consolidated
balance sheet as of October 3, 2008 which consisted of inventory assets of $47
and liabilities of $76 consisting primarily of reserves for customer
claims. There were no assets or liabilities related to Escape as of
October 2, 2009.
F-38
18 QUARTERLY
FINANCIAL SUMMARY (unaudited)
The
following summarizes quarterly operating results:
|
First
Quarter
|
Second
Quarter
|
Third
Quarter
|
Fourth
Quarter
|
|||||||||||||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||||||||
|
Net
sales
|
$ | 69,756 | $ | 75,967 | $ | 106,630 | $ | 121,813 | $ | 114,850 | $ | 141,243 | $ | 65,287 | $ | 81,766 | ||||||||||||||||
|
Gross
profit
|
25,106 | 29,289 | 39,968 | 46,806 | 46,095 | 55,751 | 21,613 | 27,705 | ||||||||||||||||||||||||
|
Operating
(loss) profit
|
(5,223 | ) | (4,581 | ) | 5,792 | 3,647 | 10,586 | 14,569 | (10,883 | ) | (51,688 | ) | ||||||||||||||||||||
|
(Loss)
Income from continuing
|
||||||||||||||||||||||||||||||||
|
operations
|
(6,941 | ) | (3,624 | ) | 2,465 | 782 | 8,990 | 7,887 | (14,226 | ) | (73,520 | ) | ||||||||||||||||||||
|
Income
(Loss) from discontinued
|
||||||||||||||||||||||||||||||||
|
operations,
net of income tax
|
41 | (1,066 | ) | - | (320 | ) | - | (104 | ) | - | (1,069 | ) | ||||||||||||||||||||
|
Net
(loss) income
|
(6,900 | ) | (4,690 | ) | 2,465 | 462 | 8,990 | 7,783 | (14,226 | ) | (74,589 | ) | ||||||||||||||||||||
|
(Loss)
Income from continuing
|
||||||||||||||||||||||||||||||||
|
operations
per common
|
||||||||||||||||||||||||||||||||
|
share
– Basic:
|
||||||||||||||||||||||||||||||||
|
Class
A
|
$ | (0.76 | ) | $ | (0.40 | ) | $ | 0.27 | $ | 0.09 | $ | 0.99 | $ | 0.88 | $ | (1.55 | ) | $ | (8.07 | ) | ||||||||||||
|
Class
B
|
$ | (0.76 | ) | $ | (0.40 | ) | $ | 0.27 | $ | 0.09 | $ | 0.89 | $ | 0.79 | $ | (1.55 | ) | $ | (8.07 | ) | ||||||||||||
|
Income
(Loss) from discontinued
|
||||||||||||||||||||||||||||||||
|
common
share – Basic:
|
||||||||||||||||||||||||||||||||
|
Class
A
|
$ | - | $ | (0.12 | ) | $ | - | $ | (0.04 | ) | $ | - | $ | (0.01 | ) | $ | - | $ | (0.11 | ) | ||||||||||||
|
Class
B
|
$ | - | $ | (0.12 | ) | $ | - | $ | (0.04 | ) | $ | - | $ | (0.01 | ) | $ | - | $ | (0.11 | ) | ||||||||||||
|
Net
(loss) income per common
|
||||||||||||||||||||||||||||||||
|
share
– Basic:
|
||||||||||||||||||||||||||||||||
|
Class
A
|
$ | (0.76 | ) | $ | (0.52 | ) | $ | 0.27 | $ | 0.05 | $ | 0.99 | $ | 0.87 | $ | (1.55 | ) | $ | (8.18 | ) | ||||||||||||
|
Class
B
|
$ | (0.76 | ) | $ | (0.52 | ) | $ | 0.27 | $ | 0.05 | $ | 0.89 | $ | 0.78 | $ | (1.55 | ) | $ | (8.18 | ) | ||||||||||||
|
(Loss)
Income from continuing
|
||||||||||||||||||||||||||||||||
|
operations
per common Class A
|
||||||||||||||||||||||||||||||||
|
and
B share – Dilutive
|
$ | (0.76 | ) | $ | (0.40 | ) | $ | 0.27 | $ | 0.09 | $ | 0.98 | $ | 0.85 | $ | (1.55 | ) | $ | (8.07 | ) | ||||||||||||
|
Loss
from discontinued operations
|
||||||||||||||||||||||||||||||||
|
per
common Class A and B
|
||||||||||||||||||||||||||||||||
|
share
– Dilutive
|
$ | - | $ | (0.12 | ) | $ | - | $ | (0.04 | ) | $ | - | $ | (0.01 | ) | $ | - | $ | (0.11 | ) | ||||||||||||
|
Net
(loss) income per common
|
||||||||||||||||||||||||||||||||
|
Class
A and B share – Dilutive
|
$ | (0.76 | ) | $ | (0.52 | ) | $ | 0.27 | $ | 0.05 | $ | 0.98 | $ | 0.84 | $ | (1.55 | ) | $ | (8.18 | ) | ||||||||||||
Operating
loss, loss from continuing operations, and net loss for the fourth quarter of
2008 reflect a goodwill and other intangible impairment charge of $41.0 million
recognized in that quarter. Loss from continuing operations and net
loss for the fourth quarter of 2008 also reflect a deferred tax asset valuation
allowance of $29.5 million recorded in that quarter.
Due to
changes in stock prices during the year and timing of issuance of shares, the
cumulative total of quarterly net income (loss) per share amounts may not equal
the net income per share for the year. Each of the fiscal quarters in 2009 was
thirteen weeks long. The first three fiscal quarters in 2008 were 13
weeks long with the last fiscal quarter being 14 weeks long. Fiscal quarters end
on the Friday nearest to the calendar quarter end.
F-39
19 SUBSEQUENT
EVENTS
The
Company has evaluated subsequent events through December 11, 2009, the date
which the Company’s consolidated financial statements were
issued. Subsequent events are events or transactions that occur after
the balance sheet date, but before the financial statements are
issued. Subsequent events can be one of two
types: recognized or non-recognized. Recognized subsequent
events are events or transactions that provide additional evidence about
conditions that existed at the date of the balance sheet, including estimates
inherent in the process of preparing financial
statements. Non-recognized subsequent events are events that provide
evidence about conditions that did not exist at the date of the balance sheet,
but arose before the financial statements are issued.
On
November 5, 2009, the Company closed on its Canadian asset backed credit
facility, increasing its total seasonal debt availability by $4,000 for the
period July 15th through November 15th, and by $6,000 for the period November
16th through July 14th.
F-40
Exhibit
10.30
REVOLVING
CREDIT AND SECURITY AGREEMENT
NATIONAL
CITY BANK, CANADA BRANCH
(AS
A LENDER, AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT)
WITH
JOHNSON
OUTDOORS CANADA INC.
(AS
BORROWER)
Arranged
by:
PNC
CAPITAL MARKETS LLC
(AS
LEAD ARRANGER AND SOLE BOOKRUNNER)
November
4, 2009
|
TABLE
OF CONTENTS
|
Page
|
|
DEFINITIONS
|
1
|
||
|
1.1.
|
Accounting
Terms
|
1
|
|
|
1.2.
|
General
Terms
|
1
|
|
|
1.3.
|
PPSA
Terms
|
19
|
|
|
1.4.
|
Certain
Matters of Construction
|
19
|
|
|
II.
|
ADVANCES,
PAYMENTS
|
20
|
|
|
2.1.
|
Revolving
Advances
|
20
|
|
|
2.2.
|
Procedure
for Revolving Advances Borrowing.
|
22
|
|
|
2.3.
|
Disbursement
of Advance Proceeds
|
24
|
|
|
2.4.
|
Swing
Loans
|
24
|
|
|
2.5.
|
Maximum
Advances
|
25
|
|
|
2.6.
|
Repayment
of Advances
|
25
|
|
|
2.7.
|
Repayment
of Excess Advances
|
26
|
|
|
2.8.
|
Statement
of Account
|
26
|
|
|
2.9.
|
Additional
Payments
|
26
|
|
|
2.10.
|
Manner
of Borrowing and Payment
|
26
|
|
|
2.11.
|
Mandatory
Prepayments
|
29
|
|
|
2.12.
|
Use
of Proceeds.
|
30
|
|
|
2.13.
|
Defaulting
Lender
|
30
|
|
|
III.
|
INTEREST
AND FEES
|
31
|
|
|
3.1.
|
Interest
|
31
|
|
|
3.2.
|
Facility
Fee
|
32
|
|
|
3.3.
|
Fees
|
32
|
|
|
3.4.
|
Computation
of Interest and Fees
|
33
|
|
|
3.5.
|
Maximum
Charges
|
33
|
|
|
3.6.
|
Increased
Costs
|
33
|
|
|
3.7.
|
Basis
For Determining Interest Rate Inadequate or Unfair
|
34
|
|
|
3.8.
|
Capital
Adequacy
|
34
|
|
|
3.9.
|
Gross
Up for Taxes
|
35
|
|
i
|
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
IV.
|
COLLATERAL: GENERAL
TERMS
|
36
|
|
|
4.1.
|
Security
Interest in the Collateral
|
36
|
|
|
4.2.
|
Perfection
of Security Interest
|
36
|
|
|
4.3.
|
Disposition
of Collateral
|
36
|
|
|
4.4.
|
Preservation
of Collateral
|
37
|
|
|
4.5.
|
Ownership
of Collateral
|
37
|
|
|
4.6.
|
Defense
of Agent’s and Lenders’ Interests
|
38
|
|
|
4.7.
|
Books
and Records
|
38
|
|
|
4.8.
|
Financial
Disclosure
|
38
|
|
|
4.9.
|
Compliance
with Laws
|
39
|
|
|
4.10.
|
Inspection
of Premises
|
39
|
|
|
4.11.
|
Insurance
|
39
|
|
|
4.12.
|
Failure
to Pay Insurance
|
40
|
|
|
4.13.
|
Payment
of Taxes
|
40
|
|
|
4.14.
|
Payment
of Leasehold Obligations
|
40
|
|
|
4.15.
|
Receivables
|
41
|
|
|
4.16.
|
Intentionally
Omitted
|
43
|
|
|
4.17.
|
Maintenance
of Equipment
|
43
|
|
|
4.18.
|
Exculpation
of Liability
|
43
|
|
|
4.19.
|
Environmental
Matters.
|
43
|
|
|
4.20.
|
Financing
Statements
|
45
|
|
|
4.21.
|
Security
Interest Limitations
|
45
|
|
|
V.
|
REPRESENTATIONS
AND WARRANTIES
|
46
|
|
|
5.1.
|
Authority
|
46
|
|
|
5.2.
|
Formation
and Qualification
|
46
|
|
|
5.3.
|
Survival
of Representations and Warranties
|
46
|
|
|
5.4.
|
Tax
Returns
|
47
|
|
|
5.5.
|
Intentionally
Omitted
|
47
|
|
|
5.6.
|
Entity
Names
|
47
|
|
|
5.7.
|
Environmental
Compliance
|
47
|
|
ii
|
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
5.8.
|
Solvency;
No Litigation, Violation, Indebtedness or Default
|
47
|
|
|
5.9.
|
Patents,
Trademarks, Copyrights and Licenses
|
48
|
|
|
5.10.
|
Licenses
and Permits
|
48
|
|
|
5.11.
|
Default
of Indebtedness
|
48
|
|
|
5.12.
|
No
Default
|
49
|
|
|
5.13.
|
No
Burdensome Restrictions
|
49
|
|
|
5.14.
|
No
Labour Disputes
|
49
|
|
|
5.15.
|
Intentionally
Omitted
|
49
|
|
|
5.16.
|
Intentionally
Omitted
|
49
|
|
|
5.17.
|
Disclosure
|
49
|
|
|
5.18.
|
Swaps
|
49
|
|
|
5.19.
|
Conflicting
Agreements
|
49
|
|
|
5.20.
|
Application
of Certain Laws and Regulations
|
49
|
|
|
5.21.
|
Business
and Property of Borrower
|
50
|
|
|
5.22.
|
Intentionally
Omitted
|
50
|
|
|
5.23.
|
Anti-Terrorism
Laws
|
50
|
|
|
5.24.
|
Intentionally
Omitted
|
50
|
|
|
5.25.
|
Intentionally
Omitted
|
50
|
|
|
5.26.
|
Equity
Interests
|
50
|
|
|
VI.
|
AFFIRMATIVE
COVENANTS
|
50
|
|
|
6.1.
|
Payment
of Fees
|
50
|
|
|
6.2.
|
Conduct
of Business and Maintenance of Existence and Assets
|
51
|
|
|
6.3.
|
Violations
|
51
|
|
|
6.4.
|
Government
Receivables
|
51
|
|
|
6.5.
|
Intentionally
Omitted
|
51
|
|
|
6.6.
|
Execution
of Supplemental Instruments
|
51
|
|
|
6.7.
|
Payment
of Indebtedness
|
51
|
|
|
VII.
|
NEGATIVE
COVENANTS
|
51
|
|
|
7.1.
|
Merger,
Consolidation, Acquisition and Sale of Assets
|
51
|
|
|
7.2.
|
Creation
of Liens
|
52
|
|
iii
|
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
7.3.
|
Guarantees
|
52
|
|
|
7.4.
|
Investments
|
52
|
|
|
7.5.
|
Loans
|
52
|
|
|
7.6.
|
Capital
Expenditures
|
52
|
|
|
7.7.
|
Dividends
|
52
|
|
|
7.8.
|
Indebtedness
|
53
|
|
|
7.9.
|
Nature
of Business
|
53
|
|
|
7.10.
|
Transactions
with Affiliates
|
53
|
|
|
7.11.
|
Leases
|
53
|
|
|
7.12.
|
Subsidiaries
|
53
|
|
|
7.13.
|
Fiscal
Year and Accounting Changes
|
53
|
|
|
7.14.
|
Pledge
of Credit
|
53
|
|
|
7.15.
|
Amendment
of Articles of Incorporation, By-Laws or Certificate of Formation,
Operating Agreement
|
53
|
|
|
7.16.
|
Intentionally
Omitted
|
53
|
|
|
7.17.
|
Prepayment
of Indebtedness
|
54
|
|
|
VIII.
|
CONDITIONS
PRECEDENT
|
54
|
|
|
8.1.
|
Conditions
to Initial Advances
|
54
|
|
|
8.2.
|
Conditions
to Each Advance
|
57
|
|
|
IX.
|
INFORMATION
AS TO BORROWER
|
58
|
|
|
9.1.
|
Disclosure
of Material Matters
|
58
|
|
|
9.2.
|
Schedules
|
58
|
|
|
9.3.
|
Environmental
Reports
|
58
|
|
|
9.4.
|
Litigation
|
58
|
|
|
9.5.
|
Material
Occurrences
|
58
|
|
|
9.6.
|
Government
Receivables
|
59
|
|
|
9.7.
|
Intentionally
Omitted
|
59
|
|
|
9.8.
|
Intentionally
Omitted
|
59
|
|
|
9.9.
|
Intentionally
Omitted
|
59
|
|
|
9.10.
|
Other
Reports
|
59
|
|
iv
|
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
9.11.
|
Additional
Information
|
59
|
|
|
9.12.
|
Intentionally
Omitted
|
59
|
|
|
9.13.
|
Intentionally
Omitted
|
59
|
|
|
9.14.
|
Notice
of Suits, Adverse Events
|
59
|
|
|
9.15.
|
Intentionally
Omitted
|
60
|
|
|
9.16.
|
Intentionally
Omitted
|
60
|
|
|
9.17.
|
Additional
Documents
|
60
|
|
|
X.
|
EVENTS
OF DEFAULT
|
60
|
|
|
10.1.
|
Nonpayment
|
60
|
|
|
10.2.
|
Breach
of Representation
|
60
|
|
|
10.3.
|
Financial
Information
|
60
|
|
|
10.4.
|
Judicial
Actions
|
60
|
|
|
10.5.
|
Noncompliance
|
60
|
|
|
10.6.
|
Judgments
|
60
|
|
|
10.7.
|
Bankruptcy
|
61
|
|
|
10.8.
|
Inability
to Pay
|
61
|
|
|
10.9.
|
Affiliate
Bankruptcy
|
61
|
|
|
10.10.
|
Material
Adverse Effect
|
61
|
|
|
10.11.
|
Lien
Priority
|
61
|
|
|
10.12.
|
Cross
Default
|
61
|
|
|
10.13.
|
Breach
of Guaranty
|
61
|
|
|
10.14.
|
Change
of Ownership
|
61
|
|
|
10.15.
|
Invalidity
|
62
|
|
|
10.16.
|
Licenses
|
62
|
|
|
10.17.
|
Seizures
|
62
|
|
|
10.18.
|
Operations
|
62
|
|
|
10.19.
|
U.S.
Loan Documents
|
62
|
|
|
XI.
|
LENDERS’
RIGHTS AND REMEDIES AFTER DEFAULT
|
63
|
|
|
11.1.
|
Rights
and Remedies
|
63
|
|
|
11.2.
|
Agent’s
Discretion
|
64
|
|
v
|
TABLE
OF CONTENTS
(continued)
|
Page
|
||
|
11.3.
|
Setoff
|
64
|
|
|
11.4.
|
Rights
and Remedies not Exclusive
|
65
|
|
|
11.5.
|
Allocation
of Payments After Event of Default
|
65
|
|
|
XII.
|
WAIVERS
AND JUDICIAL PROCEEDINGS
|
66
|
|
|
12.1.
|
Waiver
of Notice
|
66
|
|
|
12.2.
|
Delay
|
66
|
|
|
12.3.
|
Jury
Waiver
|
66
|
|
|
XIII.
|
EFFECTIVE
DATE AND TERMINATION
|
66
|
|
|
13.1.
|
Term
|
66
|
|
|
13.2.
|
Termination
|
66
|
|
|
XIV.
|
REGARDING
AGENT
|
67
|
|
|
14.1.
|
Appointment
|
67
|
|
|
14.2.
|
Nature
of Duties
|
67
|
|
|
14.3.
|
Lack
of Reliance on Agent and Resignation
|
68
|
|
|
14.4.
|
Certain
Rights of Agent
|
68
|
|
|
14.5.
|
Reliance
|
69
|
|
|
14.6.
|
Notice
of Default
|
69
|
|
|
14.7.
|
Indemnification
|
69
|
|
|
14.8.
|
Agent
in its Individual Capacity
|
69
|
|
|
14.9.
|
Delivery
of Documents
|
69
|
|
|
14.10.
|
Borrower’s
Undertaking to Agent
|
70
|
|
|
14.11.
|
No
Reliance on Agent’s Customer Identification Program
|
70
|
|
|
14.12.
|
Other
Agreements
|
70
|
|
|
XV.
|
BORROWING
AGENCY. INTENTIONALLY OMITTED
|
70
|
|
|
XVI.
|
MISCELLANEOUS
|
70
|
|
|
16.1.
|
Governing
Law
|
70
|
|
|
16.2.
|
Entire
Understanding.
|
71
|
|
|
16.3.
|
Successors
and Assigns; Participations; New Lenders
|
73
|
|
|
16.4.
|
Application
of Payments
|
75
|
|
|
16.5.
|
Indemnity
|
75
|
|
vi
| TABLE
OF CONTENTS
(continued)
|
|||
|
16.6.
|
Notice
|
76
|
|
|
16.7.
|
Survival
|
79
|
|
|
16.8.
|
Severability
|
79
|
|
|
16.9.
|
Expenses
|
79
|
|
|
16.10.
|
Currency
Indemnity
|
79
|
|
|
16.11.
|
Injunctive
Relief
|
80
|
|
|
16.12.
|
Consequential
Damages
|
80
|
|
|
16.13.
|
Captions
|
80
|
|
|
16.14.
|
Counterparts;
Facsimile Signatures
|
80
|
|
|
16.15.
|
Construction
|
80
|
|
|
16.16.
|
Confidentiality;
Sharing Information
|
80
|
|
|
16.17.
|
Publicity
|
80
|
vii
LIST OF
EXHIBITS AND SCHEDULES
|
Exhibits
|
|||
|
Exhibit
1.2
|
Borrowing
Base Certificate
|
||
|
Exhibit
1.2(a)
|
U.S.
Loan Agreement
|
||
|
Exhibit
1.2(b)
|
Perfection
Certificate
|
||
|
Exhibit
2.1(a)
|
Form
of Revolving Credit Note
|
||
|
Exhibit
2.4(a)
|
Swing
Loan Note
|
||
|
Exhibit
2.4(b)
|
Swing
Loan Request
|
||
|
Exhibit
8.1(k)
|
Financial
Condition Certificate
|
||
|
Exhibit
16.3
|
Commitment
Transfer Supplement
|
||
|
Schedules
|
|||
|
Schedule
1.2
|
Permitted
Encumbrances
|
||
|
Schedule
4.5
|
Equipment
and Inventory Locations
|
||
|
Schedule
4.15(g)
|
Deposit
and Investment Accounts
|
||
|
Schedule
4.19
|
Real
Property
|
||
|
Schedule
5.1
|
Consents
|
||
|
Schedule
5.2(a)
|
Jurisdictions
of Qualification and Good Standing
|
||
|
Schedule
5.6
|
Prior
Names
|
||
|
Schedule
5.8(b)
|
Litigation
|
||
|
Schedule
5.9
|
Intellectual
Property, Source Code Escrow Agreements
|
||
|
Schedule
5.10
|
Licenses
and Permits
|
||
|
Schedule
5.14
|
Labour
Disputes
|
||
|
Schedule
7.3
|
Guarantees
|
i
REVOLVING
CREDIT
AND
SECURITY
AGREEMENT
Revolving
Credit and Security Agreement dated as of November 4, 2009 among JOHNSON
OUTDOORS CANADA INC., a Canadian corporation, (“Borrower”), the financial
institutions which are now or which hereafter become a party hereto
(collectively, the “Lenders” and each individually a “Lender”) and NATIONAL
CITY BANK, CANADA BRANCH (“NCB”), as administrative agent and collateral
agent for Lenders (NCB, in such capacity, the “Agent”).
IN
CONSIDERATION of the mutual covenants and undertakings herein contained,
Borrower, Lenders and Agent hereby agree as follows:
I.
DEFINITIONS.
1.1.
Accounting
Terms. As used in this Agreement, the Other Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP as applied in preparation of the
audited financial statements of Borrower for the fiscal year ended October 3,
2008.
1.2.
General
Terms. For purposes of this Agreement the following terms
shall have the following meanings:
“Advance Rates” shall
have the meaning set forth in Section 2.1(a)(y)(iii).
“Advances” shall mean
and include the Revolving Advances and the Swing Loans, and any portion(s)
thereof.
“Affiliate” of any
Person shall mean (a) any other Person which, directly or indirectly, is in
control of, is controlled by, or is under common control with such Person, or
(b) any Person who is a director, managing member, general partner or senior
officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this
definition, control of a Person shall mean the power, direct or indirect, (x) to
vote 5% or more of the Equity Interests having ordinary voting power for the
election of directors of such Person or other Persons performing similar
functions for any such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by ownership of Equity Interests,
contract or otherwise.
“Agent” shall have the
meaning set forth in the preamble to this Agreement and shall include its
successors and permitted assigns.
1
“Agreement” shall mean
this Revolving Credit and Security Agreement, as the same may be amended,
restated, supplemented or otherwise modified from time to time.
“Alternate Base Rate”
shall mean, for any day, a rate per annum equal to the highest of (i) the Base
Rate in effect on such day, (ii) the Federal Funds Open Rate in effect on such
day plus one
half of one-percent (1/2 of 1%), and (iii) the sum of the Daily LIBOR Rate in
effect on such day plus one percent
(1.0%), so long as a Daily LIBOR Rate is offered, ascertainable and not
unlawful
“Anti-Terrorism Laws”
shall mean any Applicable Laws relating to terrorism or money laundering,
including The Proceeds of
Crime (Money Laundering) and Terrorist Financing Act
(Canada) (as any of the foregoing Applicable Laws may from time to time be
amended, renewed, extended, or replaced).
“Applicable Law” shall
mean all laws, rules and regulations applicable to the Person, conduct,
transaction, covenant, Other Document or contract in question, including all
applicable common law and equitable principles; all applicable provisions of all
applicable state, provincial, federal and foreign constitutions, statutes,
rules, regulations and orders of any Governmental Body, and all orders,
judgments and decrees of all courts and arbitrators.
“Authority” shall have
the meaning set forth in Section 4.19(d) hereof.
“Base Rate” shall mean
the annual rate of interest announced by Agent from time to time as a reference
rate then in effect for determining interest rates on commercial loans made in
U.S. currency in Canada to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate. This rate of interest is determined from time to time by
NCB as a means of pricing some loans to its customers and is neither tied to any
external rate of interest or index nor does it necessarily reflect the lowest
rate of interest actually charged by NCB to any particular class or category of
customers of NCB.
“Base Rate Loan” shall
mean any Advance that bears interest based upon the Alternate Base
Rate.
“Blocked Accounts”
shall have the meaning set forth in Section 4.15(g) hereof.
“Blocked Account Bank”
shall have the meaning set forth in Section 4.15(g) hereof.
“Borrower” shall have
the meaning set forth in the preamble to this Agreement and shall extend to all
permitted successors and assigns of such Person.
“Borrower’s Account”
shall have the meaning set forth in Section 2.8.
“Borrowing Base
Certificate” shall mean a certificate in substantially the form of
Exhibit 1.2 duly executed by any one director or officer of Borrower and
delivered to Agent, appropriately completed, by which such officer shall certify
to Agent the Formula Amount and calculation thereof as of the date of such
certificate.
2
“Business Day” shall
mean any day other than Saturday or Sunday or a legal holiday on which
commercial banks are authorized or required by law to be closed for business in
East Brunswick, New Jersey, Toronto, Ontario or Vancouver, British Columbia and,
if the applicable Business Day relates to any Eurodollar Rate Loans, such day
must also be a day on which dealings are carried on in the London interbank
market.
“Canadian Dollars” or
“C$” shall mean
lawful money of Canada.
“Capital Expenditures”
shall mean expenditures made or liabilities incurred for the acquisition of any
fixed assets or improvements, replacements, substitutions or additions thereto
which have a useful life of more than one year, including the total principal
portion of Capitalized Lease Obligations, which, in accordance with GAAP, would
be classified as capital expenditures.
“Capitalized Lease
Obligation” shall mean any Indebtedness of Borrower represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
“Change of Ownership”
shall mean (a) 99% or more of the voting Equity Interests of any direct or
indirect Subsidiary of JOI is no longer owned directly or indirectly (on a fully
diluted basis) by JOI, (b) 50% or more of the voting Equity Interests of JOI is
no longer owned directly or indirectly (on a fully diluted basis) by the Johnson
Family, (c) from and after the date hereof, individuals who on the date hereof
constitute the board of directors of JOI (together with any new directors whose
election by such board of directors or whose nomination for election by the
shareholders of JOI was approved by a vote of a majority of the directors then
still in office who were either directors on the date hereof or whose election
or nomination for election was previously approved) cease for any reason to
constitute a majority of the board of directors of JOI then in office; or (d)
any merger, consolidation or sale of substantially all of the property or assets
of Borrower or any direct or indirect Subsidiary of Borrower except as permitted
by Section 7.1.
“Charges” shall mean
all taxes, charges, fees, imposts, levies or other assessments, including all
net income, gross income, gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, inventory, capital stock, license, withholding,
payroll, employment, social security, unemployment, excise, severance, stamp,
occupation and property taxes, custom duties, fees, assessments, liens, claims
and charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts, imposed by any taxing or
other authority, domestic or foreign, upon the Collateral, Borrower or any of
its Affiliates.
“Closing Date” shall
mean November 4, 2009 or such other date as may be agreed to by the parties
hereto.
“Collateral” shall
mean and include:
(a) all
Receivables;
(b) all
Equipment;
3
(c) all
General Intangibles;
(d) all
Inventory;
(e) all
Investment Property;
(f) all of
Borrower’s right, title and interest in and to, whether now owned or hereafter
acquired and wherever located; (i) its respective goods and other property
including, but not limited to, all merchandise returned or rejected by
Customers, relating to or securing any of the Receivables; (ii) all of
Borrower’s rights as a consignor, a consignee, an unpaid vendor, mechanic,
artisan, or other lienor, including stoppage in transit, setoff, detinue,
replevin, reclamation and repurchase; (iii) all additional amounts due to
Borrower from any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing the Obligations; (v)
all of Borrower’s contract rights, rights of payment which have been earned
under a contract right, instruments (including promissory notes), documents,
chattel paper (including electronic chattel paper), warehouse receipts, deposit
accounts, letters of credit and money; (vi) if and when obtained by Borrower,
all real and personal property of third parties in which Borrower has been
granted a lien or security interest as security for the payment or enforcement
of Receivables; (vii) all letter of credit rights (whether or not the respective
letter of credit is evidenced by a writing); (viii) all supporting obligations;
and (ix) any other goods, personal property or real property now owned or
hereafter acquired in which Borrower has expressly granted a security interest
or may in the future grant a security interest to Agent hereunder, or in any
amendment or supplement hereto or thereto, or under any other agreement between
Agent and Borrower;
(g) all of
Borrower’s ledger sheets, ledger cards, files, correspondence, records, books of
account, business papers, computers, computer software (owned by Borrower or in
which it has an interest), computer programs, tapes, disks and documents
relating to (a), (b), (c), (d), (e), (f) or (g) of this paragraph;
and
(h) all
proceeds and products of (a), (b), (c), (d), (e), (f), (g) and (h) in whatever
form, including, but not limited to: cash, deposit accounts (whether
or not comprised solely of proceeds), certificates of deposit, insurance
proceeds (including hazard, flood and credit insurance), negotiable instruments
and other instruments for the payment of money, chattel paper, security
agreements, documents, eminent domain proceeds, condemnation proceeds and tort
claim proceeds.
“Commitment
Percentage” of any Lender shall mean the percentage set forth below such
Lender’s name on the signature page hereof as same may be adjusted upon any
assignment by a Lender pursuant to Section 16.3(c) or (d) hereof.
“Commitment Transfer
Supplement” shall mean a document in the form of Exhibit 16.3 hereto,
properly completed and otherwise in form and substance satisfactory to Agent by
which the Purchasing Lender purchases and assumes a portion of the obligation of
Lenders to make Advances under this Agreement.
“Consents” shall mean
all filings and all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Governmental Bodies and other third
parties,
4
domestic
or foreign, necessary to carry on Borrower’s business or necessary (including to
avoid a conflict or breach under any agreement, instrument, other document,
license, permit or other authorization) for the execution, delivery or
performance of this Agreement, the Other Documents or the Subordinated Loan
Documentation, including any Consents required under all applicable federal,
state, provincial or other Applicable Law.
“Consigned Inventory”
shall mean Inventory of Borrower that is in the possession of another Person on
a consignment, sale or return, or other basis that does not constitute a final
sale and acceptance of such Inventory.
“Contract Rate” shall
have the meaning set forth in Section 3.1 hereof.
“Customer” shall mean
and include the account debtor with respect to any Receivable and/or the
prospective purchaser of goods, services or both with respect to any contract or
contract right, and/or any party who enters into or proposes to enter into any
contract or other arrangement with Borrower, pursuant to which Borrower is to
deliver any personal property or perform any services.
“Daily LIBOR Rate”
shall mean, for any day, the rate per annum determined by Agent by dividing (x)
the Published Rate by (y) a number equal to 1.00 minus the Reserve
Percentage.
“Dating Receivables Advance
Rate” shall have the meaning set forth in Section 2.1(a)(y)(ii)
hereof.
“Debt Payments” shall
mean and include for any period, and without duplication (a) all cash
actually expended by Borrower to make interest payments on any Advances
hereunder, plus
(b) all cash actually expended by Borrower to make payments for all fees,
commissions and charges set forth herein and with respect to any Advances, plus (c) all cash
actually expended by Borrower to make payments on Capitalized Lease Obligations,
plus (d)
without duplication all cash actually expended by Borrower to make payments
under any Plan to which Borrower is a party, plus (e) all cash
actually expended by Borrower to make payments with respect to any other
Indebtedness for borrowed money, plus (f) all cash
expended by Borrower to make a prepayment of Revolving Advances to the extent
that the Maximum Revolving Advance Amount is permanently reduced by the amount
of such prepayment.
“Default” shall mean
an event, circumstance or condition which, with the giving of notice or passage
of time or both, would constitute an Event of Default.
“Default Rate” shall
have the meaning set forth in Section 3.1 hereof.
“Defaulting Lender”
shall have the meaning set forth in Section 2.13(a) hereof.
“Depository Accounts”
shall have the meaning set forth in Section 4.15(g) hereof.
“Designated Lender”
shall have the meaning set forth in Section 16.2(b) hereof.
“Documents” shall have
the meaning set forth in Section 8.1(c) hereof.
5
“Dollar” and the sign
“$” shall mean
lawful money of the United States of America.
“Early Termination
Date” shall have the meaning set forth in Section 13.1
hereof.
“Eligible Dating
Receivables” shall mean a Receivable in the watercraft and marine
equipment business line of Borrower which is not an Eligible Receivable as a
result of Subsection (b) of the definition of Eligible Receivables (but which
would otherwise constitute an Eligible Receivable by Agent) and for which
Borrower has provided extended terms to such Customer under a written dating
program acceptable to Agent and such Receivable is not unpaid more than thirty
(30) days after the original due date under such dating program; provided
further that no Receivables shall constitute Eligible Dating Receivables if such
Receivable is due more than 365 days after its original invoice
date.
“Eligible Inventory”
shall mean and include Inventory, excluding work in process, with respect to
Borrower, valued at the lower of cost or market value, determined on a
first-in-first-out basis, which is not, in Agent’s Permitted Discretion,
obsolete, slow moving or unmerchantable and which Agent, in its Permitted
Discretion, shall not deem ineligible Inventory, based on such considerations as
Agent may from time to time deem appropriate including whether the Inventory is
subject to a perfected, first priority security interest in favor of Agent and
no other Lien (other than a Permitted Encumbrance). In addition,
Inventory shall not be Eligible Inventory if it (i) does not conform to all
applicable standards imposed by any Governmental Body which has regulatory
authority over such goods or the use or sale thereof, (ii) is in transit, (iii)
is located outside the continental United States or Canada or at a location that is
not otherwise in compliance with this Agreement, (iv) constitutes Consigned
Inventory, (v) is the subject of an Intellectual Property Claim which is
reasonably likely to prohibit Borrower from selling such Inventory in the
Ordinary Course of Business or Agent from selling such Inventory in the exercise
of its remedies hereunder; (vi) is subject to a License Agreement or other
agreement that limits, conditions or restricts Borrower’s or Agent’s right to
sell or otherwise dispose of such Inventory, unless Agent is a party to a
Licensor/Agent Agreement with the Licensor under such License Agreement or Agent
has established reserves in an amount determined necessary by Agent in its
Permitted Discretion and Agent is otherwise satisfied that it may sell or
otherwise dispose of such Inventory without (a) infringing the rights of such
Licensor, (b) violating any contract with such Licensor, or (c) incurring any
liability with respect to payment of royalties other than royalties incurred
pursuant to sale of such Inventory under the current License Agreement or such
other License Agreements as are approved by the Agent in its Permitted
Discretion; (vii) is situated at a location not owned by Borrower unless the
owner or occupier of such location has executed in favor of Agent a Lien Waiver
Agreement or Agent has instituted a rent reserve in an amount equal to three
months rent for such location; or (viii) if the sale of such Inventory would
result in an ineligible Receivable.
“Eligible Receivables”
shall mean and include with respect to Borrower, each Receivable of Borrower
arising in the Ordinary Course of Business and which Agent, in its Permitted
Discretion, shall deem to be an Eligible Receivable, based on such
considerations as Agent may from time to time reasonably deem
appropriate. A Receivable shall not be deemed eligible unless such
Receivable is subject to Agent’s first priority perfected security interest and
no other Lien (other than Permitted Encumbrances), and is evidenced by an
invoice or other documentary evidence satisfactory to Agent. In
addition, no Receivable shall be an Eligible Receivable if:
6
(a)
it arises out of a sale made by Borrower to an Affiliate of Borrower or to a
Person controlled by an Affiliate of Borrower;
(b) it is due
or unpaid more than sixty (60) days after the original due date or one hundred
(120) days after the original invoice date;
(c) fifty
percent (50%) or more of the Receivables from such Customer are not deemed
Eligible Receivables hereunder (such percentage may, from time to time, be
decreased in Agent’s Permitted Discretion, or be increased upon the consent of
Required Lenders);
(d) any
covenant, representation or warranty contained in this Agreement with respect to
such Receivable has been breached;
(e) the
Customer shall (i) apply for, suffer, or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or call a meeting of its
creditors, (ii) admit in writing its inability, or be generally unable, to pay
its debts as they become due or cease operations of its present business, (iii)
make a general assignment for the benefit of creditors, (iv) commence a
voluntary case or proceeding under any state, federal, or Canadian bankruptcy
laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) take any action for the purpose of effecting any
of the foregoing;
(f) the sale
is to a Customer outside the continental United States of America or Canada,
unless the sale is on letter of credit, guaranty or acceptance terms, in each
case acceptable to Agent in its Permitted Discretion;
(g) the sale
to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment or any other repurchase or return basis or is evidenced by
chattel paper;
(h) Agent
determines, in the exercise of its Permitted Discretion, that collection of such
Receivable is insecure or that such Receivable may not be paid by reason of the
Customer’s financial inability to pay;
(i) the
Customer is the United States of America, any state, the federal government of
Canada, the government of any province or territory of Canada or any department,
agency or instrumentality of any of them, unless the Borrower assigns its right
to payment of such Receivable to Agent pursuant to the Assignment of Claims Act
of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C.
Sub-Section 15 et seq.) or the Financial Administration Act (Canada) or has
otherwise complied with other applicable statutes or ordinances;
(j) the goods
giving rise to such Receivable have not been delivered to and accepted by the
Customer or the services giving rise to such Receivable have not been
performed by the
Borrower and accepted by the Customer or the Receivable otherwise does not
represent a final sale;
7
(k) the
Receivables of the Customer exceed a credit limit determined by Agent, in the
exercise of its Permitted Discretion, to the extent such Receivable exceeds such
credit limit provided Borrower has received prior written notice of such credit
limit;
(l) the
Receivable is subject to any offset, deduction, defense, dispute, or
counterclaim (provided such Receivable shall be ineligible only to the extent of
such offset, deduction, defense or counterclaim), the Customer is also a
creditor or supplier of Borrower (unless such Customer has provided a non-offset
agreement acceptable to Agent) or the Receivable is contingent in any respect or
for any reason;
(m) the
Borrower has made any agreement with any Customer for any deduction therefrom,
except for discounts or allowances made in the Ordinary Course of Business for
prompt payment, all of which discounts or allowances are reflected in the
calculation of the face value of each respective invoice related
thereto;
(n) any
return, rejection or repossession of the merchandise has occurred (provided such
Receivable shall be ineligible only to the extent of the amount billed for
returned, rejected or repossessed merchandise) or the rendition of services has
been disputed;
(o) such
Receivable is not payable to Borrower; or
(p) such
Receivable is not otherwise satisfactory to Agent as determined in good faith by
Agent in the exercise of its Permitted Discretion.
“Environmental
Complaint” shall have the meaning set forth in Section 4.19(d)
hereof.
“Environmental Laws”
shall mean all applicable, Canadian, federal, provincial and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and legally enforceable rules, regulations, policies, guidelines,
interpretations, decisions, orders and directives of federal, provincial and
local governmental agencies and authorities with respect thereto.
“Equipment” shall mean
and include as to Borrower all of Borrower’s goods (other than Inventory)
whether now owned or hereafter acquired and wherever located including all
equipment, machinery, apparatus, motor vehicles, fittings, furniture,
furnishings, fixtures, parts, accessories and all replacements and substitutions
therefor or accessions thereto.
“Equity Interests” of
any Person shall mean any and all shares, rights to purchase, options, warrants,
general, limited or limited liability partnership interests, member interests,
participation or other equivalents of or interest in (regardless of how
designated) equity of such Person, whether voting or nonvoting, including common
stock, preferred stock, convertible securities or any other “equity
security”.
8
“Eurodollar Rate”
shall mean for any Eurodollar Rate Loan for the then current Interest Period
relating thereto, the interest rate per annum determined by Agent by dividing
(the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of
1% per annum) (i) the rate which appears on the Bloomberg Page BBAM1 (or on such
other substitute Bloomberg page that displays rates at which US dollar deposits
are offered by leading banks in the London interbank deposit market), or the
rate which is quoted by another source selected by Agent which has been approved
by the British Bankers’ Association as an authorized information vendor for the
purpose of displaying rates at which U.S. dollar deposits are offered by leading
banks in the London interbank deposit market (an “Alternate Source”), at
approximately 11:00 a.m., London time, two (2) Business Days prior to the
commencement of such Interest Period as the London interbank offered rate for
U.S. Dollars for an amount comparable to such Eurodollar Rate Loan and having a
borrowing date and a maturity comparable to such Interest Period (or if there
shall at any time, for any reason, no longer exist a Bloomberg Page BBAM1 (or
any substitute page) or any Alternate Source, a comparable replacement rate
determined by Agent at such time (which determination shall be conclusive absent
manifest error)), by (ii) a number equal 1.00 minus the Reserve Percentage. The
Eurodollar Rate may also be expressed by the following formula:
|
Average
of London interbank offered rates quoted by Bloomberg
or appropriate Successor as shown on
|
|
|
Eurodollar
Rate =
|
Bloomberg Page BBAM1
1.00
- Reserve Percentage
|
The
Eurodollar Rate shall be adjusted with respect to any Eurodollar Rate Loan that
is outstanding on the effective date of any change in the Reserve Percentage as
of such effective date. Agent shall give prompt notice to Borrower of
the Eurodollar Rate as determined or adjusted in accordance herewith, which
determination shall be conclusive absent manifest error.
“Eurodollar Rate Loan”
shall mean an Advance at any time that bears interest based on the Eurodollar
Rate.
“Event of Default”
shall have the meaning set forth in Article X hereof.
“Federal Funds Effective
Rate” for any day shall mean the rate per annum (based on a year of 360
days and actual days elapsed and rounded upward to the nearest 1/100th of
1%) announced by the Federal Reserve Bank of New York (or any successor) on such
day as being the weighted average of the rates on overnight federal funds
transactions arranged by federal funds brokers on the previous trading day, as
computed and announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the “Federal Funds Effective
Rate” as of the date of this Agreement; provided, if such Federal Reserve Bank
(or its successor) does not announce such rate on any day, the “Federal Funds
Effective Rate” for such day shall be the Federal Funds Effective Rate for the
last day on which such rate was announced.
“Federal Funds Open
Rate” for any day shall mean the rate per annum (based on a year of 360
days and actual days elapsed) which is the daily federal funds open rate as
quoted by ICAP North America, Inc. (or any successor) as set forth on the
Bloomberg Screen BTMM for
9
that day
opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that
displays such rate), or as set forth on such other recognized electronic source
used for the purpose of displaying such rate as selected by NCB (an “Alternate
Source”) (or if such rate for such day does not appear on the Bloomberg Screen
BTMM (or any substitute screen) or on any Alternate Source, or if there shall at
any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any
substitute screen) or any Alternate Source, a comparable replacement rate
determined by the NCB at such time (which determination shall be conclusive
absent manifest error); provided however, that if such day is not a Business
Day, the Federal Funds Open Rate for such day shall be the “open” rate on the
immediately preceding Business Day. If and when the Federal Funds
Open Rate changes, the rate of interest with respect to any advance to which the
Federal Funds Open Rate applies will change automatically without notice to
Borrower, effective on the date of any such change.
“Formula Amount” shall
have the meaning set forth in Section 2.1(a).
“GAAP” shall mean
generally accepted accounting principles in the United States of America in
effect from time to time.
“General Intangibles”
shall mean and include as to Borrower all of Borrower’s general intangibles,
whether now owned or hereafter acquired, including all payment intangibles, all
choses in action, causes of action, corporate or other business records,
inventions, designs, patents, patent applications, equipment formulations,
manufacturing procedures, quality control procedures, trademarks, trademark
applications, service marks, trade secrets, goodwill, copyrights, design rights,
software, computer information, source codes, codes, records and updates,
registrations, licenses, franchises, customer lists, tax refunds, tax refund
claims, computer programs, all claims under guaranties, security interests or
other security held by or granted to Borrower to secure payment of any of the
Receivables by a Customer (other than to the extent covered by Receivables) all
rights of indemnification and all other intangible property of every kind and
nature (other than Receivables).
“Governmental Body”
shall mean any nation or government, any state or province or other political
subdivision thereof or any entity, authority, agency, division or department
exercising the legislative, judicial, regulatory or administrative functions of
or pertaining to a government.
“Guarantor” shall mean
any Person who may hereafter guarantee payment or performance of the whole or
any part of the Obligations and “Guarantors” means collectively all such
Persons.
“Guarantor Security
Agreement” shall mean any security agreement executed by any Guarantor in
favor of Agent securing the Obligations or the Guaranty of such
Guarantor.
“Guaranty” shall mean
any guaranty of the obligations of Borrower executed by a Guarantor in favor of
Agent for its benefit and for the ratable benefit of Lenders.
“Hazardous Discharge”
shall have the meaning set forth in Section 4.19(d) hereof.
10
“Hazardous Substance”
shall mean, without limitation, any flammable explosives, radon, radioactive
materials, asbestos, urea formaldehyde foam insulation, polychlorinated
biphenyls, petroleum and petroleum products, methane, hazardous materials,
Hazardous Wastes, hazardous or Toxic Substances or related materials as defined
in any applicable Environmental Law and in the regulations adopted pursuant
thereto. Notwithstanding the foregoing, “Hazardous Substances” shall
not include commercially reasonable amounts of such materials used in the
Ordinary Course of Business which are used and stored in accordance with
Environmental Laws.
“Hazardous Wastes”
shall mean all waste materials subject to regulation under any applicable
Environmental Laws.
“Hedge Liabilities”
shall have the meaning provided in the definition of “Lender-Provided Interest
Rate Hedge”.
“Indebtedness” of a
Person at a particular date shall mean all obligations of such Person which in
accordance with GAAP would be classified upon a balance sheet as liabilities
(except capital stock and surplus earned or otherwise) and in any event, without
limitation by reason of enumeration, shall include all indebtedness, debt and
other similar monetary obligations of such Person whether direct or guaranteed,
and all premiums, if any, due at the required prepayment dates of such
indebtedness, and all indebtedness secured by a Lien on assets owned
by such Person, whether or not such indebtedness actually shall have been
created, assumed or incurred by such Person. Any indebtedness of such
Person resulting from the acquisition by such Person of any assets subject to
any Lien shall be deemed, for the purposes hereof, to be the equivalent of the
creation, assumption and incurring of the indebtedness secured thereby, whether
or not actually so created, assumed or incurred.
“Intellectual
Property” shall mean property constituting under any Applicable Law a
patent, patent application, copyright, trademark, service mark, trade name, mask
work, trade secret or license or other right to use any of the
foregoing.
“Intellectual Property
Claim” shall mean the assertion by any Person of a claim (whether
asserted in writing, by action, suit or proceeding or otherwise) that Borrower’s
ownership, use, marketing, sale or distribution of any Inventory, Equipment,
Intellectual Property or other property or asset is violative of any ownership
of or right to use any Intellectual Property of such Person.
“Intercompany Loan”
shall mean temporary loans provided by the Borrower to JOI from time to
time.
“Interest Period”
shall mean the period provided for any Eurodollar Rate Loan pursuant to Section
2.2(b) hereof.
“Interest Rate Hedge”
shall mean an interest rate exchange, collar, cap, swap, adjustable strike cap,
adjustable strike corridor or similar agreements entered into by Borrower or its
Subsidiaries in order to provide protection to, or minimize the impact upon,
Borrower, any Guarantor and/or their respective Subsidiaries of increasing
floating rates of interest applicable to Indebtedness.
11
“Inventory” shall mean
and include as to Borrower all of Borrower’s now owned or hereafter acquired
goods, merchandise and other personal property, wherever located, to be
furnished under any consignment arrangement, contract of service or held for
sale or lease, all raw materials, work in process, finished goods and materials
and supplies of any kind, nature or description which are or might be used or
consumed in Borrower’s business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.
“Inventory Advance
Rate” shall have the meaning set forth in Section 2.1(a)(y)(iii)
hereof.
“Investment Property”
shall mean and include as to Borrower, all of Borrower’s now owned or hereafter
acquired securities (whether certificated or uncertificated), securities
entitlements, securities accounts, commodities contracts and commodities
accounts.
“Johnson Family” shall
mean at any time, collectively, the estate of Samuel C. Johnson, the widow of
Samuel C. Johnson and the children and grandchildren of Samuel C. Johnson, the
executor or administrator of the estate or other legal representative of any
such Person, all trusts for the benefit of the foregoing or their heirs or any
one or more of them, and all partnerships, corporations or other entities
directly or indirectly controlled by the foregoing or any one or more of
them.
“JOI” shall mean
Johnson Outdoors Inc., a Wisconsin corporation.
“Leasehold Interests”
shall mean all of Borrower’s right, title and interest in and to, and as lessee,
of the premises identified on Schedule 4.19(A) hereto.
“Lender” and “Lenders” shall have
the meaning ascribed to such term in the preamble to this Agreement and shall
include each Person which becomes a transferee, successor or assign of any
Lender.
“Lender-Provided Interest
Rate Hedge” shall mean an Interest Rate Hedge which is provided by any
Lender and with respect to which Agent confirms meets the following
requirements: such Interest Rate Hedge (i) is documented in a standard
International Swap Dealer Association Agreement, (ii) provides for the method of
calculating the reimbursable amount of the provider’s credit exposure in a
reasonable and customary manner, and (iii) is entered into for hedging (rather
than speculative) purposes. The liabilities of Borrower to the
provider of any Lender-Provided Interest Rate Hedge (the “Hedge Liabilities”)
shall be “Obligations” hereunder, guaranteed obligations under the Guaranty and
secured obligations under the Guarantor Security Agreement and otherwise treated
as Obligations for purposes of each of the Other Documents. The Liens securing
the Hedge Liabilities shall be pari passu with the Liens securing all other
Obligations under this Agreement and the Other Documents.
“License Agreement”
shall mean any agreement between Borrower and a Licensor pursuant to which
Borrower is authorized to use any Intellectual Property in connection with the
manufacturing, marketing, sale or other distribution of any Inventory of
Borrower or otherwise in connection with Borrower’s business
operations.
12
“Licensor” shall mean
any Person from whom Borrower obtains the right to use (whether on an exclusive
or non-exclusive basis) any Intellectual Property in connection with Borrower’s
manufacture, marketing, sale or other distribution of any Inventory or otherwise
in connection with Borrower’s business operations.
“Licensor/Agent
Agreement” shall mean an agreement between Agent and a Licensor, in form
and content satisfactory to Agent, by which Agent is given the unqualified
right, vis-à-vis such Licensor, to enforce Agent’s Liens with respect to and to
dispose of Borrower’s Inventory with the benefit of any Intellectual Property
applicable thereto, irrespective of Borrower’s default under any License
Agreement with such Licensor.
“Lien” shall mean any
mortgage, deed of trust, pledge, hypothecation, assignment, security interest,
lien (whether statutory or otherwise), Charge, claim or encumbrance, or
preference, priority or other security agreement or preferential arrangement
held or asserted in respect of any asset of any kind or nature whatsoever
including any conditional sale or other title retention agreement, any lease
having substantially the same economic effect as any of the foregoing, and the
filing of, or agreement to give, any financing statement under the PPSA or
comparable law of any jurisdiction.
“Lien Waiver
Agreement” shall mean an agreement which is executed in favor of Agent by
a Person who owns or occupies premises at which any Collateral may be located
from time to time and by which such Person shall waive or subordinate any Lien
that such Person may ever have with respect to any of the Collateral and shall
authorize Agent from time to time to enter upon the premises to inspect or
remove the Collateral from such premises or to use such premises to store or
dispose of such Inventory.
“Material Adverse
Effect” shall mean a material adverse effect on (a) the condition
(financial or otherwise), results of operations, assets, business, properties or
prospects of Borrower taken as a whole, (b) Borrower’s ability to duly and
punctually pay or perform the Obligations in accordance with the terms thereof,
(c) the value of the Collateral, or Agent’s Liens on the Collateral or the
priority of any such Lien or (d) the practical realization of the benefits of
Agent’s and each Lender’s rights and remedies under this Agreement and the Other
Documents.
“Maximum Revolving Advance
Amount” shall mean (i) Four Million Dollars ($4,000,000) for the period
commencing on July 15th of
each year through and including November 15th of
each year, and (ii) Six Million Dollars ($6,000,000) for the period commencing
on November 16th of
each year through and including July 14th of
the immediately succeeding year.
“Maximum Swing Loan Advance
Amount” shall mean the lesser of (a) One Million Dollars ($1,000,000) and
(b) an amount which when added to the “Swing Loans” (as such term is defined in
the US Loan Agreement) outstanding under the US Loan Agreement equals
$7,500,000.
“Modified Commitment Transfer
Supplement” shall have the meaning set forth in Section 16.3(d)
hereof.
13
“NCB” shall have the
meaning set forth in the preamble to this Agreement and shall extend to all of
its successors and assigns.
“Notes” shall mean
collectively, the Revolving Credit Notes and the Swing Loan Note, in each case
as amended, restated, supplemented or replaced from time to time.
“Obligations” shall
mean and include any and all loans (including without limitation, all Advances
and Swing Loans, advances, debts, liabilities, obligations, covenants and duties
owing by Borrower to Lenders or Agent or to any other direct or indirect
subsidiary or Affiliate of Agent or any Lender of any kind or nature, present or
future (including any interest or other amounts accruing thereon, and any costs
and expenses of any Person payable by Borrower and any indemnification
obligations payable by Borrower arising or payable after maturity, or after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to Borrower, whether or not a claim
for post-filing or post-petition interest or other amounts is allowable or
allowed in such proceeding), whether or not evidenced by any note, guaranty or
other instrument, whether arising under any agreement, instrument or document,
(including this Agreement and the Other Documents) whether or not for the
payment of money, whether arising by reason of an extension of credit, opening
of a letter of credit, loan, equipment lease or guarantee, under any interest or
currency swap, future, option or other similar agreement, or in any other
manner, whether arising out of overdrafts or deposit or other accounts or
electronic funds transfers (whether through automated clearing houses or
otherwise) or out of Agent’s or any Lenders non-receipt of or inability to
collect funds or otherwise not being made whole in connection with depository
transfer check or other similar arrangements, whether direct or indirect
(including those acquired by assignment or participation), absolute or
contingent, joint or several, due or to become due, now existing or hereafter
arising, contractual or tortious, liquidated or unliquidated, regardless of how
such indebtedness or liabilities arise or by what agreement or instrument they
may be evidenced or whether evidenced by any agreement or instrument, including,
but not limited to, any and all of Borrower’s Indebtedness and/or liabilities
under this Agreement, the Other Documents or under any other agreement between
Agent or Lenders and Borrower and any amendments, extensions, renewals or
increases and all costs and expenses of Agent and any Lender incurred in the
documentation, negotiation, modification, enforcement, collection or otherwise
in connection with any of the foregoing, including but not limited to reasonable
attorneys’ fees and expenses and all obligations of Borrower to Agent or Lenders
to perform acts or refrain from taking any action.
“Ordinary Course of
Business” shall mean with respect to Borrower, the ordinary course of
Borrower’s business as conducted on the Closing Date, or as subsequently
modified to address changes in market conditions, technology or the addition of
business lines reasonably related or complementary to Borrower’s business, and
as disclosed to and acceptable to Agent in its Permitted
Discretion.
“Other Documents”
shall mean the Notes, the Perfection Certificate, any Guaranty, any Guarantor
Security Agreement, any agreement with respect to any Blocked Accounts any
Lender-Provided Interest Rate Hedge and any and all other agreements,
instruments and documents, including intercreditor agreements, guaranties,
pledges, powers of attorney, consents, interest or currency swap agreements or
other similar agreements and all other writings heretofore, now or hereafter
executed by Borrower or any Guarantor and/or delivered to Agent or any Lender in
respect of the transactions contemplated by this Agreement.
14
“Out-of-Formula Loans”
shall have the meaning set forth in Section 16.2(b) hereof.
“Parent” of any Person
shall mean a corporation or other entity owning, directly or indirectly at least
50% of the shares of stock or other ownership interests having ordinary voting
power to elect a majority of the directors of the Person, or other Persons
performing similar functions for any such Person.
“Participant” shall
mean each Person who shall be granted the right by any Lender to participate in
any of the Advances and who shall have entered into a participation agreement in
form and substance satisfactory to such Lender.
“Payment Office” shall
mean initially 130 King Street West, Suite 2140, Toronto, Ontario M5X 1E4;
thereafter, such other office of Agent, if any, which it may designate by notice
to Borrower and to each Lender to be the Payment Office.
“Perfection
Certificate” shall mean, the perfection certificate attached hereto as
Exhibit 1.2(b) and the responses thereto provided by Borrower and delivered
to Agent.
“Pension Benefit Plan”
shall mean at any time any employee pension benefit plan within the meaning of
the Pension Benefits Act (Ontario) and either (i) is maintained or to which
contributions are required by Borrower for employees of Borrower; or (ii) has at
any time within the preceding five years been maintained or to which
contributions have been required by Borrower for employees of
Borrower.
“Permitted Assignee”
shall mean: (a) Agent, any Lender or any of their direct or indirect Affiliates;
(b) any fund that is administered or managed by Agent or any Lender, an
Affiliate of Agent or any Lender or a related entity; (c) any Person to whom
Agent or any Lender assigns its rights and obligations under this Agreement as
part of an assignment and transfer of such Agent’s or Lender’s rights in and to
a material portion of such Agent’s or Lender’s portfolio of asset-based credit
facilities.
“Permitted Discretion”
shall mean Agent’s commercially reasonable credit judgment, from the perspective
of an asset based secured lender, made in good faith and determined on a basis
consistent with its then current credit policies and procedures.
“Permitted
Encumbrances” shall mean: (a) Liens in favor of Agent for the benefit of
Agent and Lenders; (b) Liens for taxes, assessments or other governmental
charges (including customs charges) not delinquent or being Properly Contested
and so long as such Liens are not senior to the Liens of Agent; (c) Liens
disclosed in the financial statements referred to in Section 5.5, in existence
on the Closing Date; (d) deposits or pledges to secure obligations under
worker’s compensation, social security or similar laws, or under unemployment
insurance; (e) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the Ordinary
Course of Business; (f) Liens arising by virtue of the rendition, entry or
issuance against Borrower or any Subsidiary, or any property of Borrower or
any
15
Subsidiary,
of any judgment, writ, order, or decree for so long as each such Lien (i) is in
existence for less than 20 consecutive days after it first arises or is being
Properly Contested and (ii) is at all times junior in priority to any Liens in
favor of Agent; (g) mechanics’, workers’, materialmen’s, bailees’, shippers’,
warehousers’ or other like Liens arising in the Ordinary Course of Business with
respect to obligations which are not due or which are being Properly Contested;
(h) Liens placed upon fixed assets hereafter acquired to secure a portion of the
purchase price thereof, provided that (x) any such lien shall not encumber any
other property of Borrower and (y) the aggregate amount of Indebtedness secured
by such Liens incurred as a result of such purchases during any fiscal year
shall not exceed the amount provided for in Section 7.6; (i) Liens disclosed on
Schedule 1.2., (j) licenses, leases or subleases granted to third Persons in the
Ordinary Course of Business and not interfering in any material respect with the
business of Borrower; and (k) Liens permitted under subsections (g), (h) or (j)
of this definition existing on any asset prior to the acquisitions thereof by
Borrower permitted herein.
“Person” shall mean
any individual, sole proprietorship, partnership, corporation, business trust,
joint stock company, trust, unincorporated organization, association, limited
liability company, limited liability partnership, institution, public benefit
corporation, joint venture, entity or Governmental Body (whether federal,
provincial, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
“Plan” shall mean any
employee benefit plan within the meaning of the Pension Benefits Act (Ontario)
(including a Pension Benefit Plan and a Multiemployer Plan), maintained for
employees of Borrower or any such Plan to which Borrower is required to
contribute.
“PPSA” shall mean the
Personal Property Security Act (Ontario).
“Priority Payables”
means, with respect to any Person, any amount payable by such Person which is
secured by a Lien in favour of a Governmental Body which ranks or is capable of
ranking prior to or pari passu with the Liens created by this Agreement in
respect of any Eligible Inventory or Eligible Receivables, including amounts
owing for wages, vacation pay, severance pay, employee deductions, sales tax,
excise tax, Tax payable pursuant to Part IX of the Excise Tax Act (Canada) (net
of GST input credits), income tax, workers compensation, government royalties,
pension fund obligations, overdue rents or Taxes, and other statutory or other
claims that have or may have priority over such Liens created by this
Agreement.
“Properly Contested”
shall mean, in the case of any Indebtedness or Lien, as applicable, of any
Person (including any taxes) that is not paid as and when due or payable by
reason of such Person’s bona fide dispute concerning its liability to pay same
or concerning the amount thereof: (i) such Indebtedness or Lien, as applicable,
is being properly contested in good faith by appropriate proceedings promptly
instituted and diligently conducted; (ii) such Person has established
appropriate reserves as shall be required in conformity with GAAP; (iii) the
non-payment of such Indebtedness will not have a Material Adverse Effect and
will not result in the forfeiture of any assets of such Person; (iv) no Lien is
imposed upon any of such Person’s assets with respect to such Indebtedness
unless such Lien is at all times junior and subordinate in priority to the Liens
in favor of Agent (except only with respect to property taxes that have priority
as a matter of applicable state law) and enforcement of such Lien is stayed
during the period prior to the final resolution or disposition of such dispute;
(v) if such Indebtedness or
16
Lien, as
applicable, results from, or is determined by the entry, rendition or issuance
against a Person or any of its assets of a judgment, writ, order or decree,
enforcement of such judgment, writ, order or decree is stayed pending a timely
appeal or other judicial review; and (vi) if such contest is abandoned, settled
or determined adversely (in whole or in part) to such Person, such Person
forthwith pays such Indebtedness and all penalties, interest and other amounts
due in connection therewith.
“Published Rate” shall
mean the rate of interest published each Business Day in the Wall Street Journal
“Money Rates” listing under the caption “London Interbank Offered Rates” for a
one month period (or, if no such rate is published therein for any reason, then
the Published Rate shall be the Eurodollar Rate for a one month period as
published in another publication selected by Agent).
“Purchasing CLO” shall
have the meaning set forth in Section 16.3(d) hereof.
“Purchasing Lender”
shall have the meaning set forth in Section 16.3(c) hereof.
“Real Property” shall
mean all of Borrower’s right, title and interest in and to the owned and leased
premises identified on Schedule 4.19 hereto or which is hereafter owned or
leased by Borrower.
“Receivables” shall
mean and include, as to Borrower, all of Borrower’s accounts, contract rights,
instruments (including those evidencing indebtedness owed to Borrower by its
Affiliates), documents, chattel paper (including electronic chattel paper),
general intangibles relating to accounts, drafts and acceptances, credit card
receivables and all other forms of obligations owing to Borrower arising out of
or in connection with the sale or lease of Inventory or the rendition of
services, all supporting obligations, guarantees and other security therefor,
whether secured or unsecured, now existing or hereafter created, and whether or
not specifically sold or assigned to Agent hereunder.
“Receivables Advance
Rate” shall have the meaning set forth in Section 2.1(a)(y)(i)
hereof.
“Register” shall have
the meaning set forth in Section 16.3(e) hereof.
“Release” shall have
the meaning set forth in Section 5.7(c)(i) hereof.
“Required Lenders”
shall mean Lenders holding at least sixty-six and two-thirds percent
(66 2/3%) of the Advances and, if no Advances are outstanding, shall mean
Lenders holding sixty-six and two-thirds percent (66 2/3%) of the
Commitment Percentages; provided, however, if there are fewer than three (3)
Lenders, Required Lenders shall mean all Lenders.
“Reserve Percentage”
shall mean as of any day the maximum percentage in effect on such day as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including supplemental,
marginal and emergency reserve requirements) with respect to eurocurrency
funding (currently referred to as “Eurocurrency Liabilities”.
17
“Revolving Advances”
shall mean Advances made other than Swing Loans.
“Revolving Credit
Notes” shall have the meaning set forth in Section 2.1(a)
hereof.
“Revolving Interest
Rate” shall mean an interest rate per annum equal to (a) the sum of the
Alternate Base Rate plus two and
one-quarter of one percent (2.25%) with respect to Base Rate Loans, or (b) the
sum of three and one-quarter of one percent (3.25%) plus the greater of
(i) two percent (2.00%) or (ii) the Eurodollar Rate with respect to Eurodollar
Rate Loans.
“Settlement Date”
shall mean the Closing Date and thereafter Wednesday or Thursday of each week or
more frequently if Agent deems appropriate unless such day is not a Business Day
in which case it shall be the next succeeding Business Day.
“Subsidiary” of any
Person shall mean a corporation or other entity of whose Equity Interests having
ordinary voting power (other than Equity Interests having such power only by
reason of the happening of a contingency) to elect a majority of the directors
of such corporation, or other Persons performing similar functions for such
entity, are owned, directly or indirectly, by such Person.
“Swing Loan Facility”
shall mean NCB’s right to make Swing Loans to Borrower pursuant to Section 2.4
hereof in an aggregate amount up to the Maximum Swing Loan Amount.
“Swing Loan Note”
shall have the meaning set forth in Section 2.4(a) hereof.
“Swing Loan Request”
shall have the meaning set forth in Section 2.4(b) hereof.
“Swing Loans” shall
mean collectively and “Swing Loan” shall
mean separately all Advances or any Advance made to Borrower pursuant to Section
2.4 hereof.
“Term” shall have the
meaning set forth in Section 13.1 hereof.
“Toxic Substance”
shall mean and include any material present on the Real Property or the
Leasehold Interests which has been shown to have significant adverse effect on
human health or which is subject to regulation under any applicable Canadian or
provincial laws now in force or hereafter enacted relating to toxic
substances. “Toxic Substance” includes but is not limited to
asbestos, polychlorinated biphenyls (PCBs) and lead-based paints.
“Transferee” shall
have the meaning set forth in Section 16.3(d) hereof.
“Undrawn Availability”
at a particular date shall mean an amount equal to (a) the lesser of (i) the
Formula Amount or (ii) the Maximum Revolving Advance Amount, less the Maximum
Undrawn Amount, minus (b) the sum of
(i) the outstanding amount of Advances, plus (ii) all amounts
due and owing to Borrower’s trade creditors which are outstanding more than
sixty (60) days beyond their due date and not Properly Contested, plus (iii) fees and
expenses under this Agreement which are due and payable by Borrower but which
have not been paid or charged to Borrower’s Account.
18
“Unfunded Capital
Expenditures” shall mean Capital Expenditures made through Revolving
Advances or out of Borrower’s own funds other than through equity contributed
subsequent to the Closing Date or purchase money or other financing or lease
transactions permitted hereunder.
“Uniform Commercial
Code” means the Uniform Commercial Code as adopted in the State of New
York from time to time.
“U.S. Dollar
Equivalent” means, at the date of determination, the amount of U.S.
Dollars that Agent could purchase, in accordance with its normal practice, with
a specified amount of Canadian Dollars based on the Bank of Canada noon spot
rate on such date.
“U.S. Loan Agreement”
shall mean that certain Revolving Credit and Security Agreement dated September
29, 2009, and attached hereto as Exhibit 1.2(a), among JOI, Johnson Outdoors
Watercraft Inc., Johnson Outdoors Marine Electronics LLC, Johnson Outdoors Gear,
LLC, Johnson Outdoors Diving LLC, Under Sea Industries, Inc., and Techsonic
Industries, Inc. and PNC Bank, National Association the other financial
institutions party thereto from time to time as amended, restated, supplemented
or replaced from time to time.
“Week” shall mean the
time period commencing with the opening of business on a Wednesday and ending on
the end of business the following Tuesday.
1.3.
PPSA
Terms. All terms used herein and defined in the PPSA from time
to time shall have the meaning given therein unless otherwise defined
herein. Without limiting the foregoing, the terms “accounts”,
“chattel paper”, “instruments”, “intangibles”, “goods”, “proceeds”, “supporting
obligations”, “securities”, “investment property”, “documents”, “deposit
accounts”, “letter of credit rights”, “inventory”, “equipment” and “fixtures”,
as and when used in the description of Collateral shall have the meanings given
to such terms in the PPSA. To the extent the definition of any
category or type of collateral is expanded by any amendment, modification or
revision to the PPSA, such expanded definition will apply automatically as of
the date of such amendment, modification or revision.
1.4.
Certain Matters of
Construction.
(a) General. The
terms “herein”, “hereof” and “hereunder” and other words of similar import refer
to this Agreement as a whole and not to any particular section, paragraph or
subdivision. All references herein to Articles, Sections, Exhibits
and Schedules shall be construed to refer to Articles and Sections of, and
Exhibits and Schedules to, this Agreement. Any pronoun used shall be
deemed to cover all genders. Wherever appropriate in the context,
terms used herein in the singular also include the plural and vice
versa. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and
regulations. Unless otherwise provided, all references to any
instruments or agreements to which Agent is a party, including references to any
of the Other Documents, shall include any and all modifications, supplements or
amendments thereto, any and all restatements or replacements thereof and any and
all extensions or renewals thereof. All references herein to the time
of day shall mean the time in New York, New York, unless otherwise
specified. Unless otherwise provided, all financial calculations
shall be performed with Inventory valued on a first-in, first
19
out
basis. Whenever the words “including” or “include” shall be used,
such words shall be understood to mean “including, without limitation” or
“include, without limitation”. A Default or Event of Default shall be
deemed to exist at all times during the period commencing on the date that such
Default or Event of Default occurs to the date on which such Default or Event of
Default is waived in writing pursuant to this Agreement or, in the case of a
Default, is cured within any period of cure expressly provided for in this
Agreement; and an Event of Default shall “continue” or be “continuing” until
such Event of Default has been waived in writing by the Required Lenders or all
Lenders, as applicable. Any Lien referred to in this Agreement or any
of the Other Documents as having been created in favor of Agent, any agreement
entered into by Agent pursuant to this Agreement or any of the Other Documents,
any payment made by or to or funds received by Agent pursuant to or as
contemplated by this Agreement or any of the Other Documents, or any act taken
or omitted to be taken by Agent, shall, unless otherwise expressly provided, be
created, entered into, made or received, or taken or omitted, for the benefit or
account of Agent and Lenders. Wherever the phrase “to the best of Borrower’s
knowledge” or words of similar import relating to the knowledge or the awareness
of Borrower are used in this Agreement or Other Documents, such phrase shall
mean and refer to (i) the actual knowledge of a senior officer of Borrower or
(ii) the knowledge that a senior officer would have obtained if he had engaged
in good faith and diligent performance of his duties, including the making of
such reasonably specific inquiries as may be necessary of the employees or
agents of Borrower and a good faith attempt to ascertain the existence or
accuracy of the matter to which such phrase relates. All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or otherwise within the limitations of, another
covenant shall not avoid the occurrence of a default if such action is taken or
condition exists. In addition, all representations and warranties
hereunder shall be given independent effect so that if a particular
representation or warranty proves to be incorrect or is breached, the fact that
another representation or warranty concerning the same or similar subject matter
is correct or is not breached will not affect the incorrectness of a breach of a
representation or warranty hereunder.
(b) Currency
Conversion. All calculations of Dollar amounts which utilize
amounts expressed in Canadian Dollars shall be made using the U.S. Dollar
Equivalent of such Canadian Dollar amounts in a manner reasonably calculated by
Agent.
II.
ADVANCES,
PAYMENTS.
2.1.
Revolving
Advances.
(a) Amount of Revolving
Advances. Subject to the terms and conditions set forth in
this Agreement including Sections 2.1(b), (c), (d) and (e) each Lender,
severally and not jointly, will make Revolving Advances to Borrower denominated
in U.S. Dollars in aggregate amounts outstanding at any time equal to such
Lender’s Commitment Percentage of the lesser of (x) the Maximum Revolving
Advance Amount, or (y) an amount equal to the sum of:
(i) up to
85%, subject to the provisions of Sections 2.1(b), (c) and (e) hereof,
(“Receivables Advance Rate”), of Eligible Receivables (other than the Eligible
Dating Receivables), plus
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(ii) up to
85%, subject to the provision of Sections 2.1(b), (c) and (e) hereof (“Dating
Receivables Advance Rate”), of Eligible Dating Receivables, plus
(iii) up to the
lesser of (A) 65%, subject to the provisions of Sections 2.1(b), (c) and (e)
hereof, of the value of the Eligible Inventory (“Inventory Advance Rate” and
together with the Receivables Advance Rate and Dating Receivables Advance Rate,
collectively, the “Advance Rates”) or (B) 85% of the appraised net orderly
liquidation value of Eligible Inventory (as evidenced by an Inventory appraisal
satisfactory to Agent in its Permitted Discretion exercised in good faith
(seasonally adjusted on July 15th and
November 15th of
each year based upon high season and low season values)), minus
(iv) such
reserves as Agent may in the exercise of its Permitted Discretion deem proper
and necessary from time to time, including reserves for Priority
Payables.
The
amount derived from the sum of (x) Sections 2.1(a) (y)(i), and (ii) and (iii)
minus
(y) Sections 2.1(a) (y)(iv) at any time and from time to time shall be
referred to as the “Formula Amount”. The Revolving Advances shall be
evidenced by one or more secured promissory notes (collectively, the “Revolving
Credit Notes”) substantially in the form attached hereto as Exhibit
2.1(a).
(b) Sub-Limitations on
Advances.
(i) Advances Against Eligible
Inventory. Aggregate Advances made on account of Eligible
Inventory hereunder and aggregate advances made on account of eligible inventory
under the U.S. Loan Agreement shall not exceed, at any time, an amount equal to:
(A) $15,000,000 from July 15th of
each year through November 15th of
each year, and (B) $25,000,000 from November 16th of
each year through July 14th of
the immediately succeeding year. Aggregate Advances made on account
of Eligible Inventory hereunder shall not exceed, at any time, an amount equal
to: (A) $2,000,000 from July 15th of
each year through November 15th of
each year, and (B) $2,800,000 from November 16th of
each year through July 14th of
the immediately succeeding year.
(ii) Advances Against Eligible
Dating Receivables. Aggregate Advances on account of Eligible Dating
Receivables hereunder and under aggregate advances made on account of eligible
dating receivables the U.S. Loan Agreement shall not exceed, at any time, an
amount equal to: (A) $20,000,000 from June 1st of
each year through November 30th of
such year; and (B) $25,000,000 from December 1st of
each year through May 31st of
the immediately succeeding year.
(iii) Advances Against Eligible
Dating Receivables Extended Terms. Aggregate Advances against
Eligible Dating Receivables hereunder and under aggregate advances made on
account of eligible dating receivables the U.S. Loan Agreement due or
outstanding more than 270 days from their original invoice date shall not exceed
$500,000 at any time.
(c) Annual Pay
Down. Intentionally
Deleted
21
(d) Discretionary
Rights. The Advance Rates may be increased or decreased by
Agent at any time and from time to time in the exercise of its Permitted
Discretion. Borrower consents to any such increases or decreases and
acknowledges that decreasing the Advance Rates or increasing or imposing
reserves may limit or restrict Advances requested by Borrower. Agent
shall give Borrower five (5) days prior written notice of its intention to
decrease the Advance Rates; provided however, if as a result of a field exam or
the completion of an Inventory appraisal, Agent elects to decrease the Advance
rates, impose a new reserve(s) or impose new ineligible(s) and such modification
would cause the Advances calculated under the Formula Amount to be reduced by
more than 20%, Agent will provide Borrower with notice ten (10) days prior to
instituting such modification.. The rights of Agent under this
subsection are subject to the provisions of Section 16.2(b).
2.2.
Procedure for Revolving
Advances Borrowing.
(a) Borrower
may notify Agent prior to 12:00 Noon central time on a Business Day of
Borrower’s request to incur, on that day, a Revolving Advance
hereunder. Should any amount required to be paid as interest
hereunder, or as fees or other charges under this Agreement or any other
agreement with Agent or Lenders, or with respect to any other Obligation, become
due, same shall be deemed a request for a Revolving Advance as of the date such
payment is due, in the amount required to pay in full such interest, fee, charge
or Obligation under this Agreement or any other agreement with Agent or Lenders,
and such request shall be irrevocable.
(b) Notwithstanding
the provisions of subsection (a) above, in the event Borrower desires to obtain
a Eurodollar Rate Loan for any Advance (other than a Swing Loan, which may not
be a Eurodollar Rate Loan), Borrower shall give Agent written notice by no later
than 12:00 Noon, central time on the day which is three (3) Business Days prior
to the date such Eurodollar Rate Loan is to be borrowed, specifying (i) the date
of the proposed borrowing (which shall be a Business Day), (ii) the type of
borrowing and the amount on the date of such Advance to be borrowed, which
amount shall be in a minimum amount of $500,000 and in integral multiples of
$100,000 thereafter, and (iii) the duration of the first Interest Period
therefor. Interest Periods for Eurodollar Rate Loans shall be for
one, two or three months; provided, if an Interest Period would end on a day
that is not a Business Day, it shall end on the next succeeding Business Day
unless such day falls in the next succeeding calendar month in which case the
Interest Period shall end on the next preceding Business Day. No
Eurodollar Rate Loan shall be made available to Borrower during the continuance
of a Default or an Event of Default. After giving effect to each
requested Eurodollar Rate Loan, including those which are converted from a Base
Rate Loan under Section 2.2(d), there shall not be outstanding more than four
(4) Eurodollar Rate Loans, in the aggregate.
(c) Each
Interest Period of a Eurodollar Rate Loan shall commence on the date such
Eurodollar Rate Loan is made, continued or converted and shall end on such date
as Borrower may elect as set forth in subsection (b)(iii) above provided that
the exact length of each Interest Period shall be determined in accordance with
the practice of the interbank market for offshore Dollar deposits and no
Interest Period shall end after the last day of the Term.
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Borrower shall elect the initial Interest Period applicable to a Eurodollar Rate
Loan by its notice of borrowing given to Agent pursuant to Section 2.2(b) or by
its notice of conversion or continuation given to Agent pursuant to Section
2.2(d), as the case may be. Borrower shall elect the duration of each
succeeding Interest Period by giving irrevocable written notice to Agent of such
duration not later than 12:00 Noon on the day which is three (3) Business Days
prior to the last day of the then current Interest Period applicable to such
Eurodollar Rate Loan. If Agent does not receive timely notice of the
Interest Period elected by Borrower, Borrower shall be deemed to have elected to
convert to a Base Rate Loan subject to Section 2.2(d) hereinbelow.
(d) Provided
that no Event of Default shall have occurred and be continuing, Borrower may, on
the last Business Day of the then current Interest Period applicable to any
outstanding Eurodollar Rate Loan, or on any Business Day with respect to Base
Rate Loans, convert any such loan into a loan of another type in the same
aggregate principal amount provided that any conversion of a Eurodollar Rate
Loan shall be made only on the last Business Day of the then current Interest
Period applicable to such Eurodollar Rate Loan or continue any Eurodollar Rate
Loan for the same Interest Period. If Borrower desires to convert or
continue a loan, Borrower shall give Agent written notice by no later than 12:00
Noon, central time (i) on the day which is three (3) Business Days’ prior to the
date on which such conversion is to occur with respect to a conversion from a
Base Rate Loan to a Eurodollar Rate Loan or a continuation of a Eurodollar Rate
Loan, or (ii) on the day which is one (1) Business Day prior to the date on
which such conversion is to occur with respect to a conversion from a Eurodollar
Rate Loan to a Base Rate Loan, specifying, in each case, the date of such
conversion, the loans to be converted and if the conversion is from a Base Rate
Loan to any other type of loan, the duration of the first Interest Period
therefor.
(e) At its
option and upon written notice given prior to 12:00 Noon, central time at least
three (3) Business Days’ prior to the date of such prepayment, Borrower may
prepay the Eurodollar Rate Loans in whole at any time or in part from time to
time with accrued interest on the principal being prepaid to the date of such
repayment. Borrower shall specify the date of prepayment of Advances
which are Eurodollar Rate Loans and the amount of such prepayment. In
the event that any prepayment of a Eurodollar Rate Loan is required or permitted
on a date other than the last Business Day of the then current Interest Period
with respect thereto, Borrower shall indemnify Agent and Lenders therefor in
accordance with Section 2.2(f) hereof.
(f) Borrower
shall indemnify Agent and Lenders and hold Agent and Lenders harmless from and
against any and all losses or expenses that Agent and Lenders may sustain or
incur as a consequence of any prepayment, conversion of or any default by
Borrower in the payment of the principal of or interest on any Eurodollar Rate
Loan or failure by Borrower to complete a borrowing of, a prepayment of or
conversion of or to a Eurodollar Rate Loan after notice thereof has been given,
including, but not limited to, any interest payable by Agent or Lenders to
lenders of funds obtained by it in order to make or maintain its Eurodollar Rate
Loans hereunder. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by Agent or any Lender to Borrower
shall be conclusive absent manifest error.
(g) Notwithstanding
any other provision hereof, if any Applicable Law or any change therein or in
the interpretation or application thereof, shall make it unlawful for any
(i) Lender
(for purposes of this subsection (g), the term “Lender” shall include any Lender
and the
23
office or
branch where any Lender or any corporation or bank controlling such Lender makes
or maintains any Eurodollar Rate Loans) to make or maintain its Eurodollar Rate
Loans, the obligation of Lenders to make Eurodollar Rate Loans hereunder shall
forthwith be cancelled and Borrower shall, if any affected Eurodollar Rate Loans
are then outstanding, promptly upon request from Agent, either pay all such
affected Eurodollar Rate Loans or convert such affected Eurodollar Rate Loans
into loans of another type. If any such payment or conversion of any
Eurodollar Rate Loan or is made on a day that is not the last day of the
Interest Period applicable to such Eurodollar Rate Loan or, Borrower shall pay
Agent, upon Agent’s request, such amount or amounts as may be necessary to
compensate Lenders for any loss or expense sustained or incurred by Lenders in
respect of such Eurodollar Rate Loan as a result of such payment or conversion,
including (but not limited to) any interest or other amounts payable by Lenders
to lenders of funds obtained by Lenders in order to make or maintain such
Eurodollar Rate Loan. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by Lenders to Borrower
shall be conclusive absent manifest error.
2.3.
Disbursement of Advance
Proceeds. All Advances shall be disbursed from whichever
office or other place Agent may designate from time to time and, together with
any and all other Obligations of Borrower to Agent or Lenders, shall be charged
to Borrower’s Account on Agent’s books. During the Term, Borrower may
use the Revolving Advances and Swing Loans by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions
hereof. The proceeds of each Revolving Advance requested by Borrower
or deemed to have been requested by Borrower under Section 2.2(a) hereof shall,
with respect to requested Revolving Advances to the extent Lenders make such
Revolving Advances, be made available to Borrower on the day so requested by way
of credit to Borrower’s operating account at NCB, or such other bank as Borrower
may designate following notification to Agent, in immediately available funds
or, with respect to Revolving Advances deemed to have been requested by
Borrower, be disbursed to Agent to be applied to the outstanding Obligations
giving rise to such deemed request. The proceeds of each Swing Loan
requested by Borrower shall be made available to Borrower on the day so
requested by way of credit to Borrower’s operating account at NCB, or such other
bank as Borrower may designate following notification to Agent, in immediately
available funds.
2.4.
Swing
Loans.
(a) Subject
to the terms and conditions hereof and relying upon the representations and
warranties herein set forth, and in order to minimize the transfer of funds
between Lenders and Agent for administrative convenience, NCB may make available
to Borrower, at its option, cancelable at any time for any reason whatsoever,
Swing Loans denominated in U.S. Dollars at any time or from time to time after
the date hereof to, but not including, the expiration of the Term, in an
aggregate principal amount up to but not in excess of the Maximum Swing Loan
Advance Amount, provided that the outstanding aggregate principal amount of
Swing Loans and the Revolving Advances at any one time outstanding shall not
exceed an amount equal to the lesser of (i) the Maximum Revolving Advance Amount
or (ii) the Formula Amount. To the extent that Borrower requests a Revolving
Advance at any time and to the extent that Borrower is entitled to obtain a
Revolving Advance from Lenders under the terms and conditions of this Agreement,
NCB may elect to provide all or a portion of such Revolving Advances in the form
of Swing Loans in accordance with the terms hereof. The making
of
24
Swing
Loans by NCB from time to time shall not create any duty or obligation, or
establish any course of conduct, pursuant to which NCB shall thereafter be
obligated to make Swing Loans in the future. All Swing Loans shall be
evidenced by a secured promissory note (the “Swing Loan Note”) substantially in
the form attached hereto as Exhibit 2.4(a).
(b) Except as
otherwise provided herein, Borrower may from time to time prior to the
expiration of the Term request NCB to make Swing Loans by delivery to NCB, not
later than 12 Noon central time on the proposed borrowing date of a duly
completed request therefor substantially in the form of Exhibit 2.4(b) hereto or
a request by telephone immediately confirmed in writing by letter, facsimile or
telex (each, a “Swing Loan Request”), it being understood that NCB may rely on
the authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Swing Loan
Request shall be irrevocable and shall specify the proposed borrowing date and
the principal amount of such Swing Loan, which shall be not less than
$50,000. Each Swing Loan Request shall be deemed a representation by
Borrower that Borrower has satisfied all of the conditions for the Swing Loan so
requested set forth in this Agreement.
2.5.
Maximum
Advances. The aggregate balance of Revolving Advances plus Swing Loans
outstanding at any time shall not exceed the lesser of (a) the Maximum Revolving
Advance Amount or (b) the Formula Amount.
2.6.
Repayment of
Advances.
(a) The
Revolving Advances and Swing Loans shall be due and payable in full on the last
day of the Term subject to earlier prepayment as herein provided.
(b) Borrower
recognizes that the amounts evidenced by checks, notes, drafts or any other
items of payment relating to and/or proceeds of Collateral may not be
collectible by Agent on the date received. In consideration of
Agent’s agreement to conditionally credit Borrower’s Account as of the next
Business Day following Agent’s receipt of those items of payment, Borrower
agrees that, in computing the charges under this Agreement, all items of payment
shall be deemed applied by Agent on account of the Obligations one (1) Business
Day after (i) the Business Day of Agent’s receipt of such payments via wire
transfer or electronic depository check or (ii) in the case of payments received
by Agent in any other form, the Business Day such payment constitutes good funds
in Agent’s account. Agent is not, however, required to conditionally
credit Borrower’s Account for the amount of any item of payment which is
unsatisfactory to Agent and Agent may charge Borrower’s Account for the amount
of any item of payment which was conditionally credited but which is
subsequently returned to Agent unpaid.
(c) All
payments of principal, interest and other amounts payable hereunder, or under
any of the Other Documents shall be made to Agent at the Payment Office not
later than 12:00 Noon central time on the due date therefor in lawful money of
the United States of America in federal funds or other funds immediately
available to Agent. Agent shall have the right to effectuate payment
on any and all Obligations due and owing hereunder by charging Borrower’s
Account or by making Advances as provided in Section 2.2 hereof.
25
(d) Borrower
shall pay principal, interest, and all other amounts payable hereunder, or under
any related agreement, without any deduction whatsoever, including, but not
limited to, any deduction for any setoff or counterclaim.
2.7.
Repayment of Excess
Advances. The aggregate balance of Advances outstanding at any
time in excess of the maximum amount of Advances permitted hereunder shall be
immediately due and payable without the necessity of any demand, at the Payment
Office, whether or not a Default or Event of Default has occurred.
2.8.
Statement of
Account. Agent shall maintain, in accordance with its
customary procedures, a loan account (“Borrower’s Account”) in the name of
Borrower in which shall be recorded the date, amount and currency of each
Advance made by Agent and the date, amount and currency of each payment in
respect thereof; provided, however, the failure by Agent to record the date,
amount and currency of any Advance shall not adversely affect Agent or any
Lender. Each month, Agent shall send to Borrower a statement showing
the accounting for the Advances made, payments made or credited in respect
thereof, and other transactions between Agent and Borrower during such
month. The monthly statements shall be deemed correct and binding
upon Borrower in the absence of manifest error and shall constitute an account
stated between Lenders and Borrower unless Agent receives a written statement of
Borrower’s specific exceptions thereto within sixty (60) days after such
statement is received by Borrower. The records of Agent with respect
to the loan account shall be conclusive evidence absent manifest error of the
amounts of Advances and other charges thereto and of payments applicable
thereto.
2.9.
Additional
Payments. Any sums expended by Agent or any Lender due to
Borrower’s failure to perform or comply with its obligations under this
Agreement or any Other Document including Borrower’s obligations under Sections
4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to Borrower’s Account
as a Revolving Advance and added to the Obligations.
2.10.
Manner of Borrowing and
Payment.
(a) Each
borrowing of Revolving Advances shall be advanced according to the applicable
Commitment Percentages of Lenders.
(b) Each
payment (including each prepayment) by Borrower on account of the principal of
and interest on the Revolving Advances, shall be applied to the Revolving
Advances pro rata according to the applicable Commitment Percentages of
Lenders. Each payment by Borrower on account of the principal and
interest on Swing Loans shall be applied to Swing Loans for the account of
NCB. Except as expressly provided herein, all payments (including
prepayments) to be made by Borrower on account of principal, interest and fees
shall be made without set off or counterclaim and shall be made to Agent on
behalf of Lenders to the Payment Office, in each case on or prior to 12:00 Noon,
central time, in Dollars and in immediately available funds. Agent
shall have the right to apply such payments against outstanding obligations
denominated in either Dollars or Canadian Dollars, and may effect currency
exchange transactions in order to do so.
26
(c) (i) Making Revolving Credit
Advances. Promptly after receipt by Agent of a request for a
Revolving Advance pursuant to Section 2.2(a), Agent shall notify Lenders of its
receipt of such request specifying the information provided by Borrower and the
apportionment among Lenders of the requested Revolving Advance as determined by
Agent. Each Lender shall remit the principal amount of each Revolving
Advance to Agent such that Agent is able to, and Agent shall, to the extent
Lenders have made funds available to it for such purpose and subject to Section
8.2, fund such Revolving Advance to Borrower in U.S. Dollars and immediately
available funds at the Payment Office prior to 12:00 Noon, central time, on the
applicable borrowing date; provided that if any
Lender fails to remit such funds to Agent in a timely manner, Agent may elect in
its sole discretion to fund with its own funds the Revolving Advance of such
Lender on such borrowing date, and such Lender shall be subject to the repayment
obligation in Section 2.10(c)(ii).
(ii) Presumptions by
Agent. Unless Agent shall have received notice from a Lender
prior to the proposed date of any Revolving Advance that such Lender will not
make available to Agent such Lender’s Commitment Percentage of such Revolving
Advance, Agent may assume that such Lender has made such share available on such
date in accordance with Section 2.10(c) (i) and may, in reliance upon such
assumption, make available to Borrower a corresponding amount. In
such event, if a Lender has not in fact made its share of the applicable
Revolving Advance available to Agent, then the applicable Lender and Borrower
severally agree to pay to Agent forthwith on demand such corresponding amount
with interest thereon, for each day from and including the date such amount is
made available to Borrower to but excluding the date of payment to Agent, at (i)
in the case of a payment to be made by such Lender, the greater of the Federal
Funds Effective Rate and a rate determined by Agent in accordance with banking
industry rules on interbank compensation, and (ii) in the case of a payment to
be made by Borrower, the interest rate applicable to Revolving Advances
consisting of Base Rate Loans. If such Lender pays its share of the
applicable Revolving Advance to Agent, then the amount so paid shall constitute
such Lender’s Revolving Advance. Any payment by Borrower shall be
without prejudice to any claim Borrower may have against a Lender that shall
have failed to make such payment to Agent.
(iii) Making Swing
Loans. So long as NCB elects to make Swing Loans, NCB shall,
after receipt by it of a Swing Loan Request pursuant to Section 2.4(b), fund
such Swing Loan to Borrower in immediately available funds at the Payment Office
prior to 3:00 p.m. central time on the borrowing date.
(iv) Borrowings to Repay Swing
Loans. NCB may, at its option, exercisable at any time for any
reason whatsoever, demand repayment of the Swing Loans, and each Lender shall
make a Revolving Advance in an amount equal to such Lender’s Commitment
Percentage of the aggregate principal amount of the outstanding Swing Loans,
plus, if NCB so requests, accrued interest thereon, provided that no Lender
shall be obligated in any event to make Revolving Advances in an amount in
excess of its Commitment Percentage times the Maximum
Revolving Advance Amount. Revolving Advances made pursuant to the
preceding sentence shall bear interest at the interest rate applicable to
Revolving Advances consisting of Base Rate Loans, and shall be deemed to have
been properly requested in accordance with Section 2.2(a) without regard to any
of the requirements of that provision. NCB shall provide notice to
Lenders (which may be telephonic or written notice by letter, facsimile or
electronic
27
transmission)
that such Revolving Advances are to be made under this Section 2.10(c)(iv) and
of the apportionment among Lenders, and Lenders shall be unconditionally
obligated to fund such Revolving Advances (whether or not the conditions
specified in Section 8.2 are then satisfied) by the time NCB so requests, which
shall not be earlier than 2:00 p.m. central time on the Business Day next after
the date Lenders receive such notice from NCB. If any such amount is
not transferred to NCB by any Lender on such settlement date, NCB shall be
entitled to recover such amount on demand from such Lender together with
interest thereon as specified in Section 2.1.3.
(d) (i) Notwithstanding
anything to the contrary contained in Sections 2.10(a) and (b) hereof,
commencing with the first Business Day following the Closing Date, each
borrowing of Revolving Advances shall be advanced by Agent and each payment by
Borrower on account of Revolving Advances shall be applied first to those
Revolving Advances advanced by Agent. On or before 1:00 p.m., central
time, on each Settlement Date commencing with the first Settlement Date
following the Closing Date, Agent and Lenders shall make certain payments as
follows: (I) if the aggregate amount of new Revolving Advances made by Agent
during the preceding Week (if any) exceeds the aggregate amount of repayments
applied to outstanding Revolving Advances during such preceding Week, then each
Lender shall provide Agent with funds in an amount equal to its applicable
Commitment Percentage of the difference between (w) such Revolving Advances and
(x) such repayments and (II) if the aggregate amount of repayments applied to
outstanding Revolving Advances during such Week exceeds the aggregate amount of
new Revolving Advances made during such Week, then Agent shall provide each
Lender with funds in an amount equal to its applicable Commitment Percentage of
the difference between (y) such repayments and (z) such Revolving
Advances.
(ii) Each
Lender shall be entitled to earn interest at the applicable Contract
Rate on outstanding Advances which it has funded.
(iii) Promptly
following each Settlement Date, Agent shall submit to each Lender a certificate
with respect to payments received and Advances made during the Week immediately
preceding such Settlement Date. Such certificate of Agent shall be
conclusive in the absence of manifest error.
(e) If any
Lender or Participant (a “Benefited Lender”) shall at any time receive any
payment of all or part of its Advances, or interest thereon, or receive any
Collateral in respect thereof (whether voluntarily or involuntarily or by
set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender’s
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such Benefited Lender shall
purchase for cash from the other Lenders a participation in such portion of each
such other Lender’s Advances, or shall provide such other Lender with the
benefits of any such Collateral, or the proceeds thereof, as shall be necessary
to cause such Benefited Lender to share the excess payment or benefits of such
Collateral or proceeds ratably with each of the other Lenders; provided,
however, that if all or any portion of such excess payment or benefits is
thereafter recovered from such Benefited Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. Each Lender so purchasing a portion
of another Lender’s Advances may exercise all rights of payment (including
rights of set-off) with respect to such portion as fully as if such Lender were
the direct holder of such portion.
28
(f) Unless
Agent shall have been notified by telephone, confirmed in writing, by any Lender
that such Lender will not make the amount which would constitute its applicable
Commitment Percentage of the Advances available to Agent, Agent may (but shall
not be obligated to) assume that such Lender shall make such amount available to
Agent on the next Settlement Date and, in reliance upon such assumption, make
available to Borrower a corresponding amount. Agent will promptly
notify Borrower of its receipt of any such notice from a Lender. If
such amount is made available to Agent on a date after such next Settlement
Date, such Lender shall pay to Agent on demand an amount equal to the product of
(i) the daily average Federal Funds Rate (computed on the basis of a year of 360
days) during such period as quoted by Agent, times (ii) such amount, times (iii)
the number of days from and including such Settlement Date to the date on which
such amount becomes immediately available to Agent. A certificate of
Agent submitted to any Lender with respect to any amounts owing under this
paragraph (e) shall be conclusive, in the absence of manifest
error. If such amount is not in fact made available to Agent by such
Lender within three (3) Business Days after such Settlement Date, Agent shall be
entitled to recover such an amount, with interest thereon at the rate per annum
then applicable to such Revolving Advances hereunder, on demand from Borrower;
provided, however, that Agent’s right to such recovery shall not prejudice or
otherwise adversely affect Borrower’s rights (if any) against such
Lender.
2.11.
Mandatory
Prepayments.
(a) Subject
to Section 4.3(b) hereof, when Borrower sells or otherwise disposes of any
Collateral other than (i) Inventory in the Ordinary Course of Business, Borrower
shall repay the Advances, subject to the right to reborrow hereunder, in an
amount equal to the net cash proceeds of such sale (i.e., gross proceeds less
the reasonable costs of such sales or other dispositions less any holdbacks or
escrowed funds less any outstanding Indebtedness secured by a Permitted
Encumbrance on such Collateral and required to be paid in connection with such
sale or disposition) or (ii) the sale of Equipment which is subsequently
replaced in accordance with Section 4.3, Borrower shall repay the Advances in an
amount equal to the net cash proceeds of such sale, in each case, such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt of such net cash proceeds, and until the date of payment, such
proceeds shall be held in trust for Agent. The foregoing shall not be
deemed to be implied consent to any such sale otherwise prohibited by the terms
and conditions hereof. Repayments under this paragraph (a) shall be
applied, to the outstanding principal balance of the Revolving Advances and
Swing Loans (in the order determined by Agent), provided that, after the occurrence and
during the continuance of an Event of Default, such repayments shall be applied
to the Advances and the other Obligations in such order as Agent may determine
in its sole discretion.
(b) Upon
either (i) the issuance and/or incurrence of any Indebtedness for borrowed money
(other than Indebtedness permitted in accordance with the provisions of Section
7.8) by Borrower or (ii) the issuance of any additional Equity Interests (other
than Equity Interests issued to employees, officers or directors of Borrower) or
receipt of any additional capital contributions by Borrower (not including any
contributions made in the form of equity for the purposes of funding Capital
Expenditures by Borrower), Borrower shall repay the Advances, subject to the
right to reborrow hereunder, in an amount equal to the net cash proceeds of such
issuance, incurrence and/or capital contribution (i.e., gross proceeds less the
reasonable costs of
29
such
issuance, incurrence and/or capital contribution), such repayments to be made
promptly but in no event more than one (1) Business Day following receipt of
such net proceeds, and until the date of payment, such proceeds shall be held in
trust for Agent pursuant to an express trust hereby, separate and segregated
from all other funds, assets and property of Borrower. The foregoing
shall not be deemed to be implied consent to any such issuance and/or incurrence
of Indebtedness or issuance of additional Equity Interests otherwise prohibited
by the terms and conditions hereof (to the extent, if any, of any such
prohibition contained herein).
(c) Upon (i)
payment by any insurer of any proceeds under any insurance policy of Borrower in
respect of any destruction, damage or other casualty event with respect to any
property or assets of Borrower or (ii) payment of any award in respect of any
exercise of eminent domain, condemnation or other taking by any Governmental
Body with respect to any property or assets of Borrower, Borrower shall repay
the Advances as and to the extent required by Section 4.11 below.
2.12.
Use of
Proceeds.
Borrower shall apply the proceeds of
Advances to provide for its working capital needs and to make Intercompany
Loans.
2.13.
Defaulting
Lender.
(a) Notwithstanding
anything to the contrary contained herein, in the event any Lender (x) has
refused (which refusal constitutes a breach by such Lender of its obligations
under this Agreement) to make available its portion of any Advance or (y)
notifies either Agent or Borrower that it does not intend to make available its
portion of any Advance (if the actual refusal would constitute a breach by such
Lender of its obligations under this Agreement) (each, a “Lender Default”), all
rights and obligations hereunder of such Lender (a “Defaulting Lender”) as to
which a Lender Default is in effect and of the other parties hereto shall be
modified to the extent of the express provisions of this Section 2.13 while such
Lender Default remains in effect.
(b) Advances
(other than Swing Loans, which shall be advanced by NCB) shall be incurred pro
rata from Lenders (the “Non-Defaulting Lenders”) which are not Defaulting
Lenders based on their respective Commitment Percentages, and no Commitment
Percentage of any Lender or any pro rata share of any Advances required to be
advanced by any Lender shall be increased as a result of such Lender
Default. Amounts received in respect of principal of any type of
Advances shall be applied to reduce the applicable Advances of each Lender
(other than any Defaulting Lender) pro rata based on the aggregate of the
outstanding Advances of that type of all Lenders at the time of such
application; provided, that, Agent shall not be obligated to transfer to a
Defaulting Lender any payments received by Agent for the Defaulting Lender’s
benefit, nor shall a Defaulting Lender be entitled to the sharing of any
payments hereunder (including
any principal, interest or fees). Amounts payable to a Defaulting
Lender shall instead be paid to or retained by Agent. Agent may hold
and, in its discretion, re-lend to Borrower the amount of such payments received
or retained by it for the account of such Defaulting Lender.
30
(c) A
Defaulting Lender shall not be entitled to give instructions to Agent or to
approve, disapprove, consent to or vote on any matters relating to this
Agreement and the Other Documents. All amendments, waivers and other
modifications of this Agreement and the Other Documents may be made without
regard to a Defaulting Lender and, for purposes of the definition of “Required
Lenders”, a Defaulting Lender shall be deemed not to be a Lender and not to have
either Advances outstanding or a Commitment Percentage.
(d) Other
than as expressly set forth in this Section 2.13, the rights and obligations of
a Defaulting Lender (including the obligation to indemnify Agent) and the other
parties hereto shall remain unchanged. Nothing in this Section 2.13
shall be deemed to release any Defaulting Lender from its obligations under this
Agreement and the Other Documents, shall alter such obligations, shall operate
as a waiver of any default by such Defaulting Lender hereunder, or shall
prejudice any rights which Borrower, Agent or any Lender may have against any
Defaulting Lender as a result of any default by such Defaulting Lender
hereunder.
(e) In the
event a Defaulting Lender retroactively cures to the satisfaction of Agent the
breach which caused a Lender to become a Defaulting Lender, such Defaulting
Lender shall no longer be a Defaulting Lender and shall be treated as a Lender
under this Agreement.
III.
INTEREST
AND FEES.
3.1.
Interest.
(a) Interest
on Advances shall be payable in arrears on the first day of each month with
respect to Base Rate Loans and, with respect to Eurodollar Rate Loans, at the
end of each Interest Period. Interest charges shall be computed on
the actual principal amount of Advances outstanding during the month at a rate
per annum equal to (i) with respect to Revolving Advances, the applicable
Revolving Interest Rate and (ii) with respect to Swing Loans, the rate set forth
in subclause (a) of the definition of Revolving Interest Rate (as applicable,
the “Contract Rate”). Whenever, subsequent to the date of this
Agreement, the Alternate Base Rate is increased or decreased, the applicable
Contract Rate shall be similarly changed without notice or demand of any kind by
an amount equal to the amount of such change in the Alternate Base Rate during
the time such change or changes remain in effect. The Eurodollar Rate
shall be adjusted with respect to Eurodollar Rate Loans without notice or demand
of any kind on the effective date of any change in the Reserve Percentage as of
such effective date. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, at the option of Agent or at the
direction of Required Lenders, the Obligations shall bear interest at the
applicable Contract Rate plus two (2%) percent
per annum (as applicable, the “Default Rate”).
(b) For the
purposes of the Interest Act
(Canada) and disclosure thereunder, whenever any interest or any fee to
be paid hereunder or in connection herewith is to be calculated on the basis of
a 360-day year, the yearly rate of interest to which the rate used in such
calculation is equivalent is the rate so used multiplied by the actual number of
days in the calendar year in which the same is to be ascertained and divided by
360. The rates of interest under this Agreement are nominal rates,
and not effective rates or yields. The principle of deemed
reinvestment of interest does not apply to any interest calculation under this
Agreement.
31
(c) Any
provision of this Agreement that would oblige Borrower to pay any fine, penalty
or rate of interest on any arrears of principal or interest secured by a
mortgage on real property or hypothec on immovables that has the effect of
increasing the charge on arrears beyond the rate of interest payable on
principal money not in arrears shall not apply to Borrower, which shall be
required to pay interest on money in arrears at the same rate of interest
payable on principal money not in arrears.
(d) If any
provision of this Agreement would oblige Borrower to make any payment of
interest or other amount payable to any Lender in an amount or calculated at a
rate which would be prohibited by law or would result in a receipt by that
Lender of “interest” at a “criminal rate” (as such terms are construed under the
Criminal Code
(Canada)), then, notwithstanding such provision, such amount or rate
shall be deemed to have been adjusted with retroactive effect to the maximum
amount or rate of interest, as the case may be, as would not be so prohibited by
applicable law or so result in a receipt by that Lender of “interest” at a
“criminal rate”, such adjustment to be effected, to the extent necessary (but
only to the extent necessary), as follows:
(i) first, by
reducing the amount or rate of interest; and
(ii) thereafter,
by reducing any fees, commissions, costs, expenses, premiums and other amounts
required to be paid which would constitute interest for purposes of
section 347 of the Criminal Code
(Canada).
3.2.
Facility
Fee. If, for any calendar quarter during the Term, the average
daily unpaid balance of the Revolving Advances (and for purposes of this
calculation, all Swing Loans advanced by NCB shall be treated as Revolving
Advances) for each day of such calendar quarter does not equal the Maximum
Revolving Advance Amount, then Borrower shall pay to Agent for the ratable
benefit of Lenders a fee at a rate equal to one-half of one percent (.50%) per
annum on the amount by which the Maximum Revolving Advance Amount exceeds such
average daily unpaid balance of Revolving Advances. Such fee shall be
payable to Agent in arrears on the first day of each calendar quarter with
respect to the previous calendar quarter.
3.3.
Fees.
(a) Borrower
shall pay the closing fee to the Agent in the amount of $37,500 on the Closing
Date.
(b) Agent
may, in its Permitted Discretion, exercised in a commercially reasonable manner,
at any time after the Closing Date, engage the services of an independent
appraisal firm or firms of reputable standing, satisfactory to Agent, for the
purpose of appraising the then current values of Borrower’s Inventory. Absent
the occurrence and continuance of an Event of
Default at such time, Agent shall consult with Borrower as to the identity of
any such firm. All of the fees and out-of-pocket costs and expense of
any such firm (collectively, “appraisal amounts”) shall be paid for when due, in
full and without off-set, by Borrower. In the event the value of
Borrower’s Inventory, as so determined pursuant to such appraisal, is less than
anticipated by Agent or Lenders, such that the Revolving Advances against
Eligible Inventory, are in fact in excess of such Advances permitted hereunder,
then, promptly upon Agent’s written
32
demand
for same, Borrower shall make mandatory prepayments of the then outstanding
Revolving Advances made against such Eligible Inventory so as to eliminate the
excess Advances, provided that, so long as no Default or Event of Default has
occurred hereunder, Agent shall not charge Borrower for more than (i) two such
examinations in the first year from the Closing Date and (ii) one such
examination in each year thereafter.
3.4.
Computation of Interest and
Fees. Interest and fees hereunder shall be computed on the
basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable
on a day other than a Business Day, the due date thereof shall be extended to
the next succeeding Business Day and interest thereon shall be payable at the
applicable Contract Rate during such extension.
3.5.
Maximum
Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrower, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrower and the provisions hereof
shall be deemed amended to provide for such permissible rate.
3.6.
Increased
Costs. In the event that any Applicable Law or any change
therein or in the interpretation or application thereof, or compliance by any
Lender (for purposes of this Section 3.6, the term “Lender” shall include Agent
or any Lender and any corporation or bank controlling Agent or any Lender) and
the office or branch where Agent or any Lender (as so defined) makes or
maintains any Eurodollar Rate Loans with any request or directive (whether or
not having the force of law) from any central bank or other financial, monetary
or other authority, shall:
(a) subject
Agent or any Lender to any tax of any kind whatsoever with respect to this
Agreement or any Other Document or change the basis of taxation of payments to
Agent or any Lender of principal, fees, interest or any other amount payable
hereunder or under any Other Documents (except for changes in the rate of tax on
the overall net income of Agent or any Lender by the jurisdiction in which it
maintains its principal office);
(b) impose,
modify or hold applicable any reserve, special deposit, assessment or similar
requirement against assets held by, or deposits in or for the account of,
advances or loans by, or other credit extended by, any office of Agent or any
Lender, including pursuant to Regulation D of the Board of Governors of the
Federal Reserve System; or
(c) impose on
Agent or any Lender or the London interbank Eurodollar market any other
condition with respect to this Agreement or any Other Document;
and
the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Advances hereunder by an amount
that Agent or such Lender deems to be material or to reduce the amount of any
payment (whether of principal, interest or otherwise) in respect of any of the
Advances by an amount that Agent or such Lender deems to be material, then, in
any case Borrower shall promptly pay Agent or such Lender, upon
33
its
demand, such additional amount as will compensate Agent or such Lender for such
additional cost or such reduction, as the case may be, provided that the
foregoing shall not apply to increased costs which are reflected in the
Eurodollar Rate, as the case may be. Agent or such Lender shall
certify the amount of such additional cost or reduced amount to Borrower, and
such certification shall be conclusive absent manifest error.
3.7.
Basis For Determining
Interest Rate Inadequate or Unfair. In the event that Agent or
any Lender shall have determined that:
(a) reasonable
means do not exist for ascertaining the Eurodollar Rate applicable pursuant to
Section 2.2 hereof for any Interest Period; or
(b) Dollar
deposits in the relevant amount and for the relevant maturity are not available
in the London interbank Eurodollar market, with respect to an outstanding
Eurodollar Rate Loan, a proposed Eurodollar Rate Loan, or a proposed conversion
of a Base Rate Loan into a Eurodollar Rate Loan,
then
Agent shall give Borrower prompt written, telephonic or telegraphic notice of
such determination. If such notice is given, (i) any such requested
Eurodollar Rate Loan shall be made as a Base Rate Loan, unless Borrower shall
notify Agent no later than 10:00 a.m. (Toronto time) two (2) Business Days prior
to the date of such proposed borrowing, that its request for such borrowing
shall be cancelled or made as an unaffected type of Eurodollar Rate Loan, (ii)
any Base Rate Loan or Eurodollar Rate Loan which was to have been converted to
an affected type of Eurodollar Rate Loan shall be continued as or converted into
a Base Rate Loan, or, if Borrower shall notify Agent, no later than 10:00 a.m.
(Toronto time) two (2) Business Days prior to the proposed conversion, shall be
maintained as an unaffected type of Eurodollar Rate Loan, and (iii) any
outstanding affected Eurodollar Rate Loans shall be converted into a Base Rate
Loan, or, if Borrower shall notify Agent, no later than 10:00 a.m. (Toronto
time) two (2) Business Days prior to the last Business Day of the then current
Interest Period applicable to such affected Eurodollar Rate Loan, shall be
converted into an unaffected type of Eurodollar Rate Loan, on the last Business
Day of the then current Interest Period for such affected Eurodollar Rate
Loans. Until such notice has been withdrawn, Lenders shall have no
obligation to make an affected type of Eurodollar Rate Loan or maintain
outstanding affected Eurodollar Rate Loans and Borrower shall not have the right
to convert a Base Rate Loan or an unaffected type of Eurodollar Rate Loan into
an affected type of Eurodollar Rate Loan.
3.8.
Capital
Adequacy.
(a) In the
event that Agent or any Lender shall have determined that any Applicable Law or
guideline regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Body, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by Agent or any Lender (for purposes of this Section 3.8,
the term “Lender” shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender) and the office or branch where Agent or any
Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive regarding capital adequacy (whether or not having the force
of law) of any such authority, central bank or comparable agency, has or would
have the effect of
34
reducing
the rate of return on Agent or any Lender’s capital as a consequence of its
obligations hereunder to a level below that which Agent or such Lender could
have achieved but for such adoption, change or compliance (taking into
consideration Agent’s and each Lender’s policies with respect to capital
adequacy) by an amount deemed by Agent or any Lender to be material, then, from
time to time, Borrower shall pay upon demand to Agent or such Lender such
additional amount or amounts as will compensate Agent or such Lender for such
reduction. In determining such amount or amounts, Agent or such
Lender may use any reasonable averaging or attribution methods. The
protection of this Section 3.8 shall be available to Agent and each Lender
regardless of any possible contention of invalidity or inapplicability with
respect to the Applicable Law or condition; provided, however, that Agent and
Lenders shall demonstrate to Borrower that they have availed themselves of such
protections with regard to their respective other similarly situated
Borrower.
(b) A
certificate of Agent or such Lender setting forth such amount or amounts as
shall be necessary to compensate Agent or such Lender with respect to Section
3.8(a) hereof when delivered to Borrower shall be conclusive absent manifest
error.
3.9.
Gross Up for
Taxes. If Borrower shall be required by Applicable Law to
withhold or deduct any taxes from or in respect of any sum payable under this
Agreement or any of the Other Documents to Agent, or any Lender, assignee of any
Lender, or Participant (each, individually, a “Payee” and collectively, the
“Payees”), (a) the sum payable to such Payee or Payees, as the case may be,
shall be increased as may be necessary so that, after making all required
withholding or deductions, the applicable Payee or Payees receives an amount
equal to the sum it would have received had no such withholding or deductions
been made (the “Gross-Up Payment”), (b) Borrower shall make such withholding or
deductions, and (c) Borrower shall pay the full amount withheld or deducted to
the relevant taxation authority or other authority in accordance with Applicable
Law. Notwithstanding the foregoing, no Borrower shall be obligated to
make any portion of the Gross-Up Payment that is attributable to any withholding
or deductions that would not have been paid or claimed had the applicable Payee
or Payees properly claimed a complete exemption with respect thereto pursuant to
this Section 3.9. Any Payee that is entitled to an exemption from or
reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located or any treaty to which such jurisdiction is a party with
respect to payments hereunder, shall deliver to the Borrower such properly
completed and executed documentation, if any, prescribed by applicable law or
treaty as will permit such payments to be made without withholding or at a
reduced rate, and if any Payee receives or is granted any tax credit or
deduction which in its reasonable judgment is allocable to a Gross-Up Payment,
such Payee shall pay to the Borrower the amount of such credit or deduction to
the extent it will leave the Payee in no worse position than it would have been
if the Borrower had not been required to make the Gross-Up
Payment. Nothing contained herein shall interfere with the right of
any Payee to arrange its tax affairs in whatever manner it deems appropriate or
to claim relief from a tax liability in priority to any other credit or
deduction available to it.
35
IV.
COLLATERAL: GENERAL TERMS
4.1.
Security Interest in the
Collateral.
(a) To secure
the prompt payment and performance to Agent and each Lender of the Obligations,
Borrower hereby assigns, pledges and grants to Agent for its benefit and for the
ratable benefit of each Lender a continuing security interest in and to and Lien
on all of its Collateral, whether now owned or existing or hereafter acquired or
arising and wheresoever located. Borrower shall mark its books and
records as may be necessary or appropriate to evidence, protect and perfect
Agent’s security interest and shall cause its financial statements to reflect
such security interest. Borrower shall promptly provide Agent with
written notice of all commercial tort claims, such notice to contain the case
title together with the applicable court and a brief description of the
claim(s). Upon delivery of each such notice, Borrower shall be deemed
to hereby grant to Agent a security interest and lien in and to such commercial
tort claims and all proceeds thereof.
(b) Borrower
confirms that value has been given by Agent to Borrower, that Borrower has
rights in the Collateral existing at the date of this Agreement and that
Borrower and Agent have not agreed to postpone the time for attachment of any of
the Liens to any of the Collateral. The Liens will have effect and be
deemed to be effective whether or not the Obligations or any part thereof are
owing or in existence before or after or upon the date of this
Agreement.
4.2. Perfection of Security
Interest. Borrower shall take all action that may be necessary
or desirable, or that Agent may request, so as at all times to maintain the
validity, perfection, enforceability and priority of Agent’s security interest
in and Lien on the Collateral or to enable Agent to protect, exercise or enforce
its rights hereunder and in the Collateral, including, but not limited to, (i)
immediately discharging all Liens other than Permitted Encumbrances, (ii)
obtaining Lien Waiver Agreements, (iii) delivering to Agent, endorsed or
accompanied by such instruments of assignment as Agent may specify, and stamping
or marking, in such manner as Agent may specify, any and all chattel paper,
instruments, letters of credits and advices thereof and documents evidencing or
forming a part of the Collateral, (iv) entering into warehousing, lockbox and
other custodial arrangements satisfactory to Agent, and (v) executing and
delivering financing statements, control agreements, instruments of pledge,
mortgages, notices and assignments, in each case in form and substance
satisfactory to Agent, relating to the creation, validity, perfection,
maintenance or continuation of Agent’s security interest and Lien under the
PPSA, the Uniform Commercial Code or other Applicable Law. By its
signature hereto, Borrower hereby authorizes Agent to file against Borrower, one
or more financing, continuation or amendment statements pursuant to the PPSA,
the Uniform Commercial Code in form and substance satisfactory to Agent (which
statements may have a description of collateral which is broader than that set
forth herein). All charges, expenses and fees Agent may incur in
doing any of the foregoing, and any local taxes relating thereto, shall be
charged to Borrower’s Account as a Revolving Advance of a Base Rate Loan and
added to the Obligations, or, at Agent’s option, shall be paid to Agent for its
benefit and for the ratable benefit of Lenders immediately upon
demand.
4.3. Disposition of
Collateral. Borrower will safeguard and protect all Collateral
for Agent’s general account and make no disposition thereof whether by sale,
lease or otherwise except (a) the sale of Inventory in the Ordinary Course of
Business, and (b) the disposition or transfer of obsolete and worn-out Equipment
in the Ordinary Course of Business or Equipment no longer used or useful in
Borrower’s business during any fiscal year having an aggregate
fair
36
market
value of not more than $250,000 and only to the extent that (i) the net proceeds
of any such disposition of Equipment are either (i) used to acquire replacement
Equipment which is subject to Agent’s security interest subject to any other
Permitted Encumbrance, (ii) remitted to any holder of a Permitted Encumbrance on
such Equipment to the extent of such Person’s prior Lien on such Equipment, or
(iii) remitted to Agent to the extent required under Section 2.11 to be applied
pursuant to Section 2.11.
4.4.
Preservation of
Collateral. In addition to the rights and remedies set forth
in Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent
deems necessary in its Permitted Discretion to protect Agent’s interest in and
to preserve the Collateral, including the hiring of such security guards or the
placing of other security protection measures as Agent may deem appropriate; (b)
may employ and maintain at any of Borrower’s premises a custodian who shall have
full authority to do all acts necessary to protect Agent’s interests in the
Collateral; (c) may lease warehouse facilities to which Agent may move all or
part of the Collateral; (d) may use Borrower’s owned or leased lifts, hoists,
trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may proceed over and
through any of Borrower’s owned or leased property. Borrower shall
cooperate fully with all of Agent’s efforts to preserve the Collateral and will
take such actions to preserve the Collateral as Agent may direct. All
of Agent’s expenses of preserving the Collateral, including any expenses
relating to the bonding of a custodian, shall be charged to Borrower’s Account
as a Revolving Advance and added to the Obligations.
4.5.
Ownership of
Collateral.
(a) With
respect to the Collateral, at the time the Collateral becomes subject to Agent’s
security interest: (i) Borrower shall be the sole owner of and fully
authorized and able to sell, transfer, pledge and/or grant a security interest
in each and every item of the its respective Collateral to Agent; and, except
for Permitted Encumbrances the Collateral shall be free and clear of all Liens
and encumbrances whatsoever; (ii) each document and agreement executed by
Borrower or delivered to Agent or any Lender in connection with this Agreement
shall be true and correct in all respects; (iii) all signatures and endorsements
of Borrower that appear on such documents and agreements shall be genuine and
Borrower shall have full capacity to execute same; and (iv) Borrower’s Equipment
and Inventory shall be located as set forth on Schedule 4.5 and shall not be
removed from such location(s) without the prior written consent of Agent except
with respect to the sale of Inventory in the Ordinary Course of Business and
Equipment to the extent permitted in Section 4.3 hereof.
(b) (i) There
is no location at which Borrower has any Inventory (except for Inventory in
transit) other than those locations listed on Schedule 4.5; (ii) Schedule 4.5
hereto contains a correct and complete list, as of the Closing Date, of the
legal names and addresses of each warehouse at which Inventory of Borrower is
stored; none of the receipts received by Borrower from any warehouse states that
the goods covered thereby are to be delivered to bearer or to the order of a
named Person or to a named Person and such named Person’s assigns; (iii)
Schedule 4.5 hereto sets forth a correct and complete list as of the Closing
Date of (A) each place of business of Borrower and (B) the chief executive
office of Borrower; and (iv) Schedule 4.5 hereto sets forth a correct and
complete list as of the Closing Date of the location, by province
37
and
street address, of all Real Property owned or leased by Borrower, together with
the names and addresses of any landlords.
4.6.
Defense of Agent’s and
Lenders’ Interests. Until (a) payment and performance in full
of all of the Obligations (other than indemnification obligations for which no
claim has been made) and (b) termination of this Agreement, Agent’s interests in
the Collateral shall continue in full force and effect. During such
period the Borrower shall not, without Agent’s prior written consent, pledge,
sell (except Inventory in the Ordinary Course of Business and other Collateral
to the extent permitted in Section 4.3 hereof), assign, transfer, create or
suffer to exist a Lien upon or encumber or allow or suffer to be encumbered in
any way except for Permitted Encumbrances, any part of the
Collateral. Borrower shall defend Agent’s interests in the Collateral
against any and all Persons whatsoever. At any time following demand
by Agent for payment of all Obligations, Agent shall have the right to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including: labels, stationery, documents,
instruments and advertising materials. If Agent exercises this right
to take possession of the Collateral, Borrower shall, upon demand, assemble it
in the best manner possible and make it available to Agent at a place reasonably
convenient to Agent. In addition, with respect to all Collateral,
Agent and Lenders shall be entitled to all of the rights and remedies set forth
herein and further provided by the PPSA, the Uniform Commercial Code or other
Applicable Law. Borrower shall, and Agent may, at its option,
instruct all suppliers, carriers, forwarders, warehousers or others receiving or
holding cash, checks, Inventory, documents or instruments in which Agent holds a
security interest to deliver same to Agent and/or subject to Agent’s order and
if they shall come into Borrower’s possession, they, and each of them, shall be
held by Borrower in trust as Agent’s trustee, and Borrower will immediately
deliver them to Agent in their original form together with any necessary
endorsement.
4.7.
Books and
Records. Borrower shall: (a) keep proper books of record and
account in which full, true and correct entries will be made of all dealings or
transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including by reason of enumeration, accruals for
premiums, if any, due on required payments and accruals for depreciation,
obsolescence, or amortization of properties), which should be set aside from
such earnings in connection with its business. All determinations
pursuant to this subsection shall be made in accordance with, or as required by,
GAAP consistently applied in the opinion of such independent public accountant
as shall then be regularly engaged by Borrower.
4.8.
Financial
Disclosure. Borrower hereby irrevocably authorizes and directs
all accountants and auditors employed by Borrower at any time during the Term to
exhibit and deliver to Agent and each Lender copies of any of Borrower’s
financial statements, trial balances or other accounting records of any sort in
the accountant’s or auditor’s possession, and to disclose to Agent and each
Lender any information such accountants may have concerning Borrower’s financial
status and business operations. Borrower hereby authorizes all
Governmental Bodies to furnish to Agent and each Lender copies of reports or
examinations relating to Borrower, whether made by Borrower or otherwise;
however, Agent and each Lender
38
will
attempt to obtain such information or materials directly from Borrower prior to
obtaining such information or materials from such accountants or Governmental
Bodies.
4.9.
Compliance with
Laws. Borrower shall comply with all Applicable Laws with
respect to the Collateral or any part thereof or to the operation of Borrower’s
business the non-compliance with which could reasonably be expected to have a
Material Adverse Effect. Borrower may, however, contest or dispute
any Applicable Laws in any reasonable manner, provided that any related Lien is
inchoate or stayed and sufficient reserves are established to the reasonable
satisfaction of Agent to protect Agent’s Lien on or security interest in the
Collateral.
4.10.
Inspection of
Premises. At all reasonable times and so long as no Event of
Default has occurred and is continuing, upon contemporaneous notice to Borrower,
Agent and each Lender shall have full access to and the right to audit, check,
inspect and make abstracts and copies from Borrower’s books, records, audits,
correspondence and all other papers relating to the Collateral and the operation
of Borrower’s business. Subject to the foregoing, Agent, any Lender
and their agents may enter upon any premises of Borrower at any time during
business hours and at any other reasonable time, and from time to time, for the
purpose of inspecting the Collateral and any and all records pertaining thereto
and the operation of Borrower’s business; provided, that Agent shall use its
best efforts to conduct such inspections in a manner that will not interfere
with Borrower’s continued operations and no Lender shall have the independent
right to enter the premises of Borrower without Agent.
4.11.
Insurance. The
assets and properties of Borrower at all times shall be maintained in accordance
with the requirements of all insurance carriers which provide insurance with
respect to the assets and properties of Borrower so that such insurance shall
remain in full force and effect. Borrower shall bear the full risk of
any loss of any nature whatsoever with respect to the Collateral. At
Borrower’s own cost and expense in amounts and with carriers acceptable to
Agent, Borrower shall: (a) keep all its insurable properties and properties in
which Borrower has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by “all-risk” coverage insurance and
such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to Borrower’s including business
interruption insurance; (b) maintain crime and fiduciary liability insurance in
such amounts as is customary in the case of companies engaged in businesses
similar to Borrower insuring against larceny, embezzlement or other criminal
misappropriation of insured’s officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker’s compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Borrower is engaged in business; (e) furnish Agent with (i) evidence of
the maintenance of such policies by the renewal thereof at least fifteen (15)
days before any expiration date, and (ii) appropriate loss payable endorsements
in form and substance satisfactory to Agent, naming Agent as a loss payee as its
interests may appear with respect to all insurance
coverage referred to in clause (a) above, and as an additional insured with
respect to all insurance coverage referred to in clause (c) above, and providing
(A) that all proceeds under all insurance coverage referred to in clause (a)
above shall be payable to Agent, (B) no such insurance shall be affected by any
act or neglect of the insured or owner of the property
39
described
in such policy. Borrower shall not cancel, amend or terminate such policy and
loss payable clauses referred to in clause (e) above unless at least thirty (30)
days’ prior written notice is given to Agent. In the event of any
loss under all insurance coverage referred to in clause (a) above, the carriers
named therein hereby are directed by Agent and the Borrower to make payment for
such loss to Agent and not to Borrower and Agent jointly. If any
insurance losses are paid by check, draft or other instrument payable to
Borrower and Agent jointly, Agent may endorse Borrower’s name thereon and do
such other things as Agent may deem advisable to reduce the same to
cash. Agent is hereby authorized to adjust and compromise claims
under insurance coverage referred to in clauses (a), and (b) above; provided
however, that so long as no Default or Event of Default has occurred or is
continuing, Borrower shall have the right to adjust and compromise claims in
amounts less than $250,000. All loss recoveries upon any such
insurance shall be applied to the Obligations, in such order as Agent in its
sole discretion shall determine. Any surplus shall be paid by Agent
to Borrower or applied as may be otherwise required by law. Any
deficiency thereon shall be paid by Borrower to Agent, on demand.
4.12.
Failure to Pay
Insurance. If Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Agent, if Agent so elects,
may obtain such insurance and pay the premium therefor on behalf of Borrower,
and charge Borrower’s Account therefor as a Revolving Advance of a Base Rate
Loan and such expenses so paid shall be part of the Obligations.
4.13.
Payment of
Taxes. Except to the extent such charges are Properly
Contested, Borrower will pay, when due, all taxes, assessments and other Charges
lawfully levied or assessed upon Borrower or any of the Collateral including
real and personal property taxes, assessments and charges and all franchise,
income, employment, social security benefits, withholding, and sales
taxes. If any tax by any Governmental Body is or may be imposed on or
as a result of any transaction between Borrower and Agent or any Lender which
Agent or any Lender may be required to withhold or pay or if any taxes,
assessments, or other Charges remain unpaid after the date fixed for their
payment, or if any claim shall be made which, in Agent’s or any Lender’s
opinion, may possibly create a valid Lien on the Collateral, Agent may without
notice to Borrower pay the taxes, assessments or other Charges and Borrower
hereby indemnifies and holds Agent and each Lender harmless in respect
thereof. Agent will not pay any taxes, assessments or Charges to the
extent that Borrower has Properly Contested such charges. The amount
of any payment by Agent under this Section 4.13 shall be charged to Borrower’s
Account as a Revolving Advance of a Base Rate Loan and added to the Obligations
and, until Borrower shall furnish Agent with an indemnity therefor (or supply
Agent with evidence satisfactory to Agent that due provision for the payment
thereof has been made), Agent may hold without interest any balance standing to
Borrower’s credit and Agent shall retain its security interest in and Lien on
any and all Collateral held by Agent.
4.14.
Payment of Leasehold
Obligations. Borrower shall at all times pay, when and as due,
its rental obligations under all leases under which it is a tenant, and shall
otherwise comply, in all material respects, with all other terms of such leases
and keep them in full force and effect and, at Agent’s request will provide
evidence of having done so; provided, that the foregoing will not apply to any
leases Borrower have for reasonable business purposes elected to terminate early
and from which Borrower have removed Collateral to another location otherwise in
compliance herewith.
40
4.15. Receivables.
(a) Nature of
Receivables. Each of the Receivables shall be a bona fide and
valid account representing a bona fide indebtedness incurred by the Customer
therein named, for a fixed sum as set forth in the invoice relating thereto
(provided immaterial or unintentional invoice errors shall not be deemed to be a
breach hereof) with respect to an absolute sale or lease and delivery of goods
upon stated terms of Borrower, or work, labor or services theretofore rendered
by Borrower as of the date each Receivable is created. Same shall be
due and owing in accordance with the Borrower’s standard terms of sale without
dispute, setoff or counterclaim except as may be stated on the accounts
receivable schedules delivered by Borrower to Agent.
(b) Solvency of
Customers. Each Customer, to the best of Borrower’s knowledge,
as of the date each Receivable is created, is and will be solvent and able to
pay all Receivables on which the Customer is obligated in full when due or with
respect to such Customers of Borrower who are not to Borrower’s knowledge
solvent Borrower has set up on its books and in its financial records bad debt
reserves adequate to cover such Receivables.
(c) Location of
Borrower. Borrower’s chief executive office is located at the
office identified on Schedule 4.15 attached hereto. Until written
notice is given to Agent by Borrower of any other office at which Borrower keeps
its records pertaining to Receivables, all such records shall be kept at such
executive office.
(d) Collection of
Receivables. Except as permitted in Section 4.15(g) hereof,
until Borrower’s authority to do so is terminated by Agent (which notice Agent
may give at any time following the occurrence of an Event of Default or a
Default or when Agent in its Permitted Discretion deems it to be in Lenders’
best interest to do so), Borrower will, at Borrower’s sole cost and expense, but
on Agent’s behalf and for Agent’s account, collect as Agent’s property and in
trust for Agent all amounts received on Receivables, and shall not commingle
such collections with Borrower’s funds or use the same except to pay
Obligations. Borrower shall deposit in the Blocked Account or, upon
request by Agent, deliver to Agent, in original form and on the date of receipt
thereof, all checks, drafts, notes, money orders, acceptances, cash and other
evidences of Indebtedness.
(e) Notification of Assignment
of Receivables. At any time following the occurrence of an
Event of Default or when Agent in its Permitted Discretion deems it in Lenders’
best interest to do so, Agent shall have the right to send notice of the
assignment of, and Agent’s security interest in and Lien on, the Receivables to
any and all Customers or any third party in possession of or with other rights
in any of the Collateral. Thereafter, Agent shall have the sole right
to collect the Receivables, take possession of the Collateral, or
both. Agent’s actual collection expenses, including, but not limited
to, stationery and postage, telephone and telegraph, secretarial and clerical
expenses and the salaries of any collection personnel used for collection, may
be charged to Borrower’s Account and added to the Obligations.
41
Borrower
hereby constitutes Agent or Agent’s designee as Borrower’s attorney with power
(i) at any time: (A) to endorse Borrower’s name upon any notes, acceptances,
checks, drafts, money orders or other evidences of payment or Collateral; (B) to
sign Borrower’s name on any invoice or bill of lading relating to any of the
Receivables, drafts against Customers, assignments and verifications of
Receivables; (C) to send verifications of Receivables to any Customer; (D) to
sign Borrower’s name on all financing statements or any other documents or
instruments deemed necessary or appropriate by Agent to preserve, protect, or
perfect Agent’s interest in the Collateral and to file same; and (ii) at any
time following the occurrence of a Default or Event of Default: (A) to demand
payment of the Receivables; (B) to enforce payment of the Receivables by legal
proceedings or otherwise; (C) to exercise all of Borrower’s rights and remedies
with respect to the collection of the Receivables and any other Collateral; (D)
to settle, adjust, compromise, extend or renew the Receivables; (E) to settle,
adjust or compromise any legal proceedings brought to collect Receivables; (F)
to prepare, file and sign Borrower’s name on a proof of claim in bankruptcy or
similar document against any Customer; (G) to prepare, file and sign Borrower’s
name on any notice of Lien, assignment or satisfaction of Lien or similar
document in connection with the Receivables; (H) to accept the return of goods
represented by any of the Receivables without notice to or consent by Borrower,
without discharging or in any way affecting Borrower’s liability hereunder and
(I) to do all other acts and things necessary to carry out this
Agreement. All acts of said attorney or designee are hereby ratified
and approved, and said attorney or designee shall not be liable for any acts of
omission or commission nor for any error of judgment or mistake of fact or of
law, unless done maliciously or with gross (not mere) negligence (as determined
by a court of competent jurisdiction in a final non-appealable judgment); this
power being coupled with an interest is irrevocable while any of the Obligations
remain unpaid. Agent shall have the right at any time after the
occurrence of an Event of Default change the address for delivery of mail
addressed to Borrower to such address as Agent may designate and to receive,
open and dispose of all mail addressed to Borrower.
(g) Establishment of a Lockbox
Account, Dominion Account. All proceeds of Collateral shall be
deposited by Borrower into either (i) a lockbox account, dominion account or
such other “blocked account” (“Blocked Accounts”) established at a bank or banks
(each such bank, a “Blocked Account Bank”) pursuant to an arrangement with such
Blocked Account Bank as may be selected by Borrower and be acceptable to Agent
or (ii) depository accounts (“Depository Accounts”) established at Agent for the
deposit of such proceeds. Borrower, Agent and each Blocked Account
Bank shall enter into a deposit account control agreement in form and substance
satisfactory to Agent directing such Blocked Account Bank, upon notice from
Agent, to transfer such funds so deposited to Agent, either to any account
maintained by Agent at said Blocked Account Bank or by wire transfer to
appropriate account(s) of Agent. All funds deposited in such Blocked
Accounts shall immediately become the property of Agent and Borrower shall
obtain the agreement by such Blocked Account Bank to waive any offset rights
against the funds so deposited. Neither Agent nor any Lender assumes
any responsibility for such blocked account arrangement, including any claim of
accord and satisfaction or release with respect to deposits accepted by any
Blocked Account Bank thereunder. All deposit accounts and investment
accounts of Borrower are set forth on Schedule
4.15(g). Notwithstanding anything to the
contrary set forth in this Section 4.15(g), Borrower shall be permitted to
deposit checks or other payments received at Borrower’s locations in the
Ordinary Course of Business in deposit accounts which may not be subject to a
blocked account or similar agreements; provided that, at
42
no time
shall Borrower have more than $50,000 in the aggregate in all such accounts
which are not Blocked Accounts or Depository Accounts.
(h) Adjustments. Borrower
will not, without Agent’s consent, compromise or adjust any material amount of
the Receivables (or extend the time for payment thereof) or accept any material
returns of merchandise or grant any additional discounts, allowances or credits
thereon except for those compromises, adjustments, returns, discounts, credits
and allowances as granted in the Ordinary Course of Business of
Borrower.
4.16.
Intentionally
Omitted
4.17.
Maintenance of
Equipment. The Equipment shall be maintained in good operating
condition and repair (reasonable wear and tear excepted) and all necessary
replacements of and repairs thereto shall be made so that the value and
operating efficiency of the Equipment shall be maintained and
preserved. Borrower shall not use or operate the Equipment in
violation of any law, statute, ordinance, code, rule or regulation the violation
of which would reasonably be expected to have a Material Adverse
Effect. Borrower shall have the right to sell Equipment to the extent
set forth in Section 4.3 hereof.
4.18.
Exculpation of
Liability. Nothing herein contained shall be construed to
constitute Agent or any Lender as Borrower’s agent for any purpose whatsoever,
nor shall Agent or any Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof. Neither
Agent nor any Lender, whether by anything herein or in any assignment or
otherwise, assume any of Borrower’s obligations under any contract or agreement
assigned to Agent or such Lender, and neither Agent nor any Lender shall be
responsible in any way for the performance by Borrower of any of the terms and
conditions thereof.
4.19.
Environmental
Matters.
(a) Borrower
shall ensure that the Real Property and all operations and businesses conducted
thereon remains in material compliance with all Environmental Laws and shall not
place or permit to be placed any Hazardous Substances on any Real Property
except as permitted by Applicable Law or appropriate governmental
authorities.
(b) Borrower
shall maintain procedures to assure and monitor continued material compliance
with all applicable Environmental Laws which procedures shall include periodic
reviews of such compliance.
(c) Borrower
shall (i) employ in connection with the use of the Real Property appropriate
technology necessary to maintain compliance with any applicable Environmental
Laws and (ii) dispose of any and all Hazardous Waste generated at the Real
Property only at facilities and with carriers that maintain valid permits under
any applicable Environmental Laws. Borrower shall use its best
efforts to obtain certificates of disposal, such as hazardous waste manifest
receipts, from all treatment, transport, storage or disposal facilities or
operators employed by Borrower in connection with the transport or disposal of
any Hazardous Waste generated at the Real Property.
43
(d) In the
event Borrower obtains, gives or receives written notice of any Release or
threat of Release of a reportable quantity of any Hazardous Substances at the
Real Property (any such event being hereinafter referred to as a “Hazardous
Discharge”) or receives any written notice of violation, request for information
or notification that it is potentially responsible for investigation or cleanup
of environmental conditions at the Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any Hazardous Discharge
or violation of Environmental Laws affecting the Real Property or Borrower’s
interest therein (any of the foregoing is referred to herein as an
“Environmental Complaint”) from any Person, including any Governmental Body
responsible in whole or in part for environmental matters in the province in
which the Real Property is located (any such person or entity hereinafter the
“Authority”), then Borrower shall, within five (5) Business Days, give written
notice of same to Agent detailing facts and circumstances of which Borrower is
aware giving rise to the Hazardous Discharge or Environmental
Complaint. Such information is to be provided to allow Agent to
protect its security interest in and Lien on the Real Property and the
Collateral and is not intended to create nor shall it create any obligation upon
Agent or any Lender with respect thereto.
(e) Borrower
shall promptly forward to Agent copies of any written request for information,
notification of potential liability, demand letter relating to potential
responsibility with respect to the investigation or cleanup of Hazardous
Substances at any other site owned, operated or used by Borrower to dispose of
Hazardous Substances and shall continue to forward copies of correspondence
between Borrower and the Authority regarding such claims to Agent until the
claim is settled. Borrower shall promptly forward to Agent copies of
all documents and reports concerning a Hazardous Discharge at the Real Property
that Borrower is required to file under any Environmental Laws. Such
information is to be provided solely to allow Agent to protect Agent’s security
interest in and Lien on the Real Property and the Collateral.
(f) Borrower
shall respond promptly as required by Environmental Laws to any Hazardous
Discharge or Environmental Complaint and take all necessary action in order to
safeguard the health of any Person and to avoid subjecting the Collateral or
Real Property to any Lien. If Borrower shall fail to respond promptly
to any Hazardous Discharge or Environmental Complaint or Borrower shall fail to
comply with any of the requirements of any Environmental Laws, Agent on behalf
of Lenders may, but without the obligation to do so, for the sole purpose of
protecting Agent’s interest in the Collateral: (i) give such notices or (ii)
enter onto the Real Property (or authorize third parties to enter onto the Real
Property) and take such actions as Agent (or such third parties as directed by
Agent) deem reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental
Complaint. All reasonable costs and expenses incurred by Agent and
Lenders (or such third parties) in the exercise of any such rights, including
any sums paid in connection with any judicial or administrative investigation or
proceedings, fines and penalties, together with interest thereon from the date
expended at the Default Rate for Base Rate Loans constituting Revolving Advances
shall be paid upon demand by Borrower, and until paid shall be added to and
become a part of the Obligations secured by the Liens created by the terms of
this Agreement or any other agreement between Agent, any Lender and
Borrower.
44
(g) Promptly
upon the written request of Agent from time to time, Borrower shall provide
Agent, at Borrower’s expense, with an environmental site assessment or
environmental audit report prepared by an environmental engineering firm
acceptable in the reasonable opinion of Agent, to assess with a reasonable
degree of certainty the existence of a Hazardous Discharge and the potential
costs in connection with abatement, cleanup and removal of any Hazardous
Substances found on, under, at or within the Real Property. Unless an
Event of Default has occurred, such requests shall be made no more frequently
than once per year unless Agent reasonably believes that a Hazardous Discharge
has occurred or an Environmental Complaint has been or will be
filed. Any report or investigation of such Hazardous Discharge
proposed and acceptable to an appropriate Authority that is charged to oversee
the clean-up of such Hazardous Discharge shall be acceptable to
Agent. If such estimates, individually or in the aggregate, exceed
$100,000, Agent shall have the right to require Borrower to post a bond, letter
of credit or other security reasonably satisfactory to Agent to secure payment
of these costs and expenses.
(h) Borrower
shall defend and indemnify Agent and Lenders and hold Agent, Lenders and their
respective employees, agents, directors and officers harmless from and against
all loss, liability, damage and expense, claims, costs, fines and penalties,
including attorney’s fees, suffered or incurred by Agent or Lenders under or on
account of any Environmental Laws, including the assertion of any Lien
thereunder, with respect to any Hazardous Discharge, the presence of any
Hazardous Substances affecting the Real Property, whether or not the same
originates or emerges from the Real Property or any contiguous real estate,
including any loss of value of the Real Property as a result of the foregoing,
except to the extent such loss, liability, damage, expense claim, cost, fine or
penalty is attributable to any Hazardous Discharge or the presence of any
Hazardous Substances resulting from (i) actions on the part of Agent or any
Lender or (ii) the actions of a third party which occur after the termination of
this Agreement. Borrower’s obligations under this Section 4.19 shall
arise upon the discovery of the presence of any Hazardous Substances at the Real
Property, whether or not any federal, provincial, or local environmental agency
has taken or threatened any action in connection with the presence of any
Hazardous Substances. Borrower’s obligation and the indemnifications
hereunder shall survive the termination of this Agreement.
(i) For
purposes of Section 4.19 and 5.7, all references to Real Property shall be
deemed to include all of Borrower’s right, title and interest in and to its
owned and leased premises.
4.20.
Financing
Statements. Except as respects the financing statements filed
by Agent and the financing statements described on Schedule 1.2, no financing
statement covering any of the Collateral or any proceeds thereof is on file in
any public office.
4.21.
Security Interest
Limitations. The security interests granted herein shall not
attach to (i) any consumer goods of Borrower, or (ii) the last day of any real
property lease, or any agreement to lease, to which Borrower is now or becomes a
party as lessee, provided that any such last day shall be held in trust by
Borrower for Agent and, on the exercise by Agent of it rights and remedies
hereunder, shall be assigned by Borrower as directed by
Agent. Notwithstanding Section 4.1 hereof, Agent shall only have a
security interest in, and not a present assignment of, any Canadian trademarks
forming part of the Collateral.
45
V. REPRESENTATIONS
AND WARRANTIES.
Borrower
represents and warrants as follows:
5.1.
Authority. Borrower
has full power, authority and legal right to enter into this Agreement and the
Other Documents and to perform all its respective Obligations hereunder and
thereunder. This Agreement and the Other Documents have been duly
executed and delivered by Borrower, and this Agreement and the Other Documents
constitute the legal, valid and binding obligation of Borrower enforceable in
accordance with their terms, except as such enforceability may be limited by any
applicable bankruptcy, insolvency, moratorium or similar laws affecting
creditors’ rights generally. The execution, delivery and performance
of this Agreement and of the Other Documents (a) are within Borrower’s corporate
or limited liability company powers, as applicable, have been duly authorized by
all necessary corporate or company, action, as applicable are not in
contravention of law or the terms of Borrower’s by-laws, certificate of
incorporation or operating agreement, certificate of formation, as applicable,
or other applicable documents relating to Borrower’s formation or to the conduct
of Borrower’s business or of any material agreement or undertaking to which
Borrower is a party or by which Borrower is bound, (b) will not conflict with or
violate any law or regulation, or any judgment, order or decree of any
Governmental Body, (c) will not require the Consent of any Governmental Body or
any other Person, except those Consents set forth on Schedule 5.1 hereto, all of
which will have been duly obtained, made or compiled prior to the Closing Date
and which are in full force and effect and (d) will not conflict with, nor
result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien except Permitted Encumbrances upon any
asset of Borrower under the provisions of any agreement, charter document,
instrument, by-laws or operating agreement or other instrument to which Borrower
is a party or by which it or its property is a party or by which it may be
bound.
5.2.
Formation and
Qualification.
(a) Borrower
is duly incorporated or formed, as applicable, and in good standing under the
laws of the jurisdiction listed on Schedule 5.2(a) and is qualified to do
business and is in good standing in the jurisdictions listed on Schedule 5.2(a)
which constitute all jurisdictions in which qualification and good standing are
necessary for Borrower to conduct its business and own its property and where
the failure to so qualify could reasonably be expected to have a Material
Adverse Effect on Borrower. Borrower has delivered to Agent true and
complete copies of its certificate of incorporation and by-laws or certificate
of formation and operating agreement, as applicable, and will promptly notify
Agent of any amendment or changes thereto.
(b) Borrower
has no Subsidiaries.
5.3.
Survival of Representations
and Warranties. All representations and warranties of Borrower
contained in this Agreement and the Other Documents shall be true at the time of
Borrower’s execution of this Agreement and the Other Documents, and shall
survive the execution, delivery and acceptance thereof by the parties thereto
and the closing of the transactions described therein or related
thereto.
46
5.4.
Tax
Returns. Borrower has filed all Canadian federal, provincial,
and local tax returns and other reports each is required by law to file and has
paid all taxes, assessments, fees and other governmental charges that are set
out in such returns and reports as being due and payable. Canadian
federal, provincial, and local income tax returns of Borrower have been assessed
by the appropriate taxing authorities for all fiscal years prior to and
including the fiscal year ending September 2008. The provision for
taxes on the books of Borrower is adequate for all years not closed by
applicable statutes, and for taxes accrued to date for its current fiscal year,
and no Borrower has any knowledge of any deficiency or additional assessment in
connection therewith not provided for on its books.
5.5. Intentionally
Omitted
5.6.
Entity
Names. Borrower has not been known by any other corporate name
in the five years preceding the date hereof and does not sell Inventory under
any other name except as set forth on Schedule 5.6, nor has Borrower been the
surviving corporation or company, as applicable, of a merger or consolidation or
acquired all or substantially all of the assets of any Person during the five
(5) years preceding the date hereof except as set forth on Schedule
5.6.
5.7.
Environmental
Compliance.
(a) Borrower
has duly complied with, and its facilities, business, assets, property,
leaseholds, Real Property and Equipment are in compliance in all material
respects with, the provisions of Environmental Laws; there have been no
outstanding citations, notices or orders of non-compliance issued to Borrower or
relating to its business, assets, property, leaseholds or Equipment under any
such laws, rules or regulations.
(b) Borrower
has been issued all required Canadian federal, provincial, and local licenses,
certificates or permits relating to all applicable Environmental Laws which are
material to the operation of the business.
(c) (i) There
are no visible signs of releases, spills, discharges, leaks or disposal
(collectively referred to as “Releases”) of Hazardous Substances at, upon, under
or within any Real Property including any premises leased by Borrower; (ii)
there are no underground storage tanks or polychlorinated biphenyls on the Real
Property including any premises leased by Borrower; (iii) the Real Property
including any premises leased by Borrower has never been used as a treatment,
storage or disposal facility of Hazardous Waste; and (iv) no Hazardous
Substances are present on the Real Property including any premises leased by
Borrower, excepting such quantities as are handled in accordance with all
applicable manufacturer’s instructions and governmental regulations and in
proper storage containers and as are necessary for the operation of the
commercial business of Borrower or of its tenants.
5.8.
Solvency; No Litigation,
Violation, Indebtedness or Default.
(a) After
giving effect to the Transactions, Borrower will be solvent, able to pay its
debts as they mature, will have capital sufficient to carry on its business and
all businesses in which it is about to engage, and (i) as of the Closing Date,
the fair present saleable value of its assets, calculated on a going concern
basis, is in excess of the amount of its liabilities
47
and (ii)
subsequent to the Closing Date, the fair saleable value of its assets
(calculated on a going concern basis) will be in excess of the amount of its
liabilities.
(b) Except as
disclosed in Schedule 5.8(b), Borrower does not have (i) any pending, or to
Borrower’s knowledge threatened, litigation, arbitration, actions or proceedings
which would reasonably expected to have a Material Adverse Effect, and (ii) any
liabilities or indebtedness for borrowed money other than the
Obligations.
(c) Borrower
is not in violation of (i) any applicable statute, law, rule, regulation or
ordinance or (ii) any order of any court, Governmental Body or arbitration board
or tribunal, in each case, in any respect which would reasonably be expected to
have a Material Adverse Effect.
5.9.
Patents, Trademarks,
Copyrights and Licenses. All patents, patent applications,
trademarks, trademark applications, service marks, service mark applications,
copyrights, copyright applications, design rights, tradenames, assumed names,
trade secrets and licenses owned by Borrower are set forth on Schedule 5.9, are
valid and have been duly registered or filed with all appropriate Governmental
Bodies and constitute all of the intellectual property rights which are
necessary for the operation of its business; there is no objection to or pending
challenge to the validity of any such patent, trademark, copyright, design
rights, tradename, trade secret or license and the Borrower is not aware of any
grounds for any challenge, except as set forth in Schedule 5.9
hereto. Each patent, patent application, patent license, trademark,
trademark application, trademark license, service mark, service mark
application, service mark license, design rights, copyright, copyright
application and copyright license owned or held by Borrower and all trade
secrets used by Borrower consist of original material or property developed by
Borrower or was lawfully acquired by Borrower from the proper and lawful owner
thereof. To the extent reasonably deemed necessary by Borrower for
the operation of its business, each of such items has been maintained so as to
preserve the value thereof from the date of creation or acquisition
thereof. With respect to all software used by Borrower, Borrower is
in possession of all source and object codes related to each piece of software
or owns or licenses such software or is the beneficiary of a source code escrow
agreement, each such source code escrow agreement being listed on Schedule 5.9
hereto.
5.10.
Licenses and
Permits. Except as set forth in Schedule 5.10, Borrower (a) is
in compliance with and (b) has procured and is now in possession of, all
material licenses or permits required by any applicable federal, provincial or local law,
rule or regulation for the operation of its business in each jurisdiction
wherein it is now conducting or proposes to conduct business and where the
failure to procure such licenses or permits could have a Material Adverse
Effect.
5.11.
Default of
Indebtedness. The Borrower is not in default in the payment of
the principal of or interest on any Indebtedness or under any instrument or
agreement under or subject to which any Indebtedness has been issued and no
event has occurred under the provisions of any such instrument or agreement
which with or without the lapse of time or the giving of notice, or both,
constitutes or would constitute an event of default thereunder.
48
5.12.
No
Default. The Borrower is not in default in the payment or
performance of any of its contractual obligations the failure with which to
comply would reasonably be expected to have a Material Adverse Effect and no
Default has occurred.
5.13.
No Burdensome
Restrictions. The Borrower is not party to any contract or
agreement the performance of which would have a Material Adverse
Effect. Borrower has heretofore delivered to Agent true and complete
copies of all material contracts to which it is a party or to which it or any of
its properties is subject. Borrower has not agreed or consented to
cause or permit in the future (upon the happening of a contingency or otherwise)
any of its property, whether now owned or hereafter acquired, to be subject to a
Lien which is not a Permitted Encumbrance.
5.14.
No Labour
Disputes. Borrower is not involved in any material labor
dispute; there are no strikes or walkouts or union organization of Borrower’s
employees threatened or in existence and no labour contract is uled to expire
during the Term other than as set forth on Schedule 5.14 hereto.
5.15. Intentionally
Omitted
5.16. Intentionally
Omitted
5.17.
Disclosure. No
representation or warranty made by Borrower in this Agreement, the Perfection
Certificate, or in any financial statement, report, certificate or any other
document furnished in connection herewith or therewith contains any untrue
statement of a material fact or omits to state any material fact necessary to
make the statements herein or therein not misleading. There is no
fact known to Borrower or which reasonably should be known to Borrower which
Borrower has not disclosed to Agent in writing with respect to the transactions
contemplated or evidenced by this Agreement which would reasonably be expected
to have a Material Adverse Effect.
5.18.
Swaps. Borrower
is not a party to, nor will it be a party to, any swap agreement whereby
Borrower has agreed or will agree to swap interest rates or currencies unless
same provides that damages upon termination following an event of default
thereunder are payable on an unlimited “two-way basis” without regard to fault
on the part of either party.
5.19.
Conflicting
Agreements. No provision of any mortgage, indenture, contract,
agreement, judgment, decree or order binding on Borrower or affecting the
Collateral conflicts with, or requires any Consent which has not already been
obtained to, or would in any way prevent the execution, delivery or performance
of, the terms of this Agreement or the Other Documents.
5.20.
Application of Certain Laws
and Regulations. Neither Borrower nor any Affiliate of
Borrower is subject to any law, statute, rule or regulation which regulates the
incurrence of any Indebtedness, including laws, statutes, rules or regulations
relative to common or interstate carriers or to the sale of electricity, gas,
steam, water, telephone, telegraph or other public utility
services.
49
5.21. Business and Property of
Borrower. Upon and after the Closing Date, Borrower
does not propose to engage in any business other than the manufacture,
distribution and sale of primarily outdoor equipment, or as permitted in Section
7.9 and activities necessary to conduct the foregoing. On the Closing
Date and at all times thereafter, Borrower owns all the property and possess all
of the rights and Consents necessary for the conduct of the business of
Borrower.
5.22.
Intentionally
Omitted
5.23.
Anti-Terrorism
Laws.
(a) General. Neither
Borrower nor any Affiliate of Borrower is in violation of any Anti-Terrorism Law
or engages in or conspires to engage in any transaction that evades
or avoids, or has the purpose of evading or avoiding, or attempts to violate,
any of the prohibitions set forth in any Anti-Terrorism Law.
Intentionally
Omitted
5.24.
Intentionally
Omitted
5.25.
Intentionally
Omitted
5.26.
Equity
Interests. The authorized and outstanding Equity Interests of
Borrower is as shown on Schedule 5.27 hereto. All of the Equity
Interests of Borrower has been duly and validly authorized and issued and is
fully paid and non-assessable and has been sold and delivered to the holders
hereof in compliance with, or under valid exemption from, all Canadian federal
and provincial laws and the rules and regulations of each Governmental Body
governing the sale and delivery of securities. Except for the rights
and obligations shown on Schedule 5.27, there are no subscriptions, warrants,
options, calls, commitments, rights or agreement by which Borrower or any of the
shareholders of Borrower is bound relating to the issuance, transfer, voting or
redemption of shares of its Equity Interests or any pre-emptive rights held by
any Person with respect to the Equity Interests of Borrower. Except
as shown on Schedule 5.27, Borrower have not issued any securities convertible
into or exchangeable for shares of its Equity Interests or any options, warrants
or other rights to acquire such shares or securities convertible into or
exchangeable for such shares.
VI. AFFIRMATIVE
COVENANTS.
Borrower
shall, unless otherwise agreed in writing by the Required Lenders or the
Lenders, as applicable, or until payment in full of the Obligations and
termination of this Agreement:
6.1.
Payment of
Fees. Pay to Agent on demand all usual and customary fees and
expenses which Agent incurs in connection with (a) the forwarding of Advance
proceeds and (b) the establishment and maintenance of any Blocked Accounts or
Depository Accounts as provided for in Section 4.15(g). Agent may,
without making demand, charge Borrower’s Account for all such fees and
expenses.
50
6.2.
Conduct of Business and
Maintenance of Existence and Assets. (a) Conduct continuously
and operate actively its business according to good business practices and
maintain all of its properties useful or necessary in its business in good
working order and condition (reasonable wear and tear excepted and except as may
be disposed of in accordance with the terms of this Agreement), including all
licenses, patents, copyrights, design rights, tradenames, trade secrets and
trademarks and take all actions necessary to enforce and protect the validity of
any intellectual property right or other right included in the Collateral and
reasonably necessary for the operation of the Borrower’s business; (b) keep in
full force and effect its existence and comply in all material respects with the
laws and regulations governing the conduct of its business where the failure to
do so would reasonably be expected to have a Material Adverse Effect; and (c)
make all such reports and pay all such franchise and other taxes and license
fees and do all such other acts and things as may be lawfully required to
maintain its rights, licenses, leases, powers and franchises under the laws of
Canada or any political subdivision thereof where the failure to do so would
reasonably be expected to have a Material Adverse Effect.
6.3.
Violations. Promptly
notify Agent in writing of any violation of any law, statute, regulation or
ordinance of any Governmental Body, or of any agency thereof, applicable to
Borrower which would reasonably be expected to have a Material Adverse
Effect.
6.4.
Government
Receivables. To the extent that any Receivables from a
Governmental Body are included in the Formula Amount, take all steps necessary
to protect Agent’s interest in the Collateral under the Financial Administration
Act (Canada), the Uniform Commercial Code, the PPSA and all other applicable
statutes or ordinances and deliver to Agent appropriately endorsed, any
instrument or chattel paper connected with any Receivable arising out of
contracts between Borrower and the United States, any state, Canada, any
province, or any department, agency or instrumentality of any of
them.
6.5. Intentionally
Omitted
6.6.
Execution of Supplemental
Instruments. Execute and deliver to Agent from time to time,
upon demand, such supplemental agreements, statements, assignments and
transfers, or instructions or documents relating to the Collateral, and such
other instruments as Agent may request, in order that the full intent of this
Agreement may be carried into effect.
6.7.
Payment of
Indebtedness. Pay, discharge or otherwise satisfy at or before
maturity (subject, where applicable, to specified grace periods and, in the case
of the trade payables, to normal payment practices) all its obligations and
liabilities of whatever nature, except when the failure to do so would not
reasonably be expected to have a Material Adverse Effect or when the amount or
validity thereof being Properly Contested, subject at all times to any
applicable subordination arrangement in favor of Lenders.
VII.
NEGATIVE COVENANTS.
The
Borrower shall not, unless otherwise agreed in writing by the Required Lenders
or the Lenders, as applicable, or until satisfaction in full of the Obligations
and termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale
of Assets.
51
(a) Enter into any merger, consolidation or other reorganization with or into any other Person or acquire all or a substantial portion of the assets or Equity Interests of any Person or permit any other Person to consolidate with or merge with it; provided that (i) Borrower may enter into Permitted Acquisitions and (ii) so long as no Default or Event of Default has occurred or is continuing, Borrower may, upon prior written notice to Agent, enter into any such transactions with another Borrower.
(b) Sell,
lease, transfer or otherwise dispose of any of its properties or assets, except
(i) dispositions of Collateral to the extent expressly permitted by Section 4.3
and (ii) any other sales or dispositions expressly permitted by this
Agreement.
7.2.
Creation of
Liens. Create or suffer to exist any Lien or transfer upon or
against any of its property or assets now owned or hereafter acquired, except
Permitted Encumbrances.
7.3.
Guarantees. Become
liable upon the obligations or liabilities of any Person by assumption,
endorsement or guaranty thereof or otherwise (other than to Lenders) except (a)
as disclosed on Schedule 7.3, (b) the endorsement of checks in the Ordinary
Course of Business and (c) the guarantee by Borrower of Indebtedness incurred by
another Borrower which is permitted under this Agreement.
7.4.
Investments. Purchase
or acquire obligations or Equity Interests of, or any other interest in, any
Person, except (a) obligations issued or guaranteed by the United States of
America or any agency thereof, (b) commercial paper with maturities of not more
than 180 days and a published rating of not less than A-1 or P-1 (or the
equivalent rating), (c) certificates of time deposit and bankers’ acceptances
having maturities of not more than 180 days and repurchase agreements backed by
United States or Canadian government securities of a commercial bank if (i) such
bank has a combined capital and surplus of at least $500,000,000, or (ii) its
debt obligations, or those of a holding company of which it is a Subsidiary, are
rated not less than A (or the equivalent rating) by a nationally recognized
investment rating agency, and (d) U.S. or Canadian money market funds that
invest solely in obligations issued or guaranteed by the United States of
America, Canada or an agency thereof.
7.5.
Loans. Make
advances, loans or extensions of credit to any Person, including any Parent,
Subsidiary or Affiliate except (a) with respect to the extension of commercial
trade credit in connection with the sale of Inventory in the Ordinary Course of
Business, (b) loans to employees in the Ordinary Course of Business not to
exceed the aggregate amount of $50,000 at any time outstanding and (c)
Intercompany Loans.
7.6.
Capital
Expenditures. Contract for, purchase or make any expenditure
or commitments for Capital Expenditures in an aggregate amount for Borrower in
excess of $750,000 in any fiscal year.
7.7.
Dividends. Declare,
pay or make any dividend or distribution on any Equity Interests of Borrower
(other than dividends or distributions payable in its stock, or split-ups or
reclassifications of its stock) or apply any of its funds, property or assets to
the purchase, redemption or other retirement of any Equity Interest, or of any
options to purchase or acquire any Equity Interest of Borrower except Borrower
may make dividends or distributions to JOI while the U.S. Loan Agreement remains
in effect, provided that no Default or Event of Default has
occurred.
52
7.8.
Indebtedness. Create,
incur, assume or suffer to exist any Indebtedness (exclusive of trade debt)
except in respect of: (i) Indebtedness to Lenders; (ii) Indebtedness incurred
for Capital Expenditures permitted under Section 7.6 hereof; and (iii)
Indebtedness set forth on Schedule 7.8.
7.9.
Nature of
Business. Substantially change the nature of the business in
which it is presently engaged, nor except as specifically permitted hereby
purchase or invest, directly or indirectly, in any assets or property other than
in the Ordinary Course of Business for assets or property which are useful in,
necessary for and are to be used in its business as presently conducted or in
any complementary business.
7.10.
Transactions with
Affiliates. Directly or indirectly, purchase, acquire or lease
any property from, or sell, transfer or lease any property to, or otherwise
enter into any transaction or deal with, any Affiliate, except transactions
disclosed to Agent, which are in the Ordinary Course of Business, on an
arm’s-length basis on terms and conditions no less favorable than terms and
conditions which would have been obtainable from a Person other than an
Affiliate.
7.11.
Leases. Enter
as lessee into any lease arrangement for real or personal property (unless
capitalized and permitted under Section 7.6 hereof) if after giving effect
thereto, aggregate annual rental payments for all leased property would exceed $
12,000,000 in any one fiscal year in the aggregate for Borrower and its
Affiliates.
7.12.
Subsidiaries. Except
in connection with a Permitted Acquisition, or for such other valid business
purposes which Borrower deem necessary, which Agent, in its Permitted
Discretion, has approved:
(a) Form any
Subsidiary; or
(b) Enter
into any partnership, joint venture or similar arrangement.
7.13.
Fiscal Year and Accounting
Changes. Change its fiscal year from a 52/53 week year ending
on or about September 30 of each year or make any significant change (i) in
accounting treatment and reporting practices except as required by GAAP or (ii)
except as required by law, in tax reporting treatment in a manner that would be
adverse to Lenders.
7.14.
Pledge of
Credit. Now or hereafter pledge Agent’s or any Lender’s credit
on any purchases or for any purpose whatsoever or use any portion of any Advance
in or for any business other than Borrower’s business as conducted on the date
of this Agreement.
7.15.
Amendment of Articles of
Incorporation, By-Laws or Certificate of Formation, Operating
Agreement. Amend, modify or waive any material term or
provision of its Articles of Incorporation or By-Laws or Certificate of
Formation or Operating Agreement, as applicable, unless required by
law.
7.16.
Intentionally
Omitted
53
7.17.
Prepayment of
Indebtedness. At any time, directly or indirectly, prepay any
Indebtedness (other than to Lenders), or repurchase, redeem, retire or otherwise
acquire any Indebtedness of Borrower.
VIII. CONDITIONS
PRECEDENT.
8.1.
Conditions to Initial
Advances. The agreement of Lenders to make the initial
Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Agent, immediately prior to or concurrently with the
making of such Advances, of the following conditions precedent:
(a) Notes. Agent
shall have received the Notes duly executed and delivered by an authorized
officer of Borrower;
(b) Filings, Registrations and
Recordings. Each document (including any Uniform Commercial
Code or PPSA financing statement) required by this Agreement, any related
agreement or under law or reasonably requested by Agent to be filed, registered
or recorded in order to create, in favor of Agent, a perfected security interest
in or lien upon the Collateral shall have been properly filed, registered or
recorded in each jurisdiction in which the filing, registration or recordation
thereof is so required or requested, and Agent shall have received an
acknowledgment copy, or other evidence satisfactory to it, of each such filing,
registration or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto;
(c) Corporate and Company
Proceedings of Borrower. Agent shall have received a copy of
the resolutions in form and substance reasonably satisfactory to Agent, of the
Board of Directors of Borrower, authorizing (i) the execution, delivery and
performance of this Agreement, the Notes, and any related agreements
(collectively the “Documents”) and (ii) the granting by Borrower of the security
interests in and liens upon the Collateral in each case certified by the
Secretary, or an Assistant Secretary, or Manager of Borrower as of the Closing
Date; and, such certificate shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded as of the date of such
certificate;
(d) Incumbency Certificates of
Borrower. Agent shall have received a certificate of the
Secretary or an Assistant Secretary or the Manager of Borrower, dated the
Closing Date, as to the incumbency and signature of the officers of Borrower
executing this Agreement, the Other Documents, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Guarantees. Agent
shall have received Guarantees and Guarantor Security Agreements from JOI and
its U.S. Affiliates in form and substance reasonably satisfactory to
Agent.
(f) U.S. Loan
Agreement. The U.S. Loan Agreement shall have been executed
and delivered, and the initial advance shall have been made
thereunder.
54
(g) Certificates. Agent
shall have received a copy of the articles or certificate of incorporation or
continuation or amalgamation, as applicable. of Borrower, and all amendments
thereto, certified by the appropriate official of its jurisdiction of
organization, together with copies of the articles or by-laws, as applicable, of
Borrower and all shareholders’ agreements of Borrower’s shareholders, certified
as accurate and complete by the Secretary of Borrower;
(h) Good Standing
Certificates. Agent shall have received good standing
certificates for Borrower dated not more than 30 days prior to the Closing Date,
issued by the appropriate official of Borrower’s jurisdiction of organization
and each jurisdiction where the conduct of Borrower’s business activities or the
ownership of its properties necessitates qualification;
(i) Legal
Opinion. Agent shall have received the executed legal opinion
of Gowling Lafleur Henderson LLP with respect to Canadian law matters, in form
and substance satisfactory to Agent which shall cover such matters incident to
the transactions contemplated by this Agreement, the Notes the Other Documents,
and related agreements as Agent may reasonably require and Borrower hereby
authorizes and directs such counsel to deliver such opinions to Agent and
Lenders;
(j) No
Litigation. (i) No litigation, investigation or proceeding
before or by any arbitrator or Governmental Body shall be continuing or
threatened against Borrower or against the officers or directors of
Borrower (A) in connection with this Agreement, the Other Documents, or any of
the transactions contemplated thereby and which, in the reasonable opinion of
Agent, is deemed material or (B) which would, in the reasonable opinion of
Agent, have a Material Adverse Effect; and (ii) no injunction, writ, restraining
order or other order of any nature materially adverse to Borrower or the conduct
of its business or inconsistent with the due consummation of the Transactions
shall have been issued by any Governmental Body;
(k) Financial Condition
Certificates. Agent shall have received an executed Financial
Condition Certificate in the form of Exhibit 8.1(k).
(l) Collateral
Examination. Agent shall have completed Collateral
examinations and received appraisals, the results of which shall be satisfactory
in form and substance to Lenders, of the Receivables, Inventory, General
Intangibles, and Equipment of Borrower and all books and records in connection
therewith;
(m) Fees. Agent
shall have received all fees payable to Agent and Lenders on or prior to the
Closing Date hereunder, including pursuant to Article III hereof;
(n) Pro Forma Financial
Statements. Agent shall have received a copy of the Pro Forma
Financial Statements which shall be satisfactory in all respects to
Lenders;
(o) Insurance. Agent
shall have received in form and substance satisfactory to Agent, certified
copies of Borrower’s casualty insurance policies, together with loss payable
endorsements on Agent’s standard form of loss payee endorsement naming Agent as
loss payee, and certified copies of Borrower’s liability insurance policies,
together with endorsements naming Agent as a co-insured;
55
(p) Discharge of Prior
Registrations. The existing PPSA registrations against
Borrower made by General Electric Capital Corporation (“GE”) and by Morgan Stanley
Senior Funding, Inc. (“Morgan
Stanley”) shall have been discharged or the Borrower shall have provided
notices to GE and Morgan Stanley pursuant to Section 56(2) of the PPSA requiring
the discharge of such registrations.
(q) Intentionally
Omitted
(r) Payment
Instructions. Agent shall have received written instructions
from Borrower directing the application of proceeds of the initial Advances made
pursuant to this Agreement;
(s) Blocked
Accounts. Agent shall have received duly executed agreements
establishing the Blocked Accounts or Depository Accounts with financial
institutions acceptable to Agent for the collection or servicing of the
Receivables and proceeds of the Collateral;
(t) Consents. Agent
shall have received any and all Consents necessary to permit the effectuation of
the transactions contemplated by this Agreement and the Other Documents; and,
Agent shall have received such Consents and waivers of such third parties as
might assert claims with respect to the Collateral, as Agent and its counsel
shall deem necessary;
(u) No Adverse Material
Change. (i) Since April 3, 2009, there shall not have occurred
any event, condition or state of facts which would reasonably be expected to
have a Material Adverse Effect and (ii) no representations made or information
supplied to Agent or Lenders shall have been proven to be inaccurate or
misleading in any material respect;
(v) Leasehold
Agreements. Agent shall have received landlord, mortgagee or
warehouseman agreements satisfactory to Agent with respect to all premises
leased by Borrower at which Inventory and books and records are
located;
(w) Other
Documents. Agent shall have received the executed Other
Documents, all in form and substance satisfactory to Agent;
(x) Financial
Projections. Agent shall have received financial projections of Borrower
for the upcoming three fiscal years, presented on a month by month basis for the
first year and
on a quarterly basis for the following years, in form and substance satisfactory
to Agent;
(y) Contract
Review. Agent shall have reviewed all material contracts of
Borrower including leases, union contracts, labor contracts, vendor supply
contracts, license agreements and distributorship agreements and such contracts
and agreements shall be satisfactory in all respects to Agent;
(z) Closing Certificate. Agent shall have received a closing certificate signed by the Chief Financial Officer of Borrower dated as of the date hereof, stating that (i) all representations and warranties set forth in this Agreement and the Other Documents are true and correct on and as of such date, (ii) Borrower are on such date in compliance with all the terms and provisions set forth in this Agreement and the Other Documents and (iii) on such date no Default or Event of Default has occurred or is continuing;
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(aa) Borrowing
Base. Agent shall have received evidence from Borrower that
the aggregate amount of Eligible Receivables and Eligible Inventory is
sufficient in value and amount to support Advances in the amount requested by
Borrower on the Closing Date;
(bb) Intentionally
Omitted
(cc) Compliance with
Laws. Agent shall be reasonably satisfied that Borrower is in
compliance with all applicable Canadian federal, provincial, local or
territorial laws or regulations; and
(dd) Other. All
corporate and other proceedings, and all documents, instruments and other legal
matters in connection with the Transactions shall be satisfactory in form and
substance to Agent and its counsel.
8.2.
Conditions to Each
Advance. The agreement of Lenders or NCB to make any Advance
requested to be made on any date (including the initial Advance), is subject to
the satisfaction of the following conditions precedent as of the date such
Advance is made:
(a) Representations and
Warranties. Each of the representations and warranties made by
Borrower in or pursuant to this Agreement, the Other Documents and any related
agreements to which it is a party, and each of the representations and
warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement, the
Other Documents or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date
except to the extent a representation or warranty is made only as of a specified
date in which case such representation or warranty shall be true as of such
specified date;
(b) No
Default. No Event of Default or Default shall have occurred
and be continuing on such date, or would exist after giving effect to the
Advances requested to be made, on such date; provided, however that Agent, in
its sole discretion, subject only to the limitations in Section 16.2(b), may
continue to make Advances notwithstanding the existence of an Event of Default
or Default and that any Advances so made shall not be deemed a waiver of any
such Event of Default or Default; and
(c) Maximum
Advances. In the case of any type of Advance requested to be
made, after giving effect thereto, the aggregate amount of such type of Advance
shall not exceed the maximum amount of such type of Advance permitted under this
Agreement.
Each
request for an Advance by Borrower hereunder shall constitute a representation
and warranty by Borrower as of the date of such Advance that the conditions
contained in this subsection shall have been satisfied.
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IX. INFORMATION
AS TO BORROWER.
Borrower
shall, until satisfaction in full of the Obligations and the termination of this
Agreement:
9.1.
Disclosure of Material
Matters. Immediately upon learning thereof, report to Agent
all matters materially affecting the value, enforceability or collectibility of
any portion of the Collateral, including Borrower’s reclamation or repossession
of, or the return to Borrower of, a material amount of goods or claims or
disputes asserted by any Customer or other obligor.
9.2.
Schedules. Deliver
to Agent on or before the fifteenth (15th) day of each fiscal month of Borrower
as and for the prior fiscal month (a) accounts receivable agings inclusive of
reconciliations to the general ledger, (b) accounts payable schedules inclusive
of reconciliations to the general ledger, (c) Inventory reports and (d) a
Borrowing Base Certificate in form and substance satisfactory to Agent (which
shall be calculated as of the last day of the prior month and which shall not be
binding upon Agent or restrictive of Agent’s rights under this
Agreement). In addition, Borrower will deliver to Agent at such
intervals as Agent may require: (i) confirmatory assignment schedules, (ii)
copies of Customer’s invoices, (iii) evidence of shipment or delivery, and (iv)
such further schedules, documents and/or information regarding the Collateral as
Agent may in its Permitted Discretion require including trial balances and test
verifications. Agent shall have the right to confirm and verify all
Receivables by any manner and through any medium it considers advisable and do
whatever it may deem reasonably necessary in its Permitted Discretion to protect
its interests hereunder. The items to be provided under this Section
are to be in form satisfactory to Agent and, where applicable, executed by
Borrower and delivered to Agent from time to time solely for Agent’s convenience
in maintaining records of the Collateral, and Borrower’s failure to deliver any
of such items to Agent shall not affect, terminate, modify or otherwise limit
Agent’s Lien with respect to the Collateral.
9.3.
Environmental
Reports. Furnish Agent, within forty-five (45) days after the
end of each fiscal quarter, with a certificate signed by the president or
secretary of Borrower stating, to the best of his knowledge, that Borrower is in
compliance in all material respects with all Canadian federal, provincial and
local Environmental Laws. To the extent Borrower is not in compliance
with the foregoing laws, the certificate shall set forth with specificity all
areas of material non-compliance and the proposed action Borrower will implement
in order to achieve full compliance.
9.4.
Litigation. Promptly
notify Agent in writing of any claim, litigation, suit or administrative
proceeding affecting Borrower or any Guarantor, whether or not the claim is
covered by insurance, and of any litigation, suit or administrative proceeding,
which in any such case affects the Collateral or which would reasonably be
expected to have a Material Adverse Effect.
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of
Borrower as of the date of such statements; (e) each and every default by
Borrower which would reasonably be expected to result in the acceleration of the
maturity of any Indebtedness, including the names and addresses of the holders
of such Indebtedness with respect to which there is a default existing or with
respect to which the maturity has been or could be accelerated, and the amount
of such Indebtedness; and (f) any other development in the business or affairs
of Borrower or any Guarantor which would reasonably be expected to have a
Material Adverse Effect; in each case describing the nature thereof and the
action Borrower propose to take with respect thereto.
9.6.
Government
Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between Borrower and the United States, any
state, Canada, any province, or any department, agency or instrumentality of any
of them.
9.7.
Intentionally
Omitted
9.8.
Intentionally
Omitted
9.9. Intentionally
Omitted
9.10.
Other
Reports. Furnish Agent as soon as available, but in any event
within ten (10) days after the issuance thereof, (i) with copies of such
financial statements, reports and returns as Borrower shall send to its
stockholders and/or members and (ii) copies of all notices, reports, financial
statements and other materials sent pursuant to the U.S. Loan
Agreement.
9.11.
Additional
Information. Furnish Agent with such additional information as
Agent shall reasonably request in order to enable Agent to determine whether the
terms, covenants, provisions and conditions of this Agreement and the Notes have
been complied with by Borrower including, without the necessity of any request
by Agent, (a) copies of all environmental audits and reviews, (b) at least
thirty (30) days prior thereto, notice of Borrower’s opening of any new office
or place of business or Borrower’s closing of any existing office or place of
business, and (c) promptly upon Borrower’s learning thereof, notice of any labor
dispute to which Borrower may become a party, any strikes or walkouts relating
to any of its plants or other facilities, and the expiration of any labor
contract to which Borrower is a party or by which Borrower is
bound.
9.12.
Intentionally
Omitted
9.13. Intentionally
Omitted
9.14.
Notice of Suits, Adverse
Events. Furnish Agent with prompt written notice of (i) any
lapse or other termination of any Consent issued to Borrower by any Governmental
Body or any other Person that is material to the operation of Borrower’s
business, (ii) any refusal by any Governmental Body or any other Person to renew
or extend any such Consent; and (iii) copies of any periodic or special reports
filed by Borrower or any Guarantor with any Governmental Body or Person, if such
reports indicate any material change in the business, operations, affairs or
condition of Borrower or any Guarantor, or if copies thereof are requested by
Lender, and (iv) copies of any material notices and other communications from
any Governmental Body or Person which specifically relate to Borrower or any
Guarantor.
59
9.15.
Intentionally
Omitted
9.16.
Intentionally
Omitted
9.17.
Additional
Documents. Execute and deliver to Agent, upon request, such
documents and agreements as Agent may, from time to time, reasonably request to
carry out the purposes, terms or conditions of this Agreement.
X. EVENTS OF
DEFAULT.
The
occurrence of any one or more of the following events shall constitute an “Event
of Default”:
10.1.
Nonpayment. Failure
by Borrower to pay any principal or interest on the Obligations when due,
whether at maturity or by reason of acceleration pursuant to the terms of this
Agreement or by notice of intention to prepay, or by required prepayment or
failure to pay any other liabilities or make any other payment, fee or charge
provided for herein when due or in any Other Document;
10.2.
Breach of
Representation. Any representation or warranty made or deemed
made by Borrower or any Guarantor in this Agreement, any Other Document or any
related agreement or in any certificate, document or financial or other
statement furnished at any time in connection herewith or therewith shall prove
to have been misleading in any material respect on the date when made or deemed
to have been made;
10.3.
Financial
Information. Failure by Borrower to (i) furnish financial
information when due or when requested or (ii) permit the inspection of its
books or records in accordance with the terms hereof;
10.4.
Judicial
Actions. Issuance of a notice of Lien, levy, assessment,
injunction or attachment against Borrower’s Inventory or Receivables or against
a material portion of Borrower’s other property which is not stayed or lifted
within thirty (30) days;
10.5.
Noncompliance. Except
as otherwise provided for in Sections 10.1, 10.3 and 10.5(ii), (i) failure or
neglect of Borrower or any Guarantor or any Person to perform, keep or observe
any term, provision, condition, covenant herein contained, or contained in any
Other Document or any other agreement or arrangement, now or hereafter entered
into between Borrower or any Guarantor or such Person, and Agent or any Lender,
or (ii) failure or neglect of Borrower to perform, keep or observe any term,
provision, condition or covenant, contained in Sections 4.6, 4.7, 4.9, 6.1, 6.3,
6.4, 9.4 or 9.6 hereof which is not cured within ten (10) days from the
occurrence of such failure or neglect;
10.6.
Judgments. Any
judgment or judgments are rendered against Borrower or any Guarantor for an
aggregate amount in excess of $150,000 or against all Borrower or Guarantors for
an aggregate amount in excess of $150,000 and (i) enforcement proceedings shall
have been commenced by a creditor upon such judgment, (ii) there shall be any
period of thirty (30) consecutive days during which a stay of enforcement of
such judgment, by reason of a pending
60
appeal or
otherwise, shall not be in effect, or (iii) any such judgment results in the
creation of a Lien upon any of the Collateral (other than a Permitted
Encumbrance);
10.7.
Bankruptcy. Borrower
or any Guarantor shall (i) apply for, consent to or suffer the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator or
similar fiduciary of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within thirty (30) days, any
petition filed against it in any involuntary case under such bankruptcy
laws, or (vii) take any action for the purpose of effecting any of
the foregoing;
10.8.
Inability to
Pay. Borrower or any Guarantor shall admit in writing its
inability, or be generally unable, to pay its debts as they become due or cease
operations of its present business;
10.9.
Affiliate
Bankruptcy. Any Affiliate or any Subsidiary of Borrower, or
any Guarantor, shall (i) apply for, consent to or suffer the appointment of, or
the taking of possession by, a receiver, custodian, trustee, liquidator or
similar fiduciary of itself or of all or a substantial part of its property,
(ii) admit in writing its inability, or be generally unable, to pay its debts as
they become due or cease operations of its present business, (iii) make a
general assignment for the benefit of creditors, (iv) commence a voluntary case
under any state or federal bankruptcy laws (as now or hereafter in effect), (v)
be adjudicated a bankrupt or insolvent, (vi) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vii) acquiesce
to, or fail to have dismissed, within thirty (30) days, any petition filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;
10.10.
Material Adverse
Effect. The occurrence of any Material Adverse
Effect;
10.11.
Lien
Priority. Any Lien created hereunder or provided for hereby or
under any related agreement for any reason ceases to be or is not a valid and
perfected Lien having a first priority interest;
10.12.
Cross
Default. A default of the obligations of Borrower under any
other agreement to which it is a party shall occur which causes a Material
Adverse Effect which default is not cured within any applicable grace
period;
10.13.
Breach of
Guaranty. Termination or breach of any Guaranty or Guaranty
Security Agreement or similar agreement executed and delivered to Agent in
connection with the Obligations of Borrower, or if any Guarantor attempts to
terminate, challenges the validity of, or its liability under, any such Guaranty
or Guaranty Security Agreement or similar agreement;
10.14.
Change of
Ownership. Any Change of Ownership shall occur;
61
10.15.
Invalidity. Any
material provision of this Agreement or any Other Document shall, for any
reason, cease to be valid and binding on Borrower or any Guarantor, or Borrower
or any Guarantor shall so claim in writing to Agent or any
Lender;
10.16.
Licenses. (i)
Any Governmental Body shall (A) revoke, terminate, suspend or adversely modify
any license, permit, patent trademark or tradename of Borrower or any Guarantor
or (B) commence proceedings to suspend, revoke, terminate or adversely modify
any such license, permit, trademark, tradename or patent and such proceedings
shall not be dismissed or discharged within sixty (60) days, or (C) schedule or
conduct a hearing on the renewal of any license, permit, trademark, tradename or
patent necessary for the continuation of Borrower’s or any Guarantor’s business
and the staff of such Governmental Body issues a report recommending the
termination, revocation, suspension or material, adverse modification of such
license, permit, trademark, tradename or patent, and in each case under (A)-(C),
such revocation, termination, suspension or adverse modification has occurred or
is reasonably likely to occur, and would reasonably be expected to have a
Material Adverse Effect; (ii) any agreement which is necessary or material to
the operation of Borrower’s or any Guarantor’s business shall be revoked or
terminated and not replaced by a substitute acceptable to Agent within thirty
(30) days after the date of such revocation or termination, and such revocation
or termination and non-replacement would reasonably be expected to have a
Material Adverse Effect;
10.17.
Seizures. Any
portion of the Collateral shall be seized or taken by a Governmental Body, or
Borrower or any Guarantor or the title and rights of Borrower or any Guarantor
which is the owner of any material portion of the Collateral shall have become
the subject matter of claim, litigation, suit or other proceeding which might,
in the opinion of Agent, upon final determination, result in impairment or loss
of the security provided by this Agreement or the Other Documents;
10.18.
Operations. Other
than scheduled shut downs in the Ordinary Course of Business, the operations of
Borrower’s or any Guarantor’s manufacturing facility are interrupted at any time
for more than 5 consecutive days, unless Borrower or Guarantor shall (i) be
entitled to receive for such period of interruption, proceeds of business
interruption insurance sufficient to assure that its per diem cash needs during
such period is at least equal to its average per diem cash needs for the
consecutive three month period immediately preceding the initial date of
interruption and (ii) receive such proceeds in the amount described in clause
(i) preceding not later than thirty (30) days following the initial date of any
such interruption; provided, however, that notwithstanding the provisions of
clauses (i) and (ii) of this section, an Event of Default shall be deemed to
have occurred if Borrower or Guarantor shall be receiving the proceeds of
business interruption insurance for a period of sixty (60) consecutive
days;
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XI. LENDERS’
RIGHTS AND REMEDIES AFTER DEFAULT.
11.1.
Rights and
Remedies.
(a) Upon the
occurrence of (i) an Event of Default pursuant to Section 10.7 all Obligations
shall be immediately due and payable and this Agreement and the obligation of
Lenders to make Advances shall be deemed terminated; and, (ii) any of the other
Events of Default and at any time thereafter, at the option of Required Lenders
all Obligations shall be immediately due and payable and Lenders shall have the
right to terminate this Agreement and to terminate the obligation of Lenders to
make Advances and (iii) a filing of a petition against Borrower in any
involuntary case under any provincial or federal insolvency or bankruptcy laws,
all Obligations shall be immediately due and payable and the obligation of
Lenders to make Advances hereunder shall be terminated other than as may be
required by an appropriate order of the bankruptcy court having jurisdiction
over Borrower. Upon the occurrence of any Event of Default, Agent
shall have the right to exercise any and all rights and remedies provided for
herein, under the Other Documents, under the PPSA and at law or equity
generally, including the right to foreclose the security interests granted
herein and to realize upon any Collateral by any available judicial procedure
and/or to take possession of and sell any or all of the Collateral with or
without judicial process. Agent may enter any of Borrower’s premises
or other premises without legal process and without incurring liability to
Borrower therefor, and Agent may thereupon, or at any time thereafter, in its
discretion without notice or demand, take the Collateral and remove the same to
such place as Agent may deem advisable and Agent may require Borrower to make
the Collateral available to Agent at a convenient place. With or
without having the Collateral at the time or place of sale, Agent may sell the
Collateral, or any part thereof, at public or private sale, at any time or
place, in one or more sales, at such price or prices, and upon such terms,
either for cash, credit or future delivery, as Agent may
elect. Except as to that part of the Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Agent shall give Borrower reasonable notification of such
sale or sales, it being agreed that in all events written notice mailed to
Borrower at least ten (10) days prior to such sale or sales is reasonable
notification. At any public sale Agent or any Lender may bid for and
become the purchaser, and Agent, any Lender or any other purchaser at any such
sale thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and all such
claims, rights and equities are hereby expressly waived and released by
Borrower. In connection with the exercise of the foregoing remedies,
including the sale of Inventory, Agent is granted a perpetual nonrevocable,
royalty free, nonexclusive license and Agent is granted permission to use all of
Borrower’s (a) trademarks, trade styles, trade names, patents, patent
applications, copyrights, service marks, licenses, franchises and other
proprietary rights which are used or useful in connection with Inventory for the
purpose of marketing, advertising for sale and selling or otherwise disposing of
such Inventory and (b) Equipment for the purpose of completing the manufacture
of unfinished goods. The cash proceeds realized from the sale of any
Collateral shall be applied to the Obligations in the order set forth in Section
11.5 hereof. Noncash proceeds will only be applied to the Obligations
as they are converted into cash. If any deficiency shall arise,
Borrower shall remain liable to Agent and Lenders therefor.
63
law, to
fail to obtain governmental or third party consents for the collection or
disposition of Collateral to be collected or disposed of, (iii) to fail to
exercise collection remedies against Customers or other Persons obligated on
Collateral or to remove Liens on or any adverse claims against Collateral, (iv)
to exercise collection remedies against Customers and other Persons obligated on
Collateral directly or through the use of collection agencies and other
collection specialists, (v) to advertise dispositions of Collateral through
publications or media of general circulation, whether or not the Collateral is
of a specialized nature, (vi) to contact other Persons, whether or not in the
same business as Borrower, for expressions of interest in acquiring all or any
portion of such Collateral, (vii) to hire one or more professional auctioneers
to assist in the disposition of Collateral, whether or not the Collateral is of
a specialized nature, (viii) to dispose of Collateral by utilizing internet
sites that provide for the auction of assets of the types included in the
Collateral or that have the reasonable capacity of doing so, or that match
buyers and sellers of assets, (ix) to dispose of assets in wholesale rather than
retail markets, (x) to disclaim disposition warranties, such as title,
possession or quiet enjoyment, (xi) to purchase insurance or credit enhancements
to insure Agent against risks of loss, collection or disposition of Collateral
or to provide to Agent a guaranteed return from the collection or disposition of
Collateral, or (xii) to the extent deemed appropriate by Agent, to obtain the
services of other brokers, investment bankers, consultants and other
professionals to assist Agent in the collection or disposition of any of the
Collateral. Borrower acknowledges that the purpose of this Section
11.1(b) is to provide non-exhaustive indications of what actions or omissions by
Agent would not be commercially unreasonable in Agent’s exercise of remedies
against the Collateral and that other actions or omissions by Agent shall not be
deemed commercially unreasonable solely on account of not being indicated in
this Section 11.1(b). Without limitation upon the foregoing, nothing
contained in this Section 11.1(b) shall be construed to grant any rights to
Borrower or to impose any duties on Agent that would not have been granted or
imposed by this Agreement or by Applicable Law in the absence of this Section
11.1(b).
(c) Without
limiting any right or remedy of Agent in this Agreement, upon the occurrence of
any Event of Default, Agent may by instrument in writing appoint any person as a
receiver of all or any part of the Collateral of Borrower. Agent may
from time to time remove or replace a receiver, or make application to any court
of competent jurisdiction for the appointment of a receiver. Any
receiver appointed by Agent shall (for purposes relating to responsibility for
the receiver’s acts or omissions) be considered to be the agent of
Borrower. Agent may from time to time fix the receiver’s remuneration
and Borrower shall pay the amount of such remuneration to
Agent. Agent shall not be liable to Borrower or any other person in
connection with appointing or not appointing a receiver or in connection with
the receiver’s actions or omissions.
11.2.
Agent’s
Discretion. Agent shall have the right in its sole discretion
to determine which rights, Liens, security interests or remedies Agent may at
any time pursue, relinquish, subordinate,
or modify or to take any other action with respect thereto and such
determination will not in any way modify or affect any of Agent’s or Lenders’
rights hereunder.
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11.4.
Rights and Remedies not
Exclusive. The enumeration of the foregoing rights and
remedies is not intended to be exhaustive and the exercise of any rights or
remedy shall not preclude the exercise of any other right or remedies provided
for herein or otherwise provided by law, all of which shall be cumulative and
not alternative.
11.5.
Allocation of Payments After
Event of Default. Notwithstanding any other provisions of this
Agreement to the contrary, after the occurrence and during the continuance of an
Event of Default, all amounts collected or received by Agent on account of the
Obligations or any other amounts outstanding under any of the Other Documents or
in respect of the Collateral (less amounts payable to the holders of prior
Permitted Encumbrances) shall be paid over or delivered as follows:
FIRST, to
the payment of all reasonable out-of-pocket costs and expenses (including
reasonable legal fees) of Agent in connection with enforcing its rights and the
rights of Lenders under this Agreement and the Other Documents and any
protective advances made by Agent with respect to the Collateral under or
pursuant to the terms of this Agreement;
SECOND,
to payment of any fees owed to Agent;
THIRD, to
the payment of all reasonable out-of-pocket costs and expenses (including
reasonable attorneys’ fees) of each of Lenders to the extent owing to such
Lender pursuant to the terms of this Agreement;
FOURTH,
to the payment of all of the Obligations consisting of accrued interest on
account of the Swing Loans;
FIFTH, to
the payment of the outstanding principal amount of the Obligations consisting of
Swing Loans;
SIXTH, to
the payment of all of the remaining Obligations consisting of accrued fees and
interest;
SEVENTH,
to the payment of the outstanding principal amount of the remaining Obligations
(including the payment or cash collateralization of any outstanding Letters of
Credit);
EIGHTH,
to all other Obligations and other obligations which shall have become due and
payable under the Other Documents or otherwise and not repaid pursuant to
clauses “FIRST” through “SEVENTH” above; and
NINTH, to
the payment of the surplus, if any, to whoever may be lawfully entitled to
receive such surplus.
In
carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (ii) each of Lenders shall receive (so long as it is
not a Defaulting Lender) an amount equal to its pro rata share (based on the
proportion that the then outstanding Advances held by such Lender bears to the
aggregate then outstanding Advances) of amounts available to be applied pursuant
to clauses “SIXTH”, “SEVENTH” and “EIGHTH” above.
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XII. WAIVERS
AND JUDICIAL PROCEEDINGS.
12.1.
Waiver of
Notice. Borrower hereby waives notice of non-payment of any of
the Receivables, demand, presentment, protest and notice thereof with respect to
any and all instruments, notice of acceptance hereof, notice of loans or
advances made, credit extended, Collateral received or delivered, or any other
action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
12.2.
Delay. No
delay or omission on Agent’s or any Lender’s part in exercising any right,
remedy or option shall operate as a waiver of such or any other right, remedy or
option or of any Default or Event of Default.
12.3.
Jury
Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES
ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A)
ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO
OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.
XIII. EFFECTIVE
DATE AND TERMINATION.
13.1.
Term. This
Agreement, which shall inure to the benefit of and shall be binding upon the
respective successors and permitted assigns of Borrower, Agent and each Lender,
shall become effective on the date hereof and shall continue in full force and
effect until September 28, 2012 (the “Term”) unless sooner terminated as herein
provided. Borrower may terminate this Agreement at any time upon
ninety (90) days’ prior written notice upon payment in full of the
Obligations. Notwithstanding any other provision hereof, this
Agreement shall terminate concurrently with the termination of the U.S. Loan
Agreement.
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granted
to Agent and Lenders hereunder and the financing statements filed hereunder
shall continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that Borrower’s Account may from time to time be
temporarily in a zero or credit position, until all of the Obligations of
Borrower have been indefeasibly paid and performed in full after the termination
of this Agreement (other than obligations for indemnification for which no claim
has been made) or Borrower has furnished Agent and Lenders with an
indemnification satisfactory to Agent and Lenders with respect
thereto). Accordingly, Borrower waives any rights which it may have
under the Uniform Commercial Code or the PPSA to demand the filing of
termination statements with respect to the Collateral, and Agent shall not be
required to send such termination statements to Borrower, or to file them with
any filing office, unless and until this Agreement shall have been terminated in
accordance with its terms and all Obligations have been indefeasibly paid in
full in immediately available funds (other than obligations for indemnification
for which no claim has been made and for which Borrower have furnished Agent and
Lenders with an indemnification satisfactory to Agent and
Lenders. All representations, warranties, covenants, waivers and
agreements contained herein shall survive termination hereof until all
Obligations are indefeasibly paid and performed in full.
XIV. REGARDING
AGENT.
14.1.
Appointment. Each
Lender hereby designates NCB to act as Agent for such Lender under this
Agreement and the Other Documents. Each Lender hereby irrevocably
authorizes Agent to take such action on its behalf under the provisions of this
Agreement and the Other Documents and to exercise such powers and to perform
such duties hereunder and thereunder as are specifically delegated to or
required of Agent by the terms hereof and thereof and such other powers as are
reasonably incidental thereto and Agent shall hold all Collateral, payments of
principal and interest, fees (except the fees set forth in Sections 3.3 and 3.4
and the Closing Fee), charges and collections (without giving effect to any
collection days) received pursuant to this Agreement, for the ratable benefit of
Lenders. Agent may perform any of its duties hereunder by or through
its agents or employees. As to any matters not expressly provided for
by this Agreement (including collection of the Notes) Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding; provided, however, that Agent shall not be
required to take any action which exposes Agent to liability or which is
contrary to this Agreement or the Other Documents or Applicable Law unless Agent
is furnished with an indemnification reasonably satisfactory to Agent with
respect thereto.
14.2.
Nature of
Duties. Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and the Other
Documents. Neither Agent nor any of its officers, directors,
employees or agents shall be (i) liable for any action taken or omitted by them
as such hereunder or in connection herewith, unless caused by their gross (not
mere) negligence or willful misconduct (as determined by a court of competent
jurisdiction in a final non-appealable judgment), or (ii) responsible in any
manner for any recitals, statements, representations or warranties made by
Borrower or any officer thereof contained in this Agreement, or in any of the
Other Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness,
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due
execution, enforceability or sufficiency of this Agreement, or any of the Other
Documents or for any failure of Borrower to perform its obligations
hereunder. Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any of the Other
Documents, or to inspect the properties, books or records of
Borrower. The duties of Agent as respects the Advances to Borrower
shall be mechanical and administrative in nature; Agent shall not have by reason
of this Agreement a fiduciary relationship in respect of any Lender; and nothing
in this Agreement, expressed or implied, is intended to or shall be so construed
as to impose upon Agent any obligations in respect of this Agreement except as
expressly set forth herein.
14.3.
Lack of Reliance on Agent
and Resignation. Independently and without reliance upon Agent
or any other Lender, each Lender has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of Borrower and
each Guarantor in connection with the making and the continuance of the Advances
hereunder and the taking or not taking of any action in connection herewith, and
(ii) its own appraisal of the creditworthiness of Borrower and each
Guarantor. Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with any credit or
other information with respect thereto, whether coming into its possession
before making of the Advances or at any time or times thereafter except as shall
be provided by Borrower pursuant to the terms hereof. Agent shall not
be responsible to any Lender for any recitals, statements, information,
representations or warranties herein or in any agreement, document, certificate
or a statement delivered in connection with or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility or sufficiency of this
Agreement or any Other Document, or of the financial condition of Borrower or
any Guarantor, or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement, the Notes, the Other Documents or the financial condition of
Borrower, or the existence of any Event of Default or any Default.
Agent may
resign on sixty (60) days’ written notice to each of Lenders and Borrower and
upon such resignation, the Required Lenders will promptly designate a successor
Agent reasonably satisfactory to Borrower.
Any such
successor Agent shall succeed to the rights, powers and duties of Agent, and the
term “Agent” shall mean such successor agent effective upon its appointment, and
the former Agent’s rights, powers and duties as Agent shall be terminated,
without any other or further act or deed on the part of such former
Agent. After any Agent’s resignation as Agent, the provisions of this
Article XIV shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
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14.5.
Reliance. Agent
shall be entitled to rely, and shall be fully protected in relying, upon any
note, writing, resolution, notice, statement, certificate, telex, teletype or
telecopier message, cablegram, order or other document or telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper person or entity, and, with respect to all legal matters
pertaining to this Agreement and the Other Documents and its duties hereunder,
upon advice of counsel selected by it. Agent may employ agents and
attorneys-in-fact and shall not be liable for the default or misconduct of any
such agents or attorneys-in-fact selected by Agent with reasonable
care.
14.6.
Notice of
Default. Agent shall not be deemed to have knowledge or notice
of the occurrence of any Default or Event of Default hereunder or under the
Other Documents, unless Agent has received notice from a Lender or Borrower
referring to this Agreement or the Other Documents, describing such Default or
Event of Default and stating that such notice is a “notice of
default”. In the event that Agent receives such a notice, Agent shall
give notice thereof to Lenders. Agent shall take such action with
respect to such Default or Event of Default as shall be reasonably directed by
the Required Lenders; provided, that, unless and until Agent shall have received
such directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of
Lenders.
14.7.
Indemnification. To
the extent Agent is not reimbursed and indemnified by Borrower, each Lender will
reimburse and indemnify Agent in proportion to its respective portion of the
Advances (or, if no Advances are outstanding, according to its Commitment
Percentage), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Agent in performing its duties hereunder, or in any way
relating to or arising out of this Agreement or any Other Document; provided
that, Lenders shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Agent’s gross (not mere) negligence or
willful misconduct (as determined by a court of competent jurisdiction in a
final non-appealable judgment).
14.8.
Agent in its Individual
Capacity. With respect to the obligation of Agent to lend
under this Agreement, the Advances made by it shall have the same rights and
powers hereunder as any other Lender and as if it were not performing the duties
as Agent specified herein; and the term “Lender” or any similar term shall,
unless the context clearly otherwise indicates, include Agent in its individual
capacity as a Lender. Agent may engage in business with Borrower as
if it were not performing the duties specified herein, and may accept fees and
other consideration from Borrower for services in connection with this Agreement
or otherwise without having to account for the same to Lenders.
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14.10.
Borrower’s Undertaking to
Agent. Without prejudice to their respective obligations to
Lenders under the other provisions of this Agreement, Borrower hereby undertakes
with Agent to pay to Agent from time to time on demand all amounts from time to
time due and payable by it for the account of Agent or Lenders or any of them
pursuant to this Agreement to the extent not already paid. Any
payment made pursuant to any such demand shall pro tanto satisfy the relevant
Borrower’s obligations to make payments for the account of Lenders or the
relevant one or more of them pursuant to this Agreement.
14.11.
No Reliance on Agent’s
Customer Identification Program. Each Lender acknowledges and
agrees that neither such Lender, nor any of its Affiliates, participants or
assignees, may rely on Agent to carry out such Lender’s, Affiliate’s,
participant’s or assignee’s customer identification program, or other
obligations required or imposed under or pursuant to applicable law including
any programs involving any of the following items relating to or in connection
with Borrower, its Affiliates or its agents, this Agreement, the Other Documents
or the transactions hereunder or contemplated hereby: (1) any identity
verification procedures, (2) any record-keeping, (3) comparisons with government
lists, (4) customer notices or (5) other procedures required under applicable
laws.
14.12.
Other
Agreements. Each of Lenders agrees that it shall not, without
the express consent of Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the request of Agent, set off against the Obligations,
any amounts owing by such Lender to Borrower or any deposit accounts of Borrower
now or hereafter maintained with such Lender. Anything in this
Agreement to the contrary notwithstanding, each of Lenders further agrees that
it shall not, unless specifically requested to do so by Agent, take any action
to protect or enforce its rights arising out of this Agreement or the Other
Documents, it being the intent of Lenders that any such action to protect or
enforce rights under this Agreement and the Other Documents shall be taken in
concert and at the direction or with the consent of Agent or Required
Lenders.
XV. BORROWING
AGENCY. Intentionally
Omitted
XVI. MISCELLANEOUS.
16.1.
Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Ontario and the federal laws of
Canada applicable therein. Any judicial proceeding brought by or
against Borrower with respect to any of the Obligations, this Agreement, the
Other Documents or any related agreement may be brought in any court of
competent jurisdiction in the Province of Ontario and, by execution and delivery
of this Agreement, Borrower accepts for itself and in connection with its
properties, generally and unconditionally, the non-exclusive jurisdiction of the
aforesaid courts, and irrevocably agrees to be bound
by any judgment rendered thereby in connection with this
Agreement. Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
registered mail (return receipt requested) directed to Borrower at its address
set forth in Section 16.6 and service so made shall be deemed completed five (5)
days after the same shall have been so deposited in the mails of the United
States of America or Canada, or, at Agent’s option, by service upon Borrower and
for which Borrower irrevocably appoints JOI as Borrower’s agent for the purpose
of accepting service within the State of New York or Canada. Nothing
herein shall affect the right to serve process in any manner
permitted
70
by law or
shall limit the right of Agent or any Lender to bring proceedings against
Borrower in the courts of any other jurisdiction. Borrower waives any
objection to jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or based upon
forum non conveniens. Borrower waives the right to remove any
judicial proceeding brought against Borrower in any provincial court to any
federal court. Any judicial proceeding by Borrower against Agent or
any Lender involving, directly or indirectly, any matter or claim in any way
arising out of, related to or connected with this Agreement or any related
agreement, shall be brought only in a federal or provincial court located in the
Province of Ontario.
16.2.
Entire
Understanding.
(a) This
Agreement and the documents executed concurrently herewith contain the entire
understanding between Borrower, Agent and each Lender and supersedes all prior
agreements and understandings, if any, relating to the subject matter
hereof. Any promises, representations, warranties or guarantees not
herein contained and hereinafter made shall have no force and effect unless in
writing, signed by Borrower’s, Agent’s and each Lender’s respective
officers. Neither this Agreement nor any portion or provisions hereof
may be changed, modified, amended, waived, supplemented, discharged, cancelled
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged. Borrower
acknowledges that it has been advised by counsel in connection with the
execution of this Agreement and Other Documents and is not relying upon oral
representations or statements inconsistent with the terms and provisions of this
Agreement.
(b) The
Required Lenders, Agent with the consent in writing of the Required Lenders, and
Borrower may, subject to the provisions of this Section 16.2(b), from time to
time enter into written supplemental agreements to this Agreement or the Other
Documents executed by Borrower, for the purpose of adding or deleting any
provisions or otherwise changing, varying or waiving in any manner the rights of
Lenders, Agent or Borrower thereunder or the conditions, provisions or terms
thereof or waiving any Event of Default thereunder, but only to the extent
specified in such written agreements; provided, however, that no such
supplemental agreement shall, without the consent of all Lenders:
(i) increase
the Commitment Percentage, the maximum dollar commitment of any Lender or the
Maximum Revolving Advance Amount;
(ii) extend
the maturity of any Notes or the due date for any amount payable hereunder, or
decrease the rate of interest or reduce any fee payable by Borrower to Lenders
pursuant to this Agreement;
(iii) alter the
definition of the term Required Lenders or alter, amend or modify this Section
16.2(b);
(iv) release
any Collateral during any calendar year (other than in accordance with the
provisions of this Agreement) having an aggregate value in excess of
$1,000,000;
(v) change
the rights and duties of Agent;
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(vi) permit
any Revolving Advance to be made if after giving effect thereto the total of
Revolving Advances outstanding hereunder would exceed the Formula Amount for
more than thirty (30) consecutive Business Days or exceed one hundred and five
percent (105%) of the Formula Amount;
(vii) increase
the Advance Rates above the Advance Rates in effect on the Closing Date;
or
(viii) modify
Section 11.5; or
(ix) release
Borrower or any Guarantor.
Any such
supplemental agreement shall apply equally to each Lender and shall be binding
upon Borrower, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrower, Agent and Lenders
shall be restored to their former positions and rights, and any Event of Default
waived shall be deemed to be cured and not continuing, but no waiver of a
specific Event of Default shall extend to any subsequent Event of Default
(whether or not the subsequent Event of Default is the same as the Event of
Default which was waived), or impair any right consequent thereon.
In the
event that Agent requests the consent of a Lender pursuant to this Section 16.2
and such consent is denied, then NCB may, at its option, require such Lender to
assign its interest in the Advances to NCB or to another Lender or to any other
Person designated by Agent (the “Designated Lender”), for a price equal to (i)
the then outstanding principal amount thereof plus (ii) accrued and unpaid
interest and fees due such Lender, which interest and fees shall be paid when
collected from Borrower. In the event NCB elects to require any
Lender to assign its interest to NCB or to the Designated Lender, NCB will so
notify such Lender in writing within forty five (45) days following such
Lender’s denial, and such Lender will assign its interest to NCB or the
Designated Lender no later than five (5) days following receipt of such notice
pursuant to a Commitment Transfer Supplement executed by such Lender, NCB or the
Designated Lender, as appropriate, and Agent.
Notwithstanding
(a) the existence of a Default or an Event of Default, (b) that any of the other
applicable conditions precedent set forth in Section 8.2 hereof have not been
satisfied or (c) any other provision of this Agreement, Agent may at its
discretion and without the consent of the Required Lenders, voluntarily permit
the outstanding Revolving Advances at any time to exceed the Formula Amount by
up to five percent (5%) of the Formula Amount for up to thirty (30) consecutive
Business Days; provided that such outstanding Advances shall not exceed the
Maximum Revolving Advance Amount less the aggregate Maximum Undrawn Amount (the
“Out-of-Formula Loans”). If Agent is willing in its sole and absolute
discretion to make such Out-of-Formula Loans, such Out-of-Formula Loans shall be
payable on demand and shall bear interest at the Default Rate for Revolving
Advances consisting of Base Rate Loans; provided that, if Lenders do make
Out-of-Formula Loans, neither Agent nor Lenders shall be deemed thereby to have
changed the limits of Section 2.1(a). For purposes of this paragraph,
the discretion granted to Agent hereunder shall not preclude involuntary
overadvances that may result from time to time due to the fact that the Formula
Amount was unintentionally exceeded for any reason, including, but not limited
to, Collateral previously deemed to be either “Eligible
72
Receivables”,
“Eligible Dating Receivables” or “Eligible Inventory”, as applicable, becomes
ineligible, collections of Receivables applied to reduce outstanding Revolving
Advances are thereafter returned for insufficient funds or overadvances are made
to protect or preserve the Collateral. In the event Agent
involuntarily permits the outstanding Revolving Advances to exceed the Formula
Amount by more than five percent (5%), Agent shall use its efforts to have
Borrower decrease such excess in as expeditious a manner as is practicable under
the circumstances and not inconsistent with the reason for such excess, but in
no event may such involuntary advances be outstanding for a period of more than
sixty (60) consecutive days without the written consent of Required
Lenders. Revolving Advances made after Agent has determined the
existence of involuntary overadvances shall be deemed to be involuntary
overadvances and shall be decreased in accordance with the preceding
sentence.
In
addition to (and not in substitution of) the discretionary Revolving Advances
permitted above in this Section 16.2, Agent is hereby authorized by Borrower and
Lenders, from time to time in Agent’s sole discretion, (A) after the occurrence
and during the continuation of a Default or an Event of Default, or (B) at any
time that any of the other applicable conditions precedent set forth in Section
8.2 hereof have not been satisfied, to make Revolving Advances to Borrower on
behalf of Lenders which Agent, in its reasonable business judgment, deems
necessary or desirable (a) to preserve or protect the Collateral, or any portion
thereof, (b) to enhance the likelihood of, or maximize the amount of, repayment
of the Advances and other Obligations, or (c) to pay any other amount chargeable
to Borrower pursuant to the terms of this Agreement; provided, that at any time
after giving effect to any such Revolving Advances the outstanding Revolving
Advances do not exceed one hundred and five percent (105%) of the Formula Amount
for more than sixty (60) consecutive days without the written consent of
Required Lenders; provided further that such outstanding Advances shall not
exceed the Maximum Revolving Advance Amount less the aggregate
Maximum Undrawn Amount.
16.3.
Successors and Assigns;
Participations; New Lenders.
(a) This
Agreement shall be binding upon and inure to the benefit of Borrower, Agent,
each Lender, all future holders of the Obligations and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of Agent and each Lender.
(b) Borrower
acknowledges that in the regular course of commercial banking business one or
more Lenders may at any time and from time to time sell participating interests
in the Advances to other financial institutions (each such transferee or
purchaser of a participating interest, a “Participant”). Each
Participant may exercise all rights of payment (including rights of set-off)
with respect to the portion of such Advances held by it or other Obligations
payable hereunder as fully as if such Participant were the direct holder thereof
provided that Borrower shall not be required to pay to any Participant more than
the amount which it would have been required to pay to Lender which granted an
interest in its Advances or other Obligations payable hereunder to such
Participant had such Lender retained such interest in the Advances hereunder or
other Obligations payable hereunder and in no event shall Borrower be required
to pay any such amount arising from the same circumstances and with respect to
the same Advances or other Obligations payable hereunder to both such Lender and
such Participant. Borrower hereby grants to any Participant a
continuing security interest in any deposits, moneys or other property actually
or constructively held by such Participant as security for the Participant’s
interest in the Advances.
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(c) Any
Lender, (i) with the consent of Agent which shall not be unreasonably withheld
or delayed, may sell, assign or transfer all or any part of its rights and
obligations under or relating to Advances under this Agreement and the Other
Documents to a Permitted Assignee (provided no consent of Agent shall be
required for any sale, assignment or transfer to an Affiliate of any such
Lender) and such Permitted Assignee may commit to make Advances hereunder, and
(ii) with the consent of Agent and, so long as no Default or Event of Default
has occurred and is continuing, the consent of Borrower, in each case not to be
unreasonably withheld or delayed, may sell, assign or transfer all or any part
of its rights and obligations under or relating to Advances under this Agreement
and the Other Documents to one or more Persons who is not a Permitted Assignee
and one or more such Persons may commit to make Advances hereunder (in each
case, a “Purchasing Lender”), in minimum amounts of not less than $100,000,
pursuant to a Commitment Transfer Supplement, executed by a Purchasing Lender,
the transferor Lender, and Agent and delivered to Agent for
recording. Upon such execution, delivery, acceptance and recording,
from and after the transfer effective date determined pursuant to such
Commitment Transfer Supplement, (i) Purchasing Lender thereunder shall be a
party hereto and, to the extent provided in such Commitment Transfer Supplement,
have the rights and obligations of a Lender thereunder with a Commitment
Percentage as set forth therein, and (ii) the transferor Lender thereunder
shall, to the extent provided in such Commitment Transfer Supplement, be
released from its obligations under this Agreement, the Commitment Transfer
Supplement creating a novation for that purpose. Such Commitment
Transfer Supplement shall be deemed to amend this Agreement to the extent, and
only to the extent, necessary to reflect the addition of such Purchasing Lender
and the resulting adjustment of the Commitment Percentages arising from the
purchase by such Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and the Other
Documents. Borrower hereby consents to the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement and the
Other Documents. Borrower shall execute and deliver such further
documents and do such further acts and things in order to effectuate the
foregoing.
(d) Any
Lender, with the consent of Agent which shall not be unreasonably withheld or
delayed, may directly or indirectly sell, assign or transfer all or any portion
of its rights and obligations under or relating to Revolving Advances under this
Agreement and the Other Documents to an entity, whether a corporation,
partnership, trust, limited liability company or other entity that (i) is
engaged in making, purchasing, holding or otherwise investing in bank loans and
similar extensions of credit in the ordinary course of its business and (ii)
is administered,
serviced or managed by the assigning Lender or an Affiliate of such Lender (a
“Purchasing CLO” and together with each Participant and Purchasing Lender, each
a “Transferee” and collectively the “Transferees”), pursuant to a Commitment
Transfer Supplement modified as appropriate to reflect the interest being
assigned (“Modified Commitment Transfer Supplement”), executed by any
intermediate purchaser, the Purchasing CLO, the transferor Lender, and Agent as
appropriate and delivered to Agent for recording. Upon such execution
and delivery, from and after the transfer effective date determined pursuant to
such Modified Commitment Transfer Supplement, (i) Purchasing CLO thereunder
shall be a
74
party
hereto and, to the extent provided in such Modified Commitment Transfer
Supplement, have the rights and obligations of a Lender thereunder and (ii) the
transferor Lender thereunder shall, to the extent provided in such Modified
Commitment Transfer Supplement, be released from its obligations under this
Agreement, the Modified Commitment Transfer Supplement creating a novation for
that purpose. Such Modified Commitment Transfer Supplement shall be
deemed to amend this Agreement to the extent, and only to the extent, necessary
to reflect the addition of such Purchasing CLO. Borrower hereby
consents to the addition of such Purchasing CLO. Borrower shall
execute and deliver such further documents and do such further acts and things
in order to effectuate the foregoing.
(e) Agent
shall maintain at its address a copy of each Commitment Transfer Supplement and
Modified Commitment Transfer Supplement delivered to it and a register (the
“Register”) for the recordation of the names and addresses of each Lender and
the outstanding principal, accrued and unpaid interest and other fees due
hereunder. The entries in the Register shall be conclusive, in the
absence of manifest error, and Borrower, Agent and Lenders may treat each Person
whose name is recorded in the Register as the owner of the Advance recorded
therein for the purposes of this Agreement. The Register shall be
available for inspection by Borrower or any Lender at any reasonable time and
from time to time upon reasonable prior notice. Agent shall receive a
fee in the amount of $3,500 payable by the applicable Purchasing Lender and/or
Purchasing CLO upon the effective date of each transfer or assignment (other
than to an intermediate purchaser) to such Purchasing Lender and/or Purchasing
CLO.
(f) Borrower
authorizes each Lender to disclose to any Transferee and any prospective
Transferee any and all financial information in such Lender’s possession
concerning Borrower which has been delivered to such Lender by or on behalf of
Borrower pursuant to this Agreement or in connection with such Lender’s credit
evaluation of Borrower.
16.4.
Application of
Payments. Subject to the terms of Section 11.5 hereof, Agent
shall have the continuing and exclusive right to apply any payment and any and
all proceeds of Collateral to any portion of the Obligations. To the
extent that Borrower makes a payment or Agent or any Lender receives any payment
or proceeds of the Collateral for Borrower’s benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, debtor in possession, receiver, custodian or any other
party under any bankruptcy law, common law or equitable cause, then, to such
extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Agent or such Lender.
16.5.
Indemnity. Borrower
shall indemnify Agent, each Lender and each of their respective officers,
directors, Affiliates, attorneys, employees and agents from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses and disbursements of any kind or nature whatsoever
(including fees and disbursements of counsel) which may be imposed on, incurred
by, or asserted against Agent or any Lender in any claim, litigation, proceeding
or investigation instituted or conducted by any Governmental Body or
instrumentality or any other Person with respect to any aspect of, or any
transaction contemplated by, or referred to in, or any matter related to, this
Agreement or the Other Documents, whether or not Agent or any Lender is a party
thereto, except to the extent that any of the foregoing arises out of the gross
negligence or willful misconduct of the party being
75
indemnified
(as determined by a court of competent jurisdiction in a final and
non-appealable judgment). Without limiting the generality of the
foregoing, this indemnity shall extend to any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind or nature whatsoever (including fees and disbursements of counsel)
asserted against or incurred by any of the indemnitees described above in this
Section 16.5 by any Person under any Environmental Laws or similar laws by
reason of Borrower’s or any other Person’s failure to comply with laws
applicable to solid or hazardous waste materials, including Hazardous Substances
and Hazardous Waste, or other Toxic Substances. Additionally, if any
taxes (excluding taxes imposed upon or measured solely by the net income of
Agent and Lenders, but including any intangibles taxes, stamp tax, recording tax
or franchise tax) shall be payable by Agent, Lenders or Borrower on account of
the execution or delivery of this Agreement, or the execution, delivery,
issuance or recording of any of the Other Documents, or the creation or
repayment of any of the Obligations hereunder, by reason of any Applicable Law
now or hereafter in effect, Borrower will pay (or will promptly reimburse Agent
and Lenders for payment of) all such taxes, including interest and penalties
thereon, and will indemnify and hold the indemnitees described above in this
Section 16.5 harmless from and against all liability in connection
therewith.
16.6.
Notice. Any
notice or request hereunder may be given to Borrower or Borrower or to Agent or
any Lender at their respective addresses set forth below or at such other
address as may hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice, request, demand,
direction or other communication (for purposes of this Section 16.6 only, a
“Notice”) to be given to or made upon any party hereto under any provision of
this Loan Agreement shall be given or made by telephone or in writing (which
includes by means of electronic transmission (i.e., “e-mail”) or facsimile
transmission or by setting forth such Notice on a site on the World Wide Web (a
“Website Posting”) if Notice of such Website Posting (including the information
necessary to access such site) has previously been delivered to the applicable
parties hereto by another means set forth in this Section 16.6) in accordance
with this Section 16.6. Any such Notice must be delivered to the
applicable parties hereto at the addresses and numbers set forth under their
respective names on Section 16.6 hereof or in accordance with any subsequent
unrevoked Notice from any such party that is given in accordance with this
Section 16.6. Any Notice shall be effective:
(a) In the
case of hand-delivery, when delivered;
(b) If given
by mail, four days after such Notice is deposited with the United States or
Canadian Postal Service, with first-class postage prepaid, return receipt
requested;
(c) In the
case of a telephonic Notice, when a party is contacted by telephone, if delivery
of such telephonic Notice is confirmed no later than the next Business Day by
hand delivery, a facsimile or electronic transmission, a Website Posting or an
overnight courier delivery of a confirmatory Notice (received at or before noon
on such next Business Day);
(d) In the
case of a facsimile transmission, when sent to the applicable party’s facsimile
machine’s telephone number, if the party sending such Notice receives
confirmation of the delivery thereof from its own facsimile
machine;
76
(e) In the
case of electronic transmission, when actually received;
(f) In the
case of a Website Posting, upon delivery of a Notice of such posting (including
the information necessary to access such site) by another means set forth in
this Section 16.6; and
(g) If given
by any other means (including by overnight courier), when actually
received.
Any
Lender giving a Notice to Borrower shall concurrently send a copy thereof to
Agent, and Agent shall promptly notify the other Lenders of its receipt of such
Notice.
(A) If
to Agent or NCB at:
National
City Bank, Canada Branch
130 King
Street West, Suite 2140
Toronto,
Ontario M5X 1E4
Attention: Michael
Danby, Assistant Vice President
Telephone: (416)
361-1744 ext. 223
Facsimile: (416)
361-0085
with a
copy to:
PNC Bank,
National Association
200 South
Wacker Drive, Suite 600
Chicago,
Illinois 60606
Attention: Portfolio
Manager
Telephone:
(312) 454-2920
Facsimile: (312)
454-2919
with a
copy to:
PNC Bank,
National Association
PNC
Agency Services
PNC
Firstside Center
500 First
Avenue, 4th Floor
Pittsburgh,
Pennsylvania 15219
Attention:
Trina Barkley
Telephone:
(412) 768-0423
Facsimile:
(412) 705-2006
77
with a
copy to:
Blank
Rome LLP
The
Chrysler Building
405
Lexington Avenue
New York,
New York 10174-0208
Attention:
Lawrence F. Flick II, Esquire
Telephone:
(212) 885-5556
Facsimile:
(215) 832-5556
with a
copy to:
Blake,
Cassels & Graydon LLP
Barristers
& Solicitors
199 Bay
Street
Suite
2800, Commerce Court West
Toronto,
Ontario M5L 1A9
Attention:
Nathan Cheifetz
Telephone:
(416) 863-2969
Facsimile:
(416) 863-2653
(B) If
to a Lender other than Agent, as specified on the signature pages
hereof
(C) If
to Borrower:
Johnson
Outdoors Canada Inc.
c/o
Johnson Outdoors Inc.
555 Main
Street
Racine,
Wisconsin 53403
Attention: Alisa
Swire, Esquire
Telephone:
(262) 631-6644
Facsimile: (262)
631-6610
with a
copy to:
Godfrey
& Kahn, S.C.
780 North
Water Street
Milwaukee,
WI 53202
Attention:
Kristin A. Roeper, Esquire
Telephone:
(414) 287-9594
Facsimile:
(414) 273-5198
78
with a
copy to:
Gowling
Lafleur Henderson LLP
PO Box
30
Suite
2300 - 550 Burrard Street
Vancouver,
B.C. V6C 2B5
Attention: Jack
M. Yong
Telephone: (604)
443-7698
Facsimile: (604)
443-5645
16.7.
Survival. The
obligations of Borrower under Sections 2.2(f), 3.7, 3.8, 3.9, 4.19(h), and 16.5
and the obligations of Lenders under Section 14.7, shall survive termination of
this Agreement and the Other Documents and payment in full of the
Obligations.
16.8.
Severability. If
any part of this Agreement is contrary to, prohibited by, or deemed invalid
under Applicable Laws or regulations, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given effect so
far as possible.
16.9.
Expenses. All
costs and expenses including reasonable attorneys’ fees (including the allocated
costs of in house counsel) and disbursements incurred by Agent on its behalf or
on behalf of Lenders (a) in all efforts made to enforce payment of any
Obligation or effect collection of any Collateral, or (b) in connection with the
entering into, modification, amendment, administration and enforcement of this
Agreement or any consents or waivers hereunder or thereunder and all related
agreements, documents and instruments, or (c) in instituting, maintaining,
preserving, enforcing and foreclosing on Agent’s security interest in or Lien on
any of the Collateral, or maintaining, preserving or enforcing any of Agent’s or
any Lender’s rights hereunder, and under all related agreements, documents and
instruments, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to Agent’s or any Lender’s transactions with Borrower, any Guarantor or any
Subordinated Lender or (e) in connection with any advice given to Agent or any
Lender with respect to its rights and obligations under this Agreement and all
related agreements, documents and instruments, may be charged to Borrower’s
Account and shall be part of the Obligations.
16.10.
Currency
Indemnity. If, for the purposes of obtaining judgment in any
court in any jurisdiction with respect to this Agreement or any Other Document,
it becomes necessary to convert into the currency of such jurisdiction (the
“Judgment
Currency”) any amount due under this Agreement or under any
Other Document in any currency other than the Judgment Currency (the “Currency Due”), then
conversion shall be made at the rate of exchange prevailing on the Business Day
before the day on which the
79
judgment
is given. For this purpose “rate of exchange” means the rate at which
Agent is able, on the relevant date, to purchase the Currency Due with the
Judgment Currency in accordance with its normal practice. In the
event that there is a change in the rate of exchange prevailing between the
Business Day before the day on which the judgment is given and the date of
receipt by Agent of the amount due, Borrower will, on the date of receipt by
Agent, pay such additional amounts, if any, or be entitled to receive
reimbursement of such amount, if any, as may be necessary to ensure that the
amount received by Agent on such date is the amount in the Judgment Currency
which when converted at the rate of exchange prevailing on the date of receipt
by Agent is the amount then due under this Agreement or such Other Document in
the Currency Due. If the amount of the Currency Due which Agent is so
able to purchase is less than the amount of the Currency Due originally due to
it, Borrower shall indemnify and save Agent and Lenders harmless from and
against all loss or damage arising as a result of such
deficiency. This indemnity shall constitute an obligation separate
and independent from the other obligations contained in this Agreement and the
Other Documents, shall give rise to a separate and independent cause of action,
shall apply irrespective of any indulgence granted by Agent from time to time
and shall continue in full force and effect notwithstanding any judgment or
order for a liquidated sum in respect of an amount due under this Agreement or
any Other Document or under any judgment or order.
16.11.
Injunctive
Relief. Borrower recognizes that, in the event Borrower fails
to perform, observe or discharge any of its obligations or liabilities under
this Agreement, or threatens to fail to perform, observe or discharge such
obligations or liabilities, any remedy at law may prove to be inadequate relief
to Lenders; therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving that actual damages are not an adequate remedy.
16.12.
Consequential
Damages. Neither Agent nor any Lender, nor any agent or
attorney for any of them, shall be liable to Borrower or any Guarantor (or any
Affiliate of any such Person) for indirect, punitive, exemplary or consequential
damages arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations or as a result of
any transaction contemplated under this Agreement or any Other
Document.
16.13.
Captions. The
captions at various places in this Agreement are intended for convenience only
and do not constitute and shall not be interpreted as part of this
Agreement.
16.14.
Counterparts; Facsimile
Signatures. This Agreement may be executed in any number of
and by different parties hereto on separate counterparts, all of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute one and the same agreement. Any signature delivered by a
party by facsimile or other electronic transmission shall be deemed to be an
original signature hereto.
16.16.
Construction. The
parties acknowledge that each party and its counsel have reviewed this Agreement
and that the normal rule of construction to the effect that any ambiguities are
to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments, schedules or exhibits
thereto.
16.17. Confidentiality; Sharing
Information. Agent, each Lender and each Transferee shall hold
all non-public information obtained by Agent, such Lender or such Transferee
pursuant to the requirements of this Agreement in accordance with Agent’s, such
Lender’s and such Transferee’s customary procedures for handling confidential
information of this nature;
80
provided,
however, Agent, each Lender and each Transferee may disclose such confidential
information (a) to its examiners, Affiliates, outside auditors, counsel and
other professional advisors, (b) to Agent, any Lender or to any prospective
Transferees, and (c) as required or requested by any Governmental Body or
representative thereof or pursuant to legal process; provided, further that (i)
unless specifically prohibited by Applicable Law or court order, Agent, each
Lender and each Transferee shall use its reasonable best efforts prior to
disclosure thereof, to notify the Borrower of the applicable request for
disclosure of such non-public information (A) by a Governmental Body or
representative thereof (other than any such request in connection with an
examination of the financial condition of a Lender or a Transferee by such
Governmental Body) or (B) pursuant to legal process and (ii) in no event shall
Agent, any Lender or any Transferee be obligated to return any materials
furnished by Borrower other than those documents and instruments in possession
of Agent or any Lender in order to perfect its Lien on the Collateral once the
Obligations have been paid in full and this Agreement has been
terminated. Borrower acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
Borrower or one or more of its Affiliates (in connection with this Agreement or
otherwise) by any Lender or by one or more Subsidiaries or Affiliates of such
Lender and Borrower hereby authorizes each Lender to share any information
delivered to such Lender by Borrower and its Subsidiaries pursuant to this
Agreement, or in connection with the decision of such Lender to enter into this
Agreement, to any such Subsidiary or Affiliate of such Lender, it being
understood that any such Subsidiary or Affiliate of any Lender receiving such
information shall be bound by the provisions of this Section 16.15 as if it were
a Lender hereunder. Such authorization shall survive the repayment of
the other Obligations and the termination of this Agreement.
16.17. Publicity. Borrower
and each Lender hereby authorizes Agent to make appropriate announcements of the
financial arrangement entered into among Borrower, Agent and Lenders, including
announcements which are commonly known as tombstones, in such publications and
to such selected parties as Agent shall in its sole and absolute discretion deem
appropriate; provided, that the contents of such announcements shall be subject
to the prior written consent of JOI which consent shall not be unreasonably
withheld, conditioned or delayed.
Each of
the parties has signed this Agreement as of the day and year first above
written.
JOHNSON OUTDOORS CANADA
INC.
By: /s/ Donald P.
Sesterhenn
Name: Donald P. Sesterhenn
Title: Treasurer & Secretary
NATIONAL
CITY BANK, CANADA BRANCH
As
Collateral Agent and Administrative Agent
By: /s/ Mike
Danby
Name: Mike Danby
Title: Assistant Vice President
By: /s/ Bill
Hines
Name: Bill Hines
Title: Senior Vice President & Principal
Officer
NATIONAL
CITY BANK, CANADA BRANCH
As a
Lender
By: /s/ Mike
Danby
Name: Mike Danby
Title: Assistant Vice President
By: /s/ Bill
Hines
Name: Bill Hines
Title: Senior Vice President & Principal
Officer
Commitment Percentage 40%
TD
BANK, N.A.
By: /s/ William H. Moul,
Jr.
Name: William
H. Moul, Jr.
Title: Vice
President
Address
for Notices:
2005
Market St., 2nd Floor
Philadelphia,
PA 19103
c/o
William H. Moul, Jr.
phone: 215-282-3863
fax: 215-282-4033
william.moul@tdbanknorth.com
Commitment
Percentage: 21.333333333%
ASSOCIATED
COMMERCIAL FINANCE, INC.
By: /s/ Peter
O.
Strobel
Name: Peter
O. Strobel
Title: Senior
Vice President
Address
for Notices:
19601
West Bluemound Road
Suite
100
Brookfield,
WI 53045
c/o
Peter O. Strobel
phone: 262-797-7344
fax: 262-797-7177
peter.strobel@associatedbank.com
THE PRIVATEBANK AND TRUST
COMPANY
By: /s/ Mitchell B.
Rasky
Name: Mitchell
B. Rasky
Title: Managing
Director
Address
for Notices:
The
PrivateBank and Trust Company
120
South LaSalle Street
Chicago,
IL 60603
c/o
Mitchell B. Rasky
phone: 312-564-6954
fax: 312-564-6888
mrasky@theprivatebank.com
Commitment
Percentage: 25.333333333%
Exhibit 18
LETTER
REGARDING CHANGE IN ACCOUNTING PRINCIPLE
December
3, 2009
Mr. David
Johnson
Chief
Financial Officer
Johnson
Outdoors Inc.
555 Main
Street
Racine,
WI 53403
Dear Mr.
Johnson:
Note 1 of
the Notes to the annual consolidated financial statements of Johnson Outdoors
Inc. included in its Form 10-K for the year ended October 2, 2009, describes a
change regarding the date of the Company’s annual goodwill and other indefinite
lived-intangible assets impairment assessment from the last day of the fiscal
fourth quarter to the last day of the Company’s August month end. There are no
authoritative criteria for determining a preferable measurement date based on
the particular circumstances; however, we conclude that such method in the
change of accounting is an acceptable alternative method which, based on your
business judgment to make this change and for the stated reasons, is preferable
in your circumstances.
Very
truly yours,
/s/ Ernst
and Young LLP
Milwaukee,
Wisconsin
Exhibit
21
JOHNSON
OUTDOORS INC. AND SUBSIDIARIES
The
following lists the principal direct and indirect subsidiaries of Johnson
Outdoors Inc. as of October 2, 2009. Inactive subsidiaries are not
presented:
|
Name of
Subsidiary(1)(2)
|
Jurisdiction
in
which
Incorporated
|
|
Johnson
Outdoors Canada Inc.
|
Canada
|
|
Johnson
Outdoors Gear LLC
|
Delaware
|
|
Johnson
Outdoors Diving LLC
|
Delaware
|
|
Johnson
Outdoors Marine Electronics LLC
|
Delaware
|
|
Johnson
Outdoors Watercraft, Inc. (f.k.a.Old Town Canoe Company)
|
Delaware
|
|
Techsonic
Industries, Inc. (d/b/a Humminbird)
|
Alabama
|
|
Under
Sea Industries, Inc.
|
Delaware
|
|
JWA
Holding B.V.
|
Netherlands
|
|
Johnson
Beteiligungsellschaft GmbH
|
Germany
|
|
Uwatec
AG
|
Switzerland
|
|
Scubapro
Asia Pacific Ltd.
|
Hong
Kong
|
|
P.T.
Uwatec Batam
|
Indonesia
|
|
Scubapro
Asia, Ltd.
|
Japan
|
|
Scubapro
Espana, S.A.(3)
|
Spain
|
|
Scubapro
AG
|
Switzerland
|
|
Scubapro
Europe Benelux, S.A.
|
Belgium
|
|
Johnson
Outdoors France
|
France
|
|
Scubapro/Uwatec
France S.A.
|
France
|
|
Scubapro
Europe S.r.l
|
Italy
|
|
Scubapro
Italy S.r.l.
|
Italy
|
|
Scubapro
(UK) Ltd.(4)
|
United
Kingdom
|
|
Scubapro-Uwatec
Australia Pty. Ltd.
|
Australia
|
|
Johnson
Outdoors Watercraft UK
|
United
Kingdom
|
|
Johnson
Outdoors Watercraft Ltd.
|
New
Zealand
|
|
Lendal
Products Ltd.
|
Scotland
|
|
Geonav
S.r.l.
|
Italy
|
|
Johnson
Outdoors Vertriebsgesellschaft GmbH
|
Germany
|
|
(1)
|
Unless
otherwise indicated in brackets, each company does business only under its
legal name.
|
|
(2)
|
Unless
otherwise indicated by footnote, each company is a wholly-owned subsidiary
of Johnson Outdoors Inc. (through direct or indirect
ownership).
|
|
(3)
|
Percentage
of stock owned is 98%.
|
|
(4)
|
Percentage
of stock owned is 99%.
|
Exhibit
23
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in the Registration Statements (Form
S-8 Nos.
33-19804, 33-19805, 33-35309, 33-50680, 33-52073, 33-54899, 33-59325, 33-61285, 333-88089, 333-88091, 333-84480, 333-84414, 333-107354
and 333-115298) pertaining to the various employee benefit plans of
Johnson Outdoors Inc. of our report dated December 11, 2009, with respect to the
consolidated financial statements of Johnson Outdoors Inc. included in the
Annual Report on Form 10-K for the year ended October 2, 2009, filed with the
Securities and Exchange Commission.
/s/ Ernst
& Young LLP
Milwaukee,
Wisconsin
December
11, 2009
Exhibit
31.1
Certification
of Chief Executive Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934
I, Helen
P. Johnson-Leipold, certify that:
| 1) | I have reviewed this Annual Report on Form 10-K of Johnson Outdoors Inc.; | |||
| 2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4) | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||
| 5) | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | |||
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||
|
Date:
|
December
11, 2009
|
/s/ Helen P. Johnson-Leipold | |
|
Helen
P. Johnson-Leipold
Chairman
and Chief Executive Officer
|
Exhibit 31.2
Certification
of Chief Financial Officer
Pursuant
to Section 302 of the Sarbanes-Oxley Act and Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934
I, David
W. Johnson, certify that:
| 1) | I have reviewed this Annual Report on Form 10-K of Johnson Outdoors Inc.; | |||
| 2) | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
| 3) | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |||
| 4) | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |||
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |||
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |||
| 5) | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): | |||
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |||
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. | |||
|
Date:
|
December
11, 2009
|
/s/ David W. Johnson | |
|
David
W. Johnson
Vice
President and Chief Financial Officer
Treasurer
|
Exhibit
32.1
Written
Statement of the Chairman and Chief Executive Officer
Pursuant
to 18 U.S.C. Section 1350
Solely
for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned
Chairman and Chief Executive Officer of Johnson Outdoors Inc. (the “Company”),
hereby certify that the Annual Report on Form 10-K of the Company for the year
ended October 2, 2009 (the “Report”) fully complies with the requirements of
Section 13(a) of the Securities Exchange Act of 1934 and that information
contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/
Helen P.
Johnson-Leipold
Helen P.
Johnson-Leipold
Chairman
and Chief Executive Officer
December
11, 2009
Written
Statement of the Vice President and Chief Financial Officer
Pursuant
to 18 U.S.C. Section 1350
Solely
for the purposes of complying with 18 U.S.C. Section 1350, I, the undersigned
Vice President and Chief Financial Officer of Johnson Outdoors Inc. (the
“Company”), hereby certify that the Annual Report on Form 10-K of the Company
for the year ended October 2, 2009 (the “Report”) fully complies with the
requirements of Section 13(a) of the Securities Exchange Act of 1934 and that
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
/s/ David W.
Johnson
David W.
Johnson
Vice
President and Chief Financial Officer
Treasurer
December
11, 2009
The above
certifications are made solely for the purpose of 18 U.S.C. Section 1350,
subject to the knowledge standard contained therein, and not for any other
purpose.